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Labor Efficiency Challenge in Central and Eastern Europe

Top line, as well as cost related challenges squeeze Automotive Suppliers in Central and Eastern Europe. A study by Tamas Rozsa was based on the Top Tier Consultants’ CEE Supplier database to assess the level of difficulties and potential ways forward for industry players.

Top line: The Automotive industry widely shares the vision of CASE (Connected, Autonomous, Shared, Electric) in order to reduce greenhouse gas emissions and improve air quality in cities. As appealing the concept is, the implementation turns out to be very costly, more than EUR 100 bn has been spent especially in powertrain development, software development and the purchase of new competencies, besides that new disruptive competition appeared on stage. Cost reduction efforts of OEM’s, as a result, create a top line pressure on traditional Suppliers of Central and Easter Europe.

Cost related: The past 5 years have brought 50%+ growth of the Automotive Supplier industry in the CEE region and the available workforce dried up in all countries. At the same time labor costs increased by 60-80%. The region is sensitive to labor cost increase, since higher labor intensive activities are present in the region.

Hungarian Suppliers, for example, responded by increasing operational efficiency by a very respectable 8.8% every year since 2015, yet this was not enough, and profitability of the sector fell below 3% in 2018.

Top Tier Consultants focuses on strategies to overcome this challenge. Some Suppliers will be forced to relocate further to lower costs countries, but short of that operational efficiency, as well as labor efficiency increase is a must, to such an extent it can be called a structural change. Our issue paper focuses on the latter.

The full study is available upon request.


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