The willingness and performance of Hungarian companies to innovate still falls far short of the ideal level in an economic environment where even large and medium-sized domestic companies view the future rather bleakly, the bank announced.
The low point of innovation: the worst result of the 4-year-old measurement
The K&H innovation index measures the performance of companies based on four sub-indices: realized innovation, planned innovation, digital innovation and innovation strategy. In the past half-year, the sub-index of implemented innovation fell deeply, showing a 10-point drop. Similarly, digital innovation and innovation strategy also showed a significant decline, with 5 and 6 points, respectively. Although the planned innovation sub-index remained unchanged, this can only give rise to moderate optimism about the future.
“The K&H innovation index highlights that a significant number of Hungarian companies struggle with a lack of funds, support difficulties and structural challenges that hinder their innovation efforts. In order for companies to succeed in international competition, a change of attitude, a more efficient use of resources and targeted support are necessary,” concluded Balázs Németh, head of innovation at K&H.
Differences in size and sector: large companies hold their own
The innovation performance is still the strongest for companies with the highest sales revenue (over HUF 4 billion), where the index stagnated at 39 points. On the other hand, the smaller companies (with a turnover of HUF 2.1-4 billion) achieved growth, they have been trying to catch up with the biggest ones for a year now – their index rose to 35 points.
According to the sectoral breakdown, commercial companies lead with 27 points, just ahead of the industrial, construction and service sectors, which each scored 26 points. The innovation situation of agricultural companies is the most critical: their index fell to 16 points, which is the lowest point of the measurements so far.
The capital and its surroundings are stagnant, while the rest of the country is at a low point
In a regional comparison, the innovation index of rural companies decreased significantly. In Western Hungary and Eastern Hungary, the index fell by 6 points, to 24 and 19 points, respectively. The companies of the central region showed a relatively more stable performance, but there is also a slight decrease, the index stands at 30 points.
Innovation activity: bottlenecks and opportunities
Only a third of the companies (33%) introduced a new product or service in the last two years, which means a significant decrease of 13 percentage points compared to the previous semester. At the same time, the share of revenues from new products and services showed a slight increase, reaching 17 percent of the total sales revenue.
The proportion of companies engaged in innovative activities also fell, especially in the field of digital developments. Only 35 percent of the companies reported significant digital investments, for example in connection with the application of automation, big data or artificial intelligence. This represents a decrease of 9 percentage points compared to the previous semester.
Compared to the previous wave, the proportion of companies that introduced additional innovations in addition to new products or services, whether in background processes, production, logistics procedures or sales channels, fell from 65 to 54 percent. The proportion of “other” innovation activities carried out in parallel by companies – for example R&D, purchase of software, advanced machines or equipment, automation – decreased by 5 percentage points, from 63 to 58 percent.
Further decreasing subsidies and digital development
A negative trend can also be observed in the field of obtaining grants: only 8 percent of companies received grants for the development of new products or services. This rate fell from 16 percent in the previous half-year, which poses a serious challenge for companies.
Although the importance of digital transformation is still a prominent topic, 48 percent of companies do not currently consider this to be an essential issue. This attitude hinders the improvement of competitiveness, especially in an economic environment where digitization plays an increasingly important role.
What does the future hold?
Despite the stagnant or declining trends of the innovation index, the fact that a sixth (16%) of companies are planning to introduce new products or services in the next year, while the proportion of companies planning further developments showed a slight increase from 38 to 43 percent, can give cause for some optimism. Although the use of agile development methods remained at a low level (6%), another 5 percent plan to introduce them during the next year.
Cover image source: Portfolio
Source: www.portfolio.hu
