Supply chain management and the importance of information technology: outlook on the European automotive industry Maria Jos

Alvarez Gil, or!ala "ulcsar and #ilan Aksoy $niversidad %arlos &&&, Madrid, ' of March ())*

A!stract + ,he trends in the automotive industry changed radically from the !eginning of the -)s. &ncreasing competition, ne/ systems and developments compelled the companies to re+evaluate and re+design their investments and processes, !y e0tending their net/orks to other parts of the /orld in order to gain more market. ,his trend could !e o!served first in the 1estern+European countries and later in Eastern+ Europe. 1ith entering ne/ areas the companies had to face /ith several difficulties coming inter alia from the decisions of supplier net/ork and information system implementation. &n our study /e analyze the strategic decisions of ma2or carmaker companies entering the Eastern+European market. 1e place special attention to supplier decisions and E34 system decisions of the firms. 5ur research includes three case studies of the 6ungarian automotive sector.

I.

Introduction With the downfall of the socialist era in Eastern-Europe, the countries faced a complex

situation of multiple possibilities and threats. The transition process helped effectively the adaptation to developed countries, although it required several radical changes, fast learning skills and adequate strategic and organi ational decisions. This transition period was studied by many scholars before, as well as the effect of foreign direct investment !"#$%& in the emerging countries and their beneficent'noxious impact on the economies. (n interesting detail was the focus on multinational companies !)*E% as the ma+or source of foreign capital inflow and the adapting government decisions. $n our study we will analyse the appearance of multinational carmaker companies to Eastern Europe, especially focusing on the situation of ,ungary and the re-structuring of the automotive industry in the country. We take into account in such a context the -.# investment decisions of the country as strategic actions with the combination of institutional, financial, and organi ational restructuring decisions. (s we know from the literature, innovation and -.# activity became the highest priority at the most successful companies after the /0s and recently the importance of knowledge is increasing as a source of global competitiveness. $n general we can assume that the growing complexity of products and processes, the multidisciplinary nature of present scientific and technological advances forced the companies to develop new capabilities to meet these new challenges !1sonka, 2003%. The number of -.# collaborations and networks show big differences by sectors, regions or countries. ,ungary became a relatively large share of "#$ in the 1EE 2 region. With this push of the economic activity, the innovation system was moderni ed. ,owever the linkages
& 2

"#$4 "oreign #irect $nvestment 1EE4 1entral and Eastern Europe

between the different actors, legislations of the systems and their activities remained at a relatively low level. $n the first section we will introduce the theoretical framework, followed by the overview of the transition process, with attention to the automotive industry, in the next section we state our research questions and some methodological aspects and lastly we will summari e our findings.

II.

Theoretical framework

(s suggested by )eyer !2005% the transition economies have contribution to main theories such as, the transaction cost theory !T1T%, agency theory !(T% resource based theory !-6T% and institutional theory !$T%. We argue that in such a context -6T and $T are the main theoretical cornerstones. -6T places the main focus on idiosyncratic resources and capabilities as key drivers of firm performance. -esources constitute a basis for competitive advantage in a transition context. $n a highly idiosyncratic environment, context-specific resources such as business networks !7eng and ,eath, &883% and process-related capabilities such as strategic flexibility !9hlenbruck et al., 200:% may be important. The context thus influences the way firms manage their resources. Whereas processes of developing, transferring and exploiting resources vary in the transition context. 7artner selection and organi ational learning are also highly important factors. The main challenge lies in identifying the resources and change processes that create value in the specific context. The complementarities of resources are believed to be crucial for the success of different strategically partnerships, such as alliances or +oint ventures !;<s%.

