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Magdolna Sass (RCERS IE HAS, Budapest) and Gábor Hunya (WIIW, Vienna )

Escaping to the East: Relocation of business activities to and from Hungary during the recent crisis. Magdolna Sass (RCERS IE HAS, Budapest) and Gábor Hunya (WIIW, Vienna ) „The EU after the crisis ”, COST-conference Weimar , 6-7 December 2012. Outline.

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Magdolna Sass (RCERS IE HAS, Budapest) and Gábor Hunya (WIIW, Vienna )

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  1. Escaping to the East: Relocation of business activities to and from Hungary during the recentcrisis Magdolna Sass (RCERS IE HAS, Budapest) and Gábor Hunya (WIIW, Vienna) „The EU afterthecrisis”, COST-conference Weimar, 6-7 December 2012

  2. Outline • Theoreticalbackground, definitionsused • Methodology • Findings 1 Main characteristics of relocations 2 The impact of thecrisisonrelocations • Summary – consequences – furtherresearch

  3. Background 1: Definitions • East Central Europe (NMS): more and more home to relocations (offshoring and offshore outsourcing) of manufacturing and services activities, mainly from the more developed countries – igniting the attention of the media and research activity • Definitions: table (UNCTAD)

  4. Background 2: theoreticalapproaches • Distinctionbetweenhorizontal and vertical FDI, relocation is connectedtovertical FDI • The literatureonglobalvaluechains (and related: globalproductionnetworks, globalcommoditychains etc.) • Impact of thecrisisonGVCs (Gereffi)

  5. Background 3: drivingforces and causes of relocation • Development in information and communication technology – management of MNCs has become easier: manage and coordinate globally split production facilities and support services • Development of technology: more globally organised value chains (more sectors, services) • Institutional environment has become more supportive (uni., bi- and multilateralliberalisationof international trade and investment) • Increasing competitive pressures on companies: drive towards cost reduction (looking for lower cost location, esp. in terms of factor (esp. labour)costs) • Ambiguous impact of the crisis

  6. Methodology • Measurementcannotrelyonexistingstatistics, e.g. FDI, foreign trade or employment/occupation data are not separated according to their attachment to relocations • Even firm level data do not contain details separately on relocated and non-relocated activities • in the empirical literature, richer databases are createdthroughcombiningvariousexistingdatabases, buttheycannotreallycircumwentthemethodologicalproblems • Suggestions (e.g. Sturgeon et al., 2006, Kirkegaard, 2005): tosupplementtheseeconometricanalysis of existingdatawithdirectcompany-levelortransaction-leveldata

  7. Ourmethodology • We compiled a database on declared relocations realised through FDI to and from Hungary, • Definitionused: a transfer of production capacities from/to another country, or there is information about a capacity extension in one affiliate parallel with a capacity reduction in another, or there is a capacity extension in one affiliate, while other affiliates‘ capacities do not change. (Veugelers, 2005) • Basedon information from the economic daily Világgazdaság • For the nine-year period between 1 January 2003 and 31 December 2011 • Supplementedwithotherinformationsources (Hungarian economic newspapers and journals, and the balance sheets and websites of the companies) • Data: date of announcement, name and nationality of the investor, sector, location in Hungary, activity, country of other foreign location involved, labour market impact (jobslostorcreated) • Altogether 324 relocationcases(282 to Hungary and 42 from Hungary)

  8. Problems of ourmethodology • mixing of relocated and non-relocated activities (e.g. separatingcapacityextensions) – though less importantthenwithmacrodata • Data onthenumber of projects, butnotontheinvestedamount • Selectionbias (thoughprojectswith 0 createdjobalsoincluded, and no negativesentimentin Hungary) • Insomecasesonlypreliminaryintents of companies (mainlyforthenumberofjobs) • Inspite of thatourresultscan be an importantsupplementtootheranalysis (notverynumerouson NMS)

  9. Results 1 • Similarlytootherfindings: thetransfer of jobs is surprisinglysmall (e.g. Marin, 2006 or Jensen, 2006) • To Hungary: 54.000 jobsintheanalysed 9-year period • From Hungary: 7800 • Highconcentrationinterms of sectors and source/hostcountries and homecountries of relocatingmultinationals

  10. Sectors • GVC-dominatedsectors: electronics, automotive (intertwinned) and business services (mainlyafter 2003) • Traditional: clothing, footwear etc.: the most significantwavealready over

  11. Source/hostcountries • „intra-European” movements, exceptfor business services (US) • Germany is the main source country (and notspecified Western Europe) • From Hungary: mainlyChina, plus NMS (Poland, Romania)

  12. Jobscreated

  13. Nationality (finalowners) • Mainly US, German, butthat is in line withthe FDI structure plus thenationalitycomposition of MNCs (in Europe) • Dynamism: some „latecomer” countries: (e.g. Finnish, Danish; UK in business services), outside Europe

  14. Changesduringthecrisis • Gereffi: demandeffect (relocationsdecrease) and substitutioneffect (relocationsincrease): balance • Firstyears of thecrisis: demandeffect, relocations down • Second part: number of relocationsup (2010-11) • FDI: relocationbecomes more important

  15. Crisis: manufacturing more affected, serviceshardly

  16. Relocationsduringthecrisis • Firstyears: thedemandeffectdominates, secondperiod: thesubstitioneffectdominates • Buttheemploymentimpact is muchsmallerinthehost country (largejoblossesinhome/sourcecountries, a littlenumber of jobscreatedinthehost country) – indicates an overall decreaseinthenumber of jobs (in Europe) • New: „upgrading”: alsohighlyskilledactivitiestrasnferred: e.g. R&D (number of instancesincreased, mainlyfromGermany, thoughitmaychange: Kinkel, Som, 2011) • Backshoring/reshoringmainlyfromChina (otherAsia and outside Europe): more instances (thoughstill limited) (2005: 1, 2006: 1, 2010: 2, 2011:4)

  17. Conclusions1 • A possiblesource of distortion: Hungary: a traditionallystrong partner of Germany • Number of jobstransferred: small • Intra-Europeantransactionsdominate, esp. inmanufacturing • Main source country: Germany/Western Europe, sectors: electronics, automotive, business services (GVC) • Multinationals: German and US

  18. Conclusions 2 • Crisis: inthefirstperiodthedemandeffect, inthesecondthesubstitioneffectdominates • Mainlyinmanufacturing • Number of jobscreated is small, overall indicates a jobloss (mainlyin Europe) • The number of re-shoringorback-shoringtransactionsincreased, butit is stillverysmall

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