Institutional problems and the corruptive use of social capital give ground for misuse of institutional gaps and cause intentional failures for financial benefits. Based on social capital theory and transaction cost economics (TCE) this paper describes how the institutional environment in the Former Yugoslav Republic of Macedonia (FYROM), affects success or failure of business endeavors, such as the Swedmilk case. Foreign Direct Investments (FDI’s) are expected to be the drivers of positive economic development for economies in transition. Hence, the major question addressed in this paper is: How does a Greenfield foreign direct investment of 25 million Euros, manage to collapse in such a short period? The paper also describes the “official” plans and actual outcomes of the dairy, as well as the situation in the dairy sector before and after the Swedmilk failure. The financial problems occurred in October 2008, so the case of Swedmilk is quite recent and has not been included in any kind of research. Being a recent case the real implications on the dairy farming and sector are yet to be explored.


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