A short summary of automotive site selection issues in Eastern Europe

1. How to select your
new automotive
manufacturing site
in Eastern Europe?
by Dr. Balazs Csorjan
investment promotion specialist
2016 edition

2. [NOTE]
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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 60% of
Germany’s output in 2014, which is more than the
output of France and the UK 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 1.3 million motor vehicles in 2015. 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. With 1 million
vehicles production in 2015, the small county is
the world’s #1 producer of cars per capita. 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 700+ suppliers in the Hungarian
automotive manufacturing industry, which
produced 500k cars in 2015.
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. Infrastructure:
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).

10. 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.

11. Infrastructure:
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.

12. 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.

13. Energy prices
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 >>
Czech Republic had the lowest and Latvia had
the highest industrial electricity price level in 2014.
Czech Republic had the lowest and Slovenia
had the highest natural gas price level in 2014.

14. Labor market:
Unemployment
As far as CEE is one of the most dynamic region
of the European economy, the unemployment is
relatively not so high (compared to Spain, Ireland
or Greece, see the map on the right), however,
there are relevant in-country differences.
Generally we can say: Eastern Poland, Eastern
Slovakia and Eastern Hungary have the highest
unemployement rate.

15. Labor market:
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 >>

16. Labor market:
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.

17. Grants for
manufacturing
When it’s about industrial site selection, grants
can be the cherry on the cake. I don’t suggest to
make a decision based on grants only, but why
shouldn’t calculate with free money when some
governments and municipalities provide it?
Governments provide grants for job creation, for
acquisition of assets, tax relieves and more. Here
you can learn more about Eastern European
grants for manufacturing.

18. Case study: Hajdu
Industries Plc,
Eastern Hungary
A long long time ago (before the crisis), the Daimler-Chrysler
Inc. were seeking a new manufacturing plant in Eastern Europe.
More excatly they were seeking a local partner for component
manufacturing. After an in-depth search, Daimler-Chrysler
chose Hajdu Industries Plc in Eastren Hungary. It should be a
happy ending story - but the demerger of Daimler and Chrysler
shut down this great deal. (However, after some years
Mercedes-Benz selected another Eastern Hungrian city,
Kecskemet for its new small car manufacturing plant.)
Daimler-Chrysler decision for Eastern Hungary was not an
accident. Developed infrastructure, industrial traditions, huge
and cost effective labor supply make the award-winning
‘Hajdusag’ region unique. Local authorities and business parks
are targeting automotive component manufacturing companies
with special incentives, industrial land discount and dedicated
vice mayor.

19. 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

20. 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?

21. 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

22. 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.

23. If you liked this presentation,
please do not forget to share
it - maybe your partners will
like it, too.
Otherwise, do not hesitate to e-mail your questions: csorjan@m35businesspark.hu or download the file.
thnx a lot!