Walking into the Prague International Airport, you may be surprised to hear Korean in addition to English translations. Is there much Korean immigration into the Czech Republic? Not particularly. But after a partnership agreement between Czech Aeroholding and Incheon International Airport Corporation, and with Korean Air investing a 44% stake in Czech Airlines just last year, it seems natural to hear Korean spoken in the heart of Europe.
As Asian countries continue their economic expansion, more companies are eying Central and Eastern Europe (CEE) and see the region as an increasingly attractive investment destination across multiple industries. While investment in the region has largely been led by China, which is poised to become the EU’s most important commercial partner, other cash-rich companies throughout Asia which seek access to growth, technology, and resources have also begun to move their capital and companies into CEE. In particular, South Korea, Malaysia and India have been paying attention to CEE’s growth potential and are looking to expand their operations there.
Asian companies regard Europe as very important in terms of technology and fundamental for development. Furthermore, Europe’s relatively open business environment tends to be more welcoming to overseas investment than the US. CEE is particularly attractive because of lower labour costs, highly skilled workforce, access to the EU market, and geographic proximity to Western Europe. Economic momentum is returning in much of the region, with GDP growing quickly in places like Poland and the Czech Republic, which saw a sharp rise in industrial production through 2013 and where regional indebtedness is relatively low. As such, CEE offers many opportunities for Asian companies to build production facilities and market their final goods throughout the rest of the EU.
With a strong industrial base and 2% growth projections for 2014, the Czech Republic is the second most attractive post-communist country in CEE for foreign investors after Estonia, and is one of the region’s most stable and prosperous. South Koreans have increased their investments in the country, with Hyundai’s recent deal to build a factory there being the third large investment project in the Czech Republic. South Korean auto manufacturers also have moved their development centres to Germany with the goal of attracting European customers, and are taking advantage of the cheaper labour and favourable production conditions in CEE. Chinese companies have also been active in the Czech Republic, like telecom giant Huawei and food processing company Shanghai Maling. The same can be said for Indian companies, whose investments in CEE range from energy to pharmaceuticals. Malaysian investments into CEE include energy, manufacturing, and telecommunications. Malaysian companies Triplus Industries and Telekom Malaysia Berhad have invested in Slovakia and the Czech Republic, respectively, and Petronas has invested €70 million in a research and development centre in northern Italy, which is also meant to target Eastern Europe.
The Czech Republic has also emerged as a possible leader for Islamic finance in CEE. With the introduction this January of changes to the law governing trust funds, the possibility of using Islamic finance structures such as mudaraba (profit and loss sharing arrangement) and musharaka (joint venture) has opened up in the country. This development will be particularly well-suited to Malaysian interests in the region. In banking and finance, CIMB Group’s Islamic Global Emerging Markets Equity Fund offers investment exposure to Sharia-compliant companies in high growth regions including CEE, and Khazanah Nasional Berhad has recently invested in Turkey with the view of strategically positioning itself to further its Eastern European interests.
CEE countries are also looking for funding and investment diversification beyond Europe. For instance, Czech industry leaders have stressed the need to target countries like China as both an export destination and for potential investors. The feeling seems mutual, as China has pledged billions in loans to help promote investment in CEE and hopes to double trade in the region to $100 billion per year by 2015. Trade between China and CEE has also been growing at 30% per year, and Chinese companies have experienced high growth in the region.
High competition within domestic Asian markets like China also fuel outbound investment. The rapidly growing number of sophisticated, middle class Asian consumers demand better brands and technology, strengthening Europe’s lure as an investment destination. While Asian investment is higher in Africa and the Middle East, increasing activity in CEE indicates that the region is an important one to watch.