Company cases

In order to have a deeper insight into SME internationalization we made personal, semi-structured interviews with CEOs of SMEs. In the followings, we show two cases: Adu Alba that is a family firm supplying several multinational companies and Meditop that has developed since the nineties and also has contracts with pharmaceutical multinationals.

Adu Alba Ltd⁴

Adu Alba Ltd was founded in 2003 in the city of Székesfehérvár as a family firm, by Mr. József Varga and his wife, Tímea Csikós. The ownership and management remained the same since then; no foreign capital was involved. The owners previously worked at a large multinational company during six years and they finally decided to establish an own entrepreneurship. Their experience at the multinational company (management, human resource, negotiating with customers, procurement, marketing) is well utilized for their current business. The main principle was to serve and finding solution to the real needs of multinational affiliates in Hungary. The owners and employees undertook several kind of jobs and auto-trained themselves. New ideas and products have been developed via communication and contact with buyers, a “learning by doing” prevails at the company.

Adu Alba now produces vacuum formatted precision trays, packaging materials, one-way and multi-way wooden or plastic pallets, etc. The products are completely specific according to the buyers’ needs. They implement not only customer-defined products, but fully cover packaging technology from design to implementation. In addition, the company also provides quality services to partners (on site). For around seven years now the company also produces machine-tools with CNC technology. They have ISO and MEBIR certifications and they undertake also on-spot rework. The company supplies around 15-20 multinational affiliates (in food industry, metallurgy, automotive industry etc.), among them some automotive plants.

The crisis years were difficult for the company but the survival strategy was aiming always the higher quality and specialisation on individual needs. Machine tool production began right after the crisis in order to be able to produce such specialised products. In 2015 a new 1800m² packaging technology plant was inaugurated, an old community building in the area of the former Soviet barracks was transformed. In 2016 Adu Alba received the “Factory of the year”

prize from a Hungarian Media agency. In the same year they won the “World Star” prize of the World Packaging Organisation with a light packaging polyethylene tray product. The company has not used much state help, but they did receive EU funds for research and development.

They do not usually participate in fairs (according to the director it is not worth, because purchasers of multinationals, engineers are not there, internet and direct contacts can be more

4 Sources: interview of Andrea Éltető and Gábor Túry with the CEO, József Varga, press information, homepage of the firm.

useful). Profitability of the company has been fluctuating and somewhat increasing in the past five years and profits are mostly reinvested in the firm.

Factors of success

The most important component of success is managerial attitude. The main driver of Adu Alba’s results is the director in person. His way of thinking (everything can be solved) and ideas of proper functioning are the basis of the company. The aim of the management is to create a unique company culture, production quality and effective process direction. The director thinks that the exact satisfaction of the buyers’ needs (in quality, delivery time) is essential. He also founds it very important to have a coherent organisational system, with responsible persons.

Speaking foreign languages and having proper contacts, trustable partners are also very important according to the director. There are around 60 employees at the company. There is a fluctuation among workers, because those leave who cannot understand or accept the firm’s philosophy (working hard and punctually, not only in one field of activity). It is not easy to find qualified workers, but they can manage. Employees are honoured; there is one-shift work, strict requirements and familiar spirit. The firm participates in dual education programs collaborating with a university. According to the director, labour shortage in the manufacturing sector has a certain positive effect on pricing, because buyers/partners are willing to pay more for quality (quality workers and quality work).

Another essential success factor is constant innovation, product development. The main philosophy of the company director is always finding out some new and unique product or idea.

This was the case with the prize-winning products and there are also some more future innovation plans. Products are made with precision, reliability and just-in-time delivery is essential.

A third element of success is good marketing, brand building. The beneficial effect of certain marketing tools is well detectable in the case of Adu Alba. These are not the usual publicities simply advertising the firm, but specific, targeted media attention. The best way for drawing attention is winning prices, creating something unique, innovate. After the firm became the

“factory of the year” and won world prize, it appeared several times in the media, became more famous, received more orders. In 2018 a short film is also made about them and is transmitted several times on a TV channel. Prizes and media attention helps to build the brand of the company.

Meditop Pharmaceutical Ltd.⁵

The predecessor of the company was founded in 1991 by specialists who left large socialist corporations during the systemic change. Prior to 1990 in Hungary, pharmaceutical companies had been obliged to supply specific products even if this process had generated losses for them but with the systemic change, the obligatory provision immediately ceased. Thus, products that

5 Sources: Interview of Katalin Antalóczy with dr David Greskovits CEO, Meditop questionnaire filled, www.meditop.hu, earlier pharmaceutical research

major companies no longer wished to produce were erased from supply or transferred to newly launched pharmaceutical SMEs. This is how Meditop was created. The company was founded by 11 persons with small capital for a definite time horizon. The company’s first contract had lasted till 1994, and afterwards Meditop was reorganized (and rebuilt) in 1995 but the new company is not a legal successor of the previous company. So, the official foundation of the present firm is the year 1995 and the number of owners are two: Dávid Greskovits and Zoltán Ács. The both worked in Nigeria previously and gained experiences in purchasing, selling, firm management.