Thus, in a rapidly changing environment, local firms as they need to re-configure their resources are interested in using alliances with )*Es to outcompete their local rivals !"ahy et al., 2000%, and they seek partners with financial assets, technical capabilities, and marketing savvy !,itt et al., 2000, 200=%. With the creation of alliances and ;<s learning, knowledge transfer and technological transfer in some case are the first ob+ectives of the host companies. #hanara+ et al. !200=% have investigated how relational embeddedness impacts on the transfer of explicit and implicit knowledge. They find that tacit knowledge transfer is influenced by three proxies for embeddedness4 trust, shared systems, and parent-;< tie strength. The concepts of absorptive capacity !e.g., )inbaeva et al., 200:% and relational embeddedness may enhance our understanding of what resources enable organi ations to receive, adopt, and apply external knowledge !)eyer, 2005%. 1ultural differences are also key factors as they strongly influence communication, trust and the strength of the relations between organi ations. >ince the &8/0s, $T has become a ma+or perspective in the social sciences. $nstitutions are typically defined as the ?rules of the game in a society? !*orth, &880, :%, which include formal rules !laws and regulations% and informal constraints !customs, norms, and cultures%. 1EE researchers increasingly reali e that institutions are much more than background conditions, and that ?institutions directly determine what arrows a firm has in its quiver as it struggles to formulate and implement strategy and to create competitive advantage? !$ngram and >ilverman, 2002%. The role of institutions is particularly important in acquisitions. $n 1EE, the institutions surrounding privati ation set the context for foreign acquisitions, which have a direct bearing on post-acquisition strategies !)eyer, 2002% and performance !9hlenbruck and #e 1astro, 2000%. )ost research in this area has focused on the impact of formal institutions on entry strategies. The recognition of informal institutions !*orth, &880% is relatively recent. 7eng !200:% hypothesi es that during the early phase of transition, when
4

formal market-supporting institutions are less well developed and informal constraints dominate, foreign entrants are more likely to use ;<s and alliances as opposed to wholly owned subsidiaries to enter 1EE. @verall, the adaptation of strategies, structures and processes to institutional idiosyncrasies has been recogni ed as a ma+or challenge for managers !)eyer, 2005%.

III.

The characteristics of the automotive industry in Europe

$n the /0s there has been a considerable internationalisation of E9 automobile production firstly, to the regions of northern Europe and southern Europe, and secondly, to the 1EE region !>adler and >wain, &88=A ,udson and >champ, &885A 7avlBnek, &88/%. 1armakers by entering the European market were faced with several challenges, as strong competition for potential investment pro+ects and other barriers. $n the end of the /0s the Eastern countries became a potential market for carmaker firms where they saw many opportunities, first of all the cheap skilled labor possibilities, favorable tax conditions and other preferences of contracts from the governments. The proximity of Eastern-Europe to the Western plants and subsidiaries was another advantage, which connected the two regions for technological, production and transportation collaboration. To provide the adequate quality and to facilitate process flow, the companies adapted to different strategic actions and made distinct relationships with local suppliers. This in turn involved the importance of the information systems and production systems to have an efficient cooperation between the divisions of the companyCs subsidiaries. This fact leads us to the following questions4 What was the key to success by the expansion to Eastern Europe of ma+or carmaker companiesD ,ow important was the adequate cooperation between the West and the EastD
5

"or instance as the Western-European car market remained surrounded by direct and indirect trade barriers. Tariffs, quota as well as single franchise dealer structures created a large number of !institutional% barriers to entry. The opening up of the 1EE1 region inspired many of the peripheral firms to try to enter through the ?backdoor?. 7>( !in -umania, and in 7oland% and even E)'@pel !in 7oland, and -ussia% thus got outpaced by more adventurous new entrants from (sia. >u uki and #aewoo targeted 1entral and Eastern Europe as a production site to overcome European trade barriers and enter the western European market. ,owever the international networking strategies of the car manufacturers show remarkable differences. >ome rate the 1EE1 region primarily as a market, some as a production site, some try to aim at both. These differences are triggered by the domestic bargaining setting !the ?car complex?% of these firms, by the dynamics of the internationalisation process itself, and by the reception in the host countries. The strategies of the investing companies in Eastern Europe reveal the following common characteristics. "irstly, although they also produce substantial volumes for the local market they produce in, the prime strategic aim is exports to Western Europe. >econdly, to supply to the Western European market. "or instance by FredefiningF components or supplying local suppliers as second tier producers. Thirdly, they have made use of the frustration of local governments to enter the area easily. !van Tulder, -uigrok, &88/%. (s the above implications suggest the tight relations in every aspect between Western Europe and Eastern Europe aim the emergence of the companies to shape a Ccommon languageC regarding processes, production and information systems.

IV.

