Comparative Analysis Based on FDI-Concentration Maps

The spatial, or geographical, extension of the FDI-concentration maps implies their use to examine the food processing sectors of Hungary, Poland, Estonia, Latvia and Lithuania. The comparative analysis starts with the construction of national FDI-concentration maps, for which industry-specific data are needed.

The latest figures originate from 1998 in the case of Hungary and the Baltic states, while detailed data for Poland were available only from 1996 and 1997.

Foreign influence was measured by the proportion of foreign-owned registered capital in the industries in the case of Hungary and the Baltic countries, but due to the unavailability of the corresponding figures for Poland, foreign influence was assessed from the sales figures of foreign-owned companies in the food processing industries. Most of the international data originate from the national statistical offices.

The scope of the food processing industries in the various countries is not identical to that in the Hungarian food processing industry, which includes 17 segments. The main reasons for this are (1) that it is difficult to gain access to data and (2) that the structure of food processing differs between the countries:

In the case of the Baltic states and Poland, data on market concen-tration and foreign influence were unavailable for some small food processing industries.

Certain food manufacturing fields can he regarded as independent industries only in some of the countries observed, due to disparate geographical or climatic conditions.

Winemaking, based on the growing of grapes, does not have a measurable equivalent in the Baltic countries for climatic reasons.

Fish processing has an important role in the Baltic countries and in Poland, which ali have seashores, but is negligible in Hungary.

Potato processing is considered a separate industry alongside fruit and vegetable processing only in Poland, which has traditionally been a large potato producer.

Figures 38/a-e reflect the disparate privatisation policies of the five countries, and indicate the differences in the market and production structures of their food processing sectors. The international comparison of FDI-concentration maps facilitates an interesting and enlightening classification of food processing industries. The lessons learnt from the comparative charts in Figures 38/a-e and derived from the country-specific analyses in sections 8.4 and 8.5 can be summarised in the following points:

The principal characteristic of foreign investments in the food processing sectors of Central and Eastern Europe is market-seek-ing. This statement is the most essential conclusion reached in this concrete international application of the FDI-concentration maps.

The relevance of such a generalisation is supported by the fact that although the five countries represent categories of varying magni-tude and applications of different privatisation techniques, the foreign investors' preference for concentrated food processing industries is a clear and definite trend in ali cases.

The food processing industries of ali the countries surveyed can be grouped into four distinct clusters. A cluster analysis of the Hun-garian food processing industries was performed in Chapter 6, and the section below provides evidence for the above opening state-ment for the other four countries, too. The four clusters may be described as follows:

Cluster 1: industries with high foreign capital - high industry concentration,

Cluster 2: industries with medium foreign capital - medium industry concentration,

Cluster 3: industries with low foreign capital - low industry concentration,

Cluster 4: industries with low foreign capital - high industry concentration.63

In order to simplify the explanation, abbreviated notations will be employed. The names used to identify the clusters are derived from the global FDI-concentration map outlined in the conclusions to this dissertation.64

Cluster 1 may be referred to as the global cluster [1]. This name may sound bizarre at first, since we are engaged here in analysing national food processing sectors, but it is justified by the disposition of the global FDI-concentration map, in that this cluster encompasses the food processing industries which are globalising in the world. Cluster 1 appears in the CEE region as a result of the effects of general globalisation

63 The levels of concentration in Clusters [3] and [4] should be interpreted as high or low accord-ing to the trend for the country concerned. The CR4 concentration ratios in Cluster [4] are very high in the Baltic states, 90-100 percent, whereas those in Cluster [3] are considered "low" by comparison, 40-60 percent. Similarly, the CR4 figures for the Cluster [4] industries in Poland, although only 40-60 percent, are considered high in relation to the really low figures of 10-30 percent in Cluster [3] (Figures 381a-e).

64 A justification of the cluster names is presented in association with the global FDI-concentra-tion map in Chapter 10, secFDI-concentra-tion 10.4.2 (on pages 272-275).

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on the markets of food products. This means that an active and prominent presence of transnational corporations is an important feature of these industries, either in their foreign trade or in foreign direct investment.

