investment strategies for manufacturing firms

7/31/2019 Investment Strategies for Manufacturing Firms

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International Research Journal of Finance and Economics

ISSN 1450-2887 Issue 16 (2008)

EuroJournals Publishing, Inc. 2008

http://www.eurojournals.com/finance.htm

Investment Choices, Manufacturing Strategies and

Competitiveness of the Manufacturing Enterprises: An

Empirical Research in the Region of Thrace

Efthimios Stathakis

Department of Production and ManagementDemoctitus University of Thrace, 67100 Xanthi, Greece

E-mail: [email protected]

Demetrios BandekasProfessor, Department of Electrical Engineering

Kavala Institute of Technology, St. Lucas, 654 04 Kavala, Greece


Anastasios KarasavvoglouProfessor, Department of Accountancy, Kavala Institute of Technology

St. Lucas, 654 04 Kavala, Greece


Pantelis AntoniadisAssistant Professor, Department of Electrical Engineering

Kavala Institute of Technology, St. Lucas, 654 04 Kavala, GreeceE-mail: [email protected]

Michel Nikolaidis

Assistant Professor, Department of AccountancyKavala Institute of Technology, St. Lucas, 654 04 Kavala, Greece


Panagiotis ArsenosAccociate Professor, Department of Bussiness Administration

Ionian Islands Institute of Technology, Kefalonia, GreeceE-mail: [email protected]

Abstract

This paper deals with the investment strategies and choices of 48 firms classified to

8 manufacturing industries in a certain poor Greek Region of Thrace, located in

Northeastern Greece, and, whether the certain strategies influenced, positive or negative,the viability and competitiveness of firms. Using an very analytical questionnaire we tried

to research in which certain categories of manufacturing asset Thracian entrepreneurs


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International Research Journal of Finance and Economics - Issue 16 (2008) 144

invested (plant buildings, basic processing equipment, automations, robotics, logistics,R+D, M.I.S, J.I.T, etc) and why the above mentioned firms, despite were subsidized by

state significant incentives with a 65% of invested cost, continue to face very serious

problems in relation to fierce national and international competition. Our empirical method,based on some findings, gives some explanations that concur with other authors who

argued that, every productive investment influences very different the total business

competitiveness. Manufacturing firms invest in MIS, R+D, smart marketing techniques,

logistics, new technologies can, usually, gain more competitiveness than a similar otherwhich invests only in plant buildings, basic process equipment, when both of them didnt

cover all productive capacity and their economies at scale have little positive influence onproduction cost. In the end, we criticize the investment manufacturing strategies involved

by local industrial firms and the state regional policy for industrial development.

Keywords: Competitiveness, SMEs, Investment Choices.

JEL Classification Codes: M21

1. IntroductionThe competitiveness of national economies and, more specifically, of their enterprises has turned intoan essential parameter of the economic policy, which is materialized in the last decades at the world

level (Porter, 1990). Also, as companies respond to global competition, there is a growing recognition

of the pivotal role of manufacturing strategies in determining market success (Zahra and Govin, 1993).This logic, for example, has also been adopted by the European Union with the application of measures

that support the competitiveness of the European economy-and SMEs- against the other powerful

economies of the world, as the economy of Japan and also the Economic Tigers of Southeast Asia(EU, Report on Competitiveness, DG 23/E.C, 2004).

The mix of investments, which have an innovative character in particular, strengthens the

competitiveness by inference. These are the investments that introduce the new technologies (ICT etc)in the productive process, improve the quality of the produced products/services, and put pressure for

the application of much more modern, smart, unimitated and flexible forms of manufacturing. Suchmanagerial tools start and drive the processes for more dynamic ways of the promotion and distribution

of products/services in the national and international markets and develop more effective factors forsmart manufacturing yield management (Palaskas and Arapoglou, 1999; Clegg and Wall, 1987).

Thus, the well-planned investments can create not only complete manufacturing competitive

advantage but to contribute to increase of the enterprises market share and gain additional consumers(Skinner, 1992).

The investment choices of the enterprises must not be considered successful by definition.

Their degree of success depends on a plethora of factors that are directly related to the internal andexternal environment in which they are implemented. For instance, its absolute wrong to invest huge

amounts in automations,etc, in order to improve drastically the cost/quality of classical ICs while the

competitors respectly invest in R+D for new neuronal ICs using new materials. In every case, theresponse of the enterprises to the objectives that are placed in the framework of the investments that are

each time undertaken and materialized offers an exceptionally interesting reflection. Thus, this is alsohow the size of effectiveness of the objectives, which has been formulated, is shown and consecutively

the correctness of investment choices that have been planned.So, the aim of this paper is to evaluate the investment strategies/choices that have been planed

and materialized in the sector of manufacturing in the certain geographical region of Thrace/Greece,

during the period of 1988-2002. Taking into consideration the degree of the investments contributionin the improvement of the competitiveness of the enterprises that materialized the investments carried

out the evaluation. The choice of the region as well as the choice of the time period is not accidental.


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145 International Research Journal of Finance and Economics - Issue 16 (2008)

First of all, Thrace is one of the least developed regions of the EU, despite the various efforts ofthe Greek Governments to promote the objective of fast economic convergence of this region.

Complementarily and additionally to the action of the E.U regional development programs/initiatives,

the Greek State undertook efforts for the improvement of the socio-economic situation in the regionmainly by offering special investment incentives for manufacturing enterprises, which would realize

investments in the region. Indeed, in a period of fifteen years, during 1988-2002, developmental laws

were applied that offered such special investment incentives to the inventors that covered up to 65% of

the total cost of investments. This percentage is particularly high and it is not an exaggeration to saythat these beneficial regulations are unprecedented for Greece (Region of East Macedonia and Thrace,

1999).Therefore, a logical question arises. This is whether the policy that the Greek State followed

with the application of the relative developmental laws and mainly the industrial investment policy that

was materialized by the manufacturing enterprises, was effective and how much. In the outline of this

article we investigate, as we mentioned before, the second of the two questions. In the epicenter of theanalysis are the evaluation of industrial investment strategies and the results of investments, which

were realized according to their contribution in the improvement of the quantitative and qualitative

competitiveness (Clark et all, 2004).For this aim, we will initially state the relation to the subject bibliographically, and then we will

briefly present certain basic aspects of the economic situation of the region of Thrace. Next, we willdiscuss the methodology and the results of the empirical research that was made carried out and finallydraw certain useful conclusions.