Supplier networks

>upply chain management aims at optimi ing the performance of business systems. ,owever, nowadays a supply chain is often operated in a dynamic environment, thus the optimal solution in a supply chain should change due to varying constraints. These constraints can be either internal to the supply chain or part of the institutional context in which the supply chain exists. "or instance, best practice for one organi ation may not generate best performance in another organi ation in a different country. (ctivities of individuals and organi ations in a society should follow its invisible rules or mechanisms, which is defined as the institution. $n todayCs rapidly changing environment, suppliers are not only a source of materialsA they can be a source of innovation. 6y working closely with suppliers, organi ations can reduce costs, improve quality, and shorten lead-times !Gaseter &88/A Gewis &885%. "or instance, ,ondaCs collaboration with suppliers provides a competitive advantage !*elson, )ayo, and )oody &88/%. #aimler1hrysler reduced costs by over H2 billion in &88/ using suppliersC ideas !>tone &888%. 1ar makers of developed countries chose first tier suppliers among firms capable to achieve continuously high techno-economic performance. This statement is especially true today, when due to the high concentration worldwide and to the generally used !in automotive industry% lean production. 6ig carmakersC affiliates usually do not rely on local background industry potential. They continue cooperating with traditional suppliers. -eplacing traditional suppliers by local companies is a slow and burdensome process. 6ig carmakers have centrali ed purchasing system. This means that affiliates may only employ new local suppliers with the permission of the mother company. The headquarters evaluate applications of would-be suppliers after a long examination process of both product and producer. Would-be partners are examined from various aspects. They have to suit with
7

the expectations of the mother company, primarily the mother company looks at the following aspects4 which technology is used by the firm, how is the quality of the offered product, and its materials, how is management, how is corporate finance, how much free capacity is available, whether the company is able to produce in large batches, whether there is - . # staff available necessary for quick ad+ustments, retooling, whether there is tool production, where is the plant located and lastly if the offered price is competitive. ( further problem is si e and the related lack of capital. 6ig carmakers reduce the number of suppliers worldwide. They contract therefore large and properly capitali ed firms in 1entral Europe. <ery few firms qualify this requirement in ,ungary. (lso, a first tier supplier must be capable to develop a subassembly according to the required parameters of the final product. "irms with adequate - . # capacities are very rare in ,ungary. $n other cases the lack of suitable hardware, technology knowledge and language skills is the cause of failure. The conditions under which local parts suppliers become integrated !or not% in cross European production networks largely depends upon the internationali ation strategies and the related intentions for local outsourcing. $n case local suppliers want to become a part supplier to Western core firms they run the obvious risk of becoming dependent upon the core firm, but also upon the suppliers to that core firm. The experience over the 80s is that 1EE1 producers can only become supplier by entering into a ;< with another Western firm. "or instance4 >u uki opted for a Ereenfield investment in the country with the best and most independent supply infrastructure, but with weak or no core firms. $n other 1EE1 countries, first tier suppliers had been strongly linked !often as subsidiaries% to the local core firms. 6eing linked to the car complex of a more peripheral player like >u uki poses chances but also problems for the !,ungarian% suppliers. ,ungarian car suppliers to >u uki are
8

Flocked-inF into a lower end producer4 ,ungarian production is for a relatively dated car, even at the start-up of productionA furthermore, >u uki struck supply licenses with its ,ungarian suppliers that precluded the ,ungarian firms from supply to other >u uki plants outside ,ungary or to other customers in Western Europe. ,ungary, >lovenia and >lovakia, are Cthe second tier countriesC. They have become integrated in networks of component supply. The assembly operations they contain generally share a lower local content, whereas their trade orientation is much more export oriented. The country that has been most successful has been ,ungary, the only country in the 1EE1 region up to now that tried to build up own car assembly capacity from scratch by attracting a nonEuropean investor. Therefore, the ,ungarian example deserves further analysis. >u uki has the widest supplier network in the country. Eeneral )otors and (udi started small-scale assembly operations in the country, these operations were bound to stay small or even get downsi ed after regional reconfiguration efforts. We will further analy e the position of these three companies in the country. $n summary we can state that ,ungary is primarily a component producer, which it was already under -ussian dominance. The components produced in ,ungary are engines, which can be considered strategic inputs to the companies they supply to.

V.

