The purpose of the study is to explain how foreign companies strategies theoretically match the Baltic countries strengths and weaknesses and what kind of entry modes provides a good match between the investor´s strategy and the local attractiveness.
The countries of the former Soviet Union offer Western firms cost advantages, in terms of cheap labour, raw materials, energy and services, unutilised production capacities, a potential of highly qualified technical and executive employees and European like consumer behaviour. The companies that invest in the Baltic region are also attracted by the size of the markets in Eastern Europe. Foreign companies put up production facilities in the Baltic countries in order to supply the European market and the potentially growing post Soviet markets, based on the availability of a skilled labour force and relatively low labour costs. Another reason for considering the Baltic countries is that companies are heavily dependent of good transport and communication infrastructure in order to meet their customers requirement of fast deliveries
The Internationalisation Process
The internalisation process is manifested in a number of different ways. It can be seen in the establishment of foreign subsidiaries, in international joint ventures, in licensing agreements, in international advertising campaigns, in international trade, exhibitions and a multitude of other events and traditions. In studies concerning the internationalisation of the firm, development is often seen as a process, in which the enterprise goes through phases of development that successively leads to increased market knowledge and knowledge of different establishment possibilities, this process is called the internationalisation process
The explanations of the internationalisation process of the firm have been made from micro economic and from a macro economic point of view. Dunning´s approach called the “Eclectic approach” state that the company will do a FDI if three conditions are satisfied.
1. The firm possesses firm-specific advantages vis-à-vis firms of other nationalities in serving particular markets. This means firm-specific advantages that take the form of intangible assets, know-how of technology and management or marketing.
2. It must be beneficial for the company that possesses such assets to internalise them through the extension of its own activities rather than externalise them through licensing and similar arrangements with independent firms.
3. It must be profitable to utilise the advantages in conjunction with at least some factor inputs located outside the company’s home country
Author: Neil Yman, Avdelning, Institution Division, Department Ekonomiska Institutionen 581 83 LINKÖPING