Chinese and Indian transnational corporations
According to the data of the Hungarian National Bank (stock, ultimate investor), in 2017, 2.8% and 2.1% of the total FDI stock in Hungary was from India and China. India and China are respectively the 10th and 12th largest source countries of FDI in Hungary. Of Asian countries, only Japan and South Korea have invested more than India or China in Hungary. Tables 1 and 2 include the most important Chinese and Indian investors in Hungary.
Both private and state-owned companies from China are present. The former are represented by Huawei Technologies, Midea Group, BYD, Yanfeng Automotive Interiors, Joyson Safety System, and Lenovo etc., the latter by Wanhua Chemical Group, ZTE, China COSCO Shipping Group, CRRC, Genertec and Bank of China, etc. Indian companies located in Hungary are privately owned. Some of them belong to large business groups: Tata Consultancy Services Hungary–Tata Sons, Dunakiliti Konzervüzem, Puszta Konzerv, Ganz Transelektro, Ganz Transverticum–Avantha Group, Birla Carbon Hungary–Aditya Birla, Group etc.
Chinese and Indian companies in Hungary operate in the manufacturing or service industries. We can highlight the dominance of companies from both countries in the automotive industry. Besides this, the ICT manufacturing (electronics) and service sector is also very attractive for Chinese companies and Hungary has become an attractive host country for several Indian companies of IT/BPO services. Indian and Chinese automotive companies mainly producing different components (e.g. mirrors, tyres, tyre moulds, door panels, floor and overhead consoles, metal components) have been integrated into the automotive global supply chains which have a strong presence in the Hungarian economy. There are only two automotive companies, Electrobus Europe and BYD Electric Bus & Truck Hungary, which do not produce automotive components, but electric buses. IT/BPO companies represent one of the internationally competitive sectors of India. A number of them such as Cognizant Technology Solution, Wipro, and Tata Consultancy Services have opened a subsidiary in Hungary. In the case of China, high-tech companies in the ICT manufacturing (electronics) and service sector such as Huawei Technologies, ZTE and Lenovo operate worldwide and are well known. We can also find some Chinese or Indian companies in the chemical, renewable energy, robotics, pharmaceutical, environmental, retail, food processing, logistics/transportation, banking sectors, etc.
Modes of entry
The entry pattern of Chinese and Indian companies shows green-field investments as well as acquisitions. In the case of Chinese companies, market entry is sometimes realized in the form of a joint venture. Indian companies have acquired several companies originally established by Hungarians such as Alkaloida (Sunpharma), Puszta Konzerv (Global Green/Crompton Greaves), Ganz Transelektro and Ganz Transverticum (Crompton Greaves) and Ábrahám és Társa Kft.Footnote 4 (SMR Hungary/Samvardhana Motherson Group). And there are some examples for acquisitions in which Indian companies buy foreign companies which have subsidiaries in Hungary: Samvardhana Motherson Group–VisiocorpFootnote 5 (SMR Hungary), Aditya Birla Group–Columbian Chemicals Company (Birla Carbon Hungary) and Crompton Greaves–InterGarden (Dunakiliti Konzervüzem). All Indian investments in IT/BPO services have a green-field type. Over the last decade, there have been several green-field investments in the automotive sector. SMR Hungary opened a new factory in Mosonmagyaróvár in 2011 and an SMP factory in Kecskemét in 2017. In Túrkeve, it also launched a new SMR plant in 2018 and a new MATE plant in 2019. In addition, Sona Group and Apollo Tyres have carried out green-field investment projects in the automotive sector. In 2018, the building of a foil factory was announced by SRF Group as well as Uflex Group.
