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Automotive: ‘More Electric, Autonomous, Connected and Shared’

The importance of the car sector to Hungary’s economy is underlined by a survey of its market players undertaken for the first time by the Hungarian Investment Promotion Agency, the results of which are due to be unveiled at HIPA’s annual Automotive Conference on May 29.

“We decided this year we would prepare such a survey, first of all due to the importance of the sector, and to understand the impact on the competitiveness of the Hungarian entities of these players from all those external factors that are happening now in the automotive industry and in the economy in general,” Róbert Ésik, the president of HIPA, tells the Budapest Business Journal in an exclusive interview.  

Just as importantly, the study also aimed at helping the agency be able to “come up with policy advocacy proposals and also to understand the development plans of these companies”. Ésik says HIPA was able to involve close to 50 companies, employing more than 100,000 people, out of the total automotive workforce of 172,500, meaning more than 50% of the employment base is covered.

And automotive really is vital to the economy. Aggregate figures from 2016-18 show nearly EUR 5 billion in automotive investments, Ésik says, creating 25,000 jobs.

“That is why it is very important for us to understand this sector and to make sure that this industry will be future-proof in Hungary and will continue to help our economic development.”

Three Themes

The survey, and the conference, has three main themes: Technology and Innovation; People; and Suppliers. As Ésik says: “There is a significant transformation which is going on in the industry, driven by different factors such as technology changes (i.e. eMobility), such as digitalization, which is more related to production, such as changing customer behaviors; the appearance, for example of car sharing. And there is an increased focus in environmental and social responsibility of the industrial players.”

At the same time, there are declining auto sales in China to contend with, uncertainties around Brexit, the looming possibility of a U.S.-China trade war, and strict emission policies to adhere to, especially in Europe.

“Since this industry represents such a big share of our economy, it is vital for us to understand how we can support the growth and development of the industry in Hungary,” the president says.

The automotive sector is a good bell weather of the evolving mission HIPA performs. There has been a noticeable switch from simple job creation to a more targeted focus on so-called value-added jobs, for example. With the unemployment rate down at 3.6% it is, to put it crudely, now a matter of quality over quantity.  

“The biggest problem in Hungary is not any more that we have huge numbers of unemployed people,” Ésik points out.

Automotive does not just deliver blue-collar manufacturing jobs. Increasingly, it is about white-collar engineering and programming roles. The vehicles of the future “will be more and more electric, autonomous, connected and shared”, Ésik says. Those trends will demand much in the way of research and development.

R&D Capability

“We can see that companies in Hungary are increasing their R&D expenditure year after year. In the last two years, the R&D spending increased by 38%, from HUF 62 billion to HUF 86 bln, in the automotive companies that took part in our survey. At the end of 2018, we already had approximately 4,200 employees working in various R&D positions, so there is an increasing share of R&D capabilities.”

Clearly, then, what Ésik calls the “people element of the equation” still matters; it is just that what they do is changing. “In spite of all these rapid technology changes, humans will remain at the center of the automotive industry, whether it is production or development, but they will need to have totally different skills, knowledge and training. That is why we believe there will be an even greater need for a tight cooperation between the education system and industry. And from a company point of view, employee training, education and development will be a key driver to increase productivity.” More on that, later.

Even as the profiles of the jobs coming to Hungary are changing, the role of HIPA itself is evolving, I suggest to Ésik. More emphasis is gradually being placed on policy advocacy, as evidenced by this survey.

“As an investment promotion agency, I think we have three main roles and activities,” the president says. “One is to show case Hungary as an ideal location to do business internationally. Second is to provide our management consultancy services to our client base, which are the foreign companies and Hungarian SMEs as well. And also to perform policy advocacy activities, to come up with suggestions for the government and policy makers on how to improve the business environment. And yes, you are right that there is a change in the weighting of these three different activities,” he acknowledges.  

“Since we are not any more in the modus of extensive growth, we are focusing more on intensive growth with the actual client and investor base; we try to work more and more together with existing companies, ensuring that they are able to grow in a sustainable way and they are able to bring their future-proof technologies to the country. So, yes, I think there is an increased share of our policy advocacy activities, and these are the type of events that help us to get good inputs from the players,” he says.

Increased Focus

“We should not forget that we are also a one-stop shop for investors: his pain point is my agenda, basically. That is why we deal with all kinds of issues, whether it is buying a piece of land, whether it is electricity supply, whether it is tax regulation, whether it is educational policy. We are not the owners of these policies, but we want to work on topics that are relevant for the players of the economy and in that sense, of course, there is an increased focus on human capacities.”

An important part of that is making sure there are enough Hungarian SMEs capable of joining the value chain of the multinational automakers and so-called Tier 1 suppliers. Not just of making parts to order, but increasingly to develop them from scratch.  

The agency maintains a data base of suitable suppliers, but also works with SMEs, sometimes alongside specific original equipment manufacturers, sometimes on its own, to provide soft skills training, improve quality management and control, promote R&D.  

It is also involved in linking up businesses and academia to help develop dual education at both school and college levels: Ésik says in 2018 there were 54,000 students in vocational dual training, and 24 higher education institutions that offered dual education programs.

It seems that, if the automotive sector is to continue driving Hungary along the road to sustainable economic success, HIPA will have an important role to play, not only in attracting investors in the first place, but also in ensuring there are the numbers of suitable workforce and SMEs to keep things moving.