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Country Commercial Guides
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CHAPTER IV. MARKETING U.S. PRODUCTS AND SERVICES
A. Distribution and Sales Channels
Retail and wholesale distribution is developing toward western standards in Hungary. In the past, large, state-owned monopolies controlled distribution, which was largely supply-driven. During the transition period since 1989, the monopolistic state-controlled trading companies have been privatized and/or broken up, but a smooth-working demand-driven system has not fully developed and some inconsistencies remain. Selection in size and styles, particularly in clothing and apparel, still needs to improve. However, the use of newer technologies, such as electronic data interchange (EDI), is beginning to significantly improve delivery of goods. Large-scale wholesaling is still embryonic and it is not unusual for retailing and wholesaling to be combined, sometimes even together with manufacturing. Although Hungary's retail sector now includes some larger department stores and supermarkets, small family-run stores are still quite common. Examples of foreign chains with operations in Hungary include Auchan (France), Metro (Germany), Michelfeit (Austria), Ikea (Sweden), Baumax (Germany), Humanic (Austria), Julius Meinl (Austria), Penny Market (UK), Cora (France), Marks & Spencer (UK), and Tesco (UK). A Hungarian corporation, Fotex Holding Co., has made a significant impact on the retail sector. Fotex is involved in such diversified market segments as optical, film developing, audio media, household appliances/consumer electronics, cosmetics and furniture. Recently, indoor shopping malls have arrived in Hungary and are now rapidly expanding throughout the Budapest capital area, as well as in such major cities as Gyor, Székesfehérvár, Debrecen, Miskolc, Pécs, Szeged, Kecskemét, Szombathely, Nyíregyháza, Szolnok.
B. Use of Agents and Distributors
The use of local agents and distributors is recommended in those instances when establishing a sales subsidiary is not feasible. The Commercial Service of the U.S. Embassy can provide a head start to firms seeking an agent or distributor in Hungary through its Agent/Distributor Service (ADS) or Gold Key program. Further information can be obtained by contacting Department of Commerce District Offices in major cities in the United States or the Commercial Service in Budapest (see contact numbers at end of this Guide).
C. Franchising
Selling sub-franchises, providing financing, setting lower master franchise fees or using foreign master franchisees is the key to succeeding in the Hungarian franchise market. Franchising is still relatively underdeveloped in Hungary compared to U.S. or West European standards. As a proportion of the retail sector, it lags considerably behind the United States, Japan, and the EU. However, inefficiencies in the delivery of goods and services and a developing middle class suggest that there are significant opportunities in franchising. Currently, there are about 200 franchise operations in Hungary. About half of these are foreign owned. Certain well-managed franchisers, such as McDonald's (70 restaurants), Burger King (13 restaurants), Pizza Hut (17), and Kentucky Fried Chicken (restaurants) have been rather successful. Porst (a German film developing chain), Eastman Kodak, Adidas, and car rental companies like Hertz are also well established.
D. Direct Marketing
Direct marketing is still in its incipient stages. Telephone and direct mail solicitations are only now being exploited, due in part to improving telephone services (including frequently changing numbers). Alternate forms of marketing such as personal presentation marketing have been successfully employed by such firms as Avon, Amway, Oriflame (Sweden) and Tupperware. With the increasing penetration of cable and satellite TV and the growing availability of credit cards, home shopping channels are targeted to a growing segment of the population.
E. Forms of Business
Forms of business under Hungarian law include: joint stock limited company ("Részvénytársaság or Rt."); limited liability companies ("Korlátolt Felelosségu Társaság or Kft."); general partnerships ("Közkereseti Társaság or Kkt."); limited partnerships ("Betéti Társaság or Bt."); cooperatives; sole proprietorships; and non-profit organizations ("Kht."). Sole proprietorships comprise a significant chunk (over 65 percent) of all Hungarian businesses. Foreign investors prefer limited liability companies.
Act CXXXII, currently in effect, allows the formation of branch offices of foreign companies beginning with January 1998. This act is applicable to companies established after June 16, 1998.
In addition to the forms of business described above, foreign companies may establish a Representative Office, Service Office or Information Office, which are allowed to conduct marketing and technical support but not engage in trade.
F. Joint Ventures/Licensing
The establishment and operation of joint ventures in Hungary has been permitted since 1972. The foundation of companies operating with foreign participation is subject essentially to the same treatment as that of exclusively Hungarian-owned companies. In 1989, the earlier licensing procedure was abolished and today it is sufficient to have the company simply incorporated in the Trade Register. Foreign investors are allowed to purchase shares in Hungarian firms up to 100 percent majority participation. Joint ventures and 100 percent foreign-owned ventures -- as all businesses in Hungary -- are entitled to pursue foreign trade activities.
