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International Research Journal of Finance and Economics ISSN 1450-2887 Issue 16 (2008) EuroJournals Publishing, Inc. 2008


Investment Choices, Manufacturing Strategies and Competitiveness of the Manufacturing Enterprises: An Empirical Research in the Region of Thrace
Efthimios Stathakis Department of Production and Management Democtitus University of Thrace, 67100 Xanthi, Greece E-mail: Demetrios Bandekas Professor, Department of Electrical Engineering Kavala Institute of Technology, St. Lucas, 654 04 Kavala, Greece E-mail: Anastasios Karasavvoglou Professor, Department of Accountancy, Kavala Institute of Technology St. Lucas, 654 04 Kavala, Greece E-mail: Pantelis Antoniadis Assistant Professor, Department of Electrical Engineering Kavala Institute of Technology, St. Lucas, 654 04 Kavala, Greece E-mail: Michel Nikolaidis Assistant Professor, Department of Accountancy Kavala Institute of Technology, St. Lucas, 654 04 Kavala, Greece E-mail: Panagiotis Arsenos Accociate Professor, Department of Bussiness Administration Ionian Islands Institute of Technology, Kefalonia, Greece E-mail:

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

International Research Journal of Finance and Economics - Issue 16 (2008) 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 other which 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 on production 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. Introduction
The competitiveness of national economies and, more specifically, of their enterprises has turned into an 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. Such managerial 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 for smart 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 and external 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, the response 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 also how 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 contribution in 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.


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 of the 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 region mainly 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 say that 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 the analysis 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 will discuss the methodology and the results of the empirical research that was made carried out and finally draw certain useful conclusions.

2. Literature Review
During 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 industrial and 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 industrial transformation. 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 human potential, 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 environment such 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 the parameters 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 distribution channels, 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 for obvious 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 technological precedence, 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 were aided by investments from basically two directions: Firstly, it is an explanation of the adaptations with a point of reference to the productive process. Here, the adaptations regard the factors of production and their flexible exploitation, the strategies of manufacturing enterprises with the concretization of plans concerning 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 enterprises with the compaction of the levels of organization, the entry of new informational systems in the enterprises, and the adoption of outsourcing policies, etc (Bain, 1956). Many researchers worldwide-even now days- when discussing investments that the manufacturing 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 the investment 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 the investment 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 numerous enterprises 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 all three 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 much greater 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 and gave 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 certain markets. 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) and pioneering innovations that create holistic manufacturing competitive advantage against to competitors that intend to enter the same markets. Economies of scale raise another interesting question that is related to the type of manufacturing 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 already developed/matured in high degree near 100% or moreover, the demand is flexible and amounting and when 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 usually better economic results (Bain, 1956; Kotha and Orne, 1989).

3. Characteristics of the Economy of Thrace

The 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 2001 and 2.6 in 2004). The region covers an area of 8,578 km2 and occupies the 6.50% of the total extent of the country. 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 most productive 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 of infrastructures, 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 due to 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 3.2 billion 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 goals aimed through their investment choices.
Table 1: Information about Investments funded by special development laws for the period of 1988 2002
Number of investments 753 50,2 Total investment productive cost in 213.334 New jobs 13.892 926

Laws, 1262/82, 1892/90, 2601/98 Total Average-per year-of the period 1998-2002
Source: Ministry of National Economy

Table 2:

Percentage % of Thracian manufacturing firms with profits or losses for a period of 4 years
2000 42,10 77,00 26,10 72,20 32,00 74,40 85,00 75,20 71,40 2001 40,30 76,40 25,50 70,30 34,10 75,70 84,50 75,90 66,50 2002 39,90 75,80 25,00 71,50 34,00 75,00 86,40 83,60 67,20 1999 61,60 22,50 73,10 32,20 66,40 26,80 22,70 15,30 22,40 With losses 2000 2001 57,90 59,70 23,00 23,60 73,90 74,50 27,80 29,70 68,00 65,90 25,60 24,30 15,00 15,50 14,80 14,10 28,60 23,50 2002 60,10 24,20 75,00 28,50 66,00 25,00 13,60 16,40 12,80

