1. The importance of small and medium-sized businesses
Medium and small enterprises are of critical importance to the Hungarian economy as well. Not including the financial and agricultural sectors, they account for over one-third of the gross value added produced in the economy (defined as the difference derived from the difference of the value of output and value of intermediate consumption), and one-third of all employees in the private sector work for medium and small enterprises.
While these indicators may be lower than the EU average, the difference actually does not seem that significant considering that the market economy and entrepreneurship only date back two or three decades in this region.
As the examples of the companies in the publication – the Group of Fifty – show, small and medium-sized enterprises have a unique function in the national economy. They play a key role in serving local and regional markets (such as Tarr Kft. in the cable market, or BILK Zrt. in logistics) and in innovation (such as Solvo Zrt. and Diagon Kft. in healthcare or Cserpes Kft. in the food industry) and they also feature prominently among suppliers of large corporations (for example, CSABAcast Kft., the Karsai Group or Salgglas Zrt.). They have major significance in certain sectors such as hospitality and the food industry, and also in terms of their export performance.
2. The fifty companies
EY relied on its professional knowledge accumulated over the past 28 years and its network of contacts across Hungary in helping the Budapest Stock Exchange select its group of fifty companies and produce this publication.
As in last year, our priority in 2017 was to present Hungarian-based, Hungarian-owned or affiliated companies that are successful, can serve as inspirations to their environment and have established a sustainably long-term market position.
We aimed to ensure that the group of fifty covers the entire spectrum of small and medium-sized enterprises. Thus, in addition to typical medium-sized companies (with revenues between HUF 3 and 15 billion), we have also included a number of exemplary larger companies (such as Vajda Papír Kft., Master Good Kft. and Waberer’s International Nyrt.) as well small enterprises with revenues under HUF 3 billion (e.g. BIGPRINT HUNGARY Kft.) which are well on their way to becoming medium-sized businesses in the next 2 to 3 years as long as they are able to sustain their dynamic growth.
3. Distribution by sector
The group of fifty represents a broad spectrum of the Hungarian economy. Although we must not draw any far-reaching conclusions based on the BSE50, the fact that more than half of these companies represent various important sectors such as production (including the automotive industry in particular), food processing or the IT industry (which tends to be dominated by small and medium-sized enterprises) may not be a coincidence.
3.1. Geographical distribution
This sample of the fifty companies supports the fact that Budapest remains the centre of Hungarian economic life, with eighteen of the companies in the BSE50 located here.
At the same time, as the map above shows, we found exemplary companies in every region of the country. The interviews conducted with company heads and owners for this publication made the profound impact these rural companies have on the local economy, culture and communities clear.
3.2. Food industry
A look at the composition of the list of fifty companies reveals that quite a number of them belong to the food industry, with successful and prestigious companies featuring in basically every branch of the sector, including the poultry, the dairy, the frozen food, the meat, the grains, the food wholesale and retail and the milling industries.
The success of food processing is understandable in a country with a substantial agricultural base such as ours. We can find the products of the majority of these companies on the shelves, which makes it no surprise that they enjoy above-average recognition. The fact that a number of successful brand names (such as Cserpes, Detki, Kométa, Mirelite and Riska) are linked to these food companies also contributes to their broad recognition.
A unique feature of the food industry is the relatively high proportion of Hungarian-owned businesses compared to other sectors, and the less prominent presence of global businesses in most branches of food processing. In fact, recent years have seen Hungarian entrepreneurs take the place of multinational corporations (in the Group of Fifty, examples include the stories of Mirelite Mirsa Zrt. and Alföldi Tej Kft.).
In many cases, however, they need to compete with global brands. It is their relationship with producers, knowledge of local needs, brand recognition, product innovation or unique sales channel which give them a competitive edge. Given Hungary’s massive food export, the majority of food industry companies listed among the group of fifty are also significant exporters.
For an open economy like Hungary’s, export-ready companies are of tremendous significance. It is also no coincidence that the group of fifty includes a number of companies with successful cross-border operations. From the fifty, 14 companies earn over 50% of their revenue from exports.
Though it is a major leap for a company to make it in the international market, there is little mention of the fact that in addition to new markets, the company must also adapt to new competitors as well as new cultures – not to mention some everyday aspects of maintaining an international presence, such as business meetings taking place late in the day due to time differences or the need to travel a lot. This year’s interviews showed that perhaps the biggest challenge involved in having an international presence is for the company to be prepared for international growth and a new playing field in terms of organisational structure.
There is no universal recipe for international success. It is possible to succeed by focusing exclusively on the global market (e.g. Felföldi Kft., Solvo Zrt.), by starting to open up to new markets one step at a time (like Café Frei Kft.) or by joining an international value chain, where you need to cope in the face of fierce international competition from the very first moment (e.g. CSABAcast Kft.).
