hungary - business opportunities for finnish companies

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!


Finpro in short





/ / © Finpro ry

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…


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


Finpro in short





/ / © 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

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


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.


Hungary is a very good stepping stone location for central European Regional operations!

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 [email protected]

+36 20 250 10 77www.finpro.fiwww.markkinoille.com

hungary - business opportunities for finnish companies

Business

recommendations finpro

area finpro ry

finpro central

total spending finpro

business operations

finprofinpro ry

eastern europe

southeast europe