The role of Information technology ERP

Today, information and communication technologies play a key role in >upply 1hain )anagement. >upply 1hain )anagement aims to integrate all key business processes throughout the entire supply chain !@liver . Webber, &8/2A 1ooper et al., &88IA ,andfield . *icols, &888A ,elms et al., 2000A Jnolmayeret al., 2002%. >ome of these processes can be supported by E-7 !enterprise resource planning% software.
9

>oftware vendors like i2, @racle, or >(7 are the ma+or developers of supply chain management software. 1onsidering the high costs involved in the implementation of >upply 1hain )anagement >oftware !Eouldson, 200&, p. &8A <an>coy, 200&'02, p. /I% is important to analyse and evaluate the usage of such software solutions. !6uxman et al, 200=% The business worldCs embrace of enterprise systems may in fact be the most important development in the corporate use of information technology in the &880s. When used appropriately, E-7 software integrates information used by the accounting, manufacturing, distribution, and human resources departments into a seamless computing system. ( successful E-7 can be the backbone of business intelligence for an organi ation, giving management a unified view of its processes. 9nfortunately, E-7s have a reputation for costing a lot of money and providing meager results, because the people who are expected to use the application do not know what it is or how it works. When E-7 software fails, it is usually because the company did not dedicate enough time or money to training and managing culture-change issues. "urthermore, the implementation of E-7 systems often leads to organi ational changes. $n this case, the software may be considered a trigger for a supply chain redesign. The chief reason for companies to implement such systems is a need for a common $T platform. The implementation time is usually between &2 months and = years !this might vary between 3 months and several years.%. ( survey study about the usage of E-7 system in the automotive industry was conducted by 6uxman et al !200=% where they asked &000 car manufacturers, suppliers and distributors about E-7. The authors found that =/K of the contestants has implemented or plan to implement E-7 solutions. "rom these contestants the ma+ority used a program developed by >(7. Those companies who were not using this system named the following
10

reasons as main balks, firstly that it was not necessary, secondly that the implementation is costly or lastly that they could not find suitable solutions for their purpose in the market. The main ob+ectives in the field of improvements were shortfall reduction, supply chain redesign and the improvement of cooperation. The results of this survey indicate that information technology and concerning systems are becoming more important. ,owever, there are still some serious barriers to overcome in their diffusion. >till regarding the E-7 and the implementation of information systems we need to analy e further aspects of this issue. We argue that such technologies will be key drivers to success in the long run, by implementing it on a wider range of affiliates in car companies. We would like to study how companies in the car industry can implement successfuly the E-7 system. What are the factors that help implementation mehodologies. "urthermore we would like to analyse the potential long run benefits of such system by the implementation of Eastern-European firms.

VI.

