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Rich Heimsch Electronics Production | January 13, 2007

The Middle Kingdom in Central Europe

An interesting movement of the tides of globalization finds Chinese manufacturers spending hundreds of millions of dollars building factories in Europe. Read Rich Heimsch's column.
Getting closer to Europe's wealthy consumers is at the heart of the strategy, and ex-Soviet bloc countries now in the EU provide a convenient and relatively less expensive rear entry to the market. So, though China's rise has provided plenty of pain in the past for Central Europe's low tech low margin industries such as textiles and shoemaking, now dozens of Chinese and Taiwanese are investing significant sums to develop or expand factories in Hungary, Bulgaria, Romania and the Czech Republic.

Japanese electronics companies have been producing their stuff in the region for at least 10 years of course, but now their China and Taiwan counterparts are making significant moves there. For instance, Chinese manufacturer Sichuan Changhong next summer will open a $30 million flat screen television factory with an eventual annual capacity of 1 million units in a town east of Prague up until now known mostly for it's barley and wheat.

Dozens of Chinese and Taiwanese companies have already invested probably $400 million in the region. In the Czech Republic, Taiwan's Foxconn builds for Cisco, H-P and Apple among others at an $80 million facility with 5,000 employees in Pardubice, 60 miles east of Prague. Taiwanese TV manufacturer Tatung Co. has a factory in the western Czech city of Plzen producing 50,000 flat-screen sets every month. Last month, mainland consumer electronics producer Hisense Co. opened a TV plant on the Austrian border in Hungary. And in October, Shanghai-based SVA Group celebrated the opening of a factory making TVs and other electronics in the central Bulgarian city of Veliko Turnovo.

Wages, while of course much lower than in Western Europe, are nonetheless 3-4X what they are in China. But manufacturing there pre-empts the 14% EU import duty on China built TVs, and many of the manufacturers have also been granted significant tax exemptions. Even for non-tariff sensitive goods, the Need for Speed provides plenty of justification alone. Satisfying spikes in demand from an ocean away won't cut it in today's marketplace, and the EMS providers there (and not just Foxconn of course…the US firms have been there for years too) routinely have goods on their way in 24 hours.

Electronics manufacturing in Central Europe in itself is of course old news. (What's happening in Poland, the Ukraine and Russia are more on the developing edge) But the China Syndrome so many lament coming full circle in that region is nonetheless an interesting paradox of globalization.

Click Here to Read More Materials from Rich Heimsch on his Protean Blog Spot.

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