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Navigating to success NNG CEO Péter Balogh talks exclusively to the Budapest Business Journal about navigating the journey from startup to global automotive GPS leader, the almost fatal crash of 2008, taking risks, seeking success in Japan and coming to grips with budgetary discipline. 8-9

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The National Bank of Hungary’s rate setters continued Europe’s longest-running monetary-easing cycle, lowering the main interest rate for a 22nd consecutive month to yet another new record low, this time 2.4%. 03

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Thanks for the Advice but... The 2010−14 Fidesz government seemed to enjoy its reputation for employing ‘unconventional’ economic policy. And, doubtless to the chagrin of critics in Brussels, it enjoyed its recovery all the more. If the proof was in the pudding, it was there for all to see in often better than expected figures. The government and its allies have also argued that the EU approach (reform plus austerity) has manifestly failed. Early this year György Matolcsy, Governor of the Hungarian National Bank, told AmCham delegates that Hungary had succeeded by “using both orthodox and unorthodox, conventional and unconventional policies”. His recipe for success was thus “structural reforms and the distribution of burdens”. Put simply, Matolcsy says the EU approach failed because austerity is unpopular (cue newsreel of street protests in Greece or Spain), and the EU had failed to take society or the business world with it. That would seem to be at least partly born out by the recent European Parliament elections, where low turnouts and a strong showing by euroskeptics indicate a good kicking was aimed at European Union institutions themselves, as much as the mainstream parties of member state. And just in case you need reminding, unorthodox Orbánomics (plus an extremely weak political opposition and electoral reforms that were, at the very least, majoritarian in nature) have just resulted in a second supermajority for Fidesz. All of which means that when the European Commission’s annual economic policy recommendations landed on the Prime

Minister’s desk on Monday, he may have allowed himself a knowing smile. As parliamentary party leader Antal Rogán noted last year, EU analysts and Hungarian government analysts don’t always come up with the same figures. The recommendations are specific rather than Europe− wide, and this year were mailed out to 26 countries (Greece and Cyprus were excluded as they are implementing economic adjustment programs). “This is about helping member states firmly out of the crisis and back to growth, with the country− specific recommendations acting as a compass showing the direction,” EC President José Manuel Barroso explained. The compass points for Hungary included advice to significantly strengthen budgetary strategy, improve the transparency of public finances, encourage normal lending flows, an enjoiner (surely applauded in business circles) to “closely consult stakeholders on new policy initiatives” and phase out “distortive sector−specific taxes”. Improved tax morale also got a mention, as did doing more to stop children dropping out of school early, and to improve “inclusive mainstream education” for the Roma. It even suggested looking at the impact of energy price regulation on investment and competition. How much notice Orbán will pay to any of this is questionable, but most especially that last idea. He declared war on energy companies in 2013, and just last month vowed to be tough with the EU in pushing through further price cuts. He will see nothing in any of this to change his mind.

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Stop Cheating, Start Paying There was mixed news on the tax payment front this week (for now let us park the threatened advertising tax to one side). First, the good news. VAT payments in the trade sector rose 15% to HUF 55 billion in Q1 from the same period a year earlier, increasing as the installation of electronic tills that report directly to the tax office became mandatory, and as the government continued to crack down on the shadow economy, the National Economy Ministry reported. The ministry said VAT revenue in retail sectors especially prone to fraud was up 29%, or HUF 17 bln, in the first quarter of 2014. This is good news for the government, and boy did it need it, given the shambolic nature of the introduction of the compulsory electronic tills. Unrealistic deadlines were set, tills were certified and put on sale only for the certificates to be withdrawn. It was not the government’s finest hour. It is also good news for the economy, obviously, but also business in general. The more money the government is able to collect, the less likely it is to eye further sectors for special taxes to help top up the coffers. You know, like commercial media outlets. Now the bad news. Back taxes owned by private citizens and companies in Hungary rose 8.6% to HUF 2,160 billion last year, daily Népszava reported on Friday (May 30), citing data compiled by feketelista.hu. The number of taxpayers that owed money was up 3.4% at 1,729,588, which included 1,223,375 individuals and

506,213 companies. Among the companies were 116,838 that were no longer operating. This is bad news because it shows a trend that is very Hungarian, and very ingrained. As Péter Balogh, the CEO of NNG says in our exclusive interview on pages 8−9, “We never considered Hungary as a core market because any local competitor would cheat‥ cheat on taxes, not pay the VAT it should, be a ‘funny’ company. [‥] A huge proportion of Hungarian companies and people are avoiding taxes on a daily basis.” This is a country where the person who buys a new car rather than pay his taxes is more likely to be feted as a hero than reported by his neighbors. True enough, no one likes a snitch, but Hungarians have for too long either failed or refused to understand that taxes fund society. State pensions, healthcare, education, all are paid for through taxation. Cheat on your taxes and you are cheating on your community, and possibly gambling with your own family’s healthcare. For such a family−centric people, the disconnect from understanding that taxes fund community life is as surprising as it is deep rooted. There is a particularly unhelpful phrase the fiscal experts use to describe this phenomenon: tax morale. Perhaps best described as “a belief in contributing to society by paying taxes”, countries with a high tax morale see better levels of tax payment. No prizes for guessing if Hungary’s tax morale is high or low. But, really, it is high time Hungarians started paying their dues.

Hungarians have for too long either failed or refused to understand that taxes fund society. State pensions, healthcare, education, all are paid for through taxation.

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22.6% Investment volume in Hungary rose 22.6% y. o. y. in the first quarter, lifted by capital expenditures in the manufacturing, transport and farm sectors, data published by the KSH on May 30 show. In absolute terms, investments came to HUF 824.1 bln, at current prices, during the period. Manufacturing investments rose 27.6%, reaching HUF 269.2 bln at current prices. Investments in the transport and logistics sector climbed 64.6% to reach HUF 122.4 bln. Farm investments increased 18.5% and were at HUF 51.3 bln.

at which it would stop making cuts was “impossible”, but the investment bank put it notionally at 2%. Reckoning the central bank’s cuts are largely about “growth maximization” and supporting the government, Montalto believes “it will keep cutting until the market stops it”. CDS GETTING CHEAPER Elsewhere last week, the default insurance costs of Hungary’s sovereign debt fell close to pre−crisis levels on markets in London. According to market data monitor McGraw Hill Financial/S&P Capital IQ, Hungary’s benchmark five− year credit default swaps (CDSs) traded around 182 bp on May 29. Hungary’s CDS contracts were around the 170−180 bp range in the fall of 2008, immediately prior to the catastrophic collapse of Lehman Brothers. At the height of the crisis, early in 2009, the contracts had rocketed to about 750 bp. A CDS contract valued at 182 bp means that the cost to insure every €10 million worth of sovereign forex bond exposure against default is around €182,000 a year for the benchmark five−year maturity. And after bruising European Parliament elections, which saw low

voter turn out and high polling by extreme, often anti−European parties, there was some better news for the EU from Hungary’s business sector. Research by GKI Economic Research Company, which asked 1,004 company executives for their opinion on the last 10 years of Hungary’s EU membership and their expectations until 2020, revealed that almost the half of companies (49%) had experienced a positive effect from EU membership. Another 45% were neutral, having seen neither positive nor negative effects, while only 6% reported that the disadvantages had outweighed the advantages. Expectations for the period up to 2020 were more mixed. “According to the relative majority of respondents (42%), the difference in per capita gross domestic product between Hungary and the EU average will remain at its current level until the end of the decade,” the survey says. “Thirty−two percent of them expect the narrowing of this gap, whereas 26% its widening.” Asked about what might happen after the adoption of the euro (albeit that there is currently no timeline for such an event), 42% expect positive changes to take place while 14% would bet on negative effects.

22.6% Online retail sales also rose 22.6% to HUF 217 bln (about €715.5 mln) in Hungary in 2013, eNet told state news agency MTI on May 22, citing company research. eNet noted that online sales accounted for 3.1% of all retail sales in Hungary last year. The company said that the average amount of online retail purchases rose 4% to HUF 7,800 in 2013.

2.8% Average gross wages in Hungary rose 2.8% year−on−year in March, the Central Statistical Office (KSH) said on May 29. Excluding fostered workers, who earn less than the minimum wage, average gross wages rose 6.4% in the 12 months to March. The number of fostered workers more than doubled from March 2013 as the government extended public work schemes with education programs for the winter months late last year. Average gross wages rose 1.7% y.o.y. in February but rose 6.9% if fostered workers were excluded. Gross wages in the business sector rose 5.3% in 12 months. Gross wages in the public sector edged up 0.1%.

Source: Central Statistical Office, e−net

Prime Minister Viktor Orbán (left) chats with György Matolcsy, the Governor of the National Bank of Hungary, in Parliament on June 3. MTI Photo: Szilárd Koszticsák

Photo: Szilárd Koszticsák / MTI

Doubtless buoyed by the ongoing slew of good economic figures, and perhaps emboldened by April’s negative consumer−price index (the first recorded since 1968), the National Bank of Hungary’s rate setters last week continued Europe’s longest−running monetary− easing cycle, lowering the main interest rate for a 22nd consecutive month to yet another new record low, this time 2.4%. If that in and of itself was not a surprise, the return to markedly more dovish language in the accompanying note was. “The Monetary Council will decide on the need and possibility of reducing the base rate further after a comprehensive assessment of the macroeconomic outlook and developments in perceptions of the risks about the economy and in view of the baseline projection and alternative scenarios in the June issue of the ‘Quarterly Report on Inflation’,” the Monetary Policy Council statement said. Policy makers cut the two−week deposit rate by 10 basis points on May 27, continuing an easing process that began with the main rate standing at 7% in August 2012, taking advantage of record− low consumer−price growth to bolster the economy. Consumer prices fell 0.1% in April from a year earlier as household energy costs plunged 10.3%. At the same time, economic growth accelerated to 3.5% in the Q1 from a year earlier (market watchers had been expecting growth of 2.7%), the quickest pace since 2006. It was also the fifth quarter in a row where growth had been recorded. Peter Attard Montalto, a London−based economist and strategist specializing in Eastern Europe for Japanese investment bank Nomura International, writing in a note, observed “While the rate move today was no surprise, there were large shifts in the tone of the statement after the decision that were a surprise.” He continued, “In particular despite core inflation remaining high, the MPC has shifted its view [‥] that there is now further room to cut rates to achieve price stability over the medium run, whereas before it said it was running out of room with prices set to return to target over the medium run.” Noting that the MPC’s statement was shorter than in April, and lacked what he called “the cautious−cycle−end phraseology” of a month ago, Montalto suggested “the MPC will cut as much as it can possibly get away with and then keep rates on hold for an extended period”. Accurately predicting when the MPC might decide it had reached the point

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It would be especially fortunate if I were to be nominated as EU commissioner in the autumn. Tibor Navracsics, deputy PM of Hungary, talking to Heti Válasz of the possibility of him becoming Hungary’s European Commissioner in the new EU executive.

AmCham Gets new CEO AmCham Hungary has announced the name of its new Chief Executive Officer; Irisz Lippai−Nagy was appointed as of June 1, 2014 by the chamber’s board of directors after what it called a careful selection process. Lippai−Nagy is described as a seasoned sales and trade professional with more than two decades of multinational experience in the tobacco industry. Before joining AmCham she held a number of international leadership roles in CEE, Western Europe, Mexico and most recently was Head of Trade Marketing and Distribution for British American Tobacco with a team of 450 people.

In a video address to members, Lippai−Nagy said she was excited to be joining the chamber in the year it marked a quarter century of existence. “I believe, our 25th anniversary not only provides an opportunity to evaluate and celebrate what we have already reached, but also to clearly define our strategy for the next 10 years, on how best we can continue delivering value to our members. In short, my main goal is to have satisfied members and motivated staff.”

