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Cheap Labor in Bulgaria Attracts Car-Part Production Companies

By C. Lawrence of investing.com

The members in the European Union may slowly be bouncing back economically, but there are still many countries that are continue to struggle along.

Bulgaria is one of the poorest states in the EU and is only now starting to climb out of its financial slough.

The Black Sea country is hungry for new sustainable foreign investment and has recently received an injection of funds from an industry that has already propelled the economies of other countries formerly behind the Iron Curtain such as Romania and Slovakia—auto-component production.

Last month, the Witte Automotive company set up a manufacturing plant in the town of Ruse on the southeastern edge of Europe near Turkey and bordering Romania.

Witte is a German car parts maker that has been supplying major automakers for many years, Ford Automotive being one of them and is one of dozens of foreign corporations driving the auto-component production boom from Japan to South Africa.

According to Till Truckenmueller, the chairman of Automotive Cluster Bulgaria,

“There are decisions by the big players in the past several years to have new plants here. We are working on bringing a car manufacturer here…Be sure, if we convince one, then the automotive industry here will explode.”

There is a still quite a lot of red tape to go through before a car plant can be set up.

In addition, inadequate infrastructure and poor training capabilities will need to be dealt with.

Still, there is a slow progress towards change and more and more component makers are attracted by Bulgaria’s location, low labor costs and taxes and a currency that is pegged to the euro.

As a sign of continuing change, Witte Bulgaria is already planning to move to a much larger factory this year and will be doubling its existing workforce of about 260 workers.

They expect export sales to rise to more than 25 million euros ($35 m) in 2014 from its modest beginnings of less than 1 million euros in 2010.

Thumb up with bulgarian flag pictured on the hand

“The group will grow, definitely quite significantly and the main growth will be here in Bulgaria,”

Witte Bulgaria’s CEO, Tomas Jindra said when interviewed at Ruse’s company factory.

Unlike other countries, Bulgaria has no history of car production and the difference in manufacturing costs is still too narrow for existing auto-parts companies to close down factories in other countries such as the Czech Republic and transfer them to Bulgaria.

But with its cheap labor and convenient location Bulgaria is attracting car-parts makers interested in green field projects.

The average Bulgarian worker makes 3.70 euros an hour, compared with 7.20 euros in Poland, 7.90 euros in Hungary and 8.60 euros in Slovakia.

Jens Wiese, senior director of the global advisory firm, AlixPartners, believes

“Bulgaria has some attractiveness as a low cost production base, particularly for labor-intense operations.   Many of the ‘first wave’ countries have already become more costly. And as suppliers are establishing additional locations, they will always look for ways to optimize labor costs among other criteria.”

To alleviate some of the bureaucracy, the state-run agency has initiated a special Investment Promotion Act which offers sweeteners such as procuring land for major companies at below-market prices as well as reimbursing their workers’ social security payments for three years.

But even getting government permission to switch the land use for Witte Bulgaria’s new factory from agricultural work to manufacturing took many months to come through.

Bulgaria’s roads are also undeveloped and rough.  Anyone entering the main road route from the north into Romania and on to central Europe must pass over a tiny congested bridge over the Danube on the edge of Ruse. Trucks can wait there for hours before passing through.

Despite the challenges, Kostadin Djatev, deputy executive director of the agency set up to foster investment, is optimistic.

He says that the government is doing what it can to move things along.

“It’s hard to change fast, but the government is working a lot nowadays.”

 

 

Image courtesy of domdeen / FreeDigitalPhotos.net

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