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INVESTIGATING GREEK MULTINATIONALS’
BEHAVIOUR: IDENTIFYING OPPORTUNITIES,
OVERCOMING BARRIERS AND CREATING
COMPETITIVENESS
Fragkiskos Filippaios
Kingston University London
&
London School of Economics
London, October 2009
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Outline
Rational – Contribution
The case of Greece: Where do we stand?
Identifying Opportunities – Overcoming Barriers
– Greek FDI Abroad
– Factors affecting Greek FDI
Creating Corporate Competitiveness
– Conceptual Framework
– Data
– Results
Managerial Implications and Policy Recommendations
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Rational
International Business
– Corporations are in a continuous search for creating and
sustaining advantages that will provide a competitive edge
Strategic Management
– Changes that a corporation has to undergo, especially with
respect to its internal environment in order to respond to a
changing and dynamic external environment
A bridge between the two...
Why Greece?
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The case of Greece as an outward investor
Key regional player and one of the largest investors in the Central
and Eastern and South Eastern European Countries (Bastian, 2004;
Demos, Filippaios, & Papanastassiou, 2004; Kekic, 2005)
Current developments in the region have changed the role of
domestic subsidiaries (Manolopoulos, Papanastassiou, & Pearce,
2005; Stoian & Filippaios, 2008)
This process was enhanced by Greek policies aiming to transform the
country into a key player for the region.
– The ‘Greek-Balkan Reconstruction Plan’, offering almost 500 million
euros, is an indicative policy fulfilling that aim (Hellenic Centre for
Investment , 2005).
– Furthermore, this expansion has been facilitated by the upgrading of the
Athens Stock Exchange (ASE) from a developing to a developed financial
market, i.e. a reliable source for raising funds.
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Greek firms grabbed the opportunities and expanded
rapidly in the newly opened markets:
Albania - it was the second largest investor after Italy at the end of
2001 (WIIW, 2005)
Romania - Greece was the second largest investor at the end of
2003 following the Netherlands (WIIW, 2005)
Bulgaria - Greece on the third position following Germany and
Austria (WIIW, 2005)
FYROM - it was the second investor following Hungary (WIIW, 2005)
Moldova - Greece holds the seventh place (WIIW, 2005)
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The Greek investment occurred through two channels:
First, Greek subsidiaries of multinational enterprises started
internationalising.
– Firms such as 3E, a Coca- Cola soft drinks subsidiary, Delta, partner of
Danone, Intracom, a partner of Siemens working in telecommunications,
Chipita, a PepsiCo food subsidiary and many others started investing
abroad, thus becoming regional headquarters.
– This strategic change appears to be verified by a prior study of Pantelidis
and Kyrkilis (1994) where they argue that ‘it is possible for foreign
subsidiaries to readjust their market strategies along time and in
accordance with changing conditions’.
Second, purely domestic firms, ranging from small entrepreneurial to
large traditional firms, seized the opportunities and engaged in foreign
production by using their accumulated experience and expertise.
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Explaining Greek FDI abroad
Until now only a few attempts were made in the international literature with a
seminal one from Petrochilos (1988). Almost all studies are either purely
descriptive or do not go beyond the analysis of specific case studies.
For a long time, the lack and inconsistency of FDI data dissuaded scholars
from examining the Greek case.
– The adoption from Bank of Greece of the New Balance of Payment System since
1996, gives us the opportunity to inspect the locational determinants of inward FDI
in Greece from 1996-2001, for different sectors and a range of investing countries.
Previous studies (Demos, Filippaios & Papanastassiou, 2004; Filippaios &
Stoian, 2006; Stoian & Filippaios, 2008; Filippaios, 2008) showed that
traditional factors (size of the economy, as well as its openness are
significant) attracting FDI seem to dominate the decision process of Greek
firms. Capital productivity and labour costs on the sectoral level are also
influencing the decision of Greek investors.
