Country Level Analysis For Expansion In Poland

Introduction

This report is related with assessment of opportunities and potential in Poland with respect to foreign direct investment. According to Wang et al., (2012), foreign direct investment is considered to be an investment that is made by the corporation or person of one country into other country for business interest. In addition, this can be done by acquiring a company or launching a new business in another country. This is basically the ownership control of business in one country by entity in the other country. The assessment is done on the basis of political, social, technological as well as economic factors. The national resources as well as factor endowments are discussed in the report. In next sections, the existing trade policies, systems, barriers and incentives in Poland, foreign currency and exchange influences, existing levels of foreign direct investment, existing levels of foreign direct investment are discussed in this report. At the end, summary is provided.

 

1.General overview of Poland

Poland is one of the famous countries in Europe. It has area of 312,683 sq. km and Warsaw is its capital. This country has population of 38.3 million and is continuously increasing because of migrants (Index Mundi, 2016). There are different ethnic groups in Poland including Polish, German as well as Ukrainian, Armenian along with Belarusian. The national language of Poland is Polish and majority of the people are associated with Roman Catholic religion. The literacy rate in Poland is 98% that is why its workforce is highly educated. The workforce is employed in different sectors. 29% of workforce is employed in industrial and construction sector (CIA, 2016). In addition, 16.1% and 54.9% of Poland’s population is employed at agriculture and services sectors, respectively. The type of government present in Poland is republic that focuses on democracy and various significant legislative processes. The government of Poland provides civil rights to the citizens. The economy of Poland is quite stable with $474.9 billion GDP, 3.6% GDP growth rate as well as 2.5% inflation rate (Index Mundi, 2016). There are different types of natural resources present in Poland that include coal, silver as well as salt, copper, natural gas along with sulfur and lead. The main agriculture products of Poland include grains, dairy items, vegetables like potatoes and other items including hogs, oilseed and sugar beets are abundantly present in Poland. Different types of industries are working in Poland including construction, chemicals industries, automobiles as well as mining, furniture, food processing, beverage along with shipbuilding pulp and paper industries. The products produced by these sectors are exported to the other countries.  According to Blonigen (2005), the economy of Poland is continuously developing and growing. In addition, it has huge potential to attract the foreign companies. In this report, the analysis of Poland will be done and the opportunities as well as potential for foreign direct investment will be assessed. Foreign direct investment is considered to be an investment that is made by the corporation or person of one country into other country for business interest. In addition, this can be done by acquiring a company or launching a new business in another country. This is basically the ownership control of business in one country by entity in the other country.

2.Political, Economic, Socio-cultural and Technological benefits

It was stated by Gorynia et al., (2007) that there is an impact macro environmental factor FDIs and some of them can negatively influence the operations of FDIs in host country. In addition, the major macro factors include political, economic, well as technological and socio-cultural. There are different factors present in Poland that enables the FDIs to work effectively and to attain their business objectives. Some of the factors in Poland may not be suitable for FDIs and can be a great threat for them. These factors are discussed one by one, as under:

2.1.Political factors

Poland is considered to be a politically stable nation. There is proper law and order in Poland for transfer of power. The laws and regulations regarding FDIs are made by the government of Poland. It was stated by Zimnay (2010) that no politically motivated violence against foreign investment projects in Poland are observed in past few years. In addition, the government of Poland has made non-discriminatory rules and laws for the foreign companies, operating in Poland. It was mentioned by Zimnay (2011) that in Poland, both international as well as domestic investors must obey the laws regarding taxation, labor issues, workforce’s health and safety along with external environment. In addition, the tax system and laws relevant to FDIs are quite strict and strict penalties are imposed on minor mistakes. Acaravci and Ozturk (2012) mentioned that the inflow of FDI is highly dependent upon the political as well as economic conditions of host country and Polish government is encouraging as well as supporting the inflow of FDI and enabling the international investors to expand their businesses in Poland. The Polish government is supporting the realization of foreign direct investment in the form of public aid. In result, the FDIs play an important role in economic development of Poland by providing job opportunities, technology transfer, improving labor market. The particular system called “Support system Polish economy” is used by Polish government and support is provided in the form of grants for the long-term FDI programs (Degryse et al., 2012). Between 2007 and 2015, Poland’s government supported different FDIs including The Royal Bank of Scotland, Global e-business Operations, Orion Electric, Toyota Motor Manufacturing and many others. This indicates that the political conditions are in the favor of FDIs and there are huge opportunities for foreign investors to invest in Poland.

