EYEING CAPITALISM, APPAREL FIRMS IN HUNGARY BID FOR U.S. DOLLARS
Byline: Arthur Friedman
NEW YORK — Hungarian apparel manufacturers have a craving for U.S. investment in their industry.
Trade officials from the Eastern European nation pitched the advantages of manufacturing in their country at their first Apparel and Textile Investment Seminar here earlier this month at the New York Hilton hotel.
Csaba Kilian, investment director of Hungary’s Investment and Trade Development Agency, told a group of about 15 U.S. importers and manufacturers that the nation is struggling to transform itself from an economy entrenched in the closed market of the former Eastern Bloc into a modern, capitalist society.
Kilian said apparel and textiles is the country’s third largest industrial branch. It is also the third largest export category, accounting for 11 percent, or the equivalent of $1 billion in exports in 1995. Most of the exports are in apparel sourced by foreign firms, Kilian noted.
Michael L. Smolens, chairman and chief executive officer of Danube Knitwear, a vertical knitwear manufacturer that invested in an old Hungarian mill and modernized it, lauded the country’s capabilities.
“The infrastructure is extremely efficient,” said Smolens, whose firm makes T-shirts in the city of Baja. “The knitting technology is wonderful, the labor is cheaper than the U.S. and the work force is extremely skilled and deadline-oriented.”
Smolens started Danube — on the banks of the famous river of the same name — in 1994 after securing a $7 million loan from First Hungary Fund, the first private equity fund established in Eastern Europe.
Kilian also noted Hungary’s geographic location, centrally situated on the continent with close proximity to Western and Eastern European states and the former Soviet nations. He also said that with average monthly salaries of $300 to $400, the low-cost of qualified labor is attractive.
A video of Hungary’s apparel and textile industry highlighted the state of manufacturing there, noting that while much of the current production is in the form of contract work — mostly cut-make-and-trim operations — there is also a growing design community as well as firms that produce and market their own labels. Marian Stromajer, senior adviser to the Hungarian Ministry of Industry and Trade, said 76 percent of manufacturing is what she called outward processing for EEC countries, which is comparable to 807 sourcing for U.S. firms.
She explained that a key reason Hungarian businesses are looking for foreign investment to update their machinery and capabilities is the high interest rates on commercial loans there. Stromajer said the government offers various tax, training and other economic development incentives for foreign investors.
German and Dutch firms lead the way in sourcing in Hungary, Stromajer noted, with the U.S. among the top 10 countries investing in the economy. Between 1989 and 1994, Hungary received $8.5 billion in foreign investment, making it the highest per capita country for such activities in Eastern Europe.
Speaking from the audience, Morris Korn, a principal in East Gate Trading, an apparel importer, said he could testify that Hungary has an “educated work force, whose production quality is comparable to the Far East.”
Smolens agreed, adding, “The quality of the needle is five to seven years ahead of Caribbean countries.”
Kilian and Smolens both noted Hungary’s stable political climate in which 80 percent of businesses have been privatized as part of the transformation to an open market economy. Hungary is also a member of the Central European Free Trade Association, which also includes Poland, Czech Republic and Slovakia, offering a market with diminished trade barriers.