CHICAGO (June 29, 3:10 p.m. EDT) — With plastics industry exports to central and Eastern Europe rising dramatically in 2005, many companies are assessing whether or where they should open facilities in those countries.
The region also is attracting interest because of a level of economic growth — 4.5 percent — that outperformed many other regions globally and because plastics consumption outstrips production in many of those countries, said Eugenia Ross, director of international trade for the Washington-based Society of the Plastics Industry Inc.
In 2005, exports to central and Eastern Europe increased 32 percent to $155 million, with exports of plastics machinery and molds, for example, rising to nearly $30 million. Ross said plastics packaging and components are the fastest-growing areas for production and consumption, and the leading areas for plastics investment are automotive, medical and electronics.
But at NPE 2006, held June 19-23 in Chicago, companies with manufacturing facilities in those countries, market experts and government officials cautioned that it is important to do extensive research before making the plunge and that it is critical to develop a partnership with a local company.
“What you do upfront will determine if you will be successful,” said James Peck, corporate vice president and general counsel for Nypro Inc., a Clinton, Mass.-based injection molder that has been in that region for seven years and has seven plants in Europe, including two in Hungary. “It is important to decide why you want to go there and to examine the pitfalls” before you invest.
In addition to Internet research about markets and competitors, the Department of Commerce can provide valuable statistical data, said Silvia Savich, senior international trade specialist for central and southeast Europe. She said the department's manufacturing and services division can conduct research to provide companies with information on market opportunities and challenges.
“We can research what is the market for injectors, for example, in all of Europe and in each individual country,” she said.
And according to Helmar Franz, “There is a lot of available statistical data to consider.” Franz is executive vice president, strategic business development, for Ningbo Haitian Group Ltd. in Ningbo, China, and he is former president and chief executive officer of Demag Plastics Group. “You need to understand what you are targeting and why you are targeting it to identify where to locate to achieve your goals.”
All the speakers stressed the importance of finding and building local connections.
“Finding and using the right advisers is critical to dodging bullets that you might not be aware of and to guide you through regulations that are not intuitive” to thinking in the U.S., Peck said.
“We've learned that it's important not to go it alone. A joint venture partner can be the difference between spectacular success and staggering failure.”
Charles Soltis, chief executive officer of Plastic Molding Technology Inc. of El Paso, Texas, agreed.
“We learned many of the same lessons,” when an initial solo foray in Eastern Europe didn't work, he said. Plastic Molding then formed a successful joint venture with a local tool-and-die maker.
“You have to develop a good local partner that understands the lay of the land” and the legal, regulatory and accounting climates, he said.
Peck further suggested that companies choose someone locally to be the plant's general manager.
“It is invaluable for the connection to the local culture. They will guide you through the land mines and pitfalls you will encounter.”
Additionally, it's important to remember that unlike markets in the eastern U.S., for example, central and Eastern Europe “is not a homogeneous business field,” Franz said.
“The cultural differences are huge, and companies tend to underestimate those,” he said, noting, for example, that even the three Baltic countries of Lithuania, Latvia and Estonia have ties to different countries and cultures — Poland, Germany and Finland, respectively.
There are also rapidly rising wages in many of the countries, which companies need to monitor, he said, as well as transportation infrastructure issues that often make logistics difficult.
Peck pointed out, for example, that Nypro backed out of a potential deal in the Czech Republic because it did not think it would be able to deliver products to Poland in the time frame the customer wanted.
When making investment decisions, Franz added that companies need to look at more than just population numbers of the different countries and keep the markets in perspective.
“Population isn't the only gauge,” Franz said, suggesting companies look at both gross domestic product, and gross domestic product/purchase power parity, which recalculates GDP based on currency value, and both of those on a per capita basis as well.
“The why to invest is not just the population base,” agreed Soltis. “There is huge technical base, a highly literate workforce in Eastern Europe. That goes a long way if you want to set up a manufacturing base.”
Lastly, Franz said companies shouldn't “underestimate or overestimate a country's economy,” noting that while Russia, for example, is the largest country in central and Eastern Europe, its economy is still “far less than California,” and its GDP per capita is only 79th in the world.
Above all, the speakers advised companies to be patient and flexible. “You have to be patient” because things don't happen as quickly in Eastern and central Europe as in the United States, Peck said.
“And you have to be flexible and have a good stomach because of the unpredictability and the risks.”