In other technology-related industries, call centers are booming throughout Europe. Several factors are determining where these facilities are locating, but at the top of the list are labor costs and language skills. The top five countries for call centers last year, according to EIM, were the UK, Ireland, Germany, The Netherlands and France. Typically, when one thinks of the European automotive industry, Germany is the first country to come to mind, but that may soon change. Although the usual suspects — Germany, France and the UK — maintain a strong hold on the automotive business, 1999 saw a new region come to the forefront for automotive manufacturing: Catalonia, Spain.
Editor’s note: This feature is a follow-up report on “Europe’s 1999 Facility Race,” which appeared in the July 2000 Site Selection. This article goes beyond the ranking and looks at which industries are hot and which are not in the top European markets.
To be or not to be — in the European Monetary Union (EMU) that is, because that is definitely the question. As the EMU dust settles throughout the continent, analysts are now seeing a shift in facility locations — one toward EMU-member countries. Last year, in fact, new projects for EMU countries increased by 10 percent, while non-EMU countries’ corporate investments declined by 20 percent.
The reason, perhaps, is cost reductions. “Right now you have a fairly strong British pound and a relatively weak euro,” says Richard Greene, a senior manager with Ernst & Young (E&Y at www.ey.com), New York. “So the [U.S.] dollar goes further in those countries that are a part of the EMU.”
ABOVE: A favorable jurisdiction, highly educated labor pool and an advantageous corporate tax regime is what brought New Skies Satellite to The Hague, Netherlands.
Greene also expects that membership to the monetary union will continue to be a location advantage for some time to come, because once all of the EMU countries go to a single currency, they will be dropping currency conversion charges. And the flow of currency will be easier between those countries.
Lower costs are also a major draw of the Eastern European countries of Poland, Hungary and the Czech Republic. The eastward movement of facility locations is especially visible in the manufacturing and assembly type industries — where highly skilled labor is not of dire importance. “We’re starting to see clusters of certain activities like automotive or television assembly, for instance, move into these areas,” says Greene.
But money can’t buy everything. And although the low costs are attractive, it’s hard to replace strong infrastructure and highly skilled labor, especially for certain types of industry. “Right now, for financial business centers, there are very few substitutes for a London, Paris, Frankfurt or Amsterdam,” Greene explains. “And for corporate headquarters, there are still not many substitutions for a Brussels, because it has a very high level of service support and very productive, high-level people. And the infrastructure is there.”
That perhaps explains why, despite its non-EMU status, the United Kingdom (UK) remains on top of the list for foreign investments, or so E&Y reports in its European Investment Monitor (EIM).
“Since the United States is still the prime motivator in the world economy, most investments are still coming to the United Kingdom,” says Greene. “The reasons include the fact that there is a great language affinity, and the direct connection over the years through politics and wars. The UK is usually always on the list.”
Many of the “established countries” like the UK, Germany and France maintain high rankings on the EIM’s top 10 for investment in 1999, while smaller countries like Hungary and Austria work there way in to round out the top 10. But looking further into the location decisions of late, however, it becomes more apparent that certain industries are locating to specific parts of Europe. Here’s a look at where the hot locations are.
Software/IT Heads Up
New European Growth
With software now topping the charts as Europe’s largest sector, the business leaders of the rapidly growing industry are keeping an eye on where the competition is going. And a lot of that competition has recently landed in and around Amsterdam, Netherlands; the southeast UK; Scotland; Dublin, Ireland; and Cote-d’Azur, France; Bavaria, Germany, says Tom R. Bennema, senior consultant with E&Y’s International Location Advisory Service, Utrecht, Netherlands. And the Scandinavian countries (Finland, Norway, Sweden and Denmark) are relatively developed in terms of information/communications infrastructure, he adds.
“Almost 50 percent of [software/IT] projects registered in 1999 clustered together in these regions,” Bennema explains. “A location factor for investment is how wired a country is, and the Nordic countries are among the most wired countries in Europe, with The Netherlands, the UK and Germany following.”
In the past 12 months, the UK has landed several software/IT-related facilities, especially in Northern Ireland. Raytheon Systems, for example, chose Northern Ireland’s Londonderry for its new software development center, where it will create 150 new jobs. ICL/Microsoft Corp. is also locating a new software center in Northern Ireland, where it will add 225 new jobs, and Pivotal Corp. of Vancouver, British Columbia, is locating a new office for software development in Belfast, creating 150 jobs.
ABOVE LEFT: IT firms are especially hot in Europe right now, and The Netherlands is among the top locations. Last year, AMS decided to locate its corporate headquarters from Frankfurt to The Hague.
“Northern Ireland was chosen over other European locations because of the availability of the right quality of software and electronics graduates from Queen’s University of Belfast and the University of Ulster and its fully digital telecommunications infrastructure,” said Norm Francis, president and CEO of Pivotal, at the March 8 announcement. “In our fast-moving business, quality, versatile people and fast data and voice communications are essential.”
