The document investigates the emergence of domestically owned multinational enterprises (MNEs) in Czechia and Hungary, analysing the state’s role in their development. Despite similarities in economic structure and historical transitions, the two countries demonstrate distinct dynamics in government-business interactions. While Czechia’s MNEs often operate independently from the state through transferring their headquarters abroad, Hungary’s government has strengthened its influence over businesses, particularly since 2010.
Literature Review, Framework, Methodology
The rise of multinationals in post-socialist economies is closely tied to state intervention, compensating for market deficiencies through regulation, fiscal support, and diplomatic assistance and through other means and ways. Emerging multinationals from the Central and Eastern European region exhibit unique ownership advantages influenced by state policies, which may vary widely between countries. Comparative studies highlight the pivotal role of governments in shaping the internationalization strategies of firms, although the related mechanisms remain underexplored.
The study focuses on the top ten MNEs in Czechia and Hungary based on the collection of data of the authors, analysing company-level data and government policies influencing outward foreign direct investment (OFDI). The selection highlights notable domestic firms with significant foreign assets.
Findings
Concerning the role of the state as owner, in Czechia, state ownership in multinationals is minimal, with ČEZ (energy sector) as the primary example. In Hungary, indirect state ownership through foundations maintains influence over leading foreign investing firms like MOL and Richter Gedeon, reflecting a hybrid model.
More important is the role of the state as regulator as privatization played a pivotal role in shaping local MNEs. In the nineties, Czechia’s underregulated voucher privatization led to wealth concentration among a few oligarchs. Conversely, Hungary’s privatization emphasized direct sales to foreign entities, while a few selected firms, including the leading local MNEs, have been privatised in the nineties through introducing their shares on the Budapest stock exchange, leading to a dispersed ownership structure and thus maintaining local managerial control over these firms. Regulatory frameworks and tax incentives in both countries have influenced firms’ foreign expansion, though Czechia has seen more headquarters relocate abroad due to unfavourable domestic conditions.
Concerning other government roles and tools, which influence the development of local MNEs, both countries leverage EU funds and public procurement to support domestic firms. However, Hungary’s state actively fosters national champions through subsidies, financial support, and diplomatic efforts, exemplified by the rapid internationalization of firms like 4iG. Politically motivated interventions are more pronounced recently in Hungary, where government-linked businesses dominate public contracts and benefit from preferential treatment.
Comparison of Czech and Hungarian MNEs
At present, Czech MNEs are generally larger, more diversified, and less dependent on the state, often relocating headquarters abroad to escape local regulations. On the other hand, Hungarian MNEs exhibit stronger ties to the government, with concentrated foreign investments in specific sectors. However, in both countries we can find some MNEs, which have achieved successful market and competitiveness-driven internationalisation.
Conclusion
The state’s role in fostering MNEs differs significantly between Czechia and Hungary. While Czech firms have become more autonomous and diversified, and because many have moved their headquarters abroad, the role of the state is minimal; Hungary’s government has intensified its influence, often prioritizing political connections over market performance. The study emphasizes the need for further research into state-firm interactions, particularly in smaller post-socialist economies.
Sass, Magdolna; Vlčková, Jana: The impact of state activism on domestic multinationals: The case of Czechia and Hungary, (2024) Competition and Change
DOI: 10.1177/10245294241300680