Post by bujno on Jan 6, 2007 3:19:18 GMT -7
Here's an article I think correctly depicts situation in Poland in 2006 perspectve as seen by a trustworthy foreign group. In my opinion it would be logical and fair to open markets both ways and for both the investment and workforce. Which is till now done only in part of the EU countries - including Poland and her rising number of German, French, British both trained and untrained workers.The latter are especialy numerous on our Western borders due to heavy unemployment and transition problems in former GDR.
SPECIAL FOCUS: POLAND
Since the fall of the Iron Curtain, Poland has become a veritable magnet for foreign companies looking to expand into Central and Eastern Europe.
But just what is it that makes the place so alluring, and can it sustain its appeal amid mounting competition?
By Julian Rogers
Nestled slap bang between Western and Eastern Europe, the Republic of Poland (to give it its official title) has made giant strides when it comes to attracting foreign investment. With its cheap, but skilled, labour force, enviable position in the heart of Europe and favourable tax breaks for foreign businesses, this former Eastern Bloc nation has much to offer. And it seems that negative stereotyping as a country embroiled in red tape and bureaucracy has not dampened interest from foreign investors.
In May 2004, the country made that all-important step up into the house of Europe’s elite – the European Union. However, it was not this ascension that was a catalyst for the foreign direct investment (FDI) flooding in the Poland – far from it. Poland has been on the radar of global organisations looking to exploit its benefits since the early 90s and the fall of communism.
According to a survey by Ernst & Young, Poland is the fifth most attractive country in the world for FDI – trailing only the US, China, Germany and India. International business has pumped US$84 billion into the Poland since the early 90s, with 2000 being the year when most investment arrived – all US$10 billion of it. French, German and US firms are currently the leading players in Poland, while Japan is hard on the heels of this pack. France Telecom, Citibank, LG and Daewoo are just a handful of international brands that can be found running operations in Poland.
Most of the money coming into the country is directed at manufacturing. The country has always had an establishing market in this sector, much to the advantage of German firms who have been using Poland as a outsourcing backyard for its manufacturing industry for the past 15 years. Volkswagen, for instance, has been assembling cars in Poland since 1998 to meet the fast growing customer base in Eastern Europe.
Polish promise
In order to entice investment, Poland offers a system of incentives in the form of tax exceptions in 14 special economic zones spanning 6000 hectares. There are also financial grants on offer for new investment, job creation and training. Also on offer is real estate tax exemption and assistance in establishing cooperation between the company and academic institutions. The icing on the cake is the low corporate tax rate of 19 percent, which compares extremely favourably with 39 percent in neighbouring Germany.
Wojciech Szelagowski, VP of the Polish Information and Foreign Investment Agency (PAlilZ) believes that membership to the EU has strengthened Poland’s hand even further. “EU accession has triggered a new wave of investment,” he said. “It has increased investor confidence levels and companies are exploiting the opportunity of Poland being part of the single EU market. A significant number of existing investors claim that EU entry has had a positive impact on their operation in Poland. Economic freedom and transparency have also increased as a result of EU accession.”
But the ace up its sleeve is cheap, skilled labour. For years, overseas multi-nationals have been able to transfer operations behind the old Iron Curtain and pay workers a fraction of the wages of their Western counterparts. Added to this, education is taken very seriously, with young Poles eager to learn and better themselves. There are currently more than two million in higher education at universities and colleges. The theory that the nation is hardworking is also borne out in the figures. According to the Organisation for Economic Co-operation and Development (OECD), Poles worked 600 more hours in 2004 than employees in France and Germany.
Of course, being situated at the communications crossroads of Europe appeals greatly to overseas firms too. Poland is seen as a gateway between Western and Eastern Europe and just a stone’s throw from the major German manufacturers. All of these benefits add to an attractive mix of business attributes. Michael Dembinski is Head of Policy at the British Polish Chamber of Commerce in the capital, Warsaw. He says: “The key things are the strategic location in the heart of Europe and at the crossroads of north, south, east and west of Europe. Very important is the fact that Poland is within the European market and a low cost economy.”
Paperwork
Of course, Poland isn’t without its problems. Critics argue that setting up a business in the country is often a slow process with a bureaucratic minefield around every corner. Just opening a warehouse can involve 25 regulatory procedures and take over 300 days. There are also issues with the infrastructure, which after years of underinvestment needs upgrading. “Infrastructure, particularly the roads, is a problem,” agrees James Owen, an analyst at the Economist Intelligence Unit. “It is slowly improving and the motorway construction programme seems to be getting into gear, but it’s going to take a long time.” In a bid to kickstart the much-need road and infrastructure improvements, the EU has earmarked over €90 billion for Poland between 2007 and 2013. This is just one of the many upsides of being invited to join Europe’s exclusive club. The government also plans a radical overhaul of the rail network and air and seaports to bring the infrastructure into the 21st century.
