UCL School of Slavonic and East European Studies, University College London, 7th Annual International Postgraduate Conference

Inclusion Exclusion

16-18th February 2006

Thursday 16 February 12:00 – 1:30: Panel A1: Economic Development and Globalization

Olga Munteanu (University of Leipzig): ‘Integration Patterns in the Automotive Global Value Chain in Hungary. Prospects and Challenges for Local Supplier Upgrading’

Hungary is one of the few advanced transition economies that has done especially well about integrating into global networks of production and marketing. Progress is especially advanced in the automotive industry, often considered as the “industry of industries” due to its complex production and innovation networks and also in terms of significant macroeconomic transformations it brought about in the Central European countries. In the wake of economic transition Hungary managed to position itself quite fast into the automotive global value chain by relying on the FDI-led investment to resurrect its car production after a 40-year hiatus in domestic automotive production. As a result, major automotive groups, such as Audi, Opel/GM, Ford and Suzuki have set up considerable production facilities in Hungary. As usual, multinational system suppliers followed their customers based on long-term supply contracts, making it difficult for local firms to compete as suppliers on their own.

There has been little question in literature regarding the fundamental role of FDI, often viewed as “the catalyst of transition”, in rapid and structural restructuring of Hungary’s industry in the 90’ies in terms of technology transfer (new products, managerial and technological know-how), gross fixed capital formation, export performance and employment generation. However, in the long run, FDI can benefit local economies only if foreign companies are integrated in the local economy, by building inter-firm linkages with domestic enterprises. Hence, the establishment of a strong domestic supplier base, linking firms at successive stages of production, is required.
The importance of this issue has been highlighted most recently in studies of firms integrated in “global value chains” as sources of technical upgrading and innovation in developing countries. Clearly, this is even more relevant in the case of transitional economies, where the traditional export markets abruptly collapsed and supplier relationships had been disrupted and could only be replaced thanks to local firms becoming part of multinational production and distribution networks.

Thus, a critical question is whether access to global value chains, particularly in such a competitive industry as automotive, entails more opportunities or threats for domestic supplier firms. In view of the central role of domestic firm in the transitional process and the importance of the FDI-led modernization, magnified in small open economies like Hungary’s, it is worthwhile analyzing the growth prospects of Hungarian-owned firms embedded in the automotive value chain.
In this context, the main question arises: In which way and to what extent does the Hungarian mode of integration into the global automotive chain affect the technological upgrading of its domestic supplier firms? This paper focuses on the Hungarian automotive components manufacturing firms and explores their prospects for upgrading based on the findings of my field study carried out in Hungary from May until September 2005. I contend that despite high entry barriers and sophisticated technological requirements in the automotive industry, there is still scope for some local supplier firms to upgrade rapidly their production processes and products. My presentation will provide an overview of the principal objectives as well as main research findings.