The global dimension of the economy in general and of the steel industry in particular makes the decision regarding the location of new production facilities a challenge for managers. This paper tries to provide tools that make the decision taking process easier. Is assumed that certain tax levy rates are important to this process and they are compared and analyzed. Finally, based on this analysis this paper tries to prioritize some countries in terms of their economic attractiveness in order to identify the most suitable country for placing a steel factory

L. C. Abrudan

M. M. Abrudan

T. Roman

English

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The investment location decisions in the steel industry

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263METALURGIJA 55 (2016) 2, 263-266M. M. ABRUDAN, L. C. ABRUDAN, T. ROMANTHE INVESTMENT LOCATION DECISIONS IN THE STEEL INDUSTRYReceived – Primljeno: 2015-03-13Accepted – Prihvaćeno: 2015-09-25Review Paper – Pregledni radM. M. Abrudan, L. C. Abrudan, Faculty of Economics, University of Oradea, Romania.T. Roman, Faculty of Economics and Business Administration, Al. I. Cuza University, Iași, Romania.The global dimension of the economy in general and of the steel industry in particular makes the decision regarding the location of new production facilities a challenge for managers. This paper tries to provide tools that make the decision taking process easier. Is assumed that certain tax levy rates are important to this process and they are com-pared and analyzed. Finally, based on this analysis this paper tries to prioritize some countries in terms of their economic attractiveness in order to identify the most suitable country for placing a steel factory.Key words: steel industry, economic attractiveness, costs, tax levy, decisions CURRENT CHALLENGES FOR COMPANIES IN THE STEEL INDUSTRYInternationalization involves increasing the com-plexity of the activities that companies place and at the same time, the development and diversification of man-agement tools used to manage the values of economic, political cultural elements which influence them. Currently, the metal processing industry faces many challenges. In a survey conducted in 2008 by the prestig-ious magazine Industry Week (Salary Survey) [1], there were registered approximately 1 000 responses that seek to answer the following question: “What is the biggest challenge facing the manufacturing industry today?” These responses can be grouped into several categories; of these concerns, the most important depending on the frequency of occurrence are: issues of employees, global competition, volatility of commodity prices, taxes, envi-ronmental concerns and finally, financing issues. The challenge most frequently mentioned concerns the work-force, namely the aspects of aging, skills and quality of human resources (“finding good people”) labor costs, etc., while the second most frequently mentioned chal-lenge can be expressed as one word - China: Chinese competition, the prices applied, the Chinese quality and last but not least - the economic downturn specific to China [2]. Taxes are another significant challenge for manufacturing industry. Work-related duties, income tax, and value added tax (VAT) are the issues that managers must consider in substantiating strategies and investment decisions. Environmental concerns relate to the environ-mental footprint caused by manufacturing industry. Opti-mizing energy consumption and pollution characteristic ISSN 0543-5846METABK 55(2) 263-266 (2016)UDC – UDK 669.18:65.011:338.58:336.242=111of this industry are just two of the issues that managers should focus on. In terms of funding, another challenge for manufacturing managers is developing an optimal scheme to finance their projects. This paper aims to analyze the attractiveness in rela-tion to the production of steel in the European Union countries, in order to identify the most suitable country for placing a steel factory. To this end, will be identified the main tools for substantiating the decision to place a steel factory, after which there will be selected countries which will be the subject to a comparative analysis.Finally, the conclusions of the analysis will be dis-cussed with a focus on identifying the most suitable country for placing a steel factory.POSSIBILE TOOLS TO GROUND THE INVESTMENTS PLACING DECISIONOne of the methods used by the operational manag-ers to base their decisions on the location of production facilities in a given country is the factor analysis. For example, the managers will position in Table 1 all the features that they consider important in a location for an investment, weighting these characteristics and ulti-mately achieving a score for each potential site.Thus, for an optimal placement of the steel produc-tion facilities, the characteristics can be the following:Table 1 Factor analysis model [3]Factor Rating Weight Factor-ratingEnergy availability 60 0,3 18Labor availability 80 0,2 16Transportation 40 0,2 8Supplies 90 0,1 9Taxes and regulations 70 0,1 7Infrastructure 70 0,1 7Overall Factor-Rating — — 65264M. M. ABRUDAN et al.: THE INVESTMENT LOCATION DECISIONS IN THE STEEL INDUSTRY METALURGIJA 55 (2016) 2, 263-266When completing this table in the second column are written the scores from the decider who grants them on each feature separately, and in the fourth column, weighting the scores from the second column the de-cider shall obtain in the lower