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US Steel deal revives investor faith

Shareholder approval of the $60 million US Steel investment in the Košice-based steel manufacturer VSŽ has thrown Slovakia's FDI gates wide open, as other American companies interested in investing in the region are expected to solidify their commitment to the country.
Karol Balog, general director of the Agency for Industrial Development and Revitalisation, said that more than 20 US companies had shown interest in Slovakia following the steel acquisition.
"Just the fact that US Steel is investing here has the large side effect of pulling other US investors to Slovakia," he said. Balog added that US Steel's work with ministries, land owners, embassies, consulates and other organisations had created "bridges", making other potential investors' entry into Slovakia easier.

Shareholder approval of the $60 million US Steel investment in the Košice-based steel manufacturer VSŽ has thrown Slovakia's FDI gates wide open, as other American companies interested in investing in the region are expected to solidify their commitment to the country.

Karol Balog, general director of the Agency for Industrial Development and Revitalisation, said that more than 20 US companies had shown interest in Slovakia following the steel acquisition.

"Just the fact that US Steel is investing here has the large side effect of pulling other US investors to Slovakia," he said. Balog added that US Steel's work with ministries, land owners, embassies, consulates and other organisations had created "bridges", making other potential investors' entry into Slovakia easier.

Unaware that his firm's presence had sparked a wave of interest, Thomas Ferrall, spokesman for US Steel, said: "If our activity is seen as a stimulus by others to look seriously at investment opportunities in Slovakia, that's a win-win situation. And this is pretty much consistent with what some of the government people were saying to us - you bring a big brand name like US Steel onto the scene and it's just good in a lot of different ways, and very good from the standpoint of economic development," he said. "Any company that decides to follow us is obviously good news [for Slovakia]."

US Steel's popularity and size both played a major role in generating the extra interest, Balog said. "If it was a large US investor but not very famous, the effect would have been much smaller. The interest is directly linked with the size and fame of the investor," he said.

The American steel giant's move into Slovakia has already found established American firms in central Europe eyeing Slovakia more closely as an investment location.

The US investment company Winslow Partners is a private investment firm locating direct investments in companies in the United States and the Czech Republic. Although the firm has yet to invest in Slovakia, partner Robert Chartener said that the presence of US Steel has had a positive influence for his company.

"The fact that US Steel is there [in Slovakia] indeed gives potential American investors increased confidence in the country," he said. "I think that there is a symbolic benefit. It's a little bit like when you go swimming and there are other people in the water saying 'Come on in, the water's nice'."

Chartener added that his company sometimes used other American firms as a source of reference when looking to invest in a new area.

The US-based company Molex, the world's second largest electronics manufacturer, plans to invest more than $75 million over the next 10 years in expanded operations in Kechnec, near Košice. The firm produces connectors and components for the automobile and telecommunications industries in Slovakia.

Franz Vollmann, general manager of manufacturing in eastern Europe for Molex, said he understood the knock-on investment phenomenon through his own experience with Molex.

He said that as in the case of US Steel, he has witnessed increased interest from other investors due to Molex's presence in Slovakia, even to the extent that his company has been sought out for consultation. "I've been contacted by some other computer electronic companies who want to get some inside know-how on how things work, especially in the east of Slovakia," he said. "They were asking for general advice regarding land investment."

Vollmann added that as large-scale investment improves communication with regional suppliers and brings in added expertise for management and training, the region becomes more attractive to other investors.

Molex plans to boost employment at its plant from the current 40 to 650 people by 2004.

The US Steel deal has avoided what in the early 1990s was a crucial let-down in American investment expectations. In 1991, the American auto giant General Motors was in competition with Volkswagen to buy the Czechoslovak state-owned BAZ car manufacturer. Volkswagen eventually won that tender and went on to build a plant in Slovakia's Devínska Nová Ves, later becoming one of the investment success stories of Slovakia and central Europe.

However, Balog explained, following the VW investment, interest quickly evaporated among the many other US firms which had been waiting in the wings anticipating General Motors' establishing themselves in the region. Only now, following the US Steel-VSŽ tie-up, has interest from other American investors grown.

"A long period of time has passed since this experience with General Motors and the expectations have been building up once again in the same way," Balog said. "Fortunately, this time the deal with US Steel is in place."

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