Hungary - Business Opportunities for Finnish companies

Business opportunities and t iti d economic situation in Hungary Tommi Pelkonen Business Consultant October 1, 2009

Business opportunities and economic situation in Hungary Finpro in short Hungary as a market area Selected industry highlights Finns in Hungary Conclusions and recommendations / © Finpro ry /

Finpro: Key Figures Structure • A registered not-for-profit association for Finnish companies, supported by the Finnish government with an annual grant Personnel • 353 of which 248 in Trade Centers and 95 in Finland Network • 52 Trade Centers in 44 countries Assignments • ca. 1500 ordered assignments, Average project ~8,7k€ Call Center • ca. 4000 contacts by phone or email t t b h il Turnover • ~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 internationalization • “One-stop shop” • Analyzed market information & networking • Partner network at your service: 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 We support companies throughout the whole internationalisation process © ry / 5 © FinproFinpro ry

Business Opportunities for Finnish companies Any business operation is possible in the CSEE region! © Finpro ry

FINPRO Central and Southeast Europe and Middle East 8 Finland Trade Centers ca. 200 assignments annually ~30 people, mostly local staff Industry expertise: Construction, Machinery, Life Sciences, ICT, Energy, Environment, Forestry, Pulp & Paper, Food industry The best customer satisfaction rate within Finpro! Prague Vienna Budapest Bucharest Sofia Istanbul Riyadh Dubai © Finpro ry

CSEE: Attractive Business Region Fresh and upcoming EU members Growing economic interdependence with Western Europe Improving business climate Rising living standard Lower transaction costs Developing infrastructure Less regulatory barriers Cultural similarities EU funds to development of knowledge based economies Cost advantages Favorable Location Employment costs still 20-40 % lower than in the Central location in Europe Western Europe Geographic proximity to Finland Centralization of supporting activities bring cost Good transportation possibilities G advantage e.g. buying of goods, services or logistics Tax benefits for investments Fast growing markets GDP growth rates 4-9 % before the g Westernization of customer behavior 2009 crash •Appreciation of western products and life-style In short: An attractive location for any business operations – still! /

Eastern Europe? History gives us keys to understand current situation in the area / © Finpro ry /

Hungary in the Heart of Europe Employment by Main Activities 4,8% Agriculture 32,3% UA 62,8% Industry SK Services A SL RO HR Major exports YU 1,9% 5,5% 2,5% Machinery & Equipment Other manufactures 27,6% Food, beverages & tobacco Land: 93,030 km² 62,4% Raw materials Population: 10,1 million 10 1 Others GDP/capita, at PPP: EUR 16,040 / 12 Finpro/Insight to Hungary / © Finpro ry

IMPACT OF THE EARLY 1990’S TRANSFORMATION GDP dropped by Real wages decreased by g y 21% % 11 - 17% Unemployment increased from 0,5% 0 5% to 12% Hardest hit: pensioners, families with many children / 13 Finpro/Insight to Hungary / © Finpro ry

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… / 15 Finpro/Insight to Hungary / © Finpro ry

Cumulated FDIs in Hungary & Finland in million euros Hungary has accumulated g y much more FDIs than e.g. Finland! Sources: ITD & Bank of Finland, 2008

Hungary is a pretty easy place to run business The World Bank has recognized Hungary’s reforms to reduce bureaucracy Top Rank - Global p Indicators of the index 1. Starting a business 2. Dealing with licenses 3. Employing workers 4. Registering property 5. Getting credit 6. Protecting investors 7. Paying taxes 8. Trading across borders 9. Enforcing contracts 10. Closing a business Source: World Bank, The Doing Business project 2009

Among OECD countries, doing business in Hungary is feasible NOTE: Eastern European countries are compared, too: see the website! Source: Doingbusiness.org, 2008

Corruption exist in the region, but is manageable 57: GR 58.TR 62: CR 70: RO 72: BG, MAC 85: ALB, CG 85: 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 Expats tend to like to work in the region – it is a p g NOTE ALSO: Budapest ranked among top20 favourable challenging but rewarding business area! expatriate locations globally! Source: European Cities Monitor, Cushman and Wakefield, 2007; FDi Magazine, 2008

Competitive average wages Monthly gross average wages in EUR in 2008 5000 4500 4000 3500 3000 2500 EU27 - average 2000 1500 1000 500 0 *latest available year: 2007 Source: National statistical offices, 2009