2. Literature ReviewDuring the last few years in worldwide, much of the analyses and discussions take place in order to

discover the reasons that caused the closure of many manufacturing enterprises, the low levels of

competitiveness, as well as the general philosophy, but also the effectiveness of the regional industrialand developmental policy that had been followed. It is well known that Skinner is the first author who

defined manufacturing strategy, how it can be supported by smart productive investments and how it

has to be integrated in corporate strategy (Skinner, 1969).After that, many other experts presented different aspects on manufacturing strategy. Along

with the development of information technology and fierce competition among manufacturing firms,

how to best use, manage and apply enterprise resources has become a critical issue in industrialtransformation. Many attribute it to difficult conditions that have been emerged in the new economic

environment-globalization, new economy, new information technologies, etc (Zahra and Govin, 1993),

others attribute it as a normal development-everything in the business world changes, nothing is the

same as yesterday (Hamel, 1996).The opinion that prevails in the bibliography is that difficulties of response in the challenges of

competition and consequently a problem of survival appears in those manufacturing enterprises that do

not proceed in the necessary investment and operational adaptations, such as special investments in

new technologies for the acquisition of characteristics of flexible specialization, investments in humanpotential, investments in intelligent and efficient channels of distribution and sales, strategic alliances

with suppliers and distribution channels, etc (Kotter, 1995).Numerous businessmen (at least in Thrace and Greece and in other European countries)

continue to insist that the problem of low productivity-competitiveness regarding their units is mainly

connected to the negative external environment and is partially focused in the internal environmentsuch as in elements of the operational costs (characteristically, energy) and in the high cost of workers

(Thracian Manufacturers Association Newsletter, 1997; Duck, 2001).

However, the cost estimating elements of competitiveness compose a partial expression of theparameters that drastically influence the total competitiveness of the manufacturing enterprises. The

quality of products, the rapid response in the conditions of the markets, their technology and


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functionality, the differentiation of their products from those of their competitors, the distributionchannels, the networking and strategic alliances, the service and the degree of satisfaction of

consumers known as non price qualities- which are those elements that have the same or even

larger importance with the clear cost estimating factors and are encountered less often in the SMEs forobvious reasons. Furthermore, in the surroundings of the new environment of competition, the

enterprises, which survive are those that develop new knowledge, ideas and can turn themselves into

innovative services and have efficient production and smart marketing techniques (Christensen, 2000).

Moreover, the contest between the enterprises for the acquisition of the technologicalprecedence, also presupposes the ability of adaptation in the altering conditions of supply and demand.

Regarding the types of adaptations that occurred to industrial enterprises in the last 15 years, they wereaided by investments from basically two directions:

Firstly, it is an explanation of the adaptations with a point of reference to the productiveprocess. Here, the adaptations regard the factors of production and their flexible

exploitation, the strategies of manufacturing enterprises with the concretization of plansconcerning the exploitation of knowledge, new technologies and the strategic alliances, and

finally the improvement of the quality of the resulting products and the penetration into new

markets (OECD, 1996; Clark et all, 2004).

Secondly, it is an explanation of adaptations in the organizational operation of enterpriseswith the compaction of the levels of organization, the entry of new informational systems inthe enterprises, and the adoption of outsourcing policies, etc (Bain, 1956).

Many researchers worldwide-even now days- when discussing investments that themanufacturing enterprises make, they mainly refer to the Standardized Production, the economies of

scale, the normal concentration of activities, meaning the basic characteristics of the metafordism

model of production. Indicatively, Skinner presented the idea of the focused factory in which theinvestment manufacturing strategy should be focused only in one or two priorities or factors keys of

success (Skinner, 1974). Later, Hill suggested that the decisions of investments in the plant/productive

installations are influenced by the market, the intensity of competition, from tendencies for strategic

alliances, and consolidations or repurchases. Hill additionally argues that oddities exist in theinvestment decisions with respect to their strategies and their objectives (Hill, 1995).

1. Thus, he reports the following oddities, which were also pointed out by (Hayes,Wheelwright, Clark, 1988).

2. Lack of explicit interconnection between business strategies and manufacturing strategies.3. Inconsistency between decisions in industrial investments that should turn into productive

installations and the interconnection of these with manufacturing competitive advantages(Hayes, Wheelwright and Clark, 1988).

In order for one to be credible to discuss the reasons why productive investments are made in

manufacturing SMEs and the industry in which they are realized, one must investigate numerousenterprises and in various different branches, because this subject is very complex (Skinner 1974).

Therefore, the international bibliography leads to the conclusion that the interactions between the

composition of manufacturing productive investments of the general business strategy and total

competitiveness are very important (Skinner, 1974; Cohen and Zysman, 1987).Moreover, someone must observe that: Firstly, the industry branches in which an

manufacturing enterprise belongs, considerably influences the composition of industrial investments

quantitatively and qualitatively and that in turn influences the competitiveness of the enterprise in allthree factors: cost, quality, and the satisfaction of customers. Secondly, in all industries some

manufacturing productive investments such as robotics, intelligent and differentiated channels of

distribution, investments in R&D, innovations, and human personnel education influence, in a muchgreater degree, the total competitiveness in comparison with equivalent investments in buildings and

basic productive machinery. This, partly, exemplifies the preference of many big enterprises for

outsourcing (Skinner, 1974; Wheelwright, 1984; Dixit, 1978) has also dealt with the same subject andgave particular emphasis in special manufacturing capital investments targeting the acquisition of


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powerful competitive advantage and the exclusion of new enterprises from entering in the certainmarkets. Such special investments are:

1. Investments in experience, thus, in manpower (learning by doing).2. Investments in intelligent/smart marketing tools for attracting new profitable clients.3. Investments for a big extension of the products lines (brand proliferation, or new products,

or new uses for existed products, etc).

4. Investments in new technologies (advanced information and robotic technology) andpioneering innovations that create holistic manufacturing competitive advantage againstto competitors that intend to enter the same markets.

