European Regional Science Association 36 th European Congress ETH Zurich, Switzerland 26 - 30 August 1996 EWA BOJAR Lublin Technical University Lublin, Poland Fax: 81 559385 BOJAR @ ANTENOR.POL.LUBLIN.PL THE ACTIVITY OF JOINT VENTURES AND THEIR ROLE IN THE REDUCTION OF UNEMPLOYMENT IN EUROREGION BUG The paper is within the framework of research project PBZ - 059 - 01 Joint ventures and the factors that speed up and enterpreneurship to the border cooperation in Poland Joint ventures as form of international cooperation can attract the attention of Western world. The Eastern European countries can gain much form setting up joint ventures. They are aware that the transformation of their economic system from a highly centralist to a more liberal one, must be based on a form of partnership. This partnership fosters capital transfer, technology and management skills, permitting Eastern Europe to compete more fairly with its Western partners. Joint ventures are new form of cooperation between. Western and Eastern countries and big chance for the development of weak economic regions. An example of weak economic region of East Europe is Euroregion Bug. It is located in the eastern part of Poland and western part of Ukraine. This is the newest initiative of creation of Euroregion with participation of Poland (fig.1).. It is weak economic all participation agricultural region when you compare it with the western industrial regions of Poland. Much capital is still needed to achieve economic success, since Poland currently faces a chronic shortage of capital (especially in eastern part of Poland). About 35% of the 25.000 joint ventures, which were acted during the year of 1995 in Poland was established in the western Polish towns. Compared with only 182 joint ventures set up in Lublin, one notices a big imbalance. The polish part of the Euroregion Bug should be given attention by western businessmen despite the fact that its primarily rural. It has tremendous economic potential, for self subsistence and export of ecological foodstuffs. The Euroregion Bug can act „economic bridge” between Western and Eastern market because has professional knowledge about economic situation in Europe especially in former Soviet Union. The Polish government is also offering shares in privatisation of local at companies, along with the available skilled labour force. The challenge which can not be missed is based on new investment new technologies which will result in supporting the growth of economic structure of the country and will lead to creation of new jobs for presently unemployed. Currently we have observed little interest by western countries in the location of joint ventures in polish part of Euroregion Bug but the future must bring changes. The main gools of the agreement is the creation of conditions for social economic development in border areas of neighbouring countries. It requires earlier estimation of investment attraction of this region. As we take into account effective demand, industrial background, infrastructure of communication, the character of labour market, the progress in transformation business environment, tourist attraction, the state of natural environment of Polish region we come to conclusion that it is less developed area in comparison with the other regions of the country. No wonder, that the interest in creation of joint ventures in this part of the country is relativity weak. In the eastern neighbouring regions there are 261 registered joint ventures with foreign capital that creates small percentage of all registered joint ventures in the first half of 1995. (fig.2). The synthetic indication of the investment attraction is estimated as a high in comparison with eastern region because we observe the following participation of the companies with foreign capital - 6818 firms in Warsaw region, 1294 firms in Poznañ region, 1272 firms in Gdañsk region, 1268 in Katowice region, and 752 in Cracow region. German capital dominated (24 per cent) and was followed by Scandinavian (13 per cent), 13 Benelux (11 per cent) American, Italian, French about (7 - 8 per cent). The percentage participation of foreign capital on the territory on Eastern border was similar to the rest territory of our country perhaps with small exception concerning enterprises committed together with former countries of USSR. The most attractive places for foreign investment are industry (47%) trade (37%) building (0,8%) and the others (6,2%). The initial capital of these joint ventures amounts to 59 per cent and it creates the minimum predistinated by the Trade Code. If we compare the participation we come to conclusion that foreign partners put in the capital of the value equal to 50 per cent or even more in relation to 62 per cent of examined population. Their investments were usually realised in the form of financial capital (51%) in the form of