This chapter assesses key enabling conditions for FDI spillovers on SMEs in Poland. It first examines the economic and structural characteristics of the Polish economy, and then assesses the spillover potential of foreign direct investment and the capacities of Polish small and medium-sized enterprises to benefit from knowledge and technology transfers. The chapter points to Poland’s strengths, challenges, and opportunities in these enabling conditions.
Strengthening FDI and SME Linkages in Poland
Abstract
Over the past few decades, Poland has experienced remarkable economic growth, doubling per capita incomes since the 2000s and improving living standards. The size and growth potential of the Polish production market, its proximity to EU markets and competitive labor costs have increased Poland’s attractiveness to foreign investors. Since the 1990s, foreign direct investment (FDI) has supported this economic growth by driving sectoral restructuring toward industrial activities, enhancing the adoption of foreign technology, and boosting exports. Despite these strong economic outcomes, Poland’s labor productivity—measured as output per person employed—continues to lag behind OECD and EU averages, indicating potential structural issues that may hinder efficiency gains. The stagnation of labor productivity in the FDI-intensive manufacturing sector raises questions about the knowledge and technological intensity of foreign firms operating in FDI-intensive sectors and whether productivity spillovers on domestic firms take place within and across sectors.
Although Poland boasts a well-diversified economic structure, it still tends to lean more toward lower technology industries compared to many of its EU peers. The economy is predominantly service-oriented, and the significance of high-technology manufacturing industries is lower than in neighboring Central and Eastern European (CEE) countries. However, high-technology services, such as computer programming and IT services, are gaining importance in the Polish economy. Poland can leverage the expansion of its knowledge-intensive services by attracting investment in new industries and strengthening the capacities of domestic firms, including small and medium-sized enterprises (SMEs).
Poland's trade openness, measured by exports as a share of GDP, has improved significantly over the past few decades, surpassing many OECD economies and the EU average. Foreign firms play a crucial role in Poland's export sector, contributing to over half of total exports and generating substantial export-related activity through their supply chains. Over the last decade, Poland's overall participation in global value chains (GVCs) has been growing, with a stronger increase in backward integration, indicating a downstream shift. This trend suggests that Poland has become more involved in assembling processed goods using intermediate inputs from abroad. This reliance on imported inputs may have significant implications for FDI and SME linkages, indicating that multinational enterprises (MNEs) based in Poland largely import intermediate goods, limiting their sourcing from local suppliers. To maximise the benefits of GVC participation, Poland needs to upgrade its position by moving into higher-value-added, knowledge-intensive sectors such as R&D and innovation. Achieving this will require targeted policies to enhance skills, innovation capabilities, and strengthen supplier-buyer relationships between foreign and domestic firms, ultimately increasing Poland’s domestic value-added contribution to GVCs.
Since the late 1990s, Poland has experienced a substantial influx of foreign direct investment (FDI), which has been pivotal in supporting economic growth and integrating the Polish economy into GVCs. Despite setbacks from the COVID-19 pandemic and geopolitical tensions, including Russia's war of aggression against Ukraine, Poland has witnessed a remarkable upswing in FDI inflows. The sectoral composition of FDI has shown signs of structural diversification, with a notable shift toward manufacturing activities. While FDI in manufacturing is mainly concentrated in low-technology sectors—such as food and beverages—Poland has also seen an increase in new investments targeting more complex manufacturing activities. These trends present opportunities to foster FDI-SME linkages within the manufacturing industries, particularly in the broad automotive sector and its suppliers. Additionally, FDI in high-technology services has risen significantly. This growth was primarily driven by advanced business services and scientific and professional services, as international companies outsourced services to capitalise on Poland's pool of highly skilled workers and competitive wage levels. This trend further solidifies Poland's position as a key high-tech service hub for the EU manufacturing sector. Additionally, the presence of multiple IT clusters across the country could play a crucial role in facilitating linkages between foreign-owned MNEs and domestic SMEs, especially in sectors with high SME participation.
Despite the significant influx of FDI, investment accounts for a small share of business R&D expenditure in Poland. Less than 2% of greenfield investments targeted R&D operations, which is significantly below that of neighboring CEE countries and leading European innovators. This has important implications for FDI-SME linkages, as it suggests that foreign companies often outsource low-technology-intensive and assembly activities to Poland while relying on knowledge and technologies developed abroad. Foreign-owned firms in Poland are almost twice as productive as domestic firms, particularly in low-technology activities. This productivity gap highlights the potential for FDI spillovers, given that foreign firms, often larger and more export-oriented, possess superior access to finance, skills, and innovation assets. However, in sectors such as manufacturing, the productivity differences between foreign and domestic firms are narrower, indicating potential parity in operations and opportunities for knowledge exchange within these industries.
Poland's economy is dominated by low-productivity micro firms, which constitute 95% of the business population. These micro firms contribute disproportionately little to value-added and turnover relative to their employment share. However, it is important to note that individual business activity may be included in microenterprise data. In some cases, such activity is driven by alternative work arrangements rather than reflecting traditional business operations, potentially impacting the interpretation of micro firms’ dynamics. Small firms account for 4% of the total population and medium firms only 1%. The notable absence of medium-sized enterprises indicates systemic challenges in scaling up operations and fostering knowledge and technology transfers to smaller businesses, particularly in sectors crucial to the domestic economy that have attracted significant FDI levels. Overall, SMEs play a vital role in the lower technology manufacturing sector, accounting for 42% of employment and 37% of value-added, particularly in the textiles and wood sectors.
SMEs are essential to productivity growth and economic development in Poland, often exhibiting higher productivity growth than large firms, especially in manufacturing and expanding sectors. However, the overall productivity of Polish SMEs remains relatively low, with many lagging behind their OECD peers in innovation, technology adoption, and global integration. Similar to other OECD and EU economies, Polish SMEs trail larger firms in terms of direct and indirect exporting, reflecting their limited capabilities to expand operations abroad. Polish SMEs report higher internationalisation costs than their counterparts in OECD countries, which may be attributed to their low productivity and specialisation in lower-technology activities. Furthermore, these SMEs face significant barriers to innovation, including high costs, a lack of qualified employees, and difficulties in obtaining public grants or subsidies. These challenges could limit opportunities for developing supplier linkages with foreign multinationals, especially in inter-firm collaborations focused on knowledge-intensive activities.
The digitalisation of Poland's business sector lags other European countries, though it has shown some improvements in recent years. Polish SMEs generally adopt digital technologies at lower rates than large firms. The digital intensity gap between large and small firms is particularly pronounced in supplier and customer management technologies (e.g. CRM and ERP software), which are often prerequisites for SMEs to establish buyer-supplier linkages with large multinationals and benefit from spillovers in GVCs. While Poland performs relatively well in terms of digital skills, SMEs encounter higher barriers to employing and retaining ICT specialists. Overall, Polish SMEs underperform their EU peers in providing on-the-job training. Access to finance is constrained, with increasing borrowing costs adversely affecting SMEs performance and supplier relationships. Additionally, alternative sources of finance are limited in use among Polish SMEs, posing challenges to their scaling up and funding for innovative and riskier ventures.
Foreign Direct Investment (FDI) and linkages between multinational enterprises (MNEs) and small and medium-sized enterprises (SMEs) hold significant potential for productivity and innovation spillovers. However, the extent to which these spillovers occur is shaped by the host country's economic, geographical, and structural characteristics. Key determinants include the macroeconomic environment, the technological sophistication and structure of the domestic economy, sectoral drivers of growth, and the degree of integration into the global economy. These factors influence MNEs’ decisions on where to invest and determine the ability of local SMEs to absorb and leverage the knowledge shared through international production networks.
Before assessing the strengths, challenges, and opportunities related to key enabling factors for FDI-SME spillovers it is essential to first understand the broader economic context of Poland. This section examines: (1) recent macroeconomic trends, (2) Poland's sectoral growth drivers and economic structure, and (3) its integration into the global economy through trade. Foreign direct investment (FDI), a critical component of internationalisation, will be analysed in the following section.
2.2.1. Poland experienced robust growth over the past two decades, but recent crises have caused a slowdown
Poland was among Europe's fastest-growing economies before the pandemic, with an average annual growth of 3.7% throughout the 2010s (OECD, 2020[1]). With GDP per capita doubling between 2000 and 2022, Poland has outpaced most of its peers narrowing the gap in living standards and moving closer to OECD and EU averages. This economic convergence resulted from capital accumulation and efficiency gains (OECD, 2018[2]). Since the 1990s, Poland’s productive market size and potential growth, coupled with its proximity to EU markets and its low labour costs, made it an attractive destination for foreign investors. FDI spurred sectoral restructuring towards industrial activities, enhancing the adoption of foreign technology and boosting exports.
Following its 2004 EU accession, Poland deepened its integration into global value chains (GVCs) and attracted significant FDI, particularly in the manufacturing sector. The size of Poland’s production market and potential growth facilitated strong integration into GVCs, making the country even more attractive to foreign investors. Public and private investments in high-value-added activities and infrastructure, backed by EU funds and low interest rates, alongside prudent macroeconomic policies and a sound financial sector, drove Poland’s economic growth. (OECD, 2018[2]). Exports of goods and services more than tripled over the last two decades, driven by increasing integration in GVCs (Eurostat, 2019). GDP per capita went from 49% of the OECD average in 2004 to 80% by 2022 (Figure 2.1, Panel A). However, challenges like labour shortages and low investment in innovation continue to hinder further progress (European Commission, 2024[3]), and Poland remains among the ten poorest EU countries.
The COVID-19 pandemic caused Poland's first economic contraction in 28 years, shrinking output by 2.5% in 2020 (OECD, 2021[4]). While the economy rebounded, Russia’s war against Ukraine increased energy prices, inflation, and uncertainty, weakening consumption and business confidence (European Commission, 2023[5]) (Figure 2.1, Panel B). The arrival of Ukrainian refugees helped ease labour market shortages, but inflationary pressures, labour tightness, and skill gaps continue to challenge the recovery, even as international trade, domestic consumption and investment began to boost growth in late 2023 (European Commission, 2024[3]).
