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BUSINESS JOURNAL BUDAPEST

VOL. 25. NUMBER 10

MAY 19 – JUNE 1, 2017

SPECIAL REPORT

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Meet László Naszádos, one of the leading SOCIALITE ThyssenKrupp Presta Hungary engineers Wines to Smooth helping develop autonomous driving solutions International Relations (among other things) for the world BUSINESS Parliament and the foreign ministry right here in Hungary. 14 have selected via blind tasting PayPass Function now Hungarian wines to serve at diplomatic/ protocol events that capture the essence of both the grapes that made them and the place of growth, and are also fully available to the public. 22

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Flexibility key for Retaining Talent A combination of skillsets provided by domestic and foreign universities will pave the way for students to have successful careers, according to the third Competitive Education Conference hosted by AmCham Hungary. 4

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S

ay what you will about the government, but it has pursued investment (and the jobs it brings) from the automotive industry with a dogged focus. At first, this may simply have been based on the idea that people who build a factory are less likely to move further east toward ever cheaper labor. The early days of the second Fidesz administration (2010-14) saw a lot of rhetoric about needing to reposition the country, that the financial crisis proved service industries could pull out or relocate when economic seas got choppy, and countries needed to make things, as Germany does, to stay strong.

A lot of people from the service industry told me privately how put out they felt by this. According to the CIA World Factbook for Hungary, the share services contributes to GDP is 64.7% (the figure is given as an estimate for 2016), with industry contributing 31.8% and agriculture just 3.5%. The feeling was that, in praising and pursuing manufacturing jobs, the service sector was somehow being denigrated, although the Hungarian Investment Promotion Agency (HIPA) has long boasted about the number of SSCs in this country. And as I argued in our last issue, high skilled service jobs are pretty much all we will have in the relatively near future. (Last year HIPA said more than 90 companies had established more than 100 SSCs in Hungary, employing some 40,000 people. Look out for our Special Report on the sector at the end of June.)

Given that, the odd bus maker aside, there are no domestic automotive producers in Hungary, the normally proudly nationalistic government was quite happy to continuing courting the foreign nationals. GM and Suzuki had long been here, Audi and Mercedes were happy to join them. And they have brought TIER One suppliers with them, and opened up their so-called value chains to local component suppliers.

Perhaps listening to the softly spoken complaints from the service sector, there was a time when critics of the government warned of too much exposure to car makers.

They pointed to the Czech example of overreliance on the car industry. A headline from the Prague Daily Monitor for February 19 this year (Czech economy relies on car production too much) suggests that fear is still strong in Hungary’s Visegrad Four peer. And it is certainly true that when Audi ratchets back on it production here, as tends to happen around the August holiday month or ahead of the introduction of new models, the difference can clearly be seen in Hungary’s output figures.

But Hungary seems to be alive to these problems, and it is noticeable this year how many times various government representatives have spoken of the need for a change in mindset, a switch from “Made in Hungary” to “Invented in Hungary”. The talk now is not so much about jobs (though no government anywhere in the world would not celebrate new jobs), as it is about the added value of jobs. The new philosophy seems to be that a factory with a R&D unit is even less likely to leave, because it is the people and their brains and creativity that keep businesses here.

In a sense, the government is following a direction industry is already taking. As reported in this issue, the likes of ThyssenKrupp and Bosch are pushing forward the future of autonomous driving here precisely because of the quality of engineers at their disposal.

Education and skills shortages continue to be a concern, but that dogged support of automotive FDI has brought clear benefits for Hungary.

Fortepan.hu / MHSZ

MTI / Sándor Ujvári

The Budapest Business Journal, HU ISSN 1216-7304, is published bi-weekly on Friday, registration No. 0109069462. It is distributed by HungaroPress.

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AUTOMOTIVE FDI HAS HELPED BUILD A BETTER ECONOMY

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THEN & NOW Top, an S-1 Swift acrobatic glider flying inverted above Hungary’s Kecskemét airport on May 14 in preparation for the Non-Olympic Summer games to be held in Poland on July 20-30. The black and white photo at right, taken in 1979, shows an SZU acrobatic glider at the first European Women’s Gliding Championships, held that year in Hungary.

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Economy Gains Momentum at Last

The year has started surprisingly well for the Hungarian economy: The pace of economic growth jumped to an annual 4.1% in the first quarter. That figure surprised analysts, and has caused them to revise their projections for the whole year.

Hungary’s year-on-year GDP changes in Q1 from 2004-2017 2004 +4.8

2008

2009

2010

2011

2012

2013

+4.0

2014 +3.9

+0.7

+0.6

+2.2

+1.7

2015 +3.1

2016

2017 +3.7

+1.9

-6.5

increase of

4.6%.

This time, the main contributors to the acceleration were industry and the construction sector. The performance of these sectors jumped significantly in the past few months: Industry was up 13.4% in March from one year ago, while construction output grew a massive 33.3% in the same month. It is worth noting, however, that in both cases, the base was very low last year.

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2007

-1.5

Breaking a three-year record, Hungary’s firstquarter gross domestic product jumped to an unadjusted 4.1% from 1.6% in the fourth-quarter of 2016, according to a first reading by the Central Statistical Office (KSH). In seasonally and calendaradjusted terms, GDP grew 3.7% year-onyear in the quarter and rose by 1.3% from the previous quarter.

The raw data is nearly one percent above analysts’ expectations, and even higher than the prediction of the Ministry for National Economy. The last time Hungary saw such an increase was in the first half of 2014: in Q1 and Q2 of that year, GDP grew 4.2% and 4.5%, respectively. Looking at first-quarter data, only in the first three months of 2006 has the Hungarian economy performed better in the past two decades, with an

now,” Zsuzsanna Boros of KSH commented.

“On the consumption side, there was a palpable growth in vehicle sales, which includes fleet sales to companies as well as household purchases,” Boros noted, assuming that European Union funds probably fueled much of this growth, especially in the construction sector.

Analysts were quick to revise their forecasts upward. Dávid Németh, head analyst at K&H Bank said that, considering the enlivened performance of the construction sector and an increase in investments based on EU funding, the Hungarian economy is capable of showing acceleration of 3.7% in 2017. He also noted that the good GDP data in March was not a surprise in light of the low base of last year.

In the first quarter of this year, industry grew nearly 8%, while the construction sector increased 25%. According to Németh, the latter was partially the result of large state investments, as the government decided about significant spending at the end of last year, thus its affects could be detected in the Q1 GDP result. Retail and domestic consumption also contributed, Németh added.

ING head analyst Péter Virovácz noted that the jump in Q1 GDP

data greatly exceeded analysts’ expectations, and it was probably a result of a strengthening industry and its impact on the country’s exporting activity. On the consumption side, domestic consumption is still the main driver behind growth, but investments – mostly from EU funding and a few private investments in the processing industry – also positively affected growth figures. This year’s 3.5% projection therefore needs to be revised, Virovácz said, adding that the government’s expectation of 4.1% yearly expansion of the Hungarian economy is no longer an overstatement.

The dynamics of the economy might slow a bit in the second quarter of the year; however, due to the rather weak last two quarters of 2016 and the increasing investment activity, GDP growth could be above 4% in the second half of the year, Takarékbank analyst Gergely Suppan explained.

Takarékbank might uplift its forecast for the full year, to near 4% from the current 3.6%. He also added that domestic consumption might further grow in the coming months, due to real wage rises and low unemployment rate.

Upward Risks Erste Bank sees upward risks in the Hungarian economy, but will not change its forecast without knowing further details, analyst Gergely Ürmössy said. Erste currently predicts an increase of 3.4% for the full year.

CIB Bank will also come out with a possible correction only once its analysts have seen the detailed GDP figures, scheduled for publication on June 7.

It was not only Hungarian analysts going back to their calculations; their peers in London also lifted their projections about the performance of the Hungarian economy for 2017. JP Morgan changed its current forecast of 3.6% to 4% for 2017, leaving its 3.5% estimate for 2018 unchanged.

According to JP Morgan’s analysts, robust growth in domestic consumption, the improving labor market situation and the fiscal and monetary policy of the Hungarian government all signal an improving growth pace in the coming months.

Commerzbank also reviewed its stance on Hungary, and is now projecting an increase of 3%, up from its previous 2.4% for this year.

It reasoned its pessimistic expectations by saying that it would be too early to draw a conclusion from one good quarter.

Numbers to Watch in the Coming Weeks

Photo: MTI/Noémi Bruzák

“Construction grew by a third in March, industry by double digits as well, which is observable everywhere from vehicle manufacturing to electronics, to drugs; everything. Agriculture is an exception now, without much growth there, but agriculture had a few good years before

2006

+0.5

ZSÓFIA CZIFRA

EU Fuel?

2005 +4.5

Minister for National Economy Mihály Varga welcomes the unexpectedly good GDP figures.

The KSH will publish details about Hungarian salaries in the January-March period on May 19.

Second estimates of March retail trade data will be released on May 23, and the state of the labor market will be in the spotlight on May 26. We’ll find out a few days later whether the not too robust investment data was able to improve in the first quarter of the year.

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Budapest Business Journal | May 19 – June 1, 2017

Royal Cocoa Party at the Hilton Budapest Business leaders and their children came together for a unique event – the Royal Cocoa Party at the Hilton Budapest – in the Castle District on May 6, in order to promote the spread of a better family-work mentality in Hungary.

ROBIN MARSHALL

The event, sponsored by the Hilton Budapest and the Budapest Business Journal, gave the managers of some of Hungary’s leading companies the chance to discuss how companies can support their employees in their family life.

It was promoting the work of the Three Princes, Three Princesses Movement (Három Királyfi, Három Királylány Mozgalom, or 3K3K), which was founded in 2009 after research found that many Hungarians were having less children than

they would like, and this was affecting happiness and wellbeing. The aim of 3K3K is that people should be able to have as many – or as few – children as they would like, without concerns of money or career getting in the way.

Family Event “The aim of the afternoon party was to create a family event where, beside enjoying family entertainment, company leaders could meet and discuss some professional issues like work-life balance, and family friendly and human-orientated organizations. This is in line with the main purpose of the Three Princes, Three Princesses Movement: To support young

Cocoa Party were: Klaus Windheuser, CEO of Commerzbank; Bársony Farkas, managing director of GE Hungary Kft. and president of the American Chamber of Commerce in Hungary; Péter Tibor Juhász, marketing communications manager at Magyar Telekom; and László Balogh, chief business expert and board member at real estate portal ingatlan.com.

And while the children had an opportunity to play board games, make arts and crafts, get involved with a drama play, and there was family photo shooting (with princes and princesses!) in the Dominican court, the company execs took part in a roundtable discussion on personal motivation and success stories of familyfriendly companies.

adults to accomplish their dreams of childbearing,” said Enikő Ujvári work-life program leader at 3K3K. The movement was founded by Maria Kopp, a Professor of Behavioral Sciences.

(The name is a reference to the fact that the heroes of Hungarian fairytales are often the third child, yet relatively few Hungarian families have that many children, though many would like to.) Kopp’s research identified ten reasons behind the gap between planned and born children. Three of these belong to the field of work, and that was why 3K3K founded the “FamilyFriendly Company of the Year” award in 2013. The foundation is now run by Kopp’s daughter, Fruzsina Skrabski.

Among those attending the first Royal

Flexibility key for Attracting and Retaining Talent

Photo: Lázár Todoroff

A combination of skillsets provided by domestic and foreign universities will pave the way for students to have successful careers, according to the third Competitive Education Conference hosted by the American Chamber of Commerce (AmCham) Hungary.

LEVENTE HÖRÖMPÖLI-TÓTH

AmCham and the Hungarian Investment Promotion Agency (HIPA) launched the Competitive Education Conference in cooperation with Ministry of Human Capacities (EMMI) and the Ministry for National Economy back in 2015 in order to create a dialogue between academia, business and government with the aim of developing Hungary’s long-term labor market competitiveness. Corporate, governmental and education experts and students gathered for the third time this year to discuss those matters in light of three current pieces of research.

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Students give a presentation at the third Competitive Education Conference.

Engame Academy was exploring how Hungarian students studying abroad see their future. Data suggests that more than 10,000 are pursuing their studies on foreign soil and their number is growing by 5-10% every year. However, only 40% of them are planning to move back, and 30% have no intention of doing so at all.

The research also found that many respondents left the country in the first place because their area of expertise is underappreciated in Hungary.

PwCʼs latest Employer Brand Research was aimed at helping companies to see what expectations young people have for employers, and which preferences and criteria are important to them when they make decisions about designing their career or choosing their workplace.

