Warsaw pacts

The Department of Trade and Industry this month stepped up efforts to forge trade links with central Europe’s former Warsaw-pact countries, spurred by fears that Britain may be falling behind its trading competitors. ‘Germany, France, Italy, the US and Japan are probably ahead of us,’ says a DTI insider. The DTI ‘felt central Europe as […]

The Department of Trade and Industry this month stepped up efforts to forge trade links with central Europe’s former Warsaw-pact countries, spurred by fears that Britain may be falling behind its trading competitors.

‘Germany, France, Italy, the US and Japan are probably ahead of us,’ says a DTI insider. The DTI ‘felt central Europe as a market was under-exploited, largely through misunderstanding or ignorance’.

The DTI’s Opportunities in central Europe campaign, which is also backed by the CBI, has an initial Polish focus, but turns to Hungary this autumn and the Czech Republic next spring.

It will try to identify the industries that UK companies should target, perhaps with an emphasis on offering production under licence and always through partnerships.

The DTI will identify ‘blue chip opportunities’ and direct UK companies toward them.

Outward investment is a key part of the programme and the DTI believes there is an opportunity for British companies to take over central European companies.

There are strong reasons for UK firms to look to central Europe. Trade minister Brian Wilson says that with annual growth rates of over 5%, ‘Poland has become a star among emerging markets’. Hungarian growth is also 4 5%, though Czech growth is stuck at zero.

Pauline Sheerman, European trade director of the CBI, says: ‘We see Poland as our number-one market in central Europe. Economic conditions in Poland are enviable in terms of growth rate, with single- figure inflation.

‘The Czech Republic and Hungary are smaller markets and more dominated by the Germans as their trading markets.’

Yet when the DTI asked UK companies about the region, it encountered the perception that these countries were grey, uninteresting and poor. Alternatively, they were viewed as a dumping ground for substandard products.

An awareness of UK firms’ negative attitude towards the region the view that it is ‘a poor payer or corrupt’ prompted an earlier DTI campaign from 1997 to mid-1998, which attempted to dispel such misconceptions.

However, the attitude of UK firms remains a problem. This month a Polish aerospace executive said that the British were perceived as ‘stand-offish’.

The problem is partly a cultural one, encompassing a poor knowledge of languages on the part of UK executives. A DTI official says: ‘Lots of UK companies felt that if they ever went into the region, it would be a one-hit wonder unlike the Germans, who develop relationships.’

There are various specific British worries about trade with the region. One is the issue of central Europe dumping cheap products and another is the prospect of these countries’ future EU membership.

Before Polish EU accession takes place, issues such as measures to prevent dumping of cheap imports to undermine indigenous supply must be dealt with. On 1 February, Britain complained to the European Commission and Poland about the level of subsidy of Polish coal exports to the UK.

Trade in pharmaceuticals is another touchy subject, because of the European Commission’s worries about central European product labelling. So are problems related to the Common Agricultural Policy.

The DTI rates engineering and manufactured goods high in the UK’s trade with central Europe: they have featured in the top 10 goods traded with this region for each of the past five years. But the DTI adds the caveat that its definition includes everything from toasters to power generation equipment.

Perhaps the most immediate pot of gold for UK exporters to the region will come from the Czech Republic, Hungary and Poland joining Nato, offering opportunities for defence companies.

Poland plans to spend £1.4bn on new equipment to meet Nato standards by 2003 and the combined Czech and Hungarian modernisation bill may approach £1bn.

Leszek Pawlowski, marketing and sales director for Polish radar maker Radwar, says: ‘We hope to co-operate with firms like Marconi Electronic Systems in modernising Radwar radars for the Polish and international markets.’

British Aerospace has ordered Hawk jet parts from Poland’s PZL Mielec in the hope of gaining Hawk orders. BAe is also aggressively offering the Gripen fighter, together with Saab, to all three countries. And GKN Westland has a Polish deal for Lynx helicopter parts, which could prompt further business.

But the DTI sounds a note of caution, saying hopes for high- profile weapons orders could be misplaced. Nato’s real priorities for these countries are new command and control systems and new air defence radars, the DTI says.