Note: Other CEE includes Bulgaria, Croatia, Estonia, Hungary, Latvia, Lithuania, Romania, Slovenia, Slovak Republic.
Source: OECD GDP and non-financial accounts, https://www.oecd.org/en/data/datasets/gdp-and-non-financial-accounts.html and European Commission Business and consumer surveys, https://economy-finance.ec.europa.eu/economic-forecast-and-surveys/business-and-consumer-surveys_en.
2.2.2. Although the economy is highly diversified, low-technology activities predominate in both the manufacturing and services sectors
The technology intensity of economic activities is pivotal for evaluating how FDI and SMEs can drive productivity and innovation. Industries specialising in higher technology manufacturing and services are more effective at differentiating, customising, and upgrading products, which often leads to enhanced overall productivity and innovation, especially in advanced economies like Poland. Figure 2.2 compares the structure of the Polish economy with that of selected EU peers, categorising industries into four main groups based on their technological intensity: lower technology manufacturing, higher technology manufacturing, lower technology services, and higher technology services. Box 2.1 provides further clarification on the sectoral classification used in this section and throughout the remainder of this report.
Although Poland has a well-diversified economic structure, it still leans more towards lower technology industries compared to many of its EU peers. Services make up around 64% of Poland’s total value added, comparable to other Eastern European countries but below the levels seen in other EU countries, including Italy and Germany. Most of these services are in low-tech sectors such as retail, real estate, and transportation, which collectively contribute about 30% to the economy. However, higher technology services, such as IT and professional services, have shown promising growth, increasing their share of value added from 6% in 2005 to 8% in recent years, driven largely by IT and computer programming.
In manufacturing, lower technology industries still dominate, with sectors like food, rubber, and basic metals playing a major role. High-tech manufacturing, such as automotive and pharmaceuticals, only contributes 6%, a smaller share than in many peer countries. Notably, the share of high-technology manufacturing in the overall economy has remained constant over the last two decades. To enhance long-term growth, Poland could benefit from increasing the share of high-tech manufacturing and services in its economy. Expanding knowledge-intensive industries could boost productivity and improve Poland's position in global value chains. Addressing challenges like labour shortages and strengthening firms’ capabilities will be essential to achieving this shift.
The motor vehicles sector, along with broader automotive and transport-related activities such as machinery and equipment and other transport equipment, accounts for the 16% of total manufacturing activity. This reflects a relatively developed industrial base built around the automotive sector. The sector is characterised by high levels of FDI, which has played a crucial role in strengthening its growth and competitiveness on the global stage, making it a key driver of Poland’s industrial growth and global competitiveness. Other industries, including agriculture, mining and extraction, infrastructure, and construction, account for 18% of the total value added.1
% of total value added by key sectoral groups (in million Zloty, Czech Koruna, and Euro), 2019
Note: Data for Czechia, Germany, Italy and the Slovak Republic are of 2019; for Poland of 2018; and for Portugal of 2017.
For a clarification of the sectoral classification based on technology intensity used in this figure, as well as throughout the rest of this report, see Box 2.1.
Source: OECD STAN Database for Structural Analysis (ISIC Rev. 4 SNA08) 2020 ed. (accessed 4 March 2024).
The conceptual framework described in Chapter 1 explains that FDI’s local embeddedness and absorptive capacities of SMEs are key determinants for FDI spillovers on SME productivity and innovation to take place. They depend, among other things, on the economic sectors and activities in which investment takes place and SMEs are operating. Given the focus on productivity and innovation spillovers, the sectoral analysis in this and the following chapters is based on technology- or R&D-intensity. As such, most analysis based on sectors (e.g. regarding economic structure, including of SMEs; GVC integration both through trade and FDI; and FDI-SME diffusion channels) focuses on four main sectoral groupings based on R&D-intensity, which are adapted from Galindo-Rueda and Verger (Galindo-Rueda and Verger, 2016[6]): higher technology manufacturing, lower technology manufacturing, higher technology services and lower technology services. Table 2.1 provides an overview of the industries covered in these groupings. R&D-intensity is measured by the ratio of business R&D expenditure relative to gross value added in each industry covered in a given group. It is important to note that sectoral classifications may vary across data sources covered in this report. Table 2.1 lists industries based on ISIC Rev. 4 two-digit sectors, which is the classification applied for most of the data used (e.g. OECD and Eurostat data). Commercial datasets like Financial Times’ fDi Markets and Refinitiv have their own classification of sectors but for the purpose of this report they were also classified according to the four groupings described above.
The classification has the caveat that R&D-intensity is an imperfect measure of innovation and innovation potential across industries. Not all firms that are successful at developing or implementing innovation are necessarily R&D performers. Many of these firms are successful adopters of technology which they have not developed. Measuring R&D intensity or embedded R&D in their purchases may not effectively characterise the innovative performance of firms or industries. Other OECD indicators measure skill intensity, patenting activities and innovation by industries that facilitate a more refined description of the overall knowledge intensity in different economic activities, although these measures are not always widely available across a majority of OECD countries and partner economies (OECD, 2015[7]). Another caveat of this classification is related to the fact that it is not entire sectors that involve either higher or lower technologies, but it is specific activities or segments within these sectors that involve different technology intensities. This caveat needs to be considered for any conclusions made in this report.
Note: A number of industries are not classified into these four groupings as the analysis in this report deliberately avoids focusing on these industries. They include Mining and extraction (Mining and quarrying; Coke and refined petroleum products); Infrastructure (Electricity, gas, water supply, sewerage, waste and remediation services; Telecommunications); Other services (Accommodation and food services; Public administration and defence; Compulsory social security; Education; Human health and social work; Arts, entertainment, repair of household goods and other service activities). These industries are either highly specialised and would require a more focused analysis, or their role/potential for FDI-SME linkages and spillover is limited.
2.2.3. Productivity growth has been strong, but insufficient investment is limiting the potential to further increase productivity
Poland has shown remarkable productivity growth during the last three decades. Since 1995, Poland's productivity growth has surpassed that of other OECD and EU countries but remains below the OECD average. Productivity, measured as GDP per hour worked, increased from 41% of the OECD average in 1995 to nearly 80% by 2022 (Figure 2.3, Panel A). This growth is primarily driven by trade openness, foreign direct investment (FDI) inflows, integration into global value chains, and the reallocation of labour and capital from low-productivity sectors like agriculture to more productive industries and services. However, Poland's productivity still lags behind many OECD and EU peers (Figure 2.3, Panel B), indicating room for improvement.
Source: OECD Productivity Database, https://data-explorer.oecd.org/.
Despite the overall progress, manufacturing productivity has stagnated (Figure 2.4). In 2022, manufacturing it was only 33% of the EU average, meaning Polish firms required more than twice as much labour to produce the same output as their EU counterparts. A World Bank study (Marc et al., 2021[8]) attributes this stagnation to declining allocative efficiency, where low-productivity firms in industries such as food, beverages, and metals gained market share at the expense of higher-productivity firms. Additionally, between 2009 and 2019, manufacturing total factor productivity (TFP) growth primarily stemmed from within-firm improvements, whereas service sector growth was driven by the increased market share of more productive firms. This stagnation, despite significant FDI inflows in manufacturing activities (see below, page 15), raises concerns about the knowledge and technological intensity of foreign firms operating in FDI-intensive sectors and whether productivity spillovers on domestic firms take place within and across sectors. Similarly, the low level of productivity across sectors (Figure 2.4), indicate potential structural issues in the Polish economy.
Gross value added per hour worked, by activity
Source: OECD, National Accounts, https://data-explorer.oecd.org.
Low investment remains a key concern for Poland's economic growth. Since peaking at 23.2% of GDP in 2008, investment has steadily declined, diverging from EU and CEE trends. By 2022, Poland’s investment-to-GDP ratio had dropped to 16.8%, significantly below the EU average of 22.9%. A major factor behind this decline is stagnating private sector investment, with business investment shrinking from 13% of GDP in 2008 to just 9.1% in 2022—far below peer countries such as Czechia (17.5%) and Hungary (16.7%) (Eurostat, 2024[9]). This persistent investment gap reflects structural challenges in Poland’s economy, which remains dominated by low-tech SMEs rather than high-tech industries. As a result, large-scale business investment and innovation-driven growth remain constrained, making Poland’s private sector less dynamic than those of its regional peers. Many SMEs struggle to scale due to limited access to long-term financing for innovation, technology, and R&D (see page 38). The banking sector remains risk-averse, and SMEs access to alternative sources of finance is limited, further constraining investment opportunities. After the COVID-19 pandemic and Russia’s war of aggression against Ukraine, high costs, economic uncertainty, and unclear regulations have further discouraged investment, with only 11.5% of manufacturing firms planning to increase their investment in 2024 (Statistics Poland, 2024[10]).
Skill shortages further challenge Poland's productivity potential. In 2022, 74.6% of employers in the construction sector and 63.4% in the industrial sector reported labour shortages as a key limiting factor for production (European Commission, 2024[11]). To address these challenges, Poland must enhance its education and training systems, particularly in green and digital technologies, to align workforce skills with market demands and support future productivity growth. Failure to address these issues could hinder Poland's economic trajectory and its ability to compete effectively in the global marketplace.
2.2.4. Poland’s exports are highly diversified but concentrate in low technology goods and services
Openness to international trade and integration into GVCs have significantly driven economic growth in Poland by facilitating technology upgrade and improving labour productivity. Over the past two decades, Polish exports have nearly quadrupled, rising from 27% of GDP in 2000 to 63% in 2022 (OECD), surpassing the OECD (34%) and EU (56%) averages. The export basket is highly diversified, with manufacturing accounting for 56% of gross exports, indicating that the country’s exports are not reliant on any single industry or group of goods (UN Trade and Development, 2023[12]). Key exporting industries include auto parts, food and beverages, and electrical equipment.