The overwhelming majority of respondents ranked flexibility as the most important factor for choosing a workplace, whether it takes the form of telework, flexible working hours, summer

internship programs, or the description of a particular job. Mutual trust, continuous feedback and a possibility to learn from each other are also significant elements of the solution. On the other hand, as it turned out, companies rate problem solving skills, the readiness for cooperation and the ability to adapt highest. But they need to accept the fact that the times are gone when it was them setting the terms for employment. Now employees pick the workplace that suits their liking best.

As student participants concluded, gaining experience at a foreign university can work as a springboard and it might serve as great international experience. Yet, nobody will be destined for success just because of that. Students need to work on skills provided by the Hungarian education system such as resilience and self-discipline and soft skills that can rather be mastered abroad. The latter include presentation skills, project and team work and handling digital education tools. The Hungarian educational system needs to embrace the teaching of such skills to better gear up graduates to handle the challenges of a complex modern era jobs.

Findings of the research and the key messages articulated at the conference will be turned into recommendations and communicated to the government

by AmCham.

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Wing Converting Material Center Into Speculative Skylight In just such a way the

12,700 sqm

Wing has commenced the redevelopment of the Material Center (which the company calls “a high quality yet cost-effective office building”) into the circa 20,000 sqm Skylight City office center.

GARY J. MORRELL

Preparatory works at the building have begun and offices are already being offered for lease with a proposed handover date of the end of the year. The project – located close to Váci út – is the first fully speculative office development

by Wing in several years, and reflects growing developer confidence in a Budapest market that now has a number of speculative developments ongoing.

“Based on these considerations, and in accordance with the presentday expectations of companies, we are creating an innovative, livable and

The Material Center, close to Váci út, is being transformed into the Skylight City office center.

inspiring working environment with a modern look,” said Norbert Schőmer, Wing’s deputy CEO responsible for office development.

The interior, designed by Lab5, includes an internal park with trees reaching up to the upper floors. The project was designed by Wing’s in-house architects, Aspectus Architect Zrt., and

Wing is aiming to comply with BREEAM “In-Use” accreditation.

Pre-lease or BTS Wing’s office development strategy has, up to now, been to commence development of a project only once a substantial pre-lease or built-to-suit deal has been concluded.

V17 office center in Váci út was preleased to E.ON Hungary, with 600 staff now working at the complex.

As part of this cautious development strategy, Wing is also constructing the Ericsson R&D headquarters at the Nobel Prize Winners Research & Development Park, located on the Buda side of Rákóczi híd. The 24,000 sqm LEED “Gold” accredited complex was also designed by the Aspectus studio.

According to Noah Steinberg, CEO & chairman of Wing, the project will be delivered at the end of the year.

In another built-to-suit project, Wing has commenced construction of the 57,000 sqm Magyar Telekom Group HQ, located in District IX, adjacent to the Groupama Ferencváros Stadium. The complex will provide a working environment for around 4,500 staff. The BREEAM “Very Good” accredited building was designed

by TIBA Architects Studio and the project is due to be completed in the second half of 2018. Yet another on-going development is the ibis Styles Budapest Airport Hotel at Ferenc Liszt International Airport, which Wing is due to deliver by the end of the year.

The 5,200 sqm hotel is being built in partnership with operator Budapest Airport. The hotel, again designed by Aspectus, will provide 145 rooms in a contemporary design style.

DVM Designs SSC Space at Park Atrium

DVM group has designed more than 1,000 sqm of office space and created an SSC for a leading healthcare company at Park Atrium office building.

DVM undertook the design and construction tasks, while project management was provided by Cushman & Wakefield. Corpus Sireo purchased the earlier generation 25,500 sqm Park Atrium office center for a reported EUR50 plus million last year.

GARY J. MORRELL

The project reflects the growing importance of well-designed office interiors that meet the needs of both tenants and staff. DVM created the interior space based on detailed guidelines

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provided by the tenant. “An essential aspect of the design was to make work relationships less hierarchical, to facilitate information flow and efficient work via flexible space structures,” said the company. “This is achieved using shared workstations, focus booths for phone calls or for one to two people to work, small rooms for internal meetings and large conference rooms for international conferencing. It was also a key objective that space design should not only be highstandard and tasteful, but also durable and close to nature in style. Accordingly, mainly colored and fabric wall surfaces in pastel shades were installed in the office,” added the company, established in

Budapest in

1995.

According to DVM, particular emphasis was placed on acoustics, with sound absorbing ceiling panels chosen in the design. The office consists of open-air office units, known as “neighborhoods”, in addition to collaborative spaces.

Other SSCs This is not DVM’s first foray into SSC design. It also constructed the 1,400 sqm Oracle SCC on the 6th floor of the Millennium City Center Building H, in conjunction with Cushman & Wakefield, who was responsible for the project

Part of the DVM-penned SSC interior at Park Atrium. management. The interior design there was undertaken by Réka Kiss, with the construction plan by Finta Studio.

The center consists of three executive offices and nearly

120

workplaces

in the office area. This also hosts the so-called Cloud Business Center, a central element of Oracle’s services. “The company serves the needs of its most important clients all over the world from this office, along with three other locations.

In addition to the general areas, the

‘control room’ with its unique video wall and special audio-visual equipment, as well as the ‘war room’ separated by a glass wall, are the heart and soul of the office,” said DVM. As reflects the current interior design trend, the office consists of open spaces, conference and meeting rooms and relaxation zones. The large kitchen area also doubles as a collaboration room. “The design, the color shades and the highquality materials result in an office that reflects Oracle’s image, and provides a modern and youthful work environment,” concluded DVM.

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Business

Billboard Pain Will Lead to Gain, Says JCDecaux Although the Hungarian government’s recently passed decree heavily regulating the billboard market has caused concern for many players, the Hungarian subsidiary of French outdoor advertising firm JCDecaux Group has told the Budapest Business Journal that, while the law will indeed transform the whole market, it also believes it will trigger a technological revolution.

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CHRISTIAN KESZTHELYI

The firm thinks the radical changes will herald the advent of new devices that fit into the notion of a so-called “clean city” (an organized cityscape) replacing the current billboards. This trend has successfully been implemented in Western Europe and South America, JCDecaux Hungary Zrt. says.

“We believe that the current legislation will speed up the implementation of international trends in Hungary. We believe that out-of-home media, through providing different functions, can help cities become ‘smarter’, and can also help herald the domestic appearance of e-media advertising tools already present in developed markets,” says Tímea Samu, co-CEO of JCDecaux Hungary.

She also notes that, prior to the published decree, many players established billboards in order to have the biggest surface for sale once the new rules come into full effect by December 31, 2020. According to Samu, this behavior shows that the domestic out-ofhome media market has potential.

However, Samu does admit that the new law will make operations more difficult for

the majority of the players in the market, as the current 12 sqm billboards must be dismantled; the maximum size of such advertising surfaces will, in the future, only be 9 sqm, which is actually Europe’s most popular city furniture format after the 2 sqm so-called “citylight” surfaces found at public transport stops. Just as important, though, the changes are thought likely to trigger “significant investment” by market players, according to JCDecaux.

Smaller is Better

“In the majority of large European cities — such as Paris, Berlin, Salzburg and Zurich — leading out-of-home media firms [already] use the smaller version. This size is big enough to carry good advertising value but, due to the decreased size, it does not impact the cityscape that much,” she adds.

Another factor that is expected to fundamentally change conditions is that, after January 1, 2021, billboards can only be placed in areas owned by local governments, and advertising can only be done with the approval of the authorities. Currently, almost 90% of Hungarian billboards are placed on

Tímea Samu, JCDecaux Hungary.

private properties, JCDecaux says.

The changes will hurt JCDecaux Hungary too. While for the group as a whole revenue from billboards comes to just 14%, for the Hungarian subsidiary it brings more than 50%. Currently owning almost 7,600 billboards, the Hungarian operation expects to lose billions of forints in ad revenue by the end of 2020, on top of which it will also be faced with the dismantling costs of the larger billboards, which the firm puts at approximately HUF 1 billion.

Yet, as the company has been focusing heavily on functional street furniture, it says it is willing to continue its activities in line with the changing legal environment and advertising trends.

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WHO’S NEWS CMS Budapest appoints new real estate partner

Business

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Do you know someone on the move? /// Send information to news@bbj.hu

József Várady has been promoted partner at law firm CMS Budapest’s real estate group, from the position of senior counsel, taking effect from May 1. Várady has been working at CMS Budapest for more than 14 years, being involved in real estate transactions and advising major Hungarian and international clients on real estate projects and litigation matters. He also has experience in corporate and financing transactions and tax matters. “I am delighted to take a partner role within CMS. It is exciting times now in the real estate sector in Hungary and across the region, and my priority as new partner is to help further develop our No.1 real estate practice and keep servicing our clients to the highest standards,” said Várady. The appointment is part of the joint partner promotions of CMS, Nabarro and Olswang, involving 48 partners in 26 offices. The three firms completed their merger on May 1, creating the world’s sixth largest law firm by lawyer headcount. CMS

Cameron McKenna Nabarro Olswang is now present with 70 offices in 39 countries. “As our firm grows bigger and bigger, we also have to ensure the continuous growth of leadership and over the past years József has proven himself many times as an exceptional lawyer and leader,” said Gábor Czike, head of real estate at CMS Budapest.

“His promotion not only reflects the invaluable contribution he has made to the firm, but also our commitment to further invest in the real estate practice,” Czike added.

ConvergenCE names new leasing director Dóra Papp Vas has been appointed leasing director of real estate firm ConvergenCE Hungary, as the firm looks to strengthen its leasing management team. Papp Vas will be responsible for the leasing activities of ConvergenCEmanaged buildings including Eiffel Square, Kálvin Square, CityZen Offices, B52, Margit Palace and the Terrapark

Next “A” and “B” offices. Papp Vas is rejoining ConvergenCE after maternity leave; she was previously responsible for the successful letting of the Eiffel Square Office Building.

Deloitte Hungary picks new CEO András Fülöp has been appointed CEO of Deloitte Hungary, taking effect on June 1, replacing Gábor Gion. Fülöp has been working for Deloitte for 23 years, and has been financial services industry leader for Central Europe since 2015. “The most important task we are facing is to add more – even if surprising – products next to the traditional big four in the Hungarian market,” said Fülöp. “Successful Hungarian solutions need to be taken to international markets. To mention a few, Deloitte is the second biggest digital agency in the world, and hundreds of our colleagues are working on developing blockchain solutions. In Central Europe, Deloitte Legal is one of the biggest law firms, and one of our most successful

and fastest-growing EMEA-level IT security counselor centers is in Budapest,” he added. Gion ran the Budapest office for more than eight years. Under his lead, the initial staff number of around 300 had almost doubled by 2017. Gion will focus on the relationship with the government of Hungary and continue working as head of the EMEA region. Balázs Mérth takes over Fülöpʼs former position.

KPMG Hungary welcomes new communications chief

Gabriella Liptay has been appointed marketing and communication director of KPMG Hungary, a move that took effect on April 18. KPMG Hungary says it now plans to pay special attention to strategic communication, brand building and marketing in line with ambitious growth. Liptay previously worked for the Hungarian Tourism Agency as communication director, the Design Terminal as chief of investment connections, and Libri Group and Ferenczy Museum Center as communication and marketing chief. Before this, she spent 15 years in the telecommunication sector as communications chief at numerous giants such as Ericsson Magyarország, Magyar Telekom and Invitel.

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PayPass Function now Part of Telenor Wallet app Thanks to Budapest Bank feedback indicated that the NFC feature was badly missing from the equation.

That is when the telco decided to team up with Budapest Bank to incorporate NFC into the existing mobile wallet.

“It allows you to replace physical services such as buying tickets or travel insurance,” Banovic noted. “Now you can use your mobile wallet for any kind of transaction, whether offline or online, remote or contactless.”

The service is available for Telenor clients who, after downloading the Telenor Wallet app, may request a Telenor MobilPass card with which the app can be topped up via a bank transaction. That amount can then be used for PayPass payments.

Telenor says its mobile wallet has become the first ever solution that supports remote and contactless payments alike, and features both NFC technology and the MasterPass service with the help of Budapest Bank.

Around

75%

LEVENTE HÖRÖMPÖLI-TÓTH

The local mobile payment culture was given yet further impetus thanks to Telenor’s latest development. The telco provider’s mobile wallet has been around for a while now and the app enabling its functioning has been downloaded to some 600,000+ handsets. But as Aleksandra Banovic, vice president of retail services at Telenor said, customer

of points of sale (PoS) in Hungary are NFC-compatible. But payment is not an issue even in the case of the remaining 25% of PoS. This is when a separate plastic card provided together with the Telenor MobilPass service can be used. Other functions of the plastic card include making online payments or getting cash from ATMs that do not allow contactless withdrawal.

