Hungary is gradually arriving to the big screen as a Europe’s frontrunner IT service providers among the countries for outsourcing. At one time an Eastern Bloc country, they have the benefit of presenting its European counterparts with near shore services at a far lower cost. It also has an added advantage of having a huge number of tech savvy workers with cultural match ups to Western Europe other countries for outsourcing. With these advantages being offered, many companies like TCS, EDS and IBM have their outsourcing companies located in Hungary. One of which include a deal worth $35.54 million from IBM. The company was to create hundreds of service centre jobs which include financial services, procurement jobs, human resources, and call centre agent posts.
Outsourcing regions in Hungary
Hungary is broken down into seven significant regions based on the European Union's NUTS classification. Business activities and population are highly concentrated in Hungary's central region (inclCredit: manufacturingchemist.comuding Budapest). Nearly half of the Gross Domestic Product (GDP refers to the market value of all final goods and services produced within a country in a given period) is produced in that area, utilizing about one third of the employed workforce (where production is led by the services area); furthermore, this region has drawn two thirds of foreign direct investments in the last decade.
Western parts of the country (Western and Central Transdanubia) are at present the most rapidly developing part. A very good number of foreign multinationals has set up subsidiaries in these regions, mainly in custom-free zones like those found in other countries for outsourcing. A large number of companies are concerned in producing, mainly in the car industry and engineering. Northern and Eastern regions (the Great Plain) are much less developed and are sluggish than the Western ones.
Economic Crisis despite Outsourcing in Hungary
Affected by means of the global economic recession; the volume level of GDP dropped by 6.3% in 2009. The actual demand for investments plummeted within almost all economical sectors. The actual corporations have made the most necessary investments, thanks to modifications in the offer of financing and partly to the decrease in the external and domestic demand. The economic impacts of the crisis seem to be longer. The country was still struggling to recover before 2011 as like many other countries for outsourcing, when GDP growth is expected to reach about 3.2%.
In order to better show the current situation on the Hungarian market, a comparison with the Western European markets is most appropriate. According to Pierre Audoin Consultants (PAC) estimates, the IT services business (hardware maintenance, project services, outsourcing) represents 24% in total IT expenditure (similar with the share in Czech Republic ) the most mature IT market in Eastern Europe region) versus a median level of 34% in Western Europe like other countries for outsourcing.
Hungary remains notably behind the Western European average as a country for outsourcing, with only 96 Euros spent on software and IT services per head as opposed to 431 Euros per head in Western Europe. Czech Republic spends 171 Euros per head, also significantly ahead of Hungary, but still quite behind the Western countries as was needed in many countries for outsourcing.
Issues with Outsourcing and the Current Status of Hungary against Such Factors
Political Risk – Hungary actually has a stable political environment and government. There was a smooth transition from a former Communist rule. There is also a government support of IT as is needed with other countries for outsourcing.
Legal Risk - Hungary has a rule-based economy, good IP protection, and data exclusivity protection.
Cultural Risk – Hungarians are very friendly. Some speak English. There is also cultural affinity to Western Europe. Hungary is aligned to the German, Austrian, and Swiss markets. Unlike other countries for outsourcing, it has compatibility with many European countries
Economic Risk – Hungary’s GDP purchasing power parity is at $139.8 billion. In fact, GDP growth is at 2.9%. Hungary has made the transition from a centrally planned economy to a market economy with a per capita income calculated to be half of the Big Four European nations. Hungary continues to demonstrate a strong economic growth and joined the European Union. The private division holds more than 80% of GDP. Foreign possession of and assets in Hungarian firms are prevalent. Economy is flat. Inflation is declining. There is growing deficit but EU accession might provide opportunities for growth.
IT Infrastructure Risk - Current status: number of telephones is at 3.7 million and Internet users are at 1.6 million.
The telephone system has been modernized and is capable of satisfying all requests for telecommunication service as is already present in many countries for outsourcing. Initiatives are present to augment the IT infrastructure, e-governance, Internet penetration, etc. Real estate structures are good. Excellent conditions of telecom infrastructure are seen. According to an expert Steven Carlson, “Hungary was the first in the region to privatize and begin rebuilding the national network.” Furthermore, Carlson noted, “I know of two VoIP companies based here serving subscribers in North America and around the world. Even a home user can get an ADSL connection set up in as little as a week to ten days. One cable company, UPC, now bundles cable TV, phone and Internet service. In this respect, Hungary is still ahead of her neighbors.
IT Competency Risk – Hungary boasts of good project management and highly skilled employees.
Human Capital Risk – Hungary pride itself with personnel of high level university education although labor pool is limited. Labor force is at 4.164 million.
More Considerations When Outsourcing to Hungary
Custom code writing or body shopping - Good
BPO - Good
System Writing Project R&D - Good to excellent
Costs - Costs are low now, but they won’t stay that way.
Competitiveness - Good
Overall Assessment – Hungary is a good near shoring destination for Europe. This country offers very skillful workers including highly qualified IT personnel, in comparison with other destinations in Western Europe. It also boasts of an excellent education among its labor force. Proximity and access to EU plus good infrastructure are also added bonuses when outsourcing to Hungary.
Predicted future – Hungary will be a major destination for near shoring in Eastern Europe and a central hub for off shoring in Europe.
Major Players currently outsourcing in Hungary include Euro trend, Free Soft, Graph soft, ICON, Kurt Computers, Lursoft IT, Market link, Montana, Revolution Software, Synergon and Sysdata.
Becoming a hub of U.S., Asian, and Indian companies for Central and Western Europe, low supply of resources and rising costs will continue to climb and may drop Hungary from the Future Growth Index but Hungary still has a strong chance to emerge as a competitor among countries for outsourcing.
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