Tax breaks, low labor costs and the benefits of collocation are resulting in a rush of investment in Eastern Europe by flat-panel screen and TV makers.
Japanese and South Korean companies have committed hundreds of millions of euros to the region in recent months as they look to satisfy fast-growing demand from western European consumers for flat-panel plasma and LCD (liquid crystal display) TV sets. Sales in Europe totaled 10.9 million sets last year, more than double 2004, and this year sales are expected to almost double again to 20.5 million, according to DisplaySearch.
At present, many of these sets or the components that go in them are produced in factories far away from Europe and shipped to the continent: a time-consuming and expensive operation that also attracts import taxes of 14 percent. With sales on the continent rising it's now becoming economically feasible to make the sets in Europe and save on the taxes in the process.
Leading the manufacturing charge is Poland, which has so far this year seen Sharp and LG.Philips LCD both start construction of LCD module plants. The factories will take bare LCD panels produced in Asia and add components such as backlights and driver chips to produce a finished module. The modules are later combined with other parts like tuners, power supply and case to make a television set.
This week Toshiba said it is talking with the Polish government about building an LCD TV plant in the country. The factory will triple Toshiba's production of LCD TVs in Europe, according to a Japanese press report.
Nearby Hungary is also attracting investment. Samsung has begun construction of a factory near Budapest that will initially make 42-inch PDPs. In the Czech Republic, Japan's IPS Alpha Technology, a joint-venture between Hitachi Displays, Matsushita Electric Industrial (Panasonic) and Toshiba, intends to build an LCD module plant. The plant's proximity to other planned LCD TV factories will also lead to savings as it will be cheaper and faster to ship modules.
In Russia, South Korea's LG Electronics has just opened a TV factory near Moscow while Panasonic plans to start making LCD TVs in that country later this year.
Behind the rush to Eastern Europe is a fierce battle for market share among TV makers. Companies like Sharp, Sony, Panasonic and Samsung are trying to grab a chunk of the market as it expands because that's much easier than coming in later and pushing out established brands. Price is often key to this battle, but cutting costs can be difficult.
The price of the display panel, the most expensive component in a flat-panel television, is relatively difficult to reduce and there isn't much difference in price between all the major makers, said Hisakazu Torii, director of TV market research at DisplaySearch in Tokyo. That leaves the companies looking at cost savings in other areas.
"One method is to use local manufacturing, assembly and labor and companies are moving from higher labor cost regions to those with lower labor costs," he said.
There's no doubt that it's cheaper to employ workers in Eastern Europe than in countries like the U.K., which have traditionally been TV manufacturing bases for companies such as Sony.
Production workers in manufacturing were paid an average of US$5.72 per hour in Hungary and US$5.43 in the Czech Republic, according to 2004 data compiled by the U.S. Department of Labor. In comparison the same hour of work earned U.K. workers US$24.71, German workers US$32.53 and Norwegians US$34.64.
"Fifteen years ago many Japanese TV factories were built in the UK," said Torii citing Sony's plants South Wales as evidence. "But they were closed down last year and the trend is moving to East Europe."
For European consumers this all adds up to good news -- as long as your western European job isn't being lost to the east of the continent. The lower costs and high competition mean that prices of TV sets are tumbling. The average selling price of an LCD TV was 9 percent lower in the first quarter of the year against the same period a year earlier, said DisplaySearch.