Foreign Direct Investment and Intra-Industry Trade: The case of the automotive industry in Central Europe

Automotive investment projects across borders have significantly intensified in recent years, as companies have attempted to cut costs via relocation of production, and to get closer to final customers in emerging markets. This chapter analyses the impacts of this global re-structuring process in three Central European countries: Hungary, the Czech Republic, and Poland. The Czech and Polish automotive industry has been privatised via ‘brown-field’ investment projects: foreign investors have simply taken over existing companies. In other words, these indigenous, long-established production complexes are being replaced and displaced by Western companies. The process inevitably entails conflicts between traditional and new management methods and work practice. In Hungary, by contrast, car assembly has been re-established via green-field investment projects: there was no ‘old’ industry to be replaced. Hence there was no room for conflicts between traditions and new practices either. It resembles the Japanese practice: all their transplants in the US and UK had been located in the ‘desert’, i.e. in regions with no automotive tradition – precisely in order to avoid the sorts of conflicts that are inevitable on a brown-field scenario. It is argued that Central European governments need to (i) provide adequate funds for education and training, (ii) promote R&D capabilities and (iii) offer investment incentives geared towards lean production so as to avoid being locked into a low-wage, low-tech, low-value-added ‘development’ path.