1. 05 October 2015 Panel Presentation for Industrial Manufacturing Panel Prof. Dr. Gusztáv Báger Budapest International Business Center Conference 2013

2. 05 October 2015 2 Main subjects 1.Two main macroeconomic challenges 2.General features of subcontracting 3.Some aspects of corporate citizenship

3. 05 October 2015 3 1.1. Seek for break-out opportunities for economic growth ●Weak potential growth: GDP -1,7% in 2012; 0,3% in 2013 (EU); 0,9% in 2013 (Government) ●Industrial production -2,7% in 2012  From among 13 subsectors of manufacturing: production increased in 4 subsectors stagnated in 5 subsectors decreased in 4 subsectors (in electronics sector by 18%) 1.Two main macroeconomic challenges

4. 05 October 2015 4 1.1. Seek for break-out opportunities for economic growth (cont’ed)  Employment decreased by 2%  Weak financial position of firms  Slow industrial growth recovery (0,5-1,0 % in 2013) ●Consequently, need for further integration of foreign companies to Hungarian economy.

5. 05 October 2015 5 1.2. Other important aims of Hungarian economic policy ●Financial and fiscal stability ●Reducing public debt ●To increase the level of labour market participation and employment ●Structural reforms (pension system, public transport, higher education, state and municipal financing etc)

6. 05 October 2015 6 1.3. Enhancing competitiveness (2nd major challenge) ●Recent governmental measures for competitiveness  New labour code (effective from 1 July) in favour of employers  New act on vocational training in favour of business needs  Strategic agreements between the government and top investors  Job Protection Action Plan

7. Site Selection Magazine Ranking, 2012 Top countries in Eastern Europe: 1.Hungary 2.Poland 3.Slovakia 4.Estonia 5.Czech Republic The magazine of corporate real estate strategy & area of economic development 7 05 October 2015

8. Main arguments for Hungary as an investment destination Open economy with a high ratio of FDI stock Attractive business environment Investment friendly policy environment Competitive tax system High productivity and skilled, flexible labour at competitive price level High level of educational system Availability of language skills, including exotic languages Close cooperation between education institutions and companies Governmental incentives 8 05 October 2015

9. Competitive tax system Low corporate income tax: rate for the first HUF 500 million of the tax base is 10%; beyond HUF 500 million, it is 19%. Tax incentives and allowances (development tax allowance, training subsidies, cash grants etc.) Flat personal income tax: 16% 9 05 October 2015

10. High average yearly working hours, 2011 Source: IMD, World Competitiveness Online 2012 10 05 October 2015

11. 11 2.1. Top reasons for contracting with Hungarian companies ●Central location At the cross roads of 4 main European transportation corridors - Ideal logistical center for the automotive industry (More than 90% of Hungary’s automotive production goes for exports) ●Cost efficiency Competitive wages and labor cost/value ratio in European comparison in the CEE region. 2. General features of subcontracting

12. 05 October 2015 12 2.1. Top reasons for contracting with Hungarian companies (cont’ed) ●Tradition of innovation Long and successful tradition of cooperation between the universities and the producers in R&D. ●Long-term planning According to the sectorial estimations from 2013 400 000 passenger cars will be manufactured in Hungary.

13. Competitive earnings and long working hours of professions from the automotive sector Source: UBS, Wealth Management Research, Prices and Earnings, 2009 Income and working hours of car mechanics 13 05 October 2015

14. Top reasons for strong supplier base in Hungary: the case of automotive sector Over 600 companies in the automotive sector 14 of the 20 leading Tier 1 company settled down in Hungary Hungarian automotive suppliers have several years of experience supplying OEMs & Tier 1s Strong governmental supplier development activity Extended vertical and horizontal supplier connections 14 05 October 2015

15. 15 2.2. Weaknesses, threads ●Weaknesses  Blue collar efficiency increase was lower than expected  Praxis oriented education is on low level, does not cope with the requirements of the industry  Low level mobility for blue collar workers  Suppliers have low level IP contribution to products, R&D capability is missing  Low level of networking on supplier level  Other means of transport (waterway, air)

16. 05 October 2015 16 2.2. Weaknesses, threads ●Threads  Entrepreneurial culture of Hungarian owned companies (mostly SMEs) will not change as requested  Old hierarchies and traditions in education system will not be overcome  Co-operation among companies and institutions will not develop as required Source: Prof. Dr. László Palkovics: Hungarian example: Challenges in the subcontracting industry (transport) with special attention to the human relation issues

17. 05 October 2015 17 Main actions for enhancing subcontracting ●To promote better harmony between education and needs of business ●To increase R&D expenditure of SMEs ●To elaborate financial schemes for supporting better collaboration between the SMEs and their foreign partners ●To develop the competencies of local universities needed for their more efficient participation in co-operation networks ●To develop entrepreneurial culture ●To implement the tasks of strategic co- operation agreements

18. 05 October 2015 18 ●The definition of Corporate Social Responsibility is globally discussed  Limited view: philanthropy  Extended view: having political connotations  Suggested: to have sustainable development connotations ●New EU definition: „responsibility of enterprises for their impacts on society” ●It is on way in Hungary: to become more and more a public concern 3. Some aspects of corporate citizenship

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