ECONOMY HUNGARY RISES ON GLOBAL COMPETITIVENESS LIST Hungary has risen three places to 63rd on the World Economic Forum’s 2013−2014 Global Competitiveness Index, the WEF reported. Hungary ranked ahead fellow CEE countries Romania and Slovakia, which placed 76th and 78th, respectively, but behind Poland and the Czech Republic (42nd and 46th). The top three countries on this year’s GCI were Switzerland, Singapore and Finland, unchanged from last year. The WEF is a non−profit foundation based in Switzerland. OVER HUF 1 TLN FOR TRANSPORT PROJECTS IN NEXT EU BUDGET PERIOD Hungary expects HUF 1.034 tln (approximately €3.4 bln) in funding to become available for transport projects in the 2014−2020 European Union budget period, deputy state secretary Nandor Csepreghy said in an interview published in local news daily Magyar Hírlap. The amount available in Hungary’s proposed Integrated Transport Development Program (IKOP) is less than the HUF 2 tln earmarked in the 2007−2013 budget cycle, but the current period promises to be more flexible, and important

areas will get priority, Csepreghy said. He added that a further HUF 373 bln is available through 2016 for railway projects from the Connecting Europe Facility. The IKOP contains HUF 300 bln for improving access to international roads, HUF 437 bln for rail and waterway projects, HUF 258 bln for suburban transport projects and HUF 39 bln for improving energy efficiency. EASYJET TERMINATES BUDAPEST-LONDON LUTON FLIGHT UK−based discount airline easyJet will eliminate its flights between Budapest Liszt Ferenc International Airport and London Luton Airport on November 2, the carrier confirmed on May 28. A spokesman for the airline explained that the flight did not generate the expected income. EasyJet flights from Budapest to London−Gatwick will continue to operate, however.

DOMESTIC DISTRICT SELLS LANDMARK TO MELLOW MOOD GROUP The local council of Budapest’s District V has sold the landmark Párizsi Udvar building near the Danube for HUF 2.1 bln to Mellow Mood Group, which operates a luxury hotel in the neighboring Klotild Palace. Antal Rogán, mayor

Numbers in the news

8.1% the average unemployment rate among Hungarians aged 15−74, according to statistics released by the Central Statistics Office (KSH) on May 29. KSH said the rate has seen a gradual decrease from 8.3% in January− March and from 11% in the same period a year earlier. In the February−April period, the average number of employed was a little more than 4.1 million.

of the district said the local council lacked the several billion forints required to renovate the building. He noted that two international tenders for the sale of the building had been unsuccessful, and it had nearly been sold on another occasion before the transaction fell through. He said Mellow Mood Group had promised to renovate the building within seven years. Mellow Mood co−owner Zuhair Awad said the aim was to restore the Párizsi Udvar to its former glory and transform it into a ﬁve−star hotel.

in the city for net HUF 98.9 mln, and has launched a tender to set up and operate the system. The project will be fully ﬁ nanced from European Union grants. The system is planned to consist of 180 bikes and 256 docking stations at 23 points. The winner would have to supply an IT system, including 5,000 client cards, and provide around the clock technical service. The bid deadline is June 30.

HUNGARY ‘TOPS’ LUNG CANCER STUDY Two weeks after a United Nations− funded study showed Hungary to have the highest rate of alcohol− related disease, a second survey has revealed another – just as deadly – health problem to also be running rampant in the country. Via World Health Organization (WHO) data, an American Cancer Society report on lung cancer mortality in women published in the May issue of Cancer Epidemiology, Biomarkers & Prevention shows that Hungary’s lung cancer mortality rate in young women is the highest in the world, at 14.8 deaths per 100,000.

ORBÁN CONTEMPLATES 2017 PRESIDENCY Prime Minister Viktor Orbán could yet move to the President’s Sándor Palace. After he was re−elected as PM for his second consecutive term following the landslide victory of his Fidesz party in national elections, Orbán told a small group of people that it was a realistic chance he would accept a nomination to become President of Hungary when János Áder’s mandate expires in 2017, local daily Népszabadság reported. An unnamed source told the newspaper that the presidential post remains a dilemma for Orbán, but accepting it has come up as a realistic future for him. 2017 is still in the distant future, though, therefore unexpected developments could rewrite such plans.

GYŐR INVITES BIDS TO BUILD BIKE SHARING SYSTEM The local council of Győr plans to build a bicycle sharing system

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Photo: András Hajnal

She started her career in the NGO sector as an Executive for the Hungarian National Committee for UNICEF. She studied International Affairs at the Budapest University of Economics and completed courses in organization development and change management. She speaks fluent English and Spanish and is married with two children.

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Daimler Kecskemét Plant Earns €2.1 bln Revenue Germany-based automobile manufacturer Daimler has seen increasing revenue and employee numbers, announcing net revenue of €2.1 bln for the plant in 2013 on May 28, a 133% increase over the €900 mln posted one year earlier. The leaders of the plant are optimistic about the plant’s performance for this year as well, MercedesBenz Manufacturing Hungary ﬁnancial director Ekkehard Philipp told a press conference. The factory manufactured 109,000 cars last year, Philipp said. At the end of 2013, the number of employees reached 3,200. In the ﬁrst quarter of 2014, that number grew to 3,500 with the launch of a third shift to meet growing demand for the new CLA model, the director added. The factory is expecting to raise the number of cars produced to 145,000 by the end of this year.

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Nokia Expands R&D Center in Budapest Finland’s Nokia is investing HUF 3 bln at its research and development center in Budapest. As a result, headcount will rise by 150 to almost 1,400, Hungary’s foreign trade chief Péter Szijjártó said. The state is supporting the investment with a HUF 211 mln grant, he added. Nokia Solutions and Networks TraffiCOM’s outgoing managing director for Hungary, Róbert Ésik, said the company had promised to keep the new jobs for at least five years. Nokia Solutions has since announced that Béla Zagyva has replaced Róbert Ésik both as company CEO and as Nokia’s country director in Hungary, effective June 1. Ésik had served as the Finnish IT and communications company’s country director in Hungary for the past 12 years.

Wizz Air to Enter London Stock Exchange Seeking better financial opportunities, low-cost airline Wizz Air has decided to list its shares on the London Stock Exchange, though CEO József Váradi has insisted the carrier is not in need of external financing. The company wants to raise €200 million as a result of the listing. Váradi said Wizz Air Holdings plc owns the Hungarian and Ukrainian companies expected to appear on the London market. The CEO emphasized that the funds could be raised for asset financing and to open new markets. In his opinion, an improved credit rating could allow the company to obtain better financing terms. Váradi expects the air transport market to consolidate further, and Wizz Air will be in need of an adequate financial background if wants to become a winner of the process. Although the airline is always looking for new opportunities, the markets the company operates in retain appropriate growth potential. The listing will primarily target institutional investors and is scheduled to close in June. Barclays, Citigroup and JP Morgan would be in the lead, with Nomura as lead manager. Wizz Air, Central Europe’s largest budget airline, launched its first flight in 2004. The company owns 17 operating bases in cities from Warsaw to Bucharest offering more than 300 routes. The airliner had revenue of €1 bln last year. Rivals easyJet and Ryanair are already listed on the London and Irish stock exchanges, respectively. The Media Council of Hungary’s National Media and Infocommunications Authority (NMHH) has given preliminary approval for a merger of the Hungarian businesses of media giants Axel Springer and Ringier, the council said on its website. “The level of independent sources of opinion will also be capable of ensuring the validation of the right to diverse sources of information after the merger,” the council said. The merger still requires the approval of Hungary’s Competition Office. The partially or totally owned units of German engineering company Bosch operating in Hungary generated revenue of HUF 719 bln in 2013, up 15% y. o. y., the director of Bosch’s Hungarian units, Javier Gonzalez Pareja, announced. Gonzalez Pareja said that the Bosch units in Hungary had domestic revenue of HUF 161 bln in 2013, up 21.1%. The director noted that Bosch spent HUF 19 bln on R&D activity in the country last year, up 11%. Test production at the HUF 9 bln plant being established by British American Tobacco in Pécs could start in September, company spokesman Attila Tóth stated on May 28. BAT is repurposing an 8,850−sqm facility acquired from Finland−based electronics maker Elcoteq. The plant will be staffed by about 200 of the 400 currently employed with BAT in Pécs, though new jobs will likely not be created until at least 2016, according to Tóth. A HUF 620 mln reconstruction of both runways of Budapest’s Liszt Ferenc International Airport has been completed on schedule, ahead of the peak summer season, airport operator Budapest Airport told national media outlets. The reconstruction involved renovation of runway concrete, lighting and instrument landing systems. Hungarian brokerage Quantis Holding, formerly Brokernet, had revenue of HUF 6.2 billion last year, the company told MTI. Quantis Holding had profit of HUF 305 million of which it paid HUF 300 million as dividend.

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Budapest Business Journal | June 06 – June 19, 2014

Improving GDP Prospects, Rising Budget Deficit By the time this issue of the Budapest Business Journal hits the streets, Fitch Ratings will have reviewed Hungary’s sovereign debt rating. Could the London−based ratings agency upgrade Hungary’s non−investment grade? ANDRÁS ZSÁMBOKI

The country’s macro−economic forecasts are improving continually. So much so that Fitch and Standard & Poor’s may well upgrade the prospects of Hungary’s sovereign debt in the second half of the year, at least Equilor Investment’s analysts think so. “A few indicators of the country would not yet justify the country’s return to Category A,” Ákos Kuti, senior analyst at Equilor Investment told the BBJ. “This re−entry, however, has already taken place in many countries in Europe, including even Romania, though their

indicators were even weaker than Hungary’s,” he added. Equilor expects 2.1% economic growth, less than 1% inflation, and a 3% state budget deficit for this year, but only if the government carries out corrective measures during 2014. “This, may take the form of either budget cuts or a levying of new taxes. We do not intend to recommend anything to the government, knowing that the fall 2014 municipal elections to some extent limit the circle of measures that can be introduced in the field of economic policy,” Kuti added. Regarding the base rate, Equilor expects further decreases in the short− term. A new target range must be set between 2.5 and 2%. “Predictably, this will be the bottom point. The risks are becoming greater and greater. External market sentiment may easily lead to a situation in which the Hungarian National Bank can only re−establish confidence by increasing its base rate significantly. According to Equilor’s prognosis, the HUF−EUR exchange rate will stay steadily above 300. “In case the forint surpasses the 315 exchange rate limit, both the government and the national

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HUNGARIAN COURT DISMISSES LAWSUIT AGAINST MOL BOSS A Hungarian court has dismissed a private lawsuit against the head of Hungarian oil group MOL over a fall in the firm’s share price following its move to take control of Croatian peer INA. Ilona Bánhegyi, MOL’s chief counsel until 2006, launched the case, in which leveled a series of allegations against the company’s chairman and chief executive, Zsolt Hernádi, including bribery and fraud, last year. Bánhegyi sued Hernádi over a fall in the share price in 2011 that she said had caused her and also MOL financial damage. She held about HUF 600 mln ($2.7 mln) worth of MOL shares at the time, the court was told. Hernádi denied all the accusations and on May 26 the court dismissed the case against him. The judge also said the court had cleared Hernádi of two further charges of fraud causing significant damage and misappropriation of funds. In 2012, Croatia found its former Prime Minister Ivo Sanader guilty of accepting a bribe in 2008 from MOL to grant it a dominant position in INA, without having to buy a majority stake. EBRD SAYS CEE ECONOMIES HURT BY UKRAINE FALLOUT The London−based European Bank for Reconstruction and Development (EBRD) has said the Russia−Ukraine crisis is having a serious impact on the economies of Central and Eastern Europe. In its new prognosis, the bank

said Hungary’s economic growth would slow down next year. It reckons that output will grow by 1.6% this year and 1.2% in 2015, compared with its previous estimate of 1.7% for 2014. In its previous report it had not yet forecast growth for 2015. The bank acknowledged “surprisingly brisk” GDP growth of 2.7% in the fourth quarter of last year, but it said the increase was mainly driven by domestic demand supported by one−off factors, such as government−mandated utilities price cuts and the disbursement of EU funding at the end of the 2007− 2013 budget period. The European Commission two weeks ago raised its projection on Hungary’s economy to 2.3% of GDP from 2.1% for this year, in its spring economic forecast. REPORT: UKRAINE MAY SIGN EU TRADE TREATY IN JUNE Ukraine, a key route for natural gas exports to Europe, is seeking closer ties with Europe over Russian integration and plans to sign a free−trade treaty with EU in June. Ukraine’s new leader has told Lithuania’s foreign minister that he will sign the EU free trade treaty in Kiev in early June. “He [Ukrainian president−elect Petro Poroshenko] is keen to continue what he promised in his election campaign and to sign as soon as possible, preferably after his inauguration in early June, and he would like to sign it in Kiev,” Lithuania’s Foreign Minister, Linas Linkevicius, told EUobserver on May 29 after meeting Poroshenko in

Macroeconomic Prognosis for Hungary 2013 actual

2014 est.

2015 est.

