IDEAS home Printed from https://ideas.repec.org/a/hig/fsight/v13y2019i4p35-46.html
   My bibliography  Save this article

Developing Local Entrepreneurship Ecosystems by Foreign Investment

Author

Listed:
  • Alise Mactama

    (RISEBA University College of Business, Arts and Technology, Latvia)

  • Arnis Sauka

    (Stockholm School of Economics in Riga, Latvia)

Abstract

The importance of foreign direct investment in transition economies has significantly increased over the last several decades. Foreign investors are recognized as important drivers shaping the local entrepreneurial ecosystem. This paper aims to explore investors’ satisfaction with the factors previously identified as important for improving entrepreneurial ecosystems, that is, factors that both positively contribute to the development of local businesses as well as generate further foreign investment flow. Empirically we draw upon small case studies with managers of 38-42 key foreign investor companies in Latvia conducted in 2015, 2016, 2017, and 2018. In the first data collection wave, we identify key challenges that foreign investors face in Latvia. In the following data collection waves, we measure the development in the identified areas of concern and thus the overall entrepreneurial ecosystem of Latvia. Given that Latvia is a transition country in the advanced stage of development, the focus is on issues related to productivity and value added, including the availability of high quality labor force, the efficiency of public sector, and favorable tax regimes as well as challenges posed by unethical and illegal behavior, labor shortages, and elements of uncertainty. Our results suggest that foreign investors see a number of challenges within the all afore-mentioned areas that are important parts of the entrepreneurial ecosystem. Moreover, our findings suggest that progress with regards to the improvement of certain areas such as those mentioned previously from the viewpoint of foreign investors, was relatively slow during the period of 2015-2018. Our key contribution is providing with an in- depth analysis of factors shaping the entrepreneurial ecosystem in an advanced transition economy-from the viewpoint of foreign direct investors. We explore investors’ opinions with regard to the investment climate to summarize investors’ suggestions on how the entrepreneurial ecosystem in Latvia could be further developed. Our findings provide a scope for tailor-made, targeted policy recommendations to achieve these goals.

Suggested Citation

  • Alise Mactama & Arnis Sauka, 2019. "Developing Local Entrepreneurship Ecosystems by Foreign Investment," Foresight and STI Governance (Foresight-Russia till No. 3/2015), National Research University Higher School of Economics, vol. 13(4), pages 35-46.
    • Handle: RePEc:hig:fsight:v:13:y:2019:i:4:p:35-46
    as

