Focus on Central Eastern Europe
International Procurement Services (IPS) procures non-production materials and services around the world. In this context, increasing importance is being assigned to the countries of Eastern Europe, which offer high quality in combination with reasonable logistics costs.
In the course of global sourcing, East European markets will become increasingly relevant for International Procurement Services (IPS) in the medium term. The quality of products from countries like Hungary, Romania, and the Czech Republic is high and labor costs are still relatively low despite rising wages. Compared to the established Asia procurement markets, logistics costs are relatively low thanks to favorable trading conditions (within the Shengen area and the European Union), the growing infrastructure, and relatively short distances.
The numbers are in favor of Central Eastern Europe
The development trends for these countries are also very promising. The EU promotional program “Connecting Europe Facility” (CEF) provides investment funding in the transport, telecommunications and energy sectors. By 2020, investments in these areas will total € 30.422 billion, more than half of which will flow into the East European member states. At present, German companies can profit mainly from the robust development in Poland, the Czech Republic and Romania. For example, in 2015 the Czech economy grew by a good 4.2 percent and the unemployment rate is currently under 5 percent. While the growth momentum in the Czech Republic is expected to taper off slightly in coming years compared to 2015, the overall growth rates should continue to move above the West European average.
Activities in Hungary, Romania, and Poland
In connection with the intensification of production in Europe, the East European markets will also be assigned growing importance. Daimler is successively building up its existing production capacities in Eastern Europe. Some examples include the Hungarian plant in Kecskemét as well as the transmissions production in Sebes, Romania. Daimler will invest around € 580 million in Kecskemét by 2018 in the areas of technological further development and the production expansion. In the Romanian city of Sebes, production of the nine-gear automatic transmission 9G-TRONIC started in April 2016. With it, Daimler is building up its production capacities for transmissions. The newly created production area has the size of about ten soccer fields. Another € 500 million are currently flowing into the first Polish production site located 70 km from Breslau. In future, the location will produce the four-cylinder gasoline and diesel engines for Mercedes-Benz passenger cars.
That is why the IPS Procurement unit will penetrate the structures of the East European procurement market even more intensively in the future. The goal is to tap into legal and language expertise for local negotiations and to invest in sustainable supplier relationships in the respective countries.
Global Procurement with optimal combination
The reasons for the globalization of procurement activities are obvious to Procurement: Greater supplier selection that will ensure increased competition. Another advantage are the lower risks if the same goods can be procured from several providers in parallel. Key word: Redundancies of procurement sources. However, some additional risks will also arise. The expanded procurement activities will also lead to increased complexity. Processes and logistics costs can increase. The company can also be facing higher costs from the greater transport distances and customs duties. Just-in-time deliveries will become more difficult if time buffers have to be planned.
IPS must ensure the most optimal combination of quality, price, innovation, and timing for each purchased service. These must be prioritized differently according to the respective service/type of work. It must also be shown how prevalent they are in the respective market. Which procurement market is optimal at what time depends on macroeconomic and microeconomic factors. These include unemployment, inflation, or balance of payments and market structures. Accordingly, procurement markets that are optimal with respect to timing and location are also capable of change.