The Chinese Discover Central Europe - by David Rocks , Katerina Zachovalova and Nicichola Saminather
The attraction is simple: Central Europe provides a back door to the European Union. Since the EU expanded into the former Soviet bloc countries in 2004 (Bulgaria and Romania are scheduled to join on Jan. 1, 2007), the region has offered a manufacturing base where wages are still a fraction of those in Western Europe. Governments in the new member states are eager to attract investment, often offering rich incentives to manufacturers that will create jobs. Foxconn and Changhong, for instance, have been granted 10-year tax holidays in the Czech Republic. And producing in the EU lets companies avoid the 14% tariff Brussels slaps on televisions made in China. "To enter the European market, we have to be here," says Wang Wensheng, general manager of Changhong's Czech subsidiary.
That's not to say it's cheaper to operate in Central Europe than in China. Far from it. Labor rates in the Czech Republic are roughly $500 per month for a 40-hour week. That compares with about $100 to $150 monthly in China for much longer hours. And while productivity in Czech plants is roughly equal to that in Chinese factories, absenteeism hits 15% some days. Those issues, plus surging currencies and growing labor costs, have prompted some companies to look at Ukraine and Russia. "Our presence in the Czech Republic won't shrink," Chang says. "But if we need to expand much more, we'll go farther into Eastern Europe."
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