apport (28 per cent) and mixed form 21 per cent The factors that had the strongest influence on the creation of joint ventures in the Euroregion Bug were revealed in the questionnaire carried out among companies with foreign capital acting in Lublin, Bialopodlaska, Chelm and Tarnobrzeg regions -( See the table 1). The stimulating factor of development of joint ventures that is mentioned most frequently is the geographical location by the border with former countries of USSR. The Eastern market is attractive not only for the firms from former USSR but for the capital from Germany, USA and Italy as well. Poland can be treated as a bridge for the future attractive investment on interesting but risky Ukrainian market. High standard of qualified labour force together with high unemployment and cheap labour force in Lublin region creates the possibilities of affective engagement of foreign capital. (fig.3). Businessmen point out the profitability of enterprises mainly in trade, food electronic, timber and building industries and stress the lack of competition of local firms. Joint ventures thanks to the technology from foreign partners gain the advantage over local firms. It gives them the possibility to offer new competivre products on dynamically developing market. It is worth noticing good estimation concerning the ecological standard of the region. Positive experiences of other firms that had already possessed contact with the firms acting on the potential territory of Euroregion played important role in the estimation of respondents in Chelm region. Neither tax reductions nor offered standard of credit percentage played serious role. Government guarantees don’t stimulate businessmen to create joint ventures either. According to the researches the poorly developed telecommunication transport, unstable legislative system, unfavourable tax and custom duty system red type and high level of inflation create the trouble for investors. (See the table 2). Contrary to the prediction, respondents didn’t complain on shortage of service concerning market information. Tabl. 1. The factors that speed up the development of joint ventures. Factors Region Region Region Region N Lublin Bia3a Che3m Tarnobrzeg Podlaska 1. The state guarantees of 6 0 0 0 Poland 2. The guarantees of the 0 0 0 0 participant’s country 3. High profitability of on 10 0 20 22 enterprise 4. Tax reduction in Poland 0 0 0 0 5. Tax reduction in the 3 0 0 0 participant’s country 6. Favourable credits 1 0 0 0 7. Positive experiences of 7 9 33 11 other firms 8. Localisation of region close 17 27 20 11 to former USSR 9. Clean ecological region 6 9 13 6 10. Little competition of local 10 9 7 28 firms 11. Great possibilities of sale 7 18 0 0 12. Small requirements in 0 9 0 11 relation to quality of goods 13. Cheap labour force 13 9 7 6 14. Qualified labour force 15. Others like family relations, - - - - stability of law 16. Favourable prices 6 9 0 0 Tabl. 2. Factors making investment difficult in region. Factors Region Region Region Region Lublin Bia3a Che3m Tarnobrzeg Podlaska 1. Tax rules (regulations) 21 9 21 23 2. Custom duty rules 16 0 16 23 (regulations) 3. Frequent changes 20 27 21 14 4. Lack of insurance of 0 0 0 0 economic activity 5. Inflation 10 0 5 14 6.Telecommunication (quality and quality of 11 18 11 9 communication) 7. Banking system 4 9 0 0 8.Attitude of local 2 0 0 0 authorities 9. Collecting debts from 1 0 0 0 debtors 10. Transport (railways, 4 9 0 0 roads) 11.Economic information 2 0 0 0 12.Mentality and habits of 4 0 21 5 consumers 13. Red type in local 6 12 0 9 institutions 14. Others (lack of - - - - qualified labour force) Unemployment and its structure in eastern part of Poland The following number of unemployment were registered: in Lublin region 66300 unemployed , in Zamoœæ region 38300 unemployed, in Che3m region 192000 unemployed in Tarnobrzeg region 471000 unemployed by the end 1995. (fig. 4) The Continuos growth of unemployment takes place in Che3m and Zamoœæ regions but in Lublin and Tarnobrzeg regions its initial growth was followed by decrease. In the total number of unemployed of examined regions young people at age to 24 create the numerous group. The group of people at the age to 34 pose 70 per cent of the total number of unemployed. (fig. 5) The structure of unemployed according to the level of education in Lublin, Che3m, Tarnobrzeg and Zamoœæ regions is shown by the figure 6. The most numerous group as it is shown in the tables are unemployed with primary technical education and secondary technical education. It is worth noticing that there is especially high level of unemployed of people with university education in Lublin region. The structure of unemployment according to the period of work is shown as follows in the following figure 7. The person with the period of work from 10 to 20 have the greatest difficulty with finding the job.