NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 1. Summary The 2008 biennial NRS study mission to Central and Eastern Europe (CEE) went to Slovakia, Romania and Poland, three countries in different stages of development. In visiting 15 companies and institutions we received a wealth of information on business, cultural and socio-economical aspects in the region. Given conclusions drawn our mission’s name BUY EUROPE proves to be an adequate to NEVI members, multinationals or mid-size “MKB”: cost advantage, HQ proximity, flexible and knowledgeable Labour and Cultural proximity are key reasons for NEVI members to consider business in CEE. 2. Introduction To stay on the edge of developments in purchasing the NEVI Research Foundation (NRS) organizes a biennial mission to a region of actual interest. Following trips to USA in 2003 focused on outsourcing and to China in 2005 to study sourcing and purchasing perspectives, we chose to visit CEE in 2008. Next to the full Board of NRS, participated NEVI Chairman Wim Dressel, NEVI Director Jan Willem van der Meer, Nyenrode Professor Jacques Reijniers and Purspective Director Wouter Crul. The trip was organised and facilitated by Co-makers International Director Daan Kersten. From left to right: Philip van Beek, Daan Kersten, Arno de Schepper; Hylke de Cock; Jan Willem van der Meer: Wim Dressel; Jacques Reijniers; Willem van Namen; Wouter Crul and Ronald Baars. 1 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 2.1 Assignment The choice for CEE was a logical one giving us the opportunity to compare with our recent findings in China and to make a business case for the two regions based on Total Cost of Ownership (TCO), including different cost in transport, transaction costs, time to market, quality, innovation, Corporate Social Responsibility (CSR), culture, governance, etc. We have chosen three countries in CEE in different stages of development enabling us to make projections and recommendations for future developments in EU-27 and in countries more to the east like Ukraine and Russia. Depending on type, size and interest western companies can use a variety of business models like local subsidiary, component supply, Business Process Outsourcing (BPO), etc. For our multinational member companies BPO is an important interest. For the sector middle and small size companies, the majority of our NEVI members, a significant part is involved in R&D activities leveraging low cost high quality technical skills available in CEE. Summarising our assignment, we have given this mission the name: BUY EUROPE. 2.2 Country information Within the Central and Eastern European supply markets there is a wealth of opportunities to support Western companies to drive their business forward. Obviously the labor rates are very attractive. However, as important (if not more important) the labor market in this geography does contain a lot of skilled people in all kind of sectors: manufacturing, assembly, information technology, electronics, etc. This geography should not be looked at in an oversimplified way. Some regions are more attractive than others and specialization plays a role. Moreover some countries, like Ukraine, do have so called Special Economic Zones and Prioritized Development Areas. These areas are supported by local government through lower taxes rates (or tax free climate). SURVEY Central & Eastern Europe 2007 GDP growth Inflation Monthly wages mln GDP bln EUR GDP per head 1000 EUR % % EUR 38 220 6 6 2 800 Slovakia 5 50 10 9 2 600 Romania 22 110 5 6 5 400 46 100 2 200 141 950 7 400 Population Poland Ukraine Russia 2 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 2.2.1 Slovakia Slovakia shows highest 8,7% GDP growth of all E-15 countries in 2007, 8% rise in salaries and a remarkable low rate of inflation of 1,9%. It has however a small population of 5,4 mln and poor connections to the north, Poland, and east, Ukraine, and it is therefore questionable if this country will continue such economical performance. A small isolated market and tight labour situation will make it less attractive for newcomers to invest. However, EU subsidies planned for improvement of infrastructure will in the long term remove the regional and international constraints. 2.2.2 Romania Romania consists of a mix of cultures and historical backgrounds. The Timisoara area we focused on has been part of the Habsburg empire and inherited industrial and technical affinity and international scope. In Timis county there are over 70 big international companies, in many branches of industry (building, wood, textile, automotive, leather, information-technology a.o.). It is common for people in the region to speak many foreign languages. There are international schools, ranging from kindergarten to universities. Timis is considered a multi-ethnic environment with excellent educational levels and skilled work force. 2.2.3. Poland In Poland there are large differences in income between regions and sectors of industrialisation (80% in the western part) or agriculture. Also the rate of unemployment, average 12%, varies a lot. Machine and transport equipment are the most important export but also import products as result of conversion activities. The private sector’s contribution to the economy is now 80%, growing from 18% since 1989. Since then the service industry has steadily grown to 65%, while the industry sector declined to 30%. 2.3 Program overview Dag Tijd Plaats Activiteit Sunday 20/4 09.15 10.35-12.30 13.30 14.30-17.00 Amsterdam Amsterdam Vienna (A) Vienna (A) 18.30-23.00 Vienna (A) Gathering at Schiphol Airport Amsterdam Flight to Vienna (AMS-VIE OS 372) Check in Hotel Astoria Meeting NRS Diner & concert Schönbrunn Palace Orchestra (Orangery Hall Schönbrunn Palace, Vienna) Monday 21/4 12.45-13.45 14.00-15.30 Dubnica nad Vahom (SK) Dubnica nad Vahom (SK) Bratislava Slowakije 16.00-18.00 Bratislava (SK) 18.30-22.30 Bratislava (SK) 08.30-10.00 10.00-12.00 Transfer to Matador Automotive, a.s. Visit to Matador Automotive, a.s. Lunch Hotel Hradna Brana Visit to Volkswagen Slovakia, a.s., Bratislava Visit to The Slovak Investment and Trade Development Agency SARIO Visit to Danubiana Meulensteen Art Museum, guided tour with Vincent Polakovic, dinner with speech of the Dutch ambassador in Slovakia, Mr. Rob Swartbol 3 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 Tuesday 22/4 Tot 11.00 11.30 13.30-15.35 16.00 17.30 Vienna (A) Vienna (A) Vienna (A) Timisoara (RO) Timisoara (RO) 18.30-21.30 Recas (RO) Wednesday 23/4 08.30-10.30 Timisoara (RO) 11.00-13.30 14.30-16.30 18.30 Timisoara (RO) Timisoara (RO) Timisoara (RO) 04.20 04.50 Timisoara (RO) Timisoara (RO) 06.00-09.35 Timisoara (RO) 12.00-15.00 Wegrow (PL) 17.00 18.00-20.00 20.00-22.00 Warsaw (PL) Warsaw (PL) Warsaw (PL) 07.00 09.00-12.00 Warsaw (PL) Lodz (PL) 14.00-16.00 Warsaw (PL) 16.00-18.00 18.00 20.00-22.05 Warsaw (PL) Warsaw (PL) Warsaw (PL) Thursday 24/4 Friday 25/4 3. Meeting NRS Transfer to the airport Flight to Timisoara (VIE-TSR OS 649) Check in NH Hotel Timisoara Departure to Cramele Recas Dinner with speech of Nina Scherbina (Philips Moscow) - Views of Philips on Central & Eastern Europe: Transkarpatian-Ukraine & Russia Breakfast session with local representatives of Chamber of Commerce, NBSO, Consulate and Politehnica Visit to Philips Luminaires and ELBA Visit to Alcatel Lucent Timisoara Dinner Wake-up call Departure Timisoara Airport Flight to Warsaw via Vienna (TSR-VIE OS 648, VIEWAW OS 625) Visit to Addit in Wegrow, industrial subcontractor and winner of the Dutch Polish Trade Award 2007 Check in hotel Jan III Sobieski Visit Dutch Embassy in Poland Dinner Departure to Infosys BPO Poland Visit Infosys BPO Poland, Leo Ammerlaan McKinsey (Eastern Europe Sourcing Centre), Wiktor Namysl (Office Philips Polska) Philips General Purchasing Poland + MAG 45 Departure Warsaw Airport Flight to Amsterdam (WAW-AMS LO 269) Companies and institutions Visiting 15 companies and institutions in three countries in different stages of development, we aimed to cover a wide range of activities. This to provide NEVI members with useful guidance and contacts in developing business in CEE. Matador A private company, focussed on automotive and mechanical engineering activities. Matador is an example of a local company transferring depreciated former investments as buildings and equipment of former governments into a profitable business. Being located in the European Union this business has a high potential. Matador could be a good alternative for Far East sourcing. Volkswagen Impression of a two hours tour through an assembly plant with output of 250.000 cars a year: • Smooth state of the art assembly processes on 4 models (3 SUV’s) • Touareg consists of 250 parts only (major design effort) 4 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 • • • Suppliers within 40 km range in order to meet 1 day inventory at VW Labor constraints leading to bussing people from 100 km Flawless execution enforced by every component traced and checked for assembly (screw driver with memory) SARIO The Slovak Investment and Trade Development Agency, is focussed upon industry clusters development and Foreign Direct Investment (FDI) projects. Clusters are formed by multinational companies like Volkswagen and Samsung, setting up manufacturing in the western part of the country. Others have a historical basis, like Wood processing (furniture and paper), Steel processing and Chemicals in middle and east Slovakia. NL Ambassador in Slovakia Ambassador Robert Swartbol’s dinner speech and discussion showed excellent practical knowledge of local situation; main highlights: • Political instability, especially in certain areas of Slovakia • Use international law firm or ask embassy advice in case of choosing a local law firm • Slovakia is focused on Western Europe, not developing eastern markets like Ukraine Supply Market Trends in Russia and Eastern Europe Special focus area: Ukraine - Trans Carpatian Region - Open for new businesses. In the region 773 enterprises received US$ 300 mln of FDI’s. The Ukrainian government is considering legislation that would make it easier for companies to import and export products. 