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hen Japanese automaker Toyota needed to increase its share of the European marketplace in the late 1990s, it went in search of the automaker’s Holy Grail — the perfect site for a new manufacturing plant. After heated competition, the Nord-Pas de Calais region in Northern France offered the most tempting of sites.
What did the area have to offer? Lots, according to Didier Leroy, vice president of industrial activities for Toyota Motor Manufacturing France (TMMF). Besides the lack of currency fluctuations, “there is a major industrial tradition developed here in Valenciennes, so the area already has people who are experienced in the automobile industry and have the required skills,” he said during a presentation at the official opening of the facility, June 6. “A second essential point for us, we’re right in the center of Europe with many rail and road networks that enable us to receive automobile parts from and ship off our products to major European countries. Last, but not least, there is a huge fabric of component manufacturers in this region that already work with our European competitors, and they offer us supplies that are virtually just around the corner.”
There are, in fact, approximately 200 potential suppliers operating in the region. Toyota currently works with 12 suppliers in and around Nord-Pas de Calais, 41 in France and roughly 70 from other European countries.
Northern France:
Toyota’s Success Story
Another decision-making criterion for Toyota was being able to ramp-up very quickly. According to Toyota officials, the speed at which they were able to get the plant up and running was astounding. Construction of the plant began in spring 1999, and one year later, the company began installing equipment. Production lines fired up in the summer of 2000, allowing for mass production to begin on Jan. 31, 2001 — less than 22 months after the start of construction activities.
“We got a lot of support from the French government here,” explains Leroy, “not so much in terms of money, but more in terms of support to be able to have a very quick turnaround with local authorities regarding building permits. We had very, strong support from all the localities and the different organizations in Northern France. There was a lot of communication with Nord-Pas de Calais Development, and thanks to this support we achieved a very short lead time.”
Since production began, Northern France has proven to be a success for Toyota. So much so that Toyota Motor Corp. CEO Fujio Cho announced on June 6 an expansion of the plant. He says that annual production capacity will increase to 180,000 units per year — up from the initial target of 150,000 units — and another 1,000 jobs will be added between now and the end of 2002. The plant currently employs 1,600 workers.
“All the objectives have been reached,” says TMMF President Hiroaki Wantanabe. “We have achieved our production ramp up quicker than any other Toyota plant outside Japan.” As for sales, he adds: “The Yaris [Toyota’s compact cars] are a success in Europe. Toyota’s sales in Europe were about 400,000 units per year. Now we have leaped to 650,000 units, and we’re on good track to reach our target goal of 800,000 Yaris sold per year in 2005.”
France’s Automotive Haven
Though Toyota’s investment in Northern France is proof enough that the region has plenty to offer the automotive industry, additional investments put an emphasis on other aspects such as transportation infrastructure. DaimlerChrysler, for instance, went in search of a location to merge the distribution networks of its four brands — Mercedes, Chrysler, Jeep and Smart. Logistics were essential, because DaimlerChrysler’s after-sales service includes next-day delivery before 7 a.m.
After much analysis of transport options, DaimlerChrysler found that the best location to serve the northern half of France, including Paris, and the Benelux countries lay between Cambrai and Valenciennes on the A2 Highway. DaimlerChrysler visited several sites before opting for Herin, on the outskirts of Valenciennes. The project will create 200 jobs.
Outside the Nord-Pas de Calais region, Lorraine, too, has been a big hit with the automotive world. Such names as Caterpillar Logistics Services, AGCO, Magnetto and Tenneco Automotive announced major announcements in the region.
One of Lorraine’s largest investments came from DaimlerChrysler. Production of a new roadster model of the Smart car will be launched at “Smart Ville” in Hambach. The US$87 million investment will result in 300 new jobs at the Micro Compact Car (MCC) facility, which currently employs 1,800.
The choice of the Hambach facility emphasizes the quality and availability of the local work force, the proximity of Smart’s primary markets, and DaimlerChrysler’s satisfaction with its Lorraine site. “The decision to produce in Hambach signifies the importance of our production site and the willingness to undergo an expansion,” said Andreas Renschler, the president of MCC.
