DOUGLAS A. BOLDUC

After attracting top suppliers, Macedonia eyes bigger prize

Douglas A. Bolduc is managing editor at Automotive News Europe.
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Macedonia has spent the last decade establishing itself as open for business to global automotive suppliers because of its availability of skilled, low-cost labor, proximity to key European markets and its willingness to provide generous tax incentives. It has also made reforms that have improved its place in the World Bank’s annual ease of doing business ranking to 10th out of 190 economies, up from 94th in 2006.

Since 2007 partsmakers such as Delphi, Adient, Lear, Johnson Matthey, Kostal and Key Safety Systems have opened factories in Macedonia. The small country, which used to be part of Yugoslavia, also is currently negotiating with more than 15 existing and new suppliers about future investments, said Viktor Mizo, CEO of Macedonia’s Directorate for Technological Industrial Development Zones.

Today, the country of 2.1 million people has about 20,000 automotive jobs that pay an average of about 400 euros a month. Auto components accounted for nearly half of the country’s 4.3 billion euros in exports last year.

Mizo expects the number to rise again in 2017.

All of this is happening despite the country not having an official government since last December and recent demonstrations against an agreement that would ensure the wider use of the Albanian language. Things got heated on April 28 in the Balkan state, which has a Slav majority and a large ethnic Albanian minority.

But, the internal challenges haven’t slowed the country’s rise so it was not a big surprise when reports surfaced in early 2016 that Aston Martin was considering Macedonia for a factory to build its first crossover. That investment ended up going to Wales, but just being mentioned as a contender proved Macedonia’s efforts to become a major automotive player were working.

Next frontier

The question is whether Macedonia is ready to join neighboring countries such as Serbia, Slovakia and Romania as home to a global automaker.

With that in mind, Automotive News Europe visited Macedonia this spring and met with 10 different high-level managers working for U.S., German, British, Belgian and Chinese companies. Eight of the managers were Macedonians.

Borijan Borozanov, who runs Delphi’s electronic control unit plant near Skopje, said the arrival of an automaker would intensify the competition for labor.

“There are only so many engineers that a country of 2 million people can produce,” Borozanov said. “We already see labor pressure. If the growth is too fast it could be troublesome.”

Two other managers, who work for a leading global supplier but were not allowed to be identified, said they were unsure that Macedonia has a strong enough pool of subsuppliers. To address that weakness, the suppliers I met said they aim to source 70 percent to 100 percent of their parts locally, up from very little now.

Dragan Burnazovski, who works for a globally active partsmaker in the country, said that in most cases the local supplier base needs help: “You can’t find the suppliers. You have to develop the suppliers.”

Burnazovski added that the global suppliers are willing to make this kind of investment because they know the positive long-term effect it will have for their companies as well as for the overall economy.

They also want to locally source all non-direct parts, such as safety goggles, packaging material and office furniture. Mizo said that there are already more than 500 companies in the country benefiting from demand for direct and non-direct parts from the suppliers that have arrived since 2007.

Growing pains

Another concern about adding an automaker was what it would do to costs. “Look at some of the struggles in other eastern European countries. We don’t want to have the development happen too rapidly,” Delphi’s Borozanov said.

Inflation and wages rose sharply in Romania after Renault started making Dacia models in Pitesti in 2004. Meanwhile, automakers in Slovakia have complained for years about a shortage of skilled workers.

There is no doubt that wages will become an issue in Macedonia, but prior to the influx of automotive suppliers Macedonia’s unemployment was 38 percent. Now it is 23 percent -- and falling. Avram Stojchevski, who is plant manager at bus maker Van Hool’s massive production facility near Skopje, believes the real unemployment number is closer to 15 percent.

It was also encouraging to speak with Juri Maklakhov of German mechatronics specialist Kostal who said: “We are not looking for cheap labor. We want high quality human capital. We want to invest in the people.”

Priceless perk

Putting the potential challenges aside, Vanja Stojanovski, who runs Lear’s seat cover plant in Tetovo, said that having an automaker open a plant in Macedonia would provide something that is priceless. “Seeing your product on the street takes things to a whole different level,” he said.

A quality manager at a German-owned Tier II supplier provided the most unique solution to the potential pitfalls foreseen by his counterparts. “[The former Yugoslavia] has a tradition of automaking and now we have a lot of producers of high-quality parts active here,” said the manager, who was not allowed to be identified by name. “If one or two of those experienced managers were brought in by the automaker, then anything could be possible. We have the experts in Macedonia to help us get to the next level.”

An automaker might not pick Macedonia in the immediate future, but Burnazovski said it won’t be long before one arrives.

“At a certain point, it is going to happen because of the development we’ve already seen here. This is positive because it shows the area is growing in the right way.”

If Macedonia quells its political issues and starts preparing answers now for the forthcoming strife it will experience regarding workers’ wages, its growth will continue, which will significantly boost its attractiveness as a future site for a car assembly plant.

AUTOMOTIVE NEWS EUROPE MONTHLY MAGAZINE
This story is from Automotive News Europe's latest monthly magazine, which is also available to read on our iPhone and iPad apps.You can download the new issue as well as past issues by clicking here.

You can reach Douglas A. Bolduc at dbolduc@crain.com.

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