12th General Conference of EADI, Geneva, June, 2008 Clusters and the development of supplier networks for transnational companies Magdolna Sass, Institute of Economics of HAS Miklós Szanyi, Institute for World Economics of HAS

12th General Conference of EADI, Geneva, June, 2008 Cluster concept Aim: enhancing global competitiveness at regional level Core: cooperation on various corporate functions (slaes, purchase, training, innovation logistics, marketing…) Tools: shared use of cluster services, personal and informal contacts, knowledge generation and distribution size increase joint appearance

12th General Conference of EADI, Geneva, June, 2008 Cluster features Regional concentration of activity Sectoral focus (traded clusters) Heterogenious structure of participants Cooperation and competition Innovation (knowledge generation and sharing) Critical mass (size, financial independence) Life cycle

12th General Conference of EADI, Geneva, June, 2008 Suppliers Main form of relationship between companies with foreign participation and local companies One of the main channel for spillovers Can be perceived as clusters (lower level) Base for deeper and closer cooperation between companies Relatively low level in Hungary (a supplier relationship with an affiliate has been expected to „restructure” or induce to restructure domestic companies, raising their productivity, competitiveness etc.)

12th General Conference of EADI, Geneva, June, 2008 Factors influencing the share of local supplies in total inputs 1.Mode of FDI entry 2.Sector 3.Export-oriented versus domestic market oriented 4.Gap (level of difference) between the „domestic” and „foreign” sector 5.Age of the investment 6.Quality of (potential) local suppliers 7.Nationality of the investor 8.Global strategies of TNCs 9.Affiliates’ role in global TNC network

Clusters from supplier networks? Privatization vs. greenfield: not highly relevant (clustering is new phenomenon) Sectoral affiliation (traded clusters) most globalized (mobile) industries Participation most likely who paid attention to supplier network development (until now little TNC involvement) Unprepared local participants (lack of trust, short term horizon) Clustering is more complex and difficult issue TNCs’ involvement over time: proof of benefits of clustering Eminent role of social capital building, role of potent cluster management 12th General Conference of EADI, Geneva, June, 2008