Hungarian businesses are not yet ready to think the unthinkable.
“Don’t talk of the devil.” That was the reaction of most companies when asked by the Budapest Business Journal whether they have a contingency plan for the partial or complete breakup of the eurozone. They were either puzzled –shocked even – or said that such a thing would not affect the sector they operate in. Sadly, they are probably mistaken there.
As a small, open economy, Hungary is extremely vulnerable to external shocks. The escalation of the eurozone debt crisis would pose serious risks to Hungarian businesses due to the country’s deep integration with western European markets. The BBJ believes that preparing such a contingency plan is not such a wicked idea and might even be prudent. Let’s just hope that in the end, it turns out to be an unnecessary precaution.
According to The Economist, such planning is not just a matter for companies in threatened economies on the periphery. “Even a partial breakup would be catastrophic for companies throughout the eurozone, and pretty dire elsewhere in Europe’s single market. New currencies would have to be introduced. Panic would seize the banks on which companies depend for funding. Economic growth would hit a wall,” wrote the paper.
As the Chinese proverb says, the more you sweat in peace, the less you bleed in war. The more prepared a company is now, the less its business will be thrown into disorder in a crisis.
Videoton: thinking about the shouldn’t-be-thinkable
It is a serious question whether a responsible business should prepare contingency plans or not, Ottó Sinkó, co-CEO of industrial group Videoton told the BBJ. On one hand, such a plan could in itself raise havoc. The more significant the market player that prepares the plan, the higher the probability is of the given scenario becoming real. On the other hand, in case a business starts contemplating low-probability contingency plan, it will be unable to make optimal decisions.
The Videoton group is one of those Hungarian companies that live in symbiosis with the economy of the EU in more than one area, such as in the automotive sector, Sinkó said. The company’s major markets are among the countries that are not yet threatened by the crisis. Therefore, he does not think it is necessary yet to prepare a contingency plan for a post-euro Europe.
“I believe that conservative operations and thorough risk management are the main strengths of the group,” Sinkó said. “There is not one issue that we would not dare contemplate. Whatever happens, we have to ensure continuous production in line with current demand and adapt to the changing conditions as quickly as possible.”
He believes that Videoton is prepared for the deepening of the crisis, should this happen in Hungary or abroad. First of all, the group has significant liquid reserves. As its stock of deposits considerably exceeds the stock of loans, a significant decrease in liquidity would have a lesser impact on the group.
In addition, the sector the group operates in adapts quickly to changes in customer demand even during ‘peacetime’. The company has further developed this ability during the 2008-2009 crisis. “Therefore, we can react to possible negative changes from a better than average position,” he added.
NordTelekom: efficiency enhancements
A partial or total breakup in the eurozone would only indirectly affect the operations of NordTelekom, chairman of the board Mihály Gácsi told the BBJ. As a result of the economic downturn, solvent demand could drop, even for internet services, the cheapest form of entertainment available for almost anybody.
NordTelekom, as a public company listed on the Budapest Stock Exchange, has continuously improved the efficiency of its operations since the beginning of the crisis in order to be in a sound financial position and be better prepared in case of the escalation of the crisis.
NordTelekom continuous to examine potential company and client acquisition targets in the telecom sector, as further consolidation is expected in Hungary’s telecom market in the wake of the economic crisis, says Gácsi. To finance further business developments, the owners of NordTelekom decided to launch a maximum HUF 900 million bond program in October. NordTelekom recently purchased the clients and assets of telecommunications company Beltáv.