Corporate responses to the economic crisis:The Hungarian case
Ágnes Czibik (GVI) – Ágnes Makó (GVI) – István János Tóth (MTA KTI)
http://www.gvi.hu/
HCCI Institute for Economic and Enterprise Research
30th CIRET Conference – Economic Tendency Surveys and the Services Sector
New York City, Westin New York at Times Square
14 October 2010
23.04.18. 12:05 http://www.gvi.hu/ 2
Topics
• Motivation of the research
• Hungary in a nutshell - main problems of the economy
• Business situation and adaptation - results of three ad-hoc surveys
• Conclusions
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
Motivation
• A special crisis beyond the business cycle: structural changes – what happens to companies?
• Ad-hoc survey on business climate and on the reactions of firms – do they react as usual or is it special?
• Loan market crisis – examining companies with loan
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
Hungary
• Central-Eastern Europe
• Area: 93 030 km2
• Population: 10 001 000 (July 2010)
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
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Main problems of the Hungarian economy
-8
-6
-4
-2
0
2
4
6
8
GDP growth rate in Hungary and in the EU, 1996Q1-2010Q2 (100%=corresponding period of the previous year)
European Union (27 countries)
Hungary
Source: Eurostat
Crisis before the crisis
• " Crisis before the crisis ": long period of recession 2006.Q3 -2007.Q4
• Governmental measures
• EU-markets
• Beginning of the recovery - world crisis : 2008.Q2 – dramatic deterioration
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
Lost position
40
45
50
55
60
65
70
75
80
85
90
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
GDP per capita in Purchasing Power Standards (PPS) in Central-Eastern Europe (EU-27 = 100), 1995-2009
Hungary
Slovakia
Poland
Czech Republic
Source: Eurostat
• Falling behind the Central European region
• Per capita GDP: 63% of theEU-27 (2009)
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
Lost position
40
45
50
55
60
65
70
75
80
85
90
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
GDP per capita in Purchasing Power Standards (PPS) in Central-Eastern Europe (EU-27 = 100), 1995-2009
Hungary
Slovakia
Poland
Czech Republic
Source: Eurostat
• Falling behind the Central European region
• Per capita GDP: 63% of theEU-27 (2009)
• Slovakia: overtook in 2006
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
Lost position
40
45
50
55
60
65
70
75
80
85
90
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
GDP per capita in Purchasing Power Standards (PPS) in Central-Eastern Europe (EU-27 = 100), 1995-2009
Hungary
Slovakia
Poland
Czech Republic
Source: Eurostat
• Falling behind the Central European region
• Per capita GDP: 63% of theEU-27 (2009)
• Slovakia: overtook in 2006
• Poland: catching up
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
Lost position
40
45
50
55
60
65
70
75
80
85
90
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
GDP per capita in Purchasing Power Standards (PPS) in Central-Eastern Europe (EU-27 = 100), 1995-2009
Hungary
Slovakia
Poland
Czech Republic
Source: Eurostat
• Falling behind the Central European region
• Per capita GDP: 63% of theEU-27 (2009)
• Slovakia: overtook in 2006
• Poland: catching up
• Czech Republic: keeping good position
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
Extremely high deficit
-10
-8
-6
-4
-2
0
2
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
General government deficit in Hungary and in the EU,percentage of GDP, 2000-2009
EU (27 countries)
Hungary
Source: Eurostat
• One of the countries with the highest deficit in the EU
• Governmental measures in 2006
• Decrease of government deficit
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
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50
52
54
56
58
60
62
64
66
68
1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Employment rate in Hungary and in the EU (15 to 64 years),1997-2009
European Union (27 countries)
Hungary
Source: Eurostat
• One of the countries with the lowest employment rate in the EU
• Reasons: transformation shock, tax burden, black work
• Crisis – between 2008.Q4 and 2010.Q1: the number of employed decreased by 200 000
Low employment
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
A "province" of Germany?
