hungary

GLOBAL MARKET BRIEFING

doing business with

HUNGARY THIRD EDITION

CONSULTANT EDITOR: JONATHAN REUVID

CONTRIBUTORS INCLUDE: BANK AUSTRIA CREDITANSTALT CMS CAMERON MCKENNA COFACE DELOITTE & TOUCHE MERCHANT INTERNATIONAL GROUP

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KOGAN PAGE

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This (second) edition first published in Great Britain and the United States in 2003 by Kogan Page Limited.

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Ç Kogan Page and contributors 2003

ISBN 0 7494 35143

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4.14

Management Consultancy József Poor, Managing Director, Mercer Human Resource Consulting, Hungary

B ackground There has been continuing development of the Hungarian management consultancy business, the beginnings of which are related to the dis semination of the Taylor method. In line with the German model, there was a strong period of ration alization between the two world wars. Numerous organizations and consulting companies were established in Hungary, mainly in the sphere of office and administrative management. One of the most significant among them was Evolut Ltd, which was established in 1929. There were many domestic entrepreneurs in the area of consultancy related to administrative management and accountancy. The same can be said of the industrial sector, where mainly German and Swiss organizational experts worked for many Hungarian companies. The world-famous Bedaux office has carried out consultancy work for Goldberger. The Indorag Dutch engineering consultancy institute participated in a num ber of reorganization projects between 1933 and 1943. Development of the domestic consultancy business was very much affected by the fact that, after the war, the views which were then very popular in the Soviet Union were adopted, according to which the independent existence of a science of management and organization was absolutely unnecessary. At the beginning of the 1950s, many institutions which had been created to facilitate company management and organization ceased to exist. This tragic situation had improved only marginally by the end of the 1950s, when the first sectoral organization institutions were founded. Since then, the profession has changed markedly. One of the most important changes is that different sectoral organization institutions have gradu ally been transformed into companies. Following the cessation of the sectoral ministries of industrial man agement, totally independent organization and consultancy institutions have been formed. The job of experts working for various organization institutes or for their legal successors was the target of many criticisms,

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both just and unjust. Professional management and business consul tancy undertaken by a third party organization for different clients became fashionable again in Hungary in the mid-1980s and numerous factors played their part in this change: • foreign consultancy firms played a very important role in shaping the new consultancy culture; • start-ups and the rapid pace of privatization provided many assignments for consultants; • companies that were purchased and transformed by foreigners and major greenfield investments offered opportunities for many new consultancy tasks; • numerous publications were issued in order to support universitylevel management consulting faculties, such as Budapest Univer sity of Economic Sciences and the Faculty of Economics of Janus Pannonius University at Pécs; • the books and published articles of Milan Kubr were translated into Hungarian; • professional organizations, having responsibility for basic profes sional and ethical conditions of management consultancy1 and other consultancy areas have been formed. The first representatives of foreign consultancy firms had already appeared in Hungary at the beginning of the 1970s. They were more prevalent at the time of the launch of the World Bank’s restructuring programmes. The first joint ventures in consultancy were established in the mid-1980s, mainly in cooperation with German, Austrian and Swiss companies. From the end of the 1980s, the expansion of consultancy firms with Anglo-Saxon origins has been rising continuously. However, any consultant working in an international business environment soon has to realize that what is good in San Francisco may not work in a Hungarian family venture.

P resent develo pm ents In Hungary, consultants can be found in all areas of business life. The Hungarian management consultancy market is considered to be the most developed in Central and Eastern Europe. It houses companies specializing exclusively in management consultancy disciplines — accountancy-based, informatics, companies of US origin, small and medium-sized independent companies, actuarial companies, companies reliant on business schools, very small businesses and one-man bands — 1 Poor, J (ed) (2001), Management Consulting Handbook [in Hungarian], KJK-WaltersClouver Publishing House, Budapest.

