GDP?s purchasing power parity is $73.2 billion (1997 est.) GDP?s real growth rate is 4.4% (1997 est.) GDP per capita purchasing power parity is $7,400 (1997 est.) Inflation rate–consumer price index is 18% (1997 est.) Unemployment rate is 9% (1997 est.)
As a small country with a relatively small domestic market Hungary’s economy is highly dependent on foreign trade. International trade in goods and services amounted to approximately 80 percent of the GDP during the last three years.
?Sociocultural – English is regularly used in business contexts. There are, of course, firms, especially smaller ones, whose principals do not speak English. In these instances, an interpreter is often made available. It is nonetheless prudent to ask in advance what interpretation provisions have been made for a meeting. Hungarians address each other by their family names first, followed by their given names (e.g., Smith John). Business cards follow this convention unless printed in English. It is always advantageous to learn basic greetings in Hungarian. Even the most minimal efforts will be appreciated by Hungarian business partners.
?Global ? Real wages especially in the private and banking sector are expected to increase 3-4 percent in 1999 and beyond during the following years. The recovery should result in excess disposable household income and could stimulate further demand for small household appliances such as toasters, sandwich makers, fryers etc., which were not typically a part of Hungarian households in the past. Additionally, there is a developing and distinctly upwardly mobile entrepreneurial class, which accounts for about 5 percent of the total population. This segment of the population has more income to spend on luxury goods and is less price-conscious. This group has easy access to household appliances and it is the main purchaser of more upscale items such as automatic dishwashers, washer-dryers, etc.
Imports have increased as a result of CEFTA liberalization of trade policies and the potential threshold membership with the European Union. The free trade agreements called for elimination of all duties on products with the exception of textile and steel products and have increased business opportunities for European firms through liberalization of trade. U.S. imports face a more difficult situation due to comparatively higher import duties for imported American products.
2.Industry Analysis
vHousehold Appliances Industry Summary
1. The total market for household consumer goods in Hungary was $589 million in 1998. Consumption is expected to grow slightly and the total market for household appliances might reach $620 million by the end of 1999.
2. Since the beginning of the 1990s, there has been a much larger product selection in the Hungarian market in household appliances – especially the white goods – owing to increased imports and increased local manufacturing of Western brands which has contributed to rising consumer demand. This development is somewhat surprising due to an overall drop in real wages over the same period. Further growth can be expected over the coming years as consumption levels began to increase last year. Foreign and domestic brand competition has tightened, and both quality and price now play an important role in consumers’ decisions.
3. The Hungarian market for household appliances relies on imports from a mix of countries; among the most important ones are European Union countries (led by Germany), Japan and the U.S. During 1997, the market for appliances in Hungary grew by more than 8 percent over 1996. The total market is expected to continue to grow at about an annual 4-5 percent over the next three years. Imports in 1998 were $320 million, representing a 7 percent increase over the previous year. Imports from the U.S. amounted to $22 million, a slight 2 percent increase over 1997 import level. Of the $22 million, $16 million were large appliances, chiefly washers, dryers, dishwashers, refrigerators and freezers, and $6 million were small appliances. Best prospects in this category are washing machines, dryers, vacuum cleaners, hair dryers, HI-FI sets and VCRs. The Hungarian market for household appliances has shown an overall improvement over the past three years, and is considered to be a promising market for American products.
4. Household appliances include the following:
– Non-kitchen appliances, e.g. washing machines & dryers;
– Small appliances, e.g. hair dryers, irons;
– Kitchen appliances, e.g. refrigerators, microwaves and dishwashers;
– Household electronics, e.g. TV sets, VCRs, HI-FI sets.
5. Market Highlights
STATISTICAL DATA (USD million)
199819992000
Import Market320,2339,2359,5
Production410,2417,5428,3
Exports141,0143,5144,2
Market Size589,4613,2643,6
US Exports to Hungary2223,124,3
Exchange Rates 192240278
Source: Figures are based on preliminary and partial data of the Central Statistical Office 1998 Publications, Budapest, Hungary, on “Foreign Trade Statistics” issued by the Ministry of Economy, 1998 and “U.S.-Hungarian Statistics” issued by Kopint-Datorg Market Research Company.
Estimated Future Inflation Rate: 10%
Last Year’s Import Market Share (Percent for Major Competitors and US): Germany: 28%, France: 23% Japan: 21% Austria: 13% Italy: 9% U.S.: 6%
Estimated Future Inflation Rate: 10% or below
USA: 8%, EU: 37%, Japan: 20%, Korea: 17%, Others 12%.
6. According to market research, there is continued demand for household appliances in Hungary. A reason for that is the wide selection of internationally well known brands already available on the domestic market. Previously, limited only to products produced by Hungarian manufacturers (”Energomat” washing machines or “Elekthermax” cookers), and based on poor East-European quality, consumers are now confronted with thousands of products — from relatively inexpensive Hungarian and former Eastern brands (Vjatka – Russian, Eta ? former East-German) to the most expensive brands (Electrolux, Whirlpool, Bosch etc.).
