Why CEE Is The Nearshoring Hotspot for Multinationals

The global business landscape is changing before our eyes. A series of shocks to the decades-old system of globalisation—first the pandemic, then the war in Ukraine and the geopolitical uncertainty that has followed in its wake—has revealed the inherent weakness in the previously touted efficiencies of just-in-time global supplies lines.

Rising risks—and the perception that the underlying uncertainties behind these risks will continue—are forcing companies active in diverse industries and sectors to re-think their old supply-chain paradigms. Among the de-risking strategies increasingly deployed by global companies is to de-couple from their old supply chains in far-flung, previously low-cost locations like China and the Asia Pacific region and reposition their production capabilities closer to their final customers—a process known as “nearshoring.” Although this is only one of the de-risking strategies, it is a major trend in CEE among multinationals and our focus here.

Bringing supply chains closer to final consumers also fits the ESG agenda to reduce the embedded carbon footprint of final products and to establish more sustainable business models. In Europe, new and planned EU regulations are incentivising companies to bring the manufacturing of products destined to be sold in the EU back to Europe— everything from cars and machinery to clothing and consumer goods—while firms storing customer data or using certain types of complex technology will increasingly need to locate these operations within the EU for cyber security reasons.

A report on the results of a survey published by global consultancy EY in 2022 showed that the majority of companies participating were already taking or planning to take steps to de-couple existing supply chains and relocate them closer to consumers.

CEE is poised to be the "made in Europe" hotspot

The CEE region is emerging as a principal destination for multinationals to nearshore their supply chains for the European market. This trend is only recently emerging in CEE markets and is expected to continue for the foreseeable future, as the strategy of de-coupling and re-establishing supply lines with new facilities takes time to implement. From market experience, CTP expects the emergence of this trend in CEE to be “the tip of the iceberg,” as global business focuses on de-risking European supply lines with new, state-of-the-art facilities in the region.

In 2022, South Korean company LG Energy Solution announced plans to expand its lithium-ion battery factory in Poland—launched in 2016 as Europe’s first and largest plant for the production of batteries for electric cars, with 10,000 employees—to make it the world’s largest EV battery plant. The company plans to increase output from 70GWh production capacity in 2022 to 115GWh by 2025. The €1 billion investment received €95 million in state aid from the Polish government.

“Poland is a gateway for Korean companies to enter Europe and a strategic logistics hub,”

“Poland is a gateway for Korean companies to enter Europe and a strategic logistics hub,” declared South Korean President Yoon Suk Yeol ahead of a recent visit to Poland. LG Energy Solution is one of many strategic South Korean investments in Poland, which also includes a new polypropylene plant in the city of Szczecin for multinational automotive company Hyundai, where production began in June. In 2021, South Korea was the largest foreign investor in Poland, investing $1.9 billion in the country, well ahead of the United States and Germany, which invested $364 million and $155 million in Poland that year, respectively.

CTP has also seen an uptick in interest in CEE from manufacturers looking to nearshore in Europe. At CTPark Warsaw East, TRUMPF Huettinger, a leading German company specialising in the design and production of advanced industrial electronics, recently opened its seventh building in the Warsaw area, leasing an additional 25,500 sqm of production and warehouse space. From its newest Polish base, TRUMPF Huettinger will launch the largest production of control cabinets for the high-tech industry in Europe.

Earlier this year TitanX Engine Cooling, a global supplier of cooling systems for vehicles, ramped up its production and distribution capacity at CTPark Opole in Poland taking a further 27,000 sqm of space, having first signed for a building at the park in 2018. At move in, TitanX’s CEO explained the city of Opole serves as a central footprint for its business in Europe, effectively serving both its regional and international customers while providing a skilled and highly engaged workforce to drive the future of TitanX.

Serbia has also emerged as a nearshoring base. Last year, German multinational and engineering company Bosch took delivery of a 20,000 sqm built-to-suit facility at CTPark Belgrade West to produce motors for electronic window lifters. CTP also handed over a 26,500 sqm build-to-suit property to Japanese electromotors giant Nidec at CTPark Novi Sad in Serbia’s second-largest city.

So what makes CEE so attractive for nearshoring?

