Reassessing the Polish market

Most American exporters know that in the 1970s Poland was a viable market for U.S. goods, but that in 1981 burgeoning debt and the government confrontation with the Solidarity Labor movement led the country into political and economic crises. What some firms do not yet realize is that the politics and economics of Poland are changing for the better, making it a good time to take another look at this export market.

Spurred by improving bilateral relations and encouraging internal trade reforms, Poland is quickly regaining its former status as America's leading trade partner in the East European region. Nearly every week another American exporter who hasn't done business with Poland in recent years returns to reinvestigate this East European market. For some, stiff competition from Western Europe and Poland's debt constraints present formidable hurdles. For all, the welcome is warm.

While Poland is not the easiest market for American exporters, it's a good place to start for those new to Eastern Europe. Poland is the largest export market in the region and perhaps also the most anxious to attract new business partners. The dominant attitude of trade officials is one of openness and flexibility.

Trade With U.S. Recovers

By 1989, Polish-U. S. trade willlikely reach a new record, surpassing the $1 billion per year levels attained at its 1978-80 peak. In 1987, bilateral trade volume grew 35 percent, and that growth has been sustained in 1988. So far this year U.S. exports are up 80 percent. While agricultural exports dominate the growth, manufactured goods exports are growing at an 18 percent annual rate and could approach $100 million in 1988.

The trade recovery is dramatic when viewed against the recent history. In early 1987, the United States ended six years of trade sanctions against Poland, but the attitude of Polish buyers towards American suppliers remained wary. In September 1987 Vice President Bush's visit to Poland marked a favorable turn ing point in overall relations, and by February 1988 the Polish Minister of Foreign Economic Relations met Secretary Verity in the first Joint Commission meeting in eight years to agree on a program to reinvigorate trade. A few large contracts have been signed, and serious discussions about future deals are under way.

Pessimistic observers emphasize the formidable handicap which Poland's $39 billion dollar-debt imposes on trade, and eschew Poland on the grounds of its poor credit rating. This is an oversimplification and West German and Japanese exporters know it. Poland imports about $6.5 billion from the West each year. Last year West Germany captured over $1 billion of these sales, and Japan sold over $150 million-mainly automobiles, televisions, and personal computers, items which are supposed to be difficult to sell in a tight hard currency market. America's advantage in Poland is an enduring belief that things American are "the best." To the optimist, all Poland's debt means is that new U.S. export sales will have to come out of the hides of other Westem competitors.

Strategy of Reform

In Poland there is a strong desire to keep the debt from hindering foreign trade. There are no quick or complete solutions to the debt problem, and consequently the government is committed to reform and seeks to encourage practical solutions.

To bring about long-term economic recovery and the eventual reduction of outstanding debt, the Polishstrategy emphasizes rationalization and efficiency. In foreign trade the aims are stable growth in imports and the strong development of export industries. Although implementation of these needed changes is expected to be difficult, these reforms offer a step in the right direction.

Although somewhat slower than Westem experts would like, Poland is pursuing price corrections and increasing the role of profitability criteria. The chief aim is to improve economic performance and, in the process, convince Western lenders that Poland can manage its economy. To American firms who knew Poland in the 1970s, today's Poland is a changing place.

Foreign trade decentralization has resulted in the expansion of the number of trading entities from 60 in 1981 to over 700 at present. While about 90 percent of foreign purchases are still determined by the core of state trading firms, these firms are no longer controlled by ministries-they may import and export any goods with any partner. Poland has set itself on a course of foreign trade demonopolization.

New banks have been created with a mandate to assist the country's trading firms to overcome the absence of foreign credits. The Export Development Bank, for example, assists Polish firms investing in export-oriented projects. During its first operating year, 1987, the bank supported 44 projects. It lent $23.5 million and guaranteed another $10 million for foreign purchases. The amounts may be modest, but the bank's strong management and Westem approach to problem-solving help create a feeling of progress.

In 1986, Poland opened the door to joint-venture activity in an effort to bring in Westem technology and management without large capital investments. In the first two years, eight companies-two with American participation-were created. But, for Poland, the results were less than desired. Following the advice of Western legal experts, the joint-venture law has been redrafted and a more liberal version is expected to be approved for introduction on Jan. 1, 1989. The new version is expected to allow for up to 100 percent foreign ownership of an industrial facility in Poland, caps tax rates at 40 percent, and significantly relaxes the controls on profit repatriation. The major selling points of Poland as a joint-venture partner are its central location between the West European and Soviet markets and its relatively cheap, highly educated Labor force.

Poland rejoined the IMF and World Bank in 1986 and the govemment hopes to conclude an IMF standby program. While that goal has not been reached, actions towards it continue to encourage potential trade partners. Significantly, over 25 export-oriented projects have been examined by the World Bank; depending on a favorable decision on an IMF program, they might be funded. Bids for many of these projects will be tendered this fall and the Polish National Bank has pledged bridge financing should World Bank money not come through in time. Virtually all West European governments have encouraged private firms to engage in discussion and place bids.

These projects are aimed at expanding the processed food industries; modemizing furniture, wood, and other light industries; creating production of additional chemicals; and increasing the nation's energy efficiency. Bid documents are available at nominal fees. The U.S. and Foreign Commercial Service post in Warsaw is prepared to assist interested U.S. exporters.

U.S. Export Prospects

The conventional wisdom suggests that debt-burdened countries limit their purchases to the essential, and, on a large scale, the same rule applies to Poland. However, due to the presence of a sizable dollar market in Poland controlled by three retail chains, some surprising Westem exports succeed. Among these are products as diverse as private automobiles, designer jeans, household appliances, and candy bars.

The best export prospects are: food processing equipment, data processing equipment, agricultural commodities, commercial aircraft, industrial technologies, medical equipment and pharmaceuticals, telecommunications equipment, chemicals, energy technology, pollution control equipment, personal computers, and specialized consumer goods.

One of the best ways to make contacts in Poland is through participation in the country's trade shows. Over 20 specialized fairs are scheduled annually, and the U.S. Department of Commerce sponsors an exhibition each June at Poland's largest trade event, the Poznan International Trade Fair. In 1988, half of the American exhibitors at that event made sales during the fair. Participation at these events has grown in importance with decentralization, since it is no longer easy to identify the prospective partners. The trade shows provide maximum exposure to the Polish market.

An indication of increased interest in the United States is Poland's decision to send over 40 key trading officials to the United States this October for a meeting of the Polish-U.S. Economic Council, sponsored by the U.S. Chamber of Commerce. This is the largest group Poland has sent in ten years. The decision reflects the conviction that U.S.-Polish business activity should be much greater. Foremost on the Polish agenda are identifying joint-venture partners and making their own sales. Such sales provide a major source of financing for imports. Another aim, much talked about in Warsaw, is spreading the word that Poland means business with its reform program.

When Americans visit Poland they are frequently surprised by the candor and eagerness of prospective business partners . Indeed, there's a lot of common ground to build on. In both Poland and the United States the expression "where there's a will, there's a way" is well known. This sentiment is being rediscovered in the Polish approach to building contacts with American business.

COPYRIGHT 1988 U.S. Government Printing Office
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