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innoHUngary

1.  HUNGARIAN AUTOMOTIVE INDUSTRY

One of the big winners of the change of regime and intensive foreign direct investment inflows was indisputably the automotive industry in Hungary. Nearly half of total FDI in manufacturing is invested in the sector. Like the whole manufacturing sector, automotive is FDI driven and mainly pulled by the foreign companies invested in Hungary since the 1990’s, while local firms had suffered considerable loss in their orders due to broken relationships with the earlier market countries, mainly Russia.

Automotive sector contributes to the total industrial output with EUR 15.9 billion which is 19.4% of the total amount. Since the motor companies especially OEMs and TIER1s manufacture mainly for export, the some 630 automotive companies account for 20% of total exports. 

Manufacturers, such as Suzuki or Audi, are continuously expanding their capacities and their workforce so that they can meet growing demand. This is one of the reasons why 14 out of the world’s top 20 TIER1s have already established their operations in the Hungary. Another reason is the country’s central geographical location. As a part of the “Detroit East” countries, Hungary can supply the manufacturers and the customers in the neighbouring Central and Eastern, Western, Eastern and Southern European countries.

 The superb network of technical colleges and universities provides excellent training and education for engineers. In 2007/2008, 7,000 out of the total 23,000 students in technical vocational secondary eduction, while 3,000 out of the total 46, 500 students in technical higher education studied motor vehicles, ships and aircraft. The automotive industry today employs some 110,000 people in Hungary, out of which 3,500 are highly qualified engineers. Thereof more than 50% are mechanical engineers, 11% are information-systems engineers, 10% are electrical engineers, 9% are automotive engineers, 5% are technical managers, 5% are machine production technicians, 2–2.5% are quality-assurance engineers and 1–1.5% are chemical engineers. Almost 20% of working engineers are engaged in product-improvement, while the others are active in technological development, production, quality assurance and sales. Recognising that many of the majors have chosen Hungary for their research activities, such companies include: Audi, Bosch, Knorr-Bremse, Magna-Steyr, ThyssenKrupp, Arvin Meritor, Denso, Continental, Visteon, WET, Draxlmaier, Edag and Temic Telefunken.

Latest Greenfield investments in the automotive sector

Bridgestone has at last brought its breakthrough BIRD production system out of Japan to Hungary. By investing EUR 195 million in Tatabánya Bridgestone builds a construction facility capable of a 8,000 tyres per day capacity with 185 employees.

Hankook Tire will have invested EUR 528 million by 2010 in its Dunaújváros facility that will produce 10 million tyres per year and employ 1,500 people.

Asahi Glass has invested USD 162 million to build its facility in Tatabánya that will employ some 600 people and will produce safety glasses.

Ibiden has invested EUR 100 million in its factory in Dunavarsány where its 1,200 employees produce ceramic filters.

ZF Hungary is investing EUR 74 million in Eger to build its second factory in Hungary. On the 15,000 sq m premises 1,400 employees will manufacture 1.2 million steering gears, 1.7 million A/C pumps and 120,000 gearboxes per year.

Daimler AG has decided to build its new plant in Kecskemét, where 100,000 Mercedes A and B class compact cars will be assembled yearly. Production is scheduled to start in 2011. Investment amount reaches EUR 800 million, with 2,500 new jobs created.

 

2. HUNGARIAN Electronics industry

„Hungary provides an ideal environment for Electronic Manufacturing Services (EMS), as the country has good industrial infrastructure and a strong industrial culture in the field of electronics. The labour and overhead costs are reasonable, and the economic and political environment is stable. The location is perfect, as the country is in the middle of Europe, close to the market.” Hannu Hantala, Managing Director // Elcoteq

 

In the 1990s Hungary emerged as a major global production location in the electronics industry. The inflow of capital boosted the sector to achieve record levels of growth, which is still about 10% every year. Today, with its USD 29.7 billion electronics production output, Hungary represents 37% of the production of the CEE region, and provides nearly 50% of the regional exports.