5 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 List of brand-name companies currently active in the region: 1. Volkswagen 2. Skoda 3. Audi 4. Fischer 5. Philips 6. Hewlett Packard 7. Flextronics 8. TDK 9. Henkel 10. Delphi Breakfast-session with representatives of the Chamber of Commerce, Polytehnica, Netherlands Business Support Office and Dutch Consulate (Timisoara, Romania) A sample of specific recommendations for West Romania: • understand the originally Habsburg culture • quality standards from the West can be matched • unemployment is very low; difficult to attract people • increasing focus on value added activities, like research and engineering. Elba and its JV with Philips ELBA is a good example of a traditional Romanian company which has been able to transform itself into a successful and modern lighting company. They have anticipated on the globalisation opportunities especially in the automotive sector; their strong relationship with local car manufacturers like Renault-Dacia is an important foundation for their business. Alcatel Lucent / Timisoara Alcatel-Lucent Romania, the regional hub covering Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Greece, Moldova, Macedonia, Romania and Serbia, is seen as the benchmark company in building a world-class organization in a highly competitive and innovative marketplace. Understanding its dependence on skilled and motivated resources, it heavily invests in training and works closely with the local (technical) universities to attract the best talent and to develop the required technical skills. In the context of alternatives like India there seems to be room for very good alternatives who offer proximity, possible better cultural fit and more loyal workforce in the software development arena in Europe. Addit The company has started their activities in Venlo (The Netherlands) and has been working for years with clients like Océ and Thales. For the Polish plant the main goal is manufacturing and assembly of subcomponents for clients in long term partnership. The Director/owner just has been granted an important prize by the Polish Chamber of Commerce for good practice and excellent leadership Infosys Philips had chosen Infosys to lead their Shared Service Centres (SSC’s) to a market leadership position. The service units have become part of Infosys in 2007. Conclusions drawn after a well prepared presentation and tour through the office: • Fully controlled environment with process metrics and parameters in place for each individual process • Supported by an integrated quality system • Though young team, very good language and presentation skills and very mature attitude • Excellent customer focus 6 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 Mc Kinsey and Company Poland McKinsey’s Eastern Europe Sourcing Centre (EESC) offers full range of global sourcing services; there is close cooperation with similar centres in India and China. Their presentation focused on 4 area’s: • Global sourcing (GS) from low cost countries (LCC) is increasingly relevant • Indisputable advantages of sourcing from Eastern Europe (EE) • "Fast track" to EE sourcing by focusing on industry clusters • How to capture full potential on LCC sourcing? MAG 45 and Philips General Purchasing Started as Philips internal supplier, founded in 1948, Spin-off in 2004. Main characteristics: • One of the largest industrial integrators in Europe • Product portfolio: Tools, electrical & mechanical components, materials • Services: Sourcing, Logistics, Integral Supply Chain solutions • Revenues in Industrial (40%), Semiconductor (25%), Medical (20%), FMCG (15%) 4. Observations and recommendations It is recommendable to spend time on market research and opportunity spotting before taking tactical moves. Evidently there are opportunities to buy in CEE and/or Russia, taking into account next observations and recommendations: • • • • • • • • • • Labor costs proportion to High Cost Countries will remain for the next decade, but availability of labour will differ per country or region EU controlled intellectual property rights are a plus compared to other LCC’s Top scores for high school pupils in international math and science contest; high output of technical universities Easy to relate to people, similar culture (for instance Habsburg history) and languages are spoken well. Impact of automotive industry as first mover in developing clusters per country or region: labor force and supply base Improved infrastructure (a.o. EU subsidized roadwork) will enhance opportunities for cluster development The business case is both complex as well as specific factors need to be understood well, for instance labor costs, lack of availability of resources, mobility of people, etc. Also mentality can differ per region. Specific information can change quickly, look for the right processes and sources High labor constraints in some key cluster regions Look at these countries from a local rather than a Western European perspective 7 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 5. Conclusions regarding BUY EUROPE Cost advantage, HQ proximity, flexible and knowledgeable Labour and Cultural proximity are key reasons for NEVI members to consider business in CEE. Above reasons are key elements for positive business cases if West European companies compare CEE with Asian sourcing alternatives. Contrary to the Chinese and Indian markets, CEE’s own market is too small for major product development on its own. Hence the outcome for CEE there is a supportive role to and integration with the West European market. CEE will at least maintain its position in conversion: materials imported from the West are re-exported as finished products. CEE’s sound education and technical skills will strengthen their position in business process and R&D services. Focus on industry clusters per country has proven successfully in Automotive now seen as the quality engine for the cluster machinery and equipment manufacturing. 8 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 6. Appendix In this appendix you will find full reports on the visits as summarised in chapter 3 and additional information handed out or produced during the meetings Information Page A. Matador Automotive 10 B. SARIO (Slovak Investment and Trade Development Agency) 13 C. Supply Market Trends in Russia and Eastern Europe 15 D. Breakfast session 20 E. Elba and its JV with Philips 25 F. Alcatel-Lucent Romania 30 G. Addit 34 H. Infosys 38 I. McKinsey 42 J MAG45 and Philips General Purchasing 44 9 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 A. Matador Automotive, By Philip van Beek 1. Company name and address Matador Automotive, a.s. Dubnica nad Vahom Tovarenska 1, SK-018 41 Phone: +421 42 4400 270 www.matador-automotive.sk 2. Company participants Stefan Kukucka, Commercial Director e-mail: stefan.kukucka@matador-automotive.sk mobile: +421 907 984 044 3. Survey of company activities A private company, established in 1905. Running a business in rubber and automotive industry Turnover 2006 545.000.000 Euro. Since 2007 rubber business joint venture with Continental AG, Hannover Germany (Matador share 49%) Nowadays focus on automotive and mechanical engineering activities. 4. Main elements in company presentation Location – Slovak republic Presentation Matador, Púchov Matador Automotive, a.s. Dubnica nad Váhom Púchov Dubnica nad Váhom Matador Automotive, a.s. Vráble Vráble Matador Automotive, a.s. Bratislava Production in 2010 will achieve volume of 4.000.000 Pieces of cars approximately, in the sphere of 500 km from Bratislava. 