October 31, 2013

Flexible labour regulations inside the European Union

Flexible labour markets are essential when you seek a location for your new manufacturing plant. This short overview provides an insight to the labour regulations of Hungary, Poland, Slovakia and the Czech Republic.

Need for a flexible labour market in EU
These low-cost Eastern European countries are the member states of the EU, have relatively good infrastructure and last but not least: have pretty good labour market regulations. Lets see some key strengths:

#1 Simple termination of employment contract
Eastern European Labor Codes allow employers to terminate employment contract with notice or immediately, if employee seriously breaches work regulations. In the case of notice of termination, employer has to state the reasons for terminating the contract. Reasons can be related to company's operation (organizational restructuring) or to employee's skills (incapacity for work, unsatisfactory performance etc). The notice periods (when the employee gets his/her full salary) are between some weeks to some months. 

#2 Flexible working hours and overtime work regulations
Multi-shift and uninterrupted work are typically not related to the work schedule of the employee but to the activity of the employer. Overtime work can be ordered by employer, but the total amount of annual overtime work is maximized in 150 hours (excluding Hungary, when the maximum annual overtime work is 250 hours). Overtime work bonuses (the additional wages over the overtime hours worked) are 20-25%. Work can be scheduled for Public Holidays, weekends and nights, with higher (50-100%) bonuses.


#3 Week trade unions
All Eastern European countries allow the free establishment and competition of trade unions, employers cannot restrict this principle. However, the members of trade unions represents approx. the 10% of all employees (changing country to country) and first of all: Eastern Europe is not the home of large-scale strikes.

#4 Low minimum wages
Eastern Europe has a low wage level. The regulation of minimum wages (you cannot pay wages under this guaranteed level) is also flexible, provides more moderate minimum wages in regions and industries with high unemployment.

Background: a 2-minute video about the need of European labour market reforms:

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October 18, 2013

Low-cost Chinese manufacturing is dead. Long live nearshoring!

China doubled its GDP per capita in last decade.  That achievement took the industrializing United Kingdom 150 years. It raises some questions, and McKinsey & Co analyzed these questions.

Average monthly labour costs of Shenzen, China vs. Eastern European locations.
Source: Will Eastern Europe provide lower labour costs than China? - Manufacturing Hungary Blog

China economic model from the late '70 was built on low-cost manufacturing and export-driven growth. McKinsey and Company's recent article says: China needs a new story, a new growth model, because the challenges before manufacturing in China are huge. 

McKinsey's identifies 4 challenges before the future of Chinese manufacturing:

#1 Rising factor costs. in 2011, Shenzen wage inflation was 100%. It was 'only' 60% in Shanghai.

#2 Rising consumer sophistication. In 2020, the half of urban population is expected to become the part of upper middle class. This group demands innovative and high-end products, what local Chinese companies probably cannot manufacture. China will loose market shares not just abroad, but at home, too. The today strong Chinese supplier base also will weaken.

#3 Rising value-chain complexity. Product diversity, product customization and e-commerce aren't terms for Chinese manufacturing. Also the demanding Chinese middle class will need more customized products in shorter delivery time - and what about oversees consumers?

#4 Heightened volatility. The global economic crisis hit China, as well. The rising uncertainty makes business planning uncertain. "Volatility at such levels makes planning difficult for China’s manufacturers. This is problematic for companies that routinely make large, long-lived capital expenditures whose returns are crucial determinants of performance."


In its article, McKinsey provides some solutions for the challenges above, but we would like to add a new one: let's think about nearshore manufacturing in alternative, low and stable costs locations closed to your consumers.

China's next chapter: finally, a 3-minute video about how McKinsey sees the challenges in Chinese manufacturing.

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October 4, 2013

6 low-cost Hungarian business parks with direct motorway access

Motorways are key assets to manage smooth supply chains. Some Hungarian business parks have excellent link to motorways.

EU motorways system in 2011. Graphics: European Commission

In Hungary, along the Budapest bypass route M0 Motorway, there are a tons of business parks and industrial facilities. However, some business parks in Eastern Hungary provide direct (within 2 kms) motorway access on a much lower cost level.

M35 Business Park
The local government-owned M35 Business Park is located directly at the Hajduboszormeny exit of M35 Motorway. Its offer involves 25k job seekers in 20 kms, a dedicated vice mayor to support investment projects - and last but not least: free of charge industrial plot over 50 new jobs.

The Alsozsolca Industrial Park is located near to the Northeastern city of Miskolc, for 2 kms from the junction of M30 Motorway. The location provides 20% unemployment rate and strong engineering traditions, represented companies like Sanmina Enclosure Systems and the machinery engineering programs of University of Miskolc.

Gyöngyös Industrial Park
The Gyöngyös Industrial Park is located within 2 kms from the exit of M3 Motorway. Budapest is 70 kms only (on M3: 30 minutes), so commuting can be an option for international management. The leading company in the Park is Stanley Electric, and the location offers a good environment for electronics and automotive supplier companies.

View Larger Map 
Kecskemét Industrial Park - Mercedes-Benz Manufacturing Hungary
At the Southern part of Kecskemét, there is a brand new business park, hosting Daimler's manufacturing site and some top level suppliers. The 400+ hectares site is located between the M5 Motorway, the main routes nr.5 and nr.54 (see the map above). The business park has no website in English, so send your questions to the municipality: international @ kecskemet.hu

Kiskunfélegyházi Ipari Park
The Kiskunfelegyhazi Industrial Park has a real strength: it's located in 15 minutes from Daimler's site, beside the M5 motorway. Plus, it's owned by the local government (open for a price discount for jobs), so it's a strong alternative of Kecskemet. You won't believe, it has no English website, but try to contact them here: http://www.kilp.hu/kapcsolatfelvetel.html

SZILK, Szeged
The Szeged Industrial Park and Logistic Centre is located near to M5 and M43 Motorways. The South-Eastern Hungarian location has a strong connection to Romanian, Serbian and Bulgarian markets, it's on 4th Pan-European corridor linking Dresden to Istambul.

The European vision:
Finally, a 2-minute video about how the European Commission wants to connect the European (road) networks:

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