Booming automotive industry in Central and Eastern Europe
Claus Frank, HLB Poland & Szabolcs Szeles, HLB Hungary
In recent years, the automotive industry has been booming in the Central and Eastern European (CEE) region. Increasing numbers of car manufacturers decide to establish their modern and state-of-the-art production sites in CEE countries, due to the competitive edge the region has over Western European countries. Since increased political consolidation and economic development, the region has enjoyed increased attention from investors, as they consider the region one joined-up sourcing, manufacturing and logistics hub.
CEE is particularly favoured by car manufacturers. The automotive industry strongly contributes to GDP growth (13% growth rate in 2017). The region continues to develop high-quality, low-cost manufacturing operations from which they will drive towards electric and connected vehicles, greater supply chain digitalisation and fresh efficiency gains. Almost each of the OEM’s and the largest automotive suppliers are represented in the region, such as, Porsche, Mercedes-Benz, Audi, Jaguar Land Rover (JLR), Skoda, Dacia, Kia and Hyundai to name a few. This is due to the presence of developed supply chain and innovative environment, while CEE offers some of the best conditions for the automotive sector in the world.
Political & economic stability
As all CEE countries are members of the European Union, the region is politically and economically stable. Various financial sources for investment or development supported by the EU are available for companies. These countries provide also a link between West and East with well-developed infrastructure and good transportation connections. Foreign investments are the basis of the CEE automotive sector, with CEE countries having legal frameworks in place that enable business to flourish.
Labour force – Still the best value for money
Although the wage gap between Western and Eastern Europe has reduced from previous years, it is still substantia. The labour force is relatively cheap compared to other part of Europe, while highly skilled and well-educated. The competitive advantage of the CEE region clearly lies in its highly skilled workforce and its long tradition in education of technical universities. The multilingual workforce makes the communication for the foreign investors easier. Despite the region’s success in providing highly skilled labour, manufacturers realise they must make additional investments in education and training, to align with the labour market’s needs. While introducing vocational training to create a workforce with job-ready skills.
Under certain conditions, entrepreneurs can be exempt from income taxes, or certain tax credits and tax allowances are available for the sector. Not to mention, that some countries in the region apply very low-income tax rates to attract investors. Efficient tax regimes play an important role where manufacturers will locate, generally tax rates are lower in CEE region than in Western Europe. With some countries offering ‘Special Economic Zones (SEZs) as an attractive solution for investors seeking to establish business activity in CEE.
Research & development
The R&D activities are supported by many tax allowances. The co-operation between technical universities and the automotive sector is encouraged by many European and state funds, which are available as incentives for research and development activities. We see locations outgrowing their role as purely production facilities, they are increasingly taking on tasks in R&D or roles as technical competence centres.
Setting up a company
Nowadays, it is relatively easy to set up a business in the region. High-qualified consultants enable the investors to make the right and well-founded decisions and set-up a company in the most appropriate form in a few days. The economic development of CEE region offers many opportunities for setting up new businesses. Direct foreign investment is encouraged and foreign entrepreneurs are treated the same as local ones, and fairly simple.
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