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Factors affecting Greek FDI
Opportunities
–
–
–
–
Low labour costs
Existence of well educated labour force (tertiary education)
Rule of law
Democratic accountability
Barriers
– High GDP per capita
– High public debt
– Existence of unskilled or semi-skilled labour force (secondary
education)
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Literature
The main responsibility for corporate competitiveness
lies with corporations themselves, in developing and
building capabilities more effectively than competitors
(Barney et al. 2001, Barney, 1991; Bartlett and Ghoshal, 1989; Doz and Prahalad,
1987; Hamel and Prahalad, 1989, Grant; 1991; Smith, 1995)
One could distinguish the factors influencing
competitiveness into external ones, over which firms
have limited or no control whatsoever, and internal
ones that are completely under the control of firms
(Fayerweather, 1978; Kobrin, 1976)
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Competitiveness of locations
It is changing constantly
Use of IMD World Competitiveness Yearbook
– It is the world’s most thorough and comprehensive annual report
on the competitiveness of nations, published without interruption
since 1989
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Rank loss / gain by IMD Index in the 2002 – 2006 (five year period)
Country
Austria
Belgium
Denmark
Finland
Germany
Luxemburg
Netherlands
Sweden
United Kingdom
France
Greece
Ireland
Italy
Portugal
Spain
Overall
Competitiveness
indicator
+2
-7
+1
-7
-8
-7
-11
-2
-4
-5
0
-2
-14
-4
-8
Economic
Performance
Indicator
-6
-18
-17
-9
-15
0
-10
-6
-2
-7
-6
-1
-18
-12
-13
Government
Efficiency
indicator
+3
+4
+4
-4
-3
-12
-1
-5
-3
-4
+1
+3
-9
-7
-12
Business
Efficiency
Indicator
+8
-5
+9
-7
-5
-11
-12
+2
-6
-7
-12
-2
-16
-8
-7
Infrastructure
Indicator
-1
+5
+2
-4
+1
-4
-7
-2
-2
-5
+3
-3
-5
+4
-1
Source: IMD, Various Years and Authors’ Calculations
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Conceptual Framework - Corporate Motivations
Resource Seeking
Market Seeking
Efficiency Seeking
Strategic Asset Seeking
(Berhman, 1984; Dunning, 1993; Filippaios et al., 2004)
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Locational Characteristics
Low Added Value
High Added Value
Conceptual Framework
Traditional (RS, MS)
Sophisticated (ES, SAS)
Corporate Motivations
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Conceptual Framework - Hypotheses
H1a: Corporate competitiveness will be positively related
with resource seeking motivation in manufacturing
upstream industries
H1b: Corporate competitiveness will be positively related
with market seeking motivation in manufacturing
downstream and services industries
H2a: Corporate competitiveness will be positively related
with efficiency seeking motivation in mature
manufacturing industries
H2b: Corporate competitiveness will be positively related
with strategic capability seeking motivation in high tech
manufacturing and services industries
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Questionnaire Administration
Questionnaire posted to 110 enterprises with a
developed process of internationalisation in the last
ten years.
70 questionnaires were filled out by companies
presidents, managing directors and executives.
The research took place in the period between 20
September 2006- 20 January 2007.
From a total of 110 companies, 70 answered (64%
response rate)
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The survey dealt with:
The incentives, strategies and barriers that Greek
companies faced when exploring setting up and
operating an affiliate/subsidiary company abroad
The incentives, strategies and barriers that Greek
companies faced when developing only an export
activity
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The parameters that have been examined in the
survey were:
The internationalization incentives
The benefits from the internationalisation
development actions
The strategies that the Greek internationalised
companies are following
The barriers that the companies are facing in their
involvement in new markets
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Data and Sample description (Survey)
70 firms from all industrial sectors.
