Upgrading and Value Capture in Global Value Chains in Hungary: More Complex than What the Smile Curve Suggests

  • Andrea Szalavetz
Part of the Studies in Economic Transition book series (SET)


This chapter presents a conceptual model to explain why the upgrading of MNCs’ manufacturing subsidiaries fails to translate into additional value capture for upgraded actors. The model, a dynamic version of Mudambi’s (J Econ Geogr 8(5): 699–725, 2008) smile curve, integrates the concept of value capture. It is shown that over time, the shape of the original smile curve transforms. The curve shifts downwards, which represents the shrinking margins of actors. This effect can be countered through upgrading. The bottom part of the curve becomes flatter: this represents the commoditisation of business functions undertaken by upgraded subsidiaries. The sides become steeper as a result of changes in the specialisation of actors at the sides of the curve. The smile is transformed into a “bathtub.”


Foreign Direct Investment Host Country Parent Company Business Function Lead Firm 
These keywords were added by machine and not by the authors. This process is experimental and the keywords may be updated as the learning algorithm improves.


  1. Ali-Yrkkö, J., Rouvinen, P., Seppälä, T., & Ylä-Anttila, P. (2011). Who captures value in global supply chains? Case Nokia N95 smartphone. Journal of Industry, Competition and Trade, 11(3), 263–278.CrossRefGoogle Scholar
  2. Antanavičienė, J., & Šimelytė, A. (2013). The effect of investment promotion on FDI flows: A case of the Baltic states. Business: Theory and Practice/Verslas: Teorija ir Praktika, 14(3), 200–208.CrossRefGoogle Scholar
  3. Arrighi, G., & Drangel, J. (1986). The stratification of the world-economy: An exploration of the semiperipheral zone. Review, 10(1), 9–74.Google Scholar
  4. Bair, J. (2005). Global capitalism and commodity chains. Competition and Change, 9(2), 153–180.CrossRefGoogle Scholar
  5. Bajgar, M., & Javorcik, B. (2014). Climbing rungs of the quality ladder: FDI and domestic exporters in Romania. Mimeo. Accessed 24 Feb 2016.
  6. Baldwin, R. (2011). Trade and industrialisation after globalisation’s 2nd unbundling: How building and joining a supply chain are different and why it matters (NBER Working Papers No. 17716).Google Scholar
  7. Bartlett, C. A., & Ghoshal, S. (1989). Managing across borders: The transnational solution. Boston: Harvard Business School Press.Google Scholar
  8. Birkinshaw, J. (2000). Entrepreneurship in the global firm: Enterprise and renewal. London: Sage.Google Scholar
  9. Birkinshaw, J., & Hood, N. (1998). Multinational subsidiary evolution: Capability and charter change in foreign-owned subsidiary companies. Academy of Management Review, 23(4), 773–795.Google Scholar
  10. Birkinshaw, J., Hood, N., & Jonsson, S. (1998). Building firm-specific advantages in multinational corporations: The role of subsidiary initiative. Strategic Management Journal, 19(3), 221–242.CrossRefGoogle Scholar
  11. Birkinshaw, J., Hood, N., & Young, S. (2005). Subsidiary entrepreneurship, internal and external competitive forces, and subsidiary performance. International Business Review, 14(2), 227–248.CrossRefGoogle Scholar
  12. Borghi, R. A. Z., Sarti, F., & Cintra, M. A. M. (2013). The “financialized” structure of automobile corporations in the 2000s. World Review of Political Economy, 4(3), 387–409.CrossRefGoogle Scholar
  13. Bouquet, C., & Birkinshaw, J. (2008). Managing power in the multinational corporation: How low-power actors gain influence. Journal of Management, 34(3), 477–508.CrossRefGoogle Scholar
  14. Brewer, B. D. (2011). Global commodity chains & world income inequalities: The missing link of inequality & the “upgrading” paradox. Journal of World-Systems Research, 17(2), 308–327.CrossRefGoogle Scholar
  15. Buckley, P. J. (2009). The impact of the global factory on economic development. Journal of World Business, 44(2), 131–143.CrossRefGoogle Scholar
  16. Cantwell, J., & Mudambi, R. (2005). MNE competence-creating subsidiary mandates. Strategic Management Journal, 26(12), 1109–1128.CrossRefGoogle Scholar
  17. Cattaneo, O., Gereffi, G., & Staritz, C. (2010). Global value chains in a postcrisis world: A development perspective. Washington, DC: The World Bank.CrossRefGoogle Scholar
  18. Davenport, T. H. (2005). The coming commoditization of processes. Harvard Business Review, 83(6), 100–108.Google Scholar
  19. Dedrick, J., Linden, G., & Kraemer, K. L. (2010). Who profits from innovation in global value chains?: A study of the iPod and notebook PCs. Industrial and Corporate Change, 19(1), 81–116.CrossRefGoogle Scholar
