Restructuring in the electrotechnics sector in Slovakia Business View. CCMI 3 rd Public Hearing Bulgaria, Latvia, Lithuania, and Slovakia Comparison of.

““Restructuring in the Restructuring in the electrotechnics sector in Slovakiaelectrotechnics sector in Slovakia

Business View.”Business View.”

CCMICCMI33rdrd Public Hearing Public Hearing

Bulgaria, Latvia, Lithuania, and SlovakiaBulgaria, Latvia, Lithuania, and SlovakiaComparison of Industrial Transition ModelsComparison of Industrial Transition Models

SofiaSofiaOctober 7, 2008October 7, 2008

Jan OravecJan Oravec

PresidentPresidentEASEAS

• The Entrepreneurs Association of The Entrepreneurs Association of SlovakiaSlovakia (official abbreviation “EAS”), (official abbreviation “EAS”),

• the first organisation of private the first organisation of private businesses established after the businesses established after the “Velvet revolution” in November “Velvet revolution” in November 1989,1989,

• 700 companies,700 companies,

• 20 000 employees20 000 employees

http://www.zps.sk/default.asp

http://www.zps.sk/default.asp

• 65 companies from electrotechnics, 65 companies from electrotechnics, electronics, and ICT electronics, and ICT

• established in 1991established in 1991

• the the largest employers largest employers organizationorganization in the electrotechnics in the electrotechnics industry in Slovakia,industry in Slovakia,

• Negotiating conditions of sectoral Negotiating conditions of sectoral agreements in sectoral bargainingagreements in sectoral bargaining

ELECTROTECHNICS INDUSTRY IN ELECTROTECHNICS INDUSTRY IN SLOVAKIASLOVAKIA

• SSiemens operating in Slovakia for more than iemens operating in Slovakia for more than 100 years100 years

• A tradition of automotive electro equipment A tradition of automotive electro equipment for militaryfor military

• A tradition of innovation – Jozef Murgas as A tradition of innovation – Jozef Murgas as one of the first telecommunication innovators one of the first telecommunication innovators

• (1904 US Patent: (1904 US Patent: Apparatus for wireless telegraphyApparatus for wireless telegraphy))

A long tradition on a territory of SlovakiaA long tradition on a territory of Slovakia

SLOVAKIAPop.: 5.4 mil.Austro-Hung. monarchy: until 1918Czechoslovakia:1918- 1993Com.:1948-1989 Independent SLOVAKIA: 1993EU: May 1, 2004

RESTRUCTURING OF ELECTROTECHNICS RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIAINDUSTRY IN SLOVAKIA

CASE STUDYCASE STUDY

Schuckert factory Schuckert factory 19021902

BEZ TransformBEZ Transformátoryátory

BEZ TransofmersBEZ Transofmers((BEZ - BEZ - Bratislava Electrotechnical Company)Bratislava Electrotechnical Company)

BEZ Transformers BEZ Transformers 20082008

http://images.google.com/imgres?imgurl=http://www.bez.sk/images/wpe3A.gif&imgrefurl=http://www.bez.sk/sk/historia.htm&h=158&w=257&sz=33&hl=sk&start=1&usg=__VxPqhP0HhjynkxTHeWEAfttAInM=&tbnid=S0X5OBMwbxjPVM:&tbnh=69&tbnw=112&prev=/images%3Fq%3DSchuckertove%2Bzavody%26gbv%3D2%26hl%3Dsk%26sa%3DG



1941946:6: Nationalised and Nationalised and operating as a SOEoperating as a SOE

19901990:: Transformation shockTransformation shock

1. T1. The break-up of the Soviet blockhe break-up of the Soviet block2. T2. The break-up of Czechoslovakiahe break-up of Czechoslovakia3. C3. Company inefficient:ompany inefficient:**with employers not accustomed to workwith employers not accustomed to work*w*with managers not accustomed to competeith managers not accustomed to compete4. m4. most of customers lostost of customers lost



Company Company privatisedprivatisedby a group pf individual ownersby a group pf individual owners

for about for about € € 330 000330 000

19961996

PRIVATISATIONPRIVATISATION

1.1. In early 1990s considered as In early 1990s considered as the major the major method of restructuringmethod of restructuring (although a (although a theoretical debate on a proper theoretical debate on a proper sequencing actually never endedsequencing actually never ended))

