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ON THE ROAD: Budapest-based NABI exports its buses to the U.S. and is now targeting European markets through a combination of innovation and acquisition
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Ten years ago, the 240-hectare plot of land just outside the town of Szekesfehervar in western Hungary was off limits. Surrounded by high cement walls topped with barbed wire, this former Soviet helicopter gunship base and tank repair facility embodied everything that went wrong for Hungary under communism.
But following the withdrawal of Soviet troops in 1991, a multimillion-dollar environmental cleanup and development plan transformed the base into Loranger Sosto Industrial Park, home to 25 companies — including Dutch electronics giant Philips, German chocolate maker Stollwerck and Japanese automotive component supplier Denso — and a symbol of everything that's right in Hungary now.
The Loranger site has become a blueprint for other Hungarian communities looking to attract foreign investment and jobs. According to the Hungarian Investment and Trade Development Agency (I.T.D.H.), there are currently 180 industrial parks in Hungary, many of which play a major role in attracting much-needed capital. The investment these sites have attracted contributed to the Hungarian economy's annual growth of over 4% between 1997 and 2000.
The irony of developing a Soviet military base into an industrial park was not lost on George P. Loranger, president and CEO of Loranger Manufacturing Corporation, a Pennsylvania-based manufacturer of custom-engineered plastic and metal components. Loranger came to Hungary in 1990 to look for a place to base production for his client, Ford Motor Company. "I was told that if I had come a year earlier, and knowing that I was American, I would have been shot on the spot," he recalls.
Szekesfehervar was in bad shape when Loranger arrived. The local electronics, computer and engineering industries lost markets in the east and unemployment exceeded 20%. But the city rapidly opened itself up to foreign investors by accelerating the approval process for new businesses, offering training for new workers and stepping up marketing efforts. Today unemployment is around 7%. "We couldn't have made it by ourselves," says Geza Poczos, the city's development director. "Hungarians are well-educated, but without foreign capital we couldn't have developed so quickly."
Still, some feel uneasy about the presence of so many foreign multinationals, which to date have invested some $1.8 billion in and around Szekesfehervar. "I feel like we are selling out," says Maria Szucs, a 49-year-old cook. "There are too many multinationals and they don't always pay so well. All they are here for is cheap labor while they make a lot of money."
Peter Rona has no such qualms. In 1989 he helped set up the First Hungary Fund Limited — a venture capital fund with $160 million in assets organized by the International Finance Corporation, an agency of the World Bank Group, and U.S. investment bank Bear, Stearns & Co. — not only to draw investment into postcommunist Hungary but to export Hungarian know-how and products.
"The idea was to get away from manufacturing garbage for the Russian market," Rona, 58, says, "and start selling into the sophisticated markets" in western Europe and the United States. The aptly named North American Bus Industries (NABI), a bus manufacturer based in Budapest and one of the fund's most successful investments, did just that by establishing itself in the American heavy-duty transit bus market. In the U.S., NABI currently has a market share of about 17%. The next target is Europe, where NABI recently made inroads with the acquisition of Britain's third-largest bus manufacturer, Optare Group, earlier this year.
For Rona, targeting the world's most competitive markets for transit buses was not a wild gamble but a smart business strategy. He reasoned that the engineering talent in Hungary, a nation with a long-standing tradition of bus making, could match that in any other country — while costing significantly less.
But businesses don't thrive by cost-cutting alone; innovation and customer service are key. So NABI employs some 80 engineers in product development and plans to come out with seven new products next year. One of its recent innovations is a 12-m bus with a fiberglass-reinforced plastic shell that makes it almost 30% lighter than conventional buses. The lower weight translates into better fuel mileage, longer brake life and also increases the lifetime of the engine. According to NABI, the annual operating expense savings on such a bus — including fuel, brake pads and anti-corrosion treatment — are at least $10,000.
Rona, who emigrated to the U.S. in 1956 in the wake of the Soviet invasion and only returned to live in Hungary in 1995, is still critical of some aspects of Hungarian society. Hungarians "want to know who the boss is, who is superior to whom," he says. "They don't realize that in the new economy rank is much less important than professional competence."
Yet Rona is optimistic about Hungary's future — and he's ready to put his money where his mouth is. The First Hungary Fund Limited will close at the end of 2003, but Rona is busy making plans for a new fund. Though the name may change, Rona's focus on selling Hungarian talent into sophisticated markets certainly will not.
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