by Julia Carabas
China. India. Indonesia. Brazil. Russia. As emphasized by many, these are the most important emerging markets of today. Giants of development, innovation, acquisition, and expansion. Coincidentally, these countries are also physically massive lands, fact which has surely aided their processes of development in the past two or three decades. There is a great potential for labor that is efficient, intelligent, and highly skilled in these countries, with populations that go beyond a billion and where there is a growing emphasis on education, and great education furthermore. These mammoths of emerging markets have, however, recently come face to face with what can become a big rival: Central and Eastern Europe (except, of course, Russia).
If you were wondering what the reason behind this might be, it is actually a phenomenon that has occurred before and proved to be very effective. Developed countries, or what is referred to as “western” in Europe, have taken their business from local to abroad, and they have chosen this time not India, not China, but their close neighbors like Bulgaria, Romania, the Czech Republic, or Poland, to name just a few. Just like their bigger “sisters,” these countries have much to offer: labor that is fairly cheap compared to local wages in Western Europe, highly educated college graduates, especially proficient in the IT sector, and a growing number of perks from local governments. The success of countries like India, which has attracted many foreign investors and has thus gained itself resources to expand its own capabilities, has set an example for these growing European countries. Besides being able to offer cheaper labor, governments are starting to expand their tax policies to allow foreign investors more leisure. At the same time, some of these countries are part of the European Union, which offers a great legal safety net for any business.
It is no longer about “helping” a developing country or making a risky investment. It is about real ventures that offer real profits. Morgan Stanley has recently bought shares of the Bucharest Stock Exchange in Romania, which, according to NewsIn, has raised the BSE’s value to about 160 million euros (that’s almost $222 million). Merrill Lynch has announced its intentions to invest in Poland and Ukraine in an effort to facilitate the countries’ switch to the euro in 2012. Large companies are recognizing that there is currently a growing trend to consolidate markets in Central and Eastern Europe. People are willing to find something new that has the potential of becoming a great investment. It is true that there is still much work to be done. A recent Standard & Poor report on economies of European countries has found several of them have become vulnerable to such things as rising interest costs, which makes them riskier than before, but does not mean they will default. We have to understand that these are countries which are extremely dependent on foreign investments, and that makes them vulnerable. Nonetheless, it is these investments that have propelled the economies of these countries and have helped them become emerging markets instead of developing ones.
Think about it. It makes sense. Low costs are not the only worries of companies taking their business processes elsewhere. The fact that Central and Eastern Europe are much closer than any other emerging market is a great plus. Proximity is quite important if you are a mid-size company looking to keep a close eye on your products. Of course, high-volume industries will have better luck in China or India, which are already specialized in this type of interaction, but a company interested in low costs and only moderate amounts of manufacturing, or perhaps just technical services, is at a greater advantage going somewhere like Romania, for example. What many don’t take into consideration either is the similarity in culture. Yes, most of these countries are former Soviet Satellites, but just like Russia is changing its ways and making a more positive impression every day, the rest of Eastern Europe has been very receptive to “the ways of the West.” These are people who understand westernized culture much better than their Asian counterparts. This is not only because they are much closer to Western Europe, but because many, like the Ukraine and Romania, have a history of close cultural ties with countries such as France and Germany. Up until the beginning of the 20th century, these countries have had a major influence on culture and social life in Central and Eastern Europe, and although much time has passed since then, centuries of western influence have left their mark on the mentality and way of being of these peoples.
Yes, there will always be the skeptics. It will be very difficult for this part of the world to become the new India or the new China, and perhaps it is not even aiming at this goal, but investors seem to be optimistic. Despite the 2006 fall in investments that took over countries such as Poland and the Czech Republic, according to Ernst & Young, the number of jobs has increased and there has been a rise in real income. People of these countries are doing much better, and a declining or stagnant economy can only improve in these conditions. So, when you open your own business and are thinking of a good place to invest in, consider Central or Eastern Europe. There is surely a spark there, and it can only grow bigger in the coming years.