Workers clean the windows in the departure area at Vienna's airport in Schwechat April 2, 2014
Flying high: German airline Lufthansa has relocated its CEE base from Budapest to Vienna

When Romanian software company TotalSoft opened a regional headquarters in Vienna in 2012, the company was little known outside eastern Europe.

Today, having used the Austrian capital as a springboard to look west, it is picking up clients in Germany, the UK, Spain and Italy, and is now eyeing an assault on Scandinavia.

“After establishing the Vienna office, we got in touch much [more easily] with international bids and the investment had a great impact on the company’s international situation,” says Hans Kort, TotalSoft’s international sales director. “[It is] a bridge between the east and the west.”

Vienna, historically the pre-eminent capital of central and eastern Europe by virtue of empire, economy and politics, was for decades the obvious choice for western companies looking to invest and do business in eastern Europe after the fall of the Berlin Wall.

But the eastern expansion of the European Union, which raised the attractiveness of cities such as Warsaw and Prague and homogenised business practices in them, and the 2008 financial crisis, which stunted capital outflows to the east and forced companies to cut their costs, reduced Vienna’s attractiveness.

So the Austrian capital has turned east and reversed its pitch.

“EU companies used to use Vienna to enter central and eastern Europe,” says René Siegl, managing director of the Austrian Business Agency, a national trade promotion outfit. “For two decades it was only a one-way street. But not any more.”

While western companies still make up the bulk of corporates with regional headquarters in Vienna, with almost 350 in the city, the economic rise of eastern Europe means the capital finds itself acting more as a bridging location from both directions than an outpost for London or New York-based companies.

More than 3,000 companies from central and eastern Europe (CEE) had subsidiaries in Austria at the end of last year, the overwhelming majority of which are in Vienna, up from just 66 in 2001.

“There is definitely a hub feeling here,” says Michael Buhl, chief executive of the Vienna-headquartered CEE Stock Exchange Group. “But now it is about both directions.” The army of lawyers, bankers, tax advisers, management consultants and the like that grew up to serve the city’s western clients are a useful reference as Vienna pitches itself to emerging businesses from Hungary, Slovakia, Russia and others.

“Warsaw is perceived to be more an inroad into the Baltics, whilst Vienna is more of an inroad into the Balkans, Romania, Ukraine and the former Caucasian republics of the USSR,” says Georg Diwok, head of banking & finance at the Vienna office of Baker & McKenzie, a law firm. “In the past, being ‘the gate’ to the CEE region has been the main selling argument to place an HQ into Vienna. In the mid and long term, the reverse direction may become even more important.”

Since 2012, TotalSoft has taken on clients in six new countries and targeted much larger, western clients than in the past. “Vienna serves as a crucial connecting point for the central and east European countries, making it a key investment hotspot,” says Mr Kort, who cites Austria’s legislative and political stability and friendly tax and company law systems as alluring factors, as well as practical issues such as transport links. Last year, Vienna comfortably beat any of its regional rivals in terms of business travellers heading to the region, according to data from Sojern Travel, a travel data aggregator, with Prague in second place.

Executives and officials in the city point to Vienna Airport’s 42 flight connections around the eastern European region. Only Frankfurt, with 39, is a challenger.

But despite some recent victories, such as German airline Lufthansa relocating its CEE base from Budapest to Vienna and US computing company CSC shifting from Prague to the city, Mr Siegl admits that his job selling Vienna’s attractiveness to investors “is getting tougher” as the importance to western companies of having a CEE headquarters diminishes.

“We see some challenges,” says Mr Siegl, adding that policymakers could do more to sweeten the attraction.

“I think not all in the Austrian government have an understanding of this threat to the Austrian position [as a business location] . . . There has been a lack of reforms in Austria and now we are beginning to pay the price.”

Get alerts on Austria when a new story is published

Copyright The Financial Times Limited 2021. All rights reserved.
Reuse this content (opens in new window) CommentsJump to comments section

Follow the topics in this article