“Restructuring in the electrotechnics
sector in Slovakia
Business View.”
CCMI
3rd Public Hearing
Bulgaria, Latvia, Lithuania, and Slovakia
Comparison of Industrial Transition Models
Sofia
October 7, 2008
Jan Oravec
President
EAS
• The Entrepreneurs Association of Slovakia
(official abbreviation “EAS”),
• the first organisation of private
businesses established after the “Velvet
revolution” in November 1989,
• 700 companies,
• 20 000 employees
• 65 companies from electrotechnics,
electronics, and ICT
• established in 1991
• the largest employers organization in
the electrotechnics industry in Slovakia,
• Negotiating conditions of sectoral
agreements in sectoral bargaining
ELECTROTECHNICS INDUSTRY IN SLOVAKIA
A long tradition on a territory of Slovakia
• Siemens operating in Slovakia for more than 100
years
• A tradition of automotive electro equipment for
military
• A tradition of innovation – Jozef Murgas as one of
the first telecommunication innovators
• (1904 US Patent: Apparatus for wireless telegraphy)
SLOVAKIA
Pop.: 5.4 mil.
Austro-Hung. monarchy:
until 1918
Czechoslovakia:
1918- 1993
Com.:1948-1989
Independent SLOVAKIA:
1993
EU: May 1, 2004
RESTRUCTURING OF ELECTROTECHNICS
INDUSTRY IN SLOVAKIA
CASE STUDY
BEZ Transformátory
BEZ Transofmers
(BEZ - Bratislava Electrotechnical Company)
Schuckert factory
1902
BEZ Transformers
2008
RESTRUCTURING OF ELECTROTECHNICS
INDUSTRY IN SLOVAKIA
CASE STUDY
1946: Nationalised and operating
as a SOE
1990: Transformation shock
1. The break-up of the Soviet block
2. The break-up of Czechoslovakia
3. Company inefficient:
*with employers not accustomed to work
*with managers not accustomed to compete
4. most of customers lost
RESTRUCTURING OF ELECTROTECHNICS
INDUSTRY IN SLOVAKIA
CASE STUDY
1996
Company privatised
by a group pf individual owners
for about € 330 000
PRIVATISATION
1. In early 1990s considered as the major
method of restructuring (although a
theoretical debate on a proper sequencing
actually never ended)
2. In all cases where privatisation was delayed
(banking sector, energy sector, and other so
called “strategic” industries) restructuring
costs were much higher and eventually
taxpayers were paying the significant part
of it
RESTRUCTURING OF ELECTROTECHNICS
INDUSTRY IN SLOVAKIA
CASE STUDY
New BEZ owners restructured the company
1. Focused on their core business
2. Carved out all non-core activities
3. Increased efficiency by cutting the workforce
from 650 to 230
4. Recovered the BEZ traditional markets by opening
offices in the Czech Republic and Russia
Unfovourable
macroeconomic
framework
1. Wrong policy mix (fiscal policy –
expansionary, monetary policy –
cautious)
2. Integration efforts (EU, OECD, NATO):
Slovakia lagging behind its peers
(Czech Republic, Hungary, and
Poland)
3. Private sector destabilised
Reform efforts
since 1998
1. Labour Market Reform
2. Flat Tax Reform
3. Pension Reform
4. Business Environment Reform
5. School System Reform (1/2)
6. Health Care Reform
7. Fiscal Decentralisation Reform
RESTRUCTURING OF ELECTROTECHNICS
INDUSTRY IN SLOVAKIA
CASE STUDY
1. Company benefited from reforms
(especially 19 % flat tax, labour market
reform, and other improvements of
business environment)
2. Company benefited from membership of
Slovakia in EU and other international
organisations
RESTRUCTURING OF ELECTROTECHNICS
INDUSTRY IN SLOVAKIA
CASE STUDY
MAY 2004: Slovakia joining EU
EU membership was a key to rebuilding of the
BEZ business
• Untill 2004: company not considered as a
reliable partner by companies from EU 15
• After 2004: company started to supply many
partner companies from EU 15
RESTRUCTURING OF ELECTROTECHNICS
INDUSTRY IN SLOVAKIA
CASE STUDY
2004 - 2005: FOREIGN EXPANSION
1. 2004: acquisitionin the Czech Republic
(buying a former transformer division of
Skoda Plzen)
2. 2005: winning € 6.5 m Daimler Chrysler group
contract
3. Today: supplier of E.on, RWE, VW, Siemens,
two Austrian energy companies, etc.
