Budapest Business Journal 2821

HUNGARY’S PRACTICAL BUSINESS BI-WEEKLY SINCE 1992 | WWW.BBJ.HU

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BUSINESS JOURNAL BUDAPEST

VOL. 28. NUMBER 21

NOVEMBER 13 – NOVEMBER 26, 2020

SPECIAL REPORT

BSCs & SSCs

SPECIAL REPORT

Hungary’s SSCs may Emerge Winners After COVID-19 Shared services centers have been on a constant growth path in the past two decades. While the shift to remote working caused by the coronavirus has caused unexpected disruptions to their operation, the region could become an even more attractive location globally in the near future. 10 SPECIAL REPORT

Business Service Centers in Hungary An investment-friendly business environment, a highly educated workforce and developed infrastructure: these are the factors that have contributed to the success of the sector in Hungary, HIPA says. 11

SOCIALITE

From Deák tér to Kálvin tér For some reason, David Holzer’s wanderings around Budapest south from Deák Ferenc tér never seem to extend any further than Kossuth Lajos utca, which runs down from Astoria to Erzsébet híd. So he was delighted to have a reason to cross over Kossuth Lajos and head into unknown territory. 22

Keeping it Personal NEWS

Industry Picks Up, Inflation on Target

IAL R SPEC

T EPOR

The COVID19 pandemic proved far more functions could be performed perfectly well from home, but also underlined the need for personal relationships in maintaining engagement, says BT’s country general manager, Zoltán Szabó.12

It seems that the worst days for Hungarian industry are over, BUSINESS analysts commenting on the September industrial output data Mayor Promises Businesses say. However, it is still hard to predict Global Council, Greener City what the year’s end will bring given Mayor of Budapest Gergely Karácsony is planning to set up a the latest government restrictions.

Budapest Global Council to institutionalize cooperation between In the meantime, inflation dropped the general assembly and businesses based in the capital, back to the central bank’s 3% target the mayor told an AmCham meeting. 6 in October. 3

2|1

News

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Budapest Business Journal | November 13 – November 26, 2020

THE EDITOR SAYS

EDITOR-IN-CHIEF: Robin Marshall EDITORIAL CONTRIBUTORS: Kálmán Béres, Zsófia

Czifra, Kester Eddy, Bence Gaál, David Holzer, Christian Keszthelyi, Gary J. Morrell, Nicholas Pongratz, Gergely Sebestyén, Robert Smyth, Zsófia Végh.

LISTS: BBJ Research (research@bbj.hu) NEWS AND PRESS RELEASES:

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What We Stand For: The Budapest Business Journal aspires to be the most trusted newspaper in Hungary. We believe that managers should work on behalf of their shareholders. We believe that among the most important contributions a government can make to society is improving the business and investment climate so that its citizens may realize their full potential.

The Budapest Business Journal, HU ISSN 1216-7304, is published bi-weekly on Friday, registration No. 0109069462. It is distributed by HungaroPress.

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DON’T LET THE CURFEW GRIND YOU DOWN How did you spend your final day before the tightened lockdown curfew came into force? In my case I went to the gym and an appointment with my personal trainer.

Not, as it happens, because I particularly like going to the gym; I have found it is the best way of keeping my aging, creaking body in some kind of shape, with everything more or less pointing in the right direction and moving in the right way. For the next 30 days I shall have to try and find some other means, alongside my morning constitutional with the dogs.

Monday (November 9) was the 28th anniversary of the day in 1992 when the very first issue of the Budapest Business Journal hit the streets, and it just so happened I was exchanging emails with Stephen A. O’Connor, a name that will be known to many of you, as he was there at the beginning and went on to become the newspaper’s publisher. When I told him of the new circumstances, he was typically forthright.

“Here in Atlanta if feels like it’s totally past [...] everything is open. I think the whole thing [is] overblown government overreach.”

Sadly, it is what it is. My wife and I are just grateful two of our three children are still in school. I have no concerns about my eldest moving back into the digital classroom: she seems relaxed about it and is more than self-sufficient enough to cope and keep up with her studies. The real concern was the two younger ones.

The kids being at home in the spring meant we had to be there, too. Not only did they miss the social interaction of being in a stimulating environment surrounded by their friends, but they also had to put up with parents juggling their own work pressures with teaching, a profession at which neither of us would claim to be proficient (even if my

father was a headmaster, and at least the fourth generation of his family to be involved in education).

For now, it would seem the aim in Hungary and in so many other parts of Europe is to keep kindergartens and schools, at least for the younger children, open for as long as possible. It appears governments have learned the lessons (if you will pardon the pun) from Lockdown 1.0. There was a truly shocking report published in Britain this week by schools’ watchdog Ofsted (the Office for Standards in Education, Children’s Services and Skills) that found the children hardest hit by COVID19 measures have regressed during the pandemic, with some forgetting basic numbers or how to use a knife and fork. Older children have lost physical fitness as well as reading and writing skills, and some show signs of mental distress, with increases seen in eating disorders and even self-harm, Ofsted found.

I’m not for a moment suggesting that is widespread, or in any way applicable to my own children. I have seen no comparable study in Hungary, but this country is not without its poor or socially disadvantaged and there are sure to be some similar victims of lockdown among them.

One final thought: Lockdown has had such a profound effect on people all around the globe that Collins Dictionary has chosen it as its annual Word of the Year. Others to make the short list include pandemic, coronavirus, social distancing, self-isolation, furlough and key workers. NonCOVID-related words on the list include BLM (Black Lives Matter) and TikToker. It’s been quite the year, hasn’t it?

Stay safe, and keep well.

Robin Marshall Editor-in-chief

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The Book of Lists 2020-21 is coming soon!

For subscription please contact: +36/1 398-0344; circulation@bbj.hu

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Budapest Business Journal | November 13 – November 26, 2020

News///macroscope

Industry Picks up, Inflation on Target

It seems that the worst days for Hungarian industry are over, analysts commenting on the September industrial output data say. However, it is still hard to predict what the yearend will bring given the latest government restrictions announced to slow down the spread of COVID-19. In the meantime, inflation dropped back to the central bank’s 3% target in October.

ZSÓFIA CZIFRA

In September 2020, the volume of industrial production grew by 2.2% yearon-year. Based on working-day adjusted data, production declined by 1%. The growth was 2.3% compared to the previous month according to seasonally and working-day adjusted data.

The increase comes after a decline in August, when the volume of industrial production fell back by 2.1% year-onyear; the largest drop, however, had been registered in April, when industrial production declined

by

36.8%

on a year-on-year basis.

According to the latest data released by the Central Statistical Office (KSH), in September the volume of production grew in the subsections representing the largest weight. The manufacture of transport equipment, as well as the manufacture of computer, electronic and

Changes in Consumer Prices

by Main Commodity Group (October 2019-October 2020) +5.4

Food Alcoholic beverages and tobacco Clothing and footwear Consumer -1.5 durables

+6.1 -0.5

+0.6

+8.4

October 2019 +2.9

October 2020

+0.7 +0.2

Household energy Other goods, including motor fuels and lubricants

+6.5

-0.6 -0.9

Services

+2.4

+3.3

3.8% core

+2.9 +3.0

Combined

Source:

optical products, rose to a greater extent, while the manufacture of food products, beverages and tobacco products increased to a lesser degree. However, production dropped in the majority of the other manufacturing subsections.

In the first nine months of the year production was 9.2 % lower than in the same period of the previous year.

Industrial output in September, according to seasonally and working-day adjusted indices, was 2.3% above the level of the previous month, and it grew by 61% compared to April.

External Demand

Production in September exceeded previrus levels, Gábor Regős, head of the macroeconomics unit at research institute Századvég emphasized when commenting on the data. It shows that external demand was higher in September; however, he added that there might have been significant differences among individual industries. For vehicle manufacturing, for example, THE effects of delayed purchases from spring might have occurred, thus increasing demand.

Regős thinks it is encouraging that the second wave of the coronavirus pandemic has had no effect on industrial production thus far, meaning output in the third quarter could have moderated the rate of decline of the annual GDP. However, it is still a question whether it remains like this in the coming months, he added.

Industrial production has fully recovered from the crisis caused by the pandemic, Gergely Suppan, head analyst at Takarékbank said. He noted that output grew by 31% from the previous quarter

in

Q3,

this might have contributed greatly to the rebound of the economy. If so, the

prices slowed down to 3% in October, which is right on the mid-term target of the National Bank of Hungary (MNB).

The lower price dynamics were mostly due to more moderate annual price rises for food, alcoholic beverages and tobacco than in September as well as to the price decrease of motor fuels, KSH said.

Consumer prices rose by 0.2% on average in the month, compared to September.

Food prices rose by 6.5% and prices of spirits and tobacco, lifted by tax changes, were up 6.1%. Prices for both groups of products climbed at a slower pace than in the previous month. Clothing prices were 0.5% lower, consumer durable prices rose by 2.9% and household energy prices grew by 0.2%. Service prices were up 2.4%.

According to analysts, while annual inflation is back at the 3% mid-term goal of the MNB, thus easing the push for tightening, the

decline in GDP might have fallen to 4.7% in the third quarter, down from the 13.6% in the second quarter.

It is a good sign, he added, that new orders in the automotive industry exceeded last year’s level by 33% in August, while the overall order stock was 18.2% higher than in the same period of last year.

According to him, stabilization of industry might continue in the coming months. This year, the annual decline of industry might remain in the single-digit zone, coming to 6.5-7%, while there could be 13-14% growth in 2021; as for April, the annual growth might be as high as 60%, due to the low base effect.

Inflation Surprise

It was not only industrial production data that was pleasing; the latest inflation figures also came as positive surprise.

The annual rate of increase of consumer ADVERTISEMENT

inflation, which excludes volatile fuel and food prices, is still pretty high.

“The latest data is not surprising, as we expected a slowdown after the 3.9% peak in August,” said Dávid Németh, head analyst at K&H Bank. October inflation was influenced by uneven factors: while food and tobacco prices grew above the average, fuel prices dropped in the tenth month of the year. According to Németh, inflation might further ease in the coming months.

He expects annual average inflation of 3.4%, which might slow to 3.1% in 2021.

Numbers to Watch in the Coming Weeks The KSH will publish September construction data the day after this issue of the Budapest Business Journal goes to print. It will also release an important figure on Friday, November 13: Hungary’s GDP data for the third quarter of the year.

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Budapest Business Journal | November 13 – November 26, 2020

CEE Investment Volumes Remain Relatively Healthy Despite the negative impact of COVID19 on the CEE-6 (Bulgaria, the Czech Republic, Hungary, Poland, Romania and Slovakia) investment markets, flow volumes have remained relatively healthy for the first three quarters of 2020 at around EUR 8 billion, although this is sill 12% down compared to the same period of 2019.

GARY J. MORRELL

According to “The CEE Investment Scene Q1-Q3 2020” by Colliers International, Hungary achieved EUR 524 million in investment volume for the period. Poland attracted EUR 4 bln, which represents 50% of

further price reduction given deteriorating conditions on finance and increased risk levels,” comments Bence Vécsey, head of capital markets at Colliers Hungary.

Acquisition Mode

Váci Greens Building “F” has now been completed by developer Atenor, bringing the multi-phase project to a finish, and is being offered to the investor market. the CEE total, and the Czech Republic attracted EUR 2 mln. Average transaction sizes are up 31.5%, while the number of transactions are down 32%.

The office sector has again dominated in 2020 with 40% of volume, followed by industrial with 29%, residential 16% and retail 12%. Predictably, the retail and hotels sectors are down considerably on last year, with logistics significantly up and greater volumes held back only by a shortage of supply.

The I&L (industrial and logistical) sector in the wider CEE-17 has become one of the most sought-after asset types since 2019, after offices and residential, according to research by Colliers International, law firm CMS, and HR company, Randstad.

Colliers estimates the lowest yield for the Czech Republic at 4.25% for prime office, 5% for prime industrial and 5.25% for shopping centers. This compares

to

5.25%

for prime Budapest office, 7% for prime industrial and 6.25% for shopping centers.

From a regional perspective, industry has remained stable, office has moved out by an average of 25 basis points and retail by 50 basis points.

“The theoretical yield level relevant for prime offices is set to grow to 5.5% by the end of 2020. However, no such deal is currently under negotiation, and even core-plus opportunities would trade at a

Coronavirus Roundup: State of Emergency Returns Tighter restrictions to contain the spread of coronavirus came into force in Hungary at one second past midnight in the early hours of November 11.

NICHOLAS PONGRATZ

The restrictions announced by Prime Minister Viktor Orbán in a video posted on his Facebook page on November 9 were ratified by Parliament on November 10, in addition to a 90-day extension of the current state of emergency, which had been announced the week before; the details were published in the official Magyar Közlöny (Hungary Gazette) 20 minutes before midnight on November 10.

The restrictions include a curfew between 8 p.m. and 5 a.m., although people who can certify they are working or commuting are exempt. Exceptions will also be made for health emergencies, as well as for dog-walkers, who must remain within 500 meters of their residence.

All shops must close by 7 p.m., except for pharmacies and petrol stations. Dining in at restaurants is prohibited, but take-out and home delivery is allowed. Hotels are closed to tourists but open to business travelers.

