Last Wednesday marked the 20th anniversary of the 2004 EU expansion, which saw Central European countries the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia, and Slovenia all join the European Union. They were then later joined by Croatia, Bulgaria and Romania. Over the last 20 years, the accession of these countries to the EU has sparked rapid growth in the Central European region, where there has been evident investment in digital and physical infrastructure, and noticeable development in the region’s logistics sector.
The economic growth of these nations has nonetheless seen the cost advantages they originally offered begin to evaporate. Lithuania and Estonia have joined the Eurozone, while the Polish Złoty, after a rough period in the last couple of years, is strengthening again. Moreover, labour costs, although still lower than most Western European countries, have increased noticeably.
These changing dynamics mean that companies operating in Central Europe have to offer more than just a lower cost base if they are to do business with the West.
To find out the extent to which digital logistics startups in the region feel their locations offer strategic advantages, we spoke to a number of startup bosses and experts from throughout Central Europe.
Talent
One of the plus points for Central European startups appears to be availability of talent.
According to Eurostat data from 2022, most countries in the Central European region have fewer University graduates in the 25-24 age bracket compared to France, Spain, Belgium, Sweden, Ireland and the Netherlands.
However, Poland fares better than Germany, while Lithuania is ranked as one of the highest in Europe, and two of the startup leaders we talked to were enthusiastic about the talent pool they have at their disposal.
For example, Jeremy Laurens, Co-founder of Poland-based Blulog, which provides tech solutions for end-to-end supply chain & storage visibility, told trans.iNFO:
“Since the beginning of our company this has always been the number 1 criteria of why we are located in Poland and especially Poznan. We have always found the right talent.”
Jevgenij Polonis, CEO of supply chain management software company GoRamp, also told trans.iNFO of how Lithuanian companies have been able tap into talent with knowledge of the supply chain and logistics industry.
“Lithuania has always been a corridor through which many logistical flows take place, which allows to accumulate knowledge and understand not only the peculiarities of local logistics. As a result, people working in this industry often have a wider knowledge of the industry, which allows them to develop technological solutions that are applicable not only in Lithuania, but also globally.”
Polonis added:
“It’s great to see that over the last few years there has been a huge increase in the number of companies developing new technological businesses. Also, previously established technological companies and their significant growth have become a good environment for developing the competencies of talented employees. The result of all this is local talented, ambitious specialists who, with their know-how, enable the company to grow using local human resources.”
Physical and digital infrastructure
Thanks in part to significant injections of EU funding, many Central European countries have been able to make significant investments in infrastructure in recent years, whether it be new roads, railway stations or airports.
However, according to a 2020 IMF report, the Central European region “lags the EU15 both in the quantity and quality of infrastructure”, although it is stated that some countries, like Poland, have noticeably smaller gaps.
On a more positive note, the aforementioned report adds that further increases in investment in infrastructure have the potential to go a long way in the region:
“Our model simulations suggest that if the efficiency of public investment in CESEE were to rise to current EU15 levels and coordinated public infrastructure investment were to lower non-tariff trade barriers by 5 percent, the dividend from higher investment could almost double in the long run. If appropriately calibrated, infrastructure investment need not compromise fiscal and external sustainability,” states the conclusion of the IMF Report titled ‘Infrastructure in Central, Eastern, and Southeastern Europe Benchmarking, Macroeconomic Impact, and Policy Issues’.
Despite the aforementioned infrastructure gap, the improvements seen in recent years in Central Europe have not gone unnoticed.
Danish-born Kristian Kaas Mortensen, Partner Officer at Trans.EU, has experience of setting up partnerships with global players and Central European companies. Mortensen told trans.iNFO that investment in infrastructure is something that C-level managers throughout Europe witness first-hand when they visit Central Europe’s major cities.
“Executives visiting the region for the first time are almost always very positively surprised. People are often impressed with the high level of infrastructure, people’s ability to speak English and other languages, fast internet and ease of doing business,” said Trans.EU’s Partner Officer.
Regarding internet speeds, data shows Internet speeds in Poland and Lithuania also hold up well compared to Germany (although some other CEE nations are noticeably behind).
An October 2023 study by Open Signal found Poland to enjoy better average download and upload speeds than Germany, with Lithuania having a comparatively lower download but higher upload speed. Lithuania also had a higher score than Germany when it came to consistent broadband quality.
