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Move Into the East
“More and more, volume car manufacturing is a cost-driven business, and manufacturing investment projects continue to migrate to the less-developed countries that offer the twin benefits of huge cost savings and enormous growth potential,” reads a recent report from business intelligence firm Oxford Intelligence and IBM Business Consulting Services-Plant Location International. If the pace of projects in Central and Eastern Europe is any indication, those countries won’t be less-developed for long.
One of the latest is Eaton Corp., which is building a hydraulic systems plant in the new Chomutov industrial zone in the Northwest Bohemia region of the Czech Republic. The US$15- million project, which will produce hydraulic systems, will create several hundred jobs initially with potential for rapid expansion.
Kia Motors Corp. is looking at sites in the Czech Republic and Slovakia to establish its first European manufacturing platform. The company, a division of Hyundai, plans to build the facility after completion of the Hyundai plant in Alabama in 2005.
What the Oxford-IBM-PLI study calls a “polarization of investment strategies” is under way in Europe. Germany, Paris and Southeast England still lead the pack in the high-tech and R&D realm, while the Czech Republic, Portugal, Poland and Turkey are winning the cost-driven manufacturing prize.
Sao Paulo Can Help
Rankings of the world’s cities and countries always seems to be in vogue. Following is a look at some of the latest efforts to benchmark various categories.
Swiss banking giant UBS’s “Prices & Earnings” report puts four of its home country’s high-wage cities – Zurich, Basel, Geneva and Lugano – at the top of its study on purchasing power. All four are also found in the top 11 of the bank’s rankings of most expensive cities. At the top of that list is Oslo, Norway, attributable in part to the appreciation of the Norwegian krone.
Other interesting findings show Asia with the longest working hours, with 2,194 per year. That equates to nearly 52 more working days than in Europe. The most hours are worked in Hong Kong, Karachi and Mumbai, the least in Paris and Copenhagen.
The 2003 World Competitiveness Yearbook issued by IMD, an international business school in Lausanne, Switzerland, gives Australia high marks as the world’s most resilient economy, citing high government efficiency and infrastructure. Finland has the top ranking among countries with populations of less than 20 million.
Finally, American Scientist conducted experiments in 23 countries to solicit helpfulness on the streets of large cities. Rio de Janeiro and San Jose, Costa Rica, topped the “most friendly” list, while Kuala Lumpur, Malaysia and New York City were last and next to last, respectively. Psychologist Robert V. Levine and his students at California State University, Fresno, ran trials including feigning blindness and pretending to be injured.
Automotive industry forecaster CSM Worldwide predicts China’s vehicle production will grow at a compounded annual rate of 15 percent through 2008, hitting 6.3 million in 2008, an increase of 3.6 million vehicles from 2002.
“Global rationalization will be the most important trend during the next 10 years,” says Michael Robinet, CSM Worldwide vice president of global forecast services. “Emerging markets such as China, South Korea, Thailand, Czech Republic and Slovakia will lead the world in incremental growth.”
Sweden’s knowledge economy and IT sector figure to get a boost from the recent abolishment of capital gains taxes on the sale of subsidiary companies. Also, a new “Companies Act,” due to become effective in 2005, will give overseas investors a greater voice at stockholders’ meetings by enabling them to register votes via the Internet or by power of attorney.
Also cutting taxes in Europe is France, which plans to reduce its income tax by 3 percent.
The call center landscape is shifting in Europe in an increasingly eastward direction, industry observers say. And, facilities are generally much smaller than just a few years ago as some companies tie customer contact services to other functions.
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High costs in traditional European call center areas have many companies taking a longer look at other regions of the continent. Today, 1,000-seat centers, once popular, are rare, with companies often opting for several 200-seat facilities dispersed in different regions.
The range of countries in the mix for new call centers is changing, says Roel Spee, director of IBM-Plant Location International Bus-iness Consulting Services. Due to the unsustainable success of centers in the west, companies are now looking eastward in Europe.
“Five or 10 years ago, 70 to 80 percent of call centers were going to the U.K. or the Netherlands because of language skills and flexible labor,” Spee says. “As a result of their success in these countries, there has been an overheating and as a result, costs have gone up. They’ve shown some vulnerability over the last few years.”
Companies are looking for alternatives in other areas of these countries and in Central and Eastern Europe. However, certain areas in Western Europe remain strong, Spee says.
“Barcelona has low costs, it’s a quiet metro area and an international community with native speakers of a lot of languages,” he says. “It’s a very appealing city for young people to go to work, and has a strong image due to hosting the Olympics. Madrid has a similar attractiveness.”
Strong pressure to reduce costs in recent years has led companies to consider lower-cost countries such as Hungary, Poland and the Czech Republic, Spee says. However, sufficient language skills aren’t always available in these countries.
Call center starting salaries vary widely in Europe and decline as you go eastward, Spee says. In the U.K., they can range from just below US$10,000 to $12,000. Salaries in Central European countries might be half of that, with salaries in Eastern Europe being even less. However, he notes that the further you slide down the cost scale, qualitative business environment risks increase.
The eastward trend notwithstanding, Ireland continues to pull in customer service center investment. In mid-September, online auction firm eBay and its secure payment subsidiary, PayPal, announced plans to create a total of 800 jobs in Dublin by 2005.
PayPal will establish its European headquarters, the firm’s first operation outside the U.S., and create 400 of the jobs in handling its European customer and financial services functions, including fraud prevention. In addition, eBay will establish its second customer support center in Europe to provide services for its European customers, also employing up to 400.
Belfast gets high marks as a call center hub from Mitial Research, a U.K. firm specializing in the industry. Mitial predicts full-size (20-plus-seat) call centers in the city could double from 40 to 80 by 2004. The firm says Northern Ireland is poised to be successful in attracting call center development due to an established base of call centers, low labor costs, good employee retention and good infrastructure.
The Netherlands, a traditional hub of call center activity, has also seen considerable change.
“We see a shift in companies from a centralized format to a more hub-and-spoke structure,” says Pieter Stahl, an area director for the Netherlands Foreign Investment Agency based in San Mateo, Calif. Stahl says firms are tying in to support local sales offices, with some operations ranging from five to seven seats.
Stahl notes that the Netherlands remains attractive for call center functions since about 70 percent of the Dutch work force has at least a working knowledge of English and 40 percent speak more than two foreign languages, typically either German or French.
The industry is significant in this country of 16 million people. In fact, about 150,000 Dutch workers handle customer service at approximately 1,000 facilities.
But there is an overall overcapacity of call centers in the U.K., with 52 call centers set to close in Scotland this year. Mike Allen, managing director of Mitial Research, says the decline is due to “a classic market shakeout.”
(For more on international call center trends, see “Dialing New Delhi,” on p. 702 of the Nov. 2003 issue.)