Investors See Potential, Pitfalls in East Bloc
While Solidarity leader Lech Walesa stood before Congress this week and asked for assistance for the ailing economies of Eastern Europe, Carey Vigor-Zierk was sitting at her home computer and working on ways that she might lend a hand.
Vigor-Zierk, a third-generation Polish-American, has formed a small company that is trying to obtain computer equipment for Poland’s first alternative high school. But she has run into a lot of bureaucratic red tape. In several months, her company has managed to get only one personal computer into the hands of the First Communal High School in Warsaw.
But the Santa Ana physician says her efforts have not dampened her optimism for doing business in Poland. Although the school project is not intended to be a money-making venture, she says she’s been swamped with requests for information from Polish firms interested in buying computers and other electronics gear.
“They don’t have anything over there, not even something like fax paper. It’s just unbelievable,” said Vigor-Zierk, who visited Poland for two months last summer. Vigor-Zierk calls her company Jobs-RX Inc. and operates it out of her home office, where her desk is decorated with a red “Free Poland: Solidarnosc” sticker.
The political and economic reforms sweeping through the Eastern Bloc countries of Poland, Czechoslovakia, Romania, Hungary, Bulgaria and the Soviet Union offer the potential for stronger business ties between the United States and the East. And some Orange County business people are starting to pay closer attention to developments there.
“As things have slowly changed in Eastern Europe during the past year, most of our companies have shown some interest,” said Susan Lentz, executive director of the World Trade Center Assn. of Orange County, which has 800 members. “And we’ve had (queries from) a number of Czechs, Bulgarians, Yugoslavians and other Eastern European nationals who want to establish closer ties and assist companies in going over there.”
No one keeps figures on Orange County companies doing business with the East Bloc, but local trade and business officials say there is little activity so far, particularly outside of the Soviet Union.
Trade specialists say business ties between the United States and Eastern Bloc have been limited by a number of factors. Perhaps the most important factors are Eastern Europe’s debt-ridden economies and lack of currency from the West with which to buy the West’s products and services.
“The complicating factor in the past has been that they didn’t have the money to buy the goods,” said Keith Crane, an economist with the RAND Corp. in Santa Monica. “That problem isn’t going to change quickly. But Poland and Hungary, in particular, have been opening up their countries to foreign investment.”
An example, Crane noted, is General Electric Co.’s announcement Wednesday that it will pay $150 million to buy 50% of a Hungarian light-bulb maker, the largest Western investment in Hungary since World War II.
“As these U.S. investments increase, these East Bloc companies will begin to export products and the countries will have more money to buy goods,” Crane said. He said he expects to see a substantial increase in East-West trade within the next five years.
“The potential for doing business in these countries is huge,” said Dennis J. Aigner, dean of the Graduate School of Management at UC Irvine, who in September visited the Soviet Union with several local business people. “There is a huge pent-up demand for goods.”
Eastern Bloc nations are especially eager to acquire Western technology, such as personal computers. The Commerce Department earlier this year eased restrictions on the type of computers that can be exported to Eastern Europe, permitting all but the most advanced PCs to be shipped to the East.
The Eastern Bloc reforms are welcome news to Western Digital Corp., an Irvine computer products company that has been frustrated in its efforts to forge ties with Eastern Europe.
In July, 1988, Western Digital signed an agreement to sell $1.3-million worth of personal-computer hard-disk drives to a Bulgarian company in one of the first high-technology sales to that country by a U.S. firm and was viewed by the company as entree into Eastern Europe. But, 16 months later, the U.S. government still has not approved the sale. The deal involved disk drives of the type that might be used in an International Business Machines PC-XT model, a roughly 6-year-old technology.
“We are still in the process of obtaining approval,” said Western Digital spokesman Robert Blair, who added that he was not sure why the approval was taking so long. “With the recent wave of change in Eastern Europe, we are cautiously optimistic about getting approval.”
Blair said Western Digital has received government approval to sell a small number of computer graphics circuit boards to Bulgaria and has sold some circuit boards and disk drives to Yugoslavia. He said the firm also has had talks with officials in Hungary, Poland and the Soviet Union about doing business in those nations.
“We view the East Bloc nations as having a tremendous potential,” he said.
UCI’s Aigner cautions that companies looking to make a fast buck in Eastern Europe will probably face disappointment. “The market distribution systems in these countries are in shambles,” he said. “You have to go in there with a view toward helping to create and develop a market for your products. If you don’t do that, the risks are very great.”
Trade specialists say the rules of doing business in Eastern Europe are changing quickly and vary from country to country. For example, the Soviet Union, Hungary, Poland and Czechoslovakia allow joint ventures and Western ownership of a business, but East Germany prohibits such ventures.
Vigor-Zierk says she would like to set up a joint venture in Poland that would export computers and other products. But she has been discouraged by the minimum $50,000 investment the Polish government requires before a Western firm can set up a joint venture there.
“We’ve been doing some preliminary market research and we’re finding that it could take one year for our contacts in Poland to get an export license,” Vigor-Zierk said. “I have a lot of optimism, but for now I’m not jumping into the private, for-profit arena.”
For now, she said her company--which is working with an Irvine schoolteacher--is searching for government funding and private corporate support to help equip a computer and language laboratory at the Warsaw high school. The objective: to help the school’s 60 ninth-graders learn about computers and study English.