Economies of scale raise another interesting question that is related to the type ofmanufacturing investments and the total competitiveness. Such economies exist in various

manufacturing industries where big enterprises produce the unit of products at a lower medium cost

than that of small units that operate in the same industry (Bain, 1956).

Nevertheless, according to Dixit (1978), economies of scale may not only exist in production,but also in other business operations and that the small to medium-sized manufacturing enterprises

should mainly seek them not through simple productive extensions but mainly through intelligent

investments, collaborations, strategic alliances and subcontracting.However, such activities are valuable as strategies of acquisition of cost, estimating competitive

advantage, only when the existing productive capacity of a certain enterprise or industry is alreadydeveloped/matured in high degree near 100% or moreover, the demand is flexible and amounting andwhen new markets are continuously being created. Finally, the survival of the SMEs is considerably

influenced, not as much by the quantity of productive investments as from the type/mix/quality of

these. In other words, some smaller but smarter investments in manufacturing SMEs ensure usuallybetter economic results (Bain, 1956; Kotha and Orne, 1989).

3. Characteristics of the Economy of ThraceThe Region of Thrace has a population of 363.820 residents (census 2001) and results in, roughly 3.2%

of the population of the Country. From 2001 until 2004 small increases were recorded, which concern

the indicator of a natural increase of the population (supremacy in births/1000 residents: 2.3 in 2001and 2.6 in 2004).

The region covers an area of 8,578 km2

and occupies the 6.50% of the total extent of thecountry.

In the year 2004 contributed in the gross domestic product of the country a percentage of 2.3%.

Correspondingly, in the same year, the region produced 20% of the total production of cotton (3rd

mostproductive region in the country), 14% of the total production of meat, and 14% of the production of

cheese (3rd most productive region of meat and cheese, respectively, in the country), while only 3.5%

of the entire area of the rural sector of country is in production. The total participation of agriculture in

the regional product amounts to 9.8%, of the industry, 16.1% (with 6.9% from the manufacturing,0.1% from the mining, 7.5% from construction and 2% from the energy), while that of the services

amounts in 74.1%.The region disposes of rich natural resources; the 29.4% of the soil is cultivable, produces the

35% of the technical timber of the country, exhibits, mine wealth, areas of geothermal energy and has

an extensive nice coastal area. However, it reflects a low degree of utilization of these resources,

mainly because of its distance from the large markets resulting from the lack of a network ofinfrastructures, the insufficiency of specialized personnel in all three sectors of production, and

insufficient training of human potential.

It was in past stated that Thrace offered a particularly attractive opportunities for investors dueto very strong investing incentives and for geostratigical reasons. By the application of the

developmental Laws: 1262/82, 1892/90 and 2601/98 that was in force in the period between 1988-


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2002 have been planned, granted and implemented 753 investments of a total productive cost of 3.2billion that created gradually roughly approximately 14 thousand work places.

In the following table 1, table 2 and table 3 certain data for the manufacturing firms are

presented, which explicate the size of the utilization of the sate incentives for investments and goalsaimed through their investment choices.

Table 1: Information about Investments funded by special development laws for the period of 1988 2002

Laws, 1262/82, 1892/90, 2601/98 Number of investments Total investment productive cost in New jobs

Total 753 3.200.000.000 13.892

Average-per year-of the period

1998-200250,2 213.334 926

Source: Ministry of National Economy

Table 2: Percentage % of Thracian manufacturing firms with profits or losses for a period of 4 years

Profitable(net profits) With losses

Industries (6firms/industry) 1999 2000 2001 2002 1999 2000 2001 2002

Food/beverages 38,40 42,10 40,30 39,90 61,60 57,90 59,70 60,10Textiles 77,50 77,00 76,40 75,80 22,50 23,00 23,60 24,20

Garments 26,90 26,10 25,50 25,00 73,10 73,90 74,50 75,00Wood processed products 67,80 72,20 70,30 71,50 32,20 27,80 29,70 28,50

Furniture 33,60 32,00 34,10 34,00 66,40 68,00 65,90 66,00

Aluminum products for constructions 73,20 74,40 75,70 75,00 26,80 25,60 24,30 25,00

Plastic materials/products 83,30 85,00 84,50 86,40 22,70 15,00 15,50 13,60Electronic devices-constructions 84,70 75,20 75,90 83,60 15,30 14,80 14,10 16,40

Total of sample(weighted) 67,60 71,40 66,50 67,20 22,40 28,60 23,50 12,80Source: Firms Balance Sheets published

Table 3: Desirable goals aimed by investments of Thracian manufacturing firms

Targets of

investments

Food /

Beverages%

Textile

%

Clothes

%

Timber

%

Furniture

%

Chemical

plastic

materials%

Aluminum

constr.%

Electrical

inst.%

Average

%

1. Expansion of

buildings andproduction lines forthe same products

52 53 45 46 40 32 50 7 40,6

2. Expansion of theproduction lines forslightlydifferentiated

products

18 15 17 20 20 28 20 17 19,6

3. Expansion of theproduction lines fortotally different

products

13 4 20 5 8 10 16 38 14,2

4. Expansion ofstorehouses

5 18 3 10 15 10 10 3 9,5

5.Automations,robotics etc.

4 6 4 3 3 3 2 28 6,6

6. Distributionchannels

2 1 4 1 4 2 2 4 2,5

7. Energy savings 4 1 5 17 7 6 - 2 4,6

8. Waste

Management2 2 1 2 3 9 - 1 2,5


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4. The Empirical ResearchIn this article we tried to investigate the type, in depth, of investments that the manufacturing

enterprises made in the region of Thrace during the period of 1988-2002, which criteria used in theselection of these particular investments and why, if they helped their firms to increase, in

quantatitative/qualitative basis, competitiveness, how much (%) each type of investments contributed

to total competitiveness improvement, etc. Moreover, we tried to examine whether and how much the

general strategy of the enterprises was according to the particular manufacturing one and the

investment choices in order to finally make the optimal result for them.In order to control the above questions, empirical research was carried out maintaining the

characteristics that are reported below.

4.1. Methodology of the research

The empirical research was completed with the use of a special questionnaire in the autumn 2005.