left side, the total score of the evaluated location. In the same way all the alleged sites shall be assessed, and finally it shall be decided which of these is the best.This paper will not focus on all these characteristics, considering them all to be met, but it will focus on the components related to the taxes. The impact it may have on the other categories will not be denied, but it will be considered an investment on decision making based on tax considerations. In this sense will be isolated from the multitude of tax items attached to economic activi-ties only those already mentioned: taxing labor income tax and value added tax. All these attributes are the comparative advantages that a company may undergo in relation to other operating on the market. IDENTIFICATION OF THE COUNTRIES TO BE ANALYSEDTax competition is a concept that concerns the eco-nomic world for some time. Reducing the approach to one of the simplest economic concepts - market price – it is relatively easily observed that this is “tainted” by cer-tain synthetic or artificial components. These are the tax elements of the price: taxes and contributions. Authori-ties in a dichotomous situation, being concerned to pro-tect the indigenous traders in relation to foreign com-petitors, on the one hand, and to stimulate exports, on the other hand. In the first case, there is the attempt elimi-nate or reduce the comparative advantages that foreign businesses might have on the indigenous people, and in the second case it is the induction of such advantages among economic operators engaged in exportLooking at things from the perspective of managers who must base decisions on location or relocation of an investment, they are not in a position to influence trade policy of a state, but in a position to analyze market op-portunities. In this respect, tax competition is a great help. This paper provides data and analyzes differences in tax policies, and social, referring here to the estab-lishment of minimum wages. Once raised the minimum wage should be noted that the European Union, there are four classes each containing a number of European Union countries, depending on the size of the minimum wage [4]. The first class includes countries that have a minimum wage below 500 Euros in the second class the minimum wage level between 500 and 1 000 Euros and the third class consists of those, few indeed, guaranteed minimum wage income of 1 000 Euros. There is also a fourth class includes countries where this is not cov-ered. In the latter category are considered economically developed countries: Denmark, Germany, Italy, Cyprus, Austria, Finland and Sweden.This paper being oriented towards highlighting countries that have the lowest operating costs of busi-ness will not take into account only countries in the first class. These are the following: Bulgaria, Croatia, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Romania and Slovakia.To further narrow the analyzed spectrum will ex-plore the experience that these countries have in the steel production. The data provided by EUROFER [5] on the production volume of raw steel, reveals that only seven of these ten countries have experience in this area, of which only four have a level of production that can be considered significant narrowing thus, the re-search area in the following countries: Czech Republic, Poland, Romania and Slovakia. Figure 1 provides the necessary arguments to support this assertion.COMPARATIVE ANALYSYS OF THE FOUR COUNTRIES FROM THE PERSPECTIVE OF TAX ISSUES CONSIDEREDThe 2014 European Report Attractiveness Survey of the Ernst & Young Company [7], shows that in Central and Eastern Europe, the most attractive three countries in terms of foreign investment are: Poland, Czech Re-public and Romania. These three countries, along with Slovakia, are included in the comparative analysis pre-sented in this paper. As a first step of a comparative analysis, there will be analyzed the levels of tax issues set out above. These tax issues can turn into compara-tive advantages that the managers may consider in the decision making related to the investing process.In this regard, there will be studied the tax elements, characterized by a significant degree of use: VAT, in-come tax and tax items (work-related social security contributions for health insurance, for unemployment benefits, etc.). These latter aspects will be treated as a global tax burden related to the work process, but will be considered only those that are borne by the employ-er, because those that are incurred by the employees are not subject to a substantiation investment decision.For the beginning, there will be presented the abbre-viations to be used during the analytical approach, as it Figure 1  Total raw steel production (‘000 metric tonnes) 2009 – 2014 [6]265M. M. ABRUDAN et al.: THE INVESTMENT LOCATION DECISIONS IN THE STEEL INDUSTRYMETALURGIJA 55 (2016) 2, 263-266follows: value added tax - VAT; income tax - CT; and work-related social contributions which are paid by em-ployers - SSCER [8]. For a clearer picture, the data on these compulsory levies will be presented in Table 2.Table 2  Sampling quotas for VAT, CT and SSCER, for the year 2014 in the 4 analysed countries / % [9]COUNTRY Value added tax (VAT)Income tax (CT)Social contributions paid by employers (SSCER)Czech Republic 21 19 34Poland 23 19 20,74Romania 24 16 28,45Slovakia 20 22 35,2Based on the data contained in Table 2, it Figure 2 will be made in