Cluster 3, having opposite characteristics to the previous cluster, consequently receives the name: local cluster [3].

This comprises atomised industries which have very modest foreign participation. Production in these industries, and most often also distribution and sales, will be conducted locally.

Cluster 2 is positioned between the two extremes on the FDI-concentration map, and can therefore be referred to as the middle cluster [2]. While the composition of the global and local clusters can be predicted with high probability from the given international procedures and characteristics of food manufacturing segments, the member industries of the middle cluster are not at ali so self-evident. In the food processing of a particular country, national economic policy directions and other factors determine whether industries will eventually take up positions in the middle cluster as opposed to the global or local clusters.

The fourth group is called the transition cluster [4], since it comprises highly concentrated, domestically owned food processing industries that diverge from the general trend.

This is a characteristic of the CEE countries, which is one reason for the label "transition". Furthermore, the emergence of this transition cluster is associated with industry-specific exceptions, special stru'ctural or ownership reforms, or an un-finished privatisation process. This implies that the indus-tries are expected to leave their current positions and move towards lower concentration and/or higher foreign influence in the future, in which case the cluster may eventually disap-pear.

The above classification is based on the possible domains of occurrence of industries on the global FDI-concentration map. The clusters on the national maps will be identified as global, local, middle or transitional on the grounds of their positions relative to each other and the corresponding positions on the global map.

3. Despite the similarity of the basic tendency, interesting divergences can also be observed in several aspects within the group of coun-tries.

a) Concentrated and still domestically owned food processing industries exist in ali the countries. The transition cluster [4]

appears in the Baltic states more markedly than in Hungary or in Poland, which can be attributed to two factors:

The Baltic states did not decentralise ali the food industries, and they occasionally set up administrative barriers to restrict purchases by foreign investors in certain concentrated indus-tries.

The concentrated industries in Poland and Hungary were either decentralised through privatisation or sold to foreign investors, thus conserving their concentrated structure.

The trend line marking the relationship between concentration and foreign capital is situated higher in the case of ali the Baltic states than for Hungary and Poland, on account of the signifi-cant differences in market size. The Baltic states have 1.5 to 3.5 million consumers each, and although they have notable export sales, their food industry output is much smaller than that of Poland or Hungary. Consequently, the CR4 indicators (or CR5 in Poland) are to be interpreted quite differently in the Baltic states: i.e. the level of concentration is higher on average due to the smaller sizes of the industries and the relatively higher market shares of the leading companies.

The Hungarian food processing industries congregate in the global cluster [1], while the Polish ones tend to converge to-wards the local cluster [3]. The reasons are to be found both in the different concepts of privatisation and in the sizes of the food processing markets in the two countries:

Privatisation of the food processing industries in Poland has been going on for several years and the privatisation policy was initially hesitant and featured a combination of different approaches, whereas the Hungarian food processing indus-tries were privatised rapidly and mainly through direct bid-ding transactions.

The output of the food processing industry is 3.5 times larger in Poland than in Hungary, and the shift in ownership struc-ture has therefore been quite slow and cumbersome, taking a much longer time than in many smaller countries.

For the above reasons, foreign capital will need a relatively long period to gain significant positions in the Polish food industry.

Decentralisation predominantly served to fragment the produc-tion structure of the first stage processing industries, but con-centration rates in these industries in Poland are expected to fol-low the Hungarian example with time and to enter a steadily rising phase, albeit a slower one than in Hungary.

d) A peculiar and exceptional disparity can he observed in Lithua-nia, in that the middle cluster [2] of food processing industries is entirely missing. This may he ascribed to the Baltic concept of privatisation, a policy, which favoured exclusively domestic owners in the case of certain selected industries, whereas com-mercial privatisation techniques were applied to other indus-tries. This Baltic privatisation was carried out in its clearest form in Lithuania, and the results can still he perceived on the FDI-concentration map. The corresponding maps for the Estoni-an Estoni-and LatviEstoni-an food sectors used to show a similar picture until the mid-1990s, but have now broken away from this "bipolar status".