[Romania-News] Fw: Hristos a Inviat

[george]

Hristos a Inviat

G.Gane



















<>

[Romania-News] Eastern Europe may be a victim of its own success

[Vali Nas]

 
Eastern Europe may be a victim of its own success
Sunday, April 8, 2007  12:40 P.M.
WILLIAM J. KOLE Associated Press Writer

When the communists were ousted across Eastern Europe, the capitalists moved
in. For foreign companies from McDonald's to Microsoft, it was an exciting
new frontier - a cheap place to make things, with 70 million potential
consumers to buy them.

Now, 18 years after the East embraced economic freedom, come the first
tentative signs that an unprecedented boom may be on the verge of going
bust.

Although big business is still expanding briskly across the region, wages,
real estate and taxes are rising fast. Put simply, for companies looking to
outsource manufacturing or services, the newest corner of the European Union
just isn't the bargain it used to be.

Experts say the shift is subtle - in some places barely perceptible - but
warn that the rapidly prospering nations of Central and Eastern Europe soon
could become victims of their own success by pricing themselves out of the
market.

"It has happened before - Mexico, Singapore, Thailand - and will continue to
happen as long as there are 'lower cost' places with the human and political
potential to be developed," said Charlie Barnhart, a senior consultant for
Alameda, Calif.-based Technology Forecasters.

Barnhart thinks there could be a noticeable "sustained softening" of foreign
outsourcing to the East in as early as two or three years.

It's happening already. Among companies that recently scaled back or pulled
out:

. Delphi Corp., a Troy, Mich.-based auto parts supplier which filed for
bankruptcy in 2005, shifted some manufacturing from the Czech Republic,
where workers earned about $6 an hour, to Ukraine, where the going rate is
closer to $1.60.

. Lauma, a lingerie maker based in Latvia, is giving that country the slip.
Last year, it started transferring production to Belarus and Ukraine. Now it
plans to outsource all new business to the two ex-Soviet republics because
it can't hire enough Latvians to staff its sewing houses.

. Lidl, a discount grocery chain headquartered in Germany, last year sold 50
parcels of land in Estonia and Latvia, where it had planned to open stores,
after executives realized the cost of doing business in the Baltics was much
higher than they anticipated.

Guntis Strazds, who heads the Latvian Association of Textile and Clothing
Industries, says a shortage of workers and high labor costs will prompt
textile companies to outsource up to 40 percent of their production to
cheaper countries "in the near future."

"We're already giving orders to Russia and Belarus, and we're in the process
of making contacts in Ukraine," he said.

In Hungary, an American company that refused to be identified showed The
Associated Press an internal chart it uses to decide where to open new
factories. Russia and Ukraine were ranked far cheaper than Poland, Hungary
and Romania.

To be sure, there's no mass exodus of Western companies from those
countries. In fact, consulting firm McKinsey & Co. predicts outsourcing
activity in the region to triple by the end of 2008, creating more than
130,000 jobs.

The region's chief advantages, according to McKinsey: Wages comparable to
those in India, a skilled, innovative and multilingual labor force, a
low-risk profile based on political and economic stability, and a cultural
proximity to Western Europe that poses fewer challenges and headaches than
places like Southeast Asia.

Smaller mid-size cities are worth exploring because they're cheaper than
capitals, yet often have large universities that produce a steady flow of
skilled graduates, McKinsey says.

An example is the northwestern Romanian city of Cluj, where Nokia announced
last week it plans to open a cell phone plant and tech center. Nokia will
invest $80 million in the project, which the government says eventually will
create 15,000 jobs.

Romania's IT sector grew by 35 percent in 2006 to more than $1.6 billion.
Valerica Dragomir, executive director of the Association of Software and
Information Services Industries, a trade group, says the opportunities are
luring back bright young specialists who left "because they didn't see a
horizon for developing their careers and didn't see a better life here."

Yet experts say a shift is inevitable.

In Poland, wages for the first time are expected to grow faster than
productivity this year, said Magdalena Iga of Warsaw's Center for Social and
Economic Research. That's significant because high productivity has been
credited for maintaining Poland as a good deal for foreign investors.

As countries develop, salaries, taxes and other social costs go up.
Technology Forecasters' Barnhart says a location starts losing its allure as
an outsourcing venue when wages rise to within 70-75 percent of U.S.
salaries, and when local raw materials are no longer at least 8-10 percent
cheaper than in a fully developed country.

Tha