The Impact of EU EnlargementPricewaterhouseCoopers

Date: 30 April, 2003

Project No. 23050

Prepared by: G Keaty

2

Introduction

3

Objectives of the Study

PricewaterhouseCoopers commissioned a survey among the major investors in CEE to discover the attitudes to and their preparedness for the enlargement of the EU.

An independent research company, Opinion Window Research International, was commissioned to carry out this study.

The preliminary results of the study were presented at the PwC seminar, 30th April 2003, in Prague.

4

Methodology

Telephone interviews

Number of interviews: 100 major corporations 112 companies were contacted in total

The respondent: The relevant senior executive. Responsible for overseeing his/her company’s EU related issues

The research was based on a list of companies provided by PwC

Interviewing: 15 April - 6 May 2003

Note: All questions were not always answered. The number of answers are indicated for each question. For some questions, more than 1 option was possible.

5

Job function of respondents

Base: All companies

5%3%

2%

36%

27%

14%

8%

5%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Financedirector/manager

Tax manager Director /Generalmanager

Financialcontroller

Manager Risk and credit Strategic planningmanager

Other

6

Industry sector

Base: All companies

3% 3%2%

20%

5%6%

5%

26%

11%

7% 6% 6%

0%

5%

10%

15%

20%

25%

30%

Manufa

cture

- Oth

er

Manufa

cture

- Auto

motiv

e

Financi

al

Pharmce

utical

Manufa

cture

- FM

CGs

Retail

Whole

sale

Teleco

ms

Utiliti

es IT

Construct

ion/e

ngineerin

g

Other

7

How many of the 10 accession countriesdo the companies have a presence in?

Base: All companies that answered (n=91)

0%

5%

24%

12%12%

11%

18%

2%

4%

10%

1%

0%

5%

10%

15%

20%

25%

30%

None 1 2 3 4 5 6 7 8 9 10

8

Results

9

Will the enlargement of the EU impact your company?

No11%

Yes89%

Base: All respondents who were contacted (n=112)

10

Preparation process: All companies

8%

16%

9% 8% 9%

5%

8%

3%

0%

3%1%

2%1%1%

3%5%

9%

1%2% 1% 2%

0%

5%

10%

15%

20%

25%

30%

Before

200

2

01/2

002

03/2

002

04/2

002

07/2

002

10/2

002

11/2

002

12/2

002

2002

in g

ener

al

01/2

003

02/2

003

03/2

003

04/2

003

05/2

003

06/2

003

07/2

003

08/2

003

09/2

003

10/2

003

2003

in g

ener

al20

04

Base: All companies that replied (n=88)

When did your company’s planning for EU enlargement start/ when will it start?

2003 = 63%

Extent of the expected impact (scale: 1= no impact, 4=high impact)

Extent of the expected impact = 2.6(scale: 1= no impact, 4=high impact)

2002 = 23%

11

Preparation process: Companies with budgets of 100,000 Euro or more for changing the company structure due to EU enlargement

6%

11% 11%

18%

6% 6%

28%

17%

0%

5%

10%

15%

20%

25%

30%

35%

40%

Before 2002 03/2002 07/2002 2002 ingeneral

01/2003 03/2003 06/2003 2004

Base: All companies that replied (n=18)

When did your company’s planning for EU enlargement start/ when will it start?

12

Preparation process (2 of 2)

Implementation of planning process

A local or regional approach?

Local = 46%, Regional = 38%, Both local and regional = 16%

Base: All companies which started/will start planning for EU enlargement and replied (n=100)

41%

15%11%

7%

25%

0%

5%

10%

15%

20%

25%

30%

35%

40%

45%

Own task force Externalconsultant

Own projectmanager

Externalproject

manager

Other

13

Planning process: For those companies with a budget of 100,000 Euro or more for changing the company structure due to EU enlargement

Implementation of planning process

Base: All companies which started/will start planning for EU enlargement and replied (n=19)

47%

21% 21%

11%

16%

0%5%

10%15%20%

25%30%35%40%

45%50%

Own task force Externalconsultants

Own projectmanager

Externalproject

manager

Other

14

Preparation process: Will outsourcing i.e. IT support, consultants, etc be required?

Yes39%No

61%

Base: All companies that replied (n=96)

15

Impact on company structure

Will this lead to centralisation or decentralisation of top and middle management?

50%

25% 25%

0%

10%

20%

30%

40%

50%

60%

Centralisation Decentralisation Neither

Average impact on top/middlemanagement: 2.8

scale: 1- no impact, 4 - high impact

Base: Companies whose structure will be changed (n=16)

Will preparation for the impact of EU enlargement require change or

adjustment of your company structure?

