Comparative Analysis of Added Value with Special Focus on Furniture Manufacturing SMEs 4th September Balázs Barta

Convergence or Divergence in EU? Euro in for Convergence and Cohesion Sources: European SME Annual report ; 2008 vs 2013;

Source: Recovery on Horizon? Annual report on European SMEs, European Commission Consistent Performers versus ‚Catching up Group’

Problem: train is not just slow, but goes in the wrong direction…

International and National Economic Policy Focal Point: boost innovation value and export performance of the SMEs Quotation: Hungarian Economic Policy ; ; and assumingly onward ….

How does the economic landscape look like? Who are the SMEs? How do they perform? Who are the managers? What goes wrong?

Performance of Foreign Owned Enterprises in Hungary Source: own calculation based on Hungarian Tax Office data

Industrial distribution of Foreign Owned Enterprises Source: Hungarian Statistical Office report

Challenges: Foreign Owned Enterprises are concentrated on high added value sectors When supporting e.g. supply industries to automotive, it is 87% FOE

Geographic concentration of SMEs’ added value Source: own calculation based on Hungarian Tax Office data

Geographic concentration of SMEs’ added value Source: own calculation based on Hungarian Tax Office data

Challenge Limited resources of SMEs in the countryside to re-invest Non-existent ICT out of Budapest, no SME research organization

Forestry and logging Wood retailSawmill Furniture Production WholesalerRetailer 34%5,5%6,7%6,1%3,7%3,6% Hungary Furniture price vs. inflation 23% 3,8%8,6%7,0%5,6% 9,4%9,0%9,7%7,3% 11,0%11,4%6,6%6,4% 10,6%5,4%4,4%4,3% 7,5%8,0%6,5%6,7% 4,8%9,9%4,8%5,2% Germany Austria Poland Bulgaria Slovenia EU average 6,8%6,6%7,6% Italy Hungarian Furniture Manufacturing Gross Operating Rate in Double Squeeze Source: own calculation based on EU Stat

6,2%6,6%8,9%10,8%8,7% Hungary Food industry 8,8%11,3%10,2%9,0%12,0% 8,7%11,6%9,4% 5,9%8,0%8,8%6,2%10,2% 7,7%8,5%8,6%6,0%8,9% 7,5%6,7%13,6%9,8%7,3% Austria Poland Bulgaria Slovenia EU average 7,6%8,5%9,33,7%5,3% Italy Hungarian furniture production has lower GOP than other Hungarian industries 6,8% 9,9% 9,0% 11,4% 5,4% Textile industry Electronic manufacturing Machine production Agrarian machine manufacturing Furniture manuf. 6,1% 8,0% Foreign furniture production has not lower GOP than other foreign industries

Challenge: No direct generalization between country and industrial performance

Field research what human factors determine SME profitability other than capital and sector? 600 SMEs 8 countries

Key Conclusions

Challenge: Strong correlation between profitability and management performance Strategy, innovation, internalization

Contradictions in Allocation of Financial Resources for in Hungary

Subsidy Allocation Principles in Hungary 4 mio Euro (0,1%) for SME Management Competency 16 mio Euro (0,4%) for Internationalization of SMEs 13 mio Euro (0,3%) for SME language skills 26 mio Euro (0,6%) for Supplier development 500 mio Euro (18%) for ICT development, for ICT Companies 330 mio Euro (12%) for Public Universities Innovation 20 mio Euro (0,5%) for Social Enterprises 5 mio Euro (0,1%) for ICT Companies export sales support mio Euro Available Subsidy for Business Development

Foreign Owned Enterprises are concentrated on high added value sectors Limited financial resources of SMEs in the countryside to innovate Strong correlation between profitability and management performance Key elements to be considered for convergence

Who wants change? Who wants to change?

Thank you.