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How to select your new automotive manufacturing site in eastern europe?

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A short summary of automotive site selection issues in Eastern Europe

A short summary of automotive site selection issues in Eastern Europe

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  • 1. How to select your new automotive manufacturing site in Eastern Europe? by Dr. Balazs Csorjan investment promotion specialist 2014 edition
  • 2. [NOTE] These slides are designed not to present but to read as a document. Switch to Fullscreen View, please!
  • 3. Central- and Eastern Europe “Tell me where Central Europe is, and I can tell who you are.” (Jacques Rupnik) When we say ‘Central - and Eastern Europe’, we mean the new (Eastern) member states of the European Union. This region went through a fundamental economic transition in the last 25 years: from a state-led communists economy to a more or less free market economy. The low-cost manufacturing region became the member of the European Union in 2004, so the cultural and geographical nearness accompany to free access to the World’s largest market.
  • 4. Automotive industry in CEE Eastern Europe became a leading automotive manufacturing location: it produced the 59% of Germany’s output in 2012, which is more than the output of France, Italy and Belgium alltogether. The automotive industry is not just robust but growing, thanks to the strong technical education, good infrastructure and stable business environment. These few slides try to help you when its about the site selection of your new automotive manufacturing plant.
  • 5. The Czech Republic The Czech Republic is traditionally the leading automotive manufacturing destination in CEE. OEMs like Skoda, Hyundai, Toyota, PSA, Iveco delivered 1.1 million motor vehicles in 2013. The czech automotive industry has a strong small car manufacturing profile, and the country provides the nearest location to Western European markets. learn more here >>
  • 6. Slovakia Slovakia is the rising star of the Eastern European automotive industry. The small county is the world’s #1 producer of cars per capita, 45% increase in 2012 (after a 250% increase from 2005 to 2010) The 3 OEMs: VW, PSA, KIA located mostly in the Western part of Slovakia, but Eastern Slovakia provides large labour supply and emerging infrastructure. learn more here >>
  • 7. Poland Poland is the largest economy and the most populated state in Eastern Europe. The leading OEMs are Fiat (60% share), Ford, Opel, VW, Volvo, MAN, Scania, Solaris. Poland is the #1 bus manufacturer of the European Union, with relevant domestic market. learn more here >>
  • 8. Hungary There are 4 OEMs (Audi, Mercedes-Benz, Opel, Suzuki) and 600+ suppliers in the Hungarian automotive manufacturing industry, which produced 222k cars in 2013. If Hungary, than automotive component manufacturing. There are a traditionally strong vehicle component manufacturing focus in the Hungarian economic policy. Hungarian governements think, big supplier (component manufacturer) pyramid provides stability to automotive industry, and deeper embedement to the Hungarian economy. The emerging Eastern Hungarian locations have large labour pool and special governmental support. On next slide’ short video, Daimler Hungary’s CEO talks about why they have chosen Eastern Hungary. learn more here >>
  • 9. Real Estate market
  • 10. Real Estate supply In Central and Eastern Europe, there are approx. 1,000 industrial parks. Hungary and the Czech Republic have the most wide-spread industrial park networks (approx. 200-200 IPs), and Poland has a modest network, but larger business parks. The number of industrial brown field sites can be estimated for more thousands, however be careful with these old industrial facilities: there can be relevant environmental issues thanks to the communistic heavy industrial track record. Industrial real estate markets are liberalized everywhere, you can get a property quickly (but hire a local attorney).
  • 11. Real Estate costs In CEE, property prices are relatively high, thanks to the weak supply. However, note: the property costs are under the 25% of total costs of a new manufacturing plant. In numbers, industrial land average sales prices are everywhere between 20-40€ per sq.meter in larger cities, and under 20 € in smaller towns. 10€ per sq.meter is a good deal, however some municipalities offer free of charge industrial land. Industrial hall rental markets are relatively small outside larger cities, but the average rental fees are between 2 and 5 € per sq. meter per month.
  • 12. Infrastructure
