Cand. Merc. Study Concentration: INTERNATIONAL MARKETING AND MANAGEMENT DANISH FDI IN LITHUANIA Student name: Akvile Barsauskaite Counsellor‟s name and institute: Mark Lorenzen Dept. of Innovation and Organizational Economics Number of pages and characters: 78 pages, 177.788 characters (with spaces) October 2010 Copenhagen Business School Table of Contents 1. INTRODUCTION .................................................................................................................. 7 1.1. The Case ......................................................................................................................... 8 1.2. Danish FDI in Lithuania ................................................................................................. 9 1.3. The Research Question ................................................................................................. 10 1.4. Delimitation .................................................................................................................. 11 1.5. Purpose of the Paper ..................................................................................................... 11 1.6. Outline of the Paper ...................................................................................................... 12 2. METHODOLOGY ......................................................................................................................... 13 2.1. Reasoning Approach .................................................................................................... 13 2.2. Discussion on the Type of Study .................................................................................. 14 2.3. Research Method .......................................................................................................... 15 2.4. Data Collection ............................................................................................................. 16 2.4.1. Secondary Data ................................................................................................... 16 2.4.2. Primary Data ....................................................................................................... 17 2.6. Data collection process ................................................................................................. 18 2.6.1. Reliability and Validity ...................................................................................... 20 2.6.2. Triangulation ...................................................................................................... 21 2.7. Course of Action ........................................................................................................... 22 3. THEORY ......................................................................................................................................... 24 3.1. Theoretical framework ................................................................................................. 24 3.2. The Internationalization Process .................................................................................. 26 3.2.1. The Internalization approach .............................................................................. 28 3.2.2. The Resource-based view ................................................................................... 29 3.2.3. The OLI approach............................................................................................... 30 3.2.4. Network & Relationship theory.......................................................................... 31 3.3. Determinants of FDI ..................................................................................................... 32 3.3.1. “Push” or Firm-specific motivators .................................................................... 33 3.3.2. “Pull” or Location-specific motivators ............................................................... 36 3.3.3. Other FDI determinants (Industry, government, chance, timing) ...................... 39 3.4. Obstacles that investors associate with FDI locations .................................................. 41 4. EMPIRICAL STUDY ................................................................................................................... 43 4.1. Response rate ................................................................................................................ 43 4.2. Analysis of results ........................................................................................................ 44 4.2.1. The profile of Danish companies in Lithuania ................................................... 45 4.2.2. Reasons for Danish companies to invest in Lithuania ........................................ 49 4.2.3. Problems that Danish companies come across in Lithuania .............................. 57 4.3. Other findings ............................................................................................................... 68 4.4. Experts‟ opinion ........................................................................................................... 69 4.5. Linking theory with empirical data .............................................................................. 70 CONCLUSION ................................................................................................................................... 72 CLOSING DISCUSSION ................................................................................................................. 74 2 List of Tables Sources of data ......................................................................................................................... 16 The Eclectic paradigm .............................................................................................................. 30 The levels of Network/Relationship theory ............................................................................. 31 The “Push” factors of FDI ........................................................................................................ 33 The “Pull” factors of FDI ......................................................................................................... 37 FDI barriers .............................................................................................................................. 42 Survey response rates (by number of companies and employees) ........................................... 43 The overall assessment of Lithuanian business climate ........................................................... 68 List of Figures Fig. 1: Thesis structure and Line of Thought ............................................................................. 6 Fig. 2: Inductive and Deductive Reasoning in the Research Process ...................................... 13 Fig. 3: Reliability & Validity ................................................................................................... 20 Fig. 4: Course of action ............................................................................................................ 22 Fig. 5: Theoretical framework .................................................................................................. 24 Fig. 6: Internalization process .................................................................................................. 26 Fig. 8: The internal reasons (“push”) for Danish companies to enter the Lithuanian market .. 46 Fig. 9: The main reasons for Danish investors to choose Lithuania ........................................ 50 Fig. 10: Factors attracting Danish FDI to Lithuania: cheap, abundant labour pool. ................ 51 Fig. 11: Factors attracting Danish FDI to Lithuania: labour skills. .......................................... 52 Fig. 12: Factors attracting Danish FDI to Lithuania: proximity to suppliers, customers. ........ 52 Fig. 13: Factors attracting Danish FDI to Lithuania: host country location. ........................... 53 Fig. 14: Government and policy related factors‟ ability to attract Danish FDI into Lithuania 54 Fig. 15: Factors attracting Danish FDI to Lithuania: cheap land, real estate, low operating cost. .......................................................................................................................................... 55 Fig. 16: Factors attracting Danish FDI to Lithuania: low taxes. .............................................. 56 Fig. 17: Factors attracting Danish FDI to Lithuania: personal relations. ................................. 57 Fig. 18: The main problems that Danish companies come across when doing business in Lithuania. .................................................................................................................................. 58 Fig. 19: The main problems in the Lithuanian business environment: corruption. ................. 59 Fig. 20: Doing Business Index ................................................................................................. 61 Fig. 21: The main problems in the Lithuanian business environment: corruption. ................. 62 Fig. 22: The main problems in the Lithuanian business environment: lack of knowledge, skills; poor education. .............................................................................................................. 65 Fig. 23: The main problems in the Lithuanian business environment: macro-economic and demand factors. ........................................................................................................................ 66 3 Abbreviations BDF – The Baltic