FDI in five industry sectorsBased on the study prepared for EAS in July 2009

Tauno OljuHead of Public Sector Advisory ServicesErnst &Young

21/14/2010

Contents

1 Introduction and methodology

4

Machinery and metals

3.2 Electronics

3.3 Business services

3.4

ICT3.5

Logistics

3 Sector overviews

2 General overview

Discussion

3.1

31/14/2010 EAS "Estonian key sectors overview"

Introduction and methodologyScope, stages and work products of the project

►FDI trends in CEE region in mentioned 5 pre-defined sectors

►Potentially interesting business areas of the named 5 sectors: value propositions

►Examples of companies in the sectors (success stories)

►Overview of the 5 sectors in Estonia

I STAGE

II STAGE

III STAGE

1 2

3 3

►Machinery and metals

►Business Services

►Logistics

5 PRE-DEFINED INDUSTRIES

►Electronics

►ICT

4 DIFFERENT OVERVIEWS

Value propositions Success stories

FDI trends overview EE sector overviews

In total there is 34 different overviews

41/14/2010 EAS "Estonian key sectors overview"

Introduction and methodologyMethodology

FDI Trends►In cooperation with Ernst & Young International Location Advisory Service team, France►Research was based on Ernst & Young European Investment Monitor 2009 (EIM), incl. 42 countries and tracking since 1997►Period covered in overviews: 2004 – 2008

Sector overviews and value propositions

►Interviews and discussions (total 31)► Associations► Both local and foreign companies in Estonia► EY Community Space Experts

►Interviews had 3 different formats► Question-answer type by our partner Klaster► Face-to-face meetings► Phone conversations

Secondary research materials►Surveys ►Publications

Web publications►Websites of associations (e.g. PROLOG, ITL) ►Companies (e.g. Estonian Port, Sillamäe Port etc)

Statistics and benchmark►Eurostat latest figures on sectors and subsectors if available►Estonian Statistics Database►IMD World Competitiveness Yearbook ►World Bank, Doing Business in 2009

Verification►Comments from associations, industry representatives►Cold-calling for companies regarding their activities

5

Overview

1/14/2010 EAS "Estonian key sectors overview"

FDI distribution by sector (whole Europe 2004- 2008)

Sector Market share(in nb of FDI projects)

ICT 14%Business Services 12%Machinery & metals 10%Electronics 6%Automotive Components 6%Financial Intermediation 5%Other Transport Services 5%Food 4%Chemicals 4%Pharmaceuticals 4%Other 30%Total 100%

6

Machinery and metals

Top CEE countries for FDI projects in the Machinery and metals sector (2004 – 2008)

Countries

% in Nb of projects

% in Job creation

Capital exp in US$m*

Poland 19% 20% 1 216Hungary 14% 15% 1 733Romania 13% 15% 1 569

Czech Republic 11% 14% 418Slovakia 10% 13% 786

Russia 9% 6% 1 784Bulgaria 4% 4% 406

Turkey 4% 6% 1 289Serbia 4% 2% 388

Lithuania 2% 1% 30Ukraine 2% 1% 41

Latvia 2% 0% 28Estonia 2% 1% 29Croatia 1% 1% 14

Bosnia and Herzegovina 1% 2% 55

Other 2% 0% 74Grand Total 100% 100% 9,859

1/14/2010 EAS "Estonian key sectors overview"

78%

14%

5%

1%1% 1%

Manufacturing

Sales & Marketing

Logistics

Research & Development

Shared Services Centre

Headquarters

78%

14%

5%

1%1% 1%

Manufacturing

Sales & Marketing

Logistics

Research & Development

Shared Services Centre

Headquarters

7

Machinery and metals

1/14/2010 EAS "Estonian key sectors overview"

Top 10 Machinery and metals investors in CEE (2004-2008)