10 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 Facts and figures Automotive Group: Net sales 2007 136.000.000 Euro Forecast 2008 163.000.000 Euro Number of employees 1851 people Strategy of Automotive Group Turnkey services / service Integration. Joint Development with customers & Simultaneous engineering on Design, Moulds, Production and Assembly systems. Quality Certificate Management System Standard ISO 9001:2000 for Development, Production, Assembly and Repairs of Engineering Equipments for Rubber Industry, Automotive Industry and for General Engineering. Design & Projection Activities • Design, Support and Service of wide range of machinery and equipment for automotive, rubber and general engineering industry. • Hydraulic, pneumatic and electrical design in house. • Following software programs using for a design of equipments, production lines and automation equipments: Pro/Engineer Wildfire 2.0, Autocad 2002, CATIA V5 R16, Inventor 5, E-plan 5.5, ProTool V6.0 • Control Design using Simatic S7 and Alan Bradley. • Full support of design data types in 2-D and 3-D Design • Complete technological preparation of production, processing of NC and CNC programs in the Surfcam for 2 – 6 axis system. Customers PHILIPS, Mediso, Valliant, FMC Technologies, Technomatic, KIA MOTORS, HATEBUR, ANDRITZ, ECG, Continental, Ina 5. Observations Production tour: • • • • • Traditional plant No state-of-the-art logistics factory Wide variety of technical skills but not focused on specific skills Plant seems to be underutilized and possibly unprofitable No high efficiency, majority of old machines, General: • • • • • Matador does supply into the supply base of automotive but not directly to automotive product lines. (through delivery of part of machines) A supply chain strategy was not highlighted and/or discussed. Long term view through investment but no clear strategy. Strong focus on reducing labor component by investing in automation. (comparable to the West) Raw Materials prices are 20-30% higher in Slovakia compared to for instance Germany. 11 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 • • • • 6. Contracting people from Ukraine & Vietnam to compensate for labour shortage . Value add through assembly of materials coming from foreign countries as for instance Germany. Focus on certification of processes. Some environmental awareness. Conclusions regarding BUY Europe Matador is an example of a local company transferring depreciated former investments as buildings and equipment of former governments into a profitable business. In combination with Slovakia being member of the European Union this business has a high potential. Matador could be a good alternative in comparison with the Far East. 12 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 B. SARIO Slovak Investment and Trade Development Agency By Ronald Baars 1. Company name and address Sario Slovak Investment and Trade Development Agency Martincekova 17 821 01 Bratislava, Slovakia Tel: +421258260100 E-mail: sario@sario.sk Web: www.sario.sk 2. Company participants Miroslav Kucera – Head of Strategy Department Vladimir Svac PhD – Project Manager R&D Barbara Mikloskova - Project Manager FDI section 3. Survey of company activities SARIO Slovak Investment and Trade Development Agency is a government funded organization under the direction of the Slovak Ministry of Economy. SARIO consists of three sections: Foreign Direct Investment, Foreign Trade, EU Structural Funds. 4. Main elements in company presentation After a well prepared presentation on SARIO’s role and its investment and export promotion, Mr Kucera took over from his colleague in explaining SARIO’s strategy and progress in projects. This only verbal presentation was hard to understand. Main elements touched upon were industry clusters, FDI projects and labour situation. Industry clusters are formed by multinational companies like Volkswagen and Samsung, setting up manufacturing in the western part of the country. Others have a historical basis, like Wood processing (furniture and paper), Steel processing and Chemicals in middle and east Slovakia. All clusters are limited to a certain region and due to poor road conditions this will not change until completion of new infrastructure in 2012. 13 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 SARIO favours FDI projects aimed at higher added value and less labour intensity; 64 investment projects with a total value of EUR 1,3 bln were finished in 2007 with participation of WE (16% German), Asian and US companies. Good personnel is hard to get due to low mobility of people within the country, while in spite of this a brain drain of highly qualified people to WE is still a concern. 5. • • • • • • • • • 6. Observations (refer to list made during our trip) Cluster approach but reactive and mainly driven by major companies like Samsung Rather one-sided information selling the country Regional differences in unemployment and wages No strategic vision Labour mobility is low Necessity to focus on SMEs to develop the local base but in reality lead by big corporations Poor infrastructure Impact of introduction of Euro estimated to be low Samsung entered Slovakia as a responsive base for Western Europe Conclusions regarding BUY Europe Slovakia showed highest 8,7% GDP growth of all E-15 countries in 2007, 8% rise in salaries and a remarkable low rate of inflation of 1,9%. It has however a small population of 5,4 mln and poor connections to the north, Poland and east Ukraine and it is therefore questionable if this country will continue such financial performance. A limited isolated market and tight labour situation will make it less attractive for newcomers to invest. Our appreciation of SARIO’s capabilities were mixed due to poor communication skills of key their key representative. 14 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 C. Supply Market Trends in Russia and Eastern Europe By Willem van Namen 1. Company name and address Philips Lighting Sourcing Group Russia & Eastern Europe 119048 Moscow, Russia 2. Company participants Nina Scherbina Eastern Europe Sourcing Group Manager Philips Lighting 119048 Moscow, Russia Tel: +7 495 9379387/08 (new city code) Fax: + 7 495 937 93 78 Mob: + 7 495 774 7007 e-mail: nina.scherbina@philips.com 3. Survey of company activities The Philips Lighting Sourcing Group in Eastern European is based in Moscow. This dedicated organisation focuses on market research regarding the local supply market opportunities and the development of an attractive and high quality supply base for Philips in this region. 15 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 4. Main elements in company presentation During the presentation an high level overview has been presented on the main economic factors and the opportunities in Russia and Eastern European. A couple of examples have been shown to underline the opportunities. Generic Macro Economic information The diagram below shows the main economic indicators and the development of the average wages 2005-2007 for Russia and 8 Eastern European countries. The EU enlargement and the large inflows of foreign direct investment in new members countries are changing dramatically the low cost and super low cost geography in Europe. Two major categories can be distinguished: a) Low cost countries: Hungary, Czech Republic, Poland, Slovakia, Latvia, Estonia, Lithuania, Romania. b) Super low cost countries: Bulgaria, Ukraine, Moldova Compared to other European countries the following wages differences are applicable: • • • Western Europe: factor 15 to 20 Central Europe (Hungary/Poland): factor 3 Romania, Russia: factor 2 16 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 Special focus area: Ukraine - Trans Carpatian Region - Open for new businesses As of January 1st 2007, according to data of the statistics department, this region has 773 enterprises running with direct foreign investments. In general, over the period of foreign investing, the region received USD 300 million of direct foreign investments. The Ukrainian government is considering legislation that would make it easier for companies to import and export products. List of brand-name companies in the region: 1. Volkswagen 2. Skoda 3. Audi 4. Fischer 5. Philips 6. Hewlett Packard 7. Flextronics 8. TDK 9. Henkel 10. Delphi Major benefits of this Trans Carpatian Region: • • • Best logistic – we can be in any place in Europe with 24-72 hours – Due to extension of Shenghen zone since Jan 2008 only one border between Ukraine and any other country in EU – Short time-to-market to serve Europe comparing to Asia manufacturing solutions WTO membership signed in February 2008. – International customs and tax practice under implementation – Customs fee (0,2% in and out) are cancelled since July 2008 Lowest labour cost in Europe for Indirect- & Direct Labour – Indirect labour rate is lower than Asia – Direct Labour rate is three times lower comparing to Poland, Hungary and 2 times lower that Romania and Russia Example Business in Trans Carpathian Region: Jabil, Uzgorod, Ukraine Jabil plans to establish a technology park in the Trans Carpatian county region in Ukraine. The company plans to establish the technology park already this year. Jabil has so far already invested approximately $ 55 million in