  20. Dörrenbächer, C., & Gammelgaard, J. (2006). Subsidiary role development: The effect of micro-political headquarters–subsidiary negotiations on the product, market and value-added scope of foreign-owned subsidiaries. Journal of International Management, 12(3), 266–283.CrossRefGoogle Scholar
  21. Eichengreen, B., Park, D., & Shin, K. (2013). Growth slowdowns redux: New evidence on the middle-income trap (NBER Working Paper No. 18673).Google Scholar
  22. Farkas, B. (2011). The Central and Eastern European model of capitalism. Post-Communist Economies, 23(1), 15–34.CrossRefGoogle Scholar
  23. Filippov, S., & Duysters, G. (2014). Exploring the drivers and elements of subsidiary evolution in several new EU member states. International Journal of Emerging Markets, 9(1), 120–146.CrossRefGoogle Scholar
  24. Frost, T. S., Birkinshaw, J., & Ensign, P. C. (2002). Centers of excellence in multinational corporations. Strategic Management Journal, 23(11), 997–1018.CrossRefGoogle Scholar
  25. Gereffi, G. (1999). International trade and industrial upgrading in the apparel commodity chain. Journal of International Economics, 48(1), 37–70.CrossRefGoogle Scholar
  26. Gereffi, G. (2014). Global value chains in a post-Washington consensus world. Review of International Political Economy, 21(1), 9–37.CrossRefGoogle Scholar
  27. Gereffi, G., & Fernandez-Stark, K. (2011). Global value chain analysis: A primer. Duke University Center on Globalization, Governance & Competitiveness. Accessed 25 Feb 2016.
  28. Gereffi, G., & Sturgeon, T. (2013). Global value chain-oriented industrial policy: The role of emerging economies. In D. K. Elms & P. Low (Eds.), Global value chains in a changing world (pp. 329–360). Geneva: Fung Global Institute, Nanyang Technology University and WTO.Google Scholar
  29. Görg, H., & Hanley, A. (2011). Services outsourcing and innovation: An empirical investigation. Economic Inquiry, 49(2), 321–333.CrossRefGoogle Scholar
  30. Guimón, J., & Filippov, S. (2012). Competing for high-quality FDI: Management challenges for investment promotion agencies. Institutions and Economies, 4(2), 25–43.Google Scholar
  31. Haslam, C., Tsitsianis, N., Andersson, T., & Yin, Y. P. (2013). Apple’s financial success: The precariousness of power exercised in global value chains. Accounting Forum, 37(4), 268–279.CrossRefGoogle Scholar
  32. Henderson, J., Dicken, P., Hess, M., Coe, N., & Yeung, H. W. C. (2002). Global production networks and the analysis of economic development. Review of International Political Economy, 9(3), 436–464.CrossRefGoogle Scholar
  33. Humphrey, J., & Schmitz, H. (2002). How does insertion in global value chains affect upgrading in industrial clusters? Regional Studies, 36(9), 1017–1027.CrossRefGoogle Scholar
  34. Hunya, G. (1998). Integration of CEEC manufacturing into European corporate structures by direct investments. MOCT-MOST: Economic Policy in Transitional Economies, 8(2), 69–90.CrossRefGoogle Scholar
  35. Jabbour, L. (2010). Offshoring and firm performance: Evidence from French manufacturing industry. The World Economy, 33(3), 507–524.CrossRefGoogle Scholar
  36. Kalotay, K. (2002). Central and Eastern Europe: Export platform for investors? Journal of World Investment, 3(6), 1037–1059.CrossRefGoogle Scholar
  37. Kaplinsky, R. (2000). Globalisation and unequalisation: What can be learned from value chain analysis? Journal of Development Studies, 37(2), 117–146.CrossRefGoogle Scholar
  38. Kharas, H., & Kohli, H. (2011). What is the middle income trap, why do countries fall into it, and how can it be avoided? Global Journal of Emerging Market Economies, 3(3), 281–289.CrossRefGoogle Scholar
  39. Lepak, D. P., Smith, K. G., & Taylor, M. S. (2007). Value creation and value capture: A multilevel perspective. Academy of Management Review, 32(1), 180–194.CrossRefGoogle Scholar
  40. Lewin, A. Y., Massini, S., & Peeters, C. (2009). Why are companies offshoring innovation? The emerging global race for talent. Journal of International Business Studies, 40(6), 901–925.CrossRefGoogle Scholar
  41. Luo, Y. (2007). From foreign investors to strategic insiders: Shifting parameters, prescriptions and paradigms for MNCs in China. Journal of World Business, 42(1), 14–34.CrossRefGoogle Scholar
  42. Manning, S., Massini, S., Peeters, C., & Lewin, A. Y. (2012). Global co-evolution of firm boundaries: Process commoditization, capabilities development, and path dependencies. Solvay Brussels School of Economics and Management, Centre Emile Bernheim Working Papers 12/009.Google Scholar
  43. Milberg, W., & Winkler, D. (2009). Financialisation and the dynamics of offshoring in the USA. Cambridge Journal of Economics, 34(2), 275–293.CrossRefGoogle Scholar