The average age of the fifty companies in the publication is 17 years. Many can trace their history to the time of the regime change.
A significant number of today’s successful medium-sized enterprises are successors of limited partnerships and business cooperatives from that era (examples include Oázis Kertészeti Kft., Szatmári Kft., Detki Keksz Kft. or Opten Kft.), or were acquired by their present-day owners during the period of privatisation. Another distinct type of companies were founded after the transition to a market economy, as a result of conscious entrepreneurial effort and planning (such as the UBM Group or Ingatlan.com Zrt.).
Though changes in ownership are relatively rare in the case of successful small and medium sized enterprises, now and then a business or part of a business changes hands (like in the case of Graboplast Zrt. and Nord-Paper Kft.) for very strong market or personal reasons.
Acquisitions, however, are far more common than company sales. Interestingly, purchases represent an important source of growth also in this sector. Of the fifty, eighteen have completed acquisitions in the course of their history (including for instance Mirelite Mirsa Zrt., Szatmári Kft. or Alföldi Tej Kft.).
In the case of the fifty, owners generally play an active role in the management of their companies. There are cases, however, when members of the management become owners (e.g. Mercarius Kft.) or when owners withdraw from active management and entrust professional managers with running the company (e.g. Rábalux Zrt.).
Among the fifty small, medium-sized and large businesses in our list, thirteen are led by women whether as managing directors, owners or – in the case of family businesses – representatives of the next generation. We hope that their example will serve as an inspiration to many and lead to a further increase in the proportion of female leaders in the future.
3.1. Family businesses
Another unique feature of the fifty is the high number of family businesses. This is hardly surprising, given that this is one of the most common forms of ownership among small and medium-sized enterprises. Perhaps what sets family businesses apart the most from other companies is that for them, handing over a stable and sustainable company for the next generation is the most important consideration. As a result, family businesses tend to focus on the medium and long term.
We classified companies where one or more family members of the majority owner work for the company as family businesses.
Intergenerational succession may be the most critical subject for family businesses. Intergenerational succession depends on a number of unique, and often emotional, factors. For this reason, it is a major accomplishment for a company to integrate the next generation into the management of the company. There are several examples of this among the Group of Fifty: at Detki Keksz Kft., Mirelite Mirsa Zrt., Oázis Kertészeti Kft., Master Good Kft. and Lakics Gépgyártó Kft., the management is at least partly composed of the second generation of the families of the owners.
3.2. Raising capital
The majority of small and medium sized enterprises try to rely primarily on their own resources and their owners tend to be somewhat cautious about involving external resources, whether in the form of loans or capital resources. Among the fifty there are a number of companies which, even when deciding to take out a loan, found it important to repay it as soon as possible. Several owners and managers aim to retain the family nature of their companies, which means it is a central component of their long-term strategies for the company to remain within the ownership of the family. There are also several examples among the Group of Fifty of owners who were able to put their companies on track after raising capital.
The additional benefits of involving a carefully selected co-owner are not always immediately apparent. A new approach or simply the process of having an external observer gain insight into established practices is sometimes enough to move a company forward and have a positive impact.
This year’s BÉT50 publication features a number of companies which have successfully involved external resources in order to finance their growth, or are about to do so. We have also seen examples of securing funding to help overcome high entry thresholds (Visual Europe Group) or to help finance growth (e.g. Carboferr Zrt.).
There are also examples where the reason for involving external resources is to finance unique and innovative solutions, like Inwatech Kft., which launched their new solution with the help of venture capital.
Regardless of the purpose of raising capital, the capital market offers companies an opportunity to get resources while retaining control. The IPO of Waberer’s International Nyrt. was the largest entry into the capital market of the past twenty years in Hungary, which is why the company is once again featured in the BSE50 list.
Several companies in the fifty are already listed on the stock exchange (such as Waberer’s International Nyrt. as well as UBM Nyrt.) or aspires to enter a specific market of the stock exchange, like Graboplast Zrt. or Carboferr Zrt. The latter is planning to raise capital through the BSE’s SME platform, to be launched in the near future, to finance its growth.
In addition to the above, the revised legal framework of regulated real estate investment companies provides a new opportunity for the operation of property investment businesses. These changes to the regulations have created an operating environment that is competitive on a European level, and so it comes as no surprise that switching to his new company form features in the plans of many companies, including Gránit-pólus Management Zrt.
The stories of the fifty businesses illustrate that the product of an entrepreneur’s work is not the goods or services the company provides, but the business itself, built over the years of hard work. The widespread adoption of the concept “my company is my product,” which the BSE50 publication also hopes to contribute to, is indispensable for promoting both the visibility of companies and the development of capital markets.