Despite this diversification, Poland's exports remain heavily specialised in low-technology goods and services, which made up 60% of total gross exports in 2020. This is significantly higher than neighbouring countries such as Czechia (42%) and Slovak Republic (38%), indicating potential for export sophistication (Figure 2.5). High-tech manufacturing, which constitutes 25% of Poland's exports, has slowed since the 2008-09 financial crisis. The automotive sector dominates Poland’s high-tech exports and is very well integrated in GVCs, with over 90% of production exported to Europe, particularly Germany. Additionally, high-tech services exports have grown significantly, from 2% in 1995 to 10% in 2020, driven by the installation of service centres that were subsidiaries of multinational companies and by business services outsourced to Poland. At the same time, the domestic business services sector showing increasing dynamism in recent years.
Key sectoral groups, % of total gross exports, 2020
Source: OECD Trade in Value Added Database (TiVA), 2022 ed. (accessed 18 March 2024).
2.2.5. Poland's participation in GVCs has grown, primarily driven by increased backward linkages
Poland is well integrated into GVCs, with approximately 50% of its exports linked to GVCs activities in 2020 This figure aligns with the OECD median of 47%, though it falls behind regional peers such as the Slovak Republic, Hungary, and Czechia2 (Figure 2.6). GVC participation plays a critical role in fostering industrial development and productivity growth, as foreign firms introduce capital, technology, and expertise, helping to raise productivity and wages in host countries. Initially, domestic firms and foreign subsidiaries often engage in lower-value-added tasks such as assembly. However, interaction and competition with foreign firms can enable them to upgrade to more knowledge-intensive and higher-value-added activities (Criscuolo and Timmis, 2017[13]).
In 2020, Poland's backward integration, which measures the share of foreign value added in its exports, stood at 29%, higher than the OECD median of 26% and comparable to countries like Portugal and Finland. On the other hand, forward integration—the share of Polish value added in other countries' exports—was 21.5%, slightly higher than CEE peers. The higher backward integration suggests that foreign companies operating in Poland are more likely to source intermediate goods from abroad rather than from local suppliers, limiting the development of domestic supplier linkages and reducing the potential for knowledge and technology transfer to local firms.
Backward and forward participation (%) and total participation (%), 2020 and 2000
Notes: Backward participation in GVCs is foreign value added embodied in a country’s gross exports, as a percentage of the country’s total gross exports; forward participation is domestic value added embodied in other countries’ gross exports, as a percentage of the country’s total gross exports. Data refer to 2020.
Source: OECD TiVA Indicators, https://www.oecd.org/sti/ind/measuring-trade-in-value-added.htm.
Between 2000 and 2020, Poland’s overall participation in GVCs grew by nearly 9 percentage points, with a stronger increase in backward integration, reflecting a downstream shift. This trend suggests that Poland has become more involved in assembly and post-production services, such as marketing, sales, and distribution, which are typically lower-value-added activities (Gábor Márk Pellényi, 2020[14]). Moreover, the position in GVCs is marked by its involvement in low-technology sectors mostly focused on fabrication and assembly. To maximise the benefits of GVC participation, Poland needs to upgrade its position by moving into higher-value-added, knowledge-intensive sectors, such as R&D and innovation. Achieving this would require targeted policies to enhance skills, innovation capabilities, and strengthen supplier-buyer relationships between foreign and domestic firms, ultimately increasing Poland’s domestic value-added contribution to GVCs (Kordalska and Olczyk, 2023[15]) (OECD, 2023[16]).
This section examines the spillover potential of FDI in Poland by analysing key factors. It begins by evaluating the volume of FDI inflows and identifying the main inward FDI trends. Next, it assesses the productivity gap between foreign affiliates and domestic firms, a critical factor in determining FDI’s spillover potential. Finally, the section explores the degree of embeddedness of FDI in the Polish economy, considering characteristics such as the prevalent types of FDI, investment motives, country of origin, and its regional and sectoral distribution.
2.3.1. FDI inflows have been a key driver of the Poland’s economic catch-up to higher income countries
Since the economic transformation at the beginning of the 1990s, Poland has emerged as a highly attractive destination for foreign capital. European and American companies began outsourcing their production to Poland, leveraging its lower labour costs and strategic position within European value chains. This influx of FDI surged in the early 2000s, catalysing the growth of new industries and service sectors and enhancing productivity. Following the 2008-09 global financial crisis, FDI flows slowed, but regained momentum after 2013, bolstered by robust GDP growth and heightened export demand from neighbouring European nations. From 2014 to 2020, annual FDI inflows stabilised around USD 13 billion, equivalent to 3% of GDP (Figure 2.7, Panel A). FDI has played a pivotal role in Poland's economic advancement and convergence with the EU and the OECD, driving technological upgrades, skill development, and productivity gains; (Kosztowniak, 2016[17]; 2019[18]; Burlea-Schiopoiu, Brostescu and Popescu, 2021[19]).
Despite setbacks from the COVID-19 pandemic and geopolitical tensions, including Russia's aggression against Ukraine, Poland witnessed a remarkable upswing in FDI inflows. Between 2019 and 2020, investments grew by 15%, followed by a staggering 95% increase from 2020 to 2021, outpacing peer countries that typically experienced declines in FDI (Figure 2.7, Panel A). In 2022, FDI inflows soared to a record-high exceeding USD 30 billion, more than doubling pre-pandemic levels. This surge was predominantly fuelled by foreign investors reinvesting profits back into Poland, accounting for over 60% of total investments.
By the end of 2023, FDI stock in Poland amounted to 39.3% of GDP, slightly lower than the OECD and EU averages (Figure 2.7, Panel B). Comparatively, smaller Central and Eastern European (CEE) countries like the Slovak Republic, Lithuania, and Czechia boast higher FDI-to-GDP ratios (Figure 2.7, Panel B). In contrast, more developed economies such as Germany and Finland exhibit lower ratios, primarily due to their roles as net investors. The stock of FDI in Poland has trended upwards since the early 2000s, with a minor decline post-global financial crisis, stabilising at around 40% of GDP over the last decade.
Notes: In panel B, the data for Finland, Lithuania, and Portugal is from 2022.
Source: OECD International Direct Investment Statistics, http://www.oecd.org/investment/statistics.htm.
After the 2008-09 financial crisis, Poland's inward direct investment has been primarily fuelled by reinvestment of earnings aimed at expanding existing foreign operations within the country. This increase in reinvested earnings can be attributed, in part, to the country’s rapid economic recovery and the strong financial position of enterprises with foreign capital. Recent studies emphasise that in Poland, GDP shows particularly strong responses to equity inflows and reinvested earnings, highlighting enduring investor confidence in future economic growth (Kosztowniak, 2021[20]).
2.3.2. Expanding the geographic diversity of FDI origins could enhance spillover benefits
The geographic structure of FDI stock in Poland has remained substantially unchanged during the last decade. In 2022 most FDI came from EU member countries (86%), over 40% of which were from the Netherlands and Germany (Figure 2.8, Panel A). The next most relevant investors came from Asia (8.15%) and the Americas (1.8%). Although this low diversification in terms of FDI origin reflects the country strong positioning within European value chains, some FDI in Poland may originate from non-EU investors who invest in Poland through European intermediate investors. Many companies, especially outside Europe, may channel their investment through different countries for strategic reasons related to market, regulations or policy conditions. For instance, the significant stock from the Netherlands and Luxembourg reflect to a large extent investment channelled through special purpose entities (SPEs) resident in these countries, rather than investment activities of the reporting countries themselves.
The origin composition of Poland’s FDI stock by ultimate investor, shows a more diversified structure with a more prominent role of Germany, responsible alone for 19.4% of the total stock, and non-EU countries, such as the United States and the United Kingdom (Figure 2.8, Panel B). Investment coming from EU member countries represented 61% of the total stock, followed by those coming from Asia (15%) and the Americas (9.5%).
The variety in investors' origins can impact FDI and SME spillovers. Investors from geographically and culturally close countries can enhance economic integration within regional value chains, fostering stronger business networks and knowledge transfer (OECD, 2023[16]). Conversely, investors from more distant locations might be more inclined to source inputs from domestic suppliers, as maintaining relationships with suppliers from their home countries can be costly, thus promoting the creation of vertical linkages (Javorcik and Spatareanu, 2011[21]). Attracting new investors in Poland can foster the development of new industries, promoting SME growth, and strengthen the country’s position within both global and regional value chains.
Source: OECD International Direct Investment Statistics, http://www.oecd.org/investment/statistics.htm.
2.3.3. Foreign firms are concentrated in export-oriented manufacturing activities
Foreign firms play a crucial role in Poland's export sector, contributing 56% of total exports in 2020 and being twice as export intensive as domestically owned firms, exceeding OECD comparator countries such as Lithuania, Portugal, and Italy (Figure 2.9). In manufacturing, foreign MNEs drive 65% of exports, with the motor vehicle industry standing out, where foreign-owned firms account for 90% of exports in value-added terms. Additionally, foreign-owned MNEs in Poland tend to be export intensive and generate substantial export-related activity through their supply chains (Cadestin et al., 2019[22]) .
Notes: In Panel A, the data for Poland is from 2020 and for the Slovak Republic from 2018. In Panel B, export intensity is calculated as the share of net total revenues generated from the export of products, goods, and materials.
Source: OECD Trade by Enterprise Characteristics database, https://doi.org/10.1787/3d347a3e-en (accessed on 25 April 2024); and Statistics Poland’s Statistics on Foreign Affiliates.
The activity of foreign firms is mainly concentrated in export-oriented manufacturing activities. In high-technology manufacturing sectors foreign firms account for 60% of value added and 72% of exports (Figure 2.10). In particular, in motor vehicles, foreign owned firms accounted for 86% of value added and 92% of exports. The growth of the Polish automotive sector has been driven by foreign investors from Europe, and particularly Germany, relocating part of their manufacturing activities leveraging Poland’s low labour cost. Although foreign companies in the automotive sector have increasingly invested in innovation and product sophistication, the Polish industry is still reliant on assembly activities and low-technology products (Pavlínek, 2023[23]). Foreign firms are less active in the service sector, accounting on average for the 15% of value added and the 14% of exports. Within the service sector, the contribution of foreign-owned firms to value added and exports on average is higher in low technology services than in higher technology services. However, in 2019 in IT services, foreign-owned firms were responsible for 40% of value added and 30% of exports.
