Establishing a Business in Hungary, Europe
Victoria Delay
Dr. Michael Jazzar
Jones International University

Executive Summary I have been hired by a large U.S. Biotechnology Corporation to create a strategic report on establishing a business in Europe. I have the specific task of providing an overview of the cultural, political, and macroeconomic environment in the target city of Budapest, Hungary. Based on these considerations, I am required to make a clear-cut, yes-or-no executive recommendation on whether to establish a business operation abroad. A yes recommendation requires a description of the form that I think that the operation should take (joint venture, direct foreign investment, etc.) and provide a short analysis of risks and benefits. Budapest, Hungary is the capital of Hungary, on the Danube (a river on S. Europe, flowing from SW Germany eastward into the Black Sea).Their native language is Hungarian (Magyar), but some speak German and English. Hungary is considerate to be the center of politics, cultural, commercial, industry and transportation; a vital base to reach all European countries regarding marketing products to surrounding countries. The cost of living is inexpensive and the unemployment rate is low. Hungary was the first country in Central and Eastern Europe to apply for membership of the EU (European Union). The benefit of Hungary’s EU membership has significant effects on the Hungarian economy, and gives important competitive advantages for companies settled in the country. In order to harmonize with respective EU regulations, Hungary has implemented substantial changes regarding general regulation laws setting up a business, company registration and corporate legislation. There are four forms of corporate legislation in Hungary that a foreign investor may choose; limited partnership, unlimited partnership (legal personalities) or representative office , branch office (non-legal personalities). The only distinction relating to legal personality is that non-legal personalities are registered at a smaller cost. Hungary attracted more than 60 billion EUR of Foreign Direct Investment (FDI) to date which represent a high per capita rate relative to the rest of Central and Eastern Europe. Hungarians accounting practices has been framed to bring Hungarian financial reporting practices closer to the International Financial Reporting Standards (IFRS) and in line with the EU 4th and 7th Directives. The Hungarian general taxation system has developed in recent years; personal income tax and VAT were introduced into the Hungarian tax system. The Hungarian Investment and Trade Development Agency (ITD Hungary) supports high value-added investment projects such as the biotechnology, research and development industry. Countries with low debt-to-GDP ratios, low or declining unemployment, and strong consumer spending normally make for good prospects. I am recommending a yes to establish a business in Budapest, Hungary.