Commenting on the bureaucratic problems facing foreign investors, Owen believes that while it is a problem, it is one that is improving. “There is quite a lot of red tape, but the government is still trying to do something about it and it will be interesting to see what happens over the next six to 12 months.” And asked about claims that the authorities are reluctant to allow the large multinationals to open up in Poland? “I think the problem may be, as far as foreign investors are concerned, that they may be reducing red tape on small domestic businesses and a less welcoming attitude to the big foreign firms. This is because the government fears the firms will take a too dominant role.”
This is echoed by Dembinski, who believes Poland, for all its advantages, has faults that must be addressed if the government is to keep foreign business happy. “Poland is not the easiest of places in the EU to do business,” he says. “It takes a long time to set up a business, and the tax law is very opaque and prone to change. Arbitrarily, there isn’t the mindset within the civil service that business is actually good for the nation’s economy – they have not actually grasped that. There is a case of where the people that grew up and started their careers in the communist eras so there is still a bit of an anti-business bias.”
In order to find out if the rumours and scaremongering about Poland are true, professional services firm KPMG carried a test to put some common opinions about the country under the spotlight. It revealed that investors do not agree that the Polish workforce is inefficient and that it is difficult to get anything done without a ‘kickback’. Also, businesses disagreed with the view that Poles don’t speak foreign languages and that taxes are too high. Respondents did, however, confirm the opinion about the country’s widespread bureaucracy, inefficient judiciary, poor infrastructure and an overly complicated taxations system, KPMG said.
Szelagowski says businesses need to look at the bigger picture. “According to a number of reputable investment reports, the decision to invest is based on labour costs, skill base and strategic location. Whilst infrastructure, bureaucracy and taxation are cited as requiring improvement, it is recognised that Poland’s EU accession will enable these obstacles to be removed.” He continues: “EU funds are available to develop Poland’s transport and communications infrastructure, and the government is committed to improving both the efficiency and transparency of the administrative system.”
Rising rivals
Despite its faults, the experts all agree that the country has the basis to build on its attractiveness for FDI. With its low labour overheads and location in Europe, Poland is a tasty recipe for foreign companies looking to expand into Central and Eastern Europe. Investment dipped after a crescendo in 2000, leaving many wondering if the bubble had burst. However, FDI rose again recently, with US$7.7 billion invested last year alone. The authorities know they cannot afford to rest on their laurels, with competition coming hard and fast from places like Bulgaria and Romania, as well as Russia and her former Soviet neighbours. Indeed, Russia, Estonia, Romania and the Ukraine have all seen FDI rocket since 2000. After the fall on communism in the late 1980s, the whole of Central and Eastern Europe was opened up to the West with multinationals scrambling to take a slice of this untapped market. Poland emerged as a major player, but has a long way to go when you consider the world stage in terms of FDI.
KPMG found that Poland is too small to compete with the world’s emerging giants – Brazil, Russia, India and China (the so-called BRIC countries). Instead of competing with these countries on its own, Poland can combine forces with its neighbours to fight the heavyweight BRIC countries, it said. Central and Eastern Europe as a whole has a population of 90 percent of Russia, but is nearly a third richer in terms of GDP than the superpower. “To avoid being overshadowed by flashy publicity surrounding China and other big emerging markets, Poland might wish to start collaborating with its neighbours to promote this still-not-quite discovered region of Central and Eastern Europe,” the report suggested. In fact, FDI in Central and Eastern Europe is grew faster than in China between 2000 and 2004.
According to Dembinski, Eastern European nations have many stumbling blocks that may prevent them from steeling Poland’s crown. “If it is more difficult to do business in Poland than the UK, it is incredibly difficult to do business in Russia and Ukraine. There are so many hurdles, both formal and informal. With the best will in the world it will be 15 to 20 years before the Ukraine will ever join the EU.” He adds: “More of a question mark hangs over Bulgaria and Romania’s ascension. Both of those countries put together are a lot smaller than Poland in terms of population. Also Romania does not have the same access to skills and same manufacturing base as Poland.”
