9
Nevertheless, it has seen a considerable increase in the number
of foreign direct investments during the last ten years (Hunya 2000),
particularly Italian investments.
Principally, the reasoning behind my case selection has been
addressed in the data proposed by the Romanian national trade registry
office about the composition of the inward foreign investments (CCIRB
2001).
It is important to note that while the Italian investments reached
from 1991 to 2001 (May) only the sixth place, with 473,11 Mill. USD,
far less than Netherlands (1,020,11 Mill.), Germany (730,62 Mill.),
France (653,66 Mill.), the USA (539,02 Mill) and Cyprus (533,33
Mill.), the number of Italian companies involved was the highest with
9,731 firms.
Naturally, I have considered in this analysis both the foreign
direct investments and inwards investments in Romania. The main
reason is due to the characteristic of the Italian internationalization
process. In fact Italy has a relatively small inclination to the direct
investments. (ISTAT-ICE 2000).
In 1999 almost 3% of the whole Italian FDI was concentrated
towards the CEECs. Particularly in the industrial sector where, 40% of
Italian FDI has been directed in the mechanical industry, 17 % in the
textile industry and 19,2% in the food industry.
This phenomenon is predominantly due to the structure of the
Italian economy. The main characteristics are the prevalence of small-
medium size enterprises (SMEs), which are operating in traditional
sectors such as the textile and clothing industry, generally concentrated
in the so-called “Industrial Districts” (IDs). These factors considerably
limit the activities of the Italian firms that have only a small amount of
liquid capital and so can not often afford significant investments abroad
(Confindustria - Centro Studi 1998, Mutinelli 1998).
However, a high number of firms, pushed by the necessity to
remain competitive in the international market, have invested in
Romania. As mentioned above, Italy is leading in the number of the
investments; nevertheless it is just sixth in terms of value.
10
It is easy to understand that it is a question of small investments
or co-operations that have principally two different structures. First, the
Italian firms decentralise segments of the production cycle, then import
the product in Italy, finishing it in loco (Callieri 1999). Secondly, there
is an increased tendency to develop the practice of subcontracting to
local firms or partners (Piscitello 2000).
Both tendencies, besides extending the trade export-import
between the two countries, have had an impact on the structure of the
Romanian economy. In fact, the Italians have pushed for recreating in
Romania the same home typology of the “industrial clusters” (Majocchi
2000).
The first part of this research is dedicated to explain the relation
between internationalization and SMEs as the small and medium
enterprises play the major role in productive internationalization in
Romania. Consequently, the aim of this dissertation and subsequent
considerations will be to determine the characteristics of the Italian
investment in Romania and its impact made on the Romanian economy,
particularly focusing on its changed structure and the trade between the
two countries. Finally, the research will present an overview of the
implications of the Italian investments on labour.
Starting from the classical literature on the effects of foreign
investment in a host country (Ietto-Gillies 1992, Bell 1997), I will, in
fact, consider the peculiar effects of the Italian investment on
employment: is it possible to speak of the transfer of technology due to
the limited investments of the Italian firms? How have industrial
relations developed in the peculiar context of SMEs Italian
investments? (Fischer 1993, Pollert 1999, Casale 1999).
The sensibility of the topics, the poor data nets in Romania and
the reluctance to provide data, an heritage of the old communist
Romanian regime, have significantly limited the last part of this
research.
However, the study will show how the Italian firms, prevalently
SMEs, have exploited the weak legislative environment and labour
market, described in the first paragraphs.
11
The social dialogue remains a fragile practice that often does
not even happen in the SMEs. Moreover, the inclination of SMEs to
adopt a lowest wages policy is due to the specific structure of the
internationalization that sees involved just some activities of the
production chain, often the non-core functions or those that require
unskilled workers. Nevertheless, the spillover of technology and rise of
employment are sufficient elements to encourage the Romanian
government to favour the Italian investments.
12
Chapter 1
The Italian Investments in Central and
Eastern Europe: Trends and
Characteristics
This chapter aims to give a general view of the characteristics of
the Italian investments. The reason behind that is focused on the better
understanding of the framework of the Italian internationalization
process. Particularly, the objective of this part is to show and explain
the reasons of this process.
13
1.1 The Process of Internationalization in Eastern and
Central Europe
Although the complex transformation of the East and Central
European markets, the untested models of privatisation and the still
rudimentary legal framework remained daunting, the beginning of the
nineties saw the rise of the investments’ flow towards the countries of
Eastern and Central Europe.
Table 1.1: Foreign direct investments in Central and Eastern
Europe, 1989-1991
15 October 1989 1 October 1990 1 October 1991
Cumulative
Number
Foreign Capital in
millions of dollars
Cumulative
Number
Foreign Capital in
millions of dollars
Cumulative
Number
Foreign Capital in
millions of dollars
CIS 1,000 1,846 2,051 3,208 4,500 5,650
Hungary 600 360 3,300 1,020 9,741 1,089
Poland 551 80 1,950 290 5,000 670
Czech / Slovak
Republics
50 85 500 180 3,800 480
Bulgaria 25 -------- 70 --------- 800 300
Romania 5 -------- 570 66 6,061 231
Slovenia 182 136 680 386 1158 699
Source: Artisan P. 1993 Foreign Investment in Central and Eastern Europe.