  • 13. Motorways Developed infrastructure makes Central-and Eastern Europe more attractive location than other emerging countries of the world. The European Union has a vision about the cross-European transportation, called Trans-European Transport Network (TEN-T). The goal of TEN-T developments (funded by EU) is to make the EU internal market more competitive and to speed up the market access. The developments of member states fit into this framework, including the low-cost CEE Region. Regarding national motorway networks, Hungary and the Czech Republic have the most developed motorway systems.
  • 14. Railways The Central- and Eastern European motorway network is underdeveloped compared to the Western European networks, but the CEE railway network is in much better status. The extended railway network was built in the last century, and large-scale EU programmes are running to rebuilt and develop it. The European Union prefer railway transportation, because environmentally it seems to be cleaner. However, the Eastern European rail cargo companies are often not so reliable and not flexible enough, that's why the road transportation has significantly bigger share. Manufacturing sites and business parks have often a railway access, the typical construction cost of 1 km (0.62 miles) industrial rail is roughly 1 million euros.
  • 15. Electricity The CEE electricity market is highly regulated by the EU. The EU has a competitive energy market (theoretically), separating the grid developers and energy providers. (On-site grid development is managed by business parks). As a key account, you can achieve competitive energy prices. EU energy price statistics can be checked here >>
  • 16. Labor market
  • 17. Unemployment As far as CEE is one of the most dynamic region of the European economy, the unemployement is relatively not so high (compared to Spain, Ireland or Greece, see the map on the right). However, there are relevant in-country differences. With an example: the entire Western Hungarian Region has a similar number of job seekers (30k+) like a single Eastern Hungarian town, Hajduboszormeny and its vicinity (25k). Generally we can say: Eastern Poland, Eastern Slovakia and Eastern Hungary have the highest unemployement rate.
  • 18. Labor costs Not independently from unemployment, the Czech Republic and large cities like Budapest (Hungary) and Bratislava (Slovakia) have the highest wage level: average labor costs (involving taxes and social contributions) are between €1200- €1800 per month in these locations. The low-cost Eastern parts of Poland, Slovakia and Hungary have a much more modest wage level: average labor costs are between €600-€1200 per month. Romania and Bulgaria provides a superlow cost wage level (around 5-600 € per month) learn more here >>
  • 19. Education The Eastern European vocational training systems follow more or less the “German modell”. The so called dual education means: vocational school students learn practical skills at companies. In BSc/MSc engineering trainings companies are also present. Recruiting are usually managed by professional recruitment agencies, but university job fairs and governmental labor offices recruiting between job seekers can be a relevant help. Finally: labor market regulations are definitely flexible and business friendly.
  • 20. How to select your new site? long listing: 10-20 potential sites might fit to your criteria site selection questionnaire - answers from the long listed locations facilities, transport, labour issues, regulations and taxes short listing: the most promising 4-8 sites visit personally each one listen to your instincts - it's not a science rank and propose 2-3 to your board
  • 21. Potential risks During the site selection process, beside infrastructure, real estate and labor market, analyze this: ● start-up time: existing halls for rent? supportive authorities? ● logistics: local service providers? transportation networks (e.g: TEN-T) connections? ● wage trends: competing employers in the city? labour market potential? ● transparency: level of corruption? political stability? fair business customs?
  • 22. Site selection assistance There are several ways to get help from professional site selection resources: ● non-profit governmental investment promotion agencies (IPAs): HIPA (Hungary), CzechInvest (Czech Republic), PAIZ (Poland), Sario (Slovakia) ● World Bank's investment portal, www.fdiintelligence.com, www. siteselection.com ● consultants and real estate agents ● … and last but not least: ask our free of charge help
  • 23. About us Manufacturing Hungary Blog is an information source about the manufacturing topics in Hungary and Eastern Europe. Our goal is to support site selection team’s job, providing useful information. Dr. Balazs Csorjan, investment promotion specialist, the former regional director of Hungarian governmental investment promotion agency. Dr. Csorjan has taken part in more hundred site selection projects - he knows your questions.
  • 24. E-mail your questions or ask the original maps, graphics, slides: csorjan@gmail.com