The same study shows Bulgaria enjoys better internet upload and download speeds than any of these countries, and this is something that Bulgarian company Transmetrics, an AI platform for container management, is very much aware of.
Asparuh Koev, the company’s CEO, told trans.iNFO:
“The advancements in high-speed internet and wireless technologies have significantly enhanced our capabilities – with faster and more reliable connectivity, we can now capture, transmit, and analyse real-time data from various sensors and devices embedded within transportation networks. This increased data visibility allows us to develop new solutions that improve the efficiency of trucking companies.”
Customer expectations
While physical and digital infrastructure improvements have helped companies in the region, during the same period, some of the cost advantages CEE countries have had over their western European counterparts have somewhat eroded.
On this subject, Blulog founder Laurens told trans.iNFO:
“Service costs have indeed risen considerably in Poland and are now on par with Germany. However components costs have remained pretty stable so not that much negative impact.”
This naturally poses the question as to whether customer expectations have also changed along with inevitable price rises.
In answer to this question, Transmetrics CEO Asparuh Koev, said:
“In the CEE logistics industry, customers are now focusing more on getting value, not just cost savings, when working with technology startups. This shows that organisations understand that investing in solutions that offer real value leads to long-term benefits such as better efficiency and service quality. As a result, startups should focus on delivering innovative technologies that optimise operations, streamline processes, and maximise resource utilisation to deliver concrete value to their customers.”
Koev added:
“Customers today want personalised solutions, transparency, and exceptional service. Successful technology startups excel at meeting these demands, making them invaluable partners for businesses. They enable organisations to effectively address individual needs by fostering loyalty and trust. By prioritising innovation, flexibility and bringing the latest technologies such as AI to the table, logtech startups can adapt to market changes and position themselves as leaders in operational excellence and sustainable growth in the CEE region.”
Meanwhile, Mortensen, when asked about the value proposition offered by Central Europe and its companies, has also observed changes:
“I do believe that 15-20 years ago, Western European companies came here because of the cultural similarities and the high amount of English proficiency. At that time, the initial advantage was probably cost, but today as you know, there are Baltic countries in the Eurozone, and that’s in part contributed to a narrowing of the GDP per capita gap. Despite costs rising, most have stayed because of the high quality of infrastructure and the labour market. Today Central Europe is also very attractive for global companies seeking new growth.”
Foreign investment
Is the region an attractive destination for foreign investment then?
According to an EY report published last year, one of “the most striking features” of the data from its EY European Attractiveness Survey was the growth of FDI projects in several southern, central and eastern European states, including Poland (+23%) and Romania (+86%).
Commenting on this, Julie Teigland, EY EMEIA Area Managing Partner, said:
“This redirection from West to South and Eastern regions is at least in part due to the reconfiguration of global supply chains, as well as an inclination toward cost-competitive European locations for manufacturing and back-office operations.”
On that question of foreign investment, Transmetrics CEO Koev told trans.iNFO that Bulgaria is seen as “an attractive destination for both foreign and local investors looking to capitalise on emerging opportunities in the technology industry”. He said that lower costs, a highly skilled workforce and a favourable business climate have helped here.
The knock-on-effect of this has been, in Koev’s words, a “steady inflow of investment into Bulgaria’s technology sector, stimulating innovation, job creation, and economic growth in the country.”
“Over the past 10 years, the technology investment scene in Bulgaria has seen incredible growth and change. There are now more funding opportunities, a thriving venture capital (VC) ecosystem, and plenty of investment from both foreign and domestic sources. One of the biggest trends is the increase in VC funding – many VC firms are actively investing in Bulgarian startups in areas such as fintech, AI, and biotech. This venture capital money gives local entrepreneurs better access to funding, allowing them to implement big growth plans, expand their businesses, and grow faster. For example, Payhawk is the only Bulgarian company to have acquired unicorn status, which is a good statement of the potential for success in the country’s thriving tech ecosystem,” Koev told trans.iNFO.
Asparuh Koev, photo: Transmetrics
Public funding has also been important, according to Koev, who added:
“As a member of the European Union, Bulgaria has access to many funding opportunities such as EU grants and subsidies. These financial incentives encourage investment in Bulgaria’s technology sector, helping to build a thriving and dynamic IT ecosystem. Transmetrics has received both grants and funding thanks to many EIC-led programs such as Horizon2020 and NextGenerationEU.”