Research uestions and !ethodology

(n important strand of literature has long focused on the motivations of investors and the sources of competitiveness in emerging countries. The most widely accepted concept, the so-called eclectic paradigm, developed by #unning, is distinguishing market-, resource-, efficiency- and competence-seeking investment pro+ects. )ore recently, it has become an equally important research question to assess the impacts of "#$ on local firms. $n the following we will introduce our primary research interests. "irst of all we aim to study the questions4
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RQ1: How efficient is the evolution of automotive industry in Hungary? Which institutional factors are leaders in the relationships with foreign investors? This aspect of "#$ is a critical source of debate and produced various paradox results in past researches. @ur aim is to analyse in a deeper vision the existing foreign investment of automaker companies in ,ungary from the transition period until recent time, by untangling the two faces of partnerships and foreign ownerships in the country. >econdly we would like to study the questions4 RQ : !s the supplier network of the ma"or car companies in the country efficient? What kind of strategies #relationships$ can be observed by the companies with local supplier? (s mentioned before, different companies follow different Lbest practiceC strategies with suppliers. (lso we mentioned that to build up a local supplier chain is a burdensome process for companies. We will analy e and compare in our case studies the three ma+or car investors in ,ungary and their supplier strategies. -M:4 #oes information technology contribute to the performance of the companiesD #id the firms implemented the E-7 system, if yes, did it contributed positively to their performanceD (s we mentioned before the importance of information technologies such as E-7 will be a key factor on the long run when we talk about cooperation between different plants, departments and affiliates in Europe. Therefore we suggest studying further this issue regarding the automotive sector. $n the methodological part we will analyse three case studies, by reviewing the three ma+or contributors to the ,ungarian automotive industry. $n the following we will give a hint about the structure of the case studies and the evolution of these partnerships in ,ungary.
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"ungarian Su#uki )agyar >u uki, a ;apanese-,ungarian +oint venture located in Es tergom, commenced commercial production of compact cars in @ctober &882. $nvestment has totalled H230 million by &88I. Then a further H&=3 million has been invested to produce a new small car, +ointly developed with E), but assembled separately under >u uki and @pel badges in Es tergom and Eliwice, 7oland, respectively. The >u uki version is called Wagon -N, and its production is commenced in ;anuary 2000. The other new model, called $gnis, was introduced in (pril 200:, where output reaches &00 thousand units a year. #iesel engines were also added to the product lines in *ovember 200:. (s the company aims at substantially increasing its market share in Europe, and introduces &0 new models until 200I. $n ,ungary, to add these new cars to the current product lines, some H&00 million has been invested at the Es tergom plant, doubling the capacity to 200,000 units a year. The pressing and welding plants are to be extended, and a new, water-based painting facility was added and the number of employees increased by =00. (s ,ungary only +oined the E9 in )ay 200=, )agyar >u uki had to reach 30 per cent E9 content in order to export it cars to E9 markets. )oreover, it bought certain parts from its local suppliers O initially it only produced :0,000-=0,000 cars a year O but followed a singlesourcing strategy. Therefore, it had very strong incentives to LnurtureC a local supply base in the beginning. With ,ungaryCs accession to the E9, however, it has fundamentally changed, and accordingly ,ungarian >u ukiCs supplier strategy has been revised. Together with its ;apanese suppliers, it had conducted a thorough technological and financial audit, covering literally every single aspect of doing business from purchasing inputs through production methods and machinery, to accounting, sales and management. Then +oint efforts had also
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been made to improve the selected supplierCs technical level and economic performance, when needed. To sum up, ,ungarian >u uki has provided its ,ungarian and other 1entral European suppliers with various sorts of technological and managerial knowledge !know-how% on purpose, as it did need to LnurtureC a local supply base to reach the required 30 per cent E9 content as quickly as possible. To achieve this goal, it was inevitable to develop close cooperation with the selected suppliers, previously accustomed to the standards and norms of the planned economy, in order to LdriveC them into a different system, namely market economy. *ot all potential supplier have completed this on-the +ob training successfully, but most of them have ad+usted to the new requirements, and now are able to meet the exacting demand in terms of technological level, timely delivery, and efficient, profitable conduct of business. $n that sense ,ungarian >u uki has significantly contributed to the diffusion of new products, production processes as well as managerial and organisational innovations, i.e. to develop suppliersC capabilities. @nce the 30 per cent E9 content had been achieved, ,ungarian >u uki has not had strong incentives any more to continue this supplier strategy. >ince then, it has made far less significant efforts to develop its local supply base. The current assistance, however, is still not negligible. $n short, the diffusion of technological and organisational innovations among ,ungarian and 1entral European firms has been promoted actively and on purpose by ,ungarian >u uki, while spillover effects, strictly defined, seem to be with low significance, however we aim to analyse them further. >u uki aims at a regional division of labour between its plants in the 1EE1 region as well as in Western Europe !>pain%. The transportation of components from ,ungary to >pain have increased in the past years and with that the emergence of stronger ties, and with that the
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efficient information flow became crucial. The logic for these producers is comparable to that of #aewoo4 because they are no ma+or players in the European market themselves they search for weak business partners and relatively weak governments. Their prime aim is the market of the European 9nion.

$!%&pel @pel ,ungary <ehicle )anufacturing Gtd. opened the ,ungarian car assembly plant and an engine factory in a customs-free one at > entgotthPrd, close to the (ustrian border, in &882. $nitially E) @pel had invested over #): =00 million in the 1EE area. @pel (stras were produced in ,ungary until #ecember &88/. 7arts purchased in ,ungary initially accounted for merely = per cent of an (straCs value, then 8.3 per cent in &885-&88/. (ctual output primarily depends on demand for @pel models in Western Europe as the vast ma+ority of production had been exported to @pel assembly plants until &88/ !when cars were assembled in > entgotthPrd%, and &00K is exported since then. #ue to these secure markets, @pel ,ungary was in the black already in the second year of its operation. $t made the third largest profits in ,ungary in &88I, and was the fourth largest exporter. The end of car assembly has not meant that @pel would withdraw from ,ungaryA on the contrary, further investment pro+ects had been completed to add gearboxes to the product lines. Thus, gearboxes have also been produced in > entgotthPrd since >eptember 2000. "irst (llison gearboxes for commercial vehicles, and then @pel had spent #) 2:0 million to build a new gearbox factory with a capacity of 250,000 units a year for cars. The production of the 1<T gearboxes commenced in ;anuary 2002. $n the meantime, the capacity of the engine plant has been increased to 350,000 units a year, and that of the cylinder heads to 5:0,000

