Andrew F. Fieldsend1, Gyula Vasvári2
Abstract
Agriculture is generally no longer the dominant sector in rural regions (at least in much of the European Union); indeed, in Hungarian villages, official data suggest that over 25% of jobs are in the manufacturing sector. However, the importance of non-agricultural rural entrepreneur- ship is often overlooked. This paper reports the results of interviews with representatives of five successful non-agricultural entrepreneurs in the North Great Plain region of Hungary. From these we conclude that continuing innovation is a key success factor, as are good management and related skills. Entrepreneurs have sought support from friends and family, and from the Chamber of Commerce and Industry, but business support from other sources has been limited. Constraints to entrepreneurship include an unstable legal background and complex taxation rules. If there are to be more ‘success stories’ similar to those described here, non-agricultural rural entrepreneurship must be given a much higher priority in the Hungarian policy agenda.
Key words:Entrepreneurship, innovation, business support, Hungary
Introduction
Despite clear evidence that across Europe the proportion of the workforce employed in agriculture has been declining (e.g. Copus et al., 2006), a
view has persisted in some quarters that rural employment remains dominated by agriculture. Consequently, OECD (2006) notes that rural and agricultural issues have often been considered to be virtually synonymous and it has been assumed that agricultural and rural objectives 1Dr Andrew F. Fieldsend, Head of International Group, Agrárgazdasági Kutató Intézet,
1093 Budapest, Zsil utca 3-5, Hungary. Tel: +36 1476 3292. Email: [email protected]
2 Gyula Vasvári, PhD student, Debreceni Egyetem Agrár- és Gazdálkodástudományok
Centruma, 4032 Debrecen, Böszörményi út 138, Hungary. Tel: + 36 52 508.444. Email: [email protected]
could be pursued through a single set of policies designed to aid the transition of the agricultural sector. If ever that were possible, that situation has changed, principally because agriculture is generally no longer the dominant sector in rural regions (at least in much of the European Union, EU), either in terms of output or employment.
For example, a comparison of the employment profile of urban and rural areas in Hungary reported by Fieldsend (forthcoming) is of interest. Data disaggregated by NACE code and town/village location (presumably based on the residence of the worker rather than of the workplace) are available from the Hungarian Central Statistical Office 2005 microcensus. The employment profile of villages in Hungary is remarkably diverse. The most notable difference in employment profile is, as would be expected, in Agriculture and related industries, which accounts for 2.8% of employment in Budapest and the towns, and 9.4% in the villages. The percentage of jobs in Mining and quarrying in the villages is double that in Budapest and the towns, although the total number of jobs is small (0.4% c.f. 0.2%). Notably, however, Manufacturing accounts for 27.1% of jobs in the villages and just 20.2% of jobs in Budapest and the towns. Three other sectors, Construction; Transport and related industries and Public administration etc. are marginally more highly represented in the employment profile of the villages.
By contrast, the relatively important sector of Wholesale and retail trade, repair of goods accounts for a greater percentage of employment in Budapest and the towns (15.9% c.f. 12.8%), as do the high Gross Value Added sectors of Financial intermediation and Real estate, services, business activities; and Education and Health and social services. Agriculture (farming) is therefore a distinctive (and declining), rather than a defining, source of employment in Hungarian rural areas, which have an economic diversity approaching that of towns.
Recognising that this multisectoral nature of economic activity also applies to rural areas in Romania, the Valcea Chamber of Commerce and Industry, which is based in Ramnicu Valcea in central Romania, set up the project entitled ‘Ro4RuralBiz - Initiative for sustainable rural development’ in partnership with organisations from Romania, Hungary and Bulgaria, as follows:
• University of Agricultural Sciences and Veterinary Medicine of Banat Timisoara, Romania;
• Romanian Association for Electronic and Software Industry ARIES Oltenia;
• National Centre for Information Services, Pleven, Bulgaria;
• University of Debrecen, Hungary.
