Medium-sized domestic enterprises in Hungarian manufacturing

Abstract

The paper reflects on a question of growing academic and policy interest. The role of medium-sized domestic enterprises (MEs) is analyzed with respect to their role in the context of Hungary’s transforming manufacturing sector. It is argued that MEs can enhance the diversification of Hungarian industry by reducing its high dependency on Foreign Direct Investment (FDI) and by contributing to domestic capital accumulation as well as local and regiona l development. The Mittelstand, Germany’s cohort of mid-sized family firms, is used as a conceptual framework and benchmark for understanding the development and contemporary issues of Hungarian MEs. Mittelstand firms ofier a particularly attractive combination of global competitiveness, social cohesion, and local embeddedness. While the particulars of the model are rooted in German history, a “generalised Mittelstand model of competitiveness” can also be formulated and applied to peripheral circumstances. Our research has undertaken a quantitative survey of Hungary’s MEs, supplemented with a qualitative analysis of structured firm interviews. Findings indicate that the number of MEs has declined since 2000 but stabilised in recent years at 1041 entities. Most Hungarian MEs are currently found on the threshold between the small and medium size category, suggesting the need to identify a group of 844 additional firms with 30-49 employees as “potential MEs”. These small enterprises show structural similarities to mid-sized firms and may grow into medium size under favourable circumstances. MEs are distributed across the country based on population weights rather than the high concentration of the service sector or FDI-driven manufacturing. Qualitative similarities with German Mittelstand firms in family ownership, reliance on endogenous resources, local embeddedness, and growth strategies suggest that there are legitimate parallels between the two groups. A significant number of Hungarian MEs can be considered early-stage representatives of Mittelstand-style development, while some are closer to non-networked Italian SMEs operating outside industrial districts. While MEs are found in many difierent industries, they are linked by a strong focus on product quality, reliance on skilled labour, personal leadership, continuous improvement and a market-centric approach. It is suggested that MEs do not have a realistic chance to replace FDI-based industry, but they can contribute to a more diversified industrial structure and a new focus on higher value added, locally embedded production. Economic policy should encourage the development of this domestic firm group by investing into entrepreneurial ecosystems and the local factor supply, the development of managerial skills (particularly Industry 4.0 preparedness), the development of firm networks, support for internationalisation, and innovation transfer.