The business-smart fundamentals that have made CEE a hotspot for investment over the last decades have only strengthened over time. Strategic location, an educated and cost-competitive workforce, excellent infrastructure (which has improved significantly over the last decade), a long industrial tradition, a favourable business environment, and lower operating costs than Western Europe make nearshoring European activities to CEE a winning proposition. As most CEE countries are EU member states, setting up operations there allows for the borderless flow of goods within the EU’s Single Market.

In addition to location and cost effectiveness, access to skilled labour is seen as essential for nearshoring manufacturers. In CEE, almost a quarter (24%) of graduates have degrees in one of the STEM (science, technology, engineering and mathematics) disciplines that are vital for high-tech manufacturing. This is the same percentage as in the EU-27, but CEE labour costs are one-third compared to Western European countries thanks to the region’s lower cost of living. Labour costs in some CEE countries are now competitive with China.

Another benefit is ease of communication. With English seen as the main language of tech and commerce, the CEE scores highly. In an index of English-language proficiency, CEE countries (except Serbia, where data is not available) ranked higher than France, Italy and Spain.

The CEE region proudly boasts a buoyant manufacturing sector stretching back to the Habsburg Empire. Today, six out of seven CEE countries are among the top 10 countries in Europe with the highest share of jobs in manufacturing. Budapest, Prague and Bratislava are among the highest-scoring cities for high-tech jobs, including high-tech manufacturing. In 2021 the region exported over €370 billion in machinery and transport, close to a fifth (19%) of the EU-27 total—growing from 14% in 2011.

Another factor helping to drive CEE’s success as a nearshoring hub is also the massive investment in and expansion of its infrastructure, both internally and its connections to Western Europe and global markets. For example, since 2000 the length of motorways in CEE has almost tripled, increasing by 271%, compared to only 16% for Western Europe. Hungary currently has one of the highest motorway densities in Europe, ranking third after Belgium and the Netherlands, while the Czech Republic has one of the highest rail network densities. This has led to a massive expansion of consumer market catchment areas. For example, I?owa in Poland, located near the German border, has access to 21.1 million consumers within a five-hour drive.

In terms of economic performance, CEE is predicted to continue to outperform Western Europe and the rest of the EU, with GDP forecast to grow at double the eurozone average between 2023 and 2026. With a multitude of factors set to keep driving the nearshoring boom in CEE, demand for high-quality industrial and logistics space can only accelerate.

The tenant view...

What does your business do and what is your relationship with CTP?

We are a Taiwanese electronics manufacturer that supplies some of the world’s largest computer and automotive companies. We have a long relationship with CTP, having first moved into CTPark Mod?ice in the Czech Republic in 2003. In 2019 we grew and took 12,000 sqm of space at CTPark Brno, and CTP is now creating a 52,000 sqm build-to-suit manufacturing space for us at CTPark Blu?ina that we will move onto next year, bringing all of our European operations under one roof in the Czech Republic.

Are you nearshoring? If so, why?

Although we’ve had a presence in CEE for a long time, we are basing more of our operations closer to European markets. One reason for this is to reduce risk in our global supply chain, but our customers are driving it, too. They increasingly want to see that we have capacity and operational capabilities in Europe to support their businesses. Our clients’ ESG requirements are also rightly more important. They are looking at their supply chains and saying “part of reducing our carbon footprint means having our suppliers closer to our main markets”. They want their suppliers to produce more locally, and this is a trend that will continue.

Why is CEE a popular region for nearshoring?

Being close to major Western European markets and the region’s skilled but competitively priced labour are key reasons. But there are many others, including the stability of locating within the EU – which most CEE nations are part of. The EU is also putting more pressure on major industries to manufacture goods destined for Europe within the EU. Certain products and services are also increasingly required to be made or housed in Europe for cyber security reasons, driving demand from electronics businesses and companies storing data.

Why do you work with CTP?

CTP is a developer-manager that understands our business and what we need from our space. Their focus on and knowledge of renewable energy is also important to us. We are working with CTP to generate enough onsite electricity at our facilities to power our manufacturing, which is what our customers want to see from us to reduce the carbon footprint in their supply chains. It’s a very commercial point for us and a main reason why we work with CTP.

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