The interaction between corporate control and absorptive capacity in the supplier integration of domestic firms
Abstract
This paper investigates the interplay between multinational enterprises’ (MNEs) corporate control and the absorptive capacity of domestic firms in supplier integration, using the case of a German-owned manufacturing subsidiary in Hungary. The analysis explores whether the low share of Hungarian suppliers in the company’s procurement structure is primarily attributable to the limited autonomy of the subsidiary or to the weaker capabilities of domestic suppliers. Using procurement data from 2015–2019 complemented by financial and firm-level indicators, logistic regression and propensity score matching techniques were applied. The results show that domestic suppliers tend to be smaller, less productive, and offer lower wages than their foreign-owned counterparts. However, even after controlling for these characteristics, foreign-owned suppliers are significantly more likely to deliver complex products, reflecting a structural bias in favour of external suppliers and a highly centralized corporate governance system. Consequently, the dual structure of the Hungarian economy is not only the result of domestic firms’ limited capabilities but also of the organizational design of MNEs. The findings underline the need for economic policies that, beyond strengthening local absorptive capacities, encourage deeper local embeddedness and greater procurement autonomy of subsidiaries.
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