Young people, illustrative stock photo. (source: TASR)
Slovakia’s proximity to major European countries, its role as a logistics crossroads, a well trained and productive labour, eurozone membership, traditions in engineering and a well-developed sub-supplier network are among the advantages business leaders cite. However, lower overall taxes and payroll taxes, deregulation and more predictability are on the CEO wish list of some of Slovakia’s key business players.
The Slovak Spectator spoke to Alexander Resch, CEO of VÚB Bank; Eek-Hee Lee, president of Kia Motors Slovakia; Paolo Ruzzini, CEO of Slovenské Elektrárne; Albrecht Reimold, chairman of the board for Volkswagen Slovakia; Pavol Varga, general manager at Dell Austria & Slovakia; and Oszkár Világi, CEO of Slovnaft. We asked about the challenges their businesses face, pressure points on the labour market as well as lessons they learned from the recent years of economic crisis.
The Slovak Spectator (TSS): How do you assess the state of Slovakia’s business environment?
Alexander Resch (AR): Being active in the financial industry, I see great advantages in the fact that Slovakia has managed to grow its economy in a healthy manner, avoiding the boom and bust cycle many European countries went through. The country maintained positive economic growth even as the rest of Europe slid into recession. Slovakia has also been historically prudent in taking on debt, which is a competitive advantage in the current times of general deleveraging in Europe. From a banker’s perspective, Slovakia thus offers good growth opportunities. Besides, I also see great advantages in Slovakia being part of the eurozone and thus immune to swings in the currency markets that make some of its neighbours more vulnerable to the moods on global financial markets. More generally, I appreciate a lot Slovakia’s proximity to core European countries and its local well-trained and productive labour and middle managerial force. As for disadvantages, I would cite the intensified regulation of the banking industry, which in Slovakia goes even beyond the global and pan-European zeal. The bank levy, for example, is the highest in Europe.
Eek-Hee Lee (EHL): Slovakia is situated in the heart of Europe, which also has a positive impact on its business environment. Thanks to its advantageous geographical position we can export our products into eastern and western Europe. Among other advantages is the qualified labour force. Also, the existing network of suppliers and sub-suppliers helps Slovakia to remain an attractive country for new investors. Despite the new proposal to cut corporate tax from 23 percent to 22 percent, we still consider the rate high compared with other countries in this region.
Paolo Ruzzini (PR): We see clear space for improvement in the Slovak business environment.
Albrecht Reimold (ALR): Volkswagen arrived in Slovakia in 1991; at that time it was Czechoslovakia. Since then, we have grown into one of the biggest companies in the country and we are Slovakia’s success story. For us, there are more positives. Slovakia is in the centre of Europe, at a logistics crossroads between west and east, north and south. Slovakia is as the only V4 country in the eurozone, which is very important for long-term planning. Also the tradition in mechanical engineering and the skilled and qualified workforce in the automotive industry is one of the positives.
Oszkár Világi (OV): The greatest challenge for the state is to preserve the stability and predictability of the business environment so that there are no frequent changes made to the tax, payroll tax and labour legislation. Currently, we see that the state is forced to reduce its budget deficits and debts, but on the other hand, we are convinced that it is necessary to approach these issues sensitively, with the goal not to worsen the status of Slovak companies towards the competing firms in the union, which has reduced currency risks and brought low interest rates for financing our products. This is still a considerable competitive advantage for Slovakia compared to other regional countries, which do not have the euro.
TSS: What are the most significant challenges that players in your business sector face?
AR: Regulation and increased tax pressure is number one. Intensified competition comes next. Slovakia is a rather small country in the European context and there are probably too many players given the size of the market. This, nonetheless, motivates us to work harder on customer care and technological advances for our clients.
EHL: The most significant challenge for us is an unfavourable situation in the automotive market. Despite this fact, of the position of the Kia brand is still growing. Although the total car sales in the European market this year decreased by 5 percent, Kia Motors was able to overcome this situation and our plant recorded a 6-percent increase in car production for the first half of this year. Moreover, Kia Motors Slovakia is currently utilising its full production capacity and plans to produce more than 300,000 vehicles for European customers this year.
PR: Next to the significant fall of commodity prices on the energy exchange market, we see a transparent, stable and thus predictable and enforceable legal framework as key to ensuring a proper business environment in Slovakia, where companies can face challenges naturally arising from the current global economic environment.
