The impact of state activism on domestic multinationals: The case of Czechia and Hungary

Abstract

This study examines how changing state activism has influenced the internationalization of Czech and Hungarian MNEs after the global financial crisis. Identifying four key channels – state ownership, business and regulatory environment, industrial policies, and 'quiet politics' – we note distinctions in state-business relationships and characteristics of multinationals between the two countries. Hungary experiences a surge in state activism, while Czechia faces relative stagnation with occasional setbacks. Over time, the industrial policy and quiet politics channels have become increasingly important. This is reflected in changes among the top Hungarian multinationals, with new entrants and new owners of existing ones, while no significant changes are observed among Czech MNEs. The study introduces the concept of 'defensive internationalization' as a response to an unstable business and political environment, showcasing long-lasting impact on the location of headquarters. The increasing role of industrial policies and new EU programs may enhance the state’s influence on MNEs, yet they also raise concerns about corruption and public fund diversion.

Keywords

Emerging multinationals state activism internationalization of firms foreign direct investment Czechia Hungary

Introduction

Increased state intervention in changed shapes and forms has characterized the years after the global financial crisis (GFC) (Alami and Dixon, 2020; Dosi, 2016). This renewed state activism has its repercussions on the international economy as well (Schedelik et al., 2021). While existing literature extensively analyses areas such as industrial policy measures, export promotion or policies concerning inward FDI (Bulfone et al., 2023; Carballo-Perez and Corina, 2024; Germann, 2023; Luo and Van Assche, 2023), there is a noticeable gap regarding outward FDI, domestic multinationals and emerging markets (Schedelik et al., 2021). We focus on two post-transition economies examining the impact of changes in state activism on outward FDI and on domestic multinationals. Since the mid-1990s, in Czechia and Hungary there has been a rise in domestically controlled multinational companies, a noteworthy development considering heavy dependence on FDI, their socialist history and relatively small economic size. The two countries thus exemplify similar paths of post-socialist transition; however, there are diverging trends in corporate state capture and party state capture, especially in the post-GFC period. These variations have consequences for the internationalization strategies of their MNEs as well. The group of Czech and Hungarian multinationals is heterogeneous: many are self-made, relying on similar ownership assets to developed country companies, while some are state-owned ones and others are state-assisted.

In this article, we explore the impact of changing state activism on the post-GFC developments of prominent Czech and Hungarian MNEs, investigating the channels through which it influences firm internationalization, and assessing the resulting outcomes. We contrast two cases: increased state activism in post-GFC and especially after the election of the second Orbán government in Hungary in 2010 and relatively stagnating level of state intervention with occasional setbacks during the Babiš government in the Czech economy. We show how these different approaches impact upon the ownership structures and state roles concerning domestically controlled multinationals and their internationalization. While both economies witness a comparable rise in multinationals, significant disparities exist. In Czechia, changes are relatively modest compared to the pre-GFC period with the emergence of some new players, but with only small changes concerning the top MNEs, which are still mainly headquartered abroad. Thus, their ‘defensive internationalization’, that is moving firms’ headquarters abroad with the aim of escaping adversary domestic political and economic environment, while keeping (part of the firm’s) operation at home, in the 90s has a long-lasting impact on the location of headquarters. However, their share of foreign operations is rising, further diminishing the already low state influence and government business link over time. Conversely, Hungary has experienced a strengthening state-business relationship, emergence of new close-to government multinationals and changes in ownership among existing multinationals to close-to-government economic actors. We found a most recent case of ‘defensive internationalization’ as well, as a reaction to the deteriorating business environment.

Our contribution encompasses two aspects. Firstly, we expand the examination of how state intervention influences business internationalization through FDI in both countries in the post-GFC period. Secondly, combining insights from international political economy and international business approaches, in line with the recommendation of this special issue, we concentrate on company-government interactions and changes in the applied government tools as well as consequent changes (if any) among the top multinationals. Furthermore, we draw attention to the fact, that increased state activism has consequences for the international economy as well, including through supporting the rise of domestic multinationals. Empirically, we enhance our understanding of the main characteristics of and the roots and causes of the emergence of Czech and Hungarian MNEs.

The structure of the article is as follows. Beginning with a literature review, we continue with a justification of our country selection together with a short description of the pre-GFC period. The next chapter presents the methodology and the top 10 Czech and Hungarian multinationals. The analytical chapter examines the four channels whereby the state, either directly or indirectly shapes the emergence and operations of domestic multinationals among the top MNEs. The paper concludes with final remarks. The Annex contains further details about the analysed companies.

Changing state activism and firm internationalization

International political economy and comparative capitalism approaches reveal that following the GFC and the subsequent COVID-19 pandemic, the importance of state involvement and industrial policies in the individual economies has increased. These policies are intended to reduce the negative effects of the crises, address new technological, sustainability and other challenges and foster domestic firms’ competitiveness (Bulfone, 2023; Dosi, 2016; Regan and Brazys, 2017) as well as promote the international expansion of domestic companies or their integration into global value chains (Szalavetz, 2015). Over the course of the last almost two decades, these trends have resulted in a significant rise in state activism, a blurring of the lines separating the state and the economy (Bremmer, 2008), and the formation of 'state-permeated market economies' (Nölke, 2014).

Budgetary problems (Zohlnhöfer et al., 2018) and international regulations – such as WTO or EU legislation, as examples – force states to use more innovative, creative, and indirect strategies as well as new tools and instruments to influence markets and assist home-grown businesses that are considered to be strategically important. Thus, a plethora of novel and varied forms of state assistance to firms have arisen and there are changes to forms, shapes, and quantities of state intervention (Alami and Dixon, 2020), which may result in quality changes concerning state intervention (Alami, 2023). These include bailout programs, public-private partnerships, public contracts, loan guarantees, grants, investment incentives (tax breaks, job support, infrastructure building), and debt-write-offs, among other industrial policy measures (Bulfone, 2023). In addition, other ‘older’ strategies are also being more frequently used, such as regulatory non-enforcement, also known as regulatory forbearance (Dewey and Di Carlo, 2022), or economic diplomacy instruments (Justinek, 2023). This state help can have international implications if it – among others – interferes with the internationalization of companies.

The concept of market capture refers to the phenomenon wherein the economic policy tools mentioned above actively benefit private economic entities with affiliations to the government. During the market capture process, state-market relations are modified in the name of national sovereignty and support for domestic economic actors. As a result, state property or public resources are transferred to close to government economic actors. When these interventions pierce the very fabric of the market to such an extent that they produce a system that is qualitatively different and prioritizes state ties over market performance, they weaken the foundations of market mechanisms. As a result, these economic actors' business success and performance are determined more by their connections with the government than by their actual ability to innovate, create new products and services, develop business models and strategies, or respond quickly and appropriately to market signals (Holcombe, 2015).