Chinese acquisitions show similarity to their Indian counterparts. Chinese companies have also bought foreign companies which have subsidiaries in Hungary: Bohong Group–Wescast (Wescast Hungary), Midea Group–KUKA (KUKA Hungária), Lenovo–IBM PC division, Joyson Safety System–Takata Corporation (Joyson Safety System Hungary), Shanghai Baolong Automotive Corporation–PEX Automotive (PEX Automotive Systems), Anhui Zhongding Sealing Parts–KACO (KACO Hungary), etc. Wanhua Industrial Group (now Wanhua Chemical Group), Beijing Sevenstar Group (now Naura Technology Group), Changshu Standard Part Factory and Zhejiang Kaishan Compressor have acquired companies with Hungarian roots (BorsodChem, Energosolar, Ongai Csavargyártó, Turawell (51%)). We also have to mention the special case of Hungarian telecom firm Invitel, which was acquired in 2017 by the China-Central and Eastern Europe Investment Cooperation Fund (established under the Belt and Road Initiative). Unlike Indian companies, Chinese counterparts also establish joint ventures to enter the Hungarian market. For example, China International Railway Corporation and China Railway International Group (85%) established a joint venture with Hungarian Railways (MÁV) (15%) in 2015 to coordinate the upgrade of the Hungarian section of the Budapest-Belgrade railway line. Chinese BBCA Biochemical Group launched a joint venture with MFB Invest (subsidiary of the Hungarian Development Bank) in 2012. The building of their citric acid factory is still under progress in Szolnok. In 2015, Yangfeng Automotive Interiors and Johnson Controls (now Adient) established a joint venture, which became the owner of the former Hungarian subsidiary of Johnson Controls. In 2018, Electrobus Europe was set up as a joint venture by Ikarus, a Hungarian company with a long tradition in bus manufacturing, and Chinese CRRC, the world’s largest rolling stock manufacturer. Beside acquisitions and JVs, we can find several green-field investments in different sectors as well: Huawei Technologies Hungary, ZTE Hungary, Comlink Electronics Hungary, Himile Europe, Bank of China, photovoltaic power stations of Unisun Energy Group and Genertec, etc.
Chinese investments in the service sector (e.g. logistics, transportation, banking) as well as in the manufacturing sector show market-seeking motivations. They are not only interested in the Hungarian market, but they often use Hungary as a (Central) European hub from where the European market can be supplied with Chinese products or services. For example, in 2009, Huawei Technologies located its European Supply Centre to Hungary which has been distributing Huawei products to Europe, Russia, North Africa and the Middle East. Chinese cable-maker Comlink Electronics followed its domestic purchaser Huawei Technologies and invested in the Hungarian market in 2013. The Flextronics plant in Sárvár supplies Europe, Africa and the Middle East with Lenovo products. In 2014, Bank of China launched its CEE headquarters in Budapest. Himile, which is the world’s largest manufacturer of tyre moulds, opened its European service and manufacturing centre in Hungary in 2016. Express LUCK Industrial took over the plant of Samsung Electromechanics Industrial in Szigetszentmiklós in 2016 to open its first European TV factory. Beijing Shenan Group bought a 16,000 m2 real estate in Dunakeszi in 2015 which has been turned into a European distribution centre of its LED light sources and luminaries for industrial, commercial and household use. BYD opened its first European factory in Hungary in 2017 and supplies the European market with electric buses. Zhejiang Dahua Technology, which is a world-leading video-centric smart IoT solution and service provider, opened an assembling factory and its European supply centre in south-western Hungary in 2018. Chinese companies in the renewable energy sector operate photovoltaic or geothermal power stations to produce electricity for the Hungarian market. Chinese investments in the field of logistics and transportation (China International Railway Corporation and China Railway International Group, Shandong Imperial International Investment, China COSCO Shipping Group) contribute to the development of the China-Europe sea-land express passage under the BRI and support the rail transport of Chinese goods from the port of Piraeus to the centre of Europe.
Strategic asset-seeking investments from China have recently become dominant in the form of M&A in technologically developed countries where Chinese companies are looking for advanced technology, brand and know how, etc. In Hungary, this type of M&A was rare until the second half of the 2010s. In 2011, Wanhua Industrial Group (now Wanhua Chemical Group) acquired BorsodChem which has become the world’s third largest isocyanate producer and increased its European presence through BorsodChem subsidiaries. By acquiring Energosolar in 2009, GreenSolar has obtained know how, a brand name and technical staff. In recent years, predominantly in the automotive industry, Chinese companies have bought several developed country TNCs which have a subsidiary in Hungary. From this point of view, acquisitions of Midea Group, Joyson Safety Sytem, Shanghai Baolong Automotive Corporation, Anhui Zhongding, Zhengzhou Coal Mining Machinery Group and China Renaissance Capital Investment can be classified as strategic asset-seeking investments.
