Foreign factory-building, startup-incubation, appearance in energy storage and many other areas – in an interview with Napi.hu, Tungsram’s future was revealed, among other subjects, by Jörg Bauer.
Foreign factory-building, startup-incubation, appearance in energy storage and many other areas – in an interview with Napi.hu, Tungsram’s future was revealed, among other subjects, by Jörg Bauer, who bought the Lighting division of the Hungarian GE group exactly a year ago, reviving the well-known Hungarian brand name. The owner also stated that as a result of digitalization, he doesn’t think they will have any employees doing the same job in five years as today.
- When you bought Tungsram, you surely had specific concepts about the first year. What percentage of them have been actually realized?
- If I have to say a number, then 80 percent. Our first thought was that we would exploit the opportunity of no longer operating as part of a large company, meaning this provides us more flexibility. We are certainly very much at home in lighting technology; I can hardly name a product which we wouldn’t be able to manufacture.
At the same time, we have to realize what else we could bring about with this knowledge, accumulated over decades. In order to find out, we cooperate with experts of industries independent of Tungsram, inspecting the whole chain of production, investigating which of the six thousand products that we manufacture can be utilized in other fields.
However, this is a slow process: if you want to become a big company’s supplier, you will have to ascend the stairs step by step. First you manufacture the requested product, then you repeat it, producing a thousand pieces. This takes one or two years. That’s why we are endeavoring to strengthen our relationship with GE, the previous owner: we don’t have to prove ourselves to them, they know us, just like we know the corporate culture in which they operate. Thus, I can say that at present, we are in negotiations with the managers of several GE divisions, so that we can cooperate on areas outside of lighting technology.
- All in all, are you satisfied with the 80 percent?
- Of course, I would always like us to develop even faster but our present pace corresponds to reality. I consider it very important to take care, more than ever before, to develop our company, invest into the future, not be content with our position.
This is one of the biggest challenges: finding the balance between present results and future possibilities – and a proper communication of all these: I don’t think any one of our colleagues will do the same job as today. But we would like to keep them and train them if necessary, so that they can fulfill a job of a higher added value – in short, we would like to show them an appealing vision of the future.
- In which fields do you see an opportunity for advance?
- We don’t have a final decision yet but as I see it, we could have a chance of a more pronounced presence in the healthcare, agriculture, aerospace, and automotive industries. As a highlighted subject, I could mention energy storage, which might embody a vast growth potential in the coming years. As a matter of fact, these types of developments are supported by the EU, since they don’t want to depend on outside partners, mainly Asians, in such an important area. And yet, there is only one large project in EU territory, in Sweden. I’m confident that in the future, a Hungarian solution can also expand. However, this is a lengthy and expensive process (amounting to at least a billion Euros), so this year, we assume, it won’t happen. But we will have to begin dealing with it lest we fall behind our competitors. And besides that, even within our already functioning divisions, there are areas with worse performance, just like the areas that perform better.
- Which areas are these?
- Nowadays, everything that is LED can be sold, not only to local governments but also to factories and public education institutes. This territory is without doubt growing considerably. At the same time, from September last year, the EU prohibited the production and import of halogen lamps; thus, in this field, a rearrangement is in progress, we are witnessing a production decrease. And there are areas that confidently perform past years’ results, such as automotive lighting technologies.
- A year ago, the plan was for the company to reach a 90-billion-forint profit in 2018. Did you realize that plan?
- Yes, we are progressing largely according to our plans.
- You mentioned the decrease in the EU’s halogen lamp market. You have always communicated that you think globally, so I would like to ask whether it is possible to make up the income loss as a result of the above, as for example in Asia, Africa, or South America?
- We are targeting foreign markets possessing a large population where the name of our brand is already strong and large infrastructural developments are in sight. Nowadays, a lot of countries exist where infrastructure is out-of-date and it is not small steps that they plan on making, but they immediately aim at the highest level. Such countries are for example Pakistan or Egypt. It is also extremely important for Hungary to have a good relationship with the given country.
- Has this process started already?
