Hungary's gain is Britain's loss: Adrian Bridge reports on GE's decision to move the nerve centre of its European into the former Eastern bloc

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The Independent Online
When the US-based General Electric giant completes the closure later this year of two of its British lighting operations in Preston and Wimbledon, no one will be more delighted than Tamas Szabo, Hungary's privatisation minister.

'It is wonderful news for us,' he says, rubbing his hands with almost indecent glee. 'Britain's loss is our gain.'

He has a point. For, instead of simply shutting down two of its sites, GE is relocating them to what has become the nerve centre of its European operations - Hungary. In addition to much of the machinery used at the British plants, just under 300 jobs will be transferred.

The closure of the two light manufacturing plants, managed by GE as part of its acquisition of Thorn-EMI's lighting division in 1991, is all part of the company's drive to rationalise its European operation and improve its competitiveness against the European lighting market leaders, Osram and Philips.

The relocation to Hungary, moreover, reflects GE's growing commitment to the Budapest-based Tungsram light works it purchased in 1989 in what was then seen as a pioneering investment in the unchartered waters of Eastern Europe.

'In the European manufacturing sense, Hungary will now be our principal base,' GE's chairman, Jack Welch, declared during a morale-boosting visit to Budapest earlier this year.

'We are now well positioned with a productive, excited and empowered workforce that is going to be a major factor in the whole of Europe.'

It had been a long time since Mr Welch and other senior GE figures had spoken so enthusiastically about the Hungarian operation for which they predicted a 'brilliant future' back in 1989.

During the same visit, moreover, Mr Welch announced that for the first time since GE's involvement Tungsram went into profit last year and was expected to fare even better in 1994.

'We are changing our orientation from that of survival to that of winning,' declared Mr Welch.

'We have met our targets in share growth, financial performance and productivity.'

GE officials refuse to be specific about those targets or the profits now being generated at Tungsram, saying only that the company's overall European operation earned between dollars 1m and dollars 25m last year.

They decline, too, to say exactly what share of the West European light source market they have. Unofficial estimates put Tungsram's share at 6 to 7 per cent, up from 2 per cent in 1989, and that of GE Europe at 15 to 20 per cent - still well behind second-placed Osram and the leader, Philips.

After the fanfare of publicity and high expectations that greeted GE's move into Hungary in 1989, company executives admit that doing business in Eastern Europe, even with one of the region's few undoubted success stories, proved considerably more difficult than expected.

According to Mr Welch, who admits to having gone in 'rather navely' four years ago, one of the main problems was the dramatic collapse of Comecon, the communist trading bloc, the full scale of which no one predicted at the time.

Although even in 1989 almost 50 per cent of Tungram's sales were already with non-communist countries, primarily in the West, the drying up of orders from the countries of Eastern Europe and the former Soviet Union had a devastating effect.

At home, domestic demand was hit by recession and exports to the West were damaged by the Hungarian government's policy of encouraging the forint to appreciate against hard currencies to keep inflation in check.

On top of that, roofs leaked, equipment did not meet international environmental standards and simple things like telephone and fax lines simply did not work.

'When we really came in, we discovered that at one of our main production plants in the south of Hungary there were only two telephone lines serving 1,730 extensions,' recalls Don McKenna, GE Europe's production director.

'No matter how thoroughly you research a project, a lot of things like that you only discover later.'

To get round the problem of poor telecommunications, GE installed microwave towers.

At the same time it totally revamped production lines at the nine Tungsram plants it inherited and revolutionised work practices.

The improvements have not come cheap. Despite having to meet clower wage costs - average salaries in the Tungsram plants are about one-third those in their British equivalents - the initial investment of dollars 150m has risen to more than dollars 550m and GE's stake in Tungsram has increased to more than 95 per cent.

At the same time, the labour force of 18,000 in 1989 has been cut by almost 50 per cent.

According to Mr McKenna, who has presided over a reduction of turnaround time between order and delivery from 90 to 32 days, the company is poised to make significant inroads into the much larger shares of the European market enjoyed by Osram and Philips, both of which have also invested in Eastern Europe.

'In the end it is all about competitiveness,' he said.

'We have inherited a well-trained and motivated workforce here and have now given them the tools to do the job.

'But there can be no guarantees. We could not say to our British associates (workers) that God intended there to be light manufacturing centres in their areas for all time, nor can we say that in Hungary.

'If we do not get competitive, we just ain't going to be there at all.'

(Photograph omitted)