Eastern Europe Attractive to U.S. Manufacturers

DAN ZEHR,12.08.04, 12:50 PM ET 

Cox News Service

AUSTIN, Texas _ To get a hint of where U.S. companies look to invest overseas, listen to the languages they’re learning.

“It’s Russian, Polish and Hungarian that we’re doing quite a bit of,” said Brian Chandler, director of business development at MultiLing Corp., which provides translation services for Dell Inc. and several other Fortune 500 companies.

While China and India still rank as the top sites for offshoring, countries in Central and Eastern Europe have more than tripled the amount of foreign investment they received between 1993 and 2003. Last year, the group of about 20 countries in the region recorded $26.5 billion, according to consulting firm A.T. Kearney.

Those countries have become a prime destination for U.S. manufacturers of everything from automobiles to computer-networking equipment. Honeywell International, for example, is considering expanding its avionics manufacturing in the Czech Republic, according to an internal memo obtained Tuesday by The Associated Press.

Hungary, which became one of eight new members of the European Union in May, also is a popular choice for U.S. manufacturers. General Electric Co.’s operations in Hungary are its second-largest in Europe and fourth-largest in the world. Automakers such as General Motors Corp. and Ford Motor Co. have moved into the country. And Cisco Systems Inc. will soon be the latest technology companies to build there, said George Walker, the U.S. ambassador to the Central European country.

A contingent of Hungarian government officials came to Austin last week to drum up more business, touting an educated work force, lower corporate tax rates and proximity to 450 million European consumers. They made a pitch to Dell Inc., which is shopping for a new European plant.

Company spokesman David Frink declined to comment on the meeting but noted that Europe is one of Dell’s fastest-growing regions. CEO Kevin Rollins in October said the company probably will expand its manufacturing in the next two years. He said then that no EU country would be “too underdeveloped for building such a factory.”

Dell, which is considering its first European plant outside Ireland, is typical of the U.S. companies now scouting Hungary.

“We can be the Ireland of the 21st Century,” said Janos Koka, Hungary’s minister of economy and transport.

The lower cost of labor within Hungary and the region helps draw companies such as Austin-based National Instruments Corp. The average U.S. worker earns about $37,000 a year, compared with about $9,000 for workers in Hungary, according to data from the U.S. Bureau of Labor Statistics and U.N. International Labour Organization.

National Instruments opened a plant in Debrecen, Hungary’s second-largest city, in 2001. It now produces the company’s testing and measurement technology for Europe, which is home to 32 percent of its total customer base.

While the Hungarian plant won’t affect employment at its Austin operations, said Rob Porterfield, vice president of manufacturing, the company does “feel like we’ve found a long-term home” in Hungary.

Labor costs were just one part of the equation the company sought for its European factory. But cheaper labor has become a smaller part of Hungary’s pitch.

If companies “are really interested in value-added manufacturing, we can get them here,” Koka said of outside companies. “If they’re only targeting the cheapest production, we are not the place.”

It is the place for logistics, however. Koka said its central location provides access to Western Europe, as well as a gateway to countries where entry is more difficult for U.S. companies _ the Balkans, Russia and the Middle East. In addition, he said, most Hungarians speak multiple languages and are more closely aligned to Europe’s culture than India or China.

“For years Hungarians were required to learn Russian, and we hated it,” said Abel Garamhegyi, the country’s deputy state secretary for investment and trade development. “Now we’re lucky that we have that.”

But the clock is ticking. In a global economy, today’s popular destination can be out of favor tomorrow.

“A lot of companies are thinking five or 10 years down the road,” said Jonathan White, business policy analyst at A.T. Kearney. They’re thinking that “countries outside the EU now are going to be what the Czech Republic and Hungary were five years ago.”

Dan Zehr writes for the Austin American-Statesman. E-mail: dzehr@statesman.com

Cox News Service