Yes17%

No83%

Base: All companies (n=100)

16

Impact on creating job functions in the following areas

Scale: 1 – no impact, 4 – high impactAverage impact

Indirect Tax 2,3

Trade and competition 2.1

Income Tax 1.6

Human Resources 1.6

Higherimpact

Lowerimpact

Base: All companies that will be affected by EU enlargement and answered on individual elements

17

Impact on creating job functions: For those companies with a budget of 100,000 Euro or more for changing the company structure due to EU enlargement

Scale: 1 – no impact, 4 – high impactAverage impact

Indirect Tax 2,5

Trade and competition 2.6

Income Tax 1.8

Human Resources 2.0

Higherimpact

Lowerimpact

Base: All companies with a budget over 1000,000 Euro that answered (n=19)

18

Trading relationship with EU accession countries: Services, Goods

Base: Companies that will be affected by EU enlargement and replied

28%

69%72%

31%

0%

10%

20%

30%

40%

50%

60%

70%

80%

Services (recieve/provide) Goods (import/export)

Yes No

19

Categories of Services: Percentage of companies trading with and within accession countries

Base: Companies that receive or provide services agreements (n=68)

Percentage

Installation and maintainance 65%

Management 62%

Transportation 53%

Administrative services 51%

20

Importing/Exporting companies: Probability of company restructuring in the following areas

Base: Companies involved in imports and exports (n=72)

Scale: 1 –low probability, 4 – high probabilityAverage

probability

Logistical infrastructure (implementing regional warehouses) 2.3

Own distribution process 2.1

Contracting (or sub-contracting) 1.9

Merchandise distribution using third parties 1.9

Toll manufacturing 1.6

Own production/manufacturing process 1.6

Flattening the sales structure i.e. by using commissionaires, agents 1.4

Higher probability

Lower probability

21

ERP, Accounting and reporting tools (1 of 2)

31%

26%

10%

4%

35%

0%

5%

10%

15%

20%

25%

30%

35%

40%

SAP Other Oracle J.D.Edwards None

Which Enterprise Resource Planning System does your company use?

Base: All companies (n=100)

22

ERP, Accounting and reporting tools (2 of 2):25% of companies’ with an ERP system need to radically adjust them to

comply with proper processing and international audit systems

88%

58%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Accounting tools Reporting tools

Base: Companies which need to radically adjust their ERP systems (n=24)

Which domains need to be adjusted?

Average size of adjustment:

2.4*Average size of

adjustment:2.1*

* Scale of adjustment: 1- slight adjustment,

4- substantial adjustment

46% need to adjust both accounting and reporting tools

23

ERP, Accounting and reporting tools: Companies with a budget of 100,000 Euro or more for

changing the company structure due to EU enlargement

100%

83%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Accounting tools Reporting tools

Base: Companies which need to radically adjust their ERP systems and have a budget of over 100,00 Euro for adapting to EU enlargement (n=6)

Which domains need to be adjusted?

Average size of adjustment:

2.5*Average size of

adjustment:2.6*

* Scale of adjustment: 1- slight adjustment,

4- substantial adjustment

83% need to adjust both accounting and reporting tools

24

Keeping informed on the issues

Base: All companies (n=100)

Companies that… Percentage

...need to actively participate in decision making in respect of new legislation at regional and European levels

62%

...have enough information to assess the impact of EU enlargement on their company and to take appropriate steps

56%

... have a team that is closely following the EU enlargement process and the impact on their company

56%

25

Do you think that EU enlargement will increase the need to evaluate your company structure and decision-making processes?

Yes34%

No66%

Base: All companies (n=100)

26

Average perceived need forassessment and remedial action in various areas

1,7

2,62,5 2,4

2,22,1

1

1,5

2

2,5

3

3,5

4

Tax obligations Reporting andaccounting

IT systems Sales Purchasing Humanresources

4 = great need

1 = no need

Base: All companies that believe the EU enlargement will increase the need to evaluate the company structure and decision making processes (n=34)

27

Average perceived need forassessment and remedial action in various areas

2,2

1,91,71,7

2,62,5 2,4

2,22,1

2,4

2,22,1

1

1,5

2

2,5

3

3,5

4

Tax obligations Reporting andaccounting

IT systems Sales Purchasing Humanresources

Total Firms with 100,000 Euro budget or more

4 = great need

1 = no need

Base: All companies that believe the EU enlargement will increase the need to evaluate the company structure and decision making processes (n=34) and have a budget of over 100,00 Euro for adapting to EU enlargement (n=11)

28

Changing company structure: Costs

Yes14%

No86%

25%

25%

50%

0% 10% 20% 30% 40%

0-50,000

50,000-100,000

Over 100,000

How much do you expect changes in yourcompany structure to cost?

Base: All companies (n=100)

Base: All companies which were able to answer(n=100)

Do you have a budget for changing the company structure?

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