Europe’s Best Locations
Although the automotive industry has fallen into somewhat of a slump in recent months, such investments into the French market speak volumes about the country’s appeal as a business location. Cambridge Econometrics revealed in its “European Regional Prospects 2001” study that six French cities broke into the top 25 fastest growing European cities (see chart). The annual report contains forecasts for 45 major cities and more than 250 European regions up to the year 2005. It was prepared by ERECO, a group of leading European economic research institutes.
But France is not the clear-cut winner in the struggle to the short list. Many of its neighboring countries are expected to do just as well, especially at the metropolitan level. Most European cities are expected to grow faster than their national economies, reports Cambridge Econometrics. The exceptions are cities with a relatively large manufacturing base, together with Brussels, where the city’s tax base continues to be undermined by the high degree of in-commuting. Also, the slowdown in global demand for manufactured goods means that cities with greater focus on market services, such as financial centers in London and Zurich, are likely to perform more strongly over the medium term.
Germany’s Happening East Side
In Germany, the growth rates in Dresden and Leipzig are expected to be lower than the German average, reports Cambridge Econometrics. Despite this forecast, many operations are heading to Germany. The eastern portion of Germany has been extremely successful in attracting new investment. Leipzig, for instance, won a major bidding coup for BMW’s $860 million, 3-series assembly plant, which will create 5,500 jobs. BMW looked at a group of more than 200 international locations, which was whittled down to a short list that included two Eastern Germany cities, Leipzig and Schwerin; Augsbourg, Germany, as well as Kolin, Czech Republic; and Arras, France.
BMW Chairman Joachim Milberg notes, “It was not an easy decision for us.” But he gave particularly high marks to the area’s availability of skilled labor. BMW’s agreement with area labor unions to accept more flexible work-scheduling rules also played a critical role in the decision. The city offered the German automaker favorable transportation infrastructure that allowed for swift exchange of materials and information with the company’s main plant in Bavaria. Generous incentives — valued at approximately $244 million — and reasonable real estate prices helped tip the scales in BMW’s decision.
Leipzig hasn’t just wooed BMW: General Motors, Volkswagen, Mercedes Benz and Porsche have also invested in the region. Of those, Porsche is the most recent. It is investing some $44 million in a plant for its new off-road vehicle.
KSR Automotive, a designer and manufacturer of pedal box systems, also located a new production facility in the Eastern Germany town of Magdeburg. Several factors were crucial for KSR in selecting the location. “In Saxony-Anhalt, we have the advantage of the regions’ excellent logistical position within Europe’s most crucial automotive market, Germany, as well as the competitive costs for production and labor,” says Stephen McCoy, vice president of European operations for KSR. The highly developed industrial infrastructure in Eastern Germany also weighed heavily on KSR’s location decision.
UK Changes Gears
In the United Kingdom, markets such as Manchester, Birmingham, Glasgow and Cardiff have suffered the manufacturing decline the most, notes Cambridge Econometrics. Couple this with the strong British pound and the manufacturing outlook for the U.K. is bleak. Yet the industry sector survives and is in fact growing — even in the highly competitive automotive industry.
“Contrary to some perceptions, we have a strong car industry,” said Secretary of State for Trade and Industry Stephen Byers in a speech earlier this year. “In 1999, U.K. car production output was the highest since 1972. Since 1997, some $4.4 billion of new investment has been announced and over 10,000 new jobs created in car manufacturing in the U.K.”
Though there have been rumblings of closures from many of the U.K. automakers due to the strong pound, many have opted to stay in place. Among those making announcements this year were Toyota and more surprisingly Nissan. Toyota is moving its Corolla production from Japan to its Derbyshire facility, increasing U.K. production by nearly a third to 220,000 vehicles a year by year’s end.
Nissan’s outspoken CEO Carlos Ghosn warned the U.K. government earlier this year that if the country didn’t adopt the euro common currency, then the new Micra production might be moved to the continent. Led by Prime Minister Tony Blair, British authorities rushed to provide Nissan’s U.K. operations with a $58.5 million grant.
But still this was not enough to sway Nissan’s opinion, for labor concerns still loomed. The French policy of limited 35-hour workweeks gave the U.K. the push it needed, and to top the deal off, the U.K. committed to a 30 percent cost reduction through 2003. Finally Nissan chose to invest some $300 million in its Sunderland plant to manufacture the new Micra model.
