The National Bank of Poland has intervened largely to help and aid Zloty. Within the quarters of 2011 and 2012, the zloty’s exchange rate has changed enormously with respect to the Euro. From 2007, the zloty to the dollar and euro rate was up to 1.47. It was reduced to 1.39 in 2008 and slowly and gradually came to 1.26 in the year 2013. Between 2011 and 2012, NBP helped stabilize their country’s currency, but the effects were different. They have used this policy to stabilize their economy. This is due to the eurozone crisis. This present exchange rate can be profitable and nonprofitable for the economy in different situations. When selling, it is profitable because the exchange rate is low. But, when buying, it will be riskier for the country to do so. Poland’s government has made the exchange rate of the zloty constant to help the country’s GDP, as the eurozone crisis has an impact on it. They will stick to a low exchange rate.
Would you expect Poland to join the eurozone in the short term?
If Poland wishes to join the eurozone, they can join it because they have their GDP in control, producing more outputs and maintaining their position. If they tend to invest on a longer term, it will a risk of the economy to stabilize. But, in the short term, they have a public debt of about 56.1%, and their eurozone investment is 88.2%. The banking system has also been helping the economy grow, so they can be involved in the eurozone to make it more efficient. Once they stabilize their economy, they can return to zloty as a currency.
What is your outlook for Spain as a member of the eurozone?
When the euro-zone growth turned negative, Spain had gone into recession. This was because their GDP was not strong. This resulted in Spain being in debt, an imbalance in the banking system, and disorder in the import/export system. The government planned internal devaluation, where they had to cut the social and other associated costs by 40 to 50 percent. From a longer perspective, this could have a positive impact. But, on a shorter note, this can lead to disruption. This also resulted in the country’s economy failing, which made investors go away, thinking the country would bail out in such a situation. However, in the current state, their GDP is expected to grow by 1.2 percent in the year 2014-2016. Being in the eurozone, the risk of inflation is also implied. The company will want to increase prices, to control the deficit, which can result in weaker demand and situation remaining the same.
It is also feared that Spain will be forced to leave the eurozone because the currency exchange rate is coming down from $1.40 €1 to $1.28 €1. It is forecasted to reduce further in 2015, from $1.28 €1 to $1.20 €1. Overall, Spain has not been a good member of the eurozone and needs to bring its economy and other factors in shape to remain in the zone.
Considering all the inclusive labor costs to be a primary determinant in locating its plant, where should Min-Soo recommend that Hyundai place its power-train plant?
Min-Soo analyzed whether to place the plant in one of the euro-zone countries, including Spain and France, or outside the euro-zone countries like Poland. The analysis is likely to be wealthy enough to make a decision. As Spain has been in recession and is looking for such opportunities to strengthen its economy, it is offering incentives from the local governments, with tax holidays and concessionary financing. The department of tarragora in Catalonia, Spain have offered a five-year corporate tax exemption on profits, first three years, Hyundai were given an annual rate of 2 percent for consessionary financing and 40 percent rate of capital expenditures. Being in a recession reduces the employment rate. So, Spain gave skilled and low-wage labor to help Hyundai and the Spanish government.
On the other hand, Poland has an industrial park in the city of Gdansk. They were not offering any tax incentives; financing can be done at a market price of 6.5 percent for a three-year contract. The main thing was that their labor rate was 20 percent cheaper than Spain’s, but the workers were mostly handicapped or unskilled. Absenteeism was to be at 2 percent, and Spain had at 5 percent.
After a detailed analysis, we can see that Hyundai is a company that produces top-notch cars and efficient machines. To maintain their standards, they need to have skilled labor, other benefits like tax exemptions, discounts in financing, and low wage cost of labor, with productive results. Hyundai should go ahead with Spain as their location for the power-train plant. As promised, the labor cost will be low, as the country is in recession and has fewer employment opportunities. So they can have a good team of workers to take their process through cost-efficiently.
