By Theo Leggett BBC World Service business reporter

Volkswagen accounts for a quarter of Slovakia's exports

Just six years ago, Slovakia was little more than an outside bet for membership.

Its economy lagged behind its neighbours', and reforms were badly needed.

Now, things have changed almost beyond recognition - and foreign companies are rushing to take advantage of its low labour costs and well-educated workforce.

Big business

Among the pioneering foreign firms who have established themselves here are the American giant US Steel and the German carmaker Volkswagen.

Both can lay a strong claim to have played a major role in transforming Slovakia's image abroad.

Some older people think foreign companies come here and employ only foreigners, but they're wrong Beata Balagova, Slovak Spectator newspaper

Volkswagen first turned up in the region in 1991, before Slovakia had won its independence.

In the years that followed, it turned a decaying and obsolete Skoda car parts factory near Bratislava into a huge state of the art production line, employing 8,000 people.

The company now accounts for over 25% of Slovakia's exports, sending gleaming new Volkswagen Polos and Touaregs to markets in North America and Italy.

Its success has prompted its rivals Peugeot Citroen and Hyundai to start setting up their own factories here.

In fact, Slovakia's economic fortunes are now so closely tied with those of the automotive sector that some analysts are becoming concerned.

If there is a slowdown in the industry, Slovakia could be badly hit.

Gift horse

But according to Ludovit Ujhelyi of Slovakia's Automobile Industry Federation, the offer of more investment was simply too good to turn down.

US Steel is Slovakia's largest employer

"To concentrate our industry only in the automotive sector is a big risk, but it's also a big chance for us," he says.

"Really, we have no other choice but to be in the European market, and there was no one else investing here."

At the opposite end of the country, in the poorer eastern region of Kosice, US Steel has its own production base - an enormous factory which churns out tens of thousands of tons of steel every day.

The American giant bought the plant in 1999, after the collapse of the state-owned Eastern Slovakian Iron Works.

The deal was sweetened by government subsidies worth $500m (�280m) over ten years - later reduced to $430m after protests from the EU.

In exchange, US Steel Kosice has agreed to safeguard the jobs of the 16,000 workers it inherited in the deal.

Cost advantage

The company is now the largest employer in Slovakia, and in a region where unemployment exceeds 20%, its presence is absolutely vital.

It is clear that both companies enjoy the benefits of very low labour costs and low taxes in Slovakia, as well as growing markets in Eastern Europe.

Cheap labour has attracted several car companies

In fact, wage costs are only half the levels in the neighbouring Czech republic.

A cynic might say that is the only reason for doing business here.

But there are strong signs that both firms take their responsibilities seriously, and believe that their interests are best served by Slovakia's increased prosperity.

Volkswagen has deliberately recruited from outside the relatively wealthy Bratislava region, bussing in workers every day from less prosperous areas up to 200 kilometres away.

It has also chosen to take on a great many younger workers, aged between 20 and 35.

Long-term investment

US Steel Kosice, as the dominant economic force in the eastern region, also takes an interest in its welfare.

It sponsors badly needed educational and infrastructure projects throughout Kosice and the surrounding countryside.

It has also spent significant amounts of money reducing the pollution caused by the plant's ageing mills - investing heavily in new, more efficient technologies.

All this has helped win the companies a degree of popular support in Slovakia.

"Some older people think foreign companies come here and employ only foreigners - that they're not interested in the country - but they're wrong," said Beata Balagova, editor in chief of the Slovak Spectator newspaper.

There is no doubt that US Steel Kosice and Volkswagen have done well out of their investments in Slovakia.

Both companies say their plants are now very profitable.