Geopolitics of the New Europe

1
Geopolitics of the New Europe
David Chelly ESCEM 2nd YearstudentsBusiness
Management in the New EuropeMinor
4/5-7/2005
2
Aims of the seminar

• This course provides students with an
  introduction to the Eastern European business
  environment in a context of political, social and
  economic reform and European Union enlargement.
• This course may interest young graduates, as
  Central and Eastern European countries offer
  excellent job opportunities for western European
  students in management
• Students are introduced to specialized research
  sources, which may be useful to them in their
  careers
• The documents of this course are fully available
  through the internet, in English and in French,
  at the web address http//www.centreurope-us.org

3
Your instructor

• David CHELLY
• Ph.D in Management Sciences, post-graduate
  diploma in Finance, degrees in Money and Banking,
  Law, Accounting and Sociology.
• Head of a consultancy firm and a website
  (http//www.centreurope.org) specialized in
  business with Central Eastern Europe
• Professor of management in various business and
  engineering schools

info_at_centreurope.org
4
The courses outline

• Central and Eastern Europe basics - The
  transformation process The enlargement
  challenge
• An economic overview - Nature and extent of
  Foreign Direct Investments

5
I. Central and Eastern European basics
6
Discovering Central European countries focus on
Latvia
7
A rich and ancient history

• It is not because we dont know Central and
  Eastern Europe history that these countries do
  not have any history.
• Almost all CEE countries have played a major role
  in Europe in their history
• But they have early fallen under the domination
  of different empires, which have shaped their
  future

Cyrille and Méthode, inventors of the Cyrillic
alphabet
Charles the IVth (1346-1378), King of Rome and
Empereur of the Holy German Empire
8
The empires and their influences

• Long dominated by the Habsburg Empire, the
  history of Central Europe has been marked by
  education, art and modernism.
• While in 1789 in France only a third of the
  citizens were able to speak and read French (the
  rest spoke local dialects), education in German
  had been compulsory for a century in the whole
  Kingdom
• Eastern European countries used to live under the
  Ottoman and the Russian Empires rule, which
  prevented their economic development.

Vlad Tepes (1428-1476), a Romanian figure of the
struggle against the Ottoman Empire.
9
Exercise Central and Eastern European countries
on the map
10
Central and Eastern Europe map
11
The communist heritage

• Central and Eastern European countries have lived
  forty (seventy) years of communism, which still
  influence local behaviors and habits.

The communist heritage Corrupted civil servants,
unreliable businessmen, opportunist politicians
12
Young democracies with unstable governments

• Local democracies suffer from a lack of political
  maturity.
• Demagogue politicians are elected on the basis of
  their unrealistic pledges
• The leading coalitions are not able to keep the
  power due to a too large number of political
  parties and to political scandals

But the political risk is limited to only a few
countries in the CIS and in the Balkans
13
Geopolitics of Europe focus on the Orange
Revolution
14
Ailing institutions

• Central and Eastern European states suffer from
  bureaucracy and corruption
• Most institutions (The Police, Universities,
  Hospitals) in Central and Eastern Europe are in
  crisis
• Income inequalities and regional discrepancies
  are widening
• Eastern Europe faces a serious demographic
  problem.

15
An inefficient legal framework

• In Central and Eastern Europe, the legal
  frameworks are very similar to those of Western
  Europe.
• But in practise, the legal environment is a
  jungle. Law are
• Incomplete (lack of case law, decrees)
• Volatile and contradictory
• Not enough enforced

On the main square of Sofia, one can buy the most
recent and expensive software CDs for a few
dollars.
16
The communist era and the transition The movie
Kolya
17
Towards a stronger Europe

• A group with 25 countries offers a stronger
  opposition to the other world powers
• The USA will endeavour make the enlargement fail
• The EU must adjust itself to the enlargement
• Is it able to ?
• How far can we go ?

18
A difficult task to achieve

• A few international disputes are not solved yet
• Borders in central and Eastern Europe have more
  been designed according to the side chosen by the
  countries during the two World Wars rather than
  according to the human realities.
• The first relationships between ancient and new
  EU members are marked by conflicts
• Reciprocical expectations from ancient and new
  members strongly diverge

Will they get along together ?
19
Exercise sub-groups in Central and Eastern
Europe

