When stakeholders in the fast-growing CEE (Central and Eastern European) ‘nearshoring’ market talk about optimal destinations or partner countries, the same names do tend to crop up, you will probably have noticed: Bulgaria, Slovakia and the Czech Republic are the dominant players.
At the centre of the ICT market in Eastern Europe and significant neighbour to Austria and Poland, Hungary by rights should be much higher on any such list than it seems to be. Is there some fundamental reason why this nation of just under 10 million isn’t winning more market share here?
The balanced answer is that that can only really happen when the country deals with a couple of concerns in the minds of at least some possible customers’ minds – but that once it does, there’s no reason at all the land of the other great capital on the Danube can’t get a lot more of this sort of development and service business.
Let’s look at the positive factors first. Hungary enjoys a flourishing economy and has a strong tourist sector, while its lively capital, Budapest, with its 1.8m inhabitants has been seen as one of the most promising locales for business start ups in the whole of Europe, let alone just the CEE. The country also prides itself on a highly-competitive corporate tax regime, while a very high 85 percent of all its 25-34 year olds have educations at university or roughly equivalent level. And Hungarian young professionals are in undoubted demand, without a doubt, as employment rates of graduates in 2013 was 85.6 percent, compared to the European Union average of 80.7, and with 1 in 4 of all students majoring in business and administration, and a further 13,200 specialising in IT specifically, the Magyars have, on paper, a large pool of graduates with a good understanding of international business processes.
Nokia: a strategic research facility
But we need to balance this great starting point with a few doses of reality, I’m afraid. Those nice taxes? They’re not so low if you are a bigger company in key sectors – especially if you’re foreign-registered. That business regime has some real possibility, but most objective observers worry that there’s still a bit of a lag in any kind of native enthusiasm for the risk taking a real entrepreneur thrives on. And in education, there’s admitted to be a lot of work still needing to be done to get the country up to full internationally-recognised levels, says the government, while language skills (Hungarian being notoriously impenetrable to non-speakers) just aren’t as impressive here as in other CEE territories.
But that same government is trying hard, having recently set, for example, a national goal to boost Hungarian digital literacy in order to increase competitiveness in jobs that demand good tech skills. This will be done, says Budapest, in support for more training of its ICT professionals to high standards and CEE market level aptitudes as soon as possible.
That doesn’t mean there isn’t any nearshoring sector here – far from it. Hungary got a very respectable 31st in AT Kearney’s Global Services Location Index for desirable locations for business to outsource/offshore in 2014, after all. That same study also gave the country a pretty decent overall metric in terms of competitiveness, financial attractiveness and people skills; at 5.28, it came definitely within sight of top-tier outsourcer India, intriguingly.
Multinationals have taken note, with brands like Audi, Mercedes Benz, Lego and Nokia Networks already with satellites here – while confirmed outsourced work’s being done already by blue chips like Lufthansa, BT, Vodafone, General Electric and Deloitte. IBM employs 1000 professionals at its local system solutions centre, meanwhile, HP about half as many and Nokia made a big splash when it a strategic co-operation agreement with the Hungarian government in 2011 to build a big R&D lab here.
These guys know something that maybe the rest of the market hasn’t woken up to yet, perhaps – that Hungary is catching up with its neighbours and rivals. Perhaps not as fast as that lovely blue river…