Profitable(net profits) Industries (6firms/industry) 1999 Food/beverages 38,40 Textiles 77,50 Garments 26,90 Wood processed products 67,80 Furniture 33,60 Aluminum products for constructions 73,20 Plastic materials/products 83,30 Electronic devices-constructions 84,70 Total of sample(weighted) 67,60
Source: Firms Balance Sheets published

Table 3:
Targets of investments

Desirable goals aimed by investments of Thracian manufacturing firms

Food / Beverages % 52 Textile % Clothes % Timber % Furniture % Chemical plastic materials % 32 Aluminum constr.% Electrical inst.% Average %

1. Expansion of buildings and production lines for the same products 2. Expansion of the production lines for slightly differentiated products 3. Expansion of the production lines for totally different products 4. Expansion of storehouses 5.Automations, robotics etc. 6. Distribution channels 7. Energy savings 8. Waste Management
















13 5 4 2 4 2

4 18 6 1 1 2

20 3 4 4 5 1

5 10 3 1 17 2

8 15 3 4 7 3

10 10 3 2 6 9

16 10 2 2 -

38 3 28 4 2 1

14,2 9,5 6,6 2,5 4,6 2,5


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4. The Empirical Research

In 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 the selection 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 businessmen were 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 case problems 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 to begin. 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 total productive 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 granted before 1998, employ at least 5 persons, so that to have useful results by the year 2000, and beyond and to 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 percentage of distribution of enterprises in this research for these industries roughly corresponds to the special weight 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 expenses

The investments that the enterprises of the sample made are distributed in 7 categories, according to international statistical standards. The distribution is presented in table 4.

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Table 4: Distribution of investment expenses in certain categories
Buildings + surrounding environment 46,9 45,4 45,2 38,8 41,2 38,8 41,4 35,5 41,2 Machinery equipment installation 42,4 43,6 41,2 42,8 42,6 40,4 39,2 38,6 40,6 High-tech automatisms systems of quality control 2,4 12,6 9,4 2,2 3,4 2,4 3,8 28,2 7,8 Marketing channels of distribution 6,4 2,2 8,4 2,4 6,9 3,7 3,2 3,6 4,6 M.I.S J.I.T Logistics 1,0 1,1 1,4 1,3 1,9 1,2 1,0 3,90 1,6


Sector Food & beverages Textile Prepared clothes Timber Furniture Aluminum-Iron constructions Plastic materials Electronic constructions Average

R+D 2,4 0,1 0,2 0,2 0,3 0,8 0,8 2,4 0,7

Training of personnel 0,6 0,5 1,2 0,1 0,1 0,1 0,1 2,2 0,7

The facts are shown below: a) The enterprises invest in building equipment and relevant labor between 35.5% for the industry of 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 International experience, 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 know precisely 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 sales is 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 repercussion in 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 main problem 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 case the 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 on what 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 low competitiveness was a cause of better exploitation of economies of scale and that, with the


International Research Journal of Finance and Economics - Issue 16 (2008) extension of the production lines already existed, the enterprises would achieve a decrease in the production cost and therefore would improve their whole competitiveness. Regarding high tech automations, robotics, quality control and pertinent systems, the enterprises invest from 2.4% in the industry of foods-beverages, where it is the lowest, to 28.2% 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 estimating competitiveness, 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 that could 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. The objective for the improvement of the products quality and, furthermore, of the better management, organization and operation of the enterprises is equally importance. 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 that the 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 tools give 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 Industry; 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 the developmental 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. With regard the investments to M.I.S. (Management Information Systems), J.I.T. (Just In Time or 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 plastic materials. 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 as functional/operational cost and not as valuable innovative investments. Interviewed persons pointed 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. 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 worst with 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 and operation 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 seems that 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 and reduce 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 support strongly 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 of competitiveness 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 of Thrace, 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 5 categories of industrial investments (Skinner, 1974). If this continues and also with the degree of their utilization 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 from a) 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 services b) 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, at the 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/storehouses
Reasons for Investing 1. Increase in areas of production lines -expansion of productive capacity 2. Increase in storehouses of raw materials and semi finished products 3. Increase in areas of the complete products 4. Improvement of the functionality/ergonomics 5. Improvement of the work environment 6. Improvement of the cost/effective system 7. Able to function good with the subordinate buildings Percentage % of Selection 50 15 10 9 8 4 4

