20 April 2011
2.7 Challenges facing exporters
Lingering risks of European debt crisis
Putting the positive portrayal aside, the growth of the Hungarian economy has been hampered by its sizable external and public debt. Amid the global credit crunch in 2008, the country even turned to the IMF and the EU for financial assistance in the form of bailout plans. Weak fiscal governance and high level of indebtedness have rendered the country more vulnerable to capital flight and rising borrowing costs. Under the shadow of the ongoing European debt trouble and the recent breakdown of negotiations between Hungary and the IMF over the implementation of the austerity plan (and therefore the refusal to use the remaining funds in its 20 billion euro loan secured from the IMF in 2008), the Hungarian economy may continue to face uncertainty on its path of deleveraging and full-scale recovery.
Small market with small orders
With a small population of just 10 million, the Hungarian consumer market is rather small, when compared to Poland and Russia. Given the small population, domestic Hungarian retailers usually have in their stores a full spectrum of products, ranging from low-end to high-end ones. Against this backdrop, their orders for each single item are usually small. In other words, their order quantity may not be on a full-container-load basis and shipment consolidation is usually required. This may further affect the competitiveness of Hong Kong’s exports when cost advantages (i.e. scale economies) cannot be exhausted due to small order size.
Intensifying competition with indigenous mainland suppliers
While the growing presence of Chinese manufacturers in Hungary would probably translate into greater demand for imports of various industrial supplies and services, it also intensifies price competition. For instance, Chinese enterprises such as Huawei Technologies and Chinese Lenovo Group may already have their own parts and components suppliers, leaving little room for Hong Kong companies to expand their exports to Hungary. Besides, the presence of the Bank of China (the bank’s only presence in Central and Eastern Europe) and the opening of an office of the China Investment Promotion Agency (CIPA) in Budapest in February 2010 (the first CIPA office abroad) may also mean that direct trade between the two countries is becoming increasingly common. Hong Kong companies who want to clamour for a slice of the pie would therefore have to better their offerings by providing more innovative designs and favourable credit and payment terms.