Activities

Medicines produced by Meditop were generally well known among Hungarian pharmaceutics.

As the import of foreign medicines were liberalized after the systemic change, domestic companies faced substantial competition, to this end the government tried to support domestic production through the social insurance system and price subsidy. Therefore, Meditop was approached by Ciba-Geigy pharmaceutical company with a contract to undertake lease-work (mainly packaging) related to specific products of Ciba-Geigy in order to get governmental support system. Initially, Meditop’s production targeted the domestic market, then started participating in export activities and functioning as a supplier for other multinational companies as well. Thus, after its foundation, Meditop soon became internationalized, started exporting.

By 1995, the mentioned lease-work contracts were terminated and Meditop was re-established and started working in a new business model. Meditop introduced new activities: research and development, purchasing licenses, and new type of lease-work contracts. Meditop contracted with large multinational pharmaceutical companies such as Novartis, Merck, Astra-Zeneca, and Roche.

The R&D activities of the company particularly cover generic medicine development. Their first own developed medicament was introduced in 1999, called ‘Memoril’, which stimulates brain functioning and now ‘Memoril’ has become Meditop’s most purchased medicine. In 2002, the company introduced a nasal spray (‘Nasopax’) which was developed jointly with a children’s clinic. Another branch of activity involves further development of licensed pharmaceutics.

Medicine development is now often carried out with foreign partners. For instance, a Tolperison-Hidroclorid substance medicine was developed for the German Hexal AG. Meditop has comprehensive cooperation with Hungarian universities clinics. Meditop still carries out lease-work activities related to packaging and manufacturing to both Hungarian and foreign affiliated companies. In September 2018 185 employees worked at the company (in 1995 the company had only 15 employees). Six people deal with research and development. Meditop transports workers by buses from other cities.

Internationalization

After its foundation, Meditop was soon present on foreign markets. Export of own products exists since 2005. There is a ”push” factor behind: domestic market is small and price competition is large. “Either you export or you are dead” – says the CEO. It is also an important

factor that the company found such foreign market segments where demand was increasing for the products of the company. Apart from that, they concentrate on development and introduction of such products where there is a foreign need. Export gives 15% of their revenues, but this share is increasing continuously. Meditop is a partner of foreign companies in different forms. Subcontracting is significant and also development or marketing cooperation. Being an SME can be an advantage: Meditop can be more flexible than large firms, adapting to market needs, working with smaller quantities.

The most important export market of Meditop is Germany, with more than 45% of exports. The own export product is a muscle-relaxing product containing Tolperison, and the demand for it is high on the German market. Based on the German success, export of this product began also in Netherlands, Belgium and Luxemburg. The second most important market is Vietnam (30%

of exports). This far-away market was brought by a Hungarian mediator living in Vietnam. (A representative office was opened here by this person). Ukraine is a new, increasing market, here Meditop has an outward processing partner, registered in Switzerland but owned by Ukrainians. Uzbekistan is also a new market, that was brought by the “Eastern opening”

strategy of the Hungarian government (see more about this in the study of Antalóczy–Éltető in this book). Leaders of Meditop participate regularly in governmental delegation (”buying themselves in”, because such a delegation membership costs several million forints), and in one journey they met their Uzbek partner. Deliveries began only at the end of 2017. Thus, share of exports in total sales will grow further.

State support

The CEO of Meditop highly appreciated the SME support policy of the present government. He thinks that after 2010 SMEs are more important for the government. He thinks that pharmaceutical SMEs are reckoned by the government and it is accepted that there are 18 pharmaceutical factories in Hungary. The CEO of Meditop, Dávid Greskovits became in 2017 the president of Hungarian Pharmaceutical Association. As mentioned, participation in government delegation is very important for them to build contacts, gain markets. Changes in exchange rate is neutral for them, because their products have also significant import content.

(Base material stems from China and India, other components from Europe and Far East, only packaging material is Hungarian). The market of medicines is special, where state regulation has a big role, therefore the manager finds it important to have good relations with the government. The most rentable drug of Meditop is the mentioned Memoril, that can be prescribed in public healthcare and it helps domestic sales. This product does not have a subsidized price, but another one, Miderizone receives state subsidy in public healthcare.

Government contacts are important in gaining state support. Since the second half of the years 2000 Meditop receives regularly supports from EU funds (via the Hungarian ministries). In 2017 Meditop received HUF 51 million for store house expansion and HUF 450 million for research and development via the Ministry of Economy (from EU funds).