All gatherings in public places are banned, although private and family gatherings with up to 10 people may take place. Additionally, masks must now be worn in the public areas of settlements with more than 10,000 inhabitants.

In an interview with Kossuth Rádió last week, Orbán said Hungary could start administering COVID-19 vaccines to the most vulnerable Hungarians by January, and wide-scale immunization could begin by April of next year, a statement he reiterated in an interview on public television on the evening of November 10.

CEE domestic investors, consisting mainly of Czech and Hungarian capital, have remained in acquisition mode, investing both in their own markets and cross border within the region, concluding 28% of total volume for the first three quarters of the year.

Capital from Asia, particularly Singaporean and South Korean, has also continued to secure opportunities in the region. Looking at the wider economic environment, CEE economies are expected to take a hit in 2020, but a rebound is predicted from 2021 onwards.

“Despite investor appetite remaining strong for CEE, yearend volumes are likely to reach EUR 10 bln-12 bln, around

20% lower

than in 2019,” says Colliers.

The consultancy forecasts EUR 800 mln for Hungary for the year, compared to EUR 5.5 bln for Poland, EUR 2.6 bln for the Czech Republic and EUR 360 mln-380 mln for Slovakia.

“Colliers anticipates the total investment volume turnover to be close to below EUR 1 bln in line with our conservative flash figure of EUR 800 mln. Another two to three sizable transactions will close by yearend, while the rest of the deals could slip into 2021,” Vécsey adds.

Coronavirus ///roundup

In the latter interview, Orbán said that vaccines could arrive as early as late December, “certainly” from the European Union, and “perhaps” from elsewhere, adding that Hungary is keeping the possibility of acquiring vaccines from China, Russia and Israel “on the table”, according to state news agency MTI.

Vaccine Purchases

In a post on his Facebook page on November 9, Minister of Foreign Affairs and Trade Péter Szijjártó said Hungary is negotiating with foreign countries on the possibility of purchasing a vaccine against the coronavirus, including Russia and China.

In a later Facebook post, Szijjártó said Russia would start small-scale deliveries of a COVID-19 vaccine to Hungary in December and that large-scale deliveries

of the Russian vaccine could start in the second or third week of January, after speaking with Russian Minister of Health Mikhail Murashko over the phone.

According to another Facebook post from Ministry of Foreign Affairs and Trade State Secretary Tamás Menczer, Hungary could get samples of a COVID-19 vaccine from a Chinese producer for testing. Getting the samples would be “a leap forward” as it would allow a potential coronavirus vaccine to be examined by Hungarian experts, Menczer said.

The Minister of Foreign Affairs and Trade also noted that Hungary had received one million favipiravir tablets in a new shipment from China, which arrived late on Sunday, he said.

Favipiravir can be used for patients already showing the symptoms of the infection and can help prevent the worsening of the disease. Talks are underway with several manufacturers on further purchases, with another shipment of one million tablets due to arrive from Japan at the weekend, Szijjártó added.

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Budapest Business Journal | November 13 – November 26, 2020

WHO’S NEWS

News | 5

Do you know someone on the move? /// Send information to news@bbj.hu

Office Leasing Director Pick at Property Market From October 19, Mariann Tóth joined the management team of Property Market as office leasing director.

She will be responsible for managing the leasing activities of BudaPart, a large-scale mixed-use project in Budapest, as well as the company’s further real estate developments.

Mariann Tóth Tóth has been active in the sales and real estate market for more than 15 years. In the past more than eight years, she had acted as HB Reavis Group’s country leasing director in Hungary, where she was responsible for the retail and office leasing of Váci Corner Offices and Agora Budapest.

Prior to that, she worked as an associate for the office leasing team of Colliers International real estate agency.

Before engaging in the real estate market, she held corporate sales manager and sales director positions with Domina Inn Fiesta Hotel, New York Palace Boscolo and Danubius Hotel Group. She studied hotel industry and tourism at the Budapest Business School.

“A significant portion of our imminent and planned projects are premium office market products, so we are very pleased that the new member of our management team has such an extensive experience. Mariann’s competencies, real estate market knowledge and dynamism fit perfectly with our innovative, value-creating approach, thus I am sure we will achieve a lot of success through joining forces,” said Mihály Schrancz, managing director of Property Market.

Ted S. Boone Joins Dentons in Budapest Theodore (Ted) S. Boone has joined Dentons in Budapest as an of counsel and will focus on complex commercial transactions, according to a press release sent to the Budapest Business Journal.

Theodore (Ted) S. Boone In the course of his practice, Boone will draw on his extensive commercial and legal experience arising from previous leadership positions in the United States and Europe at premier

international law firms, one of the Big Four consultancies, and as a former president and chair of the board of governors of the American Chamber of Commerce in Hungary (1992-1993).

Boone’s work has involved, among other areas, financial institutions, manufacturing, energy, entertainment, transport, consumer goods, telecom, media, real estate, biotechnology and services.

He is also a member of the faculty of Corvinus University of Budapest’s School of Business, where he teaches in Corvinus University’s National Bank of Hungary sponsored MBA double degree program with the University of Fudan, China.

Fluent in German and Hungarian in addition to his native English, he is member of the bar associations of New York and Washington, D.C., and of the Supreme Court of the United States.

Boone holds a law degree from Columbia University’s School of Law and a post-graduate degree in international commercial law from Eötvös Loránd University’s School of Law. He is also a former adjunct professor at Georgetown University’s School of Law in Washington, D.C.

2ND DISTRICT

2ND DISTRICT

2ND DISTRICT

105 SQM – 4 ROOMS, SZÁSZ KÁROLY STREET

91 SQM – 3 ROOMS, ÜRÖMI STREET

122 SQM – 3 ROOMS, SZÁSZ KÁROLY STREET

This top floor, bright, duplex apartment has pri­ vate gas heating and balcony and it is situated within a well maintained condominium with elevator.

In a completely renovated condominium, this sunny, second floor apartment in good con­ dition has balcony and it is located near Zsig­ mond Square.

Near Millenáris Park, this street facing apart­ ment in very good condition has separate rooms and private gas heating. It is situated within a nice condominium with elevator.

68.900.000 HUF

79.900.000 HUF

84.900.000 HUF

+36.70.365.0827

2ND DISTRICT

+36.70.365.0827

2ND DISTRICT

+36.70.365.0827

3RD DISTRICT

106 SQM – 4 ROOMS, PASARÉT

402 SQM – 9 ROOMS, KURUCLES

79 SQM –3 ROOMS, KISCELLI LANE

In a very nice villa house, this spacious and sunny duplex apartment has a living room with open kitchen, 3 separate bedrooms, bathroom, large balcony and parking space in the garden.

This beautiful, three­storey villa house has 980 sqm of lot, four bathrooms, balcony and garage.

It is located in one of Kurucles area’s green and quiet side streets.

This very bright, quiet, well divided, duplex apartment in good condition benefits of 9 sqm of terrace and it is located close to the British International School.

94.900.000 HUF

199.000.000 HUF

63.900.000 HUF

+36.70.376.4138

+36.70.376.4138

+36.20.419.8070

Head of Marketing and PR at ConvergenCE Orsolya Simon has assumed the position of head of marketing and PR at real estate investor and developer ConvergenCE. In addition to the comprehensive corporate communications of the company, she will also be responsible for supporting the leasing, asset, property, and project management business lines.

3RD DISTRICT

Csaba Zeley, director of asset management at ConvergenCE, commented, “Orsolya has extensive knowledge in the field of property marketing and related communication activities […]. Her appointment will further strengthen the ConvergenCE team, support the success of our projects and help us provide our customers with an even higher level of service.”

Prior to her most recent appointment, Simon worked at DVM group, where she was in charge of the overall communication of the integrated building services provider for more than four years.

Prior to that, she headed the marketing and PR department of global property advisor CBRE for more than a decade.

Simon received her MA in Hungarian literature and B.Ed. in English from Eötvös Loránd University, and obtained another MA in International Relations from the University of Westminster in London.

She also has a degree in economics with Public Relations specialization from the Budapest Business School.

5TH DISTRICT

136 SQM – 3 ROOMS, RÓMAIFÜRDŐ

33 SQM – 1 ROOM, MARKÓ STREET

Close to the Óbuda University, this bright, gar­ den facing, duplex apartment has two bathrooms, balcony and terrace. It is situated within a buil­ ding with well­kept garden. Garage possibility.

Next to the Danube, within a new built, luxury, wellness residential park with swimming pool and well­kept garden, this spacious apartment has separate rooms and 26 sqm of terrace.

Panoramic studio apartment with a fascina­ ting view over the Danube and the Margaret Bridge. It is situated within one of the most ele­ gant building (Biarritz House) in the city centre.

72.900.000 HUF

136.900.000 HUF

74.900.000 HUF

+36.20.419.8070

5TH DISTRICT

Orsolya Simon

3RD DISTRICT

113 SQM – 4 ROOMS, BÉCSI STREET

+36.20.419.8070

5TH DISTRICT

+36.30.886.1014

6TH DISTRICT

160 SQM – 4 ROOMS, BELGRÁD QUAY

130 SQM – 3 ROOMS, FERENCIEK SQUARE

88 SQM – 3 ROOMS, BAJNOK STREET

Breathtaking panorama over the Danube, this very spacious, first floor apartment benefits of two balconies and it is situated within a recent­ ly renovated building.

This completely renovated, very spacious, first floor, luxury apartment has the original stuccos in all rooms and a balcony facing over the square.

It is situated within a recently renovated building.

In a renovated building with elevator, this spa­ cious and bright, second floor apartment has a living room and two separate bedrooms. Close to the Kodály körönd.

229.000.000 HUF

900.000 EUR

51.000.000 HUF

+36.30.886.1014

7TH DISTRICT

+36.30.886.1014

7TH DISTRICT

+36.70.365.0825

13TH DISTRICT

72 SQM – 3 ROOMS, REJTŐ JENŐ STREET

83 SQM – 2 ROOMS, HEVESI SÁNDOR SQUARE

44 SQM – 1 ROOM, BALZAC STREET

In a new building, this bright apartment has living room with open kitchen, 2 separate bedrooms and a balcony facing over the Magyar Theatre.

Two parking spaces in the garage of the building.

This completely renovated, sunny, first floor apartment has the original stuccos in the rooms and a balcony facing over the square. It is situa­ ted in a period building with elevator.

This apartment has a spacious and very bright room at the moment but it can be easily conver­ ted to a 2 room property as well. Excellent invest­ ment opportunity.

69.900.000 HUF

35.900.000 HUF

52.500.000 HUF

+36.70.365.0825

13TH DISTRICT

+36.70.365.0825

13TH DISTRICT

+36.70.414.7759

BUDAKESZI

68 SQM – 3 ROOMS, PANNÓNIA STREET

108 SQM – 4 ROOMS, HOLLÁN ERNŐ STREET

372 SQM – 7 ROOMS, BUDAKESZI

This renovated, very bright, street facing apart­ ment has separate rooms and it is situated with­ in a small building with elevator. In the heart of the district.

This completely renovated, very sunny and spa­ cious, south­facing, high floor apartment has separate rooms and balcony. It is situated with­ in a renovated building with elevator.

In a quiet and green area, this two­storey, luxu­ ry detached house has an outdoor swimming pool with outdoor shower, barbeque area and garage. All the furniture is for sale for requests.

49.500.000 HUF

86.900.000 HUF

249.000.000 HUF

+36.70.414.7759

+36.70.414.7759

+36.70.376.4138

GRUPPO T.F.M. KFT. 1068 BUDAPEST, KIRÁLY U. 102.

EACH AGENCY INDEPENDENTLY OWNED AND OPERATED. • THESE OFFERS ARE VALID, TILL THE APARTMENTS ARE SOLD. • THESE INFORMATION DO NOT CONSTITUTE A CONTRACTUAL ELEMENT.

2

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Budapest Business Journal | November 13 – November 26, 2020

Business

He emphasized that such tasks are beyond the scope of his office; it is the Hungarian state that can make investments of this sort. Karácsony added that his office is aiming to further develop tram lines and encourage zeroemission transport.

E-ticket System

Mayor Promises Businesses Budapest Global Council and a Greener City

Mayor of Budapest Gergely Karácsony is planning to set up a Budapest Global Council to institutionalize cooperation between the General Assembly of Budapest and businesses based in the capital, the mayor announced during an American Chamber of Commerce in Hungary virtual business forum.

CHRISTIAN KESZTHELYI

Speaking on October 27, the mayor also outlined his plans for making the capital greener, more sustainable, a constructive place for businesses and a healthier environment for residents.

The mayor asked that, once the general assembly has established the institution, AmCham and international businesses based in Hungary assist in the creation of strategies that are mutually beneficial for the city and the business landscape. Budapest has to become the main location of the services sector and industries that deliver added value to the business community and people alike, the mayor added.

During the online video conference, Karácsony addressed a handful of important issues relating to the workings of the Hungarian capital.

“Our aim is to create a greener Budapest with more solidarity,” Karácsony promised.

He said that he trusts that the capital’s economy will be able to revive soon after the ebbing of COVID-19, while acknowledging how grave the current situation is. While there are plenty of steps needed to better the capital in general, Karácsony said the situation is difficult as his office faces funding difficulties.