2.2. In all cases where In all cases where pprivatisation rivatisation was was delayed delayed ((banking sector, energy banking sector, energy sector, and other sector, and other so calledso called “strategic” “strategic” industriesindustries) ) restructuring costs were restructuring costs were much higher much higher and eventually taxpayers and eventually taxpayers were paying the significant part of itwere paying the significant part of it



1.1. Focused on their core businessFocused on their core business

2.2. Carved out all non-core activitiesCarved out all non-core activities

3.3. Increased efficiency by cutting the workforce Increased efficiency by cutting the workforce from 650 to 230from 650 to 230

4.4. Recovered the BEZ traditional markets by Recovered the BEZ traditional markets by opening offices in the Czech Republic and Russiaopening offices in the Czech Republic and Russia

New BEZ owners restructured the companyNew BEZ owners restructured the company

Unfovourable Unfovourable macroeconomicmacroeconomic

frameworkframework

1.1. Wrong policy mix (fiscal policy – Wrong policy mix (fiscal policy – expansionary, monetary policy – expansionary, monetary policy – cautious)cautious)

2.2. Integration efforts (EU, OECD, Integration efforts (EU, OECD, NATO): Slovakia lagging behind its NATO): Slovakia lagging behind its peers (Czech Republic, Hungary, peers (Czech Republic, Hungary, and Poland)and Poland)

3.3. Private sector destabilisedPrivate sector destabilised

Reform effortsReform effortssince 1998since 1998

1.1. Labour Market ReformLabour Market Reform

2.2. Flat Tax ReformFlat Tax Reform

3.3. Pension ReformPension Reform

4.4. Business Environment ReformBusiness Environment Reform

5.5. School System Reform (1/2) School System Reform (1/2)

6.6. Health Care ReformHealth Care Reform

7.7. Fiscal Decentralisation ReformFiscal Decentralisation Reform



1.1. Company benefited from reforms Company benefited from reforms (especially 19 % flat tax, labour market (especially 19 % flat tax, labour market reform, and other improvements of reform, and other improvements of business environment)business environment)

2.2. Company benefited from membership Company benefited from membership of Slovakia in EU and other of Slovakia in EU and other international organisationsinternational organisations



EU membership was a key to rebuilding of EU membership was a key to rebuilding of the BEZ businessthe BEZ business

• Untill 2004:Untill 2004: company not considered as a company not considered as a reliable partner by companies from EU 15reliable partner by companies from EU 15

• After 2004:After 2004: company started to supply company started to supply many partner companies from EU 15many partner companies from EU 15

MAY 2004: Slovakia joining EUMAY 2004: Slovakia joining EU



1.1. 2004:2004: acquisitionin the Czech Republic acquisitionin the Czech Republic (buying a former transformer division of (buying a former transformer division of Skoda Plzen)Skoda Plzen)

2.2. 2005:2005: winning winning €€ 6.5 m Daimler Chrysler 6.5 m Daimler Chrysler group group contractcontract

3.3. Today:Today: supplier of E.on, RWE, VW, supplier of E.on, RWE, VW, Siemens, two Austrian energy companies, Siemens, two Austrian energy companies, etc.etc.

2004 - 2005: FOREIGN EXPANSION2004 - 2005: FOREIGN EXPANSION



»» 90 % of its production 90 % of its production exportedexported

»» 2007 sales totalling 2007 sales totalling €€ 57 mil. 57 mil.

»» 2007/2006 sales jumped by 55 2007/2006 sales jumped by 55 %%



Electrotechnics Industry in 1989Electrotechnics 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 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 Current Situation of the ElectroThe Current Situation of the Electro--technical Industrytechnical Industry

The The MMost Significant Producers in ost Significant Producers in Slovak Slovak ElectroElectro--technical Industry in 2007technical Industry in 2007

NNoo.. Total Total SalesSales in in 20020077 ((thousands thousands EUR)EUR)

11.. Samsung Electronics SlovakiaSamsung Electronics Slovakia, s.r.o., Galanta , s.r.o., Galanta 3 685 5933 685 593

