Europe, Logistics, Supply Chain, Outsourcing

Western European investment to increase revenues in eastern European logistics markets

22 Dec 2005 | (Thinking Point)

The accession of Poland, Hungary, the Czech Republic, the Slovak Republic, Slovenia, Romania, Latvia, Lithuania and Estonia to the European Union (EU) have opened up growth opportunities in the region. Lower labor costs and investment incentives are prompting western European multinational manufacturers to move eastward to establish their production sites. The high levels of investment by western European and global manufacturers and retailers are likely to spur the growth of eastern European accession countries' logistics markets.
 
Increased outsourcing of important internal logistics functions across the accession countries coupled with the ongoing globalization trends are anticipated to fuel demand for logistics service providers in central and eastern Europe. Outsourcing of logistics functions is likely to create a need for third-party logistics (3PL) services in eastern Europe. International retailers are also increasingly focusing on affluent customers in central and eastern Europe and the European logistics markets are projected to grow to 124.10 billion Euros in 2012 from 69.70 billion Euros in 2004.

"The development of the accession countries as a major manufacturing region for multinationals has also been facilitated by advances in logistics practices and technologies", says Sarwant Singh, Automotive & Transportation Practice Director at Frost & Sullivan (http://transportation.frost.com). "This advantage, combined with lower labor costs, represents an important driver for investment in the region. Labor costs in many of the accession countries are considerably lower than in western Europe, with some companies availing opportunities to save up to 80.0 per cent by relocating their operations to the region."

Industry sectors such as automotive and high-tech/electronics followed by fast-moving consumer goods (FMCG) and retail are likely to boost the demand for basic logistics activities such as transportation, contract logistics, and other added-value activities in supply chain management.

A high level of fragmentation is prevalent in the eastern European logistics markets, with several local and national participants involved in local transport operations. "However, a positive trend in the markets is the increasingly high level of collaboration between large foreign logistics providers and local providers, which can help leverage local market knowledge, thereby providing a mutual advantage to both", says Mr. Singh.

The removal of customs barriers, combined with the upgrades of road vehicle fleets in adherence to EU road safety and environmental regulations, is also likely to have a positive effect on the logistics markets. With the encouragement of foreign direct investment (FDI) in all sectors and some accession countries offering investment incentives, demand for logistics services is anticipated to increase.

The market for fourth-party logistics (4PL) services is also likely to experience growth, as shippers relocating and extending their production facilities in the accession countries are expected to create a need for 4PL partners to address the needs of their customers. While the 4PL logistics services market does not currently exist, the anticipated demand for 4PL services is likely to grow once 3PL services have been well established.

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In keeping with these favorable trends, the relatively advanced Polish logistics market is expected to attract considerable investment, particularly from automotive manufacturers and retailers as well as producers of consumer goods. Growth can also be expected in the Czech Republic due to its strategic location and disciplined workforce. The Hungarian logistics market is also poised to benefit from the existence of over 40 airports, all of which will require logistical support for air transport operations.

Despite being in an early development stage, the Slovenian logistics market is likely to grow due to factors such as skilled human capital and a positive business environment. Another market that is likely to witness phenomenal growth is the Slovakian logistics market, which will become feasible for foreign third-party logistics (3PL) service providers as well as lead logistics providers (LLP). The logistics markets of the Baltic States are also anticipated to experience a boost due to the presence of a multi-lingual workforce.

Proximity to the German market and benefits such as tax and institutional incentives offered by individual governments to foreign investors will further increase demand for logistics services in the region. Additionally, ongoing globalization in the accession countries will lead to consumers demanding global access to networks and extended supply chains. This is likely to augment investments in the logistics markets.

While wage inflation is likely to accelerate over time, the eastern European accession countries' logistics markets are poised for growth, creating opportunities for companies to offer truly pan-European solutions and increase revenues.

If you are interested in a virtual brochure, then send an e-mail to Magdalena Oberland, Corporate Communications, at magdalena.oberland@frost.com with the following information: your full name, company name, title, telephone number, fax number, e-mail address and source of information. Upon receipt of the above information, an overview will be sent to you through e-mail.

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