RESTRUCTURING OF ELECTROTECHNICS
INDUSTRY IN SLOVAKIA
CASE STUDY
»
90 % of its production exported
»
2007 sales totalling € 57 mil.
»
2007/2006 sales jumped by 55 %
RESTRUCTURING OF ELECTROTECHNICS
INDUSTRY IN SLOVAKIA
CASE STUDY
Electrotechnics Industry in 1989
•
28 companies
•
67 000 employees (down to 28 000 in 1993)
•
typical size: 3 000 employees
•
lack of specialisation
•
low quality production
The Current Situation of the Electro-technical Industry
• The employment growth (72 000 in 2004, almost 80 000 in
2006),
• Dynamic growth of production: 2007/2000 almost 200 %
• The sector share on both exports and imports more than 20 %
• The sector created 12.5 % of the value added in a
manufacturing industry in 2006 (9 % in 2001), 3.1 % in economy
• Positive manufacturing experience of investors in Slovakia leads
to manufacturing capacity expansion
The Most Significant Producers in Slovak
Electro-technical Industry in 2007
Total Sales in 2007 (thousands EUR)
N o.
1.
Samsung Electronics Slovakia, s.r.o., Galanta
2.
Sony Slovakia, s.r.o., Nitra
968 364
3.
Panasonic AVC Networks Slovakia, s.r.o., Krompachy
254 354
4.
SE Bordnetze – Slovakia, s.r.o., Nitra
217 374
5.
BSH Drives and Pumps, s.r.o, Michalovce
202 481
6.
Delphi Slovensko, s.r.o., Senica
149 977
7.
Leoni Autokabel Slowakia, s.r.o., Trenčín
149 606
8.
Emerson Electric Slovakia, s.r.o., Nové Mesto nad Váhom
138 614
9.
Yazaki Wiring Technologies Slovakia, s.r.o., Michalovce
112 360
10.
Panasonic Electronic Devices Slovakia, s.r.o., Trstená
110 767
3 685 593
Production of the Most Significant
Electro-Producers in Slovakia
Samsung Electronics
Slovakia
Sony Slovakia
Siemens:
Osram Slovakia
LCD monitors, plasma, printers,
MP3s, home-cinemas
up to 10 million LCD modules
3 million LCDs TV-Bravia (in 2008)
5 000 types of products
revenues: Euro 90 million in 2006 / 2007
BHS Drives and Pumps
SE Bordnetze – Slovakia
about 5 million
electro motors for BOSCH per year
fiber and electric cords
(Euro 240 million)
Electotechnics Companies Ranking
in TOP SLOVAK 200 by Total Sales
•
2 in Top 10
•
4 in Top 50
•
11 in Top 100
•
24 in Top 200
RESTRUCTURING OF ELECTROTECHNICS
INDUSTRY IN SLOVAKIA
CASE STUDY
SUMMARY
1. Privatisation used successfully as a restructuring
tool,
2. New owners developed appropriate strategy (a
combination of internal adjustments and external
expansion),
3. Company also benefited from renewed
investments in electricity grids worldwide due to
high oil prices,
4. Company: regional winner, still growing quickly
RESTRUCTURING OF ELECTROTECHNICS
INDUSTRY IN SLOVAKIA
SUMMARY
• SPONTANEOUS RESTRUCTURING WORKED
WELL (no restructuring policy, no state aid
policy, later tax incentives)
• PRIVATISATION WORKED WELL (majority of
new owners responsible, asset tunneling minor
phenomena)
RESTRUCTURING OF ELECTROTECHNICS
INDUSTRY IN SLOVAKIA
SUMMARY (cont.)
• PUBLIC POLICY MIXED PERFORMANCE
(esp. fiscal policy)
• BIG GROWTH POTENTIAL (if constraints
will be removed)
• BIG DOWNSIDE RISKS (export
dependency)
RESTRUCTURING OF ELECTROTECHNICS
INDUSTRY IN SLOVAKIA
SUMMARY (cont.)
Major problem and challenge
(both at corporate and policy level)
• Lack of skilled labour force as a result of
slow response of government and schools
Thank you for your
attention!