“The example of the US-based corporation Jabil Circuit shows that international producers are interested in locating their production facilities on the territory of Ukraine. The country’s advantages of location and high-skilled inexpensive labor appeal to them but the state’s inconsistency in treating investors scares.”
On Dec. 11, 2006, Expert, a Ukrainian business magazine, published a feature on Jabil Circuit Ukraine, a subsidiary of the US-based EMS giant. Below is an abridged translation/rewrite of the story originally written in Russian and titled Telephone Signal from Uzhgorod.
According to Jabil Circuit Ukraine CEO Philippe Costemale, the plant in Uzhgorod presently makes streamers for Hewlett Packard, and a model of mid-end camera phones, 50,000 a week, for a vendor that does not want to make it common knowledge that the phones are manufactured in Ukraine.
The company is expanding, constructing new premises and phasing in its production lines: at least one more will be commissioned by the end of this year, and yet a few more in early 2007. From January, they are going to produce several cell phone models. “The entire production is ecologically clean, and meets all requirements of the European Union,” says Mr. Costemale.
When Jabil invited Mr. Costemale to take office of the subsidiary’s general director, the corporation had not yet had a common opinion of what would be the best place to locate the new enterprise. Mr. Costemale insisted on Ukraine. Among its advantages he cited not only its geographic location – close to the European market and next door to a Jabil plant already operating in Hungary – but also the high skills of its labor force against the low level of wages.
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Says Mr. Costemale: “Ukraine has a better skills training system for the electronic industry comparing to Bulgaria or Romania. I hate seeing clever, industrious and well-educated people forced to look for employment abroad. It’s a tragedy for both the person and the country, because Ukraine through its education system is financing training of specialists for other states, which are its competitors.”
US-based Jabil Circuit is one of the world’s top six providers of electronic manufacturing services (EMS). Products manufactured by Jabil Circuit are supplied to markets under many renowned brand names including Philips, Hewlett-Packard, Cisco, Alcatel, IBM, Nokia, Siemens, and Valeo.
Due to low production costs, EMS companies have been lately receiving increasingly more orders. Besides their flexibility in allocation of manufacturing resources, they save additionally by moving their facilities out to cheap-labor regions. Most profitable in terms of wage is to build plants in China or Vietnam. However, even a few weeks necessary to deliver products from Asia can result in defeat in competition on the kaleidoscopic European market. That is why Jabil, as well as other manufacturers, tend to locate their production facilities as close to the European Union as possible, keeping a hopeful eye on Bulgaria, Romania, Ukraine, Russia, and North African countries.
Jabil started up its Ukrainian subsidiary in 2004, acquiring a status of free economic zone (FEZ) entity. In March 2005, however, the privileges once granted to FEZ entities were cancelled. In November of that year, the government returned some of the privileges.
Before the fall of 2006, Jabil had invested in Ukraine about $11 million. By now, the corporation has spent an additional $20 million to build a new plant, including $18 million on construction itself and $2 million on local infrastructure development. Another $20 million is being invested in equipment, thus bringing the total investments in excess of $50 million. The company is also planning to invest about $40 million in the second plant construction phase, of which completion is expected before 2010.
“While investing in the plant construction, we fear that Ukraine will not grant privileges to FEZ. In that case our investments will not produce a result as expected,” says Mr. Costemale.
According to the CEO, favored treatment of investors is required to ensure that they feel in Ukraine at least as secured as they do in Romania or Bulgaria. On Jan. 1, 2007, the two countries will become EU members, and this implies fast solution of customs issues and absence of VAT refund problems. Jabil’s competitors Solectron and Celestica are building their plants in Romania, where they will be able to benefit from the special economic zone treatment. “Our competitors will get significant advantages. We’d like to operate in conditions that are not worse than those enjoyed by our competitors,” Mr. Costemale explains.
Jabil Circuit, established in 1966, employs 65,000 persons at over 45 design, manufacturing, and repair facilities worldwide. Its net revenue for the fiscal year 2006 increased by 36 percent against the preceding year to $10.3 billion. In 1993, Jabil entered the European market, with Livingston in Scotland becoming the company's first international location. The same year it completed initial public offering on the NASDAQ. Since 1998, Jabil’s stock has been traded on the NYSE.
Source:
http://www.jabil.com/