Key Asset A key asset of the Telenor’s mobile payment package, which is available for HUF 490 per month after a three-month

Aleksandra Banovic, VP retail services, Telenor.

trial period, is that every existing mobile payment service has been integrated in the new wallet to maximize the scope of use. Purchasing parking or lottery tickets and travel insurance, paying for invoices, topping up prepaid phone cards, or ordering taxis are just as easy as booking tickets from jegy.hu, ordering food from pizza.hu or redeeming vouchers.

“According to our survey, our customers deem three main factors as crucial: control, simplicity and customization,” Banovic said. “By being able to determine the amount of money the MobilPass should be topped up with, people gain control over their own finances. On the other hand, the simplicity of contactless mobile payment also works when using Telenor Wallet, which can be customized.”

“Our vision of the future builds on intensifying digitalization.

Our aim is to be one of the top banks in terms of digitalization, and the virtual payment scheme introduced as a joint effort with Telenor is a key milestone in this process. It will take banking customer experience to a whole new level.”

As Gyula Fatér, head of retail at Budapest Bank said, competition is fierce among incumbents of the banking sector and players from the outside too. Fintech companies are trying to replace banking services with their own solutions and thus carve out a market share, particularly in the areas of retail payments and transfers.

“Our vision of the future builds on intensifying digitalization,” Fatér said.

“Our aim is to be one of the top banks in terms of digitalization, and the virtual payment scheme introduced as a joint effort with Telenor is a key milestone in this process. It will take banking customer experience to a whole new level.”

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Budapest Business Journal | May 19 – June 1, 2017

Targeted Events, by Royal Appointment

ROBIN MARSHALL

Henry Scullion.

Albert Royaards. my commercial activities on a part time basis in order to also continue and support the institutions I founded and managed,” Royaards says, explaining his motivation.

“I am only 73 years old, and therefore hopefully have many more years to go for an active working life.”

The two met through Grandhouse where, as Scullion explains “I saw Albert repeatedly pull off a wide variety of events in extraordinary places in Budapest with aplomb, entertaining us always with eminent speakers from industry, politics and the humanities, from ex-prime ministers to world famous conservationists. As my business is connecting people with talent and skill to customers, it did not take long in conversation for us to realise that there

|9

that you can sell them more stuff (from their perspective), why not offer them real value such as an event where they can connect with their peers in the industry, be entertained and build their business?

You will be transformed from potential timewaster to industry leader in a flash.”

What is the secret of a successful corporate event? Royaards says: “Put the needs of your customers first and create an event which will benefit them. For example, to help your automotive industry customers, invite a car industry expert to give a speech on the future of electric cars.

This will attract your customers (as well as their peers), increase your profile and build trust in you as a valued business partner.

After this, your customers will be the ones inviting you for lunch.”

Other events could range from a product launch to a team building day for staff or a networking event for suppliers. As Royaards explains, it can be “anything from an intimate dinner to a glamorous gala evening. We take care of details so you can take care of business.”

And DRA says it can also give speech coaching, advice on protocol, and even provide a master of ceremonies “to give you even more time to spend with your clients”.

The pair are offering readers of the Budapest Business Journal the chance to win the free organization of an event with up to 30 attendees. All you need to do is email the details to news@bbj.hu, with the subject line DRA, and we will pass them on.

They will then chose the most interesting/ challenging/unusual.

You can find out more about the company from its website: www.danuberoyalarts.com

Two men well-known from expat social circles say they have spotted what they call an “opportunity for companies to grow their businesses faster”.

Henry Scullion and Albert Royaards think that too many corporate events are organized with no real concept or purpose; they happen because people feel they ought to, but their true potential for growing business is being missed.

Scullion, who is of Irish descent, is a member of Toastmasters in Budapest, and has his own company, Speakeazy, advising corporate clients on good presentation skills, be it via websites or speeches.

Dutchman Royaards is arguably the better-known of the two through his charity work with the Red Nose Doctors and his own “Smiling Hospital Foundation”. He is also chairman of Grandhouse International Club, a monthly networking event for those “tired of networking events”.

“For exactly the last 20 years I have been involved only in charities and not-forprofit organizations. I would like to renew

Business

is a niche market for similar events for business, and Danube Royal Arts was born.”

Powerful Tools The pair say they see corporate events as powerful marketing tools for business, but only if they are designed with client and supplier needs in mind. It is what Royaards calls “marketing through corporate events towards specific goals”. That is where their outsource event service comes in.

Scullion says the target market is “CEOs and sales/marketing people from SMEs who don’t have a slick marketing department/web presence and spend a lot of their time having individual meetings with clients and suppliers.”

“Instead of spending time persuading your customers to have lunch with you so

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Special Report Automotive Boosting Hungarian SMEs in the Automotive Value Chain 12 Where Digitization Leads, Auto Industry Must Follow 16 Plugging into Further E-mobility Growth 18

How the auto industry plans to keep driving Hungarian growth forward BBJ_2510_special_report.indd 10

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With E-revolution Around the Corner, Investments Keep Flowing Into Automotive

Output in the Hungarian automotive sector is set to rise by 50% in the next few years, but more crucial is whether R&D intensifies and to what extent the e-revolution will be capitalized on.

Automotive broke records yet again last year in Hungary, best indicated by its production value of HUF 7.874 trillion, a new high. That makes up some 29% of total industrial output, compared to a mere 16% back in 2000. The strategic importance of the sector is further shown by the fact that one-quarter of the country’s exports stem from it, and in the past few years the number of workers employed by it grew from 85,000 to nearly 150,000.

And this seems to be just the beginning.

According to statistics from the Hungarian Investment Promotion Agency (HIPA), negotiations on 25 sector-specific projects were completed in 2016 that are to bring in FDI of

EUR

1.948 billion.

Indeed, announcements on foreign capital flowing into the country seem to have been hitting headlines in conveyor belt fashion. Take the plan of ZF Hungária, a global top TIER 1 supplier, to create 770 jobs in Eger while investing HUF 31 bln, or the latest ThyssenKrupp effort worth HUF 11 bln to produce hexical springs and stabilizers in Debrecen.

Established car manufacturers with a seat in Hungary are not short of ambition, either, when it comes to visions about expansion.

The Mercedes announcements from last year were described as a game changer with reason. The EUR 580 million earmarked for technology and production capacity development through 2018 was already significant; the construction of a second production plant worth EUR 1 bln, to start in Kecskemét next year, sent an even more

Car manufacturers carrying out R&D in the country will enjoy financial benefits and a total of HUF 700 bln has been assigned to fund related activities.

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Photo: kormany.hu/KKM

LEVENTE HÖRÖMPÖLI-TÓTH

German automotive parts manufacturer ThyssenKrupp launched its HUF 11 billion greenfield investment in Hungary’s second city of Debrecen on May 12. Once finished, the 18,000 sqm factory turn out more than six million springs and stabilizers for the automotive industry. powerful message. Suzuki, which sold most cars in Hungary in 2016, securing a 11.67% market share, has decided to pour HUF 5.3 bln into remodeling its complete manufacturing and logistics structure.

Things look busy at Audi as well, where an 80,000 sqm bodywork plant and a 15,000 sqm tool manufacturing unit are in the works in Győr. Its investments reached EUR 302 mln last year only.

Capacity Badly Needed Such measures are expected to result in 50% production capacity growth by the end of the decade. That could boost exports by 10% and the GDP by 2%, respectively.

More capacity is badly needed for the total number of cars produced in Hungary stagnated at 523,000 in 2016 compared to the year before. At Audi Hungaria, vehicle output even plunged by 23%. It was offset

by Suzuki’s extraordinary growth of 16% and Mercedes’ nearly 4% increase. Engine production, however, almost doubled at Opel between 2013 and 2016, hitting the 700,000 mark.

Understandably, the government wishes to see even more growth, while it envisages a shift from the principle of “Made in Hungary” to “Invented in Hungary”. Accordingly, car manufacturers carrying out R&D in the country will enjoy financial benefits and a total of HUF 700 bln has been assigned to fund related activities. Intensifying R&D is very much needed as the domestic added value share of automotive is

only

39%,

with the rest of the value created abroad.

Some encouraging signs do exist.

ThyssenKrupp designated its Budapest research center to work on autonomous driving technology, AImotive is hitting global headlines with its self-driving solutions developed in-house, and Audi Hungaria has developed a natural gaspowered CNG engine in a joint effort with the parent company in Ingolstadt.

An unexpected obstacle lurks in the introduction of European Union legislation on Real Driving Emissions (RDE), according to which vehicle emissions must be tested under real traffic conditions.

Manufacturers had one year less than initially planned to get the necessary developments done to comply with the new rules, and this forcefully shortened transition may cause a drop in production of up to 15%.

European Trend On the other hand, European market trends also shape the overall outlook. As was pointed out in a statement Magyar Suzuki Zrt. sent to the Budapest Business Journal, it gives food for thought that in 2016 around one million fewer cars were sold in Europe than prior to the recession.

The e-revolution could come to the rescue with its almost unlimited possibilities. But the question is whether players in the Hungarian automotive industry now fixated on traditional technology can make the switch on time. For one, no models with an electric powertrain are featured in Suzuki’s Hungarian production line, and there is no short-term plan in place to change that.

Christian Wolff, plant director of Mercedes-Benz Manufacturing Hungary Kft., said in an earlier interview that it

Audi Hungaria may have stolen a march here; it has disclosed that it will become the center for electric engines of the Audi group, with serial production scheduled to start in 2018. would be premature to say what models will be made in its new plant, but he admitted that the company is working consistently to market e-cars, and related development is under way at all of its manufacturing sites. Audi Hungaria may have stolen a march here; it has disclosed that it will become the center for electric engines of the Audi group, with serial production scheduled to start in 2018. Parallel relevant investments include Samsung’s e-battery production plant in Göd, and the building of the first European electric bus plant by Chinese BYD in Komárom.

Part of the equation is the role the more than

700

suppliers

will play during this period of transition to the new e-drive-based world in the longer run.

With electric vehicles on the way to total dominance, far fewer car parts will be needed. So, companies that specialize in only a limited number of parts related to the internal combustion engine and are incapable of product development, will soon be in trouble.

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Boosting Hungarian SMEs in the Automotive Value Chain

“The performance of Hungary, as an open economy, is essentially determined by foreign trade, exports and the rate of investment.

In terms of the effect of investments, the direct promotion of investment indirectly and significantly affects the Hungarian SME sector as well.”

The Budapest Business Journal spoke with Tamás Kokas, the point man for the Hungarian Investment Promotion Agency (HIPA) when it comes to supplier development in the automotive sector, about current and future trends in the Hungarian market, and what is being done to help existing businesses and draw new ones here.

Hungary are foreign-owned. Hungarian suppliers face the daily challenge of intense rivalry, most often with international competitors. The advantage stemming exclusively from cheap labor has faded over time. Successful companies provide extra services to customers, aiming to strengthen ties and cooperation with them. They switch to more complex activities, such as the manufacture of tools, design of technology, operation of a development division. Another “escape route” – not exclusive of development – is offered by the increase of capacities for small-sized Hungarian owned suppliers, where several companies forge cooperation partnerships.

BBJ STAFF

The rate of cooperation is relatively low, even though these companies could strengthen their position within the supply chain through ancillary activities and coordinated development, and the production not only of individual products, but also of assembled units.

In terms of responding to questions from the sector players, what is most of your time spent on?

There is a priority on the development of soft skills in the Hungarian SME sector, on the organization of related training programs and on preparing companies for the challenges of the Industry 4.0 revolution, at least on an evangelization level.

Do you expect any more car makers to settle in Hungary?

Although unemployment is low in Hungary, the country still has labor reserves on a regional level. As a clear and positive recent trend, which is supported by the government, rural municipalities and regions are becoming increasingly attractive to foreign investors. Since unemployment is higher in these regions, greater workforce and better conditions are available to future investors. Moreover, there are university cities in the eastern part of Hungary that may serve as an excellent knowledge basis for large investments.

Much of your work concerns getting more Hungarian SMEs involved in the manufacturers’ value chain. How do you achieve this? What is the greatest challenge in doing so?

