Member opportunites in Central Europe

25 April 2008

Several months ago in this column, I wrote about how the rest of the world had been keeping an eye on Japan and China as these nations began flexing their economic muscles. A report in the 12 December issue of BusinessWeek makes it clear that Central Europe also deserves the world's close attention. Central Europe is attracting $37 billion a year in foreign investment. That ranks second only to China in the competition for capital. Stock markets there are rising, with growth ranging from 3.5% in Poland to 6.8% in Estonia.

Flat taxes, with rates as low as 15%, give foreign investors a big reason to consider Central Europe. Companies investing in Central European countries belonging to the European Union also get duty-free access to all other EU countries. Plus the countries remain mostly unhindered by the types of labour regulations that challenge growth in countries that include France, Germany and Italy.

For many companies, however, the biggest reason to favour Central Europe is low labour costs. Consider that a factory worker in Poland earns US$3.07 an hour for the same effort that pays a worker $18.80 an hour in Germany. Companies can save even more by going to Bulgaria, where factory workers earn, on average, $0.73 an hour. That is less than the pay for a factory worker in China or India.

In addition, Central Europeans work long hours. On average, for example, Poles work 1,984 hours annually, compared to somewhere between 1,300 and 1,400 hours in most of Western Europe.

The auto industry especially has embraced Central Europe. Among the manufacturers flooding into the region are Toyota, Volkswagen, General Motors, Peugeot Citroën, Renault, and Fiat. Once companies gear up their plants, they often discover that Central Europe offers more than low-cost assembly workers.

The universities and technical schools supported by the old communist regimes continue to produce some of the world's best graduates in engineering, mathematics and computing at a time when students in Western Europe gravitate more to management, economics and law. The University of Warsaw in Poland is ranked number 1 in the world in computer coding competitions, ahead of Massachusetts Institute of Technology in the US.

And these Polish wizards are available at bargain prices. The average hourly wage for an engineer in Poland is $4.32, compared to $38.90 in Germany. “If you give them advanced tools and design know-how, they bridge the gap between complex technology and low-cost systems,” says Hari Nair, executive vice president of Tenneco Automotive, Illinois US.

It is tempting to say that Central Europeans build everything but the kitchen sink, but that's no longer accurate. American Standard, Piscataway, employs 3,700 people in three factory complexes that produce sinks and toilet bowls in Sevlievo, Bulgaria. This city of 25,000 is hidden in a valley beneath the Balkan range in the centre of the country.

Many see the remote location of some of the suddenly booming factory towns as a problem. Although the region's top cities have sound infrastructure, the second-tier cities and the countryside generally are in bad shape. As prosperity spreads to the less populated areas, our industry will be called upon to build highways, power plants and other key infrastructure. Improved infrastructure will lead to further economic growth.

As we begin a new year, we remain committed to keeping on top of the challenges and opportunities that Central Europe has in store for SC&RA and its member companies. SC&RA is working to establish its presence around the world, including in this region. In addition to monthly exposure in this magazine, we promoted our association to prospective member companies in Central European countries through a recent article in the EU Enlargement Infrastructure report from GDS Publishing.

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