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1final Sardorbek Ismoilov Factors Contributing FDI Inflow To Andijan Region of Uzbekistan - 1
1final Sardorbek Ismoilov Factors Contributing FDI Inflow To Andijan Region of Uzbekistan - 1
Sardorbek Ismoilov
February 2020
Factors Contributing to FDI Inflow in the Andijan
region of Uzbekistan
by
Sardorbek Ismoilov
Supervised by
Professor Sung Keuk-Je, Ph.D
Thesis committee:
Even though it shows only my name on the cover of thesis, a lot of people and
organizations made large contributions in completing my Master’s Degree program in
Korea. I would like to express my gratitude and thanks to Korea International
Cooperation Agency (KOICA), Graduate School of Pan-Pacific International Studies
(GSP) of Kyung Hee University, Ministry of Investment and Foreign Trade of
Uzbekistan and Uzbekistan Embassy in South Korea. Their guidance and assistance
made my life in Korea effective and successful. I would like to thank Professor Sung
Keuk-Je, for his exceptional guidance and support as my thesis advisor. His constructive
ideas and critical feedback enabled me to succeed. I am also thankful to Professor
Sharon L. Morrison for her wonderful guidance and advice throughout thesis writing
process. I also extend thanks and respect to all professors of GSP for equipping us with
knowledge and skills. My special thanks to all respondents of my survey for their
patience and cooperation in filling the questionnaire, and my appreciation to my
colleagues from Andijan regional investment and foreign trade department for their
effort in collecting data. Finally, my deepest gratitude and thanks to my MIT 2018
colleagues for being one body, one spirit and one team in overcoming all difficulties
together during our study.
Abstract
This paper explores the factors contributing FDI inflow based on a survey of 152
foreign-invested enterprises located in Andijan region of Uzbekistan. The results indicate
strong existence of market seeking and resource seeking motives, while having weak
presence of efficiency seeking motive. Moreover, it has been investigated
predominantly orientation of firms in local market utilization. There are no significant
problems that have been faced by surveyed enterprises, but it has been observed weak
existence of some problems such as lack of infrastructure, bureaucracy, corruption and
unsatisfactory economic environment. The factors such as local market utilization and
having access to regional market (CIS) have been observed as significant in
accomplishment of FDI intention. The factor of technology transfer has been evaluated
by local partners as the most important motive in attracting FDI while they expect more
from foreign investors in securing export market.
Table of contents
Acknowledgement............................................................................................................................i
Abstract...........................................................................................................................................ii
List of Tables..................................................................................................................................iv
List of Figures..................................................................................................................................v
1. Introduction.............................................................................................................................1
2. Theoretical framework and Literature review.........................................................................3
2.1. FDI theories.....................................................................................................................4
2.1.1. The Eclectic Paradigm Theory of International Production (OLI)..........................4
2.2. Literature Review of Empirical Studies on Determinants of FDI in the CIS..................7
2.2.1. Resource-seeking FDI.............................................................................................8
2.2.2. Market-seeking FDI.................................................................................................8
2.2.3. Efficiency-seeking FDI............................................................................................9
3. Research Methodology..........................................................................................................13
3.1. The scope of the study and data source..............................................................................13
3.2. Data collection procedure and methods of analysis...........................................................13
4. FDI inflows in CIS................................................................................................................15
5. Results and Discussion..............................................................................................................18
5.1. The Nature of the respondents............................................................................................18
5.2. Source country of FDI inflow.............................................................................................20
5.3. Types of ownership in Andijan region of Uzbekistan........................................................22
5.4. Location of the foreign owned companies..........................................................................23
5.5. Company profile.................................................................................................................24
5.6. Economic activity sector....................................................................................................26
5.7. Motives to invest to Andijan region of Uzbekistan............................................................27
5.7.1. Market seeking............................................................................................................28
5.7.2. Resource seeking.........................................................................................................28
5.7.3. Efficiency seeking.......................................................................................................29
5.8. Accomplishment of FDI intention......................................................................................29
5.9. Investors’ major problems..................................................................................................34
5.10. Motives to attract FDI.......................................................................................................35
5.11. Achievement in attracting FDI.........................................................................................36
6.1. Conclusion.....................................................................................................................40
6.2. Recommendations.........................................................................................................41
Appendix 1. Survey results............................................................................................................44
References......................................................................................................................................50
List of Tables
Table 2. 1 Studies on FDI determinants in the CIS and its relation to character of investment
decision................................................................................................................................................................
Table 5. 1 Source country of FDI Inflow...........................................................................................................
Table 5. 2 Company profile..............................................................................................................................