5.2 Investments in equipment, machinery, installations

Reasons for Investing 1. Increase in areas of production lines -expansion of productive capacity 2. New production lines for partially new products 3. Improvements of the quality and cost/unit of the products 4. Improvement of productive/manufacturing process 5. Improvement in the productivity of the production lines 6. Improvement of the labor productivity (in cost and ergonomic base) Percentage % of Selection 45 13 13 13 12 4


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Percentage % of Selection 35 25 15 10 8 7

5.3 Investments in automatisms, high technology, quality control systems

Reasons for Investing 1. Increase of the total productivity of the firm 2. Improvement of the labor productivity (in cost and ergonomic base) 3. Decrease of the total productive cost maintaining the product good quality 4. Improvement and stability of the products quality 5. Increase of the degree of flexibility and of the new production models 6. Attempt to create a local competitive advantage without being entirely clear

5.4 Investments in actions of marketing, channels of distribution, etc.

Reasons for Investing 1. Increase of sales in general 2. Increase of the efficiency of sales and of profitability 3. Expansion of the market share(existed markets) 4. Penetration in new markets 5. Improvement of the distribution channels and sales promotion 6. Creation of new distribution channels in subordinate and new markets Percentage % of Selection 30 20 15 12 10 8

5.5 Investments in m.i.s, j.i.t, logistics, erps etc.

Reasons for Investing 1. Decrease of the general operational cost 2. Update of management 3. Entry of internet applications 4. Entry of new costing tools, etc. 5. Better supervision of the entire function by the top management 6. Entry of T.Q.M and J.I.T tools Percentage % of Selection 25 20 15 20 15 5

5.6 Investments in r+d

Reasons for Investing 1. For the production of new products 2. For the improvement of subordinate products 3. For the improvement of subordinate productive/manufacturing process 4. For the set up of an entirely new productive process technology 5. For the adopt of best business international practices aiming to transfer/incorporate them to their firms functions 6. For the research of the application of new marketing methods, tools Percentage % of Selection 25 25 15 15 10 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 been formed 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
Buildings + surrounding environment 18 25 25 20 20 18 20 10 19,5 Machinery equipment installation 35 35 34 36 36 34 50 16 34,5 High-tech automatisms systems of quality control 25 23 20 23 23 20 10 29 21,8 Marketing channels of distribution 7 2 5 8 8 10 11 5 7,1 m.i.s j.i.t logistics 5 5 4 2 2 4 3 8 4,2


Category of investments Sector Food & beverages Textile Prepared clothes Timber Furniture Aluminum-Iron constructions Plastic materials Electronic constructions Average

r+d 5 5 2 2 2 1 1 11 4,9

Training of personnel 5 5 10 5 5 13 5 11 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 the total 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 by the sector of electronics at 16%. 3. Investments in automation, high technology and T.Q.M were planned in order to contribute in 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 sector of plastic materials at 10%. 4. Investments planned in the areas of marketing tools were expected to contribute an increase of the total competitiveness on an average of 7.1%. The highest percentage was estimated by 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 increase of competitiveness on an average of 4.2%. Depending on the sector, it was estimated that they 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 competitiveness on 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-lasting convictions 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 personnel are,


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

a) difficult tasks, require high specialization personnel and their functional incorporation is very 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 and Arapoglou, 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 the key 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 following table 7.
Table 7:
Sector Food & beverages Textile Prepared clothes Timber Furniture Aluminum-Iron constructions Plastic materials Electronic constructions Average of all sectors

