20 April 2011
2.8 Practical recommendations
Tapping industrial demand with sufficient sales engineering services
Given Hungary's robust appetite for industrial supplies, the country’s industrial market should be one of the priority targets for Hong Kong companies. In particular, they should focus on Hungary’s major manufacturing industries, including electrical, electronics and machinery, which elicit enormous input demand for Hong Kong exports. It should be noted that foreign investment plays a significant role in these industries. Whether Hong Kong companies choose to supply directly to foreign-invested enterprises or to their contractors/sub-contractors, business practices, quality and specification requirements are more or less similar to those required by multinationals. Moreover, as the majority of such industrial outputs are meant for export to advanced economies, stringent quality is a pre-requisite for supplying various inputs to Hungary’s industrial market. Competitive pricing will remain the fundamental factor of success in tapping the market, as the primary objective of most foreign investment in such production activities is to reduce cost.
The key to dealing with them is providing sufficient sales engineering services as well as technical consultancy, which are of utmost importance in making sure that the supplied inputs can match the client’s technical requirements. Although a presence in the country is not mandatory for providing such services, strengthening sales activities by visiting to Hungarian manufacturers directly and/or by enhanced communications through applying more advanced IT applications and more efficient response to customer enquiries are critical for tapping the market.
Appointing market agents is an option for solving the gridlock of providing services to manufacturers. Given the more liberalised trading environment in the country, it is relatively more feasible to recruit agents in Hungary than in other East European markets, who can work with Hong Kong principals on a commission basis. For supplying less specialised items as well as general inputs, Hong Kong companies may distribute their products to manufacturers via specialised distributors and importers. But it should be noted that many industrial goods distributors and importers may also act as market agents to enhance their revenue. While they take title of some of the goods in the course of trading with some suppliers, they may also work with some other suppliers as agents on a commission basis.
Tapping consumer demand with design and after-sales services
As regards the consumer market, Hong Kong companies should offer ODM or their own-branded products. Not surprisingly, OEM arrangements with Hungarian importers are not popular, as buyers usually do not bother to invest heavily in product development and tooling for production. To find the right partners in the market, direct sales to big retailers, such as fast growing hypermarkets and specialty chain stores engaging in clothing and DIY products, are a viable option. But it should be noted that specialised importers and distributors have continued to play an important role in the distribution sector. Many importers are also sourcing a wide variety of products from overseas suppliers, including those in Hong Kong and the mainland, as they are more efficient in areas such as logistics, customs clearance and distribution in Eastern Europe. Therefore, Hungarian importers and distributors are among the ideal choices for Hong Kong companies.
More importantly, for products with more technical details, such as consumer electronics and household appliances, after-sales services are of utmost importance. As most Hong Kong companies do not have an office in the country, finding a competent partner that can take care of such services is critical. Obviously, Hungarian importers and distributors are a better choice than retailers, which usually do not undertake such services for Hong Kong companies. Certain Hungarian importers and distributors are also relatively more willing to promote the brands of their suppliers, and some are already working with foreign brand owners to promote their branded products, including some Asian brands. Therefore, Hong Kong companies intending to promote their own-brand business should approach importers and distributors rather than retailers.
Take a regional approach
Although Hungary is not a giant market, it is one of the key markets in Central and Eastern Europe (CEE), exemplified by the fact that it is by far the largest export market for Hong Kong in the region. Many importers and distributors in the country have in fact become regional players. Cooperation with such Hungarian companies can thus let Hong Kong companies penetrate not only Hungary's domestic market, but also various markets in the region.
As noted, Hungary’s business environment is relatively more liberalised than many other CEE countries. Apart from its convenient customs clearance that became even more liberalised after the country’s accession to the EU, its more advanced business infrastructure, including the financial and legal environment, is also conducive to business activities. More importantly, the banking sector is well developed in the country, and manufacturers and traders are better able to secure trade financing from banks and relevant financial institutions. All these make it easier for Hong Kong companies to tap Hungary’s markets and the region via their Hungarian counterparts.
Against this background, Hong Kong companies should take a regional approach when exploring the Hungarian market. They should consider Hungary as part of the vast market in the region. In dealing with regional distributors in the country, they should make sure that the products offered to Hungary are adaptable to neighbouring markets. For consumer products, product specifications and features should meet the preferences of different CEE markets, where different cultures and consumer behaviours exist, although consumers in general have lower incomes but favour products with quality and designs comparable to those selling in the West. Of course, multi-lingual packaging and user manuals are a must when adopting a regional strategy. A similar strategy can also be applied in the case of industrial products. Hong Kong companies may recruit agents and specialised distributors in Hungary to help them market in Hungary and beyond.
Companies interested in directly investing in Hungary, in order to have a presence in the market, may explore investment opportunities by approaching relevant institutions of the country, such as the “Hungarian Investment and Trade Development Agency” (ITD Hungary: www.itdh.com), which is the agent of the Hungarian government to promote inward investment in Hungary.