As the global search for low-cost, highly skilled manufacturing centers continues, more and more buyers are looking at Hungary as a source of supply—and for good reason. Hungary is particularly popular with buyers sourcing electronics, chemicals and fabricated metals because the nation of nearly 10 million people provides a low-cost but skilled workforce for both specialized and nonspecialized production, with the added bonus of proximity to Western Europe, which means lower logistics costs. Buyers in a recent Purchasing survey noted that lower labor costs were a major benefit of sourcing products from Hungary.

And the money is coming in. According to the U.S. Department of Commerce, of all the Central and Eastern European nations, Hungary enjoys the highest amount of foreign direct investment—$5.2 billion in 2006 alone—and the U.S. is the fourth highest investor.

Thanks to heavy investment from the European Union, which Hungary officially joined in 2004, the country's infrastructure has seen steady improvements, with overhauls to major roadways and energy networks contributing to the country's steady growth. However, some major projects slated to overhaul cross-national highways, for easier transit between Ukraine and Austria via Hungary, for example, have been indefinitely postponed.

The capital city of Budapest, split in half by the Danube River into the Buda and Pest sections, has seen monumental economic growth in the past years. A great deal of business occurs either on the Pest side of Budapest or within the outer limits of the city, where train and road infrastructure is updated; however, there is no road circumventing Budapest, so major roadways still pass directly through the city.

Though it is an E.U. member, Hungary still uses its own currency, the Forint, and not the Euro. There is no official date for when it will change to the Euro, though the Hungarian government has tentatively set 2010 as a goal.

As Hungary shakes off the last remnants of its former Communist rule, there are some rough patches that buyers must navigate for smooth business, and an understanding of historical context helps.

For Hungary, the end of World War II marked the beginning of the Soviet occupation, which some fought to repel during the Hungarian Revolution of 1956. When Soviet power collapsed in 1989, Hungary became a full-fledged constitutional republic; however, the legacy of Soviet rule persists.

Senior buyer George Nagy of Costa Mesa, Calif.-based Ceradyne, just back from a recent trip to Hungary, says buyers should definitely be aware of Hungary's hardships. "There's construction going on, but they're still repairing the bullet holes in buildings," Nagy says. "The country was pretty devastated by war, so U.S. businesspeople need to be sensitive to that."

Hungarian businesses, Nagy says, are especially loath and skeptical to anything that hints at Communist business practices or collectivism. Small companies are wary of combining with others. To a foreign buyer, an array of small companies in one niche market may seem disjointed, but that makes it "an ideal environment for entrepreneurs and venture capital," says Nagy.

Former Communist practices are still manifest as governmental bureaucratic red tape, which contributes to the country's 10% budget deficit—the highest in the European Union. In April 2006, Hungary levied higher taxes in hopes of shrinking this deficit. (If the country is ever to adopt the Euro, it has to get the deficit down to 3% or less.)

The bridge across the Danube is not hard to cross: Infrastructure improvements and burgeoning businesses make Hungary an attractive option for buyers looking to source in Eastern Europe.

Thomas Kelly, manager of global platform sourcing at IBM in Armonk, N.Y., has been to Hungary three times this year, and says that "the pace has gotten a lot better." While he believes that Hungary's business pace is still slower than in China's, Kelly says that he's seen a pick-up in pace and eagerness to adopt new business practices, like longer working hours.

Personal relationships with contacts in Hungary may take longer to cultivate, especially given that informality with personal information is considered bad taste, but it is all about who you know. "Find common things to lead in to social talk, like some personal facts, but don't overdo it," says Nagy. As in many European nations, eating and drinking can be a big part of building a rapport while still following Hungarian social mores regarding formality.

Hierarchy and formality are emphatically followed in Hungary. "They look to line management more," says Kelly. "They will expect the higher-ups to make certain decisions." In lieu of a "hello" or "hi," a formal "good day" is more standard. Unless you know your Hungarian contact well enough to be informal, in business settings it is standard practice to use an honorific with the last name of the person you're speaking with.

Many buyers responding to a Purchasing survey on business practices in Hungary named language and communication problems as the biggest challenge to doing business there. Though many younger Hungarians speak English, buyers that might deal with smaller suppliers should be prepared to meet with someone who speaks only Hungarian.

Even a minimal effort to speak the language is appreciated. Just by putting in a small effort to say a simple greeting or introduction in Hungarian shows respect and appreciation to your Hungarian hosts, and they will be quite appreciative and receptive in turn.