The presence of foreign-owned firms across various sectors is crucial for facilitating FDI spillovers and linking with SMEs. FDI tends to generate stronger spillovers in high-tech sectors compared to low-tech sectors (Nicolini and Resmini, 2010[24]). In Poland, the presence of foreign-owned firms across different industries, particularly in high-tech manufacturing, might be beneficial for spillovers. The size and impact of these spillovers depend significantly on broader linkages between FDI and domestic firms within the economy. Evidence suggests that in Poland, domestic firms derive benefits from foreign firms, particularly within the same industry and in downstream sectors. Nevertheless, the magnitude of these spillovers is influenced by the absorptive capacity of domestic firms and competitive dynamics within the sector (Damijan et al., 2003[25]; Kolasa, 2008[26]; Bijsterbosch and Kolasa, 2010[27]). Over the last decade, Poland saw a slight decline in the overall contribution of foreign-owned firms to both exports and value added, indicating a trend where domestic firms are slowly gaining larger share of production and exports.
Note: Total value added and export in this figure refers to the total of the four industrial groupings covered. See Box 2.1 clarifying sectoral groupings used in this figure.
Source: OECD Analytical AMNE database 2021, www.oecd.org/sti/ind/analytical-AMNE-database.htm.
The sectoral composition of FDI in Poland shows signs of structural diversification, with a notable shift towards manufacturing activities (Figure 2.11, Panel A). By 2022, manufacturing represented the largest share of total FDI stock at 33%, up from 29% in 2013. Within the manufacturing sector, the food, beverage, and tobacco industries have consistently been the most significant contributors to FDI since the 1990s. Additionally, the automotive sector—including motor vehicles, trailers, and other transport equipment—remains highly relevant, accounting for 18% of manufacturing-related FDI and 6% of total FDI in 2022 (Figure 2.11, Panel B).
The increase in the share of FDI position in the Polish manufacturing sector post-COVID-19 might reflect the restructuring of GVCs and the trend of EU manufacturing companies relocating production closer to EU markets (fDi-Intelligence, 2024[28]). This transformation, emphasising sustainable and technology-intensive products, could present significant opportunities, especially for the broad automotive industry and its suppliers. The sector's transition toward green and digital technologies, such as electric, connected, and autonomous vehicles, might prompt companies in traditional OEM components to expand their investment focus beyond traditional manufacturing and assembly. However, given the high dependency of the sector on FDI, the speed and direction of the transition will be determined by foreign companies (Hanzl-Weiss, 2022[29]). A signal in this direction might be the increased number of greenfield FDI in the manufacturing in recent years. Since the onset of the pandemic Poland has seen a 45% increase in greenfield investments in manufacturing, largely due to new investments in electronic and electric components (Financial Times, 2024[30]).
In the service sector, financial and insurance activities, saw a significant decline moving form representing the 24% of total FDI in 2013 to 12% in 2022 (Figure 2.11, Panel A). Low-technology services – such as retail trade and real estate activities – have increased their participation in total FDI, accounting for 16% and 10% respectively. The increase in the relevance of low-technology services signals opportunities to foster linkages between foreign-owned companies and domestic SMEs, especially in those sectors with high SMEs participation. In 2020, SMEs represented 75% of employment in low technology services, 72% in retail trade and 92% in real estate activities.
High-technology services experienced a notable rise, primarily fuelled by professional, scientific, and technical activities, increasing from 6% of total FDI in 2013 to 9% in 2022 (Figure 2.11, Panel A). This growth in advanced business services was predominantly driven by FDI, as international companies outsourced services to capitalise on Poland's pool of highly skilled workers and competitive wage levels (Micek, 2015[31]). By 2021, foreign-owned enterprises contributed 51% of the value added in professional, scientific, and technical activities. Research indicates that attracting FDI in high-tech services yields enduring benefits for economic growth, prompting structural shifts in employment and augmenting the proportion of skilled labour within the workforce, extending beyond foreign-owned entities (Klimek, 2017[32]; Klimek and Sass, 2023[33]). The increase in high-technology services may lead to knowledge spillovers, particularly driven by mobility of workers between foreign and domestic firms. This trend further strengthens the country's position as a key high-tech service hub for the EU manufacturing sector. The presence of multiple IT clusters across the country can play a crucial role in this process. Well-developed IT clusters not only drive technological advancements and enhance economic competitiveness but also increase the country's attractiveness for FDI, further supporting its integration into global value chains.
Source: National Bank of Poland, FDI in Poland, https://nbp.pl/en/publications/cyclical-materials/foreign-direct-investment-in-poland/.
2.3.4. The concentration of greenfield FDI in higher technology manufacturing may facilitate spillovers
Greenfield FDI, i.e. new establishments or expansions of subsidiaries of foreign MNEs, has been predominantly concentrated in the Polish manufacturing sector, especially in high-technology manufacturing. Between 2003 and 2023, Poland attracted USD 111.4 billion in manufacturing investments, representing 40% of total greenfield FDI (Figure 2.12). The sector initially boomed in the early 2000s with significant investments in high-tech manufacturing, but growth slowed after the financial crisis. After the COVID-19 pandemic, however, the manufacturing sector saw a resurgence driven by investments in electronic and electric components, peaking in 2023 (Figure 2.12). Despite these recent trends, the share of greenfield FDI in high-tech and low-tech manufacturing declined from 2014 to 2023 compared to the previous decade, while the share of low- and high-tech services has increased (Figure 2.13, Panel A).
Greenfield FDI announced in Poland 2003-2023, USD million
Source: OECD based on fDi Markets database.
Until 2015, Poland's service sector exhibited moderate growth until establishing itself as a leading hub for services outsourcing in Europe. While low-technology services attracted the majority of greenfield FDI, the sector experienced sustained growth from 2014 to 2023 (Figure 2.13, Panel A) particularly in high-tech services such as computer programming, data processing, hosting services, and software publishing. Other sectors – such as infrastructure, construction, and public sector activities – collectively received approximately 40% of total greenfield FDI between 2003 and 2023.
The growing share of greenfield FDI in high-tech services and the recent increase in manufacturing FDI might enable technology and knowledge spillovers in the FDI-SME ecosystem. Greenfield FDI, particularly through investment expansions, facilitates the transfer of knowledge and technology from parent companies to new affiliates (OECD, 2023[16]). Established firms in host countries can have more robust relationships within the local ecosystem, including suppliers and service providers, and are more likely to perform knowledge-intensive activities in the host country. In Poland, 26% of the capital investment announced in greenfield FDI between 2013 and 2023 stemmed from expansions of existing projects. Expansion announcements were particularly notable in manufacturing sectors such as rubber and plastics (73%), machinery and equipment (65%), wood products (62%), electronic components (57%), and automotive (50%). These trends might increase the opportunities for domestic firms and SMEs to engage in supply chain integration and benefit from knowledge and technology transfers.
Note: See Box 2.1 clarifying sectoral groupings used in this figure. Detailed sector/activity classifications from Financial Times’ fDi Markets and Refinitiv data underlying the analysis in this figure differ marginally from standard classifications based on ISIC Rev. 4 used in other figures in this report.
Source: OECD based on fDi Markets database and Refinitiv.
Brownfield FDI, encompassing mergers and acquisitions (M&A) of Polish companies by foreign Multinational Enterprises (MNEs), exhibits a distinct pattern. Since 2005, the service sector has accounted for 61% of the total deal value (Figure 2.13, Panel B). Most of these transactions have focused on low-technology services, specifically banking and insurance (32%), real estate (26%), and entertainment (27%) services. In contrast, only 15% of the deals targeted firms in the manufacturing sector, with the sector's relevance in M&A deals declining over the past decade. Mergers and acquisitions enable foreign investors to access local technology, knowledge, and established markets. However, the transfer of technology and knowledge through foreign-capital spillovers is typically more gradual and less immediate (OECD, 2023[16]). Entry into low-technology services by foreign firms may intensify competitive pressures in the market, potentially leading to indirect spillovers. Nevertheless, foreign firms often acquire more productive and competitive local entities, which could widen the productivity, capacity and technology gap and limit short-term spillover effects.
2.3.5. FDI stock is concentrated in sectors with medium productivity levels and R&D intensity
On average, Poland's FDI stock is in sectors with medium productivity levels and R&D expenditure3 (Figure 2.14, Panel A). In 2022, medium productivity sectors—including manufacturing activities, information and communication services, financial and insurance activities, and transportation and storage—accounted for more than 50% of the total FDI stock and 70% of total R&D activities. FDI stock exhibits a positive correlation with productivity, indicating a favourable relationship. However, the majority of FDI is concentrated in the manufacturing sector, which demonstrates an average level of productivity. In 2022, the manufacturing sector accounted for 33% of the total FDI stock and 40% of total R&D expenditure (Figure 2.14, Panel B). Sectors such as mining, real estate, and electricity, which exhibit higher levels of aggregate productivity, represented less than 14% of the total FDI stock in 2022 and only 1.3% of total R&D expenditure. Lower productivity activities made up around 30% of both FDI stock and R&D expenditure.
Within manufacturing, FDI is concentrated in sectors with relatively high shares of R&D expenditure (Figure 2.14, Panel C). For example, metal products and motor vehicles sectors, which together account for 40% of total R&D expenditure, concentrated 27% of the total FDI stock in manufacturing. Sectors such as computers and electronics, machinery and equipment, rubber, and food and beverages, which each contribute between 6% and 10% of total R&D expenditure, collectively hold 51% of the FDI stock. In contrast, sectors with lower R&D contributions hold collectively 30% of the FDI stock.
Source: National Bank of Poland (2023), FDI in Poland, https://nbp.pl/en/publications/cyclical-materials/foreign-direct-investment-in-poland/; OECD (2023), Annual National Accounts, https://stats.oecd.org/.