ALR: Slovakia is an export-oriented economy and our production is therefore dependent on the situation on world markets. What is very important for the automotive industry in Slovakia is a flexible labour market, development of transport infrastructure and a good educational system in technical fields. If the hi-tech industry, which is what automotive is, should stay in Slovakia, it must have enough qualified people to work with. Young people must be attracted to study technical fields and at the universities they must get not only top theoretical, but also practical educations. All this is possible only in cooperation with the business sector. It is senseless if schools and universities produce graduates for fields with no real chance to find a job on the labour market or in their field.
Pavol Varga (PV): Our customers face tighter budgets and are generally less inclined to invest. This makes the competitive situation tough, as more vendors are fighting for a smaller piece of the pie. The level of corruption in Slovakia remains high and market participants are inclined to use all possible means to secure business.
OV: The refinery branch is, in the recent years, one of the branches deeply affected by the crisis. In addition to the crisis dip in demand for oil products, longer-term structural trends translated into dropping consumption of oil products in developed countries to achieve significant progress in cost-effectiveness of modern cars as well as the growing offer of alternative fuel in transport, natural gas and bio fuel negatively impact the condition of our branch. From the point of view of European refineries, the vehemently emerging competition of importing oil products from the United States and Asia to Europe further sharpens the unfavourable situation, since the non-European producers profit either from the significantly lower costs for the input of raw materials and energies or from the significantly lower costs in the area of environmental protection or costs for employment and labour safety. From this point of view, the whole branch in Europe is under strong pressure to behave the most effectively and at the same time with the right technological investments trying to gain some new competitive advantages to the future. No doubt that it is difficult and financially demanding and many refineries in Europe will not handle this pressure.
TSS: What are the main pressure points of the labour market today and what measures would, in your opinion, improve these conditions?
AR: In the banking industry, increased tax and regulatory costs make banks reassess their cost bases, including employee base. Many growth plans had to be scaled down and some were even abandoned after last year’s hikes in social security costs and changes in the Labour Code. A reversal of these changes could perhaps help to recreate some of the lost work places. Also, compared to some advanced countries in western Europe, the share of part-time jobs in Slovakia is very small. Perhaps more business-friendly legislation toward part-time work and job sharing could also help to create some jobs in the private sector. The banking industry may be a particular case, with a relatively high share of women returning to the work place after maternity leave.
EHL: There are many fresh graduates who are willing to work but have no work experience. Therefore they are not attractive to employers. Kia Motors Slovakia helps to improve this situation through cooperation with secondary technical schools and universities, especially in Žilina Region, by organising vocational practical training and a scholarship programme in our production shops. Students from Žilina and Trenčín regions can participate in the Kia Innovation Award competition with their own project from the automotive industry. We also communicate with students to provide them with information needed for the preparation of their thesis or other works.
PR: The major challenge for any labour market is to maintain its competitiveness globally. In Slovakia we see the need for higher involvement of the business sector in training future specialists. This is also why we in Slovenské Elektrárne have been helping to raise new engineers through cooperation with Slovak technical universities, or motivate talented students with scholarships and offering them internships, with the Aurel Stodola Awards for the best bachelor, diploma and PhD thesis on energy-related topics, and so on.
ALR: We do not have problems finding people, even though in some very specific technical fields we lack professionals. But we are looking to the future. A qualified workforce in the labour market, an effective education system and graduates who are well prepared are necessities for the future of Slovakia and its economy. Not only schools or universities will have to take part in the system, but also private companies. And here the support of state institutions is an absolute necessity. Volkswagen Slovakia is already in close cooperation with Slovak universities. We work together with five universities on our IngA–Engineer in automotive industry programme. We have set up together with the Engineering Faculty of the Slovak University of Technology, a special study program for automobile production. Our newest project is the Centre for Dual Education. Opened in September this year, it brings the successful German dual educational system to Slovakia, and 24 young secondary school graduates will get a top practical education and take part in a two-year-long qualification programme in mechatronics.
PV: We are a business shared-services centre so the main profiles we are looking for are business educated, multi-language speaking candidates. In general, we see a good supply of talent in some profiles and a lack of candidates in others. The availability of German speakers seems to be declining, probably due to cultural changes leading to a preference of English. We see an opportunity in systematic education of foreign languages from grammar school onward. The educational system should encourage and motivate students to gather practical experience before graduating.
OV: The pressure points are high tax and payroll tax on labour compared to American or Asian competitors and the fact that it lacks labour flexibility – it is complicated to lay off employees. Compared with non-European competitors, the trade unions have a super-standard role in companies, while the number of students willing to study demanding technical professions has been dropping, which means that finding good-quality employees is a problem.
For more information about the Slovak business environment please see our Investment Advisory Guide.
