KOLIN, the Czech Republic -- Thinking small but living large, PSA Peugeot Citroen (www.psa.fr) and Toyota Motor Corp. (www.global.toyota.com) have chosen Kolin, Czech Republic, for a 2,000-worker joint-venture plant. The new facility, which will be located some 37 miles (59.2 km.) east of Prague, will manufacture 300,000 small vehicles a year for the European market.

        The joint venture location search team chose a site in the 914-acre (365.6-hectare) Kolin-Oveary industrial zone. The Czech government recently created the US$36.2 million zone to draw foreign investment and decrease unemployment.
        Small cars are the joint venture's raison d'être. That strategy, however, bears a big-ticket price tag. All told, the Peugeot Citroen/Toyota project will involve an outlay of $1.3 billion, including expenditures for plant, equipment, R&D and the launch of the business, according to Peugeot Citroen and Toyota officials. Between $668 million and $846 million will be invested in plant and equipment, they explained.

Big Factors Include Labor,
Market Access and Quality Site

The location of the coveted Peugeot Citroen/Toyota plant had been the subject of hot speculation for months. By late November, the Czech Republic, Hungary and Poland had emerged as the generally acknowledged frontrunners. (See Dec. 3, 2001, "Project Watch.")
        The Kolin site, company officials explained at the late December project announcement, won out because of the quality of its available land, its transportation access and its proximity to targeted major markets.
        The industrial skills of the Czech work force were also a major location factor, officials added. Those skills also come at rates that will give the joint venture a major bottom-line boost. Eastern European skilled workers earn as little as one-fifth of the wage scale of their Western Europe counterparts.
        The Czech Republic in particular provides another substantial plus for the joint-venture plant: the existing Czech cluster of auto component manufacturers. Skoda Auto AS, Volkswagen's Czech unit, for example, already ranks as Eastern Europe's largest car producer.

Czech Official: Poland 'Biggest
Competitor, Clear Favorite'

Some industry observers considered Poland the odds-on favorite to land the plant. Toyota was already part of the automotive cluster that Poland has attracted in recent years. The Japanese firm is building a transmission plant, scheduled to open this year, in Walbrzych in southern Poland.
        Poland was "our biggest competitor and the initial, clear favorite to win this investment," asserted Martin Jahn, CEO of CzechInvest (www.czechinvest.org), the Czech investment promotion agency that worked with the Peugeot Citroen/Toyota site search team for more than a year.
        The Polish auto sector, however, has hit rough sledding. Volatile demand has prompted Fiat and General Motors to cut back their Polish operations' employment and production. Uncertainty also continues to shadow the Polish plants operated by Daewoo, the bankrupt Korean automaker. Poland nonetheless was still a major player in the Peugeot Citroen/Toyota site selection shakeout. So, too, was Hungary.
        "Sites which made the short list along with the Kolin industrial zone included one Polish [site] and one Hungarian site," according to CzechInvest Project Manager Tomas Hruda.

Win Marks Czech Bounce-back

Czech economic development officials could certainly empathize with Hungary and Poland - coming close, but failing, to land a multimillion-dollar project. The Czechs' earlier failure to land a major BMW plant, in fact, played major part in creating the Kolin-Oveary industrial zone that Peugeot Citroen/Toyota picked. BMW's announcement in 2002 that it was looking for a 500-acre (200-hectare) site in Eastern Europe for a new production plant spurred the Czech government to pass a resolution to begin developing the Kolin-Oveary zone.
        The Czech zone was in the hunt for the BMW project. Ultimately, however, the German automaker in July of last year picked Leipzig in the former East Germany for the $860 million, 5,500-employee plant. (See July 23rd's "Blockbuster Deal of the Week".)
        The Czechs, however, continued to develop the industrial zone, altering municipal master plans, extending road access and buying land. "In October of last year a purchase agreement was hammered out for the first phase to purchase approximately 723 acres (293 hectares) in part of the industrial zone in Oveary municipality," said Kolin Mayor Zdenka Majerova.

