Foreign Investments in Hungary - 2nd June

After a long last day in Paris, we arrived to our hotel in Budapest on Tuesday June 1st around 10:30 pm. The Budapest Marriot was probably the best hotel in our trip.

Our first stop in Budapest was the Hungarian Investment & Trade Development (ITD) agency. The ITD is a government body set-up to encourage foreign investment in Hungary.

Brief overview of Hungary: Hungary is a small country with a population of only 10 M people. The financial crisis had a strong impact on Hungarian economy resulting in a negative GDP growth in 2009. We were told that Hungary expects a positive 0.6% growth in 2010. Being in the eastern part of Europe, the average wages are much less than in those cities we visited before. Average wages here are about 700 Euros per month and unemployment is currently high at 10.5%. Lastly, Hungary is not in the Euro Zone and their currency is called the Florent (HUF). We all certainly had a tough time trying to figure out the value of goods in dollar terms. However, Hungary would like to enter the Euro Zone but does not meet the inflation criteria and the debt-to-GDP ratio.

New Government: Since we were visiting a government agency, we all felt a strong pro-Hungarian outlook during the entire presentation. It was a bit ironic when we visited ESSCA during our last meeting in Budapest where we were informed about the poor economic condition of Hungary. ITD has very high hopes of the new government and some of the goals of this government were to create new jobs, focus on SMEs, and attract investments in the financial services, R&D, and manufacturing industries.

Rationale for FDI: Some of the reasons highlighted in the presentation were:

• Higher Education – 90% of students speak English
• # of patents per capita is highest in the region
• Industrial parks encourage growth of foreign companies
• Low corporate tax rate
• High quality of life as compared to some developing Asian countries
• Strong presence of major US companies including GE, IBM, Morgan Stanley, CitiBank etc
• Investment schemes, EU-regulated cash subsidies, & tax allowances from ITD

ITD markets itself as a one-stop shop agency for FDI in Hungary. The main services of ITD are to:

1. Help foreign companies in the decision making process including finding locations, finding suppliers etc
2. Help during implementation of plan
3. Help in the operation phase of the company

The speaker also spoke about the strong automotive & the electronic sector and briefly touched upon the recent Daimler Mercedes investment in Hungary. So our first meeting in Budapest was a typical, very optimistic government agency trying to convince us of the benefits of FDI in Hungary. It was a good start for subsequent discussions in Budapest as we were better informed about the trends & rationale of FDI in Hungary.

We then did a small city tour before heading to our next meeting at EGIS PLC - a pharma company.

L'Oreal Paris

Sadly, our trip to Paris was almost over. But the day before we left, we spent Memorial Day meeting with Mr. Georges-Edouard Dias and Ms. Marelina Kakiris at L’Oreal Paris. After a long journey to the outskirts of Paris, we arrived at L’Oreal at 12:30, just in time for lunch! We were escorted into a huge and very posh dining room where we were served a three course lunch, topped off with as much wine as we could drink! The first course was a green salad served with smoked salmon, the second course was a delicious plate of pork covered with a creamy sauce, served with roasted mushrooms and some sort of side of potato. But, the best part of our lunch—and I think we can all agree—was the dessert. For dessert, we had a fruit tart covered with strawberry sauce and coupled coffee. During lunch, we had the rare opportunity to talk openly with Georges-Edouard and Marelina about L’Oreals’s global marketing strategy and the future of the company.

And now down to business. After lunch, we went upstairs to a conference room where Georges-Edouard gave us a wonderful, interactive presentation titled Rebooting Marketing—A Digital Transformation. In the presentation we learned that L’Oreal is the #1 Cosmetics group in the world with an unequalled brand portfolio, they had 17.5B in Euro sales last year, they have 61,000 employees world-wide, they spent 53.3M Euro in Research and Development last year, and they offer consumers 25 global brands. Georges-Edouard said that “digital is a powerful force for change” and predicted that there will be 2 Billion people online in 2013. This is a huge potential consumer base that L’Oreal is working to target! L’Oreal feels that they need to find a new and different way to advertise to their customers because traditional newspaper and magazine ads are being phased out while TV and Internet ads are becoming more popular.

Because of the increasing popularity of social media amongst young people, L’Oreal has started creating targeted messages in order to find a brand digital footprint. The goal of the brand digital footprint is to make the customer fall in love and stay in love with the brand. Ultimately, these targeted messages will be a conversation platform where the brand engages with the customer to create lifelong loyalty. Georges-Edouard also spoke about branded entertainment as a new form of advertising. An example of branded entertainment would be to strategically place L’Oreal brands in popular movies and TV shows such as Sex and the City where the target consumers will be sure to see the images. L’Oreal has already started doing this with Garnier, one of their brands. The style and design show Project Runway on Bravo features L’Oreal Paris makeup and Garnier hair products and stylists for the models before they walk the runway. It is interesting that because of different national regulations, this type of advertising is totally acceptable in the United States, but is not allowed in any EU country because of a law against placing products in TV and film.

