The flip side of going into a lower cost country is that there is frequently a reason for the lower costs. Maybe it's a work force lacking in skills, or a poorly maintained transportation infrastructure. Or, it could be that questions remain about a nation's operating environment. Countries that have moved to a market economy in the relatively recent past might not have fully developed legal and regulatory systems. Corruption remains an issue in some Central and Eastern European nations. And a lack of clarity over land ownership persists as the privatization of the massive Soviet-era military-industrial complex continues.
   Contract enforcement can be another problem, as Kia is experiencing first hand. The company is facing down the Slovak government over what Kia executives say is a breach of contract for incentives the government promised, which extended to suppliers. For its part, the government claims that it never agreed to contribute incentives to Kia's suppliers.
   Kia executives have expressed disappointment in the Slovak government's position. "Kia Motors and our suppliers in question are in the process of protesting the Slovak government's decision and [we] are demanding a reversal. And we are prudently examining all possible legal measures so that if necessary, we will be able to win a favorable court ruling on the issue," says Dong-Wook Kim, general manager of Kia's global project team.
   Mr. Kim says that while the company has no plans to alter the goal of 300,000 car capacity at the Zilina factory, Kia's suppliers may feel differently. "They [our suppliers] may feel that the Slovak government's decision may negatively affect any future investment plans they may have aimed at expanding their parts production capabilities," he says.
   In fact, some news reports have speculated that Hankook Tire's decision for Hungary reversed the company's almost-done deal for a Slovak site near the Kia plant due to the ongoing dispute with the Slovak government.
   The disagreement could create a ripple effect as other companies watch the outcome of the case carefully. As firms conduct their due diligence on potential locations, the memory of this incident could linger. "During the site selection and related investment negotiation stage, we view country risks and the ability to fulfill promises as very basic, fundamental factors to be taken into account," Mr. Kim notes.
   According to Ryard, companies are realizing that they should tread carefully even as they are drawn by the lure of lower wages in Central and Eastern Europe. "First of all, the wage differential with the EU countries of Western Europe is not as much as it used to be. And when countries like Slovakia say that they will basically give companies everything but then poorly manage the contract, it is making companies think a little more before making a decision." He says that some of the issues highlighted by the Kia dispute are not covered by EU legislation, so companies need to monitor the risks as they consider nations newly admitted to the EU or on their way toward admission.
   Clearly a sea change is in the works. For advanced, technology-driven work, firms will focus on the West. For everything else, clearly there are more options today, depending on the firm's own hierarchy of decision criteria and tolerance for risk.