05 October 2015 Panel Presentation for Industrial Manufacturing Panel Prof. Dr. Gusztáv Báger Budapest International Business Center Conference 2013.

21 April 2023

Panel Presentation

for Industrial Manufacturing Panel

Prof. Dr. Gusztáv Báger

Budapest International Business Center Conference 2013

21 April 2023

2

Main subjects

1. Two main macroeconomic challenges

2. General features of subcontracting

3. Some aspects of corporate citizenship

21 April 2023

3

1.1. Seek for break-out opportunities for economic growth

● Weak potential growth: GDP -1,7% in 2012; 0,3% in 2013 (EU); 0,9% in 2013 (Government)

● Industrial production -2,7% in 2012 From among 13 subsectors of

manufacturing: production• increased in 4 subsectors• stagnated in 5 subsectors• decreased in 4 subsectors(in electronics sector by 18%)

1. Two main macroeconomic challenges

21 April 2023

4

1.1. Seek for break-out opportunities for economic growth (cont’ed) Employment decreased by 2%

Weak financial position of firms

Slow industrial growth recovery (0,5-1,0 % in 2013)

● Consequently, need for further integration of foreign companies to Hungarian economy.

21 April 2023

5

1.2. Other important aims of Hungarian economic policy

● Financial and fiscal stability● Reducing public debt● To increase the level of labour market

participation and employment● Structural reforms (pension system, public

transport, higher education, state and municipal financing etc)

21 April 2023

6

1.3. Enhancing competitiveness(2nd major challenge)

●Recent governmental measures for competitiveness

New labour code (effective from 1 July) in favour of employers

New act on vocational training in favour of business needs

Strategic agreements between the government and top investors

Job Protection Action Plan

Site Selection Magazine Ranking, 2012

Top countries in Eastern Europe:

1.Hungary

2.Poland

3.Slovakia

4.Estonia

5.Czech Republic

The magazine of corporate real estate strategy & area of economic development

7

21 April 2023

Main arguments for Hungary as an investment destination

• Open economy with a high ratio of FDI stock• Attractive business environment• Investment friendly policy environment • Competitive tax system• High productivity and skilled, flexible labour at

competitive price level• High level of educational system• Availability of language skills, including exotic

languages• Close cooperation between education institutions

and companies• Governmental incentives

8

21 April 2023

Competitive tax system

• Low corporate income tax: • rate for the first HUF 500

million of the tax base is 10%; • beyond HUF 500 million, it is

19%.• Tax incentives and

allowances (development tax allowance, training subsidies, cash grants etc.)

• Flat personal income tax: 16%

9

21 April 2023

High average yearly working hours, 2011

Source: IMD, World Competitiveness Online 2012

10

21 April 2023

21 April 2023

11

2.1. Top reasons for contracting with Hungarian companies

● Central locationAt the cross roads of 4 main European

transportation corridors - I deal logistical center for the automotive industry (More than 90% of Hungary’s automotive production goes for exports)

● Cost efficiencyCompetitive wages and labor cost/value ratio in

European comparison in the CEE region.

2. General features of subcontracting

21 April 2023

12

2.1. Top reasons for contracting with Hungarian companies (cont’ed)

● Tradition of innovationLong and successful tradition of cooperation

between the universities and the producers in R&D.

● Long-term planningAccording to the sectorial estimations from 2013

400 000 passenger cars will be manufactured in Hungary.

Competitive earnings and long working hours of professions from the automotive sector

Source: UBS, Wealth Management Research, Prices and Earnings, 2009

CityGross income

per year in USDWeekly working

hoursTokyo 40,900 44

New York 40,700 40

London 31,200 39

Vienna 31,100 40

Berlin 30,200 39

Ljubljana 17,800 42

Prague 12,700 42

Bratislava 10,700 40

Warsaw 9,700 35

Bucharest 8,400 40

Budapest 8,400 43

Income and working hours of car mechanics

13

21 April 2023

Top reasons for strong supplier base in Hungary: the case of automotive sector• Over 600 companies in the automotive sector• 14 of the 20 leading Tier 1 company settled

down in Hungary• Hungarian automotive suppliers have several

years of experience supplying OEMs & Tier 1s

• Strong governmental supplier development activity

• Extended vertical and horizontal supplier connections

14

21 April 2023

21 April 2023

15

2.2. Weaknesses, threads●Weaknesses

Blue collar efficiency increase was lower than expected

Praxis oriented education is on low level, does not cope with the requirements of the industry

Low level mobility for blue collar workers Suppliers have low level IP contribution to

products, R&D capability is missing Low level of networking on supplier level Other means of transport (waterway, air)

21 April 2023

16

2.2. Weaknesses, threads

●Threads Entrepreneurial culture of Hungarian owned

companies (mostly SMEs) will not change as requested

Old hierarchies and traditions in education system will not be overcome

Co-operation among companies and institutions will not develop as required

Source: Prof. Dr. László Palkovics: Hungarian example: Challenges in the subcontracting industry (transport) with special attention to the human relation issues

21 April 2023

17

Main actions for enhancing subcontracting●To promote better harmony between education and needs of business●To increase R&D expenditure of SMEs●To elaborate financial schemes for supporting better collaboration between the SMEs and their foreign partners●To develop the competencies of local universities needed for their more efficient participation in co-operation networks●To develop entrepreneurial culture●To implement the tasks of strategic co-operation agreements

21 April 2023

18

● The definition of Corporate Social Responsibility is globally discussed

Limited view: philanthropy Extended view: having political connotations Suggested: to have sustainable development

connotations● New EU definition: „responsibility of enterprises

for their impacts on society”● It is on way in Hungary: to become more and

more a public concern

3. Some aspects of corporate citizenship

21 April 2023

19