We can primarily speak about market- and strategic asset-seeking investments in the case of Indian companies as well. Green-field investments in the IT/BPO sector are aimed at supplying the European or global market from a low-cost location like Hungary. Production from a relatively low-cost site and close to customers is also a significant motivation for Indian automotive component manufacturers. New green-field investments of packaging material producers such as Uflex Group and SRF Group are also aimed at producing closer to European customers. Similar to Chinese companies, Indian counterparts have obtained ownership of some Hungarian subsidiaries by acquiring developed country TNCs. Acquisitions of Samvardhana Motherson Group (Visiocorp) and Aditya Birla Group (Columbian Chemicals Company) can be classified as strategic asset-seeking investments. In a European acquisition wave, Hungarian Ganz Transelektro and Ganz Transverticum were bought by Crompton Greaves in 2006. CG was motivated to obtain leading manufacturing capacities extra high-voltage transformers, gas insulated switchgear and other related components (Leepsa and Mishra 2012, p. 239). The acquisition of Alkaloida by Indian SunPharma was motivated by the enlargement of the company’s basket (similar to CG) of complex products in the formulation and active pharmaceutical ingredient businesses (Balcet and Bruschieri 2010, p. 134). In the food industry, Global Green Europe acquired Hungarian cannery Puszta Konzerv in 2008 to enter the Central Eastern European market, including the Baltic States and the Balkan region.
Role of Eastern Opening policy
In this part of our study, we assess the role of the Eastern Opening policy in the attraction of new Chinese and Indian investors and the further expansion of investments by Chinese and Indian companies located in Hungary. Here, we investigate the following four factors: high-ranking political meetings, strategic cooperation agreements, cash grantsFootnote 6 from the Hungarian Government and supportive services of HIPA. High-ranking political meetings between Hungary and China or India often serve as venues for concluding agreements or negotiating on investments with Chinese or Indian companies. Strategic cooperation agreements are mainly aimed at encouraging Chinese and Indian companies to extend their investments in Hungary, participate in the training of the Hungarian workforce and increase the number of their Hungarian suppliers and promote Hungary as an investment destination country for other foreign companies. These agreements establish strong and direct relations of Chinese and Indian companies with the administration of the Hungarian Government, especially HIPA. Cash grants based on a discretionary government decision are often provided to Chinese and Indian companies. For projects granted cash subsidies, ‘HIPA undertakes all-inclusive project management and provides VIP treatment and comprehensive information about other subsidies available’ (Bana 2015).
The Hungarian Government has signed 9 strategic cooperation agreements with Chinese and Indian companies (Huawei Technologies Hungary (2013), BorsodChem (2014), Yanfeng Hungary (2016), Bank of China (2017), Wescast Hungary (2017), SEGA Hungary (2020), Tata Consultancy Services Hungary (2013), CG Electric System Hungary (2013), SMR Hungary (2015)). Many of them have expanded their capacities/activities in Hungary in recent years.
Huawei Technologies Hungary: A strategic cooperation agreement between Huawei Technologies Hungary and the Hungarian Government was signed in April 2013 when Hungarian Minister of Foreign Affairs and Trade Péter Szijjártó was on an official trip to Beijing. Under this agreement, Huawei Technologies Hungary boosted its headcount (to 2500) and expanded its warehouse space. Finally, it opened an enlarged logistics centre in Biatorbágy in 2013. It also brought its domestic supplier, cable-maker Comlink Electronics’ investment to Hungary. In 2014, during an official visit of Hungarian Prime Minister Viktor Orbán to China, the Hungarian Investment and Trade Agency (predecessor of HIPA) and Huawei Technologies signed a memorandum of understanding on launching an innovation centre in Budapest and increasing production capacities of Huawei Technologies Hungary.