90
92
94
96
98
100
102
104
106
108
110
GDP growth rate in Hungary and Germany, 2005Q1-2010Q2 (100%=corresponding period of the previous year)
Germany
Hungary
Source: Eurostat
2009:
• Small open economy: export/GDP=64%
2008:
• 24% of FDI from Germany
2009:
• 25,6% of export
• 24,8% of import
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
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Business situation and adaptation - results of three ad-hoc surveys
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
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Survey parameters• Period: March and June 2009, March 2010
• Survey method: CATI
• Sample: Hungarian enterprises, quota sampling by bank loans
• Sectors: manufacturing, construction, trade and other services
• Case numbers: 314 companies in March, 302 companies in June, 300 companies in March 2010. Panel database: N=184
• Test of homogeneity: identical sample distribution by company size and sectors
• The research was supported by the National Office for Research and Technology, Jedlik Ányos Programme. (Project number: NKFP_07_A2-TEXTREND, Contract number: OM-00002/2008)
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
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Special Crisis Climate IndexCCI = (a1 + a2 + a3 + a4 + a5) / 5
Name Definition Categories
a1 Changes in the volume of domestic sales down, unchanged, up
(-1, 0, 1)a2 Expected changes in the volume of domestic sales down, unchanged, up
(-1, 0, 1)a3 Expected change in the volume of investment no investment,
down,unchanged, up
(-1, -0,33, 0,33, 1)a4 Expected changes in the number of employees down, unchanged, up
(-1, 0, 1)a5 Average gross changes in employees’ wages in the given year decrease, remain stable,
increase (-1, 0, 1)
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
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Results
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
Companies with credit: barely different CCI
• Companies with credit were in worse situation only in March 2009
• The difference disappeared
Crisis Climate Index by credit,March 2009 - March 2010
-0,24-0,26
-0,04
-0,29-0,27
-0,03
-0,35
-0,30
-0,25
-0,20
-0,15
-0,10
-0,05
0,00
March 2009 June 2009 March 2010
no credit
credit
Source: IEER
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
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Exporting firms: steep falling - faster recovery
Crisis Climate Index by the rate of export in total salesMarch 2009 - March 2010
-0,22-0,24
-0,07
-0,34
-0,29
-0,03
-0,26 -0,27
0,07
-0,40
-0,35
-0,30
-0,25
-0,20
-0,15
-0,10
-0,05
0,00
0,05
0,10
March 2009 June 2009 March 2010
no export<51%50%<
Source: IEER
• Crisis: driven by narrowing of export markets
• Exporting firms’ CCI were positive in March 2010
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
Clustering method• Does the developed/less developed dichotomy appear in the
data?
• Two clusters for „developed” and „less developed” companies
• Clustering by export, foreign ownership, net sales revenue, number of employees
Error F Sig.Mean Square df Mean Square df
Foreign ownership 8,60 1 0,17 877 50,74 0,00Net sales revenue 864,36 1 0,48 877 1792,32 0,00Export 6,80 1 0,55 877 12,44 0,00Number of employees 857,70 1 0,68 877 1256,45 0,00
ANOVACluster
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
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CCI by two different type of firms
• Developed firms were in better situation in all three surveys
• Absence of Dec 2008 survey
Crisis Climate Index in the two types of companies (March 2009 - March 2010)
-0,31
-0,37
-0,11
-0,24
-0,18
0,02
-0,40
-0,35
-0,30
-0,25
-0,20
-0,15
-0,10
-0,05
0,00
0,05
Dec 2008 March 2009 June 2009 March 2010
less developed (cluster 1)
developed (cluster 2)
Source: IEER
?
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
Regional impacts of the crisis
• Crisis reached first the developed regions (West and Central Hungary)
• Index of registered unemployment rose first here
Sept 2008
March 2009
June 2009 March 2010
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
Dec 2008
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Corporate responses
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
Main questions
• Ordinal or special reactions?
• Consciousness in corporate strategies or trial and error?
• Which measures were effective?
