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German Companies Helping Hungary Move up the Value Chain

Analysis

Audi Hungaria, celebrating 30 years of business and investing in Hungary, has just set up a subsidiary here to handle procurement, IT and finance matters for Audi and, with time, the wider Volkswagen Group.

It seems German companies continue their love affair with Hungary. Their affection is also showcased by the data of the Hungarian Investment Promotion Agency, which has been busy guiding ambitious developments on Hungarian soil at its standard high frequency.

German investor activity shows no sign of diminishing, as evidenced by the statistics of Hipa. The 18-month period from 2022 through the first half of 2023 witnessed the closing of 29 deals worth more than EUR 2.1 billion to create more than 6,200 jobs. Not surprisingly, automotive was top of the chart, but pharma was also in the spotlight, not least thanks to Schott’s EUR 76 million investment to set up a new production site for pre-fillable syringes.

“Germany remains the strongest investor nation in Hungary, accounting for more than 21% of the total FDI stock. We are pleased that long-time clients such as Mercedes-Benz or Siemens decide to reinvest from time to time, and there are always new companies on the radar for whom Hungary appears as an investment location,” Hipa CEO István Joó says.

Indeed, the agency’s recent project pipeline has been full of German-related announcements. To list but a few examples, automotive supplier Kirchhoff will invest EUR 50 mln to extend its capacities, Siemens’ new production hall broke ground in Budapest as part of a series of investments worth EUR 70 mln thru 2025, and Thyssenkrupp is boosting competitiveness by establishing new engineering capacities.

BMW Group’s new high-voltage battery assembly unit also deserves a mention. It will be added to the company’s iFactory site in Debrecen to support the on-site assembly of the fully electric Neue Klasse model generation.

Based on Hungarian Central Statistical Office data, close to 2,500 German-owned businesses employ some 216,000 people all over the country. Hipa guided 187 related projects between 2014 and the first half of 2023 worth a combined EUR 9.5 bln.

Engineers Wanted

Among the most recent announcements from German businesses, many are concerned with upskilling and ramping up R&D competencies. Bosch is a prime example. About a year ago, after the Bosch Budapest Innovation Campus was inaugurated, the company broke ground on an R&D and testing hub next to the ZalaZone proving ground (234 km southwest of the capital by road), Hungary’s autonomous and 5G testing stronghold. The EUR 11.4 mln investment will provide work for 200 engineers in the fields of self-driving, e-mobility and artificial intelligence.

The latest announcement from the German giant came in early September and relates to a large-scale expansion of its plant for automotive components in Miskolc (185 km northeast of Budapest). The investment will strengthen the company’s development activities, including competencies and manufacturing infrastructure. It will also create even stronger synergies between product and process development activities and production areas.

In the R&D field, it will strengthen its activities in developing a new generation of eBike powertrains and the field of air conditioning motors, circulating pumps and valves for the automotive industry. The investment is worth EUR 12 mln and will create 60 new jobs. Of these, 45 will be reserved for highly educated staff.

In addition, the capacity of assembly lines for a new generation of several product types will be expanded, such as air conditioning blower motors, engine cooling fans, and eBike drives. That latter part of the project will account for EUR 36 mln.

Celebrating its 30th anniversary in Hungary this year, Audi Hungaria Zrt. is increasingly thinking about knowledge-focused investments in line with the ever-expanding services activities it has been rendering in the past 15 years.

Value-added Subsidiary

Part of the not strictly production-related activities, such as procurement, IT and finance, have been transferred to Audi Hungaria Ahead Kft., a subsidiary founded earlier in February. The procurement team oversees strategic procurement, value engineering, supplier management, scouting and qualification.

The Győr-based IT experts provide a range of SAP, software development and DevOps (software development and IT operations) services for nearly 200 companies, while financial professionals assess and process accounts of some 10,000 suppliers and support the liquidity management of Audi AG.

Given that Audi Hungaria Ahead plans to increase its services volume heavily, it has announced a new Hipa-supported training program for its 500 staff who can participate in professional, non-professional and language courses in the next two years. The knowledge and competencies to be mastered are expected to boost company competitiveness in knowledge-based services.

“Alongside our manufacturing activities, we have systematically built up our service activities to keep pace with the transformation of the automotive industry and to adapt our business model to meet the challenges of the future,” Patrick Heinecke, director of finance, IT, procurement and compliance at Audi Hungaria and a member of the supervisory board of Audi Hungaria Ahead Kft. said at the announcement.

“Audi Hungaria Ahead Kft. brings together our high value-added services in the areas of procurement, IT and finance, which create real added value for our customers. Our aim is to expand the range of services we provide to the Volkswagen Group by further enhancing the expertise of our employees,” he added.

Investor stories such as this all point in the same direction. German businesses are here to stay and typically aim to help their local operations move up the value chain. All of which is good news for Hungary.

This article was first published in the Budapest Business Journal print issue of October 6, 2023.

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