Abstract
Based on the example of the automotive sector, the paper investigates some quantity and quality aspects of FDI-driven upgrading and analyzes in a comparative perspective—with the help of industry level data—selected aspects of competitiveness in Central and Eastern Europe. We conclude that in spite of several subsequent foreign direct investment deals, which have produced nonnegligible expansion and structural upgrading, and irrespective of the fact that local actors have all stepped on the path of slow quality upgrading, CEE automotive actors have been stuck in cost-based competition (the Czech Republic is a partial exception in this respect).
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Notes
- 1.
Nevertheless, as several analysts noted, the growth of local demand was unstable, which soon made market-seeking investors turn into efficiency-seeking ones. Investors have reoriented the production and the sales of their local facilities to export markets. As a complementary strategy, they have “stepped back” along the value chain and specialized on high-volume, labor-intensive part and components production for export, instead of or complementary to the final assembly of cars designated for the domestic market (Domanski and Lung 2009).
- 2.
The opportunities privatization deals offered cannot be restricted to efficiency-seeking ones. Tulder (2008) provides several examples to demonstrate that the market-seeking motive was equally important; here, I quote only one: “Acquiring Dacia in Romania resulted in an immediate market share of more than 70% in 2000 (for Renault) and an additionally dominant position in the imported car market” (p. 588).
- 3.
With the establishment of Hyundai’s Nosovice plant in the Czech Republic in 2008 and Mercedes’ Kecskemét plant in Hungary in 2009, practically, all the major manufacturers have carried out greenfield car manufacturing investments in the region. Relocation decisions allowed older and more expensive plants to be closed such as PSA’s Ryton and GM’s Luton plants in the UK (PSA opened new plant in Slovakia and GM in Poland).
- 4.
This paragraph draws on Havas (2000).
- 5.
Ikarus was on the other hand the largest bus manufacturer supplying the whole CMEA with a yearly production of over 14,000 buses in the 1980s.
- 6.
Manufacturing of some car parts and components continued during the socialist era—delivered mainly to Western manufacturers for hard currency.
- 7.
Similar turnaround stories can be mentioned in Serbia, where Zastava was acquired by Fiat, in Romania, where Automobile Craiova was recently acquired by Ford (following a short period in the ownership of Daewoo that has also invested in turning around the inefficient plant), and earlier in Poland, where FSM was taken over by Fiat (for a detailed elaboration of this latter story as well as the analysis of Fiat’s internationalization strategy, see Dallago (2000)).
- 8.
The most recent country to join the “club of OEM manufacturers” is Bulgaria. So far Bulgaria specialized only in automotive parts and components manufacturing—a strong growth industry with producers including EPIQ Group (Belgium—electronic modules); VW Electric Systems (Turkey—cables), Grammer (Germany—seats), Yazaki Corp. (wire harnesses), Melexis (microelectronics) etc. Local final assembly of passenger cars is expected to start in 2010. OEM manufacturing will start as a result of the investment of Great Wall Motor Co. Ltd. a Chinese sport-utility vehicles manufacturer.
- 9.
- 10.
GM used to have Opels assembled in Hungary, but this activity stopped in 1998. Altogether, 90,000 Opels were assembled in Szentgotthárd between 1992 and 1998.
- 11.
According to the Polish Information and Foreign Investment Agency, the respective figure for Poland was 1.8 million engines in 2007. The main engine manufacturers are Volkswagen Motor, Polska; Toyota Motor Industries, Poland; Toyota Motor Manufacturing, Poland; Isuzu Motor, Polska; and Fiat–GM Powertrain, Polska.
- 12.
Rába also assembles military trucks.
- 13.
In this chapter, we use automotive industry and transport equipment industry (ISIC 34-35) as synonyms.
- 14.
Source: Zoltán Pitti’s data, based on Eurostat Data Bank data services (October 2009). The respective value of this indicator was 9.6 in Poland and 13.1 in Romania (source: ibid.). Compare these data with the EU 27 average of 11.6%.
- 15.
The automotive value chain includes both downstream and upstream activities: the former is represented mainly by knowledge-intensive services such as car financing, sales, marketing, insurance, logistics, and maintenance.
- 16.
The numbers in these paragraphs were taken from CSO’s 2008 yearbook on Hungary as well as from the “Action plan to promote the Hungarian transport equipment industry,” prepared by the Ministry for Development and the Economy and accepted in July 2009.
- 17.
Nevertheless, in CEE economies, the R&D intensity of production (R&D over net sales) is far below that of the industry average of advanced economies. According to NSF data, for example, in the USA, company R&D expenditures over net sales in motor vehicle trailers and parts industry were 2.4% between 2003 and 2007 (2.5% in 2005). Companies in this industry reported performing $16 billion of company-funded R&D in 2007. We have also calculated data for Germany. Automotive companies were reported performing EUR 12,392 million of R&D in 2006 (ANBERD database 2009). Production value amounted to EUR 315,820.5 million (Zoltán Pitti’s data based on Eurostat Data Bank data services) which results in an R&D intensity of 3.9%.
- 18.
These requirements apply to suppliers at all levels, while first-tier suppliers also assume responsibility of the design and development of whole modules.
- 19.
Both country groups upgrade, but their respective development trajectories are divergent.
- 20.
Although CEE economies “mainly specialize in the assembly of high-volume, low-end, inexpensive vehicles and engines, they also host the manufacturing of a number of high-end, low-volume niche products” (Frigant and Layan 2009, p. 16).
- 21.
