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Enlargement, 3 years after

European Commission - Enlargement - Enlargement, 3 years after - Securing jobs and opening markets.

Securing jobs and opening markets: German and Austrian firms doing business in Central and Eastern Europe.

Henner D. is exultant about enlargement. "Enlargement to the East was a stroke of luck for us", says the Hamburg-based entrepreneur. His firm is a leader in its branch, producing motors and control systems for ventilation and smoke-extraction installations that are sold from Scandinavia to China. "Eastern Europe is a very attractive market for us", he explains. "At present, about 10% of all our sales take place there."

Helmut A. is just as positive about his firm's decision to open a plant in Estonia. "Business is doing very well", he says. "We've got good people in Estonia and feel truly welcome there." 1

Since the disappearance of the East-West division of Europe in the early 1990's, firms and entrepreneurs from Germany and Austria began looking for opportunities to invest in the countries of Central and Eastern Europe. For many, doing business with or in those countries was a way to cope with the growing pressures of globalization.

Excavator

Michael S., who heads a firm that produces bicycles and strollers, explains: "At the time, the market for bicycles was in danger of going over to Asia". Production costs at home were just not competitive anymore.

"We had two alternatives", explains the businessman. "Either cut jobs and import ready-made products from Asia…or keep our know-how, our competence, and use the possibilities available in the neighbouring countries of the enlarged Europe to reduce production costs. Our choice was for Europe, for jobs, to do what we do best: build and produce."

The choice of where to invest in Central and Eastern Europe was of course dependent on many factors. "Our decision to invest in Poland was first influenced by the size of the market", explains Heinrich C., whose firm is active in the lumber sector. "Poland has 40 million people and is our largest neighbour. The second factor was the location…If I take the Hanover-Posen train in the evening, I can get to Gniezno by next noon. Finally, our decision for Poland also had to do with the fact that other European firms were already there…"

In view of their geographic situation and traditionally strong economic and cultural ties, it is not surprising that German and Austrian firms have been able to profit most from the opening of the former "East bloc" in the early 1990's. Already before the accession of the new Member States in May 2004, 12,7% of Austria's exports were going to these countries.

The EU is both the world's largest common market and its biggest trading bloc. Two-thirds of all trade in the EU takes place among its Member States. Naturally, the advantages of being present in the neighbouring countries became even greater after 1 May 2004, when they became members: 74 million additional consumers joined the internal market, administrative barriers to trade disappeared, and a host of new possibilities opened up for firms to export their goods and services.
As the EU's first exporter, Germany has benefited greatly from the integration of new members to the EU. It is the number-one exporter to the Czech Republic, Hungary, Latvia, Poland, Slovakia, and Slovenia, and also ranks number one in terms of foreign direct investment in many of these countries.

According to figures from the German Chamber of Trade and industry (DIHK), 75% of German firms active in the new Member States plan to expand their activities, while 25% of those that were not present in those countries in May 2004 have either established trade relations, invested or adopted plans to do so. 2

While Germany's size tends to focus attention, it has been Austria who has profited the most from the arrival of the new Member States. According to a study published in 2006 by the Austrian Institute for Economic Research (WIFO) , the opening of the countries of the former "East bloc" contributed to a 3,5% increase in Austria's real Gross Domestic Product (GDP) between 1989 and 2006. According to this study, this impulse contributed to the creation of some 77,000 new jobs in Austria.

For the future, the WIFO  Deutsch (de)3 study suggests that Austria will continue to profit from further integration: its GDP is expected to grow at an additional 0,2% per year in the next 10 years. As a consequence of EU membership of the countries in Central and Eastern Europe, Austria may look forward to the creation of some 3000 additional jobs per year in that period.

This rate of growth is fuelled mainly by an ever-larger appetite in the new Member States for Austrian products. Austria's exports to the Czech Republic, Hungary, Slovakia, Slovenia and Poland almost quadrupled between 1993 and 2005, going from 3 to 11,96 billion Euro. One sector that has experienced an especially high rate of growth is farming and foodstuffs. In 2005, exports of Austrian agricultural products and foodstuffs to the new Member States grew by 20%.

Other branches of economic activity in Austria have directly benefited from having access to the new members' markets: Austrian banks, for example, have a 30% market share in Central and Eastern Europe. Of the 2,5 billion Euro Austrian banks made abroad in 2005, 1,4 billion were in these countries.

Austria is also benefiting from its Eastern neighbours' increasing prosperity. Thanks to tourists from the new Member States of Central and Eastern Europe, the Austrian tourism sector is estimated to grow at rates of 10-15 % per year – that's an additional 300,000 to 400,000 overnight stays.

Of course, not all firms or sectors profit equally from enlargement. Some face harder competition from enterprises in the new Member States. However, the fears of jobs massively moving from the "old" EU to the new countries in the East have not materialized. On the contrary, for many firms, enlargement has opened up new opportunities not only to increase sales, but also to save jobs at home.

For many firms in Germany and Austria, design and planning activities are carried out in headquarters, while partner firms in the new Member States are responsible for sales, assembly and maintenance. Workers from the new countries are regularly trained in Germany or Austria to ensure quality standards. This way, firms from the "old" EU can profit from the competitive advantages of its partners in Hungary, for example, without putting jobs at risk back home.

Jörg D. is a case in point. The Dresden-based entrepreneur attributes his firm's success to his decision to go into a joint venture with a Polish partner. The partnership has not only helped his construction firm to survive a crisis in its branch at home, but also to expand operations beyond Poland all the way to England.

The cooperation with the Eastern partner has proved to be useful to both. "We have transferred our know-how to Poland, by training colleagues here in Dresden", explains the businessman. Thanks to the cooperation with his Polish partner, his firm successfully competes in public-procurement bids.

But even success has its critics. "As soon as we win a public-procurement contract," explains the head of the family group, "people say: 'Here comes Jörg with his cheap Polish workers'". Critics are not always well informed, though: his firm employs almost exclusively German workers on his construction sites in Germany.

1 Quotations taken from interviews appearing in the booklet "Erfolgreich in Mittelosteuropa: Unternehmer berichten nach der EU-Erweiterung", DIHK, April 2005.

2 "Ein Jahr EU-Erweiterung – eine Bilanz deutscher Unternehmen" Ergebnisse einer DIHK-Umfrage, Frühjahr 2005.

3"3 Jahre EU-Erweiterung - Bilanz aus Sicht der österreichischen Wirtschaft, WKÖ - EU Top Thema, 2007"  Deutsch (de)

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Last update: 30/10/2010