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Restructuring in the Electrotechnics Sector in Slovakia: A Case Study of BEZ Transformers

This case study explores the restructuring process of BEZ Transformers in the electrotechnics industry in Slovakia, discussing the challenges faced, the role of privatization, and the company's success in the post-restructuring period.

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Restructuring in the Electrotechnics Sector in Slovakia: A Case Study of BEZ Transformers

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  1. “Restructuring in the electrotechnics sector in SlovakiaBusiness View.”CCMI3rd Public HearingBulgaria, Latvia, Lithuania, and SlovakiaComparison of Industrial Transition ModelsSofiaOctober 7, 2008 Jan Oravec PresidentEAS

  2. The Entrepreneurs Association of Slovakia (official abbreviation “EAS”), • the first organisation of private businesses established after the “Velvet revolution” in November 1989, • 700 companies, • 20 000 employees

  3. 65 companies from electrotechnics, electronics, and ICT • established in 1991 • the largest employers organization in the electrotechnics industry in Slovakia, • Negotiating conditions of sectoral agreements in sectoral bargaining

  4. ELECTROTECHNICS INDUSTRY IN SLOVAKIA • Siemens operating in Slovakia for more than 100 years • A tradition of automotive electro equipment for military • A tradition of innovation – Jozef Murgas as one of the first telecommunication innovators • (1904 US Patent: Apparatus for wireless telegraphy) A long tradition on a territory of Slovakia

  5. SLOVAKIA Pop.: 5.4 mil. Austro-Hung. monarchy:until 1918 Czechoslovakia: 1918- 1993 Com.:1948-1989 Independent SLOVAKIA: 1993 EU: May 1, 2004

  6. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIACASE STUDY Schuckert factory 1902 BEZ TransformátoryBEZ Transofmers(BEZ - Bratislava Electrotechnical Company) BEZ Transformers 2008

  7. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIACASE STUDY 1946: Nationalised and operating as a SOE1990:Transformation shock 1. The break-up of the Soviet block2. The break-up of Czechoslovakia3. Company inefficient:*with employers not accustomed to work*with managers not accustomed to compete4. most of customers lost

  8. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIACASE STUDY Company privatised by a group pf individual owners for about € 330 000 1996

  9. PRIVATISATION • In early 1990s considered as the major method of restructuring (although a theoretical debate on a proper sequencing actually never ended) • In all cases where privatisation was delayed (banking sector, energy sector, and other so called “strategic” industries) restructuring costs were much higher and eventually taxpayers were paying the significant part of it

  10. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIACASE STUDY • Focused on their core business • Carved out all non-core activities • Increased efficiency by cutting the workforce from 650 to 230 • Recovered the BEZ traditional markets by opening offices in the Czech Republic and Russia New BEZ owners restructured the company

  11. Unfovourable macroeconomicframework • Wrong policy mix (fiscal policy – expansionary, monetary policy – cautious) • Integration efforts (EU, OECD, NATO): Slovakia lagging behind its peers (Czech Republic, Hungary, and Poland) • Private sector destabilised

  12. Reform effortssince 1998 • Labour Market Reform • Flat Tax Reform • Pension Reform • Business Environment Reform • School System Reform (1/2) • Health Care Reform • Fiscal Decentralisation Reform

  13. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIACASE STUDY • Company benefited from reforms (especially 19 % flat tax, labour market reform, and other improvements of business environment) • Company benefited from membership of Slovakia in EU and other international organisations

  14. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIACASE STUDY EU membership was a key to rebuilding of the BEZ business • Untill 2004: company not considered as a reliable partner by companies from EU 15 • After 2004: company started to supply many partner companies from EU 15 MAY 2004: Slovakia joining EU

  15. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIACASE STUDY • 2004: acquisitionin the Czech Republic (buying a former transformer division of Skoda Plzen) • 2005: winning € 6.5 m Daimler Chrysler group contract • Today: supplier of E.on, RWE, VW, Siemens, two Austrian energy companies, etc. 2004 - 2005: FOREIGN EXPANSION

  16. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIACASE STUDY » 90 % of its production exported» 2007 sales totalling € 57 mil.» 2007/2006 sales jumped by 55 %

  17. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIACASE STUDY

  18. Electrotechnics Industry in 1989 • 28 companies • 67 000 employees (down to 28 000 in 1993) • typical size: 3 000 employees • lack of specialisation • low quality production

  19. The Current Situation of the Electro-technical Industry • The employment growth(72 000 in 2004, almost 80 000 in 2006), • Dynamic growth of production: 2007/2000 almost 200 % • The sector share on both exports and imports more than 20 % • The sector created 12.5 % of the value added in a manufacturing industry in 2006 (9 % in 2001), 3.1 % in economy • Positive manufacturing experience of investors in Slovakia leadsto manufacturing capacity expansion

  20. The Most Significant Producers in Slovak Electro-technical Industry in 2007

  21. Production of the Most Significant Electro-Producers in Slovakia Samsung ElectronicsLCD monitors, plasma, printers, SlovakiaMP3s, home-cinemas up to 10 million LCD modules Sony Slovakia3 million LCDs TV-Bravia (in 2008) Siemens: Osram Slovakia 5 000 types of products revenues:Euro90million in 2006 / 2007 BHS Drives and Pumpsabout 5 million electro motors for BOSCH per year SE Bordnetze – Slovakiafiber and electric cords (Euro 240million)

  22. Electotechnics Companies Ranking in TOP SLOVAK 200 by Total Sales • 2 in Top 10 • 4 in Top 50 • 11 in Top 100 • 24 in Top 200

  23. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIACASE STUDY • Privatisation used successfully as a restructuring tool, • New owners developed appropriate strategy (a combination of internal adjustments and external expansion), • Company also benefited from renewed investments in electricity grids worldwide due to high oil prices, • Company: regional winner, still growing quickly SUMMARY

  24. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIA SUMMARY • SPONTANEOUS RESTRUCTURING WORKED WELL (no restructuring policy, no state aid policy, later tax incentives) • PRIVATISATION WORKED WELL (majority of new owners responsible, asset tunneling minor phenomena)

  25. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIA SUMMARY (cont.) • PUBLIC POLICY MIXED PERFORMANCE (esp. fiscal policy) • BIG GROWTH POTENTIAL (if constraints will be removed) • BIG DOWNSIDE RISKS (export dependency)

  26. RESTRUCTURING OF ELECTROTECHNICS INDUSTRY IN SLOVAKIA SUMMARY (cont.) Major problem and challenge (both at corporate and policy level) • Lack of skilled labour force as a result of slow response of government and schools

  27. Thank you for your attention!

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