Strenghts of the Hungarian labour force Competent senior managers Finance skills Availibility of skilled labour Working hours ('000) Labour regulations Knowledge transfer between companies and universities Availibility of qualified engineers 0 1 2 3 4 5 6 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 Rank R k Talent I d T l t Index Country 2012 rating 2012 1 Austria 57.9 Russian 2 53.8 Federation 3 Poland 46.6 The EIU ranks Hungary 4th of 4 Hungary 46.2 Czech 13 countries in 5 Republic 45.7 the CEE Talent- 6 Slovenia 45.6 Index 7 Bulgaria 43.9 8 Slovakia 41.4 9 Ukraine 40.3 10 Turkey 37.7 37 7 11 Romania 37.0 12 Croatia 36.6 13 Serbia 30.0 Source: Economist Intelligence Unit – Heidrich & Struggles, 2009

Good availability of labour 1 Ireland 7.90 2 Japan 7.24 • IMD’s World 3 Switzerland 6.94 Competitiveness Yearbook 4 Sweden 6.90 ranks 57 countries by the 5 Denmark 6.89 6 Finland 6.88 availability of skilled 7 Philippines 6.87 6 87 labour … … … • Hungary is among the best 27 Hungary 5.74 … … … 10 European countries 30 United Kingdom 5.60 31 Czech Republic 5.58 33 Slovak Republic 5.43 42 Bulgaria 4.83 46 Romania 4.58 52 Poland 4.34 57 Venezuela 2.67 Source: IMD, World Competitiveness Yearbook 2009

Strong scientific capacity The World Economic Forum Country Ranking ranks Hungary 24th of 131 Switzerland 1 countries for the quality of scientific research USA 2 institutions Germany 5 France 19 Norway 21 Hungary 24 Czech Republic 30 Slovenia 33 Spain 49 China Ch 56 6 Poland 64 Greece 76 Source: Global Competitiveness Report, World Economic Forum, 2007/2008

IT Competitiveness: Hungary ranks well Hungary globally #28 Finland # 13 / 27 Source: Economist Intelligence Unit, 2008. Finpro/Insight to Hungary / © Finpro ry

Excellent access to key markets • At the cross roads of 4 main European transportation corridors • Extensive road and railway transportation network • Highly developed logistics and telecommunications infrastructure Source: ITDH, 2009

Expanding highway network Total Highway Network: 1100 km. g y Warsaw, 10 W hrs Prague, 5 hrs Munich, 6 hrs Hamburg, 8h H b 8hrs Kyiv, 12 hrs Vienna, 1 hr Rotterdam, 12 hrs Bucharest, Bucharest 10 hrs Constanza, 12 hrs Zagreb, 1 hr Trieste, 6 hrs Koper, 6 hrs Beograd, 4hrs Source: ITDH, 2009

Logistics: Excellent geographical position • Centre of gravity for distribution in the CEE • 13 logistics centres serving at least two transport 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) Spar: opened new logistics centre in Ü (2008) Üllő Rail Cargo Austria: acquired MÁV Cargo (2008) Záhony: Sophisticated economic development programme Renovation 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 Pharmaceuticals. markets ” Anatot President Pharmaceuticals Source: ITDH, 2009

Automotive: Major production hub Original manufacturers: Suzuki, Audi Suzuki: 282,000 pcs (2008 est.) Audi Motor: 60,000+ TT coupés and roadsters, A3 cabriolet Engine manufacturing (2008): Audi Hungary: 1.9 million engines GM Opel: 400 thousand engines 14 of the world’s top 20 TIER-1s present 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 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 well trained labour force, a dense A ll t i d l b f d supplier network and favourable logistical conditions were the main arguments in favour of Kecskemét.” Dieter Zetsche, CEO, Daimler D i l AG Source: ITDH, 2009

Biotechnology & Pharmaceuticals „It is worth investing in Hungary since, in the very recent years, Hungarian researcher have 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 spin-off sector in the CEE region • University biotechnology centres clustered 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 locations (Budapest, Debrecen) Sauflon Pharmaceuticals (UK) began building a contact lens factory near Budapest. Capacity is expected to reach 100 million contact lenses per year Pfizer (USA) opened a logistics and distribution centre in Budapest TEVA (Israel) expanded its capacity further in Debrecen Richter Gedeon (H) opened R&D facilities in Budapest and Debrecen Source: ITDH, 2009