In Scotland, Motorola is investing $2 billion for a new chip plant in Dunfermline. The facility will employ 1,350 workers. Sun Microsystems is also investing $38.7 million to expand its computer manufacturing plant in West Lothian, Scotland, and Atmel Corp. will build a new smart-card chips plant in East Kilbride, employing 200.
The Republic of Ireland, however, is Europe’s shining star in terms of software/IT development, says Greene. Dublin, Ireland, recently landed Intel’s $2 billion, 1,000-job manufacturing plant expansion. ICT Eurotel also chose Dublin for its latest expansion.
“Ireland’s policies of low taxes and high education of the work force are nearly unbeatable,” says Greene. “If you look at the last 20 years, the economy has turned around, and it is now one of the strongest countries in Europe, particularly for software/IT.”
The Netherlands, too, has seen major investments in the IT sector. Such names as Cisco, Hewlett-Packard and IBM have developed centers in the country, and names like Ariba, Level 3 and Speed 4 have located data warehousing operations there. The primary reason for these investments, says Ono Ponfoort, area director with the Netherlands Foreign Investment Agency (NFIA at www.nfia.com), is the Amsterdam Internet Exchange and the Gigaport, which is a 1999 joint venture of the Dutch government, business community and academic institutions to develop and test the next generation of Internet technologies in The Netherlands.
“The most important aspect of The Netherlands’ success in IT and e-business is the infrastructure,” Ponfoort explains. “The Internet exchange in Amsterdam is the largest on the continent. And you can definitely say that the Cisco campus outside of Amsterdam landed there because of the Gigaport project.”
Ponfoort notes that there are 60 fully wired business parks in The Netherlands, and the country also offers the twinning network (www.twinning.nl) — a three-tiered approach to help companies in the IT sector.
The program has established a number of buildings in The Netherlands (four are currently completed) to be used as incubator sites. Secondly, the program provides the Twinning Fund to help IT firms fund their activities during the stage between developing a business plan and tapping into the large funds from venture capitalists. And finally, the Board of the Twinning Fund, which consists of high-profile executives such as Board Chairman Roel Pieper of Compaq, was established to act as a management team for the startup IT companies.
Call Centers Buzz in Europe
Last year, the UK landed the most new call centers — 27, according to EIM — including Air France’s 200-job call center in London. One of the largest call centers announced in the UK last year came from Halifax, which will create 1,500 jobs in Belfast, Northern Ireland. Another group named Orange chose Plymouth, England, for its 1,000-job call center, while One 2 One, a division of Deutsche Telekom, opened a $20 million, 1,000-job call center in Cardiff, Wales.
Giving the UK a run for its money, Ireland, which totaled 15 new call centers in 1999, is home to 40 percent of all call centers in Europe, says Jody Brichta, Connecticut-based vice president of marketing for Eircom (www.eircomUS.com). And Dublin seems to be the front runner among the Irish cities for call centers. Informix Software Ireland and Lexmark International chose the city for call center operations, creating some 210 jobs altogether. Brichta adds that MBNA chose Carrick-on-Shannon, Leitrim, for its 150-job U.S. teleservices/data processing center.
“Ireland is attracting a lot of call centers because of low labor costs and a considerable amount of incentives,” Bennema reports. “Lately there is a problem of recruiting serious numbers of personnel, but Dublin and Cork continue to perform above average in the call center arena.”
Brichta says Ireland has the youngest labor pool in Europe, with 41 percent of the population under the age of 25. “Ireland’s work force is young, well educated, highly skilled and English speaking,” says Brichta. “And in Ireland, you’ll find a work force that speaks English as a first language and has the multilingual skills essential to communicate with businesses across Europe. Most students graduate speaking at least two languages fluently and some upwards of four.”
Germany, which landed 13 call centers last year, also has lots to offer. “Germany has several incentives and a relatively developed multilingual work force,” Bennema explains. “The most attractive locations are Berlin, Bremen and Frankfurt.”
InterServiCom (ISC) agrees. ISC chose Frankfurt as the site for its new call center/online services operation.
In The Netherlands, where EIM tracked 10 new call centers last year, such operations find the Call Center Universities very appealing. “These call center universities educate people — they have a half-year program for call center agents and a two-year program for call center managers,” says NFIA’s Ponfoort. “That is exactly why we’ve been so successful with call centers in The Netherlands, because all over the country you can find people with the right skill sets to work in a call center environment. And it’s not just in the major cities, it’s all across the country.” Five years ago, the Dutch Ministry of Education, along with regional development agencies and recruitment firms, established these educational institutions throughout the country.
France is also doing well in the call center industry — coming in at No. 5 on EIM’s top five countries for new call centers in 1999. Last year, France landed nine call centers.
“Because of its international, multilingual character, large labor pool and well developed telecom cluster, France has been able to attract several call centers,” Bennema reports. “Paris, Lille and Strasbourg are the main cities to attract this kind of business.”
