Vast markets, large populations and seemingly limitless sources of cheap and skilled labor make the Asian Tigers, and particularly China, the nightmare of many Polish businessmen. But not all Polish companies view Asia as a threat. For many China, and the Far East in general, has become a land of opportunity.
The Chinese dragon is breathing down many emerging economies' necks, and Poles in particular are feeling the heat. According to Grant Thornton's International Business Owners Survey (IBOS), Polish companies operating in Asia were among the most worried about China, with most expecting their business to decrease due to competition from the Asian giant. Polish entrepreneurs named China as the second most harmful economy to Polish businesses, and the survey claims that Poles are among the businesspeople least willing to outsource some of their production to the cheaper Chinese market.
Although fears of the Asian giant may be understandable, there is a modicum of hysteria involved. Grant Thornton provides statistics that only one in 10 Polish companies is suffering from Chinese competition. Polish exports to the country have spiked over the last few years, skyrocketing from $97 (zł.298) million in 2000 to $591 (zł.1,814) million last year. What's more, some Polish companies are not afraid to take matters into their own hands and make use of China's cheap, skilled labor force instead of waiting for Chinese competition to sweep them off the market.
Critical factors
When asked about why he outsourced sewing services to China, Dariusz Pachla, vice president of LPP - a clothing company with brands such as the popular Reserved and Cropp Town under its belt - says: "Two factors - price and the great organization of this market with regard to providing this type of service." Adam Wilczęga, the president of biochemical product producer Bioton, also admitted that labor costs were one of the main incentives for investing in the region. "We have to compete on price and to do it we have to shift some of the production to China," he says.
Pachla estimates that a salary in a good Chinese sewing plant is around three times lower than the lowest wages in Poland, and also significantly lower than in Ukraine, where it is about half the Polish wage. The clothing company has been importing garments from the People's Republic since 1991. Since 1993 LPP has cooperated with Chinese producers, who sew garments based on the Polish firm's designs.
But there is more to outsourcing than labor costs. Pachla underlines the quality factor: "At the end of the day we are interested in the product and not the organization of the production process. It is more important than the wage level."
China's voracious demand for raw materials has also attracted the interest of Polish businesses. Copper producer KGHM is currently Poland's biggest exporter to China. The market is so important for the company that when Chinese interest rates were raised recently, KGHM's share price dropped seven percent on the news.
Growing market
Bioton's Wilczęga also looks beyond the price. "What would it give us if we couldn't sell the product?" Wilczęga asks. He points out that there is a "huge" market in Asia for the company's main product - insulin. The Bioton president estimates that the Chinese insulin market is worth about $250 (zł.772) million and is growing at the rate of 30 percent annually. "It is estimated that China has 30 million diabetics, which is one-fifth of the world's diabetics. ... Only 11 percent of them are diagnosed and take insulin. Therefore, the market has very large growth potential," Wilczęga explained, hence another reason for his company's entrance into Asia.
In recent months Bioton acquired a 90-percent stake in Singapore-based company Scigen. Three weeks ago Scigen established a joint-venture company with Chinese Hefei Life Science and Technology Park Investments and Development Co Ltd to form Hefei-Scigen-Bioton Biopharmaceutical Company Ltd.
"We plan to enter the market in the first quarter of 2007 and in the third year of our presence we want to have a 15-percent share in China's insulin market," Wilczęga said. Initially the insulin will come from Poland, but together with entering the market, the company will start building a production plant, which is supposed to start operating in 2009. "It will produce ready forms of insulin, but the biochemical substance will still come from Poland," Wilczęga explained. The product from the factory will supply the Chinese market, but he doesn't rule out selling it in other Asian markets as well. The Bioton president estimates the value of the investment in China at between $20-30 (zł.60-90) million.
Bioton's Asian presence is not confined to China. Scigen is opening an insulin production plant in India, which Wilczęga sees as the second-highest growth market for insulin on the continent. The plant will produce insulin solely for the Indian market. Bioton also sells to other Asian markets, such as Pakistan, Vietnam and Korea.
Pan-Asian explosion
Many Polish companies are also looking beyond China. Japan's imports from Poland have seen a steady increase since the beginning of the decade - they grew from $65 (zł.200) million in 2001 to $172 (zł.531.5) million in 2004. Last year's figure reached $181.4 (zł.560.8) million. Exports to South Korea have grown from just $27.7 (zł.85.7) million in 2001 to $73 (zł.225.5) million in 2004 and then jumped by over 63 percent to reach $118.2 (zł.365.2) million last year. Taiwan bought $75.8 (zł.234) million worth of Polish goods in 2005.
Apart from the region's largest economies, trade with the smaller markets picked up as well. According to statistics from the Economic and Commercial Section of the Polish Embassy in Hanoi, Polish exports to Vietnam jumped by nearly 300 percent in the first two months of the year reaching $11.5 (zł.35.5) million. According to economic counsellor Zbigniew Pawlik, $7.5 (zł.23.2) million of these exports were sales of powdered-milk producer Olan Polska. "There were also four investments worth around $2 (zł.6.2) million, which were made by Vietnamese with permanent residence in Poland, who invested mainly in hotels," Pawlik said.
Expensive tastes
Asia is also a growing market for luxury products, and this is not just the case in wealthier countries such as Japan and South Korea. "Asian markets are tough, competitive markets, but are extremely promising," the vice president of Wyborowa, Andrzej Szumowski, said.
The company's sales in China grew by 967 percent last year in comparison to 2004. Even though it started from a low base, China is already one of the most important markets for the vodka producer. "It already is our fifth-largest market. Considering the fact that we are exporting to the whole EU and North and South America, this is a great achievement for us," Szumowski says.
Asian markets account for one-third of all of Wyborowa's markets. Apart from China, the company sells its super premium category Wyborowa Single-Estate vodka in Japan, Thailand, Vietnam, Singapore, Hong Kong and Malaysia. "There are very few markets where you can't find us - only the Muslim states and India, which is very protectionist when it comes to alcohol," the vice president said
"Asia is really opening up for imported products," Szumowski says, with China leading the way in the luxury goods market. "There are more than 100 million rich people in China," he adds. "After decades under the communist system, the last few years have seen a boom in consumption. They are looking for products that are not as identical as the uniforms of Mao's times."
If you think that Polish firms are losing business to roaring Asian Tiger economies such as China - think again. Though Polish entrepreneurs are among those who fret most about competition from their Far Eastern counterparts, the reality is that from utilizing the region's cheap labor to capitalizing on its immense appetite for raw materials and luxury goods, Polish businesses are finding new ways to use the rise of Asian economies to their own advantage.
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