Suppliers are building more plants in central Europe.
At least nine major new projects have been announced in Poland, the Czech Republic and Hungary this year.
The Polish Foreign Investment Agency estimates that Poland alone attracted E1.7 billion of supplier investment in 1999.
Foreign investors include European, Japanese and US supplier giants.
Valeo has been among the biggest investors. Chairman and CEO Andre Navarri says the shift of labor intensive operations to central and eastern Europe is key to Valeo's industrial strategy.
Valeo has four operations in the area, with sales expected to reach $200 million this year. Andrzej Wojcikowski, area regional manager for Valeo, said the company has been attracted to the region by new car assembly plants, and by cost advantages - particularly low-cost labor.
Valeo is investing in three new plants - an engine cooling plant in Skawina, Poland; a climate control operation in Zebrak, the Czech Republic; and an electronics plant in Veszprem, Hungary. All three plants will be operational by 2001, and will export parts to western European car plants.
Despite the rapid growth of investment in central Europe, there has been little sign of western supplier investment further east in Russia and the former soviet states. Suppliers have been slow to invest in the Ukraine and Russia, says Alexander Tolkachev, a principal at consultancy A.T. Kearney's Moscow office.
Labor is cheap and the potential huge, but suppliers have been discouraged by the complexity of managing businesses in Russia and the Ukraine, and the economic problems associated with the region. Tier 1 suppliers have also been discouraged by automakers' caution about investing in eastern European markets.
'Vehicle makers' caution about the market has meant that one of the key triggers for Tier 1 supplier investment has been missing,' Tolkachev said. 'They didn't push very much for the Tier 1 suppliers to come into Russia.'