Foreign Direct Investment, Local Suppliers and Employment in Györ, Hungary
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SEED WORKING PAPER No. 10 Series on Globalization, Area-based Enterprise Development and Employment Case Study of Area Responses to Globalization: Foreign Direct Investment, Local Suppliers and Employment in Györ, Hungary by Maarten Keune András Toth InFocus Programme on Boosting Employment through Small EnterprisE Development Job Creation and Enterprise Department International Labour Office Geneva Copyright © International Labour Organization 2001 Publications of the International Labour Office enjoy copyright under Protocol 2 of the Universal Copyright Convention. Nevertheless, short excerpts from them may be reproduced without authorization, on condition that the source is indicated. For rights of reproduction or translation, application should be made to the ILO Publications Bureau (Rights and Permissions), International Labour Office, CH-1211 Geneva 22, Switzerland. The International Labour Office welcomes such applications. 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Visit our website: http://www.ilo.org/publns Printed by the International Labour Office, Geneva, Switzerland ii Foreword This study examines the success of one region in western Hungary to attract direct foreign investment in new manufacturing plants by large multinationals, particularly in the automotive industry. It attempts to separate out the role of favourable endowments in that success, such as proximity to Austria and advantageous transportation networks, from the role of local and national policy regarding physical and human capital investments, financial incentives, and efforts in other areas to recruit foreign investors. The report provides best estimates of the immediate contribution of the new plants in terms of direct job creation. But it also tries to assess the potential role of these global corporations in improving the area’s ability to compete in the global economy, measuring, for example, the extent of local sub-contracting and supplier relationships, technology transfer, and worker training. In this evaluation, the extent to which foreign investment has become embedded in the local economy and the efforts that may be needed to leverage further local economic interactions feature strongly among the policy conclusions drawn by the authors from this case study. Both Maarten Keune, European University Institute, Florence and András Toth, Institute for Political Science, Budapest, have published extensively on regional development and transition economics in Central East European countries. They collected first-hand information for this study by interviewing government officials, managers of foreign-owned and locally-owned manufactures, and representatives of local civil and representative groups. They also place the Györ experience in context by reviewing national policies on liberalization, foreign-investment promotion, and regional development. This report is one in a series of studies on area-based responses to the challenges and opportunities posed by growing integration of the world’s capital and product markets undertaken as part of the ILO’s Action Programme on Globalization, Area-based Enterprise Development, and Employment in 1998/99. Work on this topic continues under the auspices of the InFocus Programme on Boosting Employment through Small Enterprise Development. The manuscript was prepared by Anne Drougard. Christine Evans-Klock Director InFocus Programme on Boosting Employment through Small Enterprise Development iii iv Contents Foreword ........................................................................................................................................................ ii List of tables ...................................................................................................................................................vi 1. Introduction ................................................................................................................................................1 2. The transition period in Hungary .............................................................................................................5 3. Pre-transition development in Györ .........................................................................................................8 4. Foreign direct investment in Györ and its effects on the local economy ........................................................................................................13 4.1 Introduction ..........................................................................................................................................13 4.2 Four main types of manufacturing FDI................................................................................................13 4.3 Motives for foreign investment in Györ ................................................................................................16 4.4 FDI and its effect on the local economy ...............................................................................................17 5. The case of Audi........................................................................................................................................20 5.1 Introduction ..........................................................................................................................................20 5.2 The choice of Györ as the location for Audi Hungária Kft...................................................................21 5.3 The development of Audi Motor Hungária ...........................................................................................22 5.3.1 The initial investment plan and its expansion ................................................................................22 5.3.2 The engine plant.............................................................................................................................23 5.3.3 The car assembly plant...................................................................................................................23 5.4 Company results and plans for the future.............................................................................................24 5.5 Audi’s supplier relations.......................................................................................................................25 5.6 The relationship with the city................................................................................................................26 6. Local vs. national labour market performance .....................................................................................26 7. The role of local policies and institutions ...............................................................................................31 7.1 The development of infrastructure........................................................................................................31 7.2 Education..............................................................................................................................................33 7.3 Promotion of enterprise development...................................................................................................34 7.4 Interest representation of business and employees...............................................................................36 8. Conclusions ...............................................................................................................................................39 References .....................................................................................................................................................42 v List of tables Table 1: Main economic indicators 1990-1997................................................................................................... 6 Table 2: Yearly inflow of foreign investment (millions of USD, direct and portfolio investments) ..................................................................................................................