The relatively low value of this indicator in the Czech Republic (10%) can be explained by the (already mentioned) fact that in contrast to the export orientation of Hungarian and Polish high-value-added component manufacturing, high-value-added components manufactured in the Czech Republic are assembled into passenger cars within the country (Pavlínek et al. 2009, p. 51). Again, this explanation underlines the necessity of being cautious with conclusions drawn from indicators referring to the composition of or changes in the product mix.
- 22.
The interviewed German company, a first-tier system supplier, insisted on not revealing its name.
- 23.
One example: At VW Poznan’s R&D center in Poland, engineers participate in the development of special purpose vehicles (e.g., VW Caddy Tramper, fire brigade cars).
- 24.
Even Audi, with an evil reputation among Hungarian analysts of having one of the lowest local content ratios and refraining from any expenditures that would contribute to site competence broadening and quality upgrading of its local subsidiary—highly important for Hungary in a quantity term—recently invested into the establishment of a testing laboratory. This evil reputation is to some extent exaggerated: Audi invests considerable amount in local human capital development. One example is the establishment of an “Audi Faculty” at the Széchenyi University of Győr with an initial investment of EUR 40,000. Academic curriculum includes production technology, aspects of product development, mechatronics, etc. (for an overview of automotive companies’ investments in human capital development, see Jürgens and Krzywdzinski (2009), p. 37).
- 25.
The interviewed automotive company also employs process engineers: to improve material flows, rationalize the production process, etc. Furthermore, its project engineers take part in the design of new products, the manufacturing of which the local company will be entrusted. Note that in most cases, the term “new product” refers to small incremental changes (some new parameters) within the existing product. All changes relating to the process or the products have to be incorporated in the information system: this is the task of local software developers. Nevertheless, this company would answer with “no” to questionnaires, inquiring whether it carries out local R&D, employs R&D staff, or whether it has an R&D department.
- 26.
Nevertheless, the claim that colocated R&D and manufacturing implies small-scale applied research, while stand-alone centers carry out prospective basic research would be oversimplified: Visteon Autopal’s (two local) R&D center are located within the premises of its manufacturing facility in the Czech Republic, and these centers are the mother company’s European R&D centers for lighting and air-conditioning systems. Similarly, Tenneco, Wabco, and Valeo’s R&D centers in Poland are colocated with the manufacturing facility, and they carry out important R&D tasks (Pavlínek et al. 2009). On the other hand, both Knorr Bremse and Bosch established stand-alone research centers in Hungary; research tasks carried out there are of a higher level and of a more strategic character than the ones carried out at R&D departments colocated with local automotive subsidiaries.
- 27.
The main research areas include software development, electric solutions for vehicle control systems, and suspension solutions.
- 28.
Knorr Bremse expands its local activities even at time of crisis; its Rail System Division is in the process of building a new manufacturing facility in Budapest.
- 29.
Beyond Knorr Bremse, industrial consortium partners include ThyssenKrupp Presta (this company itself has a stand-alone development center in Budapest specialized in the development of steering systems), Inventure Automotive Electronics R&D Inc. (a Hungarian-owned private automotive R&D firm), a Hungarian consultancy company (Informin.Hu Ltd.) specializing in automotive-related IT solutions, and TÜV-NORD KTI Ltd. established by the German TÜV Nord Group and the Hungarian Institute for Transport Sciences.
- 30.
State’s support together with consortium partners’ own contribution at JRET amounted to ~EUR 2 million in 2008 (Source: JRET’s annual report).
- 31.
Although the automotive sector in the Czech Republic features R&D outlays that are nearly by an order of magnitude larger than the ones of Hungary (see Table 7.6), it is still far from a par excellence high-road strategy as well.
- 32.
- 33.
Furthermore, Hungary’s rocketing consumer credit stock denominated in foreign currency aggravated the crisis. Recession was accompanied by a sharp currency crisis at the end of 2008, early 2009 in Hungary. The Hungarian Forint weakened rapidly which increased consumers’ debt burden.
- 34.
According to the most recent Commission Staff Working Document (Commission 2009, p. 9), substantial investments in capacity in Central and Eastern Europe have created sizeable overcapacity. Whereas capacity utilization in previous years was around 80%, it has dropped to 65% at the beginning of 2009.
- 35.
According to the cited authors, the share of CEE in German automotive component imports rose from 9 to 37% between 1995 and 2005 (Jürgens and Krzywdzinski 2009, p. 32).
- 36.
Include also the moves from the south (i.e., the southern periphery of advanced Europe) to the east, i.e., to the advanced eastern (Central European) periphery.
- 37.
According to Hobday’s (1994) “stages of technological capability accumulation” model, autonomous development implies the acquiring and upgrading of technical and engineering skills in the course of original equipment manufacturer (OEM). While local subcontractors manufacture complete, finished products following the exact technological specification of the buyer (often their transnational corporation owner), they assimilate and improve existing technology (process engineering). The next stage is marked by the acquiring of design capabilities and the shift from OEM to ODM (own design manufacture). While ODM implies minor product development skills, in the next, OBM stage (own brand manufacture: the most advanced stage of technology recipient firms’ capability development), local firms become capable to carry out R&D activities for new product or process innovation. They assume all production-related corporate functions, market their own brands autonomously, and compete head on with established lead producers.
- 38.
cf. Wad’s (2009) comparison of the Thai and the Malaysian automotive industries that have been pursuing different integration strategies: integration through foreign MNCs’ value chains versus a national champion policy.
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Szalavetz, A. (2012). The Hungarian Automotive Sector: A Comparative CEE Perspective with Special Emphasis on Structural Change. In: Welfens, P. (eds) Clusters in Automotive and Information & Communication Technology. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-25816-9_7
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