Thus, 5,5 years have passed since the last year (2002) of the reported time period and the businessmenwere substantially in place to record, imprint and evaluate the effects of the investment drawings that

were made in the meantime, in the issue of competitiveness-forecasted and realized- of their firms.

The method for the collection of data was in the form of personal interviews, where the

participants gave answers to the questions of the questionnaire in the presence of the researcher. In caseproblems existed in the comprehension of a question or in the way of completing it, the researcher gave

essential explanations. The researchers were instructed before the processes of the interviews were tobegin. The ones questioned were basically Shareholders/owners at 13%, General Directors (CEOs) at

59%, Economic Directors (CFOs) at 16%, and Directors of Production (CPOs) at 12%. (Likerts

scale from 1-5 point used, etc)Because of the fact that there is no good database with details of the enterprises of the Region

in Thrace, the method of an accidental sample collection was not used, but instead a selection of the

enterprises that participated in this particular research was picked. This choice was made based on size,

the industry of the economic activity in which they belong, the legal form and the subsidy of totalproductive investment cost from the developmental laws mentioned in previous. Additional conditions

for the choice of the enterprises were: The selected enterprises should have been invested and grantedbefore 1998, employ at least 5 persons, so that to have useful results by the year 2000, and beyond andto publish economic statements.

Though the initial selection included 80 enterprises, barely 48 finally supplemented the

questionnaire (54.4%). These enterprises were separated into eight different industries. The percentageof distribution of enterprises in this research for these industries roughly corresponds to the specialweight and the contribution that each industry had in the economy of the Region. Generally, one may

claim that the mixture of the enterprises that chose in the research included enterprises from the most

important industries of the regional economy.However, the number of the sample enterprises was not big enough, as it represents only 5,22%

of the enterprises which invested and granted generous by the 3 regional developmental laws

mentioned in previous. But, statistical, they are satisfactory to give well-documented and useful results.

4.2. Results of the research and evaluation

4.2.1. Distribution of investment expensesThe investments that the enterprises of the sample made are distributed in 7 categories, according tointernational statistical standards. The distribution is presented in table 4.


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Table 4: Distribution of investment expenses in certain categories

Sector

Buildings +

surrounding

environment

Machinery

equipment

installation

High-tech

automatisms

systems of quality

control

Marketing

channels of

distribution

M.I.S

J.I.T

Logistics

R+D

Training

of

personnel

Food & beverages 46,9 42,4 2,4 6,4 1,0 2,4 0,6

Textile 45,4 43,6 12,6 2,2 1,1 0,1 0,5

Prepared clothes 45,2 41,2 9,4 8,4 1,4 0,2 1,2Timber 38,8 42,8 2,2 2,4 1,3 0,2 0,1Furniture 41,2 42,6 3,4 6,9 1,9 0,3 0,1Aluminum-Iron

constructions38,8 40,4 2,4 3,7 1,2 0,8 0,1

Plastic materials 41,4 39,2 3,8 3,2 1,0 0,8 0,1

Electronic

constructions35,5 38,6 28,2 3,6 3,90 2,4 2,2

Average 41,2 40,6 7,8 4,6 1,6 0,7 0,7

The facts are shown below:

a) The enterprises invest in building equipment and relevant labor between 35.5% for the industryof electronic manufacturing, which is also the lowest percentage, while it is 46.9% for the

industry of foods and drinks, which is the highest percentage. On average, the 41.2% of

investment resources are focused in building installations. Based on the Greek and Internationalexperience, the SMEs proceed in such investments mainly when they have excess demand and

the productive capacity exploited 100%, or they are subcontractors and have long-lasting

contracts of collaboration. Hence, based on the plan of production-shift-and deposits they knowprecisely what they should do (Acs, 1996).

On the contrary, when the degree of utilization of the existing available productive

capacity is low (below 60%), the production has the ability to increase by developing the

productive functional process more efficiently. In such case, the problem of the decreased salesis less cost estimating and more a subject of quality and insufficient marketing strategy,

whereas such investments of extension of buildings and production capacity for the same

products overload the constant costs disproportionately and are in general of low repercussionin the whole competitiveness of the enterprises (no economies of scale).

Tables 5(5.1, 5.6) show the reasons that prompted the investors to make the particular

choice. The basic reasons, the businessmen reported, are their convictions that the mainproblem of their units is a problem of the size of installations of production-a non-guaranteed

production of economies of scale-and consequently the existing installations need capacity

extension. At this point, we should contemplate that the enterprises did not exhaust in any casethe limits of utilization in the productive possibilities/capacities of their units (production and

technological potential, shifts, etc), something that means that additional building/basic

productive installations did not target the heart of the problem of competitiveness.b) Regarding basic production equipment and installations (mainly for an increase of the

productive capacity targeting cut off cost due to negative influence of the economies of scale),

the enterprises invest from 38.6% in the industry of electronic manufacturing, where it is the

lower percentage, to 43.6% in the industry of textile, where it is the highest. On average,enterprises invest 40.6% in production equipment and installations. Once again, based on the

Greek and international experience, this means that limited and useful resources are led to

investments with low repercussion in the whole competitiveness of the enterprises based onwhat was already reported for buildings (Acs, 1996).

Also as in the above cases, the case of investments in basic equipment and basic

installations, the facts shown in the tables point that businessmen had the opinion that the lowcompetitiveness was a cause of better exploitation of economies of scale and that, with the


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extension of the production lines already existed, the enterprises would achieve a decrease inthe production cost and therefore would improve their whole competitiveness.

c) Regarding high tech automations, robotics, quality control and pertinent systems, theenterprises invest from 2.4% in the industry of foods-beverages, where it is the lowest, to28.2% in the industry of electronic manufacturing, where it is the highest percentage. The

average is 7.8% and which is very low, based on the international experience, almost 33,4 that

of Germans (Eurostat 2001 Panorama of E.U Industry, DG 23). It is obvious, of course, that

such investments contribute very considerably to the qualitative and cost estimatingcompetitiveness, mainly of small to medium-sized industrial enterprises, such as the case of