Real GDP growth rate

0.9%

2.1%

Consumer price index

0.4%

2.1%

2.7%

Sovereign debt to GDP ratio

79.6%

81.8%

82.7%

Yield of state bond M12

3.04%

2.65%

4.15%

Source: Equilor, June 2014

bank will have to embark on vigorous anti−inflation policies,” Kuti remarked. According to Equilor’s analysis, the Hungarian stock exchange market shows signs of under−evaluation in regional comparison. Hungary’s potential upgrading can be expected to boost the Budapest stock exchange. “Upgrading

itself, in the short run, would have a beneficial effect on OTP’s stocks. The foreign currency debt bailout promised by the government, however, may significantly curb those expectations. If you ask us, Equilor only regards MOL of the domestic blue chips as promising,” Kuti concluded.

Ukraine. The president is to be sworn in on June 7. Following his victory, he spoke of “implementing” the EU “association agreement” and “realizing Ukrainians’ European aspirations.”

10,500 new jobs. “After fDiIntellingence magazine named the Pardubice region the most attractive region in Eastern Europe for investors in March, the Czech Republic has again received signiﬁcant recognition,” Ondrej Votruba, acting chief executive of CzechInvest, said in a press release.

HUNGARY LEADS CEE IN INTERNET PENETRATION, USE Research done on behalf of Google explored Internet surfing habits in the region, including Hungary, the Czech Republic, Poland, Romania and Slovakia, in March. Hungary is the leading country in terms of Internet penetration, reaching 62%. The Internet also seems to be a serious competitor for television. Some 98% of Hungarian Internet enthusiasts use the net at home; one−third surf the Internet even while watching the television. The study further showed that about 25% of Hungarian citizens get online as a first act right after waking up in the morning. When seeking information, 77% of Hungarians consult the Internet, 38% monitor the news from abroad and 30% reported reading online news portals while on vacation. CZECH REPUBLIC NOW SECONDBEST PLACE TO INVEST IN CEE The Czech Republic recently received a prestigious award in the United States, placing second for Central and Eastern Europe in a ‘Best to Invest’ ranking compiled by the American magazine Site Selection. Slovakia came in first, while Turkey and Russia were among those that fell in the ranking. Hungary came third followed by Romania, Bulgaria and Poland. The Prague Post reported that the number of investment projects decided the ranking, including both completely new investments and expansions of existing projects. In 2013, CzechInvest, an agency of the Ministry of Industry and Trade, mediated a total of 108 investment projects, which brought nearly CZK 48 bln (some €1.75 bln) to the domestic economy and will help to create more than

ROMANIA 3RD MOST ATTRACTIVE CEE MARKET FOR FOREIGN INVESTORS, EY SAYS Romania has surpassed Hungary as the third most attractive country to establish a business in Central and Eastern Europe, according to the annual EY ‘European Attractiveness Survey’. Romania is still behind Poland and the Czech Republic, but if it maintains its current pace of development, may reach second place in 2015, news agency Mediafax wrote citing the survey. “The ﬁrst two ranked countries have been on a downward trend in 2014 compared to 2013, while Romania’s attractiveness has increased two percentage points,” the survey said. INDIA’S APOLLO TARGETS HUNGARY AND SLOVAKIA FOR EUROPE PLANT Apollo Tyres Ltd has narrowed its search for the tire plant it is planning to build in Europe to two sites, one in Hungary and the other in the Slovak Republic, according to Luis Ceveniz, president of Apollo Vredestein B.V. in the Netherlands, responsible for Apollo Tyres’ Europe, Sub− Saharan Africa and Americas businesses. Apollo’s board of directors recently approved an investment of $685 mln over four years to build a car and truck tire plant in Eastern Europe, but until now the Indian tire maker hadn’t released details about possible sites. Ceneviz said Apollo hopes to make a ﬁnal decision in the next two to three weeks, Rubbernews. com reported. However, Slovak media has been reporting the decision has already been made in Hungary’s favor, according to industry portal autopro.hu.

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2 Business

Budapest Business Journal | June 06 – June 19, 2014

EXPERT OPINION

‘This could end well’ BBJ: Do you think the launch the second phase of the MNB’s ‘Funding for Growth’ scheme, the aim of which is to stimulate lending to SMEs and to strengthen financial stability, will ignite economic growth in Hungary? Richárd Szabados: We experience a lower demand in comparison with the first phase, for several reasons. Obviously the time window for companies is wider now, which allows SME’s more time to work out how to spend the loans, so there’s no need to hurry now. Also, growth can be achieved when consumption rises, for which you need economic expansion as well. Since consumption isn’t rising on this market, a known psychological effect kicks in: companies don’t want to be left out; if we are talking about forint financing, this is their first option. The duration of the loans is favorable, a maximum of 10 years for investments, which is longer then the normal interval in this type of loan. By the end of April some HUF 126 billion was contracted at the bank market level, our share was HUF 6.5 bln. Our market share is 8% in the given and available SME portfolio (as defined by MNB), and I see a total demand of HUF 20 bln in the pipeline. I think some HUF 300-400 bln will be lent from the total available HUF 2,000 bln. To sum up, the ‘Funding for Growth’ scheme has a definitely positive affect on the whole economy, and the relief of interest charges also benefits the customers. This also favors indebtedness in forints rather than foreign currencies, as most of the companies’ revenues come in forints. Another benefit is that the loan goals are broad enough, covering typical SME’s financial demands. The ‘Funding for Growth’ scheme also stimulates investments. Naturally a program like that is insufficient to put the economy on a stronger growth path itself, but it’s enough to give a boost to the stagnant loan market, igniting slight growth. BBJ: Apart from the funding scheme, what else do you think is necessary for economic growth? R.SZ.: What we really need is more trust and cooperation between the government, financial institutions and clients, as well as more intense communication between the players. I see positive signs in the economy: inflation has decreased, in line with expectations, while the central bank gradually reduces the base interest rate, making loan borrowing more attractive to the clients. Also we see a tendency to move from deposits to different types of bonds and securities. The deposit market shows

a decreasing trend, since there are more attractive ways for companies to maximize their income. Not only does domestic financing become more important, but also export financing too, in which Eximbank has a major role. We have managed a contract framework with Exim, so the new products are available to our customers as well. Exim offers the most suitable currency loans for export oriented customers. BBJ: Do you think the currently more or less favorable economic figures show a long-term trend? R.SZ.: GDP and inflation data never show the actual moment, they are always a result of the past. It’s a fact though that a predictable inflation policy coupled with a stimulating environment could be sustainable, which is in the interest of the government, companies and banks. So I’m fairly optimistic. This could end well. BBJ: How about CIB’s future plans in Hungary? Will you stay or go? R.SZ.: The Hungarian subsidiary of ISP Group is now in a top position in both liquidity and equity ratio, thanks to the owners’ strong support. We have had a major capital increase, and the mother bank has also accepted our three-year strategy, which guarantees the group’s intentions to maintain a presence in Hungary. So we have trust from the owners, they

Richárd Szabados (38) graduated in economics at the University of Debrecen in 2000. He held leading positions at Budapest Bank and K&H Bank before joining CIB. Between April 2010 and April 2013 he worked as Head of SME Sales, after which he was appointed Head of the SME Division. While maintaining this position, he also became Head of CIB’s Leasing group in December 2013. He is married and happy father of a two year old boy. clearly see our efforts. Our three-year strategy aims to achieve a profitable operation. BBJ: What’s the main goal for these three years? R.SZ.: Our aim is to double our SME portfolio in three years, keeping it a

CV profitable division, offering faster administration and less bureaucracy for our clients. Our SME portfolio is now worth around HUF 130 bln, covering companies with net revenue from HUF 250 million to HUF 10 bln. We are ahead of major changes in making administration easier. Also we intend to put our flag on certain fields, offering partnerships to companies in agriculture, trade, manufacturing, as well as the processing industry, food production, and auto industry suppliers, focusing mainly on agricultural vehicles, cars and trucks. In the leasing group, our goal is to be in the top three-five in terms of new volumes at an annual level. We start from a good position, being second in new financing in agriculture machinery industry. BBJ: How do you see the future of cooperation between financial institutions, consultants and companies? R.SZ.: All companies have evolutionary phases in their life cycle, with different demands from a financial partner who only asks

for assistance in financing, or just in transactions, or wants to invest. We believe in implementing the lifecycle model in the finance field. The question is how to move from the current relationship manager role to becoming a consultant partner. Of course many already see us as consultants, having a dedicated contact person at our offices, a sort of corporate banker. We intend to take another step toward becoming a consultant partner, who doesn’t just fulfill the clients’ needs, but also gives them advice, practically thinks for them, offering them a complete menu about solutions. It’s a big leap, and it took us four years to get to where we are today; now we would like to step further to become a real challenger sales representative.

www.cib.hu

NOTE: ALL ARTICLES MARKED EXPERT OPINIONS ARE PAID PROMOTIONAL CONTENT FOR WHICH THE BUDAPEST BUSINESS JOURNAL DOES NOT TAKE RESPONSIBILITY

MÁTÉ NYUSZTAY

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08 2Business

Budapest Business Journal | June 06 – June 19, 2014

Big in Japan NNG CEO Péter Balogh talks exclusively to the Budapest Business Journal about navigating the journey from startup to global automotive GPS leader, the almost fatal crash of 2008, taking risks, seeking success in Japan and coming to grips with budgetary discipline.

stood financially. We did not know how much money we had on a daily basis, did not know how much money we had in the accounts. We thought the handheld GPS market would last forever. Last year it generated 10% of our revenues. Five years ago it was the only thing we had. We realized we had to get out, to find a new market where we could use the same ideas. We thought the automotive market was very interesting, very stable, very long−term, but we needed to grow up as a company. We did not have quality under control, did not have too many target openings into the market, and we knew it would take many years. So we also tried to find something short−term, and selected the wireless smartphone business. We were the global navigation partner of Motorola up to a week before it announced it was going with Google and launching its maps for free. We did not lose money, but we did not make any either. It did not save us and it did not kill us. We could secure enough money with handheld GPS and that sustained us until 2011 when the first cars with our navigation software rolled off the production lines and we began to see money again.

ROBIN MARSHALL

NNG was a startup in 2004. Now it is clearly something much bigger. What is harder, running a startup or an established company, and why? A: If you are talking about work and energy, then both are pretty much the same. In terms of challenge it is very different. Running and leading a startup is a lot more exciting on a daily basis, it has a lot more moving parts. Indeed, for the first few years we only had moving parts. It is just as challenging or rewarding running something bigger, where many things are established. But you have to keep a balance between what was required and what is or will be. I challenge myself and the organization to constantly think about things to come, things to change, going back and seeing if we still need to do things the way we have been. There are still a lot of moving parts, but they are mostly outside. You need a lot less patience with a startup. As a company grows, you need a lot more. It can take years for an initiative to bear fruit.

You have more people to worry about now. A: Do I feel the weight of all these people? I try my best not to. If I was worrying about 600 families with every step we make, I would make bad decisions, because I would be too focused on safety, and a company has to take risks.

When do you think NNG made the transition from startup to success story? A: I said at the [BBJ innovation] conference that I heard this from a technology investor company’s leader: being a startup is where things are only looking up, you are growing, it is exciting. Eventually a startup gets a punch in the face, and you either become a company or you are dead. Make it or break it. That’s exactly what happened with us. For the first couple of years we were growing like crazy, at a really amazing speed. In 2007 we had very high revenue profit, were an international success, number three in the world. In 2008 we got that punch in the face. That was brutal; it reset our thinking. Before that we were probably too full of ourselves. We thought it would never slow down, we did not have any cadence; we had been running so fast our noses were almost touching the

ground. And then, quite suddenly, they did. At the time some of the managers, some of the shareholders took a step back, they did not do anything. That was a wake up call to me. I had moved everything I had into the company, I was all−in, could I do more? I got more involved, I decided to fight; I did not want this to go away. Until then I had basically been CTO: on paper I was managing director, but this was when I got more involved on the business side. I had a couple of weeks to try to understand the situation and start making decisions. We had to stop the bleeding immediately, sadly we had to say goodbye to some people quite suddenly. We replaced the main management, and found really good managers who stepped in and helped with their experience. Then we had three years of the company shrinking; we had to keep tightening our belts. It was only when the first automotive products hit the market that things started to feel different. We had emerged as a company.

