Part one of this post looked at the Swedish story. Arguably the single most innovative of all of the small countries in Europe, Sweden (and Stockholm in particular) remains miles ahead of all other European countries (including Ireland) when viewed in terms of the international impact of its startup scene relative to its small size.
This second part looks at Hungary, and specifically the city of Budapest as a hub for innovation and startup activity and while Hungary cannot compare with Sweden in terms of its global impact to date, the story of the evolution of technology startups in Hungary has some parallels with the Irish experience and potentially some useful models to borrow from.
Emerging in the past twenty-five years from the shadow of its Soviet bloc history, Hungary has developed into one of the leading development centres for information technology startups in Eastern Europe. Despite this, it hasn’t yet come anywhere close in scale to reaching the pinnacles of the one hundred or so global corporates which feature on the various Unicorn lists (lists of privately owned startups valued at $1bn or more) which have referred to at various junctures in some of the other posts on this blog.
However, it has been developing a name for bringing to market a range of innovative products which are is progressively making their mark internationally in the next tier of software companies- those valued in the hundreds of millions of dollars. For example, there’s a good chance that in the modern enterprise you’ve come in contact with LogMeIn (a widely used remote access and support tool) and/or Prezi, a highly visual competitor to Microsoft PowerPoint which is used extensively in corporate presentations. Both of these were founded in Budapest and while Prezi remains headquartered there today, LogMeIn now operates from a Boston, MA. head office and a range of global offices including its Dublin office which operates as the company’s EMEA headquarters.
Sweden features again in the story of Prezi. It’s where Peter Arvai, Prezi’s CEO, was born, to Hungarian parents. Arvai had some modest startup activity and success in Sweden and after relocating to Budapest in 2008, he came in contact with Adam Somlai-Fischer and Peter Halacsy who already developed the core idea for Prezi, which is a colloquial abbreviation for presentation in Hungarian.
Prezi has grown steadily over the past 8 years since it was launched, in the main part due to its attractive zooming presentation mode which is highly interactive. Its user base is now approaching 100m users though it uses a freemium subscription model. Presentations created using the product’s free accounts are publicly viewable on the Prezi.com website, whereas users can set the visibility of those presentations which were created using paid accounts. (FT, 2014).
It’s all about the moxie…
It is notable to this author that Arvai draws similar conclusions to the ones earlier drawn by the author in comparing the perceptions of Swedish and Irish innovation as an international brand in the first part of this post. Here, Arvai draws similar perspectives in a Hungarian context which I find to be very illuminating in relation to the importance of the accumulated international brand of a location for start-up activity and the associated cachet (or lack of) that becomes associated with individual brands emanating from that location
“If you ask me about the amount of talent and creativity that exists between [Stockholm and Budapest] I would say they are comparable,” he says. “But Sweden has built a 100-year business brand through Ericsson, Volvo and Ikea.” (FT, 2014)
This concept of ‘nation branding’ is strongly echoed by a fairly recent op-ed piece published by Wharton Business School at the University of Pennsylvania (2016) which argues that the best-branded country globally for entrepreneurship is in fact (wait for it…) Germany.
This argument is of course strongly tied to the strength of the German national brand for excellence in engineering, best-in-class manufacturing and highly developed quality procedures. It’s probably not unreasonable to argue that this international perception of German engineering has been somewhat tarnished by the scandal in relation to the masking of diesel emissions by Volkswagen and the other German car manufacturers but these things pass and it’s likely the ongoing reputation of Germany for world-class design and manufacturing capabilities will recover and endure. (By the way, if you haven’t yet watched the Netflix Dirty Money on the Volkswagen emissions scandal, it comes highly recommended by this writer.)
But I have digressed much too far from the story of the emergence of Hungarian entrepreneurship….
Much of the early success in fostering Hungarian startup activity can be attributed to the foresight of one individual: Peter Zaboji. Like Arvai, Zaboji grew up outside Hungary having moved to Germany as a small child. He had a successful career in German industry, progressing to become a senior executive with Siemens, and working as a professor at the highly regarded INSEAD business school in Fontainebleau, France.
On returning to Hungary, Zaboji, who has been described as the founding father of Hungarian startup activity, had a clear vision that business and innovation only worked effectively when it operated on a truly global stage, and that if startup efforts remained hidden away internally in a local ecosystem, they would never have a global impact. In order to further develop these ideas, Zaboji put together a Venture Accelerator Course which he launched in 2009 and delivered in English to a class of students involved in a range of startup activities.
Interviewed by the Financial Times in 2014, Zaboji noted,
“Once I stopped teaching and had the time to look around the region, it quickly dawned on me that it was very much like the late 90s and the dot com revolution in Germany and France, ie youngsters with great, working ideas, but no business knowledge”.
To address this, Zaboji launched an invite-only First Mondays event in Budapest which allowed budding entrepreneurs to meet, exchange ideas and collaborate on their startup ideas. It was the first salvo in an impressive campaign which seen the city become a genuinely innovative location for startup enterprises which are influential in diverse spheres such as security, robotics and artificial intelligence. This work to support innovation later manifested itself in the founding by Zaboji of the European Entrepreneurship Foundation (EEF) in 2009. Ever since, this organisation has been running a wide range of accelerator programmes and investor events that have continued to resonate with a new generation of Hungarian entrepreneurs. (FT, 2015).
