East Meets the Former East Bloc

By DEAN E. MURPHY

April 18, 1997 12 AM PT

TIMES STAFF WRITER

LUBLIN, Poland —

As a founder of the local Solidarity trade union, Wieslawa Karykowska learned long ago to expect the unexpected from her bosses at the car and truck plant here.

But nothing in 29 years on the job, not even a revolution that brought down communism, prepared the old union hand for Yoo Choon Sik.

There he was one pleasant morning, the company’s No. 1 employee--the president and chief executive officer--picking through flower beds and sidewalk crevices with the mien of a hired hand. His proud find: a fistful of soggy cigarette butts.

“I don’t think this is his job, and I told him so. There are cleaning ladies to do that,” said Karykowska, the plant’s Solidarity chief. “It is a fact that this place has never been cleaner or more orderly, but Poles are not used to doing things this way.”

Teaching by example, it is as simple as that, says Yoo, a faithful proponent of hands-on management at the fledgling Daewoo Motor Polska. In just 18 months, the South Korean-Polish venture has turned the antiquated, half-century-old factory inside out, making it a showpiece for Asian investment pouring into the formerly Communist countries of Europe.

“We are very happy here,” Yoo said in the more traditional surroundings of his newly whitewashed executive suite. “We believe there is money to be made. If a close friend asked me about investing in Poland, I would give very positive answers.”

Though late in the making, a South Korean-led Asian business boom has struck Central and Eastern Europe like a rampageous Pacific typhoon, upsetting forever what it means to be “Western” for a generation of first-time free marketeers and sending U.S. and European investors scrambling for cover downwind.

After half a decade of untested dominance, the league of big-name capitalists such as General Motors, Siemens, Thomson and Philips has been unceremoniously pushed aside to make room for the likes of Daewoo, LG, Samsung and Sony.

The not-so-subtle message for the Americans and West Europeans: Don’t get complacent. South Korean and other Asian pioneers will happily lay claim to territory in your backyard.

“It seems they may not have the spirit of challenge anymore,” Yoo said of his Western competitors, one of whom flirted with buying the Lublin plant before Daewoo swept it up for $27 million and a pledge to invest $340 million more. “We had a delegation visiting from the United Kingdom, and after seeing our operation and talking about our philosophy, they said that 100 years ago they were [breaking new ground] like we are now. They spoke with a feeling of envy.”

More Poles bought Daewoo-made cars last year than bought Fords, Volkswagens and Renaults combined, even excluding the standard Polish model Polonez built under the new Daewoo management. About 300,000 Panasonic television sets will begin flooding the former Eastern Bloc this month from a state-of-the-art Matsushita Electric factory recently completed in the Czech Republic, while Japanese competitor Sony puts the finishing touches on stereo and television plants in Slovakia and Hungary.

The biggest foreign investor in Romania is not American, German, French or British; it’s South Korean. Asian entrepreneurs are pumping $300 million into everything from Bucharest shopping malls to Black Sea shipbuilding. And in Russia, according to a United Nations study based on 1995 data, companies from Singapore and China have invested more than those from Germany or France, trailing only the United States and Switzerland.

“The Germans were here first because they know this region, and the Americans soon followed because they are quick to make decisions,” said Marcela Horakova of CzechInvest, the government investment agency in the Czech Republic. “Now it is the Asians. They see this part of Europe as a big, new opportunity.”

Investment Small but Still Growing

In dollars committed, Asian investment still pales in comparison to European and U.S. competitors. In Poland, one of the region’s biggest draws of foreign capital, three-quarters of the money comes from companies in five countries, none Asian.

But many analysts say the raw numbers understate the importance and intensity of the growing Asian presence, which is too recent to be registered by many statistical measures and is difficult to track because capital is often funneled through West European subsidiaries.

The statistics also ignore a huge psychological component: The Asians are scaring the Americans and West Europeans--and even other Asians--into spending more too. It was Daewoo’s purchase of a state-owned auto plant in Warsaw, for example--a plant General Motors had been eyeing for years--that finally tipped the U.S. auto maker in favor of a major Polish commitment, Polish negotiators say. GM is building a $320-million factory near the Czech border.

“The whole investment climate is changing,” said Daniel S. Zbytek of the Polish Agency for Foreign Investment. “Even the Japanese are afraid of the Korean activity, that they are somehow losing out.”