    Download full text from publisher

    File URL: https://foresight-journal.hse.ru/data/2019/12/20/1524269444/3-Sauka-35-46.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Erin Anderson & Hubert Gatignon, 1986. "Modes of Foreign Entry: A Transaction Cost Analysis and Propositions," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 17(3), pages 1-26, September.
    2. de Mello, Luiz R, Jr, 1999. "Foreign Direct Investment-Led Growth: Evidence from Time Series and Panel Data," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 133-151, January.
    3. Cerrato, Daniele & Crosato, Lisa & Depperu, Donatella, 2016. "Archetypes of SME internationalization: A configurational approach," International Business Review, Elsevier, vol. 25(1), pages 286-295.
    4. Putniņš, Tālis J. & Sauka, Arnis, 2015. "Measuring the shadow economy using company managers," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 471-490.
    5. Blomström, Magnus & Kokko, Ari, 2003. "The Economics of Foreign Direct Investment Incentives," EIJS Working Paper Series 168, Stockholm School of Economics, The European Institute of Japanese Studies.
    6. Barbosa, Natália & Eiriz, Vasco, 2009. "Linking corporate productivity to foreign direct investment: An empirical assessment," International Business Review, Elsevier, vol. 18(1), pages 1-13, February.
    7. Raveendra Chittoor & MB Sarkar & Sougata Ray & Preet S. Aulakh, 2009. "Third-World Copycats to Emerging Multinationals: Institutional Changes and Organizational Transformation in the Indian Pharmaceutical Industry," Organization Science, INFORMS, vol. 20(1), pages 187-205, February.
    8. Giroud, Axèle & Scott-Kennel, Joanna, 2009. "MNE linkages in international business: A framework for analysis," International Business Review, Elsevier, vol. 18(6), pages 555-566, December.
    9. Choi, Jongmoo Jay & Lee, Sang Mook & Shoham, Amir, 2016. "The effects of institutional distance on FDI inflow: General environmental institutions (GEI) versus minority investor protection institutions (MIP)," International Business Review, Elsevier, vol. 25(1), pages 114-123.
    10. Gheorghe H. Popescu, 2014. "FDI and Economic Growth in Central and Eastern Europe," Sustainability, MDPI, vol. 6(11), pages 1-15, November.
    11. David Smallbone & Friederike Welter, 2006. "Conceptualising entrepreneurship in a transition context," International Journal of Entrepreneurship and Small Business, Inderscience Enterprises Ltd, vol. 3(2), pages 190-206.
    12. Liu, Zhiqiang, 2008. "Foreign direct investment and technology spillovers: Theory and evidence," Journal of Development Economics, Elsevier, vol. 85(1-2), pages 176-193, February.
    13. Bevan, Alan & Estrin, Saul & Meyer, Klaus, 2004. "Foreign investment location and institutional development in transition economies," International Business Review, Elsevier, vol. 13(1), pages 43-64, February.
    14. Lipsey, Robert & Sjöholm, Fredrik, 2004. "Host Country Impacts Of Inward Fdi: Why Such Different Answers?," EIJS Working Paper Series 192, Stockholm School of Economics, The European Institute of Japanese Studies.
    15. Rajneesh Narula & John Dunning, 2000. "Industrial Development, Globalization and Multinational Enterprises: New Realities for Developing Countries," Oxford Development Studies, Taylor & Francis Journals, vol. 28(2), pages 141-167.
    16. Chen, Pao-Lien & Tan, Danchi & Jean, Ruey-Jer “Bryan”, 2016. "Foreign knowledge acquisition through inter-firm collaboration and recruitment: Implications for domestic growth of emerging market firms," International Business Review, Elsevier, vol. 25(1), pages 221-232.
    17. Dean Xu & Klaus E. Meyer, 2013. "Linking Theory and Context: ‘Strategy Research in Emerging Economies’ after Wright et al. (2005)," Journal of Management Studies, Wiley Blackwell, vol. 50(7), pages 1322-1346, November.
    18. Smallbone, David & Welter, Friederike, 2001. "The Distinctiveness of Entrepreneurship in Transition Economies," Small Business Economics, Springer, vol. 16(4), pages 249-262, June.
    19. Anwar, Sajid & Nguyen, Lan Phi, 2011. "Foreign direct investment and export spillovers: Evidence from Vietnam," International Business Review, Elsevier, vol. 20(2), pages 177-193, April.
    20. Arnis Sauka & Alexander Chepurenko (ed.), 2017. "Entrepreneurship in Transition Economies," Societies and Political Orders in Transition, Springer, number 978-3-319-57342-7, September.
    21. B Elango & Chinmay Pattnaik, 2007. "Building capabilities for international operations through networks: a study of Indian firms," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 38(4), pages 541-555, July.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Farinha, Luís & Lopes, João & Bagchi-Sen, Sharmistha & Sebastião, João Renato & Oliveira, José, 2020. "Entrepreneurial dynamics and government policies to boost entrepreneurship performance," Socio-Economic Planning Sciences, Elsevier, vol. 72(C).

