Russian construction boom draws Polish developers
Several deals across the eastern border were closed at the end of last year and more companies announced that they intend to enter a market that has been practically closed to Polish businesses since the mid-1990s.
"Since August the conditions on the German market have become so difficult that many (Polish) companies are finding it impossible to cope," said Bogusław Niklas, vice-president at Gdańsk-based developer Doraco. "It may well prove too much for us as well." By contrast, Niklas added, the Russian authorities have become more open to foreign businesses, including Polish ones.
In the case of Doraco, investment across the eastern border would simply mean re-entering the market of Kaliningrad, where the business climate has improved dramatically since a new governor came into office last year. Doraco has a few projects in the region under its belt, having worked for Kaliningrad's banks in the mid-90s. This time round, the company plans to target a different market segment, seeking local partners for residential development projects. Niklas likened the booming Russian economy to the situation in Poland "just six or seven years ago" when growth rates were well above 5 percent and "you could build almost anything and be sure there would be demand for it."
Polish companies could also transfer their management skills and design and sales techniques to the less-developed residential market across the border, market watchers say. Doraco, for example, would like to sell fully furnished homes, which represents a change from the standard practice in Russia, where the buyer normally puts the finishing touches to a house after the purchase. This, Niklas said, could generate even higher margins, even though they are already in excess of those found in Poland or Western Europe.
Other local companies are also exploiting opportunities in Russia's residential market, although they tend to be turning their sights further east to Moscow. JW Construction is set to begin work on two apartment buildings in the Russian capital in March. The contract is for the construction of around 300 apartments, but it could be extended to 2,000 at a later date. The firm has not disclosed the value of the investment, saying that the management board members are currently in Moscow negotiating the final details of the contract. Further information should be disclosed by the end of this week, said Ryszard Marciniak of the company's public relations department.
In contrast to the practice common at the time of the previous construction boom in Russia in the mid-90s, when Polish companies did most of the work themselves and frequently used Polish labor, JW Construction will be working with a number of local subcontractors. This is now the generally accepted standard in Russia. Ryszard Matkowski, JW Construction president, said that the company could also use local sources of finance, stating that "although the cost of bank loans is still rather high, there is no lack of big money in Moscow."
Józef Wojciechowski, the owner of JW Construction, has set up a separate company to take care of its Russian operations, which does not form a part of the holding. This type of structure was developed in order to separate the risks of the Moscow project from those of local operations.
Marcin Dejneka, president of Trasko Invest, which has been active on the Russian market for several years, said that the risks involved in operations in Russia tend to be exaggerated by Polish businesses.
"There is no significant difference between the two countries in this respect," he said. Furthermore, Doraco's Niklas said that this mistrust is mutual.
"Our Russian partners are proceeding very cautiously," he said. "Polish companies do not have a very good reputation among our eastern neighbors." This mutual mistrust, he added, dates back to the last decade when "the tacit rules of fair conduct in business were not respected." He emphasized the importance of developing "personal relationships" with partners on the Russian market, saying that the talks, while "slow", are definitely moving forward.
Mostostal-Export is an example of a company that did not join the general exodus of Polish construction firms from Russia in the latter half of the 90s. Last year alone the company completed two projects in Moscow and signed a further two contracts. The Moscow Car Center construction contract is worth zł.22.5 million ($6 million), while 2003 was also the first year that Poland's construction firms ventured into relatively unknown territory away from the neighboring Kaliningrad region and the Moscow metropolitan area. Mostostal-Export signed a deal for a zł.75 million ($20 million) retail center in Rostov on the Don, which should be completed in the first half of 2005. The company has also signed a contract for a retail and entertainment center in Riazan near the Ural mountains for zł.22.5 million ($6 million).
These steps were lauded by market insiders as a shrewd way of escaping the growing competition in the Russian capital, where the market has become increasingly sophisticated and has been attracting multinational companies with resources that Poland's businesses have been unable to match.
"Since August the conditions on the German market have become so difficult that many (Polish) companies are finding it impossible to cope," said Bogusław Niklas, vice-president at Gdańsk-based developer Doraco. "It may well prove too much for us as well." By contrast, Niklas added, the Russian authorities have become more open to foreign businesses, including Polish ones.
In the case of Doraco, investment across the eastern border would simply mean re-entering the market of Kaliningrad, where the business climate has improved dramatically since a new governor came into office last year. Doraco has a few projects in the region under its belt, having worked for Kaliningrad's banks in the mid-90s. This time round, the company plans to target a different market segment, seeking local partners for residential development projects. Niklas likened the booming Russian economy to the situation in Poland "just six or seven years ago" when growth rates were well above 5 percent and "you could build almost anything and be sure there would be demand for it."
Polish companies could also transfer their management skills and design and sales techniques to the less-developed residential market across the border, market watchers say. Doraco, for example, would like to sell fully furnished homes, which represents a change from the standard practice in Russia, where the buyer normally puts the finishing touches to a house after the purchase. This, Niklas said, could generate even higher margins, even though they are already in excess of those found in Poland or Western Europe.
Other local companies are also exploiting opportunities in Russia's residential market, although they tend to be turning their sights further east to Moscow. JW Construction is set to begin work on two apartment buildings in the Russian capital in March. The contract is for the construction of around 300 apartments, but it could be extended to 2,000 at a later date. The firm has not disclosed the value of the investment, saying that the management board members are currently in Moscow negotiating the final details of the contract. Further information should be disclosed by the end of this week, said Ryszard Marciniak of the company's public relations department.
In contrast to the practice common at the time of the previous construction boom in Russia in the mid-90s, when Polish companies did most of the work themselves and frequently used Polish labor, JW Construction will be working with a number of local subcontractors. This is now the generally accepted standard in Russia. Ryszard Matkowski, JW Construction president, said that the company could also use local sources of finance, stating that "although the cost of bank loans is still rather high, there is no lack of big money in Moscow."
Józef Wojciechowski, the owner of JW Construction, has set up a separate company to take care of its Russian operations, which does not form a part of the holding. This type of structure was developed in order to separate the risks of the Moscow project from those of local operations.
Marcin Dejneka, president of Trasko Invest, which has been active on the Russian market for several years, said that the risks involved in operations in Russia tend to be exaggerated by Polish businesses.
"There is no significant difference between the two countries in this respect," he said. Furthermore, Doraco's Niklas said that this mistrust is mutual.
"Our Russian partners are proceeding very cautiously," he said. "Polish companies do not have a very good reputation among our eastern neighbors." This mutual mistrust, he added, dates back to the last decade when "the tacit rules of fair conduct in business were not respected." He emphasized the importance of developing "personal relationships" with partners on the Russian market, saying that the talks, while "slow", are definitely moving forward.
Mostostal-Export is an example of a company that did not join the general exodus of Polish construction firms from Russia in the latter half of the 90s. Last year alone the company completed two projects in Moscow and signed a further two contracts. The Moscow Car Center construction contract is worth zł.22.5 million ($6 million), while 2003 was also the first year that Poland's construction firms ventured into relatively unknown territory away from the neighboring Kaliningrad region and the Moscow metropolitan area. Mostostal-Export signed a deal for a zł.75 million ($20 million) retail center in Rostov on the Don, which should be completed in the first half of 2005. The company has also signed a contract for a retail and entertainment center in Riazan near the Ural mountains for zł.22.5 million ($6 million).
These steps were lauded by market insiders as a shrewd way of escaping the growing competition in the Russian capital, where the market has become increasingly sophisticated and has been attracting multinational companies with resources that Poland's businesses have been unable to match.