Central and Eastern European former transition economies, among them Czechia and Hungary are not exceptions to this process (Bohle and Greskovits, 2019; Sallai and Schnyder, 2021). In these cases, increased state activism is not just a response to the crises but also a reflection of disillusionment with FDI-based strategies (Nölke and Vliegenthart, 2009), which have fallen short of expectations in terms of catching up with Western Europe and have shown to be highly vulnerable during crisis years, in part because of their strong ties to global value chain integration. A partial shift from previous approaches meant, on the one hand, emphasizing perceived national economic interests more (Szanyi, 2023) and providing various forms of support to domestic politically connected companies (Naczyk, 2022; Sebők and Simons, 2022), including an attempt to create a more competitive and robust local elite (Scheiring, 2019) by choosing economic actors who are close to the government and supporting them with public funds. Meanwhile, in spite of all the critical voices, foreign capital has continued to be the primary driver of economic development (Bohle and Greskovits, 2019), with a preference for vertical FDI in particular, which creates capacities focused on exports (Sass and Vlčková, 2019). Similar to other economies, increased state intervention and economic nationalism led to more rent-seeking as well as unique, tailored regulations and treatment for individual businesses, which significantly weakened the functioning of market mechanisms (Muraközy et al., 2018 for Hungary). The process can be described as dynamic in a number of ways: companies may join and leave the privileged group; governments may use varying degrees of state intervention, including a variable toolkit; and the primary objectives of state interventions may change. Favouring and assisting some domestic businesses may have an impact on such businesses' international expansions or even the aim of creating domestic MNEs. Additionally, a weaker market and worse business climate or changed regulations may cause unfavourable firms to realize ‘defensive internationalization’ or ‘system escape’ (Aykut et al., 2017).

The role of the state in the internationalization of emerging MNEs is a key topic in the international business literature. Studies focus on the relationship between government support and firm strategies (Cuervo-Cazurra, 2014) and first, examine the internationalization of state-owned companies. Secondly, they analyse the role of state support in the internationalization of firms (Wright et al., 2021). They emphasize that the home country, its institutions and government (Rugman, 2009; Peng, 2012) have a significant influence on the emergence of these MNEs, as evidenced by the unique characteristics of ownership advantages that emerging multinationals frequently display (Pedersen and Tallman, 2022; Ramamurti, 2012). The state’s role as owner, often independent of ownership share, determines or influences the strategic choices of emerging multinationals as well as the willingness and capacity of domestic firms to go global (Bruton et al., 2015; Hong et al., 2015). This is the result of a less developed operational market economy environment combined with higher levels of state ownership. Furthermore, government involvement frequently makes up for market shortcomings (Hong et al., 2015). Therefore, through changes in regulatory frameworks, the state acting as regulator may also have a significant impact on corporate internationalization. Firm internationalization is shaped by several other tools as well, such as international treaties, technical help, financial or fiscal support, information sharing, and support from diplomatic bodies (Duanmu, 2014; Dunning and Lundan, 2008; Estrin et al., 2016; Luo et al., 2010). Strong firm-government ties can therefore provide unique government-related benefits that go beyond ownership or regulations (Cuervo-Cazurra et al., 2014) and grant preferential access to resources and assets (Hennart, 2012) for certain companies. Further, firms have an impact on this dynamic process, which changes over time (Cantwell et al., 2010). There are also geographical differences; as emerging multinational corporations show a strong heterogeneity (Hoskisson et al., 2013), which partially reflects the state’s participation in businesses’ internationalization (Dunning and Narula, 1996). The real workings of these firm-government relationships, however, are still little understood.

Therefore, the state may play a significant role in the internationalization of businesses in many different contexts. This role is changing and taking up new forms, shapes and channels, especially after the GFC (Alami, 2023; Bulfone, 2023). In the past, emphasis was given to state ownership, whether direct or indirect, and the state’s regulatory functions. However, more recent perspectives address the ‘all-pervasive’ aspect of state intervention, meaning that all types of state intervention impact – directly or indirectly – the rise and strategy of multinational corporations. For instance, Wright et al. (2021) differentiate three functions of the government: first, the level of government involvement in the economy is shown by state ownership and investment. Second, statism refers to developments in state consumption and subsidies that indicate the relationship between business and government. Thirdly, ‘non-threatening’ governance measures the quality, credibility, and institutional restraints on harmful government action that show how effective the government is. On the other hand, Alami et al. (2023) define four responsibilities of the state in the context of international political economy: promoter, supervisor, regulator, and owner of capital, all of which are becoming more and more prominent. Becker-Ritterspach et al. (2022) conducted a synthesis of comparative capitalism and international business approaches to analyse policies that directly affect a firm’s internationalization. This included mitigating post-entry risks and assisting with foreign market entry. The results showed strong heterogeneity across different types of capitalism.

Based on the above mentioned international business and international political economy literatures, we investigate the impact of changes in state activism on domestic multinational businesses in the two economies following the GFC, based on the analysis of the top MNEs. Our goal is to determine whether and how government engagement has affected businesses' efforts to go global through foreign direct investment. Our work closes a few significant gaps in the body of existing research. First, we explore the top multinational corporations in Czechia and Hungary that are under domestic control. Second, we analyse the changes after the financial crisis in state activism in the two countries concentrating on the channels of their impact on domestic MNEs. In addition to studying the state’s role as owner or regulator, our research identifies other ‘old’ and ‘new’ direct and indirect channels – intentional or not – through which the government or state may influence the internationalization and characteristics of domestic MNEs.

Why Czechia and Hungary? Developments up till the GFC

Cross-national similarities and differences make Czechia and Hungary relevant cases for our analysis. The two countries are similar in their population size, geographic position, poor endowment with natural resources, economic structure, and level of economic development. Their economies rank highly among the former Central and Eastern European transition countries when it comes to outward foreign direct investment (OFDI), which accounts for about one-fifth of GDP (Figure 1).

Figure 1.

Source: UNCTADstat Foreign direct investment: Inward and outward flows and stock, annual.

Historically, the two countries underwent similar development paths: after a long period of socialist planned economy, a relatively quick transition process followed. During this, various and different policies influenced directly or indirectly the formation of domestic multinationals in both countries (Rugraff, 2010). Based on the literature, we mention important policy factors, which affected the emergence of MNEs in the analysed countries before 2010 in order to give the context and ‘starting points’ of our post-GFC analysis.

Privatization, the transfer of public ownership to private entities, undertaken through diverse methods (Sutela, 1998), was influenced by numerous endogenous and exogenous factors like state indebtedness, societal views, and legal system alteration. In 1991, Czechia (then Czechoslovakia) initiated voucher privatization, with around 80% of adults participating, transferring around 40% of state assets (Myant and Drahokoupil, 2013). However, misuse of funds occurred due to insufficient regulations, leading to wealth concentration among oligarchs (Williams and Balaz, 1999). The financial crisis in 1997 undermined the privatization strategy as privatized firms had not become internationally competitive, and since then foreign-owned entities (that were excluded initially) were allowed to play a significant role in the Czech economy.

In Hungary, direct sales to cash-rich foreign companies or individuals prevailed (Sutela, 1998) and dominated privatization (around 60 % of total state-owned assets (OECD, 1995)) driven by high foreign debt. Thus FDI has been a cornerstone of the transition process from the beginning. Incoming FDI may indirectly stimulate domestic firms to engage in foreign investments by enhancing their competitiveness through spillover effects and heightened competition. The FDI policies and incentives in both countries exhibit similarities, targeting analogous industries and activities (Szent-Iványi, 2017). Certain prominent multinationals, such as the Hungarian Jász-Plasztik or Videoton, or the Czech LINET, have achieved multinational status without reliance on government assistance. Their evolution into multinational entities can be attributed to partnerships, supplier linkages with foreign-owned firms and increased competition, thus it can be characterized as ‘market-based’.

