Home to the European Institute of Innovation and Technology, Budapest has become a thriving commercial hub in central and eastern Europe. With its highly educated workforce and excellent location, opportunities abound for UK businesses in the Hungarian capital
Just over 140 years ago, Budapest did not exist. Two cities divided by the river Danube, Buda on the west bank and Pest on the east, were unified with Óbuda (Old Buda) in 1873 to form Hungary’s capital. Now one of Europe’s most popular tourist destinations – the city attracts 4.4 million visitors every year – and home to 1.7 million people, Budapest is becoming “an important commercial springboard to the rest of central and eastern Europe (CEE), the Balkans, Russia and the Middle East”, according to Oliver Strommer, manager of the British Business Centre in Budapest.
With €108.7bn (£93.6bn) GDP in 2015, Budapest has been bolstered in recent years by funding from the European Union – Hungary joined in 2004 – and between 2014 and 2020 the country is set to receive £28bn in a bid to strengthen the economy and boost SMEs. Coupled with the Hungarian government’s plan to cut corporate tax rates in the next two years (big companies currently pay 19 per cent, SMEs 10 per cent), Budapest’s business credentials look better than ever.
But the city’s outlook has not always been bright. An authoritarian communist government saw Hungary tied to the Soviet Union after the Second World War. In 1956, thousands took to the streets to protest against Soviet-imposed policies. The uprising was crushed and Hungary remained behind the Iron Curtain until 1989. It wasn’t until 1990 that a free parliamentary election – only the second in Hungary’s history – took place. The last Soviet troops withdrew the following year.
Twenty-five years on, and with a generation unshackled by memories of the Cold War, Budapest is flourishing. Big British brands including BT, Tesco, BP, Vodafone and PwC have all expanded into the city in recent years, and Hungary’s economy is forecast to grow by 2.6 per cent in 2017, according to the European Commission (EC).
Growth is being largely driven by the automotive, IT, pharmaceutical, food and drink, retail and electronic industries, says Strommer. “There are a host of opportunities for British companies in all sectors. Establishing a business is not a great deal of expense and I know companies that have set up local entities within 24 hours thanks to our service providers. If you’ve got your finger on the pulse, it’s not a costly or laborious exercise.”
Heart of Europe
Budapest is a “well-located hub for operating not only in Hungary but in the wider [CEE] region,” says Botond Szirmak, chief executive of Provident Hungary – a branch of the UK credit business International Personal Finance. The company, which is headquartered in Leeds, expanded into Budapest in 2001 and has since grown its team in the country from 40 to 3,500 people. “[Budapest] is a fascinating cultural and economic centre… The city is a focal point for all decision makers and important business stakeholders, making it easier to make contact and meet people relevant to your business,” explains Szirmak.
Hungary borders Austria, Slovenia, Croatia, Serbia, Romania, Ukraine and
Slovakia, and, says Paul Szeman – managing director for Europe of transport and logistics business Maltacourt Global Logistics – is an “excellent gateway” to Russia and other eastern European countries. The Cheshire-based company established a presence in Budapest in 2010, driven by demand from telecoms business Blackberry – one of its biggest customers at the time – which was manufacturing 15 million handsets in Hungary. By 2013, however, demand for Blackberry had shrunk to zero, says Szeman. Maltacourt’s Hungary revenues dipped from €12m in 2012 to €6m in 2013. But rather than shut down operations, he and UK owner and chief executive Matt Beech decided to re-launch in the Hungarian market. “Not only did we stay, but we invested a great deal more money in our operations,” he explains.
The decision to continue to invest there has paid off; after three years of strong growth its Hungary business is projecting closing 2016 revenue of €25m. Maltacourt now has 160 staff in the country, 50 of them in Budapest. “It’s a very good place to do business: tax is simple, English is spoken widely, regulation is uncomplicated, and employment law is straightforward,” adds Szeman.
Hungary’s EU membership means the burden of regulation has been considerably reduced in the last 12 years, and any red-tape challenges that do arise can be overcome with the right stakeholder engagement, says Provident Hungary’s Szirmak. “The Hungarian market, particularly in our sector of consumer credit, is highly regulated, which can be challenging to navigate. However, we have found that it provides a robust framework in which we can operate.”
Demand for talent
Since 2008, Budapest has been home to the headquarters of the European Institute of Innovation and Technology (EIT) – an independent research and development organisation set up by the EC to train and nurture entrepreneurs and build new businesses. The EIT has created 200 start-ups and trained almost 2,000 entrepreneurial graduates in the last six years.
