Modernization, restructuring only way to cure export woes
The official data only confirmed what many companies have already known: Polish exports are shrinking.
During the first 11 months of 1999 revenue from exports came to $26.39 billion, compared with $30.12 billion in 1998, according to the National Bank of Poland (NBP). At the same time, the gap between imports and exports is increasing, from $13.72 billion in 1998 to $14.46 billion in 1999.
The widening gap is also highlighted by the results of companies in the WBJ's list of 30 top exporters. On the list, 12 companies saw their export revenue take a dive, while 11 managed to keep it stable. Only seven companies managed to significantly increase their export sales. (See The List, pages 14-15).
Polish exporters appear to have never completely made up for business lost as a result of the Russian crisis in 1997. Many furniture firms, where export sales to former Soviet Union countries amounted to 50-60% of the total sales figure, now export only 5-10% to the Eastern market, said Piotr Lech, president of furniture maker Bydgoskie Fabryki Mebli (BFM).
Only with much trepidation is it possible to move back to Russia. "The cost is big, the effects are wan," Lech said. "There are many trade talks, but with poor results."
Furniture makers have focused their business on other markets. For example, BFM, which has managed to carve out a cozy market niche with its production of stylish furniture, sells 80% of its exports to Germany.
But breaking into that market involves certain trade-offs. Lech's company has had to overcome both the technological prowess of German companies, along with the oftentimes poor image Eastern European products have in that country. At the same time, Polish producers who frequently use 10-year-old equipment, have difficulty competing with the quality of German products.
"And there's not so much money for modernization," Lech said. "Look at the (financial) data of the companies noted on the Stock Exchange."
The relatively low profit of furniture companies results from low prices, which in turn is a consequence of the lack of a strong brand name. A strong brand name can't be created with 10-year-old equipment. And the vicious circle closes.
The Russian crisis also hit steel producers, and even if the volume of goods sold doesn't reflect this, the companies' revenue does.
"Last year we had record sales of rails of 266,000 tonnes," said Jaroslaw Zwolinski, head of the information department at Huta Katowice steel mill.
The company's estimated 1999 revenue of zl. 3.65 billion ($936 million) is 15% lower than in 1998. The export revenue also decreased, but not as significantly with 1999 coming in at zl. 1.72 billion ($494 million), 4.58% lower than in 1998.
Zwolinski said the opportunity for Polish steelmakers is that they can produce high-quality products, such as rails or pipes, at low costs. That cost base is especially important for the sector as it fights off increased competition from the Far East. With new technologies, cheap labor costs and cheap raw goods imported from countries close by, steelmakers from the Far East have been able to offer competitive prices. To produce more quality goods, many Polish steelmakers need significant modernization, said Zbigniew Obarzanowski, spokesman for steel trader Stalexport.
"There's quite a lot to do and the financial costs are huge," he said.
Ideally that is where strategic investors come in. However, modernization also means substantial layoffs, which has many political implications that could hamper the sector's privatization. That dynamic is particularly active in the steel belt of Silesia.
But those who were able to modernize are already reaping the rewards. Oswiecim-based chemical producer Dwory, expects its revenue to come in 30% higher for last year than the year before, said Marek Rzepiel, head of the company's PR department.
Dwory opened a new production line of hard polystyrene and intends to export 50% of the production, he said. Moreover, the company is refocusing its product line to direct its efforts toward growing industries, he said.
"Specialization is a rescue for chemical factories," Rzepiel said. "Especially as the constantly increasing oil prices don't match the prices of oversupply of chemical products in Europe."
Dwory reported 1999 revenue from export sales of zl. 153 million ($39.23 million), up 1.3% from 1998.