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Doing Business with Hungary

and external contractors, such as engineering-technical services, corpo rate image, advertising and marketing agencies, head-hunters and consultants specializing in environmental protection. Today there are more than 3000 consultants working in the market. The average Hungarian daily consultancy fee varies between €1000 and €2000. The Hungarian Association of Management Consultants, established in 1990, plays a significant role in the development of management consultancy in the country.2 However, the majority of Hungarian consulting firms belong in the medium- and small-sized category, mostly offering specialized manage ment consulting services with a clientele drawn mainly from SMEs. T a b le 4.14.1 Distribution of consulting revenues among small and large

companies 3 Firm categories

Europe (%)

Hungary (%)

53

Top 20 MC firms

47

Medium-sized MC firms

42

0

Small MC firms

11

47

100

100

Total

In 1999, the Hungarian Association of Management Consultants together with the National Association of Managers and the Joint Venture Association surveyed top managers among clients forming the membership of these associations. They were asked about their demand for consultancy services and their opinion of consultants and the following picture was drawn from their answers: •

Enterprises have already employed internal and external consul tants in many fields of management. Almost all companies have already engaged external consultants, auditors and tax advisers in the fields of finance, education and training, in addition to organizational development and quality assurance experts in areas of management organization. In addition to these examples, almost all companies questioned had already outsourced IT consultants.

2 The following sources provide useful information on the Hungarian situation: Antal Zs. A. Angyal (1994), Attractive Job: Management Consulting [in Hungarian], University of Economics, Budapest; Hovânyi, G. (1997), Management Consulting [in Hungarian], University Pécs; and Gazdag, M. (2001), ‘Key Trends in Management Consulting in Hungary during the Last Four Decades’ [in Hungarian], in Klein, S., Organization and Management Psychology [in Hungarian], SHL Publishing House, Budapest, pp 646-50. 3 Baukovacz, K-. Kornai (2002), ‘Hungarian consulting market’, in Poor, J. (2002) (ed) Management Consultancy and its Central and Eastern European Dimensions.


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• In the field of marketing, companies prefer to employ internal experts. However, practice differs in certain areas such as market research and analysis, advertising campaigns and promotions, where outsourcing is preferred. • In finance, besides employing outside consultants, companies have extensive internal resources in taxation and accounting. Typically, construction and investment consulting are playgrounds for internal experts. • Outsourcing is least significant in management organization and all types of rationalization projects relating to purchasing, manu facturing, warehousing and sales, where companies prefer to employ internal experts. • In most companies, consultancy firms are invited to undertake ad hoc projects, and the number of companies using consultants continuously or regularly is relatively low. No advantage related to the assignment of an external consultant is perceived if the consulting company is foreign. Respondents said either that they prefer Hungarian consultancy firms or that the nationality of the owner of the consultancy firm does not make any difference. This result is significant, because the majority of respondent companies in the survey were in foreign ownership or a joint venture. • In general, for the companies participating in the survey, ex periences gained in relation to the engagement of outside consultancy companies were favourable. Almost all companies had a positive view of the particular consultancy firm that was the most important to them. Competence, flexibility and meeting deadlines were the positive attributes receiving the most mention. Only slight negative feedback was received and referred mainly to the consultancy companies rated as second, third or fourth. However, in one aspect even the consulting company rated as most important received a ‘criticism’: its services were considered to be expensive. • In evaluating the performance of external consultants, companies gave marks on a scale of 1 to 5. Usually marks of 3, 4 and 5 were given, according to specific criteria. Looking at the various aspects of consultancy work, professional com petence and efficiency were rated highest, while speed of performance and complexity of services scored lowest. Financial and management organization consultants were rated highest; they were usually marked 4 or 5 on a scale of 1 to 5. The questionnaire also enquired about specific reservations and issues that can arise in relation to consultants and their job perfor mance. In most cases, two difficulties interrelating with each other were

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mentioned: on the one hand, consultants are generalists and schematic in thinking (while problems are specific and individual in nature); while, on the other hand, their advice cannot be implemented or translated into the actual situation. In the price versus quality of service comparison, there was a general notion that price is higher than the quality of the consulting service rendered, but others also said that quality and price are in line with each other. In contract assignments, consultancy firms often agree with clients on a follow-up visit at 3—6 months or finally at one year after completion of a project. During this follow-up meeting they evaluate jointly with the client the result of the project and the problems that have emerged subsequently. With regard to the presence of consultants, ratios for the Hungarian market have become very close to those of developed countries, with 2000-3000 in the industry against a population of 10 million. However, there are significant lags in daily fee scales (threefold—fourfold) and in per capita annual sales incomes (twofold). In the domestic market, the familiar trends that were noted include company mergers, rapid growth connected to informatics and growing market competition. Hungary has been an associate member of the International Council of Management Consultancy Institutes (ICMCI) since 1991. Full mem bership was awarded in 1996. The first certification occurred in 1994 when six local consultants were certified by the Institute of Manage ment Consultancy (UK). Today, there are 125 Certified Management Consultants (CMCs) in Hungary. The CMC Committee works within the Hungarian Management Consultants Association.

