Hungary
Hungary joined the European Union in 1999 after a national referendum passed by a margin of 85%. EU membership has offered investors access to a market of more than 493 million people. Hungary’s IT industry is one of the most sought after in Western Europe, with global companies such as SAP, Ericsson, Siemens, Nokia, and HP-Compaq all investing.
Hungary has access to a well-qualified labor pool, and research and development is particularly advanced in the following areas: navigation systems, embedded mobile application, software development for mobile devices, CAD/CAM design, and IT Data Security/Protection. Hungary has emerged as on of Eastern and Central Europe’s strongest developers of hardware production. It also leads communications equipment manufacturing and computer assembly, managing to turn in around 19.1 percent of manufacturing exports in 2009.
According to European Commission analysts, the Hungary’s ICT sector is a large contributor to the GDP and employment, contributing 20 percent of exports (ranked the third highest in the EU). Additionally, more than a quarter of the total Research and Development sector is related to ICT.
The 2009 report of Europe's Digital Competitiveness Report shows that Hungary’s IT services market is worth around HUF 180 billion (EUR 641 million). This market consists of IT consultancy, outsourcing, application development services and consultancy, integration, IT training, and implementation and support. Outsourcing is the area with the highest overall performance, with an average growth of around 6.7 percent that reached EUR 188 million in 2009. Hungary did not experience a substantial negative impact during the global economic crisis, but benefited from the situation by decreasing short-term costs and increasing business flexibility.
Country overview
Hungary’ is governed as a parliamentary republic. According to International Living, Hungary is ranked 20th in a survey of 195 countries on the Quality of Life index. It was once listed as one of the 15 most popular tourist destinations in the world.
Hungary was a great power until the end of World War I, when it lost nearly 70 percent of its territory and almost one-third of its Hungarian population to the Treaty of Trianon. It was followed by a Communist generation, where it gained popularity when it opened its borders to Austria, which hastened the downfall of the Eastern Bloc. Hungary is governed as a parliamentary republic, and one of the newest members of the European Union. Hungary's economy benefits from the nations's strong labor, fiscal, and trade flexibility. It is also a member of the World Trade Organization (WTO) and the Organization for Economic Cooperation and Development (OECD).
Hungary had a predominantly agricultural economy before World War II. It suffered critical hardships during its transition from a "one-party, centrally planned economy to a market economy with a multi-party political system". Today, it is considered a high-income economy, with a per capita income of around two-thirds of the EU-25 average. Most of its GDP comes from the private sector, and since 2009 its total foreign direct investment has reached $200 billion. Hungary shifted the areas of foreign investments from the food industry and textile to tourism, vehicle production, and information technology. The global financial crisis in 2008 resulted in an economic contraction of around 6.7 percent, which consequently prompted the nation to receive financial assistance from the IMF. Its Gross Domestic Product (GDP) is an estimated $132.3 billion USD and $190 billion when measured using the Purchasing Power Parity (PPP).
According to International Living, Hungary is ranked 20th in a survey of 195 countries on the Quality of Life index. It was once listed as one of the 15 most popular tourist destinations in the world.
Source: CIA Factbook, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Cost competitiveness
Hungary has one of the most expensive outsourcing markets in Eastern and Central Europe, in relation to the maximum yearly labor cost of an IT professional (National IT Associations, 2008). It ranks second to Poland, commanding an average of around EUR 22,030 to EUR 44,591.
Employee compensation
Software Engineers or Web Developers with one to four years experience have salaries that are 30.5 percent of comparable resources to the U.S, at USD $18,000. This makes it less competitive than Bulgaria (15 percent) and Poland (21.2 percent). Senior Software Engineers with ten to twenty years of experience are also expensive in Hungary, commanding around $22,000 USD to $47,000 USD, depending on the worker’s level of experience, averaging 38% of US salaries.
IT Project Managers, although not the largest cost for any IT undertaking, are a valuable component in the global IT market’s cost competitiveness. Wages usually range from USD $21,000 to $85,000, nearly 35% of US salaries. These higher skilled positions do not offer the same competitive pay rates because of a lower supply among the workforce. Hungary is unable to compete with India for these positions but has a clear advantage when compared to nations like China or Canada.
Salaries in the BPO sector are commensurate with skill level. Junior resources with limited experience earn 27.2 percent of comparable U.S. resources, while the highly skilled workers have wage rates averaging around 46.7 percent compared to the Pakistan (18.4 percent), India (22.8 percent) and Malaysia (34.6 percent).
