CEE 2016 – New challenges

• The region will move closer together
• Economic growth will slow down after 2010
• Russian companies investing increasingly in Central Europe
• Signs of a shortage of qualified workers over the long term

CEE will undergo fundamental changes in the next ten years: The region will move closer together and economic growth will probably slow down considerably after 2010. More and more Russian companies are investing in Central Europe. The lack of highly qualified people may develop into a problem over the long term. These are the key findings of the "CEE 2016 – New challenges" study by Roland Berger Strategy Consultants. The study included interviews with some 140 executives from companies in Croatia, Poland, Romania, Slovakia, the Czech Republic and Hungary.

"Europe will face big challenges in the coming decades. Although the opening of Eastern Europe and EU enlargement have strengthened the continent's competitiveness, long-term sustainability is not a sure thing. The new EU countries must first face the challenges of globalization," explains Albrecht Crux, Head of Eastern European operations at Roland Berger Strategy Consultants.

Slower economic growth as of 2010

Starting in 2010, economic growth will slow down in these countries and remain one to two percentage points above the Western European average. Roland Berger Strategy Consultants expects average GNP growth of 3.8 to 4 percent in CEE between 2011 to 2016. Internationally, CEE as a business location will remain attractive, although less so in light of structural changes globally. Labor-intensive industries in some countries are expected to benefit longer from their workers' skills and low labor costs as compared to Western Europe. For example, the hourly rate of a worker in Slovenia in 2010 will still be 77 percent lower than that of a German worker. The Czech worker will earn 84 percent less than his/her German counterpart in 2010 and the Romanian will even be earning 92 percent less. R&D will take on new importance. "R&D in CEE will give Western Europe with some serious competition," says strategy consultant Crux.

Central European countries will move closer together

The growth patterns of companies in CEE are very different, as are their respective strategies. Whereas Western European companies are focusing on internationalization, Central Europe's firms are concentrating on broadening their product range and customer base. Their geographic expansion goals are primarily in their own region. This means that business networking in CEE will increase considerably and in 2016 CEE will still be viewed as one business region. The competitors of Central European companies are also changing. In 1996, they mostly came from within their own country (87 percent) or CEE (84 percent). However, by 2016 most Central European companies expect their fiercest competitors to come from Western Europe (90 percent), their own country (81 percent), CEE (68 percent) or Russia (63 percent).

Financing challenges

Financing corporate growth has revealed itself to be a real challenge in CEE countries. Once the wave of privatization is complete, the importance of strategic investments will fall, while private equity investments and investments by Russian companies, especially oil and gas companies, will rise considerably. This means a "return of Russia" to CEE will probably be noticeable. FDI will also remain high in Central Europe. In 2005, investments were highest in the Czech Republic (approx. 11 billion dollars), followed by Poland (7.7 billion dollars) and Hungary (6.7 billion dollars). Bringing up the rear was Croatia with 1.7 billion dollars in foreign direct investment. Cumulative FDI in CEE rose from 289 billion dollars in 2005 to 600 billion dollars in 2016. Russia will be enjoying major FDI in this period, increasing from 113 billion dollars in 2005 to 400 billion dollars in 2016.

The study shows that in order for Central Europe's companies to stay competitive, they must continue to develop their key qualifications. Companies often need to catch up on certain skills, such as English proficiency, project management and sales, commercial and corporate management skills. Entrepreneurship has revealed itself as the paramount key qualification for Central European companies.