What is the Current Exchange Rate Regime used by Poland?
The national bank of Poland has intervened largely to help and aid Zloty. Within the quarters of 2011 and 2012, zloty’s exchange rate has changed enormously, with respects to Euro. Starting from the year 2007, zloty to dollar and euro rate was upto 1.47. It was more reduced to 1.39 in 2008, and slowly and gradually came to 1.26 in the year 2013. Between 2011 and 2012, NBP has helped their country’s curreny to be stable, but the affects were different. They have used this policy to stabilize their economy. This is due to the euro zone crisis. Now, this present exchange rate can be profitable and nonprofitable for the economy at 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 have made the exchange rate of zloty constant, in order to help the GDP of the country, as the crisis of euro zone have an impact on it. They will stick on a low exchange rate.
Would you expect Poland to join euro zone in the short term?
If Poland wishes to join the euro-zone, 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, on a short term, they have a public debt of about 56.1% and their euro zone investment is 88.2%. The banking system has also been helping the economy grow, so in order to make it more efficient, they can be involved in the euro-zone. Once they stabilize their economy, they can come back to zloty as a currency.
What is your outlook for Spain as a member of euro-zone?
When the euro-zone growth turned negative, spain had gone into recession. This was because of their GDP not being strong. It resulted in, Spain being in debt, banking system inbalance, and disorder of the import/export system. The government made a plan of internal devaluation, where they had to cust the social and other associated costs by 40 to 50 percent. On a longer perspective, this could make a positive impact. But, on a shorter note, this can lead to disrupt. This also resulted in economy of the country going into failure, which made investors going away, thinking the country will bailout in such situation. However, on current state, their GDP is to grow at 1.2 percent in the year 2014-2016. Being in the euro-zone, the risk of inflation is also implied. The company will want to increase prices, in order 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 euro-zone, because of the currency exchange rate coming down from, $1.40= €1 to $1.28= €1. It is forecasted to reduce more in 2015, from $1.28= €1 to $1.20= €1. Overall, Spain had not been a good member of the euro-zone, and needs to bring their economy and other factors in shape, to remain in the zone.
Considering all the inclusive labour costs to be a primary determinat in locating its plant, where should Min-Soo recommend that Hyundai should place their power-train plant?
Min-Soo did an analysis of whether to place the plant in one of the euro-zone countries which includes Spain, France, or to place it outside the euro-zone countries like Poland. The analysis is likely to be wealthy in order to make a decision. As spain, has been in recession and they are looking for such opportunities to strengthen their economy, they are offering incentives from the local governments, with tax holidays and consessionary 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 recession, reduces employment rate. So spain were giving skilled and a low wage labour in order to help both Hyundai and the government of Spain.
Where on the other side, Poland has an industrial park in the city of Gdansk. They were not offering any tax incentives, financing can be done on a market price of 6.5 percent for a three year contract. The main thing was, they had labour rate of 20 percent cheaper than spain, but mostly handicap or unskilled. Absenteeism was to be at 2 percent, and spain had at 5 percent.
After detailed analysis, Hyundai is a company which produces top notch cars, and efficient machines. In order to maintain their standards, they need to have skilled labour, other benefits like tax exemptions, discount in financing and low wage cost of labour, with productive results. Hyundai should go on with Spain, as their location of power-train plant. As promised, cost of labour will low, as the country is on recession and have less employment opportunities. So, they can have a good team of workers to take their process through, and in a cost efficient manner.