How to select your new automotive manufacturing site in Hungary

by Dr. Balazs Csorjan, investment promotion specialist

2016 edition

How to select your newautomotive manufacturing

site in Hungary

[NOTE]These slides are designed not to present but to read as a document. Switch to Fullscreen View, please!

HungaryHungary is a low-cost manufacturing location inside the EU market.

Beside pharmaceutics, electronics, SSC, tourism and food processing, automotive industry is undoubtedly one of the leading branches in the country.

These few slides try to help you when it’s about automotive industrial site selection.

Did you know?● There are 4 OEMs and 700+ suppliers in the Hungarian automotive manufacturing industry, which produced

450k cars in 2015, employing 100k workers. Car manufacturing per capita is similar to Spain’s numbers.● There are a traditionally strong automotive component manufacturing focus in the Hungarian economic

policy. Hungarian governements think, suppliers (component manufacturers) provide stability to automotive industry, and deeper embedement to the Hungarian economy. New OEMs are welcome in Hungary, but suppliers are highly welcome.

● Hungarian government agency’s Subcontracting Department supports the matchmaking of suppliers.

Automotive clustersThe main automotive manufacturing region is the North Western part of Hungary, located in Győr (Audi), Esztergom (Suzuki), Szombathely (Opel).

Suppliers like Alcoa, Continental, Dana, Denso, Delphi, Hirschler, Johnson Controlls, Kirchhof, Magna, Rába, Valeo, Visteon etc. doing business in this part of the country.

Automotive clustersThe settlement of Mercedes-Benz new small car manufacturing plant in 2008 in Kecskemét shows the emerging importance of Eastern Hungary (see later the whys)

Suppliers like Bosch, Delphi, Eismann, FAG, Hajdu Auto, Hirschmann, Johnson Controlls, Knorr-Bremse, Magna, Modine, Remy, Shinwa, ZF etc. doing business in this part of the country.

Next slide: short video about Mercedes-Benz’ Eastern European site selection.

Labor market

UnemploymentUnemployment is maybe the most relevant difference between the Eastern and Western part of Hungary. Western Hungary has shortages in many professions and in many labour market segments, while Eastern Hungary “is a human mine”. With an example: the entire Western Hungarian Region has a similar number of job seekers (30k+) like a single Eastern Hungarian town, Hajduboszormeny and its vicinity (25k).

map: KSH

Labor costsNot independently from unemployment, Budapest and Western Hungary have higher labor costs. In numbers, the average monthly gross earnings of employees was 281 thousand HUF (approx. €930) in Budapest, 217 thousand HUF (approx. €720) in Western Hungary, and 188 thousand HUF (approx. €625) in Eastern Hungary, in 2013.

In Eastern Hungarian automotive industry, a well-trained, experienced, skilled worker earns monthly gross 150-250k HUF and an engineer between 300-600k HUF.

EducationThe Hungarian vocational education follows the “German modell”. The so called dual education means: vocational school students learn practical skills at companies.

There are no relevant differences between Western and Eastern Hungarian vocational education, however the leading universities are in Eastern Hungary (Miskolc, Debrecen, Szeged).

Foreign language education at vocational level is an issue, but there are planned projects for low-level, highly industry-specific and large-scale tech language education.

Labor regulation

The new Hungarian Labor Code has 4 benefits:

● it provides more simple termination of employement contract,

● more flexible rules for compulsory minimum salaries,

● more flexible working time,● and finally: more overtime.

Industrial parks

Industrial property supplyIn Central and Eastern Europe, there are approx. 1,000 industrial parks. More than 20% of CEE industrial parks are in Hungary (in Poland there are less than 100 industrial parks).The developed Hungarian industrial park network provides excellent road and rail transportation connections.In Eastern Hungary, some business parks provide direct motorway access on a very low-cost level.

Real estate costsIndustrial land average sales prices are between 20-30€ per sq.meter in larger cities, and under 20€ in smaller towns. 10€ per sq.meter can be regarded a very good deal, however some municipailities offer a free of charge industrial land.

Manufacturing rental market is small outside Budapest, but the average rental fees are between 2.5 and 5 € per sq.meter per month.

EnergyThe Hungarian electricity market is highly regulated by the EU. The EU has a competitive energy market (theoretically), separating the grid developers and energy providers. (On-site grid development is managed by business parks). As a key account, you can achieve competitive energy prices.

EU energy price statistics can be checked here >>

Infrastructure

Infrastructure: MotorwaysDeveloped infrastructure makes Central- and Eastern Europe more attractive location than other emerging countries of the world. Hungary has 1600 kms (approx. 1000 miles) motorways network, far the largest one in Eastern Europe.

The Hungarian motorway system is Budapest-centric, all the ways are going to the capital city.

Air accessThere are 3 international airports in Hungary.

Budapest Airport: the 2nd largest hub in Eastern Europe, more dozen daily flights inside Europe.

Debrecen International Airport (Eastern Hungary) has a strong air cargo focus; passenger flights to Western Europe and to Mediterranean Sea.

The Fly Balaton Airport in the Western corner of Lake Balaton has a strong low-cost air flight focus.

Grants by the Hungarian governmentWhen it’s about industrial site selection, grants can be the cherry on the cake. I don’t suggest to make a decision based on grants only, but why shouldn’t calculate with free money when some governments provide it?

The main topics when it’s about grants for manufacturing: job creation subsidies, training subsidies and cash grants. Over €10M investment you can achieve VIP incentives from the Hungarian government.

Grants by municipalitiesYou cannot imagine the creativity of Eastern European mayors when it’s about investment promotion. Some offers a one-year entrance for all your future staff to the matches of local basketball team (“it will support your recruitment”). Others provide international school development projects and family assistance to your expat manager families.

The bravest local governments offer special deals. E.g. the municipality of Hajduboszormeny, Eastern Hungary, provides a free of charge industrial property for 50 new jobs + a dedicated vice mayor to manage your investment within the Hungarian public administration. By the way, the location is inside the top10 best cost effective regions of Europe (ranked by Financial Times’ fDi Magazine), so beside basketball tickets you can gain pretty good deals on municipal level, too.

International schoolsBudapest: more international schools in more languages (English, French etc)

Eastern Hungary (Debrecen): international school in English; bilingual high schools (e.g: German-Hungarian) and an English-Hungarian grammar school

other cities: bilingual high schools

Industry associationThe strongest organization is AHAI, the Association of the Hungarian Automotive Industry (in Hungarian: MAGE). Its members cover almost the entire industry, and has working groups for governmental relations, communication and labour market.The networking events of AHAI can be a perfect first step in the Hungarian market.

About us

Manufacturing Hungary Blog is an information source about the manufacturing topics in Hungary and Eastern Europe. Our goal is to support site selection team’s job, providing useful information.

Dr. Balazs Csorjan, investment promotion specialist, the former regional director of Hungarian governmental investment promotion agency. Dr. Csorjan has taken part in 350+ site selection projects - he knows your questions.

If you liked this presentation, please do not forget to share it - maybe your partners will

like it, too.

Otherwise, do not hesitate to e-mail your questions: csorjan@m35businesspark.hu or download the file.

thnx a lot!