In Hungary, management of strongly positioned firms MOL, Richter Gedeon, and OTP Bank strategically chose privatization methods to maintain control during share introduction on the Budapest stock exchange resulting in dispersed foreign and minority state ownership (Sass et al., 2012). Other type of government support, such as, quasi-monopoly positions – at least temporarily – were also important, for example, Richter Gedeon, whose domestic market share was provided by financing certain medicaments from the Social Security Fund up till 2006 (Antalóczy and Sass, 2018)¹.Government ownership safeguards, like a golden share and voting limits, shielded these companies from foreign takeovers, reinforcing management control. The government repurchased stakes when foreign companies acquired substantial shares in MOL (Kalotay, 2010) threatening it with a hostile takeover. These firms were the first to become multinationals starting from the mid-nineties, relying on a specific knowledge translated into ownership advantage. They accumulated expertise about restructuring formerly state-owned companies by the incumbent management into market-oriented businesses in the evolving and changing regulatory environment during transition (Buzády, 2010; Sass and Vlčková, 2019; Incze, 2013). That may have also been the case for certain Czech firms, such as the predominantly state-owned ČEZ. Following energy sector deregulation in 2004, under CEO Martin Roman, ČEZ pursued acquisitions primarily in Southeast Europe and has become one of the leading Czech multinationals.

Variations in the transformation process were intricately linked to distinctions in political elites. In the case of Czechia, a prevalent pattern involved corporate state capture, characterized by the exertion of public power primarily for private gains, wherein private interests contribute to subverting legitimate channels of political influence. Conversely, in Hungary, party state capture was a prevailing phenomenon, marked by the re-politicization of the state by political parties in the pursuit of a political monopoly (Innes, 2014). Nevertheless, in both countries many of the new entrepreneurs were backed up by former high-ranking communist officers (Greskovits, 2015), even some themselves were higher ranked communist party members.

The transition period, characterized by regulatory deficiencies and negative evaluation of the local business environment (Sass and Vlčková, 2019), prompted privatization-related large holding companies to seek security abroad². Especially, in the 1990s in Czechia, leveraging a bilateral investment treaty with the Netherlands³, coupled with favourable foreign business conditions, several major companies opted to relocate their headquarters there. Examples include PPF and later LINET, both of which cited a superior and more stable regulatory environment, lower taxes, and advantageous FDI regulations in the Netherlands, reinforced by bilateral investment treaties with their chosen investment destinations. Further, many companies oversee their domestic operations from foreign headquarters, a phenomenon known as roundtripping. This transforms them into MNEs and enables them to invest in their home country as a foreign investor (Aykut et al., 2017). In Hungary, from the late nineties Central American tax havens played a prominent role in both inward and outward FDI⁴ also indicating a high level of roundtripping. Company cases, such as the TriGránit group (Sass and Kovács, 2013), owned by a Cypriot firm, which was majority owned by a Hungarian private person, also pointed in this direction. This strategic choice likely served as a means for firms to insulate themselves from domestic business conditions, capitalize on lower taxes, and maintain confidentiality regarding real owners.

As a result of the above described processes, numerous domestically owned or controlled multinationals were operating in both countries by the GFC. In Hungary, their assets were highly concentrated within a few minority state-owned MNEs with majority foreign ownership, but no foreign control, as their foreign ownership was dispersed. Therefore, they can be called ‘virtual indirect’ outward investors (Sass et al., 2012). Besides them, a few ‘new’ small-medium MNEs emerged, established during the transition period. Conversely, Czechia has seen a rise in successful wholly domestically owned and controlled MNEs, but in many cases seated outside the country (Sass and Vlčková, 2019; Vlčková and Smělá, 2022). However, one must repeat that in spite of the already described disenchantment with the FDI-based development path, the leading firms in both countries are local subsidiaries of foreign multinationals. Thus domestic multinationals and firms – with some exceptions – represent a low share of output, employment, export or market share of the respective industries, especially manufacturing. Nevertheless, they still represent a legitimate object of study because they are leading firms in certain sectors – in some cases even national champions – and serve as examples of how state attention to MNEs and state-business relations have changed since the GFC.

Data and methodology

By identifying the biggest MNEs and government policies and actions, we use country case studies to investigate their impact on the outward foreign direct investment of domestic firms.

Statistical analysis is problematic as outward FDI data encompass investments abroad realized by domestically owned or controlled firms, as well as local subsidiaries of foreign multinationals (indirect outward FDI, Kalotay, 2012). This holds significance in both countries (Rugraff, 2010; Sass, 2021). Additionally, certain MNEs establish their corporate seat/headquarters in different countries and subsequently invest in third countries from these operational bases. This type of investment remains absent from the outward FDI data of investors’ home country, despite ultimate ownership residing there. This is the case for numerous Czech multinationals. On the other hand, in Hungary, outward FDI projects by local subsidiaries of foreign multinationals are substantial (Sass, 2021). Consequently, we employ company-level data relying on the methodology of the Emerging Markets Global Players project⁵. The ranking of the largest MNEs is based on the total value of foreign assets in line with the ultimate ownership principle. We exclude financial services companies and their outward investment due to the inherent difficulties in estimating their foreign assets⁶. For company case studies, we draw on data from annual reports, websites, the Orbis database, and specialized economics newspapers. One limitation of our approach is the non-representative nature of the company sample. Nevertheless, according to our estimation, these top 10 companies encompass the majority of outward FDI stock realized by domestically owned or controlled companies in both countries.

Comparing today’s top 10 largest Czech and Hungarian MNEs

Comparing the top multinationals in both countries shows important differences along with similarities (Tables 1 and 2). Hungary´s multinationals are generally smaller (excluding MOL) compared to Czechia, the top 10 Czech MNEs have foreign assets 3.5 times larger. Czech MNEs also show a higher share of foreign assets in total assets. Prominent companies in both countries include PPF Group (even excluding financial activities) and MOL, boasting the highest foreign assets. Hungary´s foreign assets are more concentrated in the leading company (MOL), compared to Czechia. However, all are mid-sized multinationals, none ranking in the top 100 non-financial MNEs of UNCTAD⁷. In spite of their medium to small size, these MNEs could be important players in certain host countries with substantial market shares attained in certain activities (see, e.g., the Annex for MOL and OTP). Czechia tends to have newer MNEs established post-1990, which often emerged from capital raised during the privatization, whereas in Hungary, successors of formerly state-owned, later privatized companies are present. Czech multinationals are in general larger and more diverse, often adopting holding structures, with energy as one of the dominant industries. In contrast, Hungarian MNEs are more focused on single industries, with the exception of MOL (various energy-related activities), 4iG (informatics, telecom and defense industry) and Futureál (real estate and investment services).

Table 1.

The top Locally owned/controlled Non-financial Multinationals in Czechia (2021) (Million USD).

