EACES conference,

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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

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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
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

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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)

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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

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Table 3 Share of local suppliers in privatised
companies
Company Sector Share of local (Hungarian) suppliers from local value added
ABB Ltd. Energetics machinery production 45
Adtranz Ltd. Diesel trains, freight trains production 55
BPW-Rába Truck undercarriage production 35
Electrolux Lehel Ltd. White goods production 40
GE Lighting Tungsram Light source production 50
Knorr-Bremse Ltd. Brake structures production 30
SVT-Wamsler Consumer electronics goods production 55
ZF Hungária Ltd. Gearbox production 35

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Table 4 Share of local supplies for greenfield
investments in Hungary
Company Sector Share of local (Hungarian) suppliers from local value added
Denso Ltd. Diesel feeder pump production 0
IBM Storage Ltd. Hard disc drive production Below 5
LEAR Ltd. Production of inner structures of vehicles 10
Opel Hungary Ltd. Engine, cylinder head and gearbox production Below 5
Philips-group Electronics goods production 10
Phycomp Ltd. Assembly of condenser and 0
Sony Hungária Ltd. Electronics goods production Below 5
Thyssen Production System Ltd. Production of automotive goods 0
Tower Automotive Ltd. Assembly of parts of bodywork 0
Zeuna Starker Ltd. Production of structures of exhaust pipes 15
Zollner Elektronik Ltd. Electronics parts production 6
production relocated to China in 2002-3
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Table 5 The top ten Hungarian exporters, 2006
  Company With foreign share? Sector Share in total Hungarian exports () Export/sales () Share of local suppliers ()
1. MOL (yes) (stock exchange) Energy 9.98 59.0
2. Audi Yes (greenfield) Automotive 9.66 99.7 10
3. Philips Yes (greenfield) Electronics 4.72 99.5 10
4. GE Hungary Yes (privatised) Electronics 4.08 97.3 50
5. Suzuki Yes (greenfield) Automotive 3.10 85.1 40
6. Samsung Yes (greenfield) Electronics 2.94 88.0 15
7. Flextronics Yes (greenfield) Electronics 1.70 99.0 10-
8. Alcoa-Köfém Yes (privatised) Metal working 1.60 84.7
9. Michelin Yes (privatised) Automotive (tyres) 1.60 99.8 20
10. Robert Bosch Electronics Ltd. Yes (greenfield) Electronics 1.37 99.9
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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

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• Thank you for your attention!