#)4 Eerman )ark

15

units a year. With these pro+ects, E) @pelCs investment in ,ungary has totaled 300 million Euros !#) &.2 billion% by 200:. @pel ,ungary, as opposed to )agyar >u uki, has never been LforcedC to reach a certain level of local content, as the cars assembled in > entgotthPrd were sold in the domestic market, and thus E9 rules controlling access to the E9 markets did not matter. )ost of its local suppliers were ,ungarian subsidiaries of its long-established Western European partners. This second distinctive characteristics of @pel ,ungary, compared to ,ungarian >u uki is, that it prefers working with its well-known suppliers, and thus has encouraged them to set up their operations in ,ungary, either investing in green-field = plants, or taking over domestic firms, and transferring their technologies as well as managerial techniques to upgrade their skills and competences. Tacit knowledge, gained at @pel, however, is transferred to other companies in various ways. The usual form is that employees leave, quite often for higher positions at suppliers. (t the first glance, it is a loss from the point of view of @pel ,ungaryA yet, the resources used to train these employees are not regarded as a waste. (s finding new suppliers has become an important task, it is obviously easier to work with suppliers where former @pel employees are in high-ranking positions. These sources and tactics of the foreign investors are worth to mention and to study in a deeper context as we can observe how environmental circumstances and strategic decisions contribute to the evolution of the domestic market and organi ational structures.

'udi

Ereen-field investment4 to invest in an area or country that has not such activities before.

16

(udi the third car producer +oined in &88/. @riginally (udi (E has invested in ,ungary in a new engine manufacturing plant, its first &00 per cent-owned manufacturing base outside Eermany. (udi ,ungaria )otor Jft !(,)%, located in EyQr, western ,ungary, was opened in @ctober &88=. $t was the first engine plant in the world to manufacture five-valve, fourcylinder, engines in commercial production. This new engine generation is built into (udi, <olkswagen 7assat, >E(T, and >koda models. 7roduction of six- and eight-cylinder petrol engines has also been re-located to EyQr. )oreover, two new sport models, TT 1oupe and -oadster have been assembled since (pril &88/, and ;uly &888, respectively, at (,). ( third model, (: was added in 200&..@utput has been increased in several steps, and further engine components have also been added to the product lines, (udi has, therefore continuously invested in its EyQr plant, amounting to over R 2:00 million by 200=. (udi (E has not committed itself to increase the level of domestic sourcing. Gocal suppliers account for 5 per cent of the value of engines assembled in EyQr. (ll the ma+or components of engines are machined in EyQr, using imported casts. (,) managing directors intend to purchase casts and forged parts from ,ungarian suppliers. >o far a few local O usually at least partly foreign-owned O companies have won orders, shipping machined parts for the engine plant and seats, aluminium and plastic parts for the car assembly plant. 1asts are supplied by another foreign-owned firm based in EyQr. Their volume of investment made (udi one of the biggest investors in the ,ungarian car industry, therefore we aim to analyse further their strategic decisions and the choice of the ,ungarian market.

VII.

