While many major European firms have relocated partly or entirely to Eastern Europe, this part of the Union is rapidly losing out in investment terms to Asian countries, writes Bodgan Asaftei for the Balkan Investigative Reporting Network.
The author highlights three incentives for Western European companies to relocate to Eastern Europe:
- A cheap but skilled workforce and lower production costs (the most obvious one);
- Extra incentives for incoming companies in the form of low or negligible start-up taxes in some countries;
- The expansion of the European Union into the Balkans; and;
- The ageing profile of workers in eastern Europe has boosted the trend.
However, even though cost factors and market acquisition clearly come to the fore among incentives for Western companies to move their business to eastern countries, the following factors are also considered:
- The proximity of expanding markets;
- Labour cost differentials i.e. relationship between labour costs and economic growth;
- The cost and availability of raw materials and,
- The presence of attractive local network of production facilities.
In addition, firms consider others “crucial but highly subjective reasons” for moving to eastern countries. The author gives the example of Austrian firms, who are among the most important investors in eastern countries due to the historical factor. Austrian firms indeed have old links with Eastern Europe, which make their relocation easier.
However, there are also downsides that firms need to weigh up before moving to eastern countries, the author says. Recent Commission reports continue to stress the high level of corruption, weak judicial systems and inadequate and unstable legislation, reports Asaftei. Another downside is the old infrastructure that impedes competitiveness when faced with Western demands, he adds.
Lastly, firms equate the temperament of the labour force in Eastern European countries to an “old-fashioned approach to paperwork, a fear of new event and an unwillingness to work together”, and “refusal to become accountable”, according to Ismar van Hilten of the Partner in Relocation Group.
Even if some economists believe the boom in investment and relocation in Eastern Europe has passed its peak – as rates of foreign investment fell considerably last year in Poland, Czech Republic and Hungary – investment in the region will not halt altogether, concludes the author.