SMEs of Thrace (Miles and Snow, 1978; Audretsch, 1997).The overwhelming-67,8%- majority of the cases of Thracian enterprises which planned

and invested in the automation and high technology, made that particular choice because

through this, they believed, they would accomplish them because their workforce were extra

well-skilled, (not low labor cost, high cost with special expertise) and, at the same time, so thatcould increase the productivity of work Also, according persons interviewed, some times, such

investments resulted to fewer workers in production department and in the remarkable

reduction of direct labor cost-beyond the benefits from the improved labor productivity. Theobjective for the improvement of the products quality and, furthermore, of the better

management, organization and operation of the enterprises is equally importance.d) The investments in smart marketing actions and tools of Thracian enterprises were very little

and concretely on an average of 4.5% of the invested resources. The highest percentage and

8.4% was in the industry of the ready-made clothes and the smallest a 2.2% in the industry of

textiles. In the Greek reality, in regional level, this is not uncommon; after all, it is known thatthe majority of businessmen consider the expenses in the smart marketing tools as functional

cost and not as a long-lasting high output investment action.

According to Kotler (1997) investments in marketing intelligent operations and toolsgive powerful and much more permanent competitive advantages in most products and

services, relatively to the real cost estimating, for the increase of market shares and enlargement

of markets. Though, according to the majority of the Greek experts and politicians, poor

marketing is the most sensitive point in Greek enterprises (Federation of Greek Industrywww.fgi.com.gr; Kotler, 1997).

According to the same tables, one of the main reasons for the limited extent of the

investments in the smart marketing actions was the non-subsidy of such actions by thedevelopmental laws and partly the difficulties of the incorporation of such tools in the operation

of the enterprises due to lack of such know-how and expertise.

e) With regard the investments to M.I.S. (Management Information Systems), J.I.T. (Just In Timeor other similar managerial tools) and Logistics, the industrial enterprises of Thrace,

unfortunately, invest at even lower percentages. The highest percentage 3.9% represents the

sector of electronic manufactures and the lowest 1% the sectors of foods, drinks and plasticmaterials. Also, this finding is not uncommon, because it is known that the enterprises of the

Greek Regions continue to consider the investments in M.I.S., J.I.T. and Logistics asfunctional/operational cost and not as valuable innovative investments. Interviewed personspointed out that such productive investments, firstly dont be granted by special laws, secondly

they dont know many things about them, and thirdly there are many difficulties to incorporate

them in the functional process because of the inexperienced personnel in managing such

systems.f) The investment expenses for R&D are reflective to expenses for the re-education of personnel,

which are almost inexistent as a percentage of hardly 0.7% in average. The best percentages are

found in the sectors of electronics and foods, with a 2.6% and a 2.4% respectively and the worstwith a 0.1% and 0.2% in the sectors furniture, textiles, ready-made clothes and timber.


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The relatively small size of SMEs in the Region of Thrace, the inexistence andoperation of the autonomous departments of R&D, the difficulty to recognize and strengthen

innovation as a prevalent factor of improvement of competitiveness by the businessmen, as well

as, the view that re-education of personnel is an additional element to the increase of cost seemsthat constituted a deterrent parameter in the realization of investments in these sectors.

The above findings show that the manufacturing enterprises of Thrace invest roughly 80% of

the whole capital in buildings, basic equipment, machinery, and installation (that is, extension of

classical production lines without smart tools that, simultaneously, improve the products quality andreduce cost production). These are sectors, which, according to the Greek and International experience,

had to utilize special manufacturing strategies investing mainly in smart managerial tools that supportstrongly the production processing having whole repercussion on cost-effective business operation and

not to activate an increased economies of scale (Acs, 1996). It should be pointed, though, that such

industrial investment strategies constitute an objective and a practice of enterprises with mass

production and, in any case, do not express the SMEs that face other types of problems ofcompetitiveness such as not to fully complete exploitation of the productive capacity even in 3-4 shifts,

the non-existence of originality-innovativeness or non differentiated or smart marketing strategies, etc.

So, when these conditions come together small size enterprises, industry, etc- as in the case ofThrace, such investments have a very small repercussion in the qualitative, quantitative and the whole

competitiveness of the enterprises, roughly the half from what the other enterprises have in the other 5categories of industrial investments (Skinner, 1974). If this continues and also with the degree of theirutilization of their productive potential, which never exceeded the 70%, even in the best of cases, the

ineffectiveness of the investment policy the SMEs followed is proven. Consequently, the investment

strategies of Thracian firms diverge froma) International best practices of SMEs in the same issue, that is, they targeted market

segments-niches-using as competitive advantage the lower cost instead of smart

differentiations incorporated intelligence servicesb) Their general business strategies, as stated by them, for increased competitiveness towards

an increase of sales/markets.

Finally, the survey clearly shows that most Thracian manufacturing firms are at the start of

the modernization/automation curve, when the competitors-in the similar industries- are, almost, atthe peak of the end of the phenomenon mentioned in previous and they are used as subcontractors

by huge firms into the framework of outsourcing strategies (Bylinsky and Moore, 1983).

Tables 5: Reasons for which businessmen choose to materialize the particular investments

5.1. Investments in buildings/plants/storehousesReasons for Investing Percentage % of Selection

1. Increase in areas of production lines -expansion of productive capacity 50

2. Increase in storehouses of raw materials and semi finished products 153. Increase in areas of the complete products 104. Improvement of the functionality/ergonomics 9

5. Improvement of the work environment 86. Improvement of the cost/effective system 4

7. Able to function good with the subordinate buildings 4

5.2 Investments in equipment, machinery, installationsReasons for Investing Percentage % of Selection

1. Increase in areas of production lines -expansion of productive capacity 45

2. New production lines for partially new products 13

3. Improvements of the quality and cost/unit of the products 13

4. Improvement of productive/manufacturing process 13

5. Improvement in the productivity of the production lines 126. Improvement of the labor productivity (in cost and ergonomic base) 4


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5.3 Investments in automatisms, high technology, quality control systemsReasons for Investing Percentage % of Selection

1. Increase of the total productivity of the firm 35

2. Improvement of the labor productivity (in cost and ergonomic base) 253. Decrease of the total productive cost maintaining the product good quality 15