The University of Debrecen was an obvious partner to include in the project as it has considerable experience of taking part in non-agricultural rural development projects in cooperation with Romanian partners. For example, it was involved in the preparation of a ‘Rural Entrepreneurship Toolkit’ (Fieldsend and Boone, 2008) which brought together the expertise accumulated by partners in the Interreg IIIC project ‘Praxis – Making Rural Entrepreneurship Work’. Initially published in English, a Romanian language version was prepared by Arad County Council, a Praxis project partner, and is now available on the Ro4RuralBiz website. More recently, the university was a partner in the EU Framework 7 project entitled ‘New sources of employment to promote the wealth- generating capacity of rural communities’, acronym ‘RuralJobs’, alongside Babes-Bolyai university in Cluj-Napoca, Romania. The consortium also included partners from Bulgaria and Lithuania. The results of the project were described in detail by Fieldsend (2011).
Ro4RuralBiz (website: www.ro4ruralbiz.ro) started on 1 March 2010 and is planned to last for 36 months. The project aims to increase the level of employment in non-agricultural activities for people who live in rural areas of the West and Southwest regions of Romania, with a set of actions designed to encourage business creation and skills development in rural areas. These actions include:
• Training activities (skills and entrepreneurship);
• Regional networks to support entrepreneurial initiative;
• Policy recommendations for the development of rural entrepreneurship.
To gain a better understanding of the factors that are important for successful non-agricultural rural entrepreneurship, the Ro4RuralBiz partners interviewed successful entrepreneurs in their region. This paper reports the results of interviews with five companies in the North Great Plain region of Hungary. Three of these companies are in manufacturing, one in construction, and one in the service sector (consulting). The paper draws a number of general conclusions from the results of the interviews.
Methodology
The entrepreneurs to be interviewed were selected on the recommendation of the Chamber of Commerce and Industry of Hajdú- Bihar. Face-to-face interviews were conducted in October and November 2011, mostly at the company premises, and normally lasted for 90 to 120 minutes. A semi-structured format was used, where each interviewee was asked the same basic questions but was given the freedom to elaborate on their answers to the extent they saw fit. With the agreement of the interviewees, the discussions were recorded and subsequently transcribed. The questions asked were as follows:
• Please provide some basic information about your company; • How to start a business? How to become an entrepreneur?
• Is your business performing as well as you would like and what are the biggest achievements?
• What impact, if any, has the economic crisis had on your business? • What are your future business plans (new products, more staff etc.)? • What do you consider to be important to succeed in business? The interview transcripts proved to be rich and diverse sources of information on rural entrepreneurship issues and the ‘framework’ method (Brunt, 1997) was used to ensure that this information was properly managed, analysed and presented.
Results UNIHOLZ Kft
Location of the company: Hajdúnánás Interviewee: Tóth Tibor, Senior Partner
Field of activity: supplier of construction materials
Main products/activities of the company: metal products for construction; paints and sprays; safety equipment; accessories
Year founded: 1990 Number of employees: 50 Website: www.uniholz.hu
Uniholz Kft was started by Török István and his wife, the parents-in-law of Tóth Tibor, and is still a family-owned company. The two main reasons behind deciding to set up the business were:
• The political and economic changes which caused the break-up of the state cooperative; the part of which used to work with wood formed the basis of the new company;
• Identification of a market demand (initially) for wood products and (later) for steel and, to a lesser extent, aluminium products The owners received no help in setting up the business. No loans were available so no special financial credit was taken for the purchase of the company. The owners worked together with a partner (initially) and with the employees, when necessary taking a very ‘hands-on’ approach to getting the work done.
