Restructuring via internationalization: The auto industry's direct investment projects in Eastern Central Europe

Gerlinde Dörr and Tanja Kessel

No FS II 99-201, Discussion Papers, Research Unit: Regulation of Work from WZB Berlin Social Science Center

Abstract: Internationalization based on direct foreign investment is proving to be a key economic factor for the transformation economies of Eastern Central Europe. The decisive influence factors in this process are primarily major investments by groups based on longer-term strategies with the new locations. The effects linked with this at factory and regional levels are discussed in the study using the example of the auto and components industry. The sector was chosen because it is one of those very strongly linked with such major projects. The Volkswagen group's two prominent investment projects, Škoda in the Czech Republic and Audi in Hungary, are used to illustrate two things. First, that there was very accelerated implementation of the operational expansion of competences, in terms of new products, modern production structures, international competitiveness, and quality standards achieved. Second, that this was able to be done because of the especially highly skilled workers in the area. As a consequence, the firms have since been able to achieve not just strong positions within their respective national economies, but also within the VW group. However, by contrast, impulses for local industry emanating from the major investments have remained very limited. The study attributes this development to a coincidence of various causes. These include, above all, structural change in the auto industry over the past few years, the VW group's specific modernization path, and weak governance on the part of the transformation countries' governments. The results arising from the extended perspective of globalization and transformation underlying the group's project approach clearly indicate that increased international competition has strengthened the Eastern Central European region's comparative constellation of advantages. This consists of high-skill structures at low-cost conditions. It is unclear how far further reaching industrial upgrading at factory and regional levels can still be achieved in the countries in the face of increased East-West locational competition linked with this. The authors interpret this as a question of implementing new transnational arrangements limiting the negative consequences for locations in the West as well.

Date: 1999
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