When it's about expansion on European market, good to know about potential manufacturing sites.

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

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3. Central- and
Eastern Europe
When we talk about “Eastern Europe” we think
about the Eastern member states of European
Union. The low-cost manufacturing region of
the world’s largest market provides cultural,
geographical, economic and legal nearness to
the European market.
These few slides try to guide you when it’s
about starting a new food processing facility in
the region.
“Tell me where Central Europe
is and I can tell you
who you are.”
Jacques Rupnik

4. Food industry in
CEE
In general we can say that Eastern Europe is one
of the leading agricultural & food processing
locations of Europe, with numerous (and highly
subsidized) farms, strong education and
infrastructure, stable business environment.
Leading locations are Hungary, Poland and
Romania.

5. Hungarian food processing industry
The country traditionally has a strong food economy: including the food, soft drinks and tobacco sub-sectors, this
industry is the 2nd largest employer and the 3rd largest producer of the processing industry in Hungary.
Food business has a strong EU market focus: 70% of food export goes to Europe (and 47% of food processing
investments came from the EU).
The country provides good natural conditions, effective farms and developed infrastructure.
2nd largest employer 3rd largest producer of
processing industry
48% share of foreign
capital in the industry

6. Poland’s food processing industry
Poland has one of the largest and strongest agriculture and food sector in Eastern Europe. The land market is highly
liberalized and foreign investors are welcomed also in agriculture. This resulted an effective, market-driven
development of local food business.
Doubled production between
2004 - 2014
300k employees meat livestock and meat products
have the largest, 20% share in
Polish agri-food export

7. Romanian food
processing sector
Behind the two leading countries, in recent years
Romania became the most frequented location
for CEE food investors. The agricultural
population (3 million employees) is one of the
biggest in Eastern Europe, and the 200 thousand
employees in food processing industry are also
meaningful. Meat, cereals and beverages are the
most important product categories.

8. Raw material trends
The European agriculture output prices were boosting
between 2006 and 2011, and smoothly decreasing
since 2011/2012.
Increasing efficiency: 20% less total labour force input
in Romania between 2010 and 2015.

9. Real Estate supply
In Central and Eastern Europe, there are approx.
1,000 industrial parks. Hungary has the most
wide-spread industrial park networks (approx.
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. 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 has 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. As a key account, you can
achieve competitive energy prices.
EU energy price statistics can be checked here >>
Romania had the lowest and Hungary had the
highest industrial electricity price level in 2014.
Romania had the lowest and Hungary had the
highest industrial natural gas price level in 2014.

14. Infrastructure:
water and sewage
Water infrastructure is typically managed by local
governments, municipalities price the service and
can fix issues.
However, there are EU guidlines for water
treatment and environmental issues (not country-
specific).
Large-scale water supply is available mostly
alongside the rivers only.

15. 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.

16. 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 >>

17. 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.

18. 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.

19. Case study: Wassim Cheese in
Hajduboszormeny, Eastern Hungary
The Jordanian-owned Wassim Cheese is the producer and exporter of the kashkawan cheese 'Hajdu'. It's a semi-hard
cheese with Balkanian origin, and it's very popular in the Middle East: the company exports it to Saudi Arabia, Lebanon,
Jordan, Kuwait, United Emirates, Yemen, Iraq.
The expanding export markets resulted expansion in the Hajduboszormeny plant. In 2013, the company opened its new
1700 sqm. manufacturing hall and a waste water pre-treatment special equipment. Wassim Cheese is not just a leading
employer, but also a the main partner for the local dairy farmers.
The food processing developments of Wassim Cheese is not an accident. Hajduboszormeny and its award-winning
vicinity, the Hajdusag is traditionally a food processing location, based on superior soil and climatic conditions,
infrastructure and vocational training. The municipality and its business park is targeting food processing investors with
special incentives, industrial land discount and dedicated vice mayor.

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) and PAIZ (Poland)
● 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. 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!