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Issue Report

Collection of full-length papers and in-depth analysis of economic and management issues.

Three Issues for the Eastern European Market

Three Issues for the Eastern European Market

LEE Jong-Kyu

Jan. 31, 2013

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Originally released on November 28, 2012

Two decades after the collapse of the Soviet Union, Eastern Europe has developed into an important market and production site for export to Western Europe. Its advantages in these areas, however, began to fade when rumors of sovereign bankruptcies began spreading in the region in 2009. This report examines the current state of Eastern Europe’s economies, and assesses their future for Korean businesses.

Three key issues predominate in Eastern Europe. First, is there any potential for another financial meltdown in Eastern Europe? Despite rumors of crisis, financial markets in the region have remained stable thanks to the “Vienna Initiative” reached by Western European banks and international institutions. Hungary, Latvia and Slovenia, however remain susceptible to internal and external stress. Second, is Eastern Europe still a gateway to Western Europe? The East Central region of Eastern Europe maintains notable strengths, including low export costs, a high-quality labor force and well-developed infrastructure, while new EU members in the Southeastern region have high potential due to low labor costs and EU membership. Third, what makes Eastern Europe attractive as a consumer market? In terms of GDP, Eastern Europe’s consumer market is already similar in scale to Russia’s or India’s. Although growth potential remains somewhat modest, niche markets in the region targeting middle class and senior consumers look promising.

Despite structural vulnerabilities, Eastern Europe has strong potential to invigorate the Western European economy. Korean companies can take advantage of Eastern Europe’s stable business foundation while simultaneously preparing for future wage growth and shortages of highly-qualified workers.

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