Automotive corporations increasingly expect suppliers to assume a greater share of the development processes, such as product development and R&D. Automotive OEMs produce approximately 30% of the added value of the entire product, while suppliers account for the

remaining

70%,

quasi enhancing the role of TIER 1 suppliers. The ratio of outsourced value-

BBJ_2510_special_report.indd 12

Mini-bio: Tamás Kokas

adding processes is growing each year; i.e. suppliers are required to fulfil increasingly complex requirements. The entire supplier pyramid is under constant pressure of development and innovation.

On lower levels of suppliers, the necessary infrastructure is not generally available due to the lack of special measuring instruments, target software and development engineers.

HIPA’s supplier program is responsible for providing a picture of the operation and participants of the Hungarian supply chains of a given sector to foreign partners (whether OEMs or integrators) as early as the implementation stage of investor interest, thereby boosting the prospects for gaining favorable investor decisions in the Hungarian SME sector.

It also has the important task of integrating as many Hungarian SMEs as possible in the supply chains of large corporations, and to train and develop SMEs, and to strengthen their “soft” skills to ensure that they can retain a solid position or advance in the production processes. This

Tamás Kokas, an economist has decades of experience in foreign trade and economic development programs. He has been working for HIPA and its predecessors HITA and ITD Hungary since 2001, with the main task of boosting suppliers’ industry relations and supplier development. He is the head of HIPA’s Supplier Development department and also the deputy director of Investment Projects & Supplier Directorate.

activity is, to a great extent, supported by the supplier development clauses of strategic cooperation agreements concluded between the government and large corporations, on the one hand, and by the supplier development cooperation between HIPA and the corporations, on the other, which enable the targeted training of potential suppliers on the basis of the needs of corporations.

The Hungarian automotive industry – relying heavily on suppliers – is strongly embedded in international networks, not least because all of the car makers and most of the TIER 1 suppliers operating in

Hungary is targeting more R&D work here, moving from a “Made in Hungary” concept towards an “Invented in Hungary” ideal. What is the impact on the domestic SME sector?

HIPA aims to increase the number of investments in Hungary that apply innovative technologies and conduct research and development, thereby supporting the growth the Hungarian SME sector. This process is already evidenced by specific results in the automotive industry; increasingly complex and sophisticated activities are introduced in Hungary in connection with vehicle manufacturing, or in the form of independent development activities (e.g. engine development).

The two main directions of development in the automotive industry are selfdriving cars and electromobility. In the former case, there are already two major German companies that treat Hungary as an R&D center in this field: ThyssenKrupp and Bosch.

The processes of the automotive industry actually operate with the involvement of many other industries: electronics, computer technology, software production, machinery, plastics, glass and chemicals, tool manufacturing, precision steel and aluminum casting. The automotive industry is considered a strategic sector in the Hungarian economy. Owing to complex investment promotion activity,

2017. 05. 17. 18:09

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our results in the automotive industry in recent years were quite successful, both in terms of direct investment and re-investment.

The performance of Hungary, as an open economy, is essentially determined by foreign trade, exports and the rate of investment. In terms of the effect of investments, the direct promotion of investment indirectly and significantly affects the Hungarian SME sector as well.

Beyond the automotive industry, within the context of the economy as a whole, it can be said that the more large international companies come to Hungary and develop here, the more possibilities Hungarian small- and medium-sized companies have for joining the supplier network of these companies.

Companies like Audi have invested heavily in dual education in Hungary. What is the level of cooperation between universities, large multinationals and SMEs? Dual education represents an important element of cooperation between universities and companies, which is gaining relevance not only in higher education, but also in secondary education. In addition to dual education, universities and companies can also cooperate in the field of product and technology development.

Continuous innovation is essential for companies to secure their place or to advance in the supplier pyramid. As a basic requirement, they need to carry out product development, optimize

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Budapest Business Journal | May 19 – June 1, 2017

“The current dynamics of the automotive industry clearly show the potential of electromobility in Hungarian industry, once it has reached a significant scale. The new, growing electric segment offers entry points that should already be addressed so as to ensure the improved performance of the Hungarian sector in the medium- and long term, enabling it to provide higher added value for the global automotive industry.” manufacturing processes, measurement techniques and quality control methods, and to develop and train their human resources. Businesses that lack such capabilities may be left behind in competition, because companies at the top of the supplier pyramid are increasingly delegating innovation requirements to lower levels. SMEs typically do not operate development divisions or laboratories suitable for quality assurance process measurements, while institutions of higher education have substantial latent

capacities. Experience and “field work” are essential for higher education institutions, teachers and students. Teachers, technicians, and students thus offer free capacities, untapped knowledge.

Main criteria of company development: • •

For the purpose of implementing the above objectives, HIPA entered into an Agreement on Cooperation in the Automotive Industry (JEM), which aims to strengthen cooperation between eight Hungarian universities and the SME sector in the training of engineers in the field of professional traineeship programs and joint R&D projects. Unfortunately, the program has recently lacked the attention and commitment it deserves; therefore, I wish to reach out to both the participants of the sector and to educational institutions by emphasizing the importance of such cooperation.

• • •

• •

What would you most like to change about how the automotive industry operates in Hungary?

Vehicle manufacturing related to electromobility is an inseparable part of the global vehicle industry, which will continue to account for growing shares of the market. Although it currently only accounts for

reduction of costs; introduction, application of modern company organization, production organization methods; ability to provide extra services that represent high added value; development of products and technology; diversification (the supply of several companies, possibly in different sectors; production of different types of products); reorganization of market relationships, including new forms of cooperation; flexibility, fast responses to a changing environment.

understanding the function of car makers and their extensive supply chains, it will be possible to fine-tune the possibilities of the Jedlik Ányos Program of industrial support for electromobility. The current dynamics of the automotive industry clearly show the potential of electromobility in Hungarian industry, once it has reached a significant scale. The new, growing electric segment offers entry points that should already be addressed so as to ensure the improved performance of the Hungarian sector in the medium- and long term, enabling it to provide higher added value for the global automotive industry.

less than

1%,

all analysts expect gradual growth and its emergence as a solid industry.

The dynamics of this new sector will presumably be very similar to the currently dominant manufacture of internal combustion engines; that is, by

BYD’s Hungarian Plant to Export E-buses Across Europe

CLAUDIA PATRICOLO

The total investment at BYD Electric Bus and Truck Hungary Kft. is put at around EUR 20 million (HUF 6.2 billion); some operations have already started in the first half of 2017, but the factory will become

BBJ_2510_special_report.indd 13

“A hugely significant day for all of us in BYD, for Komárom and for the Hungarian automotive sector.” described as “a hugely significant day for all of us in BYD, for Komárom and for the Hungarian automotive sector”.

Strategic Position Photo: Csaba Krizsán/MTI

Chinese automotive giant BYD, a leader in providing electric buses that also describes itself as “the world’s largest manufacturer of rechargeable batteries”, opened its first European plant in April in the northern Hungarian town of Komárom, about 95 km northwest of Budapest.

Isbrand Ho, Managing Director, BYD Europe (second right) and Peter Szijjártó, Minister of Foreign Affairs and Trade in Hungary (center) at the official opening of the factory in Komárom on April 5.

fully functioning in 2018. Currently there are 32 employees, mainly Hungarian factory workers, but up to 300 jobs will be created, in order to be able to assemble 400 electric buses per year. More than 25,000 buses are sold in Europe annually, most of which are diesel fuelled. The BYD buses will be exported across Central Europe, becoming one of the biggest zero carbon emission fleets in the continent (BYD

already has buses in Amsterdam’s Schiphol airport and in London).

During the opening ceremony, BYD Europe’s Managing Director Isbrand Ho underlined the importance of this new plant, which he said was a first step to developing more factories in Europe. Just a few weeks ago, in fact, BYD acquired a site in the French city of Beauvais. On BYD’s Facebook page the Hungarian opening was

Ho said that he had chosen Hungary for its strategic position in the center of Europe, which means the factory can easily reach all the countries already targeted as potential customers. He also noted the qualified engineers that Hungary can produce. Therefore, new employees will be prevalently Hungarian, with specific technical backgrounds.

The complex is more than 66,000 sqm and the initial output will purely be electric buses, although there are plans to extended that to electric forklift trucks and eventually daily vehicles. According to the company website, the plant consists of five buildings: a main office, a battery test and maintenance center, an inspection line and water leak test booth, a bus and truck assembly hall and a paint shop.

Hungary’s Minister of Foreign Affairs and Trade Péter Szijjártó also took part at the opening ceremony, highlighting the fact that BYD is not just building a manufacturing plant, but also opening a battery testing unit and R&D center.

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Budapest Business Journal | May 19 – June 1, 2017

Steering Toward a Safer, Driverless Future

BBJ STAFF

The biggest challenge is to prove that a system is safe under any circumstances, says László Naszádos, E/E Hardware department leader at ThyssenKrupp Presta Hungary Kft. There are a myriad of systems that work well in 99% of the cases. The big deal here is to cover the remaining 0.5-1%. Manufacturers can’t afford to launch a car that is only mostly safe – there can be no circumstances under which it fails. Finding those unusual situations and exceptions that can cause a problem is not always easy. Sun glare may blind cameras or sensors, just as they do humans. To prepare driverless systems, engineers make multiple calculations.

They must do much more analysis, make calculations well beyond the error margin and create conditions under which they can test it all.

To test how their systems work, ThyssenKrupp engineers buy massproduced production vehicles and install their own systems. The transformation is fairly simple: They set up cameras, sensors and a computer in the car. “Obviously, we choose a model that already has our steering system so that they can co-operate with the electronics we are to test. The emphasis is always on safety: We have to be able to provide sufficient backup,” Naszádos says.

Executing Decisions “Autonomous cars are made up of two parts: the ‘head’ and the lower parts. The head can see, hear, sense what is going on and makes decision based on the information. We deal with the lower parts that execute these

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“Autonomous cars are made up of two parts: the ‘head’ and the lower parts. The head can see, hear, sense what is going on and makes decision based on the information. We deal with the lower parts that execute these decisions.” decisions,” Naszádos said. “We develop ever more steering systems that are suitable for use in autonomous cars – at every level of them,” he adds.

The company already has many autonomous features integrated in its partners’ cars. Among these are lane departure warning systems, lane keeping assistant, parking assistant and cruise control. Yet the pace of market launch of any development is set by car makers.

“The technology for our steer-by-wire system was available ten years ago,” Naszádos says. “Their launch may not have been [financially] viable at that time,” he added. Although these developments will first appear only in luxury models, they will soon trickle down to economy cars.

When first introduced, ABS, for example, used to be an extra. Now, carmakers are required by law to install it in every model, Naszádos points out.

ThyssenKrupp’s systems can be found in Mercedes and BMW and several Chinese manufacturers’ models. The number of brands is about to expand soon, but since negotiations are ongoing, Naszádos

Photo: István Polonyi

While it will likely take another decade for self-driving cars to become ubiquitous, the automotive industry is already busy testing solutions that will best fit future cars. On the road to becoming driverless, one major element is steering.

Replacing humans, their perception, senses and reactions by machine takes a lot of effort, but in fact, the technology to relieve drivers of their duties has already been around for a while.

László Naszádos, E/E Hardware department leader at ThyssenKrupp Presta Hungary Kft. could not reveal which makers will next incorporate the company’s steering system in their models. “Ten years ago, we were considered newcomers in the market. It was not until 2010 when production started and clients’ trust began to increase,” the engineer says.

The company is known for developing electric power-assisted steering systems for all vehicle classes. These offer greater energy efficiency than conventional hydraulic steering and, depending on the vehicle, can reduce fuel consumption by up to 0.3 liters of fuel per hundred kilometers. This technology

is also a prerequisite for a variety of driver assist systems such as wind compensation, park assist, lane assist and partial or fully automated driving. In the case of autonomous cars, it can provide essential access for the control of the steering system.

Building upon this, the company has developed a steer-by-wire system where the steering wheel and the shaft are no longer connected physically. Steering wheel commands are transmitted electronically from a control unit to an electric motor that performs the steering operation without a back-up mechanical system.

Steer-by-Wire Steering is the driver’s main line of communication with the car. Any distortion in the guidance channel makes every other perception more difficult to comprehend. The demise of mechanical control systems requires the use of electromechanical actuators and human-machine interfaces such as pedal and steering feel emulators.

Automakers have started to replace hydraulic assist with a computercontrolled electric motors due to the latter system’s energy/fuel-saving properties. Eliminating an engine-driven hydraulic pump increases gas mileage. The main advantage of electric systems – be it electric power or steer-by- wire – over hydraulics is their simpler structure and more efficient operation. Hydraulic servo-assisted steering absorbs energy constantly to operate the oil pump. E-steering systems will only use energy during steering and when the electric engine needs assistance. Steer-by-wire is not to be confused with electric power steering. It is rather one step in that direction.