2008 is a year that looms large. Were your problems caused by the global crisis, or was it something more internal? A: It was both. The whole GPS market really exploded in 2006−7, so in a sense we arrived with perfect timing, just as the party was starting. For two years running PDAs were the most popular device for Christmas, and everybody expected that to continue. I think we thought people would have three devices – I don’t know what we were thinking. In 2008 we had the crash and suddenly the market growth stopped; it had saturated really quickly. There were a couple of other external factors; the Chinese suddenly increased the minimum wage, and five or six companies disappeared owing us money. Internally we were a company in startup mode: if we wanted something, we didn’t care how much it cost –we needed to have it now. We were not focused; we were making so much we could not spend money fast enough. But we did not know where we

Do you still think like a start−up, or is that a luxury you are no longer allowed? A: In our relationship with our teams (unless we are talking in a very legal sense we don’t talk of employees or subordinates). In IT and software, people do not like hierarchy. We have managed to preserve a very open, democratic and friendly company. It is perfectly OK if somebody calls me an idiot, if I am being an idiot. In fact, it does not happen enough; I am pretty sure I am being an idiot more often than people are telling me. We encourage a very open dialogue, we ask for feedback from our people and try to act on it. This is the most important part in any startup, the company culture aspect. The accounting basis is very different now. We have a budget, long−term plans. Every day I know exactly how much money we have, how much we owe and how much we should receive. There is a strict and total understanding of the processes now.

What has surprised you most about the journey? A: We tend to underestimate our impact, what we can do in the market. The whole market tends to underestimate us, too! We are too small, we are Eastern European, we are too young, we are not able to do anything. On a daily basis we have proved them wrong. I am surprised sometimes that we grow 40−50% year on year, while our competitors are still struggling to find a product that works. And that makes me very nervous, because we have some very smart companies challenging us. I am surprised that even at this size we are growing and can still find great people. They are getting harder to find, but I am amazed about the great quality people we work with here. Finding people is becoming a struggle: we work with

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Budapest Business Journal | June 06 – June 19, 2014

they perceived our goals as unachievable. We thought they were possible, and we were proved right. We predicted a change in the market that other players could not see. And innovations on the business and technology side helped us. It also helped that we were very aggressive, very hungry, partly due to having tasted bankruptcy. We really wanted to be in a lot of cars and create a great product. That drive is still there. Something else works for us: Hungarian people still take their work seriously, go out of their way to make sure we can deliver what we promise, to accommodate the sometimes− crazy wishes of our customers. No market is really sane completely, but this market is insane at times.

Your website says the next step towards global expansion is to enter the Japanese and South Korean market. Why, and how is it going? A: One of the ideas we figured out was that a lot of people were in one or two markets only; if you could offer a global navigation solution you would have a major advantage. Automakers could save a lot of money if they did not have to work with separate suppliers in each country. We have done everything except Japan and Korea. China was already difficult, but it is a big market. Japan started the whole navigation business years before Europe, it is a very advanced and culturally very closed. Ten years ago it would have been unfathomable to even imagine someone from the outside entering. It has been a major, challenging project, but we now have a couple of products hitting these markets. We have decided we will be good in Japan, whatever it takes. In the global market, half the share comes from China, Japan and Korea. So entering here means doubling the market. Also, it is the last challenge left in town, and you have to have a good sport, right?

And future plans beyond that? What sort of timeline do you plan ahead with? A: In terms of business planning we are working five years ahead. We have now projects that will launch in 2017 and sell for five years, so we have revenue visible out to 2021. We also know growth will have to come from somewhere else, so we need to figure out what our growth engines will be. Automotive technology is a very wide field, and we see a couple of opportunities to grow for the future. This is now what we are focusing on in the company’s top management. The sales cycle is so long: you build something and in three years you can expect some revenues. That does not mean we will stop doing navigation, it is a very important business, offering great value for the end user. It feels very good that 20 million people rely on stuff we created. There are a couple more tens of millions of people still out there. But we also know this alone is not likely to be enough. As our growth continues we realize that we cannot do what we do in Hungary alone. We have to establish operations in other countries as well. What I sense and feel in the company is that one of the great things about Eastern Europe is that it is close to the market, not just in terms of time zone but also culture; we understand Europe and North America. Building something in Asia would be a much tougher challenge. My pet theory is that the change in political system that happened when my generation was young showed Eastern Europe that no system lasts forever; it created flexibility in mindset. That goes back to how you understand and build an organization. Western Europe and America believe in tradition, how it has always been done. That is why Eastern Europe is a great place for IT companies, this mindset.

A few days after our interview, Google announced plans to build its own driverless cars within the year. We wondered how that might impact NNG’s business, and went back to Péter Balogh. 12 different headhunters, we have even placed ads for jobs. We spend a lot on marketing and PR in a country where we do not have a lot of customers. It is almost all focused on employer branding. We hired 150 great people last year, and it will be around 180 this year. And we do not ever lower our standards – that is very important. We could grow the office more is we had more talent available.

If you could change just one thing about doing business in Hungary, what would it be? A: This is another pet peeve. We were always targeting international and global customers. We never considered Hungary as a core market because any local competitor would cheat‥ cheat on its taxes, not pay the VAT it should, be a ‘funny’ company. That is why there are very few Hungarian mid−size companies. A huge proportion of companies and people are avoiding taxes on a daily basis, that makes competition impossible, and survival and growth questionable. If you think like that, everything else fails. You cannot expect quality from any service provider who is here simply for today, without a long−term vision. I was remodeling my house a few years ago and

thought, ‘If I am paying my taxes and earning legally, I want to give my business to people who are doing the same.’ It was really hard to find any legal companies, from plumbers to decorators to whatever. This is not a small problem, this is huge.

Do you see NNG as a Hungarian company, or an international company based in Hungary? A: On one hand, we see ourselves as a Hungarian company. It started here, 95% of the team is Hungarian, the senior management includes Hungarians, and the team leaders are all Hungarian. We are very proud of being a Hungarian company. At the same time, we are a global company – we sell to the whole world. But if you are a software company, Hungary is a great place to be incorporated. The taxes around software development are really favorable, and this is a relatively little known fact.

How did you get to a stage where seven out of the ten biggest auto makers use the iGO Navigation Engine? A: We were lucky when we set up our vision. We were not as deep into this market that we could hear what everybody was saying, that

“In the short-term, we see cars getting smarter and smarter, providing more information coming from more sensors, to help the drivers. This increases the demand for smarter infotainment systems and deeper integration of software technology into the car. “As a second stage, cars will start making more and more decisions on their own, augmenting the driving experience and taking over for longer periods of time (e.g. highway driving), where entertainment aspects will increase, yet the safety and security aspect stays deeply integrated with that. The driver can read emails on the highway, but only in a very integrated experience, while still keeping his/her eyes on the road, ready to intervene. We see this stage also very well aligned with our strategies. “In the long-term (15+ years from now) the majority of cars will drive themselves almost all the time, completely automated. This is where consumer electronics can finally take the full stage as well, as the cars become driver-less. This will still require an arsenal of embedded technologies for the car, integrating lots of data from lots of sensors, so we’re sure we’ll find our relevance there as well.”

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10 2Business

Budapest Business Journal | June 06 – June 19, 2014

The Chips are Down, but Cash Still Rules A mobile payment and e−shopping boom are expected in Hungary, although for now very few users seem that interested in the new technologies. MÁTÉ NYUSZTAY

While Hungary is a leader in international comparison in the overall number and active use of contactless PayPass bankcards, and is said to be up for a boom in mobile payments, the nation is far from getting rid of card companies’ sworn enemy: the cash. MasterCard representatives admitted at a recent press conference that they had been expecting a mobile technology boom for several years, but this time they’re pretty sure it will happen. Their confidence is partly driven by the fact that they have finished pilot tests with so−called NFC− chipped mobiles and will be ready to go live this year, allowing smartphone users to make transactions with their phones with a single touch. MasterCard already boasts some pretty impressive figures: since the launch of its PayPass system, more than 1.7 million cards were issued and 14,000 POS terminals set up throughout the country. The company expects further expansion, and will rely on such additional functions as location

based solutions, which would practically mean that we could forget carrying huge wallets with IDs, tickets and passes (and banknotes of course), and instead use mobiles to check−in at our workplace, on the bus, in the theatre and so on. Still there are a few question marks; for one, it’s not sure which technology will be the most suitable. “This is war,” Gábor Lemák, head of Hungarian Mobile Wallet Association said, referring to the battle between different technologies on a heavily fragmented market. But he is sure that NFC will win in the end, as it is the most widespread of the rival solutions (topping QR code−based technologies). He recalled that a couple of years ago there were as few as two types of smartphones available with built−in NFC chips. Since then, more than 200 MasterCard certificates have been issued. iPhones are an exception, but the other 10 biggest mobile companies do use NFC technology, in over 300,000 – mainly Android – devices. The global figures also seem to show a boom is inevitable: the penetration rate is expected to rise from last year’s 300 million NFC−phones sold to 1.3 billion by 2017, and if this trend continues, eight out ten smartphones will be NFC−ready in three years. Also, there will be five times more contactless POS terminals by 2017 (44 million worldwide, with 1.6 million in Hungary) than last year.

TAKING BANKING MOBILE, MAKING IT SOCIAL “It’s critical to acquire and analyze different sources of internal and external data to really understand consumers’ needs – and eventually redesign banking processes to reflect a customer’s point of view,” cautions János Kókai, PwC Hungary’s director of financial advisory services. The advisory firm recently published ‘Eyes Wide Shut: Global insights and Actions for Banks in the Digital Age’. “Using social media in the banking sector certainly has its risks, but consumer data can undoubtedly serve as an important external information asset. In addition, this behavior-based information comes directly and unquestionably from the consumer. “Consumer education is a priority issue. The penetration of online banking solutions is low in Hungary compared to other European countries. The more innovative a solution is, the more suspicious the consumers get. A successful e-channel strategy should include preparing the consumers as well. Preconceptions such as believing that there are consumer segments that will never use online services should be eliminated. For example, one of our clients gave smartphones to 60+ consumers for a pilot service. The experiment was a huge success, it’s just that no one had ever tried it before.”

MasterCard representatives admitted though that customers appear to be a bit less optimistic then they are. László Szetnics, regional business development manager for the company, spoke proudly about the cooperation of the Hungarian mobile and banking sector, bringing the three mobile operators together in one association, something he described as a huge success even at a European level, guaranteeing the quick spread of contactless devices.

But just a few percent of mobile owners use contactless technology for bank transactions. Even those who use bankcards don’t seem to trust the online payment methods: 75% still makes their payments in hard cash, which Lemák called a “cultural challenge”. He cited some even more shocking numbers from an earlier MasterCard report, according to which 75% said they wouldn’t use their mobiles to pay. So for now, the old law still applies and Hungary is no exception: cash rules everything.

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After 120 Days

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Budapest Business Journal | June 06 – June 19, 2014

EXPERT OPINION

CDSYS Predicts More Than HUF 1 bln Revenue This Year the security systems of other big companies as well.

employees, which we also provide. Without appropriate instructions, we cannot expect employees to correctly use the security methods.

BBJ: Tell us about your Hungarian clients? K.E.: It’s probably not a surprise that companies from the financial sector are our most important clients: banks and insurance companies like Allianz, Erste, CIB, FHB, Fundamenta, UniCredit and also Banco Popolare until it left Hungary. Of course we are not only active in the financial sector, as we have other kinds of clients like E.ON and Richter Gedeon and other firms, and we are focusing on the governmental sector as well. Expanding our portfolio and client base helped us to gradually increase our income significantly: we increased by 50% our income last year and also the year before, for this year our plan is to double it.

BBJ: Is there a difference between the security technologies used by the business sector and those in public administration? K.E.: If we are talking about the general technical solutions, no, there is no difference. However there’s a difference regarding the approach. Companies dealing in the financial sector always want to try out and test the latest security technology. For a bank to have the best and latest technology possible is vital since its data is protecting money, thus they are the targets of increased security attacks. In public administration the processes are different. Procurement process, decisions and testing take much more time. However, when the decision is taken to use a security system there’s not much difference between the business sector and public administration regarding the use of services.

