Structure and objectives of Austria's foreign direct investment in the four adjacent Central and Eastern European countries Hungary, the Czech Republic, Slovenia and Slovakia



„Current discussion on employment effect of outward FDI from
developed countries is flawed because it tends to generalise from
a few visible cases of job relocation in a country to its entire
FDI abroad.“
(AGARWAL, 1996)

1. Introduction

The discussion on the economic consequences of outward foreign direct investment (FDI) on the
domestic economy is a long lasting issue which has got considerable new attention due to the opening of
the Central and Eastern European Countries (CEECs) and their envisaged integration into the European
Union. Recent events, such as the partial closure of the Semperit factory in Traiskirchen, a location near
Vienna, and the transfer of some parts of its production to the Czech Republic have helped to make the
whole question of industrial relocation into a burning issue. However, we should be cautious about
generalising such events. The patterns of Austria’s FDI in the CEECs are rather diverse. As we shall see,
motives and strategies of Austrian enterprises embrace internationalisation processes that are prompted
by quite different principles. Therefore the impact on the domestic economy is rather different.

Since the opening of the CEECs in 1989 Austria’s trade and investment relations have intensified quite
rapidly. Economic co-operation has multiplied in particular with Austria’s neighbouring countries
Hungary, the Czech Republic, Slovenia and Slovakia. Austria has not only achieved a high surplus in its
balance of trade with these countries throughout the period 1990-96, it has also improved its overall
employment through this surplus by a significant number (ALTZINGER, 1997a). Moreover Austria has
shown considerable FDI activities in the CEECs. Even in other West-East European border regions such
developments appeared in a very similar manner (see section 2). All of these studies report huge trade
surpluses and a tremendous increase of FDI by the West-European countries.

Much of these developments can be explained by Austria’s geographical proximity and its close
historical and cultural ties to the CEECs. These features have provided Austrian companies with a
substantial ‘first-mover advantage’ (FMA) in entering these new markets during the early 1990s.
However, decreasing market share in trade and in FDI-stocks indicate that these FMAs have receded
(STANKOVSKY, 1996a). Nevertheless, it must be noted that this development has been caused to a
considerable extent by large privatisation programs in the CEECs where Austrian companies could not
participate sufficiently due to their weak financial capabilities.

To assess the impact of FDI on the domestic economy is a rather difficult task. The net result depends
very much on the type of investment. An evaluation of growth and employment effects can hardly
provide accurate quantitative data (BALDWIN, 1994; ALTER, 1995). The most difficult problems in
calculating such effects are insufficient knowledge about the alternative scenario and the period of
observation. In his survey on FDI and employment BALDWIN (1994) summarised these problems as
follows: "Broad generalisations are difficult because of the very different employment effects one obtains
from various plausible alternative assumptions about what will happen in the absence of foreign direct
investment and what the magnitude of increased imports by the host country from the investing country
will be." The period of observation is important because relocation involves a sequence of events:



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