Budapest Debrief Session Day 5

This morning we had a debrief session in the Novotel Hotel Danube Room. We just recapped on some of the things that we have learned over the past few days in visiting the different business related activities. Here are some of the things that we went over.

Chamber of Commerce.

The chamber of commerce are mainly business advocates for companies within a city. The fight for the protection of businesses and want to promote businesses within the economy. They bring the standards of businesses up in the economy. 1/3 of the population of Hungary is in Budapest so their chamber of commerce has a significant influence over the entire nation. In trying to get business in Hungary they focus on the welfare of the work force, tax rates, labor laws and general advocation of businesses. They are a lobbying group. They want less restricitons and argue the business side to Parliament and politicians. They are concerned with how businesses operate in this country and why there should be FDI in Hungary. Entrepreneurship was an interesting topic that we went over because of the negative connotations that came with being an entrepreneur in avoiding taxes. The chamber of commerce has a lenient interpretation of the law. High interest rates are a problem with starting new businesses that are as high as 25%. Currency exchange is also an issue along with domestic borrowing. High interest rates means that their currency will depreciate in comparison to other nations. They have high interest rates because there is higher risk in investing in Hungary which means higher chance of default and higher payments. Banks are also ruthless in trying to prevent other banks from allowing small business from coming into the market by allowing lower interest rates by getting the government involved in claims of malbusiness practices. There is also no protection against someone taking your personal assets in the example of the single man enterprise. The single man enterprise is supposed to be like an LLC where you have limited liability but after they take the assets of the company they will go for the assets of the person head of the company in court even though you are supposed to be protected behind the Single man enterprise. For 50 years they had a period where making a profit was ot an incentive. If you had an efficient company along with innovations whatever money you made would be given to another company in your area. They are finally starting to learn about incentives 20 years later. Something to promote corporations is their low tax of 16% on corporations compared to the U.S. tax of 35%.

Stock Exchange.

Interesting things that we went over was the relationship between gross public debt and GDP. They had a decline in Government spending to GDP. Through the stock exchange they discontinued the exchange of capital. The stock exchange has been following EU relations. The people's assets were taken by the soviets but they have been compensated through compensation notes.

Shares outstanding X price per share = market capitalization.

24 billion Euros currently in market capitalization.

They have a share turnover rate of 120%. Risky to invest because oil and banks make up 63% of stocks volume. 75% of stock is foreign owned. If it is correlated it is not diversifying risk. A good hedge is not correlated. There are 15,000 domestic owners in their stock exchange.

IBM.

In Budapest they are a shared service center. Organize business across borders to open up exchange. Free flow of goods and capital. In an out exchange rates at a low cost. We went over the finance and accounting of IBM as they followed the Western European Scheme first. They were trying to make money in IGF with not much costs. It is more expensive to do business in Western Europe but it is because their costs are so high. They are working on getting their costs down. We also discussed finance and IT purchasing along with other activites IBM has used to centralize. The most extreme service center that we went over was the one with all the functions but it is important to know what is best for every service center. This would include low costs, better customer service and IBM trying to get a presence in Slovakia and India. The reason that IBM wants a credit corp is because this means that the customer is tied closer to IBM with all the functions necessary through IBM. The availability with products and financing make IBM a one stop shop. Leasing equipment is the norm due to technological obsolescence. There leasing is done through financing to get the residual value of dilapidated products. Today few people are purchasing IT because of the increasing rate of the improvement in products. They are now leasing. GE credit was the first to do this and they are the largest. The Credit corp can restructure loans in case of default. 9% of their profits in IBM were from financing while 63% of IBM is from the service sector which financing is part of.