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Ex-Soviet allies finding export markets in the West

April 28, 1997

OSTROW MAZOWIECKA, Poland (AP) _ Furniture from the Forte SA factory looks attractive by any standard: design, craftsmanship, price.

The shelves, cabinets and desks for home and office have found a ready market in Germany, Austria, Switzerland and other western European countries, evidence of the growing popularity of Polish furniture abroad.

Similar export successes are occurring across eastern Europe, where market-driven competition was thrust on locals after communist central planning collapsed in the early 1990s. Businesses had to adopt to new norms for quality and efficiency just to survive.

Czech beer and cars, Hungarian light bulbs and salami, Romanian furniture and wines and Polish appliances and ships are among the products finding western buyers, along with textiles, steel, ceramic products and glass.

Polish exports have almost doubled over the last three years, hitting the equivalent of $24.4 billion in 1996. Poland now sells more furniture abroad than coal, its principal export earner in the communist era.

Still, Poland and other East European countries are importing more high quality goods than they are selling. Poland’s trade deficit last year totaled $8.1 billion, while the Czech Republic’s amounted to $5.7 billion and Hungary’s was $3.1 billion.

Countries in the region have a ``sound basis and good prospects″ for expanding their exports, said Paul Knotter, the World Bank representative in Warsaw. But more investment, new technologies and government economic discipline is still needed.

``There is a long way to go in terms of quality and standards, although a lot of progress has been made,″ Knotter said.

As a joint venture with a German manufacturer, Forte SA is a prime example of how Polish entrepreneurship can thrive with the right western backing and marketing connections.

Forte sold $27 million worth of goods, 36 percent of its production, in the West in 1995.

The company was formed in 1992 when an upholsterer named Maciej Formanowicz joined with Germany’s ALNO, a kitchen cabinet maker, to take over a decrepit state factory in Ostrow, paying off its $3 million debt.

``I’m a typical self-made man,″ said Formanowicz, 48, the craftsman-turned-corporate chairman, who owns 30 percent of the company with 2,500 employees.

``Export forces us to constantly struggle,″ he said in an interview at company headquarters.

Zofia Gaber, head of Agros Holding SA, another Polish company that has prospered in the market economy, agrees.

``Having a presence on foreign markets forces you to seek better quality,″ she said.

During communist times, individual factories could not sell their products or buy supplies abroad. Agros was one of a few companies created to act as middlemen. After 1990, when trade was opened up, Agros found new ways to use its expertise.

``Thirty years of experience in international markets gave us understanding in how the market system functions and we also made a lot of contacts,″ Ms. Gaber said.

Now Agros owns 20 companies involved in food production, processing and trade, with sales of $330 million in 1995. About a quarter is exports, mostly to the European Union, where the company is well-known for apple concentrate, frozen strawberries, vegetable and fruit preserves, candy and Polish vodka.

``In our line of produce, we have a good European quality and at the same time somewhat lower costs,″ said Ms. Gaber. However, ``It is still too early for our fully processed goods to enter the EU.″

The European Union’s high tariffs, minimum prices and import quotas will limit trade from East Europe until at least 2002, when countries of the former Soviet trading bloc hope to join the EU.

Pick and Herz, two Hungarian companies, say they could sell more salami and sausages in western Europe if it were not for trade barriers.

Pick, founded 128 years ago in the city of Szeged, currently fills 90 percent of Hungary’s 6,800-ton EU salami quota. But high tariffs block more sales by Pick and its competitor, Herz.

East European businessmen and politicians contend the doors to their markets are now opened wide to western goods, but the EU isn’t reciprocating.

``We do not interpret the (trade) deficit only in terms of the capability of our economy to succeed on western markets,″ Czech Prime Minister Vaclav Klaus said March 6. ``We interpret it also as a result of surviving barriers ... and EU subsidies, especially in agricultural products.″

Many companies have learned that selling in the West requires good promotion and advertising.

``You can have the best product in the world but won’t get far if no one knows about it,″ said Bela Gaal, director at the Hungarian Agrarian Marketing Center.

But few East European exporters can afford expensive advertising campaigns so they look for networks and partners.

Zelmer, a leader in kitchen and home appliances in Poland, sells in the West under discount brand names, its export manager, Zbigniew Kedzia, said.

The company decided in 1990 to spend money ``on the most modern technology instead of advertising its brand name,″ he said. ``This will allow us to earn money for promotion later.″

Booming exports and economic growth also are fueled by foreign investment. Last year, foreign companies invested $5.2 billion in Poland. Much of the capital infusion goes to refurbish or build plants that produce goods for export as well as for the domestic market.

``Even if the initial intention may have been to focus exclusively or mainly on the local markets, there is a tendency ... to have high exports″ in the end, said Knotter, the World Bank official.

General Motors began building a Polish factory last fall. Italy’s Fiat has invested more than $1 billion and South Korea’s Daewoo runs a Warsaw car plant under a $1.1 billion investment.

Fiat Auto Poland exports 150,000 of the 205,000 subcompact Cinquecentos it makes each year in Tychy. Japan’s Suzuki exports 36,000 of the 50,000 cars made at its factory in Esztergom, Hungary.

Levi Strauss Poland, which opened a factory in Plock in 1992, also ranks among top exporters, selling clothes worth $28 million, 60 percent of its production, in the West.

The American company chose Poland because of cheap and skilled labor, a big domestic market and easy access to the West, said spokeswoman Marzena Swiatek.

Many East European manufacturers make components or finished products for well-known western companies.

An arms factory in Cugir, Romania, produces hunting knives, pistols and rifles for Smith & Wesson of the United States.

Textile companies across the region make garments for fashion giants like Pierre Cardin and Hugo Boss, with local businesses providing the labor for the ``cut-and-trim″ business.

Profits are being plowed back into the textile companies with investments in computerized cutters and other efficient machinery.

In the meantime, apparel makers have rediscovered local markets, which offer higher margins than exports. Prochnik coats, Wolczanka shirts and Vistula jackets and suits easily compete with western fashions among the expanding Polish middle class.

The garment businesses hope some day to sell Polish designs in the West, following the footsteps of furniture manufacturers like Forte.

Forte made inroads into the German market with several lines of economical furniture in 1992, earning a name as a reliable supplier of quality goods.

``Now we are at another stage,″ said Formanowicz, the company chief. ``We can introduce models of our own design and the price is no longer the only decisive factor.″

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