Although his office proposed increasing the business tax to help the city bear its burden, the government had rejected the idea and business tax will in fact drop by 22%. Altogether, he said that the city’s central budget is losing out on 25% of its incoming

In efforts to make switching to public transport more attractive for those who arrive at the outskirts of the city behind the wheel of their cars, another step would be to introduce a quick, efficient, simple and customer-friendly electronic ticket purchasing and monitoring system.

Karácsony said that the tender that had been launched in 2014 to establish such a system never developed into a working feature. Instead, he said, the tender caused damage to his office amounting to tens of billions of forints.

Sustainability is a feature that can be added to public transport, too. The Center for Budapest Transport (BKK) has created a solar park that can

charges

40%

Gergely Karácsony. Photo by Lázár Todoroff / AmCham funding, and the municipality may need to tap into its emergency reserves.

Every year, diseases relating to respiratory illnesses caused by air pollution mean approximately

3,000 people

die in the capital. The mayor, therefore, is a supporter of creating a greener and more sustainable environment in Budapest; however, he noted that he is aware of the conflicts that such a transformation may cause.

He said that with the beginning of his term as Budapest mayor, a significant change in ideology arrived in the mayor’s office, especially in regard to green spaces.

“We have prevented the felling of more than 100 trees,” the mayor said, adding that he is committed to creating more green spaces.

Congestion Reduction

Budapest is planning to develop public transport to drastically reduce private car congestion. During the first half of the year, when the coronavirus pandemic reached Hungary and many people shifted to working remotely, both the public transport and congestion caused by private cars dramatically dropped, the former to 15% of the normal load, the latter to 20%, the mayor noted.

By the time of his speech at the AmCham forum, numbers were back to 80% and 90% in the case of public transport and private cars, respectively. Data from the mayor’s office has shown that blue-collar workers are

means traffic in the capital city still lags behind the pre-COVID-19 period.

For a greener and more sustainable Budapest, the mayor’s office is eyeing strengthening both the infrastructure of public transport and introducing more possibilities for micro-mobility to offer viable alternatives to urban dwellers to abandon private cars as much as possible in the future.

“Budapest cannot stand more car traffic,” the mayor said, suggesting that people should walk or ride bikes if the distance and time allows. The Budapest mayor himself has often been seen travelling around in the city riding his bicycle. “For our best, we need to gradually reduce congestion,” the mayor emphasized.

To achieve this, Karácsony said that traffic arriving into the agglomeration needs the biggest support, chiefly via the creation of parking spaces at the main public transport and private traffic junctions, to encourage people to use public transport in the downtown area.

of the electric buses used by the operator of the capital’s public transport. Karácsony said that this investment will break even in only four years, and the capital would like to see the installation of similar systems.

He added that Budapest has a significant geothermal reserve under its streets that, if tapped into, could alleviate the city’s dependence on power from fossil fuels, leading to the reduction of CO2 emissions.

Related investments would break even in a decade, he said; however, funding for such projects are scarce.

The mayor’s office is also working on a strategy for introducing technologies to Budapest, to kickstart the capital on the road of becoming a smart city.

“We are slightly lagging behind, we are in baby shoes in this regard,” Karácsony admitted. He said his office is planning to systemically collect all the city-related data in one place and use analyses to make life in the city easier. He said that such data should also be made available to the wider public to increase transparency.

He also touched upon the regularization of Airbnb, the San Francisco-based vacation rental online marketplace, which he tagged as an important social and political discussion that needs just decisions. It is the question of tax optimization to make taxes relating to vacation renting of homes just and fair, he said.

virtually

100%

back to using public transport, while white-collar workers still work from home if they can, which means at this point

From right to left: Gergely Karácsony, Farkas Bársony, Írisz Lippai-Nagy. Photo by Lázár Todoroff / AmCham

, T R A T S H S E R F

S N O I T U L O S T S E B , T E E L NEW F

ng i s a e L al n o i t a Oper g nt n e i c m n e a g n na a m Fleet fi & ns o i t u l o Fleet s tal n e r m r e t t r Sho budgethu

budgethu

budgetflotta.hu/en budgetflotta@budget.hu +36 1 700 4864 Fuel consumption: 1,6-1,4 l/100 km, CO2 emissions: 41-38 g/km, current consumption: 18,0-15,7 kWh/100 km.

An old companion for the long run

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Financial Repression as a way out of Government Debt

There are a number of options for us to look at. Below, I outline three, before focusing on one in particular.

• Trigger rapid economic growth: This helps reduce debt levels as a percentage of GDP, making debt levels more

Photo by Raywoo / Shutterstock.com

Government debt was very high throughout the world before the pandemic, and is spiraling even higher during it. Les Nemethy, a former World Banker, asks how governments can manage or reverse the massive amounts of debt post-COVID.

The Corporate Finance Column

manageable. However, economists typically associate high levels of debt with stagnation (due to large numbers of “zombie” companies, etc.), making rapid growth unlikely. Hence it is unlikely that rapid growth in GDP can be relied upon as a standalone measure to reduce the debt/GDP ratio.

• Default or restructuring: Bluntly speaking, not a pretty option. A default on government debt may financially destroy retirees and other segments of the population. This is generally

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not a voluntary option on the part of governments, which may, nevertheless, be forced to restructure or default where a sudden rise in interest rates on debt denominated in foreign currency creates a situation of default.

• Financial repression: This is a term coined by two Stanford economists in 1973. It is the likeliest choice for most governments, because default or restructuring is politically unpalatable.

(The severity of the financial repression might be moderated if some GDP growth can be achieved).

The remainder of this article will discuss this final option.

Financial repression involves government, in some way shape or form, clawing back wealth from individuals or corporations, to pay down debt or create additional collateral behind the debt.

It has been associated with rapid reductions of government debt in the past. For example, between 1945 and 1955, the United Kingdom’s national debt was reduced from 216% to 138% of GDP, according to International Monetary Fund data. Similar trends were observed in the United States, using a combination of financial repression and GDP growth.

In the past, there has been no lack of creativity on the part of governments as to forms of financial repression. Here are some examples: • Artificially low interest rates: This may be achieved by various measures, such as caps on interest rates, or a more modern version, a term we have got used to since the 2008 financial crisis, quantitative easing (QE), where yields are manipulated downwards. This creates a massive transfer of wealth from savers to borrowers (including governments). Artificially low interest rates were the primary method of financial repression during the aforementioned post World-War II era.

• Debasing currency: The Romans, for example, put less and less silver and gold into their coins over the centuries.

Very rapid increases in broad money supply is the modern version of currency debasement. Governments may (or may not!) use this additional money to pay down debt.

• Asset confiscation: In 1933, the United States confiscated gold in the hands of private citizens.

• Confiscating bank deposits: The Government of Cyprus, for example, confiscated approximately 48% of uninsured bank deposits in 2013.

• Expropriation of private pension funds: Examples of this include Argentina and Hungary, who used the funds to pay down national debt. In 2011, the Hungarian government nationalized the second private pillar of the pension fund system, providing the state with additional budgetary revenue equivalent to 9.5% of GDP. • Capital controls: In China, there has been multi-decade restrictions on buying foreign assets which continue into the present. This alters the supply/ demand relationship for government debt, allowing the Chinese government to borrow on far more competitive terms that in a liberalized capital market. Due to low interest rates, people need to put aside more money to reach their desired retirement nest egg. In effect, this is a mechanism for forced savings at a reduced rate of interest, creating a windfall for borrowers, including government.

• Government control or regulation of financial institutions: For example, requiring them to hold a higher percentage of government bonds, as the United Kingdom did during the 2010 recession. Another example is the Basel III requirements demanding banks to hold higher levels of sovereign debt to meet solvency ratios. Once again, this alters the demand/supply relationship for government bonds, suppressing interest rates.

The above is but a partial sample of financial repression measures. As you can see, financial repression is alive and well in today’s world, and with the mountain of global indebtedness rising, is likely to become even more common.

One of the frequently acknowledged effects of financial repression is to increase the inequality of income distribution.

As discussed in the Chinese example, inflating away the national debt puts an enormous burden on vast swaths of the population who hold bonds to save for retirement, while indebted entrepreneurs and corporations benefit from low interest rates, making them substantially wealthier.

This article might be considered as a general introduction to financial repression. Several of my subsequent articles will deal with what I consider to be special cases of financial repression, such as bail-ins and revaluing gold reserves. Financial repression will remain a hot topic over at least the coming decade. As investors, you will need to develop strategies to protect against it to conserve your net worth and portfolio.

Les Nemethy is CEO of Euro-Phoenix (www.europhoenix.com), a Central European corporate finance firm, author of Business Exit Planning (www.businessexitplanningbook.com) and a former president of the American Chamber of Commerce in Hungary.

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Special Report Hungary’s SSCs may Emerge as Winners After COVID-19

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Business Service Centers in Hungary

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COVID Highlights the Power of Personal Relationships

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U.S. Financial Services in Budapest Drive Collaborative Competition

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BSCs & SSCs

SSCs Operating at top end of Office Market 18

How are SSCs and the business services sector navigating their way through the COVID-19 pandemic, and what might the future hold?

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Special Report

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Budapest Business Journal | November 13 – November 26, 2020

Shared services centers, or business service centers as they are often referred to now, having reached a certain maturity, have been on a constant growth path in the past two decades. While the shift to remote working, caused by the repercussions of the COVID19 pandemic, has caused unexpected disruptions to their operation, Hungary, and Europe, is expected to become an even more attractive location globally in the near future.

Photo by Jirsak / Shutterstock.com

Hungary’s SSCs may Emerge as Winners After COVID-19

BUSINESS SERVICES CENTER

finance, sales, marketing, procurement, information technology and human resources activities being taken on.

How does the country compare to Europe and its Visegrád Four peers of the Czech Republic, Poland and Slovakia, though?

“Hungary is still home of captive SSCs, that means that they provide services within their own corporate. There are fewer outsourcing companies in Budapest compared to the rest of Central and Eastern Europe (CEE). There is a willingness and the potential to add the countryside of Hungary with cities like Debrecen or Szeged to the map of SSCs or via outsourcing,” Horváth explains.

Top Destination

In Poland, especially, but also in Czech Republic and Romania, larger cities beyond the capitals are attracting large investors into the shared services center vertical.

10% annual

growth in the past decades. In 2020, the core business of some centers was hit by the virus, yet, in general, the majority of them are still growing, despite the crisis.

“Every company is cost conscious and the SSC concept is a great and proven way to take cost out of the organization. Albeit new investments arriving to the country are slower than in the last few years, which is probably understandable,” Horváth added.

Remote Revolution?

CHRISTIAN KESZTHELYI

In the early 2000s, the then newly established offices were called shared services centers, the name implying that they shared mainly transactional activities within a group. Today they are often called business services centers; it is certainly the name preferred by the Hungarian Investment Promotion Agency to show that there are higher value added services provided with more business-related decisions.

“Nowadays, many centers try to differentiate themselves from the original structure of transactional SSCs, and they are called GBS (Global Business Services) to represent their global footprint, CoE (Center of Excellence) or even R&D centers,” Balázs Horváth, director of advisory services at KPMG Hungary, tells the Budapest Business Journal.

The general trend in Hungary is that transactional activities are either outsourced or are being automated, which in turn leads to the increasing number of value added activities coming within the scope of BSCs. With these tendencies, the SSC (or BSC) concept is continuously expanding its palette with complex

and the talent availability. However, COVID-19 has introduced some disruption in this regard.

“Today what matters is skill, skill and skill [….] and certainly safety, and resilience,” Horváth says.

Hungary’s SSC industry has seen a more than

Balázs Horváth “From a cost, talent and infrastructure point of view, however, Hungary is still a top destination with relatively large IT potential that will be key in the coming years,” the KPMG director adds.

During the last few years, the most critical differentiating factor between business services centers were costs

As the first wave of the pandemic hit in March, SSCs sent employees home in quick order and since then the majority of centers have been working remotely. As with any change in life, this comes with challenges and opportunities at the same time, as the KPMG director puts it. And change is coming, he says.

“It is hard to imagine that, once the crisis is over everybody will go back to work the same way as they did in 2019. In the short- and medium-term, companies will work remotely and are likely to grow in size and scope. In the long-term, I mean in a year’s time, the IT, automation, digitalization skills and safe business operations will make Hungary (or even one SSC vs. another) more competitive. European companies will think twice about outsourcing to Asia,” Horváth believes.

Working from home, however, does not represent that much of a disruption for employees working in many shared service centers as they are technically digital nomads.

Employees from many different nationalities work in the business services center sector. In this context,

working from home, or remotely, seems to be a viable option for anyone whose job does not require daily personal interaction with others.

“It is hard to imagine that, once the crisis is over everybody will go back to work the same way as they did in 2019. In the short- and mediumterm, companies will work remotely and are likely to grow in size and scope. In the longterm, I mean in a year’s time, the IT, automation, digitalization skills and safe business operations will make Hungary (or even one SSC vs. another) more competitive. European companies will think twice about outsourcing to Asia.”

It is hard to put precise figures on it, but it has been suggested that during the pandemic, many white-collars have at least toyed with the idea of moving to a Mediterranean or Caribbean island, and working from there. However, doing so may not be that easy.

