Outsourcing Hotspot Cools as Wages Rise in Poland

A few years ago, Poland was a favorite destination for European manufacturers looking to cut costs. But with wages rising and a shortage of skilled workers, it might not remain the outsourcing hotspot for long.

A few years ago, Swedish appliances manufacturer Electrolux closed its plant in the southern German city of Nüremberg and began producing dishwashers in Poland. Carmaker Opel, too, decided to build its "Zafira" in the Polish town of Gliwice.

It's a trend that seemed inevitable when Poland joined the European Union in 2004. With its low labor costs and huge pool of workers, German workers feared their eastern European neighbor would pry away their jobs by becoming the destination of choice for companies looking to stay competitive in an ever globalizing world.

It didn't turn out exactly that way. While Poland was once a prime low-wage destination, that is changing. A shortage of skilled workers has led to wage increases that make Poland less of a bargain for outsourcing than it once was.

Heading further east

Electrolux invested 40 million euros ($53.5 million) in the Polish town of Olawa before closing the plant in Nürenberg. The move to Poland meant that many employees of the AEG subsidiary in Germany lost their jobs.

Kazimierz Kimso, regional head of the Polish Solidarnosc labor union, says that little can be done to stop jobs from moving to cheaper locations.

"Naturally, we have solidarity with our foreign colleagues who have lost their jobs. But we also are happy when new jobs come, since unemployment is very high," Kimso said. But, he added, things could just as well change quickly for Poland.

"We are by all means aware that the production today is moved from Germany or other old EU countries to Poland," he said. "But tomorrow this can continue on in the direction of Ukraine. That's naturally a development that we aren't pleased about."

In addition to its low-cost value, Poland also offers other charms for international investors.

In 1996, the Polish government turned the Olawa area into a special economic zone. Investors who wanted to relocate there, were offered lower tax rates. Even with Poland joining the European Union, this tax break will remain until 2017.

The hunt for skilled workers

Despite the obvious advantages of doing business in Poland, international companies are gradually discovering a downside, too.

When Electrolux first moved to the country, the Swedish company had problems finding qualified workers. Boleslaw Januszkiewicz, who heads up a large boat motor plant, has also found it difficult to find employees with the skills he needed.

"At our company, for the boat motor plant, we have between 11 and 150 open positions each month. That's for normally very skilled welders, fitters and controllers. Our wages have increased sharply. The only people who don't earn very much are the new employees who are doing their first apprenticeships," Januszkiewicz said.

Although Poland has cheaper labor costs than Germany, that's no longer a primary reason for companies to relocate to Poland, said economics expert Clemens Rode at the Polish office of Germany's Friedrich Ebert Foundation.

"Now companies have to look beyond wages and compete with each other for good workers," Rode said. It's important for European countries to continue investing there, as a strong Polish economy is good for all of Europe, he added.

Source:http:world.de