The Czech Republic has beaten Poland to attract Nexen Tire Corp to invest 829 million euros ($1.1 billion) in its first plant in the European Union as the South Korean company expands outside Asia.
“To win this new major investment, the Czech side has had to fight until the last moment against a competing Polish offer,” Czech Industry Ministry Jan Mladek told The Wall Street Journal late Monday. “Therefore we have chosen a mix of several incentives such as subsidies for creating new jobs, subsidies for strategic investments, tax breaks and a partial compensation for the local (Czech) administration to buy [an] additional building plot [to be used by Nexen].”
The beauty contest of investment aid to attract Nexen reflects greater competition among ex-communist countries in the EU’s east, who are competing to lure large, labor-intensive manufacturing investors and create jobs.
Before picking its Czech site near the city of Zatec, 90 kilometers west of Prague, the South Korean company also considered building its plant in the Polish town of Ujazd, 300 kilometers south-east of Warsaw near the Czech border.
Mr. Mladek and Nexen officials declined to provide specific details on the value of total investment incentives for the South Korean company. Both parties will release additional information on the incentive package next Wednesday at the signing ceremony of the contract, Mr. Mladek added.
Large investors like Nexen can typically qualify for tax holidays or reduced profit taxes for up to 10 years and additional subsidies of about 5% of their total capital investments.
The South Korean company already supplies tyres, manufactured in Asia, to several major car makers in the Czech Republic such as Hyundai Motor Co.Ltd. and Volkswagen AG’s unit Skoda Auto AS. Nexen also already sells its tyres to the Slovak-based Hyundai’s affiliate Kia Motors Corp.but Monday’s move should help to cement the Czech Republic’s status as a car-making heavyweight in the EU.
“The government decision to approve the investment agreement with Nexen is a clear signal that the Czech Republic is firmly interested in attracting new investors,” Prime Minister Bohuslav Sobotka said.
Nexen’s Czech unit, due to open in 2016 and create more than 1,000 jobs, will be the tyre maker’s fourth plant, after two sites in South Korea and one in China.
Nexen, which has fought hard over the past several decades against its bigger South Korean competitors Hankook Tire Ltd. and Kumho Tire Inc., also operates research facilities in Germany and the U.S. Nexen has also mulled investments in tyre-making plants in the U.S. and Latin America as it seeks to expand globally.
Nexen produces more 30 million tyres a year and its Czech plant should help it boost its annual global output to 60 million tyres by 2018.
Czech and Slovak automobile makers are expected to make more than 2 million passenger cars this year. Several key auto-part makers, including German tyre maker Continental AG, also operate manufacturing sites in both countries.