Top Manager in Discussion: Peter Inzenhofer, CEO of Hirschmann
Automotive sector supplier Hirschmann celebrated the 20th anniversary of the company in Békéscsaba last Friday and Saturday. The event also saw the official opening of a new 1,200-square-metre production hall. We spoke to CEO Peter Inzenhofer about how the company is faring.
“As the economy has picked up we have been able to take back some [laid-off] workers. Currently we employ 460 people, more than before the crisis.”
– Peter Inzenhofer, CEO of Hirschmann in Hungary
Your company anniversary comes at a turbulent time.
I cannot complain from a purely economic perspective. Our order books for this year are well filled. We will achieve a turnover increase of approximately 20 per cent this year. Things are also looking good for next year. We are continuing to invest between EUR 500,000 and EUR 1 million on average each year in the extension and modernisation of our production facilities. The one thing that does currently concern me, however, is the rather unstable legal framework. To be able to position the company optimally from a competitive point of view we need to be able to make extremely precise calculations. That is somewhat difficult at the moment because many determining variables are changing.
But at least you don’t need to worry about your economic survival like, say, the banks.
No, that’s true. Producers that create jobs are highly valued by the government. The two representatives of the Hungarian state who spoke at our anniversary celebration made that clear once again. We have not been levied with special taxes. On the other hand it’s important to realise that in our industry we calculate without large margins. In our case it is partly about contribution margins. In such a situation if even seemingly small things change, that can have a large effect on our competitiveness.
Things such as the expected compensation of low earners at the beginning of the year?
Yes, exactly. That measure affected us to a lesser extent because a small proportion of our employees are in the lower wage category, but it did necessitate readjusting certain calculations.
How did your company come to be founded 20 years ago?
To be precise it was a joint venture, in which Hirschmann held a 75 per cent share. Our longstanding Hungarian cooperation partner, state communications company BHG, held the other 25 per cent. In fact Hirschmann’s activities in Békéscsaba go back to 1972, when a cooperation arrangement was in place between Hirschmann and BHG predecessor HTV. At first it was purely a case of hired labour.
Békéscsaba cannot be described as the centre of the world. How did a West German industrial company hit upon the idea of doing business there during the communist era?
It’s said that the passion for hunting among members of the family of entrepreneurs brought them to this really rather out-of-the-way region. The outsourcing of certain processes wasn’t viewed according to such stringent cost criteria as today. Instead it was predominantly a gut decision. At that time issues such as just-in-time deliveries were nowhere near as important as they are today. In addition, Hirschmann did not produce automotive products back then. Instead it made products for the home such as amplifiers, room antennae and roof antennae.
Now 75 per cent of Hirschmann’s business is as an automotive supplier.
Despite that, the location was never questioned during the history of the company, in part because the transition to what we see today happened seamlessly. One step followed the next. In the early years we were simply an extended workbench for our parent company. The materials came from Germany and then were sent back from Békéscsaba to the German parent company as a finished product. By 1991 the cooperation arrangement had reached such a volume that it was necessary to rethink the structure. On the basis that such a loose connection was no longer optimal, the decision was made to create a more stable structure that would provide greater influence and security. That’s why the joint venture was established 20 years ago. That was the first time that Hirschmann entered the Hungarian companies’ register. That’s why we mark that as our birthday.
The JV itself was not that long-lived.
The joint venture structure served its purpose very well for around five years. Towards the end, however, the German owners were no longer all that happy with a Hungarian state partner. It turned out that their aims were simply too different. When all attempts at improving the situation failed, Hirschmann acquired the remaining 25 per cent in 1995. That resulted in Hirschmann Elektronik, a 100 per cent subsidiary. That step led to the company’s decision to acquire land and to build several of its own buildings, in order to be able to leave the premises that it had previously rented within as short a time as possible.
That could almost be described as a greenfield investment. Surely Hirschmann could have chosen to invest in another, more accessible location.
Logistics wasn’t a big issue for us at that time because we were still a non-automotive producer. Much more important were the employees who had already been trained. After those investments we continued to grow. Soon we had reached such a size and had established such roots locally that relocation elsewhere would no longer have been so easy.
Presumably being such a prominent investor in a small city like Békéscsaba also has its advantages.
Yes, certainly. We are the largest employer locally. We contribute considerable tax revenues and provide almost 500 modern jobs. Over the years we have established a good reputation as a stable partner. Again and again we can sense that the city is fully aware of our significance. In any case, when you have known each other for so long, things simply go more smoothly. When we decided to build a new production hall at the beginning of the year because we needed more production space, we managed to get the authorisation process out of the way quickly. We were granted a construction permit within a few days, for example.