And even though all the incentives were in place and labor concerns settled, the decision still boiled down to one crucial point: “Sunderland is the leading European car plant in terms of productivity, and it has been in that position for many years,” Ghosn says.
Besides automotive manufacturing, the U.K. is also seeing a lot of growth in the software industry. More than 30,000 software companies, including such international players as Microsoft and Oracle, are operating in the region. Invest U.K. boasts more than 600,000 computer-related jobs, and an increasing number of graduates and postgraduates have software-related skills.
Recent software-related announcements include Engineous Software Inc. and Avesair. North Carolina-based Engineous opened a new U.K. operation in Nottingham, England. Avesair, another North Carolina-based application software provider, opened an office in London.
“The European wireless market is extremely advanced, and we believe that Avesair will help continue to drive the phenomenal growth that the market is experiencing,” says Ernie Connon, CEO of Avesair. “We chose the U.K. because of the potential we see in the region, resulting from the country’s wide and fast-developing acceptance of wireless as a means of communication. The opening of our London office is the first step in Avesair providing best-of-breed carrier-class marketing and content solutions for regions and countries around the world, and we will continue an aggressive strategy designed for international expansion.”
Ireland Cashes In
Ireland is another hot prospect for corporate site seekers. So hot, in fact, that the World Competitiveness Yearbook ranked the country No. 7 out of the 49 countries studied, and the capital city of Dublin, according to Cambridge Econometrics, is expected to have the best performance of any city in the European Union between 2000 and 2005.
Cambridge Econometrics reports that Dublin’s success is explained by the dynamic growth of Ireland’s buoyant financial services sector. The international and financial services sector is in fact Ireland’s second-largest employer, with some 41,661 jobs in 2000 — second only to electronics and engineering with 68,642 employed. And it was the fastest growing sector for the country between 1999 and 2000, increasing by 22.5 percent.
Besides its beneficial tax environment (corporate tax rates of 10 percent until December 2002, then 12.5 percent as of Jan. 1, 2003), Ireland has a lot to offer the financial firms. First and foremost is the International Financial Service Center (IFSC) in Dublin. The 1.2 million-sq.-ft. (111,484-sq.-m.) office complex employs approximately 9,000 people directly, and there are a total of 400 international institutions directly operating from Dublin. It is one of the fastest growing international centers for collective investment fund management and ranks as one of the leading locations worldwide for international banking, corporate treasury and some specialized insurance activities.
Proof of the IFSC’s appeal is represented by a large group of financial services firms locating new operations or expanding in the Dublin area. Among the names that have located or expanded to IFSC in the past year are Dell Financial Services, Merrill Lynch, Societe General, Landesbank Hessen-Thruingen Girozentrale, Citigroup and Gensec.
Gensec’s achievements explain the story. “Gensec’s expansion into the country is an important step both for the company and for the financial investment sector here in Ireland,” said Peter O’Dwyer, CEO of Gensec Ireland at the opening of the firm’s new offices. “Since commencing trade in March 1999, Gensec Ireland Ltd. has been involved in raising over $500 million of investment capital for its international corporate clients. Gensec now adds to the small but growing number of international front office managers conducting investment activities at the IFSC.”
Spain Rakes in Investment Dollars
Key economic indicators show Spain moving up the ranks as an investment location. Net foreign investment in Spain rose 103 percent in 2000. Spain’s metropolitan areas are expected to perform well through 2005, according to Cambridge Econometrics. The research group reports that Spain’s cities will continue, “attracting large investments, with Madrid consolidating its role of logistics center and Barcelona strengthening its orientation toward international markets.”
Roughly 98 percent of Spain’s inward investment comes from OECD (Organization for Economic Co-operation and Development) countries. The European Union represents some 61 percent of the total net investment in Spain, with the majority of investments coming from the United Kingdom (39.3 percent, primarily in the telecommunications sector), the Netherlands (11.9 percent) and Portugal (5.1 percent). The U.S. comes in at No. 2 with a 36.2 percent share of Spanish direct investment.
The service sector continues to attract the bulk of FDI for Spain. Investments in 2000 were concentrated mainly in transportation and communications (47.3 percent).
