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
• Theoretical background, definitions used
• Methodology
• Findings
1 Main characteristics of relocations
2 The impact of the crisis on relocations
• Summary – consequences – further research
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)
Location of
production Internalised Externalised
(outsourcing)
Home country Production kept in-house at
home
Outsourcing (at home)
Foreign country
(offshoring) Intra-firm (captive) offshoring
Offshore outsourcing
Background 2: theoretical approaches
• Distinction between horizontal and vertical FDI, relocation is connected to vertical FDI
• The literature on global value chains (and related: global production networks, global commodity chains etc.)
• Impact of the crisis on GVCs (Gereffi)
Background 3: driving forces 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 multilateral liberalisation of 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
Methodology
• Measurement can not rely on existing statistics, 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 created through combining various existing databases, but they can not really circumwent the methodological problems
• Suggestions (e.g. Sturgeon et al., 2006, Kirkegaard, 2005):
to supplement these econometric analysis of existing data with direct company-level or transaction-level data
Our methodology
• We compiled a database on declared relocations realised through FDI to and from Hungary,
• Definition used: 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)
• Based on information from the economic daily Világgazdaság
• For the nine-year period between 1 January 2003 and 31 December 2011
• Supplemented with other information sources (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 (jobs lost or created)
• Altogether 324 relocation cases (282 to Hungary and 42 from Hungary)
Problems of our methodology
• mixing of relocated and non-relocated activities (e.g.
separating capacity extensions) – though less important then with macrodata
• Data on the number of projects, but not on the invested amount
• Selection bias (though projects with 0 created job also included, and no negative sentiment in Hungary)
• In some cases only preliminary intents of companies (mainly for the number of jobs)
• In spite of that our results can be an important supplement to other analysis (not very numerous on NMS)
Results 1
• Similarly to other findings: the transfer of jobs is
surprisingly small (e.g. Marin, 2006 or Jensen, 2006)
• To Hungary: 54.000 jobs in the analysed 9-year period
• From Hungary: 7800
• High concentration in terms of sectors and
source/host countries and home countries of
relocating multinationals
Sectors
• GVC-dominated sectors:
electronics, automotive
(intertwinned) and business services (mainly after 2003)
• Traditional: clothing,
footwear etc.: the most
significant wave already over
Source/host countries
• „intra-European”
movements, except for business services (US)
• Germany is the main
source country (and not specified Western
Europe)
• From Hungary: mainly China, plus NMS
(Poland, Romania)
Jobs created
Nationality (final owners)
• Mainly US, German, but that is in line with the FDI structure plus the nationality composition of MNCs (in Europe)
• Dynamism: some
„latecomer” countries:
(e.g. Finnish, Danish; UK in business services),
outside Europe
Changes during the crisis
• Gereffi: demand effect
(relocations decrease) and substitution effect
(relocations increase):
balance
• First years of the crisis:
demand effect, relocations down
• Second part: number of relocations up (2010-11)
• FDI: relocation becomes more important
Crisis: manufacturing more affected, services
hardly
Relocations during the crisis
• First years: the demand effect dominates, second period:
the substition effect dominates
• But the employment impact is much smaller in the host country (large job losses in home/source countries, a little number of jobs created in the host country) – indicates an overall decrease in the number of jobs (in Europe)
• New: „upgrading”: also highly skilled activities trasnferred:
e.g. R&D (number of instances increased, mainly from Germany, though it may change: Kinkel, Som, 2011)
• Backshoring/reshoring mainly from China (other Asia and outside Europe): more instances (though still limited)
(2005: 1, 2006: 1, 2010: 2, 2011:4)
