Innovation Strategies of Hungarian Automotive Suppliers

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Type de publication:

Conference Paper


Attila Havas


Gerpisa colloquium, Paris (2011)


équipementiers, Hungary, innovation, Suppliers


It is practically impossible to delineate the boundaries of automotive industry and give an indication of its economic significance using readily available statistics. As a very wide range of products are used to assemble a motor vehicle – practically all industrial sectors supply the automotive industry –, data collected by statistical offices are usually too narrow in terms of coverage. In other words, quite a few automotive suppliers are classified as leather, rubber, plastics, paint, glass, cable or metal producing and processing companies, foundries, electrical and electronics companies, etc. The EU statistical classification also follows this line, i.e. motor vehicle parts and accessories (the “old” NACE 34.30[1]) excludes engine and tyre manufacturers, most of the electrical and electronic components, as well glass, plastic or certain castings and other metal parts. The Hungarian statistical system follows this practice, and thus figures only cover companies classified statistically as automotive firms. Relying on these types of data, ‘narrowly defined’ automotive industry (proxied as vehicle manufacturing, DM) has a significant weight in Hungary: its share in industrial production has increased from 12.2% in 2000 to 17.3% by 2007, i.e. moved from the 3rd to the 2nd place. Its revenues are earned overwhelmingly from exports: 90-91% in 2001-2008. Thus its share in manufacturing exports has exceed 25% by 2006-2008 (up from 22-23% in 2001-2005). The industry has a noteworthy 11.5% slice in BERD, and the share of innovative automotive firms is higher than that of manufacturing firms on average. Hence, there has been a strong case to analyse the innovation strategies of Hungarian automotive firms.

Besides statistical analyses, the proposed paper would mainly draw on interviews. The main findings can be summarised as follows. New products are usually brought in by parent firms. However, there are different types of exceptions to this rule. The obvious one is when formalised R&D activities are conducted in Hungary, leading to product innovations. In one such case a new product had been designed and tested in Hungary but then the Engineering Centre was relocated from Hungary – given broader strategic changes, re-allocating responsibilities among plants for the so-called OEM and aftermarket –, and hence this new product was also assigned to a different plant inside the group (outside Europe). Another source of product innovations is reverse engineering, e.g. in the case of spare parts sold on the aftermarket. Incremental innovations are also important from an economic point of view, although these are less spectacular. In these cases the idea might come either from the users, requesting improved performance or from the engineers of a supplier to reduce production costs, energy consumption and environmental burden (e.g. oil used during machining processes) or enhance product characteristics, e.g. by splicing thin metal sheets together instead of welding them. For this latter modification, the entire production process had to be redesigned, purchasing new equipment, introducing new measurement and test methods, too.
In general, production processes are designed by the Hungarian subsidiary, assisted to some extent by the parent firm or the suppliers of machinery. In most cases, subsequent process innovations are stemming from local knowledge and experience. Also, it is quite often the case that products brought in by the parent firms need to be modified for more efficient manufacturing, i.e. the sources of these minor product innovations are the Hungarian subsidiaries. A frequent form of process innovation nowadays is the introduction of manufacturing cells, usually designed by the local engineers, trained by the parent firm, and assisted by general principles applied across the various subsidiaries of the group.
As for organisational innovations, again, there might be some assistance provided by the parent firms in the form of internal manuals, guidelines and good practices, but local solutions are also encouraged. For example, so-called cross-functional teams have been introduced by an interviewed firm, composed of middle-managers responsible for purchasing, manufacturing, logistics, and quality assurance. These teams are usually co-ordinated by a sales manager, who is representing the firm vis-à-vis the client in all matters, responsible for obtaining and keeping orders, maintaining smooth co-operation with the buyer and inside the firms among the various units, and thus a profitable operation. For indigenous firms, the main sources of organisational innovations are their own ideas and/or external advisors (see above).
Marketing innovations might be of economic relevance, too, especially for suppliers specialising in the aftermarket. One such firm in our sample has established direct contacts with its major buyers (e.g. public transport service providers), and thus replaced wholesale companies.
In sum, automotive firms are in fierce competition with their counterparts (assemblers – assemblers; T1 – T1 suppliers; etc.), and thus there are strong incentives to be innovative, i.e. to introduce new products, processes, organisational solutions, management and marketing methods. Moreover, several T1 suppliers, when assess their T2 suppliers’ performance include the intensity of innovativeness among the set of evaluation criteria. Our interviews have confirmed the crucial importance of co-operation among subsidiaries of large MNCs, and that of international production networks (in case of independent suppliers). Besides, local knowledge and experience are also important sources of the various types of innovations (technological and non-technological) observed. From a different angle, beyond formalised R&D activities, many other types of knowledge are needed to underpin successful innovations.
Hence, the predominant science, technology and innovation policy paradigm – based on a sort of “high-tech” hype – needs a major revision, and policy measures should also be revised accordingly.

[1] NACE codes were revised in 2008, but as most recent data available at a 4-digit level are from 2007, the “old” NACE codes are used in this paper.

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