2.2.Economic conditions

The economy of Poland is considered to be one of the fastest growing economies in the EU because of high rate of GDP growth and innovative workforce. According to CIA (2016) Poland faced economic recession in 2008 but since 2014, Polish economy is growing at a fast pace. In addition, the GDP growth rate in 2015 was 3.6%, industrial production growth rate was recorded as 5.4% and the country has 17.76 million labor forces. Moreover, unemployment rate in Poland in 2015 was recorded as 10.5% and inflation rate as -1%. It was stated by Jordaan (2012) that the purchasing power of people in Poland is increasing because of huge employment opportunities provided by national as well as foreign companies. The economic factors are quite favorable with respect to FDI. The foreign investor can invest in growing Polish economy and avail different benefits. It is important to understand that there are some challenges prevailing in Polish economy including poor roads and infrastructure, rigid labor code as well as heavy business taxes imposed by Polish government (Liargovas and Skandalis, 2012) However, the positive economic conditions can enable the foreign investor to enter and become successful in Poland.

2.3.Socio-cultural advantages and influences

It was stated by Rodriguez et al., (2006) that the FDI can be affected by economic, cultural as well as social and political background of host economy. In addition, it was also stated that the impact of culture on business practices and different factors including educational level, literacy rate, urbanization, demographics and sociological factors can attract foreign direct investments. The population of Poland is 38,523,261 among which 17.76 million is the labor force (CIA, 2016). In addition, there are different types of ethnic groups present in Poland, have different religious and cultural values. Majority of the population speaks Polish language and more than 50% of population is between 15 to 54 years of age. CIA (2016) also identifies that 60.5% of Polish people are living in urban areas. This indicates that majority of the workforce is also in urban areas and are employed in different sectors. The foreign investor investing in Poland can avail the opportunity to hire the labor force. As mentioned by PAlilZ (2016), the workforce in Poland is high innovative, continuously focusing on research and development and have skills as well as capabilities of performing different roles in various sectors of Poland. In addition, there is 38million consumer market in Poland is considered to be one of the largest Europe’s market. The foreign investors investing in Poland can attract the huge customer market and earn huge profitability.

2.4.Technological influences and advantages

Poland is focusing on continuous research and development. There is wide range of R&D programs offered by the government of Poland and the foreign investors can also participate in these programs. As per U.S Department of State (2012), the workforce in Poland is well-educated and there are huge number of IT personnel, engineers as well as scientists and economists in Poland. In addition, Poland is focusing on technological advancements. This indicates the foreign investors investing their money can get benefited from technical workforce and use latest technologies in different sectors.

3.National resource and factor endowments that create competitive advantage

Poland is enriched with different types of national resources. There are different types of natural assets present in Poland that can be used by the foreign investors. These resources include minerals, crude oil, natural gas, petroleum as well as coal. These resources are being used by different sectors of Poland, especially manufacturing and energy sector. There are different factor endowments that have created competitive edge for Poland. Poland is an attractive country for FDI because of its land, labor force as well as physical and intellectual capital (Degryse et al., 2012).  There are highly skilled labors as well as high professional workers present in Poland. In addition, Poland is focusing on effective education systems and there are more 460 academic centers with almost 1.8 million students in them (Ministerstwo Skarbu Panstwa, 2015). Due to high standard Polish educational systems are leading towards innovation, technology as well as creativity. The agricultural land of Poland is very fertile and the strategic location of country makes it highly attractive for FDIs. Poland is located at the junction of the East-West and North-South communication routes and enabling the foreign investors to invest in different Polish sectors. The communication and transportation facilities in Poland enable the smooth flow of information, goods and services in various parts of Europe. The main factor that highlights the importance of Poland’s physical location is its access to the Baltic Sea (Index Mundi, 2015). In addition, there are 4 major ports in Poland through which the freight reloading processes are carried out.  The main assets of Poland include its strategic position, well-educated large population, EU’s membership as well as cheap labor force and vast business sectors. Thus, Poland is enriched with different types of resources as well as endowment factors that can enable the foreign investors to enter and become successful in Polish economy.