 

Electronics is one of the leading-edge sectors of the country: 17% of the industrial employees work for electronics companies producing 28.6% of the manufacturing output and 38.8% of total exports. In the past few years, foreign investors have shown a particularly keen interest in four areas: information technology, communications, consumer electronics and automotive electronics.

 

In information technology, Hungary is a major producer of peripherals. Computing is the largest sector within electronics, representing 30% of the total output. The country has a strong tradition in consumer electronics, producing around three million colour TVs and over five million VCRs annually.

 

In telecommunications, foreign manufacturers of mobile devices and removable parts (namely Ericsson, Nokia and Siemens) have set up centres of excellence in Hungary, spurring innovation and new applications.

 

A number of companies supplying auto electronics parts (such as Temic, Delphi and Bosch) have made serving the large car and bus manufacturers active in Hungary (Audi, Suzuki, GM, NABI, Rába) their top priority.

 

Several of the major global EMS providers are present in the country such as GE, Philips, Siemens, IBM, HP, Ericsson, Nokia, Sony, Samsung. However, Hungary has been a popular location for CEM companies as well, including global tier one suppliers such as Flextronics, Sanmina-SCI, Solectron, Jabil Circuit and Elcoteq.

 

The electronics sector has benefited from a traditionally high quality education in Hungary. There are more than 50 technical secondary schools in the country, with about 17,000 students studying electronics-related vocations. Currently 6 universities/colleges offer electronics-related education in Hungary, with about 32,500 students. Technical universities are remaining popular, in 2007 a total of nearly 20,000 students applied for technical faculties after finishing secondary school.

 

The technical universities and colleges continuously develop their education by adapting their profiles to the expectations of large electronics manufacturers in Hungary. Our universities cooperate with several companies (such as IBM, Nokia, Mentor Graphics) in working out curricula and providing hands-on experience to students. In its “New Hungary” Program the government emphasized the importance of technical education and engaged in supporting the field.

 

Sector specific R&D research centres in electronics provide basic research in telecommunication systems (Ericsson), lighting device development and X-ray technical devices (GE) and software and hardware development for telecommunication systems (Nokia). In the past decade a close cooperation was established between universities and multinational companies particularly in telecommunications, electronics and medical research.

 

 

 

 

 

 

 

 

In addition to research centres, technological parks also facilitate the clustering of high-tech companies. The Infopark (T-Online, IBM, HP-Compaq), the Science Park (Budapest Technical University Budapest, Black Hole Software, Ericsson, Tata Sons) and the GraphiSoft Park (Canon, GraphiSoft, Microsoft, Thales Nanotechnology), Flextronics Park (Zalaegerszeg), Industrial Park (Komárom – Foxcom, Nokia), Regional Innovation Industrial Park (Debrecen- National Instruments).

  

Latest developments

 

  • Philips tripled LCD production in Hungary by the end of 2006;
  • Samsung constructs new plasma module capacity with an investment of USD 100 million, production started in March 2007;
  • Elcoteq invested in a further production capacity to satisfy growing demand from the mobile telephone industry. The company – which located its European headquarters here in 2005 - plans to hire additional 600 people;
  • Sanyo enlarged its solar module production capacity in Dorog and also started the construction of an air-conditioning production unit at the same location.
  • Diebold relocated its ATM production capacity from France to Hungary in 2006;
  • Bosch increased investment in Hungary in 2006, and created 700 new jobs;
  • GE relocated the production of lighting fixtures from France to Hungary.

 

3. HUNGARIAN ICT INDUSTRY

The Hungarian ICT market exhibited strong growth in the past couple of years. Between 2003 and 2007 the average annual growth rate was 6.5%, well exceeding the average growth rate of the EU (2.6%). Today the Hungarian ICT market represents approx. 15% of the Central Eastern European total. Total sales reached $8.1 billion in 2007 which is 26% higher than the size of the market in 2002. Hungary is a leader in terms of per capita ICT expenditure and ICT expenditure as % of GDP in the region.