– 66% of companies are members of Federation of Industries of
Northern Greece (FING)
– 33% members of Federation of Greek Industries (SEV)
Two considerations:
– The sample should be representative of the Greek case
– Additional data could be combined with the data from public
sources
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Data and Sample Characteristics
All companies are SMEs (<250 employees)
Average Turnover is 16,3 mil €
Average Profits (before taxes) are 1 mil €
Average employees size is 125 employees
Average Age is 26 years
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Data and Sample description (Secondary data)
Data capturing the external environment come from a
combination of two databases:
Economist Intelligence Unit (key macroeconomic
data)
World Development Indicators (structural
characteristics of the economies)
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Methodology
Our dependent variable is an ordered discrete
variable measuring corporate competitiveness
Takes values from 1 (low) to 5 (high) for the two time
periods (2002 and 2006) and for the different
countries under investigation
Ordered logit model (Maddala, 1983)
Use firm and time effects for our estimations and
separating thus the individual effect of companies
from our results (Carro, 2006; Honore and
Kyriazidou, 2000)
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Factors affecting the overall corporate
competitiveness
Market
– GDPGR (+)
– GDPPC (+)
Efficiency
– Labour costs (-) (Not always significant)
– Infrastructure (+)
Strategic asset seeking
– Education, primary and secondary (+)
Not significant
–
–
–
–
Trade openness
Education, tertiary
Royalties and fees
International trade taxation
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Ordered Logit estimation of External factors influencing
competitiveness (Dependent variable: Corporate competitiveness)
GDPGR
GDPPC
ULCCH
TRABAL
LPRI
LSEC
LTERT
Model 1
Model 2
Model 3
Model 4
0.619***
0.536***
0.549***
0.377***
(0.059)
(0.063)
(0.066)
(0.117)
0.003***
0.004***
0.005***
0.004*
(0.001)
(0.001)
(0.002)
(0.001)
-0.034*
-0.030
-0.029
-0.035
(-0.020)
(-0.019)
(-0.021)
(-0.024)
0.001
0.001
0.001
0.001
(0.001)
(0.001)
(0.001)
(0.001)
0.113**
0.112**
0.120**
0.243*
(0.044)
(0.045)
(0.056)
(0.136)
0.080**
0.083**
0.089*
0.203*
(0.040)
(0.041)
(0.052)
(0.121)
0.053
0.061
0.066
0.207
(0.040)
(0.041)
(0.053)
(0.126)
0.019***
0.017***
0.024***
(0.005)
(0.005)
(0.007)
0.008
0.019
(0.013)
(0.018)
MOBS
RLFEES
TAXINTTRADE
-0.034
(-0.044)
Number of Obs
Wald Chi2
Pseudo R2
Akaike Info Crit
640
138.3
0.0978
1459.052
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640
143.51
0.1061
1447.878
640
147.2
0.112
1393.847
640
114.49
0.1047
1078.713
Manufacturing
Services
GDPGR (+)
GDPGR (+)
Labour Costs (-)
GDPPC (+)
Infrastructure (+)
Education (+)
Infrastructure (+)
Royalties and Fees (+)
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Ordered Logit estimation of External factors influencing competitiveness by
Manufacturing and Services (Dependent variable: Corporate competitiveness)
GDPGR
GDPPC
ULCCH
TRABAL
LPRI
LSEC
LTERT
MOBS
RLFEES
TAXINTTRADE
Number of Obs
Wald Chi2
Pseudo R2
Akaike Info Crit
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Manufacturing
Services
0.280*
0.340*
(0.153)
(0.201)
-0.001
0.005***
(-0.001)
(0.001)
-0.061*
-0.013
(-0.034)
(-0.042)
-0.001
0.004
(-0.001)
(0.003)
0.294
0.647**
(0.184)
(0.325)
0.248
0.565*
(0.162)
(0.29)
0.261
0.583*
(0.167)
(0.312)
0.031***
0.018*
(0.011)
(0.011)
-0.001
0.045*
(-0.025)
(0.024)
-0.041
-0.009
(-0.062)
(-0.053)
460
58.15
0.082
711.159
180
99.39
0.204
363.391
Recommendations
Outward FDI
– Understanding of who, when, why (3W)
– Support of Greek entrepreneurs – SMEs as
well as larger corporations
– Efficient and effective use of expansion abroad
through the acquisition of knowledge
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Managerial recommendations
Key finding:
– Before any investment abroad there should be a
carefully examination between the corporate
motivations and the possible future changes in the
external/country environment
– If the corporate motivations are not fully aligned with
changes in the local environment, either due to
miscalculation of the changes or in many cases
changes in government policies, this can create
problems to the corporate goal for competitiveness
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Policy Implications
There is always scope to create flexibility in the
labour markets and the necessary conditions for
lower wages
Important is the existence of:
– A strong local market
– Human skills
– Well developed infrastructure
Policy makers should focus on:
– Education, infrastructure building and possibly on creating enough
buying power for the local consumers.
