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It was an outsourcer's dream. in March, after months of difficult negotiations, Korea's Kia Motors picked the western Slovak town of Zilina as the site of its first plant in Europe. With production set to begin in December 2006, the $1.3 billion deal — the largest foreign investment in Slovakia, the government says, since the fall of the Iron Curtain — would produce a whopping 15,000 jobs nationally (2,800 in the Kia factory, the rest with suppliers) and nearly halve unemployment in the Zilina region. At a press conference announcing the plan, Prime Minister Mikulas Dzurinda lauded the "great success" and called Slovakia "one of the most attractive countries for investment in Europe."

Kia agreed. By building the plant in Slovakia, a new E.U. member, the Korean carmaker would boost its production capacity by 300,000 small cars and get the access it needed to meet its aggressive target of nearly doubling European sales to 423,000 units by 2010. "Our aim is to grow Kia's brand recognition both in Slovakia and Europe," said Chung Mong-Koo, CEO of Hyundai-Kia Automotive Group, at the March 18 signing of the investment contract.

It's too bad nobody told the 1,800 or so people who own the 229 hectares of land where the factory (and that of a supplier) was supposed to be built. The government has since offered these landowners up to $4.40 per sq m. But about 930 owners are not selling; many are asking for more than twice that price. One of them is Marian Kocner, a businessman who bought 0.9 hectares of land in early August and has offered legal representation for the other owners. He says he is fighting "against the arrogance of the state," although others claim he may be trying to undermine Economy Minister Pavol Rusko, a former business rival who oversees the project. In mid-August, the government committed itself to expropriating the land, a move that seems likely to end up in court. The expropriations could delay construction by up to nine months — if it starts at all. The government has already missed a deadline to ready the site, and it's now certain to also miss an Oct. 1 deadline for Kia's building work to begin. It's a cautionary tale of how, despite the avid boosterism of governments, capitalism in Eastern Europe sometimes travels a rocky road.

How did the Slovakian government get itself in such a bind? Rusko says that he had to scramble after taking office last September. Kia was considering sites in other countries, including Poland and the Czech Republic, and Rusko's predecessor at the ministry had diluted the country's bid by offering as many as half a dozen sites, none of which met all requirements. Rusko says he had two weeks to find a new site, which he likens to "trying to catch a rabbit by the tail"; he chose Zilina, and then it was early October and he was off to Seoul for his one and only shot to convince the Koreans.

The meeting, presided over by Kim Dong-Jin, CEO of Hyundai Motors, did not start well. "One of [Kim's] first sentences was, 'I don't understand why Slovakia has interest in the automotive industry because Slovakia is an agricultural country,'" Rusko recalls. "It was evident that they had no clue about us." Rusko, now 41, took a deep breath and started explaining Slovakia's long history of heavy engineering, chemicals and armaments production — industries for which the Zilina region is a hub. He finished his presentation by pointing out that the word Slovakia ends in Kia. Kim's interest grew as he listened. "They first wanted to drop us," Rusko says. "Then they started listening to our arguments, and when we were winding up our presentation [Kim] became so interested that he came over to me and said, 'I will come personally.'"

In the next few months, dozens of Kia representatives rode Slovak trains, sampled local food, and even drove to the Czech border to inspect road and weather conditions. They liked what they saw: a country with one of Europe's cheapest yet highly skilled labor forces, and a pro-business government on the path of ambitious market reforms. Zilina itself — an ancient trading town of 90,000 with outdoor cafés and lush parks ringed by mountains — added to the appeal. And it helped that the Slovaks, desperate to cut a deal, committed themselves to spending $730 million to improve Zilina's infrastructure — including 42.6 km of four-lane highways — and building 1,000 rental flats for Kia employees. Even if Kia failed to meet its commitments, it would not have to repay any state sweeteners. "The Slovak [government] was willing to promise almost anything," said an investment banker working for a rival Czech bid."Their effort was absolute."

Perhaps both the government and Kia assumed that there would be no struggle for the factory site. Kia representatives in Slovakia say they knew the government didn't own the land, but expected its acquisition to go smoothly. "They thought all the procedure would be very easy, but as a matter of fact they hit the wall," says Kwoun Soon-Pil, vice president for construction/maintenance with Kia Motors Slovakia.

Many of the landowners say they don't oppose the factory, but can't abide how they were treated. Led by Dusan Mikulik, 62, a rabble-rousing former deputy mayor of Zilina, they accuse the government of using lowball, 2000-02 prices to calculate the value of their land, then refusing to bargain. "We want the factory here," Mikulik says. "The only dispute is about the price." Stanislav Vinc, head of Zilina Invest, says the government had to stick to prices set by three independent appraisals, and chose the highest.

Other landowners may have different motives for holding out. Businessman Kocner, for example, clashed in 1998 with Rusko, a former media mogul, over ownership of TV Markiza, Slovakia's first national commercial television station. Rusko controlled Markiza when Kocner's company bought a majority stake in it. Rusko would not give up control, and a nasty court battle ensued; Rusko held on to Markiza, but had to pay Kocner $2.4 million. Some believe Kocner is using the land dispute to continue this feud on another front. Kocner, who says he will not profit from his land acquisition in Zilina, denies it. "I would have done this no matter who the Minister," he says.

For many, the last straw came in July when the government began to remove topsoil from the entire site without the landowners' permission. Kamila Dubovicka, a 55-year-old high school teacher who owns 400 sq m of the disputed land, says such tactics remind her of when the communists forced her grandparents to collectivize. "At that time, they also asked no questions," she says. "This is a diktat, arrogance and arbitrary use of force."

Kia says it wants to stay in Zilina, but it is growing edgy. "We don't think that the current situation is so critical to the point where we need to consider alternative sites or countries," says Michael Choo, an international communications manager with Kia Motors Corp. in Seoul. "Kia and the Slovak government's robust partnership for mutual prosperity is as strong as ever before. Nothing has eroded our mutual trust and confidence so far." However, another Kia official admits he is "nervous" and "disappointed." "This project is a very significant investment for Kia," he says. "We don't want a complicated process. We are waiting to acquire the land and expect the procedure finished as soon as possible." After all, Slovakia ends in Kia.

• JAN STOJASPAL | Zilina
• Automaker Kia has big plans in Slovakia. But doing business in Eastern Europe is harder than it looks