Magdolna Sass

Offshoring and outsourcing business services to central and Eastern Europe : Some empirical and conceptual considerations

The global structural shift towards service-based foreign direct investment (FDI) across the world is a relatively recent phenomenon resulting from the increased tradability of services. Although India and Ireland have traditionally been viewed as the main receiver countries, the Central and Eastern European (CEE) region is becoming an increasingly popular destination for business service offshoring and outsourcing. The article focuses first on the empirical and conceptual challenges to understanding the offshoring and outsourcing of business services in the context of significant difficulties with their definition, categorization and classification. It discusses the shortcomings of quantitative data and provides a theoretical framework needed to understand the specific patterns of service sector FDI in the context of CEE. Second, the article outlines the current position of CEE countries as destinations for service sector FDI: it analyses the patterns of service sector investment and discusses the reasons for its emergence as a receiver region. The empirical material is drawn from 30 interviews conducted with senior managers in business service foreign investment in the Czech Republic, Hungary, Poland and Slovakia. The article concludes that the composition of services FDI flows is changing, reflecting the growth of resource seeking vertical investment in the region. The share of CEE countries in the global flows of this type of investments is still low, but the region shows a growing potential. Its attractiveness is based on a number of factors, like availability of skilled labour with strong language skills, low costs, favourable business and stable political environment, well-developed infrastructure and geographical and cultural proximity to Western Europe.

Impacts of horizontal and vertical foreign investment in business services: the experience of Hungary, Slovakia and the Czech Republic:

This article examines the impact of foreign direct investment in business services on the economies of the Czech Republic, Hungary and Slovakia and their place in the European division of labour. A distinction is drawn between horizontal market-seeking foreign investment in business services and efficiency-seeking vertical investments, which have increased since 2000. We posit a conceptual framework that differentiates between the static, dynamic and institutional properties of global production networks and their impacts on localities and regions. The research is based on interviews with senior managers in 25 companies in the three case-study countries, as well as inward investment agencies. We conclude that the most salient static impacts of these investments are on the labour market, where horizontal investments provide fewer, but more skilled jobs than vertical investments. Dynamic effects were contradictory in that, although learning and spillover effects were modest, vertical investments demonstrated a propensity to move up the value chain. Strategic coupling with local actors involved institution bending, enhancement or harnessing in changing the spaces of production.

Outward Foreign Direct Investments and Emerging Multinational Companies from Central and Eastern Europe

This paper summarizes a research project devoted to analyzing the development of outward foreign direct investment (OFDI) and emerging multinational companies from Visegrád countries: The Czech Republic, Hungary, Poland, and Slovakia. After several years of foreign direct investment inflows to central and eastern European countries in recent decades, OFDI has appeared and grown dynamically from these economies. The Visegrád countries are among the leaders in that respect. This type of internationalization is affecting mainly Visegrád neighboring countries and other countries in the region. The concentration of investing companies and transactions is quite high in all four countries, and this determines both the sector and target country composition of OFDI. Intra-Visegrád investments, mainly by pairs of countries, are especially significant.

Crisis and Upgrading: The Case of the Hungarian Automotive and Electronics Sectors

By triggering a wave of organisational restructuring, reconfiguration of supply chains and consolidation of business processes at multinational companies, the crisis offered significant upgrading opportunities for peripheral actors in globalised production networks (the so-called global value chains). Drawing on Hungarian case studies of local subsidiaries in the automotive and electronics industries, this essay investigates the crisis-induced product, process and functional upgrading opportunities in low-cost locations. We show Hungarys high level of integration into global value chains and document the rapidly ongoing process of functional upgrading.

Internationalisation of innovative SMEs in the Hungarian medical precision instruments industry

Competitive and innovative Hungarian SMEs in the medical precision instruments sector can be characterised by continuous development, special knowledge and innovation activity. These are the main factors behind their high level of competitiveness and higher than average level of internationalisation. Certain companies could become leading firms in worldwide comparison in niche segments, and there are a few companies which internationalised early in the company life cycle and can be called ‘emerging born globals’. Thus post-communist economies can also be homes to such companies. This article analyses the motivation of internationalisation, the choice of foreign location and the main barriers to internationalisation for SMEs in this sector in Hungary, pointing out the similarities and differences between problems faced by smaller companies in former transition economies and in more developed economies.

