hungary - business opportunities for finnish companies
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Business t iti dopportunities and
economic situationin Hungaryin Hungary
Tommi PelkonenBusiness Consultant
October 1, 2009
Business opportunities and economic situation in Hungary
Finpro in short
Hungary as a market area
Selected industry Selected industry highlights
Finns in HungaryFinns in Hungary
Conclusions and recommendationsrecommendations
/ / © Finpro ry
Finpro: Key Figures
Structure•A registered not-for-profit association for Finnish companies, supported by the Finnish government with an annual grant
PersonnelPersonnel• 353 of which 248 in Trade Centers and 95 in FinlandNetwork• 52 Trade Centers in 44 countriesAssignments• ca. 1500 ordered assignments, Average project ~8,7k€Call Center
4000 t t b h il• ca. 4000 contacts by phone or emailTurnover• ~35 m€, governmental support ~ 59% of the total spending
© Finpro ry
Finpro – Finnish business partner globally
We help you to succeed• Customized consulting services• All phases of• All phases of
internationalization• “One-stop shop”
Analyzed market information• Analyzed market information & networking
• Partner network at your service: in Finland and targetservice: in Finland and target markets
The International Trade Centre (ICT), a joint technical cooperation agency of the United Nations and the World Trade Organization WTO, awarded Finpro as the best trade promotion Organization of the developed countries as well as the Best of the Best TPOs in the world in 2008.
We support internationalisation all its means
© Finpro ry/ 5© Finpro ry© Finpro ry
We support companies throughout the whole internationalisation process
Business Opportunities for Finnish companies
© Finpro ry
Any business operation is possible in the CSEE region!
8 Finland Trade Centers
FINPRO Central and Southeast Europe and Middle East
8 Finland Trade Centersca. 200 assignments annually~30 people, mostly local staffIndustry expertise: Construction, Machinery, Life Sciences, ICT, Machinery, Life Sciences, ICT, Energy, Environment, Forestry, Pulp & Paper, Food industryThe best customer satisfactionrate within Finpro!rate within Finpro!
Prague
ViennaBudapest
Bucharest
IstanbulSofia
DubaiRiyadh
© Finpro ry© Finpro ry
CSEE: Attractive Business Region
Fresh and upcoming EUFresh and upcoming EU membersGrowing economic interdependence with Western EuropeImproving business climateImproving business climateRising living standardLower transaction costsDeveloping infrastructureLess regulatory barriersLess regulatory barriersCultural similaritiesEU funds to development of knowledge based economies
Cost advantagesFavorable Location Central location in EuropeGeographic proximity to FinlandG
Cost advantagesEmployment costs still 20-40 % lower than in the Western EuropeCentralization of supporting activities bring cost
Good transportation possibilities
Fast growing marketsGDP growth rates 4-9 % before the
advantage e.g. buying of goods, services or logistics Tax benefits for investments
Westernization of customer behavior
/
g2009 crash
Westernization of customer behavior•Appreciation of western products and life-style
In short: An attractive location for any business operations – still!
Business opportunities and economic situation in Hungary
Finpro in short
Hungary as a market area
Selected industry Selected industry highlights
Finns in HungaryFinns in Hungary
Conclusions and recommendationsrecommendations
/ / © Finpro ry
Eastern Europe?
/ / © Finpro ryHistory gives us keys to understand current situation in the area
Eastern Europe?
/ / © Finpro ryHistory gives us keys to understand current situation in the area
Hungary in the Heart of Europe
Employment by Main Activities
4,8%
Agriculture
SKUA
A
32,3%
62,8%
Agriculture
Industry
Services
RO
YUHRSL
Major exports
Land: 93,030 km²Population: 10 1 million
1,9%2,5%5,5%
27,6%62,4%
Machinery & Equipment
Other manufactures
Food, beverages & tobacco
Population: 10,1 millionGDP/capita, at PPP: EUR 16,040
62,4%Raw materials
Others
/ 12Finpro/Insight to Hungary / © Finpro ry
IMPACT OF THE EARLY 1990’S TRANSFORMATION
Real wages decreased by GDP dropped by g y
11 - 17%21%%Unemployment increased from
0 5% to 12%0,5% to 12%/ 13
Finpro/Insight to Hungary / © Finpro ry
Hardest hit: pensioners, families with many children
Hungary GDP – forecast for 2009-2010
Recovery is expected to realise in 2010 in most of the counties in CSEE region
Yet, the challenge of social unrest remains…
/ 15Finpro/Insight to Hungary / © Finpro ry
Cumulated FDIs in Hungary & Finlandin million euros
Hungary has accumulated
Sources: ITD & Bank of Finland, 2008
g ymuch more FDIs than e.g.