BorsodChem: The Hungarian Government had already started to formulate the Eastern Opening policy when Hungarian Prime Minister Viktor Orbán visited Shanghai at the end of 2010 where he and his Chinese counterpart discussed, among others, the buyout of BorsodChem by Chinese Wanhua Industrial Group. The acquisition of BorsodChem was closed in 2011. A new TDI plant of BorsodChem was launched in 2011. This project was financially backed by Bank of China. In 2014, the Hungarian Government concluded a strategic cooperation agreement with BorsodChem in Beijing. To lure new further biotechnology and chemistry investors to Hungary, Wanhua invested EUR 200 million in the establishment of an industrial park (Sino-Hungarian BorsodChem Economic and Trade Cooperation Zone) next to BorsodChem plant. In the strategic cooperation agreement, the Hungarian Government pledged to give government supports (e.g. tax allowance) to companies investing in the industrial park. In 2017, BorsodChem announced that it would build a technologically advanced, environmentally friendly chlorine plant with the financial support of China Development Bank.
Bank of China: In 2014, during his official visit to China, Hungarian Prime Minister Viktor Orbán met the President of Bank of China who announced that Bank of China would establish its CEE centre in Budapest and build a network of branch offices to finance Chinese companies’ activities in Central and Eastern Europe. In 2017, the Hungarian Government and Bank of China concluded a strategic cooperation agreement. According to the agreement, Bank of China will finance Hungarian projects in line with the goals of the Belt and Road Initiative and encourage further Chinese investments in Hungary.
Yanfeng Hungary: In 2016, Yanfeng Hungary announced that it would invest HUF 7.4 billion to expand its production capacity in Pápa. This project was qualified by the Hungarian Government as a major priority for the national economy. With the cooperation of HIPA, the Government provided funding (cash grant) to this project to the amount of HUF 1.85 billion (HIPA 2016). In the same year, the Hungarian Government concluded a strategic cooperation agreement with Yanfeng Hungary.
Wescast Hungary: In May 2017, Hungarian Prime Minister Viktor Orbán accompanied by Minister of Foreign Affairs and Trade Péter Szijjártó travelled to China to attend the first Belt and Road Forum on International Cooperation. During this high-ranking political visit, the Hungarian Government signed a strategic cooperation agreement with Bohong Group in Chongqing where the Chinese company announced the launch of a new investment project (EUR 29 million) in Hungary.
SEGA Hungary: The Hungarian Government and SEGA Hungary signed a strategic cooperation agreement in 2020. SEGA Hungary has started to build a new production hall where it will move to by the summer of 2021. When the cornerstone of the new production hall was laid, Commercial General Manager of SEGA, Uwe Mang, expressed his gratitude for the help and services provided by HIPA for this project (HIPA 2020).
Tata Consultancy Services Hungary: TCS established its first Global Delivery Centre outside of India in Budapest in 2001. The Hungarian Government and TCS Hungary concluded a strategic cooperation agreement in 2013. In 2017, TCS Hungary expanded its capacities in Budapest and opened a new service centre with 500 new employees. HIPA provided its professional management consultancy services to TCS during the whole project (HIPA 2017).
CG Electric System Hungary: In October 2013, Hungarian Prime Minister Viktor Orbán accompanied by a large business and official delegation visited India. In New Delhi, the Hungarian Government signed a strategic partnership agreement with CG Electric Systems Hungary.
SMR Hungary: In 2015, the Hungarian Government and SMR Hungary signed a strategic cooperation agreement. They also agreed on a cash grant (HUF 7.7 billion) provided for the building of SMP factory in Kecskemét. This project (HUF 31 billion in total value) was qualified by the Hungarian Government as a major priority for the national economy. For this investment, the company won the ‘Investors of the Year 2015’ award in Hungary (in the green-field investment category). The factory was opened in 2017. In Túrkeve, SMR Hungary opened a new SMR plant in 2018 and a new MATE plant in 2019. These two investments of SMR Hungary amounted to HUF 8 billion. The Hungarian Government provided a HUF 0.624 billion and HUF 1.482 billion cash grant for these projects.