• You are a consultant with the French Center for
  External Trade (CFCE). Your task is to promote
  business relationships with Central and Eastern
  European countries.
• Up to now, the CFCE had grouped the countries of
  this region in a category called  Pays de
  lEst  ( Eastern countries ).
• Until 1991, the region used to comprise eight
  countries Albania, Yugoslavia, Bulgaria,
  Romania, Hungary, Czechoslovakia, Poland, and
  USSR. But now they count up to more than twenty.
• Your mission is to split them in different
  subgroups, that should be geographically close
  and economically homogeneous. Explain your
  decisions.
• The countries are Albania Armenia Azerbaijan
  Byelorussia Bosnia-Herzegovina Bulgaria Croatia
  Estonia Georgia Hungary Latvia Lithuania
  Macedonia Moldova Poland Czech Republic Romania
  Russia Serbia-Montenegro Slovakia Slovenia Ukraine

20
II. An economic overview
21
A rich Central Europe

• Central Europe is mainly composed of reformed
  Catholics, close to the Protestants in terms of
  seriousness and rigor.
• Central Europe comprises the former Eastern block
  countries that previously belonged to the
  Habsburg and Prussian Empires, but also Germany,
  Switzerland and Austria

According to M. Kunderas  The Stolen West or
the Tragedy of Central Europe (1983)  , Central
European countries culturally belong to Western
Europe.
22
An under-developed Eastern Europe

• Eastern European countries are mainly
  economically under-developed.
• None of them have until now successfully managed
  their economic transition to capitalism.
• The religions are orthodox and Muslim.

23
Exercise (4/6/2005) What are the strong points
of Central and Eastern European economies
24
An generalized improvement of the economic
performances

• After a deep collapse of their GDP, Central
  European countries have been achieving steady
  economic growths, followed by most Eastern
  European countries
• Hyper-inflation had severely hit most CEE
  countries
• But this issue is today under control

25
The new economic challenges

• Unemployment has risen above average European
  standards.
• Public debts have dangerously grown
• The consequence is high interest rates, which
  prevent all economic development.
• Commercial deficits are found in most CEE
  countries.
• The values of the currencies tend to decline,
  which impoverish these countries and put them
  under the threat of speculators

Georges Soros a real philanthropist?
26
Restructuring and current situation of financial
and production systems

• Privatisations of banks and companies are well
  advanced
• But the industrial restructuring is still
  unsufficient
• Central and Eastern European economies move
  towards less industry and agriculture and more
  services
• Central European traditional sectors are not
  competitive in the new international division of
  labour
• But these countries develop new competitive
  advantage

27
Why invest in Central and Eastern Europe ?

• Foreign direct investments in all sectors and
  from all countries are welcomed and little
  restricted.
• Central and Eastern European countries benefits
  from a cheap and qualified workforce and an
  advantage of territorial location
• Investment incentives are offered for
  Manufacturing investors.
• But the main reason for FDI is good access to
  domestic and foreign markets

28
A strong demand for Western products

• Local consumers ask for western products.
• They are fascinated by the consumption society
  and relatively under-equipped.

Each unveiling of an hypermarket is celebrated by
hours of queues of avid consumers.
29
Unsaturated B2B and B2A markets

• Local companies urgently need comprehensive
  updating of equipments/technologies and
  restructuring their organization.
• The local supply is unable to provide these
  services.
• Local public authorities lack of everything
• Services of public utility (environment,
  education, culture) constitute a huge market,
  often financed by the EU.

30
Exercise (4/6/2005) which European country does
offer the best opportunities for French exporters
and investors?
31
Marketing products in Central and Eastern Europe

• Little adaptation to the products is necessary.
• Local consumers are price-sensitive and crave for
  presents, prizes
• The distribution sector is very atomized.
• Direct marketing has thus become a common way to
  distribute products.
• Consumers are receptive to media and off-media
  campaigns.

32
TV ads in Eastern Europe
33
Where and how to invest ?

• A few countries attract the majority of FDI,
  mostly in the services sector
• In Eastern Europe, some large companies are
  scheduled for privatisation, but the best deals
  have long been done
• Joint ventures and licensing also offer limited
  opportunities
• The most profitable way of investment is the
  Greenfield investment
• Good personal relationships are crucial to
  succeed in Central and Eastern Europe

34
Managing people

• In Central and Eastern Europe, the workforce is
  cheap and qualified, especially in technical
  fields.
• But commitment, sense of initiative and ethics at
  work are low
•  pretend to pay us and we will pretend to work 
•  the one who does not steal, steals his family 
  (Czech proverbs)

35
HRM strategies

• Two HRM strategies coexist in Central and Eastern
  Europe
• A culture-free model based on the global best
  practices
• Corporate cultures must be stronger than national
  cultures.
• A cross-cultural management model based on
  contingent strategies
• Different environments, cultures and attitudes
  towards work lead to different practices
  corporate communication, pay systems, HRM

36
More information
D. Chelly F. Lafargue, Guide culturel et
d_at_ffaires pour lEurope de lEst, LHarmattan,
2003
www.centreurope.org East-west business portal