 

Major companies in the ICT sector are: IBM, Flextronics, GE, Samsung, Nokia, HP, Ericsson, Oracle, SAP, Cisco, Satyam, Tata, Synergon, EDS, BT, Getronics, Sun Microsystems, Microsoft, Siemens.

 

Hardware

 

Hungary has grown into one of the major players in hardware production in Central and Eastern Europe and leads the region for computer assembly and communications equipment manufacture. In 2007, the sector accounted for 18.43% of manufacturing output, 26.5% of total manufacturing exports and 11% of industrial employment (Hungarian Central Statistics Office). The value of computer production was $ 3.5 billion, while communications equipment manufacturing was worth $ 15.6 billion. Sales of desktops, notebooks and accessories were estimated at around $ 952.7 million in 2007 and are expected to grow at a compound annual growth rate (CAGR) of 6% to exceed $ 1.2 billion by 2012. Laptop sales are growing rapidly, with Acer doubling its sales in Hungary to 73,000 units last year, totalling roughly 60% of the 200,000 total volume. In the same period, desktop sales fell by a further 20%. Hardware sales are expected to increase by a further 6% in 2008, boosting the growth of the IT sector as a whole. Key market drivers will include FDI in IT-related outsourcing, EU market regulations, and increased demand from SMEs stimulated by EU structural funding. 

 

Software

 

The software market is the fastest growing IT segment in Hungary, its growth rate reached 9.8% in 2007, amounting to $ 478 million (EITO 2008). With a share of almost 50% of the Hungarian software market, the application software market is expected to remain the most dynamic within the 2007-2009 time frame, growing at an average annual rate of 9.3%. Accounting for some 23% of the Hungarian software market, the tools segment is one of the most mature in CEE, as reflected in the structure and type of demand. The structure of the tools sub-segments in Hungary is quite dispersed, and demand for more qualitative and business-related tools, such as BI, is at a higher level

than in other markets. The country has strong positions in IT security, virus protection and character recognition software development as well as in bio-informatics. Packaged software sales have been expanding, while custom software solutions have lost from their significance. EU structural funds will further enhance demand for application software among SMEs. According to BMI (2007) the compound annual growth rate will reach 11% between 2003-2010.

 

Latest developments

 

Cognizant (USA): Budapest, BPO IT outsourcing and support, 80 employees

CAS  (Germany): software development, Szeged

Cognex (France/USA): Budapest, machine vision system development

Lufthanse sytems (Germany): software development, Budapest

IT services (Germany): IT outsourcing, back office, Debrecen

Neusoft (China). software development, Budapest

 

 

4. Life sciences IN HUNGARY

 

“It is worth investing in Hungary since, in the very recent years, Hungarian researchers have discovered two original molecules which are in development phase now.”  Jean-François Dehecq – world-wide CEO Sanofi-Aventis

 

Strongest pharma sector and the most developed biotechnology sector in the CEE

 

Possessing the most developed pharmaceutical and biotechnology sector amongst the 10 EU accession states, Hungary provides an ideal base for life science companies keeping an eye on more distant markets or planning further expansion within Central Eastern Europe or the European Union.

 

Pharma sector

 

Hungary was the major drug manufacturer of the Central-Eastern European countries before 1990. The local pharmaceutical industry was privatised during the 1990’s and several of the emerging new companies are joint ventures of traditional Hungarian companies and multinational firms.

 

Today Hungary has one of the largest and most developed drug markets in Central-Eastern Europe and the strongest pharmaceutical sector in terms of technology and productivity.

 

There is a vast presence of large international pharmaceutical companies in the country, investing not only in sales and marketing but in local early and late stage R&D as well as manufacturing.

