Publication: EETIMES
Date: Februrary 18, 2007

Hungary's software strength may ease competitive squeeze

Hungary has a problem. It is being squeezed in a nutcracker of competition from advanced countries in the West and emerging economies in the East, warned the European Commission in a report on innovation. To stay competitive, Hungary must raise productivity, find new markets and, above all, innovate.

Part of the solution could be software, which is emerging as the country’s technology direction.

“You can consider Hungary a software country,” said Sandor Kiss, CEO of Sense/Net Ltd, an enterprise portal developer.

Founded in 1995 as a pure IT service company, Sense/Net turned into a software developer in 2003 after launching its own portal product. Though small, it’s seeing good times. From 2000 to 2004 the company saw 259 percent revenue growth to about $1 million and was ranked as one of the ‘Fast 50’ technology companies in Central Europe by Deloitte & Touche. United States-based Primus Capital Partners is an investor and the company has set up a VARS network in Hungary and Europe.

Startup activity also reflects a software preference, said Andras Geszti, managing partner in Euroventures Kft Budapest, a venture capital firm that has invested in domestic startups like Enigma Software Rt, a supplier of mobile commerce software, and Uproar Inc., developer of Internet games. Geszti said that Hungary’s software culture stems from an often-cited educational tradition of teaching high-level math skills in secondary schools. The list of Hungarian technology movers and shakers – Intel’s Andy Grove among them – as well as Nobel Prize winners is impressive.

International success stories have also created models to emulate. Examples are Graphisoft, a global CAD supplier, and Recognita, an optical-character-recognition company that was acquired by Scansoft Inc. (now part of Nuance Communications Inc.).

But new companies face hurdles. The small domestic market of 10 million people caps growth unless the company can address large sectors, Geszti said. Sense/Net, for example, has banks, utilities and government as customers.

The key, however, is to penetrate markets outside the country “Technology content is typically strong in a Hungarian startup and companies are excited by the technology itself rather than international customers,” Geszti said. “The more successful ones realize the importance.”

But it’s not easy to take a product abroad, said Robert Csakany, co-founder of IT Line Ltd., a startup that developed a Java-based portal aimed at small and medium-size companies.

Csakany would like to sell in foreign markets, but developing relationships abroad requires experience, time and money, he said. IT Line’s seed capital was Csakany’s own savings, and his search for venture capital funding to develop foreign business has been difficult.

Venture capital is around but in small amounts. Euroventures, for example, may put a million dollars in a tech startup, Geszti said. The government rolled out several startup initiatives but he believes programs that match private and public funding would be better.

“The [current] government programs are without involvement of the private sector and that makes them a bit rigid and bureaucratic,” Geszti said. Once a company moves out of the startup phase, it has to hunt for skilled personnel. Sense/Net increased staff by more than half to 36 this year and wants to continue expanding. But Kiss said experienced IT personnel with English language skills are difficult to find in Hungary. “The biggest challenge is finding people for certain positions.”

Foreign companies such as Nokia, Ericsson and Mentor Graphics have tapped local talent for their software operations. Hungary has also been struggling with a brain drain as engineers seek juicier opportunities elsewhere. Additionally, the EU has warned that the country is falling behind in the ratio of science and engineering graduates to overall graduates at 4.8 percent, ranking 21st out of 25 EU countries.

Nonetheless, Geszti is optimistic. He expects software startups to increase and help speed Hungary’s transition to a knowledge-based economy. EU entry in 2004 handed entrepreneurs the opportunity to cross borders, understand foreign markets and establish contacts, he said.

“It’s only recently that Hungarian engineers have been able to build international contacts,” he said. “This is a process that takes time to work.”

Drew Wilson

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