Foreign Direct Investments in Business Services: Transforming the Visegrád Four Region into a Knowledge-based Economy?

Abstract

Foreign direct investments (FDIs) in the service sector are widely attributed an important role in bringing more skill-intensive activities into the Visegrád Four (V4). This region—comprising Poland, the Czech Republic, Hungary and Slovakia—relied heavily on FDIs in manufacturing, which was often found to generate activities with limited skill content. This contribution deconstructs the chaotic concept of “business services” by analysing the actual nature of service sector activities outsourced and offshored to the V4. Using the knowledge-based economy (KBE) as a benchmark, the paper assesses the potential of service sector outsourcing in contributing to regional competitiveness by increasing the innovative capacity. It also discusses the role of state policies towards service sector FDI (SFDI). The analysis combines data obtained from case studies undertaken in service sector outsourcing projects in V4 countries. Moreover, it draws on interviews with senior employees of investment promotion agencies and publicly available data and statistics on activities within the service sector in the region. It argues that the recent inward investments in business services in the V4 mainly utilize existing local human-capital resources, and their contribution to the development of the KBE is limited to employment creation and demand for skilled labour.

Acknowledgements

This article is an output of the research project “Foreign Direct Investment in Central and Eastern Europe: What Kind of Competitiveness for the Visegrád Four?”, organized by the Economy and Society Trust, Brno, and financed by the International Visegrád Fund and the University of Hertfordshire. Additional company interviews in Hungary were conducted with the financial support from OTKA (68435). Empirical work and country-level analysis was conducted by Paweł Capik (Poland), Martina Fifekova (Slovakia), Magdolna Sass (Hungary) and Michal Trník (Czech Republic). Responsibility for the argument of this article remains solely with the authors.