The multinational companies that drive and organize global value chains regularly reorganize production. In light of decisions made in this area, some production processes may be kept in-house, others will be relocated to the company’s own foreign subsidiaries or independent suppliers in the value chain, or the multinational company may take back previously outsourced activities from these subsidiaries or suppliers. A researcher from the ELKH KRTK Institute of World Economics has contributed to an article, published in the Competitiveness Review journal that presents the complex effects of this reorganization process. The results of the study are particularly significant for the Hungarian economy, given that Hungary is one of the OECD economies that is most integrated in global value chains.
As a result of increasing competitive pressure, technological advances and the liberalization of international trade and capital flows, an increasing number of companies are organizing their production activities on an international scale, setting up production facilities in and employing suppliers from several different countries. The complex production structures created by this process are known as international – global or regional – value chains. For the creation of individual products, the process begins with research and development activity, before proceeding to design, the manufacturing of components, assembly, marketing, distribution and then finally the consignment of the product to the consumer.
International value chain processes are organized and monitored by the multinational company that owns the products. Hungary – through, for example, the domestic car industry, its production capacity in electronics and the larger service centers – plays an intensive role in these international value chains, primarily in terms of production processes. The researchers prepared detailed case studies in relation to two Hungarian subsidiaries and investigated them with the objective of uncovering the motivations behind the reorganization of value chains, as well as the effect of this reorganization on the operation of companies involved in the given value chain. This research is particularly valuable, given that while the theoretical literature in this field is relatively extensive, these topics have rarely been subjected to practical analysis.
Based on a case study of the two companies, the researchers established that the reorganization of global value chains is not a rare or unique event. In the face of strong competitive pressure, active leading multinational companies are constantly identifying high value-added processes, then after detachment from low value-added processes, attempting to, if possible, relocate these (high value-added) processes to the center of the multinational company or one of its subsidiaries, bearing in mind the advantages of the concentration of their activity. This results in what is essentially a continuous process of reconfiguration and reorganization in the global value chain.