Restructuring in the electrotechnics sector in Slovakia Business View' CCMI 3rd Public Hearing Bulga

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Restructuring in the electrotechnics sector in
SlovakiaBusiness View.CCMI3rd Public
HearingBulgaria, Latvia, Lithuania, and
SlovakiaComparison of Industrial Transition
ModelsSofiaOctober 7, 2008

• Jan Oravec
• PresidentEAS

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• The Entrepreneurs Association of Slovakia
  (official abbreviation EAS),
• the first organisation of private businesses
  established after the Velvet revolution in
  November 1989,
• 700 companies,
• 20 000 employees

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• 65 companies from electrotechnics, electronics,
  and ICT
• established in 1991
• the largest employers organization in the
  electrotechnics industry in Slovakia,
• Negotiating conditions of sectoral agreements in
  sectoral bargaining

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ELECTROTECHNICS INDUSTRY IN SLOVAKIA
A long tradition on a territory of Slovakia

• Siemens operating in Slovakia for more than 100
  years
• A tradition of automotive electro equipment for
  military
• A tradition of innovation Jozef Murgas as one
  of the first telecommunication innovators
• (1904 US Patent Apparatus for wireless
  telegraphy)

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SLOVAKIA Pop. 5.4 mil. Austro-Hung. monarchy
until 1918 Czechoslovakia 1918-
1993 Com.1948-1989 Independent SLOVAKIA
1993 EU May 1, 2004
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RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN
SLOVAKIACASE STUDY
BEZ Transformátory BEZ Transofmers(BEZ -
Bratislava Electrotechnical Company)

• Schuckert factory 1902

BEZ Transformers 2008
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RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN
SLOVAKIACASE STUDY
1946 Nationalised and operating as a
SOE1990 Transformation shock
1. The break-up of the Soviet block2. The
break-up of Czechoslovakia3. Company
inefficientwith employers not accustomed to
workwith managers not accustomed to compete4.
most of customers lost
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RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN
SLOVAKIACASE STUDY
1996

• Company privatised
• by a group pf individual owners
• for about 330 000

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PRIVATISATION

• In early 1990s considered as the major method of
  restructuring (although a theoretical debate on a
  proper sequencing actually never ended)
• In all cases where privatisation was delayed
  (banking sector, energy sector, and other so
  called strategic industries) restructuring
  costs were much higher and eventually taxpayers
  were paying the significant part of it

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RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN
SLOVAKIACASE STUDY
New BEZ owners restructured the company

• Focused on their core business
• Carved out all non-core activities
• Increased efficiency by cutting the workforce
  from 650 to 230
• Recovered the BEZ traditional markets by opening
  offices in the Czech Republic and Russia

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Unfovourable macroeconomicframework

• Wrong policy mix (fiscal policy expansionary,
  monetary policy cautious)
• Integration efforts (EU, OECD, NATO) Slovakia
  lagging behind its peers (Czech Republic,
  Hungary, and Poland)
• Private sector destabilised

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Reform effortssince 1998

• Labour Market Reform
• Flat Tax Reform
• Pension Reform
• Business Environment Reform
• School System Reform (1/2)
• Health Care Reform
• Fiscal Decentralisation Reform

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RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN
SLOVAKIACASE STUDY

• Company benefited from reforms (especially 19
  flat tax, labour market reform, and other
  improvements of business environment)
• Company benefited from membership of Slovakia in
  EU and other international organisations

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RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN
SLOVAKIACASE STUDY
MAY 2004 Slovakia joining EU

• EU membership was a key to rebuilding of the BEZ
  business
• Untill 2004 company not considered as a reliable
  partner by companies from EU 15
• After 2004 company started to supply many
  partner companies from EU 15

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RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN
SLOVAKIACASE STUDY
2004 - 2005 FOREIGN EXPANSION

• 2004 acquisitionin the Czech Republic (buying a
  former transformer division of Skoda Plzen)
• 2005 winning 6.5 m Daimler Chrysler group
  contract
• Today supplier of E.on, RWE, VW, Siemens, two
  Austrian energy companies, etc.

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RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN
SLOVAKIACASE STUDY
90 of its production exported 2007 sales
totalling 57 mil. 2007/2006 sales jumped by
55
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RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN
SLOVAKIACASE STUDY
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Electrotechnics 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

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The Current Situation of the Electro-technical
Industry

• 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

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The Most Significant Producers in Slovak
Electro-technical Industry in 2007
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Production of the Most Significant
Electro-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)
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Electotechnics Companies Ranking in TOP SLOVAK
200 by Total Sales

• 2 in Top 10
• 4 in Top 50
• 11 in Top 100
• 24 in Top 200

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RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN
SLOVAKIACASE STUDY
SUMMARY

• Privatisation used successfully as a
  restructuring tool,
• New owners developed appropriate strategy (a
  combination of internal adjustments and external
  expansion),
• Company also benefited from renewed investments
  in electricity grids worldwide due to high oil
  prices,
• Company regional winner, still growing quickly

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RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN
SLOVAKIA
SUMMARY

• SPONTANEOUS RESTRUCTURING WORKED WELL (no
  restructuring policy, no state aid policy, later
  tax incentives)
• PRIVATISATION WORKED WELL (majority of new owners
  responsible, asset tunneling minor phenomena)

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RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN
SLOVAKIA
SUMMARY (cont.)

• PUBLIC POLICY MIXED PERFORMANCE (esp. fiscal
  policy)
• BIG GROWTH POTENTIAL (if constraints will be
  removed)
• BIG DOWNSIDE RISKS (export dependency)

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RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN
SLOVAKIA
SUMMARY (cont.)

• Major problem and challenge
• (both at corporate and policy level)
• Lack of skilled labour force as a result of slow
  response of government and schools

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Thank you for your attention!