hat do a major international automotive manufacturer and one of the world's top-selling furniture companies have in common? Recently, both decided to spend huge sums of money on new corporate facility projects in Hungary, a rapidly emerging destination for multinational investment.Daimler AG's Mercedes A and B class car production plant in Kecskemet in Eastern Hungary will be constructed on 450 hectares (1,112 acres) by 2011. The greenfield investment of €800 million* is expected to generate 2,500 jobs.
Swedwood Furniture Ltd., the Hungarian unit of IKEA International, built a new factory in Sopron in Western Hungary at an estimated cost of €22.7 million. The investment added 20,000 sq. m. (215,285 sq. ft.) and created more than 100 jobs.
ITD Hungary, the Hungarian Investment and Trade Development Agency, has been assisting FDI projects like these since its establishment in 1993. The agency focuses particularly on recruiting and assisting high value-added FDI projects in knowledge-based technology sectors, including life sciences, information technology, high-level R&D, renewable energy, automotive manufacturing and electronics.
Since its inception, ITD Hungary has participated in approximately 40 percent of new foreign investment projects throughout the country. In a recent interview with Site Selection, Csaba Kilián, the CEO of ITD Hungary, listed Hungary's best location advantages for business operations:
"Hungary offers several advantages to foreign businesses, but among the most important is its strategic location in the heart of Europe," says Kilián. "Hungary is among the best 10 European countries where skilled labor is available. That is, executives of large, mainly multinational companies feel that hiring skilled labor is not a major issue compared to several other European countries."
Competitive In More Ways Than One
The Global Competitiveness Report of the World Economic Forum has ranked Hungary 23rd out of 130 nations that were evaluated as part of the study on overall economic competitiveness.
"According to Ernst & Young, Hungary is ranked fifth in Europe in terms of jobs created by FDI, receiving 8 percent of the new jobs in Europe in 2008," says Kilián. "Much of that is a consequence of Hungary's reputation for having a well-trained, creative work force, with a high ranking in R&D activity, particularly in the fields of computer science, engineering and software."
Hungary also offers several cost advantages. "The average office rents in Hungary are still much lower than in Western Europe," notes Kilián. "As compared to the average of the EMEA countries, average rents in Hungary are at least 13 percent lower."
In the same Cushman & Wakefield study, Hungary also had one of the lowest average industrial rents in Europe.
The cost to build new space is less in Hungary too. According to the Economist Intelligence Unit, construction costs for light industrial space were US$840 per sq. m. ($78 per sq. ft.) in Hungary — about 30 percent lower than the price in the average Western European country.
Hungary also boasts one of the lowest corporate tax rates (19 percent) in all of Europe.
Finally, Kilián says, the incentives available to expanding companies in Hungary are quite generous. "An investment of a large enterprise, depending on the location, can be entitled to receive state subsidies of up to 50 percent of the eligible costs of the investment, and up to 70 percent for SMEs," he says.
This investment profile was prepared under the auspices of ITD Hungary. For more information, send e-mail to email@example.com. On the web, go to www.itdh.com.
*At press time, the exchange rate was €1=US$1.3535.