SLOVAKIA and the US are incomparable in terms of the size of their economies and markets. In spite of this Slovakia holds a special allure for US investors as it can serve as a gateway to Europe.
“From the viewpoint of US investors Slovakia is perceived as a potential entry gate to Europe,” Ľubomíra Gabrielová, head of the marketing department at the Slovak Investment and Trade Development Agency (SARIO), told The Slovak Spectator. “Because of this investors inquire especially about the legal framework for doing business in Slovakia and also compare Slovakia with neighbouring countries.”
The US Embassy in Slovakia views the current level of economic cooperation between the United States and Slovakia as quite strong, particularly in the direction of US direct foreign investment in Slovakia. There are approximately 130 US companies with investments or sales offices in Slovakia, located across the country. It estimates that actual US investment in Slovakia totals more than $4.9 billion, including investments via third parties. American investment is diversified across various industry sectors including steel, automotive parts and components, electronics, call centres, household appliances, food and beverages, financial services and pharmaceuticals, among others.
“While the amount of US investment in Slovakia has been relatively stable over the last several years, the structure of the investment has matured and become more complex, resulting in the need for higher-level and more highly-skilled employees,” Matthew Miller, press attaché at the US Embassy in Slovakia told The Slovak Spectator.
With regards to expectations for the future the US Embassy foresees that this trend of US investment in Slovakia maturing will continue.
“As Slovakia has become an integral part of the EU, many issues are now addressed at the US-EU level,” said Miller. “However, there are specific areas that will be actively discussed on a bilateral level, such as energy sources and fuel supply diversification, and intellectual property rights.”
Currently there are no significant Slovak investments in the United States, but there is great potential for the future, and the embassy is constantly seeking to find such opportunities.
“We see a growing interest by Slovak companies seeking to expand into the American market,” said Miller.
Strong bilateral trade
Principal US exports to Slovakia include electrical machinery and parts, electronic equipment, optical, photo, medical and surgical instruments, automotive parts and components, chemical products and plastics. Sectors that are well-positioned for US expansion in the coming years include energy technologies, medical equipment, tourism and related services, and franchising, according to the US Embassy.
“We also see that US companies are becoming more active in the area of exporting services to the Slovak market through franchising channels,” said Miller.
The Slovak Economy Ministry lists the US as the 16th biggest export market for Slovakia, based on 2011 statistics. The US accounted for about 1.57 percent of Slovakia’s exports last year. In terms of imports the US, with a 0.91-percent share, holds the 17th position, Katarína Špitová, counsellor for non-European countries of the Foreign Trade Department at the Slovak Economy Ministry told The Slovak Spectator.
She specified that the volume of mutual trade oscillated between 2003 and 2011. In 2003 Slovakia registered a significant increase in its exports to the US, especially of passenger cars, furniture and electrical machinery, because of the positive influence of foreign investors exporting their products to the US. But between 2006 and 2009 Slovakia registered a significant drop in trade with the US, especially due to a drop in Slovakia’s exports. In 2010 this trend stopped and since then Slovakia’s exports to the US have been gradually growing. In 2010 the total turnover of mutual trade grew by 32.2 percent, followed by growth of 22 percent in 2011 to €1.41 billion. Špitová expects that, based on the statistics so far, trade will continue to grow this year.
The US remains a focus of Slovak businessmen, but Špitová remarked that in general that focus has been limited by the geographical distance between the two countries, as well as high competition and excessive regulation and bureaucracy.
American companies put a lot of emphasis on respected, trustworthy international references by other American companies, said Špitová, adding that if a Slovak company wants to be successful it has to have initiative and to offer goods which are competitive in terms of price and quality, and adhere to deadlines for the supply of goods.
In total, 217 companies export products to the US market.
“Most of them are international companies with bases in Slovakia. Slovakia’s strongest representatives are ESET, JJ Electronic, Slovmag and Konštrukta,” said Špitová. Other exporters she listed were Continental Matador Truck Tires, Volkswagen Slovakia, Heineken Slovensko, Elster, Delta Electronics, IKEA Components, Emerson, Osram, Magna Slovteca and DHL Logistics.
With regards to the size of the US market Slovakia sees huge potential for Slovak companies to establish themselves in all commodities. In this respect Špitová listed cooperation between universities and research institutions, in the IT sector, the sale of cars in the US and supplies of car components, biotechnologies and energy, among others as having potential for cooperation and development.
“In the US there are high sums spent on health care and care for ageing citizens, thus a prospective sector is also the production of medical equipment,” said Špitová. “There are also prospects in tourism: either more intensive efforts to draw US tourists, where we already report a long-term growing trend, but also drawing US capital into tourism in Slovakia.”
More US investors sought
SARIO lists the US as the 12th biggest investor in Slovakia when measured by direct foreign investments. It noted a continuing interest by US investors in Slovakia this year while the automotive industry and especially the production of car components remained one of the primary industrial sectors of interest to US investors.
Gabrielová emphasised that the growing interest in Slovakia as a strategic location for service centres is very important. Investors are drawn especially by the high labour productivity, suitable educational structure for given services, knowledge of languages and flexibility to adapt to the managerial culture of a different country. She pointed out Slovakia’s advantageous location in terms of time zones, which enables investors to interact not only with other European markets but also the US market or markets east of Europe.
This year SARIO representatives visited the US twice. The first visit took place in late March on the occasion of the ceremonial opening of the Slovak pavilion in Plug&Play in Silicon Valley. At that time SARIO also organised an investment seminar in Dallas, Texas, which is one of the strongest US states in terms of investments. SARIO representatives also attended the opening of the new Slovak honorary consulate in Chicago, as cooperation with honorary consuls has proven to be a basic step to successful entry into the territory, according to Gabrielová.
Between 2002 and 2011 SARIO assisted 26 US companies establish themselves in Slovakia. Their investment projects, with aggregate investments of €435 million, created 6,485 jobs.
SARIO is currently working on 10 projects with the US as the country of origin, with a total value of about €80 million and the potential to create about 3,600 workplaces. Many of these projects involve strategic service centres and the production of components for the automotive industry, Gabrielová specified.
When evaluating the current interest of US investors in Slovakia, the US Embassy pointed out that over the past few years US investors have come to realise that Slovakia’s stable macroeconomic policies have made it a good place for them to do business. Slovakia benefits from having an advantageous geographic location, it has stable-grade ratings from the major rating agencies, GDP growth has been one of the fastest among all EU countries, and there is a very skilled labour force.
“These are all factors working to the benefit of Slovakia,” said Miller. “Unfortunately, corruption is still a significant deterrent to Slovak efforts to attract foreign investment.”
He specified that international companies doing business with the Slovak government or attempting to obtain licences that are required to do business in Slovakia sometimes perceive lack of transparency in the bureaucratic processes to be a problem. Bribery is still visible in the public courts and the health-care system.
“While the legal system generally enforces property and contractual rights, decisions may take years, thus limiting the utility of the courts for dispute resolution,” said Miller. “These are all taken into consideration by companies seeking to invest or expand their investments in Slovakia.”