Outlook
It isn’t only Poland’s strong manufacturing tradition that draws companies anymore. Increasingly, back office operations, including payroll, is being outsourced to Poland, a trend that can only continue as business becomes more and more conscious about streamlining and cost savings. Over the next five years, it is expected that sophisticated accountancy, financial services, call centres and R&D will develop dynamically. It is also estimated that 500,000 people will be employed in the business process offshoring (BPO) sector by the end of 2010.
Last year, more than 37,000 jobs were created through FDI, while the country experienced GDP growth of 3.2 percent – compared to a eurozone average of 1.3 percent. There is also a large internal market of 38 million people – about the same size as Spain, which benefited enormously when it was included in EU enlargement back in the 80s.
Poland now has a burgeoning middle class of society with disposable incomes and lifestyle expectations, and Warsaw has become a vibrant hub for conducting business. But, while the economy is reaping the rewards of the FDI, the country does have a worryingly high level of unemployment – much greater than its EU counterparts. On top of this, Poland has experienced brain drain (see box out), whereby the young have upped sticks and moved to Western Europe, where they can earn more money – often in construction, catering, agriculture and engineering – and enjoy a better standard of living. “The obvious solution would be for wages and prospects to improve,” Owen suggests. “I don’t think that most of the people working in the UK and other parts of Western Europe are seeking to stay permanently. Most intend to go back to Poland.”
These issues aside, Poland is still prospering in terms of FDI. While dining at Europe’s top table has elevated the country’s profile, it ticks most of the boxes for foreign companies looking to expand into a more cost-effective region. However, most of the old Eastern European countries have seen their economies blossom since the end of communism and the reagion still has massive potential bubbling beneath the surface, much of it as yet untapped. Despite the waiting competition, Dembinski argues that Poland’s economic figures paint a picture of a nation surging forward. “In May, we had 19 percent industrial production growth here and 5.4 percent wages growth in manufacturing. This shows that productivity is soaring and that Poland is moving quickly up the value chain. It will be difficult for Romania to catch up with growth like that.”
Romania and its neighbour Bulgaria – the two countries tipped for huge growth – will join the EU next year. Whether Poland can continue to beat off competition from this pair, and others on the fringes of Europe, remains to be seen. Szelagowski is upbeat about Poland’s outlook. “Poland is at the beginning of its economic growth cycle in Europe. The country’s strategic assets are increasingly well recognised. We have the potential to contribute significantly to the global competitiveness of Europe. “He adds: “The country is also an attractive entry point for both American and Asian companies looking to enter the European single market, and the balance of high return and low risk will continue to attract global investors for the next five years.”
SPECIAL FOCUS: POLAND
Since the fall of the Iron Curtain, Poland has become a veritable magnet for foreign companies looking to expand into Central and Eastern Europe.
But just what is it that makes the place so alluring, and can it sustain its appeal amid mounting competition?
By Julian Rogers
Nestled slap bang between Western and Eastern Europe, the Republic of Poland (to give it its official title) has made giant strides when it comes to attracting foreign investment. With its cheap, but skilled, labour force, enviable position in the heart of Europe and favourable tax breaks for foreign businesses, this former Eastern Bloc nation has much to offer. And it seems that negative stereotyping as a country embroiled in red tape and bureaucracy has not dampened interest from foreign investors.
In May 2004, the country made that all-important step up into the house of Europe’s elite – the European Union. However, it was not this ascension that was a catalyst for the foreign direct investment (FDI) flooding in the Poland – far from it. Poland has been on the radar of global organisations looking to exploit its benefits since the early 90s and the fall of communism.
According to a survey by Ernst & Young, Poland is the fifth most attractive country in the world for FDI – trailing only the US, China, Germany and India. International business has pumped US$84 billion into the Poland since the early 90s, with 2000 being the year when most investment arrived – all US$10 billion of it. French, German and US firms are currently the leading players in Poland, while Japan is hard on the heels of this pack. France Telecom, Citibank, LG and Daewoo are just a handful of international brands that can be found running operations in Poland.
Most of the money coming into the country is directed at manufacturing. The country has always had an establishing market in this sector, much to the advantage of German firms who have been using Poland as a outsourcing backyard for its manufacturing industry for the past 15 years. Volkswagen, for instance, has been assembling cars in Poland since 1998 to meet the fast growing customer base in Eastern Europe.
Polish promise
In order to entice investment, Poland offers a system of incentives in the form of tax exceptions in 14 special economic zones spanning 6000 hectares. There are also financial grants on offer for new investment, job creation and training. Also on offer is real estate tax exemption and assistance in establishing cooperation between the company and academic institutions. The icing on the cake is the low corporate tax rate of 19 percent, which compares extremely favourably with 39 percent in neighbouring Germany.