Ukraine, and it plans to add another $ 50 million. The technology park will provide a full cycle of assembly for mobile phones. Jabil plant in Ukraine already employs thousands of workers. The company’s major customers are Nokia, IBM, Alcatel, Philips, Cisco, HP. • • Growing local supply base – Plastic capability on site under ramp up – Jabil Green Point – Word class solution for packaging and printing available – Metal treatment, stamping, bending available – Cabling available – Expected new PCB factory in 2008 – Capability to ramp up a new programs – Mature organization in Uzhgorod – Manufacturing space available in new facility. • 30’ 000 square feet in 2008 • potential extension for additional 132K square feet in 2009 (Phase 2) – Availability of people - Direct and Indirect – Turnkey solutions 17 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 Information and Communication Technologies Industry: Trends in Total Exports and IT Software Development Exports (Russia), 2001-2006 5. Observations Supply Clusters in Eastern Europe: • • Export oriented economies : EU - Romania, Slovakia, Czech, Poland, Bulgaria, Hungary, new comer in EU – Ukraine; Belarus ( governmental directives). Potential characteristics: Export of energy intensive commodities ( metals & glass) from Russia & CIS with Export quotas for metals Domestic oriented economies : Russia (local for local for finish goods). Potential characteristics: growth of localization level ( metals, plastics, electronics, packaging) What Russia & CIS can bring to Philips Raw materials (+) • • Alu Die casting • Stamping • Plastics Assembling subcontracting • • • • • • (-) Quality is in continues progress Costs are slightly less of global costs Low power cost Correct manufacturing costs Low labor cost Low power cost Low labor cost Low power cost Low labor cost Quality approach • • • • • • Due to local market growth and export quotes – raw materials producers are not interested to export materials Raw materials quality is not stable from lot to lot. As a result – rejects level is quite high. Old machinery park Quality & flexibility are going to be according to worldwide level Due to raw material cost –no economical reasons for exports. Supply chains are not well developed 18 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 Other observations 6. • Energy and Raw Materials – Russia is expected to remain attractive for energy-intensive commodities such as glass – Same for metals, because of ore availability and energy Recommendation is inventorise raw material spend and identify cost reduction opportunities by moving to EE • In many cases, local supply will be required to optimally benefit from local end market opportunities (Local For Local) – Import duties – Transportation cost – National corporate citizenship – government relations and support Recommendation to define priority list of end products to be localized out of sales ramp up plan portfolio • Plastic, metal parts, PCB’s etc increasingly available for EE and bordering Central Europe Philips and EMS factories Conclusions regarding BUY Europe Within the Eastern European and Russian supply markets there is a wealth of opportunity to support Western companies to drive their business forward. Obviously the labour rates are very attractive. However as important (if not more important) the labour market in this geography does contain a lot of skilled people in all kind of sectors: manufacturing, assembly, information technology, electronics, etc. This geography should not be looked at in an oversimplified way. Some regions are more attractive than others and specialization plays a role. Moreover some countries, like Ukraine, do have so called Special Economic Zones and Prioritized Development Areas. These areas are supported by local government by lower taxes rates (or tax free climate). It recommendable to spend time on market research and opportunity spotting before taking tactical moves. Evidently there is a business opportunity to buy in Eastern Europe and/or Russia. 19 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 D. Breakfast-session WITH REPRESENTATIVES OF THE CHAMBER OF COMMERCE, POLYTEHNICA, NETHERLANDS BUSINESS SUPPORT OFFICE AND DUTCH CONSULATE – TIMISOARA - ROMANIA. By Wim Dressel and Jacques Reijniers 1. Names and addresses. Camber of Commerce (CCIAT) www.cciat.ro Mrs. Menuta Iovescu, General Secretary Piata Victoriei nr. 3 300030 TIMISOARA ROMANIA Universitatea “Polytehnica” din Timisoara www.upt.ro Prof. Dr. Ing. Nicolae Robu , Rector. Prof. Dr. Ivan Bogdanov, Director Applied Electronics Department Piata Victoriei nr. 2 300006 TIMISOARA ROMANIA Royal Netherlands Honorary Consulate Sonja van der Zee, Consul’s Assistant Str. Prot. G. Popovici 8/A 300226 TIMISOARA ROMANIA Netherlands Business Support Office www.olanda.ro Mr. Jan van de Laar Mrs. Crymhylde Galos Str. Avram Iancu nr. 32A 400083 CLUJ-NAPOCA ROMANIA 2. Organisation’s Representatives. See under 1) above. 3. Survey of organisation’s activities. Chamber of Commerce. Main activities are focussed on stimulation of economic activities in the province of Timis, Romania. As part of this the Chamber of Commerce is collecting and providing information on (socio-)economic factors in Romania in general and related to the province of Timis in particular. This includes economic profiles, foreign trade statistics, business environment, taxation, local companies, im- and export regulations, subsidies, etc.. 20 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 Polytehnica. Most prominent university in West-Romania. Strong focus on technical education of engineers. Started in 1920, the polytehnica has graduated over 100.000 engineers. Full range of academic titles (Bsc, Msc and PhD). 10 faculties. Polytehnica Netherlands Business Support Office (NBSO) The NBSO aims to develop, extend and intensify the economic relations between Dutch and Romanian firms, including establishing subsidiaries. NBSO’s have been set up by the Dutch ministries of Economic Affairs and Foreign Affairs. They aim at economically strong regions that are interesting for Dutch businesses. Dutch Consulate. Point of contact for Dutch businesses. Co-operates intensely with the Dutch Embassy. Network available to assist Dutch companies to do business in/with Romania. Limited own activities. 4. Main elements in the presentations. The presentation of the Chamber of Commerce focussed on Timis-county, one of the 40 counties in Romania. The Timis-county realises 10% of Romania’s export. The GDP is 2nd, following the Bucharest-area. In Timis there are over 70 big international companies, in many branches of the industry (building, wood, textile, automotive, leather, information-technology a.o.). It is common for people in the region to speak many foreign languages. There are international schools, ranging from kindergarten to universities. Timis is considered a multi-ethnic environment. Excellent educational levels; skilled labour force. More than 60.000 companies are registered in Timis. Top foreign investors (FDI) are Italy (1) and Germany (2). Holland ranks 8. Within the Chamber of Commerce the department of economic relationships employs 16 economic advisors that can assist foreign companies considering doing business in Timis. Relative position of Timis-county vis-à-vis other regions is considered to be strong, thanks to low labour-cost (although rising), geographical position within Europe, availability of cheap land and the mentality of the people. The professors of the Technical University illustrated the importance of having a top technical institute in Timisoara. They have delivered many highly classified engineers (> 100.000 graduates). Currently there are 15.000 students at the 21 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 university and annually 2000 graduates. Strong emphasis on research (> 1.300 paper p.a.). Staff of 900 Fte’s. There is a close relationship with big international companies (e.g. Alcatel) in order to create the right curricula and for feedback to constantly update and improve on them. The University has strong international ties: co-operation agreements with over 100 universities abroad. The professors gave some nuances w.r.t. the presentation of the Chamber of Commerce : unemployment in the Timis-region is extremely low (< 2 %) and workers are coming in from Ukraine. Furthermore difficulties in the infrastructure for electricity is an aspect to be taken into account when considering starting a business in Timis. Focus for further economic development, according tio the professors, should be more on research-activities. Mr. Jan van de Laar introduced the Netherlands Business Support Office(NBSO). The NBSO has a strong co-operation with the Dutch Embassy and provides economic services to companies/organisations interested to start/do business in Romania/with Romanians. The NBSO in Romania is one of the 17 NBSO’s in the world (5 in Europe, 4 in America’s and 8 in Asia). A further 2 are being established : Russia and Turkey. The main activities of the NBSO’s are: - individual market scan, tailor made market information plus partner search - trade requests from Dutch and Romanian firms - support trade missions - Holland promotion - spot market opportunities In order to fulfil these goals, the NBSO co-operates with state-agencies, professional associations, universities, charities and public institutions from Romania and The Netherlands. Services are free of charge. Mrs van der Zee introduced the Dutch Consulate. the Consulate is based in Timisoara and can be contacted for any help/support. The Consulate has no 22 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 further staff, but they offer their network and can assist in finding useful contacts in Romania. 