UK start-up 3D Repo – founded by academic Jozef Dobos in 2014 and based in London – is a cloud-based 3D-modelling business specialising in the construction industry and it has “benefited enormously” from being part of the EIT’s digital community. “[EIT Digital] initiatives have proved helpful with access to finance via investor meetings, which helped us secure our second round of investment,” Dobos explains.
Although the EIT’s initiatives are supporting the development of new companies, including British ones, firms setting up in Budapest have to be prepared to scrap for the available talent. “The local workforce is hard working, highly skilled and educated but demand for top talent is always fierce, especially with an increasing number of companies operating in Hungary,” says Szirmak. “The business environment is also becoming more competitive, with the cost of employment growing due to a shortage of qualified employees.”
Building strong links with educational institutions, and providing young people with a clear route to a corporate career, is one of the best ways for UK businesses to combat the issue, advises Strommer: “There is lots of talent out there but it’s in demand because there are many companies competing for the best employees, especially Austrian, German and other EU firms, which see the advantages of operating in Hungary… The talent exists there and it’s not a problem if you are prepared to connect with local educational institutions to sustain the stream.”
It is important not to assume that cultural norms are the same in Budapest as in the UK, advises Mike Kelly, training leader of coaching and communications business Speak The Speech. The small London-based company – founded in 2005 by Jon Bacon and Boo Holmes and comprising a team of six – expanded into Budapest five years ago.
Kelly, who was tasked with establishing Speak The Speech in the city, says making connections with local people and understanding the important aspects of Hungary’s history is crucial. “I always remember a group of young ex-pat guys setting up a bar some years ago with absolutely no meaningful connection to what was going on locally. The bar didn’t last long. You can’t just breeze in and assume you call all the shots because ‘this is how it works back home’. This will breed strong and justified resentment.”
English is spoken widely in Budapest but with Austria as a neighbour and Germany being Hungary’s biggest export partner, German remains important. Although English is often used in business, learning a few Hungarian phrases is advisable, adds Kelly. “Get to know the basic courtesies of everyday language.”
British brands are perceived very well by Hungarians, says Szeman. “The Union Jack is a marvellous marketing tool and Hungarians put a lot of value on UK-made products. There are countless shops in Budapest selling second-hand British clothes, for example. Wealthy Hungarians will buy second-hand British-made clothing but not second-hand Hungarian-made clothes, and that’s because the
UK is known for quality.”
Strommer says Hungary is more sympathetic to Brexit than most EU states, and doubts there will be any lasting impact on relationships. “Hungarians are very understanding and no matter which route the UK takes, the government is likely to do its utmost to support the UK and work out the best deal for both.”
Advice to UK businesses is clear: understand the history and respect cultural differences. “The key is to build personal relationships with businesses already established in Budapest,” advises Szeman. “One of the biggest mistakes companies make is coming and not being culturally aware. Make contacts through the British Business Centre or British Chamber of Commerce (BCC) in Budapest and learn from those with experience about the city’s business environment.”
Budapest’s location within the central and eastern European (CEE) bloc of countries is crucial to PR business Grayling, which opened there in 1995. “Our network of offices across CEE is a key differentiator over other international public relations businesses and Budapest is an important part of that,” says Jan Simunek, Grayling’s European chief executive. “It allows us to service multi-country clients in a way that, we believe, no one else can… Most other international networks are not in Hungary at all or have not prioritised it.”
Grayling’s expansion was prompted by demand from ambitious clients, explains Simunek: “We opened new offices as our clients moved into new markets. In the mid-1990s, Hungary was prioritised by a lot of international investors so we established our regional headquarters for CEE in Budapest.”
The agency now has 10 offices in the CEE and 15 staff based in Budapest. Simunek puts part of its success in the region down to finding the best talent in the local workforce, rather than relying on expats. “Initially, the model we ran across CEE combined expat experience with the best local talent, [but] in recent years… the need for expats has diminished and the team of consultants now based in Budapest are all Hungarian.”
Hungarian operations generate annual revenue of around €1m (£861,000) for Grayling, while the total CEE turnover is around €9m. “Budapest has a lot of major advantages for UK companies: it is close
to Britain, English language levels are very high and the two business cultures are
much closer than in many non-European markets,” adds Simunek.