How Slovakia overtook Poland in Jaguar Land Rover factory race.

In late July 2015, on a visit to the city of Wroclaw, near Poland’s south-western border, Janusz Piechocinski, then the deputy prime minister, was trying to hide his self-satisfaction. He was not doing a very good job.

“We are in talks with a major player in the automotive sector, in terms of an investment worth £1.7bn,” he told the assembled journalists. “They will construct a premium category car factory.”

Mr Piechocinski did not mention the name of the carmaker, but he did not need to. Polish newspapers had been writing for weeks that Jaguar Land Rover was going to build its first European factory outside the UK in Poland. Mr Piechocinski made no attempt to damp the speculation.

The factory would cover 450 hectares, the beaming minister proclaimed, and would create 5,000 jobs.

“On Monday we will sit down for the sixth round of negotiations,” Mr Piechocinski, who was also Poland’s economy minister, added. “I am convinced that they will choose Poland.”

But if he was convinced, 1,000 miles away in the English countryside, JLR executives were not. For months they had fastidiously told journalists no decision had been made on the location except it would be in eastern Europe.

“We were being told what we were thinking, before we had thought it, by some minister in Poland,” said an executive at JLR, who declined to be named. “It was funny . . . And annoying.”

Two weeks later, JLR’s press office had something to announce. What had been talked up by Mr Piechocinski as the biggest automotive investment in Poland’s history was not coming to Poland after all. JLR announced plans to build its factory in Slovakia in a £2bn investment, snatched from under Poland’s nose by its eastern European neighbour after a bidding war of incentives, national attributes and diplomacy that underscores how competitive the region’s car industry has become.

Project Darwin

For the past few years, Jaguar Land Rover has been Europe’s fastest-growing large carmaker. Chinese demand has soared, a strong UK car market has helped, and a suite of successful models, such as the Evoque, had stretched its UK manufacturing plants to the limit.

More production facilities were needed, and fast. A first factory in China, opened in October 2014, had eased the pressure, and an assembly plant in Brazil had been commissioned to start construction in early 2015. But still more would be needed.

As the Chinese plant came online, JLR made a decision to shelve plans to build a factory in Saudi Arabia, which offered easy access to the small but lucrative Middle Eastern market, cheap aluminium to build its new-generation models, and a host of financial sweeteners from a government keen to trumpet the carmaker as a cornerstone investor in a nascent manufacturing industry. But the desert factory proposal ultimately failed to pass muster, leaving JLR with a choice: Europe or North America?

Two plans were drawn up: Project Oak, to investigate a site in North America, a big market, and Project Darwin to look into the prospect of a plant in eastern Europe, where rivals Porsche, Audi and Mercedes were already churning out cars at a lower cost than in Germany.

Darwin quickly became the preferred option. The plans first envisaged a classic manufacturing operation, then shifted to an assembly line building cars from kits made in the UK, before settling on the idea of full production.

In the spring of 2015, the focus had narrowed to three states: Poland, Hungary and the Czech Republic, according to two people involved in the process.

A month later, Hungary dropped off the list and Poland emerged as the strong favourite. It offered three potential sites for the plant in and around the south-west, and boasted a big cluster of automotive suppliers, a large, skilled workforce and a competitive tax and financial assistance program.

JLR officials visited the preferred site, in Jawor, near Wroclaw, on multiple occasions. In Warsaw, some officials at the government’s PAIiIZ foreign investment agency were briefing journalists that it was as good as decided.

Such arrogance and lack of discretion went down very badly with JLR, according to many people who spoke to the Financial Times for this article.

And then the Slovaks came into the picture. According to people involved in the negotiations, Slovakia bid late but hard, throwing all of its foreign investment clout at the deal in early June. In the space of a month it went from rank outsider to joint favourite.

Realising it needed to offer more to foreign investors, the country pulled out all the stops. It tweaked a law covering so-called Investments of Significance that would permit it to offer more incentives to win what its economy minister described as “the investment of the decade”.

“The Slovak investment agency put a crack team on the project,” said a person briefed on the negotiations. “They were throwing ministers at it, making it a key priority. It was very slick.”

The Slovaks designated the 1,810 acre site in Nitra that it had offered to JLR as the country’s first strategic industrial park, allowing it to offer tax and other fiscal incentives to the British carmaker and suppliers that would set up shop alongside them, according to a person involved in the negotiations.

Then, in late July, Slovak Prime Minister Robert Fico decided he wanted to show just how serious the country’s government was about landing the deal. Visiting the Grand Hotel River Park on the banks of the Danube in Bratislava, where the visiting JLR executives were staying, he held a morning meeting with the team and left them his personal mobile phone number.

“He was not part of the official negotiation team,” said one of the people involved. “It was very relaxed. He just told them that if there was anything that they required, they only needed to ask him.”

And then the Slovaks came into the picture . . . In the space of a month, Slovakia went from rank outsider to joint favourite

It was a critical intervention. “Poland had very, very good benefits on the table,” said a person from the JLRteam. “But [Poland’s] approach was wrong. Look at how competitive the Slovaks were.

“Jaguar Land Rover did not care too much about geographical location. They just wanted the best deal,” said the person, who declined to be named as people involved were not permitted to talk to the media. “Prime Minister Fico said Slovakia wanted to be the most competitive country . . . and it was.”

According to those who spoke to the FT, Poland competed hard. But good old-fashioned logistics also helped swing the deal. Poland’s proposed locations were all in the country’s south-west, meaning cars would have to be sent by rail or road to Hamburg or Antwerp to be shipped through the Strait of Gibraltar and the Suez Canal to Asia or the Middle East. In contrast, Slovakia’s location and transport links mean cars can enter the Mediterranean on the Adriatic Coast, knocking two weeks’ off the journey from Poland, crucial to JLR given that rival BMW produces cars in South Africa that can reach key markets such as Dubai or China quickly.

Slovakia’s hosting of factories for other luxury car brands also gave JLR confidence that the country had workers with the skills to make their cars, expected to be the Discovery Sport and new Defender models, when the plant gets up and running in three years.

“You don’t need to tell [the Slovaks] how to produce a car in 2015,” said an external adviser to JLR.

Positive signs

In mid-August, the news was announced: JLR would be entering into final talks with Slovakia for its factory. JLR, which declined to answer questions on the process when asked by the FT, says the decision to build in Nitra, an hour’s drive east of Bratislava, could still change. The carmaker is expected to fully commit by the end of the year.

In contrast to the tone adopted by Warsaw, officials in Bratislava have been told not to talk to the press about the deal until it is set in stone.

But the signs are positive. A fortnight after Slovakia was announced as the preferred location, Mr Fico flew to the UK and was given a tour of the carmaker’s Solihull factory by members of the board of directors.

JLR has appointed an executive to lead the project and Bratislava has been convinced enough by the carmaker that earth movers are flattening the site intended for the factory. Suppliers have flown in to view nearby plots.

A few hundred miles north, in Poland, newspapers, business consultants and foreign investment agency were shocked when the FT broke the news that the country would not win the deal. Mr Piechocinski, now aware that his landmark investment had been stolen by Bratislava, put on a brave face. “Today the situation of our economy is such that we do not fight for every investor regardless of how high the price is. We affirm that the Polish automotive sector and the economy is so attractive that we do not need to overpay,” Mr Piechocinski told reporters, adding: “That is why we have decided we will not be racing with our friends from Slovakia to the next stage of the negotiations.”