Rank	Company	Main industries	Year of establishment	Year of first FDI	Foreign assets	Share of foreign assets	No. of host countries	Top 3 host countries	Location of the controlling company	State ownership
1	PPF group N.V.	Telecommunication, media, engineering	1991	1993	10 587	59%	20	Netherlands, Hungary, Bulgaria	Amsterdam, NL
2	CPI property group	Construction, real estate	1991	2013	7 964	55%	16	Germany, Poland, Italy	Luxembourg, LU
3	Energetický a průmyslový holding, a.s	Energy	2009	2009	5 625	38%	16	Slovakia, United Kingdom, Germany	Luxembourg, LU
4	KKCG AG	Gambling, energy	1992	1994	3 868	60%	27	Austria, Greece, Italy	Luzern, CH
5	Agrofert	Chemistry, agriculture, food industry	1993	1997	3 440	47%	11	Germany, Slovakia, Hungary	Prague, CZ
6	DK holding investment s.r.o	Energy	1994	2000	1 554	95%	9	Georgia, Bulgaria, Turkey	Prague, CZ
7	Skupina ČEZ, a.s	Energy	1977	2004	1 043	3%	15	Germany, Slovakia, Poland	Prague, CZ	69,8%
8	AVAST PLC	Software	1989	2013	1 036	38%	21	Australia, Netherlands, United Kingdom	London, UK
9	Premier energy PLC	Energy	2013	2013	375	100%	3	Romania, Moldova	Nicosia, CY
10	LINET GROUP SE	Manufacturing (medical beds)	1990	1991	299	50%	13	Belgium, Italy, France	Dordrecht, NL

Source. Own elaboration based on the Orbis database.

Note: without financial activities.

Table 2.

The top Locally Controlled/owned Non-financial Multinationals in Hungary (2021) (Million USD).

Rank	Company	Main industries	Year of establishment	Year of first FDI	Foreign assets	Share of foreign assets	No. of host countries	Top 3 host countries	Location of the controlling company	State ownership
1	MOL.	Oil and gas exploration, production, refining and retail	1991	1995	7 839	37%	41	Croatia, Slovakia, Azerbaijan	Budapest, HU	3.64%
2	Richter Gedeon	Pharmaceutical products	1901	1998	858	24%	35	Russia, Romania, Poland	Budapest, HU
3	4iG	ICT and telecom services	1990	2021	609	15%	3	Albania, Bulgaria, Montenegro	Budapest, HU
4	FUTUREAL group B.V	Real estate development	2008	2019	422	48%	2	Romania, Poland	Amstelveen, NL; Budapest, HU
5	Jász-Plasztik Kft	Plastics production	1990	2001	105	21%	3	Slovakia, Italy, Romania	Jászberény, HU
6	Masterplast Nyrt	Building materials	1997	1999	90	49%	8	Serbia, Germany, Italy	Sárszentmihály, HU
7	Waberer international	Transportation and storage	1948	2005	67	10%	5	Poland, Romania, Slovakia	Budapest, HU
8	Videoton holding	Manufacture of electrical equipment	1938	1999	64	10%	3	Bulgaria, Ukraine, Germany	Székesfehérvár, HU
9	KEVIÉP	Construction	1966		10	23%	1	Romania	Debrecen, HU
10	DSC2000	Manufacture of metal structures	1999	2020	7	50%	1	Serbia	Nyíregyháza, HU

Source. Own elaboration based on the Orbis database.

Due to historical and economic ties from the socialist period, as well as geographic, economic, and cultural proximity, the top 10 Czech MNEs' foreign investment is primarily concentrated in neighbouring CEE countries, Russia, and occasionally Western Europe. Slovakia has close ties to Czechoslovakia as a former country-partner. Germany, Poland, Hungary, Italy, and a number of tax havens including the Netherlands are other noteworthy locations. In contrast, the top 10 MNEs in Hungary make investments in Southeast and Central Europe, which reflects different economic traditions. Czech MNEs on average operate across more countries than Hungarian ones. While Hungarian top MNEs are headquartered domestically (except partly for Futureál), Czech MNEs have transferred their headquarters abroad and now only three controlling companies of the top 10 MNEs are in Czechia. State-owned multinationals are rare: in Czechia only ČEZ, whereas in Hungary two MNEs have formally negligible state ownership, though through informal links, more have substantial state influence. At the same time, both countries have successful ‘self-made’ or ‘market-based’ multinationals, which expand abroad without any state ownership or personal link to the government.

As for the motivations of FDI, there was a clear dominance of market-seeking investments, partly due to the relatively small domestic markets in both countries (Rugraff, 2010). The efficiency-seeking motive was less prevalent, with the exception of the Hungarian Videoton. Resource-seeking investments (as well as market-seeking ones) were realized by firms in energy-related industries (e.g., MOL or ČEZ) (Sass et al., 2012). In the post-GFC era, while the market-seeking motive still dominates, there are a few strategic asset-seeking investments, realized by the Czech KKCG and the Hungarian Richter Gedeon and MOL (see the Annex). Regulatory deficiencies induced firms to seek ‘shelter’ abroad, and thus, a ‘system escape’ or defensive motive of FDI can also be found, especially among Czech MNEs, which transferred their headquarters abroad to the Netherlands and Luxembourg and to a smaller extent among Hungarian ones, which roundtripped FDI through the Netherlands Antilles and Cyprus up till 2012, and after a ‘dormant’ period, most recently through the Netherlands (Futureál).

Channels of state influence on the internationalisation of domestic companies through FDI after 2010

Changes in state activism and in the direction of government policy have been present in both countries after 1990, but to a different extent. Whereas Czechia witnessed a decline in the quality of democratic institutions and the rule of law in the 1990s, Hungary was one of the transition champions. Later on Czechia started to improve in that respect and since 2000 it can observe continuous improvement of Rule of Law or Government effectiveness, while Political stability has been more volatile (World Bank, 2023). However, in this process, backlashes are also present, as for example, under the previous Babiš government (Hanley and Vachudová, 2018). Conversely, Hungary experienced a decline, which has been aggravated after 2010 (Rohac, 2021; World Bank, 2023) connected to increasing economic nationalism and authoritarian tendencies (Sallai and Schnyder, 2021; Sebők and Simons, 2022). Also Wright et al. (2021) classify the two countries in different groups according to their mixes of state intervention. The two countries thus serve as good contrasting cases to demonstrate whether changing state activism has an impact on MNEs internationalization. We delve into the exploration of the role of the state in shaping firms’ ownership advantages and internationalization through FDI, categorizing its influence into four distinct yet highly interconnected channels: 1.) the state as an owner and investor, 2.) the state as shaping business and regulatory environment, 3.) the state conducting industrial policies and 4.) ‘quiet politics’ (Table 3).

Table 3.

Channels of state Intervention Into the Internationalization of top 10 MNEs in Czechia and Hungary.

