Motoring to Rzeszów

The formation of a new automotive cluster together with the completion of the A4 highway could bode an economic regeneration for Poland's Podkarpackie region. By Alex Hayes It’s easy to denigrate Poland’s automotive tradition: “I’ve often wondered what it was that drove Lech Wałęsa to stand up to the mightiest military machine the world had ever seen. Why did a shipyard worker from Gdańsk take on the Soviet Union?” automotive journalist Jeremy Clarkson once mused while reviewing the Polish-built FSO Polonez. “Well now it’s becoming abundantly clear: The man wanted a new car.” Indeed when one thinks of motoring, Poland is not the first country that normally springs to mind; however, what most people do not realize is that the automotive industry now accounts for around 11 percent of Poland’s industrial production, with established car producers such as Fiat, Opel, Toyota, and Volkswagen operating factories in the country. Most of the vehicles produced in Poland are exported to the rest of the European Union. Frequently, governments view the automotive industry as one of the most attractive industries, since one vehicle assembly plant will often encourage a host of automotive suppliers to set up their factories in the same vicinity. In February this year, Ryszard Jania, the president of Nissan Sheet Glass subsidiary Pilkington Automotive Poland, a manufacturer of windshields, also became the president of the East Automotive Alliance, an association of automotive companies with factories in and around the Rzeszów area. Apart from Pilkington itself, other automotive suppliers within the association include Goodyear metal part producer Kirchhoff Automotive Polska from Mielec; wheel producer Uniwheels Production from Stalowa Wola; piston producer Federal Mogul from Gorzyce and Lear Corporation Poland from Mielec. Together these companies, which form the basis of the new automotive cluster, already employ 13,000 people with a joint turnover in excess of PLN 6 billion. Looking for synergies The association is the brainchild of Jania, who explained the reasons for its establishment thus: “We came to the conclusion that despite the fact that the companies that are concentrated in the north of the Podkarpackie region produce different components for cars, they have a lot of common interests. These can be related to production technologies, organizing working processes or quality and environment management systems. Some of these things we can do together and as a result more effectively. There are also a certain number of fields that need to be researched. We want to examine, among other things, the waste produced at each individual factory and look into whether it can be managed in some sensible manner between the different companies. We will also be looking at logistics and transportation issues, both internal and external. Certainly, over time we will find other areas where synergies are possible.” There is no doubt that such clusters can dramatically improve the production capacity of various industries. “Other businesses and their subcontractors are likely to follow in the footsteps of companies such as Pilkington, Goodyear, Kirchhoff Automotive Polska and Lear Corporation Poland, and will base their operations in this area. There are many clusters faring better or worse in other Polish regions, but what is clear about clusters is that they tend to integrate companies from a given sector and attract other businesses as well,” explained Wojciech Dachniewski, a senior negotiator at Cushman & Wakefield. [negative]We would like the automotive sector to become one of the intelligent specializations of Podkarpackie, so that it will be seen as one of the brands of the region[/negative] Ready for investment Rzeszów certainly needs to improve its economic situation. Currently, the unemployment rate for the region stands at 15.3 percent, which is above the national average of 11.3 percent. JLL clearly blames this appalling situation on the region’s previous lack of infrastructure. The consultancy wrote in its Poland’s Industrial Market in 2014 report, “As simple as it may sound, access to a modern road network is a prerequisite to the development of the modern warehouse and logistics market. Only when such is in place can warehouse facilities attract large logistics market players and production companies. This condition has recently been met in the case of two cities in the eastern part of the country, namely Rzeszów and Lublin.” Robert Dobrzycki, managing partner in Panattoni Europe, agrees, “Before it was impossible to think about the Rzeszów area because of the lack of infrastructure, but now the infrastructure has brought Rzeszów closer to Europe.” Still, the city and its environs remain one of the more underdeveloped parts of the Polish industrial landscape. At the end of Q4 2014, 32,000 sqm of industrial space came onto the local market with a further 26,000 sqm under construction and 18,000 sqm vacant accounting for a vacancy rate of 12.28 percent. “The industrial supply and demand levels in the Rzeszów area are quite low, resulting largely from the region’s incomplete road infrastructure as the A4 highway and its interchanges are still under construction. The lack of good road connections hampers the growth of the logistics sector and slows down deliveries. This is one of the reasons why there are few currently active