These correlations, however, do not establish a cause-and-effect relationship between FDI, productivity, and R&D intensity. For instance, a positive correlation between FDI and R&D intensity does not clarify whether FDI increased R&D intensity in a sector or whether FDI was attracted to that sector due to its higher productivity or R&D intensity. Several studies have tried to measure the impact of FDI on productivity and innovation in Poland, generally indicating positive effects. Wojciechowski (2017[34]) found that higher shares of foreign capital in various sectors correlate with higher productivity in those sectors. Higher productivity gains were particularly observed in sectors with a medium technology gap with foreign firms. Kosztowniak (2022[35]) showed that from 2004 to 2020, FDI in innovative industries generated nearly 7% of Polish value added and was more dynamic than FDI in other industries. Similarly, Salamaga (2023[36]) found that FDI positively impacts the innovation performance of Polish firms in both industrial and service sectors.
Despite these positive impacts, FDI in R&D in Poland is lower compared to other OECD and EU countries. From 2003 to 2023, less than 2% of greenfield projects involved R&D activities, compared to 34% in manufacturing and 22% in pre- and post-production services. Poland's share of greenfield FDI in R&D is lower than that of other CEE economies, such as Czechia, the Slovak Republic, and Slovenia (Figure 2.15, Panel A). This could be due to the concentration of FDI in low technology-intensive and assembly activities, where foreign firms might invest less in R&D and rely on technologies developed abroad. For example, a recent study on the adoption and diffusion of automation technologies in Poland by Jabłońska and Mućk (2024[37]) indicates that foreign capital linkages play a crucial role in technology adoption at both the firm and sector levels, while domestic R&D appears less relevant, suggesting a significant presence of technology transfer from foreign to domestic firms. This trend might be reversed by the observed increase in greenfield R&D projects in the service sector, particularly in services related to digital technologies. Figures show that R&D investments are shifting from the manufacturing sector towards software and IT services, which between 2014 and 2023 accounted for almost 70% of total greenfield investment in R&D (Figure 2.15, Panel B).
Source: OECD based on fDi Markets database.
2.3.6. Foreign firms are more productive than domestic firms and exhibit higher productivity growth
Empirical evidence shows that FDI spillovers—transfers of knowledge and technology—occur when the productivity gap between domestic and foreign firms is pronounced but not too wide. Less productive domestic firms can benefit from interacting with more productive foreign firms by learning new practices, adopting new technologies, and accessing new knowledge. However, if the productivity gap is too wide, domestic firms may lack the absorptive capacity to benefit from these spillovers (Benfratello et al., 2006[38]). Assessing the productivity gap between MNEs and domestic firms is crucial to estimate the potential for FDI-SME spillovers effectively.
In Poland, foreign firms are on average 43% more productive than domestic firms (Figure 2.16, Panel A) This gap is smaller than in many other OECD and CEE economies, such as Czechia, the Slovak Republic, and Lithuania. Both domestic and foreign firms in Poland exhibit relatively low productivity levels compared to other OECD and EU countries. These aggregate figures highlight potential factors hindering Polish firms from benefiting from the presence of foreign firms, but a more detailed sectoral analysis is needed to understand domestic capabilities better. Sectoral analysis reveals that foreign firms are more productive than domestic firms in most sectors, except for mining and electricity. Low-technology services such as real estate, finance, and construction show the largest productivity gaps (Figure 2.16, Panel B). Within manufacturing, the performance gap between foreign and domestic firms is notably wider, with the largest gaps in wood, repair and installation, and electrical equipment. The computer and electronics sector shows the smallest gap (Figure 2.16, Panel C).
Source: OECD based on Eurostat’s FATS data, 2021.
The superior performance of foreign firms can be attributed to several factors. Foreign firms tend to be larger, more export-oriented, and have better access to finance, skills, knowledge, and technology from abroad, all of which contribute to higher productivity levels (OECD, 2023[16]). Evidence available for Poland shows that foreign firms not only outperform domestic ones but also experience faster productivity gains, resulting in increasing productivity gaps, especially in expanding sectors (Marc et al., 2021[8]; Hagemejer and Kolasa, 2011[39]). Moreover, a recent study found that the productivity premium of foreign firms is particularly high at low levels of GVC participation, while domestic firm productivity increases with higher GVC involvement (Szymczak, Parteka and Wolszczak-Derlacz, 2023[40]). Thus, GVCs and foreign ownership are complementary channels for achieving higher productivity through internationalisation.
This section evaluates the absorptive capacities of Polish SMEs, which refers to their ability to recognise valuable new knowledge and integrate it innovatively into their processes (OECD, 2023[16]). The stronger an SME's absorptive and innovative capacities, the greater its potential to benefit from FDI spillovers (OECD, 2023[16]); (Abraham, Konings and Slootmaekers, 2009[41]), (Appelt et al., 2022[42])]. Polish SMEs vary widely in terms of age, size, business model, market focus, sector, and geographic reach, resulting in diverse growth paths. These differences influence their capacity to engage in knowledge-sharing collaborations with foreign MNEs and benefit from FDI spillovers (OECD, 2023[43]).
This assessment considers firm-specific factors that shape absorptive capacity, such as productivity, sector, age, size, and location. Additionally, it evaluates SMEs' access to strategic resources like finance, skills, and innovation assets, using the framework of the OECD SME and Entrepreneurship Outlook (OECD, 2023[43]).
2.4.1. Low-productivity microenterprises dominate Poland’s business ecosystem
The Polish economy is predominantly characterised by micro, small, and medium enterprises (MSMEs). In 2021, the non-financial business sector in Poland consisted of 2.3 million enterprises, with 99.9% classified as MSMEs (Figure 2.17). MSMEs are defined as businesses with fewer than 250 employees. Within this category, micro enterprises (fewer than 10 employees) made up the majority at 95%. However, it is important to note that microenterprise data may include individual business activity. In some cases, such activity is driven by alternative work arrangements rather than reflecting traditional business operations, potentially impacting the interpretation of micro-firms dynamics. Over the past decade, the number of enterprises with less than 10 employees has increased, while the number of small and medium-sized enterprises (SMEs) with 10 to 249 employees has decreased to just 5% of the non-financial business sector (Zadura et al., 2024[44]). Large enterprises, with over 250 employees, constituted only 0.2% of the business sector. The absence of medium enterprises points towards possible challenges in scaling up business activities.
Compared to the average for EU and OECD member states, the distribution of enterprises in Poland is more heavily skewed to micro and small enterprises (Figure 2.17). In Poland the share of microenterprises in the business sector is 2% higher than the EU average. The predominance of microenterprises may result from both entrepreneurial preferences and the economy's structural characteristics, including the overall business environment and the structure of the labour market. Most microenterprises (72%) operate within the service sector, particularly in retail trade and professional services. Although microenterprises employ most of the workforce (35%), their contributions to value-added and turnover are relatively low compared to SMEs and large firms (Figure 2.19). While productivity levels vary significantly across sectors, micro firms, on average, exhibit notably low productivity—at half the level of small firms and just 43% of medium-sized firms. This represents one of the widest productivity gaps among OECD countries (OECD, 2021[45]).
Note: includes firms operating in the business economy, except financial and insurance activities.
Source: OECD Structural business statistics by size class and economic activity (ISIC Rev. 4), https://data-explorer.oecd.org/.
% of firms in the economy, by size, 2021
Note: includes firms operating in the business economy, except financial and insurance activities.
Source: OECD Structural business statistics by size class and economic activity (ISIC Rev. 4), https://data-explorer.oecd.org/.
These trends suggest that very small businesses in Poland may struggle to scale up and enhance their performance, having a negative effect on the economy-wide productivity performance (OECD, 2020[1]). Enhancing the scalability of micro firms by providing a supportive regulatory framework and facilitating access to strategic resources could significantly boost productivity growth and overall economic performance. A more balanced distribution of firm sizes would not only contribute to economic stability and adaptability but also increase the local embeddedness of FDI. SMEs and larger firms are more likely than micro firms to establish linkages with foreign MNEs and benefit from knowledge spillovers.
2.4.2. SMEs have been the engine of Poland’s productivity growth, yet their average productivity remains low
Although SMEs represented only 5% of the business population in the non-financial sector in 2020, they accounted for 32% of employment, 34% of value-added, and 33% of total turnover (Figure 2.19, Panel C). In Poland, SMEs play a crucial role in lower technology manufacturing, accounting for 42% of employment and 37% of value added. Small enterprises lead in employment and value added in textiles and wood, while medium enterprises dominate in basic and fabricated metal products. In higher technology manufacturing, SMEs have a lower participation, contributing 27% of employment and 22% of value added. However, in some sectors, such as machinery and equipment, they have relatively higher relevance. In the service sector, SMEs are more significant in lower technology activities, with 30% of employment and 35% of value added, compared to higher technology sectors, where they represent 20% of employment and 26% of value added. Within the service sector, real estate activities see the highest SME shares.
Note: The year of reference is 2020 (or the latest year available).
Source: OECD Structural Demographics and Business Statistics (SDBS) and Trade by Enterprise Characteristics (TEC) databases, 2023.
SME productivity in Poland is relatively low, at 68% of the productivity of large firms in 2021, compared to the OECD median of 78%. Polish SMEs tend to be more productive in the service sector, particularly in low-technology services, where their productivity is almost 87% of that of large firms (Figure 2.20). The productivity gap is wider in the manufacturing sector, where SME productivity is on average 60% of that of large firms. However, in high-technology activities, SMEs are more productive than their peers in lower technology manufacturing (Figure 2.20). In several sectors, including computer and electronics, software publishing, media production, real estate, and administrative support services, SMEs outperform larger firms in terms of productivity. This advantage may be due to the stronger presence of SMEs in these industries, as well as their greater flexibility in adapting to change.