Table 5. 3 Economic activity sector of surveyed companies............................................................................
Table 5. 4 The accomplishment of FDI motivation by economic sectors.........................................................
Table 5. 5 Correlations/Spearman's rho/ of evaluated accomplishment of FDI intentions to firm
level variables..................................................................................................................................................
Table 5. 6 Correlations/Spearman's rho/ of evaluated local partners’ achievement of FDI
attraction to firm level variables......................................................................................................................
List of Figures
Figure 2. 1 Theoretical framework on Factors Contributing FDI inflow............................................................
Figure 4. 1 Net inward FDI inflows to CIS countries and Georgia mln. USD, 1995-2018...............................
Figure 4. 2 FDI stock per capita in CIS in 2018................................................................................................
Figure 5. 1 Age of respondents..........................................................................................................................
Figure 5. 2 Types of foreign owned companies in Andijan region of Uzbekistan...........................................
Figure 5. 3 Location of foreign owned companies in Andijan region of Uzbekistan........................................
Figure 5. 4 The years of foundation of surveyed foreign owned companies in the region...............................
Figure 5. 5 Motives to invest.............................................................................................................................
Figure 5. 6 Accomplishment of FDI intention...................................................................................................
Figure 5. 7 Assessment of major problems faced by investors..........................................................................
Figure 5. 8 Motives to attract FDI.....................................................................................................................
Figure 5. 9 Achievement in attracting FDI........................................................................................................
1. Introduction
This chapter includes the theoretical basis of the factors contributing to FDI
inflow and a literature review on empirical studies in the CIS region on which key FDI
determinants explain the investment of multinational companies in a given location. The
region was considered the most likely to attract FDI. So, this preliminary literature
review addresses the four most common investment motivations of location-based FDI:
resource seeking, market seeking, efficiency seeking and strategic asset seeking
(Dunning 1993). Multinational enterprises arrive at decisions to undertake FDI in
another country depending on the firm’s competitive advantages with regard to the
above four types of investment motivations.
A lot of theories have been developed to define the determinants of FDI. These
theories could be grouped into two: micro and macroeconomic approaches.
Microeconomic theories include factors characterizing the firm itself such as market
imperfection, cost reduction, economies of scale, ownership advantages. Macroeconomic
theories concern market-specific factors, such as barriers to entry, political stability,
availability of resources, market size, country risk (Faeth 2009). Theories such as
product cycle and internalization are considered in this group. There is also another set
of theories in terms of motives of FDI. They are market seeking, natural resource
seeking, efficiency seeking and strategic asset seeking. And these theories are aimed to
identify determinants of FDI and their impact on FDI. And all these factors are included
in Eclectic theory (Dunning 1993).
2.1.1. The Eclectic Paradigm Theory of International Production (OLI)
Dunning (1993) introduced the Eclectic Paradigm theory in economics which is
also known as OLI model or OLI framework. The eclectic paradigm provides a three-
tiered framework for a company to follow when determining if it is beneficial to pursue
FDI. Dunning’s eclectic paradigm brings together several complimentary theories such
as internalization theory and traditional trade theories determining variables that shape
the activities of multinational firms (Dunning and Lundan 2008) and systematizes the
benefits for companies that operate internationally, connecting them to the chosen entry
modes (Faeth 2009). The eclectic paradigm theory is the most holistic framework that
attempts to answer to the questions of FDI such as why, where and how. Based on the
theory, before making FDI, three advantages should be fulfilled: Ownership (O)
advantage, Location (L) advantage and Internalization (I) advantage. Ownership
advantages include knowledge, skills, capabilities, relationships, or physical assets that
the firm owns and which are the basis of its competitive advantages. These advantages
are usually concerned about modern technologies, exclusive productive processes, brand
name, patents, managerial skills, know-how that can generate profits in the future
(Dunning and Lundan 2008).
Internalization advantages address the how of FDI and it is the case when a
company looks for benefits to internalize its advantages rather than producing thorough
partnership arrangements: licensing, joint venture or other contracts. Location advantage
is the extent of foreign activity in which companies choose to locate value-adding
activities. Location is important when a company benefits in a foreign market from
conditions such as lower transport and production costs, the existence of raw materials,
market size, special taxes and tariffs. This advantage makes a firm to undertake FDI
rather than exporting. The selection of a particular location is therefore based on specific
conditions (Ietto-Gillies 2005). Location advantages belong to country particular. For
that reason, this research concentrates on identifying factors contributing FDI inflows to
the host country.
