Glass works
By : Jeffrey Sparshott
Fired up: the local glassworks has helped stimulate Krosno's economy.
Tucked into the Carpathian foothills in the southeast corner of Poland, Krosno is a small city in a poor region, closer to the Ukraine and Slovakia than any big Western markets.
Yet the city of 50,000 inhabitants is home to successful exporters domestic and multinational that are plugged into the world economy and that combine to keep unemployment significantly below the regional or national average.
Renowned glassworks Krosnienskie Huty Szkla (http://www.krosno.com.pl), better known simply as Krosno, is the pride of the town, exporting hand-blown glass and the city's name around the world.
Auto-parts manufacturer Delphi Automotive Systems, aviation-components manufacturer Goodrich and state energy concerns also headline local operations. Less-famous firms are also active, including other glassworks, a company that manufactures refrigerated transportation tanks, another that produces natural gas and oilfield equipment, and a furniture company that claims to be one of the biggest chair manufacturers in the region since opening in 1992.
"Unemployment is only 9.5% in Krosno," said Mayor Roman Zimka. "It is one of the lowest in Poland."
When asked if the government has had a special role in boosting the city's economy, Zimka scoffed and replied more like a businessman than a politician. "Every government says it wants to help, but there hasn't been a single instance where they take the budget money and use it to fix anything but a budget hole," he said. "We are not waiting for any decisions. Krosno has all the necessary means to attract investment."
The city offers local tax breaks but in general, he said, it is the government's job to get out of the way. If that doesn't happen, the people of Krosno find a way to get around the government, he said.
Zimka's attitude may summarize the thoughts of many in the rugged Podkarpackie region (http://www.uw.rzeszow.pl/eng/uw.html), but it is not the whole story. Based on interviews with local officials, businessmen and economists, the city's relative success and the region's difficulties stem from many factors. Working against economic growth are an over-reliance on small and inefficient agricultural operations and limited infrastructure amid geographic remoteness. The Podkarpackie Voivodship suffers from poverty and unemployment above the national average.
On the plus side, Krosno benefits from natural resources, especially oil and gas deposits that make it one of the country's production centers, the long-time presence of a major manufacturer and exporter, and the hand of government, which in the 1940s and 1950s set up several manufacturing operations that today are operated by multinational corporations.
Flagship industry
Krosno glassworks is the city's flagship industry, employing 4,500 people in the region while in 2000 the company brought in zl. 271 million ($64.5 million) in revenue and turned a zl. 11 million ($2.6 million) net profit. Krosno exported zl. 165.8 million ($39.5 million) worth of products and, in doing so, exported the city's name on most of those glasses, vases or other goods. Its best-known product, hand-blown glass, is mainly for export. Domestically, the company manufactures machine-made glassware for breweries and sale in local stores, as well as fiberglass and glass tubing.
The company added to its holdings this month with the acquisition of an 85% stake in HSG Blowex-Tarnow for zl. 26 million ($6.2 million). Blowex is a glass firm with a similar structure to Krosno, but smaller, employing about 1,100 workers. It also owns a plant in nearby Jaslo.
"People observe the situation in Krosno and notice the changes and have a good perception of the company," said Artur Janowski, deputy director for exports at the glass company. "That is why the stock is growing."
As of last week, the company's lightly traded stock was up about 37% during a 52-week span while the Warsaw Stock Exchange's (WSE) all-share WIG index was down about one-third. Now owned and operated with mostly Polish capital, Krosno was one of five companies listed on the WSE during the first day of the exchange's trading in April 1991, an early example of privatization for a state-owned company. Through the first several years on the market, the shareholder base was disbursed, with no major investor to steer the company.
"For a number of years it was drifting," said Jacek Siwicki, managing partner at Enterprise Investors (EI), the largest venture capital fund in the country. In the first tender on the WSE by a financial investor, EI bought a 23% stake in Krosno in September 1999 for $6 million, Siwicki said.
"Our investment rationale was, we thought Krosno was and still is in a profitable business," he said. It's a quality product with an easy-to-pronounce name but, at the same time, the company had too many employees and certain operations such as fiberglass and technical glass manufacturing were not a good fit for the bottom line, he said.
"Our idea was to buy a big stake and restructure to focus on handmade glass, to divest from fiberglass and technical glass, and make the company leaner and meaner," he said.
But at the same time EI was buying a stake in the company, Polish businessman Zdzislaw Sawicki was adding to his holding of Krosno.
"After we acquired our shares, he seemed to be a little scared with the speed and ruthlessness of our restructuring," Siwicki said. "He was concerned that it would be painful and there would be protests. Our initial proposal was to buy him out. He proposed to buy us out. We didn't want to get stuck so we sold in April 2000."
EI sold its stake for about $7.5 million, a good return for such a brief investment, Siwicki said. Sawicki, who now controls more than 43% of Krosno's stock, gained the right to direct the company in his own way.
