1. EACES conference, Moscow, 28-30 August, 2008 Clusters and the development of supplier networks for multinational companies Magdolna Sass, Institute of Economics of HAS Miklós Szanyi, Institute for World Economics of HAS

2. EACES conference, Moscow, 28- 30 August, 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

3. EACES conference, Moscow, 28- 30 August, 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

4. Can a supplier relationship form the basis of a cluster? -Analysis: supplier relations: can be perceived as a lower level cluster, and can be a good basis for clustering -What factors determine the use of local supplies by MNCs? -Basis: extension of UNCTAD (2001) based on company case studies and a survey of 151 companies (Hungarian companies) + a detailed company case study of Electrolux-Lehel (outstandingly high level of local supplies, high level of embeddedness in the local economy, strong ties with suppliers, though no cluster development)

5. EACES conference, Moscow, 28- 30 August, 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 MNCs 9.Affiliates’ role in global MNC network

6. Table 3 Share of local suppliers in privatised companies Company SectorShare of local (Hungarian) suppliers from local value added ABB Ltd.Energetics machinery production45 % Adtranz Ltd.Diesel trains, freight trains production 55 % BPW-R á ba Truck undercarriage production35 % Electrolux Lehel Ltd.White goods production40 % GE Lighting TungsramLight source production50 % Knorr-Bremse Ltd.Brake structures production30 % SVT-WamslerConsumer electronics goods production 55 % ZF Hung á ria Ltd. Gearbox production35 %

7. Table 4 Share of local supplies for greenfield investments in Hungary Company SectorShare of local (Hungarian) suppliers from local value added Denso Ltd.Diesel feeder pump production0 % IBM Storage Ltd.*Hard disc drive productionBelow 5 % LEAR Ltd.Production of inner structures of vehicles 10 % Opel Hungary Ltd.Engine, cylinder head and gearbox production Below 5 % Philips-groupElectronics goods production10 % Phycomp Ltd.Assembly of condenser and0 % Sony Hung á ria Ltd. Electronics goods productionBelow 5 % Thyssen Production System Ltd. Production of automotive goods0 % Tower Automotive Ltd.Assembly of parts of bodywork0 % Zeuna Starker Ltd.Production of structures of exhaust pipes 15 % Zollner Elektronik Ltd.Electronics parts production6 % * production relocated to China in 2002-3

8. Table 5 The top ten Hungarian exporters, 200 6 CompanyWith foreign share?Sector Share in total Hungarian exports (%) Export/sal es (%) Share of local suppliers (%) 1.MOL (yes) (stock exchange) Energy9.9859.0… 2.AudiYes (greenfield)Automotive9.6699.710 3.PhilipsYes (greenfield)Electronics4.7299.510 4.GE HungaryYes (privatised)Electronics4.0897.350 5.SuzukiYes (greenfield)Automotive3.1085.140 6.SamsungYes (greenfield)Electronics2.9488.015+ 7.FlextronicsYes (greenfield)Electronics1.7099.010- 8.Alcoa-KöfémYes (privatised)Metal working1.6084.7… 9.MichelinYes (privatised) Automotive (tyres) 1.6099.820%+ 10. Robert Bosch Electronics Ltd. Yes (greenfield)Electronics1.3799.9…

9. 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 MNC involvement) Unprepared local participants (lack of trust, short term horizon) Clustering is more complex and difficult issue MNCs’ involvement over time: proof of benefits of clustering Eminent role of social capital building, role of potent cluster management EACES conference, Moscow, 28- 30 August, 2008

10. Thank you for your attention!