	Examples in Czechia	Examples in Hungary
State ownership/investment	ČEZ (69.87% of shares)	Negligible (OTP, MOL, plus Richter Gedeon (indirectly minority through close-to-government foundations))
Business/regulatory environment	Energy sector regulation (EPH, ČEZ, DK holding, KKCG) Financial sector, telecommunications, media regulations (PPF) Monopolistic position (KKCG), System escape, or defensive internationalisation: Seven companies of 10 with keeping seats abroad	Energy sector (MOL), system escape, or defensive internationalisation: Futureál with transferring the seat of one company abroad
Industrial policies	EU subsidies (Agrofert, DK holding) State contracts (ČEZ, EPH, Agrofert)	EU subsidies (all, esp. relevant in the case of the new owner of Waberer) access to finance from state banks (4iG) support for domestic SMEs for their OFDI (DSC2000) state contracts (KEVIÉP)
Quiet politics/personal connections	PPF (expansion in China) Agrofert (influence on EU subsidies allocation)	Tailor-made exceptions from regulations/laws (OTP, Richter Gedeon, 4iG) close personal links (Waberer, 4iG) defence from hostile takeover (MOL, OTP, Richter Gedeon)

Source: compilation of the authors.

Note: without financial activities.

The state/government as owner and investor

State-owned multinationals

Presently, the Visegrad countries exhibit a limited presence of state-owned multinationals, as noted by Kalotay (2018) and Vlčková and Smělá (2022). The major state-owned foreign investor in Czechia is ČEZ. Following energy sector deregulation in 2004, ČEZ, under CEO Martin Roman, pursued acquisitions primarily in Southeast Europe, peaking at 15% foreign assets in 2012⁸. Political leadership changes in 2011 led to a strategic shift, with ČEZ divesting foreign assets for nuclear and renewable resources. In 2014, ČEZ established INVEN CAPITAL for clean-tech start-ups, redirecting foreign acquisitions towards renewable energy and innovation in Western Europe. By 2020, foreign assets comprised only 3% of total assets of ČEZ, and disputes in Albania, Bulgaria, and Turkey raised transparency concerns, indicating problems (or even failure) in certain aspects of internationalization.

In Hungary, back in 2011, the government continued to protect the leading state-owned multinationals OTP Bank, MOL, and Richter Gedeon from foreign takeovers and arbitrage. Post-2020 these formerly minority-owned leading outward investor firms experienced reduced direct state ownership despite the (re)nationalization process (Voszka, 2018) affecting other sectors and firms. Nonetheless, their shares were transferred to government-related entities, indirectly preserving state influence and reflecting a ‘hybrid’ company nature (Bruton et al., 2015). While government ties exist among some executives, overall, these companies pursued independent internationalization strategies (Antalóczy and Sass, 2018 for Richter), which may have been compromised after 2010 (see, e.g., the case of energy, MOL in Szabó and Fabók (2020)). Furthermore, the ‘renationalization’ process may indirectly impact Hungarian companies' foreign expansion, exhibiting a ‘push factor’ for internationalization. The 2023 merger of three state-owned banks created the second-largest bank, prompting OTP Bank to shift focus to foreign activities, resulting in record Q1 2023 results despite domestic losses. This push for internationalization is further evidenced by OTP’s acquisitions of majority stakes in Slovenian and Uzbekistani banks in 2023. The acquisition of the Uzbekistan bank⁹ means venturing to new geographical areas as well as relying on the pre-2000 ownership advantage of reorganizing and restructuring formerly state-owned banks in an evolving market economy environment.

The state/government as investor

After the GFC and especially 2012, government gross fixed capital formation as a proportion of GDP has been considerably higher than the EU average especially in Hungary (Figure 2). In 2019-20, both nations were in that respect among the top OECD nations. This is partly driven by the need for domestic resources in EU-funded investment projects. However, tendencies differ: Czechia experienced stagnating-declining government GFCF over time, while post-2010 Hungary saw a substantial increase (Oblath and Palócz, 2020). This is connected to the already mentioned large (re)nationalization projects where the state acquires companies in selected sectors, previously sold to foreigners (Voszka, 2018), leading to peaks in government investment to GDP ratios in selected years and in increased share of state ownership.¹⁰

Figure 2.

Source: OECDstat Investment by sector.

Is there any sign indicating that these investments are strategically aimed at nurturing potential multinationals? In Hungary, the (re)nationalization program targets certain sectors: energy, banking, media, telecoms, and retail sectors for majority Hungarian ownership (Voszka, 2018). In terms of outward FDI, these activities typically target the domestic market – though there can be exceptions (Bulfone, 2023). Indeed, 4iG, active in the telecom sector and closely associated with the government and the Hungarian prime minister, represents an exceptional case. It secured preferential rate credits from the Hungarian National Bank for a previous domestic acquisition back in 2019,¹¹ supplemented by funding from share issues and loans from state-owned banks. The firm participated in taking back into domestic hands one of the telecom firms (Vodafone), a move deemed as strategic by the Hungarian government. 4iG quickly transformed itself into a multinational telecom firm via acquisitions in Montenegro and Albania in 2021–22. The sources of financing for these deals remain undisclosed, although the presence of Turkish ownership shares in 4iG can be linked to the Albanian deal (Oberfrank, 2023) and Chinese capital may be present in the Vodafone deal (Portfolio, 2023). This aligns with the concept of the ‘accumulative state’ (Scheiring, 2019), wherein the government cultivates a national bourgeoisie interconnected through personal, political and financial affiliations and this newly established national bourgeoisie ‘spills over’ the frontiers obtaining assets in foreign countries and becoming a multinational.

In Czechia, the state's role as an investor is much more limited than in Hungary. The one case we can mention is the foreign acquisitions and divestments made by the majority state-owned company, ČEZ, as it was described in the part on state-owned multinationals. Otherwise, government investment concentrated on infrastructure projects, especially on transportation infrastructure in Czechia (Brůha et al., 2024), thus it had no direct consequences for the rise of Czech multinationals.

Business/regulatory environment

The business regulatory environment, established, managed and enforced by the government, influences the rise of multinational corporations. Limited government interference combined with credible and efficient governance encourages the growth of competitive businesses that may make foreign investments. Conversely, an unfavourable domestic business environment may deter firms from growing, but it can also prompt firms to explore opportunities in foreign markets, or even to seek refuge from government interference. Both countries faced a slow post-1990 progression in the development of institutional and organizational frameworks, lax regulations, weak enforcement mechanisms, and problems of protection for minority shareholders (Myant, 2018). The worse position of Hungary compared to Czechia and the deterioration in Hungary and stagnation/improvement of the business environment in Czechia after GFC is well documented based on the comparison of various business composite indexes (Mura and Fóthy, 2022 or Valaskova et al., 2022) or World Governance Indicators by the World Bank (2023).

The relationship between the business environment and outward FDI by domestic firms remains unclear. In Czechia, relocating the headquarters of domestic holdings abroad during the 1990s signalled partly a negative assessment of the local business environment (Sass and Vlčková, 2019). This phenomenon persists: the share of roundtripping in inward FDI was 17.25% in 2020, by far the highest among 17 countries, for which data are available affecting the majority of the top MNEs and indicating the adversity of the local business environment and the high inclination of MNEs to ‘escape’ it. In 2021, a publicly available portal entitled ‘Evidence’ (established under the Act No. 37/2021 Coll., on the Register of Beneficial Owners) disclosed the ‘real’ owners of firms and the new Czech government promised to implement transparent documentation rules for companies receiving subsidies, investment incentives, and public contracts (Kopecký, 2022).

