YUGOSLAV MULTINATIONALS ABROAD978-1-349-12128...Investing in the West (Affiliate) 102 C Questionnaire for the Attention of Yugoslav Firms Investing in Less Developed Countries (LDCs)

YUGOSLAV MULTINATIONALS ABROAD

Also by Patrick Artisien

JOINT VENTIJRES IN YUGOSLAV INDUSTRY

MULTINATIONALS AND EMPLOYMENT (with PeterJ. Buckley)

DIE MULTlNATlONALEN UNTERNEHMEN UND DER ARBEITSMARKT (with Peter J. Buckley)

*NORTIl-80UTH DIRECT INVESTMENT IN TIlE EUROPEAN COMMUNmES (with Peter J. Buckley)

YUGOSLAVIA TO 1993: BACK FROM TIlE BRINK?

Also by Carl H. McMillan

*MULTINATIONALS FROM TIlE SECOND WORLD: GROWTI:l OF FOREIGN INvEsTMENT BY SOVIET AND EAST EUROPEAN STATE ENTERPRISES

JOINT VENTIJRES IN EASTERN EUROPE: A TIlREE-COUNTRY COMPARISON (with D. P. St Charles)

TIlE EAST-WEST BUSINESS DIRECTORY

PLANNED ECONOMIES CONFRONTING TIlE CHALLENGES OF TIlE 19805 (with J. P. Hardt)

Also by Matija Rojec

NEW FORMS OF EQUITY INVESTMENT BY YUGOSLAV FIRMS IN DEVELOPING COUNTRIES (with M. SvetliciC)

INVESTMENT AMONG DEVELOPING COUNTRIES AND TRANSNATIONAL CORPORATIONS (with M. SvetliciC)

TECHNOLOGICAL TRANSFORMATION OF TIlE TIlIRD WORLD: PROGRESS ACHIEVED AND PROBLEMS FACED: CASE STUDY OF YUGOSLAVIA (with M. SvetliciC)

*Also published by Macmillan

Yugoslav Multinationals Abroad Patrick Artisien Lecturer in East European Economics University of Cardiff, United Kingdom Visiting Associate Professor, European Institute of Public Administration, Maastricht, The Netherlands Visiting Research Fellow, Centre for International Cooperation and Development, Ljubljana, Yugoslavia

Carl H. McMillan Professor of Economics Carleton University, Ottawa, Canada

and

Matija Rojec Senior Research Fellow, Centre for International Cooperation and Development, Ljubljana, Yugoslavia

Foreword by

Peter J. Buckley Professor of Managerial Economics University of Bradford Management Centre, England

M

© Patrick Artisien, Carl H. McMillan and Matija Rojec 1992 Foreword © Peter J. Buckley 1992

Softcover reprint of the hardcover 1st edition 1992

All rights re~erved. No reproduction, copy or transmission of this publication may be made without written permission.

No paragraph of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, 90 Tottenham Court Road, London W1P 9HE.

Any person who does any unauthorised act in relation to this publication may be liable to criminal prosecution and civil claims for damages.

First published 1992 by THE MACMILLAN PRESS LTD Houndmills, Basingstoke, Hampshire RG2l 2XS and London Companies and representatives throughout the world

ISBN 978-1-349-12130-4 ISBN 978-1-349-12128-1 (eBook) DOI 10.1007/978-1-349-12128-1

A catalogue record for this book is available from the British Library

This book is dedicated to the memory of Fred Singleton

Contents

List of Tables ix

Notes on the Authors xi

Foreword by Peter 1. Buckley xiii

1 INTRODUCTION AND OBJECTIVES 1 The Phenomenon of Yugoslav Direct Investment 2

2 CONTEXTUAL AND THEMATIC ASPECTS 5 Integration into the World Economy 5 Development of International, Inter-Firm Linkages 7 Growth of East European Foreign Direct Investment 9 The Special Character of the Socialist Multinational

Enterprise 17

3 YUGOSLAVIA IN THE WORLD ECONOMY 23 Evolution of Yugoslavia's Foreign Trade 23 Long-Term Cooperation with Foreign Partners 27 Yugoslav Industrial Activities Abroad 29 Origins and Evolution of Yugoslav Multinationals 30

