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Attractiveness of the Polish automotive sector

From| April 29,2007

For different countries, Eastern Europe has evolved into the most important region for investments. Sectors such as the automotive industry and industrial goods are increasingly focusing on Eastern Europe and are either setting up or expanding production sites here. Service companies, too, are focusing their investments, relocating and shifting, for example, IT support and call centres to these countries.

Poland is seen as the top potential destination for new investment and expansion projects in Europe. According to the European Attractiveness Survey of 2005 conducted by Ernst & Young, the advantages offered in terms of productivity and flexible employment conditions placed Poland in the leading position in Europe.

Poland has a huge investment potential. Its GDP growth is twice that of Western Europe. Poland is ranked 1st in planned investments in Europe, 2nd in Europe in the FDI Confidence Index, and 5th among the top 10 global investment destinations.

European executives highly value Poland’s potential productivity gains. According to Ernst & Young report, in this respect Poland is ranked second in Europe.

Poland has the largest working population in Central Europe as well as the youngest population in Europe. 50% of the population is under age 35, and 35% under age 25. The young generation of Poles is one of the best educated in Europe. C lose to 50% of citizens aged 20–24 attend an institution of higher education. Poland has a nationwide network of 427 such institutions. There are 126 state higher education institutions, including 17 universities and 18 universities of technology, as well as 301 private schools of tertiary education.

Foreign investors highly rate the skills and commitment of Polish employees. In many cases the Polish subsidiaries of foreign companies were judged to be the most effective units worldwide according to their management. In the 2005 E rnst & Young report, Poland is placed fifth after Germany, the UK, France and Scandinavian countries regarding labour skills level.

According to the Ernst & Young report, Poland achieved first place in Europe in terms of availability of industrial sites, cost of land and regulations. In terms of flexibility of employment regulations, Poland is placed second after the UK, and third in terms of corporate taxation.

 Key reasons for investors to enter Poland are costs and the chance to reduce costs. Costs of conducting business in Poland are  significantly lower than in Western Europe. Also, the time required to start up a company is shorter than in other countries. According to World Bank data (2005) the time required to start a business in Poland is 31 days, in Hungary 38 days, and in the Czech Republic 40 days.

In 2004 Poland placed among the top three countries offering the best localisation conditions for companies producing components for the automotive industry.@@page@@

Foreign investors are invariably attracted to Poland by low labour costs, high qualifications of the labour force, as well as a network of 650 subcontractors, with 200 of them holding the highest certificate of quality, ISO /TS 16949.This is confirmed by the report prepared by Ernst & Young based on managers’ views on the choice of the best location for new establishments.

The flow of foreign direct investment into the automotive manufacturing sector has resulted in dynamic growth of the base of Polish subcontractors. Automotive giants such as Toyota, Isuzu, Volkswagen, MAN , Volvo, and General Motors (Opel, Fiat) encourage companies cooperating with them to shift production to Poland.

A snowball effect following automotive investments (or re-investments) is stimulation of development for more companies and creation of new jobs. Currently there are many companies which are suppliers to the automotive sector, with both Polish and foreign capital.

Companies from the automotive sector which have already shifted their production to Poland include MAN , Fiat, Opel, Michelin, Volkswagen, Valeo and others.

It has been estimated by the Boston Consulting Group that transferring production from other countries into Poland may bring savings of 20–30%, especially in labour costs and materials.

Hourly wages for production workers and gross salaries for engineers in Poland will grow relatively slowly in comparison with other Eastern European countries, what will allow Poland to remain very attractive in that respect.

It has been found by BCG that manufacturing of vehicles and components in Poland is more profitable than in China.

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