Strengthening FDI and SME Linkages in Poland

Poland has experienced robust economic growth over the past two decades, with GDP per capita doubling between 2000 and 2023, driven by capital accumulation, efficiency gains, and substantial foreign direct investment (FDI). Integration into global value chains (GVCs) following EU accession has facilitated sectoral restructuring, raising GDP per capita from 50% to 80% of the OECD average. However, the economy remains reliant on low-technology activities, which account for a significant share of manufacturing and services. The share of high-tech manufacturing has remained stagnant, and 60% of gross exports still comprise low-technology goods and services, which could constrain the knowledge-intensity of the economy and present challenges for long-term growth.

International investment has been a key driver of Poland’s economic convergence, with FDI inflows rebounding strongly after the 2008 crisis. By 2023, Poland’s FDI stock accounted for 40% of GDP – above some advanced EU economies but below the OECD average. Foreign firms are 43% more productive than domestic firms and play a major role in manufacturing; yet, they remain underrepresented in high-tech services, limiting the scope for productivity spillovers in these knowledge-intensive sectors. FDI in Poland is primarily concentrated in medium-productivity industries, while R&D-intensive investment remains limited – less than 2% of greenfield FDI projects between 2003 and 2023 involved R&D, a lower share than in peer EU economies.

While FDI is a key driver of regional development, its benefits remain concentrated in more developed Polish regions. FDI accounts for 34% of total investment in Dolnośląskie but less than 2.5% in Świętokrzyskie, reflecting stark regional disparities not only in volume but also in the type of investment. While Dolnośląskie and Mazowieckie attract the largest inflows, particularly in high-tech industries, investment in less-developed regions such as Warmińsko-Mazurskie, Świętokrzyskie, and Podlaskie remains concentrated in low-tech sectors, limiting the scope of FDI-driven growth. Productivity, innovation, and wage dynamics reflect broader regional disparities in FDI benefits. Foreign firms in the north exhibit higher productivity and innovation levels than domestic firms, whereas in central and northwestern regions, domestic firms lead in both areas. Wage differentials follow a similar trend, with foreign firms in the north and east offering significantly higher wages than domestic counterparts, while gaps are narrower in the centre and southwest.

Poland’s economy is characterised by a high share of micro firms while medium-sized enterprises are underrepresented, suggesting potential barriers to scaling up. SMEs account for 32% of employment and 34% of value-added but participate less in high-tech sectors. Polish SMEs contribute 45% of export value, with micro firms facing the highest barriers. Innovation activity is also below EU averages, with Polish SMEs introducing fewer product and process innovations than peer economies. Only 33% of business R&D expenditure comes from SMEs, far below the share in other Central and Eastern European economies. Key barriers to improving the competitiveness of Polish SMEs include high innovation costs, limited access to public funding, and skills shortages.

FDI-SME linkages offer opportunities for productivity gains. Foreign firms source 68% of their intermediate inputs from the domestic market, comparable to large EU economies, creating opportunities for knowledge and technology transfer through buyer-supplier relationships. Yet, inter-firm partnerships for R&D and innovation remain underdeveloped. Polish firms demonstrate a preference to partner with domestic entities over foreign ones, suggesting potential challenges in benefiting from innovation spillovers from FDI. The potential for knowledge transfer through other channels such as the movement of skilled workers from foreign MNEs to local SMEs is limited due to wage gaps and limited training opportunities.

Responsibility for FDI and SME policies is split across multiple ministries and agencies. While this multi-agency structure leverages diverse expertise, it requires strong inter-institutional co-ordination to prevent policy fragmentation and inefficiencies. Strengthening formal co-ordination structures – such as expanding the mandate of the Polish Development Fund (PFR) Council to oversee FDI-SME linkages – could enhance policy coherence. Formalising collaboration between the Polish Investment and Trade Agency (PAIH) and the Polish Agency for Enterprise Development (PARP) through joint programming procedures would help streamline efforts and minimise overlapping responsibilities. Enhanced co-ordination between national and regional authorities would improve alignment with regional economic development priorities. Special Economic Zones (SEZs) play a key role in regional growth, and clearer administrative roles could increase their efficiency and leverage FDI and SMEs to promote regional specialisations.

Poland’s economy is open to FDI, with a few market access restrictions concentrated in the real estate, transport and media sectors. Investment incentives are provided to attract knowledge-intensive investment, particularly in technology-driven sectors and less-developed regions. Regular evaluations of these schemes would help optimise their effectiveness and minimise distortions. Sectoral targeting of investment promotion policies has traditionally focused on FDI-intensive manufacturing industries such as automotive and electronics but has increasingly expanded to services, reflecting growing opportunities for productivity gains in the ICT and business services sectors.

Recent government reforms have focused on improving the investment climate by reducing administrative burdens for businesses and lowering associated costs for entrepreneurs. However, further efforts to reduce public ownership distortions, enhance the insolvency regime, and strengthen intellectual property (IP) rights protection are needed to support knowledge-intensive investment. Poland’s IP framework is comprehensive, yet domestic firms – especially SMEs – underutilise IP protections due to high costs and limited awareness. Addressing these gaps through financial support and advisory services could improve technology transfer and innovation.

Polish SMEs, whose absorptive capacity is essential for FDI spillovers to materialise, often face challenges navigating the business support system due to complexity, suggesting the need for simplified application processes and SME-focused adjustments. Streamlining SME support services provided by PARP and the National Centre for R&D (NCBR) through one-stop-shop models could improve the uptake of these programmes. Strengthening workforce skills, particularly in knowledge-intensive and digital sectors, is critical to enhancing SMEs’ capacity to absorb knowledge and integrate into the supply chains of foreign MNEs. Supplier linkages and partnerships between foreign investors and SMEs are mainly facilitated by PAIH, but regional disparities in the quality of investment facilitation services may affect their effectiveness. Improving co-ordination with regional authorities, developing online matchmaking platforms, and establishing dedicated supplier development programmes could enhance the integration of Polish SMEs into foreign MNE supply chains.