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Malacky region a hotbed for new FDI

A look of pride steals across the faces of the top brass of Swedwood as they overlook a muddy landscape just outside of the western Slovak town of Malacky.
Although today the site looks straight out of some post-apocalyptic Hollywood movie, dominated by lumbering heavy equipment and helmet-clad workers trudging through the mire, come November 2000 the area will be home to a state-of-the art Swedwood chip-board and furniture production plant, representing a total investment of 1.5 billion Slovak crowns ($35.7 million) and creating over 400 new jobs.
"I know it doesn't look like much now," Swedwood Managing Director Štefan Sústrik said with a grin, "but come back this summer and you'll see."

A look of pride steals across the faces of the top brass of Swedwood as they overlook a muddy landscape just outside of the western Slovak town of Malacky.

Although today the site looks straight out of some post-apocalyptic Hollywood movie, dominated by lumbering heavy equipment and helmet-clad workers trudging through the mire, come November 2000 the area will be home to a state-of-the art Swedwood chip-board and furniture production plant, representing a total investment of 1.5 billion Slovak crowns ($35.7 million) and creating over 400 new jobs.

"I know it doesn't look like much now," Swedwood Managing Director Štefan Sústrik said with a grin, "but come back this summer and you'll see."

Sustrík isn't the only one smiling in Malacky. As the rest of the country struggles to attract foreign direct investment, Malacky is somewhat of an anomaly; Swedwood is just one of several large-scale investments currently underway or planned in the region (see chart, page 6).

Although specific reasons for investing in Malacky differ from investor to investor, a common thread formed by the area's prime location, existing resources and solid workforce have all helped to lure FDI to this particular region.

Milan Vaškor, head of Malacky district, said the investment influx was no fluke. Malacky, he said, actively pursues foreign investment through co-operation with the Economy Ministry, the Labour Ministry and SNAZIR, a local agency designed to assist prospective foreign investors in Slovakia. But above all, Malacky's location has driven the growth. "Thank God we are in a good location with lots of resources," he said.

Roman Minarovič, SNAZIR's General Director, said he hoped Malacky's recent good fortune could be replicated around the country. While Malacky was "a good example of how it should be done," he said, SNAZIR was trying to encourage receptive and pro-investment attitudes from local governments in other regions as well. "We prepare sales plans and explain how to deal with foreign investors - what questions they might ask, and what the answers should be."

Before deciding to settle in Malacky, Swedwood - a Swedish-based company that supplies furniture to industry giant Ikea for 99% export throughout Europe - searched throughout central Europe for a suitable location.

"Through extensive research, we found that Malacky was the best location," said Swedwood's Sústrik. "It is centrally located on the European market, it has wood resources and we've had good experiences with our existing Slovak plants [located in Trnava and Jasná]."

With planned investments of $10 million, Pepsi Cola is another major investor looking to pour money into the Malacky region. Pepsi will expand on its existing bottling plant in the area to include improved production facilities and distribution and administrative centres.

Location was also a main draw for the beverage producer, as its new plant will lie adjacent to a major thouroughfare that connects to the Czech Republic and, soon, Hungary and Austria.

"This is a very big advantage because Pepsi plants are also located in the Czech Republic and Hungary," said Miroslava Remenárová, Pepsi Slovakia's Marketing Manager. "The highway allows us to be more flexible in moving our products to these areas."

Another advantage at the Malacky site was space, as Pepsi's planned facility will cover more than 28,000 square metres. The two-phase project is expected to be completed by the summer of 2001, and will plug 8 to $10 million into the economy while creating about 100 new jobs.

Existing infrastructure and resources were also mentioned as incentives by both Swedwood and Pepsi. The furniture manufacturer was drawn by wood resources to be found in the surrounding forests and the convenience of a nearby road and railway. Pepsi's Remenárová said the high-quality water contained in the city's reservoir was key for her organisation.

While not exclusive to the Malacky region, both firms also said that Slovakia's efficient and educated workforce gave additional incentive to investors to settle in the area. A survey of more than 1,000 business executives in 52 countries carried in the July-August 1999 edition of World Link magazine found that Slovakia's school system ranked second in the world only to Singapore in the fields of math and science.

Problems remain

Although both Pepsi and Swedwood expressed overall content with their Malacky endeavors, both conceded that headaches are still a part of the process of investing in Slovakia. Bureaucratic redtape and unclear legislation are persisting problems, they said.

Sústrik said a main problem facing Swedwood had been Slovakia's immature legal culture, wherein verbal or written agreements weren't always kept. But he added that his company's experience with its branches in Trnava and Jasná had helped to prepare Swedwood for such problems.

"We've been working here for 30 years, so the conditions are well known," Sústrik said. "It's not like we are now coming to a strange country to build a factory. We have already established people and connections with the respective ministries, and we have our lawyers who know all the programmes and how to get licences."

The most recent incarnation of the tax incentive programme for foreign investors was also cited as unfair and vague by both Pepsi and Swedwood, as it doesn't allow established companies to apply for tax holidays, while its constant revisions made it confusing to follow.

"We, for example, don't think that it's very fair that companies that are already operating here and establishing new operations will not be able to take advantage of the tax holiday," said Swedwood Administrative Manager Per Riese. "But a firm with no previous operations in Slovakia gets the tax holiday."

Despite the nuisances, said Swedwood Project Manager Allan Pettersson, his company's latest project has gone relatively smoothly. "In hindsight it hasn't been so complicated. If I compare it to my home country of Sweden, there are obstacles in both countries. Of course we expect a certain degree of problems that come with setting up a business in a foreign company, but in my personal opinion they have been minor here."

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