In creasin g im p o rta n c e o f HR Since the importance of HR has become acknowledged in the Western world, more and more companies are making a concerted effort to improve the effectiveness of their HR management. It is widely believed that the conventional sources of competitiveness (including protected markets, technology, access to financial resources, and economies of scale) are insufficient to maintain a competitive advantage in today’s markets. Many authors think that the human factor (knowledge, skills and behaviour) is the key to sustaining long-term competitiveness. Following a decade of privatization and acquisition, new owners and managers continue to ask the following questions: ‘How can I operate the staff and the organization as effectively as possible?’ ‘How can the available human resources contribute, and continue to contribute, to building viable 21st-century organizations?’ There are an ever-increasing number of jointly or wholly-owned foreign ventures in Hungary. They employ Western management


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philosophies, systems and procedures. The application of accepted man agement practices and the proper management of human resources are important to these multinational corporations. However, it should be noted that the Hungarian economy continues to suffer from the values, habits and business practices inherited from the former system. In particular, egalitarianism, low respect for supervisors, low work ethics and the party influences of the former economy are still present and will require more time and effort to dismantle. Consequently, many multi national firms simply try to avoid these problems by hiring young people who are not overwhelmed or influenced by these inherited factors. Today, the majority of companies in the competitive sectors of the Hungarian economy have finished changing their structure following privatization. More or less recently they have left behind them the reconstruction of the different company functions. With the intensifica tion of competition, continuous renewal is being emphasized. In this environment, the role of HR becomes particularly important. With the advent of the new economy, knowledge becomes the motivating force. An increasing number of theorists and experts claim that privatiza tion does not automatically improve the effectiveness of government, companies and social welfare systems. On the contrary, it may well increase opportunities for corruption and bribery. When a company is privatized or managed by Western-type business rules, there is no guarantee that the values and mindsets of the people involved will change accordingly. The adoption of all the financial, legal, technical and sales frameworks in a privatized local company or in companies with foreign participation represents only the first stage in the creation of a Western-type enterprise. Once all this is in place, one must start to consider how to get the people and the organization to perform in a competitive manner. Even the best financial infrastructure in the world will not turn companies around from a command economy to a market economy if the people and the organization do not perform appropriately. F ig u r e 4.14.1 Changes to the consultant’s role Pre-privatization

Post-privatization

Continuous improvement Coacher, helper

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Today, there are increasing signs that in Hungary other areas of consulting business, besides financial and privatization consulting, will also emerge. Until the end of the 1990s, the role of the consultant in the consultant-client relationship was basically similar to that of a supplier who provides different products and services. Within a certain period of time, the consultant drafted a rather extensive report, which was then ‘delivered’ to the client together with an accompanying letter or in a presentation. In the last two or three years, this relationship has gradually grown into a mutual partnership aimed at enhancing the effectiveness of the client. As the world has turned upside down, the question now arises: ‘What is the future for consulting in the new millennium in our region?’ Mysteries have always existed and they will continue to exist in the future. The same is true for consulting in Hungary. Historians know that the calendar is usually a bit ‘off.4 In line with this notion, the new millennium in Hungary probably started with the change of regime. It was often said that the whole transformation process was incredible and that everything happened so unexpectedly. Perhaps, therefore, events were ahead of their time. But there is nothing to be done about it now; it is important to carry on and to keep up the momentum. If nations of Western Europe were able to give up their national currencies, then people in this region will have to bury the hatchet for the sake of a more effective integration. They have to leave behind their nationalism, which persists on imaginary or real grounds. The new era creates new opportunities both for traditional consulting (facilitating change, coaching) and for new (cross-border, intercultural) consulting activity.

4 ‘The Start of the 21st Century’ (2001), The Wall Street Journal Europe, 31 December, p 8.