In 10-15 years’ time, all cars will likely run on a steer-by-wire system.

Traditional components such as the steering column, intermediate shafts, pumps, hoses, belts, coolers and vacuum servos and master cylinders will be eliminated from the vehicle. The E/E Hardware Department is responsible for the development of the Electronic Control Unit. The team is working on the design and verification of the electronic circuits, sensors and motors. Together with the system and software developers they form the functionality and functional safety of the steering systems.

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One of the major TIER 1 suppliers in the country, Robert Bosch GmbH is investing heavily into e-mobility and autonomous driving technology development where it is relying on local brains for the long run.

LEVENTE HÖRÖMPÖLI-TÓTH

A regular complaint about the performance of the Hungarian automotive sector is the low level of its added value in the value chain, since it is mostly assembly that is done in the country, while the economically more valuable R&D activities are carried out elsewhere. However, this strategy is not shared by one of the top TIER 1 suppliers in Hungary, the Bosch Group. As of 2016, more than 1,700 engineers were employed by Bosch here, most of whom specialize in mobility solutions. More are expected to join the company ranks every year.

“Whilst exploring new business target segments and striving to clinch a leading role in technology, our strategy focuses on tapping into opportunities in mobility and IoT [the Internet of Things],” Dr. Volkmar Denner, chairman of the board of management of Robert Bosch GmbH, said earlier this year at an annual press conference.

In this effort, Hungary has been assigned a strategic position. In development centers at Budapest and Miskolc, which were upgraded through an

investment of

HUF 32 billion

in 2015, e-mobility and autonomous driving technologies are being developed.

In fact, thanks to the newly established campus at the facility in the Hungarian capital, the Budapest venue now employs the second most R&D personnel in Europe after the Bosch center in Germany.

These local innovation hubs are expected to spur R&D activity, not least because total R&D spending of the Bosch Group hit EUR 7 bln in 2016. Self-driving solutions are expected to accelerate quickly thanks to an agreement signed with Daimler this April that is meant to deliver fully autonomous (Level 4) and driverless (Level 5) vehicles by the early years of the next decade. This corporate alliance aims to bring software and

algorithm development under one roof, and it is hoped that the synergies between the two conglomerates will shorten the time to market the technology.

Hungarian Knowledge “Bosch appreciates Hungarian knowledge and developer creativity; therefore, we are planning for the long run in Hungary,” the company said in a statement sent to the Budapest Business Journal.

“Several activities of ours represent high added value, and we have no doubt that this country, the local engineers and the creative mindset shall enhance innovation and the ability for continuous reinvention.”

E-mobility is also given high priority; according to a Goldman Sachs study, by 2025, 25% of all cars sold will have electric engines, up from 5% today. Therefore, an e-mobility department has recently been established that will operate from early 2018 onwards as an integral part of the Powertrain Solutions Division, which also includes the Gasoline Systems and Diesel Systems Divisions. Thus Bosch hopes to be able to serve clients with all kinds of powertrain systems under a one-stopshop principle.

This integration also shows that Bosch is not giving up on technologies that might be regarded as outdated, as the official stance is that objectives aiming to improve air quality need to remain technologyneutral. “Policies may not restrict creativity of our engineers to one single technology,” Denner said earlier. He is confident that the continued development of the internal combustion engine still holds vast potential.

KPIs indicate the overall strategy of Bosch is paying off. Revenues of the group soared by 12% in Q1 2017. Although the 2016 data for the operation in Hungary is not yet available, it is fair to expect that the record turnover of HUF 959 bln in 2015 will have been surpassed, with double-digit growth now the norm.

EXPERT OPINION

New Trends in State aid law in Hungary Dr. Ádám Bodor Attorney (H), State Aid Specialist Noerr & Partners Law Office

Central and Eastern Europe, and especially Hungary, has for decades been an attractive investment location for large Western European and American enterprises, given the region’s favorable location and the availability of a qualified workforce.

State subsidies also play a key role in maintaining the attractive business environment. Currently, there are many subsidies available for investors aimed at accelerating and promoting investment projects in less developed parts of the region.

The trend in Hungary is that most EU co-financed tenders are only open to SMEs, or consortiums including at least one SME. Therefore, the burden of investment promotion has been shifted to subsidy sources financed exclusively from the national budget (development tax allowances, cash grants at the government’s discretion, often called “VIP cash grants”, training subsidies, etc.). Consequently, the aforementioned incentive package for large enterprises generally consists of a direct cash grant and a development tax allowance which together may reach the EU legal thresholds, or aid intensity rates, stipulated by European legislation.

According to the current regional state aid map of Hungary, this intensity may be 50% in the case of an investment location in the eastern region of the country. This package may be further supplemented by non-regional subsidies with more specific aims, e.g. training subsidies, environmental subsidies, etc.

Until 2016, and especially during the years of the global financial crisis, the main aim of the regional investment subsidies was to reduce unemployment.

Therefore, the eligibility criteria for these subsidies included a commitment to creating new jobs. Nevertheless, over the last few years the unemployment rate in Hungary (and throughout CEE) has fallen significantly, and large employers are finding it difficult to fill their vacancies.

Dr. Volkmar Denner, chairman of the board of management of Robert Bosch GmbH.

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The government of Hungary seems to have recognized this trend and, since January 2017, has directed the state subsidy system towards both

job creation and establishing new and automated technologies requiring fewer or even no employees. In parallel, it has extended the applicability of R&D aid schemes.

These measures include a reduction in the minimum number of new jobs to be created in order to qualify for the development tax allowance (from 150 to 50 new jobs, and from 75 to 25 new jobs in less developed regions). In addition, the VIP cash grant system has been extended by establishing new eligibility criteria for investments which create no new jobs but have a volume of at least EUR 30 million (known as technologyintensive projects) and by setting up a new “VIP” R&D subsidy scheme.

In the case of technology-intensive projects, the new legislation offers a great advantage: Large enterprises may receive state aid even without committing themselves to creating new jobs. On the other hand, based on experience gained over the past four months, other criteria for this new type of aid could make it less attractive: The beneficiary of the aid must commit to increasing its sales revenue or its wages’ costs by 30%, and the aid intensity is limited to 25% of the maximum intensity specified for the given region.

In the case of the new R&D aid, the applicant’s R&D project, or even more projects implemented during a maximum period of three years, may be granted a non-refundable cash subsidy. Eligible costs are operational costs, e.g. personnel-related costs of employees involved in the R&D projects, depreciation of assets and rental fees calculated for the hours spent on the project(s), which must be at least EUR 3 mln. Projects must be classified by the Hungarian authority as R&D projects.

Accordingly, this type of aid may be especially attractive to large enterprises’ research centers which handle several R&D projects at the same time, involving a larger number of employees and thus reaching the cost eligibility threshold. Recent experience shows that applicants must not only be wellprepared for filling in the application form for subsidies, but also for the R&D qualification procedure, which may be an additional cost factor.

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Hungary a key Innovation hub for Bosch

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Where Digitization Leads, Auto Industry Must Follow

“From the government point of view, this is an important decision that has be taken; the [self-driving] test track could provide long-term competitiveness for the Hungarian automotive industry, attracting more brands and more foreign investments.

Some part of the track will be already open in 2018 but the second and the third part of the investment will be done around 2020.”

The Hungarian government has long ranked the automotive industry as a high priority of the domestic economy. According to the Hungarian Investment Promotion Agency, the production value of the sector last year amounted to EUR 21.5 billion. And while manufacturing continues to be a laborintensive process, the industry increasingly has to meet new challenges coming from the ever-wider spread of digitalization.

“Hungary has a great potential regarding the automotive sector,” Csaba Kilián, CEO of the Association of the Hungarian Automotive Industry (MAGE) tells the Budapest Business Journal. Kilián will be one of the speakers at a conference jointly organized by economic news portal Portfolio.hu and MAGE on May 25, at the InterContinental Budapest. The event aims to understand where new technologies will lead the automotive sector, with a wide number of participating companies such as Audi Hungaria Zrt., Mercedes Benz Manufacturing Hungary Kft., Opel Szentgotthárd Kft., UniCredit Bank Hungary Zrt., Deloitte Zrt. and so on.

“Hungarian companies are taking different paths but, even if they are still on different levels, they are all going in the same direction: A greater and more productive development of the industry.

The largest companies are already at a high level; small- and medium-sized ones are on the road but the cooperation is important,” Kilián continues. “The industry is changing, from the market point of view, the industrial point of view and the customers’ point of view. We can store more information than before, knowing better what customers’ demand, what they need from the future.”

The Role of IT The conference will focus not only on current solutions for the automotive sector, but also on the role played by the IT sector

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“We do have enough qualified people but education is the key to grow further and our current education system should be changed.” that will open new jobs positions and bring new products.

“We do have enough qualified people but education is the key to grow further and our current education system should be changed,” Kilián explains. ““When it comes to IoT [Internet of Things], industry 4.0 and big data, the education system should follow these trends because they are what the future will require. If we look, for example, at manufacturing plants, management could control all the elements of the manufacturing activities nowadays by mobile applications. Through a smartphone, they can see what is happening in the factory in real time. This requires a lot of new knowledge and skills.”

Well-trained workers are lacking in Hungary, especially when it comes to high-skilled people. The Hungarian education system does not provide enough practical skills, and various private schools have sprung up in order to fill this gap.

school, students must also have the opportunity to enter into contact with the world of work. More technical courses will be addressed to students and cooperation with schools and the Academy of Sciences has also been implemented. I would like to include elementary schools as well, because we need to build a better image of the sector, getting more people interest in it.”

Now there is increased demand for new technologies and IT’s role in the automotive sector is becoming more fundamental, especially when we look at new alternative driving modes, such as electric cars, hybrids and self-driving vehicles.

Photo: kormany.hu/NGM

CLAUDIA PATRICOLO

Csaba Kilián, CEO of the Association of the Hungarian Automotive Industry.

“Our latest data shows that more than 830 electric cars are registered in Hungary,” Kilián says. “The market must pay more attention to three important issues: How much distance can be covered by an electric car; the availability of infrastructure; and the price. With the first of these lies the importance of new technologies: New batteries are what we need now, in order to make these cars go further.

Regarding infrastructure, a new plan has been launched to increase the number of recharging points up to 400. Finally, together with new models, prices will come down dramatically in two or three years, allowing everyone to buy this kind of car.”

Even self-driving cars are not a dream anymore. In 2016, Hungarian Prime Minister Viktor Orbán mentioned the importance of creating a test track in the country, together with new regulations.

“From the government point of view, this is an important decision that has be taken; the [self-driving] test track could provide long-term competitiveness for the Hungarian automotive industry, attracting more brands and more foreign investments. Some part of the track will be already open in 2018 but the second and the third part of the investment will be done around 2020.”

Build a Better Image “The government is trying to do different things, such as the implementation of the dual education system. But, in my opinion, it shouldn’t be kept only at the university level. During high school and vocational

The agreement of the designs of the self-driving track in Zalaegerszeg being signed on April 19 by the representatives of Autóipari Próbapálya Zala Kft., under the supervision of the Ministry of National Economy, with a consortium of FŐMTERV Mérnöki Tervező Zrt. and HORIBA MIRA Ltd.

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Thousands of tinkered cars, often with counterfeit components, hit the Hungarian roads every day, posing serious safety risks. Closer controls and raising drivers’ awareness are both needed to change bad habits, industry experts say.

ÁGNES VINKOVITS

More than half a million cars on the Hungarian roads run with fake or unlicensed parts, the National Board Against Counterfeiting (HENT) has said in its latest report.

One in every four cars, meaning about one million vehicles, have illegal lightning systems, the report estimates, noting that headlights adapted to be more fashionable either may not give enough light or risk blinding other drivers, and are potentially life threatening.

“Counterfeit components often overload the vehicle’s electronic system, which can easily lead to fire,” HENT’S Gábor Gablini also warns, adding that risks arise from the fact that most unlicensed and non-standard fittings do not match the original characteristics of the car.

Counterfeit wheels and illegally increased engine power are wide-spread too, and can dramatically alter a vehicle’ stability and braking capacity.

“A significant proportion of the annual 800 fatal accidents could probably be avoided if the cars were in better shape,” Károly Lovas, an expert from drivers’ lobby group Magyar Autóklub tells the Budapest Business Journal.