Every company before undertaking FDI seeks for better locations with various
factor endowments. Choosing a better location is based on the FDI motives. According
to Dunning (1993), there are four motivations for multinational companies to invest in a
foreign country. They are: market-seeking, resource-seeking, efficiency-seeking and
strategic asset seeking.
Resource-Seeking investments establish access to natural resources, agricultural
production, cheap labour or other input factors. Historically, the opportunity of existing
natural resources in a host country has been the most significant determinant of FDI.
Nevertheless, by itself, the availability of natural resources is not sufficient for FDI to be
undertaken. If the host country has a comparative advantage in natural resources, it is
better to trade rather than to undertake FDI (Banian, Cukrowski and Herczynski 2002).
Investment takes place when resource-abundant country doesn’t have enough capital to
extract the resource. Other reason could be insufficient technology and skills to extract
raw materials or sell them to the other countries of the world (Dunning 1993).
Additionally, infrastructure facilities should be available or needed to be created in order
to make export of raw materials (UNCDAT 1998). Most manufacturing and service
multinational companies (MNCs) undertake labour-seeking investment because of high
labour costs in home countries. They establish or acquire subsidiaries in host countries to
supply labor-intensive intermediate or final products. In order to attract FDI in such
kind of production, host countries usually set up free trade or export processing zones
(Dunning 1993).
Market-seeking investments enter an existing market or establish a new market.
In this case, the investment is carried out on market determinants, such as market size,
market growth and per capita income. For MNCs, entering new markets give an
opportunity to stay competitive, expand within the business and achieve economy of
scale. Efficiency-seeking FDI is undertaken in order to minimize production costs. It
usually takes place after the realization of resource-seeking or market-seeking
investments. An efficiency-seeking MNC takes advantage of factor endowments, such as
cultures, economic systems and policies, institutional arrangements and physical
infrastructure (Dunning 1993).
Strategic-seeking investments improve the performing ability of the acquiring
firm in view of long term competitiveness in home and third country markets. The main
performance indicators are upgrading technology, organizational change in the parent
organization, products or brands of acquired firms being sold successfully outside the
host country (Cui, Meyer and Hu 2014). Strategic asset seeking FDI is usually
considered in terms of tangible and intangible assets, such as patents or brands. This
motivation is likely undertaken between advanced economies, or perhaps in South-North
investments, but is not obviously relevant to transition economies (Estrin 2014).
The theoretical framework of the research is based on the three investment
motivations: resource-seeking, market-seeking and efficiency seeking (Figure 2.1.).
Figure 2. 1 Theoretical framework on Factors Contributing FDI inflow
Market-seeking Efficiency-
Resource-
motive seeking motive
seeking motive
Market size Research and
Natural
development
resources
Access to regional
Cheap labor market (CIS) Agglomeration
The abundance of natural resources has been one of the most significant FDI
determinants in the CIS. According to Shiels (2003), until the early 2000s, FDI in the
CIS was related to natural resources, such as extraction, construction of pipelines that
transport energy resources, large privatizations and debt-equity swaps for energy
supplies. The weak investment climate at that time was only because of unfinished
structural reforms. Campos and Kinoshita (2003) have also found the strong resource-
seeking motivation of FDI in the CIS, while this factor was not key motivation in the
other transition economies.
According to IMF estimates, oil and gas industries in Azerbaijan were the main
targets of FDI which the share was between 75% and 82 %, while the other share was
also in gas and oil industry. (Tondel 2001). He adds that, until 2006, the majority of FDI
inflow in Georgia was concentrated to transportation of energy resources such as
construction of pipelines. Kazakhstan was the second country in the CIS after Azerbaijan
in attracting FDI, which most investments have been directed to the natural resources
sector. According to Rogachova and Mikerowa (2003), and Ledayeva (2007), the
abundance of energy resources has shown as an important factor of FDI. Ledayeva
(2007) has observed that after the Russian financial crisis in 1998, the presence of large
cities, availability of natural resources such as oil and gas, and legislative risk has
increased, while the importance of seaports and political risk has decreased.