Zbytek said the investment agency gets calls “almost every day” from prospective South Korean investors, with Japanese inquiries also on the rise. Last fall, more than 50 business leaders from Malaysia attended the first Southeast Asian investment seminar in Warsaw, which also attracted participants from seven other countries, including Indonesia and Vietnam.

Former Polish President Lech Walesa, who made one of the first diplomatic efforts to draw Asian capital, said the growing rivalry among Asian and European investors has left Central European countries the clear winners--not only in attracting jobs and cash but by raising the stakes of aggression.

“We should really remember that we are situated between Russia and Germany, and either one or the other always tries to dominate us,” Walesa said. “We want to trade with them, but let them take into consideration that others from Asia are here as well. We need this third force for our security.”

The “Asian snowball,” as one South Korean trade official called it, has picked up momentum as companies from Tokyo to Kuala Lumpur compile mostly glowing reports from colleagues in Central and Eastern Europe. Too cautious and insecure to venture into the region five years ago, Asian businesses now see opportunity, not peril, behind the fallen iron curtain, the official said.

“In our proverbs, we are always told to check the bridge to make sure it is safe before crossing,” said Kim Jong Ok, director of the Korean Trade Center in Poland, where about 10 Korean companies have sunk roots. “Now that it is safe, everyone wants to cross. It is like a crowd psychology at work.”

Restoking the Smokestacks

The undisputed trailblazer is Daewoo, the giant South Korean conglomerate that has become a household word in much of Central and Eastern Europe in large measure by investing in smokestack and other risky Communist-era enterprises that U.S. and West European companies have been too skittish to touch. The company has even been mentioned as a possible buyer of the former Lenin Shipyard in Gdansk, Poland, the troubled birthplace of Solidarity. It went out of business in March.

Analysts say the Daewoo strategy is a sure short-term money loser, particularly since the company typically agrees to expensive labor pacts that guarantee full employment for several years. Its success depends on swiftly ridding its new workers of bad Communist-era habits and on booming economies in Europe’s new democracies that ensure ever-growing demand for consumer products.

“We all wonder what will happen in three years when our contract ends,” said one 20-year employee at the Lublin auto factory. “There was no money before they came. We will see how long they have money.”

Despite such worries, some analysts predict Daewoo’s gamble could pay off handsomely in the long run. There is little chance for the company to make such giant strides at home in South Korea, where higher wages, market saturation and intense competition have prompted many manufacturers to shift production overseas and to target emerging markets around the world. The heavily indebted Daewoo empire, 200,000 employees strong, extends from Mexico to Vietnam to Uzbekistan.

In a grand expansion scheme that straddles two continents, Daewoo sees the emerging region as a steppingstone to new business in both the European Union--which is expected to invite several former Communist countries as members--and the former Soviet republics, where political ties have been severed but cultural and trading links remain strong.

The company projects that its Polish car exports to Western and Eastern Europe alone will generate $2 billion a year in revenues when production is in full swing in several years. Daewoo cites South Korea’s own recent history as evidence that it can pull off the sweeping plan.

“We know how to reconstruct [a country] from ashes to a quite advanced level of industry,” Choi Jung Ho, a top Daewoo executive in Europe, told a regional gathering of investors and government officials.

In the company’s insatiable quest for prominence and dominance, Daewoo dollars have reached virtually every corner of the former Communist world.

Motorists leaving the airport in Moscow are welcomed by a huge Daewoo billboard traversing the highway. Airline passengers in Belgrade, the Yugoslav capital, are entertained on wide-screen Daewoo televisions. In Warsaw, trolleys splashed with Daewoo advertising rumble past a downtown construction site, where the company is erecting a 40-story regional headquarters--the city’s second-tallest skyscraper.

Travelers to Bulgaria stay at a Daewoo-owned hotel in Sofia. Ukrainian investors can reserve office space in a recently approved Daewoo business center in Kiev. Romanians rent Daewoo apartments in Bucharest. Hungarians deposit savings in a Daewoo bank in Budapest. Telephone callers use a Daewoo-financed telecommunications network in Tashkent, the Uzbek capital. And Polish fans watch professional soccer in Warsaw featuring a team owned in part by Daewoo.

“Daewoo is bringing only good news to these countries,” said Cho Yong Doo, a Korean scholar at Sheffield University in Britain.

