Nearshoring: Slovakia, Hungary, and the Czech Republic Surpass Germany in Car Production, Where is Croatia?

In Slovakia, there is much talk these days about the latest investment from the Chinese company Jiangsu Xinquan Automotive Trim, which produces interior parts for cars, that will open its facility in the third largest city in the country, Prešov, covering almost 18,000 square meters. The Chinese did not purchase land; the facility will be located in an already built and rented logistics center owned by the largest European developer of such properties, CTP. According to Slovak media reports, this is the latest success of the Slovak Investment and Trade Development Agency (SARIO), which is effectively leveraging the nearshoring trend.

Namely, it is emphasized on the Agency’s pages that multinational companies are increasingly basing their production closer to where their customers are located, which is a response to disruptions in the global supply chain as well as changing geopolitical trends. This is just one of the successes of the Slovak administration, which has recognized and utilized global trends for its economic growth. SARIO clearly emphasizes that the Central and Eastern European region, particularly Slovakia, the Czech Republic, and Hungary, has firmly established itself as a center for automotive production, to the extent that these countries surpassed Germany in nominal car production in 2022.

Slovaks, Czechs, and Hungarians Surpass Germany

The latest Chinese investment in Slovakia will create hundreds of new jobs and bring modern technology to the region, and for local companies, Xinquan’s investment represents an opportunity for collaboration, which will contribute to the further development of the local supplier chain in the automotive sector.

This Chinese investment is not the only one; thanks to nearshoring, the Slovak investment promotion agency has also facilitated other investments in their country, such as the South Korean investment backed by Hyundai Wia Corporation group, the German investment Lichtgitter FRP, and the Italian Meta System. These are just announcements that have been made in recent months. If we are to believe Robert Šimončič, the director of SARIO, the agency concluded 25 investment projects last year amounting to 1.23 billion euros, with the potential to create nearly 4,400 new direct jobs.

We Shut Down AIK

Croatia can only dream of such an administration that promotes investments, especially since the Investment and Competitiveness Agency was shut down. However, even if such an institution existed, it does not mean that we would effectively utilize the nearshoring trend, which, although we may be logistically more accessible than Slovakia, is happening here by inertia.

In the past year, the only more concrete investment that occurred due to the nearshoring trend is Jabil, an American investment in Osijek, and although there are announcements that some Chinese investors are looking for an ideal place to start their own operations in our country, nothing has “leaked” beyond those unofficial announcements.

The Western Balkans, including Croatia, has been mentioned as ideal for nearshoring since the term became established in global business, after the pandemic and the breakdown of supply chains. Croatia is logistically ideal for the entire Southeast Europe, having not one but two ports, and possesses untapped potential. We are neither the cheapest nor the most expensive, and we have labor force issues like others. Moreover, we are part of the EU, which is both a dealbreaker and a winning combination for some investors. However, all of this remains on paper. While other countries actively seek investors and do everything to appeal to them, economic diplomacy in our country seems to be nonexistent.

However, if you ask the Ministry of Economy, it is not so. They state in their response that they are taking a series of measures aimed at attracting foreign investments and integrating Croatian companies into global value chains. These activities encompass, they emphasize, all forms of investment and are not exclusively focused on nearshoring, such as simplifying administrative procedures through action plans for administrative relief for the economy, investing in infrastructure, including modernization of transport infrastructure, energy networks, and digital infrastructure, providing incentives for investments through the Investment Promotion Act, and more.

Looking for More Competitive Options?

– When we talk specifically about nearshoring, it should be noted that, according to some indicators, many companies in the case of nearshoring still invest in geographically closer countries outside the EU, which are cost-competitive, meaning they have lower labor costs, such as Egypt, Morocco, Turkey, etc. – stated the Ministry of Economy, which in this government term is ‘held’ (at least for now) by the Homeland Movement, led by Ante Šušnjar. Additionally, they note that the Ministry’s activities aimed at promoting investments do not differentiate between new investments, nearshoring, reshoring, friendshoring, and similar investments, making it difficult for them to highlight examples that are the result of nearshoring.

– Investors often do not disclose the motives for their investments, making it challenging to accurately track this type of investment – states their response, which also mentions data from fDi Intelligence indicating that Croatia recorded a 62 percent increase in the number of greenfield investment projects in 2023 compared to the previous year, a 16 percent increase in capital expenditures, and a 44 percent increase in the number of jobs compared to 2022. Furthermore, there are documents available to investors, directing us to the National Industrial Development and Entrepreneurship Plan until 2030, as well as the National Investment Promotion Plan for the period from 2024 to 2030.

Marija Vukelić from the Center for Internationalization of Business at HGK is on a similar track and states in her response that ‘many foreign investors have recognized the advantages of Croatia as an investment location and have expanded their operations by realizing investments specifically in Croatia.’

– If we look at the statistics of direct foreign investments, they have been around three billion euros over the last three years, and just in the first quarter of this year, they amounted to over one billion euros. Also, what is encouraging is the UNTAD data on the value of announced greenfield projects, which has been steadily increasing over the last four years – reminds Vukelić, adding that the measures taken by the Government of the Republic of Croatia and the Ministry of Economy to attract foreign companies to relocate their production capacities to Croatia are viewed positively and as a step in the right direction. These measures include numerous incentives for investors, various administrative reliefs for the economy, and simplified administrative processes, she noted.

– Croatia competes with other countries in the region in attracting nearshoring investments, and each of these countries has its advantages and challenges. As main competitors, we could highlight countries that, along with Croatia, are often on the so-called short list, such as Poland, the Czech Republic, Hungary, Slovakia, and Romania. Above all, Croatia has significant potential for attracting nearshoring investments due to its strategic location, EU membership, qualified workforce, and developed infrastructure. However, to be more competitive compared to neighboring countries, it is necessary to continue with reforms that will further improve the investment and business environment – notes Vukelić.

If we move away from general phrases and strip nearshoring down to strategy, it is worth noting that Croatia ranks 20th on the list of countries according to the nearshoring index devised by the economic think tank Savills. Slovakia is, and this should be emphasized, in 21st place. This index assesses several factors, including resilience characterized by stability and proximity to local markets, an economy primarily driven by labor costs, and a business environment supported by ease of doing business, quality of infrastructure, and the absence of trade barriers.

For Ljubo Jurčić, an economic expert with considerable political experience, the situation is neither optimistic nor is the glass half full. Croatia has once again, to no one’s surprise, failed to brand itself as a country that can attract investors. Countries with more developed economies, and those with more expensive labor, have simply dedicated themselves to this more and better, and we have, once again, proven that the only thing that interests us, Jurčić emphasizes, is tourism and money from EU funds.

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Ljubo Jurčić

photo Ratko Mavar

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– And that is, of course, a wrong premise. If we had played better, we would have had an industrial policy that precisely attracts investors, but since the economy within European integrations is excluded from the jurisdiction of national policy, Brussels does not interfere, and a country that lives off remittances from tourism and EU funds has the space not to engage in attracting investments or to impose itself in global value chains – said Jurčić, who believes that we should have done more regarding nearshoring because, he concludes, who knows when we will have such an opportunity again.

And that may be the best conclusion of this story; we could and should have done better, because if the trend of coolcation continues and tourists truly replace our beaches with walks in the north, the question is what we will live from and how, just as there is a possibility that instead of looking for jobs in Germany, we will be looking for them in Slovakia.