SMEs have been the engine of productivity growth in Poland, playing a crucial role in the country's economic development. A recent World Bank study found that between 2009 and 2019, SMEs were likely to exhibit higher productivity growth than large firms across all sectors, with particularly notable gains in manufacturing and expanding sectors (Marc et al., 2021[8]). This trend highlights the significant potential of SMEs to drive economic progress and innovation within the country. However, despite these positive trends, the overall productivity of Polish SMEs remains relatively low. Many Polish SMEs lag behind their OECD peers in crucial areas such as innovation, technology adoption, and global integration (OECD, 2020[1]). This gap indicates that while SMEs are growing and contributing to the economy, there are still substantial opportunities for improvement and development. To further capitalise on the potential of SMEs and enhance their contribution to the economy, it is essential to support their development comprehensively, improving access to financing, and offering targeted assistance for technology adoption and innovation.
The analysis of the average productivity gap between domestic and foreign firms, proxied by revenues per person employed, by firm size shows that domestic SMEs experience the largest performance gap, while large firms exhibit a lower and declining productivity gap. Fostering buyer-supplier relationships between domestic and foreign firms represents an opportunity for domestic firms, particularly SMEs, to collaborate with other GVC participants, gain experience, and access new knowledge, potentially leading to higher productivity. Initiatives such as supplier development programmes and matchmaking with foreign companies investing in Poland can facilitate the integration of domestic SMEs into GVCs and lead to aggregate productivity gains.
Source: OECD Structural Demographics and Business Statistics (SDBS).
2.4.3. Business dynamism in Poland is relatively high, but barriers to entry and growth for SMEs persist
Business dynamism in Poland has been relatively high over the past two decades, with the stock of enterprises steadily increasing. Growth in the stock of enterprises in the economy is determined by the number of new entries and exits on an annual basis. Enterprises entry and exits rates are proxies for the level of dynamism in the business sector and can be an indicator of the general conditions of the economy. In 2020, Poland's enterprise birth rate was 9.7%, and the death rate 9.4%, both higher than the OECD averages of 9.3% and 8.7%, respectively (Figure 2.21).
According to data from Statistics Poland, 386 000 new enterprises were registered in 2022, while 211 000 were liquidated (Zadura et al., 2024[44]). The number of newly registered enterprises has remained stable over the last decade, but liquidations have surged since 2018 and further increased during the COVID-19 pandemic. The micro firm population is growing faster than that of SMEs and large enterprises. The majority of new enterprises are concentrated in the construction sector (19%), retail trade and repair of motor vehicles (15%), and professional, scientific, and technical activities (11%). More than half of the new Polish companies closes during the first year of operations, while the survival rate was higher in the subsequent years, reaching 91% after the fifth year of activity (Zadura et al., 2024[44]).
Note: Birth, death and churn rates are given for all employer enterprises. Data for Korea, New Zealand, and Greece is from the year 2019. Data for Columbia, Türkiye, United Kingdom, and Switzerland is from the year 2018.
Source: OECD Structural and Demographic Business Statistics Database (https://doi.org/10.1787/sdbs-data-en) (accessed 26 October 2023).
Entry and exit dynamics do not only reflect the influence of the economic performance on the business sector but also provide a good proxy for the business environment and the investors’ expectations about future possibilities of conducting business. The sum of birth and growth rate – defined as the churn rate – is a synthetic indicator to assess the dynamism of the business environment and the processes of ‘creative disruption’ operating in each moment. A lower churn rate might be an indicator of economic stability, with incumbent enterprises maintaining their market position and the benefits associated with long term investments. However, it could also be indicative of factors hampering the growth of new firms such as barriers to market entry and exit in the form of regulatory burden, access to finance and lack of competition. On the other hand, higher churn rates, might suggest dynamic business environments characterised by entrepreneurial activity, innovation and competitive pressure.
Poland's enterprise churn rate stands at 19.2%, higher than the OECD average of 18% and CEE countries such as Lithuania (13%) and Czechia (15%) (Figure 2.21). Sectoral differences are notable, with services like administrative support and IT showing high churn rates, while manufacturing sectors like machinery, equipment, and rubber and plastics show lower churn rates. On average, the churn rate is higher in the services sector than in manufacturing.
Available evidence suggests that in Poland, larger firms in low-productivity sectors such as food and beverages, metals, and rubber tend to maintain their market shares at the expense of new, more productive enterprises. This results in an inefficient allocation of market shares (Marc et al., 2021[8]) . Concurrently, 20% of Polish firms report encountering difficulties in running their businesses. The most cited demand-side problems include a lack of demand and excessive market competition. On the supply side, high non-wage labour costs, tax burdens, and unstable and unpredictable regulations are the most frequently mentioned issues. These challenges highlight the need to implement reforms that reduce barriers to the entry and growth of new and smaller firms, thereby promoting a more efficient and competitive market structure. Addressing these issues is crucial for enabling small firms to scale up and be better positioned to join GVCs and strengthen their linkages with foreign MNEs.
2.4.4. The internationalisation of Polish SMEs has been remarkable but heterogenous
The internationalisation of MSMEs in Poland is heterogeneous. Over the last decade, the export intensity of Polish enterprises has been increasing, with small enterprises experiencing the highest growth (48%), followed by medium (29%) and larger firms (19%). Micro firms saw the lowest increase at 11% (Figure 2.22).
Source: PARP Report on the state of SMEs sector in Poland 2024 (Zadura et al., 2024[44]) - https://www.parp.gov.pl/.
Despite this increase, the internationalisation of Polish firms remains relatively low. MSMEs are responsible for about 45% of the total export value, compared to the OECD average of 51%. Furthermore, only 35% of the total import value is attributed to MSMEs, versus the OECD average of 41% (Figure 2.23 Panel B). Polish MSMEs international trade activities are more occasional than constant, and engagement is particularly low for smaller firms. In 2020, microenterprises accounted for only 7% of total exports and SMEs for 28%, both lower than the OECD averages of 10% for micro firms and 31% for SMEs (Figure 2.23, Panel A). Conversely, larger firms represented 65% of total exports, more than 6 percentage points higher than the OECD average.
MSMEs' internationalisation varies significantly across sectors. Larger enterprises account for the bulk of manufacturing exports (76%), with medium enterprises at 18%, small enterprises at 5%, and micro firms at 1%. The service sector presents a different picture, with MSMEs accounting for almost 40% of total exports. SMEs' participation in exports is particularly high in professional, scientific, and technical services, where larger enterprises account for 12% of total exports, micro firms for 38%, and SMEs for 50%. Similarly, in financial and insurance activities, micro and small-sized enterprises account for 97% of total exports. The significant share of micro firms in service export value may be attributed to the inclusion of individual business activities within micro firm data. These activities are more prevalent in high value-added service sectors, such as professional services and IT programming.
Note: SMEs imports and exports as a percentage (%) of total country imports and exports of goods and services respectively, measured in trade value. SMEs include firms with 1-249 persons employed. The diversification of trade networks is measured by the share of all businesses exporting/importing to/from 20 or more countries. SME integration in long GVCs is calculated as the share of SMEs in all imports and exports of the top 10 longest value chains based on the OECD Inter-Country Input-Output (ICIO). These are manufacturing of: textiles (13), wearing appeal (14), leather and related products (15), rubber and plastics products (22), basic metals (24), computers, electronics, and optical equipment (26), electrical equipment (27), other machinery & equipment (28), motor vehicles, trailers and semi-trailers (29), and other transport equipment (30).
Source: OECD Structural Demographics and Business Statistics (SDBS) and Trade by Enterprise Characteristics (TEC) databases, 2023.
Polish smaller firms face higher internationalisation costs than larger firms and their peers in other OECD countries. These differences may be due to the low productivity of smaller firms in Poland and their specialisation in lower technology activities. Due to the high costs of direct engagement in international trade, many MSMEs access international markets indirectly through upstream linkages (supplier relationships) with larger exporters. Available data for 2017 indicated that the Polish share of MSMEs in value-added exports was around 50% of the total. Although MSMEs' indirect contribution to exports was higher than their direct contribution, it remained below the average level of other CEE countries, such as Lithuania, Czechia, and Slovak Republic, as well as other comparator countries such as Italy and Portugal (OECD, 2020[1]).
Polish MSMEs lag in other forms of internationalisation, such as network diversification and GVCs integration. When involved in international trade activities, Polish SMEs tend to focus solely on the EU market and have relatively smaller networks than their OECD peers (Figure 2.23, Panel B). Only 39% of MSMEs' imports come from more than 20 countries, compared to the OECD average of 48%. In addition to facing difficulties in overcoming barriers to international trade, Polish MSMEs show very low levels of integration in long GVCs, even in the most dynamic sectors (Figure 2.23, Panel C). Only about 17% of MSMEs' imports and exports are linked to long GVC activities, compared to the OECD average of 28%. Long GVCs involve firms located in different countries for various stages of production, from sourcing raw materials to assembly and distribution of the final product and are a good proxy for a country's integration in global production networks. The low GVC engagement of Polish MSMEs is also reflected in their lower likelihood of being recipients of foreign direct investment (inward FDI) or investing abroad (outward FDI).
The low internationalisation of Polish MSMEs might reduce their exposure to global shocks but also prevents them from seizing the opportunities that export-intensive and FDI-driven industries bring for productivity growth. To enhance MSME’s international competitiveness, it is crucial to improve their access to finance, foster innovation, and facilitate integration into global value chains. In particular, strengthening upstream and downstream linkages between SMEs and MNEs can create valuable opportunities for technology transfer, skill development, and market access. By fostering these SME-MNE linkages, Polish MSMEs can leverage the expertise and networks of larger firms to overcome internationalisation barriers, tap into international markets, and enhance their growth prospects (see Chapters 4 and 5). Additionally, improving the overall business environment by lowering administrative burdens and reducing the fixed costs of entering foreign markets will further support MSEM’s competitiveness and integration into GVCs.
2.4.5. Polish SMEs are lagging behind their EU peers in R&D investment and innovation
The Polish SMEs ecosystem contributes relatively little to the generation of knowledge-based capital. Very large enterprises (with more than 500 employees) are responsible for more than half of the business sector R&D expenditure, large firms account for the 15% while SMEs for the 30% and microenterprises 3%. Compared to other EU and CEE countries, the MSMEs ecosystem's contribution in Poland is relatively low. For example, MSMEs account for 70% of total business R&D in the Baltic countries, 43% in the Slovak Republic, and 39% in Hungary, signalling more dynamic SMEs sectors (Figure 2.24).