The opposite situation is in Hungary, which recorded only 1% roundtripped per total FDI in 2020, however, not due to regulatory improvement but rather due to incentives introduced in 2012 and reduction of corporate taxes, which encouraged roundtrippers to return.¹² Later on, private equity funds offered opportunities for those capital owners, who wanted to conceal ownership. Nevertheless, after 2020, a more unstable and unpredictable business environment and the preference for government-affiliated businesses might prompt some firms to transfer their headquarters abroad. Indeed, Futureál moved the seat of one of three companies in the holding to the Netherlands in 2021¹³ indicating an ‘escape’ or defensive motive for roundtripping.

Industrial policies

As EU members, Czechia and Hungary benefit from structural reforms and global integration, along with access to EU funds and protection against unfair trade practices. However, they are bound to EU regulations, for example, the acquis communautaire, competition policy and state aid rules limiting their ability to promote national industries: a notable distinction from non-EU emerging markets. As it was mentioned, similarly to other parts of the world, the EU is increasingly focusing on industrial policy (Peneder, 2017), especially due to COVID-19 and geopolitical challenges. This shift presents opportunities and challenges for Czechia and Hungary, who historically faced underrepresentation in some EU programs (Zavarská et al., 2023) and influence less the EU agenda compared to larger or older member states.¹⁴ The larger manoeuvring room can already be seen in certain areas of industrial policy, with more active state intervention, especially in Hungary.

FDI and OFDI policies

As it was already mentioned, incoming FDI through its vertical and horizontal linkages and competition impact stimulated the competitiveness of domestic firms, contributing in both countries to the emergence of ‘market-based’ domestic multinationals. This process can be assessed as ongoing, though the MNEs emerging through this are rather small to medium sized.

In terms of policies, both countries prioritize internationalization through exports. The New Czech export strategy primarily targets SMEs in accordance with EU regulations, while large companies (such as DK Holding) particularly benefit from export loans and guarantees, constituting 85% of the overall volume (ČEB, 2021). Internationalization is also integral to foreign policy encompassing economic diplomacy and other sectoral policies as described below. In Hungary, there are analogous developments in the export area. Additionally, the ‘Hungarian multinationals’ programme, partly EU-funded,¹⁵ and where SMEs can apply, supports both export activities and FDI, with 59 companies already benefitting from it and two additional rounds announced. Notably, one firm from the top 10 (the smallest, no. 10, DSC2000 with a recent investment in Serbia) benefitted from the program.¹⁶ Similarly to Czechia, nearly all leading firms take advantage of EU-funded programmes. Nevertheless, it is crucial to contextualize this support, as it is commonly accessible to well or even moderately performing firms.

Sectoral policies

Certain elements of the regulatory environment may also shape the emergence of multinationals. Particularly due to the size, resources, significance, and possible geographical mobility, large MNEs have considerable bargaining power vis-à-vis the state. For example, the overrepresentation of energy-related firms in Czechia and MOL´s role in Hungary exemplify the interplay between corporations and governmental entities driven by sector-specific regulations (Mariotti and Marzano, 2019). Particularly network industries with high sunk costs, such as energy or telecommunications sectors are subject to unconditional capital transfers (Colli et al., 2013). These instances underscore the potential for ‘corporate welfare’ within the energy sector, that can delay needed reforms and protect inefficient firms (Bulfone et al., 2023).

Monopolies within certain sectors in the home country can also propel firms to internationalize (Buckley and Tian, 2017). A good example in Czechia is KKCG Group (No. 4 MNE), holding control over the domestic lottery market eased the company´s foreign expansion, as evidenced by its recent acquisition of the British National Lottery license (Mitchell, 2022). In Hungary, quasi-monopoly positions – at least temporarily – were also important for some firms, but post-GFC, it is rather through tailor-made regulations for selected firms how the government tries to influence or determine the domestic market position of firms and thus indirectly enable/disable or even push them to internationalize – as it is described later as ‘quiet politics’.

State subsidies and state consumption

General government procurement spending as a share of GDP in Hungary is among the top among OECD countries, and it is between the OECD and EU average in Czechia in 2020.¹⁷ The inflow of funds from the EU is an important factor, as these are distributed mainly through public procurement. Analysis indicates EU funds contributed over half of the net contract value between 2009 and 2021 in Hungary (Tóth, 2022), with government-linked firms capturing around 80% (as, e.g., 4iG or see the Elios case, which provided the basis of the wealth for the later owner of Waberer, the son-in-law of the prime minister). Nonetheless, it is important to note, that every company among the top 10 is a beneficiary of various EU and government-financed programs.

Czechia and Hungary exhibit low rankings in the WEF Global Competitiveness Index concerning the Diversion of public funds (105 and 108, respectively, out of 138)¹⁸ indicating concerns about government procurement and corruption.¹⁹ The question is not whether public funds are diverted, rather, our main focus is whether government intervention facilitates the emergence and growth of domestic multinationals. In the Czech context, the rise of the energy holding EPH stemmed from advantageous conditions in the energy sector, closely linked to state activities and superior relations with the state-owned ČEZ (Kundra and Šafaříková, 2019). Nonetheless, in 2022, unlike ČEZ, EPH did not receive a state credit agreement to finance electricity and gas trade and later announced to relocate its subsidiary EP Commodities abroad to avoid the windfall tax (České, 2022). In Hungary, several companies, which benefitted from government procurement or received government financial support, later internationalize through FDI. This is also the case of one ‘crony company’ (Tóth, 2022), the holding of Lőrinc Mészáros, that acquired hotels and football clubs abroad, or the afore-mentioned 4iG, a ‘young’, quickly evolving Hungarian multinational. Another top 10 company, KEVIÉP, benefitted from cooperation with a close-to-government entrepreneur and won large local tenders (Kovács-Angel, 2020). These support the notion of privileged access to finance and resources of selected firms as a basis for their internationalization (Hennart, 2012). In other cases, such as the case of Waberer, close to government businessmen acquire firms with foreign subsidiaries using capital accumulated through fraud-burdened access to funds. Thus government procurement helps transferring ownership of ‘older’ multinationals to close–to-government entities.

Additional questions arise in connection with the Recovery Funds. Hungary has yet to receive the overwhelming majority of them. In Czechia, large MNEs in the energy sector are likely to reap benefits from the Modernization Fund and to limited extent from the Just Transition Fund. Concerns have been raised whether large energy companies did not deliberately postpone the implementation of new regulations, which would have required more investment in decarbonization. Now, they appear prepared to undertake these investments, utilizing the new financial tools provided by the EU (Tramba, 2023). It is to see whether this will impact their international activities.

Quiet politics and personal connections

In the context of weak(ening) institutions, good government connections have become increasingly important. However, documenting the lack of rule of law and the importance of political ties remains challenging. The already mentioned instances such as the fraudulent and corrupt practices associated with the second round of voucher privatization in Czechia or Hungary’s ‘underregulated’ privatization at the beginning of the nineties (Galgóczi, 1998) highlight informal state-business interactions. This phenomenon, commonly referred to as ‘quiet politics’, that is the cases when business is able to influence politics and regulations, when the interest of the public and politics in a particular topic is minimal (Culpepper, 2010) thus relates to an extreme example of the connection between business and politics, that might prevail until now.

