Hydro and the new EU: Ready, set, go...

April 30, 2004, 14:00 CEST

The pluses are expected to outweigh any minuses for Hydro following the expansion of the European Union from 15 to 25 members on May 1 - creating a marketplace with nearly 500 million consumers.

"We're ready to go," says Ferenc Havasi, managing director of Hydro Aluminium's automotive castings plant in Györ, in new member state Hungary, which already does most of its business with existing EU countries.

The former VAW plant, which makes close to one million cylinder heads and engine blocks per year for Audi, BMW, GM Opel and Renault, has used the euro as its "house currency" since 1996, Havasi explains. During the past six months "we've been training all our people and have changed all our softwares."

Györ employs a total 510 personnel – some 460 of which are production workers and the rest white-collar.

Clearing customs

Havasi foresees direct benefits stemming from streamlined trans-border procedures.

"We'll now be able to get spare parts and goods more quickly. Before, it took two days to clear customs. Faster clearance also reduces transport time. We should save about 1 percent in total operations costs."

Richard Elliott, managing director of Hydro Aluminium's extrusion plant in Chrzanów, Poland, largely echoes Havasi's expectations.

Some 3,400 tonnes of the comparatively small plant's total 11,000 tonnes of sales last year went to EU countries. A total 5,900 tonnes was sold in the domestic Polish market, another 1,500 tonnes was exported to fellow new EU members, the Czech Republic and Slovakia, and the remaining 200 tonnes went to Russia and the Baltic countries. Chrzanów mainly produces profiles for the building construction and office and domestic furniture industries.

Other anticipated benefits from EU membership will be "resurgent foreign direct investment seeking local supply, greater deregulation, privatization and more open competition, and the eventual adoption of a common currency," predicts sales manager, Zbigniew Seibt.

Both Elliott and Seibt express hope for forthcoming EU infrastructure funds to improve Poland's roads and highways.

Paying dues

"We'll definitely benefit from the easier access to markets, but it'll take some time before foreign companies treat new member states as full participants," says Seibt.

Indeed, the New York Times recently wrote "when the European Union expands this spring, it will shift from a plush club into a street bazaar of countries differing in stature."

"The improved perception of being a member of the same club makes us a good trading partner… and will generate more business," says Elliott, a UK native married to a Polish citizen.

Heading west

One worry is a mass exodus of bright young Poles to the west. Unemployment in Poland currently hovers at 20 percent and it's estimated close to half of all new college graduates cannot find jobs. Poland's highly educated workforce and low production costs have been key incentives for foreign manufacturing investment.

"Studies talk about some three to four million people migrating from Central to Western Europe during the next 25 years," says Elliott. "Everyone predicts a two-year period of migration of highly skilled people, but then it's expected to taper off."

Conversely, waves of immigrants from former Soviet republics, such as Ukraine, Belorussia and Moldova, are anticipated to flood into adjacent new EU states looking for economic opportunities, predicts the International Organization for Migration (IOM). The anticipated host countries, including Poland, Hungary, Czech Republic, Slovenia and Slovakia, are ill-prepared to handle the newcomers, the IOM says. Years of isolation during the Cold War have kept immigrant populations at exceptionally low levels in comparison with the West.

Havasi does not expect high numbers of young Hungarians to emigrate. Unemployment currently runs at about 6 percent nationally and is just 3 percent in Györ, he says. A comparatively well-educated workforce and low production costs draw foreign investment to Hungary too.

Wages are expected to rise as a result of EU integration. Average Hungarian earnings are presently just 30 percent of the average EU worker's pay, Havasi says. He expects wages in Hungary to nearly double within five years. Remarkably, Poland has held inflation to just 1.7 percent per year, Elliott points out.

Havasi, Elliott and Seibt all agree being part of Hydro puts their operations way ahead of the curve when it comes to meeting new EU environmental and safety guidelines. Less-modern operations will pay the price to catch up, implies Havasi.

"Hydro has very high standards… we're absolutely greenfield – and we're totally prepared to join the EU."

IN BRIEF – Hydro and the new EU members

  • Hydro’s presence in the new EU member countries includes two wholly-owned production facilities in Poland and Hungary – respectively, the Hydro Chrzanów extrusion plant, with 95 employees, near Kraków, Poland; and the Hydro Györ automotive casting factory, with 510 employees, in Györ, Hungary.
  • Hydro also owns a 20 percent stake in primary aluminium producer Slovalco, in Slovakia, and has a long-term supply agreement with primary producer Talum, in Slovenia. Hydro Aluminium also counts sales offices, especially Hydro Building Systems, in many of the new EU member countries. 
  • The Markets unit (formerly Hydro Energy) of Hydro Oil & Energy has established contacts in the Czech Republic and Poland. 
  • The new EU member countries are Cyprus, the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, the Slovak Republic, and Slovenia. Existing EU countries are Austria, Belgium, Denmark, Finland, France, Germany, Great Britain, Greece, Ireland, Italy, Luxembourg, The Netherlands, Portugal, Spain and Sweden.