that resource-seeking and market-seeking motives prevail in this region, while some
Table 2. 1 Studies on FDI determinants in the CIS and its relation to character of
investment decision
Azizov, 2007 1992- CIS Random Resource- Natural resources, EBRD index of
2005 effects panel seeking, market size large
data model market- privatization
seeking
Campos and 1990- CEE, panel data Resource- Natural resources Restrictions on
Kinoshita, 1998 Baltic, CIS modelling seeking profit remittance
2003 technique abroad, high
labour cost
Johnson, 2006 1993- CIS A fixed Resource- Natural resources, Limited local
2003 effects panel seeking, market size demand, slow
data model market- transition
seeking process,
corruption
Shiells, 2003 1996- CIS Descriptive Resource- Natural resources Tax system,
2001 analyses seeking corruption,
extensive state
intervention,
weak legal,
regulatory
frameworks,
incomplete
structural
reforms
Tast, 2014 2004- CIS, CEE Statistical Resource- Natural resources, Corporate
2011 analysis of seeking cheap labour income tax,
the linear work force
correlation expenses
average monthly
salary
This study aims to determine factors contributing FDI inflow to Andijan region of
Uzbekistan and analyzes how business environment effects investors. The methodology
for this study has been the primary data collection through survey questionnaire and
document analysis. The method that was used to this study gives an opportunity to find
out motives and impediments of FDI inflow in a short period of time. Based on these
objectives, the current chapter of the paper presents the scope of the study, source of
data, procedure of data collection and methods of data analysis.
FDI inflows to CIS countries after the collapse of Soviet Union remained low till
2002. Financial crisis in 1997 had negative effect on the economies of the region,
especially Russia which kept low FDI inflows to further years. Russia is considered the
biggest economy and largest recipient of FDI flows among CIS countries. From the
figure 4.1., we can observe increase of economic activity in 2002 until World Financial
and Economic Crisis in 2008. After the crisis, FDI flows to CIS continued on steep
downward trend till 2018. It is noticeable that the contraction in FDI flow to Russia was
halved from 26 billion USD in 2017 to 13 billion USD in 2018. The other large
recipients of FDI such as Azerbaijan, Kazakhstan, Ukraine and Georgia also experienced
decline in flows of 2018, except Armenia, Belarus, the Republic of Moldova, Tajikistan
and Uzbekistan (UNCDAT 2019).
Figure 4. 1 Net inward FDI inflows to CIS countries and Georgia mln. USD, 1995-2018
Source: UNCDAT 2019
90000
80000
70000
60000
50000
40000
30000
20000
10000
0
5 6 7 8 9 0 1 2 3 4 5 6 7 8 9 0 1 2 3 4 5 6 7 8
-10000 99 99 99 99 99 00 00 00 00 00 00 00 00 00 00 01 01 01 01 01 01 01 01 01
1 1 1 1 1 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2 2
As can be seen from the Figure 4.2., the most recipients of FDI inflow since 1991
have been Kazakhstan, Turkmenistan, Georgia, Azerbaijan and Russia which are
considered as energy producing and energy transit countries. FDI stock per capita in
Kazakhstan is 8109.9 USD making the highest in CIS region. FDI inflow to Armenia
and the Republic of Moldova has been also mainly to energy transit projects and energy
sector privatization. But in contrary to other countries, the attraction of FDI inflow to
Ukraine has been more diversified in different spheres of industrial sector. In
Kyrgyzstan and Tajikistan resource base investment has been also main factor being
oriented more in gold mining industry. FDI inflow to Uzbekistan has been limited
mainly focused on oil and gas sector making the least in the group by showing 298.7
USD FDI stock per capita.
This chapter shows the results analysis in accordance to answer to the raised
thesis questions based on the collected data from primary and secondary sources. The
survey questionnaire was sent to 170 foreign-owned companies of Andijan region and
152 of them which is 89% responded to the questionnaire. The respondents of each
company were asked same identical questions about the general information, reasons of
investment, achievements of the companies and recommendations for improving
business and investment environment in Andijan region of Uzbekistan. The survey
questionnaire was conducted in the summer of 2019.
While forming the questionnaire, it was considered the existing findings on the
investment motives in the CIS. The questions about the foreign invested company were
constructed in such a way that allowed us to draw conclusions about the nature of
business environment, the motives of investment, impediments, and achievements of
investors and local partners. Therefore, it was interesting to check the nature of
investment in Andijan region of Uzbekistan.
5.1. The Nature of the respondents
The population consisted of 170 foreign owned companies of Andijan region. For
this research, it was considered the opinions of the managing staff of the companies.
Therefore, before going to detailed analyses, it is essential to know the nature of the
respondents such as position, gender, age and education. We notice that, out of 152
respondents, 82 % are managers and 18 % are the owners of the foreign owned
companies. And it is interesting fact that only 2.6 % of the respondents are females, the
rest 97.4 % of the respondents are male.
From the figure 5.1, we can see that the age of respondents under 20 and over 60
years old are less than 2 %, but respondents from 31 to 40 years old show almost 40 %,
which is the highest %. The second highest indicator is respondents from 41 to 50 years
old with 27.6 %. The respondents from 21 to 30 years old and respondents from 51 to
60 years old show the same 13.8 %.
