1. Restructuring in the electrotechnics sector in Slovakia Business View. CCMI 3 rd Public Hearing Bulgaria, Latvia, Lithuania, and Slovakia Comparison of Industrial Transition Models Sofia October 7, 2008Restructuring in the electrotechnics sector in Slovakia Business View. CCMI 3 rd Public Hearing Bulgaria, Latvia, Lithuania, and Slovakia Comparison of Industrial Transition Models Sofia October 7, 2008 Jan Oravec President EAS

2. The Entrepreneurs Association of Slovakia (official abbreviation EAS), The Entrepreneurs Association of Slovakia (official abbreviation EAS), the first organisation of private businesses established after the Velvet revolution in November 1989, the first organisation of private businesses established after the Velvet revolution in November 1989, 700 companies, 700 companies, 20 000 employees 20 000 employees

3. 65 companies from electrotechnics, electronics, and ICT 65 companies from electrotechnics, electronics, and ICT established in 1991 established in 1991 the largest employers organization in the electrotechnics industry in Slovakia, the largest employers organization in the electrotechnics industry in Slovakia, Negotiating conditions of sectoral agreements in sectoral bargaining Negotiating conditions of sectoral agreements in sectoral bargaining

4. ELECTROTECHNICS INDUSTRY IN SLOVAKIA Siemens operating in Slovakia for more than 100 years Siemens operating in Slovakia for more than 100 years A tradition of automotive electro equipment for military A tradition of automotive electro equipment for military A tradition of innovation – Jozef Murgas as one of the first telecommunication innovators A tradition of innovation – Jozef Murgas as one of the first telecommunication innovators (1904 US Patent: Apparatus for wireless telegraphy ) (1904 US Patent: Apparatus for wireless telegraphy ) A long tradition on a territory of Slovakia

5. SLOVAKIA Pop.: 5.4 mil. Austro-Hung. monarchy: until 1918 Czechoslovakia: 1918- 1993 Com.:1948-1989 Independent SLOVAKIA: 1993 EU: May 1, 2004

6. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIA CASE STUDY Schuckert factory 1902 BEZ Transformátory BEZ Transofmers (BEZ - Bratislava Electrotechnical Company) BEZ Transformers 2008

7. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIA CASE STUDY 1946: Nationalised and operating as a SOE 1990: Transformation shock 1. The break-up of the Soviet block 2. The break-up of Czechoslovakia 3. Company inefficient: *with employers not accustomed to work *with managers not accustomed to compete 4. most of customers lost

8. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIA CASE STUDY Company privatised by a group pf individual owners for about 330 000 1996

9. PRIVATISATION 1. In early 1990s considered as the major method of restructuring (although a theoretical debate on a proper sequencing actually never ended) 2. In all cases where privatisation was delayed (banking sector, energy sector, and other so called strategic industries) restructuring costs were much higher and eventually taxpayers were paying the significant part of it

10. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIA CASE STUDY 1. Focused on their core business 2. Carved out all non-core activities 3. Increased efficiency by cutting the workforce from 650 to 230 4. Recovered the BEZ traditional markets by opening offices in the Czech Republic and Russia New BEZ owners restructured the company

11. Unfovourable macroeconomic framework 1. Wrong policy mix (fiscal policy – expansionary, monetary policy – cautious) 2. Integration efforts (EU, OECD, NATO): Slovakia lagging behind its peers (Czech Republic, Hungary, and Poland) 3. Private sector destabilised

12. Reform efforts since 1998 1. Labour Market Reform 2. Flat Tax Reform 3. Pension Reform 4. Business Environment Reform 5. School System Reform (1/2) 6. Health Care Reform 7. Fiscal Decentralisation Reform

13. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIA CASE STUDY 1. Company benefited from reforms (especially 19 % flat tax, labour market reform, and other improvements of business environment) 2. Company benefited from membership of Slovakia in EU and other international organisations

14. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIA CASE STUDY EU membership was a key to rebuilding of the BEZ business Untill 2004: company not considered as a reliable partner by companies from EU 15 Untill 2004: company not considered as a reliable partner by companies from EU 15 After 2004: company started to supply many partner companies from EU 15 After 2004: company started to supply many partner companies from EU 15 MAY 2004: Slovakia joining EU

15. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIA CASE STUDY 1. 2004: acquisitionin the Czech Republic (buying a former transformer division of Skoda Plzen) 2. 2005: winning 6.5 m Daimler Chrysler group contract 3. Today: supplier of E.on, RWE, VW, Siemens, two Austrian energy companies, etc. 2004 - 2005: FOREIGN EXPANSION

16. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIA CASE STUDY »90 % of its production exported »2007 sales totalling 57 mil. »2007/2006 sales jumped by 55 %

17. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIA CASE STUDY

18. Electrotechnics Industry in 1989 28 companies 67 000 employees (down to 28 000 in 1993) typical size: 3 000 employees lack of specialisation low quality production

19. The employment growth (72 000 in 2004, almost 80 000 in 2006), Dynamic growth of production: 2007/2000 almost 200 % The sector share on both exports and imports more than 20 % The sector created 12.5 % of the value added in a manufacturing industry in 2006 (9 % in 2001), 3.1 % in economy Positive manufacturing experience of investors in Slovakia leads to manufacturing capacity expansion The Current Situation of the Electro-technical Industry

20. The Most Significant Producers in Slovak Electro-technical Industry in 2007 No.No.No.No. Total Sales in 2007 (thousands EUR) 1.1.1.1. Samsung Electronics Slovakia, s.r.o., Galanta 3 685 593 2. Sony Slovakia, s.r.o., Nitra 968 364 3.3.3.3. Panasonic AVC Networks Slovakia, s.r.o., Krompachy 254 354 4.4.4.4. SE Bordnetze – Slovakia, s.r.o., Nitra 217 374 5.5.5.5. BSH Drives and Pumps, s.r.o, Michalovce 202 481 6.6.6.6. Delphi Slovensko, s.r.o., Senica 149 977 7. Leoni Autokabel Slowakia, s.r.o., Trenčín 149 606 8.8.8.8. Emerson Electric Slovakia, s.r.o., Nové Mesto nad Váhom 138 614 9.9.9.9. Yazaki Wiring Technologies Slovakia, s.r.o., Michalovce 112 360 10. Panasonic Electronic Devices Slovakia, s.r.o., Trstená 110 767

21. Production of the Most Significant Electro-Producers in Slovakia Samsung ElectronicsLCD monitors, plasma, printers, Slovakia MP3s, home-cinemas up to 10 million LCD modules Sony Slovakia 3 million LCDs TV-Bravia (in 2008) Siemens: Osram Slovakia 5 000 types of products revenues: Euro 90 million in 2006 / 2007 BHS Drives and Pumps about 5 million electro motors for BOSCH per year SE Bordnetze – Slovakia fiber and electric cords (Euro 240 million)

22. Electotechnics Companies Ranking in TOP SLOVAK 200 by Total Sales 2 in Top 10 4 in Top 50 11 in Top 100 24 in Top 200

23. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIA CASE STUDY 1. Privatisation used successfully as a restructuring tool, 2. New owners developed appropriate strategy (a combination of internal adjustments and external expansion), 3. Company also benefited from renewed investments in electricity grids worldwide due to high oil prices, 4. Company: regional winner, still growing quickly SUMMARY

24. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIA SPONTANEOUS RESTRUCTURING WORKED WELL (no restructuring policy, no state aid policy, later tax incentives) SPONTANEOUS RESTRUCTURING WORKED WELL (no restructuring policy, no state aid policy, later tax incentives) PRIVATISATION WORKED WELL (majority of new owners responsible, asset tunneling minor phenomena) PRIVATISATION WORKED WELL (majority of new owners responsible, asset tunneling minor phenomena) SUMMARY

25. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIA PUBLIC POLICY MIXED PERFORMANCE (esp. fiscal policy) PUBLIC POLICY MIXED PERFORMANCE (esp. fiscal policy) BIG GROWTH POTENTIAL (if constraints will be removed) BIG GROWTH POTENTIAL (if constraints will be removed) BIG DOWNSIDE RISKS (export dependency) BIG DOWNSIDE RISKS (export dependency) SUMMARY (cont.)

26. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIA Major problem and challenge (both at corporate and policy level) Lack of skilled labour force as a result of slow response of government and schools Lack of skilled labour force as a result of slow response of government and schools SUMMARY (cont.)

27. Thank you for your attention!