Education and Offshoring
One key advantage that Hungary enjoys is a highly educated and technical workforce. (Hungary has had more than its fair share of Nobel Laureates in the science disciplines). This track record, allied with its low wage base, means that international companies are increasingly looking to outsource to Hungary. In 2014, according to IDC research, the value of the outsourcing market in Hungary reached €182.80 million. (Goal Europe, 2016).
However, as this author can personally attest (see author’s note below), the level of bureaucracy and administrative cost associated with utilising resources who are based in Hungary mean there are significant challenges in international companies outsourcing to Hungarian offshoring locations.
Conclusions
Despite a number of strategic advantages (low wages, availability of a well-educated workforce and an emerging entrepreneurial class), the task for Hungary in incubating and developing startups with any degree of global scale remains somewhat challenging.
A 2017 OECD report into the supports required to support Hungarian enterprise and innovation noted the substantial progress made in aligning the requirements of the startup scene to the outputs from the third level sector.
“One of the most significant changes in response to these challenges has been the
development, both in concept and practice, of the “Entrepreneurial University” which puts greater emphasis on innovation in all areas, from research to teaching and learning, knowledge exchange, governance and external relations.” (OECD, 2017)
As it did some decades ago in an Irish context, the availability of European Union structural funds has been a catalyst for investment in infrastructure, as well as providing much-needed funds for education and in the support of entrepreneurial startup activity, however, there is a perception that most of the benefits of this funding through initiatives such as Jeremie funding for startups appear to have been dissipated and not invested wisely. (FT, 2014).
I can’t conclude this overview of the Hungarian business and innovation scene without mentioning the strongly right-wing and authoritarian government of Viktor Orban who has adopted a stridently anti-immigrant stance which has put him on a head-on collision course with his EU counterparts. Notwithstanding our Taoiseach Leo Varadkar’s recent visit to Budapest where he sought to strengthen ties between Hungary and Ireland, there could not be more difference in the international stance of each country. (Irish Times, 2018)
As noted in our overviews of both the Irish and Swedish business scenes, a self- confident, welcoming and open stance to the world is clearly a prerequisite for building any degree of presence and impact in the world of international enterprise and the current hardline attitude of the Hungarian administration with respect to foreigners demonstrates a “two fingers” to the wider world which seems unlikely to win the hearts and minds of international customers or attract potential inbound FDI investors.
A further acute challenge is that living standards remain low relative to Western Europe. GDP per capita runs at approximately $14k per annum, which is roughly equivalent to that of Romania and Poland (OECD, 2016). To be fair, it’s worth pointing out that Hungary has one of the lowest rates of income inequality in the world but as noted, that statistic must be taken in the context of the country’s very low base of per capita income.
As we’ve already seen in part one of this article when conducting an analysis of the startup scene in Sweden, it does seem that living in a situation of relative economic comfort, with access to good state supports and a sense of welfare/living standards security does tend to dispose a young population to feel at liberty to pursue educational opportunities and creates an environment which is positive to the growth of innovation and entrepreneurship. The youth of Hungary, the wellspring from which its future innovation activity will undoubtedly emerge, alas, doesn’t appear to have that luxury at present.
(Author’s note: the author’s experience relates to a situation with a Hungarian colleague whose work the author had managed in Ireland while working at the same Irish organisation. Following the employee’s relocation to Hungary, both the Irish employer and the now Hungary-based employee were happy for this individual to continue to work remotely for the Irish company but the arrangement proved totally impractical and uneconomical due to administrative and legal costs involved)
Financial Times, 2014. ‘Budapest builds on talent pool’. Online, available at https://www.ft.com/content/b661a604-3a72-11e4-8ee4-00144feabdc0. Accessed 30th March 2018
Financial Times, 2014. ‘Sharing concepts: It is all about the presentation’, Online, available at https://www.ft.com/content/ae6eb9f4-1c5b-11e3-8894-00144feab7de. Accessed 30th March 2018
Financial Times, 2013. ‘Budapest: a lively start-up ecosystem on the Danube’ Online, available at https://www.ft.com/content/577ae07c-1c44-11e2-a63b-00144feabdc0. Accessed 30th March 2018
Goal Europe, 2016. ‘Software Development Outsourcing companies in Hungary’. Online, available at http://goaleurope.com/2016/12/20/software-development-outsourcing-companies-hungary-it-salaries/. Accessed 30th March 2018
Irish Times, Jan 2018. ‘Varadkar defends visit to Hungary and cites common ground’. Online, available at ‘https://www.irishtimes.com/news/politics/varadkar-defends-visit-to-hungary-and-cites-common-ground-1.3345363. Accessed 30th March 2018
OECD, 2017. ‘ OECD Skills Studies: Supporting Entrepreneurship and Innovation in Higher Education in Hungary’. Online, available at https://heinnovate.eu/sites/default/files/oecdeu_2017_supporting_entrepreneurship_and_innovation_in_higher_education_in_hungary_0.pdf. Accessed 30th March 2018
OECD, 2017. ‘Hungarian economy profile 2017’. Online, available at https://data.oecd.org/hungary.htm#profile-economy. Accessed 30th March 2018
Sociable, 2015. ‘ Startup ecosystem Hungary’ Online, available at https://sociable.co/technology/startup-ecosystem-hungary/ Accessed 30th March 2018
Wharton U-Penn, 2017. ‘The Best Country for Entrepreneurs Is’. Online, available at http://knowledge.wharton.upenn.edu/article/entrepreneurial-country-world/. Accessed 30th March 2018
Lessons for Ireland from other Innovative Countries 