magdolna sass (rcers ie has, budapest) and gábor hunya (wiiw, vienna )
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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. - PowerPoint PPT PresentationTRANSCRIPT
Escaping to the East: Relocation of business activities to and from
Hungary during the recent crisisMagdolna 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• Findings1 Main characteristics of relocations2 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 crisisNumber of relocation projects to and from Hungary and greenfield projects in Hungary
(manufacturing and tradable services) 2003-2011
2003 2004 2005 2006 2007 2008 2009 2010 2011 Total
From Hungary 4 2 9 6 3 3 7 5 3 42
To Hungary 39 24 24 28 15 25 27 41 59 282
Greenfield 149 139 132 153 149 96 62 101 97 1078
Relocation % in
greenfield 26.2 17.3 18.2 18.3 10.1 26.0 43.5 40.6 60.8 26.2
Source: data compiled by the authors and fdimarkets.com
• 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)
Conclusions1
• A possible source of distortion: Hungary: a traditionally strong partner of Germany
• Number of jobs transferred: small• Intra-European transactions dominate, esp. in
manufacturing• Main source country: Germany/Western Europe,
sectors: electronics, automotive, business services (GVC)
• Multinationals: German and US
Conclusions 2
• Crisis: in the first period the demand effect, in the second the substition effect dominates
• Mainly in manufacturing• Number of jobs created is small, overall
indicates a job loss (mainly in Europe)• The number of re-shoring or back-shoring
transactions increased, but it is still very small