Figure 5. 1 Age of respondents
45%
40%
35%
30%
25%
20%
15%
10%
5%
0%
1 2 3 4 5 6
China 40 26
Russia 29 19
Korea 26 17
Kyrgyzstan 14 9
Turkey 10 7
Great Britain 9 6
Kazakhstan 5 3
Belorussia 3 2
Malaysia 2 1
Pakistan 2 1
Germany 2 1
Australiya 1 1
Austriya 1 1
USA 1 1
Afghanistan 1 1
Vietnam 1 1
Netherlands 1 1
Ireland 1 1
Iraq 1 1
Itay 1 1
Latvia 1 1
152 100
Source: Own Survey Result
As can be seen from the Figure 5.2., there are 4 types of foreign owned
companies in Andijan region of Uzbekistan. They are joint venture, wholly owned
company by foreign legal entity, wholly owned company by foreign individual and not
wholly owned foreign company. Since the independence of Uzbekistan in 1991, a lot of
joint ventures have been opened in the country. The joint venture’s share in the region
out of all 152 companies is more than 28 %. “General Motors Uzbekistan” JV in Asaka
district, “Andijon Kabel” JV and “Uzkoji” JV in Hanabad city, “Navigul” JV in
Hujaabad district are examples of joint ventures in Andijan region. There are 22 wholly
owned companies by foreign legal entities. Their share is 14.5 % out of all foreign
owned companies. Out of 22 foreign owned companies, 8 of them is sourced by Chinese,
4 by Turkish and 2 by Russian companies. “Lemon International” foreign company ,
“Marjan investment group” foreign company in Andijan city are invested fully by
Chinese companies. Besides that, there are 15 wholly owned companies by foreign
individuals with the share 9.9 %. 4 of them are owned by Russian, 3 of them by Chinese
and 2 of them by Turkish and 2 of them by South Korean foreign individuals. The last
type not wholly foreign owned company has the share of 47.4 % (72 companies). These
type companies are formed from either domestic individual and foreign company or
domestic company and foreign individual. And it takes the largest share of all foreign
owned companies.
40
35
30
25
20
15
10
5
0
y ity t t t t t t t t t t t t t t
cit c ric ric ric ric ric ric ric ric ric ric ric ric ric ric
a n a d dist dist dist dist dist dist dist dist dist dist dist dist dist dist
j
di ab ul n ka hi z hi d n q t d a n r
An Han tink dija sa liqc Bu bas aba ska udu ama aba tep riha gna
A o a h Ulu
Al An Ba q
la Huj
a
Isb Jala
q h a
ar aht ugo Sha
Bu M P Q
There are 2 cities and 14 districts in Andijan region. The cities are Andijan city
and Hanabad city. Andijan city is the centre of the region and considered as one of the
most populated cities of Uzbekistan (over 416 thousand) after Tashkent and Samarqand.
As can be seen from the figure 5.3., out of 152 companies, 56 of them are located in
Andijan city with 36.8 %. This means over one third of foreign owned companies are
located in the city. This could be explained as the many investors are trying to invest to
the centre of the region, because of existing many needed factors to invest. The other
districts, such as Andijan, Asaka and Altinkul are most invested districts after Andijan
city.
4. Company foreign trade volume (annual), million USD 35.6 1529947.4 24946.8
The average company in our sample has been in business for over 5 years, employed 166
people, invested 1.3 mln. USD dollars and had revenues of about 24 mln. USD. The average
domestic market share is over 60 %. (Table 5.2.) Foreign companies have started investing to
Uzbekistan since its independence on the 31 st of august 1991. The maximum years of operating
foreign owned companies in Andijan region is 28 years. The investment has increased to
Uzbekistan after the easing policy towards attracting foreign direct investment by president
Shavkat Miromonovich Mirziyoyev since 2016. Out of 152 foreign owned companies, 15
companies opened in 2016, 20 in 2017 and 44 were opened in 2018. (Figure 5.4.)
Figure 5. 4 The years of foundation of surveyed foreign owned companies in the region
50
45
40
35
30
25
20
15
10
5
0
91 92 95 96 97 00 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
19 19 19 19 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20
The maximum number of employees, more than ten thousand people were employed by
GM Uzbekistan. The company, initially known as Uz Daewoo Auto was established in 1996
between Uzbek government and South Korean company Daewoo. Besides car producing plant,
more than 10 joint ventures were organized between Uzbek government and South Korean
companies in order to produce auto spare parts and make provision to Uz Daewoo Auto. After
financial crisis in 2008, the company was renamed to GM Uzbekistan, because of obtaining
Daewoo by GM. The vehicles are exported to Russia and other CIS countries.