Enterprises target on the 4 pillars of competitiveness

Improvement of total competitiveness % 25 38 22 30 30 30 25 55 34,8 Improvement of the cost of production % 70 60 75 68 55 62 75 65 66,3 Improvement of products quality complexity % 15 30 5 20 35 28 10 25 21,0 Better marketing costumer service % 15 10 20 12 10 10 15 10 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 investment strategies 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 the sector 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. It should be underlined that the 70%-75% of the enterprises exploited the actual productive capacity only up 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. The related 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 the SMEs 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 the base 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 of ready-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 of Thrace, 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 traditional logic 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 aiming towards 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 is also 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 placed objectives. 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 new investments 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:
Sector Food & beverages Textile Prepared clothes Timber Furniture Aluminum-Iron constructions Plastic materials Electronic constructions Average of all sectors

Degree of targets materialization that the business plans set

Improvement of total competitiveness % 13 17 11 12 14 7 13 29 13,2 Improvement of the cost of production % 50 50 41 60 50 55 35 33 46,8 Improvement of products quality complexity % 30 38 30 20 15 25 35 50 30,4 Better marketing costumer service % 20 12 29 20 35 20 30 17 22,8


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Conclusively, it can be said that the investment choices of the enterprises that were made, fell considerably 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, which formulated rather excessive optimistic objectives and Secondly by two facts: a) that the second pillar of competitiveness, the product quality have 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 the investment 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
% 24 6 6 6 15 15 6 6 10 6

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 2. Lack in the supportive structures of the competitive entrepreneurial for the extroversion of enterprises 3. Plenty external diseconomies of the country 4. Lack in technical and administrative foundations 5. Lack in specialized bank executives for strategically type of advises 6.Financing difficulties (accession to banks and other financial organizations, etc) Interval Environment (28%) 1. A non response of the personnel to the new business evolutions 2. Badly organized structure of the enterprise 3. Difficulties to transfer and incorporate new technology in their firms functions, not innovative culture 4. Ignorance about what exactly is the competitive advantage and how it is achieved

1. The first category of factors refers to the external business environment where the 72%. Such factors are, the Greek bureaucracy, the lack of local structures to support business dexterity, the lack 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 corresponds to 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 of innovative technologies in administration and, mainly, in production process, etc. 3. Table 10 gives basic technoeconomic information about the structure and capabilities of the manufacturing 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 manufacturers didnt take in account the global developments in manufactured goods, and, therefore, the successful SMEs in E.U. area (and everywhere) introduced and used new managerial tools/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 Covering of the productive capacity (average) Working days/year Shifts % 1. Shift 2. Shifts 3. Shifts Break Down of the productive cost % Raw materials Energy Total labour cost Finance Sales Value of production deposits % Relation between same capital/foreign Before Investment 59,7 202 61% 28% 11% 36,5 12 23 21 7,5 28 1:1,2 After Investment 57,5 200 60% 30% 10% 38 12 24,5 18 7,5 41 1:1,4

5. Epilogue: Critical Evaluation of the Investment Strategy of the Enterprises of Thrace and Conclusions
As global competition gets fierce, enterprises with tradeoffs strategies cant hold strong competitive advantages 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 and operation 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 to similar 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 entrepreneurs perceptions 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 sale services 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 of the 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 managerial techniques like, IT, robotics, networking, strategic alliances, outsourcing, TQM, JIT, etc. 2. The exaggerated focus on this objective caused the myopic approach or neglecting of other important core parameters of competitiveness, as are the improvement of the product quality 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 the investments 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-specialized advisors 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 where the exploitation of the productive capacity was fewer than 50%. Concluding, it can be marked that the empirical research showed that the investments of the Thracian 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 manufacturing investments 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 they exploit 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 on technological, productive, environmental and energy adaptation issues in order to materialize an up to down 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 first ones, 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 about problematic 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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