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Relocation of production to NMS – the case of Hungary

Relocation of production to NMS – the case of Hungary. Magdolna Sass Institute of Economics of the Hungarian Academy of Sciences Email: sass@econ.core.hu. Background.

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Relocation of production to NMS – the case of Hungary

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  1. Relocation of production to NMS – the case of Hungary Magdolna Sass Institute of Economics of the Hungarian Academy of Sciences Email: sass@econ.core.hu Bi-annual conference of the Czech Economic Society, 2008

  2. Background • East Central Europe (NMS): more and more home to relocations (offshoring and offshore outsorucing) of manufacturing and services activities, mainly from the more developed countries – igniting the attention of the media and research activity • Definitions: table (UNCTAD) Bi-annual conference of the Czech Economic Society, 2008

  3. Overview of the literature • Concentrating on studies on Europe • many studies concerning the job loss and wage impact in the Western part of Europe due to globalisation, and thus due to the changing nature of distribution of manufacturing and service activities - relocation • see among others Geishecker (2002), Egger and Egger (2003), Marin (2004), Egger and Egger (2005) Geishecker (2005), Schöller (2007), Geishecker et al. (2007), Gianelle, Tattara (2007) – show the impact on the number of (low skilled) jobs and wages • basically no information or estimate about the number of jobs created in both parts of Europe due to that process (Jensen et al., 2006, p.2) • Very limited research on the impact and characteristics of relocations in the NMS Bi-annual conference of the Czech Economic Society, 2008

  4. Research question • What are the main characteristics of relocations to NMS in terms of sectors, activities, number of jobs created, foreign locations affected? • Is there a „flying geese” type of model evolving, i.e. labour intensive activities further relocated to other, lower cost NMS from higher cost NMS? Bi-annual conference of the Czech Economic Society, 2008

  5. Research methodology • Kirkegaard (2005): problems of using trade, output or FDI data (FDI is usually connected to relocations but not all FDI is relocation) • Hunya, Sass (2005): setting up and analysing a company database – this paper: extension of the original database (with one year) • Method: database on declared relocations to and from Hungary is based on information collected from various Hungarian newspapers for the period between 2003 July and 2006 July(opportunity: no negative sentiment…) • In this three-year period, 95 instances of clear cut relocation were found, 78 to Hungary and 17 from Hungary; about every fourth FDI project is connected to relocations Bi-annual conference of the Czech Economic Society, 2008

  6. Main findings 1: from where and to where? • Overwhelming majority of relocations come from the European Union-15, especially Germany (22) and Austria (10) + unspecified Western Europe (10), outside Europe basically not affected (2 US) • Mainly to Romania (4), Austria (4) and Poland (4), only 2 to China • „inside-Europe” phenomenon, some indication of „flying geese” and some re-relocation or backshoring (even to Hungary!) Bi-annual conference of the Czech Economic Society, 2008

  7. Main findings 2: who relocates? • Mainly US (21) and German (20) MNCs to Hungary + Austrian, Japanese, British and Swedish (6-6) to Hungary • Austrian (5), German (4), US (4) from Hungary • US-German MNCs most actively restructuring their European capacities (esp. US singificant, if we take into account, that their share is relatively low (9%) in total FDI in Hungary) Bi-annual conference of the Czech Economic Society, 2008

  8. Who relocates? Nationality of investors Bi-annual conference of the Czech Economic Society, 2008

  9. Main findings 3: which sectors are affected? • To Hungary: electronics (18) business services (13), automotive (11), traditional labour intensive (footwear, textile, clothing) (8), chemicals (7) • From Hungary: traditional labour intensive (footwear, textile, clothing) (3), electronics (3), food beverages (3) • Indication for „flying geese” for labour intensive clothing etc and electronics (destinations: Romania and China); and restructuring/reorganising European or NMS-region capactities: chemicals and food and beverages; • Emerging quickly: business services! (skilled, lower cost labour available with the necessary infrastructure) Bi-annual conference of the Czech Economic Society, 2008

  10. Affected sectors Bi-annual conference of the Czech Economic Society, 2008

  11. Main findings 4: how many jobs are affected? • To Hungary: mainly from Germany (cca. 4500), unspecified Western Europe (cca. 2000) and France (cca. 1500) (Austria: small projects); altogether cca. 12000 jobs relocated in 3 years’ time – quite limited • From Hungary: China (1000 – bigger projects), Romania (cca. 650), Slovakia (cca. 560), Austria (cca. 400), altogether cca. 3300 • Net job impact: positive, though quite limited: cca. 8700 Bi-annual conference of the Czech Economic Society, 2008

  12. Main findings 5: which are the top job creating/loosing sectors? • To Hungary: electronics (cca. 3500), business services (cca. 3000), chemicals (cca. 2000), automotive (cca. 1000), household appliances (cca. 900) • From Hungary: electronics (cca. 1800), food and beverages (cca. 700) and traditional labour intensive sectors (footwear, clothing, textiles) (cca. 280) • Worldwide restructuring of electronics capacities and quickening up the BPO process Bi-annual conference of the Czech Economic Society, 2008

  13. Main findings 6 evolution of number of cases through time • Slight indication: peak of relocations to Hungary: before EU accession • Relocations from Hungary: increasing number • Extension of database needed Bi-annual conference of the Czech Economic Society, 2008

  14. Conclusion – directions of further research • an illustration for the relocation processes going on inside Europe; conducted mainly by German and US MNCs, affecting Western European locations, though job impact: more limited than thought on the basis of media info • Indication of flying geese, though further analysis (extension of database) needed • Further research: international comparison would be very interesting, e.g. with the Czech Republic (according to various sources (e.g. EMCC), Poland and the Czech Republic can be affected even more) and also: sings of different specialisation; impact on the host economy (differing from „overall” FDI?) and footlooseness of relocations (differing from „overall” FDI?) Bi-annual conference of the Czech Economic Society, 2008

  15. Thank you for your attention! Bi-annual conference of the Czech Economic Society, 2008

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