Streszczenie Strategic Responses of Foreign Multinational

Corporations to the Recent Economic and Financial Crisis

The causes of crisis in eastern europe

From a CEE perspective, the crisis was to a large degree imported via collapsing export
markets in the West and the drying up of credits and direct investments from abroad.
However, there were also ‘‘home-grown’’ reasons for the downturn stemming from a lack of
budgetary discipline on the part of many CEE governments and excessive borrowing in
foreign currency by households and firms. Among the relative winners from the original
crisis were Poland, the only EU country to grow in 2009.

How to fight against crisis

Quick responses such as cost reduction programs, revised budgets, investment stops, and
hiring freezes were planned and implemented by nearly all companies. Yet, only a minority
planned strategic measures such as divestments, closure of production sites, changes in
capital structure, and mergers and acquisitions at this time. The findings of the survey clearly
suggest that the first response to the dramatic economic downturn consisted in short-term
measures intended to secure liquidity and to adjust cost structures to the lower demand
level.

Main reasons for expansion in CEE

Cheap labor costs, Energy, raw materials lower corporate taxes, and subsidies by local
governments lured foreign investors to open production sites in CEE.
The motivations for entry were the prospect of higher sales growth, lower production costs,
and access to cheaper resources than in their home markets Underdeveloped product
markets of these transition economies and the envisioned huge market potential were the
main reasons for expansion into CEE. The region’s emerging markets contained numerous
product and service categories that simply had not existed under the former communist
regimes or in which consumption rates were lower than in Western Europe (e.g., car
ownership, personal care products, life insurance).
Main sectors;
Automotive industry, electronics- we have technical knowledge in CEE, food, paper, buliding
materials, mining, machinery, steel

Higher risk to invest in CEE:

Foreign entrants face not only a lack of information about local competitors and possible
partners but unclear regulatory frameworks, inexperienced bureaucracies, underdeveloped
court systems, and corruption.

How firms enter CEE markets

More risk-adverse companies built up their commitment step by step, starting with
exporting and only later moving to direct investment such as sales subsidiaries, joint
ventures, or manufacturing units
The more aggressive entrants bet on rapid expansion in the region, often based on joint
ventures with local competitors or acquisitions in the course of the privatization process
 ‘‘leap-frogging’’ model where companies enter CEE markets in higher commitment
modes right at the beginning. Especially for sectors serving mass markets, such as food and
beverages, consumer services, broad coverage of national markets and cost-efficient local
production bring important comparative advantages. That means that early movers can
outmaneuver their competitors and secure strong market positions by making it more
difficult for other players to enter the market or even blocking access altogether. Empirical
studies show that early-mover advantages exist in transitional economies, and that also
holds true for CEE. They benefit by taking control of scarce assets, for instance, by acquiring
dominant local production and distribution networks, local brands, and natural resources

How to manage investing after crisis:

Big market 330 mln still lower levels of consumption and ownership of durable consumer
goods and persisting weaknesses in infrastructure (e.g., utilities, roads, transportation
systems, housing). Pent-up demand and the need to upgrade and modernize private and
public facilities will thus return in an even more pressing form. The advantages resulting
from the skilled workforce and favorable resource situation were not eliminated by the
crisis. Although wages increased considerably in the boom years, the crisis meant that they
remained stable or even decreased, and they are still lower than in Western Europe.
Managerial salaries in CEE had been falling the same is true of real estate prices, rents,
and prices charged by service suppliers. From mid-2008, sometimes dramatic depreciations
of non-pegged local currencies. Apart from the rising prices of Energy and mining products, a
consequence of strong global demand, the favorable resource situation was also unaffected
by the crisis.
Since 2008, the official sovereign credit ratings have deteriorated. As a consequence
of the falling country risk ratings, the expected return on investment for projects was raised
in order to reflect the higher costs of bank financing and a more realistic pricing by investors
of the associated risk premium. New investment projects will have to generate a higher
return on investment than before the crisis and will thus decline in number.

it is realistic to contend that its key pillars remain valid in post-crisis times.
STRATEGY REVIEW before entering CEE markets
 .Role of the region: What is the role of CEE within the global strategy? Is the
region primarily a source of growth or is it seen as a production location
and supply source? Has the role changed since the crisis?
 . Participation in CEE markets: Which are the major markets where the MNC
needs a strong presence—and wants to remain after the crisis? Which are
peripheral markets where a major improvement of the market position
within the next few years is not realistic and a withdrawal could set capital
and other resources free?
 . Activity location: Which elements of the value chain should be located in
the region? Will the GFEC favor a further shift of value-adding activities to
CEE or will it halt this trend?
 . Product and marketing strategies: What are the right product and marketing
strategies for CEE markets? Are these the same as in pre-crisis times?
 Organizational model: What is the appropriate organization model for CEE
now?
One of the outcomes of the crisis is that the CEE region has lost its former status as a global
growth region—at least when compared to the BRICs (Brazil, Russia, India, and China) and to
Turkey. 2010). Fiscal measures to reduce budget deficits, such as higher taxes, salary freezes,
and cuts in the number of civil servants, along with generally higher unemployment, are
holding back the revival of domestic demand. Those that entered the CEE countries in the
last two decades and built a broad and strong market presence there, will stay, for they have
become major players in their diverse industries and have made major commitments to the
markets. For newcomers, though: They have the option of choosing a different region or
markets with higher growth rates and higher potential as the CEE market.

