Studies Eastern European Markets
Eastern European Markets
August 2007

Tuuli Mirola
European Union Eastern Enlargement - Expectations and
Experiences of Doing Business in the New Member States

Publication 39, NORDI Series
ISBN 978-952-214-358-7 (paperback)
ISBN 978-952-214-359-4 (PDF)
ISSN 1459-6679
Lappeenranta, 2007

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The impact of the enlargement has been difficult to estimate, especially since the distribution of effects between the old members and the new ones, and also the distribution within these groups, was likely to be uneven. The effects have also been likely to become more measurable in the medium term to long term, rather than immediately. Indeed the impact was estimated to be rather limited for the European Union in the first years after the accession, as the realization of growth effects also needs time. However, the psychological effects of dismantling the frontiers barriers may have had an even larger effect. Trade had been impacting the old EU countries and the Europe Agreements had helped EU business to expand their market already before the 2004 and 2007 enlargements. This had resulted generally in trade surplus of the old EU with the accession countries.

The largest enlargement impact in the EU15 is felt in the eastern border zone with the NMS-10, especially in Finland, Germany and Austria. It has to been born in mind though that the impact varies greatly across sectors also. Bearing these limitations in mind, the current study relies heavily on survey results which reflect the subjective opinions and perceptions of the business community. How the enlargement impact has been felt in the companies’ practical operations and what have been their responses form the basis on the understanding of the total effects of the enlargements. It is only through the actual performance of the companies that the benefits or disadvantages realize. Statistics and other calculations concerning the various issues related to business environment in the enlarged unions complement the survey data. Business community’s expectations in the old EU countries before the 2004 (and 2007)

European Union eastern enlargement were not unanimous. Some industries expected more opportunities, some more threats arising from the enlargement. The situation was similar among individual enterprises. Some feared the potentially increasing competition up to the point that they were concerned about their own survival, while others saw a new era of market expansion. Cost and price levels in the accession countries were on one hand feared to increase competition, but on the other hand offer opportunities through, for example, FDI in the new member countries. This was also expected to result in relocation of EU15 manufacturing industries to the new member states. Favourable cost levels in the NMS-10 have indeed been utilized especially by labour intensive industries. However, this has necessarily not resulted in relocation of the whole business to the new member states but restructuring of activities. Labour intensive business activities such as assembly have been located to the NMS-10 while for example the share R&D activity has increased in the home country.

To some extent, companies have been rethinking also their global location strategies. New member countries are seen as an alternative for China, for example. Production located in the NMS-10 is competitive with China in terms of productions costs and logistically location near the consumers and the growing markets in Europe provides an advantage in favour of the NMS-10.

Generally, the major expectations included increasing competition and at the same time opportunities related to larger European home market have been fulfilled. However, long term effects remain to be seen especially in the light of further enlargement of the European Union.

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