Aging car Fleet Hungary’s car fleet is hardly new; the average age of the approximately 3.4 million passenger cars in the country is around 14 years. “The annual 80,000100,000 new car purchases look good on paper, but the statistics do not mention that 20,000 of those new vehicles are taken abroad immediately,” Lovas says. At the same time, 120,000 cars are imported to Hungary every year and a whopping 80% of those are older than 20 years, he adds These worn-out cars understandably regularly need replacement components, but car owners are often more price-

“A significant proportion of the annual 800 fatal accidents could probably be avoided if the cars were in better shape.” sensitive than careful or law-abiding and so will go for fake (cheaper) products. In addition, as part of the black economy, components from uncontrolled sources are often fitted to cars by cowboy repairmen, who are far cheaper than the legal ones but might lack professionalism.

Still, all vehicles on the roads have to pass regular vehicle inspections to make sure they fit the safety regulations. “We would like to believe that the illegal alterations are made after the inspections,” says Lovas adding, however, that it is probably no more than wishful thinking. Drivers throughout the country can choose from

given the number of cars, 600 would be enough to do the job, he says. The suspicion is that the competition among examiners tends to lower the standards. “For an extra couple of thousand forints, any driver basically with any car can find a place to pass the exam,” he claims.

Most of the tinkering could be detected only via a careful inspection, meaning sector players are not asking the police to stop drivers at the roadside. Instead, closer control of the suppliers is suggested, which, at the end, would even whiten the economy. Drivers themselves also have to be more aware. “As a result of recent state campaigns, people nowadays are much more careful when it comes to food safety,” Lovas says. “They keep checking the numbers printed on the eggs to see their origins, but poor-quality car components could kill far more people than eggs.”

Fake or unlicensed parts may well contribute to many of Hungary’s 800 fatal accidents each year.

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1,500 examiners;

EXPERT OPINION

Taxation of the Automotive Industry: Problems Along the Chain Márta Siklós Tax Advisor | Partner LeitnerLeitner

The automotive industry plays a significant role in the Hungarian economy; it already contributes more than 10% of GDP and employment, while it is the fastest growing sector. Hungary’s strategic geographical location, highly developed logistics and infrastructure, cost effective and highlevel production capability determines the country as a regional distribution center and a service hub for the CEE region.

Although the taxation environment in Hungary is also improving, peculiarities within the automotive industry create difficulties. The large number and different types of parts to be used in building a car, the international market, associated with different needs for different areas, the high R&D costs of innovation-intensive production, and supply-on-demand also lead to high inventory costs.

Cost efficiency considerations and improved quality on parts give a raison d’être for vendor tooling (outsourcing).

Nevertheless, to avoid being “in the hands of the vendor”, several factors must be considered, such as the location of the vendor, delivery capacity in terms of supply-on-demand, financial arrangements and competitors using the same vendor. The issue of complicated indirect tax implications (cost manufacturing taxation, VAT registration, (self-)invoicing, etc.) and logistics (e.g.

EKAER) is also raised.

Automotive industrial supply lines regularly create chain transactions for VAT, one of the most difficult situations in this area of taxation. For the proper handling of supply chains, one should pay attention to taxation-determining factors such as legal title to the tools, existence and location of stock for spare parts, use of warehouses, and responsibilities for logistics/transport. Misinterpreted chains lead to serious difficulties and potential VAT penalties. A wrongly applied exemption or unlawfully deducted VAT can create VAT shortages that are penalized in Hungary by a 50% tax penalty plus interest.

Although many do not like to talk about it, the risk of creation of a fixed

establishment (for VAT) and of a permanent establishment (for direct taxes) is continuously present in this industry. The typical situations during production leading to potential creation of FE/PE are installation and assembly, technical support (especially in the start-up phase), JIT stocks and partial assembly of parts, and on-site quality checks. Moreover, distribution and financing also creates situations that may link to the risk of FE/PE creation, such as the physical presence and legal obligations of regional importers, and leasing services (passive FE). The retroactive correction of these situations can be extremely expensive, both in terms of the efforts to clarify the situation, and the penalties to be paid.

An existing FE/PE does not only result in additional corporate income, local business- and employment-related taxes, but also changes the place of VAT of the services, and this could be the most burdensome consequence of the mistake.

Missing prices at the time of supply, regular price corrections, self-billing, extended warranties, warranty repairs, financing of distributors, various marketing “set-ups” and the VAT treatment of company cars are just the some of the further miscellaneous questions that can create difficulties.

Moreover, to turn to the customer financing side in the automotive industry, we are also faced with recurrent taxation problems, as per leasing, the determination of single or multiply supplies (insurance, other services), premature terminations, securing tools, and fuel cards. All-in-all, the list of taxrelated problems highlight the importance of necessary care and the involvement of a quality advisor.

LeitnerLeitner is one of the most influential advisory firms in CCE in the field of Hungarian and international tax issues.

We offer high quality services to clients across the entire field of VAT, starting with transactional advisory, VAT-planning, supply chain analysis, FE/PE checks and corrections, tax representation, ending with full compliance administration and VAT registration. We also assist in tax allowance optimization, employment taxation, specific and sectoral taxes, and EKAER. .

NOTE: ALL ARTICLES MARKED EXPERT OPINIONS ARE PAID PROMOTIONAL CONTENT FOR WHICH THE BUDAPEST BUSINESS JOURNAL DOES NOT TAKE RESPONSIBILITY

Counterfeit Car Components Still Too Popular in Hungary

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Plugging in to Further E-mobility Growth

GROWTH

The lack of clear legislation and market forecasts make it hard OF for the Hungarian COMPARISON OFmarket COMPANIES e-mobility to WESTERN expand EUROPE AND HUNGARY at pace.

CAR LEASING 50 80%

BBJ STAFF

ELECTRIC CARS IN HUNGARY

10%

OF COMPANIES OF COMPANIES LEASE into CARSa higher Electromobility has switched LEASE CARS

gear worldwide in the past decade thanks to state incentives and a wider selection of available cars. The expansion in Europe has been uneven though, with some Nordic and Western states pulling ahead of the rest both in terms of the number of cars and chargers installed. Generous incentives, mostly in the form of tax rebates or rebates on purchased or leased electric vehicles, multiplied the number of cars on the roads of Norway, Sweden, Iceland, and Great Britain.

Developing the filling infrastructure proved a bigger challenge; “Early Birds” installed different types of chargers, many of which have since become obsolete or are not in line with the standards the European Union has now set. The countries that joined the wave later, including Hungary, were spared from these initial hurdles. Yet this does not mean they have a smooth ride ahead.

In Hungary, aside from the still sparse charging infrastructure, it is the absence of clear legislation that slows growth.

WESTERN HUNGARY From Hybrids to Electric EUROPE While the number of fully electric vehicles

and plug-in hybrids was around 300 at the

beginning of 2016, by today there roughly UNGARIAN LEASING ASSOCIATION

2,500 such vehicles on the roads, according to the data of Jedlik Ányos Klaszter (JAK), an organization representing e-mobility industry stakeholders. In line with international trends, the emphasis by now has moved from hybrids to fully electric cars. In the beginning, many bought hybrids to enjoy the benefits of the green number plate – introduced by the government among other incentives to boost e-car ownership – including free parking space and the use of bus lanes.

Hybrids had a smaller electric-powered range, but still within the margin allowed by the law, and people tapped into this loophole. This appears to be changing though. Compared to early 2016, when there were twice as many hybrids as fully electric cars, according to JAK, the ratio is now 50-50. The share of ell-electric vehicles within plug-in electric ones has grown to 74% from 65% last year, according to EU data. Still Hungary’s share of the total market (EU28+EFTA+Turkey) was 0.2% this March down from 0.3% a year earlier.

Equally low is the number charging facilities. Minister for National Economy Mihály Varga recently said there would be chargers every 50 km in the country soon. Considering the hurdles in the way of the installation of chargers, “soon”

ROWTH

LECTRIC CARS IN HUNGARY

NUMBER OF LEASED CARS IN HUNGARY ELECTRIC

50%

50%

2017

2016 INCREACED BY 16%

NUMBER 2,500

2015

SOURCE: JEDLIK ÁNYOS KLASZTER, EU

Compared to early 2016, when there were twice as many hybrids as fully electric cars, according to JAK, the ratio is now 50-50. may take a while. There are 205 charging positions in Hungary, of which only 42 are high power (> 22 kW), according to data from the European Alternative Fuels Observatory (EAFO), a body set up by the EU to monitor the market. Slovakia has 440 overall, with 93 high power chargers; market leader Norway can boast of 8,437 in total, with 1,367 being high power.

When it comes to infrastructure, part of the difficulties come from gaps in legislation. The European Union may have set the standards for the type of chargers to be used at publicly available charging stations, but it has left many details for individual member states to figure out. This leaves market players in a quandary about what to do next. They are hoping for the introduction of straightforward legislation.

The Hungarian government did modify the law to promote e-mobility. As a result, charging, as a service, no longer falls under the jurisdiction of the Electricity Law.

15 mln (EUR 48,000). Since the fund was not exhausted, the Ministry for National Economy announced it would extend the tender period in the beginning of May. It also added another HUF 3 bln of funds to the pool. The total budget will cover the purchase of

should allow charging without registration.

Nor can they require registered clients to use their services more than once.

Registered drivers, however, can agree on a certain amount of energy to be used.

Technology, too, makes it hard for any prospective company to invest more in filling infrastructure. Experience shows that most people charge their cars at home SOURCE: HUNGARIAN LEASING ASSOCIATION electric cars, – at night – which needs a different output the ministry calculates. than a rapid charger that can charge a Earlier this month, a legislative proposal battery in 30 minutes. Yet to install those, appeared on the government website that the existing electricity network should be aims to regulate charging rates. According modified; to be able to withstand higher to this, pricing could be time-based (tied output/voltage. The majority of chargers to parking) or kilowatt hour-based, though across Europe have 22 kw output but drivers should be informed of both prices, trends suggests that, by 2020, a higher regardless of what they choose. Filling output, up to 50 kw, may be needed. station operators should display rates on All this uncertainty makes companies their websites. As opposed to the current interested in setting up the infrastructure practice, when only pre-registered drivers move ahead cautiously and push for clearcan use charging facilities, operators cut legislation.

3,500

HUNGARY’S SHARE OF THE TOTAL ELECTRIC HYBRID MARKET EU28, EFTA, TURKEY

Subsidy Expanded Last fall, the government earmarked a HUF 2 billion subsidy for the purchase/ lease of new vehicles. Capped at HUF 1.5 million (EUR 4,800) per vehicle, the subsidy is maximized at 21% of the gross purchase price or lease of new vehicles with a retail price of no more than HUF

HYBRID

ELECTRIC

50%

50%

OS KLASZTER, EU

HYBRID

33%

2016

33%

BER 300

ELECTRIC

67% NUMBER 300

ELECTRIC

016

HYBRID

0.3%

0.2%

MARCH 2016

MARCH 2017

SOURCE: JEDLIK ÁNYOS KLASZTER, EU

2017

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NUMBER 2,500

2017. 05. 17. 18:09

. .

CAR LEASING

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COMPARISON OF COMPANIES WESTERN EUROPE AND HUNGARY 50 80% OF COMPANIES LEASE CARS

With More Incentives, Hybrid and E-cars Could Boost Fleet Market

10%

OF COMPANIES LEASE CARS

Although the ratio of both electric cars and hybrids shows an increasing tendency in the European market, more incentives are needed for the spread of electric cars in the local market, WESTERN HUNGARY EUROPE the Hungarian Leasing Association believes.

HUNGARIAN LEASING ASSOCIATION

CHRISTIAN KESYTHELYI

Overall in Europe, the market share of hybrid cars grew by 27% last year, as compared to 2015, while that of electric cars increased by only 5%, however in the gas driven car segment, a 20% drop was observed, according to recent data by the European LECTRIC CARS IN HUNGARY Automobile Manufacturers’ Association (ACEA), analyzed and sent to the Budapest Business Journal by the Hungarian Leasing Association.

Hungary has launched an incentive system, under which a maximum of

ROWTH

ELECTRIC 33%

2016

MBER 300

NYOS KLASZTER, EU

HUF 1.5 million

HYBRID

ELECTRIC

50%

50%

in state support 2017can be applied for in NUMBER 2,500

NUMBER

CAR LEASING

OF LEASED CARS IN HUNGARY

COMPARISON OF COMPANIES IN WESTERN EUROPE AND HUNGARY 50 80% OF COMPANIES LEASE CARS

10% OF COMPANIES LEASE CARS

2016 INCREACED BY 16% 2015

SOURCE: HUNGARIAN LEASING ASSOCIATION

order to purchase an electric car. Despite the incentive, the Hungarian Leasing Association says it has not seen any significant increase in the market; in line with European trends, hybrids are more popular in Hungary than electric cars.