4 PROFILE OF YUGOSLAV EXTERNAL INVESTMENTS 38 Geographical and Functional Distribution 38 Scale of Operations 43

5 METHODOLOGY 50 The Questionnaires 52 The Sample of Western Firms 52 The Sample of LDC Firms 54 Summary 55

6 YUGOSLAV INVESTMENTS IN THE WEST 56 Motivation 56 Success 60 Entry Strategy 62 Functional Control of Subsidiary 66

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viii Contents

7 YUGOSLAV INVESTMENTS IN THE THIRD WORLD 70 Motivation 70 Ownership Patterns 74 Problems and Reasons for Divestment 82

8 CONCLUSIONS AND FUTURE PROSPECTS 88

Appendices A Questionnaire for the Attention of Yugoslav Firms

Investing in the West (Parent Company) 93

B Questionnaire for the Attention of Yugoslav Firms Investing in the West (Affiliate) 102

C Questionnaire for the Attention of Yugoslav Firms Investing in Less Developed Countries (LDCs) 110

D List of the 40 Largest Yugoslav Enterprises, 1989 114

Notes 116

Bibliography 122

Index 125

List of Tables

2.1 Number and geographical distribution of Soviet and East European companies in the West, end of 1989 13

2.2 Distribution by activity of Soviet and East European companies in the West, end of 1989 14

2.3 Number and geographical distribution of Soviet and East European companies in LDCs, end of 1989 16

2.4 Distribution by activity of Soviet and East European companies in LDCs, end of 1989 17

3.1 Average annual percentage rate of real growth of Yugoslav social product, exports and imports, 1948-88 24

3.2 Changes in the structure of Yugoslavia's foreign trade, 1952-88 26

3.3 Yugoslavia's foreign trade by main region, 1984--9 27 3.4 Number of Yugoslav economic entities abroad,

end of 1988 33 4.1 Number, location and distribution by principal activity

of western subsidiaries of Yugoslav companies, 1987 39 4.2 Ownership structure of Yugoslav FDI in the West,

end of 1988 41 4.3 Number, location and distribution by principal activity

of representative offices of Yugoslav companies in the West, 1987 42

4.4 Number, location and distribution by principal activity of Yugoslav investments in LDCs, 1987 44

4.5 Ownership structure of Yugoslav FDI in LDCs, end of 1988 46

4.6 Performance indicators of Yugoslav firms abroad, 1983-8 48

4.7 Foreign trade conducted by foreign subsidiaries and affiliates of Yugoslav firms, 1983-8 49

4.8 Number of employees in 42 Western subsidiaries 50 5.1 Principal activity of 25 sample Yugoslav firms in

the West 53 5.2 Indicators of size of 15 largest sample Yugoslav

parent companies in LDCs, 1986 55 6.1 Motivation for foreign investment by Yugoslav firms 58

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x List of Tables

6.2 Profit Margins of Western Subsidiaries, 1987 61 6.3 Success indicators 62 6.4 Sources of information about Western host countries 65 6.5 Yugoslav personnel seconded to overseas subsidiaries 67 6.6 Decision-making in 8 key functional areas 68 7.1 Motives of Yugoslav investors in LDCs 72 7.2 Reasons for preferring a minority-owned

Joint Venture 76 7.3 Impact of legal constraints in 15 LDC host countries

on percentage share of equity in Yugoslav minority-owned Joint Ventures 78

7.4 Major problems of Yugoslav enterprises in developing countries 83

Notes on the Authors

Patrick Artisien has been Lecturer in International Business and East European Economics at the University of Cardiff, UK, since 1985. In 1990 he was appointed Visiting Associate Professor at the European Institute of Public Administration in Maastricht, The Netherlands, and Visiting Research Fellow at the Centre for International Cooper­ation and Development in Ljubljana, Yugoslavia.

Dr Artisien has taught at various levels in the UK, Canada, The United States, The Netherlands, Sweden, Yugoslavia and Turkey. He has also acted as Consultant to The World Bank, The Organiza­tion for Economic Cooperation and Development, The Economist and The International Labour Office.

His previous publications includeloint Ventures in Yugoslav Indus­try, Yugoslavia to 1993: Back from the Brink?, Multinationals and Employment (with Peter J. Buckley), Die Multinationalen Unternehmen und der Arbeitsmarkt (with Peter J. Buckley), and North-South Direct Investment in the European Communities (with Peter J. Buckley).

Dr Artisien is a Partner in the Consultancy firm P. A. & M. R. Investments, specialising in economic, political and financial risk analysis in Yugoslavia and Eastern Europe.

Carl H. McMiUan is Professor of Economics at Carleton University in Ottawa, Canada, where he also teaches on the graduate program­mes in business and international affairs. For a number of years, he served as Director of Carleton's Institute of Soviet and East Euro­pean Studies. His published work has been addressed to various aspects of the foreign economic relations of the countries of Eastern Europe, including the Soviet Union.