7. The total number of households in Hungary is 3.9 million. Hungarian households spent about an annual 6-7 percent of their annual income on household consumer goods during the past three years. Most popular items include: refrigerators, freezers, microwave ovens, washing machines, spin-dryers, vacuum cleaners and sewing machines.
8. Household appliances are typically products that are purchased approximately every 5-7 years and Hungarian populations are considered to be potential customers for these products. The only variation is that customers either purchase these products in specialized retail shops and stores or sample “black” market products in an attempt to try to save money. The black market continues to be significant for household appliances. Consumers purchase small kitchen appliances (mixers, coffee/tea makers, and irons) and even microwave ovens or TV sets and VCRs in the black market. The price level of such products is much lower than of those in legitimate stores but no warranty is offered on them.
9.Hungary’s GDP growth for 1999 is approximately 4 percent, with a USD 3,600 GDP per capita. Due to import liberalization policies and Hungarian consumers’ preferences for foreign products, now is a good opportunity for European Union countries and American firms to penetrate this market. The size of the Hungarian market for household consumer goods reached $580 million in 1998, and is expected to grow to $600 million by the end of 1999.
10. Based on a marketing survey, only few homes have electric razors for women or wet-dry vacuum cleaners. Hungarians prefer Braun; Elin, Moulinex and Philips household appliance brands but Hungarian-made Hajdu/Energomat hoovers and coffee makers produced in Szarvas (central Hungary) are also among the top favorites.
11. Based on another public opinion poll, 6 percent of those asked consider purchasing washing machines and microwave ovens for their households. Only 3 percent is planning to buy deep-freezer, 2 percent is planning to buy fryers and only 1 percent said they plan to buy a dishwasher. If these plans are carried out, Hungarian households with microwave ovens will reach 40 percent next year, while the ratio for washing machines will be 55 percent. There was a heavy increase in front-loading washing machines; while only 8 percent of families had such washing machines in 1995 this number increased to 14 percent by the end of 1998. The top-loading washing machines have a 40-percent market share but most of the households still have the traditional washing machines and spin-dryers.
12. End users for household consumer goods include the following business and private entities:
?Importers/Distributors specializing in household consumer goods,
?Retail stores selling mixed product lines but representing one or few brands of household appliances,
?General Public, End Users and
?Hotels and Hospitals.
vCompetitive Analysis:
1. Domestic Production
The major domestic producers are Electrolux Lehel Hutogepgyar Kft., Hajdusagi Iparmuvek and Elekthermax Rt.
Electrolux Lehel Hutogepgyar Kft.?established in 1991 ?over 3,600 employees. ?Their manufacturing unit located in Jaszbereny (North-East Hungary).?Electrolux-Lehel is the largest unit manufacturing Electrolux appliances in Central-Eastern Europe. ?It manufactures mainly refrigerators with Zanussi and Electrolux brands. The vacuum cleaner production was taken over by the Jaszbereny factory only in 1997 when the Italian Electrolux production unit refused to work in two shifts. ?More than 80 percent of the production goes for exports providing good turnover for the company.
Hajdu Hajdusagi Iparmuvek Rt.?the oldest manufacturer of washing machines in Hungary. ?established in 1952 and transformed into Plc. in 1993. ?more than 1,000 employees. ?It has been manufacturing non-automatic washing machines since the 1970s but introduced the new automatic, oEnergomato branded top-load washing machine in the middle of the 1980s. These brands have been popular in the market for a long time as spare parts supply was always assured at a reasonable price and the retail price of these items made them extremely competitive with the better but more expensive Western brands. ?Recently, the price level of Energomat machines has reached the level of its Western competitors so the number of consumers buying alternative products increased. ?Hajdusagi Iparmuvek manufactures not only washing machines but spin-dryers and other small household machines as well in accordance with Western ISO 9001 standards.
Elekthermax Rt.?originally established in 1920 but was privatized in 1990. ?Currently, the Dutch Elekthermax Holding holds 97 percent of the shares and the employees hold 3 percent.?around 800 employees ?manufactures electric and gas-operated owens, cookers and heaters as well as rost-free taps. ?Most of its exports are shipped to Germany, Poland and The Netherlands.
Szarvasi Vas- es Femipari Rt.?established in 1952 and transformed into a Plc. in 1997. ?over 400 employees.?Its main activity is production of electric tea and coffee makers, deep fat fryers and lighting appliances. Its main export markets are Germany, Romania, Bulgaria, Slovakia and Sweden.
