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Slovak Auto
The following article is from a past issue of the CENTRAL EUROPE AUTOMOTIVE REPORT™. If you would like to receive our most current information and all the articles included in our information packed monthly and weekly reports, subscribe today.
Article title: Slovakia's Ailing Engineering Industry -- Strategic Partners Essential
Subhead: Opinion Makers: VW Bratislava's Jozef Uhrik
Central Europe Automotive Report, Volume II, Issue 11, December 1997
There are several weak spots in Slovakia's economic development in the first 9 months of 1997: deficits in the foreign trade balance and the state budget, a growing lag in labor productivity compared with wage growth, as well as depleted sources of financing for rational production and investment.
Individual industries and other sources of national income continue to enjoy an unhealthy stability. What is even more unnerving is that, after being flat for four years, our manufacturing industries, which are supposed to churn out the bulk of national income, have in fact lost some of that share in 1996's GDP at 26.3%, compared to 29.2% in 1993.
Now, we have no choice but to swallow the economic measures tailored by the Slovak cabinet to restore economic growth. After all, you cannot let economic drifts go untended and possibly drive inflation out of control. But what can really breath new life into our economic structure? I am convinced that a stepping up of engineering production must play an important role.
Unless our machinery manufacturers can export SK 400 billion ($12 billion) worth of merchandise in the next three years, it will be very difficult to straighten out the balance of trade with all its ailments.
Engineering Industry Needs Markets & Capital
What is wrong with our engineering structure today? I believe it lacks markets, as well as capital to brace up for competition and improve the quality of production, which is indispensable in today's cutthroat global competition.
Given the structure of Slovakia's engineering, which relies heavily on auto wheels, tractors, forest tractors, forklifts, forest machinery, and the related production of engines, transmissions, chassis, and electronics, we need to attack the problem in the rational sale of these products.
Our old-time foreign trade establishment has lost its face today. We no longer have large organizations keeping up an extensive network of outlets based on up-to-date trade relations, stable importers, and foreign dealers. This is where our businesses are stranded. Prices can no longer be planned, and products hinge on a viable marketing network, if they are ever to beat the fierce competition.
Our leading machinery makers are facing a recurring dilemma of whether to try to break through alone or join a strategic partner. True, producers of machine tools, custom-made equipment, technological devices, and complex machinery fixtures don't need any strategic partners to make a sale since the price edge in low volume and single-piece production is too great to go unnoticed.
But big-volume mobile equipment can seldom sell without a strategic partner -- it's necessary to build distribution channels or use existing ones, beef up capital, and catch up to world standards of quality.
VW Bratislava -- Living Proof of the Power of Strategic Partnership
Volkswagen Bratislava is a living example of how this can work. In its fifth year, our company is looking to assemble 38,000 cars, 281,000 transmissions, 6.7 million gearbox components, reach its payroll target of 3,000, invest up to SK 3 billion ($91 million) and produce more than SK 21 billion ($636 million) in 1997.
After a successful adaptation to quality and the introduction of new models, we plan to expand production to more than 60,600 cars, nearly 300,000 transmissions, and lift production to over SK 32 billion ( $970 million) next year. A rise that swift must be supported by equally swift investments, which is why we intend to plow another SK 2-2.5 billion into the plant.
Volkswagen's other operation in Slovakia, Volkswagen Electrical Systems Nitra, also awaits expansion this year, where additional investments of SK 0.5 billion should take the personnel to 900 people and go on to 1,300 next year. Chances are that in two years from now, the two Volkswagen plants will provide jobs to more than 5,000 people.
It would be impossible to fuel all of this growth from our own coffers. It wouldn't have been possible without a reliable strategic partner that is obviously interested in expanding its production in this enticing low cost area.
Strategic Partners Must be Attracted to Slovakia; Investors Must Reach Out
Meanwhile, the search for a fitting strategic ally may be affected by the fact that our major engineering companies remain state-owned. However, that is why we need to support the cabinet, finance ministry, and other ministries in their efforts to devise a set of measures that will help strategic foreign partners launch large projects.
Lucrative deals attracting foreign capital will not only help the engineers in their search for strategic partners, but will also help other industries following their footsteps to work up to the level of world competition, in case they conclude they can't make it alone.
Foreign investors must make analyses of the traditional suppliers of Skoda and BAZ -- such as producers of gearboxes -- and contact them. In this way they can begin cooperating [with these companies].
Jozef Uhrik is Commercial Managing Director of VW Bratislava. In 1991, Volkswagen AG signed a contract with the Slovak company Bratislavske automobilove zavody (BAZ), creating a new company -- Volkswagen Bratislava, s.r.o. VW controlled 80% of the new company and 20% of the shares belonged to BAZ. Since January 1, 1995, VW Bratislava has been 100% owned by Volkswagen.