Impacts of horizontal and vertical foreign investment in business services: the experience of Hungary,Slovakia and the Czech Republic

Abstract

This article examines the impact of foreign direct investment in business services on the economies of the Czech Republic, Hungary and Slovakia and their place in the European division of labour. A distinction is drawn between horizontal market-seeking foreign investment in business services and efficiency-seeking vertical investments, which have increased since 2000. We posit a conceptual framework that differentiates between the static, dynamic and institutional properties of global production networks and their impacts on localities and regions. The research is based on interviews with senior managers in 25 companies in the three case-study countries, as well as inward investment agencies. We conclude that the most salient static impacts of these investments are on the labour market, where horizontal investments provide fewer, but more skilled jobs than vertical investments. Dynamic effects were contradictory in that, although learning and spillover effects were modest, vertical investments demonstrated a propensity to move up the value chain. Strategic coupling with local actors involved institution bending, enhancement or harnessing in changing the spaces of production.