TORONTO, May 31, 2007 — More and more automotive manufacturers and suppliers are making the move Central and Eastern Europe. But, according to part two of PricewaterhouseCoopers’ (PwC) Eastern Influx: Automotive manufacturing in Central and Eastern Europe, there’s more to choosing the right location than simply moving to the right country.
“Automotive companies that move to Central and Eastern Europe should think about location, location, location. They need to consider not just the country but the right place in that country,” says Mark Walters, a PwC Tax Services Partner in the Automotive Industry Group.” There can be major, but less obvious, differences within each country that can make or break a move. These include the availability of skilled labour, planning regulations and quality of the utilities.”
According to PwC research, about US$6 billion worth of automotive production will be transferred to Central and Eastern Europe over the next five years. But despite the 16 years that have elapsed since the end of communism, the understanding of the region is still quite limited.
The single biggest reason for automotive companies to migrate to Central and Eastern Europe remains the potential for labour savings. Wages are currently a fraction of those in the West. And the World Bank predicts that labour will remain cheaper in the new Central and Eastern European member states than in the EU15 for at least the next 20 years. But in some countries access to labour is now a serious concern.
Demand for skilled labour has already resulted in some major intra–national differentials in wage levels. The average gross monthly wage is now 25% higher in Bratislava than it is in eastern Slovakia, for example. The differences are even more pronounced in the Czech Republic; wages in Prague are 43% higher than in Jizní Moravia and Severní Moravia (the southern and eastern regions of the country).
“Superficially, it might make sense to move to one of the areas in Central and Eastern Europe where labour costs are lowest,” says Walters. “But even short distances can mean large differences in wages and many places often lack the infrastructure required to support a manufacturing operation.”
The quality of the physical infrastructure in the region is clearly a concern. Many of the roads in Hungary, Poland and the Baltic States are not highways. Roads in Romania and Bulgaria are very poor. The railway network is also in urgent need of investment — almost all the rolling stock in the new member states of Central and Eastern Europe is more than 20 years old. And many of the smaller provincial cities in the region do not have international airports.
“Any manufacturer planning to relocate to Central and Eastern Europe has to do their homework, rather than follow the crowd,” says Walters. “They have to think locally as well as nationally — and seek local knowledge to meet the individual needs of their business. Choosing the right location is a time–consuming exercise, but it can determine their success in a region where there’s more than meets the eye.”
PwC’s Eastern Influx: Automotive manufacturing in Central and Eastern Europe is available on–line at: www.pwc.com/automotive.
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