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Vienna (pte046/28.02.2005/16:30) - Although foreign direct investment (FDI) will probably have reached 70 billion dollars in China in 2004 and the general fear among businesses is that investment will pour out of Europe and head straight for China, investment will also move from Western Europe to Central/Eastern Europe in 2005. As Daniel Thorniley explained at a talk in Vienna regarding the "Business Forecast for 2005 for the Central & Eastern European Region", Central Europe has a growing appeal as several markets are now EU members. In particular, in 2003, FDI in Russia jumped from its low annual averages of 2 billion dollars to 8 billion dollars and is set to be between 8 and 13 billion dollars for the coming years.
According to Thorniley, although business in China is booming, sales growth in many sectors is 20-25 per cent and some companies are finally starting to report profits, recent examples of complex changes in the European market - such as IBM pulling out some operations from Hungary and bringing in different ones of higher value, and Philips moving a liquid crystal display plant from France to Hungary - go to show that Central and Eastern Europe as a location is definitely part of many business' investment plans. In some respects, Central Europe is a better FDI location than China, Thorniley says. The wider East-Central European region has recorded the highest levels of GDP growth in the world in the past three years and will do so in the next 4-5 period, averaging five per cent. Furthermore, according to Thorniley, core CEE currencies are all strong and have room to fall if under pressure. Most are 30-40 per cent stronger in real terms than five years ago and stronger by 3-10 per cent in real terms during the last year. Another reason is that CEE countries have political stability - political risks in core CEE is very low.
To date, profits and returns in CEE have been as good or better than in China, Thorniley said. Russia has outperformed China for many years on the criterion of return on equity. Further advantages for investing in the CEE area are that the CEE is an excellent location for just-in-time delivery to core European markets and it can now be incorporated into the pan-European distribution chains. Furthermore, Western business executives have broadly better experiences working with their peers than with Chinese ones. "The gaps in culture, language, experiences and sense of humour are still wide between Westerners and Chinese business people. The experience in Central Europe is often very good indeed with Western executives appreciating the business sense, hard working culture and sense of humour of their CEE counterparts," added Thorniley.
According to Thorniley, Russia is a very good place to invest in. The Russian market is a very profitable one - one consumer technology company rates it as the most profitable in the world and a European packaging company puts it at number two, behind Brazil. More and more companies report Russia in the top three most profitable markets in the world for their operations. "We aim and achieve profit margins of 4-7 per cent in the developed West, 8-13 per cent in Central Europe and 15-21 per cent in Russia. Furthermore, top line sales growth figures in Russia are among the highest in the world", said Thorniley. FMCG's report annual growth of 35-45 per cent, manufacturers and IT companies both 30 per cent and pharmaceutical companies 18-25 per cent. There is also room for expansion in the country's 89 regions. Moscow is the heart and centre of Western business and about 35-40 of the other regions have some business potential, of which about 15-20 are becoming "interesting commercially". According to Thorniley, when investing, it should not be a question of China or Russia, but adapting strategy to do China and Russia. "It is not a zero sum game," he explained.
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