The Kia plant will create 2,400 jobs

The factory, which will open in 2006, will produce up to 200,000 vehicles every year under Hyundai's Kia brand.

The north Slovak city of Zilina beat a Polish location in the long-running contest for the investment.

Both countries offered incentives for the investment, but Slovakia boasts slightly lower costs for manufacturers.

This is the second big car project that Poland has lost to Slovakia: last year, France's PSA Peugeot Citroen said labour costs had persuaded it to pick Slovakia for a new plant roughly the same size as Kia's.

Location, location, location

Before the Hyundai deal, Slovakia had attracted more than $7bn in foreign direct investment.

Most of that money has arrived in the past couple of years, since a change of government boosted its economic performance and reputation among investors.

Now, the country has arguably the lowest business cost base of any of this year's new EU members, and enjoys a strategic location on the border with Austria.

Multinational investment in the Eastern European car industry has slowed since the heady days of the mid-1990s, when most major manufacturers opened plants or joint ventures, especially in the large Polish market.

In recent years, Slovakia has earned the bulk of the investment in the sector.