Shifting Competitiveness, Evolving MNE Strategies and EU Enlargement: The Case of Hungary. Jean Monnet/Robert Schuman Paper Series Vol. 5 No. 22, July 2005

Akbar, Yusaf H. (2005) Shifting Competitiveness, Evolving MNE Strategies and EU Enlargement: The Case of Hungary. Jean Monnet/Robert Schuman Paper Series Vol. 5 No. 22, July 2005. [Working Paper]

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Abstract

[From the introduction]. These developments pose questions for the FDI strategies of the MNEs already located in the CEE region. The main objective therefore of this research is to consider how and in what ways, the FDI strategies of the MNEs are evolving and are likely to be changed by the above shifts in CEE competitiveness. In terms of the theoretical literature on MNEs and FDI, the paper draws on the work of authors such as Dunning, Rugman, Verbeke and others who have all tried to develop our understanding of the MNE and FDI and how business strategies determine the incidence and location of FDI flows. The work also draws on empirical research (e.g. Akbar 2003, Akbar and McBride 2004) which examines the impact of FDI on economic development in the CEE region as well as EU enlargement. Through an empirical examination of strategies of MNEs in Hungary, this paper examines these motives for FDI in Hungary in the light of shifting competitiveness of the Hungarian economy. The paper makes use of two empirical sources. First, the paper uses macro secondary data on FDI flows and macroeconomic data in order to build a general picture of FDI in Hungary. Sources of such data include American Chamber of Commerce; Budapest Business Journal; EU Commission and Hungarian International Trade Council. Second, we undertake detailed open interviews with MNE managers and public policymakers in Hungary across a range of sectors in order to develop the specific strategic insights relating competitiveness to MNE strategy. The principle findings of the research are as follows. First, that Hungarian competitiveness is indeed shifting away from the traditional low-labor cost that underpinned much of the early FDI in the country. Second, important changes in the public policy environment in the field of taxation have had an important influence on both new FDI and reinvestment in Hungary when MNEs have had the choice to invest in several locations with similar factor-conditions. Third, Hungary’s relatively skilled labor pool in the information technology and engineering sector is beginning to emerge as a nascent technology cluster based around close cooperation between Hungary’s technical universities and MNEs who have already committed resources to the country. Fourth, the Hungarian government’s ability to offer FDI-friendly regulations is becoming increasingly constrained within the context of its EU membership. Fifth, some MNEs are beginning to focus their FDI strategies on a regional rather than country-based lens. Indeed as EU membership has removed barriers to movement across countries within Central Europe, MNEs are no longer focusing solely on national resource endowments but analyzing ways in which they invest across countries to achieve a more cost-efficient configuration of their value chains. In this instance, the Visegrad countries have emerged as regional production locales.

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