2. Foreign Competitors
a) Third-Country Competition
Third-country competition for household appliances is extremely significant. In general, European Union manufacturers have gained the largest market shares in the past seven years. German, French, Dutch, Korean and Italian companies’ products are available in all shops and stores specializing for household appliances. The product lines include refrigerators, washing machines, vacuum cleaners, hair dryers, and kitchen appliances. Dutch and German companies concentrate on offering a wide range of kitchen appliances, washing machines, irons etc. The following European companies are active on the Hungarian market:
CompanySource CountryAvailable Products
Bosch-SiemensGermanykitchen appliances, vacuum cleaners, irons
BraunGermanyhair dryers, irons, kitchen appliances
AEGGermanywashing and drying machines
SamsungKoreaTV/video sets, microwave ovens
GoldstarKoreaTV/video sets, microwave ovens
PhilipsNetherlandskitchen appliances, HI-FI sets
HitachiJapanTV/video sets, kitchen appliances
SharpJapanTV/video sets, HI-FI sets
PanasonicJapanTV/video sets, HI-FI sets
MoulinexFrancekitchen appliances
CandyItalywashing and drying machines
Philips:
Philips is one of the major third-country competitors in the household appliances market. Philips is not only selling but also manufacturing many of its products in Hungary. It opened its household appliance factory in Kaposvar (SW Hungary) in September 1998. The new factory employs 300 people and by 2000, the plant expects to turn out two million home appliances. Philips has invested about USD 100 million in Hungary through the end of 1997 and will be investing another USD 75-100 million in 1998-1999. Philips has a final assembly factory in Szekesfehervar (Central Hungary) where it produces VCRs, stereo and combi TV sets. Philips has interests in other ventures in Hungary such as in Philips Car Systems Kft., Philips Monitor Hungary KFt., PolyGram Publishing KFt., Passive Components and Philips Key Modules Hungary KFt.
b) U.S. Market Position
American brands such as Whirlpool and Melissa Butler are becoming more popular on the Hungarian market although their market shares are still low, approximately 8 percent. For example, many American companies are exporting products to Hungary from their European subsidiaries and warehouses.
Whirlpool Hungary:
Whirlpool Corporation established its Hungarian headquarters Whirlpool Hungary in 1992, which is 100 percent owned by Whirlpool Europe. Whirlpool Hungary is only involved in distribution, logistics and marketing activities and products arrive in Hungary from the company’s Western European factories. Currently, Whirlpool Hungary has a nationwide partner and servicing network. Whirlpool Hungary sold about 200 000 white goods in 1998, which corresponds to a 30-percent increase compared with sales in 1997. The annual turnover of the company was HUF 6.7 billion.
Whirlpool is the market leader with top-load washing machines and has a 34-percent market share in the sales of microwave ovens. Whirlpool Hungary has around 300 trading partners in Hungary that are wholesale, retail units and chain stores. Whirlpool products are supplied to wholesalers such as Herta, Cash & Carry facilities such as Cora, Auchan and Metro. Whirlpool Hungary opened its own brand-name show in the downtown area. Every third household has at least one household appliance with the Whirlpool brand.
3. Best Sales Prospects:
Star Appliances, Inc. considers the following product lines with good growth prospects:
1. Refrigerators
2. Dishwashers
3. Washing Machines
4. Microwaves
5. VCR
6. Dryers
7. Hair Dryers
8.Vacuum Cleaners
4.Competitive Situation
The Hungarian household appliances market has been dominated by Korean, Japanese, Western-European and U.S. products. Recently, U.S. market share has fluctuated around 6 percent of the household appliances market. Imports of household appliances into Hungary account for 55 percent of the total market. Leading suppliers to the Hungarian market in 1998 were Japan: 24 percent, Europe (EU): 23 percent, Korea: 12 percent, USA: 8 percent, others 12 percent. Next to European and Japanese products, U.S. products are also appealing to Hungarian consumers, particularly large appliances, mostly washing machines, refrigerators enjoy good reputation.
Despite the fact that U.S. household appliance manufacturers enjoy a good reputation in the Hungarian market, U.S. exporters should not be complacent in assuming that it is an easy market to enter. Companies like GE, Whirlpool, which have local offices, were able to adopt their product design to meet Hungarian technical requirements. The fact that the EU has a membership agreement with Hungary provides more competitive opportunities both in terms of import duties and freight rates for products imported from Western Europe than for those from the United States.
Dominant brands of household appliances in the market are as follows:
Korea:Samsung, Goldstar and Daewoo;
JapanHitachi, Toshiba, Sanyo;
U.S.GE, Whirlpool;
NetherlandsPhilips, Atag, Pelgrim
GermanyThompson, Bosch-Siemens, Braun, Miele, AEG
HungaryOrion
SwedenElectrolux
ItalyMerloni, Candy, Ariston, Indesit, Nardi
FranceMoulinex, DeLonghi
SpainFagor
Market share by product categories:
Washing MachinesU.S., German, Hungarian;
Vacuum CleanersGerman, Korean, Japanese;