Industry Studies

The State of the Central and Eastern European Automotive Market

by Mark Morley, Industry marketing Director, GXS

In recent years the automotive industry has been going through a significant globalisation process with once relatively short supply chains being stretched to every corner of the globe.  In the quest to reduce costs in a tough business climate, automotive companies have been developing new supply chain strategies, using emerging markets such as China for developing their low-cost vehicle production strategies. Eastern Europe─ particularly Slovakia─became the fastest growing automotive manufacturing region however in the world in 2007.

There are 46 individual countries in Europe. Twenty seven are members of the European Union and 10 of these countries are recognised as making up the Eastern European Region. From an automotive manufacturing perspective this can be narrowed down still further to Poland, Slovakia, Slovenia, Romania, Hungary and Czech Republic as being the countries forming the “automotive manufacturing hub” of Eastern Europe. We will focus on these countries for the purposes of this article.

According to a report from Ernst and Young, 400 supplier plants have been built in this region over the past 10 years. This represents a 1500% growth from the number of supplier plants built in the region in 1997. Why the dramatic growth in this region? Why are car manufacturers keen to build their plants in this region and how have they managed to integrate these plants into their global supply chains?  There are really two primary reasons which can explain the growth.

Firstly, Eastern Europe is right on the doorstep of Western Europe and for automotive companies based outside of Europe, for example in North America and particularly the Far East, the region provides an ideal springboard to selling cars into the Western European market. Companies such as Kia have realised they can significantly reduce logistics and transportation costs by setting up a plant in Slovakia, and then exporting these cars by road to Western Europe. They take out the expense of shipping their cars by sea from plants in South Korea. In addition, by having plants in Eastern Europe, Kia have been able to get a better understanding of western cultures and consumer demand. As a result, their cars’ style and design now better reflects European tastes.

Secondly, Eastern Europe has a highly skilled pool of low-cost workers and many of these are located around Slovakia─a country with better transport and communication links than other parts of Eastern Europe. Many companies looking to get a foothold in Eastern Europe have chosen Slovakia as their base. In years to come the number of automotive companies moving to this country is expected to grow exponentially. In fact, the number of automotive companies based in this region could surpass the number of plants built around Detroit during the last major automotive boom period.

About the Author

Mark Morley is an Industry Marketing Director at GXS.  In this role he oversees the Automotive and Manufacturing industry sectors. He has 15 years of experience in the Product Lifecycle Management space which has allowed him to work closely with Automotive OEMs and Tier1 suppliers.