2.2. Sony SlovakiaSony Slovakia, s.r.o., , s.r.o., NitraNitra 968 364968 364

33.. Panasonic AVC Networks SlovakiaPanasonic AVC Networks Slovakia, s.r.o., Krompachy, s.r.o., Krompachy 254 354254 354

44.. SE Bordnetze – SlovakiaSE Bordnetze – Slovakia, s.r.o., Nitra , s.r.o., Nitra 217 374217 374

55.. BSH Drives and PumpsBSH Drives and Pumps, s.r.o, Michalovce, s.r.o, Michalovce 202 481202 481

66.. Delphi SlovenskoDelphi Slovensko, s.r.o., Senica , s.r.o., Senica 149 977149 977

7.7. Leoni Autokabel SlowakiaLeoni Autokabel Slowakia, s.r.o., Trenčín, s.r.o., Trenčín 149 606149 606

88.. Emerson Electric SlovakiaEmerson Electric Slovakia, s.r.o., Nové Mesto nad Váhom , s.r.o., Nové Mesto nad Váhom 138 614138 614

99.. Yazaki Wiring Technologies Slovakia, Yazaki Wiring Technologies Slovakia, s.r.o., Michalovce s.r.o., Michalovce 112 360112 360

1010.. Panasonic Electronic Devices SlovakiaPanasonic Electronic Devices Slovakia, s.r.o., Trstená, s.r.o., Trstená 110 767110 767

Production of the Most Significant Production of the Most Significant Electro-Producers in SlovakiaElectro-Producers in Slovakia

Samsung Electronics LCD monitors, plasma, printers, Slovakia MP3s, home-cinemas

up to 10 million LCD modules

Sony Slovakia 3 million LCDs TV-Bravia (in 2008)

Siemens: Osram Slovakia 5 000 types of products

revenues: Euro 90 million in 2006 / 2007

BHS Drives and Pumps about 5 million electro motors for BOSCH per

year

SE Bordnetze – Slovakia fiber and electric cords (Euro 240 million)

Electotechnics Companies Ranking Electotechnics Companies Ranking in TOP in TOP SLOVAK SLOVAK 200 by Total 200 by Total SalesSales

• 2 in Top 10

• 4 in Top 50

• 11 in Top 100

• 24 in Top 200



1.1. Privatisation used successfully as a Privatisation used successfully as a restructuring tool,restructuring tool,

2.2. New owners developed appropriate strategy (a New owners developed appropriate strategy (a combination of internal adjustments and combination of internal adjustments and external expansion),external expansion),

3.3. Company also benefited from renewed Company also benefited from renewed investments in electricity grids worldwide due investments in electricity grids worldwide due to high oil prices,to high oil prices,

4.4. Company: regional winner, still growing quicklyCompany: regional winner, still growing quickly

SUMMARYSUMMARY


• SSPONTANEOUS RESTRUCTURING WORKED PONTANEOUS RESTRUCTURING WORKED WELL (no restructuring policy, no state aid WELL (no restructuring policy, no state aid policy, later tax incentives)policy, later tax incentives)

• PRIVATISATION WORKED WELL (majority PRIVATISATION WORKED WELL (majority of new owners responsible, asset of new owners responsible, asset tunneling minor phenomena)tunneling minor phenomena)

SUMMARYSUMMARY


• PUBLIC POLICY MIXED PUBLIC POLICY MIXED PERFORMANCE (esp. fiscal policy)PERFORMANCE (esp. fiscal policy)

• BIG GROWTH POTENTIAL (if BIG GROWTH POTENTIAL (if constraints will be removed)constraints will be removed)

• BIG DOWNSIDE RISKS (export BIG DOWNSIDE RISKS (export dependency)dependency)

SUMMARY (cont.)SUMMARY (cont.)


Major problem and challengeMajor problem and challenge(both at corporate and policy level)(both at corporate and policy level)

• Lack of skilled labour force as a Lack of skilled labour force as a result of slow response of result of slow response of government and schoolsgovernment and schools

SUMMARY (cont.)SUMMARY (cont.)

Thank youThank you for your for your attentionattention!!

Restructuring in the electrotechnics sector in Slovakia Business View. CCMI 3 rd Public Hearing Bulgaria, Latvia, Lithuania, and Slovakia Comparison of.

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