5. Observations. During the breakfast session the following observations were made: - 6 unemployment very low (<2%) pride of Timis main development areas: electronics, machine building and mechanics overall strategy Chamber of Commerce lacking strong focus on Timisoara-region still a lot of red tape and stamping taking place family-ties very strong: house, child, tree (and car) proud to be an engineer strong vision that engineering and research are the key to a successful future positive impact of Habsburg history is widely recognized in engineering strength income tax is flat at 16% “statue without arms” multi-lingual and multi-cultural strong ties between universities and SME’s and other corporations lack of managerial skills recognition that to attract talent to return, there is a need to have professional conditions. textile and shoe-industry is going down. Key issue for the future will be the replacement activities for women. Timisoara has an airport with many international connections eastern Romania is less developed than the Timisoara-area not only for low cost buying, but also interesting for ‘joint technical’ developments. Conclusions regarding BUY EUROPE With regard to the opportunities to buy in West-Romania the following conclusions can be drawn from the visits/discussions: - possibilities to BUY EUROPE relatively strong before starting to do business in Romania, understand the culture study all circumstances; Chamber of Commerce is a helpful resource, although biased quality standards from the West can be matched many activities are based on conversion: materials are imported from the West and finished products are exported to the West wages are increasing (approx. 7,5% p.a.) but still at around 1/3 of Western Europe. unemployment is very low; difficult to attract people. increasing focus on value added activities, like research and engineering excellent help can be found in the Dutch Embassy; other supporting organisations available CEE not only for low cost sourcing; however local market in Romania limited. However location suitable for deliveries into Russia and nearly all of Western Europe within 2 days trucking 23 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 - culture in Romania much closer to Western Europe than e.g. China, India or Brazil 24 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 E. Elba and its JV with Philips By Willem van Namen 1. Company name and address Philips Outdoor Romania Timişoara str. Gării nr. 1A cod poştal 300166 www.philipsoutdoor.ro S.C. ELBA S.A. ROMANIA 300166 Timisoara Garii street no. 1 www.elba.ro ELBA has several Joint Ventures; one of the JV’s is with Philips Lighting. 2. Company participants Mr. Radu Balaban Logistic Advisor ELBA Lighting Fixtures and Lighting Systems Email: radu.balaban@elba.ro Rasvan Piverscu General Manager Philips Outdoor lighting Romania e-mail: rasvan.piverscu@philipsoutdoor.ro 3. Survey of company activities ELBA is the largest Romanian manufacturer of luminaries and lighting systems. The company is 85 years old and currently, ELBA is a modern firm, with more than 1000 employees and with an turnover of 40.45 mil euro in 2007, which is 19.5% more than in 2006. The investments in the manufacturing and endowments technologies are proceeding. In 2007 the investments were made in amount of 4.5 mil euro, with a rate of increase of 27.7% than 2006. 80% of ELBA is focussed on Automative (e.g. Renault, Dacia) Brief history: - 1921 - the Dura Company was founded (the nucleous of the future-to-be ELBA). - 1990 - the company was re-named "S.C. ELBA S.A." - 1995 - fully privatized ELBA company by MEBO - 100% private owned. A company focused on customer satisfaction and competitiveness, sensitive to the market requirements, efficiency oriented, keen for quality and striving to enlarge 25 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 actual partnerships, ELBA is today a modern company – which is internationally recognized. JV with Philips: Turnover 2007: 8M Euro 30 Philips employees in Timisoara. Focus on Outdoor and Street lighting 4. Main elements in company presentation Products & Services ELBA provides luminaries for all types of lighting: industrial, commercial, public, domestic, for sport halls and fields, schools, hospitals, etc., not just products, but complete lighting solutions covering all applications, from industry to household, from street lighting to architectural and festive lighting, "turn - key lighting systems". The product portfolio does consist of. • Lighting fixtures: o fluorescent luminaires o floodlights o indoor design luminaires o outdoor decorative luminaires o architectural luminaires o industrial luminaires o luminaires for special environments (water-, dust-proof) o luminaires for flamable and explosion endangered environments (explosionproof) o luminaires for emergency lighting o traffic lights • Automotive luminaries: automotive lamps and headlamps for OEM and for the aftermarket, particularly for RENAULT. Moulds, tools and dies: for mechanical processing, for plastic injection, for our own use and at customer's request. • 26 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 • • Design, manufacturing, upgrade and maintenance of indoor, outdoor and street lighting systems, public and architectural. Design and manufacturing of various metallic and plastic parts Elba product development is focused on: - widening the range of products using high power LED-s; developing lighting systems for computerized monitoring of parking places; developing and implementing automatic control system of energy consumption for public lighting The lighting systems using ELBA-made luminaries are designed by highly specialized personnel, authorized by the Romanian National Lighting Committee. ELBA has developed its own photometrical, chemical and electromechanical laboratories certified by the Romanian National Certification Organism - RENAR, as well as an authorized metrological laboratory that can provide specific services for external clients. Customers ELBA products are marketed through its commercial division, the S.C. ELBA-COM S.A. company, which handles the network of dealers covering especially the Romanian market. Elba has customers from EU, Central and Eastern Europe and the Middle East. ELBA SA Timisoara was one out of seven companies who got the nomination for the ”Renault Supplier Quality Awards'' granted by RENAULT in 2007. Quality A coherent strategy of constant investments in human resources, manufacturing technologies, facilities improvement, made of ELBA trade-mark a symbol of quality in the lighting field, becoming one of the few Romanian first ranked suppliers for the Dacia-Renault company. The quality of products and services offered by ELBA is ensured through the implemented Quality Management System certified by TUV Sud Deutschland Germany according to ISO 9001:2000. The Quality Management System for the automotive luminaries production is has been certified by DQS Romania according to ISO TS 16949:2002. Environment Currently Elba is actively driving the certification of the Integrated QualityEnvironment System according to SREN ISO 14001:2005, in order to achieve the responsible use of economic and human resources for a better protected environment. 27 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 5. Observations Supplier Base - Supplier from both Western- and Central Europe Western European suppliers from UK, Germany, Italy and France 650 suppliers – 100 suppliers are key Only number of small suppliers in Romania Steel sourced from Hungary Quite often local companies can’t meet quality requirements Supplier requirements - Automotive requirements are very strict Open for ideas/suggestions within quality constraints Key customers like Renault are prescribing which suppliers to use Currently no consideration to use suppliers from Far East (China, etc) Generally very good relationships with Western European suppliers Work with Yearly contracts, monthly forecast, firm orders, preferably local Law in contracts Parts Per Million requirements – introduced by JV partner and supplier/customer Philips Lighting Production & Logistics - No Production tour conducted Maximally 2 weeks of stocks; no stock of final products Consideration to further outsource activities like die casting alu, plastic injection except for automotive, etc Investment domains: Automotive Building New Factory Local Sources - 6. Very tight labour market – low unemployment Lack of skilled people Energy availability is not a bottleneck Conclusions regarding BUY Europe ELBA is a good example of an traditional Romanian company which has been able to transform itself into a successful and modern lighting company. They have anticipated on the globalisation opportunities especially in the automotive sector; their strong relationship with local car manufacturers like Renault-Dacia is an important foundation for there business. ELBA has a very active Supply Management (Purchasing) and Supply Chain Management function. They maintain a supplier base of 650 suppliers; the majority of there purchasing spend is still with companies in Western European countries. 