This document compares manufacturing locations in China and Eastern Europe. It provides data showing that while China is currently the largest manufacturing economy, costs are rising rapidly. Labor costs in Eastern Europe are now comparable or lower than in China's coastal regions. Both regions have good transportation infrastructure for manufacturing. Eastern Europe has a more stable business environment as it has transitioned from communism, while China remains a "market communist" country. The document concludes that nearshoring to Eastern Europe offers advantages of lower costs, faster production times, and the ability to customize products for European markets.

1. by Dr. Balazs Csorjan, investment promotion specialist
2016 edition
China vs. Eastern Europe:
comparison of manufacturing locations

2. [NOTE]
These slides are
designed not to present
but to read as a
document. Switch to
Fullscreen View, please!

3. Watching behind the scenes
Emerging markets like China, India, or Central and Eastern Europe became the most
relevant, fastest growing manufacturing locations of the world. When it’s about manufacturing
site selection, there are a few, online guide available.
In these few slides we try to collect and investigate some data about China and Central- and
Eastern Europe, to provide you some comparison about the manufacturing locations.

4. China:
the workshop of
the world
“When China wakes, it will shake the world”
(Napoleon Bonaparte)
There is no doubt: China is the nr. 1
manufacturing location of the world. There
are some interesting data beyond this
overworked truth.

5. Did you know?
● in 1814, China was far the largest
economy of the world (and India was the
2nd largest - but it’s another story)
● China doubled its GDP per capita in last
decade. That achievement took the
industrializing United Kingdom 150 years.
● Economic growth is fueled by the
government’s investments in large scale
infrastructure developments
● in 2040, Chinese GDP is estimated to
reach 123 trillion USD - again the largest
economy of the world
● this is not a tiger on the picture

6. In 2010, China became the nr.1 manufacturing
country of the world.

7. China receives the largest inward foreign direct investments (FDI) between emerging countries...
...however it’s pretty behind the FDI inflow of developed economies (EU, US)

8. Eastern Europe:
the workshop of
the world's largest
market
“Tell me where Central Europe is, and I can
tell who you are.”
(Jacques Rupnik)
When we say ‘Central - and Eastern Europe’,
we mean the Eastern member states of the
European Union.

9. Did you know?
● Transition countries: 100 million people
from the Soviet block to the European
Union.
● in the last 25 years, it became one of the
most important manufacturing location of
the EU.
● In 2012, Eastern European automotive
manufacturing reached the 59% of
Germany's output, which is higher than
France' and Italy's production all together.
● A leading electronics, food processing and
textile manufacturing location.

10. Eastern Europe:
the workshop of the
world's largest market
If the European Union was a country (coming soon), it would
be the largest economy of the world.

11. comparisons

12. Labor markets
In the last 15 years, there was a super-high
wage inflation in China. From 2010 to
2011, wages doubled in Shenzhen, and
increased +60% in Shanghai. You can see
the result on the next slide.
On the top of all that, Chinese social
contributions are on the horizon. This time
“western style” health care and pansion
systems does not exist - but coming soon.
Otherwise, McKinsey & Co predicted for
2015 that wage inflation will dramatically
slow down in China, because workers
simply price themselves out of the market.
McKinsey has right: wages stabilised on a
relatively robust level, China has to seek
another economic model after its “superlow
cost” model.

13. Will Eastern
Europe provide
lower labor costs
than China?
Eastern European total labor costs were
100-300% of the Shenzhen level, in 2011:
Bulgaria provided similar labor cost than
Shenzhen.
After the high wage inflation in coastal
China, today the country provides higher
labor cost than Bulgaria and Romania,
somewhere at the level of Hungary and
Poland.
Shenzhen,
2011

14. Comparisons: infrastructure

15. comparison: infrastructure
Both destination has excellent transportation infrastructure, involving motorways and high speed railways. Eastern
European public utility and environmental infrastructure developments are regulated (and mostly funded) by European
Union, and there are relevant investments in Chinese public utilities
There are approx. 1,000 business parks in Eastern Europe, with liberalized industrial property market (there are no limits to
get a real estate). Eastern European industrial land average sales prices are between 20-40€ per sq.meter in larger cities,
and under 20€ in smaller towns. 10€ per sq.meter is a good deal, however some municipalities offer free of charge
industrial land. Manufacturing hall rental fees are between 2 and 5 € per sq.meter per month.
The quickly growing Chinese industrial property market includes 29 million sqm leasable logistic/industrial stock. Rental
fees are between 4-7 USD per sq.meter per month in premier locations - practically the same like in CEE.

16. Comparisons: business environment

17. The ghost of communism
China is a so called “market communist” country. It means,
the economy is led by the communist party’s 5-year plans.
The companies are owned by the government - but
competing on the more or less free market. In every day
life, the “law and order” is not the strenght of China.
Central-and Eastern Europe was also the member of
communist block (some countries like Hungary, were
“market communist” states, too). The communism is
collapsed in 1989-90, and after a democratic and economic
transition, Central- and Eastern Europe became the more
or less free part of the West.

18. supply chains
A recent BCG study states that…
"While direct costs such as labor and energy will
continue to have a strong influence on decisions
about where to manufacture, it is important to
take full account of other factors. Logistics,
obstacles to efficiently conducting business, and
the hidden costs and risks of managing extended
global supply chains, for example, can offset
much of the savings from labor or favorable
exchange rates. It is also crucial to take into
account hidden cost advantages of operating
shorter supply chains, such as speed to market,
greater flexibility, and a better ability to customize
products for specific markets."

19. conclusions
China still the workshop of the world, but manufacturing costs are rapidly increasing - the old school “low-cost” Chinese
manufacturing model is dead.
Product customization, improved speed-to market, EU funded manufacturing grants make Central- and Eastern Europe
and nearshoring more and more attractive.

20. About
Manufacturing Hungary Blog is an information source about the
manufacturing topics in Hungary and Eastern Europe. Our goal is to
support site selection team’s job, providing useful information.
Dr. Balazs Csorjan, investment promotion specialist, the former regional
director of Hungarian governmental investment promotion agency. Dr.
Csorjan has taken part in 300+ site selection projects - he knows your
questions.

21. If you liked this presentation,
please do not forget to share
it - maybe your partners will
like it, too.
Otherwise, do not hesitate to e-mail your questions: csorjan @ m35businesspark.hu or download the file.
thnx a lot!