Summary

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"oreign firmsC strategies in emerging countries, various elements and dynamics of national innovation systems are with great importance in understanding the transition to capital market structure. $n this period the focus is on attracting foreign investors and foreign capital to the area. "or this reason it is more fruitful to create an attractive, favourable environment for -.# and innovation by maintaining a sound, well-performing higher education and research system, providing the necessary physical and institutional infrastructure, facilitating industry-academy co-operation and other forms of networking. $t is also of crucial importance to co-ordinate investment, trade, competition, regional development, employment, education and innovation policy aims and tools to enhance competitiveness. Eiven key factors such as location, potential economic growth, prospects of increased market share, high technical capabilities and levels of education, substantially lower labour costs and the de facto extension of the E9 single market, it was a logical development that Western European manufacturers move eastwards. )oreover, the regions national governments aided by specific "#$-oriented agencies, offered subsidies and incentives which proved enticing. (utomotive investment activities across borders have significantly intensified in the last twenty years in an attempt to cut costs via re-location of production, and to get closer to the ultimate customers in emerging markets. These intensified investment activities have had crucial bearings on the ,ungarian automotive industry. The re-structuring of the ,ungarian automotive industry is due to some LpushC factors, !i.e. the fierce competition among automotive companies and hence the pursuit of cost-cutting via re-location of their production% but it also thanks to LpullC factors !i.e. the attractions of the ,ungarian economic environment%.

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$t is worth to study the consequences and to analy e strategic decisions of "#$ and partnerships after more than a decade of transition period in the Eastern European area. We contribute that to follow with the recent trends and actions of developed countries, a reactuali ation of the incentives and goals is necessitated, and moreover a structural, institutional and economical overview of the past years is needed in order to obtain an adequate evaluation. >upply chain management is a highly complex task in companies. $n ma+or car producer companies it is a crucial aspect to success. )oreover in multinational, worldwide known firms the decision of expanding the supplier network is with critical importance. -egarding the external factors, the cultural differences and ability to production, firms may face difficulties. To obtain a local supply network in newfound environment is a challenging task for investors. >trategic decisions on the creation of such a network differ among companies due to their existing practices and supplier chains. Therefore it is important to study this question and place a ma+or importance on existing trends and on future possibilities as well. $n our study we argue that the adequate institutional surrounding of a country attracts foreign investors. @nce the investors enter the new market they have to adapt to certain expectations by the home contributors. The transfer of know-how, processes and practices makes the cooperation between firms easier and can also lead to +oint learning and innovation. To have an adequate flow of information between affiliates a common system should be used. The implementation of such a system, as for instance E-7, is often questioned by firms, due to different reasons !for instance4 high cost involvement%. @ur study argues that to achieve successful cooperation, the implementation of such system should be considered and implementation methodologies should be considered as highly important decisions to the companies.

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#avid Worrall, Tom #onnelly and #avid )orris !200:%4 $ndustrial -estructuring4 The -ole of "#$, ;oint <entures, (cquisitions and Technology Transfer in 1entral EuropeCs (utomotive $ndustry ,avas (. !200:% The $nterplay between $nnovation and 7roduction >ystems at <arious Gevels4 The case of the ,ungarian automotive industry, Working paper -ob van Tulder and Winifred -uigrok !&88/%4 European 1ross-*ational 7roduction *etworks in the (uto $ndustry4 Eastern Europe as the Gow End of European 1ar 1omplex , -rasmum 8niversity 8niversity of %t( +allen& 6erkeley Roundtable on the !nternational -conomy #8niversity of 1alifornia& 6erkeley$ Uannick Gung !)ay 2002%4 The 1hanging Eeography of the European (utomobile >ystem & %ynthesis in 1o19-3% workpackage : ) ,udson, -. !2002%4 1hanging industrial production systems and regional development in the *ew Europe, *ransactions of the !nstitute of 6ritish +eographers(& ; #<$& pp( = . >1( 6Vla EalgWc i and (ndrPs TWth !2002% - The development of the automobile industry in ,ungary and the changing patterns of employee interest representation, %--R %outh-ast -urope Review for 2abour and %ocial 3ffairs )aria ;ose (lvare Eil and 7edro Eon ale de la "V O >trategic alliances, organi ational learning and new product development4 the cases of -over and >eat, R?5 4anagement, 28, =, &888 )iklWs >omai !200=%4 The ,ungarian automotive industry, Working paper 7eter 6uxmann , (nette von (hsen& Guis )artBn #Ba & Jristina Wolf !200=%( 9sage and evaluation of >upply 1hain )anagement >oftware O results of an empirical study in the European automotive industry, !nfo %ystems @ &=, 285O:08 ;aideep )otwani, -am >ubramanian, 7radeep Eopalakrishna !2005%4 1ritical factors for successful E-7 implementation4 Exploratory findings from four case studies, 1omputers in !ndustry 53, 528O5==

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