Finland!
Hungary is a pretty easy place to run business
Top Rank - Global
The World Bank has recognized Hungary’s reforms to reduce bureaucracy
Indicators of the index
p
1. Starting a business2. Dealing with licenses3. Employing workers4. Registering property5. Getting credit6. Protecting investors7. Paying taxes8. Trading across borders9. Enforcing contracts10. Closing a business
Source: World Bank, The Doing Business project 2009
Among OECD countries, doing business in Hungary is feasible
Source: Doingbusiness.org, 2008
NOTE: Eastern European countries are compared, too: see the website!
Corruption exist in the region, but is manageable
57: GR58.TR62: CR70: RO72: BG, MAC85: ALB, CG85: SRB
Total 180 countries
Source: Transparency International, 2008; Target, 3/2009 NOTE: ranking is based on perceived corruption
Capitals are the key growth locations – but other options exist
The number of companies expecting to locate in European cities
NOTE ALSO: Budapest ranked among top20 favourableExpats tend to like to work in the region – it is a
Source: European Cities Monitor, Cushman and Wakefield, 2007; FDi Magazine, 2008
NOTE ALSO: Budapest ranked among top20 favourable expatriate locations globally!
p gchallenging but rewarding business area!
Competitive average wages
5000
Monthly gross average wages in EUR in 2008
3500
4000
4500
2000
2500
3000
EU27 - average
500
1000
1500
2000
0
500
*latest available year: 2007Source: National statistical offices, 2009
Strenghts of the Hungarian labour force
Competent senior managers
Availibility of skilled labour
Finance skills
Labour regulations
Working hours ('000)
Knowledge transfer between companies and universities
Labour regulations
0 1 2 3 4 5 6
Availibility of qualified engineers
Hungary Slovak Republic Czech Republic Poland
Source: IMD Competitiveness Yearbook, 2009
Management needs training, but has talent
Source: Target 3/2009
Mapping talent: Hungary ranks 4th of 13 European countries
R k T l t I d Rank 2012
CountryTalent Index rating 2012
1 Austria 57.9
2Russian Federation
53.8Federation
3 Poland 46.6
4 Hungary 46.2
Czech
The EIU ranks Hungary 4th of13 countries in
5Czech Republic
45.7
6 Slovenia 45.6
7 Bulgaria 43.9
the CEE Talent-Index
8 Slovakia 41.4
9 Ukraine 40.3
10 Turkey 37 710 Turkey 37.7
11 Romania 37.0
12 Croatia 36.6
Source: Economist Intelligence Unit – Heidrich & Struggles, 2009
13 Serbia 30.0
Good availability of labour
• IMD’s World Competitiveness Yearbook
1 Ireland 7.902 Japan 7.243 Switzerland 6.94Competitiveness Yearbook
ranks 57 countries by the availability of skilled
4 Sweden 6.905 Denmark 6.896 Finland 6.887 Philippines 6 87labour
• Hungary is among the best 10 European countries
7 Philippines 6.87… … …27 Hungary 5.74… … …10 European countries 30 United Kingdom 5.6031 Czech Republic 5.5833 Slovak Republic 5.4342 Bulgaria 4.8342 Bulgaria 4.8346 Romania 4.5852 Poland 4.3457 Venezuela 2.67
Source: IMD, World Competitiveness Yearbook 2009
Strong scientific capacity
The World Economic Forum ranks Hungary 24th of 131 countries for the quality of scientific research
Country Ranking
Switzerland 1
USA 2scientific research institutions
USA 2
Germany 5
France 19
Norway 21
Hungary 24
Czech Republic 30Czech Republic 30
Slovenia 33
Spain 49
Ch 6China 56
Poland 64
Greece 76
Source: Global Competitiveness Report, World Economic Forum, 2007/2008
IT Competitiveness: Hungary ranks well
Hungary globally #28Finland # 13
/ 27Finpro/Insight to Hungary / © Finpro rySource: Economist Intelligence Unit, 2008.