Agriculture 15 9.9
Construction 25 16.4
As can be seen from the table 5.3., top three industries of surveyed companies are
textile and leather industry (32.9%), construction (16.4 %) and machinery and equipment
(12.5 %). Andijan region is considered the highest fertility region of Uzbekistan and one
of the leading regions in production of cotton. During Soviet Union period, Uzbekistan
used to provide cotton and yarn the the factories of Russian city Ivanovo. Uzbekistan’s
policy towards organizing factories specialized in production of final products lead to
attraction of foreign direct investment to textile industry. Chinese, Turkish and Russian
investors are active in investing to textile industry of Andijan region. The most active in
construction industry are Chinese investors, but 11 joint ventures out 19 in the field of
machinery and equipment industry are South Korean investors, making them the most
active in this industry of Andijan region.
5.7. Motives to invest to Andijan region of Uzbekistan.
One of the main purposes of this research is finding out the motivations of FDI
inflow to Andijan region of Uzbekistan. As to classification based on Dunning (1993),
the research targets three groups of investors: market seeking, resource seeking and
efficiency seeking investors. It was asked from interviewees reasons of investing and
grade them based on the degree of motives from 1 not at all important to 5 very
important. (Figure 5.5.)
Market utilization
Skilled labor
Cheap labor
Market utilization
Skilled labor
Cheap labor
It is also interesting to find out which economic sector have reached high level in
accomplishment of FDI intention. According to the table 5.4., 57 % of cheap labour
motivated investors have evaluated the accomplishment as neutral, while 37.7 %
successful and 3.3% very successful. Industrial and service sectors show high levels of
accomplishment, while 4 companies out of 122 evaluate as very success and 46
companies evaluate as successful.
Natural resource motivated investors show higher level of satisfaction in
industrial sector, while 61,2% marked as neutral, 33,6 % as successful and 5,3 % very
successful. Interestingly, not any sector has reached the level of very successful by
skilled labour motivated investors, showing 92,1 % as neutral and 7,9 % as successful.
Among the factors of resource based motivations, skilled labour shows the least level of
satisfaction.
Market utilization motivated investors in industrial sector show the highest level
of accomplishment of FDI intention not only among market seeking investors, but also
among all investors. Investors that marked accomplishment of their intention as very
successful showing 31,6 % are all in industrial sector. Most investors being motivated by
having access to regional market mark their level of accomplishment as successful with
53,3 %, while 47,7 % mark as neutral showing all economic sectors at the same level of
satisfaction.
Efficiency seeking investors show the least level of satisfaction in all economic
sectors. Not any economic sector has been marked the levels of successful and very
successful, while the result show that the factors of efficiency seeking motive should be
taken care in the future.
Table 5. 4 The accomplishment of FDI motivation by economic sectors.
percentage
Major economic sectors Sum
(%)
Factors Likert scale
Agriculture Industry Services
poor 0 0 0 0 0.0
successful 1 46 13 60 39.5
poor 0 0 0 0 0.0
successful 2 7 3 12 7.9
poor 0 0 0 0 0.0
4 Market
neutral 1 8 4 13 8.6
utilization
successful 14 66 11 91 59.9
poor 0 0 0 0 0.0
5 Easy access to
regional market neutral 0 0 0 0 0.0
(CIS)
successful 10 53 9 72 47.4
successful 0 0 0 0 0.0
technological
expertise
very successful 0 0 0 0 0.0
very poor 0 0 0 0 0
very successful 0 0 0 0 0
It is also interesting to answer to the questions such as did the investors achieve
the goal more or the longer they were there, then was the achievement higher? In order
to find out the answers to these questions, it has been checked the correlations of
evaluation of FDI intentions to firm level variables such as years in the country, and
the variables showing the size of the companies such as number of employees, annual
foreign trade volume and total amount of investment (Table 5.5).
Number of employees is positively correlated with the factors such as
availability of natural resources, market utilization, easy access to regional market
(CIS). The more number of employees, the higher level of achievement of above
mentioned factor motivations. As number of employees is the sign of the size of the
company, it can be interpreted that the bigger the company, the more desire to invest
and more interest in natural resources, market utilization and having access to regional
market.
It is noticeable that the longer the companies were in business of the region, the
higher level of fulfilment of motivation in having access to the regional market (CIS).
