What’s the outlook for Austria as a business location?
Austria is an attractive business location – but the country has been stuck in mid-table in international rankings for years. What now?
What are the factors that make a good business location? To some extent, the answer depends on the specific industry you’re looking at. In tourism, for example, you need different types of specialist workers than at a steelworks. “We can, however, identify a few general factors that are relevant across the board,” explains Harald Oberhofer, professor at WU Vienna’s Institute for International Economics. “These include legal certainty, the quality of institutions, the overall conditions for investing in businesses – including the taxation of company profits –, infrastructure, education and income levels, incentives for research and development, the security and stability of the social and political systems, the availability of natural resources, and the availability of suitably skilled workers.” Tina Wakolbinger, professor at the Institute for Transport and Logistics Management at WU, also highlights the role of good infrastructure, a high quality of life, a business-friendly economic climate, and a favorable geographical location when it comes to the factors that allow a business location to thrive. “The relative importance of the individual factors varies from company to company,” Professor Wakolbinger points out.
Harald Oberhofer, Professor at the WU Institute for International Economics, identified a number of factors that make a business location attractive. One factor where Austria could do more is the availability of skilled workers.
The consulting firm Deloitte recently surveyed 180 Austrian executives and analyzed the most important global business location indices. The result: Austria is mid ranked among the industrialized nations. Based on an average of the various indices used, Austria currently only comes in at 10th place – with little chances of moving up towards the top positions. The reason is that Austria is experiencing some difficulties in connection with some of the relevant factors, which are likely to worsen in the near future.
Talent shortages everywhere
The shortage of skilled talent is evident in numerous sectors. In recent years, we’ve seen an unprecedented talent exodus in technology-related fields and especially in the health, care, education, and hospitality sectors. To counteract this development, Austria has streamlined its rules for the immigration of specialists from abroad. The “red-white-red card,” Austria’s version of the green card, is issued to skilled third-country workers in sectors where workers are urgently needed, usually for a fixed term of two years.The card entitles the holder to temporary residence in Austria and limited access to the labor market.Political stability without any major scandals is a relevant factor when it comes to recruiting people to work in Austria. “Ensuring this kind of stability would be one of the most obvious and cost-effective instruments for maintaining our current standards,” says Harald Oberhofer.
For Tina Wakolbinger, Professor at the WU Institute for Transport and Logistics Management, combating inflation is the order of the day in order to strengthen Austria as a business location.
A well-functioning job market is considered a key success factor in international competition. Austria is still doing reasonably well in this respect compared to other European countries, but the Deloitte study sees a negative trend on the horizon. “Austria is a high-income country, and production costs are therefore higher overall than in other countries,” explains Oberhofer. “You can’t achieve a comparative advantage in this country with low-cost production, only with more complex and high-quality products and services.” For Tina Wakolbinger, combating high inflation rates is a key priority, in addition to reducing bureaucracy and reforming the tax system.
Wanted: entrepreneurial spirit
Austria’s standing as a business location is also relies on start-ups. Political stability, legal certainty, low levels of corruption, and key infrastructure such as transportation and communication networks and utilities are crucial factors in this context. “In general, we see that places with a high quality of life tend to attract entrepreneurs,” explains Nikolaus Franke, head of the WU Institute for Entrepreneurship and Innovation. “In terms of economic policy, factors like access to research and innovation infrastructure, including funding, the availability of capital, and taxation are crucial – and, of course, as little bureaucracy as possible.” Setting up a new company should be quick and easy. Access to support services and networks (such as mentors, incubators, accelerators, and industry associations) is also very important for start-ups.
In order to strengthen Austria's economy in the long term, entrepreneurial spirit is needed – starting at school, says Nikolaus Franke from the WU Institute for Entrepreneurship and Innovation.
Austria is doing well in a number of areas, and this is also reflected in the country’s dynamic entrepreneurship ecosystem. However, there is room for improvement in the education system, which Franke believes should be restructured to incorporate entrepreneurship. “This should be done at all levels, from kindergarten to postgraduate degree programs. Today, entrepreneurship is as important as reading and writing were in the 19th century and computer skills were in the 20th century.” After all, the ambitious goal is that inventions and discoveries made at universities and research institutions should be turned into viable products and business models.
As far as the short-term outlook is concerned, however, things actually don’t look too bad: According to the latest forecast by the Austrian Institute for Economic Research (WIFO), inflation is set to fall to around 4% this year, the economy is likely to see some slight growth again, and the situation on the job market is expected to remain stable. This may also help Austria to rekindle a factor that is difficult to measure: optimism – the confidence that Austria will be able to master the challenges that lie ahead.