- Partly yes. First, we have to establish a suitable organization, then we have to find the matching partners. That’s why I say that 2019 is the year of transformation, and we will only see the real advantage of these processes from 2020 onwards.
Photo: Dániel Németh
And then, over time, we could also consider investing in these countries. Tungsram used to have factories abroad; we might want to revive this. We can already make the decision in the second half of the year, and from then on, it will be at least one to one and a half years until production can be launched.
- You purchase 95 percent of your products abroad. What is sought after at which market?
- Thankfully, our proceeds are balanced enough: there is no dominant country bringing in the majority of the profit. Recently, we won a large tender in Ljubljana, the capital of Slovenia, where we will become a part of the local smart town project. But even besides that, I can say that our presence can be considered strong in several countries of this region.
One more country I’d like to highlight is Iraq, where our car lamp division is progressing markedly well. We are the country’s market leaders, while the brand name is very strong, the lamp itself is called Tungsram; in the store, people asking for it say, “Give me a Tungsram”. On the other hand, however, this brings on the negative side of having to fight fakes, such as lamps by the name Tingsram, Tengsram.
- With all the foreign factories being built, and as a result of your continuously increasing foreign presence, won’t Tungsram lose its ‘Hungarian-ness’?
- Today, we are a global Hungarian company and we will remain so. Therefore, our aim continues to be to have our center here since this is our home. As a global company, it is important for us that Hungary is in the middle of the time zones; thus, both the USA and Asia can be served from here, and in terms of traffic and pricing, the conditions are also good, we have trained professionals who speak multiple languages, and last but not least, the tax is also reasonable.
I would also note that we are one of the last big European vendors, who, coincidentally, develop and manufacture most of our products in Hungary. This means an advantage for us, since several customers are willing to pay a kind of premium to buy products that are manufactured here, in the heart of Europe.
Beyond these, Hungary is not only important as a market, but also serves as a showroom, so to speak. If you go to a mayor in Saudi-Arabia, the strongest connection with him would be if you could pair him up with a Hungarian mayor and he could tell his Hungarian counterpart that indeed, he is satisfied with the product, because he saves money with it or because he also has a smart solution. Then we bring the leader here and he can personally observe the investment. No stronger marketing exists than that.
Hungary will always be our base, the center of our production. The reason why we are considering building factories abroad is not because it would be cheaper to manufacture there. The thing is simply that outside Europe, people often want to buy local products, so if you want to vend in big amounts, you will have to take the factory there, as well. And later, you will be able to cover the whole region this way. I could say ‘regionalization’ as opposed to ‘globalization’. Besides, several companies have been practicing this for a while, and we too have to react to the trend.
- A year ago, at the press conference following Tungsram’s purchase, you said you would like to have a 10-billion company within ten years. How attainable do you see this goal now?
- I think we have identified the areas where we can make the growth happen to achieve this goal. Certainly, in the future, we would only get 50 percent of our profit from the field of lighting technology, while bringing in the remaining 50 percent inviting other industry segments, mentioned earlier.
- Such leaps could be facilitated through deals made with Eximbank. How is your relationship to them?
- As for Tungsram’s purchase, they had nothing to do with it, but they do help with our future investments. A large company needs a suitable financial liquidity, which Eximbank can grant us, along with some other financial institutions.
- Financing can also be helped by corporate bonds, especially considering that recently, the Hungarian National Bank announced a 300-billion-forint bond purchase program. Are you planning to issue something like this?
- At present, we don’t have any such plans. I have read about the bond purchase program of the Central Bank, but I don’t know the details yet, so I can only say that we are open to all the possibilities.
- At the moment, half of your vendors, about 650 companies, are Hungarian. Will this still be sustainable even after you have reached the 10-billion profit?
- The number of our Hungarian vendors remains stable, or we even expect it to increase. We cooperate with several Hungarian vendors in the new fields, as well; so for example in agricultural greenhouse developments. Due to artificial intelligence and machine-learning, the system knows exactly when the plant has to be watered, when it needs more light. After all, Tungsram doesn’t want to invent what has already been invented; we much rather cooperate with the companies as well as universities operating in the field.
