Accessibility links

"New Europe" Goes Global


Companies in the former communist states of Central Europe are beginning to expand internationally as many now have the financial strength and management skills to tackle markets in the less developed parts Eastern Europe and beyond.

The first Czech billionaire to appear on Forbes magazine's billionaire list is 41-year-old Petr Kellner, who got his start when the Prague government began privatizing state-owned companies in 1992. His small office supplies company received a million dollar bank loan to buy controlling interest in the country's largest insurer, which is now worth $2.7 billion. Since then, Kellner's company has invested in Kazakhstan and plans to expand to Ukraine and Russia.

Kellner is emblematic of a new generation of western-trained capitalists in Central Europe, which economically has been one of the world's best performing regions during the last decade. While the average annual economic growth rate in Western Europe has remained at around two percent in recent years, many emerging European economies have been advancing at least twice as fast.

Many analysts agree that the countries of Central Europe have successfully mastered much of the difficult transition from a command economy to a free-market economy.

Honing Market Skills

Hugh Barnes of the Foreign Policy Centre in London points out that Poland, the Czech Republic, Hungary and Slovakia spent a decade sharpening their commercial skills before becoming members of the European Union in 2004.

"The competitiveness, which Poland and the Czech Republic, for example, had to hone assiduously during the process of accession, meant that when they finally made into the club, they were very well placed to develop exponentially," says Barnes and adds that E.U. accession and the accompanying infusion of western capital have further strengthened Central Europe's confidence and financial prowess. He says "new Europe's" captains of industry are increasingly eyeing profitable acquisitions in the Balkans and the former Soviet republics.

"[Capital] outflow to some extent is a sign of maturity in terms of an economy moving forward. I think it is very much a phenomenon, which we are seeing in the more robust economies of Central Europe: Poland, the Czech Republic and others as well," says Barnes.

There has been a significant upsurge in annual direct foreign investments made by Central European companies in the last several years. From 2002 to 2004, for example, Czech firms increased their foreign investments from about $250 million to more than $800 million, while Polish and Hungarian foreign investments grew from a few hundred million to more than a billion dollars.

Investing in the Balkans

Thomas Blutt Laursen, a senior economist in the World Bank's Warsaw office, says Polish, Czech and Hungarian companies are buying up banks, investing in energy and telecommunications, and setting up new companies and joint ventures throughout the Balkans.

"If you look at Hungary, the Hungarian gas company M.O.L., has invested significantly in Romania. There is also the O.T.P bank, which bought a major stake in a Serbian bank. Hungary's telecommunications acquired Bulgaria's telecommunications. Actually if you look at Hungarian investments, they now own a third of the foreign investment stock in Macedonia, more than ten percent in Slovakia, five-to-seven percent in Croatia, Bulgaria, Romania, Serbia and Montenegro. I am sure we will be seeing more of this in the years to come," says Laursen.

Some economists argue that many Central European companies have advantages over their western rivals when doing business in the "old East." Dalia Marin, professor of international economics at the University of Munich and a specialist for post-communist economic transition, adds that entrepreneurs from former Soviet-bloc countries often are considered more acceptable buyers of state assets in Eastern and Southern Europe.

"Part of the success story in entering these markets is the cultural ties. You understand each other; you can trust each other because you know the way to do business. A shared communist past and a shared transition period are very helpful in understanding these markets. I do believe these countries have an advantage because of these common ties in the past," says Marin.

Expanding into Foreign Markets

In addition, Professor Marin says West European companies often use their Central European subsidiaries to enter former Soviet-bloc markets because of their cultural ties and geographic proximity. For example, Germany's Volkswagen used its Czech subsidiary Skoda to start production lines in Bulgaria and Romania.

Companies in the new emerging European economies are trying to make inroads in Western markets as well. Polish investors, for instance, have purchased several faltering international businesses, such as Italy's biotech firm, CONDOMI, Singapore's pharmaceutical company, SciGen, and some 150 British Petroleum gas stations in Germany.

But many analysts warn that some Central European venture capitalists face fierce western competition both financially and in terms of business know-how. Economist Thomas Blutt Laursen of the World Bank adds that "new Europe" is still far from acquiring all of the trappings of developed capitalism. He cautions that restructuring and privatization of some economic sectors have stalled and that the entitlement system inherited from the communist era has yet to be fully overhauled.

"There is a bit of a pause in terms of reforms in Poland, but also in Hungary and the Czech Republic. Major reforms have seen very little progress in recent years and, I think, they face a critical challenge in the coming years of addressing their main public finance problems," says Laursen and adds that the jobless rate in Poland, for example, now stands at about 18 percent, while western financial ratings services have expressed concerns over, what they call, Hungary's unsustainable budget and trade deficits.

But most analysts point out that the Iron Curtain has been pulled down and that Central and Eastern Europe's trade and industry restructuring is heading in one direction -- toward market-based economics and away from the socialist past.

This story was first broadcast on the English news program,VOA News Now. For other Focus reports click here.

XS
SM
MD
LG