HUNGARY’S SHARE Currently, just a few thousand cars roam the Hungarian streets with green number plates, OF THE TOTAL ELECTRIC HYBRID MARKET EFTA, TURKEY which indicate a EU28, plug-in hybrid or entirely electric vehicle and grant free parking and use of bus lanes.

Corporate Purchases 0.3%

0.2%

According to the association, corporate car MARCH 2016 MARCH 2017 purchases appear to be the engine of the domestic car industry. As one of the most important factors when businesses purchase or lease cars is the maintenance cost, which SOURCE: JEDLIK ÁNYOS KLASZTER, EU

WESTERN EUROPE

HUNGARY

SOURCE: HUNGARIAN LEASING ASSOCIATION

is low for hybrids and electric cars, these two segments are seen as likely to grow into major players boosting the fleet market in the near-term, says Zoltán Tóth, the chief secretary of the association.

Fleet servicesCARS offer IN flexible financing OF ELECTRIC HUNGARY for corporations to manage their fleet, the association stresses. And there is plenty of room in Hungary to improve this. While anywhere between 50-80% of companies in Western Europe opt for such services, the ratio in Hungary is only around 10%. Still, the fleet market is doing well here. “In terms of fleet financing, the number 2017 of leased cars 2016 increased by 16% last year, as compared to

GROWTH

HYBRID

ELECTRIC

HYBRID

ELECTRIC

67%

33%

50%

50%

NUMBER 300

SOURCE: JEDLIK ÁNYOS KLASZTER, EU

NUMBER 2,500

“In terms of fleet financing, the number of leased cars increased by 16% last year, as compared to the preceding NUMBER year, growing [the market] OF LEASED CARS IN HUNGARY above HUF 70 billion.”

2016 the preceding year, growing [the market] INCREACED BY 16% above HUF 70 billion,” Tóth says. 2015 The association welcomes the intention of the government to boost the popularity of electromobility, yet an electric car revolution SOURCE: still HUNGARIAN seemsLEASING some way off. Based ASSOCIATION on international trends, it is anticipated that new car hybrids will play a major role in the short-term, while the overall car market grows parallel with this.

For a bigger hike in the expansion of the electric car segment, more serious incentives are needed, according to the association, HUNGARY’S SHARE and more charging stations must be added.

OF THE TOTAL ELECTRIC HYBRID MARKET At the same time, the purchase price of EU28, EFTA, TURKEY electric cars should be decreased, which is rooted in the moderation of production costs that is expected to happen as technology develops. “In Norway and 0.3% 0.2% Netherlands, forMARCH example, beyond financial 2016 MARCH 2017 incentives, tax relief, free usage of toll roads and ferries and accessibility has greatly contributed to the spread of electric cars,” Tóth stresses.

SOURCE: JEDLIK ÁNYOS KLASZTER, EU

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Apollo Tyres Eyes Strong Presence in Europe Through Hungarian Plant

Having just opened its Hungarian plant, Indian tire manufacturer Apollo Tyres has been eye-catchingly active in Hungary, placing a special emphasis on education. The firm is confident about its new state-of-the art plant, which it says will play a “strategic role” in the company’s European operations, further boosting performance in the region.

CHRISITAN KESZTHELYI

Apollo Tyres opened its first greenfield investment outside of India on April 7.

The company has set the bar high for the more than 72-hectare factory that

Hungarian Prime Minister Viktor Orbán (center) and Onkar Singh Kawar (right), chairman and managing director of Apollo Tyres, at the official opening of the Hungarian plant.

COST

EUR 475 million,

and is located in Gyöngyöshalász, less than 100 km from Budapest. The plant will be responsible for supplying not just the passenger tire segment, but also the truck and bus radial (TBR) market as well.

“The final capacity at the end of Phase I would be 5.5 million passenger car & light truck (PCLT) tires and 675,000 commercial vehicle tires,” the company, which currently employs 400 people in the country, tells the Budapest Business Journal. It expects full capacity to be reached by the fall of 2018.

Gradual Increase The new facility in Gyöngyöshalász complements the company’s older factory in the Netherlands, and will produce both the Apollo and Vredestein brands for the European market. “Apollo Tyres targets the OE [Original Equipment] market in Europe, and regarding this, our greenfield in Hungary has a key role, as the new factory will cater to the European market with a larger product portfolio. With tires rolling out from our Hungarian factory, we are looking forward to a gradual increase in our market share in Europe over the next few years,” says Apollo Tyres.

Apparently, the company is embracing the

concept that investing in education and youth is always necessary for a productive future. “We are very proud of our dual education program in cooperation with two vocational schools in Heves county, as well as with the University of Miskolc. We are about to educate the next generation of tire professionals,” Apollo boasts.

The tire maker has recently announced that, after successfully tackling their exams, 22 students who have been involved in its dual education program can start their practical training at the plant. Students participating in the dual education program fulfil the theoretical part of their training either at the József Attila Technical School in Gyöngyös or at the Eötvös József Protestant Education Center in Heves, and afterwards attend practical training in Apollo’s plant.

Additionally, the company appears to be very conscious of social contribution as well as being environmentally-friendly.

“We [have] supported several projects in Bükk National Park aiming to preserve natural assets. Besides protecting the environment, the company also launched projects aiming to improve the quality of life for people living nearby. Apollo Tyres set up a playroom in the Bugát Pál Hospital in Gyöngyös and helped the institution to purchase toys, and also organize community events. These toys contributed to the recovery of

3,500 children

last year,” Apollo Tyres concludes.

CEU COLUMN

From the First Moment of Truth to Micromoments in Automotive Marketing Around 2005, FMCG giant Procter & Gamble successfully promoted a model of marketing it called the “First Moment of Truth”. The phrase was built on its discovery that shoppers make up their minds about a product within three to seven seconds — or the time it takes to note a product on the shelf.

Brunó Bitter Adjunct Senior Lecturer of Marketing CEU BUSINESS SCHOOL

In this “old” model of marketing, there was a stimulus, usually in the form of a commercial, then the first moment of truth (at the store), then the second moment of truth, where a consumer actually takes the product home and begins using it. If the TV ad promoted a new car model, the consumer would visit the dealership to see and touch the car in person. The “Second Moment of Truth” occurs when the consumer purchases the

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car, takes it home and starts driving it.

A decade later, Google wanted to extend this model and investigate what happens between the “stimulus” and the “First Moment of Truth”. What Google discovered is now common wisdom but it had to prove it to get us here: It presented quantitative proof that there is a “Zero Moment of Truth” (ZMOT) between the stimulus and First Moment of Truth where buyers are conducting important research. Buyers are using on average over a dozen number of online sources in their research, and are spending more time with these sources year by year.

Over 60% of consumers are performing mobile searches after seeing an offline ad.

Point of Focus In the first half of this decade, automotive marketers had to digest and understand that they now have to focus as much on ZMOT as on any other element of the customer journey to influence potential

customers. People donʼt just walk up to a dealership and pick out a new car. They ask questions and do their research – online – before even getting to the lot.

We are towards the end of the decade that brought us this new “Mental Model of Marketing” and now we are seeing even more disruption of the old status quo, which still relies on dealerships and car lots. Mobiles and smart devices are reshaping interactions not just between people and people, but also between people and brands. Consumers are readier than ever to make instant decisions. People reflexively turn to their smart devices to act on a need to learn something, do something, discover something, watch something, or buy something; Google calls these “Micromoments”. They are intent-rich moments when decisions are made and preferences shaped. Take Tesla, for example, where people were able to reserve the Model 3 online; the company is reported to have taken about 450,000 reservations so far.

Buyers are using on average over a dozen number of online sources in their research, and are spending more time with these sources year by year.

Over 60% of consumers are performing mobile searches after seeing an offline ad.

This is for a car that hasn’t even been built yet.

The success behind Tesla is as much about the customer’s digital buying experience as about the car itself. It’s a self-directed process. The ability to do car deals 100% online is fast approaching and new technologies, especially smart phones equipped with VR and AR capabilities will be important drivers. Fundamentally, we have learned how (and now love) to engage online in every other retail category: shoes, pizza, mortgages, electronics, books, grocery, fashion; pick any category. But the auto industry has held back in letting us do it. It’s a matter of giving customers what they want – or else.

This column is part of a series of opinion pieces from experts at the CEU Business School in Budapest. The opinions stated here do not necessarily reflect those of the BBJ.

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Budapest Business Journal | May 19 – June 1, 2017

Secret Villages and Hidden Away Award-winning Restaurants

Photo: Gabriella Kiss

Wekerletelep and the Török Étterem restaurant are two of the most intriguing places I’ve been to in all my wanderings through Budapest so far. Tucked away on the far southeastern side of Buda, you’re unlikely to stumble upon them unless you’ve been tipped off, as I was. But making the journey out of the comfort zone of the seventh district is a rewarding little adventure.

DAVID HOLZER

“We call it the village of gingerbread houses,” the woman on the tram said when my partner asked her which was the stop for Wekerletelep. “It’s like something from a fairy tale.”

After reading about Wekerletelep and listening to the stories of my friend Böbe, who had grown up there, I’d become intrigued. It seemed they were true.

Wekerletelep is in District XIX. It was named for Sándor Wekerle, prime minister of Hungary in the early part of the

20th century,

Photo: Gabriella Kiss

a time when Budapest’s population was exploding thanks to people coming into the city from the country to work. These country folks were used, of course, to greenery and fresh air. This was in short supply in the multi-story apartment houses on narrow streets that were springing up to house them. Wekerle supported the idea of building comfortable, pleasant housing estates – ‘telep’ means estate – for government workers.

Influenced by the Garden city movement spreading across Europe, architect József Fleischl proposed building a planned, self-

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contained community. The houses, which ranged from one or two story homes to 12-apartment buildings were designed in the Transylvanian style established by Hungarian architect, illustrator, writer and ethnologist Károly kós. They were laid out on tree-lined avenues in a spider web design around a central park designed by him, and all had large gardens.

Four fruit trees were planted for each apartment. In 1917, the redcurrant harvest was so rich renters earned nearly four times their yearly rent by selling them.

A Model Town Some 1,007 houses containing

4,412 apartments

were built between 1908 and 1925, when the Great Depression put a stop to construction. They were served by shops, four schools, two kindergartens and two gymnasiums. A Roman Catholic church built in the Hungarian country style overlooked the round central park. There was also a police headquarters. This is still standing, at the entrance to Wekerletelep, and is quite the strangest police station I’ve ever seen.

Although priority was given to government employees, from the beginning 25% of the population were privately employed. Böbe’s grandparents, a tailor and garment worker, were among these.

Böbe loved growing up in Wekerletelep.

“It was like living in a small village in the city, a secret garden,” she told me. “People helped each other. It was much more human than other places.”

This feeling still exists. As we were strolling down one of the green roads to the central park we somehow fell into conversation with an old lady. She invited us into her home. Foolishly,

I hadn’t allowed enough time for our excursion into this strange green world and we had to say no.

“Being in Wekerletelep is like stepping back in time,” Böbe had said. When we stepped through the arch beyond which is the central park, I realized how right she was. We took our coffee at the bakery and book exchange just across from the park, drifted into an easy silence and watched water splash in the fountain as it has done for more than a century.

Before we left, we fed walnuts to the squirrels in the park in honor of Böbe’s aunt, who also grew up in Wekerletelep.

When she visited her daughter in New York for the first time and was taken to the mighty Central Park, the aunt saw the squirrels and said, “It’s just like our park back home.”

Are you Sure This is the Right Place?

When the taxi pulled up outside Török Étterem, I thought I hadn’t followed my American friend Hadley’s instructions correctly. From the outside, it looked like any nondescript café anywhere in Budapest. Actually, it looked that way inside too. But Hadley was right.

The 58-year-old Aziz Dulundu, the owner of Török Étterem, is an enterprising man. He arrived in Hungary from Turkey in 1980 and went into business selling leather coats. The financial crisis put paid to this business and he opened his restaurant. “Any Turk can cook Turkish food,” he told us. This may be true, but I don’t believe every Turk cooks as well as Aziz and his son do.

My partner, her sister who came with us, and myself are all vegetarian. Looking at all the meat skewered ready to be grilled on the huge open griddle, I wondered if we were going to struggle to find something

to eat. I needn’t have worried.