Wojciech Szelagowski, VP of the Polish Information and Foreign Investment Agency (PAlilZ) believes that membership to the EU has strengthened Poland’s hand even further. “EU accession has triggered a new wave of investment,” he said. “It has increased investor confidence levels and companies are exploiting the opportunity of Poland being part of the single EU market. A significant number of existing investors claim that EU entry has had a positive impact on their operation in Poland. Economic freedom and transparency have also increased as a result of EU accession.”
But the ace up its sleeve is cheap, skilled labour. For years, overseas multi-nationals have been able to transfer operations behind the old Iron Curtain and pay workers a fraction of the wages of their Western counterparts. Added to this, education is taken very seriously, with young Poles eager to learn and better themselves. There are currently more than two million in higher education at universities and colleges. The theory that the nation is hardworking is also borne out in the figures. According to the Organisation for Economic Co-operation and Development (OECD), Poles worked 600 more hours in 2004 than employees in France and Germany.
Of course, being situated at the communications crossroads of Europe appeals greatly to overseas firms too. Poland is seen as a gateway between Western and Eastern Europe and just a stone’s throw from the major German manufacturers. All of these benefits add to an attractive mix of business attributes. Michael Dembinski is Head of Policy at the British Polish Chamber of Commerce in the capital, Warsaw. He says: “The key things are the strategic location in the heart of Europe and at the crossroads of north, south, east and west of Europe. Very important is the fact that Poland is within the European market and a low cost economy.”
Paperwork
Of course, Poland isn’t without its problems. Critics argue that setting up a business in the country is often a slow process with a bureaucratic minefield around every corner. Just opening a warehouse can involve 25 regulatory procedures and take over 300 days. There are also issues with the infrastructure, which after years of underinvestment needs upgrading. “Infrastructure, particularly the roads, is a problem,” agrees James Owen, an analyst at the Economist Intelligence Unit. “It is slowly improving and the motorway construction programme seems to be getting into gear, but it’s going to take a long time.” In a bid to kickstart the much-need road and infrastructure improvements, the EU has earmarked over €90 billion for Poland between 2007 and 2013. This is just one of the many upsides of being invited to join Europe’s exclusive club. The government also plans a radical overhaul of the rail network and air and seaports to bring the infrastructure into the 21st century.
Commenting on the bureaucratic problems facing foreign investors, Owen believes that while it is a problem, it is one that is improving. “There is quite a lot of red tape, but the government is still trying to do something about it and it will be interesting to see what happens over the next six to 12 months.” And asked about claims that the authorities are reluctant to allow the large multinationals to open up in Poland? “I think the problem may be, as far as foreign investors are concerned, that they may be reducing red tape on small domestic businesses and a less welcoming attitude to the big foreign firms. This is because the government fears the firms will take a too dominant role.”
This is echoed by Dembinski, who believes Poland, for all its advantages, has faults that must be addressed if the government is to keep foreign business happy. “Poland is not the easiest of places in the EU to do business,” he says. “It takes a long time to set up a business, and the tax law is very opaque and prone to change. Arbitrarily, there isn’t the mindset within the civil service that business is actually good for the nation’s economy – they have not actually grasped that. There is a case of where the people that grew up and started their careers in the communist eras so there is still a bit of an anti-business bias.”
In order to find out if the rumours and scaremongering about Poland are true, professional services firm KPMG carried a test to put some common opinions about the country under the spotlight. It revealed that investors do not agree that the Polish workforce is inefficient and that it is difficult to get anything done without a ‘kickback’. Also, businesses disagreed with the view that Poles don’t speak foreign languages and that taxes are too high. Respondents did, however, confirm the opinion about the country’s widespread bureaucracy, inefficient judiciary, poor infrastructure and an overly complicated taxations system, KPMG said.
Szelagowski says businesses need to look at the bigger picture. “According to a number of reputable investment reports, the decision to invest is based on labour costs, skill base and strategic location. Whilst infrastructure, bureaucracy and taxation are cited as requiring improvement, it is recognised that Poland’s EU accession will enable these obstacles to be removed.” He continues: “EU funds are available to develop Poland’s transport and communications infrastructure, and the government is committed to improving both the efficiency and transparency of the administrative system.”
