Foreign & domestic firms Study · 2021–2024

Globalisation and Convergence
Central and Eastern Europe

Foreign-capital firms vs. domestic firms across five CEE economies — Romania, Bulgaria, Czechia, Hungary and Poland. Romania's convergence has been wage-driven; to continue, it must become productivity-driven.

By Ella Kállai, Co-founder · Consilium Policy Advisors Group · office@cpag.ro · www.cpag.ro

Download the brief See the key ideas
📈
1.9×
Relative productivity
VA/person · foreign vs. domestic firms
Average 2022–2024
Labour cost: 2.2×
◴
40.9%
Share of value added
produced by foreign firms
2024
3% of firms · 27.5% of employment
🏭
51%
Manufacturing employment
of manufacturing jobs, in foreign firms
2024
71–88% in autos / electronics
⬇️
3%
Remaining cost advantage
labour cost / VA vs. the West
0.58 vs. 0.60
Almost exhausted
◆ The study's central idea

Romania's convergence has been wage-driven. To continue, it must become productivity-driven.

What the study covers

Six themes, five Central and Eastern European economies and five investor home countries — Germany, France, Italy, the Netherlands and Austria

🌍
Theme 01
Weight in the economy
How much of value added, of firms and of employment belongs to foreign-capital firms — and how their share of investment evolved between 2021 and 2024.
⚖️
Theme 02
Productivity gaps
How many times more productive foreign firms are than domestic ones, and how far Romania's affiliates sit from the level in the investors' home countries.
🏭
Theme 03
Industry vs. services
Services are approaching Western levels, while industry lags far behind — with a breakdown across 11 manufacturing branches.
💶
Theme 04
Labour cost
The labour-cost advantage over the West is almost fully exhausted in Romania, and unit labour cost rose the most in the region.
🔧
Theme 05
Domestic firms
The weak link of convergence: domestic manufacturers reach only 21% of their Western peers' productivity, the lowest level in the group.
🎯
Theme 06
Policy recommendations
Simultaneous progress on both segments of the economy — with estimates of the value-added gain for each direction.

Foreign firms vs. domestic firms

Value added per person employed in manufacturing, EUR thousand, 2024

Foreign firms Domestic firms
🇷🇴 Romania
Foreign39.7
Domestic19.9
🇨🇿 Czechia
Foreign60.7
Domestic32.6
🇭🇺 Hungary
Foreign56.1
Domestic33.9
🇵🇱 Poland
Foreign55.9
Domestic37.0
In Romania, domestic firms produce roughly half the value added per person of foreign firms. Change 2021–2024, per person employed: at domestic firms labour cost rose +54% and value added +39%; at foreign firms +45% and +28% respectively. The foreign-firm share of investment fell from 41.5% (2021) to 33.3% (2024); in 2024 the investment/value-added ratio was 26% at foreign firms and 37% at domestic firms.

Romania in the region

Affiliates reach only a fraction of their “home” productivity — compared sector by sector with domestic firms in the home countries (average 2022–2024)

Home country = 100%
76%
🇨🇿 Czechia
65%
🇵🇱 Poland
64%
🇭🇺 Hungary
56%
🇷🇴 Romania
45%
🇧🇬 Bulgaria
How many times more productive foreign firms are than domestic ones
1.87×
🇨🇿 Czechia
1.53×
🇵🇱 Poland
2.30×
🇭🇺 Hungary
1.88×
🇷🇴 Romania
2.13×
🇧🇬 Bulgaria
53%
The productivity of Romania's domestic firms is half that of foreign firms.
35%
The productivity of foreign firms in Romania is one third that of foreign firms in the West.
56%
Western affiliates in Romania reach just over half the productivity of domestic firms in their home countries.

The labour-cost advantage is almost fully exhausted

How much lower the labour cost per unit of value added is at each country's foreign firms versus those in the West (sector-by-sector comparison)

🇭🇺 Hungary
15% · 0.52 vs 0.61
🇵🇱 Poland
14% · 0.54 vs 0.63
🇨🇿 Czechia
6% · 0.58 vs 0.62
🇷🇴 Romania
3% · 0.58 vs 0.60
🇧🇬 Bulgaria
3% · 0.58 vs 0.60
West = Germany, France, Italy, the Netherlands, Austria. A lower ratio indicates a lower labour cost per unit of value added.

Services approach the West, industry lags behind

Productivity of Romania's affiliates, as a percentage of the level in the home country (average 2022–2024)

Services and construction

closer to Western levels
Construction
73%
Administrative services
70%
Trade
65%
IT and communications
62%
Transport
40%

Industry

wide gaps vs. the West
Manufacturing
47%
Electrical equipment
30%
Textiles and clothing
27%
Motor vehicles
25%
Machinery and equipment
25%
Computers and electronics
23%

Manufacturing, dominated by foreign capital

Foreign-firm share of persons employed, Romania, 2024

51.3%
Manufacturing
88.0%
Computers and electronics
87.7%
Motor vehicles
83.5%
Electrical equipment
71.0%
Machinery and equipment

Where the industry gap comes from

Romania's manufacturing affiliates, % of the level in the home country

54%
Output per worker
vs. the level in the home country
86%
× Value-added share
in output
47%
= Affiliate productivity
in industry

The gap stems more from output per worker than from the value-added share in output. Priorities: capital intensity, process technology and product complexity.

Conclusions and recommendations

Four findings that change the diagnosis, and the policy directions proposed by CPAG

Key conclusions
  • 01No systematic profit extraction. The share of gross operating surplus in value added is lower at foreign firms than at domestic ones.
  • 02Rising unit labour cost. It grew the most in the region in 2021–2024 (+0.05 domestic, +0.07 foreign).
  • 03Foreign firms behave differently than in the West. In CEE they allocate a larger share of value added to labour costs rather than investment.
  • 04Domestic firms — the weak link. They reach only 21% of their Western peers' productivity in manufacturing.
CPAG recommendations
  • 01Modernise foreign-capital industry: reaching 90% of the productivity of foreign firms in CZ/HU/PL would add about EUR 6.7bn (~4% of value added).
  • 02Higher productivity at domestic firms: a 10% gain would be worth about EUR 9bn.
  • 03Wage dynamics kept in step with productivity dynamics.
  • 04Investment in high value-added activities, with systematic monitoring of productivity gaps.

The full study

This page presents only a few of the study's ideas. The full CPAG analysis details every sector and every country — values by type of capital control, sector-by-sector comparisons and breakdowns across the five economies, based on Foreign Affiliates Statistics (FATS) 2021–2024, expressed in euro.

Coverage: 5 host countries (Romania, Bulgaria, Czechia, Hungary, Poland) · 5 investor home countries (Germany, France, Italy, the Netherlands, Austria) · 11 sectors analysed in detail, including manufacturing across 11 branches.

For more details about the study, you can contact us at:

office@cpag.ro

Source: CPAG, “Globalisation and convergence in CEE 2021–2024”. The economy excluding agriculture and public administration. Foreign firms = firms controlled by investors from another EU state or from outside the EU. Results are descriptive and show associations, not causal effects; in Romania, Austrian affiliates are an outlier case (likely a large group in energy and refining), and some results are also shown excluding Austria. The material is intended to encourage a better understanding of economic policy and does not constitute an offer or solicitation to buy or sell securities or investments. © CPAG — Consilium Policy Advisors Group. All rights reserved.