Much of this growth is driven by Spain’s e-commerce explosion. E-commerce totals rose from $5 million in 1997 to $50 million in 1999, and it is forecast to reach $1.5 billion in 2002. According to figures from the Spanish E-commerce Association, financial services are the biggest driver of e-commerce in Spain with 43 percent of the total turnover, followed by publishing. The banking sector shows good investment prospects, with the online banking population expected to grow from 3 percent in 2000 to 6 percent by 2003.
The e-commerce industry has created a call center boom as well. These call centers primarily locate in Madrid and Barcelona, although there are many other cities having some success. Call centers have begun to appear in regions of Spain that offer important incentives such as Andalusia, Aragon, the Community of Valencia and the Canary Islands.
Examples include: Dupont opened a shared services center in Asturias, Stream USA in Galicia, Taboha Plastic in Murcia, Sitel Corp. in Valencia and Transcome in Leon. Jordi Marsa, General Management Services with Arthur Andersen, explains Barcelona’s appeal for the GM/Arthur Andersen shared services center: “Once in Europe, several cities were considered, not only in Spain, but other countries. In our case, Barcelona was chosen for several reasons: tax and labor costs, infrastructure, attitude toward foreign investments from local government and, the most important one, an appealing standard of living.”
Another growing sector in Spain is the capital goods industries. Capital goods employ more than 100,000 people and job creation in the sector is expected to rise to 8 percent — a full 2.5 percent higher than what was expected in 2000.
More than half of the industry is located in Catalonia and the Basque region, with the rest centered in Aragon, Navarre, La Rioja, the Community of Valencia and Madrid. Crown Cork & Seal, however, chose Seville for its new, two-piece beverage can manufacturing plant.
The beverage can market in the Iberian Peninsula has enjoyed double-digit growth for many years. Unit sales reached $5.2 billion last year, making it the third largest market in Europe after the U.K. and Germany.
“The new plant in Spain will allow us to effectively meet our customers’ needs,” says George Nicol, senior vice president of Crown Bevcan Europe. “Steel beverage cans have continued to grow successfully in Spain and Portugal, and this investment will enable us to develop in line with the market, and to prepare for further capacity expansion in the future.”
The Netherlands Log into E-Commerce
Perhaps the top of the list for European hotspots is the Netherlands. At least the Economist Intelligence Unit (EIU) seems to thinks so. For the next five years, EIU expects the Netherlands to be the best place in the world to conduct business — knocking the U.S. to second place. And according to Cambridge Econometrics, Amsterdam’s role in international trade and finance is expected to mitigate the impact of the U.S. and German slowdowns, while most of the Dutch cities will benefit from strong domestic demand and growth in the Dutch economy.
The Netherlands enjoy a No. 7 ranking in the top European countries attracting investments from abroad, according to Ernst & Young’s International Location Advisory Service (ILAS). Amsterdam was also cited as the favorite location for increased cross-border investment in 2000. The number of foreign investment projects in the Netherlands rose from 84 to 104, an increase of approximately 25 percent, with 57 of the projects choosing locations in the province of North-Holland.
Industrywise, the Netherlands is the fourth best location in terms of software companies, as well as for telecommunications and customer contact centers. Jan Siemons, a partner with ILAS explains the appeal: “Because of our strong position in these sectors, and the tendency of companies from those sectors to locate close together, the trend of geographical clustering is good news for the Netherlands.”
And clustering it has seen. In the past few months, the Netherlands has seen four new e-marketplaces open up operations, including Covisint, Transora, Quadrem and Rubber Networks. According to Atlanta-based Rubber Networks’ Communications Manager Scott Schaffer, the Netherlands, particularly Amsterdam, has a lot to offer these industries. Key among those is the variety of language and culture that Amsterdam offers. “And English is spoken with frequency,” he notes. “It is important for us to keep this in mind and to convey outside the company that we are a small global company that needs to have one common business language within the company rather than to emphasize one region’s native language over another.”
He continues: “Amsterdam is a travel hub internationally, and the large size of the city allows us to tap into available resources — office space, personnel and communications. Amsterdam has a strong business economy that is not foreign to service based/technology organizations.”
