Since the end of the Cold War, the EU has seen a wave of new members join. Under the command economies of communism, governments in Eastern Europe focussed on building heavy industry and training skilled workers. With the collapse of communism (brought about, in part, by the sacking of Gdansk crane operator and activist Anna Walentynowicz 1980, which led to the birth of Solidarity in Poland and a growing wave ofpopular resistance) and the opening of these closed economies to free trade and competition with Western Europe, many formerly state-backed companies have floundered, leaving factories empty and skilled workers struggling for work.
The new freedoms of the last 15 years have presented new opportunities and new challenges to the people of these countries, and to foreign investors. Three crane manufacturing companies have moved to make the most of these challenges, each taking subtly different approaches.
For one, geographic and historic links with the region have given it a head start in building a new supply chain for its established European business, and provided a model for global expansion. For another, the opening up of the region has provided a doorway for expansion into new markets in Russia and the former Soviet republics. For a third, the availability of cheap, skilled, labour has made it possible to increase the supply of key components to crane builders worldwide.
Local leader builds base
Palfinger’s home country, Austria, has always been at the heart of Central Europe and became part of the European Union in the first post-Cold War wave of new entrants in 1995. Unlike most of the other new entrants, it had never been aligned to the Soviet Union, but had pursued a constitutional policy of neutrality (which it retains, despite its EU membership). Over recent years, Palfinger has built a network of suppliers in Eastern Europe, and has moved to integrate these directly into the company. The process is nearing completion, and the factories are supplying components for Palfinger’s use in cranes sold across Europe, and in America.
Palfinger opened a plant Maribor, Slovenia, in 1993. The plant was ISO 9001 certified in 1998, and a second plant nearby was acquired in 2001. The company commissioned a fully automated cathotic painting system in 2002. The plant is currently used for metal processing and machining, structural engineering and mechanical processing, coating and preassembly of crane and tail-lift components. Slovenia joined the EU in 2004.
In 1995, Palfinger began buying booms from the Bulgarian supplier Beta, in Cherven Brjag. Four years later, the firm acquired part of Beta’s production facilities and spent six months renovating the plant and installing new equipment. Now, all of the company’s crane booms are manufactured at the plant, along with other components such as outriggers. Recently, the company invested around EUR10m (USD14.65m) on new facilities at this site. This year, Bulgaria and Romania became the two newest members of the EU.
Palfinger bought a second Bulgarian supplier, HES, in Tenevo in 2003. The company moved hydraulic cylinder production from Lengau in Austria to Tenevo the following year. This month, Palfinger also announced a series of new investments at the Tenevo plant, which currently employs 450 people. The company will spend EUR25m (USD36.64m) building a new hydraulic cylinder facility at the plant, doubling its production capacity.
This year, the company acquired PiR, its Croatian steel supplier based in Rajeka. The company had bought a 20% stake in the firm 2001, and signed an agreement to purchase the remaining shares on September 19 of this year. The plant makes structural steel components, and has a staff of 95. The Croatian plant will supply Palfinger’s components plant in Maribor, Slovenia. While Croatia remains outside of the EU, it is the next most likely candidate state, and is expected to join the Union within five years.
Palfinger chief executive officer Wolfgang Anzengruber says, “We acquired our Croatian supplier, PiR, in order to connect it directly into the Palfinger group. We want to develop in the direction we need for our ramp up plan for increased capacity. It fits into our value chain.”
Palfinger chief operating office Martin Zehnder explains, “Our production is divided into manufacturing and assembly. Around two thirds of our manufacturing is now in Eastern Europe: Maribor in Slovenia, Cherven Brijag and Tenevo in Bulgaria, and the former PiR plant in Rijeka, Croatia.”
“Coming out of the recent history of Eastern Europe, these countries were part of the eastern Bloc, and their governments concentrated heavily on industry. With the collapse of the Bloc, many factories were closed. We had many sub-suppliers in the region, which we were able to acquire and develop.
“There’s two significant reasons for acquiring these plants: First, to improve our cost structure and labour costs; Second, to make use of the availability of workers. There’s a lot of well-skilled workers, such as welders, available in eastern Europe.” The company says that labour costs in the Bulgaria are between 80%–90% less than in Western Europe.
After more than ten years of acquisitions and development, Palfinger’s development of its supply chain in Eastern Europe is close to completion, and the firm is looking to repeat its success further abroad. Anzengruber says, “Our strategy now is to look to the Far East. As demand there reaches the economies of scale we need, we’ll develop our manufacturing facilities.” One sign of where the company may be heading is its recent joint venture with Western Autos in India, where it is establishing a new distribution network. For now, the company isn’t making any commitment to develop production there.
While Palfinger is close to the end of its development programme in Eastern Europe, other firms are just starting on the same road.
Global giant strides east
Manitowoc CEO Glen Tellock has recently said that the company is building a global footprint (see this issue, p9) that will bring it closer to its customers around the world. With investment in plants in Zhangjiang in China, Baltar in Portugal, Niella Tanaro in Italy, and the US company’s home state, Wisconsin, alongside a new deal with Shirke in India, the company is boosting production and building closer customer relationships worldwide.
While Palfinger’s strategy in Eastern Europe has seen the region as a source for parts for the rest of its European supply chain, Manitowoc is looking more specifically to the east of Europe. Its recent acquisiton of a new plant in Slovakia, which joined the EU in 2004, fits this plan.