4.Foreign currency and exchange influences

In Poland, the foreign currency can be exchanged through various exchange offices as well as commercial banks. In addition, the payments and transfers in convertible currency can be easily received and paid via different authorized bank to involve in foreign exchange transactions in Poland. Majority of the banks in Poland are given authority by the government to exchange foreign currencies. It was mentioned in the 2015 Investment Climate Statement report by U.S Department of State (2015) that the foreign investors in Poland have not to face issues or problems regarding remitting investment returns including dividends, capital return as well as interest and principal on private foreign debt. In addition, the foreign investors can easily make and get lease payments as well as management fees along with royalties through different banks. The external investors can easily use foreign currencies for accounts’ settling. It is important to understand that the full IMF Article VIII convertibility for current transactions is offered by Poland to foreign investors (Slusarczyk and Kot, 2012). Furthermore, different amendments were made in the Polish Foreign Exchange Law and it has complete compliance with the OECD Codes of Liberalization of Capital Movements and Current Invisible Operations. Poland provides relaxation as well as easiness to the foreign investors. They can easily convert or transfer various currencies for making payments for products or services and can transfer their shares out of the country after paying tax on profit earned thorough business operations in Poland (Madura, 2011). The international investors are allowed to withdraw their capital from Poland quite easily. However, there are some cases in which permit is required and full profits as well as dividend amount can be taken out of the country after getting a permit. There is an important term called double taxation treaty under which a Polish corporation (counting a Polish subsidiary of a foreign corporation) have to pay the withholding taxes to the Polish tax authorities before distributing the dividend amount (Medve?Bálint, 2014). However, the double taxation treaty is present between US and Poland. As per this treaty, a business concerns having its headquarters outside of Poland is liable to pay the amount of corporate income tax against income earned through operations in Poland. In Poland, there are different foreign exchange regulations that make non-bank companies trading in foreign exchange or working as currency exchange bureau to provide reports to the National Bank of Poland (NBP) for proper record and maintenance (Slusarczyk and Kot, 2012). The exporters in Poland are also allowed to open foreign exchange accounts in the most suitable currency. It is indicated that foreign investors can transfer as well as exchange their currencies easily in Poland with the help of banks as well as other institutions, thus enabling them to easily conduct business operations in Poland and leading towards competitive edge.

5.The existing trade policies, systems, barriers and incentives in Poland

According to International Financial Law Review (2014), the government of Poland has made a strategy to attract the foreign direct investment for attaining different objectives including increasing innovative investment and to generate productive employment opportunities for the people. In addition, the government of Poland has made certain laws, trade policies as well as systems to improve the conditions of FDIs. Polish Information and Foreign Investment Agency known as PAlilZ is formed by Poland’s government. The duty of this agency is to handle the issues related with FDIs and to meet the needs of investors. Foreign investors can invest in Poland through FDI by:

  1. Forming limited liability company because it fulfills the needs for small as well as large scale business activities
  2. Focusing on joint-stock companies for operating large activities and raising funds with stock exchange

It is important to understand a significant trade policy in Poland regarding FDIs. That is, entities from countries that are not included in EEA (European Economic Area) can only perform business activities through limited joint-stock partnership, limited partnerships as well as limited liabilities companies (Gorynia et al., 2014). In addition, these types of companies can be formed by signing bylaws and get registered in National Court Register in Poland. The elementary legal outline for starting and running businesses in Poland by the foreign investors is present in the Commercial Companies Code of Poland.

5.1.Restrictions or barriers regarding FDIs in Poland

There are certain rules as well as policies made by government of Poland regarding different sectors of country. The foreign investors are restricted to invest directly in different sectors of Poland including mining, financial services as well as energy sector (Hunter and CSV, 2013). However, in order to conduct businesses in these sectors, investors have to take permits, licenses and have to sign certain undertakings. The legal laws and policies in Poland related with identified sectors are different from other business sectors (Rodriguez et al., 2006). For example, the energy sector businesses are working in Poland under “Energy Act Law” and special permit is given by the “Energy Regulatory Office”. It is also important to understand that certain limits on various sectors are placed by government of Poland regarding foreign ownership and foreign equity.  For example, a foreign investor who is not the EU citizen is limited to 49 % ownership of a corporation’s capital shares TV broadcasting, air transport, radio broadcasting as well as seaport operations divisions. However, the investors from OECD countries can obtain licenses for defense production and management of seaports.  According to Santander Trade Portal (2016), the Polish law does not allow the foreign investor to invest in real estate as well as land. However, the foreign residents from EU countries can buy the non-agricultural real estate in Poland but cannot purchase the agricultural land. In addition, the big commercial real estate can be acquired by the foreign investor by getting a permit from the Ministry of Interior in Poland. 

