February 21, 2004
From Hardware to biotech, hundreds of startups are thriving. János Kürti learned about disk drives the hard way. As an electronical engineer in Hungary in the 1970s, he repaired the clunky Communist-era computers owned by a staterun electronics company. A Western ban on technology sales to the East bloc meant few spare parts, fewer manuals, and hours and hours of tinkering.
Now, all that patience is paying off. Kürti boasts close 2,000 customers for his high-tech business, Kürti Ltd., which specializes in recovering data from crashed hard disks. Although the company got off to a slow start after Kürti set up in 1989, revenue is exptected to double this year, to 8 million. Customers ranging from Swiss banks to the German Navy pay an average of $ 2,000 to rescue their data. ”We always say we’ll have a go,” says Kürti’s brohter and partner, Sándor, who is software engineer.
That combination of brain power and drive is creating something new on Hungary’s business scene: small but viable high-tech companies. In the past few years, more than 1,000 startups have sprung up in areas ranging from computers to biotechnology. Most cater to their own market. But a growing number of highfliers are competing head-to-head with niche rivals in the U.S. and Japan. Says Esther Dyson, who runs a New York-based venture capital fund specializing in East European technology companies: ”There is no shortage of ideas. The potential for new tech startups is huge.”
While Hungary isn’t the only home to high-tech companies in the region, it stands out because it had a headstart. Elite Hungarian universities have long produced exceptional scientists including several Nobel prize-winner. In the 1980s, Hungary’s early attempts at econnomic reform allowed pioneering researchers to leave their labs and set up their own small businesses. Although many scientists left the country for the better wages and labs after 1989, those who stayed behind have since gained free-market experience. And they’re beginning th make their mark.
Take Graphisoft. Back in 1982, Gábor Bojár a mathematician with an entrepreneurial flair, left the Hungarian Geophysical Institute and teamed up with a friend to design programs for three-dimensional screen displays. During years of working on programmable calculators and awkward Russian computers that kept breaking down, the pair learned to write extremely compact computer instrucitons. In 1983, executives from Apple Computer Inc. Discoveres Bojar at a Munich trade fair. They encouraged him to develop a special program designed for architects using Macintosh computer.
Now, Graphisoft designs and markets ArchiCAD software used by architects around the world. Last year, the company’s sales totaled $12,5 million, mostly overseas. It has units in the U.S., Germany, and Japan.
Then there’s Gábor Prószéky. A mathematician and linguist, he set up a software marker called Morphologic in 1992 with friends from Technical University of Budapest. Morphologic won a contract with Macintosh to provide the spell-checker, hyphenation, and thesaurus programs on the Hungarian version of Microsoft Word, having provided similar programs for Lotus and WordPerfect. The underlying software was so flexible that Micorosoft is talking with Prószéky about handling the versions in Polish and Romanian.
As the high-tech sector takes off, more venture-capital companies are piling into Hungary. That’s critical, because banks charge 36% interest on commercial loans, making borrowing next to impossible for many entrepreneurs. The $ 120 million First Hungary Fund, for example, provided a crucial $16 million investment in Biorex, a pharmaceutical company created by Péter Literáti, a leading research scientist. The money helped Literáti pursue his dreams of developing a compound to prevent the side effects of diabetes. It’s undergoing trials in Britain. Says Peter Rona, chairman of the fund: ”It was a long shot.”
To be sure, Hungary’s high-tech sector still faces its share of problems. Scientists often lack management and marketing expertise, and it can be an uphill battle convincing cutsomers that Hungarian companies can outdo Japanese or American rivals. Even so, the Hungarian scientists that stayed behind are making an increasingly significant contribution to their economy. Not only are they providing jobs, they’re also showing other fledgling entrepreneurs that Hungary can indeed find a rich niche in the world market for high tech.
By T. R. Smart in Budapest and Karen Lowry Miller in Bonn