 

Biotechnology

 

Uniquely in the CEE region, Hungary has over 50 enterprises of various sizes focusing their activities wholly on biotechnology related research or development. The vast majority of these companies commercialize their products and services on world-wide markets. Major areas of strength include medical chemistry, plant genomics, bioinformatics, clinical trials, diagnostics. The companies are located around the four major life science universities.

 

In the past two years twice as many new companies were founded in biotechnology related research as before. The new innovation policy and regulation have created an adequate legal framework for funding university spin-offs. A new generation of younger scientists is more willing to spin off their activities. Due to the two major waves of foundations (1.: early nineties 2.: last two years) Hungarian companies are in intense product development phase or already shipping their products to the market.

 

Several Hungarian biotechnology companies develop their products in partnership with well-known life sciences companies. The $ 14 mn all-cash acquisition of ComGenex by AMRI in 2006 was the largest deal in the CEE region.

 

World renowned science education and recognized research base

 

One of the key values of the Hungarian life sciences sector is the strong scientific and technological base and the highly skilled workforce. In addition to growing corporate research activities, basic research is quite strong in life sciences and academia-business cooperation has intensified.  More than 90% of total business R&D expenditure is on high-tech and medium-high-tech manufacturing in Hungary. Within the EU-27 Hungary has the highest proportion with 84.3% of researchers in high-tech manufacturing.

 

Research and development in life sciences is clustered around the four major life science universities in Budapest, Debrecen, Szeged and Pécs. The centres became the growth catalysts of R&D activities and academic-corporate cooperation in the four life sciences clusters.

 

Favourable policy environment

 

Biotechnology has been chosen by the Hungarian government as one of the top five priority sectors of the country’s mid-term development plan. The strategy envisages the following objectives for 2005-2010:

·         2-3 big biotech investors (over 100 m EUR)

·         5-8 middle-size investment (over 10 m. EUR)

·         15-20 small-size investment (1-10 m. EUR)

·         2-5 new R&D investment from the fields of biotechnology and pharma industry

·         Several thousand high value jobs with highly skilled employees

·         Global recognition of Hungary as an „up and coming” biotech country.

 

The EU membership strengthened the regulatory system which ensures a transparent operating environment.  The intellectual property regime is aligned with international standards.

 

Among the EU accession countries, Hungary has the first biotechnology association founded in 2002. The association is a major lobbying power for the entire life science industry.

 

Latest developments

 

Beike Biotechnology: Chinese stem cell research project, Budapest

Sauflon Pharmaceuticals (UK) : Contact lense factory near Budapest. Capacity: 100 million contact lenses/ year

Pfizer (USA): Logistics and distribution centre in Budapest

TEVA (Israel): expansion of pharmaceuticals manufacturing capacity in Debrecen

Richter Gedeon (H): R&D in Budapest and Debrecen

 


Hungary - Incentive system

 

Investment in manufacturing

            (1) Cash subsidy decided individually by the Hungarian Government

·         A „request list” containing core investment data needs to be submitted to ITD Hungary. (After having recieved the request list ITD Hungary sends the official subsidy offer of the Hungarian Government within approx. 30 days)

·         Conditions: investment volume of at least EUR 10 million (approx. HUF 2,5 billion), creating at least 50 new jobs (25 in preferred regions). Cash subsidy may not be granted if the investment volume is between EUR 10-25 million and the project is eligible for EU co-financed tenders.

·         Amount of subsidy: deiced individually by the Hungarian Government

·         Provider of incentive: Ministry of Economy and Transport

 

            (2) Development Tax Allowance

·         Conditions: investment volume of at least HUF 3 billion (approx. EUR 12 million), creating at least 150 new jobs (HUF 1 billion investment volume and 75 new jobs in preferred regions)

·         Amount of subsidy: exemption for 80% of the corporate tax payable for 10 years following installation. The amount of available allowance is limited by the maximum intensity ratio.