Investor Origin country

Job creation

Main CEE destination countries

INA Holding Schaeffler KG Germany 4750

Hungary, Romania, Slovakia

Robert Bosch GmbH Germany 1314

Hungary, Poland, Romania, Czech Republic & Slovenia

Volkswagen AG Germany 920 HungaryNorddeutsche Affinerie AG Germany 760 BulgariaSchunk GmbH Germany 500 HungaryIndustriemontagen Merseburg GmbH Germany 500 HungaryGerhard Eckerle GmbH Germany 320 RomaniaJohann Hay GmbH & Co KG Germany 300 RomaniaFrankische Rohrwerke GmbH & Co KG Germany 300 Czech RepublicSiemens AG Germany 250 Czech RepublicTotal 45 087

Machinery and metals sector: FDI distribution by investmenttype (Nb of FDI projects to CEE, 2004 – 2008)

8

Electronics

1/14/2010 EAS "Estonian key sectors overview"

Top CEE countries for FDI projects in the Electronics sector (2004 – 2008)

Countries

% in Nb of

projects

% in Job creation

Capital exp in US$m*

Hungary 19% 15% 440,7Poland 19% 36% 2397,8

Romania 12% 8% 406,6Czech

Republic 11% 16% 391Slovakia 11% 18% 864,1

Russia 9% 1% 145Bulgaria 6% 2% 49,2Estonia 4% 3% 48,7

Lithuania 3% 0% 33,5Ukraine 2% 0%

Serbia 2% 0% 8,7Turkey 1% 1% 90

Slovenia 1% 0%Belarus 1% 0%Croatia 0% 0% 9,7

Other 1% 1% 4Grand Total 100% 100% 4889

Electronics sector: FDI distribution by business functions (Nb of FDI projects CEE, 2004 – 2008)

9

Electronics

1/14/2010 EAS "Estonian key sectors overview"

Top 10 Electronics investors in CEE (2004-2008)

Investor Origin country Job creation Main CEE destination countries

LG Group South Korea 9714 Poland & SlovakiaHon Hai Precision Industry Co Taiwan 6300

Czech Republic & Hungary

Samsung Corp South Korea 5370 Slovakia & Hungary

Sony Corp Japan 3530Slovakia & Poland &

BulgariaElcoteq SE Finland 3015 Hungary & EstoniaPhilips Electronics NV/LG Group

Netherlands/South Korea 3000 Poland

Videocon Industries Ltd India 3000 PolandTPV Technology Ltd Taiwan 2500 Poland

Hitachi/Matsushita Electric Industrial Co Ltd/Toshiba Corp Japan 2000 Czech Republic

Hitachi Ltd Japan 1600Czech Republic &

PolandTotal 71 302

Electronics sector: FDI distribution by investmenttype (Nb of FDI projects to CEE, 2004 – 2008)

10

Business Services

1/14/2010 EAS "Estonian key sectors overview"

Top CEE countries for FDI projects in the Business Services sector (2004 – 2008)

Countries% in Nb of projects

% in Job creation

Capital exp in US$m*

Poland 19% 30% 15Czech Republic 16% 14% 9

Romania 16% 30% 113Hungary 10% 14% 1

Russia 7% 1%Bulgaria 6% 4%

Turkey 5% 1% 7Slovakia 4% 2% 12Ukraine 3% 0%

Latvia 2% 0% 0Estonia 2% 0%

Lithuania 2% 1%Serbia 2% 0%

Croatia 1% 0%Slovenia 1% 0%

Other 3% 0%Grand Total 100% 100% 157

FDI distribution by business functions (Nb of FDI projects CEE, 2004 – 2008)

11

Business Services

1/14/2010 EAS "Estonian key sectors overview"

Top 10 Business Services investors in CEE (2004-2008)

Investor Origin country

Job creation

Main CEE destination countries

Accenture Ltd USA 2 768Romania, Poland & Czech Republic

General Electric Co USA 2 290Romania, Czech Republic

Reuters Holdings plc UK 1 000 PolandXL World Ltd UK 800 RomaniaTata Group India 500 HungaryAffiliated Computer Services Inc USA 500 PolandSR Teleperformance France 500 Romania

Stream USA 400 Hungary, SlovakiaSutherland Global Services Inc USA 400 PolandSykes Enterprises Inc USA 400 BulgariaTotal 16 112

FDI distribution by investmenttype (Nb of FDI projects to CEE, 2004 – 2008)