BBJ: Do you always provide the latest technology to your clients? K.E.: We provide reliable and necessary solutions to our clients, because each client requires specific technology suited to its

BBJ: Could you explain CDSYS’s main business, and also tell us a bit about how you started the company? Krisztián Egerszegi: Our company, Compliance Data System Ltd., only deals with IT security so we don’t sell hardware, servers or PC parts. Focusing in that area has helped us to reach the number one position in less than six years with turnover of HUF 655 million last year. We started as a Hungarian SME with a small team of four members and had as our first business partners Sun and Symantec in 2008. At the moment we have 12 experts. BBJ: I suspect that you soon contacted other big companies? K.E.: Yes, of course, we didn’t stuck with Sun and Symantec; we always looked for new possibilities for our clients. Sensitive data is a special kind of property that needs to be protected at all costs. Having eight cars and 22 computers can be nice, but sensitive information is what drives the world today and we were always looking for new solutions for its protection. BBJ: What was the first important technology that you used? K.E.: Data Loss Prevention (DLP) was the technology that we used first in Hungary in 2009, with the help of our partner Symantec. Symantec has remained one of our important business partners, but we provide

Krisztián Egerszegi is a technical manager, economist and banking security expert with more than 13 years of experience in the field of information security. From 2001 he worked at VT−Soft where he focussed on issues of IT security and Identity Management, before becoming the leader of the business branch that he developed. Since 2008 he has been the CEO of CDSYS, the biggest Hungarian company dealing with IT Security. needs. Constantly using the latest technology isn’t always the best idea. That’s why we instead expanded our list of providers with big development companies: we work with firms like Oracle, Symantec, CA, Novell, Forgerock, Juniper and McAfee among others, thus we can be an independent data security provider ourselves. BBJ: You must have expanded your end user client base as well?

Photo: András Rigler

GERGELY HERPAI

K.E.: Yes, with the Hungarian government as one our most important clients, for example. IT security is very important for the courts of justice, the police, ambulance, the ministry of the interior and so on. The Hungarian government takes data security very seriously, which is why the new Information Security Law was voted in last year, which we think was an important step in the security arena. We hope that it will expand the list of smaller organizations that will use more complex data security solutions, besides using the basic and obvious antivirus and firewall software. BBJ: Could you give us an example of more complex techniques? K.E.: Beside antivirus and firewalls you need VPNs (virtual private networks) with content filtering and intrusion detection. Encryption is also a key security solution in case a business notebook is lost or stolen. Defense against data leaks are very important as well. DLP software has a key role in this area but as I have explained in many conferences, DLP isn’t a magical cure-all in itself. For the DLP software to have its best effect a whole security system needs be installed. This also means instructions and education on security issues and solutions for

BBJ: Tell us about a specific security technology that you provide and are particularly proud of? K.E.: Symantec bought the SSL (Secure Sockets Layer) protocol from Verisign and, since we are providing this service to the public administration, almost every Hungarian can find our system at the Ügyfélkapu (or Customer Portal) at ugyfelkapu.magyarorszag.hu. Also, when you are downloading your tax assessment software you will meet our SSL codesigning certificate there. BBJ: What are the favorite targets of hackers? Banks? K.E.: Banks are very desirable but also tough targets, since they are usually already using very serious and hard-to-breach security systems. That’s why attackers have turned their attentions to SMEs, since smaller firms aren’t keen to invest in very important security systems. Another reason why SMEs have become the targets of hackers is because they may be service providers to bigger companies and through their possibly weaker security systems it’s easier to hack in and find a way into the systems of the bigger business partners and thus acquire their sensitive data. There are increasing hacker attacks against SMEs where a significant money loss can mean the end of a smaller company. SMEs have recognized this and are getting more interested in complex solutions. It is important to recognize that to live in a well-organized and secure world, everybody needs his or her information security well protected.

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Krisztián Egerszegi, CEO of the Hungarian-owned Compliance Data System Ltd, saw turnover reach HUF 655 million this financial year, an increase of 50%. The firm specializes in data security systems and has become the first-ranked Hungarian company in the field. With CDSYS distributing security solutions of the biggest global companies, it has also seen a substantial increase of its customers. Egerszegi is convinced that Hungary can reach the level of security of Western European countries, but says to do that SMEs will also needs to protect sensitive data better. The Budapest Business Journal asked him to explain the company’s success.

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2 Business

Budapest Business Journal | June 06 – June 19, 2014

Fever Pitch

LEVENTE HÖRÖMPÖLI-TÓTH

At first, there were tremors, but by now what is going on in Hungary’s startup scene is more of an earthquake. Budapest is turning into a startup hub, and with that the goal envisaged by the National Innovation Office (NIH) seems to be coming true. The most recent piece of evidence for such development was ‘Startup Spring’, a series of events aimed at strengthening cooperation between players in the ecosystem. Initially, 60 teams from six countries signed up, from which 25 reached the pre− selection stage in April. “In Germany, holding startup events at universities is common place,” Peter Zaboji, Founder and President of the European Entrepreneurship Foundation noted in the wake of the event. “Now this is starting to happen in Budapest as well. It’s fascinating to see how this ‘virus’ is spreading.” BOOT CAMP POLISHING A jury made up of international experts picked the ten best contestants to compete for the ‘Startup of the Year’ title in the Grand Finale of the Central European Startup Awards. Prior to the showdown, however, a unique chance was given to polish their pitch technique in a boot camp, an experience by itself.

STORY HIGHLIGHTS ■

‘Startup Spring’ event series helps Budapest in its effort to become a major startup hub ■ Participants gained invaluable professional guidance to polish their skills

Participants were rigorously prepared by top−notch pitch trainers in order to boost their performance. “You wouldn’t recognize these young people, they have changed so much since the beginning of ‘Startup Spring’. They have become confident and ready to find VC for themselves,” Endre Spaller, Head of NIH said in his assessment of the bootcamp. Jacek Pluciński, CEO of Poland’s Lab4motion, whose company also qualified for the last round, praised the Hungarian effort. “NIH apparently helps create an environment where startups can thrive. I also sense a lot more activity as regards startups here as opposed to in Poland. The Polish government relies very much on EU money, whereas in Budapest VC is a lot more present and accessible,” he told the Budapest Business Journal. PITCH OF A LIFETIME The final pitch rally witnessed well− trained contestants on a chilly May night in the Grund, all carried live on UStream. The jury grilled them regardless. “You need to be able to stay focused under any circumstances. Absolutely nothing can distract you,” stressed panel member Péter Kádas, Partner at Traction Tribe, which describes itself as a “startup traction composer company”, a catalyst for tech startups from Europe looking to enter the U.S. market The contestants were asked questions after each presentation on projected revenue streams, user numbers and aggressive growth plans. Speakers were also invited to reply to more complex questions in one single sentence. In spite of the hard training and professional mentoring, being concise and clear proved to be tough. In one case, the nature of the problem that a

Startup Hot Ten Here is the cream of the crop of the Central European Startup Awards 2014, indicating name and product of the startups concerned. • • • • • • • • • •

brewie: personal automated brewery contect2connect: e-book management self-service platform Feedback: feedback system for students and teachers Lab4motion: people movement analysis based on video my3dreams: 3D printing platform RateMySpeech: speech and presentation feedback system talk the walk: platform for NGO funding testjockey: beta testing platform for mobile app developers That’s My Tour: tour planning app modular indoor lighting: indoor lighting system controlled by a mobile device

Photo: Matthias Deigner

The ‘Startup Spring’ event series, which is meant to bring together regional players in the ecosystem, culminated in the ‘Central European Startup Awards’. The best ten competed in an ultimate pitch rally for the ‘Startup of the Year’ title that eventually went to RateMySpeech, designed to share public speeches and allow feedback.

solution was being offered for did not come out in the presentation. THE VALLEY AWAITING As expected, a very close race developed between Hungary’s RateMySpeech and Lab4motion. In fact, in the end the team that showed the biggest improvement during the entire ‘Startup Spring’ won the title. The winner, RateMySpeech, delivered a performance worthy of their product, through which speeches can be shared and feedback given online. “We’ve got a die−hard team and we believe that by improving public speaking skills we can make a positive difference in the lives of people, organizations and communities,” Founder Attila Szigeti told the BBJ. The team also pocketed a ten−day trip to Silicon Valley. “We hope to establish the contacts needed for us to go global. We’d like to bring home as much from the startup culture there as possible in order to contribute to the development of the local ecosystem,” Szigeti added.

László Korányi, vice−president of NIH said, “Next year we need to make sure that the contest gets even more publicity abroad, thus increasing the number of countries represented,” . “An additional incentive is that two teams specializing in tourism will have the chance to do three months at their own expense at a relevant business incubator in Paris as part of an exchange program,” Korányi added. The 2014 CESAwards was organized in a joint venture by IseeQ, Mobility and Multimedia Cluster of Hungary and Drobe Productions from Denmark.

The Next Big Shot? Another rising star could well be E-STUDYGROUP. The product rides new trends that point to a shift from students as receivers of information to students as content generators. Users (or ‘teachers’) can upload teaching material on a website in any form (video, audio, text, images), choose from several different question types to test the knowledge of their ‘students’ and calibrate various ‘gamification’ elements such as animgifs as positive or negative feedback. “I asked my students to make an app on their own as a pilot and they came up with Budapest on the go. The concept was presented as Hungary’s innovative education solution at the ‘Windows in Education Global Forum’ in Barcelona this spring. There were some 24,000 applications – we ended up among the best 10,” said founder Tibor Prievera, a Microsoft Expert Educator himself. “We have an innovative product that has the potential to be fully present in the life of teachers and students,” co-founder and international business lawyer Tamás Zahorszky added, The biggest task now is to find financing and professional guidance for the planned global expansion. Any investors out there with deep pockets?

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2 Business

Budapest Business Journal | June 06 – June 19, 2014

Hungarian Startups vs Silicon Valley Technologies Hungary

Valley

Web

51%

73%

Software

16%

Mobile

15%

17%

Web+mobile

Hardware

Stages Discovery

45%

11%

Validation

36%

74%

Efficiency

15%

Scale

Revenue streams Subscription

42%

48.00%

Other

26%

20.00%

Transaction Fee

17%

Advertising

License Fee

16%

Reality check “The technical talent is unparalleled in CEE, but design sucks and sales and marketing are horrible.” Such was the harsh, but realistic evaluation of Marvin Liao who was invited to give an insight on pitch training techniques for teams registered for ‘Startup Spring’. Liao, a celebrated trainer in Silicon Valley, was not happy with what he saw. “I was banging my head against the wall at how badly prepared some of the teams were,” he told the BBJ. He was disappointed by how many candidates had expected tasks to be done by third parties that were clearly their own homework to complete. Liao further shared his thoughts on the startup phenomenon. “Going global is the hardest thing. Global-oriented companies should go to the Valley, but if you are consumer-oriented, it’s not necessarily a must,” he noted. He also highlighted that 75% of new product launches fail because the product is separated from the marketing. No wonder the concept of ‘growth hacking’ was identified by Sean Ellis. Ellis replaced the marketing mantra of ‘buy it’ with ‘find it’, referring to the fact that growth hackers rely on the power of sharing information and viral marketing instead of buying expensive ad spots in traditional media. ‘The idea itself is nothing. Most successful firms got where they are because they had a plan B,” Liao added. “Startups are not rational. They are learning machines, they have a vision, but they are also very flexible. In this, the world is becoming more like startups that, among all that uncertainty, go for the unexpected. You need to embrace this optimism.”

PROMOTION

Stub it Out! How to Really Give Up Smoking On the other hand, once you are genuinely motivated by the advantages of living a smoke free life, you don’t brood over the withdrawal symptoms any more but delve into the benefits of being a non-smoker. “You feel and perform way better, you can breathe at last, your sense of smell and taste is “Giving up smoking is the best dangerous, it might not give you back to normal, that horrid morning known preventive measure to avoid enough motivation to go through cough is relieved, your sex life lung cancer,” says Dr. Mónika with it. When the resolution doesn’t improves, and you can better keep Solymos, internist and cardiologist come with personal conviction, wrinkles at bay. Have you thought at Dr. Rose Private Hospital. “I when you are talked into the about how much you can save have seen many patients try to quit decision, then it feels more like in a year by not buying a pack a but eventually the majority failed self-abnegation. You know that it’s day?” asks Dr. Solymos, pointing to meet their own resolution. If you bad for you, but what to do when out that seeking professional help want to kick the addiction because cigarettes are a source of some pays off in the long run. “An expert prepare for the challenge and avoid in addictology is coaching you to the usual pitfalls, so that you can you heard that it is unhealthy or pacifying pleasure in your life?” persevere and stay smoke free for good.” For your own good, we may add. So go for it, stub it out if you haven’t done it already! Lung cancer is an inconspicuous condition at first. That is why regular screening is important to detect it at an early stage. By the time the usual symptoms – chronic cough, spitting blood, chest and back pain, heavy breathing – and palpable medical anomalies – loss of weight and appetite, high temperature – are evident, we are talking about advanced lung cancer. Every fourth case diagnosed is categorized as small-cell lung cancer – smoking is a dominant causative factor that brings it along. This type of cancer spreads early on, and the best protocol is a combination of radio- and chemotherapy. Roughly 75% of all TEL: (+36) 1 377-6737 diagnosed lung cancers are non-small cell type. Depending on the stage and extent of the illness, surgery, WEB: www.drrose.hu chemotherapy and radiotherapy are the most effective curative methods. ADDRESS: Széchenyi square 7/8,

Some 90% of those diagnosed with lung cancer are smokers. Enough said. It doesn’t take much to add two and two and see that giving up smoking is the best prevention there is. Some manage to stub it out for good, whereas others are recidivist offenders. Right motivation, says an expert, is the divide between success and failure.

