Master Studies: International BusinessInternational LogisticsProf. Krzystof RutkowskiHow do you see the current and future...
“With rising private consumption and fast-growing externaland internal trade, the CEE region has displayed highpotential f...
IntroductionGlobalization is a great power. Everything is moving nowadays: people, products, services,simply everything. B...
presence in the region to move to the new area.As of the date of the article CEE Change;Central and Eastern Europe Make Wa...
The CEE countries which are members of the EUWhen it comes to the specific industrial sectors it can be easily found that ...
source: UNCTADThere are many international players present in the Polish logistics market such as DBShenker, Raben, DHL as...
HungaryHungary as well as Poland is proud of its highly-qualified and cost-efficient labor force.Besides region is charact...
Hungarian government is also gaining a lot from improving the facilities and environment forlogistics in the country as th...
Industrial and logistic zones in Czech Republic. Source: European Logistics Association                                   ...
Future roleFurther economic unification of the EU zone will lead to even higher increase in intra-regional trade between t...
References:DHL Logbook. Logistics in Eastern Europe. Available from:http://www.dhldiscoverlogistics.com/cms/en/course/tren...
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Current and future role of Central-Eastern European countries and firms within global logistics systems.

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International Logistics Final Paper by Aliaksey Narko for Warsaw School of Economics

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Current and future role of Central-Eastern European countries and firms within global logistics systems.

  1. 1. Master Studies: International BusinessInternational LogisticsProf. Krzystof RutkowskiHow do you see the current and futurerole of Central-Eastern Europeancountries and firms within global logisticssystems? International logistics Paper. January 18, 2013.Aleksey Narko 057830 1
  2. 2. “With rising private consumption and fast-growing externaland internal trade, the CEE region has displayed highpotential for the sustained growth of the transportation andlogistics market.”Praveen Ojha, Datamonitor International logistics Paper. January 18, 2013. 2
  3. 3. IntroductionGlobalization is a great power. Everything is moving nowadays: people, products, services,simply everything. Barriers such as borders, government restrictions and many othersinfluencing businesses and trade all over the world. Economies of the countries are benefittingfrom this great move as well. Growth is rapid and results are incredible. CEE countries are agood example of such a progress.Since ancient times CEE countries were playing an important role between the major tradeplayers from West and East, North and South. Goods such as amber and silk were transportedthrough these lands, finally reaching their final destinations.Later on the fall of the Berlin Wall and the collapse of the Soviet Union have changed thesituation in the Central and Eastern Europe countries. During the period of communism mostof the CEE countries were politically and economically enslaved to the Soviet Union,therefore they were having many problems with economic development and even now, aftermany of them joined EU they have problems with 55 years lost. The centrally plannedeconomies fell and the transition to the market economy started. “Trade liberalization,economic restructuring, privatization, capital inflows, and the gradual adaptation of legal andadministrative standards to market-oriented practices have improved economic structuresdramatically.”(Rutkowski,2009)With the enlargement of European Union the wave of restructuring and changes became evenmore dramatic. Thanks to the priceless positioning in-between old European members andRussia as well as other Asian countries CEE states started to perform the role of a bridge.Moreover there are several other factors influencing the development of logistics sector in International logistics Paper. January 18, 2013.those countries such as big foreign trade areas, strong, growing economies, relatively largedomestic markets, huge increase in Foreign Direct Investment and many others. Theseelements make such countries as Hungary, Poland, Czech Republic and other states as well ascompanies in the region very competitive at the European and even global logistics sector. Asa matter of a fact we can see that this sector is growing rapidly. According to the Datamonitorit was estimated to around 184$ billion in 2008 and was just under 250$ billion in 2012,which is more than 70% growth just in 4 years.New low-cost opportunities as well as democratization and capitalization in CEE countrieshas encouraged many multinational corporations that already have a significant business 3