Georges-Edouard also spoke about L’Oreal’s campaign to start targeting a new population of potential consumers in Africa. He said that since many people in Africa are not online, L’Oreal needed to create a new niche for their brands in Africa. So, their goal is to piggyback on the fact that most Africans either have their own cell phone or share one with a few people in their villages. Many Africans also do some of their necessity shopping on their phones since it is dangerous to carry cash with them on the streets. L’Oreal hopes to eventually “create an economy based on a payment system” that will allow “digital to be the enabler of development”. This fascinated me because I never thought about how different each and every country in the world really is. You can’t come up with one marketing/advertising campaign that can be applied successfully to every culture in the world. L’Oreal is using their creativity to bridge the gap between these different cultures which explains why they are the number one cosmetics company in the world.

The Last Day...

So this was our last day on our Seminar. Our speaker for the day spoke about the current state of the EU. How the EU has been affected. It was quite interesting to see his analysis of what led up to the situation in Greece, and how he sees that Hungary could well be the next one that has the same state. His point of views brought forth some thoughts that I would not have thought of.

After our speaker we broke for lunch, there was a market that as nearby they had many different types of food on the ground floor and then some interesting crafts on the second floor. The most interesting thing I saw was this puzzle jewelery box. After our lunch we came back and did a wrap up discussion and our views of Europe and the future of Europe. This discussion found that many of us had the same points come across, however there were some points that we each saw differently.

As this was the last day for some of us many of us went and explored the city a bit, and then we came back together to enjoy our last meal together. It was a fantastic meal at a Michelin Rated 1 Star restaurant. We continued to a Club and some of us returned to the hotel. As some were joined by loved ones in Budapest, others had to leave the next day. I'm sure though that all of us enjoyed our time on this seminar and learned many things.

Amgen

Friday, May 28 visit to Amgen - Our last meeting of the day, but certainly one that sparked an interesting discussion. Ms. Dominique Debiais, Corporate Affairs Director, was kind enough to take time out of her incredibly busy day. She had received news that day that Prolia (denosumab) was approved for sale in the EU. Prolia is for patients that have bone loss conditions and was proven to increase bone mineral density. Our discussion included background on Amgen and the challenges the company faces, as well as information on the French health care system and lastly some information on drug pricing.

Background on Amgen
Amgen is a leading biotechnology company that was founded in 1980. EPOGen was one of the first durgs the company produced in 1983, it is used to treat anemia by increasing the production of red blood cells. The company has eight products on the market (Prolia is the ninth) and has been very successful. The challenges that Amgen faces are as follows:
- extremely high R&D costs, it takes between $600 million and $1 billion to bring a new drug to the market (this includes the cost of failed drugs).

- the drugs that Amgen manufactures are large molecules which are complex, unstable and can be difficult to duplicate (this means that good manufacturing practices are very important to be able to replicate the product).

- 90% of projects never reach the market.

- strategic location selection for conducting clinical trials.

- threat of generic brands entering the market.

French Health Care System
France has a social security system which includes retirement, unemployment and healthcare. The system was created in 1946, however it has amounted to a deficit of approximately 9 billion euro. Despite the deficit, Ms. Debiais believes the coverage provided by the French government is wonderful. The care is free and the outcomes are very good in comparison with other countries. Aside from the debt, the other draw back is that this system does not provide much preventative care, however she believes it is still very efficient. Coverage seemlessly continues within the EU member states when traveling.

This part of the discussion led to interesting questions about the care within the US. Based on Ms. Debiais' slides, France spent ~ 10% of GDP on healthcare in 2003, while the US spent ~ 15%. How can the percentage of spending be so large when the quality of care in the US is not as efficient? Has the recent healthcare reform really changed the system or is it just contributing to a higher percentage spent on healthcare? One side of the argument is that universal coverage in the US did not address the issue at hand which is how to fix the major inefficiencies within the healthcare system. What is the role of insurance companies and how can a single payer help the system?

Drug Pricing
The EU law prohibits direct to consumer marketing for prescription drugs and does a good job controlling this issue. The over all price of drugs is much lower in the EU than in the US because of the way the healthcare system is set up. In France the price is very transparent.

Unfortunately we ran out of time and were unable to obtain more detail on the pricing.

The European Commission

Today's visit to the European Commission started with a walk around the Parliament Building. As we walked Professor Brunel gave an in-depth explanation of the roles of political parties in the EU system. His extensive knowledge of the complex governing structure gave us a good foundation for the rest of the day's learning.

Our first meeting was with a Dusan Sandor, a Slovak diplomat living in Brussels. Dusan explained the functional role of each EU institution. He also spoke briefly about the EU's founding fathers, and his belief that in the future they will be well-known historical figures in Europe, much like Thomas Jefferson or George Washington in the U.S.

Some of the most interesting insights Dusan provided were about how the balance of power has shifted since the founding of the EU. In the beginning, he explained, the council was significantly more powerful than the parliament or commission but the other two gradually gained influence and now their is a much more equitable balance.

Finally, Dusan illustrated how much of an impact the EU presence has had on the city of Brussels, citing statistics such as 25,000 EU employees in Brussels (plus their families) and 10-30,000 lobbyists at any given time.

