Flying high:
By : Juliet D. Golden
For Marek Karwan, the sky doesn't seem to be the limit.
After switching occupations from sheep farming to furniture making in the early 1990s, the 38-year-old entrepreneur has in the last decade built one of the most well known upholstered furniture companies in Europe. His company, Adriana, has also become the largest supplier of such goods to retailer Ikea's worldwide operations.
Adriana has gone from employing 100 people in 1990 to more than 1,200 people today at three factories in north and central Poland. The company has also watched its net profit expand 60% in the last two years as revenue rose 22%.
It all began in the tiny town of Kosowizna, a village between Torun and Gdansk that doesn't even figure on a Polish map. But Adriana's reach now extends far beyond it to many international markets in Europe and Asia. That expansion is helping Adriana become a high profile player on the worldwide furniture market.
"He is now playing in the champions' league," said Ludger Grzeszkowiak, head of Ikea's upholstery purchasing division in Germany, Netherlands and Poland. "Before he was only playing in the Polish league."
Karwan's experience is an example of how entrepreneurship has taken root in Poland over the last 11 years. Without any foreign capital, Karwan has built a company that can turn a profit and become a significant player not only in Poland but abroad as well. Karwan's experience also illustrates how Polish producers are gearing up to compete for market share as Poland moves closer to joining the European Union (EU).
Having established himself in furniture, Karwan is now looking for new business opportunities. This time, his attention has turned to one of his loves: flying. Having clocked more than 100 hours of business travel on the corporate plane last year, Karwan is considering ways to expand his small private flight operation into a profit-making endeavor. Inspired by the convenience and speed with which he and his managers can get around Poland in his Cesna 172, Karwan said he thinks there might money in offering private flights to other busy executives who need to cut down domestic travel time.
"I can fly to Wroclaw from here in an hour and five minutes," Karwan said. In comparison, the train takes roughly five hours.
Whether this venture comes to fruition or not, it's that innate entrepreneurial nose for new markets and niches that has contributed to Karwan's success over the last decade. For example, last year Karwan set his sights on breaking into the U.K.'s furnishings market. This year, Adriana will ship zl. 100 million ($24.4 million) worth of upholstered furniture to York-based distributor Scan-Thor. That sale should help Karwan reach the company's conservative revenue estimate of zl. 220 million ($53.66 million) this year, an increase of 22% over 1999.
"That is the most pessimistic version," Karwan said.
Over the past two years since the WBJ first profiled Karwan, sales at Adriana hiked 82% to hit zl. 181 million ($51.71 million) in 1999. Adriana has also seen net profit in the same time jump 68% to zl. 3.7 million ($1.06 million) in 1999.
Karwan said the company's expanding revenue and profit can be largely attributed to ongoing investments in technology and production capacity. In addition to growing the company's core business of manufacturing uphostered corner sets, sofas and chairs, Karwan also integrated Adriana's production by acquiring a Lodz textile factory in 1997 that now supplies 40% of fabric used in the company's furniture. Karwan said he has also boosted Adriana's competitiveness by constantly trimming costs.
Karwan is matter-of-fact about why his company has succeeded. "Reliable, honest work brings effects the principle is simple," he said. "Do your work well, chose good customers. These are the beginnings of success."
Restless soul
With the passage of time, the beginnings of Karwan's success-from-scratch have now taken on the patina of legend. After graduating from an agricultural college in 1986, he turned to sheep farming and exported meat. Three years later, he felt his competitive advantage had eroded because Polish meat prices were high compared to those of Brazil, New Zealand and Australia.
Once he sold his herd, Karwan was left with 10 tons of wool that he used to start making quilts and pillows. By 1991, however, competition on that market was also stiff, and Karwan was getting itchy to move into a new area. Having been impressed by his ability to delivery quality goods on time, Ikea pitched in technical assistance to help the entrepreneur launch a new mid to upmarket tapestry furniture manufacturing venture. By 1996, sales to Ikea alone had reached $8.7 million, and Karwan had become Ikea's largest Polish supplier of upholstered furniture.
That partnership proved pivotal to Adriana's long term success. Today Adriana is the largest supplier of upholstered furniture to Ikea in the world. Having shipped approximately zl. 100 million ($28.57 million) worth of goods to Ikea in 1999, Karwan anticipates that figure to increase 22% to zl. 122 million ($29.75 million) this year.
Outfitted with computer programs that can design new furniture lines and etch out one-to-one patterns on a plotter, Karwan's Adriana has gone from being the recipient of technical assistance to Ikea's center of technical expertise.
"(We) develop the technology for production in other countries, not just here," said Andrzej Swarcewicz, head of Adriana's technical department, which is responsible for developing new designs and setting production standards.
Ikea now uses Adriana as a base for developing new products produced at factories around the world. "The ability to develop new (products) is part of being in the champions' league," Grzeszkowiak said.
Adriana has been able to take on this role thanks to Karwan's commitment to continually investing profits back into the factory.
While his maxim of hard work seems to be the rule of success, the source of his entrepreneur spirit lies in Karwan's constant need for change and expansion, customers and co-workers said.
