U.S. Entrepreneurs Brave Frontier of Eastern Germany : Investment: Primitive communications, decrepit factories and rigid bureaucrats bedevil those seeking profits in former Communist state.
When the phone company showed up to install a line at the Leipzig home of American industrialist Raymond Heinz last month, he was astonished.
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He had ordered it two years ago.
Heinz had just gotten used to relying on the phone booth down the street. He couldn’t trust his cellular phone because of bugs in the network.
“Sometimes you wake up in the middle of the night and wonder what you’re doing here,” says Heinz, a Chicagoan who owns a factory outside Leipzig that manufactures ingredients for perfumes and soft drinks.
American business folks are finding it’s good to have a strong constitution--and deep pockets--to tackle the east German frontier.
Not only is the communications system still being modernized, but investors may discover, as did Heinz, their newly purchased factories have hidden problems that will cost a lot to fix.
Then there are the German bureaucrats, who have a reputation for rigidity.
But the Americans are coming anyway, drawn by profits, financial incentives offered by a government that wants to quickly reconstruct eastern Germany, a stable legal system, and sometimes even free land.
American companies have become the main foreign investors in eastern Germany, encouraged and advised by a U.S. government that views the region as strategically important, at the crossroads of eastern and western Europe.
“In today’s global marketplace no government, particularly one as influential as the United States, can afford to sit on the sidelines,” the U.S. ambassador to Germany, Charles E. Redman, told Heinz and other American executives at an east German investment conference last month.
The rebuilding of former East Germany since reunification in 1990 has been called one of the largest reconstruction projects in history.
Nearly the size of New York state, Germany’s east has been turned into one huge building site as new banks, car dealerships, department stores, boutiques, offices and restaurants spring up.
About 300 American firms have invested $8 billion and are employing 50,000 east Germans.
The best known American project is the ultra-modern car-making plant near Erfurt owned by Adam Opel AG, the German subsidiary of General Motors Corp. Coca-Cola has bottling plants, Philip Morris produces cigarettes and the Dow Chemical this year acquired a massive chemical complex.
Robert D. Hormats, vice chairman of the New York investment bank Goldman Sachs, sees parallels between the rebuilding of eastern Germany and the reconstruction of the American South after the Civil War.
“When the process is completed,” he said, eastern Germany “will be one of the most advanced places in the world.”
But Hormats warned German officials at the Erfurt conference that American investors could be scared off by Germany’s high labor costs and inflexible working hours.
There is also a lot of complaining about German bureaucrats.
P. Kenerick Maher, a Baltimore entrepreneur who has taken over two chemical operations in eastern Germany, believes some officials don’t play fair.
Maher has worked for large U.S. chemical companies and run plants around the world, but said it took twice as long as normal to get permits to build a plant in Bitterfield.
He suspects it was because he was using an American construction company rather than a German one. The delay cost him an extra $700,000.
Maher’s contract with German authorities requires him to build five more factories in the east, but from now on he will use German contractors, “because you can’t push water uphill.”
Glenn Shealey represents a Rhode Island company that envisions tidy New England-style homes, with gables and shingles, sprouting amid the boxy communist structures that still dot the east German landscape.
But before the American company can ship its disassembled modular homes across the Atlantic, Shealey has to convince German officials that their lumber standards are no better than those in the United States.
“It’s been an uphill battle to get this thing going,” said Shealey, an attorney for Modstruct Holding, Inc. of Providence.
Heinz has had his own troubles. But it looks like his Bell Flavors and Fragrances, part of a family-owned company based in Chicago, will show a profit this year.
After buying the factory from the government’s Treuhand privatization agency on June 1, 1993, Heinz discovered that the three main buildings did not meet German codes. The wiring, the plumbing, “the entire structure” had to be changed at enormous cost, Heinz said.
Reliable telephone lines weren’t delivered to the factory until last February.
“You don’t realize how difficult it is when you don’t even have communications” to tell potential buyers “what new products you have,” Heinz said.
