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Foreign Direct Investment and the Development of the Automotive Industry Read chapter Read first chapter

2017 | OriginalPaper | Chapter

6. The State and the Development of the Automotive Industry

Author : Petr Pavlínek

Published in: Dependent Growth: Foreign Investment and the Development of the Automotive Industry in East-Central Europe

Publisher: Springer International Publishing

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Abstract

Using a case study of Slovakia, this chapter considers the role of the state in the rapid growth of the automotive industry in East-Central Europe. Although this growth has been mainly driven by the investment strategies of automotive lead firms, the state has played an important role by accommodating the strategic needs of foreign capital through neoliberal economic policies. In addition to secondary sources, the empirical research is based on a 2010 survey of 299 Slovak-based automotive firms with a response rate of 44% and on 50 on-site firm-level interviews conducted between 2011 and 2015. The analysis draws upon approaches in Economic Geography, International Political Economy and upon Global Value Chains and Global Production Networks perspectives to argue that the successful development of the automotive industry in Slovakia and East-Central Europe as a whole has been achieved at the expense of its overwhelming dependence on foreign capital and corporate capture. The chapter considers the potential consequences of dependent industrial development for the domestic automotive industry and its position in the international division of labor.

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previous chapter Linkages and Spillovers
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Footnotes
1
The average monthly wage in the Slovak automotive industry was €992 in 2012 (Luptáčik et al. 2013). A CEO of a foreign firm that has produced in Slovakia since 1993 remarked: “We are here just because of [low] wages (interview on June 14, 2011). According to OECD (2013: 27), “the domestic value added content of Slovak exports is very low by international comparison.”
 
2
For example, when asked whether domestic Tier 2 and Tier 3 suppliers meet Kia’s quality and timing of delivery requirements, a Kia Slovakia manager replied: “The problem is not that they would not meet some criteria, the problem is that they virtually do not exist. Even suppliers of our suppliers are foreign-owned or JVs and are rarely domestic firms” (interview on June 20, 2011). 80% of 274 Slovak-based component suppliers are foreign-owned (ZAP 2013) but foreign-owned suppliers are on average much larger than domestic ones.
 
3
Avia, the producer of medium-weight trucks, built a subsidiary in the town of Žilina in 1952, originally to conduct general repairs and the servicing of its cars in Slovakia, and later to produce truck superstructures and connecting shafts. Tatra, the heavy off-road truck maker, established branch plants in Bánovce nad Bebravou (assembly and the production of components) in 1957 and Čadca (components) in 1958. Liaz, the producer of heavy road trucks, set up subsidiaries in Zvolen in 1971 (final assembly and the production of components) and Veľký Krtíš (engine assembly, main LIAZ truck and engine repair shop) also in 1971 (Pavlínek 2008).
 
4
For example, the relocation of production of light commercial vehicles from Vrchlabí to Trnava (TAZ—Trnavské automobilové závody) in 1973 and the transfer of production of special tractors from Zetor Brno to Martin (ZŤS—Závody ťažkého strojárstva) in 1978. The production of mopeds and motorcycles with engines below 1000 cm3, including R&D of new products, was relocated from Prague’s Jawa company to Povážské strojárne in Povážská Bystrica in western Slovakia in 1955 (Pavlínek 2008).
 
5
The low-volume assembly of Škoda cars (the Garde) was transferred from Škoda to BAZ in 1982 but it was phased out in 1987 after only 3480 cars were assembled. All components for the assembly had to be transported from Škoda’s main plant in Czechia where the assembly was much more economical. BAZ also produced front axles for Škoda but its production was plagued by serious quality problems (Studeničová and Uhrík 2009; ZAP 2000; interview with a Member of the Board of Directors, VW Slovakia, July 21, 2005).
 
6
Slovakia signed the European Association Agreement in October 1993 (effective on February 1, 1995), applied for the EU membership on June 27, 1995, became an EU member on May 1, 2004, and adopted the Euro currency on January 1, 2009.
 
7
All conversions of the Slovak koruna used in this chapter are based upon official exchange rates for a particular year published by the Slovak National Bank at http://​www.​nbs.​sk/​en/​statistics/​exchange-rates/​en-kurzovy-listok.
 
8
Slovakia paid $86,000 per job created by Kia, compared to $50,000 per job created by PSA Slovakia, $48,000 by Hyundai in Czechia and $37,000 by TPCA in Czechia (Kolesár 2007).
 
9
By 2005, the value of direct state incentives provided to Kia increased by €150m (77.5%) above the initial commitment because Kia increased its planned production capacity by 50% from 200,000 to 300,000 units annually and also because of the “incompetent management by the Slovak Economic Ministry” (HN 2005).
 
10
The Slovak Science Foundation (Agentúra na podporu vedy a výskumu) had to cancel general calls for proposals in 2003, 2008, 2009 and 2013 because the national government did not allocate any money for basic research in the national budget. In 2011, financing of successful projects was cut by more than 50% (Hajduch 2014).
 
11
By 2015, Slovak hourly compensation costs in manufacturing ($11.26) exceeded those of Poland ($8.53), Hungary ($8.25) and Czechia ($10.29) (Conference Board 2016).
 
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Metadata
Title
The State and the Development of the Automotive Industry
Author
Petr Pavlínek
Copyright Year
2017
Book
Dependent Growth: Foreign Investment and the Development of the Automotive Industry in East-Central Europe

Print ISBN: 978-3-319-53954-6

Electronic ISBN: 978-3-319-53955-3

Copyright Year: 2017

DOI
https://doi.org/10.1007/978-3-319-53955-3_6

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