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Crisis cements primacy of expat CEOs

Although there was a minor decline in the number of expat CEOs in 2010, according to the Budapest Business Journal’s Book of Lists, about half of the largest companies in Hungary are still managed by foreigners. Industry experts do not expect a breakthrough on this front any time soon.

In the first three months of this year, many big companies in Hungary announced changes at the top of their management – but these moves rarely involved Hungarian experts, with new foreign CEOs taking over the reins from the old ones in nearly every case. “Indeed, we haven’t seen many replacements at large companies in the last few years where a foreign CEO was succeeded by a Hungarian one,” János Prihoda, general manager of Inter Relocation Kft said, confirming the BBJ’s findings.

In the BBJ’s article on the same topic a year ago, industry insiders forecast a change in the trend within four to five years; now this is likely to be further delayed.

Trust your own

International companies usually employ their own people as top executives at subsidiaries for three reasons: trust, specialized knowledge and company culture, András Lipcsei, managing director of executive search company Dr. Pendl & Dr. Piswanger International Kft and managing partner of Interim Management Resourcing Kft said.

Where trust is the main reason, it is not likely that the parent company will allow a local to take over the reins, as they only trust in their own people. If the position requires specialized knowledge, the expat CEO will either return to the parent country or move to another subsidiary in another country after the knowledge is successfully transferred to a local professional. In the third case, when the company needs to set up its own culture, it is also likely that after a while, locals will replace expats.

“However, in the current economic environment, even the latter two are not likely to happen any time soon,” said Lipcsei. “Due to the crisis, several international companies were forced to cut costs. But instead of making their executives redundant, they sent them to their subsidiaries, thus slowing down the process of Hungarian professionals taking over these positions.”

Prihoda believes that a turning point will not come for at least another four or five years. But nonetheless, the fact that a fairly large number of Hungarian managers are going abroad to gain knowledge in their areas is a promising sign for the future, as once they return they will have a better chance of taking over leadership positions from foreigners. However, it is important to note that it will probably remain a question whether these managers will actually want to return to Hungary at that time, considering the rising labor mobility within the EU and beyond.

Money matters

But the current slowdown is not only because of the lack of confidence from the parent companies’ side, and cannot be explained with the shortage of good Hungarian professionals, Prihoda noted.

While some expat CEOs asked by the Budapest Business Journal a year ago said that foreign executives are more competitive than their Hungarian counterparts due to their professional knowledge and leadership credibility, that is not always the case, Prihoda claims. He believes that there are many good professionals in Hungary, but there is one factor that greatly influences the job market when it comes to selecting top management.

“I think that good professionals are more likely to seek opportunities abroad, and one of the reasons for this is the difference in salaries,” Prihoda explained, noting that this greatly narrows down the choices of companies when looking for a replacement in their top management.

Salary gap

“A Hungarian professional will never reach the same salary level at a multinational company in Hungary as an expat,” he said. “So it is quite understandable that a good local professional with experience in a given sector will seek a regional position at the company. For the same position, a Hungarian subsidiary may offer, say, a net salary of HUF 500,000, but in Austria or Germany, the same manager could get a net HUF 800,000 – HUF 1 million.”

Referring to a recent appointment of a Polish CEO to the Hungarian subsidiary of a French automotive company, Lipcsei drew attention to an interesting tendency that has recently become visible on the international labor market.

“There is an increasing number of expat CEOs appearing in Hungary who come from Central and Eastern European countries. Due to Hungary’s past role as regional leader, Hungarian managers achieved success in making regional careers sooner than their CEE counterparts; but by now, other countries in the region have caught up, and the migration of CEE top executives has started as well,” Lipcsei said.

Patricia Fischer