Case study evidence of the extent and nature of foreign subsidiaries' R&D and innovation capability in Hungary

Multinational companies increasingly locate their R&D activities outside their home countries, thus being one of the main contributors to the ongoing process of the internationalisation of R&D. The internationalisation of corporate R&D is gaining momentum and the New Member States of the European Union, including Hungary are increasingly taking part in that process. The present paper analyses three aspects of this topic, first, the characteristics of R&D activities carried out by foreign affiliates in Hungary. Second, what are those locational factors which attract these types of investments to Hungary, distinguishing between production-related and knowledge-seeking R&D and relating locational factors in Hungary to those in the home country. And third, we analyse what the impact of this type of investments on the local economy is, where we also distinguish between production-related and “stand-alone”, knowledge-seeking projects. In the analysis, company case studies were used based on questionnaire-led semi-structured interviews with leading managers of 20 foreign-owned automotive and electronics companies

Foreign Direct Investments and Relocations in Business Services – What are the Locational Factors? The Case of Hungary

Hungary became host to various business services through relocations of these activities from other, higher cost locations, especially from Western Europe and through opening up new capacities. Locational advantages determine which countries are chosen as hosts to new or relocated service centres. For the case of Hungary, the analysis is carried out on the basis of eight detailed company case studies (this number is expected to increase to ten). The majority of these is vertical FDI (close to 100 % of export/sales ratio), and two companies represent a confluential case of vertical and horizontal (domestic market oriented) FDI, where sales to the domestic market are also important, though not dominating. The paper’s main aim is to make an attempt at contributing to filling some gaps in the literature, in terms of analysing locational advantages for vertical FDI in services, specifically in business services. It shows that locational advantages, taken into consideration by vertical and horizontal FDI differ from each other to a great extent. It identifies the various elements of locational advantages connected to the different elements of investment motives, in terms of cost reduction, reducing costs of disintegration of production, reducing other costs, and motives arising from the confluence of vertical and horizontal FDI, and the paper relates these elements to the specificities of the business services sector.Offshore outsourcing, Business services, Locational advantages, Hungary, East Central Europe.

Foreign direct investments and relocations in business services – what are the locational factors? The case of Hungary

Hungary became host to various business services through relocations of these activities from other, higher cost locations, especially from Western Europe and through opening up new capacities. Locational advantages determine which countries are chosen as hosts to new or relocated service centres. For the case of Hungary, the analysis is carried out on the basis of eight detailed company case studies. The majority of these is vertical FDI (close to 100 % of export/sales ratio), and two companies represent a confluential case of vertical and horizontal (domestic market oriented) FDI, where sales to the domestic market are also important, though not dominating. The paper’s main aim is to make an attempt at contributing to filling some gaps in the literature, in terms of analysing locational advantages for vertical FDI in services, specifically in business services. It shows that locational advantages, taken into consideration by vertical and horizontal FDI differ from each other to a great extent. It identifies the various elements of locational advantages connected to the different elements of investment motives, in terms of cost reduction, reducing costs of disintegration of production, reducing other costs, and motives arising from the confluence of vertical and horizontal FDI, and the paper relates these elements to the specificities of the business services sector.Hungary became host to various business services through relocations of these activities from other, higher cost locations, especially from Western Europe and through opening up new capacities. Locational advantages determine which countries are chosen as hosts to new or relocated service centres. For the case of Hungary, the analysis is carried out on the basis of eight detailed company case studies. The majority of these is vertical FDI (close to 100 % of export/sales ratio), and two companies represent a confluential case of vertical and horizontal (domestic market oriented) FDI, where sales to the domestic market are also important, though not dominating. The paper’s main aim is to make an attempt at contributing to filling some gaps in the literature, in terms of analysing locational advantages for vertical FDI in services, specifically in business services. It shows that locational advantages, taken into consideration by vertical and horizontal FDI differ from each other to a great extent. It identifies the various elements of locational advantages connected to the different elements of investment motives, in terms of cost reduction, reducing costs of disintegration of production, reducing other costs, and motives arising from the confluence of vertical and horizontal FDI, and the paper relates these elements to the specificities of the business services sector

FDI in Hungary: The first mover's advantage and disadvantage

Presenting a case study of FDI in Hungary, this paper first reviews the characteristics of FDI in Hungary since the outset of transition. It then examines the determinants of FDI in Hungary, finding that early and comprehensive privatisation and the creation of a generally business-friendly policy environment played key roles in making Hungary an early leader in FDI flows to countries in Central and Eastern Europe. But the paper also observes that some of Hungary's first-mover advantage has been eroded in recent years as other countries have provided increasingly friendly environments for FDI, often combined with lower labour costs. The paper then proceeds to assess the influence of FDI on Hungary's economy. It concludes that FDI has had, on balance, a positive impact on economic performance although hard evidence of spillovers to indigenous firms is difficult to find

Drivers of Private Equity Investment in CEE and Western European Countries

A strong private equity market is a cornerstone for commercialization and innovation in modern economies. However, substantial differences exist in the relative amounts raised and invested in private equity across European countries. We investigate the macro-determinants of private equity investment in Europe, focusing on the comparison between CEE and Western European countries. Our estimations are based on a data set running from 2001 to 2008 and covers 14 Western European and three CEE countries. Applying robust estimation techniques we identify a 'robust' set of determinants of private equity activity in both regions. We find similarities as well as differences in the driving forces of private equity investments in Western European and CEE countries. Our results suggest that commercial bank lending, equity market capitalization, unit labour costs and corporate tax rates are significant determinants of private equity activity.Private Equity, Extreme Bounds Analysis, Central and Eastern European Countries

Two essays on Hungarian relocations

Relocation is recently one of the most widely discussed problems, especially in the old member states of the European Union. At the same time, developments in the target countries of relocation are less widely discussed. Hungary, with other new EU member countries, is one of the net target countries of relocation especially from the most developed EU-15 countries. Because of the specificities of this phenomenon, macrodata can be used only to a limited extent and it should be complemented with case study evidence and company level analysis. We compiled a comprehensive relocation database, collected for Hungary for the eight-year period between 2003 and 2010. We analyse this database and compare the results with those of the literature. We examine the nationality of relocating companies, the sectors and foreign locations affected and the job creation/loss impact. Moreover, we make an attempt at analysing the changes in relocations during the crisis years