Component Group, a company with 35 years of experience in distributing industrial tools in Hungary, has established a subsidiary in the Czech Republic named S&D Controls. Daniel Nagy, the managing director of the company, which has grown from a family business into an international group, discussed the unexpected opportunity and the challenges of setting up a foreign subsidiary.
Since 1989, Component Ltd. has been involved in the distribution of industrial control instruments, fittings, and industrial pumps. Five years ago, it became a corporate group after acquiring D-Tech Ltd, a distributor of industrial pumps. This acquisition expanded not only their product range but also their services. Today, they see themselves more as an engineering service provider, offering comprehensive engineering solutions in addition to products. Last year, the group expanded with a new member, S&D Controls, aiming to enter the Czech and Slovak markets.
“We hadn’t planned to expand abroad, but an opportunity arose, and we seized it,” says Daniel Nagy. “One of our long-standing manufacturers was looking for a distributor in the Czech Republic, and we believed that with our experience in Hungary, we could handle this task abroad as well.
From that perspective, it was easier because we didn’t need to introduce the product to the Czech and Slovak markets; the users were already familiar with it, we just needed to reorganize its distribution.”
Although Component Ltd. has been operating in Hungary since 1989 and is familiar with the local conditions, setting up a foreign subsidiary is not an easy task.
“I wouldn’t say it’s difficult either. Everything depends on the preparations. Through a tax advisor and a lawyer, we found partners in the Czech Republic, and the company was established in one morning.”
After that, it was just a matter of organizing the Czech company, understanding the market characteristics, and showing customers that product distribution was in good hands.
“Yes, it sounds quite simple,” Nagy laughs. “It’s important to know that the Component Group is a family business. During our growth, we had to reorganize our corporate management system. After extensive market research, we have found a Belgian software and we tailored it to our processes. This took two years, which we hadn’t anticipated. Now, however, it was just a click to transfer it to our Czech company, which was a huge advantage for taking the first steps.
Certain functions, such as administration, are centralized and handled from Hungary, but tasks like accounting, finance, and especially sales can only be managed locally.
Since we were new players in the market, we personally visited the most important partners; I also went there several times. In Hungary, we have very good trust relationships with our partners, and we need to build this in the Czech Republic and Slovakia as well. I feel we are on the right track.”
“Our initial experiences were positive; both countries have fairly traditional industries, perhaps even larger in scope than in Hungary. Our task is no easier, but no harder than in the domestic market. However, based on our current experiences, setting up the next subsidiary will be easier. But I think that’s natural.”
This also means they are not stopping at the Czech Republic and are considering further expansion.
“We want to move towards all of Hungary’s neighboring countries, but it doesn’t work by opening a Component store everywhere. Naturally, we need to obtain the distribution rights.
When negotiating with our suppliers, I always mention that we have international plans. During one such conversation, an opportunity arose in the Austrian market with one of our suppliers, so our next subsidiary will be in Austria.”
Expansion, however, is not only possible by entering new countries but also by broadening the portfolio of distributed products.
“Our clear goal is to provide similarly comprehensive services abroad as we do in Hungary. We no longer see the Component Group as just a distributor but as a company offering engineering services, where we propose solutions for different tasks. We put together a final product from various manufacturers we distribute that is most suitable for the user. This is where we excel, and this is what we want to represent abroad as well.”