The spotlight for foreign direct investment may be on China these days, but emerging markets in Central and Eastern Europe (CEE) and beyond provide superb locations for companies desiring access to one of the fastest-growing markets outside of Asia today.
Investment in Hungary, for example, ranges from the automotive and aerospace/aviation industries to information technology (IT) development and related high-tech production operations.
Making the country particularly attractive is the fact that Hungary’s government has made economic, legal and political reforms in only a few years. This was attractive to GE, Flextronics and GM, which were among the first companies to invest in Hungary.
Other companies are finding Hungary attractive. NCR Corp. began manufacturing automated teller machines (ATM) at a Budapest plant in December to provide additional capacity needed to support its Dundee, Scotland, plant and serve the fast-expanding markets of Eastern Europe and Russia.
| “The company needed a facility physically closer to Eastern European markets to meet and manage the additional demand and, at the same time, lower our shipping costs.” — Keith Taylor, senior vice president of NCR’s Financial Solutions Division |
“The company needed a facility physically closer to Eastern European markets to meet and manage the additional demand and, at the same time, lower our shipping costs,” said Keith Taylor, senior vice president of NCR’s Financial Solutions Division. “Hungary has excellent transport links and infrastructure. The country also provides good access to current suppliers for our manufacturing operations.”
Morgan Stanley, the first Wall Street company to appear in the CEE region, also set foot in Hungary. Morgan Stanley, which announced its project in December, will employ around 20 Ph.D. mathematicians in its regional research center to carry out the modeling and risk analysis of financial transactions. The careful analysis of academic and research background in the region preceding the launch of the project, along with the possibility of increasing its staff to more than 100, further underline Hungary’s high quality work force.
A major plus for companies operating there, effective Jan. 1, Hungary’s dividend tax has been eliminated and the value-added tax (VAT) reduced from 25 percent to 20 percent. Add to that, Hungary’s corporate tax is 16 percent. Plus, the government offers development tax benefits that promote the creation of new jobs and investments in less developed regions. These may reach 80 percent of the corporate tax, thereby creating the possibility that a company may pay only 20 percent of its corporate tax for as long as 10 years.
Poland, Lithuania On The Rise
The United States is one of the largest direct investors in Poland, accounting for about 15 percent of inflows last year. Among the companies are AIG Lincoln, Apollo-Rida, CEDC, Delphi, Eaton Corp., Flextronics, General Electric, General Motors, Motorola, Starwood, 3M, V.F. Corp. and Whirlpool.
Poland offers a strong industrial capacity, well-educated work force and competitive labor costs. GM’s Opel unit recently added 1,000 jobs to its work force of 2,000 at a plant in Gliwice. Eaton Automotive built a plant on 25 acres in the Katowice Special Economic Zone near Bielsko-Biala.
The tax rate in Poland has diminished, going from 27 percent to 19 percent.
Lithuania offers a talented work force thanks to its technology-oriented education system covering the electronics and IT sectors, biotechnology and pharmaceuticals, and equipment and machinery production.
The country has one of the best road networks in the region between Warsaw and Tallinn, four international airports, an ice-free seaport, and a free economic zone.
With its corporate tax rate at 15 percent, Forbes and Ernst & Young described Lithuania’s tax system as one of the most liberal and lowest in Europe. In 2004, the World Bank ranked Lithuania as among the most favorable investment climate countries in the world, and was the best among new EU entrants. The country is also regarded one of the most prepared countries to join the Eurozone in 2007.
Lithuania’s infrastructure projects have attracted massive investment both from the government, European nations and other countries from around the globe.
Russia is regarded the most interesting growth market in Europe today. With 144 million inhabitants, its purchasing power is rising continuously.
Logistics is particularly soaring as many of the countries’ airports are facing a necessary but expensive modernization phase. Rail for transporting goods to and from China is developed. On the trans-Siberian route, petroleum, gas and ore roll southeast to China with all sorts of consumer goods flowing in the opposite direction.
With its 21 free zones, Turkey has attracted significant foreign investment. Between 1980 and 2005, foreign companies invested $30 billion in Turkey.
The Aegean Free Zone outside of Izmir has been especially successful. The high-tech industrial park currently employs 13,000 workers in 327 companies, including 73 foreign-based firms. Today, the zone is a leader among the free zones in Turkey. Among the companies operating there are Hugo Boss, Delphi Automotive, Delphi Diesel, Enercon, Eldor Pulse Electronics, PFW and Skorsky.
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