I would add that there is a difference between research and innovation. Namely, the market only pays for the latter. On the other hand, in my view, the Hungarian strength tends to be in their research, that’s where there is still space for development, so that at the end of the process, a ready-made product can appear. And that’s where we can help; that’s why we have established an incubation basis in our center, where the first two or three companies that we work with are already present. Thus, all in all, I think yes, we can achieve this number with Hungarian vendors, as well. Of course, for this to happen, we need our old partners to develop and grow together with us.
- About the Hungarian vendors, their customers frequently say that although they can produce the expected quality, they fall behind with the quantity. How do you see this?
- The typical Hungarian small or medium-sized enterprise, seen with a global eye, is undoubtedly rather minor. Those who operate with 50 people are already considered large, so it frequently occurs that the company leader makes the decisions on every issue, without employing experts; moreover, rather frequently, a family member manages the finances. The majority of the company leaders launched their company at the beginning of the nineties, so several of these people are on the threshold of retirement, often without a solution to the question of succession.
And the thing is, no one will embark on the above-mentioned great transformations a few years before their retirement. A typical example is that somebody supplied for diesel engines as a umpteenth-proven vendor. And if diesel engines are suddenly prohibited, this person will be left without a job. If you are old enough, you can say OK, I have savings: it is no problem if I have to close the company. This is a huge mistake, since the majority of these companies would have a space for development; in a normal case, one would have to consider: I am an expert in this and this, I have such-and-such machines, what fields can they be utilized in? But this would consume too much time and energy, and a younger manager, hungry for success, wouldn’t hurt, either.
Perhaps we can also help the main vendors reach the next level. Out of the present 650 Hungarian vendors, we identified 30 who are worth giving special attention to. At present, we are precisely working on specific programs for them, but this is still in progress, so I can’t disclose anything more.
- This corresponds to what you accepted in the strategic agreement with the Hungarian government this January, namely that you will support your Hungarian vendors. Why was this agreement worth signing?
- I’m very satisfied with this agreement, which primarily means help with our export. In a few countries, as for example in the Near East, people ask:: Tungsram? Why would I buy from you? Can I trust you that you will be able to supply ten years from now? In such cases, it can be helpful if the government of a country stands behind us. Undoubtedly, this is the most valuable part of the agreement.
- According to the agreement, Tungsram can also frame suggestions when putting together a competitivity package. If you were asked now, what would you recommend the country, what steps should be taken in order to move forward in the competitivity ranks?
- Although I am not a member of the National Competitivity Council established by the government, we have already been invited to a few discussions concerning innovation. I see ourselves as a counsellor who can bring a global view into these negotiations. What I would advise is to increase the export capacity of the Hungarian small and medium-sized enterprises. We gladly take par and help with this, since our network that extends to ten countries and our purchase team are a non-negligible chance to get Hungarian products out onto the market.
As I see it, Hungary has arrived to a critical point: either we follow the example of Ireland, Singapore, and South Korea, all countries that could demonstrate a sustainable development by help of the technological boom, or we fall behind in competitivity and into the trap of medium income countries. We get stuck here, get on well enough, the salaries grow, but productivity remains on the earlier levels. The only way to break out of this is innovation.
- Are you trying to support innovation with having recently founded a risk-capital company?
- I’d like to state that this process is entirely independent of Tungsram; it is about my own private investment, in the course of which I will always observe the boundary between the two activities. Our aim with establishing a capital basis to help elevate the Hungarian small and medium-sized enterprises onto the next level – so that they can jump the steps I mentioned just above. When I was looking for experts to do this, I looked around at the market, and I did find the strong team I chose on a professional basis.
- Getting back to Tungsram. What is the main aim of this year?
- Our last year was about stabilizing, we had to set our records straight after leaving GE. Some of this process carried over into this year. The present year is about transformation, about how we can exploit all the possibilities.
(Translated from napi.hu, written by Sztefan Dzindzisz, the original interview can be read here)