Daewoo Finds a Home in Lublin

Nowhere has the new Asian presence been more welcome than in Lublin, a historic but neglected medieval gateway to Poland’s eastern frontier. The city of 340,000 is sustained by heavy industry, especially production of delivery trucks, automobiles and farm equipment.

Nearly 7,000 people work at Daewoo Motor Polska, where trucks with the brand name Lublin are manufactured and Daewoo Nexia cars assembled in an environment workers describe as better than any time in memory. Only two years ago, the future appeared hopeless.

“Layoffs were already underway, and most of the factory was not even being used,” recalled Deputy Mayor Ryszard Pasikowski, who recently traded in his French-made Renault for a Nexia. “Then the Koreans came and, you could say, saved the day.”

The newly spruced up auto plant is once again the city’s No. 1 taxpayer. Daewoo has pledged to help build a badly needed municipal parking garage. It has entered the hotel business, dabbled in real estate and contributed to the coffers of the municipal philharmonic. Daewoo even paid for St. Nicholas to hand out gifts to needy children in December, and next month will supply vehicles for the papal pilgrimage in Poland.

“The Koreans are the best thing that ever happened to investment in this town,” Pasikowski said.

But the Korean presence has also posed an awkward adjustment for both sides.

Polish students were priced out of the housing market when rents doubled in some Lublin neighborhoods as Korean executives snatched up apartments. One Korean manager turned up for his new assignment with a year’s supply of toilet paper, worried that Communist-era shortages were still commonplace.

During labor talks, the Polish side refused to negotiate until the Koreans were seated in chairs, not positioned cross-legged on cushions as is their custom. Snazzy company-issued uniforms have gone untouched by most Polish workers, while some Koreans even wear the bright green outfits when shopping on their days off.

“It is like a clash of cultures; they look at us strangely, and we look at them strangely, but both sides try to be patient and compromise,” said Mieczyslaw Karczmarczuk, managing director of a Daewoo-backed company renovating the city’s century-old Lublinianka Hotel. “This is a new experience for everyone.”

Talking Past Each Other in 2 Languages

With only limited ability to communicate--all Polish-Korean business is conducted in English, a language neither side has mastered despite ongoing instruction at the plant--it has been hard to break age-old stereotypes.

“To be honest, sometimes we talk about the same subject endlessly,” said Yoo, the Daewoo Motor Polska president. “If I talk about something for 10 minutes in Korean, it takes one or two hours to sort it out in Polish. Sometimes we are talking about two different things when we thought we were talking about the same thing.”

But as is the case across Central and Eastern Europe, the Polish-Korean relationship is growing stronger because it is in the interest of both sides to make it work. In essence, money is the universal language: Daewoo Group President Kim Woo Choong, in a visit last fall to Warsaw, pledged to invest $2 billion in Poland, the equivalent of one-sixth of all foreign investments in the country since 1989.

“Daewoo’s investment is a landmark event,” said Kim, the Korean trade official. “When it rains, bamboo grows rapidly.”

Polish folk musician Maria Pomianowska, who will move to Tokyo in May as wife of the new Polish ambassador, said that, with time, common ground between Central Europe and Asia will be found, even beyond bulging wallets. Pomianowska recently organized a Polish Radio concert featuring traditional Korean and Polish music, which, her research turned up, share a rare triple-beat meter.

She discovered that some Korean music even sounds like the popular Polish mazurka. It is, she predicted, a sure sign of good things to come.

“It is beautiful that, in two faraway countries with two very different cultures, there is a similar way of thinking about music,” said Pomianowska, whose concert was underwritten by Daewoo. “In that way, we are more like the Koreans than our very own neighbors.”

(BEGIN TEXT OF INFOBOX / INFOGRAPHIC)

Daewoo’s in the Former Soviet Bloc

The South Korean conglomerate is leading a dizzying rush by Asian companies to invest in former Warsaw Pact nations. A look at Daewoo’s agenda, by country:

Bulgaria

* $2.2 million, with a commitment to invest $5 million more, in the Sheraton Sofia Hotel.

****

Hungary

* $161 million in Daewoo Bank Ltd.

* $6 million in bearing production plant

* $5.4 million in consumer electronic sales

* $4.2 million in securities business

* $2.7 million in auto components

****

Poland

* $27 million, with a commitment to invest $340 million more, in a car and delivery truck plant in Lublin