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Anwar, Sajid & Nguyen, Lan Phi, 2011. "Foreign direct investment and export spillovers: Evidence from Vietnam," International Business Review, Elsevier, vol. 20(2), pages 177-193, April.
    2. Sara Amoroso & Bettina Müller, 2018. "The short-run effects of knowledge intensive greenfield FDI on new domestic entry," The Journal of Technology Transfer, Springer, vol. 43(3), pages 815-836, June.
    3. Anwar, Sajid & Sun, Sizhong, 2012. "FDI and market entry/exit: Evidence from China," Journal of Asian Economics, Elsevier, vol. 23(5), pages 487-498.
    4. Surdu, Irina & Mellahi, Kamel, 2016. "Theoretical foundations of equity based foreign market entry decisions: A review of the literature and recommendations for future research," International Business Review, Elsevier, vol. 25(5), pages 1169-1184.
    5. Argentino Pessoa, 2008. "Multinational Corporations, Foreign Investment, and Royalties and License Fees: Effects on Host-Country Total Factor Productivity," Notas Económicas, Faculty of Economics, University of Coimbra, issue 28, pages 6-31, December.
    6. Rekha Rao-Nicholson & Liudmyla Svystunova, 2020. "Assessing the Role of Host Country Human Rights Protection on Multinational Enterprises’ Choice of Investment Strategy," Management International Review, Springer, vol. 60(2), pages 177-209, April.
    7. Alexander Chepurenko & Maria Kristalova & Michael Wyrwich, 2019. "Historical and Institutional Determinants of Universities’ Role in Fostering Entrepreneurship," Foresight and STI Governance (Foresight-Russia till No. 3/2015), National Research University Higher School of Economics, vol. 13(4), pages 48-59.
    8. Anwar, Sajid & Nguyen, Lan Phi, 2014. "Is foreign direct investment productive? A case study of the regions of Vietnam," Journal of Business Research, Elsevier, vol. 67(7), pages 1376-1387.
    9. Klaus E. Meyer & Hung Vo Nguyen, 2005. "Foreign Investment Strategies and Sub‐national Institutions in Emerging Markets: Evidence from Vietnam," Journal of Management Studies, Wiley Blackwell, vol. 42(1), pages 63-93, January.
    10. Anwar, Sajid & Sun, Sizhong, 2014. "Heterogeneity and curvilinearity of FDI-related productivity spillovers in China's manufacturing sector," Economic Modelling, Elsevier, vol. 41(C), pages 23-32.
    11. Chen, Pao-Lien & Tan, Danchi & Jean, Ruey-Jer “Bryan”, 2016. "Foreign knowledge acquisition through inter-firm collaboration and recruitment: Implications for domestic growth of emerging market firms," International Business Review, Elsevier, vol. 25(1), pages 221-232.
    12. Luo, Yadong & Zhang, Huan, 2016. "Emerging Market MNEs: Qualitative Review and Theoretical Directions," Journal of International Management, Elsevier, vol. 22(4), pages 333-350.
    13. Samad, Abdul & Masih, Mansur, 2018. "Does institutional quality matter in attracting foreign direct investment? the case of Ethiopia based on ARDL approach," MPRA Paper 108493, University Library of Munich, Germany.
    14. SAIBU, Olufemi Muibi, 2012. "An analysis of causal nexus between foreign direct investment, exchange rate and financial market development in Nigeria (1970 to 2009)," MPRA Paper 42429, University Library of Munich, Germany.
    15. Di Guardo, Maria Chiara & Marrocu, Emanuela & Paci, Raffaele, 2016. "The effect of local corruption on ownership strategy in cross-border mergers and acquisitions," Journal of Business Research, Elsevier, vol. 69(10), pages 4225-4241.
    16. Thi Xuan Thu Nguyen & Javier Revilla Diez, 2017. "Multinational enterprises and industrial spatial concentration patterns in the Red River Delta and Southeast Vietnam," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 59(1), pages 101-138, July.
    17. Liao, Tsai-Ju, 2015. "Local clusters of SOEs, POEs, and FIEs, international experience, and the performance of foreign firms operating in emerging economies," International Business Review, Elsevier, vol. 24(1), pages 66-76.
    18. Wooster, Rossitza B. & Blanco, Luisa & Sawyer, W. Charles, 2016. "Equity commitment under uncertainty: A hierarchical model of real option entry mode choices," International Business Review, Elsevier, vol. 25(1), pages 382-394.
    19. Irina Jormanainen & Alexei Koveshnikov, 2012. "International Activities of Emerging Market Firms," Management International Review, Springer, vol. 52(5), pages 691-725, October.
    20. Waldkirch, Andreas & Ofosu, Andra, 2010. "Foreign Presence, Spillovers, and Productivity: Evidence from Ghana," World Development, Elsevier, vol. 38(8), pages 1114-1126, August.

    More about this item

    Keywords

    foreign direct investment; entrepreneurship ecosystem; investment climate; transition economies;
    All these keywords.

    JEL classification:

    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • M13 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Administration - - - New Firms; Startups
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O17 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Formal and Informal Sectors; Shadow Economy; Institutional Arrangements

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hig:fsight:v:13:y:2019:i:4:p:35-46. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Nataliya Gavrilicheva or Mikhail Salazkin (email available below). General contact details of provider: https://edirc.repec.org/data/hsecoru.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.