“Today there is no clear regulation within the EU (not to mention globally) on immigration, taxation and from the legal point of view on how to treat home office or working from abroad. This may have an impact on the way we work today in the next few years,” Horváth concludes.

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PRESENTED CONTENT

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Business Service Centers in Hungary An investment-friendly business environment, a highly educated workforce and developed infrastructure: these are the factors that have contributed to the success of the business services sector (BSC) in Hungary, the Hungarian Investment Promotion Agency (HIPA) says.

NI: Think Globally, Act Locally to Inspire Tomorrow’s Innovators NI’s first overseas production facility was established in Debrecen in 2001.

The site has become home for global and regional service centers, such as an IT development department, legal and finance groups, and a shared service center. NI puts special emphasis on supporting young talents with different educational

programs, employee volunteerism and technology donations at both local and regional levels. Based on its educational cooperation with secondary schools and the University of Debrecen, NI provides unique internal and external training possibilities and high value-added knowledge to its employees.

transformation of corporate strategies and operational practices are essential.

2020 has

brought significant challenges, but it also represents new opportunities that the sector should be able to exploit, HIPA says.

Despite the COVID-19 pandemic situation, which has significantly transformed the world and affected all industries, the sector has remained stable and is performing well in these challenging times. Based on the survey responses, the digital readiness and strong IT infrastructure of Hungary enabled a smooth shift to working remotely while preserving the level of efficiency. However, BSC executives were forced to make quick decisions and to rethink the way they work.

COVID-19 is accelerating trends such as automation and artificial intelligence and has an impact on new job opportunities in IT and technology. The pandemic accelerated the shift to remote working as the digital world can support the transition with new tools and technologies. Working from home also raises the importance of telecommunications connectivity.

Ever-growing Demand

BBJ STAFF

In the last decade, Hungary has become one of the leading international hubs for business services within the Central and Eastern European region, with 131 companies employing 63,892 people. Based on the “Business Services Hungary 2020 Survey” conducted among sector representatives by HIPA in September 2020, it can be stated that the sector has reached a high level of maturity and complexity, while maintaining the ability to engage and retain talents and to continuously attract new investments.

The Hungarian BSC sector has performed outstandingly over recent years and has become one of the leading industries of the country’s economy. The continuous growth of companies and the number of their employees confirm the attractiveness of the sector. As its representatives continuously focus on broadening the scope of high-value added activities, there is much attention on talent management, innovation and educational cooperation.

In order to keep up with new trends and changed working conditions, both in the business services and labor markets, a smooth

ExxonMobil: Resilient in Excellence The ExxonMobil Center in Hungary was one of the first SSCs to be established in 2004. In all of the key functions (controlling and finance, IT, fuels and lubes operation support, and upstream), new opportunities continue to arrive, with more and more high value added jobs being established in Hungary.

The company proudly celebrated its 2,000th colleague in 2020, and expects further growth during 2021.

With such a mature organization, ExxonMobil’s center has successfully

expanded its impact in Hungary, with unique activities such as a global cybersecurity and investigation hub, and a data privacy office. There is further growth in digital, analytics and senior financial project advisory roles to enable digital process transformation and drive innovation across the corporation. With the migration of several technical leadership roles, the ExxonMobil Center has become a true global center of excellence and expertise for several reporting and accounting processes.

Meanwhile, fulfilling the ever-growing demand of new talent and retaining employees are fundamental for centers, which inspires greater focus on employer branding, innovation in recruitment processes and employer value proposition, besides the traditionally strong cooperation with major Hungarian higher education institutions.

Business services centers have also realized the importance of sector branding to successfully target future talents. Therefore, more and more collaboration between industry stakeholders and new promising initiatives have been launched to raise awareness and attractiveness of the sector for young people and foreign professionals, for example HIPA Career Networking events, the AmCham BSS Hungary project, and the Debrecen BSC Roundtable.

Special Report | 11 Roche: Special Focus on People With a Strong, Inclusive Culture Roche Services (Europe) Ltd. was established in Budapest in 2006.

The organization provides global support and consultancy through more than 1,200 experts to 120 Roche subsidiaries in finance, procurement, human resources, IT processes and digital publishing services. Eve Bader, general manager for Roche Services, has an instrumental role in leading the organization, driving the delivery of best in class customer-centric business services and developing the team to work towards a common vision with real enthusiasm and true human integrity. The number and diversity of the initiatives aimed at the wellbeing of employees are outstanding in the Hungarian market.

As the business service sector rethinks office space, it will have impacts on the future of cities and property. New opportunities may arise from COVID19 pandemic as companies move towards a hybrid operational model combining on-site and remote working, allowing more talent recruitment from Hungary’s regional university cities.

Furthermore, the need for quality and flexibility in office and residential space are climbing rapidly. New office layout trends are showing a higher ratio of common space for interaction between employees.

HIPA is committed to providing continuous support and professional management consultancy services for members of the sector and offers multiple incentives for BSCs operating in Hungary, such as a job creation subsidy, a cash subsidy for training purposes, and an R&D incentive.

Hungary’s business services sector has been able to maintain its competitive edge due to the fact that the country continuously provides a highly skilled workforce, high-standard offices and IT infrastructure, and a supportive and stable political and economic environment coupled with excellent quality of life.

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Special Report

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Budapest Business Journal | November 13 – November 26, 2020

COVID Highlights the Power of Personal Relationships Debrecen and on the Metro in Budapest), most recently with its “You, Here, Now” campaign targeted at the Generations Y and Z and their desire to live in the present. But it has also been involved in a joint program with many of its competitors to raise awareness of the sector and the type of careers it has to offer.

“I am really happy to say AmCham has made it possible for

The most important learnings BT (British Telecommunications) has drawn from the COVID-19 pandemic are that some functions that it never previously thought could be performed from home can work perfectly well and, perhaps more importantly, the need for personal relationships in maintaining engagement, says country general manager Zoltán Szabó.

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companies

to come together and act with one voice to promote the business service sector.

It is a unique cooperation. We believe what we can develop together adds real value in terms of raising industry awareness, and it has been a very successful program.”

Does Szabó have any concerns about the ability of the Hungarian education system to turn out the bright young talents the industry, and BT, needs?

“The appetite for a career at BT is certainly there,” he says, adding that every job is massively oversubscribed.

But finding the very best, those with the language skills, the ability to run a project, or solve a complex problem and communicate what they need, is more challenging.

ROBIN MARSHALL

“Video is still more personal than sending a mail,” Szabó, the head of BT in Hungary, tells the Budapest Business Journal. That personal approach is important for mental health and wellbeing as well as engagement in overcoming isolation.

In March, some 97% of the firm’s 2,500 employees in Budapest and Debrecen (230 km east of the capital) were ordered to work from home. Most are still there.

“During the summer, when the virus situation was not so bad, we had more people coming into the office, especially those who did not have kids at home, or who were working from home alone and wanted to come back for the contact,” he explains. Everything moved online, but Szabó says BT was anxious to avoid the easy trap of resorting to email.

“When you are in the office, you can email a colleague or wander over to their desk and ask them in person.

Now that opportunity was removed,” he says. “One way of trying to support colleagues was to reinforce the use of video calls as much as possible to avoid people feeling alienated.”

Managers have been encouraged to arrange virtual coffee breaks where they do not talk about business, but about how people are doing.

“These are not obligatory; you are free to jump in or jump out depending on what time you have. Personally,

Zoltán Szabó I organized meetings for our 200-strong line manager community, to make sure they knew what is going on and what is being discussed within BT.”

Motivational Speakers

Training and coaching sessions were also moved online, and not just covering business matters. Online yoga and fitness sessions were arranged, which people could follow from home.

The “Social Talks” series featuring motivational speakers, which had been held in person pre-COVID, continued in the virtual world with the like of threetime Olympic water polo champion Gergely Kiss. Attendance for these events is actually up, as people can drop in when they have time, which they might not have done in person for fear of causing a disturbance. Questions can be submitted ahead, and the talk itself downloaded for later if you cannot attend live.

As reported online by bbj.hu on October 12, BT has announced its service center staff in the Hungarian capital will relocate to a currently under construction ultramodern office complex in

July

2022

(see BT to relocate operations in capital to Budapest ONE Business Park). Does the success of home office mean BT might revisit its space needs?

Absolutely not, insists Szabó.

“In the long run, we do not think there is going to be any change in the amount of space we need. If we have to maintain social distancing for the next one or two years, we can only have half as many people in the office, so you could say we need even more square meters,” he points out.

“I passionately believe in the power of personal relationships. For our own mental health and wellbeing, we need to meet people, to talk with people. We are social animals, it is deep within our DNA,” he insists.

“I cannot imagine an organization of 2,500 people working from home longterm. If we want to have a network of 2,500 freelancers you can have a different view, but then we don’t have buy in to the shared company values. And we have so many fresh graduates joining us who we have to coach and train, and that is much easier to do in person.”

That is not to say that Szabó intends to abandon the idea of home office. “We had offered the possibility before the epidemic one day a week. I can imagine we might make that two days a week in the future, and for those roles where we hadn’t offered it before, but where we have now proved it can work, maybe one day a week.”

Raising Awareness

BT has been heavily involved in raising awareness of its own brand (through posters around the offices and on trams in

“I passionately believe in personal contact engagement and the power of personal relationships.

For our own mental health and wellbeing, we need to meet people, talk to people.

We are social animals, it is deep in our DNA.” The idea that Hungarians are in an international contest to find the most exciting career is not always understood, he believes.

“Youths in the Netherlands don’t have to be taught about global competition because they have been practicing it for hundreds of years, since they built their first ships and started sailing around the world. That understanding should be more embedded in education here,” Szabó says.

Such skills need to be taught, and not just at university and high school, but from the elementary level, Szabó believes. He is a career ambassador for AmCham, visiting schools to talk about his career and the sort of opportunities that are available, and this spring did something similar at the Future Hungary conference for Hungarian university students studying in the United Kingdom, discussing the sort of career options there are back home.

“We run 20 plus programs with universities and I am very passionate about these because this is about our future, and not just for this company or industry, but for this country.”

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Special Report | 13

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The Budapest vs. Countryside Equation in SSC Location Shared services centers, also known as business services centers, are among the largest employers in the country, but the importance of the capital can be felt in this sector, too. Although SSCs can be lured to the countryside, there are still many advantages to Budapest.

GERGELY SEBESTYÉN

SSCs in Hungary are increasingly voting in favor of large rural cities. The decline in the centrality of Budapest is more noticeable year by year; according to surveys, 82.83% of the workforce employed in the sector in 2013, and 84.76% in 2014, were in the capital.

By 2019, this figure was only 76.48%, indicating the development of a diversification strategy. Several provincial cities have consciously begun to attract these companies.

The SSC sector within Hungary was able to really gain ground in Budapest.

Seemingly ever more offices have been established since the 2000s, and today most of the more than 90 domestic SSCs are located here.

The very intensive demand for foreign language-speaking labor has reached such proportions that nowadays it is said that Budapest is “overheated”, which means that the demand significantly exceeds the supply. This started a spiral of wages and, in part to avoid this, a shift.

“In terms of having a center in Budapest or in a Tier 2 city, there is no significant difference in managing their operations, as BSCs are among the most digitized and digitalized workplaces in Hungary, and also worldwide,” Roland Ránki, director of the Hungarian Service and Outsourcing Association (HOA) tells the Budapest Business Journal.

It has been a trend for more than five years that Hungarian SSCs and BSCs are targeting rural cities, says Katalin Fritzné Szénási, the ideas manager of the SSC Szeged Project. In this university

city

175 km

southeast of Budapest, they mapped out what the service centers needed, and what would make the city attractive.

The answer was high-quality office buildings with as many foreign-speaking young people as possible, mainly graduates, an investment-friendly city management and good infrastructural facilities. The big cities in the countryside can certainly compete with Budapest, Szénási believes.

The rural university cities have an absolute advantage over other provincial towns because there must be a continuous supply of labor in the catchment area to meet the sector’s requirements in the long run.

Thus, the SSC Szeged project was established with the cooperation of the Szeged city municipality, the Faculty of Economics and Humanities of the University of Szeged, and Szeged Pólus Nonprofit Fejlesztési Kft.

Win-win

The project aims to establish business service centers in the city based on the foreign language skills of its population, thus creating a win-win situation; by providing quality positions, the SSCs help keep qualified young people in the city while getting well-educated employees, and the city also benefits, as retaining a skilled population earning above-average pay has a positive impact on the local economy.

As the world of SSCs is less well known in Hungary, there has been an emphasis on introducing the sector to the general public in addition to university students.

Young people are encouraged on several fronts, but the message is clear: confident foreign language skills (preferably more than one) increase the chances of finding a good quality job.

SSC modules are increasingly built into the education of students so they are “SSC compliant”.

Service centers are an attractive place to start a career anyway as salaries are higher than average, mentoring is emphasized, and there is ongoing training. There are quick career-building opportunities, either within the SSC you join, or other players in the sector, and this is a very important aspect of the wish list of job seekers leaving the university today.

“In terms of having a center in Budapest or in a Tier 2 city, there is no significant difference in managing their operations, as BSCs are among the most digitized and digitalized workplaces in Hungary, and also worldwide.”

