AMEX Hungary Review and Recommendations Summary AMEX Petroleum

AMEX, Hungary Review and Recommendations

Summary • AMEX Petroleum Hungary • Project to establish operations in Central Hungary • Initial Project goal to establish a business office and 10 -14 gas stations • Project manager was to establish stations by: • Building new gas stations • Purchasing Existing stations • Setting up franchise agreement with owners of existing stations.

Summary cont. • Current Status • Project is behind schedule • Only one station purchased vs. 3 projected at this point • Retrofit of station is behind schedule • Only ¼ of necessary positions filled in business office • Construction on business office is behind schedule

Risks • Project facing several risks: • Personnel constraints • Cultural Constraints • Governmental and Legal Constraints • Weakened Hungarian Economy • Security Issues • Timeline

Personnel Issues • Current staff is not sufficient to handle operations at the business office or support the gas stations • No staff exists to research opportunities for station acquisition • No staff exists to deal with governmental issues • Current staff is not reliable or well trained

Cultural Issues • Current staff operates inefficiently • Fails to report to work consistently • Female employees often required to be away from work to care for family members • Unemployment is high but large percentage of the available workforce is not sufficiently educated • Large percentage of workforce unprepared for work in the private sector due to years under soviet rule

Governmental/Legal Issues • Construction on only gas station that has been purchased is behind due to issues with supplies clearing customs • Construction on business office halted awaiting clearance from city historian

Weakened Hungarian Economy • Only 1 in 5 Hungarian families currently owns a car • Original decision to establish was based on a projected growth in first time car buyers • Current economic downturn threatens growth • Inflation rate in Hungary currently at 32%

Security Risks • Security risks are low but do exist • Growing presence of Russian and Ukrainian Mobs • Organized crime currently focused on money laundering and weapons trafficking • Some extortion of foreign companies has been reported

Addressing Personnel Issues • Personnel represents most pressing issue • Assistant Project Manager should be hired to act as liaison between company and local businesses • Position would also research opportunities for station acquisition • Person with knowledge of Hungarian business practices and familiarity with corporate America would be best • A Hungarian educated in the U. S. would be beneficial • Services of an international recruiting agency should be sought

Addressing Personnel Issues cont. • A Governmental Liaison position should also be created • Position would coordinate with local and national government agencies • Streamlining of customs clearances and receiving approval to complete construction of business offices should be issues immediately addressed by position • A displaced former government worker would be ideal in filling this position • Individual should have knowledge of the workings of Hungarian bureaucracies

Addressing Cultural Issues • Training curriculum should be developed for Hungarian employees • Attendance expectations and requirements should be stated • Training should be sensitive to cultural issues but clearly convey company policies

Addressing Economic Risks • Economic factors pose greatest risk to project while representing an area over which the company has the lowest level of control • Project Manager should plan to strategically place stations in areas with lowest potential for economic impact • An alternative strategy would be to focus cornerstone stations in more stable neighborhoods and smaller stations in middle and lower class neighborhoods

Addressing Security Risks • Security Risk is currently low • Security firm should be contracted to perform security threat assessment • Plan should be developed to address issues should they arise

Timeline • Original project timeline 18 -24 months • The project has fallen behind schedule • Failure to address timeline issues could be detrimental to companies operations in Hungary • The longer the company goes without operational gas stations the more damage to future expansion in Hungary and Eastern Europe

Financial Assessment • This project represents a major investment on the part of AMEX • Projected purchase price of $150, 000 per station with additional funds slated for retrofitting • Franchising represents lowest financial exposure for company • Project represents first step of AMEX into Eastern Europe

Project Tracking • Current project tracking is inadequate for the task • Project Manager should begin using some form of tracking • Gantt Chart represents a convenient method for tracking project and communicating info to headquarters • Headquarters should be updated at least weekly on the project status

Conclusion • The AMEX, Hungary is a major investment for AMEX Petroleum • The project is currently behind and facing major risks • The risks can be addressed and overcome • If successful this project will establish AMEX petroleum in Hungary and provide a launch point for further expansion in Eastern Europe • The suggested changes should be immediately implemented to ensure the success of the project.