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Limitations
Single country study when it comes to the country of
origin
Measure of competitiveness is not an objective one
but rather measures the managers’ perceptions on
their corporation and therefore it might be in some
cases overvalued.
Data selected for the independent variables could be
further expanded to capture also institutional factors
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Further Research
Add corporate characteristics
This will eventually give us a more complete and
coherent picture of the interrelation between:
Internal (corporate) environment
External (country) environment
...in creating competitiveness
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THANK YOU
Any Questions?
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Results
Dependent: FDI Flows Normalised by GDP
GDP Per Capita
-0.101**
(0.041)
(0.043)
(0.134)
-6.808**
-6.261**
-4.590
(3.153)
(2.642)
(11.312)
-0.945
-3.291
2.425
(2.828)
(5.565)
(20.902)
-12.515**
-11.267
-12.865*
(5.008)
(7.514)
(7.290)
Unit Labour Cost
Trade Balance as % of GDP
Secondary Education
Enrollment
-0.127
-0.102**
Tertiary Education
Enrollment
Public Debt over GDP
Socioeconomic Conditions
Corruption
Rule of Law
Democratic Accountability
Ethnic Tensions
17.213*
16.948
17.197
(9.679)
(10.306)
(36.257)
-4.778**
-5.230***
-7.338**
(2.014)
(1.716)
(3.357)
6.844
6.265*
6.326
(4.159)
(3.292)
(6.732)
-3.197
-2.578
-1.180
(3.703)
(4.333)
(6.845)
2.566*
1.984
3.927
(1.413)
(2.963)
(4.090)
1.093**
1.039*
1.024***
(0.443)
(0.547)
(0.379)
-1.08383
-0.898
-1.212
(0.83470)
(1.344)
(2.507)
Distance form Greece
0.118
(0.357)
Marginal Corporate Taxation
-5.394
(11.093)
Number of Observations
Adjusted R-square
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648
0.932
648
0.855
648
0.853
Table 2. Variable Description and Sources
Variable
Description
Source
Competitiveness as captured by survey responses
Authors’ questionnaire
Real Gross Domestic Product Growth (% pa)
Economist Intelligence Unit
GDP per head (US $ at PPP)
Economist Intelligence Unit
Unit Labour Costs (change per annum)
Economist Intelligence Unit
Trade Balance
Economist Intelligence Unit
Labour Force with Primary Education (% of Total)
World Development Indicators
COMPET
GDPGR
GDPPC
ULCCH
TRABAL
LPRI
Labour Force with Secondary Education (% of World Development Indicators
LSEC
Total)
Labour Force with Tertiary Education (% of Total)
World Development Indicators
Mobile Phone Subscribers (per 100 people)
World Development Indicators
LTERT
MOBS
Royalties and Fees Payments over Royalties and World Development Indicators
Fees Receipts ( $ PPP)
RLFEES
Taxes on International Trade (% of Public Revenue) World Development Indicators
TAXINTTRADE
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