"(Karwan) is one of the few Polish manufacturers that is actually investing in his company instead of having a huge personal profit," said Peter Mussmann, managing director of Otto International in Poland, a sister company of Otto Versand, a German mail-order giant and Adriana customer since 1995. "He is consistently developing, building and taking in new technology."
Co-workers said that Karwan's personal drive is behind Adriana's success. "He has this spark," said Jerzy Kowalski, Adriana's administrative director and Karwan's first flight instructor. "He can't just sit back calmly. He has to sit back and think about what else can done, how things can be done better. He has a restless spirit."
Karwan has also had to change as Adriana has grown. The biggest personal challenge he has had to overcome in the last two years is to learn to delegate and allow his management team to do their jobs. Customers said Karwan has had to learn to loose the reins and not always have the last word.
"In the beginning he wanted to be the last person to take the final decision on everything (and) that meant very often that the whole chain of decision became very long," Mussmann said. "He has learned a lot that he is not the only person that can make a decision in the company."
With continued rapid growth, Karwan will have to make sure his management skills keep up with the change. "The demands are higher on these global players than it is on local suppliers," Grzeszkowiak said. "The key question is how he manages this. One thing is to manage growth in pieces and turnover, the other thing is to manage service."
Selling in Poland
While Karwan and his staff make the business look easy, not everything is straightforward.
Walking through the factory in Kosowizna, warehouses are stacked high with plastic-wrapped furniture waiting to be shipped out to customers. Adriana employs a just-in-time philosophy of organizing production, which basically means that pieces are produced as customers order them, thereby minimizing the amount of capital being tied up in inventory. But right now the company has a bottleneck of orders to ship; the glut is being caused by transporters waiting for loads to come back to Poland before they ship the next load out. If trucks came back to Poland empty, Karwan said he would end up footing the round trip transport bill. Transport costs already run 11 % of the company's total costs, he said.
The absence of return loads spells problems for customers as well. "It's a huge problem for us, especially for our English business," Mussmann said. "We are actually screaming and shouting (at freight forwarders) to get more trucks."
Another hitch in Karwan's plans has been expansion on the domestic market, which today figures at well under 5% of total sales. Three years ago, Karwan estimated that domestic sales would comprise 15% of the company's total revenue. But plans to build sales nationally through cooperative agreements with private companies went foul. That meant that domestic sales hovered at about zl. 7 million ($2 million) last year, a mere 4% of total turnover.
"I wasn't successful with those partners," Karwan said.
To fill the gap, last year Karwan set up a separate company, Domo Faber, which was charged with boosting sales of Adriana furniture in Poland. Today Domo Faber has its own chain of seven furniture salons and a network of 19 partner stores around the country. This year sales in Poland are expected to double to zl. 15 million ($3.66 million).
For Karwan, these challenges make the ride bumpy but not overly difficult. What he sees as a more serious threat is what he calls faulty government macroeconomic policies that undermine Polish entrepreneurship. Karwan laments rising inflation and unemployment rates as well as the stronger zloty, which makes his goods less competitive on international markets. While the strong currency, which is in part spurred by high national interest rates, has not hit sales yet, Karwan said he already has to fight harder for contracts. He also said that Adriana is feeling pressure on its margins.
Karwan laments the lack of government support for Polish business. At a time when the government is trying to entice foreign investors into special economic zones, little is done for Polish producers, he said. The production of foreign companies in special economic zones is not taxed a situation that Karwan said creates unfair competition. "They work without taxes, we work with taxes," Karwan said. "I don't want handouts or something for nothing, but more could be done for Polish industry."
Flying high.
While he may feel a lack of government support, Karwan is hardly daunted by it. He is full of ideas on how to grow Adriana and expand into new business areas. If all goes well, this week Karwan will be ready to finalize a deal with the Treasury Ministry's industrial development agency on the purchase of the Ursus tractor factory in nearby Chelmno for zl. 4 million ($976,000). This will increase Adriana's production capacity by 30%. Employment will also rise from 1,200 to 1,450, Karwan said.
While currently focusing on expanding furniture production and strengthening his textile business, Karwan admits he is on the lookout for new business areas.
One likely option is the building sector. Faced with the need to resettle families located in buildings on factory grounds, in December Karwan completed construction of a housing complex for 13 families in nearby Kijewo Krolewskie.
With housing shortages around the country and dilapidated blocs from 1970s ripe for demolition, Karwan admits he is toying with the idea of expanding into the low- to middle-income housing construction business. "We were able to clean up the scenery here a bit and at the same time test costs," Karwan said. "It worked out well."
Aviation is also a constant pull. Having clocked 400 hours as a pilot, Karwan expects to receive his commercial pilot's license this year. One of his pilots is in the United States for further flight training.
Karwan's pilot instructor-cum-administrative director, Kowalski, said he thinks the best is yet to come for Karwan and Adriana. "Knowing Marek Karwan, I suspect that these aren't his last words," Kowalski said. "He's only 38 and he's dreaming."