Good to Know

1051 Budapest

NOTE: ALL ARTICLES MARKED PROMOTIONAL FEATURES ARE PAID PROMOTIONAL CONTENT FOR WHICH THE BUDAPEST BUSINESS JOURNAL DOES NOT TAKE RESPONSIBILITY

Source: startups.hu, Startup Ecosystem Report 2012, Startup Genome Project

BBJ

3Special Report CSR With a Purpose

Serving Business, Sharing Expertise

24-25

Outsourcing Value Added

Shared Service Centers

Subject Matter Experts

International law firms have had to adapt to the postâ&#x2C6;&#x2019;crisis environment, applying flexible fee arrangements and putting ever more emphasis on added value that justifies their rates. Continuous training of staff is another must to stay ahead of the competition.

Creating Added Value

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Budapest Business Journal | June 06 â&#x20AC;&#x201C; June 19, 2014

CSR With a Purpose Hoping to create a value added CSR program, the board of the Hungarian Service and Outsourcing Association (Magyar SzolgĂĄltatĂłipai ĂŠs Outsourcing SzĂśvetsĂŠg in Hungarian) has decided to initiate an industry wide scheme that would enable civil organizations to access the skills they lack, and which SSCs often have in abundance, be it legal, IT, finance, communication or management skills. Rather than simply ask for volunteers to collect garbage or paint fences (important though those are), the idea is that employers could involve their staff in good causes which motivate them, knowing they are really making a difference. â&#x20AC;&#x153;We already clarified the details of the joint cooperation and decided to work with CivilSupport, a nonprofit organization,â&#x20AC;? HOA president Attila Suhajda told the Budapest Business Journal. â&#x20AC;&#x153;It will provide us project management, match making, communication and feedback services.â&#x20AC;? The president says the aim of the CSR scheme is to tick a number of boxes. â&#x20AC;&#x153;We want to showcase the industryâ&#x20AC;&#x2122;s unique values (we have huge intellectual assets, 90% of employees are university degree professionals, with language skills, state of art working culture and effective team working); increase awareness of the shared service center industry and its reputation; enhance employer branding through

quality CSR; offer employees motivation and engagement; introduce and attract the industry to potential new employees; and support civil organizations not with cash but high value professional voluntary work.â&#x20AC;? â&#x20AC;&#x153;We just had CSR Working Group meeting today [June 2]; although we havenâ&#x20AC;&#x2122;t had any concrete CSR projects yet, the plan is detailed enough to send out to the member companies and ask them to join to the cooperation. The technical infrastructure will be done in June. During the summer we will work with CivilSupport on preparations (creating the voluntary and the civil organization pool). Then we will identify four or five main areas that are important both to the industry and individual companies. The basic idea is that participating companies would define their areas of priority for voluntary activities such as education, green economy, child poverty, social inclusion or whatever, and the outsourcing associationâ&#x20AC;&#x2122;s â&#x20AC;&#x2DC;matchmakerâ&#x20AC;&#x2122; would draw up a list of organizations working in that area for the company to chose from and promote the opportunity amongst their employees. HOA members Avis Budget Group BSC, BT, Celanese, ESAB, IT Services and TATA have already indicated their willingness to take part in the program.

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Budapest Business Journal | June 06 – June 19, 2014

Serving Business, The evolution of shared service centers has entered its mature phase in Hungary. This is all the more evident as multinational corporations bring in newer functions producing ever more added value to Hungary. Hungary is, however, finding it increasingly difficult to keep up with Poland in the competition to attract new SSCs to the country. ANDRÁS ZSÁMBOKI

Ágnes Dévényi, who has a double degree in Italian Language and Literature and Aesthetics from Eötvös Loránd University, had been looking for a job for a year and a half until Exxon Mobil hired her. “At last, a workplace where I am legally employed and I take home HUF 190,000 after taxes every month. The perks are quite significant as well; I would say they add up to a thirteenth month’s salary.” Her position is as a contractual process coordinator, which, in her opinion, is only a very small part of a very large process, the mechanism of which is somewhat beyond her knowledge. Therefore she finds her work a bit monotonous. “What I enjoy most is that I keep contact with all the gas stations of ESSO in Italy. I can speak a lot of Italian, and my colleagues form a thoroughly international team. So I often feel like I am in a totally multinational environment, say, in New York,” Dévényi says enthusiastically. Exxon Mobil has one of the biggest shared service centers operating in Hungary with 1,800 employees; a size matched only by British Telecom Global Services, General Electric, Tata, and IT Services. There are many more centers employing 200−400 people; in addition, there are dozens of other small centers employing 20−40 staff each. “In Hungary, 24,000 people are employed in a classic SSC form. With that number, Hungary can be counted among Central Europe’s great powers. Only in Poland are there more people employed by SSCs, but Poland is a country whose population is almost four times as big as that of Hungary,” Attila Suhajda, president of the Hungarian Service and Outsourcing Association (HOA), an organization that represents SSCs in Hungary, explained to the Budapest Business Journal. HOA has 75 members altogether, but they include all kinds of providers of business services. One of HOA’s members, for example, is Dijbeszedő Holding, which offers billing, fee

collection and customer administration services. Another is the Euroscript translation agency. “Neither of those two are SSCs in the classical sense,” Suhajda remarks. SSCs in fact form a minority; they represent about 30 out of the 75 members of HOA. “The really big employers are the SSCs. According to our count, the sector employs 30,000 people, and of that, 26,000 are employed by the SSCs. SSCs, by the way, have various profiles. Half of them only provide services within their own company or group. They are called captives, like ExxonMobil, for instance,” explains Suhajda. Some 40% of SSCs provide services only for outside parties, and about 10% work both for their own group and outside client companies. Tata exemplifies the latter variety. STUCK IN BUDAPEST The industry’s geographical distribution presents an even more concentrated picture. Most of the larger SSCs operate exclusively in Budapest. “This kind of concentration is not at all necessary,” says Andor Faragó, general manager of the European Operations Center of British Telecom in Hungary (BT ROC). “For SSCs, the most important requirement is expertise, and that precondition can be found in any university city in Hungary.” Outside Budapest, only a few Hungarian cities, such as Debrecen and Székesfehérvár, belong to the SSC host circle: in Debrecen, BT and IT Services are present, with the latter also in Székesfehérvár. Elswhere, Vodafone is in Miskolc, and Raiffeisen has an SSC in Nyíregyháza. Andor Faragó, general manager of the European Operations Center of British Telecom in Hungary (BT ROC)

Real estate developers always say that they construct office building complexes only in Budapest because SSCs are reluctant to move into the provinces. SSCs complain that they cannot move into the provinces because there are no high−quality offices there. So seemingly this is a ‘chicken−and−egg’ problem – but in reality it isn’t.

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Budapest Business Journal | June 06 – June 19, 2014

Sharing Expertise According to HOA surveys, the choice of Budapest can be explained by the availability of good−quality offices, equipped with all necessary telecom connections. “Real estate developers always say that they construct office building complexes only in Budapest because SSCs are reluctant to move into the provinces. SSCs complain that they cannot move into the provinces because there are no high−quality offices there. So seemingly this is a ‘chicken−and− egg’ problem – but in reality it isn’t,” Faragó insists. SECURITY MATTERS When BT decided to open its European Operation Center in Hungary in 2007, it was a question of operational security policy that the company’s SSCs would operate as one unit, but in two different locations, geographically separated from each other. “We thought if something happens to one of them, the other one would still be able to guarantee the continuous availability of services to our customers,” Faragó recalls. The building BT chose had been built on a speculative basis. “Today such a story would be unimaginable,” Gábor Borbély, CBRE’s regional director

remarks to the BBJ. Before the crisis, speculative office building construction was relatively common in Budapest. That means that real estate developers started their development having signed preliminary contracts for about half or one−third of the space in the new office complex only. “In the provinces, this practice was already considered risky at that time; and since 2008 there has been no precedent in Budapest either for someone constructing an office building out of purely speculative considerations,” the real estate expert said. (The situation is completely different in Poland. There, outside Warsaw, at least six other big cities are homes to SSCs. The office real estate market is quite vibrant in all six of those – see seperate article below.) HOA conducted a survey in 2013 looking into the most critical issues affecting SSCs, and also collected information about the competitiveness of the country. Respondents were asked to name what they considered the biggest risks in Hungary. In the order of frequency, the risks mentioned are: fluctuation of workforce, number of spoken languages available, expertise, and country risk. Regarding the fact

that SSCs provide their services offshore, 38% of respondents are afraid of country risk. “In the past four years, one of the biggest challenges for multinational companies in Hungary was the unpredictability of changes initiated by the government – especially in taxation,” BT’s Faragó mentioned as an example of country risk. “We understand that the government had to take immediate actions to stabilize the economy and also recognize the positive results achieved. Looking forward we hope that the times of the crisis are over and there will be more opportunities for consultation with the government,” he said. GENERATION ‘Y’ Big employer SSCs think the fluctuation of workforce, the so−called churn or staff turnover factor, stands out as one of the most serious problem. “The most positive aspect is that fluctuation itself takes place mostly among the SSCs. People who quit at Exxon find a new job at Tata, say. SSCs’ workforce has stabilized as a profession, and this has retentive potential in itself,” Suhajda, president of the HOA, points out. According the HR experts, the extent

of churn is acceptable. On average, it amounts to 15% annually. “One has to take into consideration that the sector employs lots of young professionals and fresh graduates,” Faragó explains. “Usually, members of Generation ‘Y’ prefer to rise fast at their workplaces. If that does not work out at one company, they change jobs and try their chances at a neighboring one, hoping that they can achieve greater career advancement there. The inconvenient truth, however, is that the majority of leavers find the same prospects at their new companies, too.” Each business service provider strives to create a feature of its own, special perks that attract employees in a unique way. “At BT our great pride is our employee− and family−friendly culture. This year has been the second time we received the ‘Family−Friendly Workplace Award’ of the Hungarian Ministry of Human Resources. Our corporate culture, high− quality working environment, competitive salaries, various company events, wide range of training and benefits, and family−friendly provisions all serve the purpose of making the service centre an attractive workplace for current and future employees,” Faragó says.

SSCs Keep CEE Office Market Growing According to the most recent survey by Cushman & Wakefield, 2.4 million square meters of office space are currently under development in the Central Eastern European region, 44% of which is being built in Poland – the success country of the region – and only 5% in Hungary. ANDRÁS ZSÁMBOKI

“Poland is special in the region in the sense that, beside the capital city Warsaw, six other big cities can boost booming office markets. These are Wroclaw, Poznan, Gdansk, Lodz, and Krakow,” Gábor Borbély, CBRE’s regional manager responsible for Eastern Europe tells the Budapest Business Journal. “In eastern Poland, it is obviously the shared service centers that move the market. The reasonable costs of the workforce attracts them. In Poland, multinational companies find more opportunities in regional cities than anywhere else in the CEE region, simply because of the size of the secondary cities. Therefore the real estate development and investment market is more mature in Polish regional cities

compared to their Hungarian peers,” Borbély adds. Another characteristic of Poland is the fact that investors consider the Polish market safe even if the return rates are relatively low. “This is due to the fact that Poland is a market larger than any other country in the region. It is also volatile, meaning there are a high number of transactions such as acquisitions and purchases,” Borbély explains. Poland is among the preferred targets of several German and American investment funds. In contrast to the Romanian market, for example, where so−called opportunist investors – i.e. investors who are ready to take greater risks – dominate the scene, those who seek safe investment possibilities with low risks are drawn to Poland. According to an investor unwilling to be identified, the new money arriving in the market takes advantage of exactly those conditions. The money pouring into Central Europe is starting to move beyond the safer and more stable Polish and Czech markets to higher−yielding ‘frontier’ countries. Greek and South African investors, who prefer so−called trophies to office market products, typically dominate the investment scene. “With rapidly falling yields, in the more developed markets people are starting to put their heads up and look around in search for better returns,” Boris Oluich, a principle at Peakside Capital, a private equity property investor, says. Experts

PERCENTAGE OF OFFICE SPACE UNDER DEVELOPMENT IN CEE

interviewed by the BBJ say Hungary is clearly ranked in the same category as Romania. “Hungary is a small and not too liquid market. On top of that, surplus supply is significant even in the office building market, which is considered the most stable segment of the real estate sector. New SSCs do not seem to be appearing in Hungary in large numbers, although that would greatly stabilize the real estate market,” CBRE’s Borbély says. Eduard Zehetner, chief executive

of Austria’s major property company Immofinanz, recently told the Financial Times. “Hungary is a bit like Italy in that you have politics and the economy – and often the economy has very little to do with politics. The economy is better than you read in the newspapers.” The number of transactions are, nonetheless, on the rise in Hungary as well. “Last year, all sales totaled at €200 mln: this figure may be reached already in the first half of this year,” Borbély remarks optimistically.