The Peugeot Citroen/Toyota plant "will indisputably contribute to a restructuring of the industrial base in the Czech Republic and will provide a major impulse for development on a wide scale," said Miroslav Gregr, vice chairman of the government and minister of industry and trade (pictured above).

        The Peugeot Citroen/Toyota plant marks the largest ever greenfield investment by an international company in the Czech Republic. The nation's previous standard setter came with Royal Philips Electronics' 1999 decision to site a $178 million television screen factory in the town of Hranice.
        Miroslav Gregr, vice chairman of the government and minister of industry and trade, trumpeted the project. The Peugeot Citroen/Toyota plant "will indisputably contribute to a restructuring of the industrial base in the Czech Republic and will provide a major impulse for development on a wide scale," he said.
        Czech officials anticipate a potent spin-off impact.
        Said Jahn, "Based on our experience, we can expect a major increase in indirect jobs among suppliers and related services, so all together at least 10,000 new job opportunities will be created."

Peugeot Citroen, Toyota Split
Duties, Complement Strengths

The Czech plant gives concrete form to the 50-50 Peugeot Citroen/Toyota joint venture announced in July of 2001. The two companies signed "a memorandum of understanding and an agreement for the joint development and production of small, entry-level passenger vehicles." (Peugeot Citroen and Toyota have indicated that they will remain independent outside the joint venture.)

The joint venture in the Czech Republic will pair two players with complementary strengths: Toyota, the world's No. 3 automaker, and PSA Peugeot Citroen, Europe's No. 2 carmaker, and the European automaker that gained the greatest market share in 2001.

        The strategy for the Czech plant calls for Toyota, the world's No. 3 automaker, to manage development and production. Peugeot Citroen will manage purchasing and logistics. That division of responsibilities seems to reflect the complementary strengths that many analysts see in the partnership.
        Peugeot, for example, is well established in the continental market, ranking as Europe's second-largest carmaker. The company gained the greatest share of any European automaker in 2001. Peugeot registered a November market share of 15.2 percent, a 7 percent jump from November 2000. Now, with Toyota, Peugeot gains a partner with widely acclaimed expertise in small car manufacturing.
        Toyota, on the other hand, gains proven on-the-ground expertise in its efforts to make greater inroads into the European market. Japan's biggest automaker currently has a European auto market share of some 3.7 percent. Its goal by 2005 is to sell 800,000 units, increasing its share to 5 percent.
        The Czech plant also reflects Toyota's larger designs to localize production. In 2002, Toyota has indicated that it anticipates selling some 6.02 million units worldwide, a 2 percent increase. At the same time, localized production will reduce Toyota's 2002 exports from Japan by 11 percent, to 1.48 million units, officials have indicated.

Toyota Gains Partner with
Strong European Foothold

The joint venture's small-car strategy could be the ticket to quickening the European sales pulse of each of the participating companies. Less expensive cars have demonstrated substantial market-share punch in East and Central Europe, drawing buyers who've heretofore opted for older used vehicles.
        The Czech plant's small cars will squarely fit that mold. Powered by both 1.0-liter gasoline engines and 1.4-liter diesel engines, the vehicles will be equipped with computer-controlled transmissions. More significantly, the vehicles will be priced at less than $7,200, officials indicated. That will be below the market's prevailing price for the lowest-level class B vehicles.
        The small cars produced at the Czech plant, however, won't be one-size-fits-all affairs. The vehicles will be released under three makes - one-third Toyotas, one-third Peugeots, and one-third Citroens, company officials said. Each will have its own distinct appearance. All three makes, however, will embody the joint venture's strategy of sharing and minimizing development and production costs. All Czech-produced vehicles will share a common base and common components.

Editor's note: Watch for Site Selection's annual wrap-up of European corporate location activity in the July 2002 issue. For a look at our 2000 review, see "UK Remains No. 1 with Foreign Investors" in the July 2001 issue.