The Changing Nature of Doing Business in Transition Economies

Business environments vary across the world. Contextual specifics vary from region to region and from country to country. Countries and their environments are distinguished according to a number of indicators. If level of development is applied, it is often associated with per capita income in a particular country in comparison with the world average. Overall a developing country is usually associated with a nation that has a lower level of economic, social, business and technological development than the average in the world and as a result usually has a lower level of material well-being. There is no universally adopted definition of the term developing country. This means that the levels of development in various aspects may differ extensively among developing countries, with some developing countries having similar standards of living as many developed economies.

Foreign subsidiaries play an important role in the restructuring and transformation of former centrally planned economies. As these foreign entities are embedded in international networks, their existence may lead to cross-border transfer of knowledge, managerial and marketing skills (Manea and Pearce, 2001b) that “promote the diffusion of new technologies through direct linkages or spillovers to domestic firms” (Altomonte and Guagliano, 2001: 4). Such effects should be appreciated as they tend to strengthen the international competitiveness of transition economies. However, the beneficial effects that foreign subsidiaries exert on the competitiveness of the host country depend, among other things, on the role that these subsidiaries have been assigned to perform in the international and sometimes global corporate network.

Economic forecasts for the new European Union (EU) member countries have generally remained positive following their entry into the EU (Haba, 2004). For example, the Vienna Institute of Comparative Economic Studies (WIIW) has maintained a positive outlook on their economic growth arguing that the GDP growth rate would be consistently between 4 and 9 per cent per annum. A major factor that defines such forecasts is the expectation that foreign direct investment (FDI) to the Central and East European region as a whole will increase. The WIIW expected the total amount of FDI inflow into the eight new EU member countries to reach €15.4 billion in 2004, which was 51 per cent more than in 2003. Thus the entry of the Central and East European countries into the EU has been the major driver for their improved macroeconomic performance and for the substantial rise in FDI inflows (UNCTAD, 2005). This chapter investigates the EU enlargement as a fundamental factor promoting capital inflow into Central Europe using an evolutionary game approach.

The liberalization of the political and economic systems in Central and Eastern Europe (CEE) since the fall of the Iron Curtain in 1989 has opened a huge new market for foreign firms. In particular, the enormous growth potential of the region prompted a rush into the emerging markets of this region. While the motivation to enter these markets was clearly understood, the choice of the adequate marketing approach turned out to be more complicated. The foreign firms almost faced a “tabula rasa,” a regional market that had been isolated from the modern Western marketing and consumption culture for more than four decades. What is the right marketing approach in such a situation? Should the management of the foreign firms opt for a more localized or a more standardized approach in international marketing strategy? Had management followed classic international marketing theory, it would have leaned towards a more localized approach given the huge differential in purchasing power and market development between Western and Eastern Europe.

The global luxury market, with its huge and widespread appeal and unparalleled glamor, increasingly captivates the attention of academicians and retail business analysts. Even though its relatively flexible boundaries make it difficult to evaluate separately from general consumer market shifts, the luxury goods market is experiencing spectacular structural changes, mostly under the pressure of recent recession-inspired negative consumer sentiment and “guilt” feelings. Additionally, there are serious geographical differences among markets and customers in the global luxury segment that deserve special attention (Dubois and Paternault, 1997). Issues related to the definition of luxury consumption and its structure, motivational drivers and dynamics in the post-socialist consumer fragmented markets of the former Yugoslavia and Soviet Union are the focus of such attention.

The brewing industry has recently experienced increasing saturation in mature markets and industry consolidation. Due to the maturity of beer markets in developed economies, the main form of growth of established breweries has become domestic and foreign acquisitions (OECD, 2001). Recently brewing companies have started expansion into the world emerging markets, especially into the buoyant and growing markets of Central and Eastern Europe (CEE) and China.

In the last decade, companies from emerging countries have started to enter global markets at full steam (Fortune, 2009). Firms from the BRIC (Brazil, Russia, India and China) countries have also increasingly engaged in research and development (R&D) activities. As a result of this unprecedented development, 21 companies originating from BRIC countries have taken places among the top 1000 R&D investors in the world (DIUS, 2009). However, the data indicate that the growth of Russian companies does not correlate with the number of companies among the top R&D investors in the world. This suggests that despite the aspirations for increased R&D and the emphasis on a knowledge-based economy, Russian multinationals have mostly remained dependent on natural resources.

A great number of transition economies around the world are interesting from the perspective of future trade opportunities. Japan is highly dependent on international trade due to its limited resources. This has led to a high level of concentration of multinational companies in relation to the size of the country. Exporting to emerging markets is common practice for a number of Japanese manufacturers. An emerging market is defined as a market that satisfies the following conditions: a rapid pace of economic development, implementation of government policies favoring economic liberalization and adoption of a free-market system (Arnold and Quelch, 1998). The principal impediments in emerging markets appear to be environmental uncertainties and the lack of strong legal frameworks, which have given rise to a significant increase in opportunism and rent-shifting. Emerging markets include transition economies such as Russia and the newly democratized post-communist nations such as China as well as many developing countries (Johansson, 2000).