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Budapest Business Journal | June 06 – June 19, 2014

Creating Added Value Magdalena Dopierala−Bosze, Managing Director at IBM’s International Shared Service Center in Budapest, took time out from the iSSC’s 10th anniversary celebrations to talk exclusively to the Budapest Business Journal about market changes, finding and keeping staff, and parties! ROBIN MARSCHALL

Why did IBM decide to set up the iSSC in Budapest? A: 15 years ago when we first started activities here in Hungary, it was just the accounts payable process. Because that whole project was successful, other activities were moved to Hungary. In 2004 we became a legal unit, hence the 10th anniversary celebrations, and from then on rapidly started to grow. And not only in financial services, but centralized HR, procurement and so on. You are talking about a huge operation, a couple of thousand people work here now. A company needs to take some risks if it is moving to a totally different model, a centralized model. But you must make sure you can still ensure the same quality of service. The operatives must understand the company, the business of the company, and the culture of the company. When you are becoming a virtual point of service, as we

are, you need a lot of people skills, language knowledge, but also the right tools. Without those, you would not be able to do this.

How has what you do changed? A: It is totally different. Fifteen years ago we were one of the first companies to appear on the market. Some IBM decision makers had decided to see if there were some benefits from the cost end we might experience. They thought if accounts were centralized here in Budapest that could work because there is cost efficiency in the model, it would offer them better control of the process, to make changes, to standardize and to simplify. Whenever something is done in one place you have scales of economy. Accounts payable was the first, and allowed us to build trust, and after that the processes became more and more complex. Ten years of history have shown it still works. Some activities were harder to transfer than others. Some took one or two months, others half−a− year or even a year, but we always got there. In general, smaller countries are easier to transition [from in−country teams to the iSSC] than larger. Also, if you go from north to south; it is easier with countries in the north, more difficult in the south of Europe, which may suggest a difference in temperament or mental processes, really. IBM is still the biggest part of out portfolio, at some 65%, but we also have about 20 external clients from different industries. Some are traditional IBM clients, others are new and were simply looking for a service provider. Every new client also becomes a reference for us and speaks for us in the market place.

IBM ISSC, Budapest

How hard is it to attract and keep staff? A: Actually, I would say attrition for us is pretty manageable. Our turnover rate is about 15% right now, which is already good compared to the industry average, so we do not have a real problem. Interestingly, about 10−20% of ‘new joiners’ are ex−IBMers, so people like to come back. When we started we were one of the first SSCs, today there are 70−80 in Budapest alone, with 30−40,000 employed across the country. One advantage we have is the ‘IBM value’: the climate is friendly, in fact I have been looking back at the pictures from the past 10 years and it is remarkable how many party photos there are. IBM is also a good place to look for a career because of our size. Each year 10−15% of our people change their position to do something totally different. I am talking about going from procurement to human resources to finance, learning new things. Not too many others can offer such opportunities; for young people in particular it is very attractive to see the scale of opportunities here. The average age today is 32−33. Five to eight years earlier the average was 26. It shows that young people are a focus for us when hiring, but also that people are starting their careers here and staying. The company is getting older, more mature. The majority of our people have at least three years’ experience of working at IBM, and that indicates they are loyal and want to stay. A problem can be that we sometimes get an opportunity where we need someone with language and specialist skills. This knowledge is not always available: if we need a native French speaker at a chartered accountant level with 20 plus years experience, we will have to go outside Hungary. Fortunately, people are more willing to move to Hungary nowadays, but it can still be a challenge.

Does the perceived unwillingness of Hungarians to move for work worry you? A: I hear about this problem, but it doesn’t really affect us. More than half of the people who work here are not originally from Budapest. They came here to go to university, and afterwards stayed. And we are also very flexible as a company, we have a lot of people who work from home and maybe come into the center once or twice a

week as the work demands. We have looked into opening an office in another city; it looks like for now Budapest is still attractive enough to bring in staff, but we are very open to seeing opportunities in the future. I also see a lot of Hungarian colleagues moving from here to IBM jobs in the region or further afield. So I do not see a problem with people moving for work.

SSCs are one of the few areas beyond automotive manufacturing that have seen real growth in the Hungarian economy. How supportive is the government? A: It is quite supportive. We are growing, and as part of that, we would like to be more visible on the market to everyone. We are members of the Hungarian Service and Outsourcing Association, and through that we try to partner government and show them our needs. We also work with the Hungarian Trade and Investment Agency who are key partners for us when it comes to opportunities and what support we can get from the government. I would say the support is not bad. It could always be better, but there is at least dialogue. We know who to talk to and it takes time to get things done, but dialogue is happening and that is most important.

And future plans for the iSSC? Will you be transferring more services or adding extra staff? A: We are planning to stay here and expand our services. We do need to improve perception of the industry. Ten years ago when you talked about shared services, people were thinking about people on telephones, or inputting data: routine tasks. But now we are talking about added value jobs done by subject matter experts, people having very specific knowledge. More tools, and more automated services will be the trend.

How optimistic are you for the immediate future, and the next 10 years? A: I am very optimistic. I believe more and more that there is nothing that cannot be centralized. Ten years ago I was not able to say that. It is only a question of time, skills, people, and tools. The world is more global. Processes are increasingly standardized, with the only differences being for local legislation. If you can overcome that, you can do anything.

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Budapest Business Journal | June 06 â&#x20AC;&#x201C; June 19, 2014

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BBJ

4 Socialite

SOCIALITE

Managing Creativity 22 SOCIALITE

Fine Restaurants

WINE REVIEW

Indigenous white grape Hárslevelű is continuing to emerge from the shadow cast over it by Furmint, its more illustrious partner in Tokaji Aszú crime, while Villány’s vintners have joined forces to acknowledge that their future lies with Cabernet Franc. Dry Hárslevelű has the potential to be “at least as good” as dry Furmint, said Bodrog Borműhely’s Krisztián Farkas. This small Tokaj winery’s single−vineyard Hárs bottlings from Dereszla, Lapis and Barát, served at the Night of Hárslevelűs tasting last month, showed subtle differences between the individual terroirs in a way that Furmint is often commended for. The Dereszla is floral and peachy, the Lapis steely, while the Barát is round and full with apricot, peach and honey notes. These differences came about despite the wines undergoing fermentation with cultured yeast, which flies in the face of the assumption that you must use wild yeasts to capture the essence of the site of origin. Incidentally, Zoltán Demeter, whose soft and seductive Szerelmi Hárslevelű has long been a benchmark of the variety, uses cultured yeast for his dry wine, but native yeast for his sweets. He also believes firmly in Hárslevelű, adding that it plays second fiddle to Furmint merely because all the initial attention went into developing the latter as a dry wine. Furmint is often a touch restrained on the nose while Hárslevelű is almost always aromatic, but it can also display impressive structure and acidity when properly nurtured.

However, harvest it too late and it can become piercingly floral and flabby as the acidity rapidly drops off. ‘Go to’ Tokaj wineries for delectable dry single−vineyard Hárslevelű include Kikelet and Gizella, whose wines capture remarkable nuances of the varietal and site of origin. Meanwhile, Sauska’s Birtok (Estate) Hárslevelű 2012 is a full−bodied blend across several vineyards capturing both tropical richness and zesty freshness. For Tokaj icon István Szepsy, “Hárslevelű has a special taste and its own kind of minerality.” He is carrying out experiments with the variety in his prized Szent Tamás vineyard. While there’s been a rush to plant Furmint outside of its strongholds of Tokaj and Somló (see Somló Apátság, Imre Györgykovács and Hollóvár), Hárslevelű has long been present elsewhere. In Eger, János Bolyki has made some hedonistic late−harvest dry Hárs, such as the 2011, and is planning to put out three from different harvest dates from 2012. Furthermore, good examples can be even found in the far south, such as from Bakonyi down in Villány. WHOOPS! WRONG CABERNET! With the rain bucketing down and a chilly wind blowing, it wasn’t the ideal weather for a trip to Villány. However, these were prime conditions for imbibing full− bodied Cabernet Franc, which has firmly become the region’s flagship grape. At present, Cabernet Franc accounts for 14% of Villány’s land under vine, but it looks set to grow rapidly as many growers have wisely united to promote the ‘Villányi Franc’ brand. Cabernet Franc may play a supporting role in Bordeaux to Cabernet

Photo: Mira Halek

An Underrated Local and a Firm Foreign Friend

Sauvignon and Merlot, but it appears to be very much in its element in Villány. There was a huge rush to plant its more fashionable Bordeaux varietal sibling of Cabernet Sauvignon, along with Merlot, in the ’90s, according to Attila Gere. However, it has become increasingly clear that it is rather the generally less prestigious Frank that thrives in Villány, although I’d question whether the right Cabernet Sauvignon clones were selected in the first place. Cabernet Franc ripens a week earlier than Cabernet Sauvignon and never has unripe green flavors, according to Gere, who showed that Cabernet Franc can age very well with Gere−Weninger offerings from the 2003 and 2000 vintages, which both had a complex combination of generous fresh blackberry and blueberry to compliment the aged tertiary notes of herbs, mushroom, dried fruit, leather and mixed spices, with the older wine being a bit more leathery, but still in surprisingly good shape. Tiffán’s 2007 and Vylyan’s 2007 also showed how nicely Cabernet Franc ages in the medium−term when not picked too late and overloaded with oak; the former

earthier while the latter is still oozing forest fruit notes. In fact, it was more youthful than Vylyan’s much lauded single vineyard Mandolás Cabernet Franc 2009. Vylyan owner Mónika Debreceni explained that the conditions required for Cabernet Franc and the conditions inherent in Villány are pretty much identical. She also said that the grape is always reliable, while different vintages reveal wines quite different and unique in style. Heumann’s 2011 is currently full of youthful intensity but needs time to soften, but the 2009 is in tip top shape revealing black fruit, tobacco, coffee and forest floor notes, while the 2008 was deliciously polished. Jekl’s fresh and vibrant 2011 and 2012 bottlings, which spent a year in used 500 liter barrels, contrasted sharply with the 2006, which had seen extensive ageing in new oak. This new, fruitier direction is highly promising and the resulting wines are much more pleasant to drink. Ultimately, there seems little point in masking the juicy fruit in an oaky veil. The assumption that the more oak the better the wine is thankfully starting to be confined to yesterday’s winemaking philosophy books.

SZAMOS GOURMET PALACE

CAFE ◆ CONFECTIONERY ◆ CHOCOLATIER

HUNGARIAN BREAKFAST IN SZAMOS GOURMET HOUSE! You are cordially invited to the Szamos Gourmet House for a splendid breakfast. Our chef is waiting for you with plentiful special breakfast offers from 9.00 am. 1052 Budapest, Váci utca 1. (entrance from Deák Ferenc street)

www.szamosmarcipan.hu

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4 Socialite

Budapest Business Journal | June 06 – June 19, 2014

Beautiful Chaos Presented at the Kempinski There is chaos in progress at a luxury hotel in Budapest, and a young artist from India is responsible for the phenomenon – Sachin George Sebastian will present his artwork at the Kempinski Hotel Corvinus Budapest having been part of the hotel’s artist in residence program. The Budapest Business Journal asked him how giant paper sculptures express urban planning and social development, and what it means to live in ‘beautiful chaos’. KSENIA KNYAZEVA AND ROBERT V. WALLENSTEIN

Once in Hungary there was a tradition for certain artists to live in hotels. When you arrived at the Kempinski you changed your business suite for a standard room. Is it that uncomfortable living and working in a luxury hotel? A: Well, I just wanted a somewhat simpler environment. I am very happy with my more modest room – I still have enough space to work with my sizable papers. It is fantastic that Kempinski provided me with this unique chance to be part of their Young Artist Program. With this I could come to Europe for the first time in my life. I will stay two months here in Budapest and will be travelling around the neighboring countries.

