An Industrial Haven By The Danube...And A Magnet For Shoppers

Walking along the narrow, cobbled streets of Gyor (pronounced "jur") in western Hungary, visitors might think they were in Austria: Many cars bear Austrian plates, and shop signs are often in German. Indeed, the city's location near the Danube, midway between Vienna and Budapest, is proving to be its fortune. It's 115 km from each--and only 75 km from Bratislava, the capital of Slovakia.

Gyor industry used to be dominated by Rba, which makes trucks, axles, and engines. At one stage, the state-owned monolith employed 25,000 of the city's 135,000 people, but its main market evaporated when the Soviet Union broke up. Today, just 7,000 workers pass through the gates to don the green Rba overalls. The company lost $35 million in 1990 and 1991 combined and was forced to restructure. Now, it's profitable again, with 58% of revenues coming from the U.S. Rba supplies axles to Dana, Eaton, and Rockwell International, which buys driveshaft parts as well. It has also formed a joint venture with Detroit Diesel Corp.

This summer, some employees left Rba and moved next door to the new Audi plant. The German carmaker has invested $200 million to transform the half-finished Rba factory into a highly automated plant turning out the world's first mass-produced five-valve-per-cylinder engines. Audi plans to plow $285 million more in by the end of the century, boosting the workforce from 200 to 900--which makes many locals suspect Audi plans production of finished cars in Gyor.

As a result of such investment, unemployment in Gyor is just 6%--whereas the rate in other parts of Hungary has soared to 28%. Gyor's life expectancy and education are surpassed only by Budapest's, and there are several research institutes and technical colleges in the area.

In a 1992 study of investment opportunity in Eastern Europe, Cologne's Empirica Research Institute--which has clients such as Deutsche Bank and Volkswagen--ranked Gyor No.1. The prime lures: a skilled workforce at 10% of German wages, good communications with Western Europe, and central location. "The market potential is high in terms of how many people you can reach within eight hours," says Empirica Managing Director Wolfgang Steinle.

STRONG POSITION. Gyor's skilled workers have drawn a flood of other foreign investors. One out of every eight businesses in Gyor county has a foreign partner, with small and midsize Austrian companies accounting for 62% of foreign investment. Tesco PLC, a leading British supermarket chain, bought a stake this summer in Gyor's Global food retailing group--with an eye on Austrian customers.

Gyor can't be complacent about its attractions. Empirica's Steinle warns that rising wages may make investors look elsewhere. But increasing productivity and Austria's upcoming membership in the European Union should help Gyor retain its strong position.

Technical skills aren't Gyor's only asset. Hungarian retailers have caught on to the fact that Austrians come to shop in their city, where money goes five times as far as it does at home.

On the All Saints holiday last week, Austrians snapped up all the wreaths and flowers that were available in Gyor's market. But it wasn't just flowers that they purchased: Shoes, clothes, furniture, and food are among the other goods that also find their way back to Austria. In the oldest part of the city, not far from a 13th century castle, tourists load up on high-quality clothing from shops bearing such distinctly un-Hungarian names as Cactus and Rifle Club. Of course, the more significant signs may be the "tax free" ones plastered over the doors.

Even Gyor's professional class is in on the act: Dentists and doctors have many Austrians on their patient lists. One dentist, Magda Pozsgai, says she treats at least 20 Austrians a month, one-fifth of her practice.

Quick to learn, Hungarian consumers are now playing the tourist-arbitrage game themselves: Last week, when gasoline prices rose in Hungary, many Gyorers sped across the border to fill up in Slovakia.

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