Relocation of Production – What Croatia Should Learn from Serbia

We have never built such a factory so quickly – stated the owners of the German auto parts manufacturer Fisher Automotive during the opening of their new facility in Jagodina, central Serbia, this summer. A total of 450 new jobs were created in that facility alone, in a new, technologically advanced factory that looks impressive when photographed by drone. It is an 8,500 square meter facility that sprang up in just a few months on the site of a desolate thicket following the announcement of construction. However, this is not even the only factory that has emerged in just a few months in the wastelands of Jagodina. According to announcements, an Austrian company, Schiebel, is also expected to start operating there soon, producing electrical components and machine parts for refineries and nuclear power plants. It will be somewhat smaller, employing only about a hundred people. Thanks to new investments, the average salary in this small town has jumped by 100 euros in just a few months. The average is still 400 euros, but for the conditions in Jagodina, these are good earnings.

By the way, if the toponym Jagodina sounds familiar to you, it is because of Mayor Dragan Marković Palma, who became viral a few years ago for bringing two camels to the town to ‘create tourist potential’. He later had several serious political scandals, allegedly involving underage girls, but the people in Serbia forgive him everything, and together with the ‘almighty’ President Aleksandar Vučić, they refer to him as the so-called enlightener of Serbia for bringing in the right investors. Thus, Jagodina has become a place that attracts industrialists from all over Europe instead of being known for camels and an obscure politician. If Vučić is to be believed, this is not the end. There are reportedly investors who are expected to revive other dilapidated industrial towns in the country, Germans, Austrians, Swiss; all of them are supposedly waiting in line to establish their operations long-term in Serbia, and the reason is the coronavirus. Companies that had production facilities in the Far East until the pandemic have now decided to bring production closer to the company’s headquarters or their clients due to excessively long supply chains.

Return to the Neighborhood

This is a business practice that even has its own term, nearshoring, which refers to relocating production to a country that is geographically relatively close, as opposed to offshoring, which has been the usual practice for decades of moving production to the cheaper Far East. This trend did not start with the coronavirus, but the pandemic shifted it from second gear to fifth. For a year now, numerous global industrial players have been loudly announcing this return of production closer, back to Europe, to countries that are only one, two, or three, at most four hours away from the company’s headquarters, but from the Croatian perspective, it has seemed until now that nothing of the sort is happening. We have all heard and read the announcements, but since we have not actually experienced any greenfield or brownfield projects or even preliminary explorations, the impression is that everything is happening at a snail’s pace. However, it is not quite like that. European media have been wondering for weeks what is so appealing about Jagodina and Serbia and conclude that this country is the European winner of the coronavirus nearshoring. But Serbia is not the only one. New production facilities are springing up overnight in Moldova and Ukraine; reportedly, these two countries have also attracted a significant number of new players who suddenly find the Far East too far.

– When we realized how dependent we are on suppliers from the Far East, we decided on Jagodina, and President Aleksandar Vučić promised us that Serbia would offer us 10 percent better conditions for investment than any other offer from the region. We accept that offer – said Klaus Fischer, the owner of the entire Fisher group, at the opening of the facility in Jagodina.

And that is the main motivation; who wouldn’t accept such an immoral but tempting offer? And where does Croatia fit into this? We in the business media have not recorded a single case of a newly opened production facility that has sprung up overnight in Croatia due to the coronavirus, but reportedly, investors are interested. The Ministry of Economy responds that they cannot publicly disclose which investors want to relocate production to the Beautiful Croatia, but they claim that ‘this year a large number of inquiries have been received from potential investors looking for a new location for their investment. The most inquiries have come from investors from Germany and the USA, and the most interesting sectors are ICT and the production of parts for new generation vehicles.’

There is Interest

– Investors choose locations based on various criteria. Serbia and Moldova are cost-competitive compared to Croatia. If the main criterion for the investor is to have the lowest possible entry costs, then Croatia cannot compete. On the other hand, if they are looking for access to the single market and quality labor at significantly lower investment and labor costs than most EU countries, then Croatia regularly ends up on the shortlist. The goal is to attract investments that will contribute to the creation of quality jobs and sustainable development. It is essential to position oneself as an attractive place for future investments that will contribute to a green, inclusive, and digital recovery – they responded from the Ministry and added that they see the potential of nearshoring, observing the sectors most exposed to risks, in the production of vehicle parts and equipment, machinery, and electronics.

And who is actually coming to Croatia and what investments have we managed to attract thanks to nearshoring, read in the printed and digital edition of the weekly Lider.