In Czechia, instances of unofficial form of state intervention in internationalization of companies can be discerned. This phenomenon is associated with corporate state capture prevalent in the transition period (Innes, 2014), when Václav Klaus and Miloš Zeman held the position of prime ministers. These practices came into focus once more when at the end of 2012 President Klaus announced an amnesty at the conclusion of his second term, encompassing numerous economic cases from the privatization period, a move regarded as highly controversial (Economist, 2013).

Further Czech cases include the superior relations the deceased Petr Kellner from PPF had with Czech presidents. Social democrats had apparent connections with the Chinese Communist Party, these have been linked to assisting PPF in obtaining a license for its Home Credit company in China (Karásková et al., 2014). PPF entered China in 2007 and in 2010 became the first foreign company to receive an independent license to offer retail loans in China. In 2014, PPF received a nationwide license for consumer credit services (De Castro-Stuchlíková, 2014) and later on became one of the major non-bank consumer finance lending companies in China (Kahn, 2017). PPF’s successful entry and prominence in the Chinese market coincided with a shift in Czech policy toward China (Fürst and Tesař, 2013), marked by President Miloš Zeman’s pro-China stance, which was said to be a calculated strategy for promoting Czech economic interests (Karásková et al., 2014). PPF’s subsequent withdrawal from Russia and plans to exit China underscore the complex influence of politics on business strategies, especially in navigating international markets subject to changing regulations. A more recent example includes the former Czech Prime Minister, Andrej Babiš, owner of agrochemical conglomerate Agrofert, who exerted influence on the allocation of EU subsidies to Agrofert while in office, as confirmed by the Commission’s audit (European Parliament, 2021). This might have indirectly affected the foreign expansion of Babiš’s company.

In Hungary, ‘quiet politics’ manifests through tailored taxes and regulations exemptions for certain close-to-government companies, making them exempt from extra taxes or various legal and financial obligations in tailor-made ways and thus indirectly strengthening their financial and competitive position. These exceptions, though part of the regulatory framework, effectively amount to selective interventions benefiting specific firms. Instances include OTP, which benefitted from specific legal formulation, exempting it from paying certain extra taxes and sparing it from the law’s reach (Király, 2016). Richter Gedeon renegotiated special taxes in 2022 and modified rules allowed it to deduce its R&D expenditures from its tax base for extraordinary tax – a clear sign of strong government links.²⁰ Thus, instead of regulatory non-enforcement (Dewey and Di Carlo, 2022), the bank was rather explicitly taken out of the scope of the law, while the firm received special treatment. Another case is the acquisition of the Hungarian subsidiary of Vodafone by 4iG, declared of national strategic importance (hence it cannot be investigated by the Competition Authority), which indirectly influenced 4iG’s foreign expansions, as a channel for financial support or the repurchase of stakes from Surgutneftegas in MOL, threatened by a hostile takeover, which was executed in 2011 (Reuters, 2011). Waberer illustrates government-connected businesspeople (including BDPST Group, owned by the son-in-law of the prime minister) acquiring local multinationals.²¹ Certain companies can be strategic partners of the government (Richter Gedeon or Jász-Plasztik) and can benefit more from various EU and government-financed programmes. A further area is the military one, where political aims and connections are easily traced. Aero Vodochody, a small Czech aircraft manufacturer was owned by the current Hungarian minister of defense, later on acquired by the MOL chairman-CEO from him, subsequently sold by this latter to a governmental holding (Boros, 2023). The Hungarian state also acquired an Austrian mortar plant (Telex, 2023). The number of these cases has grown considerably after 2010 (Sallai-Schnyder, 2021; Schedelik et al., 2021). Anecdotic evidence of forced sales of successful companies to close-to-government entrepreneurs (Schnyder-Sallai, 2020) at below market prices, through selective administrative inspections, fines, and arbitrary decisions such as withholding of permits, underscore the multifaceted means through which after 2010 political interventions increasingly shape firm internationalization in Hungary.

Post-GFC state influence on internationalization strategies of MNEs

In the following table, we present examples of channels of state influence on the operations of the top 10 MNEs, as a summary of the above described cases. Some entities exhibit multifaceted connections with the state, while for others the role of the state is rather negligible, with a few not even included in the table. Indeed, there are several ‘market-based’ companies on our list, such as the Czech Avast (now Gen), an antivirus provider, appears less affected by state activism. This observation can be related to the relatively lower importance of state support and foreign capital in the cybersecurity sector in the CEE region, as noted by Beblavý and Kureková (2014). In Hungary, Videoton, Masterplast (both on the stock exchange) or Jász-Plasztik can be classified as ‘market-based’.

As for the four channels analysed, state influence on the internationalization of top MNEs is more pronounced in Hungary, where three companies showcase notable state presence through minority or through indirect ownership. In contrast, in Czechia, only ČEZ has substantial partial state ownership. All companies are affected by the broader business and regulatory environment. Since the GFC, Czechia has experienced either improvement or stagnation in the business climate, whereas in Hungary, there has been a gradual but continuous deterioration. Sectors subject to regulation, such as energy and telecommunications, exhibit distinctive characteristics influencing MNEs, as well as the gambling and lottery sector, where KKCG has benefited from a monopoly position in the Czech market. Also, strategically important sectors in Hungary prioritize local companies due to regulatory considerations. ‘System escape’ or defensive internationalization is prevalent in Czechia and emerging again most recently in Hungary. Companies escape from the domestic political, business and regulatory environment. The Czech case highlights how difficult it is to reverse such company moves.

Concerning industrial policies, the state impacts the MNEs through various subsidies and programmes which all top 10 MNEs utilize. Specific state support in the form of access to finance or internationalization help was provided in Hungary. Recently, substantial funds have been allocated in connection to the European Green Deal Investment Plan. Such substantial investment can also create room for fraud or quiet politics, where personal connections matter and may affect the internationalization of energy firms. Whereas personal connections have gained significance in Hungarian MNEs in recent years, mainly through regulatory exceptions tailored to specific companies or helping close to government businessmen, some forms of quiet politics can also be traced in Czechia, as exemplified by the expansion of PPF in China. The increased state activism impacts upon the foreign markets, as some have substantial shares in selected host countries (see the Annex for PPF or MOL, OTP).

In terms of the motivations of foreign investing companies, market-seeking still dominates. However, the strategic asset-seeking motive is more prevalent. This can be traced in the energy sector, represented by MNEs like EPH, evident in the strategic acquisition of coal power plants or other foreign operations. Richter Gedeon, the Hungarian pharma firm acquired Swiss, German and Dutch biotech and pharma firms recently – another example of strategic asset seeking. Additionally, there is evidence of a counter-strategy involving divestment and withdrawal from high-risk markets, as illustrated by ČEZ a.s. divesting from troubled markets in Albania and Bulgaria in recent years. Furthermore, the unstable and unpredictable business environment, among others factors, has in the past led to relocation of headquarters of Czech MNEs and roundtripping for Hungarians. This ‘system escape’ or defensive motivation have subsided in the post-GFC period, but recent preference for government-affiliated businesses might prompt some firms to internationalize or transfer their headquarters abroad to escape the state influence, such as the case of Futureál.

