Forget China and India: the former Soviet Bloc nations that are the newest members of the EU are full of opportunities and closer, says Ian Halstead.
Britain’s tabloids worked themselves up into a terrible lather in 2004, predicting a flood of cheap labour from the EU’s accession states, which would create mass unemployment in the UK.
It didn’t happen, and more acute observers soon realised the potential of countries such as Poland and the Czech as consumer markets and production locations.
Reassuringly, companies and institutions in the Midlands had already identified opportunities in several of those countries. For example, Coventry & Warwickshire Chamber of Commerce began taking trade missions to the Baltic in the 1990s.
“We saw strong cultural matches between us and them, which perhaps weren’t immediately obvious. We realised they were fast becoming westernised, and because they had broken their links with Russia, they needed new trading partners,” says its international trade adviser Mick Page.
Estonia, Latvia and Lithuania topped the chamber’s initial list of target markets for a raft of reasons.
“They were keen adopters of new technology, they all had attractive and historic capital cities, which needed investment and regeneration, and their people had a strong and enthusiastic entrepreneurial spirit,” says Page.
He led an ICT trade mission to all three states, subsequent visits have taken wider groups of Midland corporates there, and further missions will be held in 2009. “We are finding significant opportunities for companies in the construction and infrastructure sectors. The three Baltic states are working together, and all planning investment in their roads, ports and rail networks,” says Page.
“Disposable incomes aren’t high by Western standards, which is an issue for some would-be exporters. Over the next five to ten years though, we see all three becoming exciting markets.” Thanks to the chamber’s guidance, several companies are now trading successfully with the Baltics, including Oaklands Plastics, based not far south of Birmingham in Coleshill.
The firm specialises in moulding a range of products from kerbs for go-kart circuits to pedestrian barriers. Established in 1990, its 35 employees already generate annual sales of £3m, and the Baltic states have become a fast-growing new market.
Director Matt White pays tribute to the assistance of Page, and UK Trade and Investment (UKTI), in opening up opportunities for exporters.
“The commercial teams at the embassies in Latvia and Lithuania got us off to a good start by helping identify potential distributors, and one of my colleagues, Gatis Priede, continued the work with more research on the phone,” he says.
“In March this year we went out to meet existing customers and make new contacts, and now we’re selling about £100,000 of products just to Latvia.”
Of course, if you are a small or medium-sized business thinking of entering one of the new EU markets, you will need much solid research, as well as a handful of bravery pills.
Atradius, one of the world’s largest credit insurers, regularly analyses changing conditions in the global economy, and its most recent report surveyed 200 companies in six Central and Eastern Europe (CEE) countries.
The findings of Its Payment Practices Barometer are interesting in relation to the Czech Republic, Poland, Romania and Slovakia, all of whom joined the EU in 2004.
It might be perceived that each of the former Eastern Bloc countries would have similar attitudes to key issues such as debt, domestic and overseas foreign partners, and non-payments by key customers, but no. Atradius reports that Czech companies are average, by CEE standards, for setting payment terms and settling debts, but sceptical about the willingness of their domestic business partners to pay on time.
However, their corporates are the best regarded of the four accession states by their counterparts from across the wider region. The stand-out issue is non-payment by a major customer, which companies say would seriously damage their reputation.
In Poland the Atradius researchers discovered corporates offering the shortest payment terms of the countries surveyed – up to two weeks. The Poles, though, were negative about their domestic business partners, and themselves, probably reflecting significant gaps between the time payments are due, and when they are made.
Unsurprisingly, their foreign partners shared their mindset, rating Polish companies the worst partners throughout the CEE region, with the exception of the Romanians.
The latter’s corporates have the longest official payment terms in the region – typically from 15 to 30 days – but are positive about their domestic business partners because the gap between due date and payment date is short. Romanian companies are also more positive about their foreign partners than elsewhere, although the mindset isn’t shared as overseas companies rated them the worst.
In Slovakia the picture is equally mixed. Its corporates are on a par with Czech businesses, in having payment terms of up to two weeks, but they are also the most likely to take country of origin and economic sector into account when determining payment terms for a partner.
Slovakian firms were also the most positive about their domestic business partners, and Slovakia was also the only country where the various evaluations, by domestic and overseas partners, matched up.
One company content with life there is Kingswinford-based Clamason, a metal-pressings firm which opened an assembly plant and warehouse at Nitra, an industrial town 80km east of Bratislava, two years ago. Parts made at its UK plant are shipped in flat packs, for labour-intensive secondary operations, such as welding and assembly.
The £300,000 investment for the factory and kit was significant for a privately-owned small business, but managing director Philip Clarke says the move was essential to safeguard jobs in the Black Country.
“Our automotive customers, notably Delphi and TRW, were drifting across Europe and made it clear to us that unless we could support them in two ‘geographies’, we would not be retained on their list of preferred suppliers,” he says.
“We could have tried to call their bluff, but it seemed more realistic to follow the work, and we began looking at, and visiting, potential locations in Poland, the Czech Republic, Slovakia and Hungary.“
Finding a suitable site, where good-quality factory space could be rented that would satisfy Clamason and its automotive customers, was not easy, even with support from UKTI, the British Embassies in Prague and Bratislava, and the inward investment agencies.
However, by the autumn of 2004 Nitra had been identified, largely because of the presence of a cluster of automotive component suppliers.
“It was halfway between our first-tier customers – TRW in Poland and Delphi in Hungary – and well placed for servicing brands such as Sony, Panasonic and Whirlpool, all of whom had plants in the region,” says Clarke.
With Slovakia becoming a major vehicle-producing location, and predicted to be turning out a million cars a year by 2010, it also seemed a good place to win business.
Even then, an unexpected snag prevented Clamason renting an 8,000 sq ft industrial unit it considered ideal.
“It was high quality, and as good as anything in Germany," says Clarke. “Unfortunately, although we had a provisional agreement to rent the space from the controlling family, they had a disagreement about whether we could move in and the deal fell through.”
Clamason found the space it now occupies by hiring a local plant manager and asking him to get to know the area’s property market. The strategy has paid off so handsomely that the firm’s Slovakian presence is enabling it to win contracts elsewhere in the CEE region.
“We’ve won business from two first-tier automotives that wouldn’t have talked to us had we been based solely in the UK,” says Clarke. “We’ve also got tooling work from Schneider, which uses 150 stamping companies in Europe.
It is using us instead of other suppliers in Switzerland, Germany and the Czech Republic.”
Even better, Clamason has also picked up work for a major sub-contractor in the satellite TV industry, based in the CEE region, which is generating work for the Kingswinford plant.
“We’ve been asked to supply six mouldings for the SkyHD box, and four will be made in the UK,” says Clarke. “The Nitra venture has been so successful we’re renting additional space and looking for a new site.”