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
Measures examined
• First survey: 18 measures
• Afterwards: the 13 most common measures
Strategic measures
• Seeking new markets
• Launching new products
• New strategic plan
Measures related to employment
• Layoffs
• Freezing or cutting wages
• Shorter working hours
Cost cutting measures
• Postponing investments
• Cutback of noncore services
Other measures
• Reducing receivables
• Reducing dependence on suppliers
•Reducing short-term debts
•Government and EU benefits
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
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• Average number of applied measures:
2009 March: 5,5
2009 June: 5,6
2010 March: 5,8
•„All potential measures for surviving”
More variability in the first period
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
Corporate responses to the economic crisis from March 2009 to March 2010 (%, N: between 279 and 314)
0
10
20
30
40
50
60
70
80
90
March 2009 June 2009 March 2010
Seeking new markets
Reducing receivables
Reducing dependence onsuppliersReducing short-term debts
Postponing investments
New strategic plan
Cutback of non-core services
Launching new products
Freezing or cutting wages
Layoffs
Shorter working hours
Government and EU benefits
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•Worse situation – more measures
•Different measures?
CCI by the the number of applied measures
IEER Crisis Climate Index by the number of the applied measures by firms (March 2009 – March 2010)
-0,18-0,15
-0,01
-0,29 -0,30
-0,05
-0,49
-0,43
-0,06
-0,6
-0,5
-0,4
-0,3
-0,2
-0,1
0,0
March 2009 June 2009 March 2010
under 5measures
5-9measures
above 9measures
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
Corporate responses: employment and strategic measures
Corporate responses to the crisis 1.Proactive measures
0
10
20
30
40
50
60
70
80
90
March2009
June 2009 March2010
Seeking newmarkets
New strategicplan
Launchingnew products
Corporate responses to the crisis 2.Employment
0102030405060708090
March2009
June 2009 March2010
Freezing orcutting wages
Layoffs
Shorterworking hours
•Less layoffs in 2010
•Shorter working hours rarely applied
•Significance of seeking new markets
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
Corporate responses: cost cutting and other measures
Corporate responses to the crisis 4. Other measures
0
10
20
30
40
50
60
70
80
90
March 2009 June 2009 March 2010
Reducingreceivables
Reducingdependenceon suppliersReducingshort-termdebts Governmentand EUbenefits
• Significance of government benefits is growing
• Postponing investments and cutback of non-core services are also prevalent
Corporate responses to the crisis 3. Other costcutting measures
0102030405060708090
March 2009 June 2009 March 2010
Postponinginvestments
Cutback ofnon-coreservices
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
The most effective measures
• Seeking new markets
• Freezing wages
The most effective corporate responses to the crisis March 2010
1,9
2,6
3,9
4,0
4,6
5,3
7,4
7,7
9,0
13,2
14,5
22,5
0 5 10 15 20 25
Shorter working hours
Government and EU benefits
Layoffs
New strategic plan
Reducing dependence on suppliers
Reducing short-term debts
Launching new products
Postponing investments
Out-sourcing non-core services
Reducing receivables
Freezing or cutting wages
Seeking new markets
%
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
Companies’ most effective measures and the CCI
•Firms with higher CCI: government benefits, new products, new strategic plan
•Lower CCI: cost cutting
•Low case numbers
IEER Crisis Climate Index by the most effective response to the crisis according to the firm (March 2010)
-0,4 -0,3 -0,2 -0,1 0 0,1 0,2 0,3 0,4 0,5 0,6
Shorter working hours
Freezing or cutting wages
Reducing dependence on suppliers
Out-sourcing non-core services
Reducing short-term debts
Layoffs
Seeking new markets
Postponing investments
Reducing receivables
New strategic plan
Launching new products
Government and EU benefits
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusion
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Conclusion
• In an open economy like Hungary the crisis was driven mainly by narrowing of export markets. Credit crisis was secondary.
• Exporting firms’ business situation worsened earlier but they also seem to recover earlier
• Companies tried to apply many measures to minimize the unfavourable impacts of the crisis. Worse CCI – more measures.
• Connection between CCI and type of most effective measure
• Firms with worse situtation: cost cutting
• Firms with better situation: strategic measures
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusion
Further research
• Further surveys – more data – higher case numbers
• More complex analysis, methods
• Following Hungarian firms’ situation and activity throughout the crisis
Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusions
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Thank you for your attention!
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