China is turning mature nations on end. But for Western Europe, the continually emerging economies of Central and Eastern Europe are giving countries like Germany, France, the UK and the Netherlands a run for their money.

The United Nations Conference on Trade and Development (UNCTAD) maintains that Asia and Eastern Europe offer the most positive foreign direct investment (FDI) prospects through 2008.

Supachai Panitchpakdi, secretary-general of UNCTAD, said the findings suggest that countries need to seize the investment opportunities but must also pay attention to the quality of FDI, given the fierce competition for investment.

Among the Central and Eastern European countries the UNCTAD deems most attractive are Poland and the Ukraine. In 2005, the Ukraine attracted 121 foreign companies with $4.07 billion in investments; Poland attracted 259 companies for $8.94 billion in investments.

Poland has rapidly become a hot location for producing components for the automotive industry. Ernst & Young pointed to Poland’s low labor costs, qualified labor force and network of 650 subcontractors (200 having ISO/TS 16949 certificates of quality) as being the key reasons.

State-of-the-Art Tech

Given the world shortage of — but high demand for — liquid crystal display (LCD) units, several companies are flocking to Poland to construct factories. The reason is the nation’s low manufacturing costs.

L.G. Philips recently broke ground on an LCD factory in Biskupice Podgórne, Poland, near Wroclaw, a $558 million investment. Consequently, 3M announced it will construct a $57 million factory in the Wroclaw Subzone of the Walbrzych Special Economic Zone to make optical foil for LCD screens.

“We are building the plant in Wroclaw to be near our customers, such as L.G. Philips LCD, to better serve them and to better serve the largest LCD-TV market in the world,” said Andy Wong, vice president of the 3M Optical Systems Division.

The Czech Republic receives high marks from research entities Ernst & Young and AT Kearney as being the highest ranking European location for FDI in R&D and strategic services, primarily because of its highly skilled and educated work force and tradition in manufacturing and design.

Now a member of the European Union (EU), the Czech Republic also offers intellectual property protection, a key factor since it often competes for projects with Asian countries, where such protection is problematic.

Important this year was the announcement by IPS Alpha, which, in a strategic alliance between Hitachi, Panasonic and Toshiba, announced it will invest nearly $120 million and employ up to 2,000 workers in a LCD production facility in the Bohemia region of the Czech Republic.

Following suit, Hitachi revealed its decision to build plasma televisions and panels in Zatec, the Czech Republic.

Hewlett-Packard is opening its computer technology supply chain headquarters for Europe, the Middle East and Africa in Rodna u Prahy, the Czech Republic. The facility will support HP’s European headquarters in Grenoble, France.

“Central and Eastern Europe is a dynamically growing market and our business is expanding faster than in Western Europe or the U.S.,” said Jan Zadak, vice president and managing director for the ISE Region for HP.

HP has collaborated with local technical universities to train potential job candidates in the months leading up to the opening of the facility.

Biotech is also key with a new EU biotech corridor springing up around the International Clinical Research Center (ICRC) in Brno, the Czech Republic.

Researchers are currently collaborating with colleagues at the Mayo Clinic in Rochester, Minn., to develop a clinical and research educational center. The new research cluster will strengthen Euro-U.S. collaboration in medical research and education, especially in cardio- and neuro-vascular diseases, internal medicine, neurology and oncology.

Much of the region’s biotech clustering is in cooperation with activities in Austria.

Expansions in Hungary, Slovakia

Hungary is drawing an impressive share of high-end business thanks to the government’s investment promotion strategy to focus on higher-value-added manufacturing and R&D activities in areas such as automotive, aerospace/aviation, IT and high tech.

Late last year, Dayton, Ohio-based NCR Corp. began production at its new automated teller machine manufacturing plant in Budapest. The plant provides additional capacity to the expanding Eastern Europe and Russian markets. The plant complements existing manufacturing activity at NCR’s facility in Dundee, Scotland.

“Our regional manufacturing strategy plays an important role in enabling NCR to get our product to the customer faster and more efficiently,” said Keith Taylor, senior vice president of NCR’s Financial Solutions Division. “We needed a new facility physically closer to Eastern Europe markets to meet and manage additional demand and, at the same time, lower our shipping costs.”

An advantage for the operation is Hungary’s excellent transport links and infrastructure.

“The country also provides good access to suppliers for our manufacturing operations,” Taylor pointed out.

Logistics is a natural fit for Hungary, thanks largely to its central geographic location and the number of Fortune 100 multinational companies there.

Meanwhile, the Republic of Slovakia has benefited from the major transportation routes that lead through it, as well as its well-developed highway and railroad system that feed transit sea containers to Europe’s ports and waterways. Airfreight cargo can utilize the airport in Bratislava, which is very close to industrial areas.

These are major pluses for automobile manufacturers and their suppliers considering an expansion to Slovakia.

Last year, Visteon Corp. committed to investing in a new manufacturing facility there to support new business with Kia and PSA Peugeot Citroën.

The Slovaks also recently won the bid to produce Audi’s new Q7 SUV, beating out Volkswagen’s Western European plants. The Bratislava factory, which now churns out 250,000 cars a year, is the most profitable of the 42 Volkswagen plants worldwide thanks to low labor costs, flexible manufacturing and a motivated work force.

Romania is also reeling in significant offshore investment, particularly in the share service center and business process outsourcing industry. In fact, Romania has been dubbed “the India of Europe.”

A report entitled Offshore Romania 2003 claims that not only is the cost of using and providing IT services in Romania much cheaper than in India, the country is also home to a well-educated and highly skilled work force that has a better understanding of Western European culture than its Asian counterparts.

Farther afield, Turkey offers advantages as the strategic gateway to the EU and the Eurasian region. Outside of Izmir, the Aegean Free Zone (AFZ) has attracted companies like Delphi Packard and United Technologies.

“Last year, our user companies generated more than $2.6 billion in international trade,” said Kaya Tuncer, chairman of ESBAS, the operator of the zone.

AFZ is currently home to 360 companies and some 12,500 workers, with projections calling for the zone to grow to 500 companies, 30,000 employees and an annual trade volume of $5 billion within the next 10 years. The zone opened in 1990 as the first production-based modern Free Zone in Turkey.

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