Excellent access to key markets
• At the cross roads of• At the cross roads of 4 main European transportation corridors
• Extensive road and railway transportation networknetwork
• Highly developed logistics andlogistics and telecommunications infrastructure
Source: ITDH, 2009
Expanding highway network
W 10Total Highway Network: 1100 km.
Prague, 5 hrsMunich, 6 hrsH b 8h
Warsaw, 10 hrs
g y
Hamburg, 8hrs
Vienna, 1 hrRotterdam, 12 hrs
Kyiv, 12 hrs
Bucharest 10 hrsBucharest, 10 hrsConstanza, 12 hrs
Zagreb, 1 hr Trieste, 6 hrsKoper, 6 hrs Beograd, 4hrs
Source: ITDH, 2009
Business opportunities and economic situation in Hungary
Finpro in short
Hungary as a market area
Selected industry Selected industry highlights
Finns in HungaryFinns in Hungary
Conclusions and recommendationsrecommendations
/ / © Finpro ry
Logistics: Excellent geographical position
• Centre of gravity fordistribution in the CEE
• 13 logistics centres serving at least two transport modestransport modes
• Modern warehousing and industrial facilities
Source: ITDH, 2009
Logistics: recent developments
Nokia: opened new logistics centre in Komárom (2007)Panasonic: set up regional distribution centre (2007)DAF: established distribution centre in Zsámbék (2008)( )Pfizer: relocated its Central-Eastern-European Distribution Centre to Hungary, supplies 15 countries from here (2008)Porsche Parts: further expansion in Törökbálint (2008)
ÜSpar: opened new logistics centre in Üllő (2008)Rail Cargo Austria: acquired MÁV Cargo (2008)Záhony:
Sophisticated economic development programmeSophisticated economic development programmeRenovation of wide gauge railway system commenced
„Hungary has a good geographical location and transport infrastructure for distribution to our traditional European and non-European
markets ” Amos Anatot Vice President TEVA Pharmaceuticalsmarkets.” Amos Anatot, Vice President, TEVA Pharmaceuticals.
Source: ITDH, 2009
Automotive: Major production hub
Original manufacturers: Suzuki, AudiAudiSuzuki: 282,000 pcs (2008 est.)Audi Motor: 60,000+ TT coupés and
roadsters, A3 cabriolet
Engine manufacturing (2008):Audi Hungary: 1.9 million enginesGM Opel: 400 thousand enginesGM Opel: 400 thousand engines
14 of the world’s top 20 TIER-1spresent in Hungarypresent in Hungary
World’s 2nd largest powertrain plant in Hungary by Audi!
Source: ITDH, 2009
Automotive: What happened in 2008?
• Daimler investment announced• Audi upgraded its plant to produce 12-valve, 6-
liter 500 HP diesel enginesliter 500 HP diesel engines• Bosch provided the ISG for the KIA cee’d• Audi started production of engine and body
parts for the R8 GT3• Suzuki began exporting the Splash to Japan• The solar-powered Solo hybrid was introduced
at the Paris Motor Show
A ll t i d l b f d„A well trained labour force, a dense supplier network and favourable logistical
conditions were the main arguments in favour of Kecskemét.” Dieter Zetsche, CEO,
D i l AGDaimler AG
Source: ITDH, 2009
Biotechnology & Pharmaceuticals
„It is worth investing in Hungary since, in the very recent years, Hungarian researcherhave discovered two original molecules which are in development phase now.” Jean-
Francois Dehecq, CEO, Sanofi-Aventis
• The 5th largest drug producer in Europe (note: vaccinations!)
• Largest biotechnology innovation and• Largest biotechnology innovation and spin-off sector in the CEE region
• University biotechnology centresUniversity biotechnology centresclustered in four academic towns
Source: ITDH, 2009
Bio & Pharma: What happened in 2007/2008?
Beike Biotechnology from China launched a stem cell research project in two locationsstem cell research project in two locations (Budapest, Debrecen)Sauflon Pharmaceuticals (UK) began building a contact lens factory near Budapest. Capacity is expected to reach 100 million contact lenses per yearPfizer (USA) opened a logistics and distribution centre in Budapestdistribution centre in Budapest TEVA (Israel) expanded its capacity further in DebrecenRichter Gedeon (H) opened R&D facilities inRichter Gedeon (H) opened R&D facilities in Budapest and Debrecen
Source: ITDH, 2009
Electronics: Major production location
• Largest electronics producer andexporter in the CEE
• Major global manufacturers: Samsung, GE, Philips, Sanyo, Sony and Jabil, Flextronics
• Booming sectors: IT manufacturing telecommunications, consumerelectronicselectronics
„Hungary provides an ideal environment for electronic manufacturing services as „ g y p gthe country has good industrial infrastructure and a strong industrial culture.”