28 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 The reasons are twofold: 1. 2. The local supplier base is not yet capable and scaled up to deal address ELBA’s needs Key global customers like Renault and Philips are recommending what suppliers to use in order to meet quality and reliability standards An important takeaway is that ELBA manages the entire value chain including product marketing and development. So, they obviously are more than a manufacturing organisation. This means that the skill sets and competencies are key. Within the Timisoara area these competencies are available on the labour market although there is scarcity given the low level of unemployment (<3%). Philips has created a Joint Venture with ELBA with focus on outdoor lighting; mainly for the local market. They are both a supplier and customer to Elba. This business is growing rapidly. 29 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 F. Alcatel-Lucent Romania By Wouter Crul 1. Company name and address Alcatel-Lucent Str. Gheorghe Lazar nr. 9 Timisoara, Romania, 300081 www.alcatel-lucent.ro 2. Company participants Delia Golcea Director Department IT Software & Telecom Development Tel: +40 256 303 166 Mob: +40 744 641 281 e-mail: delia.golcea@alcatel-lucent.ro Mihai Mutiu Human Resources Director South East Europe RU Tel: +40 256 303 124 Mob: +40 744 570 650 e-mail: mihai.mutiu@alcatel-lucent.ro 3. Survey of company activities Alcatel and Lucent have merged in 2006 to create a global communications solution provider. It is incorporated in France and has its executive offices in Paris. Global presence in 130 countries generating a worldwide revenue of Euro Bio. 18.3. In its selected markets it is one of the top players: No. 1 in Wireline, No. 3 in Wireless, among top 3 in Application and Services and No. 1 in Europe for Enterprise Communications Solutions. Alcatel-Lucent Romania is the regional hub covering Albania, Bosnia and Herzegovina, Bulgaria, Croatia, Greece, Moldova, Macedonia, Romania and Serbia. Besides its role as the South-Eastern Regional Unit it designs, supplies, integrates, operates and maintains complete communications networks for customers of all sizes around the globe. Furthermore it has a prominent role in research and development for various technologies like WiMax as well as software development and testing services. 30 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 Figure 1. Alcatel-Lucent regional hub in Romania 4. Main elements in company presentation During the presentation of Alcatel-Lucent the key element that was highlighted is that Alcatel-Lucent stands as an innovation powerhouse: • • • One of the largest global R&D capabilities in communications, leveraging the strengths of Bell labs and Research & Innovation. Innovation centers around the world, including USA, Canada, France, Germany, Belgium, UK, Italy, Spain, Ireland, Russia, Poland, Romania, China and India A heritage of life-changing innovation: DSL, WiMAX, as well as WDM, computer networking, Unix OS, C language, transistor, digital signal processing, charge couple device (CCD), communications satellite, laser and cellular telephony Furthermore this is supported by 25.000 active patents worldwide. With 16 years of software development activities in Romania, it is an integral part of the global R&D community, leading developments is some areas. This reflected in the following elements: • • • • • • • Important part of all E10 releases of the last decade Involved in all steps of the product development Highly skilled specialists with worldwide recognition Covering a wide area of competencies A successful mix of knowledge, communication and availability Certified at CMM level 4, among the first in Romania Mastering with last generation technologies. 31 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 5. Observations Alcatel-Lucent Romania is seen as the benchmark company in the region in building a world-class organisation and success in a highly competitive and innovative marketplace. This shows that with the right leadership and focus on people Romania can be much and much more than a low cost source. It provides sources for innovation and high quality products and services. As Alcatel-Lucent understands its dependence on skilled and motivated resources, it heavily invests in training. In addition it helps in making the region more attractive from both a demand and supply perspective. It actively acts as an ambassador and helps companies locate in the Timisoara region to grow demand for highly skilled labour and works closely with the local (technical) universities to attract the best talent and to develop the required technical skills. This is preached by the managing director, widely supported by the management team which have been with the company from the start and has allowed Alcatel-Lucent to develop highly professional and open culture. This has contributed to very high staff loyalty. Though functional and technical skills have been well developed, the more integral project and supply chain management functions however need further strengthening. Also in other company visits, the supply chain management and strong project management roles are becoming more critical to the continued success of companies in this region. 6. Conclusions regarding BUY Europe This example goes well beyond looking at Romania as a low cost source. It shows that it can provide world-class services in a very competitive industry. The spin-off of these type of successes is that regional awareness is raised that focused strategy, good people and excellent leadership can build very competitive companies. This is actively marketed in the region and towards companies who might want to establish themselves in the region, especially towards those with more value add activities. Recognizing this drive and incorporating this into your company objectives for sourcing from this region, will contribute to your success in Buying Europe in this case. The other side of this same coin is that there might be reducing interest in the lesser value-add activities. 32 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 Again it has been reinforced that one needs to understand the regional structures of clusters, to find the right location for strategic partners. Timisoara aims to build on its current more value add and technology focused position and has a preference to attract similar types of industry. BUY Europe should be seen in the context of alternatives like India. In this case, there seems to be room for very good alternatives who offer proximity, possible better cultural fit and more loyal workforce in the software development arena in Europe. 33 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 G. Addit, Wegrow (Poland) By Jacques Reijniers 1. Company name and address Addit Sp. z o.o. ul. Przemyslowa 20 07-100 Węgrów, Poland Tel.: +48.257.020.760 www.addit.pl 2. Company participants Jan. S.T. Velmans, managing director Velmans Industries Holding B.V. Archimedesweg 2 5928 PP Venlo (Nl) Tel.: +31.77.320.3400 Gsm: +31.6.222.07.786 Email: jve@velmans-industries.nl Voijtek Orzychowski, project account manager Addit Sp. Z o.o. ul. Przemyslowa 20 07-100 Węgrów, Poland Marian Klimek, managing director Addit Sp. Z o.o. ul. Przemyslowa 20 07-100 Węgrów, Poland Tel.: +48.257.920.701 Gsm: +48.600.367.432 Email: mkl@addit.pl Pawel Łakomy, project account manager Addit Sp. Z o.o. ul. Przemyslowa 20 07-100 Węgrów, Poland Tel.: +48.257.920.742 Gsm: +48.694.40.0925 Email: pla@addit.pl 3. Survey of company activities The main business of Addit is subcontracting sheet metal manufacturing, desing/engineering/prototyping and electronics/software. The company is established in Wegrow in 1995. Some figures 2007: 292 employeer, € 29 mio turnover, 12.000 m2 plant area and an investment volume of € 4 mio. The company is part of the Venlo (Nl) based company. Main activities are focused around the following machining production areas: punching, press, binding press, clinching, spot welding, TIG-MIG-MAG welding, grinding, polishing and quality control. Some examples of customers: Barco, Océ, Scania, Thales, Siemens. 