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Business Looking Too Far East?
Western European countries are overlooking the opportunity of outsourcing to Central and Eastern Europe (CEE) in favour of Asian countries, according to findings from The Boston Consulting Group (BCG). The report says that CEE countries compare favourably with China and other rapidly developing economies in several respects.
According to 'The Central and Eastern European Opportunity-Creating Global Advantage in Serving Western Europe', misperceptions about the CEE region mean it is overlooked as a possible location for sourcing and manufacturing. Four areas of possible advantage over China and others are cost competitiveness, growing markets, talent pools and business environment, notably in intellectual property.
Labour in CEE countries typically costs four to ten times less than in Western Europe, and is expected to remain at roughly this cost for the foreseeable future. Although blue-collar labour costs on average three times less in China than in CEE, that difference works out to be nearly negligible for many products, set against China's transportation penalty or 'the risks associated with lengthy and volatile supply chains that stretch halfway around the globe'.
Although the CEE region is much smaller than China, with 380 million people versus 1.3 billion, it generates nearly the same GDP ($1,289 billion) and nearly four times as much GDP per capita ($4,000). In CEE today more than 25 million households have annual disposable income of more than $7,500, and the number of such households is expected to exceed 31 million in the next four years - this is a relatively untapped market. In addition, CEE provides a pool of skilled labourers and qualified engineers who are generally more educated than those in other RDEs.
Report author and BCG Vice President Kevin Waddell points to 'a misperception that worker productivity in the region is low relative to Western Europe. In fact, our research confirms that given the same level of capital and technological investment, workers in the region are at least as productive as their counterparts in Western Europe'.
The report says that major CEE countries like Poland and the Czech Republic represent a relatively safe environment for investing - for example as regards intellectual property risk, for which China is known to have problems but the new EU member states have harmonised standards.
Infrastructure, time zones, travel and communications difficulties can also be factors favouring CEE. Waddell says that 'CEOs and managing directors should take a portfolio approach to each sourcing decision, analyzing a variety of locations for each product line and carefully weighing all the factors that make up each location's unique business opportunities and challenges'.
BCG defines CEE as Belarus, Bulgaria, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia, Slovenia, Romania, Russia, Turkey, and Ukraine. The report is available at www.bcg.com/publications/publications_search_results.jsp?PUBID=1292
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