Executive Summary

 

Poland a land of dragon folklores and religious symbolism has transformed itself from a communist, closed economy to a multi party open economy. This transformation has not gone unnoticed; especially its accession towards European Union has made Poland a really attractive country for new business. Initially Indian businesses were little slow to react to the opportunities presented by Poland, but things have changed and they are soon catching up. This report takes a look at the various competitive advantages provided by Poland to Indian businesses and how these advantages have/haven’t been utilized.

Historical Overview

It is important to look at historical, political, economic and social factors to understand the need for trade between India and Poland.  During the cold war times India was s close supporter of Soviet Union; this relationship helped India to establish ties with soviet controlled territories. Poland and India conducted regular high level visits, trade and economic interactions implemented by state trading organizations and underpinned by the rupee clearing arrangements, inter governmental cooperation in defense and science and technology and cultural exchanges.

 

Defense has been a key factor in the indo-polish bilateral relations from the very beginning. Defense equipment and supplies production institutions on both sides have been regularly in contact. Service chiefs have been exchanging visits relating to training programs. There has been a great cooperation between two countries on UN Peace keeping operations.

Poland Economic Climate

Poland has a population of around 38 million; it is the largest country in central Europe and ranks 8^th in Europe by size of population and 9^th by area. Poland followed a centrally planned economy till 1989 and became the first country to open its economy and make it market driven. Reforms undertaken by polish governments have ensured that foreign trade is privatized and it has grown from a meager $14 billion in 1989 to $671 billion in 2006.  Poland joined European Union officially on May 1 2004. Foreign trade has fuelled most of the Poland’s growth in the recent years.

Indo-Polish Bilateral Trade

Comparative chart listed in Exhibit A shows that in 2003 Poland imported $225 million worth of goods and services from India and exported $81 million worth of goods and services. This number has changed drastically to $469 million imports and $202 million exports in 2006.  It is only 0.38% of total imports which Poland makes and 0.19% of exports it makes but looking at the growth potential India offers, Poland has earmarked its special attention towards India.

 

Indo-Polish trade for the last 15 years

 

Indian Companies in Poland

Indian companies are currently concentrating on its primary competitive advantages such as tea, coffee, rice, tobacco, cotton and in software services.  Tata Tetley has the second biggest market share after its acquisition of local Vitax and Flosana trademarks in Poland. Zensar an Indian outsourcing service provider is planning to employ 300 people in 30 months. TCS and WIPRO other large global players have started operations in Poland. Once these companies see initial potential they wouldn’t hesitate to invest heavily. Other major providers like HCL, Infosys have made major moves in to Poland.

Reliance industries, Trevira – a company of the Reliance Group, and manufacturer of polyester fibers started production of texturised yarns in Zielona Gora in 2006.

 

Indian Companies Presence

Following are the major industries Indian companies are doing business

• IT Services
• Pharmaceutical Research
• Polyester fibers
• Packaging tubes
• Tea

Indian companies are utilizing some of their competitive advantages but there is a huge upside potential for various businesses. We will look deeper in to various advantages offered by Poland for companies to do business.

 

Dunning Eclectic Theory

First question that a company should ask itself is “why should a company go abroad? Is there a location advantage?” This theory reflects international business activity and business activity internal to the firm. As per Dunning FDI would occur when the company realizes one of the following advantage.

 

1. Location Advantage
2. Ownership Advantage
3. Internalization Advantage

 

Now let’s see what advantage does Poland offers.

1.     Strong growing economy

2.     Highly skilled labor pool

3.     Strategic location

4.     Sizable domestic market

5.     Access to EU Funds

6.     Beautiful country

 

So we can definitely see location being a great advantage for Poland.  Next step is to see how Indian companies can utilize them.

 

India’s core strength is economies of scale in service industry. To keep the momentum to achieve bigger economies of scale they are constantly investing in human capital. If a location offers skilled high-tech labor pool with a strategic location and accessibility to new funds, this opens up a great opportunity for Indian IT companies to grow bigger in Poland.

 

How can Indian manufacturing companies utilize the competitive advantages of Poland? Key to this answer is strategic location which Poland offers. Some of the companies are already setting up operation center to create a distribution channel to Baltic nations, Ukraine, Belarus, and other central European countries.

 

Indian movie industry is the silent jewel in the large mix of industries which can benefit from entering in to Poland. First Poland offers beautiful landscapes, cities for the movie industry to produce quality movies with great backgrounds, second Indian movie industry is constantly looking for new market to enter. With 40 million populations which appreciate foreign culture, it would be easier to market Indian movies.

 

Top 5 Sectors which can benefit from the Poland’s competitive advantage.

 

Automotive Sector

Poland is a country with a well developed automotive industry tradition and a place in which it’s worth investing. The factors which are drawing global corporations to invest in Poland are

1.     Low labor costs

2.     Highly qualified workers educated at excellent technical institutes

3.     Network of over 650 sub-contractors, of which 200 have the highest quality certificates i.e. ISO/TS 16949.

4.     Polish car parts can be found in such makes of car as: Mercedes, Nissan, Opel (GM), Porsche, Toyota, Volkswagen, Isuzu, Fiat, Citroen, Honda, Peugeot, Volvo, BMW, Rolls-Royce, Lamborghini and Ferrari.