34 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 The services are: - new product introduction; - new production processes and technology; - engineering and cost reduction projects; - purchasing services; - supply chain and partner management; - logistics, - prototyping and express service. 4. Main elements in company presentation The company has started their activities in Venlo (The Nehterlands) and was working for companies (their clients) such as Océ. The main goal is manufacturing for clients in long time partnership. The focus is: ‘high mix, low volume’, based also on sector/client knowledge and experience. Of course is low cost an issue, but they want to support the client in developing competitive advantage through their products. Addit is willing to invest in that relationship. The German language is a strength and want to communicate preferable in that language (pre condition for all employees to speak German). Due to cost strategy reasons the company in Venlo was looking for a new manufacturing site in Eastern Europe. Their decision for Poland was based on strong relation ship between Germany and Poland, cultural similarity, availability of experienced and well educated engineers. Not only manufacturing but also assembly of sub components for their client, e.g. Océ and Thales. Material costs are all over Europe the same, their usp is mainly based on lower costs of employees in combination with engineering and assembling parts. Addit is preferably not willing to buy material, but want to be delivered this material through their client. 35 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 Addit is also – on a permanent basis – investing and researching in new technologies to ensure ‘low cost manufacturing’. Addit is developing JIT methods, storage for their client, vendor management inventory, etc. For the customers in Germany and The Netherlands they developed a Central warehouse in Germany. 5. Observations Addit main focus: - track record delivering customized products; - suggestions to Dutch customers to strengthen their competitive position; - very proud on their own country; - positive mentality. Addit is also buying in China. Example: equipment for machining (cost price Germany € 500.000, Eastern Europe € 250.000 and China € 50.000). Delivery time products 1 – 2 weeks. 65% of employees are direct workers. Addit has 200 suppliers. € 29 mio turnover, spend is € 15 mio. Truck driving time Wegrow to Venlo, no stop, 15 hours (two drivers). In the near future the manufacturing sites will move around the world! 36 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 6. Conclusions BUY Europe Based on the visit at Addit the following conclusions can be drawn for doing business in Eastern Europe (Poland):- Poland is well educated and experienced for manufacturing and assembling products; - not from cost benefit point of view, but more linked to product improvement and joint cooperation; - quality of equipment and experienced workers/engineers is according to Western European standards. View is: Poland is most far in professional standards related to the other countries visited by the NRS team; - critical issue is the availability of experienced people related to the growing business; - it seems easy to cooperate with Polish management: pre condition that these persons must be educated and guided from Western European management; - willing to learn and to deliver high quality performances; - logistics, production control and shop floor optimizing can be improved: to be guided and supported; - cultural aspects close to German and for that reason close to the Netherlands; - important to find the right companies in Poland. Support by specialized organizations seems to be needed; - not the country for low cost outsourcing production facilities. 37 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 H. Infosys By Hylke de Cock 1. Company name and address Infosys BPO Europe Sp. Z.o.o. Al. Pilsudskiego 22 90-051 Lodz, Poland www.infosys.com/bpo 2. Company participants Leo Ammerlaan Vice President & General Manager Leo_Ammerlaan@infosys.com Phone: +48422918707 Fax: +48422918083 Paulina Suszko Transactional Services Manager EMEA Paulina.suszko@infosys.com Phone: +48422918105 Mobila: +48609114462 38 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 3. Survey of company activities Global Company The fastest organically growing third party BPO service provider in India. Among top-5 global outsourcing company (with f.i. Accenture, IBM, HP, Whitepro) 75,000+ employees of 65 nationalities and 500+ customers world-wide HQ based in India Publicly listed: (NASDAQ: INFY) SEI CMM Level 5 Quality Consistent ratings as India’s best employer Over USD 3 billion revenues in FY 2006-07 Infosys BPO A 100% subsidiary of Infosys, spin-off from Philips. 11,000+ employees Revenues 147 Mln (2007), 30 Customers Started in 2002, rapid organic growth, among Top 10 BPOs in India today. Focus on end to end processes & business functions. 11 delivery Centers across Bangalore, Pune, Chennai, Jaipur & Gurgaon in India, Brno in Czech Republic, Hangzhou in China, Manila in Philippines, Mexico in Latin America (Sep 07), Poland, Bangkok. Differentiators: • Deep transition experience and a robust methodology • Focus on continuous improvement • Focus on managing risk, ‘no surprises’ outsourcing • Industry leading people management practices • Stringent sourcing, continuous training, role based organization, job rotation, people engagement initiatives • Partner with clients to move from ‘operating’ to ‘transforming’ Organization built around industry solutions. Service/Outsourcing of activities in: Finance & Accounting, Procurement, Quote to Cash, HR Outsourcing, Knowledge Services, Customer service. Infosys BPO Poland Center of Excellence Wholly owned subsidiary of Infosys BPO ltd. Office opened in the center of Lodz, August 2003 Currently 800 FTEs, serving 23 countries in EMEA Serving over 250 entities cross EMEA Processing in 9 different languages ISO certified in 2005 Poland: • 38 Mio population • Economical & political stability (continuous growth for last 14 years, member of EU since 2004) • Strategic position in Europe 39 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 4. Main elements in company presentation Clear model of stages in outsourcing applied: ..w ith a c le a r tra n s f o r m a tio n jo u r n e y th a t w e ta k e e a c h c lie n t th r o u g h . T r a n s fo rm a tio n E lim i n a te W ork D o it d iffe r e n tly E ffic ie n c y C o s t S a v in g D o it cheaper D o it b e tte r • • • • • • • • • • In te g r a te te c h n o lo g y c a p a b ilit ie s to e lim in a te w o rk • S T P (S tr a ig h t t h ro u g h p ro c e s s in g ) • V a lu e a d d e d re p o rt in g / a n a ly t ic s • B u s in e s s a s s u r a n c e R o le r e e n g in e e r in g S h o p f lo o r a u to m a t io n STAR P ro c e s s & o rg r e s tr u c t u r in g In te r & In t ra in d u str y b e s t p r a c t ic e s P ro c e s s b a c k b o n in g S ix s ig m a B e n c h m a rk in g T e c h n o lo g y a u g m e n ta t io n • G lo b a l sk ill s u p p ly c h a in • G lo b a l d e liv e r y m o d e l ( In d ia , C z e c h , A u s tra lia , P h ilip p in e s, C h in a , L A T A M ) • F ro n t e n d a u to m a t io n • A d a p tiv e o p e ra t in g m o d e l 7 Location choice, based on language- or proximity basis. Location in Lodz, the center of Europe with a very strong environment for establishing a ssc: • • • • • • • Second largest city of Poland with population of 1.1 Mio Proximity to all European countries One of the most dynamically developing economic areas in Poland with inventors like: Dell, General Electric, Bosch-Siemens, AIG, Hutchinson, Coca Cola, Gillette, Indesit, Philips, Amcor, ABB Student city: 21 universities, high schools with yearly 117 000 students (with yearly 23000 graduates) 21 universities and 30 R&D institutes and centers. 