London: Macmillan Press.
During the nineties, for the period of political and economic
stabilisation of the CEECs, the investments raised significantly but not
uniformly; in fact it is possible to point out three different groups of
countries according to the level of investments: Poland, Czech
Republics, and Hungarian have successfully opened their economy
with extensive reforms and consequently gained the 76% of the
initiatives; a second cluster of countries including Romania, Estonia
and Slovak Republic has been approached with more caution by
foreign investors and finally the last group Latvia, Lithuania Bulgaria
(Croatia and Albania) that is behind in the transition process attracting
only a limited number of initiatives and representing a high risk to
14
investors.
1
Table 1.2: FDI in selected Easter Europe Countries, 1989-1999
Total Flow (in million of $) % Of the CEEC
Estonia 1,615 2.3
Poland 20,047 28.9
Czech Republic 14,924 21.5
Slovak Republic 1,135 1.6
Hungary 17,770 25.7
Bulgaria 2,265 3.3
Latvia 2,135 3.1
Lithuania 2,012 2.9
Romania 5,264 7.6
Slovakia 2,111 3.0
Source: Manzocchi S. 1998 The determinants of foreign financial inflows in
Central and Eastern Europe and the implications of the EU Eastern
Enlargement. CEPS, Working Document n. 117, Brussels.
In this process of internationalization we can point out three
major tendencies, underlined by the following tables and charts.
1. the European enterprises play a dominant role;
2. the Italian contribution is relatively small compared
with German and France presence.
1
There are a number of conditions affecting inwards investments. They can be
classified under a few broad headings and origin from the economic and business
climate, combined with the industrial structure and organization in home and host
countries: 1) market size, 2) progress towards liberalism and the pace of the transition
process, 3) the availability of inexpensive factors of production and 4) the existing
infrastructures.
15
Chart 1.1: Geographic origin of the investments to CEECs, 2000
15%
22%
2%
61%
USA
Others
CEEC
European
Community
Source: UN 2000 World Investment Report 2000 United Nations: New York.
The data includes the CIS countries.
Table 1.3: Geographic origin of the investments within EU,
1994-1999
Million of Euro % Of EU countries
Austrian 2363 5.8
Belgium /Luxemburg 2773 6.8
Denmark 952 2.3
Finnland 293 0.7
France 4869 12.0
Deutschland 15956 39.2
Greece ------ ------
Italy 1545 3.8
Ireland ------ ------
Netherlands 6028 14.8
Portugal 179 0.4
Spain 329 0.8
Sweden 2212 5.4
UK 438 1.1
Source: STAT-ICE 2000 L’Italia nell’economia internazionale. Roma:
ISTAT.
The natural geographic proximity tied with the cultural and
historic linkages has advantaged the investment coming from the
European Union, thus creating preferential axes of investments. For
example Germany is the main investor in the former Czechoslovakia
and Slovenia, the Austrian investments predominate in Hungarian
while Greece in Bulgaria (Mariotti 1994).
16
1.2 The Italian Investments in Central and Eastern
Europe
As we have seen, the Italian investment rate in CEECs remains
quite low peaking on the 3.8% of the total EU between 1994 and 1999.
The main reason is due to the poor inclination to the outward
investments; other reasons often mentioned are the relative orientation
towards a specialization in mature sectors and the reduced size of the
Italian enterprises (ISTAT-ICE 2000).
Table 1.4: Italian FDI in CEECs, 1994-1999
Total Flow
(Million of Italian Lira)
%
Estonia 12.5 1.2
Poland 233.9 21.7
Czech Republics 146.0 13.6
Slovak Republics 65.1 6.0
Hungarian 377.9 35.1
Bulgaria 8.4 0.8
Latvia 0.3 0.0
Lithuania 4.8 0.4
Romania 190.1 17.7
Slovacchia 37.7 3.5
Source: STAT-ICE 2000 L’Italia nell’economia internazionale. Roma:
ISTAT.
This table shows how even Italy has concentrated the majority
of the investments in the so-called first cluster of CEECs. However,
Italy has begun to invest considerably in Romania reaching 17.7 %.
The composition of the FDI is relevant because it shows how
the so-called “Made in Italy”
2
remains one of the key components of
the Italian investments:
2
According to Fortis the ”Made in Italy” is understood as the total industrial
sectors working in the areas of fashion, home furniture, food and free time.
17
Table 1.5: Sectional shares of the Italian investment towards
CEECs, 1999
Sector %
Energy products 2.12
Industrial products: 95.7
- Minerals and metals 8.0
- Chemical products 7.1
- Mechanical products 40
- Alimentary products 19.2
- Textile products 17.6
Buildings 1.1.
Source: STAT-ICE 2000 L’Italia nell’economia internazionale. Roma:
ISTAT.
In the manufacturing sector the food-processing firms, textile
and mechanical industries compose the major initiatives.
This data are coherent with the Italian pattern of specialization
of the exports in the traditional sector. So we can conclude that the
model of FDI towards the CEECs reflects a process of
internationalization of the traditional sectors of “Made in Italy”,
typically composed by the presence of a multitude of small and
medium enterprises.
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