It is also possible to establish joint ventures in duty-free zones. In Hungary, in contrast to certain other countries, there are no specific duty-free zones delineated for establishing joint ventures. The land area of any enterprise or that of plants already existing or under construction can be declared as a duty-free zone by customs authorities.
Since January 1, 1994, the establishment of offshore companies is also permitted in Hungary. Under the law on corporate taxation, offshore companies enjoy an 85 percent tax preference. An offshore company must be a limited liability company or shareholders' company registered in Hungary, and must be wholly foreign owned.
G. Steps to Establishing an Office
Registration of a new business entity must be applied for at the Court of Registration. A new Companies Act (Act CXLV of 1997), which came into force on June 16, 1998, is intended to substantially reduce the time required to register a new company. If the Court fails to act on the registration within 30 days for limited liability companies (Kft.) and joint stock companies (Rt.) and within 60 days for unincorporated business entities, the registration becomes effective automatically.
U.S. entities planning to set up businesses in Hungary are advised to consult with an experienced attorney and accounting firm. (Lists of law and accounting firms may be obtained from the U.S. Embassy's commercial or consular offices.) In addition, it should be noted that obtaining and renewing work and residence permits has become increasingly onerous as the government attempts to crack down on illegal residents. U.S. businesses are urged to hire a law or accounting firm or a company that specializes in this type of work to assist with the process.
H. Selling Factors/Techniques
Hungarian purchasing decisions are increasingly subject to sophisticated print and electronic media techniques. Billboards and kiosks are layered with the latest ads, skewed to young people and the rising middle class, with promotions of "trendy" western lifestyles. It should be noted, however, that shoppers of all ages and lifestyles often exhibit loyalty to Hungarian products perceived to be of high quality. For mainstream Hungarian consumers, price and traditional habits (e.g., frequenting the local shopkeeper) still govern purchasing habits. Consumer campaigns, special offers and discounts are becoming increasingly common marketing practices in Hungary today.
I. Advertising and Trade Promotion
Most large Hungarian firms engage in some form of advertising. The most popular media (in order of preference) are television, radio, press, and outdoor billboards/signs. The Competition Law prohibits advertisements that mislead consumers or endanger the reputation of competitors. The Advertising Law passed in June 1997, liberalized advertising, including lifting a ban on advertising alcohol, tobacco and pharmaceuticals.
LIST OF NEWSPAPERS/PERIODICALS
Major Dailies:
Major Dailies:
Napi Gazdaság (Daily Economy) 1135 Budapest Csata utca 32 Tel: 350-4349 Fax: 350-1117 E-mail: napi@mail.elender.hu Homepage: www.napi.hu Mr. Ádám Dankó (202-4962)-- Editor in ChiefVilággazdaság (World Economy) 1016 Budapest Naphegy tér 8 Tel: 375-6722/Ext.2004 Fax: 375-4191 E-mail: vg@vilaggazdasag.hu Homepage: www.vilaggazdasag.hu Mr. András Bánki (202-4962) -- Editor in Chief
Népszabadság (People's Freedom) 1034 Budapest Bécsi út 122-124 Tel: 250-1680 Fax: 368-9098 E-mail: Homepage: www.nepszabadsag.hu Mr. Pál Eötvös -- Editor in Chief
Magyar Nemzet (Hungarian Nation) 1133 Budapest Visegrádi utca 110-112 Tel: 359-0500 Fax: 359-0651 E-mail: level@mail.magyarnemzet.hu Homepage: www.magyarnemzet.hu Ms. Valéria Kormos -- Editor in Chief
Népszava (People's Voice) 1022 Budapest Törökvész út 30/a Tel: 326-8272 Fax: 326-8267 E-mail: nepszava@nepszava.hu Homepage: www.nepszava.hu Mr. H. László Bíró -- Editor in Chief
Magyar Hírlap (Hungarian News Journal) 1087 Budapest Kerepesi út 29/b Tel: 210-0050 Fax: 334-0712 E-mail: levelek@magyarhirlap.hu Homepage: www.magyarhirlap.hu Ms. Ilona Kocsi - Editor in Chief
Major Weeklies and Periodicals:
Figyelo (Observer) 1071 Budapest Városligeti fasor 47-49 Tel: 344-9356 Fax: 351-0325 E-mail: figyelo@vnubp.hu Homepage: www.figyelo.hu Mr. Miklós Merényi -- Editor in Chief
Heti Világgazdaság (World Economy Weekly) 1124 Budapest Németvölgyi út 62-64 Tel: 355-5411 Fax: 355-5693 E-mail: hvgrt@hvg.hu Homepage: www.hvg.hu Mr. Iván Lipovecz -- Editor in Chief
English-Language Publications:
The Budapest Sun 1122 Budapest Városmajor utca 13, II Tel: 214-0390 Fax: 214-0388 E-mail: editor@bpsun.hu Homepage: www.budapestsun.com Mr. Chris Coward - Managing Director
Budapest Business Journal 1055 Budapest Szent István körút 11, III Tel: 374-3344 Fax: 374-3345 E-mail: editor@bbj.hu Homepage: www.ceebiz.com Mr. Chris Murphy - Managing Editor