We ate a dish of smoked eggplant, another of tomato and what I think was rocket and plate of large home-made falafel with jasmine rice. One of Aziz’s absolutely delicious loaves of round, flat Turkish bread was more than enough for the three of us. Dessert was a selection of succulent baklava. My partner and her sister drank white wine, which they said was good.

As I stared into the fragrant, smoky space, my partner and her sister chatted away to Aziz, watched by his rather shy son. Given the historical connection between Turkey and Hungary, I was curious to know what Aziz’s experience of living in this country had been.

He told us that he was married to a Hungarian woman. “Hungarians like Turkish people,” he said. “People have always been very kind to me. And they like our food.”

Natural, Organic and Halal I can understand why. It’s not surprising that the Volkswagen Top 100 guide to Hungary’s best restaurants raves about Török Étterem. Aziz told us he uses only natural, organic ingredients. Everything is made fresh. The meat he uses is halal – Aziz is Muslim – which means it’s kosher. This is one of the reasons why the restaurant is popular with Jewish customers.

We left clutching two loaves of bread Aziz had given us as a gift, utterly charmed by him and his rough and ready but wonderful restaurant.

In the taxi-ride back to “the seventh”, I reflected on our day. Wekerletelep was created at a time when governments and industry felt a responsibility to offer a better life to the ordinary people who toiled in its factories and paid taxes. It was a success and its charm and tranquility make it a highly desirable place to live.

Today, enlightened corporations are exploring the potential of campus-style workplaces, offering employees healthy, subsidized homes because they know happy people are loyal and productive.

They could learn from Wekerletelep.

We also live in a time when immigrants to Europe are all too often viewed with suspicion. Aziz, who speaks seven languages, put everything he had into building a new life in a new country. After a serious reversal in his fortunes, he went on to create an award-winning restaurant out of nothing.

How could you not fail to be inspired?

To get to Wekerletelep, take Metro 3 to Határ utca. It’s roughly 15-minutes from Deák Ferenc tér in District VII. From there, it’s two stops on the tram, or you can walk.

Tőrők Étterem is at Könyves Kálmán utca 62. It’s open from 9 a.m. until 11 p.m.

2017. 05. 17. 17:52

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Budapest Business Journal | May 19 – June 1, 2017

Wines to Smooth International Relations

Hungarian wine, which is getting better and more colorful all the time as local winemakers become increasingly savvy and the vines get older, is an important asset when it comes projecting a positive image internationally.

While it may not quite be a diplomatic tool, it can certainly facilitate good feeling when international dignitaries meet, just as it can help to get a humble house party started.

ROB SMYTH

Two initiatives, one by the Hungarian government and one by the Ministry of Foreign Affairs and Trade, are seeking to put Hungary’s best foot forward and the wines selected really capture the essence of both the grapes that made them and the place of growth, and are also fully available to the public.

Az Országház Bora 2017 (Parliament Wine 2017) saw a total of eight category winning wines selected out of 81 entrants, hailing from 13 regions, blind-tasted by a team of local wine

experts. The triumphant wine in the Olaszrizling category, Krisztinus’s 2015, proved that excellent Olaszrizling from Balaton doesn’t have to come from more complex volcanic and mixed soils of the northern side. This one comes from the supposedly simple loess soils from the southern side of the lake. Some may question whether Olaszrizling, Hungary’s most planted white wine grape, warrants a special category, but the quality surge of recent years certainly justifies it.

The balanced 2015 vintage was also a very good one for dry Furmint, with a wine from the Furmint stronghold of the Tokaj region by Dobogó being named a Parliament wine. The “best of the rest category” for whites from other indigenous varieties was won by Kolonics Juhfark 2015 from Somló. This grape is almost exclusive to Somló and has a reputation for being searingly acidic, but when everything comes together it makes wine of serious weight and individuality. This wine is fullbodied with distinctive rhubarb, banana and sage notes with an oily texture and a salty, bone-dry finish with a refreshing sour twist. While I used to find something of an unclean note in some Kolonics wines, alongside considerable promise, Károly Kolonics has really cleaned up his act (and cellar) without

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losing any of that raw intensity.

Moving onto the reds, Szekszárd’s Takler was made Parliament’s Kadarka representative. In my experience, feather light Kadarka can be a hard sell to foreigners unless they are wine professionals who appreciate its subtle nuances. Takler Kadarka 2015 makes a solid choice as it has a fair bit of concentration but also has something of the grape’s spiciness and playful red fruit.

Szekszárd Superpower Fritz, an upcoming Szekszárd superpower located next to Takler on Decs hegy, south of the town of Szekszárd, claimed the Parliament gong for both Kékfrankos and Bikavér (Bull’s Blood). Fritz Kékfrankos 2012 is, for me, a little rustic with a touch of that barnyard character and also quite oaky, but has good weight and ripeness. It has quite a lot of black fruit notes, which the grape can pick up in warmer climes and vintages, as opposed to the more usual red fruit. Fritz Bikavér 2014 was much more appealing, with lots of Rhônelike red fruit, delicious spiciness, firm structure, good body and nice balance. It comes from a very difficult vintage but, so often, challenging vintages result in more sensitive elegance, even though the alcohol is still fairly prominent in this one (14%).

While it may not be a Hungarian grape, many consider the originally French Cabernet Franc to have found a home from home in Hungarian terroir, especially in the southern region of Villány, and Heumann’s huge but harmonious 2012 Villányi Franc more than justifies the grape having its own category.

Tokaj makes many of the world’s best sweet wines and Parliament’s wine, Grand Tokaj’s Aszú 6 puttonyos 2013, is pristinely pure, modern and fruitforward, having a lightness of touch but plenty of layers. It marks the huge progress that Tokaj’s largest producer has made under the direction of winemaker Károly Áts, formerly of Royal Tokaji fame. Áts also makes his own wine and his sweet Áts Cuvée 2014 is one of the wines chosen by Hungary’s foreign ministry to be presented at embassies and Balassi Institutes from Havanna to The Hague. Local experts assessed

260 wines and whittled them down to 26. Kolonics’ Furmint 2015 is one of the standout wines and was judged to be Grand Superior, which means that it will be served at the key embassies and institutions in the United States, Ankara, Beijing, Bern, Berlin, Brussels, Paris, London, Moscow and Tokyo. Rich and full-bodied, oily and waxy with a savory and flinty nose and palate this Furmint captures the unique characteristics of Somló, Hungary’s smallest wine region but quite simply home to some of Hungary’s biggest wines.

Another Somló featuring on the Grand Superior list, Kreinbacher’s Brut Classic NV, a traditional method sparkling wine made from 85% Furmint and 15% Chardonnay, is just the stuff to get the diplomatic party started. From nearby Badacsony, which also has black volcanic basalt soil but is influenced considerably by Lake Balaton, by which it lies, the bargain Gilvesy Bohém 2015 also makes Grand Superior, as do Luka Kékfrankos 2015 from Sopron, GereWeninger Cabernet Franc Selection 2012 and Heumann Terra Tartaro from Villány, and Tokaj’s Szamorodni 2012 from Kikelet and 6 puttonyos 206 from Patricius.

Krisztinus’s Olaszrizling 2015 Part fermented in steel tanks, part in small Hungarian oak barrels. It has that vegetal touch typical of Olaszrizling, pear and green apple, zesty acidity to draw out the flavors and give a fresh feel, lively fruit and medium-bodied, very round finish with no sharp edges.

HUF 2,490 from the winery.

Dobogó Furmint 2015 A little nutty with a hint of pear, quince, green herbs, lemon zest, candied lemon and especially hazelnut, linear and long with lively acidity. From three top vineyards. Sulphur added only at bottling. As Furmint is not an aromatic grape, 10% of the wine was fermented and aged in new oak, which comes across in a smidgen of vanilla.

HUF 3,490 from borbolt.hu

2017. 05. 17. 17:52

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Happiness is the Road, not the Destination The notion of happiness has long fascinated humankind and while many theories have emerged as to what happiness actually is, one thing is certain: those who chase happiness will never find it. The Budapest Business Journal discussed how a mindset can be created for happiness and harmony with Nelson Mandela’s former communication chief Dr. David Venter, whose book on the topic, “Stepping Stones to Happiness: Discovering your equilibrium” has just been published by the Mathias Corvinus Collegium (MCC).

CHRISTIAN KESZTHELYI

Psychologist and negotiator Venter came to Budapest on request approximately eight years ago, albeit somewhat reluctantly due to having so much on his plate that time. However, having enjoyed the first interaction with MCC, teaching there has become so dear to him that, even at a period of his life when he wishes to offload certain things, he is absolutely committed to keep giving classes at the Hungarian institution. “I believe investment in MCC is the investment in the future of this country. No matter what politicians may say, countries that invest in the youth by the virtue of education will have a great future,” Venter says of his passion for teaching.

The book — which has been published first in Hungarian, based on an English-language manuscript and will shortly be published in English as well — is the product of the beginning of a period when he says he wishes to finally do all the things he had always wanted but never had time for. He has some more book ideas in store, which could be considered as a follow up to his recent creation.

The notion of happiness has always created a buzz among great thinkers in history. “Guys like Hegel said [….] it is the fight of great people not to be happy [….]; you can study happiness by virtue

of history, but it is a futile task because happiness is the blank pages within the whole story of history,” Venter says, underlining that views on happiness have traditionally been quite negative. “Even Aristotle did not include happiness as one of his emotions,” he adds.

The art of Happiness

And yet, behavioral economics has recently dealt with the idea of creating happiness and wellness in corporate environments to boost performance.

“Happy people are very productive; [they] are efficient and effective and committed and creative,” Venter says.

So, with his co-authors for this book, he decided to sit down and write about the art of happiness, though in a more general and less business-related scope.

The book offers many factors that undermine happiness and provides ground for the reader to walk through the yellow brick road of happiness, helping them to adopt a prism through which life becomes more positive. The authors have been able to grasp the very meaning of being happy in their following description: “Happiness is not an already existing thing, that can be found, but rather a state that we can create.” They add that the book is a guide for those who do not only demand harmony, but are willing and ready to take steps for creating such.

Photo: MCC/Máté Havasi

Dr. David Venter.

Effort and desire to find happiness is in the very core of our nature; however, many of us frequently encounter failure on our way to happiness, which failures might make us draw the wrong conclusion that happiness just does not exist.

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Ten Rooms’ uniquely innovative events space

Kempinski Hotel Corvinus has completely refurbished the entire first-floor meeting and events area, creating the Ten Rooms conference center and making its MICE offering the most innovative and unique in Budapest by introducing the latest technology and design, as János Parti, director of sales and marketing, explains.

Highlights of the transformation are the use of the latest technology and design, and the creation of an elegant yet warm feeling.

The rooms have been designed not only for business, but also for family and social events, and each has an individual character. Natural light is found in almost all the rooms, and The Kitchen, complete with working stove and countertop, is a unique unit within the events floor.

The objective was to bring the same quality of contemporary glamor as the recent transformation of the hotel’s public areas. The project has been managed in two phases. The first, taking place in summer 2016, saw the ballroom and associated areas benefit from a

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gentle redesign; phase two, involved significant internal reconfiguration of the function rooms, as well as new design schemes.

State of the Art All the rooms of the Ten Rooms conference center feature a state-of-the-art audio visual network, which allows for intra-room AV communication via fiber-optic cables. As a result, Kempinski Hotel Corvinus Budapest has become one of the most sophisticated conference technology providers in the fivestar segment.

New high quality events furniture such as chairs, tables and desks have been sourced from Brunner Germany, known for its smart products and top functionality. At the same time, the chefs have been given more opportunities for an updated gastronomic presentation, adding even more creative and healthy inspiration to the banquet menus.

The hotel’s contemporary art collection has acquired new pieces, to decorate the new events floor.

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2017. 05. 17. 17:52

ÉLVEZD A KIHÍVÁST! FEDEZD FEL, MERRE VISZ AZ ÚT!

A HONDA CIVIC VEGYES ÜZEMANYAG-FOGYASZTÁSA: 4,7-6,1 L/100 KM, CO 2-KIBOCSÁTÁSA: 106-139 G/KM. AZ ADATOK AZ EU ÁLTAL SZABÁLYZOTT MÉRÉSEK ALAPJÁN KERÜLTEK MEGADÁSRA, ÖSSZEHASONLÍTHATÓSÁG CÉLJÁBÓL. A VALÓS KÖRÜLMÉNYEK KÖZÖTT MÉRT ADATOK VÁLTOZHATNAK. A KÉP ILLUSZTRÁCIÓ.

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2017. 05. 17. 17:52