Our second dpeaker, an Austrian, specialized in EU / U.S. trade relations. She presented some fascinating examples of how closely integrated and interdependent our economies are. For example, she pointed out that the two economies absorb 20% of eachothers product exports and 30% of eachothers service exports. With this in mind, she illustrated the difficulties that regulatory difference between the Eu and U.S. create, and why it is important for us to work cooperatively to establish standardized regulations for future products. She also explained how greater cooperation will help keep our trade relationships as dominant forces, as we face greater competition from the emerging BRIC nations. Towards the end of the discussion we touched briefly on the WTO's interaction with the EU, and professor Brunal added the valuable insight that the EU member states are represented by one common voice in their interactions with the WTO.

Our final speaker was an expert in EU competition policy. He explained how the focus of his organization has shifted from legal competencies to more economic ones. His particular specialization is in anti-trust and merger controls and the extent of penalties that the EU can impose on firms (including fines and behavioral mandates, but no criminal charges). As part of this discussion, Professor Brunel astoutely observed that the fines imposed by the EU can be monumental even when compared with the total EU budget (of which they make up 2-3%.

We certainly learned a lot before getting on the bus to Paris, and the long ride allowed us to continue our discussion on the successes and challenges of the Commission and EU as a whole. Professor Brunel was nice enough to entertain our many questions and provide detailed answers.

"Lobbying" in the EU

Today we are glad to have a speaker, Mr. Linus Turner, from Brunswick Group to speaking around “lobbying” in the EU. Lobbying is “the effort to influence government public decision making toward favored outcomes on subjects deemed relevant to those directing or funding the lobbying effort.”
This is quite an interesting topic to me because we never have this concept in Taiwan. Sometimes trying to persuade or to cooperate politicians to pass regulations in favor of one’s interests would be treated as dirty or not ethical. As Mr. Turner mentioned, lobbying is regulated and often seen in the US and UK, but not in any other counties, including those EU Member States, which makes lobbying a new merging concept in EU.

From the business perspective, lobbying can important as, defensively, they need lobbying
1. to protect the company’s license or bottom line to operate.
2. to ensure fair competition across markets.
or, offensively,
3. to improve corporate image and/or pre-empt regulatory action
4. to create the perfect regulatory environment for a product or a service.
As a British Politician said,
“If I enact a piece of act that has negative effect to your business and I don’t know, that’s not my fault, it’s yours.”
And considering the size of the EU market and the power of the regulation, it is quite important for companies to pay attention and even actively participate the lobbying activities.
The presentation was going smooth with vivid examples and great discussions between classmates and speakers. One good thing about this trip is that you get to see different topics “on-site”, so I believe I had quite a good lesson today. :)

Atomium and Mini-Europe

Today is Wednesday, May 26, 2010. Our destination in the morning was Atomium and Mini-Europe. Atomium, one of the landmark in Belgium, was built for the Brussels World Expo in 1958. It symbolizes an iron crystal, magnified 165 billion times. The nine large spheres, connected by 20 tubes, are supported by three enormous pillars and dominate with a height of 102 metres the entire Heysel plateau. Nowadays, Atomium still houses for both a permanent exhibition dedicated to Expo 58 and any temporary exhibitions. For Mini-Europe, it is located next to the Atomium, within 5 minutes walk. Mini-Europe is a park filled with tourist attraction models of EU, building down to the finest detail to a scale of 1:25 and zoning by countries.

The day started at 9.30 and we arrived Atomium around 10 am. I was impressed with its shape when taking a closer look to the building and seeing that glass windows look so blending to the sphere. We began our exploration by taking the elevator to the top floor. In the elevator, if we look at the top, we can see the naked structure of the building, which is very fascinating. The view over the top floor was so nice and we could see the 360 angel of Brussels but sadly, we didn’t get the clear blue sky. Then, we got down to the same the ground floor and took the long and steep escalator to another sphere, which is hosted for the “Be welcome” Exhibition, showing about the immigration to Belgium. The show is pretty interesting. It’s funny that I even saw one story of the Thai immigrant, who came and opened Thai restaurant in Brussels. In shorts, we took a lot of photos and had a good time together there.

After spending enough time at Atomium, we all walked to Mini-Europe among rain, why did it have to be this time?, I kept questioning to myself why not in the afternoon :P...Anyway, once after we got in, we as a group took a photo together with the orange turtle holding EU flag. The first model we walked pass by was the EU building, it’s very modern and huge but what I like most there is the Grand Place, the old central square of the Brussels, because it looks so delicate and very similar to what we saw during city walk last night. Everyone had a great time there, taking a photo, despite the rain!. At the same time, Prof. Brunel did a good job being our tour guide leader, explaining and identifying us the outstanding places in Europe. This walk amazed me in the way that there are some countries or places in Europe that I never heard of the name before. Once I watched the time again, it was almost 12.00 pm!, and we had to head back to the city and have lunch before our first meeting of the day. Bye Bye Relaxing time, see you again soon after 6!!