Hannu Hanatala, Managing Director, Elcoteq
Source: ITDH, 2009
Electronics: What happened in 2007/2008
• NCR relocated ATM manufacturing to Hungary
• Nokia is expanding its Budapest office to oversee 11 national markets
• Electrolux expanded its facility in Eastern HungaryEastern Hungary
• Schaffner Holding (Switzerland) is relocating production to Kecskemét in Central HungaryCentral Hungary
• Flextronics expanded in South-Western Hungary
• Infineon expanded its manufacturing base in Eastern Hungary
Source: ITDH, 2009
ICT & software development: Regional hub
• Several major well known software developers are present including IBMdevelopers are present, including IBM, HP, Siemens, CISCO, SAP, Oracle and TATA
• Several IT companies, such as BT, EDS-HP and Getronics operate technology service centres in Hungary
• Strong cooperation between business and academia in R&D (IBM, CISCO, Oracle and SAP)Oracle and SAP)
Source: ITDH, 2009
ICT: What happened in 2008?
• Cognizant: BPO, software development, Budapest• CAS: software development, Szegedp , g• Cognex: software development, Budapest• IBM: data storage, Székesfehérvár• Broadband penetration: leading role in the region
Did you know that in the wake of the attacks against the World Trade Center, a Hungarian company recovered data necessary for the world's
continuing financial development?
Source: ITDH, 2009
Renewable energy: Good source
• Hungary plans to reach 13% of RES in total energy production by 2020 • M j f th bi bi i d• Major areas of growth: biomass, biogas, wind power• Investments into biofuel and biomass production have alreadyincreased• Compulsory feed-in tariff of between 5-13 cents depending onCompulsory feed in tariff of between 5 13 cents depending on plant size• EU provides EUR 600 million to support renewable energy-related investments• Emerging solar panel technology industry
Source: ITDH, 2009
Green tech: What happened in the past few years?
• Sanyo doubled its solar panel production capacity to 340 MW for EU exportp
• Iberdrola Renovables set up several wind farms, totalcapacity 158 MW
• Rossy Biofuels opened a 150,000-tonbiodisel plant iny p , pKomárom
• Zöld Olaj BB opened a 40,000-ton biodisel plant inGyöngyösönGyö gyösö
• Ökoline increased its biodisel capacity to 50,000 tons inBábolnán
Did you know that H ’ bl t ti l i 220 PJ/ d th tHungary’s renewable energy potential is 220 PJ/year and that
the country receives as much as 2,200 hours of sunshine a year?Source: ITDH, 2009
Shared Service Centers: Popular location
Hungary had the highestb f h d inumber of shared service
investments between 2002-2006 in Europe (Ernst&Young, 2007))
SSCs throughout the country: Debrecen, Miskolc, Pécs, Székesfehérvár etcSzékesfehérvár, etc.
Positive feedback fromcompanies already present in Hungary
Source: ITDH, 2009
SSCs: What happened in 2009?
• BP: financial service centre, 1100 employees, Budapest• IBM: expansion of IT service centre, SzékesfehérvárIBM: expansion of IT service centre, Székesfehérvár• Vodafone: new financial centre in Miskolc• Celanese: Honorary Mention for Best New Captive Shared
Services Organization in EuropeServices Organization in Europe
„EDS would not be employing a thousand workers here if we did not believe in this country and in its people.”