Budapest runs into difficulties through the rising apartment and office rents in Budapest and labor shortages.

The rural cities, on the other hand, lack infrastructure, especially class “A” office space, to attract the relatively mobile SSCs from Budapest. This has become something of a chicken and egg scenario, which should come first, the SSCs or the infrastructure.

Budapest has seen a huge increase in prices. According to Balázs Horváth, director of shared services and outsourcing consulting at KPMG Hungária Kft., office rents on Váci út, one of main locations for SSCs, have risen from EUR 12.3 to EUR 14.3 per square meter over the past five years.

In the Váci út office corridor alone, at least 20,000 people work in the SSC sector.

But housing rents in Budapest have also jumped, taking an increasing share of the wages of those working here.

The Mobility Trap

Rural workers know that life in the capital is expensive, and therefore those who already own real estate are reluctant to move, as they either have to find somewhere to rent in the capital, or sell up their home and buy something much smaller.

With staff turnover in the sector quite high in Budapest (Horváth estimates

that

18-20%

of employees leave within a year of their own volition), SSCs in rural areas can turn this lack of mobility into a business advantage with lower employer fluctuation and lower wage expectations.

Unlike Budapest, there is also a significant labor reserve in most university cities. In Debrecen, Szeged, Veszprém or Pécs, thousands of students graduate every year, who already have some connection to the city, and know it would be cheaper and easier to start life locally than in the capital, if they could find a good job.

If municipalities or developers can provide class “A” offices in university cities, BSCs can provide the sort of career opportunities that will keep talents away from the “bright lights” draw of Budapest.

They, in turn, spend their disposable income at local businesses, and so the benefits trickle on into broader society.

That is a conundrum that seems worth solving, but it is also necessary to do so if the number of SSCs in the countryside is to really accelerate.

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Special Report

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Budapest Business Journal | November 13 – November 26, 2020

U.S. Financial Services in Budapest Drive Collaborative Competition Among the most valuable treasures of what Hungary’s government calls its “human capacities”, there has never been much doubt that mathematics skills have always ranked pretty close to the top.

Little wonder, then, that Budapest boasts four major international financial services firms.

ROBIN MARSHALL

Those four organizations, BlackRock, Citi, Morgan Stanley and MSCI, share two things in common beyond their sector: all are U.S.-head quartered and all are members of the American Chamber of Commerce in Hungary. The quartet even operate a joint project to promote financial services, and the careers it has to offer bright young Hungarians, whether they live here in the homeland or have moved abroad.

We brought the four leaders of these firms together to discuss trends on the market, a conversation that started, inevitably, with the impact of the COVID19 pandemic, which required a near total move out of the office at an unprecedented speed and scale.

As Michael P. Burch, managing director, country manager and head of Budapest at BlackRock Hungary puts it, what happened in March was a migration “from 16,000 people in 60 offices globally to 16,000 people in 16,000 offices.”

Shared Experience

That is a shared experience for pretty much all of us, with the exception of those involved in the manufacturing and hospitality sectors. What is perhaps more interesting is the path back to the office, and the effects of the second wave.

“BlackRock has been cautious to reopen its offices, but at the same time we wanted to ensure that employees have more flexibility to choose where to work from,” Burch explains. “Since

August, our employees can choose working remotely, at the office or a combination of the two. We are keeping strict social distancing measures, require frequent temperature checks and follow a one-way system when moving around the office,” he adds.

Caution, unsurprisingly, is a watchword for all. “While some staff returned to the office over the summer, under strict safety measures, we have continued to monitor the situation closely and in light of the increasing infection rate, remote working continues to be utilized broadly across our Budapest operation,” confirms Norbert Fogarasi, managing director and head of the Budapest office for Morgan Stanley. Ákos Janza, global head of offices and head of the Budapest office of MSCI, Inc., says an important area of focus has been boosting employee engagement across all of its 35 offices through virtual events, including a series of local townhalls hosted by the global CEO and executive committee, work-from-home training, and a home ergonomics program.

“We have also organized many virtual wine-tasting and trivia events to boost morale and keep employees connected during the pandemic,” he adds. “We currently have about half of our offices open, with roughly

10% occupancy,

where employees must follow social distancing procedures, wear masks and adhere to a number of other procedures put in place.”

of digital processes, online webinar events and personal contacts via the various meeting technologies that are available,” he says.

Flexible Options

Given the success of remote working, might that not lead to more flexible use of office space long-term? Fogarasi, at Morgan Stanley, says his firm has offered an increasingly wide range of flexible options to colleagues.

“Since August, our employees can choose working remotely, at the office or a combination of the two. We are keeping strict social distancing measures, require frequent temperature checks and follow a one-way system when moving around the office.”

“We expect that more of our staff will take advantage of the flexibility [….] in the wake of the pandemic, and significantly more working hours will be completed away from the office than in 2019.” But that’s only one side of the coin. Fogarasi also expects significant growth to continue in the coming years, which, he says, would normally require additional office space.

“We are also re-thinking how we utilize office space and have been on a ‘workplace evolution’ journey

Ákos Janza data analyses on all important aspects,” Murray says. Just as you would expect from a business dealing with numbers.

Balancing that same equation also rings true for Burch, who admits: “We don’t expect that BlackRock will ever be

100% back

in office at any given day. We expect to become more flexible in terms of a split model of working from home and being in the office.” None of which, he says, undermines the key elements of social interaction, collaboration and cultural connectivity.

“We are continuously exploring new opportunities around capacity management and the flexibility of a combined in-office and work-fromhome work operation to support our employees.” The office “creates a sense of belonging and an inclusive place where employees can meet, exchange ideas and develop new solutions in a collaborative way,” he adds.

since

2018.

The overall impact of all of these effects on our real estate strategy is unclear at this point, and it is a topic we are actively evaluating.”

For Murray, this is the dilemma of the technology meets social interaction equation. “I would posit that a major portion of our success was due to the many years we have spent working together, getting to know and understand how each of us operates, and what we might expect of each other in a crisis,” he suggests.

Data Driven

Michael P. Burch Kevin A. Murray, CEO of Central Europe for Citi, has often said that protecting employees is always Citi’s top priority. But the client also always remains a vital part of the communication plan. “We put a lot of effort in staying close to our clients and continue to support them in a seamless way through the enablement

“We are a work-from-office organization and eventually, we would like to return to our offices when the situation allows, perhaps with some additional flexibility to work from home or in some other distributed environment. Of course, today social distancing requires rearrangements of the office space but we are closely monitoring the situation locally, regionally and globally, and all our decisions are driven by detailed

“Next year will be more challenging as we will begin to feel the full force of the economic hits from global lockdowns in 2020,” he cautions, adding that “competition for new talent will increase in a post-pandemic era, once hiring picks-up again. Then things will get interesting.”

For Janza, this debate is shaping the future right now. “In the past few months, we held interviews, workshops, and focus groups with 300plus employees and it became clear, very quickly, that this pandemic will not just shape our culture, but also

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where we work. We use our offices to be productive, collaborate, and host in-person meetings. We believe a combination of office and remote working is the future.” That hybrid future will shape real estate plans and offices will become much more collaborative and open, he says.

Staff Levels

The key input into the office space calculation is staffing levels. Citi’s Murray is bullish, not least on the back of a year that has seen 50% higher recruitment rates despite COVID.

“We are also re-thinking how we utilize office space and have been on a ‘workplace evolution’ journey since 2018. The overall impact of all of these effects on our real estate strategy is unclear at this point, and it is a topic we are actively evaluating.”

“Next year will be more challenging as we will begin to feel the full force of the economic hits from global lockdowns in 2020,” he cautions, adding that “competition for new talent will increase in a post-pandemic era, once hiring picks-up again. Then things will get interesting.”

A similar tale is told over at Morgan Stanley. “Currently, we have a number of open positions and are looking for talented applicants in finance, risk analysis and technology fields. Feedback we have received highlights job seekers sincerely appreciate that career opportunities continue to be available at Morgan Stanley in this challenging environment,” says Fogarasi.

Janza says MSCI initially “planned for the worst to protect our clients and employees. However, our sales pipeline remained strong and client engagement remained robust and dynamic.

Nonetheless we remain cautious that the operating environment remains unpredictable. In any case, we continue to believe our all-weather subscriptionbased model will hold up well as it has.”

Burch admits BlackRock continues to have “ambitions to grow our Budapest presence further as we continue to be impressed with the talent we find locally. This year we have been doing selective hiring only and our focus was on adaptation and our current staff to get through this pandemic in the best possible way. For next year, we expect to continue to expand in Budapest by shifting the majority our 2020 growth plans to the 2021 post-COVID period.”

Competitive Colleagues

All four of our companies are competitors, not least, as Murray says above, when it comes to finding the best talents. Is their collaboration to promote the industry not somewhat at odds with that?

“The original idea was to promote working, living and studying in Hungary.

We wanted to promote our industry, to attract Hungarian professionals back from abroad, and to show foreign financial experts this amazing country,” Janza explains.

“We support leading sophisticated investors around the world through our investment solutions and tools.

We compete with other firms for talented professionals. Some of these competitors are also valued clients.

People interested in finance can and will find their dream position in Budapest,” he promises.

Burch argues that acting together gives the four firms greater reach. “Many Hungarians currently living abroad are looking to come back to Hungary, while many non-Hungarians have also realized that Hungary is a great place to live, have a family and a career. By cooperating on events (organized with Hungarian embassies in European capitals to attract Hungarians back to Hungary) jointly with AmCham and the Hungarian Investment Promotion Agency, we can have a positive impact not just for us as companies, but also for Hungarian society and the economy as well,” he adds.

“It is not usual at all if you consider our roots in the U.S. financial industry,” Murray points out. The main objective is to enlarge the pool of available talent for all. “We work together on projects, namely making people aware of jobs and careers in our industry; attracting Hungarian students and the diaspora back home, and interested parties to the attractions of a career in financial services and Hungary.”

Kevin A. Murray That’s a view echoed by Fogarasi, like Janza a Hungarian who has worked abroad. “When you take a step back, you can see our common interest is to be part of a thriving market ecosystem. We believe it is not enough that Budapest be a tech hub or a quantitative hub, we increasingly need it to be a financial services hub capable of attracting top talent across related fields. We’ve reached the point where we have to attract the right talent to Budapest from other markets.”

Special Report | 15 Evolution

All of the companies have seen major changes to their operations in Hungary.

Citi is the longest established, being one of the first major international banks to open its doors in the country 35 years ago. Since then it has added a Citi Solutions Center, in 2005, with 57 people in ID Administration and Finance.

“In total, over 2,300 professionals are working in our Solutions Center in Budapest in key areas of finance, HR, IT, quantitative analysis, risk and security, supporting 32 languages across

92

countries

Norbert Fogarasi

Diversity and Inclusion

Something else the companies share is making diversity and inclusion a priority, if only, as Burch says, because “it is critical to our success.”

All new joiners to his Budapest office participate in an initiative that helps employees understand how unconscious bias works and how to mitigate it. BlackRock is also investing heavily in local programs, for example offering opportunities for women with children to return to the workplace, and partnering with local NGOs to help to promote inclusion in broader society as well.

At MSCI, there are local branches of its global Employee Resource Groups, including the Women’s Leadership Forum, MSCI Pride and the Black Leadership Network, which organize events to raise awareness, educate, and connect people. The firm is also joining Hungary’s “We Are Open” NGO that promotes diversity and inclusion, and helps companies become more open by offering services, workshops, talks and consulting.

Morgan Stanley has a particular focus on promoting STEM subjects, particularly to girls, but it also has family-friendly campaigns to get mothers back to work, supports those returning from career breaks, promotes multicultural inclusion for the Roma community and raises awareness for the less abled.

Citi has a similarly broad palette, including a Reverse Mentoring Program which, Murray says, allows “different generations to freely interact and exchange ideas, get to know more about each other’s perspectives, goals, motivating factors and helps them to connect, breaking generational barriers and fostering understanding.” This, he feels, is critical to any success in operational resilience initiatives.

“We have, at one end of the spectrum, a group of employees that has seen it all and at the other end is a group who are very skilled at using technology to improve our response to problems, crises and the like.” He is also an active mentor in an international mentorship program supporting the development of female leaders.

and hosting one of three global Cyber Security Fusion Centers,” Murray reports.

BlackRock is at the other end of the spectrum, having opened it office three years ago. “One of our greatest achievements, of which we are very proud, is the development of emerging talents locally, who are taking over leadership roles across the region and even globally,” says Burch.

MSCI established its Budapest office 13 years ago. “Our focus was first on engineering and finance, then we expanded into financial research,” explains Janza. “Today, most of our 500 staff is directly contributing to product development, digitalization and high-value services.”

“The original idea was to promote working, living and studying in Hungary. We wanted to promote our industry, to attract Hungarian professionals back from abroad, and to show foreign financial experts this amazing country.”

Morgan Stanley was just ahead of MSCI, opening its Budapest office in 2006, initially as a mathematical modelling center with 30 employees. Over the past 14 years, technology and analytics have been added and it now employs around 2,000.

“Morgan Stanley has invested significantly in Budapest and the technology capabilities here, and many teams and core functions have now established themselves in Hungary,” Fogarasi says.