12

Logistics

1/14/2010 EAS "Estonian key sectors overview"

Top CEE countries for FDI projects in the Logistics sector (2004 – 2008)

Countries% in Nb of projects

% in Job creation

Capital exp in US$m*

Poland 19% 31% 757,9Hungary 16% 25% 222,42Romania 12% 9% 324,6

Russia 11% 2% 627,3

Czech Republic 8% 15% 133Slovakia 6% 9% 63Bulgaria 4% 3% 199,8Ukraine 4% 2% 32,6

Serbia 3% 1% 15,3Croatia 3% 1% 84,2Turkey 2% 0% 18,6

Estonia 2% 1% 16Latvia 2% 0% 18,5

Slovenia 2% 1% 7Lithuania 2% 0% 2

Other 2% 0% 76

Grand Total 100% 100% 2598,22

Logistics sector: FDI distribution by business functions (Nb of FDI projects CEE, 2004 – 2008)

13

Logistics

1/14/2010 EAS "Estonian key sectors overview"

Top 10 Logistics investors in CEE (2004-2008)

Investor Origin country

Job creation

Main CEE destination countries

Deutsche Post AG Germany 1086

Czech Republic, Poland, Slovakia, Hungary

Tesco PLC UK 1018Hungary, Poland, Slovakia

Hennes & Mauritz AB Sweden 1000 Poland

Lego Holding AS Denmark 600

Czech Republic, Poland, Slovakia, Hungary

Spar Osterreichische Warenhandels AG Austria 600

Hungary, Poland, Slovakia

Schunk GmbH Germany 500 HungaryGedeon Richter Hungary 450 RomaniaDTC Logistics & Transport Ltd UK 370 PolandALDI Group Germany 360 Hungary, SlovakiaGeneral Electric Co USA 300 HungaryTotal 13 506

Logistics sector: FDI distribution by investmenttype (Nb of FDI projects to CEE, 2004 – 2008)

14

ICT service

1/14/2010 EAS "Estonian key sectors overview"

Top CEE countries for FDI projects in the ICT sector (2004 – 2008)

CEE countries % in Nb of projects

% in Job creation

Capital exp in US$m*

Hungary 15% 29% 228Romania 15% 17% 296

Poland 13% 11% 54Czech Republic 12% 16% 73

Russia 12% 11% 552Bulgaria 9% 3% NASlovakia 3% 4% 643

Serbia 3% 2% 786Ukraine 3% 1% NATurkey 2% 2% NACroatia 2% 1% 31Latvia 2% 0% NA

Estonia 2% 0% NALithuania 2% 0% NA

Bosnia 1% 1% NAOther 2% 0% 10Total 100% 100% 2 673

ICT sector: FDI distribution by business functions (Nb of FDI projects CEE, 2004 – 2008)

15

ICT service

1/14/2010 EAS "Estonian key sectors overview"

Top 10 IT investors in CEE (2004-2008)

Investor Origin country

Job creation

Main CEE destination countries

Deutsche Telekom AG Germany 2 330 Hungary

Vodafone Group plc UK 1 196 Hungary and Romania

Oracle Corp USA 1 100 Romania

SAP AG Germany 1 035 Czech republic and Hungary

Sun Microsystems Inc USA 830 Czech republic and

Hungary

Microsoft Corp USA 616 Croatia and Czech republic

Electronic Data Systems (EDS) USA 540 Hungary

Fujitsu Corp Japan 500 Poland

Wipro Ltd India 450 Romania and Poland

Total 19 601

ICT sector: FDI distribution by investment type (Nb of FDI projects to CEE, 2004 – 2008)

16

General comments

• Poor availability & quality of information about the sectors and opportunities

• Underdeveloped network and 3rd sector

• Proactive approach

• Availability of labor

• Air transportation

1/14/2010 EAS "Estonian key sectors overview"

17

Proposed discussion points

Is the Estonian position in those sectors adequate?

What government can do in order to generate investments for those sectors?

What could be the cost- benefit side of proactive investment generation in those sectors (considering the opportunity cost, administrative cost and cost of subsidy’s)?

1/14/2010 EAS "Estonian key sectors overview"

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