Foreign direct investment (FDI) has played a pivotal role in the transformation of post-communist economies of Central and Eastern Europe (CEE) for more than a decade. This is especially true for Poland which experienced a phenomenal growth of inward FDI and had, by the year 2000, become the largest recipient of inward investment in the region. Inward FDI can be without doubt considered a salient factor contributing to Poland’s transition to a market-led system and, at the same time, leading to a wider and deeper involvement in the ever more complex process of globalization. The results observed and documented so far point to one dominant conclusion that although foreign investors in Poland have often been subject to criticism from Poland’s authorities, as well as domestic business circles and other professional, political and social groups, it is clear that the net effects of FDI have been impressive, both in magnitude and scope, and overwhelmingly beneficial to Poland and the international competitiveness of Polish industries and firms. Coupled with a dynamic increase in foreign trade, FDI has not only led to a much greater openness of the Polish economy to the world but has also facilitated Poland’s accession to the European Union.

Reforms in Romania had to be initiated under lack of political pluralism, no articulate union pressure prior to 1989,¹ and lack of openness and transparency. In economic terms, the system was plagued by a structural strain (Daianu, 1998) characterized by severe resource misallocation. This misallocation was so extensive, that the economy has suffered from its energy-intensiveness for many years after the start of the reforms. Moreover, almost all productive assets were state owned and private property was non-existent. Furthermore, at the start of the transition process the Romanian economy suffered from the attempt of the communist regime to repay all foreign debt ahead of schedule. Consequently, in 1989, Romania had no foreign debt, but it was all at the expense of domestic consumption and technology upgrading. Given the magnitude of the required resource reallocation following liberalization (strain), and all against the backdrop of structural rigidities, disorganization (Blanchard and Kremer, 1997) and scarce domestic resources imports played a major role in the ailing Romanian economy. Thus imports boomed immediately after the fall of the communist regime. This was coupled with a sharp decline in technologically redundant exports and the collapse of the common market of the former communist states COMECON in 1990. The economic basis for reforms in Romania was therefore very weak, and many economists consider that this poor legacy led to a path-dependency explaining why Romania still lags behind the front-runner transition economies (Daianu and Voinea, 2003).

A number of studies have investigated the impact of celebrity endorsers on consumers’ attitudes towards brands and on their purchase intentions. Despite the existence of extensive marketing literature and a growing use of celebrity endorsement in Croatia, little is known about how Croatian consumers react to celebrities in advertisements. Moreover, there is scarce knowledge about consumer opinion of or attitudes towards a celebrity endorsement strategy. This study represents preliminary, exploratory efforts to examine whether Croatian consumers recognize brands endorsed by national celebrities and to understand their opinions of and attitudes towards celebrity endorsement as a common and effective marketing practice employed for the purposes of brand management.

Entrepreneurship has been identified as one of the main driving forces of economic development (Thurik and Wennekers, 2004) and as omnipresent in a society. Entrepreneurship is not “the particular feature of a particular social group … (but) it is inherent in every action and burdens every actor” (Mises, 1949: 252). It does not require an extensive analysis of documents to understand that the stake placed by national governments and international organizations such as the European Union (EU) or Organization for Economic Cooperation and Development (OECD) on entrepreneurship is very high. The versatility of the concept (its different definitions) and also the different manifestations of entrepreneurship (in very different types of enterprises, that is, ranging from a one person retail shop to a high-tech small company) have facilitated its use as an idealized economic subject in policy documents and government agendas according to the priorities of national governments or international organizations such as the EU (Dannreuther, 2007).

In the twenty-first century, the tourism industry has been strongly influenced by information and communications technology (ICT) growth, which in turn affected the change in the marketing strategies of companies involved in this industry. The Internet and other ICT have created new interesting and innovative ways for providing value to clients. The question arises as to how companies can use the advantages of new technologies (Yeshin, 2000).

The transformation of the banking and financial sector in transition economies has become critical for the successful shift from centrally planned to market-driven economic systems. Such reforms led to the creation of financial markets, which are essential for market transactions. The development of the financial sector has been one of the most difficult areas of reform since at the start of transition financial institutions and markets were limited or non-existent (Fries and Taci, 2001). Financial sector reforms are not easy to accomplish in a turbulent environment. This is even more so considering the high speed of economic and social transformation as well as the length, severity and effects of the economic and financial crises experienced in the course of the transition process. Adding to the complexity of the reform process has been the lack of risk management experience in the banking sector and the numerous changes in banking regulations.