The company’s objective was to distribute high-quality products at moderate prices, in as wide a product range as possible. Compared to the average of 50 products per kind at the beginning, Uniholz now offers more than 3000 kinds of products to its customers. A quality control system has recently been introduced which enables the precise tracking of goods and data retrieval. The annual net revenue increased five-fold between 2002 and 2008. Although profitability is important management (organisational) skills have played a very important role in the progress:
• Good marketing skills allowed new branches to be opened in the eastern part of Hungary;
• Skills in economics helped to improve the profitability of the company. Efficiency was increased without any increase in the number of employees.
Until the financial crisis began, the company had hoped to set up more branches in the region but these plans are now on hold. The following conditions are needed to allow such business development to take place:
• Low interest rates to make finance available for investment, but Tóth Tibor cannot see this happening;
• Future reliability in the investment environment including a stable legal background, less regulation and bureaucracy, all of which would reduce administration costs, lower taxation (including ‘overhead costs’ of employing people) and simpler taxation rules; • Grants should be available to help investment together with
training on how to apply for grants and write project applications (entrepreneurs do not have these skills).
The reasons for the initial success of the company were (a) the owners had natural management skills, and (b) in the early days they took a tough
and decisive approach to managing the company. Only an authoritative (autocratic) manager could be successful at that time. Nowadays a company should be run in a more democratic way. Innovation, such as going over to online sales, is the primary key skill and is more important than in the towns. Personal capital for networking is also very important.
Marketing POINT Iroda
Location of the company: Hajdúszoboszló Interviewee: Korény Istvánné, company owner Field of activity: consulting
Main products/activities of the company: marketing consulting Year founded: 1995
Number of employees: 1
Website: http://szaktanacsadas.hupont.hu/2/kapcsolat
The company was started in 1995 when there was a lack of marketing expertise, only one or two universities had started courses, but there were no specialists. The entrepreneur had a very good network but had also completed a course in high school in Budapest which at that time was recognised as the best. On these bases she was able to set up the business with very little investment. The county Chamber of Commerce had a wide network which was a great help to her as a customer base.
The company’s target group was micro and small (and some medium sized) enterprises. The demand for consultancy was most obvious in the smaller companies which did not have help from big marketing companies who felt that developing strategies for small companies would involve just as much work but would bring in less money.
The company eventually had four employees plus the entrepreneur and flourished until around 2000 when the mass privatisation resulted in companies being broken up and the loss of many contacts. It was necessary to rebuild contacts with new companies. The business emphasis shifted to helping entrepreneurs in the village tourism sector with strategic planning and grant applications in the lead up to the EU accession. The entrepreneur has also used her knowledge to support local governments who lacked relevant knowledge in marketing and ecotourism. Since around 2006 the entrepreneur has operated as a sole trader: owing to the development of technology it is now not necessary to employ so many people.
A major problem has been the rapidly changing legal environment. Until around 2000 it was fairly stable but since then it has been constantly changing. The bureaucracy and the administration that is a consequence of it is also a problem. During the economic recession the major problems facing rural business have been (a) a lack of resources, mainly money, and (b) the bank system does not really help micro entrepreneurs as they are not considered to be reliable. They think that they will not pay back the money they have been loaned. Small businesses are also facing the problem of late payment of bills by companies they supply to.
In terms of what is important to succeed in business, belief in yourself is an important factor. Rural entrepreneurs are much more reliant on the local environment and they must be much more aware of that market, including through networks such as the local Chamber of Commerce. Rural businesses suffer from lack of information and lack of Internet access which means that they cannot maintain contacts and therefore cannot attend conferences and training activities etc. Yet many entrepreneurs do not realise that they are lacking this information and their business strategies just rely on their local markets. In rural areas family entrepreneurs/ companies are much more frequent and family help is extremely important. It is also very important how the owner tries to educate the business successors, particularly in a family situation.
