Transcript Manufacturing and offering logistics services in Central and Eastern Europe David Chelly

Manufacturing and offering logistics
services in Central and Eastern Europe
David Chelly
EMIL
School of Industrial and
Systems Engineering
Georgia Institute of
Technology
4th of October, 2005
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Aims of the session
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This session provides EMIL participants with the
necessary facts and figures to understand the
challenges and opportunities of manufacturing and
offering logistics services in Eastern and Central
Europe.
This session may interest them, as Central and Eastern
European countries offer excellent opportunities to
American companies.
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The instructor
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David CHELLY
Head of a consultancy firm and a
website (http://www.centreurope.org)
specialized in business with Central &
Eastern Europe
Former expatriate in Prague and Sofia,
professor of management in various [email protected]
business and engineering schools
Ph.D in Management Sciences, postgraduate diploma in Finance, degrees in
Money and Banking, Law, Accounting
and Sociology.
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The session’s outline &
assignment
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1. Central and Eastern Europe basics
2. The political and business environment
3. Manufacturing in Central and Eastern Europe
4. Offering Logistic services in Central and Eastern
Europe
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Assignment: 5-10 pages on your company’s presence
in one Central and Eastern European country (see
documents).
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I. Central and Eastern European
basics
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A rich and ancient history
• It is not because we (French people) don’t
know Central and Eastern Europe history
that these countries do not have any
history.
• Almost all CEE countries have played a
major role in Europe in their history
Charles the IVth (13461378), King of Rome and
Empereur of the Holy
German Empire
Cyrille and
Méthode,
inventors of the
Cyrillic alphabet
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Central Europe
• Long dominated by the Habsburg Empire, the history of
Central Europe has been marked by education, art and
modernism.
– While in 1789 in France only a third of the citizens were able to
speak and read French, education in German had been
compulsory for a century in the whole Habsburg kingdom
– Czech TV commercial for the preservation of art >>
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Eastern Europe
• Eastern European countries used to live under the
Ottoman and the Russian Empires rule, which prevented
their economic development.
– The Orange revolution in Ukraine >>
Vlad Tepes (1428-1476),
a Romanian figure of the
struggle against the
Ottoman Empire.
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Central and Eastern European
countries on the map
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Central and
Eastern
Europe map
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An generalized improvement of the
economic performances
• Hyper-inflation had severely hit most CEE countries
– But this issue is today under control
• After a deep collapse of their GDP, Central European countries
have been achieving steady economic growths, followed by
most Eastern European countries
The Bric Nation to outdo Europe and the US >>
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Romania
Germany
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6
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Poland
France
Ireland
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Russia
0
-2
2000
2001
2002
2003
2004
2005
Slovakia
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II. The political and business
environment
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The communist heritage
• Central and Eastern European countries have lived forty
(seventy) years of communism, which still influence local
behaviors and habits.
The communist heritage:
Corrupted civil servants,
unreliable businessmen,
opportunist politicians…
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Young democracies with
unstable governments
• Local democracies suffer from a lack of political maturity.
– The leading coalitions are not able to keep the power due
to a too large number of political parties and to political
scandals
But the
political risk is
limited to only
a few
countries in
the CIS and in
the Balkans
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Ailing institutions
• Most Central and Eastern
European states suffer from
bureaucracy and corruption
– (cf. World corruption index >>
On the main square of
Sofia, one can buy the
most recent software CDs
for a few dollars.
• Most institutions (The Police,
Universities, Hospitals…) in
Central and Eastern Europe
are in crisis
• Income inequalities and
regional discrepancies are
widening
• Eastern Europe faces a
serious demographic problem.
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Towards a stronger Europe?
• A group with 25 + countries
offers a stronger opposition to
the other world powers
– The US response
• The EU must adjust itself to the
enlargement process
– Is it able to ?
– How far can we go ?
Will they get along
together ?
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III. Manufacturing in Central and
Eastern Europe
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Why invest in Central and
Eastern Europe ?
• Foreign direct investments in all sectors and from all
countries are welcomed and little restricted.
– (cf. Index of Economic Freedom >>
• Central and Eastern European countries benefits from
an relatively cheap labour force and an advantage of
territorial location.
• But the main reason for FDI is good access to
domestic and foreign markets
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A qualified workforce…
• The workforce is
– Qualified, especially in technical fields
– relatively cheap, especially in Eastern
Europe
– respectful for hierarchy and rules and
able to stand hard working conditions
• So how can we explain such low salaries?
In spite of a high qualification
in technical fields such as
computer sciences, Bulgaria’s
wages are about 10 times lower
than in Western Europe
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… but a low labor productivity
• World competitiveness rankings >>
• Commitment (especially towards foreign investors),
sense of initiative, mutual trust between workers,
customer satisfaction, ability to communicate and
ethics at work are low
– « pretend to pay us and we will pretend to work »
– « the one who does not steal, steals his family »
(Czech proverbs)
• Workers tend to behave in a more productive way in
Eastern Europe than in Central Europe
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Where and how to invest ?
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A few countries attract the majority of FDI
Privatizations, Joint ventures and licensing offer limited
opportunities
The most profitable way of investment is the Greenfield
investment
Good personal networks are crucial to succeed in
Central and Eastern Europe
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IV. Offering logistic services in
Central and Eastern Europe
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The transportation and logistics
sector
• Unlike Eastern Europe, Central
Europe has a relatively welldeveloped infrastructure.
– Vilnius 2020 >>
• The Central and Eastern European
Freight Transport Sector is leaded
by the road haulage.
• Major Industrial Sectors:
Automotive, fast moving consumer
goods (FMCG) / Retail, Healthcare /
Pharmaceutical, High Tech
Electronics
GDP Growth in Central and
Eastern Europe is mainly
driven by foreign investment
and consumption of foreign
goods
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The transportation and logistics
market
• Almost all main transport players
in market come from Western
Europe and the US.
• The local know-how, plants and
equipments have not yet
catched up with European
standards
– Road Networks, Customs Issues,
Security Issues need to be
improved.
• But transportation and logistic
costs are almost as high as in
Western Europe.
Each unveiling of an
hypermarket is celebrated
by hours of queues of
avid consumers.
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Opportunities for US firms in
offering logistic services
• The distribution sector is very atomized.
• Logistics and transportation is a priority for
the EU.
• Thanks to a strategic location and buoyant
local economies, the logistics and
transportation sector of most Central and
Eastern European countries is growing
rapidly
• Local companies urgently need assistance
from the West with a comprehensive
updating of equipments/technologies and
restructuring their organization.
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More information…
www.centreurope.org
East-west business portal
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