Our U.S. Financial Services Panel Michael P. Burch, managing director, country manager and head of Budapest at BlackRock Hungary; Kevin A. Murray, CEO of Central Europe for Citi; Norbert Fogarasi, managing director, head of the Budapest office at Morgan Stanley; and Ákos Janza, managing director, global head of offices, head of the Budapest Office of MSCI, Inc.

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HOA Supporting the Growth of the Business Services Sector

or operating model, while 23% want to make partial changes in the same. Now, the focus is on remote management of the workforce and this requires certain additional skills from the managers as well. It is very promising that 92% of the BSCs felt that they are prepared to properly handle the next wave(s) of the crisis and tackle further issues.

Hungary is a favored European destination for the business services sector, which provides support to businesses with the likes of foreign language technical helpdesks, office administration, hiring and placing of personnel, security services, and travel arrangements.

The Budapest Business Journal speaks with Richard Ránki, director of the Hungarian Service and Outsourcing Association (HOA), about the sector in Hungary.

BBJ: What online events are held for member companies?

RR: We were among the first entities to adopt this new way of working and event execution. Before the outbreak, we had organized five HOA Community Meetings (our knowledge-sharing events for employees of all levels from our member companies) and an international conference that we moved to digital platforms (the former) or postponed (the latter).

We organized our Community Meeting sessions with a variety of topics focusing on COVID-19 and its implications and effects on our community. But we also kept up with general topics (in many cases supplemented with new knowledge) that help the operations and widen the knowledge-base of the members and the entire community. We started the preparation our traditional annual benchmark study and report during the summer and we will soon publish and share the information gathered and classified in the form of an online event, as our HOA Business Services Gala 2020 has been postponed to a later date. We will also organize a two-day HOA Intelligent Process Automation Conference (iPAC) for the third time this year on November 19-20, using an online platform, where international and Hungarian experts share their knowledge and best practices with the audience. I would like to mention that HOA was among the first in 2018 in organizing such a conference dedicated entirely to the new trends of automation and digital transformation.

GERGELY SEBESTYÉN

Budapest Business Journal: One of the most dynamically developing sectors domestically has been business service centers. How this process is shaping up in 2020?

Richard Ránki: The business services sector, as we call it nowadays, has been through constant growth since 2005, the year HOA was established. Earlier, the growth was considered a consequence of the steady increase in the number of service centers. This growth slowed down in terms of center numbers in the mid2010s; over the last four or five years, since I have been working for HOA and managing the preparation and elaboration of our yearly Benchmark Survey and Report project (published since 2013), my team and I have observed that the growth can be attributed to the migration of the different service processes into business service centers (BSCs) in Hungary. During these years, 70-75% of the companies’ strategies focused on growth, and this growth mainly focused on the transfer and adoption of high value-added services and processes. Based on the study we are publishing for 2020 later this month, this rate is 72%, while 79% of the BSCs brought new services into their Hungarian units.

So, I would say companies are optimistic and are developing their operations and are executing digital transformation projects, in parallel with these processes and service migration projects.

Companies are widening their service portfolios both vertically and horizontally, putting productivity in the first place among their operational targets.

Richard Ránki BBJ: Which cities are the biggest competitors in the CEE region and how do they compare this year?

RR: Hungary is a mature market, with 66% of the BSCs having 10 or more years of operations in the country. Our most important competitors are Poland and the Czech Republic, also with well-established, mature markets. But, as we see the regional data and information, Romania, Bulgaria and, most of all, the Baltic countries are investing in the sector and are successfully attracting companies that would like to establish BSCs, as their governments have realized that proper investment promotion programs are necessary to attract this fastgrowing sector of the future.

BBJ: How hard did the first wave of COVID-19 and the related home office period hit the sector?

RR: Before the first quarter of 2020, the time of the COVID outbreak, BSCs had already been applying flexible work hours and home office (usually one or two days per week) in their modus operandi.

Thanks to this advanced operational mode (and having experiences with home office), the centers could easily switch their operations to work from home (WFH). After conducting a quick study on the effects of the first wave, company responses showed that before the pandemic, the ratio of WFH constituted 22% in their total labor hours. The switch was considered successful, reaching a 94% rate. Based on their experiences, companies responded that they would like to raise this WFH level to 48% after the pandemic is over, as productivity remained at the same level (and even improved in the case of some BSCs). At the same time, companies reported that the situation gave them a boost regarding digital transformation (according to 60% of the respondents); 75% of these either have full budget (25%) or partial budget (50%) for their automation projects. I should also mention that, although the transition to a higher level of home office was successful for the majority of the centers, 35% plan to overhaul their company governance

BBJ: Who are your members and what are the fees?

RR: Our membership consists of business services and other companies that provide business services to these centers or other clients: consulting firms, HR and recruitment companies, HR professionals, IT consultants and platform providers, law firms, training and educational companies or institutions, development offices of local authorities (mainly Tier 2 cities), SMEs providing business services, or individual members. Currently, our membership fees cover five categories and range from HUF 30,000/year (for individual members) to HUF 590,000/ year (the largest centers). The fees for companies are based on yearly income and/or number of employees.

We welcome all companies acting in our sector and offering business services, whether registered in Hungary or abroad.

Over the last four years, we were able to increase our membership by 50% (starting at 71 at the end of 2016 and reaching 106 members in 2019, HOA’s most successful year over its 15-year existence) and doubled our budget.

We will continue our journey on this path in the future and our vision is to be the first and number one official organization supporting and lobbying for the interest and development of the business services and outsourcing sector in Hungary.

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Budapest Business Journal | November 13 – November 26, 2020

PRESENTED CONTENT

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ExxonMobil’s Budapest Global Business Center Proving ‘Part of the Solution’ Lead country manager Jeroen Kirschbaum tells the Budapest Business Journal what it is that makes Hungary such a great location for international SSCs, and talks about the new “world-class” office and ExxonMobil’s COVID learnings.

BBJ: When do you expect to be back at full strength in the office?

JK: The safety and well-being of our employees remains the number one priority, so the return to office approach depends on the virus situation and government regulations. We have provided ergo equipment for home offices and extra screens for productivity, but also have the safeguards in place to offer a safe working environment in the office and thus can provide employees a flexible choice.

Previously we have given employees full flexibility to work from the office or work from home, at their discretion. However, with the current situation in Hungary, we have recommended employees to be a good corporate citizen and stay home as much as possible.

BBJ: Do you see any threats to this? Are you happy that the education system, for example; can it continue to produce the number of skilled workers you need?

JK: It is critical to remain competitive, both in terms of skills and costs. Hungary is well positioned to be a global leader in shared services, but will need to deliver in key focus areas for the sector, such as digital transformation and innovation, and make meaningful progress in the evolution towards “intelligent enterprise” services.

This is where the partnerships with HIPA and AmCham are really important.

BBJ: How do you see the future of the SSC/BSC sector, in Hungary and globally?

JK:The sector has matured a lot over the past decade. For example, we currently have more than 12,000 years of collective ExxonMobil experience in Hungary. This is enabling the attraction of more senior and higher complexity roles to Budapest. There is also a lot of opportunity as the pandemic is accelerating the “virtualization” of work.

While the value of in-person relationships remains high, technology and tools are making it easier to partner with customers and colleagues across geographical boundaries, better positioning Hungary to be the heart of business operations across Europe and even globally.

BBJ STAFF

BBJ: ExxonMobil has signed to move into purpose built new offices. When is this due, and has the COVID crisis caused you to review your space needs at all?

Jeroen Kirschbaum: We’re excited to move to a new world-class facility in the Váci Corridor early in 2022. In terms of COVID learnings, flexibility seems to become even more important. We have the unique opportunity to incorporate such insights in the design of the new building, such as the importance of optimizing the space for collaboration, learning, and innovation.

Special Report | 17

Jeroen Kirschbaum BBJ: Will any staff be offered the possibility of permanent or part-time home office work?

JK: Our Workplace Flexibility program has always provided a lot of flexibility for employees. That said, there will be many learnings from the COVID work situation that will inform the future of work and we’re committed to find a balance that incorporates the “best of both worlds”. While there are benefits from the home office, many employees also long for the connections in the workplace and ability to collaborate with colleagues and friends. We are convinced that the workplace has tremendous benefits for collaboration and is instrumental in retaining a high performing organization.

BBJ: What makes Hungary and the region attractive as a BSS destination?

JK: Over the past 16 years, ExxonMobil’s global business center has significantly matured and is now at the heart of many

processes across the company’s worldwide operations. Ongoing successes in a business friendly environment have continued to drive work to Budapest, recently reaching the milestone of the 2000th employee.

In addition to a highly skilled and welleducated workforce, the organization has demonstrated the capability and competencies to drive synergies across processes and enable digital transformation.

We have a diverse and loyal workforce of more than 80 different nationalities, and more than 500 employees with more than 10 years of experience with ExxonMobil.

Hungary remains cost competitive, enabled by the strong working relationship between government and business through organizations such as the Hungarian Investment Promotion Agency and the American Chamber of Commerce in Hungary. The language capabilities and access to customers around the world further supports our presence in Hungary.

Pillar – New home of ExxonMobil’s Global Business Center from early 2022.

BBJ: What efforts are you involved in to raise awareness of both the sector and ExxonMobil?

JK: Our Global Business Center has become a trusted partner within our corporation, with more and more high added value, sometimes unique jobs coming to our center. We have an integrated, robust employer branding and recruitment strategy and extensive university ambassador program, through which we are engaging with students already at the universities. We have launched our own ExxonMobil Hungary Facebook site and external website. We are also putting a lot of focus on internal communication, involving our employees, who are our best advocates. We are participating at various initiatives, such as the BSS project managed by AmCham.

BBJ: What are ExxonMobil’s future plans for Hungary?

JK: We have a long term commitment to Hungary and are excited about the future opportunities. While the oil and gas industry is facing challenging times, the team in Hungary is well-positioned to increase the competitiveness of the Corporation. With that, we have concrete plans to expand the scope and scale of roles in the near future.

Inclusion and Diversity (I&D) Committee drives inclusion across its team of 80+ nationalities.

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SSCs Operating at top end of Office Market human resources, payroll, IT or purchasing), which could be considered a way of outsourcing, but within the global network of a company. Business process outsourcing (BPO) is a method of subcontracting similar business-related operations to third-party vendors.”

Budapest-headquartered developer Eston International Zrt. says of Hungary, “The expansion of SSCs and BPOs are highly supported by lower employment costs paired with adequate professional qualifications (i.e. university degree and foreign language knowledge) as well as developed infrastructure and high quality modern office stock. Also, Hungary has a decent coverage in terms of high speed internet and mobile networks. In terms of locations, Budapest is the main target of such operations along with larger towns where universities are located.”

The Váci Corridor is generally regarded as an excellent SSC location that has transformed District XIII in the last

Shared services centers and business process outsourcing, now often referred to as the business services sector, have become one of the major industries in Hungary and one of the main drivers of success for Hungarian and Central European office markets.

20 years.

GARY J. MORRELL

The first SSCs came to Hungary in the 1990s and the industry has expanded rapidly over the last two decades, creating employment opportunities and enabling high quality office complexes to be developed, which in turn upgrades the infrastructure and attracts investors.

Central European governmental agencies such as the Hungarian Investment Promotion Agency have successfully been promoting their respective countries as quality but cost-effective SSC destinations, and there are now around 120 such centers operating in Hungary according to KPMG. SSCs are increasingly undertaking increasingly complex functions beyond a merely administrative role such as R&D. Tenants therefore require more sophisticated specifications and higher sustainability accreditations, thus companies are looking to source centers at offices at the very top end of the market.

The ratio of SSCs/BPOs in the total take up of the Budapest Office Market in 2019 was 25% according to Nikolett Püschl, leasing and development manager at Atenor Hungary.

Thom Barnhardt, organizer of the annual “CEE Business Services Summit & Awards” in Warsaw, estimates that, based on various research reports from organizations such as the European Business Services Association and the Hungarian Outsourcing Association, as well as real estate agencies,

40-50% of

Central Europe and Hungary office demand/take up is from SSCs/BPOs. “The SSC sector is a key component of demand in the office sector and a vehicle for inward investment across CEE,” he comments.

From a demand perspective, SSCs and BPOs are widely regarded as one

Balance Hall of the major components of demand in the Budapest office market.

“The profundity of talent base and affordability of labor are key drivers. The amount of competent human resources obviously correlates with the size of the destination country and the actual city,” says Balázs Simonyi, leasing director at CPI Hungary.

“On the other hand, smaller countries with a centralized geographical location and easy accessibility, like Hungary, can become a kind of regional hub of talents by being attractive enough to temporarily relocate to,” he adds.

Complex Definitions

A definition of what constitutes an SSC has become more complex as the sector has developed. According to the Hungarian and Polish portal, SSC Heroes, the difference between BPOs and SSCs is essentially the question of whom the services are provided for.

SSCs are not third party service providers but service providers to their mother companies. In a BPO, a third party provides specific services to a company on a contract basis.

“Shared services centers are also called business services centers (BSCs), centers of excellence (CoE), and global business services (GBS). They all share characteristics of being so-called ‘captive’ business-services centers providing services (finance and accounting, operations, HR, client services, etc.) to their parent company,” says Barnhardt.

