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FOREIGN CAPITAL AND KNOW-HOW HAS DRIVEN A 67 PER CENT INCREASE IN TURNOVER IN THE SLOVAK AUTO PARTS SECTOR SINCE 1998

Domestic suppliers revving for contracts

AN INFLUX of foreign car companies building plants in Slovakia and across central Europe has given new hope to domestic car part makers aiming to boost turnover through new customers and shareholders.
Foreign car industry suppliers have invaded Slovakia over the last two years after the only car maker in the country, Volks-wagen Slovakia, decided to start production of one of its latest models, the off-road vehicle Colorado, exclusively in Slovakia.
Since then Volkswagen has attracted dozens of suppliers to industrial parks around its Bratislava production plant. Others have built their own facilities, or merged or created joint ventures with existing Slovak car part makers.

AN INFLUX of foreign car companies building plants in Slovakia and across central Europe has given new hope to domestic car part makers aiming to boost turnover through new customers and shareholders.

Foreign car industry suppliers have invaded Slovakia over the last two years after the only car maker in the country, Volks-wagen Slovakia, decided to start production of one of its latest models, the off-road vehicle Colorado, exclusively in Slovakia.

Since then Volkswagen has attracted dozens of suppliers to industrial parks around its Bratislava production plant. Others have built their own facilities, or merged or created joint ventures with existing Slovak car part makers.

While in 1998 the turnover of auto component makers in Slovakia was Sk26.1 billion ($590 million), last year it hit Sk41.7 billion ($943 million), an increase of 67 per cent in four years.

However, cooperation either as a supplier or subcontractor to a car maker, or as a candidate for merger with a foreign partner, requires relatively large investments and know-how, resources which not every domestic candidate has been able to offer.

One domestic firm which has achieved lift-off with a foreign investor is BAZ, a parts maker that was left over from the 1991 privatisation of Bratislavské Automobilové Závody by Volkswagen.

BAZ in 1999 started a joint venture with the Dutch car-parts producer Inalfa to form BAZ-Inalfa, producing axles, bumpers and mouldings for VW, Porsche and Škoda cars.

Pavol Baštek, general manager at BAZ-Inalfa, said that only the best Slovak auto parts firms have been able to profit from the foreign interest in local parts manufacturers.

"To attract a component maker or a car producer directly is very difficult. They require financial stability [from domestic firms], a high-quality production system, trained labour, interchangeability with their technical system, and they set many other conditions," Baštek said.

Foreign component makers that have not entered Slovak firms directly as a strategic partner or through forming a joint venture have tended to look for suitable supplier bases nearby, firms that they can use as subcontractors to decrease production costs.

"This has offered a chance to Slovak suppliers, but they have had to persuade their potential foreign partners that they can fulfil all criteria required," said Ján Pribuľa, the government plenipotentiary for the car industry.

"Whether searching for customers for their car components or for a strategic partner, domestic car companies literally have to chase foreign firms and prove the quality of their products in a complicated selection process. But getting through this process is the only way for them to grow the business," said Mária Nováková, director of the Slovak Automotive Industry Association.

The two BAZ firms which entered the BAZ-Inalfa joint venture had a combined turnover of Sk241 million in 1999, their last year on their own. In 2001, the first full year of the JV's operation, this figure rose to Sk278 million, with projections for 2003 increasing to Sk615 million.

According to the Automotive Industry Association, of the over 120 car parts makers located in Slovakia, 60 now supply directly to car makers, while 15 have a chance to become direct suppliers soon.

"It's hard to say how many of them are still Slovak companies. Many component makers which started out as purely domestic companies now have foreign shareholders, but there are others that have gone out of business because they were not able to keep pace with the required criteria, including technology, logistics, productivity and research and development," Pribuľa said.

To fulfil the requirements of its VW, Porsche and Škoda customers, BAZ-Inalfa annually invests between Sk25 million and Sk40 million into technology development and staff training.

Baštek said that Inalfa Industries brought know-how and contacts as well as a cash injection to BAZ.

"When a purely domestic company wants to co-operate with a foreign customer, even when it hands in a solid presentation it is still less effective than when a foreign partner comes and lobbies for this company in informal talks," Baštek said.

In a parallel trend, foreign suppliers are also helping Slovak companies to attract contracts from carmakers in other central European countries. Cheap but skilled labour, lower production costs and good location have lured carmakers such as Audi and Suzuki to Hungary, and VW to Poland and the Czech Republic in recent years.

This year the cornerstone on a new plant which will turn out Toyota, Peugeot and Citroen cars was laid in Kolín, Czech Republic.

These foreign facilities are likely to create a production capacity of between 1.5 million and 2 million cars per year from central Europe in the next four to five years.

Slovak car parts maker Presskam Malacky two years ago found a strategic partner, the American company Tower, to assist in its aim to attract more regional supply contracts, and is now aiming for a deal with the new Toyota, Peugeot and Citroen factory in Kolín.

The new Presskam-Tower cooperation, known as Tower Automotive, makes mouldings and welded parts, and is already one of the biggest suppliers for the Colorado model in the Bratislava region, also delivering components for Opel, Suzuki, Škoda and Seat cars.

"In the past we didn't get some contracts because we were not a global player. But because Tower has a plant in Japan, they will certainly be interested in attracting Toyota in the Czech Republic, which gives us a great chance to get a new customer and grow the company," said Tibor Makara, commercial director at Slovakia's Tower Automotive.

"It's been getting very difficult to keep pace with the latest developments in quality. Companies which had problems with this five years ago, today don't have any chance to grow.

"We would have been facing the same problem now if the company hadn't found a strategic partner," Makara added.

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