Real estate and taxes
The cost of office space in Hungary (Budapest) is average, with an annual cost of around USD $40.86 per square foot annually, according to the study by CB Richard Ellis. Taxes in Hungary is highly competitive, ranking second among the top five countries with the lowest corporate tax rates in the world. However, its indirect taxes, such as Value Added Tax (VAT), are at the bottom of the list, with a 25 percent rate compared to Canada (5 percent) and the U.S. (7 percent).
Source: PayScale, SourcingLine, February 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: CB Richard Ellis, Colliers International, SourcingLine, March 2010
Source: KPMG, October 2009
Source: KPMG, October 2009
Source: Doing Business (World Bank), 2010
Real Estate : Office occupancy costs are for Budapest.
Resources and skills
Outsourcing sector
The volume of IT services is a good measure of the maturity and scope of an IT sourcing field. According to the International Monetary Fund Balance of Payments statistics, Hungary ranks eighth among the top countries with the most number of transactions related to hardware consultancy, repair and maintenance of computers, information services, and software implementation. The first in rank is India, followed by the U.S., Israel, China, Canada, Russia, and Czech Republic.
According to ITD IDC IT export study, the Hungary’s IT export revenue was around EUR 9.05 billion in 2007, with 37.3 percent coming from IT activity and 62.7 percent from offshore/nearshore processing, telecommunications equipment, mobile phones, electronic components, and manufacture of consumer electronics. Most of the country's small and medium-sized IT companies focus mostly on creating propriety software and IT services.
Workforce
Hungary is enjoying an abundance of highly trained, educated, and skilled IT professionals. There are no shortages at the moment, unlike in other countries in eastern Europe. Many companies find the Hungarian professionals committed to their jobs, highly motivated, and very adaptable to work with.
Education and skills
Hungary has an estimated 4.1 million skilled and educated professions in its labor force. Its university graduates hold degrees that require at least one computer and language examination. Adult literacy rates are high, ranking seventh among the top countries. An estimated 5.6 percent of its GDP is spent on education, making it the eighth highest spender in the world. Consequently, 14.7 percent of its population is university-educated, resulting in one of the leading populations of university graduates. However, the country ranks very low in producing university graduates every year.
Language
Ninety percent of the country's population is proficient in English, as seen in the survey: ”Offshore IT Outsourcing and Transition Economies” conducted by Business School of the University of East London. Nearly 50 percent of the workforce can speak German and English (or both).
Source: CIA Factbook, 2009
Source: IMF, 2008
Source: IMF, 2008
Source: UNESCO, 2009
Source: UNESCO, 2009
Source: OECD PISA, 2006
Source: OECD PISA, 2006
Source: OECD PISA, 2006
Source: UNESCO, 2009
Source: UNESCO, NASSCOM, SourcingLine, 2009
Source: UNESCO, 2009
Source: International Telecommunications Union, 2009
Source: International Telecommunications Union, 2009
Business and economic environment
Hungary rose from 40 years of Communist control with more lenient and broader views on politics and the economy. Despite this flexibility, a study by the European Commission (EC) revealed that the country's progress between 2005 and 2007 is "limited". EU officials believe that Hungary should not encourage early retirement and offer financial incentives to broaden the country's economic advancement in the future.
Economic competitiveness
According to the Global Competitive Index published by the World Economic Forum, the Hungary's index score is 4.2, with 7 being the best possible score. The U.S. tops the list, with a score of 5.6 followed by Canada (5.3), Malaysia (4.9), Israel (4.8), and China (4.7). Its macroeconomic stability is average, ranking higher than the United States and India.
Infrastructure
Hungary has benefited from major developments in technical and infrastructure investments. Its road quality is above average, ranking eleventh among the countries with the highest rating in the quality of roads. It is followed by Czech Republic, India, and the Philippines. Similarly, the quality of its electric supply is also above average, leading China, the Philippines and India.
Labor market efficiency
A flexible workforce management, such an easy enforcement of hiring and firing employees, is a valuable component in assessing the competitiveness of a business. The leading countries are the U.S., Canada, Malaysia, Thailand, and Czech Republic, with Hungary ranked at the eleventh place.
Regulation
The ease of starting and operating a business is one of the factors that determine the competitiveness of an outsourcing location. Hungary places eight, with the U.S., Canada, Thailand, Malaysia, and Israel leading the other countries. Hungary is first in providing the simplest environment and regulations for starting a business. It takes around 330 days to pay taxes, compared to its European neighbors: Romania (202), Russia (320), and Poland (395).
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: International Telecommunications Union, 2009
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Transparency International, 2009
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: The Global Competitiveness Report, 2009
Source: BSE-IDC Global Software Piracy Study, 2009