A comprehensive survey was conducted on the performance of the Hungarian ICT sector and its role in the national economy
The aim of the research, which was completed in December 2022, was to provide a comprehensive picture of the functioning of the Hungarian ICT sector, its current and future role in the national economy, the composition, vision, plans, expectations of the enterprises in the sector, the (financial, regulatory, labour market, innovation, etc.) problems affecting them, as well as the major market players that determine the functioning of the sector.
At the same time, the research only covered the manufacturing and service segments of the narrowly defined ICT sector (according to the Hungarian NACE ’08), i.e., not the broader digital economy.
Based on the research results, the Hungarian ICT sector can still be considered as a leading sector of the national economy, as its production of gross added value significantly exceeds the EU27 average and proportionally employs the most workers in the European Union (compared to the ICT sector in other countries). Among the enterprises included, the proportion of high-growth enterprises is outstanding in terms of their ratio to the total number of enterprises. In addition, the sector was responsible for 3.3 percent of investment in the national economy in 2021, an increase of more than 20 percent compared to the previous year.
Although the R&D spending of the ICT sector (10 percent of the total domestic R&D spending) is significantly higher than the national average, there are few truly innovative companies. There is no shortage of ideas, but the implementation is not possible for a number of reasons (e.g., lack of capital, lack of market knowledge, etc.), or in the initial stages of the project, it becomes a matter of interest of foreign market players (as a result of acquisition, acquisition of majority shares). The foreign trade embeddedness of the sector can also be said to be significant, as its foreign trade turnover is significantly higher than the EU average in terms of both exports and imports (in both segments, the industry share is above 10 percent).
The Hungarian ICT sector is crisis-proof
Primary research has shown that the backbone (around 80 percent) of the enterprises concerned (and in particular the services subsector) is enterprises that have been in operation for at least 10 years. 97.4 percent of the responding companies employ fewer than 50 people, including over 75 percent of enterprises with less than 10 people (but more than 3 people). From a geographical point of view and by type of settlement, the responding businesses are concentrated in cities and in the Central Hungarian region.
More than a third of those surveyed exclusively and a quarter mostly employ domestically owned suppliers, while a considerable proportion are represented by companies with a domestic supplier ratio below 50 percent.
Among the respondents, the proportion of enterprises engaged in research, development, and innovation (RDI) activities in the last three years was high (over 40 percent). Of the enterprises surveyed, 9 out of 10 have implemented some kind of development in the last three years, the largest proportion of them spent development funds on the purchase of machines, equipment, tools, and services necessary for the development of their core business.
Most of the respondents' revenue comes from B2B sales – 62 percent of respondents have seen their overall sales increase in the last three years, including 30 percent in all three years.
Source: Századvég, November 2022, CATI, n=190, among the enterprises classified in the ICT sector
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| We managed to achieve growth every year | 0,32 |
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| Although there was a year (were years [maximum 2 of 3]) when there was a downturn, but overall, the company grew in the period mentioned | 0,30 |
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| There was no growth in the period mentioned | 0,23 |
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| Each year or over the past three years on average, the company’s turnover has decreased | 0,13 |
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| Don’t know / Choose not to answer | 0,02 |
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However, 60 percent of the responding enterprises have not had their productivity changed in the last three years, and only 10 percent say their productivity has increased more than their turnover, and 6 percent have managed to improve per capita production only through layoffs. The majority of enterprises (53 percent) blamed increased operating costs (e.g., rising energy prices, adverse effects due to exchange rate changes, etc.) for the lack of revenue growth, but more than a third of those surveyed said that the volatile domestic regulatory environment and supply chain disruptions also contributed to this.