  4. 4. presence in the region to move to the new area.As of the date of the article CEE Change;Central and Eastern Europe Make Waves, the average GDP for Central and Eastern Europeancountries was at $6,300 versus $25,200 for Western Europe. However the economies of CEEregion countries are growing much faster than those of the old Europe. This is partly to thefact that there are many manufacturing companies outsourcing to the region. Therefore withthe growth of production logistic sector is getting bigger as well. Currently 10 out of 27European Union countries are the CEE states. At the same time EU account for around 10%of the world logistics market, this percentage seems to be small, however this percentage isconstantly growing and CEE countries have a great potential in improving these results.Current SituationMost of the CEE states are now members of the EU, coalition which was formed in 1958 andsince then has grown in size and includes 27 states. The largest enlargement was in 2004,when 10 new members joined. At the beginning the population of EU was around 2,3 hundredmillion people and after the last enlargement reached over 4,9 hundred million which showsthe increase in the number of residents and therefore market size in more than 2 times. But thesize and population are planned to grow in the near future. Such countries of CEE as Bosniaand Herzegovina, Macedonia, Serbia, Kosovo, Albania and Montenegro want to join theconsolidation; however they will be able to do it only after fulfilling specific EU criteria.Due to the centralized location CEE countries play an important role between CentralEuropean countries such as Germany, Great Britain, France, Austria, Spain, Italy, Netherlandsand other and their major partners such as Sweden, Finland, Russia and many Asian states.After European Union Enlargements many old EU members started to lose their positions in International logistics Paper. January 18, 2013.manufacturing activities and logistics as well. Because of the relatively cheap labor, access toresources and technologies such countries as Poland, Czech Republic and Hungary started togain the leaderships positions very quickly and now are placed very high amongEuropeanplayers. These countries seem to be the best for taking into the consideration theirgeographical location when it comes to foreign and local investment. "As wages in WesternEurope increased and borders disappeared there has been a steady migration of labor-relatedactivities into Eastern Europe—countries such as Hungary, Poland, Slovakia, and even as fareast as Turkey," says Erik van Egmond, managing director, Penske Logistics Europe. 4
  5. 5. The CEE countries which are members of the EUWhen it comes to the specific industrial sectors it can be easily found that the automotivesector is one of the most rapidly growing fields in the area therefore attracting many logisticcompanies looking for new opportunities. Moreover region is situated between EU andCommonwealth of Independent States (includes Russia, Ukraine, Belarus, Kazakhstan andsome other) which makes it a strategic location to export different types of goods East andWest. Entry of the companies with production facilities in CEE states gave them the chance tobenefit from lower tariffs, less barriers and reduced value-added tax.Now I will look at the current situation at the logistic sector of the most powerful players fromthe CEE area such as Poland, Hungary and Czech Republic.PolandPoland has lots of competitive advantages when it comes to the logistic prospects such as International logistics Paper. January 18, 2013.localization, big domestic market with a population around 40 million people, strongeconomy, empowered by the EU funds subsidies, skillful labor force and relatively low costs.The per capita GDP according to the World Bank is over 13400 US dollars. According toUNCTAD data, foreign direct investment inflow to Poland in the years 2005-2010 totaledsome USD 91.7 bln (compared to Lithuania’s same-period FDI of some USD 7.6 bln, Latvia– some USD 6.4 bln, the Czech Republic – some USD 37.7 bln, Bulgaria – some USD 39.5bln and Hungary – some USD 30.3 bln). 5
  6. 6. source: UNCTADThere are many international players present in the Polish logistics market such as DBShenker, Raben, DHL as well as local ones which makes it very competitive however oneimportant point of consideration when it comes for the new entrants is the transport sector.The network of railroads is well-developed in Poland and the number of goods transported bytrains is constantly growing. The air transport market is also not standing at one place. Lotairlines is gradually modernizing its facilities and park of planes. At the same time thehandling capacities of the Baltic ports is rising.Nevertheless there are a number of problems connected to the transportation issues in Polishlogistics. Although Poland has invested great amount of money to improve its motorwayroads, especially after joining EU and for the recent Euro 2012, lack of expressways betweenmain centers of economic life, especially in Eastern Poland is still visible. Moreover thoseroads which are built according to the Western standards are becoming overcrowded and theirtraffic capacity decrease. Compared to average density of motorways and express roads, thosein Poland are less dense: 80 km/km2 compared to the 123 km/km2 average in European Union. International logistics Paper. January 18, 2013.Considering railways the major difficulties include poor condition of rail infrastructure andworn out stock which influences in a bad way the attractiveness of transporting goods as wellas overall competitiveness of the railway services. Moreover there is lack of speed railwaylines which benefit logistic operations a lot nowadays. When it comes to services there is asimilar problem with Polish ports in Gdansk, Gdynia, Szczecin and Swinouscje whichfacilities mostly date back to the Soviet Union times. There is also insufficient access to theports both from the sea and land. 6
