Intel joins Alphabet and Visa in choosing to expand in the country just as war is raging next door.
(Bloomberg) — When Intel Corp. announced plans to build a semiconductor assembly plant in Poland last week, the US technology giant highlighted the economics of the $4.6 billion project. But it’s the geopolitics of the country’s biggest-ever greenfield investment that could prove equally significant.
Poland is on the frontline of Russia’s war in Ukraine, the nexus of NATO’s effort to help counter Vladimir Putin’s offensive. As a cog in the European Union’s supply chain, the nation is also in the middle of broader east-west tension triggered by friction between the US and China.
Intel said it feels “safe” in Poland, thanks in part to the country’s “strategic” position on the EU’s and NATO’s eastern flank. At the event in the city of Wroclaw on Friday, Prime Minister Mateusz Morawiecki talked of how foreign investment “at the same time helps strengthen security.”
Companies are seeking to shorten supply lines and add locations to avoid being caught on the wrong side of that trade war. That’s trumping concerns the war in Ukraine might escalate and destabilize neighbors such as Poland.
Intel joins Google parent Alphabet Inc. and Visa Inc. in expanding in the country. Less than two weeks after the war started in February 2022, Alphabet announced a $700 million office-building investment in Warsaw. The new 2,500-person hub is the firm’s largest site working on cloud technologies in Europe. In May, Visa announced plans for a global tech and product center employing as many as 1,500 workers.
“Poland is very critical to the European Union because of its strategic location,” Intel Chief Operating Officer Keyvan Esfarjani said in Wroclaw. “I’m not worried that all of a sudden things are going to come to a halt.”
Intel’s factory will complete a pan-EU supply chain to ensure the company can meet demand for microchips. Poland has also attracted numerous companies looking to tap its nearly 300,000 university graduates each year by setting up hubs and service centers, especially in the tech and financial industries.
In the services industry alone, foreign companies created 43,000 new jobs in the country of 38 million people last year, a 40% increase from 2021, according to industry lobby group ABSL. Project44, a startup that helps clients look after their supply chains, opened an office in Krakow, some 270 kilometers (168 miles) from the Ukrainian border.
Scott Newman, head of State Street Bank International in Poland, said decisions on locating offshore centers were primarily based on costs before the fallout from the pandemic elevated the concept of “concentration risk” — having too many people in one place.
“There’s a lot of work across the industry to really try to move to more of a follow-the-sun footprint, which one could say offers more of an opportunity for growth in Poland and central and eastern Europe,” Newman told a business forum in Berlin in March.
The offshore services industry in Poland has doubled its workforce over the last seven years and employs about 450,000 people. It’s now responsible for about 5% of the country’s gross domestic product.
Economists attributed an improvement in Poland’s trade balance to a boom in services, a surprise that helped the zloty appreciate to a two-year high against the euro this month. The country registered a net $3.5 billion monthly surplus in services transactions over the past 12 months, $1 billion more than a year earlier, according to central bank data.
Poland offers wages with stronger purchasing power compared with centers in Asia, along with the same data-protection regime as other EU nations and ease of travel, according to Beata Javorcik, chief economist of the European Bank for Reconstruction and Development.
As well as the EU, the country is also an ally of the US should the world break into an “everybody loses scenario” of two separate trading spheres, she said.
While bolstered by the war in Ukraine, the relationship between Warsaw and Washington has been strained in recent weeks after Poland passed legislation that allows the ruling party to effectively put opposition leader Donald Tusk on trial just before the tightly contested election slated for October.
The US is now studying the revision of the law, and wants to see a level political playing field and a peaceful transfer of power should the opposition win, said Mark Brzezinski, the US ambassador to Poland. In the meantime, the country remains at a key crossroads of business and geopolitics.
“The way we see this is an overlay between the commercial context and the strategic context,” Brzezinski said on the sidelines of the Intel event in Wroclaw. “It’s fantastic that despite the fact that Poland is literally on the edge of a war zone, it continues to attract major investment.”
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