The R&D expenditure of the Polish business sector is low by international standards. On average, firms in Poland spend EUR 137.5 per inhabitant on R&D, significantly lower than the EU average of EUR 488.3 (Eurostat and OECD, 2024[46]). Large enterprises spend an average of EUR 93.5 per inhabitant, while SMEs spend EUR 15 and EUR 23 respectively. Although SMEs do not typically introduce breakthrough innovations, R&D investments help them adopt existing knowledge and technologies, improve performance, and enhance collaboration opportunities with more knowledge-intensive firms.
Note: Data for Germany, Romania, Sweden, Austria, Ireland, and Belgium comes from the year 2019.
Source: OECD Research and Development Statistics Database, 2021 (Accessed 27 November 2023).
Polish SMEs tend to be less innovative than larger firms across all sectors. Between 2020 and 2022, only 32% of firms in the Polish economy were classified as innovative. This figure is significantly higher for large firms, with over 60% demonstrating innovation, compared to around 40% for medium-sized firms and 25% for small firms. According to the European Community Innovation Survey (CIS), Poland has the second lowest share of firms engaging in some innovation activity in Europe (Eurostat, 2021[47]) . The most relevant factors hampering innovation in Polish firms are financial barriers, such as excessive innovation costs (12%), and difficulties in obtaining public grants for innovation activities (9.2%), and labour-market related factors, such as skills shortages (8.9%).
SMEs in manufacturing, which are among the most connected to foreign MNEs, encounter the highest barriers to developing innovation and adopting new technologies (Figure 2.25). For 16% of Polish manufacturing small enterprises, high innovation costs are a significant barrier, and for 23%, a moderate barrier. In the service sector, 9.3% of small firms identify high costs as a significant barrier, and 16.2% as a moderate barrier. The combination of high costs, difficulties in obtaining public grants or subsidies, and skills shortages prevents Polish firms, especially SMEs in manufacturing, from pursuing innovation activities and adopting state-of-the-art technology, machinery, and processes. This low level of engagement hinders knowledge diffusion from larger firms and MNEs to SMEs and limits SMEs' integration into GVCs, which require state-of-the-art production processes.
Percentage of innovative firms by type of barriers hampering innovation activities (reported as of high importance), services and manufacturing, 2020
Note: Large, medium and small: % of innovative firms in innovation core activities (Com. Reg. 995/2012) rating the importance of a barrier as “high”, by size class. Small firms = from 10 to 49 employees. Medium-sized = from 50 to 249 employees. Large = 250 employees or more. Micro firms with less than 10 employees are not included.
Source: Eurostat Community Innovation Survey (CIS), 2020 (accessed 6 June 2024).
Polish SMEs are among the least innovative in the EU. In 2023, the proportion of Polish SMEs introducing product, process, and organisational innovations, as well as collaborating with other firms to generate innovation outputs, was consistently lower than the EU average and that of most comparator countries (Figure 2.26). For every 10 SMEs introducing product or process innovation in the EU, only 4.3 Polish SMEs were doing so, compared to 13.6 in Czechia.4 However, Polish firms have exhibited some improvements in their innovation performance. For example, the proportion of SMEs introducing organisational and marketing innovations increased from near zero in 2016 to 40% of the EU average. Despite these gains, improvements have been slow and insufficient to catch up with other EU countries.
Note: Underlying data relate to share of SMEs who introduced product/process, marketing/organisational innovations or that engage in innovation co-operation activities with other firms (EIS 2023 Methodology Report.docx (europa.eu).
Source: OECD based on Eurostat, 2023, https://research-and-innovation.ec.europa.eu/statistics/performance-indicators/european-innovation-scoreboard_en.
2.4.6. The adoption of digital technologies is relatively low among Polish SMEs
The digitalisation of the Polish business sector lags behind other European countries, though it has shown some improvements in recent years. In 2022, Poland ranked 24th out of 27 EU Member Countries in the European Commission’s Digital Society and Economy Index (DESI), which measures digital skills, technology adoption, infrastructure, and digital government (Eurostat, 2022[48]). Polish firms generally adopt digital technologies at lower rates than their EU peers, and digital skills in Poland are below the average of most EU economies. For instance, only 44% of Polish firms use e-commerce channels, compared to 52% in Czechia and 51% in Lithuania (Figure 2.27, Panel C). These disparities are more pronounced in emerging technologies. In 2021, only 17% of large firms, 2% of small enterprises, and 5% of medium enterprises in Poland used artificial intelligence, significantly lower than the EU average (Figure 2.27).
Note: Data for the use of 3D printing and robotics are for the year 2022.
Source: OECD ICT Access and Usage by Businesses Database (Accessed 01 November 2023). OECD based on Eurostat, 2021.
While large firms perform on par with their European peers in adopting the Internet of Things (IoT) and 3D printing, SMEs have lower adoption rates (Figure 2.27). Similarly, only 5.4% of SMEs engaged in cross-border e-commerce, and their e-commerce turnover dropped from 8% in 2022 to 5% in 2023, versus the EU average of 12%. However, significant progress has been made in digitalising the business sector, particularly among SMEs. Between 2021 and 2023, the share of SMEs with at least a basic level of digital skills increased from 39.8% to 50%, and the use of enterprise resource planning (ERP) software among SMEs rose from 24% in 2017 to 34% in 2023. Polish SMEs tend to rely more on basic technologies for running their business operations while larger firms show higher rates of adoption of business technologies, such as enterprise resource planning (ERP) and client relations management (CRM) systems (Figure 2.28). These differences may be explained by the fact that larger firms generally need and adopt technologies tailored to large-scale operations, which may be unsuited for SMEs’ needs. Additionally, adopting new technologies requires specific skills and capabilities, leading to new investments that may be prohibitive for SMEs.
Note: Data for businesses receiving orders over computer network comes from the year 2020. Data for businesses sharing electronically SCME information with suppliers and customers comes from the year 2017.
Source: OECD ICT Access and Usage by Business Database.
Polish firms, particularly SMEs, invest less in digital and advanced technologies than their EU peers. The World Bank Technology Adoption Survey revealed that many Polish firms, especially smaller and less technologically advanced ones, believe they are more sophisticated than their competitors and underestimate the benefits of technology adoption. This misconception leads to less investment in both digital technology and digital skills development (Marc and Malec, 2022[49]). SMEs often lack the knowledge and skills to assess their technological sophistication and choose appropriate digital technologies. Facilitating access to information on digital technology and providing targeted support for digital investments could help reduce the technology adoption gap between larger and smaller firms. The adoption of digital technology is often essential for SMEs to expand their buyers’ network and access new markets without facing the costs of increasing their distribution facilities. Digital technologies enable SMEs to grow and expand their business, lowering costs, boosting their innovation capabilities and facilitating their integration in GVCs (OECD, 2021[50]).
To enhance the performance of Polish SMEs through digitalisation, it is essential to strengthen digital infrastructure, facilitate access to digital technologies, and invest in the right skills development for the workforce (OECD, 2023[51]). Although Poland has made significant strides in improving its digital infrastructure, regulatory barriers continue to impede the achievement of targeted connectivity levels. These challenges create regional disparities in the costs of providing digital services, particularly affecting rural and less developed areas, which experience higher costs and a widening digital gap between large firms and SMEs. Addressing these regulatory issues and prioritising digital infrastructure development are crucial for ensuring equitable access for all SMEs, enabling them to fully engage in the digital economy and capitalise on growth opportunities. Moreover, focusing on developing the right digital skills along with strengthening links between education and industry, is vital for fostering a competitive digital landscape.
2.4.7. Strengthening the professional training system can help Polish SMEs address production-related skills shortages
SMEs face significant difficulties in hiring and retaining the staff with the right skills. Smaller companies lack the knowledge and network to identify the right talent and often face resource constraints to offer competitive compensations to high-skilled workers. Additionally, while larger companies often have internal HR divisions devoted to workers training and skills upgrading, SMEs do not have the abilities and internal resources to train their workers, facing additional constraints in upgrading their knowledge base. Counting with the right skills and upgrading employees and organisational knowledge is a key asset for competition and for facilitating innovation processes and technology adoption as well as co-operation with frontier firms and sophistication of firms’ activities (OECD, 2023[16]).
Polish SMEs face significant skills shortages and mismatches. In 2023, 78% of Polish SMEs have difficulties in hiring employees with the right skills (Ipsos European Public Affairs and European Commission, 2023[52]) On average, Polish firms face lower shortages than their European peers but they report higher difficulties in retaining skilled employees. In Poland, 61% of firms report challenges in retaining skilled workers, compared to the EU average of 52%.The lack of qualified employees is a major barrier to growth, for almost 30% of the Polish SMEs the lack of qualified employees represents a significant barrier to innovation (Eurostat, 2021[47]). According to the OECD Skills for Jobs Database, Poland faces higher shortages in digital skills, production technologies and knowledge and training and education (OECD, 2024[53]). In contrast the skills with the largest surpluses are those related with business processes operations and resources management. (Figure 2.29). These shortages and mismatches are mainly driven by the unresponsiveness of the educational system to the needs of the labour market, the limited technological development of the business sector and the lack of a developed system of professional training (OECD, 2019[54]).
Note: Business processes include skills on the following: clerical, customer and personal service, sales and marketing. Digital skills include skills on the following: computer programming, digital content creation, digital data processing, ICT safety, networks and servers, office tools and collaboration software, web development and cloud technologies. Production and technology knowledge includes skills on the following: building and construction, design, engineering, mechanics and technology, food production, installation and maintenance, production and processing, quality control analysis, telecommunications, transportation. Resource management includes skills on the following: administration and management, management of financial resources, management of material resources, management of personnel resources, time management.
Source: OECD database on Skills for Jobs, https://www.oecdskillsforjobsdatabase.org/press.php#CZ/.
