Hungarian stakeholders, however, are standing their ground.
Sentiment in the electronics industry isanything but rosy. The December 2024 global survey of the trade association IPC found that the new orders index had remained in contraction for the fourth consecutive month, demand had weakened, and shipment and capacity utilization had both slipped lower.
Most firms report ongoing increases in labor and material costs, and the impact of potential tariffs represents at least a moderate concern for nearly seven out of 10 companies.
But to what extent is that sentiment shared in the Hungarian landscape? Geopolitical unpredictability is clearly an issue when it comes to business planning at Z Elektronika. As development manager Gyula Ulrich explains to the Budapest Business Journal, the sluggish growth of the German economy has had an obvious ripple effect on its operations.
“We can’t influence material costs, unlike the large multinational enterprises that trade in raw materials, as we deal with assembly and we offer engineering services,” he says. However, this combination gives them an edge in times like these. “We never wanted to be the cheapest; the idea was to attract clients based on our capabilities and the complexity of our services.”
Gábor Ozsváth, sales director of Elas Kft., identifies another hot topic: labor cost increases: “It’s an issue all across Europe, with certain non-EU countries still offering ultra-low-cost environments,” he notes. What is more Hungary-specific, though, is that employees here want to see the extreme impact of inflation be fully compensated, and desired raises are much higher.
A leading domestic distributor of electronics manufacturing equipment in the country, one major trend identified by Elas is that a substantial chunk of manufacturing volume is being shifted to the Far East.
“We can’t see just yet what locally made products there would remain demand in the longer run,” Ozsváth says.
Given that electronics is sneaking into pretty much everything, many companies with no previous experience have jumped into manufacturing. However, these new projects tend to have limited volume.
“It’s unclear how many of those products could be scaled up to numbers that are standard in automotive,” the Elas expert notes, adding that another phenomenon is that production capacities now primarily aim to cover local needs.
Supply chains are not immune to such developments. They are adapting rapidly, with a growing number of producers from the East lining up. In electronics manufacturing services, Asian newcomers can grow more quickly because they are new to the game. The market won’t get bigger, however; only the number of competitors will expand. Those fresh rivals will, by necessity, take market share away from local stakeholders, Ozsváth observes.
The pandemic forced companies to reconsider their supply chain routes and lengths, and, as a consequence, nearshoring is ongoing. Ulrich stresses, though, that there is fierce competition for these returning capacities, with suppliers driven into a price bidding war.
Given their greater market maturity, Hungarian companies are more expensive than their Serbian or Bulgarian counterparts, although they have a slight cost advantage compared to Polish firms. Z Elektronika is counting on the power of branding, not just prices.
“You need to sell something different, something unique that includes design or redesign, for instance. That’s how you stand out,” Ulrich says.
Ozsváth complains of the unfair advantage Chinese firms enjoy; they can offer equipment at unrealistic prices thanks to lavish state subsidies. But he also has longer-term concerns.
“We just never learn from previous damage. Once things are back to normal, the cost issue pushes to the forefront again, businesses search for the cheapest solution, and they might end up with a high-level exposure, like before,” he concludes.
The cut-throat race in electronics manufacturing keeps pushing companies to their limits to find new ways of building resilience. The latter can be attributed partly to a large client pool at Z Elektronika, which might be tough to handle but pays off in a sluggish market. Low exposure to automotive also helps. Development manager Gyula Ulrich sees enormous potential in productivity increases.
“You need to make your production measurable, which requires data collection. The same tech is up for grabs for all, so you can gain an edge only in capacity utilization and cutting the time to switch from one product to another,” he says.
Gábor Ozsváth, sales director of Elas Kft., says his firm is building on its training programs on top of its core activity. The company is a dominant knowledge hub, which has helped it overcome obstacles multiple times.
“We realized that giving our partners a hand to solve their problems enhances their loyalty, which is bound to materialize in more purchases. We mustn’t give up our faith in that,” Ozsváth says.
The firm also showcases its portfolio at regional trade fairs like InnoElectro in Budapest (the 2025 edition will take place from April 8-10). It says a presence at such events has never been more critical.
Tariffs certainly have the potential to make executives reconsider their corporate strategy, especially after the world learned that, in President Donald Trump’s dictionary, it is “the most beautiful word ever.” Gábor Ozsváth, sales director of Elas Kft., believes that since those eventual tariffs would concern exports to the United States, it won’t affect prices of equipment distributed by Elas given the company is active in Hungary and Serbia. Such actions typically trigger countermeasures, though, that are likely to stir up the market. As a contract manufacturer, Z Elektronika wouldn’t count on a significant impact since tariffs will be integrated into the final products’ price, and its work phase would not be concerned. Furthermore, according to development manager Gyula Ulrich, if the Americans need something badly that we produce, we won’t be able to cut prices further, resulting in a “take it or leave it” situation.
This article was first published in the Budapest Business Journal print issue of February 7, 2025.
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