Ranking of promising directions for the expansion of Polish companies
PLN 96.5 billion
was the cumulative value of Polish outward direct investments in 2019
Source: NBP data
of the cumulative value of Polish outward direct investments in 2019 was in Europe
Source: NBP data
is the leader of the ranking with an economy that has been developing rapidly in recent years
Only 4 months
the time it would take to close an investment process in cooperation with PFR TFI
Foreign investments are important for the development of the economy, bringing many benefits both to the host and the home country of the investor. The key benefits for the host country include, for example, a safe capital inflow, the development of new technologies, the transfer of know-how and an improvement in the organization of work and production standards. This in turn leads to an increase in capital expenditure projects and has a positive impact on productivity and therefore on economic growth. Outward investors may, in turn, gain access to new sales markets and optimize their operational efficiency, e.g. through savings in the production process.
According to OECD estimates, in 2020 the flow of outward direct investment may decline by as much as 30%, and that is according to the most optimistic scenario. On the other hand, however, outward direct investment is viewed as support for economies in their recovery from recession.
Due to the pandemic, companies may strive to minimize possible disruptions in supply chains or greater diversification in locating their investments, to mitigate the risk associated with investing only in one country.
"The Polish economy and industry need investment space that can guarantee technological and production development as well as access to raw materials. They also need the courage and determination of entrepreneurs who make investment decisions. Today, Germany and the Czech Republic are the potential investment directions for conservative investors. We know these economies well and we are able to precisely identify the related opportunities and threats. However, it is worth taking a wider look at our part of Europe and the world, and seek out interesting investment opportunities."
The receivables with respect to Polish direct investments abroad amounted to PLN 96.5 billion in 2019 and were PLN 4 billion higher than in the previous year. The vast majority of investments – more than 90% – was located in Europe. The largest amounts of receivables were from Luxembourg, Cyprus and the Czech Republic respectively.
Sweden, Germany, Spain, the Czech Republic and Romania dominated in terms of the value of transactions relating to foreign direct investments, which amounted to PLN 5 billion in 2019. This shows that companies located in Poland focus their investments mainly on neighbouring European countries.
Most Polish outward direct investments (by the amount of receivables) were made by companies from the financial and insurance industries. In 2019, their receivables amounted to PLN 20.7 billion, which accounted for 21.5% of the value of all investments in that period.
In terms of the capital invested by Polish companies abroad annually, wholesale and retail trade (PLN 2.8 billion) came first.
„Polish companies are able to effectively compete on markets both in Europe and on other continents. The results of our ranking show that Polish companies would be prepared to invest abroad not only in the neighbouring European countries, but also on more distant markets. It is crucial to understand the characteristics of these markets in order to reduce investment risk and use the competitive edge of Polish enterprises”
Almost every company planning international expansion would like to be present on large, wealthy markets with wide access to production resources, customers with adequate purchasing power and with a high level of legal protection. Therefore, the U.S.A., Germany, France and Great Britain are usually the preferred markets for direct investment. These four countries are responsible for one-half of the investments made by companies from the EU Member States. China is also usually high on the list, as it is the world’s largest market in terms of population.
However, the pool of countries that are attractive for investors is much wider. Companies considering investing on the largest markets may sometimes miss very attractive opportunities opening up in smaller countries. More importantly, these smaller countries may be the ones in which Polish companies have a competitive edge due to their unique knowledge of operating in the conditions of an emerging market economy, or due to their geographic and cultural proximity.
The general ranking of outward investments was based on a combination of the results of two analyses. The place in the ranking depended on the attractiveness of the country, which in turn was calculated according to a model consisting of several dozen economic indicators, such as GDP, population size and the Human Capital Index). India, Malaysia, Romania, Chile and Thailand are the top five of all the countries ranked. They are fast-growing markets that carry out many reforms to increase their business attractiveness to foreign investors. With respect to investments aimed at reducing costs and making savings in the supply chain, the most important directions are Morocco, Ukraine and Belarus, and with respect to investments aimed at acquiring new customers – India, Malaysia and Thailand.
The report also includes a ranking by the sectors in which investments are made. Five sectors of the economy were presented: processing of consumer goods, processing of production goods, construction, trade, and ICT services. According to the results of the ranking, the most attractive destination for processors of production goods and for construction companies is India, for processors of consumer goods and companies from the ICT sector – Denmark, and for trade companies – South Korea.
“When making decisions about foreign investments, companies often do not take into account the interesting opportunities that are opening up both in distant countries and in countries closer to us geographically, but so far less popular in terms of investment. The attractiveness of these markets for Polish entrepreneurs is due to various factors. In the case of some countries, this will be geographical and cultural proximity as well as similar experiences related to economic transformation. More distant directions, such as India or Malaysia, are characterized by a rapidly growing market and an increasingly friendly business environment and therefore deserve attention”
Companies that decide to invest capital on foreign markets do not have to assume the entire investment risk. There are entities in Poland whose aim is to support the internationalization of Polish enterprises. One of them is the Polish International Development Fund managed by PFR TFI. The Fund supports Polish companies in outward direct investments.
The role of the Polish International Development Fund is to increase the scale of operations by facilitating capital expansion of Polish companies to foreign markets. The Fund supports foreign expansion by investing directly in foreign subsidiaries belonging to Polish companies and sharing the risk of investment with Polish partners. The fund co-invest always as a minority equity investor, or debt investor, leaving their management to the partner. So far, the Fund has concluded investment agreements with Polish partners for more than PLN 300 million.
Application of a Polish company
A company interested in cooperation presents an investment project.
The application is subject to preliminary analysis which includes analysing the company’s experience, its financial statements, ownership structure and project concept.
The application is subject to detailed analysis, which includes analysing the business plan, market analyses, analysis of the competences of project managers and the financial projection.
After reaching an agreement on the basic assumptions of the project, the Fund prepares a draft Investment Agreement.
Cooperation during project implementation
The provisions of the Investment Agreement are adapted to the local law in the subsidiary's articles of association. The Fund supports its partners with its experience at the level of the subsidiaries’ supervisory boards.