EcoNews (Daily Hungarian Economic and Business News Service) 1016 Budapest Naphegy tér 8 Tel: 375-6722,318-8204 Fax: 201-2209 E-mail: Homepage: Mr. Ádám Dankó -- Chief Editor
J. Pricing Issues
State subsidies and price controls for many products have been eliminated, allowing prices to be determined by market forces. Although the Hungarian Government continues to subsidize basic services such as utilities, mass transit and pharmaceutical products, recent price increases are bringing rates closer to market pricing principles. U.S. exporters should note that Hungarian consumers are price sensitive; however, an expanding middle class is taking hold and slowing inflation seems to have helped in stabilizing fluctuating consumer sensitivities.
K. Sales Service/Customer Support
In general, sales service and customer support has been a weak link in the area of consumer trades. However, with increasing penetration by western firms and stiffer competition for value-added services, responsiveness to customer needs and demands is growing. Operations that deal with the professional business public are implementing many new customer-oriented techniques.
L. Selling to the Government
The Act on Public Procurement of 1995 requires open tenders for government purchases of goods exceeding HUF 10 million ($53,000 at the average 1995 exchange rate) and services over HUF 5 million ($26,500). Although these requirements have led to greater transparency and fairness in government procurement, problems have surfaced in recent tenders.
An important development for defense contracts has been Hungary's offset policy. For big-ticket military purchases, such as a recently concluded missile tender and a potential fighter aircraft tender, the government requires 100 percent offset. This can take the form of direct offset, investment or export facilitation.
M. Protecting Your Product from IPR Infringement
In September 1993, Hungary signed a comprehensive intellectual property rights (IPR) agreement with the United States. The agreement addresses copyright, trademarks and patent protection. The U.S. government tracks the Hungarian government's enforcement on a regular basis to ensure compliance with the agreement.
Hungarian patent legislation provides protection for a twenty-year period under condition that the patent be used within four years of the date of application or three years from the date of issue. Copyright protection is extended to literary, scientific, and artistic creations, including software. Trademarks can be registered in Hungary; however, the process can take from six months to a year. Foreigners are required to appoint a local attorney to represent them. Registrations are valid for ten years and can be renewed.
U.S. companies have concerns about trademark infringements, particularly in retail clothing and food products, and appropriation of pharmaceutical patents. A major complaint with respect to IPR protection in Hungary has been the lack of enforcement, particularly in the areas of software, sound recordings, videotapes, movies, and cable TV. Another complaint is that in cases of infringement, court proceedings can be very time consuming and injunctive relief is difficult to receive.
N. Need for a Local Attorney/Accountant
As a standard practice, legal counsel should be retained when engaging in business in Hungary. All legal work in Hungary must be completed by attorneys who are accredited to practice law in Hungary. Many contracts require notarization as well. Several leading U.S. law firms maintain representational offices in Hungary and provide a wide range of services for their clients. An experienced accounting firm should be consulted as well. Lists of accounting and law firms may be obtained from the U.S. Embassy's commercial and consular sections.
O. Performing due Diligence/Checking Bona Fides of Banks/Agents/Customers
This field is in its embryonic stages in Hungary but rapidly developing with a growing need to monitor banks and/or agents and their clientele. According to a major U.S. bank, the Credit Reporting Law (Hitelintézeti törvény) regulates some of the checks, but currently it is an option for a bank domiciled in Hungary to be party to this agreement. The following institutions currently provide credit checks and similar services to customers: Credit Reform Interinfo Kft. (German), Reuters, Girodat Információ-Szolgáltató Rt. and Dun & Bradstreet. The U.S. Commercial Service also evaluates the bona fides of Hungarian business entities. This service, known as International Company Profile, may be ordered from Department of Commerce District Offices in major U.S. cities.
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[end of document] Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title 17, United States Code.
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