Eastern Europe's Supply Chain Goulash

Low production costs and proximity to Western Europe beckon, but the logistics outlook is mixed in the East


In the near term, Eurinpro sees the main focus of investments in supply chain infrastructure — primarily new logistics and distribution facilities — concentrating around the main capital cities, in locations with existing good transportation links combined with less expensive labor, land, and rental and lease costs. Specifically, Vanfleteren cites the following areas as likely to see more rapid logistics development:

  • Wroclaw, Silesia, Poznan and Lodz in Poland
  • Brno, Plzen and Ostrava in the Czech Republic
  • Gyal and Gyor in Hungary
  • Transilvania, Ploiesti and Banat in Romania

Total Cost of Ownership Factor

Companies casting their eye eastward for new sourcing opportunities should remember to look at total cost of ownership when searching for suppliers in Eastern Europe. As is the case elsewhere, lower production costs can be more than offset by higher logistics costs or lower service levels. In general, industry analysts advise viewing Eastern Europe as one component of an overall strategy for diversifying low-cost-country sourcing — a strategy that takes into account initiatives in other developing regions around the world.

In the long term, rising living standards are likely to drive up consumption in the countries of Eastern Europe, albeit at varying rates and with a concurrent rise in wages over time that could erode some of these countries' current low-cost advantage. However, as Eastern European wages rise, companies are likely to push further east, into the former Soviet republics and Baltic states (as well as nations like Bulgaria and even Romania), increasing the importance of Eastern Europe as a transit hub for goods flowing both eastward and westward. In this light, further development of supply chain infrastructure is certain to be critical for continued growth in the region for the foreseeable future, even if the center of gravity for low-cost sourcing shifts farther east. "All in all," Vanfleteren says, "we believe that the future is very promising for Eastern Europe."

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