Electronics: Major production location • Largest electronics producer and exporter in the CEE • Major global manufacturers: Samsung, GE, Philips, Sanyo, Sony and Jabil, Flextronics • Booming sectors: IT manufacturing telecommunications, consumer electronics „ „Hungary p g y provides an ideal environment for electronic manufacturing services as g the 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 Hungary • Schaffner Holding (Switzerland) is relocating production to Kecskemét in Central 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 IBM, present, 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) Source: ITDH, 2009

ICT: What happened in 2008? • Cognizant: BPO, software development, Budapest • CAS: software development, Szeged p , 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 • Major M j areas of growth: biomass, biogas, wind power f th bi bi i d • Investments into biofuel and biomass production have already increased • Compulsory feed in tariff of between 5 13 cents depending on feed-in 5-13 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 export p • Iberdrola Renovables set up several wind farms, total capacity 158 MW • Rossy Biofuels opened a 150,000-tonbiodisel plant in y p , p Komárom • Zöld Olaj BB opened a 40,000-ton biodisel plant in Gyö gyösö Gyöngyösön • Ökoline increased its biodisel capacity to 50,000 tons in Bábolnán Did you know that Hungary’s renewable energy potential is 220 PJ/year and that H ’ bl t ti l i PJ/ d th t the country receives as much as 2,200 hours of sunshine a year? Source: ITDH, 2009

Shared Service Centers: Popular location Hungary had the highest number of shared service b f h d i investments between 2002- 2006 in Europe (Ernst&Young, ) 2007) SSCs throughout the country: Debrecen, Miskolc, Pécs, Székesfehérvár etc Székesfehérvár, etc. Positive feedback from companies 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, Székesfehérvár • Vodafone: new financial centre in Miskolc • Celanese: Honorary Mention for Best New Captive Shared Services 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 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 q the 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. 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 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 Elcoteq Finnforest Halton Group Helkama Forste Huurre Nokia Sanoma WSOY Savcor, Scanfil Stora Enso Tunturi ICM, Lindström , Mecanova, Raflatac Source: ITDH, 2009

Finnish Business Presence in Hungary (cont’d) Productional Sales offices R&D / Planning Nokia Mobile Phones UPM Nokia R & D Elcoteq M-Real Elcoteq Sanoma Budapest Stora Enso 3C Hungary (CCC) Martela Perlos Rannila Agil Eight Savcor S Tikkurila ICM Stora Enso Kone Packaging Fiskars Mecanova Wärtsilä ~200 Finnish-originated Ruukki Construction R kki C t ti Ensto E t companies Ruukki Engineering Itella Information and 350 exporters to Hungary Scanfil Etc. Appr. 20 manufacturing Lindström companies Helkama Forste Finnish-Hungarian trade Clairia exceeds 1 bn. euro Hansaprint Raflatac Huurre Sanoma / 50 Finpro/Insight to Hungary / © Finpro ry

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 Finland g 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 • 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! to Hungary / © Finpro ry / 51 Finpro/Insight

Region is the leading growth market in Europe Growth will return, b id G th ill t besides th global challenges the l b l h ll In selected sectors, CSEE and Hungary are still growing and markets are very attractive to new operations and operational development d l t The downturn makes timing excellent for new busines development and partner seeking Finns can gains cost savings, but also get new customers Salary and other cost difference still exists, but less than in the y , past. Yet, the difference can be significant e.g. in manufacturing business European and also global companies have and still are shifting their p g p g global & regional service centers to the CSEE region. This can open up interesting opportunities for Finnish service providers. Moreover, there is a constant flow of FDIs to the region. This enable 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 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 resources Finpro is locally present to help Finnish companies to tackle these challenges!

Something to take home from Hungary … Tokaj wines and aszu (dessert wines) Zwack Unicum salami Herb liqueur salami Törley Sparkling Wine Goose liver Tibi Chocolate

Let’s go international! Tommi Pelkonen tommi.pelkonen@finpro.fi www.finpro.fi www.markkinoille.com +36 20 250 10 77

Hungary - Business Opportunities for Finnish companies

0 comments

Notes on slide 1

1 Favorite