Just Look behind the Data! Czech and Hungarian Outward Foreign Direct Investment and Multinationals

Magdolna Sass,Jana Vlčková

doi:10.1556/032.2019.69.s2.4

Abstract

There has been an increase in outward foreign direct investment (FDI) and in the number of locally-owned or controlled multinationals in the Czech Republic and Hungary. However, data problems hinder to determine accurately the underlying trends and the main factors behind the changes. Data on outward FDI contain investment realised by all locally operational firms, regardless of their ownership. We rely on newly available balance of payments manual 6 (BPM) data and on company case studies. We show that outward investment by Czech firms must be much higher than what balance of payments data show. Hungary's case is the opposite. The leading Czech and Hungarian foreign investor firms can be categorised as “virtual indirect” foreign investors: they are in majority foreign ownership, but under domestic control. The reason for this special type of firms dominating in outward foreign direct investments can be found in the privatisation technique applied in these countries during the transition process.

Highlights

The number of firms that have been successfully internationalised through foreign direct investment (FDI) from former transition economies of East Central and Eastern Europe (CEE) has been continuously increasing
This means that they are in majority foreign ownership, as we saw in the case of the Czech PPF Group or the Hungarian Richter Gedeon, but they operate under domestic control
Our paper dealt with multinational companies, originating from two countries in the CEE region: Czechia and Hungary

Summary

Introduction

The number of firms that have been successfully internationalised through foreign direct investment (FDI) from former transition economies of East Central and Eastern Europe (CEE) has been continuously increasing. The aim of our paper is to compare outward FDI and multinational companies, originating from two countries in the CEE region: the Czech Republic and Hungary It relies on company case studies in comparatively analysing certain aspects of the Czech and Hungarian multinational firms. It shows that in both countries, the leading foreign investor firms can be categorised as “virtual indirect” foreign investors. In the case of Czechia, they are even operating under the Czech control, but in a foreign location, while in the case of Hungary, they are under the Hungarian control in Hungary The reason for this special characteristic of these firms can be found in the privatisation technique applied in these countries during the transition process, due to which certain companies could stay in domestic hands. Through company case studies we show the type of the companies that invested abroad and the mechanisms through which many of them can be considered locally controlled companies in spite of their foreign majority ownership

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