In the last years, the following groups of countries have emerged:

 The small highly export-oriented economies of Central Europe—Czech Republic,
Slovakia, Hungary, Slovenia, Estonia
 Poland—the best performer in CEE:
 Russia and Ukraine—the largest markets of the region
 Lagging economies of Southeastern Europe—Bulgaria, Romania, and West Balkan:

Market Participation in CEE

When crisis banks close branches, cut down the services portfolio, and scale back lending
volumes.
Low or falling asset prices are generally seen as positive for market entry and expansion. This
is exactly the situation many foreign investors face today in CEE. During the period 2008–
2010, expansion into new markets in CEE was on hold. From 2010 on, however, when the
economic outlook brightened a bit, companies became interested in market entry again, and
business expansion resumed.

Activity Location within CEE

Slovak Republic, Poland, Romania, and Czech Republic hold the top positions in the EU
ranking
CEE has strongly gained in attractiveness as a location for manufacturing from 2009 to 2011
among the interviewed firms. MNCs use CEE locations both to serve regional markets and as
an export platform to Western Europe. An impressive example of this reindustrialization is
provided by the automotive sector. 27,000 new jobs were created in CEE in 2009, compared
to just 6,158 in Western Europe. Moreover, CEE countries are becoming more attractive as
outsourcing locations for IT and business processes and shared service centers.

Product and Marketing Strategies for CEE

The massive depreciations of several CEE currencies vis-a`-vis the euro forced them either to
raise prices in local currency or to accept reduced profit margins. In many cases, exporters
were not price-competitive anymore and had to stop serving the market (e.g., export of
premium fruit juices to CEE).
The prices must be competitive, products must be diversified to find a niche market,

The Organizational Model for CEE

In 2011, many companies switched back from survival mode, characterized by cost-cutting
and investment stops, to growth mode again. That should favor a return to a more
decentralized model. that gives local management more freedom in decision making. The
intention to upgrade and professionalize the sales and marketing function and the increased
demand for customer relationship managers in CEE are both good indicators of this
development. Decentralization can also be seen as a guard against unforeseeable
fluctuations in demand. When response capabilities are built on a local or regional level,
adaptability to fast-changing markets and business environments is improved. At the same
time, slower market growth is forcing management to identify sources of cost savings. This
focus on improving profitability will even continue when sales pick up again.
In order to achieve critical mass, particularly in the smaller markets of Southeastern Europe,
markets are being grouped together in clusters, and certain (back-office) functions of the
local units are concentrated in CEE hubs

Conclusions:
These changes in business sentiment are not only reflected in company actions that were
taken as a response to the GFEC but in modified perceptions of the CEE economies by
executives, too. In most cases, this process goes beyond a simple ‘‘stay or exit’’ decision
covering all those incremental steps that over time result in a different strategic positioning
of a country market or a new configuration of a country operation. This article provides a
framework for the analysis of strategic responses to the GFEC by MNCs operating in CEE. MNC
managers must decide how to allocate scarce resources, not only across different businesses
but across geographical markets. They have to assess what their existing portfolio of
international markets contributes to growth and profitability and whether risks are
adequately balanced across countries. The decision areas affected range from determining
CEE’s role and importance in overall strategy, through identifying appropriate product and
marketing strategies, to designing an efficient organizational model for running CEE
operations. an initial comparison of the current situation with that underlying the original
business model for expansion into CEE remain valid. Neither CEE’s huge market potential nor
its favorable cost and resource situation have disappeared. Future GDP growth rates will
admittedly be lower than the 6% recorded in the period 2002–2008, but they will still be
higher than in Western Europe. Thus, although the region’s catching-up process will take
longer than originally expected, we can realistically hope for a more sustainable growth path
that will spare us such massive downturns in the future. Indeed, the cost situation
has actually improved due to declining labor, real estate and other input costs, and the
depreciation of some currencies against the euro. Given that and the advantage of greater
flexibility, it seems fair to assume that relocation of production capacity from Western
Europe to CEE will continue.
Regional players, that is, MNCs with a broad presence in the region and leading market
positions in their industries, will not withdraw. They may even benefit from the ongoing
consolidation process by buying up weaker local and international competitors. By extending
their product portfolios to lower price points and by emphasizing affordability in their
marketing strategies, foreign MNCs will be able to address the increased price sensitivity of
CEE consumers. They will probably increasingly diversify in terms of product lines and
geographic markets to shield themselves against higher demand volatility.
Generally, the risk of doing business is back in focus. MNC managers are paying more
attention to country and business risk and pricing it more realistically than in the past. Thus,
the GFEC has ended the perception of CEE as a homogeneous region.
Yet, even if CEE’s growth-region image has been shattered, especially by comparison with
Turkey or the emerging economies of Asia, few foreign MNCs are turning their back on it.
more-cautious investment behavior.
Once governments succeed in improving their institutional frameworks
and the competitiveness of their economies, CEE will have a good chance to
regain its reputation for growth.