Poland is a major force in the production of the following components:

·       Engines,

·       Rubber parts,

·       Car seats and upholstery,

·       Auto electronics,

·       Electrical cables,

·       Braking system parts.

 

Bio Technology Sector

“There is significant potential in research in the Polish biotechnology sector and though the country’s industry is concerned chiefly with the presentation and distribution of imported finished goods, many indicators show that this is beginning to change and that in the future the industry will be different. The most significant factor is the highly educated body of young scientists emerging from the Polish universities and technical colleges. ” – Invest in Poland Website

Benefits to be gained from biotechnology investments in Poland:

·       Research potential

·       Very well trained personnel

·       Favorable government policy

 

 

BPO Centers

Poland offers key benefits for companies specializing in bookkeeping and finances, IT services and in R&D work. Poland’s main advantages in attracting these types of projects are:

1. Favorable investment climate
2. Particularly high levels of qualifications
3. The development of the modern office space market.

 

Why Poland? It’s important to stress certain facts: currently in Poland there are 10 large academic centers and there are over 2 million students. To the firms that are considering in an outsourcing sector investment in Poland, this provides a great many choices of potential locations.

Poland’s strengths compared to other countries are: its highly qualified workers, the standard of the higher education institutes, abilities in languages and the low risk factor of an investment.

IT Sector

The Polish IT market is following Russia’s, the second largest market in Central and Eastern Europe. According to the firm PMR’s research, its value has reached a figure of 19.8 million PLN, and for the second time the growth was in double digits, reaching a level of - 12.4%. The forecasts relating to 2007 anticipate growth in the market’s value to 22.4 million PLN, which would raise the ratio to 13%.

 

Following are the key factors why Poland is an attractive market for IT services.

1.     Quality of the services provided

2.     Level of creativity, which often exceeds the expectations of employers.

3.     Young Polish IT specialists year after year win top places in international programming competitions, such as ACM, the Imagine Cup and Top Coder.

4.     Availability of a high quality IT communications infrastructure

5.     Many flight connections and data communications - that are at an identical level to those in Western Europe.

6.     The final factor, the importance of which is losing significance in the light of our high quality services, is still cost effectiveness.

 

The Polish IT market

 

Following chart gives an overview of sales in IT; this industry has been constantly growing.

 

 

Following chart shows the distribution of IT Market Segments in Poland

 

Sectors that because of expenditure increases in recent years have influenced the high level of Polish IT growth are:

·       telecommunications

·       financial sector

·       industrial production sector

·       local and central government administration

 

Areas Indian companies needs to be cautious

Above chart provides the areas where Indian companies should be cautious of, for e.g. tax regulation is very complex and can have undesired impact to the bottom line numbers. Even though communism is gone, the personnel who were part of the previous administration are still left and indirectly may have an impact. Michael porter’s global competitive index rates corruption as a key issue for the companies to face in Poland.

 

Conclusion:

Poland is proving to be a long term growth market. With its universities, strategic location and growing domestic market, its showing signs of sustained growth. Indian companies who are closely looking for location advantage should consider Poland as an investment options.

References

1. www.IndianEmbassy.PL
2. Warsaw Business Journal http://www.wbj.pl/cf/cf_india_07/index.htm
3. Ernst & Young Guide to doing business in Poland - http://www.paiz.gov.pl/files/?id_plik=9003
4. http://www.paiz.gov.pl
5. Globalization – Professor Mark Behnam’s class slides
6. Globalization of Business – Professor Richard Torrisi’s class slides
7. Strategic Management – Professor Mark Lehrer Slides and Robert Grant Slides
8. Contemporary Strategy Analysis – Robert Grant
9. Michael Porter’s Global Competitive Index website

Appendix

COMPARATIVE CHART OF POLAND’S GLOBAL TRADE VS POLAND’S

BILATERAL TRADE WITH INDIA (FOR YEARS 2003 TO 2007)

 

Year	IMPORT ACTIVITY (IN US DOLLARS MILLIONS)		EXPORT ACTIVITY (IN US DOLLARS MILLIONS)			TOTAL TRADE TURNOVER (IN US DOLLARS MILLIONS)
	POLAND'S GLOBAL IMPORTS	POLAND'S IMPORTS FROM INDIA	POLAND'S GLOBAL IMPORTS	POLAND'S IMPORTS FROM INDIA	POLAND'S GLOBAL IMPORTS		POLAND'S IMPORTS FROM INDIA
2003	68004	225.20	53577	81.09	121581		306.29
2004	87909	310.41	73805	84.32	161714		394.73
2005	101539	367.43	89378	200.82	190917		568.25
2006	124647	469.02	109107	202.01	233754		671.03
2007 (8 mths)	99472	440.55	85897	98.09	185369		538.64