"Krosno seems to be slowly doing what we thought it should be doing," Siwicki said. "It has made the transition from a state company to a private company. But it's like a wasted opportunity to an extent. You don't know where it could be if (Sawicki) took action more decisively."
Of course, Krosno officials do not see the situation the same way.
"It is not one of our goals to let go of people," Janowski said, mentioning the company's major role in the city and its obligation to workers and their families. "It is not pleasant to let people go."
Though the stock's turnover is low, the performance on the WSE speaks for itself, officials said. The company is also quick to point out its dominant market share with its fiberglass and some technical glass operations. But Krosno maintains a focus on handmade household glass and exports: Handmade products account for more than 50% of all sales while more than 90% of those handmade products are exported to 38 countries. More than 85% of export sales go to the United States, the U.K., Germany, Australia, Spain, France and Sweden.
Founded in 1923, the company began supplying international markets in the 1950s. But Jankowski said the company started a dynamic transformation in 1992, when the domestic market opened up and management began significant changes. Today, the decision process is quick and the company quickly adapts its products to fast-changing international markets, he said.
As for being in Krosno, the company is glad to be associated with the city and share its name. To compensate for geographical isolation and the occasional difficulty in getting clients to Podkarpackie, the glassmaker opened an office in Warsaw and executives spend time in both cities, he said. Sales offices are also established in major markets so that the company can respond quickly to clients.
Krosno glassworks is one of the reasons that Krosno the city is on the map. Krzysztof Borusowski, member of the capital market committee for the Adam Smith Research Center in Warsaw, said that having such a major company can help create an activity center or a critical mass for private business. The company's presence also gives the local government experience in dealing with business issues. "So it is easier to establish another company and then another one," he said.
According to the Carpathian Regional Development Agency (ARRK), the Krosno area has a long and rich tradition with natural gas and petroleum mining, with more than 16% of the country's petroleum and about 20% of natural gas mined in the area. Zimka credits industry focused on the exploitation of natural resources with helping create a strong, disciplined workforce.
And government, especially the Communists who took over or established industries and then elected officials who privatized them, have had a firm hand in the region's development. Goodrich's operations in Krosno stem from buying into Wytwornia Sprzetu Komunikacyjnego "PZL-Krosno," founded as an aircraft repair shop in 1945 and reestablished as a manufacturer in 1952. Delphi Chassis System Krosno, which employs about 1,450 workers and is the leading supplier of shock absorbers in Central and Eastern Europe, sprang from the acquisition of Fabryka Amortyzatorow, founded in 1944 to renovate agricultural equipment and retooled in 1958 to begin shock absorber production.
When asked if the location is a problem, Delphi Krosno Finance Director Adam Morowski said, "There are disadvantages it would be better to be located more centrally, but on the other hand, it's not just about location we are shipping all over Europe."
Zimka said the region has a long history of looking beyond Poland's borders. Historically removed from the power centers in Warsaw and Moscow, it has been able to maintain a spirit of independence and entrepreneurship. High unemployment has also sent a lot of people packing, largely to the United States.
"There are big family connections with the United States," Zimka said. "Thanks to that, information and technology goes from hand to hand."
Zimka pointed to Nowy Styl, founded in 1992 with Polish and American partners, as one company that has capitalized on the trans-Atlantic connection; the furniture-maker has become a major player among Central Europe's furniture manufacturers.
A poor region
Despite the apparent successes, Krosno and the surrounding region still face significant challenges. According to the Central Statistical Office (GUS), the city's unemployment is at 9.6% low compared to the 15.8% national average but above the European Union's 7.6% and considerably more than the U.S.' 4.5%.
"It's a poor region, very poor," said Dawid Lasek, director of the Carpathian Euroregion (http://www.karpaty.com.pl)'s Polish office. "While it has a lot of potential, it still needs to meet a lot of challenges."
The United Nations Development Program notes a significant gap between the country's urban and rural populations, with significantly lower gross domestic product per head, an almost 25% poverty rate vs. 10% in cities and a lower school enrollment rate than in cities. Local and regional officials said the situation is not from a lack of industry in urban areas, but from rural poverty caused by an inefficient agricultural sector characterized by small holdings, very high unemployment in villages, low education levels, limited knowledge of foreign languages and inadequate infrastructure.
"Agriculture could be very important in a region like Krosno," said Zbigniew Karaczun, an assistant professor at Warsaw Academy of Agriculture (SGGW). "But we should think about multiple ways of rural development, not only support for agriculture."
Reforming the educational system would be an important first step, officials said. Vocational schools that prepare students to be farmers or mechanics are not providing the skills necessary for work in a modern economy. Better infrastructure, from water and sewage treatment to roads, is also key. And half the battle is the mentality of the local population.
"The local people should understand and expect that everything depends on themselves," Karaczun said. "We still have a mentality of socialism or communism and completely depend on the government. Some people are still waiting and wondering what happened to the government. But everything depends on the people who live there, not the government."
