So far 1,800 Polish companies have opted to invest in production facilities in Russia and neighbor Ukraine, according to a recent report in Poland's Dziennik daily. As production costs rise and the labor squeeze in Poland grows, that number appears set to grow. Leading Polish kitchen appliance producer Amica has announced plans to open a production facility in Velikiy Novgorod, near St Petersburg, Russia by 2009, the newspaper says. Meanwhile Polish company Inter Grolcin Auto, car seat maker and upholsterer for global auto giants such as Audi, Mercedes, Mitsubishi, Renault, Smart, Volkswagen and Volvo opted to move production to Uzhgorod in western Ukraine, where costs are lower than in a special investment zone in Poland.
The Polish plant will create 2,000 jobs and expects no shortage of employees, Dziennik reports. Other Polish companies also have plans to head east in search of lower costs and a stable labor force. Leading furniture producer Forte, pharmaceutical company Bioton and sanitary products maker Bella all have plans to set up production facilities in Russia. Meanwhile, bathroom hardware makers Cersanit and Kolo are eyeing Ukraine. Worried that the exodus of skilled labor - mostly to Ireland and Great Britain - could thwart production within a few years, Polish companies manufacturing aeroplane parts are also looking east. Seeing ample opportunity to generate profits, last year Polish firms invested $140 million in Ukraine and $148 million in Russia, according to Dziennik.
While corporate income tax is higher in both Ukraine (25%) and Russia (24%) than in Poland (19%), lower operating costs in the two countries guarantee Polish businesses greater profits. Experts also agree Polish state coffers have lost billions of dollars in taxes, public health and social insurance payments due to the labor exodus since the country's entry into the EU. With ever greater numbers of Polish companies looking east, this drain appears set to continue. But with strong 6.3% GDP growth projected for this year and government sources revealing dozens of fresh foreign direct investment (FDI) projects are in the pipeline, Poland may yet top the Polish central bank estimate of nearly $15 billion in FDI for 2006.
Japanese companies led the FDI race in Poland last year with global giants Sharp, Toshiba, Bridgestone and Toyota deciding to set up shop. But foreign investors must beware, the Polish TVN24 news channel reported this week. The exodus of Polish workers, it noted, was already forcing South Korean investor LG Electronics to consider importing laborers from as far away as China to work in its new LCD television production plant in Kobierzyce in south east Poland.