Challenges for Foreign-Owned Subsidiaries in FDI-Led Modernization Strategies: The Case of Hungary

Abstract

Many Central and Eastern European Countries are intensively pursuing a strategy of foreign-led modernization. This strategy puts foreign multinational corporations in a strategic role not only with regard to industrial upgrading but also with regard to wider social and macroeconomic issues. Using the case of Hungary, the paper first demonstrates that foreign-led modernization strategies are subject to medium- and sometimes even short-term changes. Thus, with privatization investments and labour-intensive greenfield investments losing ground in Hungary after the turn of the century, foreign subsidiaries already present in the country and their further upgrading became the focal point of Hungary's modernization strategy. Starting from here, the paper explores the question of what are the necessary pre-requisites for foreign subsidiaries in Hungary to successfully develop their role and hence support the overall modernization strategy. Three case studies reveal that access to headquarters, commitment to location and access to unique resources are the most important pre-requisites for subsidiaries to develop their role. In the concluding section, the paper addresses the paradoxical nature of this variant of foreign-led modernization strategy, that, on the one hand, is promoting industrial upgrading but, at on the other hand, is very likely to deepen the basis for social, regional and economic inequality.