  44. Milberg, W., & Winkler, D. (2013). Outsourcing economics. Global value chains in capitalist development. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
  45. Mudambi, R. (2008). Location, control and innovation in knowledge-intensive industries. Journal of Economic Geography, 8(5), 699–725.CrossRefGoogle Scholar
  46. Nolan, P., Zhang, J., & Liu, C. (2008). The global business revolution, the cascade effect, and the challenge for firms from developing countries. Cambridge Journal of Economics, 32(1), 29–47.CrossRefGoogle Scholar
  47. Nölke, A., & Vliegenthart, A. (2009). Enlarging the varieties of capitalism: The emergence of dependent market economies in East Central Europe. World Politics, 61(4), 670–702.CrossRefGoogle Scholar
  48. OECD. (2013). Interconnected economies: Benefiting from global value chains. Paris: OECD.Google Scholar
  49. Patton, M. Q. (1990). Qualitative evaluation and research methods. Newbury Park: SAGE.Google Scholar
  50. Pavlínek, P. (2014). Whose success? The state–foreign capital nexus and the development of the automotive industry in Slovakia. European Urban and Regional Studies. Published online before print. doi: 10.1177/0969776414557965.
  51. Pavlínek, P. (2015). The impact of the 2008–2009 crisis on the automotive industry: Global trends and firm-level effects in Central Europe. European Urban and Regional Studies, 22(1), 20–40.CrossRefGoogle Scholar
  52. Pietrobelli, C. (2008). Global value chains in the least developed countries of the world: Threats and opportunities for local producers. International Journal of Technological Learning, Innovation and Development, 1(4), 459–481.CrossRefGoogle Scholar
  53. Ravenhill, J. (2014). Global value chains and development. Review of International Political Economy, 21(1), 264–274.CrossRefGoogle Scholar
  54. Rossing, C. P., & Rohde, C. (2010). Overhead cost allocation changes in a transfer pricing tax compliant multinational enterprise. Management Accounting Research, 21(3), 199–216.CrossRefGoogle Scholar
  55. Rugman, A., Verbeke, A., & Yuan, W. (2011). Re-conceptualizing Bartlett and Ghoshal’s classification of national subsidiary roles in the multinational enterprise. Journal of Management Studies, 48(2), 253–277.Google Scholar
  56. Sass, M. (2004). FDI in Hungary: The first mover’s advantage and disadvantage. EIB Papers, 9(2), 62–90.Google Scholar
  57. Sass, M., & Szalavetz, A. (2013). Crisis and upgrading: The case of the Hungarian automotive and electronics sectors. Europe-Asia Studies, 65(3), 489–507.CrossRefGoogle Scholar
  58. Sass, M., & Szalavetz, A. (2014). R&D-based integration and upgrading in Hungary. Acta Oeconomica, 64(S1), 153–180.CrossRefGoogle Scholar
  59. Seppälä, T., & Kenney, M. (2013). Where is the value created and captured in manufacturing firms? Case precision machinery product. ETLA Brief No. 9.Google Scholar
  60. Shin, N., Kraemer, K. L., & Dedrick, J. (2012). Value capture in the global electronics industry: Empirical evidence for the “smiling curve” concept. Industry and Innovation, 19(2), 89–107.CrossRefGoogle Scholar
  61. Szalavetz, A. (2012). Micro–level aspects of knowledge–based development: Measuring quality–based upgrading in MNCs’ Hungarian subsidiaries. International Journal of Knowledge-Based Development, 3(4), 313–330.CrossRefGoogle Scholar
  62. Szalavetz, A. (2013). Szolgáltatás jellegű vállalati tevékenységek fogoly típusú kiszervezése—funkcionális feljebb lépés a hazai feldolgozóipari leányvállalatok szemszögéből [Captive offshoring of services-type business functions—Functional upgrading at manufacturing MNCs’ Hungarian subsidiaries]. Külgazdaság, 57(5–6), 35–61.Google Scholar
  63. Szalavetz, A. (2015). Upgrading and subsidiary autonomy: Experience of Hungarian manufacturing companies. Japanese Journal of Comparative Economics, 52(2), 1–19.CrossRefGoogle Scholar
  64. Szent-Iványi, B., & Vigvári, G. (2012). Spillovers from foreign direct investment in Central and Eastern Europe: An index for measuring a country’s potential to benefit from technology spillovers. Society and Economy, 34(1), 51–72.CrossRefGoogle Scholar
  65. Tokatli, N. (2013). Toward a better understanding of the apparel industry: A critique of the upgrading literature. Journal of Economic Geography, 13(6), 993–1011.CrossRefGoogle Scholar
  66. UNCTAD. (2013). World investment report. Geneva: UNCTAD.Google Scholar

Copyright information

© The Author(s) 2017

Authors and Affiliations

  • Andrea Szalavetz
    • 1
  1. 1.Centre of Economic and Regional Studies of the Hungarian Academy of Sciences (MTA KRTK)BudapestHungary

Personalised recommendations