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

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

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

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)

EACES conference, Moscow, 28-30 August, 2008

Factors influencing the share of local supplies (in total inputs)

1. Mode of FDI entry2. Sector3. Export-oriented versus domestic market oriented4. Gap (level of difference) between the „domestic” and

„foreign” sector 5. Age of the investment6. Quality of (potential) local suppliers7. Nationality of the investor8. Global strategies of MNCs9. Affiliates’ role in global MNC network

Table 3 Share of local suppliers in privatised companies

CompanySector 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 %

Table 4 Share of local supplies for greenfield investments in Hungary

CompanySector 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

Table 5 The top ten Hungarian exporters, 2006

  Company With foreign share? SectorShare 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 …

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

managementEACES conference, Moscow, 28-

30 August, 2008

Thank you for your attention!