Professor McMillan is the general editor of the annual East-West Business Directory, a listing of contact points in the OECD countries for the conduct of business with Eastern Europe and the Soviet Union. His most recent books are Multinationals from the Second World: Growth of Foreign Investment by Soviet and East European State Enterprises, and Planned Economies: Facing the Challenges of the 1980s (co-edited with J. P. Hardt).

Matija Rojec is Senior Research Fellow at the Centre for Inter­national Cooperation and Development in Ljubljana, Yugoslavia. In

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xii Notes on the Authors

1989 he was appointed Head of the Centre's Foreign Direct Invest­ment Department.

Mr Rojec is permanent adviser to the Yugoslav Government in the area of foreign direct investment. He has also acted as consultant to the OECD and the United Nations.

His recent publications include New Forms of Equity Investment by Yugoslav Firms in Developing Countries (with M. SvetliCic), Invest­ment among Developing Countries and Transnational Corporations (with M. Svetlicic), and Technological Transformation of the Third World: Progress Achieved and Problems Faced: Case Study of Yugo­slavia (with M. Svetlicic).

Foreword by Peter J. Buckley

The academic study of multinational companies has evolved along with (some would say behind) the development of the firms them­selves. The pioneering efforts were largely attempts to explain the outward expansion of firms from the USA, particularly to Europe. l It was noticed from the beginning that other countries, notably those of Western Europe, had a long tradition of foreign investment and had, possibly, evolved different structures of organisation and decision making.2 Attempts to provide all-embracing explanations of the growth of multinational companies3 soon had to contend with the challenge of Japanese multinationals, especially since some commen­tators believed that Japanese firms required a separate explanation.4

So far, the phenomenon of multinationals had been treated as a phenomenon of developed capitalist economies with socialist and Third World countries existing only as host countries. However, their role as source countries was soon recognised in a number of studies which pointed to their unique skills as adaptors, transferors and conduits of capital, skills and technology.5

A further direction of enquiry has led the study of multinationals away from its implicitly exclusive attention on manufacturing indus­try and towards services.6 This is true in two senses. First, service industries themselves have become the focus of attention, notably banks, travel and tourism companies, shipping, advertising agencies, accountants and consultancy companies. Second, the role of multi­nationals in internal service provision has become recognised as a key feature of competitiveness. The provision of transport, agency ser­vices, finance, skills, consultancy and, more generally, informa­tion has enabled internal trading to be seen as a crucial competitive asset. These features are echoed in the text which follows.

This book by Artisien, McMillan and Rojec thus stands in a long tradition of refinement of the understanding of the nature and conse­quences of the multinational enterprise. Its empirical, questionnaire­based approach is firmly in the Bradford tradition of direct enquiry of

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xiv Foreword

executives of foreign ventures. 7 This form of enquiry is particularly appropriate when issues of motivation and management choice are being addressed. As can be seen from the text below, it is possible to make fine differentiations between classes of strategy when questi03-naires are skilfully and carefully administered.

This study has been conducted at a time of profound change in what used to be termed Eastern Europe. McMillan has previously shown that firms from 'the Second World' were active foreign inves­tors and his findings are reprised in Chapter 2 of this book. Restric­tions on inward investments into these countries led to the absurd position that East European countries were actually net exporters of capital to Western Europe! Yugoslavia's unique system of economic organisation and management provides a variant on the approaches adopted by other countries in managing external economic relations. Its outward ventures, as our authors show, are heavily concentrated in representative offices, agency functions and service management to enable trade and travel to take place. Much of this activity is aimed at increasing manufacturing and service provision in Yugoslavia and enabling it to reach a wider market. The study thus links to the trend in examining so-called 'new forms of international operation', which, as the authors point out, are not terribly new in the East-West context.8 The important feature here is that the new forms are employed by Yugoslav foreign investors.

Outward ventures by Yugoslav firms are directed both to devel­oped market economies and to Third World locations. The task for Yugoslav firms in developed economies is to establish a market niche, based on their special skills in adapting technology and in creating a market for labour-intensive products. Ironically, this is a particularly difficult niche to enter and their success cannot yet fully be judged. As the authors show, some considerable bridgeheads in particular Third World countries have been established with some­times spectacular results and the role of Yugoslavia as an intermedi­ary along the lines of Singapore (in a different context) may well be an avenue for development. 9 The authors show that Yugoslav companies have a facility for flexibility, notably in their willingness to establish minority ventures and that this, combined with an appropri­ate set of choices of modes of doing business abroad, may provide useful foreign-earnings capabilities for the companies.

Foreword xv

This careful empirical study thus promotes the cause of advancing the distinctions and differentiations amongst forms of foreign ven­tures which are necessary in the understanding and management of multinational firms.

Peter J. Buckley Professor of Mal/,ageriai Economics

University of Bradford Management Centre