Auto Manufacturers Find Cheaper Sites
“An important factor to note here is the presence of Seat, the Spanish car manufacturer that belongs to the Volkswagen Group,” says Bennema. “This makes Catalonia a good location for subcontractors in the automotive industry.”
Spain is doing so well in automotive that four of Spain’s top capital investments last year came from the industry, according to EIM. Renault, for instance, is investing more than $1 billion to expand its automotive manufacturing facility in Barcelona. Mercedes Espana is investing $600 million to expand its Vitoria facility for a new utility car production line, and Opel’s $268 million undertaking will expand its auto assembly and production facility in Figueroles. Ford Espana is also devoting $268 million to expand its Valencia facility for a new model engines production line.
ABOVE: Europe’s auto industry is in a state of unrest due to overcapacity and the impact of the EMU. Nissan, like many others, are reconsidering their previously announced investments, including one at its plant in Sunderland, England.
The reason for this boom in Spanish auto manufacturing, analysts say, is lower costs of doing business, especially labor costs. Germany, the auto capital of the world, along with France and the UK, has some of the highest labor costs in the world, so nearby Spain seems a logical and much more cost-effective location.
The same holds true for the rapidly expanding Eastern Europe locations. In fact, German truck maker MAN is investing $110 million to move its light truck production line from Salzgitter, Germany, to its Upper Austrian facilities of Steyr Nutzfarhzeuge AF.
Also in Austria, Opel Austria is investing $58 million to expand its automotive engine production plant in Vienna, and Bombardier-Rotax is spending $110 million for a new R&D project to develop a new generation of four-cylinder engines. Austria, which serves as home to BMW’s largest engine plant, also won a $70 million investment from the German carmaker to boost its diesel engine and connecting rod plant.
“Hungary, Poland and the Czech Republic are also attractive markets for the production of cars and auto components because of the relatively cheap labor,” Bennema reports. “The small distance to Western Europe and the probable entry to the European Union make these markets attractive, too. Furthermore, compared to other Central and Eastern European countries, Hungary, Poland and the Czech Republic do have a stable economic and political situation.”
Last year, Hungary landed a $100 million investment from Delphi Harrison Thermal Services, which will employ 500 workers at its new automotive air-condition equipment plant. Musashi Seimitsu Industry Co. also chose Hungary for its $20 million auto parts manufacturing plant, while Oroszlany, Hungary, won Wescast Industries/Linamar Corp.’s $900 million automotive castings facility.
Poland, however, may be the big winner in Eastern Europe’s auto world, with four of its top five announcements coming from the auto industry. The biggest automotive news came from Volkswagen Poznan. The company will invest $172 million to expand its passenger car and van manufacturing facility in Antoninek. The project will include a new lacquering and assembly line.
Toyota made two announcements in Poland last year, both in Walbrzych. First, the Japanese automaker will devote $167 million to a new automotive transmission manufacturing plant. Meanwhile it is investing another $88 million for a new automotive gearbox facility as well.
In other Poland auto news, Valeo will invest $120 million for a new automotive air-conditioning equipment plant in Zielonki.
Although the lower-cost regions of Europe are landing many automotive operations, the UK, Germany and France are still getting their share of the action. “The UK has always attracted many investments in the automotive industry,” says Bennema. “But this strong position is weakening due to the high exchange rate of the pound, which makes manufacturing on the mainland more attractive.”
In fact, the EIM reported several major announcements for UK auto facilities last year, including a $4 billion BMW investment, a $735 Honda investment, $333 million from Nissan and $260 million from Ford. Several of these, however, may be put on hold, partially because of the pound exchange rate.
But there is still some good news for the UK automotive industry. For example, in 1999, UK auto manufacturers churned out some 1.8 million new cars. The Rover plant in Longbridge has been saved for the moment, and Jaguar has, after many years of losses, turned itself around with a new product line-up and sales increase of 50 percent in 1999.
Meanwhile, France and Germany, two countries that are part of the EMU, continue to do well in the auto industry, although overcapacity throughout Europe’s auto industry may have slowed the facility locations some. “France and Germany are key markets for the automotive industry because of the huge German and French automotive companies like Volkswagen, Opel (GM), Mercedes-Benz (DaimlerChrysler), BMW, Porsche, Renault and Peugeot/Citroen,” says Bennema.
Last year, France landed NTN’s $220 million automotive transmission components facility in the city of Allonnes, and Plastic Omnium is also bringing a new fuel tank facility to France, employing 185 workers.
Two of Germany’s largest investments last year came from the automotive industry. DaimlerChrysler AG is investing a whopping $2.3 billion in Papenburg for a new automotive research unit for utility vehicles. Ford-Werke AG, on the other hand, is investing some $455 million to expand its engine facility in Cologne.
Nearby Belgium also won a major auto investment last year as well. Opel Belgium is spending $176 million to expand its auto plant in Antwerp. The expansion will serve as the new production line for the Vectra model replacement.