order to provide a clear view of the hi-erarchy of the countries studied, in terms of the three tax levy considered.Looking at Figure 2, and assuming that the most suit-able country for placement of steel production facilities is one that has the lowest rate of call of the three taxes, it can be said that Poland would be most appropriate.This affirmation may be true only at first glance. In-deed, referring to the data in Table 2, it can be seen that the only sampling rate to be charged less in Poland, compared to other countries surveyed, is SSCER, more precisely the work-related tax levies. Since studying them together, the three tax elements may lead to dis-torted interpretations, but also appreciating CT and VAT as having a relatively low amplitude variation sampling rates, the approach may continue focusing especially on work-related social contributions and paid by the em-ployers.In this respect, the recourse must be to a set of data on which to start the selection of countries to be ana-lyzed, more precisely the minimum wage set by their governments. If to the values of these salaries the rates of social security contributions are applied, the data in Table 3 is obtained.Figure 2  Sampling quotas for VAT, CT and SSCER, for the year 2014/ %Figure 3 Minimum wage plus related SSCER/ EURTable 3  Minimum wage established in the countries analysed and related SSCER/ EUR [10]COUNTRY Minimum wage Social contributions paid by employers (SSCER)Czech Republic 310 105,27Poland 404 83,82Romania 205 58,42Slovakia 352 123,90Based on the data in Table 3, it was developed Fig-ure 3, which illustrates the minimum cost of the em-ployer on labor force, in each of the four countries con-sidered. Based on the minimum cost of labor, the hier-archy can be as follows: Romania, Czech Republic, Slovakia and Poland.The data illustrated in Figure 3 can be correlated with the sampling quotas of income tax (CT) and value added tax (VAT), presented in Table 2. Because the val-ue added tax (VAT) has an indirect influence on costs, it can be considered that the income tax (CT) is more im-portant. Based on this association, a ranking of the four countries in descending order of costs is: Romania, Czech Republic, Poland and Slovakia. Conclusions are discussed bellow.CONCLUSIONSOn the basis of the data presented, the idea that all four countries included in the analysis present certain qualities to be eligible as potential sites for steel facto-ries, can be advanced. Although the Czech Republic and Slovakia have no access to the sea, a benefit which Poland and Romania enjoys, which relatively is a disad-vantage in terms of supply, because they are situated on a higher level of market share and the volume of the steel production in these countries being above that of Romania; this is visible in Figure 1.However, according to the report elaborated by Ernst & Young, on the economic attractiveness, it is found that the values of attractiveness for the first two teams, Poland and the Czech Republic, is on a down-ward trend over the previous year, while the figures for Romania are on an upward trend.266M. M. ABRUDAN et al.: THE INVESTMENT LOCATION DECISIONS IN THE STEEL INDUSTRY METALURGIJA 55 (2016) 2, 263-266REFERENCES[1] Blanchard Dave, The Biggest Challenges Facing Manu-facturers – Industry Week’s 2008 Salary Survey Respon-ses, Industry Week, February 2008, available online at http://www.industryweek.com/articles/the_biggest_chal-lenges_facing_manufacturers__industryweeks_2008_sa-lary_survey_responses_15759.aspx[2] Basson Edwin,  Key challenges to the sustainability of the global steel industry, World Steel Association, June, 2014, available online at: http://www.worldsteel.org/dms/inter-netDocumentList/downloads/media-centre/Speeches-and-Presentations/Edwin-Basson_Moscow-Steel-Sum-mit_030614.docx/document/Edwin%20Basson_Mo-scow%20Steel%20Summit_030614.docx.pdf[3] *** Encyclopedia of Business, 2nd edition, References for Business, available online at: http://www.referenceforbu-siness.com/management/Int-Loc/Location-Strategy.html[4] *** EUROSTAT, European Commission, available online at: http://ec.europa.eu/eurostat/home?p_auth=fvg8etmJ&p_p_id=estatsearchportlet_WAR_estatsearchportlet&p_p_lifecycle=1&p_p_state=maximized&p_p_mode=view&_estatsearchportlet_WAR_estatsearchportlet_action=search&text=minimum+wage[5] *** EUROFER, The European Steel Association, availa-ble online at: http://www.eurofer.org/Facts%26Figures/Crude%20Steel%20Production/All%20Qualities.rpg[6] *** EUROFER, The European Steel Association, availa-ble online at: http://www.eurofer.org/Facts%26Figures/Crude%20Steel%20Production/All%20Qualities.rpg[7] EY’s attractiveness survey Europe 2014, RYGM Limited, 2014, available online at: http://www.ey.com/Publication/vwLUAssets /EY-2014-european-at t ract iveness-survey/$FILE/EY-2014-european-attractiveness-survey.pdf[8] European Commission, Tax Burden on Labour, available online at: http://ec.europa.eu/europe2020/pdf/themes/20_tax_burden_on_labour.pdf[9] *** KPMG, available online at:http://www.kpmg.com/Global/en/services/Tax/tax-tools-and-resources/[10] *** EUROSTAT, European Commission, available online at: http://ec.europa.eu/eurostat/statistics-explained/index.php/Minimum_wage_statisticsNote:  The responsible translator for English language is Sergiu Curta, authorized translator from Oradea, Romania

The investment location decisions in the steel industry

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