5.2.Incentives for foreign investor in Poland

A foreign investor investing in Poland can avail different types of incentives as well as benefits. The Polish government provides number of aids to the foreign investor. These incentives include income tax and real estate tax exemptions as well as investment grants. The investors focusing on FDI in Poland can receive grants for various research and development activities, environmental protection activities as well as for logistics, for generation of renewable energy sources and many others (Bjorvatn and Eckel, 2006). In addition, the foreign investors can get their companies registered in Poland and can participate in different R&D programs. Poland has planned to invest 1.7 percent % of its GDP on R&D by 2020 to formulate a friendly business environment for both local and international investors. However, the basic two incentives provided by Polish government to foreign investors include grants and tax exemptions and an opportunity to participate in various research and development programs.

6.Existing levels of Foreign Direct Investment

As per on World Investment Report 2015 given by the UNCTAD (2015), Poland is included in the top 20 host countries for accepting foreign direct investments in 2014. In addition, the report identifies that one of the basic reasons of high FDI inflows in Poland is its economic condition. The economy of Poland is improving from past few years and is considered as the most attractive countries in Europe for foreign direct investment. Poland is supporting FDI in the new technologies divisions, particularly by means of EU funds and grants (Hardy, 2007). The main investors in Poland include Germany as well as France and the Netherlands. The investors from these countries are investing in production, finance as well as trade sectors of Poland, resulting in job creation. For example, Amazon built a number of logistical centers in Poland in 2014 and created more than 4,000 new jobs for citizens. The inflow of foreign direct investment in Poland for past three years is represented in the table below:

 

6.1.1.FDI Trends in Poland

Despite of huge opportunities in manufacturing sectors, the share of FDI in Poland is increasing in service sector. As per report provided by Polish Information and Investment Agency (2015), the number of FDIs in Poland is increasing in various sectors including automotive, R&D as well as IT and aviation and segments. As per report Santander Trade Portal (2015), Poland is focusing on constructive steps to improve trade across national boundaries and enforce legal agreements. The FDI trend in Poland can be observed from the tables below:

The above table shows that investing countries in Poland are European countries along with US, Austria and UK. In addition, these countries are mainly invested in construction, IT, communication, manufacturing as well as other mentioned sectors in the table.

7.Summary of assessment and recommendations

The assessment regarding foreign direct investment in Poland shows that this country has fast-growing economy and is highly useful because of its strategic position. The political, economic, socio-cultural as well as technological factors present in Poland are highly useful with respect to FDIs. The laws, rules as well as regulations in Poland for FDIs are quite flexible. In addition, government is supporting FDIs by providing different types of grants and tax exemptions. Skilled, educated and competent workforce is great opportunity for FDIs to avail in Poland. Furthermore, the technological advancements and continuous focus on R&D in Poland shows huge potential for FDIs to grow in the country. Poland has competitive edge over other European countries because of its location, labor force, national resources as well as highly efficient intellectual capital. There are certain restrictions imposed by Polish government over FDIs. There are specific sectors in which foreign investors cannot make direct investments and licenses as well as permits are required. Moreover, the current trends of FDIs in Poland shows those foreign investors are focusing on service sectors including IT, real estate, communication as well as construction. The foreign investors are able to exchange different currencies in Poland with the help of different authorized banks and institutions. It is highly recommended for foreign investors that seek to invest in Poland:

  • To fully understand the laws, regulations as well as barriers and policies prevailing in Poland regarding FDIs before entering the Polish economy
  • To focus on innovation as well as research and development to become successful in Polish market and to get competitive edge over competitors
  • To invest in manufacturing sector of Poland because it is big sector and has potential to grow
  • To run business in compliance with different acts related with FDIs
  • To hire the competent as well as skilled workforce from Polish economy to smoothly run the business operations and activities.
  • To invest in those sectors for which legal permission is given by the Polish government. In case, if investor wants to invest in the restricted sectors then legal permit as well as license should be obtained first
  • To produce large job opportunities for Polish workforce for economic growth of country

 

 

 

 

 

 

 

 

 

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