Current Press Announcements
Stuttgart/Vienna, June 29, 2010
The management consultants Horváth & Partners expect increasing investments in Russia and the Ukraine in the upcoming years. A current study on the “Success factors for setting up facilities in Central and Eastern Europe (CEE)” finds that the successors of the former Soviet Union (CIS) have the greatest potential. The five central European states of Poland, Slovakia, Slovenia, the Czech Republic and Hungary (CEE 5) remain interesting but are increasingly becoming “saturated”.
While economists have differing opinions on how the CEE countries are going to develop economically, the overwhelming majority of managers still regard the CEE region as attractive, both as production location and as sales market. However, the increasing economic maturity of the CEE 5 region has lead to rising wages and stiffer competition, resulting in a clear trend eastwards: Nearly two-thirds of the companies questioned see the CIS states as the production locations of the future. Only one-quarter of the companies regard the CEE 5, the Baltic countries and the EU newbies Rumania and Bulgaria, respectively, as potential manufacturing sites.
To date only ten percent of production facilities in CEE are on CIS soil, which is interesting when one considers that over half of all Austrian, German and Swiss firms have locations in the mature CEE 5 markets and in the Baltic states. Over 20 percent have facilities in the “new” EU member states of Rumania and Bulgaria. “Russia and the Ukraine are now the top candidates for setting up production facilities in the next five years,” concludes Christoph Kopp, head of the study at Horváth & Partners in Vienna. There is a considerable gap before these two are followed by Rumania, then Turkey, Poland, Belarus and Croatia.
The eastwards trend can also be seen in the average age of the production facilities: While subsidiaries and spin-offs in CEE 5 and the Baltic countries were founded on average eight years ago, the locations in Southeast Europe, Rumania and Bulgaria have existed for an average of six years and those in the CIS states for only approximately two years.
Low labor costs and high sales potential
As future production locations, the CIS states highly attractive for two reasons: Low wages (industrial workers earn only about one-tenth of the wages of their German and Austrian counterparts) and the large and growing markets – despite the sometimes unstable political situation, inefficient public authorities and poor infrastructure.
The newer production facilities in the CIS states differ from most of those opened after the fall of the Iron Curtain, which were opened purely as an “elongated workbench” for simple assembly and toll manufacturing tasks, in that increasingly they also supply the regional markets with locally manufactured products. The CEE 5 countries will take on new roles in the future: Long-term, they will become possible locations for CEE headquarters, for hi-tech and high know-how production and for shared service centers.
Over 100 companies with CEE experience questioned
A total of 111 companies from different fields in the DACH region were questioned during the study “Success factors for setting up facilities in Central and Eastern Europe (CEE)”. They provided information on the seven location and success factors for operating in the CEE countries. 68 percent of all companies said they had been active in Central and Eastern Europe for longer than three years, while the rest had been there for between one and three years.