Corporate responses to the economic crisis: The Hungarian case Ágnes Czibik (GVI) – Ágnes Makó (GVI) – István János Tóth (MTA KTI) HCCI Institute for Economic and Enterprise Research 30th CIRET Conference – Economic Tendency Surveys and the Services Sector New York City, Westin New York at Times Square 14 October 2010

:44http:// Topics Motivation of the research Hungary in a nutshell - main problems of the economy Business situation and adaptation - results of three ad-hoc surveys Conclusions Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

Motivation A special crisis beyond the business cycle: structural changes – what happens to companies? Ad-hoc survey on business climate and on the reactions of firms – do they react as usual or is it special? Loan market crisis – examining companies with loan Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

Hungary Central- Eastern Europe Area: km2 Population: (July 2010) Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

:44http:// Main problems of the Hungarian economy

Crisis before the crisis " Crisis before the crisis ": long period of recession 2006.Q Q4 Governmental measures EU-markets Beginning of the recovery - world crisis : 2008.Q2 – dramatic deterioration Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

Lost position Falling behind the Central European region Per capita GDP: 63% of the EU-27 (2009) Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

Lost position Falling behind the Central European region Per capita GDP: 63% of the EU-27 (2009) Slovakia: overtook in 2006 Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

Lost position Falling behind the Central European region Per capita GDP: 63% of the EU-27 (2009) Slovakia: overtook in 2006 Poland: catching up Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

Lost position Falling behind the Central European region Per capita GDP: 63% of the EU-27 (2009) Slovakia: overtook in 2006 Poland: catching up Czech Republic: keeping good position Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

Extremely high deficit One of the countries with the highest deficit in the EU Governmental measures in 2006 Decrease of government deficit Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

:44http:// :4412 One of the countries with the lowest employment rate in the EU Reasons: transformation shock, tax burden, black work Crisis – between 2008.Q4 and 2010.Q1: the number of employed decreased by Low employment Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

A "province" of Germany? 2009: Small open economy: export/GDP= 64% 2008: 24% of FDI from Germany 2009: 25,6% of export 24,8% of import Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

:44http:// Business situation and adaptation - results of three ad-hoc surveys Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

:44http:// Survey parameters Period: March and June 2009, March 2010 Survey method: CATI Sample: Hungarian enterprises, quota sampling by bank loans Sectors: manufacturing, construction, trade and other services Case numbers: 314 companies in March, 302 companies in June, 300 companies in March Panel database: N=184 Test of homogeneity: identical sample distribution by company size and sectors The research was supported by the National Office for Research and Technology, Jedlik Ányos Programme. (Project number: NKFP_07_A2-TEXTREND, Contract number: OM-00002/2008) Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

:44http:// Special Crisis Climate Index CCI = (a1 + a2 + a3 + a4 + a5) / 5 NameDefinitionCategories a1a1 Changes in the volume of domestic sales down, unchanged, up (-1, 0, 1) a2a2 Expected changes in the volume of domestic sales down, unchanged, up (-1, 0, 1) a3a3 Expected change in the volume of investment no investment, down,unchanged, up (-1, -0,33, 0,33, 1) a4a4 Expected changes in the number of employees down, unchanged, up (-1, 0, 1) a5a5 Average gross changes in employees’ wages in the given yeardecrease, remain stable, increase (-1, 0, 1) Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

:44http:// Results Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

Companies with credit: barely different CCI Companies with credit were in worse situation only in March 2009 The difference disappeared Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

:44http:// :4419 Exporting firms: steep falling - faster recovery Crisis: driven by narrowing of export markets Exporting firms’ CCI were positive in March 2010 Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

Clustering method Does the developed/less developed dichotomy appear in the data? Two clusters for „developed” and „less developed” companies Clustering by export, foreign ownership, net sales revenue, number of employees Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

:44http:// :4421 CCI by two different type of firms Developed firms were in better situation in all three surveys Absence of Dec 2008 survey Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

Regional impacts of the crisis Crisis reached first the developed regions (West and Central Hungary) Index of registered unemployment rose first here Sept 2008 March 2009 June 2009 March 2010 Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions Dec 2008

:44http:// :4423 Corporate responses Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

Main questions Ordinal or special reactions? Consciousness in corporate strategies or trial and error? Which measures were effective? Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

Measures examined First survey: 18 measures Afterwards: the 13 most common measures Strategic measures Seeking new markets Launching new products New strategic plan Measures related to employment Layoffs Freezing or cutting wages Shorter working hours Cost cutting measures Postponing investments Cutback of noncore services Other measures Reducing receivables Reducing dependence on suppliers Reducing short-term debts Government and EU benefits Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

:44http:// :4426 Average number of applied measures: 2009 March: 5, June: 5, March: 5,8 „All potential measures for surviving” More variability in the first period Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

:44http:// :4427 Worse situation – more measures Different measures? CCI by the the number of applied measures Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

Corporate responses: employment and strategic measures Less layoffs in 2010 Shorter working hours rarely applied Significance of seeking new markets Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

Corporate responses: cost cutting and other measures Significance of government benefits is growing Postponing investments and cutback of non-core services are also prevalent Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

The most effective measures Seeking new markets Freezing wages Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

Companies’ most effective measures and the CCI Firms with higher CCI: government benefits, new products, new strategic plan Lower CCI: cost cutting Low case numbers Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusion

:44http:// :4432 Conclusion In an open economy like Hungary the crisis was driven mainly by narrowing of export markets. Credit crisis was secondary. Exporting firms’ business situation worsened earlier but they also seem to recover earlier Companies tried to apply many measures to minimize the unfavourable impacts of the crisis. Worse CCI – more measures. Connection between CCI and type of most effective measure Firms with worse situtation: cost cutting Firms with better situation: strategic measures Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusion

Further research Further surveys – more data – higher case numbers More complex analysis, methods Following Hungarian firms’ situation and activity throughout the crisis Topics  Hungary in a nutshell  Business situation and adaptation: survey results  Conclusions

:44http:// Thank you for your attention!