In addition, several other investments from China and India have targeted Hungary since the launch of the Eastern Opening policy in 2012. In the case of China, we have to highlight that the FDI attraction in Hungary’s Eastern Opening policy is strongly interconnected with China’s Belt and Road Initiative. Hungary was the first European country to officially sign an MoU on the Belt and Road Initiative with China in 2015. In 2016, on the sidelines of the fifth China-CEE Summit in Riga, Hungary and China signed an agreement to establish a state-owned joint venture company (Chinese-Hungarian Railway Non-profit Ltd.) responsible for coordinating the upgrade of the Hungarian section of the Budapest-Belgrade railway line, which is a flagship project under the BRI. In 2017, Hungarian telecom firm Invitel was acquired by the China-Central and Eastern Europe Investment Cooperation Fund which was established, among others, by the Export-Import Bank of China and the Hungarian Export-Import Bank. Chinese BYD invested HUF 6.2 billion in Hungary and it opened its first European electric bus factory in Komárom in 2017. The Hungarian Government provided a 0.925 billion cash grant to the company and HIPA provided comprehensive project management services to the company. In November 2018, Hungarian Prime Minister Viktor Orbán, accompanied by a business and official delegation, visited the China International Import Expo in Shanghai where the Hungarian Government signed a contract on the construction of a solar power plant with National Machinery Import & Export Corporation (CMC), which is a subsidiary of Chinese state-owned company Genertec. CMC started to build the largest photovoltaic power station of Central Europe in Kaposvár in June 2019. The project is designated by the Chinese state media as a new achievement of China’s Belt and Road Initiative and Hungary’s Eastern Opening policy (Wen 2019).
In the case of India, it is worth highlighting four new green-field investors, all of which have received a certain amount of cash grant from the Hungarian Government. In 2014, Apollo Tyres selected Hungary out of eight CEE countries to establish its second factory in Europe. The Indian investor’s decision was highly influenced, among others, by the friendly approach of the Hungarian Government and a EUR 55 million cash grant and tax incentives (Lokeshwarri 2017). At the opening ceremony of the factory in 2017, Hungarian Prime Minister Viktor Orbán said that Apollo Tyres’ investment had arrived in Hungary due to the Eastern Opening policy (Cabinet Office of the Prime Minister 2017). Apollo Tyres won the ‘Investors of the Year 2014’ award for this investment (in the green-field investment category). In July 2016, during an official trip to India, Hungarian Minister of Foreign Affairs and Trade, Péter Szijjártó, related that ‘Hungary’s goal is for Indian enterprises that are successful on the European markets to bring their new investments here, and especially for Indian automobile industry companies that are successful on European markets to bring their production centres to Hungary’ (Cabinet Office of the Prime Minister–Hungarian New Agency 2016). Regarding the achievement of this goal, he announced the investment of Indian Sona Group which had decided on opening a new European factory in Hungary. The new plant of Sona Group in Hungary was launched in 2017, when the further expansion of the plant, to be financed in part by a HUF 0.633 billion cash grant from the Hungarian Government, was announced. In 2018, Indian chemical company, SRF Group, started to build its first European plant in Jászfényszaru to produce BOPET foil. The investment amounted to EUR 56 million. The Hungarian Government provided a EUR 3.5 million cash grant to SRF Group. Hungary won the race for SRF’s investment amid stiff international competition thanks to its attractive investment environment. Among other factors, the success of Indian companies already operating in Hungary contributed to SRF’s choice of Hungary (Hungarian News Agency 2018a). At the end of 2018, another Indian chemical company, Uflex Group, announced that it would build its second European factory in Hungary to produce a completely new type of foil (HIPA 2018). There was considerable regional competition for the investment and a 3-year cooperation agreement between Invest India and HIPA, concluded on the side-lines of the 5th session of the Hungarian-Indian Joint Committee for Economic Cooperation held in New Delhi in March 2018, played an important role in winning over Uflex Group. The Hungarian Government awarded Uflex Group a EUR 8.7 million cash grant for the investment (EUR 71.5 million) (Hungarian News Agency 2018b). In January 2020, Hungarian Minister of Foreign Affairs and Trade, Péter Szijjártó, visited Mumbai where he successfully concluded agreements on investments in Hungary with Tata Sons, Mahindra and Hinduja Group (Hungarian News Agency 2020).