developers in the area delivering class A industrial space onto the market. The first class A multi-tenant park project has only recently broken ground near the Rzeszów-Jasionka airport, which began international operations in 2007. Demand for industrial space has come so far only from manufacturers requiring stand-alone BTS buildings for warehousing and manufacturing,” said Dachniewski. [negative]The lack of good road connections hamper the growth of the logistics sector and slows down deliveries[/negative] Panattoni first in Rzeszów Panattoni is now building its Panattoni Park Rzeszów, which will eventually offer over 38,500 sqm of modern industrial space located next to the Lufthansa cargo terminal of the Rzeszów-Jasionka airport. Over 22,000 sqm is to be completed in the first stage. It is also being built in close proximity to the A4 highway. The final section of the highway from Rzeszów East to Jarosław is now being built by Budimex and Strabag, with construction scheduled for completion by the end of the year. The road already connects the city directly with the German border. Talking about Panattoni Park Rzeszów, Dobrzycki stated that “the multiple draws for building here are the aviation business, the automotive business and also the distribution business, all of which operate near Rzeszów. The Rzeszów region has a population of 2.1 million people and there’s no single modern-age logistics space present. So, we believe, distribution to the region is also key to what we are doing here. Another reason for our foray into the region is the ignificantly improved infrastructure. I mean the airport, which we are next door to, and the A4 highway. This is changing the picture. Being first in such a location, just next to the airport, represents a major advantage.” It could be that Panattoni is one of the first to develop warehouses speculatively in the area because they already have links to the area and to Pilkington Automotive Poland. Currently, it is expanding the Pilkington factory in Chmielów. The project will add 21,000 sqm to a 35,000 sqm production hall, which was also built by Panattoni in 2012. The factory, which is located within the Tarnobrzeg Special Economic Zone EURO-PARK WISŁOSAN, will total around 90,000 sqm on completion of the work in September. Normal production is continuing while construction work is in progress and on completion, up to 300 new jobs could be created. In 2011, the Pilkington factory was named the largest investment of the year and received special recognition from the Polish Information and Foreign Investment Agency PAIiIZ. And in 2014, the factory extension was also named as one of the most important investments of the year at the 1st Polish Industrial Investment Forum. The extension project is also receiving financing from the European Regional Development Fund. We also do airplanes What other advantages does the region offer? Hubert Czub, the president of the Tarnobrzeg Regional Development Agency stressed the synergies that the East Automotive Alliance will have with another cluster in the region, Aviation Valley, which was set up in 2003 by a number of aeronautics companies. “We would like the automotive sector to become one of the intelligent specializations of Podkarpackie, so that it will be seen as one of the brands of the region, alongside aeronautics, astronautics, IT and the health and leisure sector. We are working with Aviation Valley, which is recognized as a cluster not only in Europe.” Both clusters are also closely linked to the Rzeszów University of Technology. Earlier, Pilkington Automotive Poland began its operations in Chmielów. The Polish automotive industry was largely concentrated near the Polish-German border, where it could easily serve the German market. “So far, we’ve been experiencing huge demand for the automotive sector in the west of Poland. I mean Wrocław, Legnica, Gorzów. This corridor was really interesting for automotive companies because of its proximity to Germany where the automotive sector is a key driver of the economy. The proximity to the border made a lot of sense,” said Dobrzycki. This has changed somewhat because the A4 highway has dramatically reduced the travel time between Germany and Rzeszów and the automotive industry tends to follow lower labor costs. Nonetheless, according to Cushman & Wakefield, the automotive cluster will not result in automotive producers relocating their operations: “In our opinion, the set-up of the cluster will not tempt companies to relocate from other areas of Poland. Factors at play in choosing locations for manufacturing and warehousing operations also include proximity to the client, availability of a qualified workforce, state aid in special economic zones, access to road infrastructure and proximity to many foreign markets. We do think, however, that automotive companies are more likely to expand rather than relocate to southeastern Poland.” Other warehouse developers also seem to be playing it cautiously. MLP group currently has no plans to move to the Rzeszów area despite the fact that they have started developing a 55,000 sqm warehouse park in Lublin. However, it must be remembered that there are still few speculative warehouse developments in Poland. It looks as if the economic prospects for the Rzeszów area are improving, but only time will tell what part the East Automotive Alliance will play in this regeneration.