Seminar Paper, 2012
16 Pages, Grade: A
2 Country Evaluation
2.1 Macroeconomic Environment Using PEST Analysis
2.1.1 Political Environment
2.1.2 Economic Environment
2.1.3 Socio-cultural Environment
2.1.4 Technological Environment
2.2 Contribution of International Business Towards Growth and Economic Development
3 Industry and Firm Analysis
5 Appendix: Tables
The Republic of Hungary is located between Western Europe and the Balkans (Datamonitor). Its population accounts for approximately 10 million inhabitants; the capital is Budapest (Datamonitor). Its central location, and its growth potential, represents a quite appealing destination for business growth opportunities. This paper examines an analysis on macroeconomic aspects following the so-called PEST analysis, drafts a country evaluation and concludes in an analysis to identify business opportunities.
Hungary’s political system is a multiparty parliamentary democracy (Datamonitor). It emerged out of the former Soviet bloc Communist nations; after the transition process in 1989 and 1990 into a more liberal country, Hungary is now a stable democratic country (Datamonitor). Although there are still serious problems, reforms continue to push the credibility of Hungary (Datamonitor).
In the current government, the so-called centre-right Fidesz-Hungarian Civic Union (Fidesz) holds a two-third majority, which gives the party enough power to push through changes in the constitution (EIU April 2011). The current president is Pal Schmitt; the prime minister is Viktor Orban (Fidesz) (EIU June 2011). The administrative power is shared and consists of the executive, the judiciary, and the legislature (Datamonitor). The government’s main focuses are to maintain strong relations with neighbouring countries, to introduce reforms, and to strengthen the country’s integration into the European Union (EU) (Datamonitor). Structural reforms aim to enable the long-term fiscal sustainability and to improve the country’s economy as a whole, as well as the external trade (Datamonitor). To manage the budget deficit, the government is concerned in increasing revenues and cutting expenditures (Datamonitor). However, Hungary’s entrance in the Eurozone is not likely to happen before 2020 (IHS; EIU June 2011).
Hungary’s controversial policies such as the media law and the changes in the constitution in terms of moral and ethical standards (e.g. its anti-gay and anti-abortion stances) resulted in international criticism from other countries and might lead to a further separation between the left- and right-winged parties in the country (Datamonitor). Recently, the EU has started infringement proceedings over a number of laws, stating that some of the constitutional changes are in noncompliance with EU law and that they are incompatible with the democratic system (EIU 2012). Although the country is still facing challenges, it is expected that the political risk will further decrease in the mid- and long-term.
Hungary’s economic environment has improved over the last years and is now characterized by freedom of trade, property rights, business freedom, and freedom of investments (Datamonitor). There is an ongoing liberalization into an open economy and a gradual adjustment towards Western European countries (Datamonitor). E.g. it takes about an average of four days to open a new business, whereas the Organisation for Economic Co-Operation and Development (OECD) average is around 14 days (Datamonitor). The government’s economic policies support domestic consumption and the expansion of businesses in the country (Datamonitor). Hungary is a member of several international organizations  (CountryWatch), which are contributing factors to support its international business growth.
In 2000, Hungary’s Gross Domestic Product steadily increased from 123.74 billion USD up to 195.48 billion USD, followed by a drop to 184.32 billion USD in 2009, which is due to the financial crisis. However, an upwards trend seems to be indicated for the following years (See Table 1). Hungary is a strong export-oriented economy and is thus dependent on EU countries, such as Germany, as an export market (Datamonitor). The economic crises led to evaporated exports in 2008 and 2009; although exports recovered in 2010 accounting for 14.10 %, it is still evident that the crisis left its burden (Birch; See Table 3). Thus, Hungary seeks to expand international trade with other countries in the Asia Pacific, Mediterranean, and Latin American regions (Datamonitor).
The Budapest Stock Exchange offers opportunities to raise capital and serves as a platform to trade financial instruments; however, financial risk factors are evident (Datamonitor). The country experiences a high volatility in its currency, the Forint, and as a result the Forint was one of worst-performing currencies in 2011; this, paired with the increase of taxes, pushed inflation (Datamonitor; Zoltan).
Whereas inflation was at 4.21% in 2009, it rose up to 4.85% in 2010 (See Table 2). The deterioration in external growth and the financing environment resulted in a downgrade of the country’s rating to BB- with a negative outlook (IntelliNews); this strengthened the risk aversion of international investors (USDS).
Hungary is suffering from a high unemployment rate, which differs regionally; in the western regions where major foreign investments are concentrated, unemployment is low; whereas unemployment is high in the north and northeast (IHS). Although a slight recovery of unemployment may be assumed over the next years to come, it is still at a high level accounting for 11.25 % in the year 2011 (See Table 4). It still needs to be proofed, if the government initiatives on the labor market will yield results.
Ethnic groups in Hungary comprise of Magyar, Romany, German, Serb, Slovak, Romanian, whereas the ethnic Hungarians (Magyar) accounting for almost 90 % (USDS). There is a freedom of religion, whereby the Roman Catholics are the biggest group (Datamonitor). Other Religions, such as Calvinist, Lutheran, Greek Catholic, Jewish and others represent just a small share (USDS).
Demographics in regards to age show, that the country’s aging population is a cause of worry, which is mainly due to reduced birth rates; this results in a reduced workforce and at the bottom line to a drop in government revenues due to a loss in income taxes (Datamonitor).
The literacy rate in Hungary is considered as one of the highest in the world, which is due to several government initiatives to improve education (Datamonitor). To retain market share in the face of competition from the Asian economies, which have lower costs, the country needs to continue its shift towards a more skilled industry (Datamonitor). Basic skills alone are insufficient to remain competitive.
R&D expenditures accounted for around 1.16 % of GDP in 2010 (See Table 5). The technological sector experienced improvements over the last years; e.g. Internet usage and mobile phone penetration were increasing (Datamonitor). The country is an attractive destination for high technology industries (Datamonitor); also the government initiated a new medium-term strategy to oversee IT developments (EIU September 2011). IT spending will remain limited by a tight fiscal situation; however, the country is benefiting from EU initiatives to assimilate Hungary into the EU’s new “Information Age” (BMI 2012b). Thus, in the midterm it is expected, that – driven by the technological change – more companies will “outsource” their IT environment to “emerging” IT markets such as Hungary (BMI 2012b).
 E.g. corporate income taxation, bank taxes, electronic road fees, excise tax on tobacco, fuel, and alcohol.
 Reduction of healthcare costs, disposal of several types of subsidies.
 Hungary is a member of organizations such as the EU, UN, IBRD, IMF, WTO, OECD, and NATO.
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