Rising rivals
Despite its faults, the experts all agree that the country has the basis to build on its attractiveness for FDI. With its low labour overheads and location in Europe, Poland is a tasty recipe for foreign companies looking to expand into Central and Eastern Europe. Investment dipped after a crescendo in 2000, leaving many wondering if the bubble had burst. However, FDI rose again recently, with US$7.7 billion invested last year alone. The authorities know they cannot afford to rest on their laurels, with competition coming hard and fast from places like Bulgaria and Romania, as well as Russia and her former Soviet neighbours. Indeed, Russia, Estonia, Romania and the Ukraine have all seen FDI rocket since 2000. After the fall on communism in the late 1980s, the whole of Central and Eastern Europe was opened up to the West with multinationals scrambling to take a slice of this untapped market. Poland emerged as a major player, but has a long way to go when you consider the world stage in terms of FDI.
KPMG found that Poland is too small to compete with the world’s emerging giants – Brazil, Russia, India and China (the so-called BRIC countries). Instead of competing with these countries on its own, Poland can combine forces with its neighbours to fight the heavyweight BRIC countries, it said. Central and Eastern Europe as a whole has a population of 90 percent of Russia, but is nearly a third richer in terms of GDP than the superpower. “To avoid being overshadowed by flashy publicity surrounding China and other big emerging markets, Poland might wish to start collaborating with its neighbours to promote this still-not-quite discovered region of Central and Eastern Europe,” the report suggested. In fact, FDI in Central and Eastern Europe is grew faster than in China between 2000 and 2004.
According to Dembinski, Eastern European nations have many stumbling blocks that may prevent them from steeling Poland’s crown. “If it is more difficult to do business in Poland than the UK, it is incredibly difficult to do business in Russia and Ukraine. There are so many hurdles, both formal and informal. With the best will in the world it will be 15 to 20 years before the Ukraine will ever join the EU.” He adds: “More of a question mark hangs over Bulgaria and Romania’s ascension. Both of those countries put together are a lot smaller than Poland in terms of population. Also Romania does not have the same access to skills and same manufacturing base as Poland.”
Outlook
It isn’t only Poland’s strong manufacturing tradition that draws companies anymore. Increasingly, back office operations, including payroll, is being outsourced to Poland, a trend that can only continue as business becomes more and more conscious about streamlining and cost savings. Over the next five years, it is expected that sophisticated accountancy, financial services, call centres and R&D will develop dynamically. It is also estimated that 500,000 people will be employed in the business process offshoring (BPO) sector by the end of 2010.
Last year, more than 37,000 jobs were created through FDI, while the country experienced GDP growth of 3.2 percent – compared to a eurozone average of 1.3 percent. There is also a large internal market of 38 million people – about the same size as Spain, which benefited enormously when it was included in EU enlargement back in the 80s.
Poland now has a burgeoning middle class of society with disposable incomes and lifestyle expectations, and Warsaw has become a vibrant hub for conducting business. But, while the economy is reaping the rewards of the FDI, the country does have a worryingly high level of unemployment – much greater than its EU counterparts. On top of this, Poland has experienced brain drain (see box out), whereby the young have upped sticks and moved to Western Europe, where they can earn more money – often in construction, catering, agriculture and engineering – and enjoy a better standard of living. “The obvious solution would be for wages and prospects to improve,” Owen suggests. “I don’t think that most of the people working in the UK and other parts of Western Europe are seeking to stay permanently. Most intend to go back to Poland.”
These issues aside, Poland is still prospering in terms of FDI. While dining at Europe’s top table has elevated the country’s profile, it ticks most of the boxes for foreign companies looking to expand into a more cost-effective region. However, most of the old Eastern European countries have seen their economies blossom since the end of communism and the reagion still has massive potential bubbling beneath the surface, much of it as yet untapped. Despite the waiting competition, Dembinski argues that Poland’s economic figures paint a picture of a nation surging forward. “In May, we had 19 percent industrial production growth here and 5.4 percent wages growth in manufacturing. This shows that productivity is soaring and that Poland is moving quickly up the value chain. It will be difficult for Romania to catch up with growth like that.”
Romania and its neighbour Bulgaria – the two countries tipped for huge growth – will join the EU next year. Whether Poland can continue to beat off competition from this pair, and others on the fringes of Europe, remains to be seen. Szelagowski is upbeat about Poland’s outlook. “Poland is at the beginning of its economic growth cycle in Europe. The country’s strategic assets are increasingly well recognised. We have the potential to contribute significantly to the global competitiveness of Europe. “He adds: “The country is also an attractive entry point for both American and Asian companies looking to enter the European single market, and the balance of high return and low risk will continue to attract global investors for the next five years.”