You started as a designer, mainly doing graphical work with computers in India. In a few years you became a well−known artist at home. Your first international exhibition was only last year in the United Arab Emirates. Was it obvious after Dubai that your next destination would be Budapest? A: Not at all. This fellowship was completely out of the blue. At Art Dubai I had a booth next to a very famous artist. I thought what a lucky position! But it turned out that the crowd flowed to his booth while totally ignored my art at the beginning. Before I had time to become frustrated, though, a nice lady, Marylea van Daalen, asked me if I

ILDIKÓ DUDÁS – THE HOST (MARKETING MANAGER AT KEMPINSKI HOTEL CORVINUS BUDAPEST) “Our program was established five years ago for the purpose of supporting young talents in arts and culture. Our focus is on classical music and visual arts, two of the most powerful art forms worldwide. Both of these speak without words and transcend cultural barriers. We are delighted to be able to host such an original artists as Sachin George Sebastian in Budapest.

would like to spend two months somewhere as a Kempinski art fellowship recipient; she was the program’s director and liked my art. What she offered was really special – it was perfectly tailored for my needs, gave a lot of freedom – I could choose any city I wanted, and it was a very flexible time frame. It was such a great call, and had a very positive effect on the exhibition. Of my seven art pieces, I could sell five right away.

Why did you choose Budapest? A: Many people ask me this, since this artistic fellowship provides two months in any part of the world. I decided to find something that was the total opposite of New Delhi, but still a big city with a rich history and remarkable culture and architecture. I knew that from Budapest I could get to other cities like Vienna, Paris or Berlin. I did not know anything special about Hungary, I only hoped that here I could still feel the buzz of a great and busy city, while I can also be alone in public, walking around and having my own observational periods. It is rather special how disciplined the city is from the perspective of a megalopolis. I was asking people where and what they consider a crowded and busy street life? I only experienced something like that visiting the district of several ruin pubs, at late evening. For my artistic creativity I needed private time – which I have not had for a while. Here I am able to use these self−reflection sessions for recharging my batteries and rethinking my next steps.

Why and how have you developed your paper technique? A: Paper has always been a

The mission of the program is to cooperate with arts institutions around the world to further cultural awareness, to provide international education in cross-cultural studies and to fulfill Kempinski’s commitment to the highest social standards by connecting hospitality and culture. The Visual Arts Fellowship consists of a two month ‘Artist in Residence’ period in a Kempinski hotel outside the recipient’s home country that is appropriate to his/her proposed project. It is designed to give young artists some experience in a foreign environment with full financial support, and to provide public exposure of the artists in locations otherwise unavailable to them. Sachin George Sebastian was given a reception upon his arrival. We introduced him to several professionals from the Hungarian art field. We are providing him with transportation and full board accommodation for several weeks. In the middle of June we are planning to feature his new work inside the hotel lobby. His piece will join our more than 1,000piece art collection. fascination for me to work with. Its fragile nature and flexibility make paper the perfect material for me to talk about the stories and realities we live in. Over the years my theme has been ‘Metropolis and City Planners’, making the work a quick peek into our culture of massive migration to cities in search of greener pastures, which results in deforestation and the immense growth of the cities both vertically as well as horizontally. With my work, I attempt to discuss the regression that happens in the name of a progressive society. Maybe to answer a question within myself, and to the humanity around, namely how long and how far are we going to operate in these spaces in the name of development? I choose to include newspaper in many of my works as I find that this is the only paper on which I can find the stories and lives of people from all over the

world without discrimination of class and culture and other manmade boundaries.

You refer to your work as chaotic. Why? A: My work represents the chaos we live in. I find stories on every corner, and in businesses and every day craziness as well. I want to catch the beauty and the value of our existence. The idea is to showcase the city as something really attractive, like a beautiful organic being. But the surface beauty of these objects is a bit of a lure. The beauty from afar is deceptive, and on a closer look one just sees the monstrosity – filled with wires and windows and people, their thoughts, structures and chaos, all growing in a very organic monstrous way. But since it is our own way of existing it also has a certain beauty to it – the beauty of city chaos.

Grandhouse Turns Two The Grandhouse International Club, which has as its vision the goal to “Contribute in any possible way to make Hungary a better country,” celebrated its second birthday at its monthly luncheon on May 28, held in the dining hall of the Hungarian Academy of Science. AMY MÓDLY

Dr. Albert Royaards, President of the Board of Trustees, expressed paternalistic pride at the club’s anniversary, and toasted its development into a toddler. Accompanying the cold appetizers and the buffet was a Bulgarian wine that won the Vienna 2011 Silver Award, complements of Bulgarian Ambassador Biserka Benisheva. British Council Director Simon Ingram−Hill, just back from a trip to his soon−to−be new post in Sierra Leone, gave members and guests an overview of council activities worldwide and drew on his near four

decades of service in many parts of the world, to emphasize the soft power of cultural diplomacy – in many cases the best foreign policy, he said. Introducing and engaging cultures to interact with one another is not a matter of coercion, or even propaganda as was partly the council‘s mission against the Nazi regime in 1934, he said, but a ‘slow burn’ that dissipates hate and prejudice by creating international opportunities for trust. Often this is achieved simply by being present in difficult times and persistent devotion to the effort. However, it is also imperative to have

good products and good programs to back it up, said Ingram−Hill. Participants were asked to answer the question ‘How long has the British Museum been collecting the history of the world? ’ (answer: 250 years) for the chance to win a copy of the book ‘The History of the World in 100 Objects’ (also a successful BBC radio program) by the museum’s director Neil MacGregor. There was also a bottle of sparkling wine from Dorset for the first runner−up. Anyone interested in knowing more about the Grandhouse International Club, should visit www.grandhouseclub.org

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4 Socialite

Budapest Business Journal | June 06 – June 19, 2014

BOOK REVIEW

Managing Creativity Part business book, part autobiography, and part history of Pixar, ‘Creativity, Inc.’ is an inspiring look at the role creativity plays in one of the most successful media businesses the world has ever seen. As a young man, Ed Catmull had a dream: to make the world’s first computer−animated movie. He nurtured that dream first as a Ph.D. student at the University of Utah, where many computer science pioneers got their start, and then forged an early partnership with George Lucas that led, indirectly, to his founding Pixar with Steve Jobs and John Lasseter in 1986. Nine years later and against all odds, ‘Toy Story’ was released, changing animation forever. Since then, Pixar has dominated the world of animation, producing such beloved films as ‘Monsters, Inc.’, ‘Finding Nemo’, ‘The Incredibles’, ‘Up’, and ‘Wall−E’, which have gone on to set box−office records and garner 27 Academy Awards. With their joyous storytelling, inventive plots and emotional authenticity, Pixar movies are in some ways an object lesson in what creativity really is. Now, in this book, Catmull reveals the ideals and techniques, honed over years, that have made Pixar so widely admired – and so profitable. From his first forays into computer graphics to his uncertain move into management, Catmull explains the things that worked, and the things that didn’t. He shares stories about his partnership with Steve Jobs and his interaction with various directors, and reflects on the roles of personality, pride, bias, objectivity, failure,

success and teamwork. The philosophies he champions are ones that protect the creative process and defy convention. They include the idea that it is not the manager’s job to prevent risks, but to make it safe for others to take them; that a company’s communication structure should not mirror its organizational structure i.e. everybody should be able to talk to anybody; and that the cost of preventing errors is often far greater than the cost of fixing them. ‘Creativity, Inc.’ is a book for managers who want to lead their employees to new heights, a manual for anyone who strives for originality, and the first−ever, all−access trip into the nerve center of Pixar Animation Studios – into the story meetings and the ‘Braintrust’ sessions where art is born. It is, at heart, a book about how to build and sustain a creative culture – but it is also, as Catmull writes, “an expression of the ideas that I believe make the best in us possible”. “Unleashing creativity requires that we loosen the controls, accept risk, trust our colleagues, work to clear the path for them, and pay attention to anything that creates fear,” Catmull continues. “Doing all these things won’t necessarily make the job of managing a creative culture easier. But ease isn’t the goal; excellence is.” ‘CREATIVITY, INC.’. by Ed Catmull Published by Bantam Press ISBN 9780593070109 Available to order through www.hungaropress.hu

Ferenc Snétberger and his friends:

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WHO'S NEWS Do you know someone on the move? Send information to research@bbj.hu

Concert for Guitar and Orchestra

13 June, 2014 Name JÁNOS SZEIFERT Current company/position CUSHMAN & WAKEFIELD/ASSOCIATE, HEAD OF PROPERTY AND ASSET MANAGEMENT

Featuring: Concerto Budapest Conductor: András Keller Snétberger Ferenc Quartet Special guest: Michel Godard Arrive by Theater Boat Service to the ‚Open-air Stage and Water Tower’ port Spend a night in Budapest and get a free theater ticket! Cultural hotel package deals with discounts.

GIFT COUPON

Use this coupon until 10 June at the Szabad Tér Ticket Office (1065 Bp., Nagymező st. 68.) and we give 20% discount of the entrance fee.

Further information and online ticket purchase:

www.szabadter.hu

Name PÉTER KIRÁLY Current company/position DLA PIPER TAX ADVISOR LTD/ MANAGING DIRECTOR OF THE TRANSFER PRICING TEAM

Cushman & Wakefield has recruited János Szeifert as Associate, Head of Property and Asset Management, with effect from May 2014. Szeifert has more than 20 years of real estate experience in the Hungarian market. He will have a primary role of developing and maintaining positive customer-focused relationship with clients. His responsibilities will also include the development of a common platform for service delivery, systems and procedures and working with other members of C&W’s CEE Asset Management team. Prior to joining C&W, János worked for 10 years as the General Manager of AEW CE in Budapest. He was primarily responsible for the management of PWB Hungary, and for the daily operations of MOM Park Shopping Centre and WestEnd Business Center. He was previously balance fund manager at OTP Real Estate Investment Fund Management Zrt. and CEO of GVA Robertson Property and Asset Management Zrt.

Péter Király has been announced as the new managing director of the transfer pricing team of DLA Piper Tax Advisor Ltd. A recognized expert in the domestic market; he was chosen as one of the best transfer pricing experts by his peers in the International Tax Review two years ago. He has been dealing with transfer pricing matters for nearly a decade. Király acquired professional experience at the German and Hungarian affiliated companies of international accounting firm EY. Király graduated from Santa Monica College and the University of California Los Angeles, and obtained a degree at Saldo Education Center as a registered tax advisor. His professional activity includes advisory services in the area of transfer pricing, advance pricing arrangements and mutual agreement procedures. At DLA Piper’s transfer pricing team, he is responsible for managing and representing large international and domestic clients.

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Budapest Business Journal | June 06 – June 19, 2014

Restaurants FINE

This is an extract from Fine Restaurants, the Budapest Business Journal’s Restaurant Guide 2014 (www.facebook. com/fine.restaurants). To order your copy of the publication, which costs HUF 2,990, send an email including contact details to Andrea Bognár, bognar.a@amedi.hu

21 A Magyar Vendéglő

Hungarian cuisine as it used to be in the ‘good old days’, updated to the 21st century: while maintaining the original real taste in a concentrated way, our dishes are lighter than the old− fashioned Hungarian cuisine. In order to do this, we use the very best available ingredients and use the latest techniques and technologies. Based on our Hungarian concept, we only carry Hungarian wines and only those with a distinctive character. We have strived to create a ‘traditional’ Hungarian restaurant that we have been missing since the Second World War, but in an original new way passing over the typical Hungarian restaurant clichés in the cuisine and in the design. Address of restaurant: Buda Castle, 1014 Budapest, Fortuna utca 21. · Telephone number: +36 (1) 202−2113 · Telephone number for reservations: +36 (1) 202−2113 · E−mail address: info@21restaurant.hu · Website address: www.21restaurant.hu · Name of manager: Balázs Bihari, Attila Hankóczi · Name of chef: Lajos Lutz · Name of creative chef: Zsolt Litauszki · Opening hours: Monday−Sunday: 12:00−24:00 · Number of seating places: 72 + 18 · Year of establishment: 2008

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Business Solutions

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