·         Provider of incentive: Ministry of Finance

 

            (3) Training Subsidy

·         Condition: individual cash subsidy needs to be granted

·         Amount of subsidy: 25-90% of eligible costs, max. EUR 1 million

·         Provider of incentive: Ministry of Social Affairs and Labour

 

            (4) Job Creation Subsidy

·         Conditions: individual cash subsidy needs to be granted, investment is made in preferred or most preferred locations, at least 500 jobs are created (at least 200 in most preferred locations), at least 50% of new entrants are registered unemployed (at least 30% in most preferred locations).

·         Amount of subsidy: HUF 80-260 million

·         Provider of incentive: Ministry of Social Affairs and Labour

 

            Tenders co-financed by the European Union

·         Continuos opennings

·         ITD Hungary provides full information on open tenders and conditions

 

Maximum intensity ratios

 

25%*

30%

40%

50%

Subsidy for large investment projects is subject to an adjusted regional aid ceiling, on the basis of the following scale

Eligible expenditure

 

Adjusted aid ceiling

Up to EUR 50 million

100 % of regional ceiling

For the part between EUR 50 million and EUR 100 million

50 % of regional ceiling

For the part exceeding EUR 100 million

34 % of regional ceiling

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 * 10% from 2011

 The maximum intensity ratio is increased by 10 percentage points for medium-sized and by 20 percentage points for small enterprises.

  

R&D investments

            (1) Cash subsidy decided individually by the Hungarian Government

·         A „request list” containing core investment data needs to be submitted to ITD Hungary. (After having recieved the request list ITD Hungary sends the official subsidy offer of the Hungarian Government within approx. 30 days)

·         Conditions: investment volume of at least EUR 10 million (approx. HUF 2,5 billion, including tangible assets and personal costs), creating at least 10 new jobs. Cash subsidy may not be granted if the investment volume is between EUR 10-25 million and the project is eligible for EU co-financed tenders.

·         Eligible costs: tangible assets and personal costs

·         Amount of subsidy: deiced individually by the Hungarian Government

·         Provider of incentive: Ministry of Economy and Transport

 

            (2) Development Tax Allowance

·         Conditions: investment volume of at least HUF 100 million (approx. EUR 400 thousand)

·         Amount of subsidy: exemption for 80% of the corporate tax payable for 10 years following installation. The amount of available allowance is limited by the maximum intensity ratio.

·         Provider of incentive: Ministry of Finance

 

            (3) Training Subsidy

·         Condition: individual cash subsidy needs to be granted

·         Amount of subsidy: 25-90% of eligible costs, max. EUR 1 million

·         Provider of incentive: Ministry of Social Affairs and Labour

 

            (4) Job Creation Subsidy

·         Conditions: individual cash subsidy needs to be granted, investment is made in preferred or most preferred locations, at least 500 jobs are created (at least 200 in most preferred locations), at least 50% of new entrants are registered unemployed (at least 30% in most preferred locations).

·         Amount of subsidy: HUF 80-260 million

·         Provider of incentive: Ministry of Social Affairs and Labour

 

            Tenders co-financed by the European Union

·         Continuous openings

·         ITD Hungary provides full information on open tenders and conditions

 

Other R&D incentives

·         R&D costs, depreciation of activated/accounted R&D can be 100% deducted from corporate tax base and solidarity tax base

·         300% R&D direct expenses - maximum HUF 50 million (appr. EUR 200 thousand) - if operation of the company R&D unit located at university or public research institute can be deducted from corporate tax base

·         10% of R&D direct costs and wage costs of the employed software developer can be deducted for a period of 3 years

·         Tax free employment of PhD, MSc or MBA students (up to the official minimum wage) in the field of educational and research activities

·         Tax allowance for corporate donations to organisations of public benefit supporting R&D activities

·         Tax free development reserve for five years – 25% of pre-tax profit (max. HUF 500 million, appr. EUR 2 million)

·         Tax benefit on credit agreements

Source: ITD Hungarian Investment and Trade Development Agency 

 


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