Eric Pommier, project manager for the Slovakian plant, says the firm was prompted to invest in the plant by the growing markets of Eastern Europe, Russia and the CIS: “One of the company’s philosophies is to be ‘on the ground’ as close to the customer as possible. That’s not only in terms of sales and service but also in terms of manufacture. If you look at the recent manufacturing expansion from the company, in terms of China, India, Portugal, Italy and the US, it is easy to see how this Slovakia facility slots into that line of corporate thinking.”
The plant in Slovakia will be iintegrated with Manitowoc’s established dealerships and aftersales services in the region. “To begin with, the Slovakia plant will assemble Potain cranes from the MD and MDT ranges. The company is in the process of installing machine tools and support systems that are necessary to make this happen.
“The initial plan is for this site to handle the latter stages of Potain production, including painting, assembly, testing and shipping. There will be some production involved, in that the site will be used to manufacture K masts from chords shipped from the Moulins factory in France.”
Like Palfinger, Manitowoc will benefit from a reduced wage bill, but as for the Austrian firm, that isn’t the end of the story. Pommier says, “The labour costs in Slovakia are obviously cheaper than those in Western Europe, but where our customers in the region will see real savings is in the shipping costs. Finding trained personnel is always a challenge, but the availability of good, skilled labour in Slovakia was one factor that attracted us to the country.”
Key supplier cuts costs
It’s not just crane builders who are investing in production in Eastern Europe, but component suppliers too. Belgian component manufacturer Vlassenroot makes booms and other parts for crane builders including Grove, Liebherr, Faun, PPM-Terex, Link-Belt, Luna, Demag Mobile Cranes, Kato, Pinguely-Haulotte, and others. It is in the middle of building a new plant in Poland, another of the ten states that joined the EU in 2004. The company has established plants in Germany and Belgium, and is integrating its new Polish facilities into its supply chain.
General manager Eddy Buyst says, “Vlassenroot’s operations in Poland are in two areas: On one hand we build subwelding groups for the manufacture of telescopic booms for hydraulic cranes. These subwelding groups are then assembled to complete booms in our German facility, which also receives half shelves from our subsidiary in Belgium. On the other hand Vlassenroot Poland will start building chassis for the same hydraulic cranes, in January 2008.
“Gliwice is a very important part of our supply chain: all the parts produced here are sent to another factory in our group, KSK in Germany, where the final products are assembled. The whole production has to fit as a puzzle in the whole group, so that we can ensure deliver times for our end customers worldwide.”
“The Polish plant is owned outright by the same holding that owns our Belgian and German production facilities, owned by our CEO Jean Charles Wibo. It is managed by a local Polish management, but under my supervision. I supervise all four plants in the group: Vlassenroot Belgium in Brussels, KSK Germany in Dortmund [which, prior to being bought by Vlassenroot was the boom supplier for Liebherr],Vlassenroot Germany in Bochum, and the new company, Vlassenroot Poland At Gliwice. This has the main advantage that the guidelines for these plants can easily be streamlined and a good communication and co-operation between the plants is assured.”
Labour costs and availability were again important drivers for investment. Buyst says, “We wanted to be able to deliver completely welded booms, manufactured by one company. The lack of trained welding people in Germany and Belgium definitely speeded up the process of investing in Poland. There is of course also the advantage of lower labour costs.
“Total labour cost Poland compared to Germany is lower, but we have to take into account that efficiency is also lower. Due to the high demand for Polish workers worldwide, the wages are raising very quickly and the wage advantage is decreasing every day. It becomes more and more difficult to find trained people, even in Poland. More and more people are leaving the country, and are only only willing to work for higher salaries at Western European levels. In order to solve the shortage on the market Vlassenroot Poland has set up a welding school, both to train its own people even better and to train new workers.”
While production is already underway in one part of the plant, the company is still building. Buyst says, “At the moment 6,000 sq m of production facilities are up and running, where we are already making the subwelding groups. We are now finishing our first extension of the production hall with another 9,000 sq m. This will be ready for production in January 2008 and we will start the production of hydraulic crane chassis. We have invested heavily in heavy machinery such as milling centres, drilling centres, painting machines, sandblasting and other welding equipment.”
The company’s ambitions for the plant don’t end there, though. Buyst says, “At this point we are focusing on starting up the production of the chassis, but we are also convinced of the need for further development. That’s why we’re already searching for some more land to purchase in the same area. Details are being worked out at this moment.”
Vlassenroot finds that working in an EU member state like Poland is easier than in countries outside of the Union. Buyst says, “It is preferable to set up a plant in the east of the EU rather than non-EU countries because of the bigger differences in mentality and quality. The administration and difficult access to non-EU countries are a true obstruction. The quality-culture in Poland is very similar to the one we have in Belgium and in Germany. Everything we do in Vlassenroot is controlled from one hand. We apply the same quality standards, such as ISO 9001 in our Belgian, German and Polish locations. Quality is of very high importance for our group and therefore we put a lot of effort to streamline and guarantee only the best products with the highest standards.”
Over the last year, the long-term importance to the crane industry of developing countries, such as India and China, has become increasingly apparent. In the more immediate future though, it looks as if Eastern Europe will have a key role to play in the fortunes of the industry.
