How companies manage business in Eastern Europe

While almost half of all companies with activities in Central and Eastern Europe (CEE) have their regional headquarters in Austria, these are progressively losing power and taking on more coordinating functions. As a result, lean and efficient network structures are replacing traditional organizational models, as the new Roland Berger Strategy Consultants study "CEE headquarters: Effectively managing a fragmented growth region" shows.

Forty-seven percent of the companies examined continue to have CEE headquarters in Austria, while 20% are located in Hungary, 13% in Slovenia, and 10% in the Czech Republic and Croatia, respectively. "Most headquarters for Eastern Europe are in Vienna for historical reasons. The availability of highly-qualified managers is another reason, but it is losing importance," explains Rupert Petry, the study's author and Managing Partner of Roland Berger's Vienna office. Today, tax and legal frameworks are decisive in selecting a location for regional headquarters, as is proximity to customers and a top-notch transport infrastructure. "Austria is facing growing competition, mainly from the capital cities of new EU member states," says Petry.

From headquarters to a coordinating function

The importance and roles of regional headquarters also vary strongly. "Over the course of our study, we came across companies that have strong Eastern European headquarters that centrally manage the region from Vienna. But we also examined firms whose regional headquarters comprise managers and a few service employees," the consultant explains. The study identified a clear trend toward smaller units. While major activities such as purchasing, R&D and supply chain management were once centrally managed, Eastern European headquarters now tend to handle overhead functions (such as IT or HR coordination), key account management or regional marketing coordination. "There is a growing trend toward 'headquarters light', with headquarters comprising a regional CEO and a few service functions like Controlling or HR. Their responsibilities are limited to strategy development, planning, budgeting and reporting," Petry says.

Clear trend toward sub-regions

At present, there are two ways to manage the region. Many companies bundle their branches in the CEE region (including Russia) into one. In contrast, a growing number of companies are dividing the region into sub-regions, with large countries such as Russia and Poland handled on their own. This type of organization is gaining popularity. "Central and Eastern Europe is the most diverse growth region in the world. Creating sub-regions can significantly reduce complexity," says the strategy consultant. While sub-regions make it easier to focus on regional particularities, they can also lead to lost synergies and the emergence of very small management units.

Austria – Part of the region or not?

Austria retains a special status within the region. While the country was clearly part of Western Europe in the past, a growing number of companies see it as part of CEE. "The reasons behind this perception are pragmatic. Many companies have their Eastern European headquarters in Vienna because many of their clients are Austrian companies," Petry explains.

The study also shows that there is no such thing as an ideal, one size fits all organizational model for the region. "There are many industry and market-specific characteristics that must be taken into account. And particular customer structures also play an important role," says the study's author. A growing number of international companies are focusing on network structures rather than conventional organizational structures. As a result, multinational competence centers are being developed that are linked to all relevant central and local units.