40% of the graduates have a specialization in economy & administration and a further 20% in IT & engineering Good transportation system (local airport & Warsaw international airport (120 km) & excellent infrastructure Philips journey Four key elements in the journey to SSC’s: • Business Case • Migration Strategy • E-SSC Location choice • Governance Model Journey started in 2002: at that time no player with proven track record was available, change management could best be done in-house and uncertainty about the lowest possible cost level, therefore Philips choose a captive strategy. In 2007, 40 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 Philips decided to accelerate the last phase of the strategy, and partner with a key player, because: • • • Partnership with 3rd party service provider creates more growth opportunities A partner will create more opportunities for: growing the business, broaden and expand the career opportunities of our employees, quicker access to technology tools available in the market A potential partner will be a player with the ambition, required capabilities and technology expertise to lead the service centers to a market leadership position, by leveraging our respective strengths. Offering of Infosys BPO Poland: • Procure to pay • Quote to cash • Record to report • Master Data Management • Transformation Management w.r.t. migrations – processes • SOX services & Compliance Management • SAP FICO implementation support • Logistic Claim Handling • Reporting & Analysis (managerial reporting) • Project Management • Process Design capabilities • Consolidation and support services (BCS) • Acquisitions support - account mapping, off-shoring accounting & procurement • TAX services Customers 30 customers, of which PHILIPS is the main customer 5. • • • • Observations Fully controlled environment with process metrics and parameters in place for each individual process Supported by an integrated quality system Though young team, very good language and presentation skills and very mature attitude Excellent customer focus Risks • Young team (average age = 27 years) • Coping with the ambitions of a large group of young people (and salaries) 6. • • • • Conclusions regarding BUY Europe Structured process for deciding on outsourcing Decision APR versus CEE: Wages Additional cost of travel Culture/Language Multiple locations due to spread risks Other: possibilities of using subsidies 41 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 I. McKinsey&Company By Ronald Baars 1. Company name and address Mc Kinsey and Company Poland Eastern Europe Sourcing Center (EESC) Pl. Pilsudskiego 2 00-073 Warsaw Poland Hotline +48(22)8205806 www.mckinsey.com/locations/warsaw/ 2. Company participants Wiktor Namysl – Associate principal Wojchiech Wozniak – Senior Research Analyst 3. Survey of company activities EESC, 9 consultants (5 FTE), offers full range of global sourcing services; close cooperation with similar centres in India and China 4. Main elements in company presentation McKinsey’s presentation at the end of our trip focused on 4 area’s: ‘The relevance of global sourcing from LCC’s’ ‘Indisputable advantages of sourcing from EE’ (items not mentioned earlier during our trip have been marked in bold): • Favorable business climate in developed infrastructure o Subsidies o Huge range of suppliers • Geographical proximity to Western Europe • Relatively cheap labor for next decades • High quality of manufactured products • High education level of labor force with sophisticated technical knowledge, good language skills and cultural proximity • Lower energy costs than in Western Europe (~25-30%) • Large amount of suppliers comply to EU regulations and Standards • Low tolerance towards breach of intellectual property 42 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 ‘Fast track’ to EE sourcing through focus on industry clusters, mapped by McKinsey on high actual employment rates per country. Automotive is seen as the quality engine for the cluster machinery and equipment manufacturing. Other top clusters are food and beverages, electrical and optical equipment and textiles. Promising new entrant clusters are assembly (e,g, Flextronics), white goods and retail. Exhibits show many major Western and Japanese companies active in manufacturing in EE. These are highly demanding towards local stakeholders like suppliers, research institutes and employees which are to a large extent technical. McKinsey showed some business cases ‘How to capture full potential on LCC sourcing’ and made some recommendations for successful implementation. 5. • • • • • 6. Observations (refer to list made during our trip) Labour cost proportion to HCC will remain for next decade, but availability of labour will differ per country or region EU controlled intellectual property rights are a plus compared to other LCC’s Top scores for high school pupils in international math and science contest 20% Lower coal based power costs; grid quality is an issue Improved infrastructure (EU subsidized roadwork) will enhance opportunities for cluster development Conclusions regarding BUY Europe Cost advantage, HQ proximity, Labour flexibility and Cultural proximity are key reasons for NEVI members to discover EE 43 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 J. MAG 45 and Philips General Purchasing By Hylke de Cock 1. Company name and address Philips General Purchasing Philips Polska Sp. Z.o.o. Al. Jerozolimskie 195 B 02-222 Warszawa Poland www.philips.com MAG45 Industrial Supply Solutions De Schakel 20 5651 GH Eindhoven The Netherlands www.mag45.com 2. Company participants Leszek Macikowski Sales Manager Eastern Europe Leszek.macikowski@mag45.com Phone: +48225710459 Mobile: +48602414626 Pawel Zdziennicki Sourcing Specialist Industrial Manager Pawel.Zdziennicki@philips.com Phone: +48225710303 Mobile: +48600358837 3. Survey of company activities Global Company • • • • • • • • • • • One of the largest industrial integrators in Europe Product portfolio: Tools, electrical & mechanical components, materials. Services: Sourcing, Logistics, Integral Supply Chain solutions Revenues in Industrial (40%), Semiconductor (25%), Medical (20%), FMCG (15%) Started as Philips internal supplier, founded in 1948, Spin-off in 2004 HQ in Eindhoven, 10,000m2 warehouse space, offices in Belgium, Poland, Czech Republic, China, France, Irlenad/UK Philips/NXP ~50% of revenues. Others (s.a Johnson & Johnson, Boxal). 500,000 orderlines per year for Philips 80% of Revenues comes from customers with a long-lasting relationship Yearly spend: 15 Mln EUR Market of MAG 45 is in the tail of the pareto: 96% of the items count for 20% of the spend >1,000 suppliers of which >100 in Central & East Europe. No sourcing from China. 44 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 4. Main elements in company presentation Companies increasingly seek ways to consolidate their portfolio spend and outsource supply chain management, because controlling non-core spend is difficult. This has become the core strategy of MAG45 as integrator: • Sourcing • MRO (Maintenance Repair Operations) products from one specialized supplier • One strategic MRO partner • Standardized products and vendors • Corporate leverage with other companies • All MRO supplies on one web based catalogue • Life cycle management • Logistics • Advanced inventory control to minimize out of stocks • Centralized dedicated MRO control • Regular performance reports can be provided • Clear and proven measurement processes • Tailored MRO information system • Processes • Optimized ordering processing • Focus and dedication enhances service levels • In-depth MRO expertise and sourcing skills Capabilities of MAG 45 • Sourcing • Comprehensive sourcing team: 30 FTE 45 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 • • • • Technical product expertise Long lasting & strategic relationships with many suppliers Extensive experience in low cost sourcing (10+ years) Supply & Logistics • Project Management and Logistics engineering • Customized supply solutions: KanBan, 2 Bin • Advanced toolkit of inventory management methodologies • Integration with customer systems via E-Ordering, VMI solutions (e.g. for Philips DAP and Philips Medical Systems, etc. • Broad experience with tailored inventory control systems • ERP-supported supply and logistics management Approach • Often an assessment is made of the customer’s profile, using a quick scan: Baseline Key IssuesImprovement PotentialSupply & Logistics ConfigurationImplementation Roadmap • Extensive tool kit for supply chain optimization with typical 20-30% stock reduction: 1. In-depth baseline analysis, 2. Logistics classification, 3. Optimization of demand forecasting, 4. Resetting of parameters, 5. Detailed design of new configuration & processes • MAG 45 takes over headcount as part of the process Evaluation of working with Multinationals • Experiences • Clear vision and mission • Awareness and knowledge about world-class processes • Stable financial background • Long-term cooperation • Pitfalls • Decision process (takes long, many people involved) • Long time of implementation (eg. IT systems, e-ordering) Experiences with Communication with customers • Communication on Global level: • Evaluation on performance • Agreement on sales conditions • Global projects (s.a. e-ordering, e-invoicing, P-card) • Information about status of ordering (via web page) • Communication on site level • Daily contact with order desk • Monthly meetings on service level (CLIP) (Note: GSRS is not used) • Improvement/special projects Suggestions of improvement • • Full implementation of e-ordering Integration of supply base, based on Total Cost 46 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008 5. • • 6. • • • • Observations Conditions Philips has are also applied for other customers Production: Small quantities in Poland, large quantities in Eindhoven/Acht Conclusions regarding BUY Europe Find local suppliers Spend time and invest money to set-up the processes Use local offices Check performance first 47 NRS Mission Report BUY Europe Central & Eastern Europe, April 20-26, 2008