Impacts of horizontal and vertical foreign investment in business services: the experience of Hungary, Slovakia and the Czech Republic

Abstract

This article examines the impact of foreign direct investment in business services on the economies of the Czech Republic, Hungary and Slovakia and their place in the European division of labour. A distinction is drawn between horizontal market-seeking foreign investment in business services and efficiency-seeking vertical investments, which have increased since 2000. We posit a conceptual framework that differentiates between the static, dynamic and institutional properties of global production networks and their impacts on localities and regions. The research is based on interviews with senior managers in 25 companies in the three case-study countries, as well as inward investment agencies. We conclude that the most salient static impacts of these investments are on the labour market, where horizontal investments provide fewer, but more skilled jobs than vertical investments. Dynamic effects were contradictory in that, although learning and spillover effects were modest, vertical investments demonstrated a propensity to move up the value chain. Strategic coupling with local actors involved institution bending, enhancement or harnessing in changing the spaces of production.

Industry-academe linkages in the Philippines: Embedding foreign investors, capturing institutions?

“…The government has actively subsidised call centre training institutions and reformed university curricula, shifting internal training costs partially from firms to the state, especially when occurring through public universities. This confirms earlier findings of ''institution harnessing strategies'' of offshore service investors to access labour (Hardy et al, 2011b) and further explicates the role of foreign investors in actively embedding themselves and changing local labour market and education policy (Manning et al, 2012;Spar, 1998). This development can be read as a step in the transformation of the Philippines into a dependent market economy, similarly to Eastern European countries, which depend on moderately skilled but low-cost labour, and foreign investors to transfer technology and provide capital (Cimpoca and Freyberg-Inan, 2011;Nölke and Vliegenthart, 2009).…”

“…It is a hybrid form between coordinated and liberal models of market-led economies, as defined in the varieties of capitalism approach (Hall and Soskice, 2001). Though the political economy and the institutional background of post-communist countries in Eastern Europe and the Philippines differ in many respects, they have both been the recipients of FDI in offshore services and have developed into strong service hubs within global production networks of MNCs (Hardy et al, 2011a(Hardy et al, , 2011b. This makes a discussion of the DME approach apt for the case of the Philippines, with the proviso that the varieties of capitalism approach does not relate to one sector but the institutional setup of a country.…”

Impact of FDI on Economic Growth: Evidence from V4 Countries

“…It is also assumed that such investment incentive might help sort out urgent problems of the economy, particularly in the area of regional disparities. The experience of the V4 countries shows that the bulk of FDI went to the regions with the highest GDP per capita and that new jobs created due to investment incentives did not reduce regional disparities in unemployment (incentives were often directed to the regions with lower unemployment rates) (Hardy et al, 2011). The thing is that FDI, in most cases, required skilled workforce, which happened to be available exactly in the regions with a lower unemployment rate.…”

“…The debates have also been fuelled by the fact that the relocation affected all sectors, not just the traditional ones requiring low-skilled workforce. Industries depending on high-skilled labour have been relocated as well (Hardy, 2011).…”

Internationalization strategies of emerging market-based multinationals: integration of Indian ICT-ITES companies on the Dutch service outsourcing market

“…To further enhance their service delivery, the largest Indian companies have established nearshore service centres in Central Europe (Krakow, Warsaw and Budapest). Herewith they follow Western service providers who have established delivery centres here (Hardy et al, 2011;Micek et al, 2011). Nearshore locations have the advantage that work is done in the same time zone and, in case of problems, people can meet face to face much faster; moreover, it is also cheaper to have people working nearshore than having Indians working on location in the Netherlands.…”