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We advised our clients in all stages of the national and EU state aid approval procedures,
including obtaining state aid clearance from the European Commission. This was the biggest
greenfield investment in the Czech Republic, supported by a record state aid package totalling
approximately ¼207m.

With the state aid matters being closely followed by the media, our combined team of lawyers in
our Prague and Bratislava offices worked with colleagues in Brussels to advise on the
development of this manufacturing project in the Czech Republic. Involved from the early
stages, our work included the negotiation of the incentives package with the Czech Government
and obtaining clearance from the European Commission.

The incentives package was unique in that the Czech authorities have never before agreed to
grant cash subsidies of this nature and scope to attract a major investor. The approval process
was completed within seven months of filing the notification, which was quick, given the size
and complexity of the project.

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The Prague headquartered target was a Central & Eastern European focused real estate
investment, development and asset management business, which primarily concentrates on the
construction, development and management of logistic warehousing. The acquisition enabled our
client to expand its existing portfolio and also its current business model, enabling it to derive
additional income from managing the properties concerned. Key employees and systems have
been transferred to our client as part of the transaction, requiring the consideration of
employment, tax and corporate governance issues.

The real estate acquired through the transaction included both yielding (fully developed) assets
and non-yielding development assets in the Czech Republic, Slovakia, Poland and Bulgaria. Our
due diligence was complicated due to the large scale of the assets, each comprising numerous
land plots.
This multi-jurisdictional transaction required extensive cooperation between our offices and also
involved cooperating with other professional advisors with respect to tax advice and local
counsel in each jurisdiction.

Investment Strategies in Emerging Markets.(Book

review)
By Catherine Sokil-Milnikiewicz | à

 
  - June, 2006

        Text Size 
Investment Strategies in Emerging Markets Saul Estrin and Klaus E Meyer (eds), Northampton, MA: Edward
Elgar, 2004, 371 pp.

This study investigates the determinants and implications of foreign investment strategies in four emerging
markets. The analytical framework for the case studies takes business strategy into account and addresses both
corporate and social outcomes of foreign direct investment (FDI). Drawing on a previous (2001) work of
theirs, the authors model the multinational firm's strategic choice about FDI as influenced by the business
environment in the host economy, specifically the level of institutional development, legal structure, policy
environment, and physical infrastructure. Firms may enter a market by a green field start-up, acquisition,
partial acquisition, or joint venture.

Egypt, India, South Africa, and Vietnam were selected as case studies because of their relatively similar FDI
experiences during the mid- to late-1990s. All four began as relatively closed economies with substantial state
involvement but had been significantly liberalised by the 1990s. Each country substantially increased its FDI
receipts during this period, though they are still not among the biggest recipients of FDI. The quality of the
labour force is fairly good in each of the four. At the same time, the countries differ substantially in their
cultural, geographical, and economic contexts--for example, South Africa is the only country with a trade
surplus. Socialist Vietnam had not yet established a stock exchange. These differences enrich the country
narratives.

The case studies analyse the characteristics and determinants of FDI as well as the implications for the local
economy and for public policy. With painstaking use of survey data from over 600 firms in the four countries,
the authors find that most foreign direct investments are small; they disproportionately occur in the financial
and service sector and they exhibit a regional pattern. Contrary to the authors' expectations--but perhaps not
readers'--they find that most FDI is motivated by access to markets rather than cost saving. Because of
relatively undeveloped capital markets and scarce acquisition targets, entry modes used are primarily green
field and joint venture. Outcomes of the FDI are highly contingent upon business strategies such as entry
mode, timing, and location.

The study is a valuable contribution to the literature on FDI, business strategy, and the case-study method. The
information is presented in a thorough, well-organised fashion. For each country studied, a survey chapter
presents the institutional and policy environment for FDI. Next, a chapter narrates the particulars of each
 multinational firm's joint venture experiences. Such well-known multinationals as Heinz in Egypt, Bacardi-
Martini in India, Behr and ABN Amro in South Africa, and Honda in Vietnam are included.

Each individual country chapter has been written by a university professor or researcher at firms and institutes
in the four countries. The editors supply introductory surveys of investment strategies in emerging markets and
comparative empirical results in the four countries studied. Their two concluding chapters summarise
implications for management research as well as for economic policy.

The most important conclusion for management research is that entry strategies in emerging economies are
primarily driven by changing global strategies. Multinational firms tend to focus on a particular industry with
the goal of global leadership in their chosen segment. FDI in a developing country serves this objective by
providing a global supply base or by extending market reach. In the concluding chapter on management
research, Meyer cites Heinz in particular as having changed its strategy by refocusing on a narrower product
line while strengthening its global operations within its sites in Egypt.

These case studies show that market-seeking foreign investors are most interested in large and fast-growing
economies. Again, a good example is the joint venture between HJ Heinz and Americana in Egypt. This
collaboration began as a green field project in which the Egyptian partner provided extensive knowledge of the
dynamics of the food processing industry in Egypt as well as important export markets in the Arab region. The
joint venture has included an agreement to allow Heinz Egypt exclusive rights to sell their products in Egypt,
Saudi Arabia, UAE, Qatar, Bahrain, Lebanon, Syria, Morocco, and Lebanon. One learns that Heinz Egypt
controls 90 percent of the ketchup market in Egypt, and brand name is one of the most important resources of
Heinz Egypt despite negligible advertising expenses. Americana has provided Heinz Egypt with guaranteed
demand from a growing fast-food sector as demand in Egypt 'is shifting rapidly away from traditional freshly
prepared, home-cooked food and towards processed food products' (p. 122). Knowledge transfer by Heinz
through machinery and training in technology and marketing has been a great benefit to the host economy.
Another spillover effect has been modernisation of tomato cultivation in Egypt by creating new forms of
cooperation between manufacturers and farmers, as well as introducing new seed varieties.

The authors make a number of important suggestions for future research. For example, the dynamics of
ownership patterns over the lifetime of an FDI project has rarely been explored in the literature. Similarly, the
phenomenon of acquisition of a foreign-owned operation by another foreign investor, though quite common in
emerging economies, has yet to be explored in the scholarly literature.

The depth of this study makes the material valuable to a wide variety of users, including scholar/researchers as
well as business professionals. However, for some audiences, it might have been helpful to include a summary
list of the case studies by type. Such information is partially tucked away in Chapter 11, on Conclusions for
Management Research, but could be expanded and clarified so as to be more useful to practitioners as well.
Nonetheless, all audiences stand to learn a great deal from this book.

Catherine Sokil-Milnikiewicz

Path Enterprises, New York, NY, USA