Hungary and the U.S. belong to a number of the same organizations; United Nations (UN), North Atlantic Treaty Organization (NATO), Organization for Economic Cooperation and Development (OECD), International Monetary Fund (IMF), World Bank, and World Trade Organization (WTO) just to name a few. Hungary partners with the U.S. on common goals in Europe such as stability in the Balkans (countries of the Balkan Peninsula- Yugoslavia, Bulgaria, Albania, Greece, Balkan States, and the European part of Turkey), and promoting democracy in Europe’s East, as well as on global challenges beyond Europe. Hungary and the U.S. have a mutual commitment to reducing the threats posed by climate change and nuclear proliferation supporting human rights, the rule of law, and peace and freedom for all. The U.S. security assistance to Hungary contributes to regional stability and helps maintain strong support in Hungary for coalition operations, including for the provision of personnel, equipment, and other resources for these operations. The U.S. is among the top foreign investors in the country. Hungary’s geographic location in Central Europe, access to EU markets, highly skilled educated workforce, and sound infrastructure have led U.S. companies to locate facilities there, both in manufacturing and services. The U.S. investments have had a direct, positive impact on the Hungarian economy. Most Hungarians conduct business in either German or English, which is good for U.S. investors interested in expanding a business in Hungary. Hungary is a nation with a strong sense of identity and pride, known for its rich tradition and culture. Due to a sound transition to a free market economy in the 1990s Hungary has attracted numerous foreign investments and enterprises. This unique culture boasts a society with customs and values that must be recognized and appreciated should our company wish to venture successfully into Hungarian business. Relations drive business in Hungary and Hungarians value their relationship with others, so it is very important to know your Hungarian business partners on a personal level and to establish a certain amount of trust before negotiations take place. Hungarians are very detail-oriented and want to understand everything before reaching an agreement; therefore, business is conducted slowly. Hungary’s geographic position in Central Europe offers a strategic logistical hub within the region. Road, rail, aviation, and waterway networks fan out and offer access to the East and South-Russia and the newly emerging Balkans. The best location in which to expand a biotechnology business in Hungary that maybe particularly profitable are Budapest, Debrecen, Miskolc, Szeged, Pecs Gyor, and Szekesfehervar. The importance of the biotechnology sector to Hungary is supported by the fact that biotechnology is one of the world’s fastest growing sectors, which is due to its highly knowledge-intensive nature, creates knowledge-based jobs. The leading Hungarian biotechnology companies target mainly export markets (the EU, USA, and Japan). Their presence in the world not only enhances the reputation of Hungarian biotechnology, but of high-tech industries as a whole. Approximately 60 core biotech companies operate in the Hungarian biotech sector. The companies are grouped in large universities towns; about 60% in Budapest, 20% in Debrecen, 10% in Szeged, and the rest in Pecs, Kaposvar, and so forth. Foreign direct investment (FDI) has helped modernize industries, create jobs, boost exports and spur economic growth. Cumulative FDI stock has totaled more than US 80 billion since 1989, the highest in the region per capita basis. Hungary has become economically stable and has increased in growth. Employee’s income per month, and cost of living is much lower than the US, England, France, and Munich. The currency used in Hungary is Forint, compared to the US dollar is quite a drop (1.00 USD =234.907 HUF—1.00 HUF = 0.004285 USD), but by 2012 they hope to adopt the Euro. Job opportunities have increased, especially in Budapest, as a third of all business is carried out there. Hungary is the UK’s largest export market in Central and Eastern Europe with sales worth Euro 850 million each year. Registering a company in Hungary is relatively quick and efficient. Foreign individuals and legal entities may set up new companies or acquire shares in existing ones without limitations. A foreign company may establish a registered company branch or a representative office (non-legal entities) in Hungary if international treaty allow establishment. Registration fee for these non-legal entities are 50,000 HUF. According to Hungarian’s Branch Act a commercial representative office is an organizational unit of a foreign enterprise and has no separate legal standing. A commercial representative office may begin operation once registered by the competent court of registration. According to data collected by Doing Business…starting a business requires 4 procedures, takes 4 days, costs 7.6% of income per capita and requires paid-in minimum capital of 9.7% of income per capita. The U.S. and Hungary have a treaty on double taxation currently pending ratification, and has developed in recent years. From my research of this topic, I have so much more to share about doing business in Europe, but fear that I have already gone or will past my limits if I continue, so in conclusion, I recommend Budapest, Hungary for this large U.S. Biotechnology Corporation to establish a business in Europe, our presence there, will generate huge revenues without producing high cost regarding overhead expenses, staffing, and business transaction cost.

References: http://en.wikipedia.org/wiki/Budapest http://www.cost of living.html

http://www.ecovis.com/fileadmin/countries/hungary/how_to_start_business_hungary.pdf

BC607 Course Project

Student Handbook Including Webster’s New World Dictionary Volume Two South Western

www.startupoverseas.co.uk/expanding-a-business-in-hungary

http://www.state.gov/r/pa/ei/bgn/26566.htm

www.claytonmckervey.com/attach/doing-business-inhungary.pdf

http://www.exchangerate.com/currency-converter?XR- 200Plus_Converter=convert&calc_shot_from_150=238&calc

http://www,communicaid.com/access/pdf/library/Culture/doing-business- in/Doing%20Business%20in%20Hungary.pdf

www.kwintessential.co.uk/resources/global-etiquette/hungary-country-profile.html