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6 Strategy for the development of Hungarian enterprises
In the interests of convergence, it is essential to switch over from an extensive growth path to an intensive growth path. Therefore, one of the key elements of the reform path presented in Chapter 3 is the improvement of productivity. In a market economy, the corporate sector is expected to generate productivity growth. This chapter examines how the Hungarian corporate sector can achieve annual average productivity growth of around 4.0 percent on the reform path. If the objectives indicated in this chapter are reached, the labour productivity of small and medium-sized enterprises will double, with an annual average increase of nearly 6 percent in their per capita output. The productivity of large corporations will rise by more than 40 percent by 2030, corresponding to annual average growth of 3 percent. In addition, the objectives described in this chapter contribute to increasing the capital–labour ratio, boosting the investment rate of companies, narrowing the gap between GDP and GNI, and maintaining the current account surplus. Moreover, they support the rise in the employment rate.
Due to their weight in employment and value added, small and medium-sized enterprises constitute the most important target group for the development of enterprises. In the case of this group, the most important task at present is to ensure the more efficient use of capital and labour via the mobilisation of growth reserves. Firstly, the structure of the Hungarian small and medium-sized enterprises sector is extremely fragmented, and thus the domestic SME sector does not sufficiently utilise the advantages stemming from economies of scale. According to our calculations, if a more concentrated SME structure came into being, the productivity of the SME sector would be more than 20 percent higher. Secondly, Hungarian SMEs also use the already available advanced technologies to a lesser extent. Therefore, the stronger penetration of available technologies alone would also significantly stimulate the performance of Hungarian small and medium-sized enterprises.
One long-term objective is to create an entrepreneurial ecosystem that significantly contributes to the revival of the economy and the increase in its flexibility. This means the most important task is to achieve growth in companies’ research and development expenditures, both in terms of quantity and efficiency. As far as innovation is concerned, it can be established that Hungarian small and medium-sized enterprises are considered low innovators in a European comparison. In Hungary, only 1 out of 5 SMEs is engaged in innovation, while the corresponding figure for more developed European countries may even be twice as high. This lag is attributable to various factors, the most important of which are the shortcomings in entrepreneurial culture and the lack of willingness to cooperate between companies and higher education institutions. In addition, a number of studies have verified that entering foreign markets and joining international production chains are important innovation incentives for SMEs. Participation in foreign trade entails higher corporate employment, labour productivity and total factor productivity, and exporting and importing enterprises are more competitive both in the external and domestic markets. Based on our estimate, around 10,000 new exporting companies would allow for a major increase in productivity.
Considering that Hungary’s integration into global value chains and its economic openness are remarkable in a European comparison as well, the macroeconomic benefits of the foreign-owned companies that are already active in or that will come to Hungary in the future as well as the relevant spillover effects should be maximised. Empirical data show that if the main sectors of the economy produce with high import use, an economy with low internal value added creating ability will come into being. Therefore, it would be expedient to support the knowledge-intensive services sectors, which may simultaneously increase the ratio of domestic orders in the national economy as a whole, and within that in manufacturing production as well, stimulating value-creating ability and productivity. In addition, instead of the earlier sectoral focus, modern development policy should strive to support technologies that fit into global developments. Finally, we analysed Hungarian companies’ opportunities abroad and came to the conclusion that in Hungary’s broader region there is room for Hungarian investment or in certain cases even for the outsourcing of partial tasks.