Source: Századvég, November 2022, CATI, n=190, among the enterprises classified in the ICT sector
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| The increase in the productivity of the enterprise has exceeded the increase in sales revenue | 0,10 |
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| It has increased proportionally with the increase in sales revenue (productivity has not changed) | 0,60 |
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| Despite a decrease in sales revenue, there has been an increase in productivity due to employee redundancies | 0,06 |
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| The productivity of the enterprise has decreased | 0,11 |
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| Don’t know / Choose not to answer | 0,14 |
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The biggest challenge is the shortage of IT workers
Further development of the sector (and the completion of the domestic digital economy) is simultaneously hampered by a number of factors (e.g., regulatory and innovation environment, hectic changes in tax regulations, disruption of supply chains, etc.). Among these, the IT labour shortage that has been hitting the industry for a long time and has been dynamically growing stands out, which affects the functioning of the industry (and thus the entire national economy) in quantitative, qualitative, and structural terms. And while businesses and the education system (higher education and adult training) are trying to ease the shortage with a number of tools, the gap between output and real labour market needs still does not seem to be closing. Moreover, within a few years, tens of thousands more IT professionals may be missing from the Hungarian labour market, according to some forecasts.
In terms of barriers to the sector's growth potential, businesses also outlined the directions of government interventions they thought were desirable: As the key to success, they would primarily expect from government policy to provide a predictable and stable regulatory and tax environment, a significant reduction in administrative burdens, and an education system that ensures an adequate supply and quality of professionals.
In the medium term, ICT companies are planning further developments in Hungary
In the next 3-5 years, 12.5 percent of those surveyed do not plan any development, which is a higher percentage than that of the companies that have been passive in this field over the last three years (9.5 percent). However, those who plan – as in the past pattern – projected the purchase of machines, equipment, tools, and services necessary for the development of their core business in the largest proportion (over 70 percent). It is gratifying for the future that developments aimed at digitization (including Industry 4.0 developments) have reached a rate of over 50 percent. The above was followed by the retraining / further training of staff (48.4 percent) and the development of support activities (45.8 percent).
Source: Századvég, November 2022, CATI, n=190, among the enterprises classified in the ICT sector
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| The purchase of machines, equipment, tools, and services necessary for the core business | 70,5 | | |
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| Developments aimed at digitization (including Industry 4.0 developments) | 56,8 | | |
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| Retraining / further training of staff | 48,4 | | |
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| The purchase of tools and services necessary for the development of support activities | 45,8 | | |
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| Site (property, infrastructure) development | 36,3 | | |
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| Other | 0,5 | | |
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| We aren’t planning any development | 12,1 | | |
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| Don’t know / Choose not to answer | 0,5 | | |
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Our respondents plan to use loans and/or tenders for future developments at a much higher rate than for past projects. In terms of tender financing opportunities, for all development goals, the proportion of those who plan to include subsidies is over 30 percent, with an exceptionally large number (55 percent) applying for state aid for site development.
It is important to highlight that the dynamic development experienced in the Hungarian ICT sector in recent years has occurred in addition to/in spite of a significant shortage of IT workforce. The future of the sector is fundamentally influenced by the fact that the gap between supply and demand for ICT specialists is expected to widen further in the coming years, and the situation may be exacerbated by the expected increase in working / taking up employment abroad among domestic IT professionals. All this, in the absence of policy interventions to expand the supply of ICT specialists, could significantly limit the growth prospects of the domestic ICT sector.
Methodology
During the preparation of the study, the following methodological elements were used:
I. Secondary sources
To analyse the situation, present the field, identify international trends:
- Analysis of data of international and domestic secondary sources [CSO, NTCA, professional organizations (IVSZ), international databases (OECD, Eurostat, WEF, etc.), other databases and research]
- processing strategies, legislation, and development policy documents
To introduce the actors of the domestic ICT sector:
- overview of secondary databases and websites available online, use of company information services
II. Primary quantitative research
As part of the research, we interviewed 190 randomly selected companies employing at least 3 people and classified in the ICT sector based on their main activity, using the CATI (computer assisted telephone interview) method.
III. In-depth interviews
We conducted in-depth interviews with industrial actors as well as experts with considerable experience in the field, whose experience was also used in the preparation of the study.