Outward FDI from Hungary: the Emergence of Hungarian Multinationals

Hungary is a leading outward foreign investor among the new member states of the European Union. Our research question is what those factors are which enabled Hungarian companies to expand abroad successfully. Our methodology is based on company case studies of the leading investors and other randomly selected companies with foreign investment. Our main findings include the specific ownership advantages (OA) of privatised companies, with links to their heritage from the pre-transition period. For companies established after 1990, OA is more similar to that of “traditional multinationals.” Second, we make a link between “virtual indirect” investors and this specific OA, showing how the strong position and specific knowledge of the management are interrelated in developing and changing the OA. On the basis of our research, the policy dimension concerns, first of all, the role of increasing local competition due to increased investments by foreign multinationals. This enables a few local companies to enhance their level of competitiveness to such level where they themselves will be able to become successful foreign investors. Second, highly innovative companies in small market niches are able to internationalise successfully even in the post-transition environment. Fostering R&D is thus an important tool for trade and investment policy as well.

Crisis-related Changes in the Specialization of Advanced Economies in Global Value Chains

Analysis of globalization-induced gains and losses necessitates not only new types of data to complement that compiled in traditional trade statistics but also new analytical approaches. This article surveys the literature that addresses the evolution of the global value chain approach, an analytical perspective that is able to capture in greater depth than earlier theories the causes and consequences of the ongoing process of global reorganization of production. Our specific focus is, on the one hand, changing activity specialization within the new global division of labour and the related changes in competitiveness of advanced economy actors; and, on the other hand, crisis-related changes in global value chains. We conjecture that advanced economy actors have been continuously shifting their specialization towards ‘the edges of the value chains’ into activities requiring higher skills, which result in the capture of higher value for them. We show that this process has further accelerated during the financial crisis.

Voting for staying. Why didn’t the foreign-owned automotive component suppliers relocate their activity from Hungary to lower-wage countries as a response to the economic crisis?

Abstract On the basis of interviews with 10 foreign-owned automobile component suppliers in Hungary and the collection of indirect information, this article explains why the multinationals did not relocate their activity from Hungary to lower-wage countries as a response to the economic crisis. We suggest that the four ‘keep factors of location’ – additional investments of the automobile manufacturers, unchanged labour market regulation, changes in government policy and the existence of few alternative sites of relocation – were more dominant than the two main ‘push factors of relocation’ – relatively low sunk costs and low dependence on the local environment.

Russian Capital in the Visegrád Countries

This working paper analyses investment by Russian firms in the four Visegrad countries, their motivations and ownership advantages, based mostly on the eclectic paradigm. Beside statistical data, we rely on case studies to present the profile of the most important Russian investors in each host country. The Visegrad countries have attracted less Russian investment than their economic importance would warrant, due to various factors, most notably the joint effects of reticence in host countries and firm strategies that do not necessarily see the subregion as a major priority. Most of the Russian investment examined is market, and to a lesser extent, resource seeking, concentrated in the hydrocarbons, steel and nuclear energy industries, often dominated by state-owned firms. Some innovative private Russian companies, with features similar to developed-country multinationals, can also be identified with marketas well as efficiency-seeking investment. Extant investment theories with the exception of the eclectic paradigm fall short of explaining Russian investment. This paper suggests that further analysis is needed on the role of the home country in stimulating outward investment and directing it to specific locations.

How Did the Automotive Component Suppliers Cope with the Economic Crisis in Hungary

Abstract This article studies the reaction of automotive component suppliers in Hungary to the 2008–2009 economic crisis. We find that the global suppliers viewed the crisis as an opportunity to reinforce the competitiveness of their Hungarian affiliates by engaging in product and process upgrading, and upgrading through research and development. The regional suppliers combined defensive strategies aimed at reducing costs with offensive measures in the form of product upgrading, production upgrading and expansion into new markets. The local suppliers reduced costs and reduced their workforce, but also reacted offensively by expanding into new markets, upgrading their activity and collaborating with other local suppliers.