“These are usually focused on the EMEA region but often services are provided globally. BPOs, on the other hand, provide these same services but to external clients.

Names such as TCS, Wipro, WNS, Luxoft come to mind. They are intensely focused on improving processes so that they are as efficient as possible,” he says.

“Perhaps the biggest change – or trend – is the move to automate these whitecollar processes. RPA companies like UiPath and AutomationAnywhere have soared to multi-billion dollar valuations as they have been able to offer software services that extract

additional

20-80%

of costs savings from these businessservices processes,” Barnhardt explains.

“Also the services inside SSCs are evolving to include areas like R&D, legal process outsourcing, medical services – imagine a doctor in Budapest reviewing X-Rays for a London-based insurance claims company – and graphic design at scale. And of course digital/ tech/IT services. As the global digital infrastructure continues to improve, new areas will emerge,” he adds.

From a real estate perspective the basic requirement has been that there is a stock of well-located class “A” office space with a premium on public transport links, interiors and well-being and, latterly, interior organization undertaken with regard to the coronavirus. Companies are prepared to invest in a better working environment and implement an active design and layout that potentially increases employee productivity.

Take-up

“In general, I would say around 25% of the total CPI Hungary portfolio take-up is by SSCs/BPOs. The actual figure is very different based on the characteristics of the given building.

We have locations, schemes which are predominantly attracting such organizations,” comments Simonyi.

He defines an SSC as “an entity responsible for the execution of specific operational tasks (such as accounting,

The South Buda area has also been attracting demand.

In the Váci Corridor, the international pharmaceutical company Roche Services (Europe) has established its headquarters at the 14,000 sqm Nordic Light, designed by Paulinyi & Partners Zrt. The office has more than 1,000 employees and provides global support and consultancy to more than 120 Roche subsidiaries in finance, procurement, human resources and IT processes.

“The services inside SSCs are evolving to include areas like R&D, legal process outsourcing, medical services – imagine a doctor in Budapest reviewing X-Rays for a London-based insurance claims company – and graphic design at scale. And of course digital/ tech/IT services. As the global digital infrastructure continues to improve, new areas will emerge.”

The pharmaceutical industry has, by its nature, done well in the health crisis, but others, however, such as hospitality SSCs have been negatively impacted by the pandemic. That said, all SSCs have been forced to take on elements of home working and the technical, property management issues this involves.

Sustainability accreditations have become a basic market requirement and are by now integrated into the office design.

Thus Roche, developer Skanska, Paulinyi & Partners and the owner of Nordic Light (the property was pre-sold to the South Korean investment trust, JR AMC) spent a year cooperating on the design of the complex.

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“We are together committed to the environment and innovation along with the health and safety of our employees as well as partners.

Nordic Light Trio, our first project to be WELL certified, was designed and built to offer qualitative characteristics to benefit the body and mind,” says Alexandra Tomášková, EVP of operations for Hungary and the Czech Republic at Skanska.

“Geographical distance between the client (whether internal or third party) and the service provider could become a much stronger consideration in the future.

I expect the tendency to be that these service operations are re-located to CEE countries from more distant locations like, for example, India.”

“Bicycle parking, showers and lockers for bikers along with a multifunctional public garden and green terraces encourage physical activities as well as opportunities for relaxation,” she says.

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Open-space

With regard to the impact of the coronavirus on the SCC sector, Simonyi of CPI argues that there are tendencies like the hybrid-use of blending home office with normal operations or the fading dominance of open-space configurations.

“Thus, we must wait to see another 8-12 months to have the representative amount of experience. I believe we are on the right path; therefore, we only have to keep up the good work. Legislation should support that the country can attract more and more talents from the region. On the other hand, governmental subsidies should stay and be extended wherever it is possible. As far as the ample supply of quality office schemes goes, I am quite positive that will not prove to be the bottleneck.”

Atenor’s Püschl sees the key country requirements of SSCs/BPOs as a sufficient availability of well-educated, multi-lingual people at the lowest possible labor cost. The country should be able to provide tailor made incentive offers and should have competitive labor market and tax regulations.

Further, the location and accessibility of the country as well as good infrastructure are very important. Therefore, university cities are the most preferred locations, with direct access to public transport and a well serviced micro environment.

The base criteria for the building and its property management should be class “A” or “A plus” with efficient, modern technology, green certification and wellbeing solutions. COVID-19 has brought health and safety aspects and smart business solutions more into focus.

Nordic Light Trio Barnhardt argues that higher education is the core foundation for attracting SSCs and BPOs. After that, governments need to reward employment and be careful that their social security costs on top of labor costs do not become too excessive.

Both Hungary and Poland have sought to decentralize SSCs away from the capital city to secondary cities with great results. In Hungary, Debrecen stands out as a winner, partially because the local government is aware of the big potential of SSCs. Another key area is making sure that the digital infrastructure is world-class.

“I believe the pandemic has put these service in a new perspective in terms of sustainability of operation.

Some locations have proved to be more resistant than others. Also geographical distance between the client (whether internal or third party) and the service provider could become a much stronger consideration in the future. I expect the tendency to be that these service operations are re-located to CEE countries from more distant locations like, for example, India,” concludes Simonyi.

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20 | 3

Special Report

www.bbj.hu

Budapest Business Journal | November 13 – November 26, 2020

Shared Service Center Operating Companies pROCuRement

SaleS

Client management

OtHeR

exteRnal

inteRnal

bOtH

fleWxible WORk HOuRS

paRt-time WORk

WORk fROm HOme

62,495

–

–

–

–

–



–

–



A A

A

A

A

bp buSineSS SeRviCe CentRe kft.

2,686

36,655







–





–



–

52 2.50







220 2009

– BP Global Investments Ltd. (100)

Jamie anderson, viktor knezevics – –

1133 Budapest, Árbóc utca 1-3.

(1) 866-6300 hungary@bp.com

2,500

A

–

–

–

–

–





–

–

60 12







200 2001

– Tata Consultancy Services Ltd. (100)

prabal datta Sachin Makwana Edit Bencsik

1117 Budapest, Alíz utca 4.

(1) 886-8000 hungary.marketing@ tcs.com

2,490

27,674 (2018)



40 4

– BT (Netherlands) Holdings B.V. (100)

zoltán Szabó Attila Szűcs Máté Fazekas

1117 Budapest, Budafoki út 91-93.

(1) 777-0850 bt.roc.communications@ bt.com

–

A A

– Citibank Holdings Ireland Ltd. (100)

veronika Spanarova, Jane ellis, károly kodaj Márk Szentpáli Smid Beáta

1138 Budapest, Váci út 80.

(1) 374-5000 –

–

A A

– ExxonMobil Petroleum & Chemical B.V. (100)

Jeroen kirschbaum – Ágnes Zoller

1139 Budapest, Váci út 81–85.

(1) 344-3400 BudapestGBCCommunication@ exxonmobil.com







2007

– Vodafone International Holding B.V. (100)

dóra debreczeni, adrienne benedek, yapici Cevdet Yapici Cevdet –

1087 Budapest, Hungária körút 40–44.

(70) 460-8000 –







2004

– IBM Europe B.V. (100)

edina drabik Andrea Szőke –

1092 Budapest, Köztelek utca 6.

(1) 777-1055 info@hu.ibm.com

– Genpact Luxemburg S.A.R.L. (100)

Jymmy-alin Soar, Sorin-gabriel popescu – –

1036 Budapest, Bécsi út 52.

– communication.europe@ genpact.com

– Nokia Solutions and Networks Oy (100)

balázs kökény, erzsébet tóth, béla zagyva – –

1083 Budapest, Bókay János utca 36-42.

(20) 977-7797 nokia.hungary@nokia.com

– UNISYS Interntaional Services B.V. (100)

norbert makk – –

1062 Budapest, Váci út 1–3.

(1) 298-9000 ugshadmin@unisys.com

tata COnSultanCy SeRviCeS ltd. magyaRORSzági fióktelepe

planned neW WORk fORCe HiRed in H1, 2020 yeaR eStabliSHed

HR

4,694

www.bp.com/hungary

3

aveRage WORk entRy peRiOd (dayS) aveRage nO. Of eduCatiOnal dayS peR yeaR

finanCe

deutSCHe telekOm it SOlutiOnS (1)

COmpany WebSite

www.deutschetelekomitsolutions.hu

2

available WORk COnditiOn CHOiCeS

tOtal net Revenue in 2019 (Huf mln)

1

Client diviSiOn (%)

SeRviCe aReaS

nO. Of emplOyeeS WiORking fOR SSCS On auguSt 1, 2020

Rank

Ranked by no. of employees working for SSCs

A

2006

www.tcs.com

4

5

bt ROC kft.

www.facebook.com/ BTCareersHungary

Citibank euROpe plC. magyaRORSzági fióktelepe/Citi SOlutiOnS CenteR budapeSt

2,200

A















–

–







–

–

–















A

2007

A

1985/2005

OWneRSHip (%) HungaRian nOn-HungaRian

tOp lOCal exeCutive CfO maRketing diReCtOR

addReSS pHOne email

– Deutsche Telekom Group (100)

erik Slooten Katalin Riedl Ollárné –

1097 Budapest, Tóth Kálmán utca 2/B (1) 456-5400 fmb-ts-itsh-info@ t-systems.com

www.citibank.hu

6

exxOnmObil ÜzletSegítő közpOnt magyaRORSzág kft.

1,840

47,129





–

–





–



A

A

A

A

2003

www.exxonmobil.hu

7

vSSb vOdafOne SzOlgáltató közpOnt budapeSt zRt.

1,700 (approx.)

18,412











–

A

A

A

A A

1,691

22,596







–



–

–

–



A A







A

www.vodafone.hu

8

ibm HungaRy inteRnatiOnal SHaRed SeRviCe CentRe kft.

A

www.ibm.com

9

genpaCt SeRviCeS HungaRy kft.

1,000 (approx.)

17,107









–



–



–

A A

nOkia SOlutiOnS and netWORkS kft.

950 (approx.)

38,034







–

–

–

A

A

A

A A







879

9,226

–

–

–

–





A

A

A

A A







www.genpact.com

10

www.nokia.com

11

uniSyS magyaRORSzág kft. www.unisys.hu

A

2018

A

2006

A A

3

www.bbj.hu

SaleS

Client management

OtHeR

exteRnal

inteRnal

bOtH

fleWxible WORk HOuRS

paRt-time WORk

WORk fROm HOme

601

226,367











–

–

–



90 44







4,225 (2)

–

–

–

–







–

–

A A







A

A

A

www.eaton.com

Special Report | 21

planned neW WORk fORCe HiRed in H1, 2020 yeaR eStabliSHed

pROCuRement

aveRage WORk entRy peRiOd (dayS) aveRage nO. Of eduCatiOnal dayS peR yeaR

HR

eatOn enteRpRiSeS (HungaRy) kft.

finanCe

12

available WORk COnditiOn CHOiCeS

tOtal net Revenue in 2019 (Huf mln)

COmpany WebSite

Client diviSiOn (%)

SeRviCe aReaS

nO. Of emplOyeeS WiORking fOR SSCS On auguSt 1, 2020

Rank

Budapest Business Journal | November 13 – November 26, 2020

OWneRSHip (%) HungaRian nOn-HungaRian

tOp lOCal exeCutive CfO maRketing diReCtOR

addReSS pHOne email

25 2000

– Cooper Industries Trading Unlimited (100)

ian bryce yule, ivica Rajkovic – –

1123 Budapest, Nagyenyed utca 8–14.

(1) 328-6868 istvanlenk@eaton.com

– CPL Resources Ireland Holdings Limited (100)

Simone Olivo Katalin Gombos-Cziria –

1062 Budapest, Teréz körút 55.

(1) 501-5460 budapest@cpljobs.hu

– IBM Global Financing Investments B.V. (100)

giorgi Chikhladze, maria Chumachenko – –

1138 Budapest, Népfürdő utca 22.

(1) 777-2111 info@hu.ibm.com

13

Cpl JObS kft.

600 (approx.)

14

ibm Capital HungaRy kft.

500 (approx.)

10,828



–

–

–

–

–

–

–



A A

15

CelaneSe magyaRORSzág kft.

447

5,322











–

–

–



60–90 6







20 2007

– Celanese Corporation (100)

istván katona Zoltán Nagy Zsuzsa Kovács

1134 Budapest, Váci út 80–84.

(1) 672-7400 –

lexmaRk inteRnatiOnal teCHnOlOgy HungaRia kft.

344

4,602











–

–

–



A A



–



20 2008

– Lexmark International Technology Sárl (100)

péter Csucska Levente Barát Alexandre Cole

1095 Budapest, Lechner Ödön fasor 8.

(1) 501-7200 karrier@lexmark.com

300 (approx.)

2,588







–

–

–

–

–



A A



–

–

– KCI Europe Holding B.V. (100)

alain noel Simonnet – –

1132 Budapest, Váci út 22–24.

(1) 880-2501 –

261

NA



–

–

–





–



–

A A

–

–



– Thermo Fisher Scientific (100)

miklós koczor – Réka Juhász

1134 Budapest, Váci út 43.

(1) 686-1000 facility.budapest@ thermofisher.com

200 (approx.)