Kromberg, Kft
Location of the company: Hosszúpályi and Debrecen Interviewee: Ráthy István, co-owner and General Manager Field of activity: production and trade of textile accessories
Main products/activities of the company: ribbons (including Jacquard ribbons); cords; laces; passamanteries
Year founded: 1995 Number of employees: 20 Website: www.kromberg.hu
Fritz Kromberg GmbH previously traded directly with a Hungarian company but, being dissatisfied with its efficiency, established Kromberg Hungaria Textil Ltd on 1 July 1995. Kromberg GmbH’s products are manufactured at the last minute ‘just in time’ so the delivery times are very short. In 1995, delivery times were 2-3 weeks while the German company was looking for 2-3 days. Thus the task of the new company was to improve the Hungarian supplier’s delivery times and did this by
consulting directly with the staff on the production line of the company. After the supplier closed in 2007 Kromberg Hungaria Textil Ltd opened their own manufacturing plant in Debrecen with ten people.
The necessary conditions to start a business are: a marketable product / service, the existence of a medium-to long-term, adequate funding background, and trained staff. The company is the only one in Hungary with the ability to make the Jacquard ribbons. Thus with no competition in this product it is in a reasonably strong position, helped by the fact that the business partner is the biggest buyer. Otherwise, growing competition from eastern Europe and the Far East - caused by low wages beating down prices - has forced the company to act flexibly.
Financially the company is doing well. In its planning in 2008 the management were very careful about the size of the company and the number of employees. The quality of the staff is very good, having previously been employed at the former company. In November 1997 the company had already set up a warehouse in the village of Hosszúpályi. It paid 35-40% of the sum they would have had to have paid for a similar building in Debrecen. This building was formerly part of a cooperative in which was made wooden pallets. The staff employed here are unskilled. The professional skills are the most important factor for succeeding in business, also high qualifications and foreign language skills and a very deep knowledge of the product you want to make. Personal discipline such as getting up early in the morning, flexibility, life-long learning and general as well as professional knowledge are important. The connection with the Hajdú-Bihar Chamber of Commerce is helpful in this respect as they have lots of useful events, more than can be taken part in. Ráthy István is a member of a professional association which also has lots of events. The Internet is extremely important: it is possible to keep contact with international partners via email. All of these possibilities can be developed by dedication but help is also necessary. It is important to have people around (family and friends) from whom you can talk with and get advice.
Kiss Koloniál Kft Location of the company: Esztár
Interviewee: Kissné Szalóki Ágnes, co-owner and Managing Director Field of activity: high quality furniture manufacturing
Main products/activities of the company: wooden furniture for the home Year founded: 1993
Number of employees: 142 Website: www.kikol.hu
The business is owned and managed by a husband and wife team. The husband used to work for the agricultural machinery factory in Debrecen which collapsed around 1989/90. They started their entrepreneurial activities by making certain goods, such as curtain rails from wood, which at that time were in short supply, and taking them to various shops that sold them on their behalf. Around 1990 they set up a workshop in the yard of the family house and started applying for the special loans and different supports being offered to entrepreneurs by the Government. Later they started to make beds and managed to rent somewhere in Debrecen to display and sell them. They also managed to buy land next door to the house which used to be a business that made pallets that went bankrupt and they built more workshops and stores there. In 1993 the legal and taxation background changed a lot and to avoid the need to pay back a lot of money the Kft was set up in three days in 1993.
In the mid-1990s the company moved to its present premises which were previously owned by a branch of a cooperative making furniture for export to France, but which was collapsing through a lack of orders. They had grant support (including EU grants) because the village was considered to be multiply disadvantaged (as it is today) which attracted grant, taxation and credit benefits. The main obstacle to development was that after they moved to Esztár and bought the premises (leading up to the EU accession) the legal regulations became very tough.
They opened their first store (in Debrecen) in 2002 and now the company has ten shops of their own including one in Oradea. Their net revenue doubled in the year around 2003-2004. In 2006 they set up manufacturing in Romania, in an old furniture factory in Marghita (59 km from Esztár). More recently they linked up with a partner in Germany that wanted high value, pure wood (beech) products for sale there and in Switzerland. With the recession the Hungarian demand has declined and the number of