Years in the country and the factor of easy access to regional market are positively
correlated with each other. It has been also observed the positive correlation of annual
foreign trade volume of the company with the factor easy access to regional market. It
can be explained that the more the companies are involved in export and import
operations, the higher achievement in having access to regional market.
6. Availability
4 Easy 5 To access
2 Availability of relevant
1 Cheap 3 Market access to country’s
Variables of natural foreign
labor utilization regional R&D
resources invested
market (CIS) expertise
companies
Number of Cor. Coef. 0.085 .235** .235** .416** -0.119 -.292**
Employees Sig. (2-tailed) 0.300 0.003 0.004 0.000 0.144 0.000
Years in the Cor. Coef. -0.084 0.008 0.002 .203* 0.024 .293
country Sig. (2-tailed) 0.304 0.918 0.983 0.012 0.769 0.254
Total amount of Cor. Coef. -0.056 -0.126 -0.115 0.017 0.006 .205
invested capital
(thound. USD) Sig. (2-tailed) 0.490 0.121 0.157 0.839 0.942 0.111
Annual foreign Cor. Coef. 0.085 0.092 0.097 .428** -0.199 -0.417
trade volume of a
company Sig. (2-tailed) 0.457 0.419 0.393 0.000 0.079 0.000
(thousand. USD)
N 152 152 152 152 152 152
Correlation is significant at the 0.01 level (2-tailed).
Correlation is significant at the 0.05 level (2-tailed).
Source: Own Survey Result
5.9. Investors’ major problems.
In order to find out current problems that investors are facing in the region, it was
asked to rank their answers from 1 strongly disagree to 5 strongly agree. From the figure
5.7, it is noticeable that not any factor reached the level of agreeness on average,
meaning that the investors of the surveyed companies are not strongly facing the
problems. This can be explained positive movement in regulations by the government of
Uzbekistan towards foreign investors making them more convenient to invest. But there
are some factors that passed the level of neutral. The highest indicator is lack of
infrastructure, then bureaucracy, showing 3.6 and 3.5 points on average. The other
indicators showing the closeness to neutral level is corruption, unsatisfactory economic
environment, ambiguity of legal system. The factors such as strong regulations,
uncertain political environment, problems in establishing clear ownership conditions and
finding a suitable partner show positive result moving towards from neutral level to
disagreeness. And they don’t seem to be a problem in the region. Political environment
is stable in the country. And Uzbekistan is peaceful country which plays a leading role in
attracting foreign direct investment. The regulation on registration and getting permit to
new starting businessmen is getting easier. The rank of Uzbekistan in the ease of doing
business is 76 out of 190 economies. But starting a business score is ranked 12, showing
the highest result among CIS countries (Doing business 2019).
Lack of infrastructure
Bureaucracy
Corruption
Technology
Lack of capital
Technology
Internal market
Export market
Capital
As can be seen from the figure 5.9, we can observe that all factors except export
market have been evaluated on average between successful and very successful levels of
Likert scale. Export market factor shows 3.5 point between neutral and successful
levels.
Moreover, as it has been observed the correlation of investors’ accomplishment
of FDI intention with firm level variables, it is also interesting to see the findings
through the correlation of local investors’ satisfaction level with firm level variables. As
we can find answers to the questions such as did the local partners achieve the goal more
when they were in business more years or was the achievement higher while increasing
foreign trade volume by being active in export import operations.
According to the table 5.6, years of operation in the country is positively
correlated with all factors of achievement of FDI attraction, such as increasing capital,
securing export market, internal market utilization, technology transfer, managerial skills
and know how. The more local partners are in business, the higher level of satisfaction.
It is also noticeable to see the positive correlation of number of employees to the factors
of FDI intention except export market, as export market has showed the lowest level of
satisfaction according to our analysis. As number of employees is the sign of the size of
the company, it can be interpreted that the bigger the company, the higher satisfaction
level. The other variables such as total amount of invested capital and annual foreign
trade volume of the company doesn’t show any significance.
In this paper we analyzed the factors contributing FDI inflow to Andijan region of
Uzbekistan and accomplishment of FDI intention. And it was also investigated problems
that investors are facing in the region. Moreover, we analyzed how investors’ profiles
such as market-seeking, resource seeking and efficiency seeking profiles affected in the
region.
6.1. Conclusion
Our analysis shows that market-seeking motive was a dominant in our survey. The
weak competition inside the region gives them an opportunity to have more share in
internal market. And also having free trade agreement of Uzbekistan with CIS countries
gives a chance to investors to have an access and capture the regional market with the
population over 240 million people. The second important motive was resource seeking
motive including availability of natural resources, cheap labor and skilled labor. The
cotton production of high fertility lands and densely population of the region have been
preferable factors to the development of labor intensive industry of the region. Efficiency
seeking motive have found to be the least important to invest to Andijan region of
Uzbekistan,
There are some problems that investors are facing in the region, but they are not so
hampering the business of investors. The factors such as lack of infrastructure,
bureaucracy, corruption, unsatisfactory economic environment and ambiguity of legal
system have been shown as impediment that should be taken care of.