2,187

–



–

–

–



–

–



A A



–



2016

Randstad Hungary Kft. (100) –

michael Smith, lívia tóth – –

1138 Budapest, Dunavriág utca 2–6.

(30) 836-5364 info@ randstadsourceright.eu

2011

– AGCO International Holdings B.V. (100)

emese Szakács – –

1117 Budapest, Alíz utca 4.

(1) 882-8300 Lilian.Seres@agcocorp.com

Arconic Európai Keréktermék Kft. (A) Arconic Luxembourg S.á r.l. (A)

balázs gábor, zsuzsanna ilona varga – –

8000 Székesfehérvár, Verseci utca 1–15.

(22) 531-200 erika.sas@arconic.com

– ES Hague B.V.AES Hague II B.V. (A)

zoltán Czibók, krisztián kovács – –

1114 Budapest, Bartók Béla út 43-47.

(1) 279-8000 cegugyek@hp.com

www.cpljobs.hu

www.ibm.hu

www.celanese.com

16

www.lexmark.com

17

kCi HungaRy kft.

18

tHeRmO SeRviCeS kft.

19

RandStad SOuRCeRigHt kft.

www.acelity.com

www.thermofisher.com

www.randstadsourceright.com

NR

agCO HungaRy kft.

A

6,601









–



–



–

A A







NR

aRCOniC-köfém mill pROduCtS HungaRy kft.

A

A







–





–



–

A A

–





dxC teCHnOlOgy magyaRORSzág kft.

A

26,646

A

A

A

A

A

A

A

A

A

A A

A

A

A

www.agcocorp.com

www.arconic.com

NR

www.hp.hu

A

2009

A

2016

A

2010

A

2018

A

A

A

1941

A

1991

nOteS (1) Previously IT Services Hungary Kft. that now operates as Deutsche Telekom Systems Solutions Hungary Kft. and Deutsche Telekom IT & Telecommunications Hungary Kft. (2) Data of business year July 1, 2018-June 30, 2019.

4

www.bbj.hu

Budapest Business Journal | November 13 – November 26, 2020

Socialite From Deák tér to Kálvin tér; a Synchronistic Exploration For some reason, my wanderings around Budapest in a southerly direction from Deák Ferenc tér never seem to extend any further than Kossuth Lajos utca, which runs down from Astoria to Erzsébet híd. So I was delighted to have a reason to cross over Kossuth Lajos and head into unknown territory.

Protestant Reformed Calvinist Church at Kálvin tér, Budapest. Photo by frantic00 / Shutterstock.com

DAVID HOLZER

I’d arranged to interview John Szabó, brother of the great Hungarian jazz guitarist Gábor Szabó (about whom I wrote in the Budapest Business Journal of August 2, 2019) for a book about Gábor I’m writing. John was staying on a narrow side street off Kecskeméti utca, a leafy street of cafés and bars that runs down to Kálvin tér.

My immediate feeling on crossing over Kossuth Lajos was that I was entering into a rather more tranquil zone of Budapest. Although, with things as they are at the moment, most of the city – never truly bustling at the busiest of times – is pretty quiet.

I was early to meet John so stopped for coffee at the Madal Cafe on Hollán Ernő utca. Ordering my drink, I was surprised to see a shelf of books by Indian spiritual teacher Sri Chinmoy.

For the life of me, I couldn’t figure out what Sri Chinmoy had to do with artisan coffee. In my experience, Hungarians aren’t especially interested in following exotic spiritual teachers, especially in coffee houses. I wondered if Madal wasn’t an innocent-seeming honeytrap.

Sitting in the café, drinking pretty good coffee, I googled Sri Chinmoy. From what I could tell he was a decent fellow, not likely to stoop to sinister strategies to recruit devotees.

When I googled Madal, I found that Sri Chinmoy was the spiritual teacher of Péter Repka, the café´s founder.

The musician Carlos Santana was a devotee of Sri Chinmoy throughout the 1970s. He is also a great admirer of Gábor Szabó. This is the kind of synchronicity that appeals to me. I sent a mental note

to myself to tell John Szabo about Madal when we met, but promptly forgot.

Walking to meet John, I passed the best wreath shop I’ve ever seen in Hungary – or indeed anywhere. It was a week or so before the Day of the Dead, so the walls of the shop were lined with wreathes made of all kinds of combinations of dried flowers, berries and pinecones. Pride of place was given to a somewhat avant-garde wreath made from stems and ears of wheat, lavender and something that smelled lemony.

I also passed an intriguing Italian restaurant named Trattoria Siciliana La Coppola and made another note to myself to check it out.

Raffish Figure

John was waiting for me outside the Starbucks at the end of Kecskeméti utca, taking the opportunity to sneak a crafty cigarette. He was wearing shorts and bedroom slippers and cut a raffish figure among the soberly dressed office workers.

I spent the afternoon interviewing John about his and Gábor’s lives in Hungary before they escaped, separately, to Austria in 1956 and then together to the United States. When we finished, John walked with me back up to the Starbucks, smoking another cigarette.

He told me he grew up on Kossuth Lajos utca and chuckled when he remembered his chemistry experiments in the family apartment. He managed to make a form of mustard gas that promptly filled the room in which he was experimenting. Gasping, eyes streaming, he opened the window. He laughed when he remembered his horrorstruck neighbors running for cover into

their own buildings as clouds of orange smoke billowed down the street.

John also remembered being shot at by a Russian soldier back in ’56, not far from where we were standing. How could you not?

“A tank appeared in the street and stopped. The lid of the gun turret opened and a young Russian guy appeared out of the top with a machine gun. He just started firing, as casually as if he was watering the garden with a hose,” he said.

“A tank appeared in the street and stopped. The lid of the gun turret opened and a young Russian guy appeared out of the top with a machine gun. He just started firing, as casually as if he was watering the garden with a hose.”

“My friend and I ran into a shoe shop and hid in the storeroom. I remember thinking that if he came after us with the machine gun, cardboard and leather weren’t going to stop those bullets.”

Idyllic Existence

Despite this, the Budapest John grew up in until he was 11 and the family escaped was very safe. His mother thought

nothing of him hopping on a bus and going out to play in the hills above Buda. He made it sound a thoroughly idyllic existence.

That night, my partner, her sister and I headed to Trattoria Siciliana La Coppola. It was surprisingly full.

Our food was perfectly satisfactory, although I didn’t discern anything particularly Sicilian about it. But, as we were finishing our main course, the waitresses appeared with bowls covered with the delicious artisanal flat bread we’d been eating and hurried them over to a table celebrating a birthday.

I asked the waitress what the dish was. She told me it was the specialty of the house, some sort of seafood, maybe clams, in a white wine sauce with pasta covered with the bread.

It looked fantastic.

It’s always bitter-sweet when this happens, when you peruse the menu as closely and scientifically as you can only to miss out on what’s clearly the best dish. On one hand, you’re so full there’s no space for anything else. But, on the other, you have a great reason to go back to the restaurant.

And so it was that we left Trattoria Siciliana La Coppola and escorted my partner’s sister down Kecskeméti utca to the Kálvin tér end so she could get her bus over to the Buda side.

Strolling back to our hotel, I decided, a little guiltily, that, while there’s no question that Budapest is a sadder place without the hustle and bustle of tourists, it does feel especially romantic for being so deserted.

4

www.bbj.hu

Budapest Business Journal | November 13 – November 26, 2020

Socialite | 23

Etyek: Proximity, Pioneering Practices and Perfect Pinot With 30 plus wine cellars, Etyek, part of the EtyekBuda wine region, has much more going for it than just being close to the Hungarian capital, as the members of the Etyek 360 association showed at a recent tasting in Budapest; quite likely to be my last tasting for a while.

ROBERT SMYTH

Electric acidity is the essence of Etyek, and a number of producers are conveying it nicely to make vibrant whites, tense traditional method sparkling wine and the occasional impressive red, as was the case at the tasting held at Kóstolom Borbár on October 28.

The charming, sleepy town of Etyek, which lies just some 30 km west of the capital, is not only a winemaking town, but also a filmmaking one. It isn’t a winery that you’re likely to spot first coming up in the distance as you approach from Budapest, but rather the huge Sándor Korda Film Park.

With its remarkably convincing papier-mâché sets having depicted everywhere from the medieval Italy of the Borgias to modern Brooklyn, and its enormous indoor studios having hosted an array of films, including

Bladerunner

2049,

“Etyekwood” may seem an odd place to introduce a wine region.

However, it is from there that you can see a cross-section of the white calcareous soil that dominates the Etyek-Buda regions and its wines and get a feel of the rolling countryside.

While international stars strut their stuff at the studios, Etyek is also noted for international “A”-lister grape varieties, Sauvignon Blanc, Chardonnay and Pinot Noir, rather than local talents.

Another key vantage point, where several of the leading wineries are located, is Öreghegy (literally “Old Hill”). If you do find yourself up here, look out for the tall communal grape press, located next to the Báthori dűlő (vineyard). It is named after Tibor Báthori, who was voted only the second Winemaker of the Year by the Hungarian Wine Academy, back in 1992. A memorial plaque to him on the vineyard itself notes that “he channeled the birdsong into wine.”

Tongue-tingling

There’s usually a strong breeze blowing in Etyek; add in the white calcareous soil, which is mixed with loess and chernozem, and the conditions are ripe for making vibrant (mainly white) wines with tongue-tingling, almost buzzing acidity and fresh aromas.

Grapes on the vine in the fall in the Hungarian Etyek-Buda wine region. Photo by Photo69 / Shutterstock.com It comes as no surprise that the EtyekBuda region has a strong sparkling wine tradition. Törley makes a huge amount of sparkling wine from Etyek-Buda, while smaller producers are gradually adding sparklers to their range, some of which are made in the traditional method.

The Etyek 360 tasting opened and ended with sparklers. Made by Áron Szövényi, Anonym Pince’s Összhang Brut (HUF 6,335 from boresmas.hu) is a blend of 85% Chardonnay and

15% Pinot Noir

from the 2014 and 2015 vintages. It was made from three base wines, and it spent a year in oak, followed by two years of bottle ageing on the lees for the secondary fermentation.

It has nice creaminess from the oak and the interaction with the lees which also gives a nice touch of brioche, but it still has plenty of primary fruit.

It is pleasantly and thirst-quenchingly dry with just 3 g/l of sugar.

Having seen it ageing patiently in the bottle while guiding visitors to the gorgeous cellar on Öreghegy, it was nice to finally get to taste Hernyák Birtok’s traditional method bubbly. Hernyák Extra Dry has persistent and powerful bubbles that cut through the sweetness and a complex herbal note.

When it comes to the still stuff, Etyek has long been associated with Sauvignon Blanc, although Chardonnay is also rivalling its fellow French varietal as the flagship grape with some taut and focused expressions of the grape. Hernyák’s Chardonnay 2018 hits the right balance between freshness and richness.

Anonym’s Frazír 2019 (HIF 3,190 from onlinebor.hu) comes from three harvests to capture everything from fruity freshness and acidity from earlier picking as well as riper notes from keeping the grapes out longer.

Indeed, it is nicely balanced, and although a very typical Sauvignon with

green pepper and fresh cut grass aromas, it is also suitably restrained and doesn’t give it all on the nose, but saves plenty of punch for the palate.

Experimental Etyek

Etyeki Kúria is well-known for making excellent fresh, stainless-steel vinified Sauvignon (the 2019 costs HUF 2,390 from Bortársaság) that does everything the grape variety should, yet in a refined manner. This time, however, the cellar brought along a Sauvignon Blanc made in a very different style.

MSP Fumé 2018 (HUF 3,100 from etyekikuria.com) comes from Etyeki Kúria’s experimental limited-release series, made by winemaker Sándor Merész, who is given the chance to let his creative juices run wild with this series, which also includes a wild-fermented Sauvignon.

The wine has a whiff of buttery oak that makes it the polar opposite to the winery’s reductively made standard bearer. It was fermented in a stainlesssteel tank and then rested for six months, and was then transferred to a

1,000 liter

flexcube with staves of French oak for another six months, followed by a year of bottle ageing.

It proved to be a polarizing wine at the tasting but is definitely worth trying for its unique interpretation of Sauvignon, one in which you can still feel the grape’s characteristics if you look for them, but with a more textured palate than is usually the case with the grape.

Good Pinot Noirs were poured by Haraszthy Pincészet and Rókusfalvy Birtok, but Etyeki Kúria demonstrated why its take on the Burgundy grape is considered probably the finest in the country, with its Pinot Noir Válogatás (Selection) 2015 (HUF 7,200 from Bortársaság). The grapes came from various Pinot clones from Etyek’s Nagy

Látóhegy vineyard and 50% of it was aged in new French barrels. The oak use is just perfect here, as it brings nice nuances to the wine without blocking out the Pinot character.

Give this wine a chance to breathe, as is necessary with most older vintages, as it initially had a slightly closed medicinal herbal note, but it soon opened up to reveal delicious red fruit, pomegranate, plum and a delightfully fresh mintiness, with a harmonious and very long and lingering finish. Just 1,500 bottles of this wine were made by blending from the most impressive barrels of the regular Pinot 2015.

-9%

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