A Unique Bond Forged by Uninterrupted Investor Activity

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EQB, the first fully electric car manufactured in Hungary at Mercedes-Benz’ Kecskemét plant, October 2021.

When France sneezes, the rest of Europe catches a cold, Austrian Chancellor Metternich said in the 19th century, referring to how French political developments impacted other European nations back in the day.

In Hungary today, the phrase might be used in the context of relations with Germany to highlight to what great degree Hungarian growth depends on whether or not Germany booms. What shape are business relations between the two countries in nowadays? The Hungarian Investment Promotion Agency offers a detailed picture of the current conditions based on its data and case studies.

If you want an overall impression of Hungary’s current investment landscape, just take a look at HIPA’s press event calendar. It provides a snapshot of projects through corporate announcements and, hence, reflects current investment trends. Roughly two-thirds of the items in early fall 2022 feature the events of German-owned companies; the ratio was pretty similar earlier in the spring. An accident it is not; it’s part of a clear pattern.

Being the largest investor nation in Hungary, Germany accounts for around 21% of the total FDI stock, with more than 2,700 German-owned businesses employing 225,000 people in the country, according to the Hungarian Central Statistical Office (KSH). They include giants like Bosch or Thyssenkrupp and more traditional family-owned, Mittelstand SME ventures such as OBO Bettermann or Kostal. And they tend to show an equal level of activity; in fact, all those mentioned above have made different project-related announcements this year.

The German presence in the automotive sector is particularly strong; Hungary is the only country in the world apart from China that can pride herself in hosting production sites for all three of the most significant German OEMs, namely Audi, BMW and Mercedes-Benz.

Like their fellow German investors in other industries, these three behemoths are here to stay, as showcased by a solid reinvestment pattern. Mercedes-Benz, for example, recently announced a more than EUR 1 billion investment as yet another sign of its long-term commitment.

The focus will be on further flexibilization of production lines, digitization and sustainability. In fact, Hungary’s first all-electric production vehicle was produced at the Kecskemét factory site, which plays an ever-bigger role in the global production network by integrating new models into series production. Among other things, a new assembly and body-in-white (the pre-painting stage of the assembled auto frame) line are being built to pave the way for producing a new model of the all-electric MB.EA platform from 2025 on.

However, German investors are active in many other sectors beyond automotive. Between 2014 and the first half of this year, HIPA guided 171 companies from Germany, generating investments worth EUR 7.86 bln and creating 32,000 jobs.

Trail Blazer

One such was a project by Krones, a global market leader in the manufacture of fully integrated packaging and bottling line systems, which decided to settle in Hungary in 2017. It chose Debrecen for its location, a decision that is a welcome piece of local history for the city, as it was the first significant multinational company to make the move. It marked the start of a new industrial era, and Krones was the very first business to move into the Southern Industrial Park, recalls the managing director of Krones Hungary Kft., Zoltán Kocsis.

For Krones, the factory was its first in Europe outside of Germany. Since then, Debrecen has become something of a regional FDI hotspot, and Krones’ EUR 49 million investment has clearly paid off.

“Our expectations became a reality: we have already overshot the previously planned headcount, signed strategic agreements with vocational training centers and the universities of Debrecen and Miskolc,” Kocsis says. “Now Krones Hungary is not only the second pillar of European production for Krones AG, but we found a home here.”

The company is looking forward and looks likely to follow the example of the majority of fellow foreign investors guided by HIPA to go for reinvestment.

“That’s no secret that our current 40,000 sqm production area is only half of our whole plot, so we have room for more capacities here,” Kocsis notes. “We have a proven track record of ramping up a greenfield production plant.”

This optimism is based on skilled employees, a crisis-proof product, and a service package that contributes to every second bottled drink in Europe and every fourth globally. The Hungarian unit is an essential piece of the puzzle as it aims to fulfill ever-increasing European demand.

Chart Toppers

German investors in Hungary typically top the charts in every major category. Between 2014 and 2021, they consistently ranked among the top three job creators and were responsible for the highest number of HIPA-guided deals, with the exception of 2014.

This high level of activity is coupled with the ability to adapt to changing circumstances. The global supply chain disruption is the latest issue that demands such flexibility. A worldwide shortage of semiconductor components particularly impacts automakers like Mercedes-Benz. The OEM is confident the situation can be handled, although a prognosis about when the supply bottleneck would be cleared is not possible as yet.

“We are going to intensify our coordination on production planning with our direct suppliers as well as with the semiconductor suppliers in order to make the system more robust in the future,” a statement from Mercedes-Benz Manufacturing Hungary Kft. says.

“Together with our suppliers, we work to secure capacity and further develop the technology to enable new generations and availabilities. This includes more concrete agreements on supply quantities, extended planning cycles, as well as the development of a safety stock at various points of the supply chain and multiple supply sources.”

For Krones Hungary, the shortening of global supply chains could open new horizons.

“We have already built a young and agile team of more than 35 engineers to provide a strong basis for the relocation of further engineering and design functions to Hungary, but there are multiple scenarios discussed,” Kocsis explains.

All in all, despite past, current and possible future turbulence in the economy, the managing director is full of optimism. He believes that the future of Krones in Debrecen is bright, a stance shared by fellow German investors who have repeatedly placed their trust in the local economy regardless of the economic outlook.

This article was first published in the Budapest Business Journal print issue of October 7, 2022.

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