LOCAL ECONOMIC DEVELOPMENT PLAN FOR TBILISI ... - LED

It is hard to overestimate those benefits for the city economy that are generated by foreign
investors, but we should not forget that the reasons why those firm invest in our cit must
be thoroughly analysed. It will help us to take maximum advantage of these investments
and prevent disappointment if our expectations are unrealistic.
Foreign firms invest in order to:
• lower the production costs,
• increase the value of the invested capital,
• enter new markets,
• gain access to resources that are out of reach where they have been operating so
far.
In a longer perspective these companies transfer their business activity to new locations
that provide them with better business environment.
For a long-term competitiveness of the city economy the third phase is of key importance.
It is based on endogenic potentials and the city identity.
The development of local businesses also leads to new quality of cooperation with foreign
investors who invest their capital not only to benefit from the consumption potential of the
local market and from lower production costs, but are also interested in finding new
partners who will give them access to better solutions. It means that financial relations
change too – the investor not only bears the costs of their business activity, but also
shares their profits with a local partner.
In the second half of the 20th century the economy of Tbilisi was based on industrial
plants producing for the demand of the Soviet Union market. Cooperation links, legal
regulations, transport infrastructure and business environment were oriented at satisfying
the needs of this type of economy, therefore the change of production profile of entering
new markets were hardly possible.
After the collapse of the Soviet Union and, consequently, of the centrally managed
economy many manufacturing firms in Tbilisi lost their markets and either closed down or
reduced their employment and production. The system reform, introduction of market
economy and opening to new markets resulted in a thorough transformation of Tbilisi
economy.
Although some positive effects can be observed, the transformation process is long and
generates serious social problems and costs. In order to understand the ongoing
changes, we cannot view the problem as merely a systematic one. The economy of Tbilisi
is also influenced by other economic transformation factors that do not happen only in the
post-communist countries, but are observed all over the world. These factors are:
• globalisation and increasingly free flow of knowledge and ideas, capital, products
and services as well as people among the regions and cities of the world,
• the use of new technology by businesses, state and local governments as well as
by ordinary people,
• cultural changes in the family model and life aspirations of the young generation.
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