| Author: |
Marek Romancov |
| Publication: |
Czech business weekly |
| Date: |
29. 5. 2006 |
The range of views on the announcement of carmaker Hyundai Motor Company’s investment in the Czech Republic are far more controversial than in comparison to the announcement of Toyota Motor Corporation and Peugeot, which operates PSA Peugeot Citroen group, to produce cars at the Toyota Peugeot Citroen Automobile Czech (TPCA) plant in Kolín, Central Bohemia.
Delays aside, Hyundai is obviously one of the biggest “success stories” for the current government; however, economists and industry leaders don’t necessarily have only positive views on the future existence of a third car producer in the Czech Republic (see “Motoring up for related auto investments,” CBW, April 18, 2006). From the macroeconomics perspective, the announced investment has to be viewed positively: the existence of the car manufacturing plant will improve unemployment in the region of Northern Moravia. The investment will, hopefully, accelerate the development of infrastructure, which should improve some of the current environmental issues of the region, and increase further possibilities for businesses, not just ones in the automotive sector, to grow. The positive effects on the GDP and net exports should also be taken into account. Clearly, in hand with the investment of Hyundai, the Czech Republic is also committing itself to a large investment — in the range of few hundred million euros) as well — but this should be treated as “well spent money.”
Will this country become too dependent on the automotive industry? The automotive industry is a very cyclical industry and that is certainly a risk. There is clearly overcapacity in Europe, but this risk for the Czech Republic is balanced by the general trend to reallocate existing capacity in the European Union in favor of lower-cost countries. This trend will be accelerated by new entrants, including Hyundai.
The Czech automotive industry will become much stronger in terms of the output of units as a result of the Hyundai investment, but is this a clear win situation? The current producers and suppliers will have to face some fairly important issues as a result of Hyundai coming to No‰ovice, North Moravia.
Hyundai will clearly attract some experts from the industry, which will likely have to be at least partly compensated by appropriate salary adjustments in order to prevent a loss of experienced staff. Industry leaders have been waving the red flag for a number of years because of long-term problems associated with education. Czech schools simply aren’t producing enough qualified technicians for the industry.
It seems that new production will bring the possibility for existing suppliers to grow. Czech component producers have already demonstrated their capabilities to produce at the best level of quality at a very reasonable cost; nevertheless, this does not automatically open the door to becoming Hyundai’s (and thus also sister company Kia’s) supplier. It’s rather expected that Hyundai will bring its current component suppliers along with them and use them in the No‰ovice plant. Given that Kia’s plant in Slovakia is just 80 kilometers away, it would make sense that the preferred main suppliers will be those already serving the Îilina plant, but there should still be excellent opportunities for second tier Czech suppliers.
What is very clear is that Hyundai is extremely cost conscious and it will therefore be very challenging for suppliers to make money even if they have large volumes. The presence of Hyundai will likely increase pressure on the suppliers throughout the supply chain to further increase the efficiency.
TPCA, along with other Japanese components suppliers, has introduced the famous Toyota production system in the Czech Republic and provided a boost to the Czech economy. Hyundai’s investment will clearly bring similar possibilities and opportunities for the region, which up to now has suffered from a lack of large investors.