Poland has made significant progress in strengthening the educational system, yet challenges remain in fostering high skills especially among older people. While young adults are among the most educated in the EU, older adults in Poland face difficulties in upgrading their skills and participating in formal or informal learning initiatives. For example, while competency in digital skills in Poland are still very low and. approximatively only 21% of individuals possess digital skills that exceed the basic level. (Figure 2.30). The share of young adults (25-34) with basic or above average digital skills is between 60% and 70%. Contrarily, only the 40% of adults between 45 and 54 had basic or above average digital skills.
% of all individuals aged 16-74 having carried out activities requiring “above basic” digital skills in the previous three months, 2022
Note: People with “above basic” digital skills in each of the following four dimensions: information, communication, problem solving and software for content creation (as measured by the number of activities carried out during the previous 3 months). Selected activities are related to internet or software use.
Source: EC Digital and Society Index (DESI) (2022).
Skills shortages in SMEs are also driven by the lack of a well-developed system of professional training (OECD, 2019[54]). On average Polish SMEs perform relatively low in staff training. While around 20% medium firms and 25% of small firms report to face major constraints due to inadequately educated workforce (Figure 2.31, Panel C), in 2020 the share of Polish enterprises providing training to their employees was significantly lower. Only 35% of Polish small firms, 59% of medium firms provided training to their employees, much less than EU average (64% and 83% respectively) and significantly below the performance of most peer EU economies (Figure 2.31, Panel A). The gap between SMEs and large firms are among the widest in the EU, indicating barriers are larger to smaller firms which likely have less ability and resources to provide on-the-job training to their employees. Similarly, the participation of Polish employees in education and training activities financed by their enterprises is among the lowest in the EU, with participation rates ranging from 13% of small firms, 20% of medium firms and 42% for larger ones (Figure 2.31, Panel B). Poland training participation rates are significantly lower than those achieved by peer countries, such as Czechia and the Slovak Republic.
Note: Panel A shows the share of enterprises that have provided continuing vocational training (CVT) to their employees; Panel B the share of employees that have participated in CVT courses; and Panel C the share of enterprises that identify inadequately educated workforce as a major constraint for their business operations. Data are from 2020 for Panel A and Panel B, and from 2019 for Panel C.
Source: Eurostat (2020[55]), Continuing Vocational Training in Enterprises Survey, https://ec.europa.eu/eurostat, and World Bank Enterprise Surveys (2022), www.enterprisesurveys.org.
Upskilling and reskilling are essential to enhance SMEs’ competitiveness and facilitate the adoption of new technologies that could help them engage with MNE and GVC (OECD, 2020[1]). Providing financial and technical support to SMEs to foster the development of on-the-job training can reduce the training gap between small and large firms, facilitated the diffusion of new technology in smaller enterprises and increase their competitiveness and productivity.
2.4.8. Enhancing SMEs' access to finance and diversifying their funding can help address the gap in innovation funding
Financing conditions in Poland have generally been supportive of business investment needs, but SMEs access to finance can be further improved. Since the 2008-2009 economic crisis, the Polish banking sector has remained stable and maintained high liquidity buffers. In 2023, external finance accounted for 28% of investment finance for firms in Poland, aligning with the EU average. Notably, Poland had the highest share of firms using external finance in the EU, with 54% of Polish firms financing some of their investments through external funding, compared to the EU average of 43% (European Investment Bank, 2023[56]). The banking sector was the most important source of external financing for businesses, responsible for 80% of total external financing (European Investment Bank, 2023[56]). However, over the past four years, Poland has seen a significant decline in the reliance of non-financial corporations, particularly SMEs, on bank financing. While large firms may be shifting toward capital markets, SMEs could face significant challenges in replacing bank lending with alternative funding sources (European Investment Fund, 2023[57]). Moreover, a significant financing gap exists between SMEs and large firms. While 66% of large firms obtained investment finance from external sources, only 39% of SMEs did. Additionally, only 2.4% of large firms are financially constrained compared to 17% of SMEs (European Investment Bank, 2023[58]).
The primary causes of financial constraints for SMEs include high borrowing costs. The cost of borrowing for SMEs in Poland is significantly higher than for large firms due to banks' risk assessments and market conditions.5 The financing conditions for SMEs tightened significantly after the COVID-19 pandemic and Russia’s war of aggression against Ukraine. These events, resulted in economic downturns, and increased inflation, have heightened SMEs' vulnerability and risk exposure. In 2022, the criteria for granting business loans to SMEs were tightened, making it particularly difficult for highly indebted SMEs to borrow. Business loans to SMEs decreased from 54% of total business loans in 2018 to 48% in 2022. In 2022, the average interest rate for SME loans increased to 5.10% (Figure 2.32, Panel A), compared to 3.87% for large companies, reflecting a general tightening of monetary policy and increased risk premiums (OECD, 2024[59]). The interest rate spread, which measures the gap between the interest rates on new long-term bank loans to SMEs versus large firms, widened significantly from just 0.01 percentage points in 2021 to 1.23 percentage points in 2022 (Figure 2.32). This increase suggests that banks have become more cautious in lending to SMEs, leading to higher borrowing costs for these smaller businesses compared to their larger counterparts, and reflects growing disparities in access to credit in the financial landscape (OECD, 2024[59]).
In 2022, borrowing costs for SMEs in Poland were higher than in many peer countries. The nominal interest rate on SME loans in Poland exceeded those of most peer countries like Portugal and Slovak Republic but remained below the levels seen in Czechia and Hungary (Figure 2.32, Panel A). Notably, Poland experienced one of the most significant increases in the interest rate spread between SMEs and large firms, indicating a sharp rise in the risk premium applied to smaller businesses (Figure 2.32, Panel B). This widening gap suggests that Polish SMEs faced growing financial constraints relative to their peers in other countries, making access to credit increasingly challenging compared to larger firms. As a result, SMEs in Poland encountered heightened borrowing difficulties in an already tightening financial environment, further restricting their ability to invest and expand.
Note: In panel A, all data are adjusted for inflation using the GDP deflator of each country published in the OECD Economic Outlook database using the base year 2007.
Source: (OECD, 2024[59]).
Polish SMEs predominantly rely on traditional means of financing. Due to the higher cost of finance, SMEs use internal finance more than large firms. One in five SMEs relies on internal finance for investment, compared to one in ten large firms (European Investment Bank, 2023[56]). When accessing external funding, SMEs mainly use traditional debt financing channels such as leasing or hire purchase (66%) and bank or credit card overdrafts (58%) (European Investment Bank, 2023[56]). Only 4% of SMEs consider equity a relevant investment financing source, and just 2% have access to equity finance for their innovation activities, significantly lower than in comparator countries (Figure 2.33, Panel B). While the reliance on traditional means of financing for R&D is common among SMEs, Polish firms exhibit lower levels compared to their peers in comparator countries. Small firms in Poland show a significantly lower share of equity financing for innovation than those in Slovak Republic, Hungary, and Lithuania.
The low use of equity financing among SMEs in Poland may indicate structural challenges rather than a balanced market. Poland has a low equity financing gap to GDP ratio and a small percentage of SMEs struggling to secure equity financing (European Investment Bank, 2019[60]). However, this does not necessarily mean that equity financing meets demand—it likely reflects deeper barriers on both the demand and supply sides (European Investment Bank, 2024[61]). On the demand side, many SMEs avoid equity financing due to concerns about losing ownership, limited awareness of alternative funding options, and a strong preference for debt or self-financing. On the supply side, investors may be hesitant due to high-risk aversion and a shortage of investment-ready companies, restricting capital flow. The dominance of debt financing over equity could ultimately hinder SMEs' growth and innovation potential. Supporting SMEs' scale-up and innovation requires a wider array of alternative finance solutions.
SMEs' access to alternative sources of financing for innovation is limited. Although capital market finance in Poland has increased, the availability of long-term financing for SMEs remains constrained. The Warsaw Stock Exchange is well-developed and has used specialised intermediaries to support SMEs. Additionally, Poland's venture capital (VC) market has been one of the most dynamic in the CEE region, attracting EUR 215 million invested in 78 companies in 2022 (OECD, 2024[59]). Despite efforts to boost the domestic VC market, it still remains under-developed and significant challenges remain for startups and SMEs. Data from the EU Innovation Scoreboard show that VC expenditure as a share of GDP slightly decreased from 2016 to 2023 (Figure 2.33, Panel A). Poland underperforms the EU average and comparator countries such as Czechia, Italy, and Portugal. In 2023, VC investment in Poland stood at 0.027% of GDP compared to the EU average of 0.085% (European Commission, 2024[11]). Additionally, almost 80% of Polish SMEs used their own funds to finance their activities, while only 25% utilised domestic VC and business angels (Dziewit, 2023[62]).
Note: Underlying data for Panel A relates to venture capital expenditures which is defined as private equity being raised for investment in companies. Management buyouts, management buy-ins, and venture purchase of quoted shares are excluded. Venture capital includes early-stage (seed + start-up) and expansion and replacement capital.
Source: European Innovation Scoreboard, https://research-and-innovation.ec.europa.eu/system/files/2023-07/ec_rtd_eis-2023-methodology-report.pdf.
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← 1. These industries are not classified into the four groupings based on technological intensity because they are either highly specialised and would require more focused analysis, or their potential for FDI and SMEs linkages and spillovers is limited.
← 2. Participation in Global Value Chains (GVCs) is measured as the share of a country’s exports that take part in a multi-stage trade process.
← 3. Labour productivity is measured by sectoral value added per total hour worked.
← 4. This statistic compares the proportion of small and medium-sized enterprises (SMEs) that introduce product or process innovations in different countries relative to the EU average. Setting the EU average at “10,” Poland scores 4.3 and Czechia scores 13.6. In other words, if 10 EU SMEs are innovating on average, only about 4 SMEs in Poland are doing the same, while around 14 SMEs in Czechia are doing so, indicating that Polish SMEs lag behind the EU average in innovation activity, whereas Czech SMEs exceed it.
← 5. Beyond the interest rate spread, other factors also influence borrowing costs, including preparatory fees, credit insurance costs, and credit guarantee fees. However, a detailed analysis of these factors goes beyond the scope of this report.