The Interplay between Innovation and Production Systems at Various Levels: The case of the Hungarian automotive industry




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7.2 Outlook for Hungarian automotive suppliers


Privatisation of car assembly in the neighbouring countries provides both challenges and opportunities for Hungarian automotive suppliers. Western European investors, on the one hand, tend to rely on their long-established suppliers. Moreover, Fiat is one of the most vertically-integrated car-maker. Therefore some Hungarian suppliers lost their former businesses when Fiat took over FSM. However, even Fiat has embarked upon a new sourcing strategy, i.e. it has started divesting its in-house component manufacturing plants in Poland in order to cut costs and to focus on its core business. Thus there are new market opportunities even in this case for competitive suppliers, especially for Central European subsidiaries of well-known Western European firms, given that these suppliers can combine reputation, low production costs and favourable location.

Asian firms, on the other hand, do not have a long-established supply base in Europe. Thus, they have to search for local suppliers if they want to meet the local content rule of the EU. Magyar Suzuki has rapidly increased the local content of its cars produced in Hungary, and several Hungarian suppliers are shipping their products to Japan.

Table 13 analyses the major characteristics of different types of companies in the framework of a tentative taxonomy, developed in section 5.3. It also considers the most likely prospects for each group of companies.32 Two sub-groups, namely private companies and joint ventures with dominant Hungarian private ownership are not included as firms in these sub-groups differ considerably from each other, i.e. their products, processes, market opportunities can vary on a very wide scale. Two distinctive features, however, can be pointed out. First, usually they are much smaller than A.1–B.2 companies. Second, the so-called aftermarket is usually much more significant for them than for the larger ones.


Table 13: Outlook for Hungarian suppliers

Ownership/

Type of plant

Technology

Size

Activities

Markets

Outlook

Impacts on Domestic R&D

Green-field plants of car manufacturers producing components

(A.1.1)

Products: mid- or high-tech, high value-added

Processes: state-of-the-art, capital and skill-intensive, but not labour-intensive

1000-5000 employees

specialised in automotive components

a single customer, but geographically spread markets (assembly plants of their parent company), outputs are exported

rather stable markets (strong commitment from parent companies), yet, they depend on overall automotive trends and strategic moves of parent companies (e.g. sourcing, location, R&D)

major R&D projects conducted by parent companies, minor product development projects in Hungary when supplying other car assemblers in CEE. Audi has set up an engine development centre; GM Opel is to involve Hungarian R&D units in product development.

Subsidiaries of component manufacturers (green- and brown-field plants: A1.2, A.2)

Products: typically mid-tech, some high-tech, mid- or high value-added

Processes: state-of-the-art, skill-intensive, less capital and more labour-intensive than for A.1.1 firms

from a few hundred employees to over 1000 ones, further growth is rather likely in most cases

specialised in automotive components

a number of customers, the vast majority of output is exported

fairly stable business opportunities due to the long-established contacts between parent companies and customers. Although future demand is more difficult to forecast, risks can be spread more widely. Smaller investment compared to A.1.1 cases, hence exit might be less costly.

major R&D projects conducted by parent companies, but in-house and extra-mural R&D and engineering units have been set up, and Hungarian engineers are increasingly involved in international R&D projects, conducted in various Western European countries.

State-owned companies (B.1)

Products: low-tech, some mid-tech, low value-added

Processes: simple material processing, obsolete, general-purpose machinery, labour-intensive

up to 1,500-2,000 employees, shrinking throughout the 1990s

diversified; automotive parts are of secondary importance in the case of large, multi-plant companies

a number of customers, usually 1-2 Western T1- or T2 suppliers as well as Magyar Suzuki. A considerable part of automotive output is exported.

rather uncertain, their customers might find cheaper suppliers

hardly any in-house R&D projects or demand for extra-mural ones can be expected from them

Privatised former state-owned companies (B.2)

Products: mid- or low-tech, mid-value-added

Processes: similar to B.1 firms, usually less obsolete

medium or large

medium-sized ones usually specialised in automotive components, large ones diversified, car parts are often of secondary importance

similar to B.1 firms

slightly more promising than for B.1 firms (hence privatised). Yet, privatisation has been financed through loans, and hence debt service might threaten their future since hardly any profits can be retained for badly needed investments.

some in-house R&D projects or demand for extra-mural ones can be expected from them



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