4. Improvement and stability of the products quality 10

5. Increase of the degree of flexibility and of the new production models 8

6. Attempt to create a local competitive advantage without being entirely clear 7

5.4 Investments in actions of marketing, channels of distribution, etc.Reasons for Investing Percentage % of Selection

1. Increase of sales in general 30

2. Increase of the efficiency of sales and of profitability 20

3. Expansion of the market share(existed markets) 15

4. Penetration in new markets 125. Improvement of the distribution channels and sales promotion 10

6. Creation of new distribution channels in subordinate and new markets 8

5.5 Investments in m.i.s, j.i.t, logistics, erps etc.Reasons for Investing Percentage % of Selection

1. Decrease of the general operational cost 25

2. Update of management 203. Entry of internet applications 15

4. Entry of new costing tools, etc. 205. Better supervision of the entire function by the top management 15

6. Entry of T.Q.M and J.I.T tools 5

5.6 Investments in r+dReasons for Investing Percentage % of Selection

1. For the production of new products 25

2. For the improvement of subordinate products 253. For the improvement of subordinate productive/manufacturing process 154. For the set up of an entirely new productive process technology 15

5. For the adopt of best business international practices aiming to transfer/incorporate

them to their firms functions 10

6. For the research of the application of new marketing methods, tools 10

4.2.2. Further discussion on the correlation of investments and total competitiveness of

the surveyed firms, based on previous findings.The businessmen were contacted to evaluate the repercussion and contribution of the investments that

were planned towards the improvement of partial or total competitiveness of their enterprises, as they

expected in the future. It becomes clear that the discussion is about the expectations that had beenformed in the phase of designing of the investment. The result of the actual contribution of investments

towards the increase of competitiveness it will be discussed later. The relevant results are recorded in

table 6.


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Table 6: Businessmens estimate of the investments effects in the total competitiveness of enterprises

Category of

investments Sector

Buildings +

surrounding

environment

Machinery

equipment

installation

High-tech

automatisms

systems of

quality control

Marketing

channels of

distribution

m.i.s

j.i.t

logistics

r+d

Training

of

personnel

Food & beverages 18 35 25 7 5 5 5

Textile 25 35 23 2 5 5 5

Prepared clothes 25 34 20 5 4 2 10Timber 20 36 23 8 2 2 5Furniture 20 36 23 8 2 2 5Aluminum-Iron

constructions18 34 20 10 4 1 13

Plastic materials 20 50 10 11 3 1 5

Electronic

constructions10 16 29 5 8 11 11

Average 19,5 34,5 21,8 7,1 4,2 4,9 7,6

The businessmen taken part in the research considered that:

1. Investments planned in building and relevant work would contribute in the increase of thetotal competitiveness of their enterprises at 19.5% on average. The biggest contribution

(25%) was expected by the sectors of textile and ready-made clothes and the lowest (10%)

by the sector of electronics.2. Investments planned in basic production lines, aim to increase capacity, were estimated that

would contribute in the increase of the total competitiveness on an average of 34.5%. The

biggest repercussion would be by the sector of plastic materials at 50% and the lowest bythe sector of electronics at 16%.

3. Investments in automation, high technology and T.Q.M were planned in order to contributein the increase of the total competitiveness on an average of 21.8%. The biggest

contribution was expected by the sector of electronics at 29% and the lowest by the sectorof plastic materials at 10%.

4. Investments planned in the areas of marketing tools were expected to contribute an increaseof the total competitiveness on an average of 7.1%. The highest percentage was estimatedby the sector of plastics at 11% and the lowest in textiles at 2%.

5. The investments in M.I.S, J.I.T and Logistics were forecasted to contribute in the increaseof competitiveness on an average of 4.2%. Depending on the sector, it was estimated thatthey would contribute in a very small percentage, 2% in the sectors of timber and furniture

and 8% in the sector of electronics.

6. Investments in R&D were estimated to contribute in an increase of the total competitivenesson an average of 4.9%. The sector of electronics prevails with 11%, in contrary to the

sectors of aluminum and plastics, where the contribution was estimated at nearly

nonexistent levels.7. Finally, for investments in the training of personnel was forecasted that would contribute in

the improvement of competitiveness on an average of 7.6%. The sector of aluminum was

estimated to have the best repercussions at a percentage of 13%, while the sectors of food,

drinks, textile, timber and plastics would only contribute with 5%.In conclusion, it was realized that according to the opinions of the managers interviewed, the

type of investments that were planned and made by them in a period of 15 years 1988-2002, with the

support of the strong incentives of investment laws, coincides, to a large extent, with the long-lastingconvictions and opinions that they, in general, had for the structure/mix/type of manufacturing and

more general business strategies. The opinions of the majority of the local businessmen is that the

investments for some modern managerial tools like R&D, marketing, M.I.S and training of personnelare,


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a) difficult tasks, require high specialization personnel and their functional incorporation isvery laborious.

b) they constitute a functional/normal cost and not smart and long-lasting investments.c) the developmental laws did not subsidize such investments.Through the answers of the interviewees for their expectations, it was realized that all the above

are also reflected in their strategic manufacturing investment choices. A very important difference is

noticed only in the sector of electronics where it qualitatively assimilates with the situation that goes on

in other countries of E.U, but that composes the exception rather than the rule (Palaskas andArapoglou, 1999).

4.2.3. Comparative analysis of placed objectives in the stage of planning investments and

the level of their realization.In this part, the goal was to compare the planned and the real results. Our investigation focuses on thekey factors of the viability of enterprises in which the certain investment strategies of the enterprises

aimed. The research was directed towards the following 3 key factors: production cost, products

quality/functionality improvement and after sale services improvement. The results are as followingtable 7.

Table 7: Enterprises target on the 4 pillars of competitiveness

Sector

Improvement of

total competitiveness

%

Improvement of

the cost of

production %

Improvement of

products quality

complexity %

Better marketing

costumer service

%

Food & beverages 25 70 15 15

Textile 38 60 30 10

Prepared clothes 22 75 5 20

Timber 30 68 20 12Furniture 30 55 35 10

Aluminum-Iron constructions 30 62 28 10

Plastic materials 25 75 10 15

Electronic constructions 55 65 25 10

Average of all sectors 34,8 66,3 21,0 12,7

In respect to the viability, is well known, there are 3 strategies that surveyed firms could follow,cost leadership, product differentiation or focusing (niche strategies).

