Technology Forecasters, Inc.
Global Consulting and Research for Outsourcing and the Environment
At times, OEMs and contract manufacturers appear to be obsessed with China, but Eastern Europe gets stronger by the year and should not be overlooked as a an outsource manufacturing locale.
A recent report from Electronic Business on the growing electronics industry in Romania - especially analog chip design and contract manufacturing - got some of us to thinking once again about Eastern Europe as a good place for outsourcing. Worth taking seven minutes to read it.
I asked Charlie Barnhart, the TFI consultant who designs and conducts the Outsourcing Navigator Workshop, what he thinks about Eastern Europe in 2007. “Eastern Europe is much stronger today than in the past-say five years ago,” Charlie tells me.
The last time TFI took a close look at Eastern Europe - about 18 months ago for our Munich Quarterly Forum - it was Charlie who made the presentation. He continues to pay close attention and he knows what he’s talking about.
Straight manufacturing costs in Eastern Europe run 8 to 12 percent higher than in China, but they net out at 3 to 5 percent when the total cost of ownership (TCO) is calculated, he says. The lower risk factors in Eastern Europe almost make it a wash.
Charlie especially likes Hungary, is neutral on the Czech Republic, and suggests avoiding Russia and the Ukraine. He says the best run operations are managed by Western Europe ex-patriots. And he advises that the longer the country has been in the European Union, the better bet it is for manufacturing.
Electronic Business makes a sound case for a recent new member of the EU - Romania — noting that several major EMS companies and OEMs are manufacturing there, including Solectron, Celestica and Nokia.
All in all, Eastern Europe is a place worth considering, especially if the end markets are in Europe, Middle East and Africa.
What are your thoughts? Any experience in Eastern Europe there? Tell us about them by posting below.
While we have your attention, be sure to check out the June 11 blog at Kinaxis on how to reduce supply chain costs — useful reading.
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Hello.
It’s interesting to ask Mr.Charlie Barnhart why he’d recommend to avoid Russia? Let him ask the biggest equipment vendors how many orders they have landed from Russia nowdays. And the Russian Government is thinking of lowing import taxes for components so all Tier 1 EMS like Hon Hai and Jabil have Russia on their radar. Pls advice him to be careful with forecasts for Russia.
Best regards,
Aleksey Bocharov, CEO, Arsenal Corp.
Ireland hosted those OEMs and CEMs for 20 years and our economy prospered as a result. The migration to Eastern Europe and China mirrored the US experience. EPS followed them. Our companies in Hungary, Czech Republic, Poland and Romania now have mature relationships with the manufacturing base there.
Charlie Barnhart is right about Hungary. It’s a modern economy with superb truck access for JIT delivery of finished goods to consumers all across Western Europe.
However just consider Romania’s accession to the EU in Jan07. This has already attracted big ticket names to areas close to the border they share with Hungary. See Nokia, Solectron, Celestica, Siemens etc. Free movement of goods across the EU, political stability and a stable well educated workforce together with the cost base Charlie sets out makes it a compelling target for much future development.
Amazing to see these countries that were once the playgrounds of incompetent dictators now thriving as engineering hotspots.
How’s it going, Bill?
Aleksey,
What I hear — often — from companies that try to do business in Russia is that corruption reigns. Government officials force large under-the-table payments (red: bribes) and use European and Western companies as a means to launder money. For obvious reasons, companies don’t want to go on the record about these allegations. But I do hear a lot of off-the-record complaints.
The thing is: outsourcing and setting up a business don’t have much common.
Mike, why would someone willing to outsource to Russia EVER encounter a “corrupted government official”? Isn’t he supposed to deal with a native entrepreneur partner? “Off-the-record” stuff might indicate an unexpected approach sometimes, IMHO.
Paul, no reason to put words into my mouth. My comment had to do with companies that were putting/thinking of putting factories into Russia.
I don’t think anyone would consider MNCs like Jabil and Elcoteq, who have plants there, to be “native” to Russia.
I have heard from major suppliers who will not send equipment into factories in Russia because the buyers want to pay in cash (read: launder money) and also require a “rebate” (to pay off the local government).
But, to the point you make, if you want to get into the state to review your suppliers (EMS or otherwise), you have to go through the Russian gov’t for a visa, which means you are easy to track. So the local goon shows up at your hotel and says you need to give him a “stipend” if you want your product to make it out the door.
Let’s forget the off-the-record stuff for a moment, though. Given all the documented reports (kickbacks, laundering, kidnappings, arrests, murder), the way Russia treats businessmen is an outright nightmare.
Don’t take my word for it, though. Check out this Forbes story: http://www.forbes.com/home/business/2005/08/05/russia-putin-corruption-cx_0805oxan-russia.html.
Glad to see some give and take on this issue. Thanks for weighing in guys