Market seeking investors are the most successful in accomplishment in FDI
intention, especially market utilization motivated investors in industrial sector show the
highest level of achievement not only among market seeking investors, but also among
all investors. The positive correlation of number of employees with the factors such as
availability of natural resources, market utilization, easy access to regional market (CIS)
gives an interpretation of bigger companies are more interested in the mentioned
motives. Additionally, the more the companies are in business operation in the region
and more involved in export and import operations, the higher achievement in having
access to regional market.
The factors such as lack of capital, securing export market, increasing supply to
internal market, technology transfer, managerial skills and know how are very important
factors that is needed for the development of the country. As it has been expected, all
factors have been marked as an important in attracting FDI, but technology transfer has
been the most important factor for local partners of JV companies. It is also interesting
not only finding out the motive of investment, but also its achievement. All factors have
been shown high level of achievement except export market. Local entrepreneurs want
investors making more secure of export market. Moreover, it is remarkable that the more
the local companies are in business operation in the region, the higher level of
achievement in all factors. Additionally, the bigger the companies, the higher level of
fulfilment of satisfaction in all factors except securing export market.
6.2. Recommendations
One of the major findings is the weak existence of efficiency seeking motive in
the region. In order to increase the efficiency seeking investment, it is needed to organize
local technological capabilities such as research and development centers, high tech
industrial parks. In fact, it is believed the development of R&D will lead to more
creativeness and innovativeness of economic sectors. R&D is a crucial factor for the
company due to fierce competition and evolving preferences in the world market. It is
also beneficial to offer more incentives in order to attract R&D performing FDI
companies.
2. Development of infrastructure.
Poor infrastructure in the districts is one of the problems that FDI projects have
been less concentrated in the districts of the region. Improving infrastructure not only in
Andijan city, but also in the districts of the region will allow to attract more investments.
The provision of infrastructure such as electricity, gas, water supply, sewerage system,
availability of roads and railway are the most important necessities for the activity of
companies.
Our study shows that among resource seeking investment factors, skilled labor
was the least important than cheap labor and natural resources. Without well education
of work force, many developed countries such as Korea couldn’t reach high level of
development in the area of R&D, technology transfer, know-how and management
skills. Education is considered as an important asset in achieving economic growth of the
country. It is needed to enhance human resources through training, internships and
further education in developed countries. It is also important to prepare the managers of
investment projects by training and educating them in developed countries.
Appendix 1. Survey results
Profiles
1.Your position
in the company Owner Manager
(% percent) 18 82
over 61
Under 20 21-30 31-40 41-50 51-60
3. Age years
Vocational
Undergradua
High school (professiona Graduate
te
4. Education l)
(% percent) 26 19 17 9 7 6
Not
wholly
wholly owned wholly
Joint owned (by
(by foreign foreign
venture foreign legal
6. Type of individual) owned
entity)
ownership company
Company
Min Max Average
profile
8. Years in the
country 1 28 5.15
9. Number of
Employees 5 10301 166
10. Total
amount of
invested capital
(thous. USD) 32.0 9000.0 1275.6
11. Annual
foreign trade
volume of a
company (thous.
USD) 35.6 1529947.4 24946.8
12. Domestic
market share
(%) 2 100.0 61.9
13.Surveyed
Number of Percentage
companies’
companies (%)
economic
activity sector
Agriculture 15 9.9
Construction 25 16.4
Machinery and
equipment 19 12.5
Production of
Chemicals 7 4.6
Retail and
wholesale trade 15 9.9
Textile and
leather industry 50 32.9
Transport and
communication 4 2.6
Woodworking,
pulp and paper
industry,
publishing 1 0.7
14. What
percentage of
the total
production is
exported?
Intermedia Final
te products products
16. Which
products the
Skilled
company
labor
receives from a technology, components
parent company know-how materials parts
54 27 19 30
19. Please evaluate accomplishment of your FDI intention. Is your intention of FDI has
been accomplished?
Please, rank your answers from 1 to 5. (1-very poor, 2-poor, 3–neutral, 4-successfull, 5-very
successful)
22. Can you give any recommendation you think can improve the investment climate and
business performance in Andijan region of Uzbekistan?
References