The first aspect on the improvement of competitiveness was related to decrease production cost.

Thracian surveyed persons believed, in great majority of 63,6%, that their problem relevant to low total

competitiveness of their firms is the high production cost/unit, and therefore, manufacturing investmentstrategies that certain problem targeted. So, their investment plans aimed on the compaction of the

production cost and, interviewees strongly believed that this improvement would result from the better

exploitation of productive economies of scale. The sector-based percentages fluctuate from 55% in thesector of furniture that is the lowest, to 75% in the sector of plastics that is the highest percentage. The

average for all the sectors is that of 66.3% that is to say a very high percentage in every aspect. Itshould be underlined that the 70%-75% of the enterprises exploited the actual productive capacity onlyup to 70%, in the best of cases.

The second aspect on the improvement of competitiveness through product

quality/functionality improvement was a strategic objective pursued by much less interviewees. Therelated results show that for the businessmen the objective for the improvement of the qualitative

competitiveness through new investments moved on an average of only 21% of the placed objectives.

However, there are important differences in the industrial basis that fluctuate from 10% in plastics to

35% in furniture. In other words, a choice of strategy is of great importance for the enable of theSMEs in the market, and was of inferior importance comparatively the choice of increase in cost

estimating the competitiveness that aimed in the compaction of the production cost/unit. Therefore, the


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insistence of the Thracian businessmen to hope for the acquisition of the competitive advantage in thebase price of the products and not in the base of the qualitative characteristics of products, is

considered flawed, as most products of the region are for final consumption and what is needed is the

very smart differentiation in qualitative-utilitarian base opposite to those of their competitors.Finally, the third aspect is related of the manufacturing investments that the Thracian firms

made in order to improve the third key factor of competitiveness which is the improvement of after

sale services towards customers satisfaction (marketing activities) constituted on average a strategic

objective and choices of firms in a percentage of 12.7%. The highest percentage was in the sector ofready-made clothes at 20% and the lowest at 10% in the sectors of textile, furniture, metal

constructions and electronics. This dimension also shows the real size of the problem of the SMEs ofThrace, as they focused their strategies mainly in the production cost by learning to produce more

competitive products and a way in which they could sell more effectively their cheaper products but

also to claim new or bigger market shares.

Conclusively, the enterprises of Thrace the past decades continued insisting in the traditionallogic of investment behavior by making industrial productive investments that aimed in the reduction

of the production cost in order to compete successfully similar products from very law labor cost

countries. Instead of this, its objective ought to be the other two factors of competitiveness aimingtowards the improvement of the quality of products and the rise and use of the marketing tools, after

sales services, etc. This is what interprets their diachronic course as it is a fact that their market share isalso limited in a regional level (myopia in marketing)

The emerged question is, if and in which level the objectives that the businessmen placed by

the time the business plan was made have indeed been materialized (degree of materialization). The

answer to the above question is given from the facts of table 8.As it is already been reported, the main strategic objective (66.3%) of the industrial investments

was to gain additional cost competitive advantage against the competitors. Three years afterwards, they

realized that this fundamental objective was only achieved at 46.8% comparatively to the placedobjectives.

Firstly, the non-achievement of those one-track objectives can be attributed at 60% in the very

optimistic estimates of the investment plans (the known exaggerations of the submitted for evaluation

business plans) and on the other 40% in the non-exhaustion of all possibilities/capacity that newinvestments offer in the total more effective operation of enterprises.

Secondly, the objective of improving the qualitative competitiveness was materialized in 30.4%

and this low percentage shows the difficulties of achieving this objective.And finally, the objective of a more effective use of smart marketing tools were achieved in an

even lesser amount, at only 12.7% and this also shows their organizational insufficiencies.

Table 8: Degree of targets materialization that the business plans set

Sector

Improvement of

total

competitiveness %

Improvement of

the cost of

production %

Improvement of

products quality

complexity %

Better marketing

costumer service

%

Food & beverages 13 50 30 20Textile 17 50 38 12

Prepared clothes 11 41 30 29Timber 12 60 20 20Furniture 14 50 15 35

Aluminum-Iron constructions 7 55 25 20

Plastic materials 13 35 35 30

Electronic constructions 29 33 50 17

Average of all sectors 13,2 46,8 30,4 22,8


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Conclusively, it can be said that the investment choices of the enterprises that were made, fellconsiderably short to the objectives that had been placed. This, as it was already mentioned before, can

be interpreted/explained:

firstly in the stage of investment planning with the help of operational plans, whichformulated rather excessive optimistic objectives and

Secondly by two facts: a) that the second pillar of competitiveness, the product qualityhave particular difficulties of introduction, integration and exploitation and b)that the

regional developmental laws did not subsidy investing expenses for R&D, M.I.S, logistics,H.R.M, Marketing Activities, etc. However, these smart and innovative investments are the

ones that give powerful promotional force in the competitiveness.

Therefore, the question arising is: where, precisely, do the businessmen attribute the big gap, or

the fact of their inability of realizing the objectives that had been placed within the framework of theinvestment drawings? The answers are recorded in table 9 and two more general categories of factors

are shown:

Table 9: Factors on which the enterprises attribute the low degree of targets materialization

Factors on which the MME Attribute the non Reaching of their Goals after the Investments %

External Environment (72%)1. Bureaucracy, red tape, corruption,, unforeseen tax system 24

2. Lack in the supportive structures of the competitive entrepreneurial for the extroversion of enterprises 63. Plenty external diseconomies of the country 6

4. Lack in technical and administrative foundations 65. Lack in specialized bank executives for strategically type of advises 15

6.Financing difficulties (accession to banks and other financial organizations, etc) 15

Interval Environment (28%)

1. A non response of the personnel to the new business evolutions 6

2. Badly organized structure of the enterprise 6

3. Difficulties to transfer and incorporate new technology in their firms functions, not innovative culture 104. Ignorance about what exactly is the competitive advantage and how it is achieved 6

1. The first category of factors refers to the external business environment where the 72%. Suchfactors are, the Greek bureaucracy, the lack of local structures to support business dexterity, thelack of specialized executives of strategic management and the lack of venture capital or other

business financials means suitable for SMEs.

