From spectator to walk-on to actor: An exploratory study of the internationalisation of Greek firms since 1989.

• Author: Kalogeresis, Athanasios
• Position: Report

1. Introduction

   It has been nearly two decades since the collapse of the state-socialist regimes of Central and Eastern Europe (CEE); a series of events that inadvertently changed not only the countries directly involved, but also the whole Continent. Not surprisingly, the countries bordering with the CEE region were the ones most affected. Among these, Greece holds a rather unique position, as it was the only 'Western' European country bordering exclusively with CEE countries. It was therefore one of the most heavily affected countries in many aspects including, inter alia, immigration, security and foreign trade. One of the areas of spectacular change was the internationalization strategies of Greek firms, which were traditionally extremely inward looking.

   The main aim of this paper is to explore the internationalization of Greek firms. Specifically, we focus on the evolution of the phenomenon, mainly through a geographical and sectoral perspective, and, also on the resulting impact on the Greek economy. To do so, we have used a number of unique (although rather disparate) sources regarding the foreign activities of Greek firms, the details of which are provided at the respective sections.

2. A conceptual framework for the analysis of internationalization and development

   We strongly believe that in order to gain a richer understanding of why firms delocalize, (3) one must adopt a two-level analysis. The first level is that of the firm. To answer the question of why firms delocalize, one has to enter the black box that is the firm (something that very few theories claim to have achieved) or at least observe it. Acknowledging the firms as the main element / actor / node of the economy, then the second level is obviously the system / network / chain containing the firm and at the same time affecting it and being affected by it.

   The main approaches in explaining why firms internationalize revolve around three main themes; the firm's ownership advantages, the internalization decision and the role of resources (internal or external to the firm). Hymer (1976) supported that a firm needs to possess certain competitive advantages that can compensate for the disadvantages of 'foreignness', which are first created in the home market of the firm, and may subsequently turn out to be more profitable to be exploited abroad.

   These advantages (which can take a large number of forms, from material flows --labour, capital, and natural resources--to intangible flows that concern technology, information, entrepreneurial and organizational capabilities) are a classical case of necessary but not sufficient conditions for delocalization. Specifically, possession of such advantages can only interpret a firm's competitive advantage vis-a-vis its competitors at home or abroad. Whether these will be exploited by the firm itself or leased to some foreign firm is an issue discussed by the internalization theory (Casson, 1991).

   The same is true for the firm's resources, which constitute the main building block of the many variants of the resource-based theory pioneered by Edith Penrose (1959), in an effort to analyze the growth of firms. To Penrose, productive resources are not general and unspecified categories that all firms have access to. Therefore, certain resources, and especially the services that they can offer, are particularly important to each firm, since they constitute the base of firm differentiation. In fact, even if two firms have exactly the same resources, the way they combine their services is almost impossible to be identical, so inevitably they will be led to producing different products.

   The unique combinations of firms' resources, accumulated experience, entrepreneurship and unused productive services can help explain the direction of expansion (i.e. expansion at home or abroad--Kay, 2000). There is, however, a missing element, which is no other than an explanation about the decision to make or buy. Almost all answers to that question can be traced to Coase's seminal 1937 article on the boundaries of the firm. According to Coase (1937), outside the firm, it is price movements that direct production, which is then coordinated through a series of exchange transactions in the market. Within a firm, these market transactions are eliminated and the entrepreneur-coordinator who directs production substitutes the complicated market structure with exchange transactions. It is clear that these are alternative methods for coordinating production.

   In other words, the firm internalizes the operations of the market to the extent that the cost of this internalization is lower than the cost of using the market mechanisms. According to Coase, the size attained by a firm through internalizing market transactions (foreign in the case of TNCs) is mainly related to the decreased efficiency that large size involves. Following Coase, as well as Williamson (1975; 1985), according to whom transaction costs, asset specificity and incomplete contracts play a central role, Grossman and Helpman (2002) argue that the decision on whether to make or buy is a trade-off between the cost of running a large and less specialized organization (similar to those described above) and the costs involved in finding partners and incomplete contracting. Although internalization is central in understanding internationalization strategies, it is not a FDI theory, as it is unable to analyse the growth of the firm (Casson, 1991; Buckley, 1988).

   Moving further away from the firm, towards the second level of our analysis, a multiplicity of factors emerge that affect how firms internationalize. These have been best captured by the various chain or network theories, with the most influential being that of the Global Commodity Chain (GCC--Gereffi & Korzeniewicz, 1994) and more recently, the Global Production Networks (GPN) theory.

   While the GCC is certainly the most influential theory, it appears to be significantly 'specific' for our needs. The fact that the analytical unit of the theory is the commodity chain poses the first and perhaps most significant problem; we, in turn, believe that a greater balance is required between flows and systems on the one hand, and node (most importantly the firm) on the other. This does not imply that the GPN has achieved that. Its structure, however, is more flexible and could allow a more central position for the firm (as well as other nodes). According to Henderson et al. (2002, p.445), a Production Network is a 'nexus of interconnected functions and operations through which goods and services are produced, distributed and consumed'. They further argue that such networks have become 'both organizationally more complex and also increasingly more complex in their geographic extent'. These networks integrate firms and national or regional economies in ways that have enormous implications for their well being. The interaction of firm-centred networks with the socio-political contexts they are embedded in is a very complex, often bi-directional process, also because the former can potentially be very mobile, while the latter are territorially-specific.

   Hence, our understanding of production networks is based on four categories: The firm, with its unique set of resources and competitive advantages; the sector, with its given technologies and market orientation; the location with its unique institutions, civil society, history and policies, and finally; the global environment with its unique institutions, governance and power relations. The product of any possible configuration of these four categories is value, whose creation, enhancement and capture is the core of all economic activity. In order to understand value, we follow Kaplinsky (1998) in his identification of economic rent, which in the Schumpeterian tradition stems mainly from innovation and to a significantly lesser extent from scarcity. Specifically, Kaplinsky (1998) identified no less than nine types of economic rent. Some types of rent are exogenous to the firm (e.g. resource or policy rents), while others are endogenous (e.g. technological, organizational, relational and product and marketing rents). We consider the latter to be far more significant, since they may lead to far greater differentiation. However, the most important feature of economic rents is their transient nature, which makes the ability to constantly identify and pursue new sources of rents perhaps the most significant of economic rents. This also explains why the ability to enhance and capture value is considered to be equally important to its creation.

   It is exactly the ability to enhance and capture value that makes power and embeddedness so important. Territorial embeddedness refers to implanting a firm into deeply rooted social and economic relations with which it becomes interwoven. In practical terms, a firm is territorially embedded if it draws resources (e.g. labour or intermediate products) from local sources, which possess qualities that are hard to replicate. The more embedded a firm is, the more value it creates will be captured by the region it operates in. In a similar manner, value creation and capture of a firm is also conditioned by the power it possesses within a network.

   2.1 Background on Greece

   Before analyzing the behaviour of Greek firms, it is essential to examine how Greece fits into a framework as the one just described. In other words, we need to be aware of the main characteristics of the environment that the firms operate in and how it interacts with the global environment.

   For four decades, Greece was a 'free market island' bordering with three communist countries (Albania, Yugoslavia and Bulgaria), geographically isolating it from its main trade partners. This made the country a sort of a 'transplant' economy, since its main trade partners were the Central and Western EU member countries. This physical distance, apart from the extremely higher transport costs...