In your region how do you manage to find sufficient numbers of suitably qualified employees?
It isn’t such an easy task, especially when it comes to engineers. It is made harder by the lack of a technical university or college in Békéscsaba. However, good cooperation with the technical universities in Budapest and Kecskemét helps us to make up for it. Our engineers come almost exclusively from Békéscsaba and the surrounding area. For various reasons they were drawn back to their home region after their studies, not least because they can find attractive, forward-looking jobs here with us. The great advantage is that such people, once they have started working for us, are very loyal and we can count on them in the long term. It’s true that we couldn’t manage a sudden jump in employee numbers. It would be tricky if we would need 20 new engineers at one stroke.
Your site is near the Hungarian-Romanian border. An obvious solution would be to recruit employees from across the border.
It is both an attractive opportunity and a business obligation to put out feelers towards Romania, either to recruit employees or to outsource certain processes. After all, the wage conditions are even more attractive there. Unfortunately such efforts have not been particularly successful. With suppliers there have always been problems with quality and delivery reliability. For potential employees, aside from the distance (Romanians are not very mobile), the state border is also a problem. Romania does not belong to the Schengen area. That makes daily commuting difficult. We continue to advertise in the Romanian border area but get very little response. But even so the wage cost benefits of having our site here are not insignificant. Compared to Gy?r or Budapest we pay 20 to 25 per cent less for comparable employees. Even then our wages are in the upper third in our region. The problem is simply that the process of recruiting suitable workers is considerably more difficult and lengthy than in, say, Gy?r or Budapest.
Despite that you had to part with around 120 employees in the crisis year 2008.
At first we tried to ride out the situation by simply reducing the working time for all employees by a certain percentage without wage adjustment. Although all our employees accepted that difficult step, after three months we had to acknowledge that that sacrifice wasn’t sufficient and that there still wasn’t light at the end of the tunnel. Layoffs were unavoidable. That was very hard for both sides. However, with a 60 per cent decrease in industrial electronics orders and 30 per cent in automotive orders we had no choice. Unfortunately there is no short-time work scheme in Hungary like that in Germany. As the economy has picked up we have been able to take back some of those workers. Currently we employ 460 people, more than before the crisis.
How did your change of focus to the automotive sector occur?
That process began in 1999. Since the company had proved itself in the previous years, our parent company began to assign gradually more demanding tasks, including orders from the automotive field, which are known to require higher standards in terms of quality and reliability. In parallel with that process, the company’s shift from a pure cost centre to an independent business unit involved considerably more responsibility. While previously we were largely process-oriented, we began to deal more with issues such as purchasing, logistics and financial controlling, and to take care of a substantially longer supply chain. We date the beginning of being an independent business unit to 1 July 2002 when we launched our own SAP system, which was capable of mapping all our business processes. Previously we only dealt with the production module. I have been at the company since January 2001. My first major project was the transition from a cost centre to a complete plant.
And meanwhile presumably you received more and more automotive orders.
Yes, that developed progressively. More and more responsibility was put in the hands of employees here. They gained more rights, but also more duties. Increasing the level of personal responsibility worked well; it went quicker with some employees than with others. Our company also gained the certifications that are essential for an automotive supplier. That cleared the way for us to acquire more business. Currently 75 per cent of our turnover comes from automotive products. Within the Hirschmann Group all activities related to antennae are based at the Békéscsaba site. We produce roof, film, emergency and Bluetooth antennae among others. The expansion of business here depends solely on the order situation, rather than on relocation of production.
Do any of your products remain in Hungary?
Not up to now. However, since we are suppliers for the Mercedes A, B and M classes, and vehicles of the A and B classes will soon roll off the production lines in Kecskemét, I anticipate that thanks to Daimler, products made in Hungary will soon be used in passenger cars here.
What are the trends in your market?
They are varied and sometimes very customer-specific. The trend keeps on changing. Sometimes it is in fashion for the antenna not to be visible at all from the outside – then it is hidden, for example, in the wing mirrors or spoilers – and sometimes it is fine for it to stick out from the roof.
Won’t mobile internet remove the need for traditional roof antennae one day? Important functions like radio, telephone and navigation are now available via mobile radio communication and Smartphone without a roof antenna.
In the medium term I cannot picture roof antennae, whether visible or built in, disappearing. Roof antennae continue to give the best performance. That is simply to do with physics. All inbuilt functions involve losses, which are either tolerated or compensated for by an amplifier. In terms of the internet, I think the trend is rather to make the whole car multimedia-compatible independently of a mobile telephone. Naturally antennae are needed for that. I’m not worried about our future.