2. The second category of factors refers to the internal business environment, which correspondsto a percentage of 28%. Such are, the non-correspondence of the firms personnel in the certain

needs in order to manage investment plans referred to integrate smart/modern business tools,

the existed bad organizational structure of the enterprise, the weakness of the integration ofinnovative technologies in administration and, mainly, in production process, etc.

3. Table 10 gives basic technoeconomic information about the structure and capabilities of themanufacturing enterprises before and after the certain investment choices analyzed to previous.

4. All the previous, once again, re-confirmed our point of view that, the Thracian manufacturersdidnt take in account the global developments in manufactured goods, and, therefore, thesuccessful SMEs in E.U. area (and everywhere) introduced and used new managerialtools/practices in order to improve their total productivity/competitiveness, like strategic

alliances, outsourcing contracts, forward/backward integrations, extensive application of I.T.C,

etc. They continued to invest pursuing ever-lower product cost/unit believing that is their core

problem of low competitiveness.


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Table 10: Basic technoeconomic information of Thracian manufacturing enterprises before and after their

investment choices

Techno-Economic Characteristics Before Investment After Investment

Covering of the productive capacity (average) 59,7 57,5

Working days/year 202 200

Shifts %

1. Shift 61% 60%

2. Shifts 28% 30%3. Shifts 11% 10%

Break Down of the productive cost %

Raw materials 36,5 38

Energy 12 12

Total labour cost 23 24,5

Finance 21 18

Sales 7,5 7,5

Value of production deposits % 28 41

Relation between same capital/foreign 1:1,2 1:1,4

5. Epilogue: Critical Evaluation of the Investment Strategy of the Enterprises of

Thrace and ConclusionsAs global competition gets fierce, enterprises with tradeoffs strategies cant hold strong competitiveadvantages for a long time. Therefore, enterprises must to create ever-new smart and new competitive

advantages. A method to achieve them is firms to invest in very cost-effective and smart managerial

tools in their production functions and to exist good cooperation among corporate, business andoperation strategies. Our basic conclusions of the analysis for the investing behavior of Thracian

Entrepreneurs that proceeded are:

Firstly, the degree of realization of the objectives that had been placed by the investment plans

did not exceed the 34%, despite the fact that the subsidies were very high.Secondly, the cost competitiveness was improved in average only at 18.3% to the 8 industries

surveyed, a very small percentage, while the dominant strategy of the manufacturers in order to gain

new markets with was the cost cut, e.g. the problem is the higher prices of products compared tosimilar ones promoted to same markets by countries called very low labor cost and not the other two

pillars of international competitiveness-product quality, after sale services. This dominant perception in

the local business society for many time continue, unfortunately, to guide the general, manufacturing,and investment strategies and policies with whatever negative it means.

Thirdly, the goal of higher competitiveness based on better product quality had a slightly

improvement, roughly of 6.4% and this comes as a result of the combination of the local entrepreneursperceptions about the competitiveness, the mix of the industrial investments, and, also as long as, the

non-existed matching of general business strategies with manufacturing ones.

Fourthly, the goal of higher competitiveness based on better marketing activities-after saleservices for better clients satisfaction, were improved even less, at hardly 2,3% and that comes as a

result of the limited investments in such activities.By evaluating the results of the empirical research we can be led to certain conclusions:

1. The investment choices of the local manufacturers had as a primary aim the improvement ofthe product cost competitiveness through the compaction of the production cost. However,

this objective did not correspond in the challenges of this period that necessarily rendered

the operation of enterprises of flexible specialization with the based on new managerialtechniques like, IT, robotics, networking, strategic alliances, outsourcing, TQM, JIT, etc.

2. The exaggerated focus on this objective caused the myopic approach or neglecting of otherimportant core parameters of competitiveness, as are the improvement of the productquality and smart differentiation, the correspondence to the individualized needs of


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customers, etc. Thus, finally, the real results that came out from the realization of theinvestments remained systematically and considerably off the expectations.

3. It was also realized that the investment decisions had basically a short-term aim.Furthermore, by the research came out that the firms surveyed rarely used high-specializedadvisors of strategic management. Therefore, the local businessmen substantially wished to

exploit the high incentives of the regional developmental laws in short-term without the

support of experts in this subject. It appears that the high investment incentives covering the

65% of the productive cost, functioned as siren, calls for investments, even in cases wherethe exploitation of the productive capacity was fewer than 50%.

Concluding, it can be marked that the empirical research showed that the investments of theThracian industrial enterprises (subsidized indeed with brave direct incentives) rather moved to the

direction that would match in big enterprises of linear mass production before 15-20 years instead of

advancing in processes of flexible automation and specialization. For that, the responsibility lies,

primarily, on businessmen and, secondary, to the state that subsidized very generous the manufacturinginvestments in Thrace because, through the system of evaluation of investments they could have been

directed to a different mix of productive means, instead of subsidizing clear big extensions of

production lines for the same products, as buildings and basic mechanical equipment-while theyexploit only 50-60% of their productive capacity. It is not an exaggeration to say that the powerful

subsidies from the state to the enterprises could be used as tools of directed conformity ontechnological, productive, environmental and energy adaptation issues in order to materialize an up todown reengineering of the non-competitive industrial manufacturing enterprises of Thrace.

It was also valued that the regional industrial policies should be utmost specialized/targeted,

while some developmental horizontal policies (supported by E.U) should be supplementary to the firstones, so that the local and branch-based focus would benefit from important resources with serious

structural interventions at the level of enterprise, networks or cluster of enterprises.

Moreover, the E.U was and still is not opposite in such practices, provided that they are aboutproblematic regions and are in force for a set time. The Greece will have to improve the ways and

means used to help and support-through strong financial/investment/tax incentives- SMEs located in

some poor regions-like Thrace- in order to become more competitive, pursuing smart flexibility, better

product quality, better customer satisfaction through smarter after sale services and techniques,international alliances for outsourcing and sub construction agreements, etc


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investment strategies for manufacturing firms

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