Surviving the Boom: Consequences of the Integration into Global Value Chains for the East Central European Automotive Firms

East Central European automotive industry is one of the great success stories of the second generation globalization – comparable in size and competitiveness to the brightest stars of the earlier decades, the East Asian “tigers”. However, the international context of this industry’s evolution produced qualitatively very different patterns of development. ECE owes its success to its integration into the European automotive value chains and to extensive reliance on foreign direct investment. This configuration raises several questions for the consequences for development and industrial policy in the age of Global Value Chains (GVC). First, it challenges the main argument of the literature on foreign investment and development that still posits “learning” as the main engine of development. Second, it begs the question of what the host states can still do to promote local development of higher-level competencies in the context of highly transnationalized production. This article tackles these questions by examining the fate of locally-owned firms in the booming East Central European automotive industry. The argument it makes is threefold. First, the spillovers from the foreign to the domestic sub-sector are marginal, and domestic firms are largely, and indeed increasingly, excluded from the production networks of automotive multinationals in the region. Second, the main mechanism of exclusion of domestic firms can be traced to the structure of governance of their value chains. Third, to the extent that the host states are able to promote the growth of domestic firms and more generally of higher-level local competencies, they do so by drawing not on the traditional industrial policy but on the supportive elements of the transnational regulatory regime.