Conclusion

Increased state activism in the domestic economy may spill over the borders, a phenomenon rarely analysed, especially in the case of multinational companies of emerging markets. Czechia and Hungary are similar in size, level of development, EU-membership and also in terms of their stock of outward FDI and the presence of domestic multinationals, the majority of which have their roots in the pre-GFC period. At the same time, the two countries represent contrasting cases of state activism: while in Hungary, especially after 2010, there is a widespread and increasing intervention of the state in the economy and connected to that, a weakening of market mechanisms, Czechia can be characterized rather by stagnation with some setbacks in that respect. Thus comparing developments in the two countries showcases the consequences of increased state activism for domestic multinationals and underlines the dynamism in the process Tables 1 –3.

We identified four main channels in which states can shape the internationalization of MNEs, examining them closely among the top 10 MNEs in both countries. Firstly, state ownership, typically prominent in emerging countries is relatively rare in both Czechia and Hungary with majority Czech state ownership in ČEZ a.s. and minority or indirect state ownership in Hungarian MOL, Richter Gedeon, and OTP. Secondly, in terms of the business and regulatory environment, both countries exhibit slow institutional development and lax regulations; however, overall, there has been improvement in Czechia and the Hungarian environment rather deteriorated. Thirdly, industrial policies have traditionally played a significant role in highly regulated sectors like energy and telecommunications. Nonetheless, the increasing role of industrial policies in the EU context, presents opportunities and challenges for both countries. Fourthly, ‘quiet politics’ characterized by informal state-business interactions, is evident in Hungary, seen in 4iG and Waberer’s acquisition of foreign companies through state-enabled access to finance. In Czechia, PPF’s foreign expansion is attributed to unconventional economic diplomacy, aligning with Scheiring´s (2019) findings on how governments build ‘national capital’ through mechanisms beyond ownership and regulations, including public procurement, partnerships, financial assistance, and accessible credit. Overall, in the internationalization process of multinationals in the two countries, the state plays an important role in the post-GFC period, in line with the findings of the international business literature: ‘state matters’ for emerging MNEs. However, according to our results, this state impact is realized not through the ‘old’ channels of ownership and regulations, but rather through more active industrial policy and quiet politics, in many cases tailored to the needs of individual companies. Moreover, within the ‘old’ channels, we align with the international business literature in showing that the extent of government ownership does not necessarily reflect the extent of government control, which latter can be exercised and increased in indirect ways. Further, through showing in detail the two country cases, we underline the dynamism, idiosyncratic nature and context specificity of the process.

We have observed distinctions between the two countries, particularly in state-business relationships reflecting the historical interplay between party state capture typical for Hungary and business state capture prevalent in Czechia (Innes, 2014). In Czechia, since the GFC, a few new MNEs emerged. However, these MNEs have increasingly expanded their foreign activities, while the role of the state has either stagnated or declined. Conversely, in Hungary, state activism has translated into heightened involvement of close-to-government economic actors in existing MNEs (Waberer) and the emergence of new, close-to-government MNEs, such as 4iG. Why these changes may be important? We have sporadic information about the market shares of the analysed companies in their host countries, but some of them could obtain significant shares and thus could become major players in their industries in the host countries. This underlines the notion in the international political economy literature, that renewed state activism has its consequences for the international economy as well (Schedelik et al., 2021) and this area needs to be further investigated.

Additionally, we have identified a novel type of internationalization termed ‘defensive internationalization’ or ‘system escape’. This strategy arises in response to an unstable and unpredictable business environment, prompting non-government-affiliated companies to escape challenging domestic conditions (including putting close-to-government firms in favoured positions) and mitigate heightened government intervention. While negative assessments of the local business environment in Czechia led to relocation of HQ, especially in the pre-GFC period, this does not seem to have reversed yet. The tightening regulation exemplified by the highly unsuccessful windfall tax, have led to relocation of parts EPH´s business. In Hungary, incentives and policy changes (tax reduction) prompted the return of many abroad headquartered or roundtripped firms in the last decade. However, recent increases in state involvement and favouring close-to-government businesses, may have prompted firms like Futureál to relocate to the Netherlands in 2021. Our cases show firstly, that for peripheral MNEs in the EU, integration offers opportunities to distance themselves from adverse domestic political and economic environments through relocations of headquarters. Secondly, this process is difficult to reverse due to sunk costs and lost trust even in the presence of improvements in the business environment, unless there are major changes in the taxation/business environment or incentives. On the other hand, from the state’s perspective, our results indicate that certain internationally competitive companies may ‘escape’ domestic policies thereby reducing regulatory oversight or even tax revenues. Thus, EU-integration not only constrains the manoeuvring room of industrial policies but may also reduce the number of their subjects. Conversely, EU funds and their utilization expand this manoeuvring room for the beneficiary countries and provide the opportunity to direct these funds towards close-to-government entities. Further investigation into these processes constitutes one of the future research areas.

A conspicuous trend is the growing role of industrial policies, driven by the COVID-19 pandemic and geopolitical events, leading to an enhanced role of the state not only in Czechia and Hungary, but also in other EU and non-EU countries. The effectiveness of these policies will significantly impact the promotion of innovation, growth, and the trajectory of top MNEs. The emphasis on digitalization and green transition aligns with the potential benefits for certain MNEs. However, concerns about corruption and the diversion of public funds arise with the allocation of EU subsidies.

The limitations of our study lie in its focus on just two countries and their largest foreign investing firms. For example, the results of Avlijas et al. (2023) denote that in Serbia and most probably in other small post-transition economies, such as Estonia and Slovenia, the successful internationalization of SMEs is completely ‘market-based’, with no state help and relies on translocal sources of knowledge exchange. These SMEs can supplement the role of FDI as important actors in export-led growth models. Future research should thus examine similar nations with diverse statist regimes and other economic actors, including smaller-sized firms; and more generally, delve into middle-income trap phenomenon´s connections to changing state roles and firm internationalization. Broadening the scope to include emerging competitive (‘market-based’) companies would also be valuable. Our approach underscores the importance of detailed country-specific analyses that integrate firm- and state-centred approaches to reveal the actual mechanisms through which governments influence domestic firms' ability to invest abroad.

Supplemental Material

Supplemental Material - The impact of state activism on domestic multinationals: The case of Czechia and Hungary

Supplemental Material for The impact of state activism on domestic multinationals: The case of Czechia and Hungary by Magdolna Sass and Jana Vlčková in Competition & Change

Footnotes

Acknowledgements

The authors are grateful to the two anonymous reviewers for their comments on an earlier version of the manuscript.

Declaration of conflicting interests

The author(s) declared no potential conflicts of interest with respect to the research, authorship, and/or publication of this article.

Funding

The author(s) disclosed receipt of the following financial support for the research, authorship, and/or publication of this article: This Research for this paper was supported by the Hungarian Research Fund NKFIH (projects no. 132442 and 135185) and Internal Grant IG210043.

ORCID iDs

Magdolna Sass

Jana Vlčková

Supplemental Material

Supplemental material for this article is available online.

Notes

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