Central Europe and Hungary: Logistics System

ABSTRACT

In an increasingly globalizing setting, many of the newly nationalised buffer states of the soviet Union, have been faced with the pressure to integrate themselves with exogenous market forces, from western Europe as well as other parts of the world. The ability for them to adapt lies in their ability to manage their fiscal policies, their societal views and market theories that form many of the xenophobic belifs that hindered initially their ability to accept foreign investment and the sale of their enterprise to foreigners.

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Their logistics systems will only develop provided that globalization takes place within these Central European countries as according to Matsson 2003, the globalization involves changes in the distribution process of goods and services in local markets. Hungary, being relatively responsive to open markets and FDI has seen relatively faster reconstruction and development of its logistics system when compared to other eastern countries and its prospects of being a global logistics hub rests contingent on its continued international integration.

INTRODUCTION

Over the last few decades, the logistics systems in Central Europe and in Hungary have developed and evolved. From being buffer states to the Soviet Union to being sovereign nations, these countries have undergone several political , social and economic reforms that have on the whole, encouraged more privatization within the domestic market, increased foreign direct investment and begun to form strategic alliances with the more industrially mature and developed Western European countries. These changes have had many implications for logistics in Eastern Europe.

This paper will discuss the political, social and economic changes that the central European countries and Hungary have made after the 1990s and the impact they have on their logistics systems, the challenges of the reorganization of distribution channels driven by globalization and also the future prospects of Eastern Europe as a global logistics hub.

CHANGING PATTERNS OF TRADE

Since the fall of the Berlin wall in 1989, former communist nations sought to revolutionize their social political systems but interms of logistics, they remained far behind Western European countries.

Countries like Poland, Czech republic and Hungary however, showed relatively faster reconstruction and reorganization in their logistics systems than countries further east. The transition from a centrally planned economy to a market economy involves mainly the privatisation of many state-controlled enterprises. In Central Europe and Hungary, most privatization opportunities came in the form of Foreign Direct Investment. As Western Countries developed and their wages increased, they saw the need to find low cost production solutions.

Before, for political and other reasons, Western trade with the east accounted for only 3. 5% of Western countries’ imports. Since then, the trend has been a growing shift from east-east trade to east –west trade. Hungary in particular, increased its’ exports to unified Germany by 76%, making it one of Hungary’s most important trading partners. As Eastern European Countries move their trade eastward, more demand for improvements in intermodal capabilities and channels of distribution become more urgent. (Joseph O’Reilly 2007)

THE CULTURAL BARRIERS TO GLOBALIZATION

According to matsson,2003, it is cultural differences and culture that pose barriers to globalization of firms. In the case of Eastern Europe, the fear of foreign dominance in terms of foreign ownership, came through Foreign Direct Investment(FDI). Nationalism shaped transition policies across the eastern European region and the lack of trust were related to past experiences in history and was evident in their hostility towards German capital especially in Czech republic and in Poland. An opinion poll conducted in Poland in September 1992, revealed that approximately half of the Poles rejected the sale of enterprises to foreigners. Polityka, 1992)

Government strategic actions tilted towards national accumulation rather than international integration through FDI. (Drahokoupil,2009) Such cultural barriers of xenophobia restricted FDI which in turn prevented international integration and Globalization . Since Supply Chain issues are intimately related to the General development trends, according to (Matsson 2003), the supply chain’s effectiveness during this time frame would be linked to the strategic actions of the main actors,( mainly governments ), which imply that Eastern European countries would face slow to flat growth in their logistics infrastructure.

Hungary’s desire to pursue externally oriented strategies stemmed from a need to find funds to manage their large external debt, thereby opening their doors to foreign investments . This privatization strategy allowed for an increased speed of reform as their internal distribution systems were forced to reform relatively quickly to meet the needs of intermodal requirements and standards of the west.

TRANSPORT AND INFRASTRUCTURE IN THE REGION

It was found that the new members from the eastern bloc had large road nfrastructures but were either poorly maintained or of poor quality to handle the volume of traffic that could sustain an increase in economic activity. The EU, since then, developed and achieved roads through initiatives like “Europe Aid”, that reach Russia which could handle high volumes of traffic. (European commission2012) Unlike roads, the Rail Transportation sector ,is highly monopolized by the local governments due to high costs in the construction and maintenance of Rail roads.

However, only 50% of the railway tracks are operative due to poor investment and maintenance (Datamonitor 2008). This has caused transporters of goods to choose roads over rails in. Maritime transport between EU member states involves many documentary checks and physical inspections by the customs, health, veterinary, plant health and immigration control reports. (European Commission, 2012) Maritime transport plays a major role in the transportation of bulk and dry cargo, but is not a preferred transport mode across the region.

Unlike land transport goods shipped by sea from Antwerp to Amsterdam are considered having left EU’s territory and thus not as well received as road transports. Further investment is needed to improve the transportations systems, but also new approaches to decision making processes and transportation organization and management is needed.

LOGISTICS CHALLENGES:AT COMPANY LEVEL IN HUNGARY AND IN THE REGION

When it comes to focusing on customer requirements, customer value, quality, service, barriers still exist for the company seeking to expand and coordinate purchases across markets. This is because there still exists problems concerning, quality, responsiveness and productivity. (Persson, 1993). In the past, countries like Hungary ran industries that produced products at state-controlled prices and with outdated technology. These prices were seldom related to the actual cost or quality of the product. This imbalance between supply and demand created excess capacity which has led to now eastern and central European firms with the challenge of competiveness as they try to lower costs and improve their logistics systems.

Increased competition from FDI will force traditional industries to either exit or perform the necessary repairs and updates to their technology in production equipment and methods. Again, in Hungary especially, will require the need for more investment in infrastructure. There is potential for rapid development as there are a small number of Logistics Service providers (LSPs) in the Central European region especially in Hungary and Poland. Such service providers aim to globalize in order to fulfil the needs of their customers (Hertz,1993).

A third Party LSP,Penske, engaged in the automotive, pharmaceutical and chemical industries has had a foothold in Europe since 1991. Moving eastward to set up operations in countries like Hungary, it believed there were cost-saving opportunities to take advantage of in terms of cheap production costs.

CONCLUSION

Till recently, the major weaknesses of the Central European countries were their economic instability due to their former communist regimes and low quality of overall transport infrastructure. Europe indeed has major infrastructure hurdles to overcome. But due to its central strategic geographic location, openness to FDI and improved fiscal policies, Hungary and the Central European region have potential to rapid improvements in their economies and logistics systems.

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Central Europe and Hungary: Logistics System. (2016, Nov 22). Retrieved from https://graduateway.com/central-europe-and-hungary-logistics-system/