Hungarian city of Kecskemét gives Mercedes-Benz the VIP treatment

Kecskemét, a city of 114,000 people in the central part of Hungary, is known primarily for its animal-breeding capabilities and barack palinka, which is a sweet apricot brandy. Recently however, the city has begun to establish itself as an automotive hub and a flagship success story for Hungary's reindustrialisation policy announced in 2013 by prime minister Viktor Orban.

This is thanks largely to Mercedes-Benz, the German car giant and subsidiary of Daimler, which announced in July that it was to locate its new manufacturing plant in Kecskemét. With an estimated cost of $1.1bn, it will be the largest FDI project in Hungary's history.

Excellent prospects

In fact, the German carmaker’s presence in the region predates Mr Orban's reindustrialisation policy. In 2008, Mercedes-Benz revealed plans to establish an $800m manufacturing plant in the city. And although since then the company has announced 11 other projects in central and eastern Europe, data from greenfield investment monitor fDi Markets shows that Kecskemét has successfully attracted two additional investments from the car company, convincing it to expand in a city that had little in the way of an industrial track record.

So why did Mercedes-Benz return to Kecskemét? Rainer Ruess, head of production planning at Mercedes-Benz Cars, points to factors such as the cooperation of local and national authorities and the knowhow of employees at the Kecskemét facility. “With the existing and the new plant, the site has excellent future prospects,” he says.

Existing employees might possess the skills and training, but what about filling new jobs? In a region known for its agricultural, rather than industrial, past, Mercedes-Benz already employs 4000 people, and the new plans look at employing another 2500.

According to the president of the Hungarian Investment Promotion Agency (HIPA), Róbert Ésik, to ensure that the German giant remains satisfied with the Hungarian city, local and national authorities worked together with the company on a plan that will link the supply of graduates from local educational institutions, including vocational schools, with demand.

“This way, we could establish a comprehensive, long-term human resources plan which serves as a basis for the local and regional development plans of existing and potential investors,” he says.

VIP treatment

While such local co-operation is not unusual, the VIP treatment rolled out for foreign investors in this deal might be. “More than 10 HIPA professionals from different areas such as infrastructure, human resources and state aid were involved intensively during the negotiation phase with the investor,” says Mr Ésik.

And without revealing the total value of subsidies provided to the German carmaker, he says projects such as this are eligible not only for help with training and tax write-offs, but can also receive financial assistance under Hungary's ‘VIP cash incentive’ programme.

Whether the switch to reindustrialisation and the VIP treatment shown to manufacturers will pay off in the long term remains to be seen, but in the case of Kecskemét the strategy appears to be working.The region in which the city is located has more than doubled its share of output in overall Hungarian industrial production since Mercedes-Benz announced its initial decision to start operating there.

So if he has not done so yet, Mr Orban should raise a glass of barack palinka to Kecskemét.