László Szakál, Managing Director of EDS Hungary
Source: ITDH, 2009
R&D in Hungary
• Large presence of multinationals investing into R&D activities• Continuously expanding R&D investments in automotiveContinuously expanding R&D investments in automotive
manufacturing, software development and life sciences• World-class tertiary education and scientific research
• In summer 2008 EU ministers chose Budapest as the headquarters of p qthe European Institute of Innovation and Technology
• The institute focuses on energy, climate change and information technology
„…I think that Hungarians are at least as good as their American, Chinese, Indian or Western European peers. Their enthusiasm and motivation are the key factors. InWestern European peers. Their enthusiasm and motivation are the key factors. In
addition, they are extremely innovative...” Michael Fritts General Manager of Engineering at GE Healthcare in Hungary
Source: ITDH, 2009
Real Estate: Office market trends
Major challenges in the office markets in the next few years
Sources: Colliers; Cushman & Wakefield, 2009
Retail space estate market trends in Budapest
At the edge of overcapacity in retail spacein retail space
Source: Colliers, 2009
Business opportunities and economic situation in Hungary
Finpro in short
Hungary as a market area
Selected industry Selected industry highlights
Finns in HungaryFinns in Hungary
Conclusions and recommendationsrecommendations
/ / © Finpro ry
Major Finnish Investors in Hungary
Cca. EUR 1 billion investment value – largest share in the region – 200 companies/20,000 employees
ElcoteqFinnforest
Halton GroupHalton GroupHelkama Forste
HuurreNokia
Sanoma WSOYSavcor, Scanfil
Stora EnsoTunturi
ICM, Lindström,Mecanova, Raflatac
Source: ITDH, 2009
Finnish Business Presence in Hungary (cont’d)
Nokia Mobile Phones Nokia R & DUPMProductional R&D / PlanningSales offices
Nokia Mobile PhonesElcoteqSanoma BudapestPerlosS
Nokia R & DElcoteq3C Hungary (CCC)Agil EightICM
UPMM-RealStora EnsoMartelaRannilaSavcor
Stora Enso Packaging
MecanovaR kki C t ti
ICMRannilaTikkurilaKoneFiskarsWärtsiläE t
~200 Finnish-originated Ruukki ConstructionRuukki EngineeringScanfilLindström
EnstoItella InformationEtc.
companiesand 350 exporters to HungaryAppr. 20 manufacturing companies
Helkama ForsteClairiaHansaprintRaflatac
companies Finnish-Hungarian trade exceeds 1 bn. euro
/ 50Finpro/Insight to Hungary / © Finpro ry
HuurreSanoma
Some considerations for Finns• Competition in Hungary is many sectors is intense
• Early FDIs brought multinationals to Hungary• E.g. retail far more competitive than in Finlandg p
•Financial crisis affecting Hungary – but can also lead to a positive change
•Finns are regarded in Hungary very positively (northern cousins) in all areas of business in all areas of business
• YET – Hungarian business culture and habits differ from Finnish in many ways• Negotiations, agreements, language skills, business drive, personal
relationships etc.
/ 51Finpro/Insight to Hungary / © Finpro ry
Hungary is a very good stepping stone location for central European Regional operations!
Business opportunities and economic situation in Hungary
Finpro in short
Hungary as a market area
Selected industry Selected industry highlights
Finns in HungaryFinns in Hungary
Conclusions and recommendationsrecommendations
/ / © Finpro ry
Region is the leading growth market in Europe
G th ill t b id th l b l h llGrowth will return, besides the global challengesIn selected sectors, CSEE and Hungary are still growing andmarkets are very attractive to new operations and operationald l tdevelopmentThe downturn makes timing excellent for new busines developmentand partner seeking
Finns can gains cost savings, but also get new customersSalary and other cost difference still exists, but less than in they ,past. Yet, the difference can be significant e.g. in manufacturingbusinessEuropean and also global companies have and still are shifting theirp g p gglobal & regional service centers to the CSEE region. This canopen up interesting opportunities for Finnish service providers.Moreover, there is a constant flow of FDIs to the region. Thisenable international and to growing extent local sales to be realised
IN SHORT: Time to act is today!
Each market needs to be understood as a local market.
Act locally and:1. do not accept the first person you meet
to be your exclusive agent/representative
2. check the background of whatever potential partnerpotential partner
3. learn cultural matters and pay attention to cross-cultural communication
4. adapt yourself to each particular market
5. plan and allocate enough time, money and human resourcesand human resources
Finpro is locally present to help Finnish Finpro is locally present to help Finnish companies to tackle these challenges!
Something to take home from Hungary …
Tokaj wines and
salami Zwack UnicumHerb liqueur
Tokaj wines and aszu (dessert wines)
salami Goose liverTibi Chocolate Törley Sparkling Wine
Let’s go international!
Tommi Pelkonentommi.pelkonen@finpro.fi
+36 20 250 10 77www.finpro.fiwww.markkinoille.com
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