  7. 7. HungaryHungary as well as Poland is proud of its highly-qualified and cost-efficient labor force.Besides region is characterized. The efforts to reform Hungarian economy over the pasteighteen years have facilitated this process of integration and have made Hungary one of themost liberal economies in the European Union which facilitates the easiness of making anykinds of business here. Besides being in the center of Europe country has borders with 7countries which include 4 European and 3 non-European member states. Hungary has threeinternational road corridors going through its territory which maintains easy access to Balkansand Europe as well as good connections between 11 logistic districts and 13 logistic centerslocated in the focal points of the international movement of goods.As a result of intensive construction work along the main transport corridors, motorways andtrunk roads have reached the national borders or will reach them in the short run, ensuringfaster and safer transportation. With an extensive road system, centered in the capital-Budapest, Hungary has the most developed highway network among the new EU memberstates. International logistics Paper. January 18, 2013. Source: Ministry for National Development and Economy. 7
  8. 8. Hungarian government is also gaining a lot from improving the facilities and environment forlogistics in the country as this service is the most outsourced in the country therefore bringinggreat profits. This fact can be proven by the presence of all the major international players atthe Hungarian market of logistics such as Maersk, UPS,TNT, GLS and others. MoreoverHungarian government is ready to provide the logistic investment projects with severalbeneficial subsidies such as tender supporting job creation, development tax allowance,training and direct cash subsidy.Czech RepublicCzech Republic seems to be one of the leading players in the logistics sector among the CEEcountries. The situation in the industry has changed totally with joining of the EuropeanUnion which can be seen only by the fact that road transportation between Germany andCzech Republic increased by 40%.With total population of 10 million people logistics and all the transport and related servicescontribute to 10% of the country’s GDP. Most of the goods (around 70%) are transported viaand motorways, while 28% of them are moved with the help of the rail roads, which aremostly specializing in transporting bulky commodities and are losing their share year afteryear.Increased demand for logistic services in the country is changing the market tremendously.Due to the fact of increasing use of roads, especially during recent years the problem withcongestion appears and brings problems with the environment (Noise and CO2 emissions).However the changing trend brings also positive aspects for the customers such as growingcompetition which drives the quality up and prices down and therefore development of more International logistics Paper. January 18, 2013.fast and precise systems.Government is supporting the logistics sector by heavily subsidizing the sector. Only between2006-2010 1.6 billion czk was available for it and this number is growing. All these moneyare kept to develop public terminals, construction and set-up of intermodal routes.All these facts increase the attractiveness of Czech Republic as the logistic and industriallocation therefore bring more and more investments. 8
  9. 9. Industrial and logistic zones in Czech Republic. Source: European Logistics Association International logistics Paper. January 18, 2013. 9
  10. 10. Future roleFurther economic unification of the EU zone will lead to even higher increase in intra-regional trade between the strong and well-developed economies of the Western Europeancountries, possible new entrants and “energetic tigers” of CEE region. The trend of movingproduction and therefore logistic facilities to the CEE seems to be growing in the future,governments will be gaining more and more profits from these actions and therefore able toinvest this money into modernization of logistic routes and fighting with environmental issueswhich seem to be the major problem in the region nowadays. It seem like the Mediterraneanand Baltic Sea ports which are leading trade partners with many countries from all over theglobe will show tremendous development together with the rapid economic growth ofNortheast European countries such as Poland. States from the Central and Eastern Europeregion will increase their globalization trends and cooperation with new partners not onlyfrom the nearby areas but also from far away.CEE states will be the leaders in European logistics and will continue fighting for the pedestalamong each other benefitting the customer with better offers considering price, speed, qualityand other factors. International logistics Paper. January 18, 2013. 10
  11. 11. References:DHL Logbook. Logistics in Eastern Europe. Available from:http://www.dhldiscoverlogistics.com/cms/en/course/trends/europe/europe_east.jspEU Infrastructure. CEE: the next logistics hotspot? Issue , Roads & Rail. Available from:http://www.euinfrastructure.com/article/CEE-the-next-logistics-hotspot/O’Reilly, Joseph (March 2007). CEE Change: Central & Eastern Europe Makes Waves.Inbound logistics. Feature stories.Available from: http://www.inboundlogistics.com/cms/article/cee-change-central-and-eastern-europe-makes-waves/Rumler, Miroslaw (2009). CEE logistics: Facts and Future Prospects. Prague. Availablefrom: http://www.elupeg.com/doc/documents/CEELogisticsFactsandFutureProspects.pdfRutkowski, Krzysztof (2009). Best Practices in Logistics and Supply Chain Management.Warsaw: School of Economics SGH. International logistics Paper. January 18, 2013. 11

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