Corporate responses to the economic crisis: The Hungarian case Ágnes Czibik (GVI) – Ágnes Makó (GVI) – István János Tóth (MTA KTI) HCCI

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

http://www.gvi.hu/

http://www.gvi.hu/

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


Hungary

• Central-Eastern Europe

• Area: 93 030 km2

• Population: 10 001 000 (July 2010)


23.04.18. 12:05 http://www.gvi.hu/ 5

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


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)


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


Hungary

Slovakia

Poland

Czech Republic

Source: Eurostat



• Slovakia: overtook in 2006


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


Hungary

Slovakia

Poland

Czech Republic

Source: Eurostat




• Poland: catching up


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


Hungary

Slovakia

Poland

Czech Republic

Source: Eurostat




• Poland: catching up

• Czech Republic: keeping good position


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


23.04.18. 12:05 http://www.gvi.hu/ 1223.04.18. 12:05 12

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


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


23.04.18. 12:05 http://www.gvi.hu/ 14

Business situation and adaptation - results of three ad-hoc surveys


23.04.18. 12:05 http://www.gvi.hu/ 1515

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)


23.04.18. 12:05 http://www.gvi.hu/ 1616

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)


23.04.18. 12:05 http://www.gvi.hu/ 17

Results


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


23.04.18. 12:05 http://www.gvi.hu/ 1923.04.18. 12:05 19

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


no export<51%50%<

Source: IEER

• Crisis: driven by narrowing of export markets

• Exporting firms’ CCI were positive in March 2010


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


23.04.18. 12:05 http://www.gvi.hu/ 2123.04.18. 12:05 21

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

?


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


Dec 2008

23.04.18. 12:05 http://www.gvi.hu/ 2323.04.18. 12:05 23

Corporate responses


Main questions

• Ordinal or special reactions?

• Consciousness in corporate strategies or trial and error?

• Which measures were effective?


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


23.04.18. 12:05 http://www.gvi.hu/ 2623.04.18. 12:05 26

• 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


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


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

23.04.18. 12:05 http://www.gvi.hu/ 2723.04.18. 12:05 27

•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


under 5measures

5-9measures

above 9measures


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


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


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


Postponinginvestments

Cutback ofnon-coreservices


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



Layoffs

New strategic plan

Reducing dependence on suppliers

Reducing short-term debts



Out-sourcing non-core services



Seeking new markets

%


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



Reducing dependence on suppliers

Out-sourcing non-core services

Reducing short-term debts

Layoffs

Seeking new markets



New strategic plan



Topics Hungary in a nutshell Business situation and adaptation: survey results Conclusion

23.04.18. 12:05 http://www.gvi.hu/ 3223.04.18. 12:05 32

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


23.04.18. 12:05 http://www.gvi.hu/ 34

Thank you for your attention!

http://www.gvi.hu/

http://www.gvi.hu/

http://www.gvi.hu/

Documents

Corporate responses to the economic crisis: The Hungarian case Ágnes Czibik (GVI) – Ágnes Makó (GVI) – István János Tóth (MTA KTI) HCCI