Just how important is foreign business for an economy? In a global market marked by increased integration its role should not be underestimated. This is especially true for economies playing catch-up, where international companies create the de facto added value, bring capital and technology, secure transfer of knowledge and skill, and create a network of partnerships with suppliers and customers.
Bulgaria has been struggling in the last few years to attract foreign investment, especially when it comes to big multinational companies, which seem to find attractive locations in neighboring countries. Despite this, international companies represent a big portion of the local economy. They add almost a third to the overall value of the business sector and account for more than 18% of jobs, according to data from Eurostat in 2022. This figure is surprisingly higher than the average for the EU, where foreign international companies are responsible for around 24% of added value and a little over 15% of employment.
Bulgaria - caught in the middle, but lagging behind
Although Bulgaria normally lurks around the tail end in most statistics regarding the EU and its development it's interesting that when it comes to the share of foreign corporations it is somewhere in the middle. The opposite is true for well-developed economies like those of Germany, Italy and France in which foreign businesses carry a smaller role due to the well- developed domestic business and industrial giants. In other EE countries that are trying to catch up with WE countries - such as Romania, Poland, Hungary, Croatia and the Baltic states - foreign business has a relatively bigger presence. And Bulgaria is lagging behind.
As of 2022 13,192 companies controlled by foreign investors operate within Bulgaria, which in itself is a relatively small part of the total number of companies - around 3.4%. The case is similar for most of the other countries. This suggests that a relatively small number of large companies represents a significant share of the economy. This conclusion is verified by the data - the average added value of a foreign enterprise in Bulgaria is 1.2 million euros, while for the locals it is less than 100,000 euros. This does not mean that foreign companies are always larger than the Bulgarian ones. After all, every business' first goal is to establish itself on the local market before expanding abroad.
Which sectors are they from?
Around 64% of the companies originate from other countries within the EU with the lion's share being those from Greece, Italy and Germany. When it comes to added value for the economy, however, the leading foreign investors are ones from the USA with about 2 billion euros of added value, followed by Germany and Italy. As of 2022 foreign companies provide more than 400,000 jobs in Bulgaria with the biggest employers being ones from Germany, USA and the UK. Foreign investors operate in almost all sectors of the economy with a big chunk of the added value coming from industry, followed by IT and then trade, according to data.
Labor productivity in foreign-owned companies is almost double that of local ones. According to data, local enterprises have labor productivity of 19,400 euros, whereas foreign ones have 38,600 euros. This could be because foreign controlled companies are concentrated in high-added sectors and have some advantage in the use of technology. In addition, they are better secured with capital with production likely being realized at higher prices in foreign markets.
Will the real business owner please stand up?
Over the past few decades the global economy has become increasingly characterized by convoluted business networks. This is where discerning the ownership of a business becomes hard. For the purposes of data presented by Eurostat, a foreign-owned company is defined by the identity of its controlling unit. The identity is uncovered by going up the chain of control of the foreign branch company and confirming that more than half of the shares with voting rights are foreign-owned.
In 2022, foreign-controlled enterprises represent only 1.1% of the total number of active units in the EU Business Sector. More than 60% of them were controlled by a unit on the other side of the EU. The geographical proximity seems to be an important determining factor when investors consider their capabilities. This perhaps reflects some caution and a first investment in nearby markets (which may also be culturally and linguistically close) before broaching more remote destinations. The single market is also a factor and, to a large extent, the general regulations in the Union.
At EU level the Republic of Ireland houses the highest number of foreign companies in terms of the value accrued. The country is home to the headquarters of many international companies that, in total, add more than 70% to the value of the business sector. A similar hub of international companies can also be found in Luxembourg. From Central and Eastern Europe the most noteworthy seems to be Slovakia, where the share is 50%. As a total number of foreign enterprises, after Germany, most of them are in Romania and the Czech Republic.
Just how important is foreign business for an economy? In a global market marked by increased integration its role should not be underestimated. This is especially true for economies playing catch-up, where international companies create the de facto added value, bring capital and technology, secure transfer of knowledge and skill, and create a network of partnerships with suppliers and customers.
Bulgaria has been struggling in the last few years to attract foreign investment, especially when it comes to big multinational companies, which seem to find attractive locations in neighboring countries. Despite this, international companies represent a big portion of the local economy. They add almost a third to the overall value of the business sector and account for more than 18% of jobs, according to data from Eurostat in 2022. This figure is surprisingly higher than the average for the EU, where foreign international companies are responsible for around 24% of added value and a little over 15% of employment.
