Poles are also very much aware of a need to lessen their dependence on Germany as their largest export market, not because of any bilateral bickering, but because every economic downturn in Germany has a negative effect on Poland. The political rift between the two countries is two centuries old, and even when the Poles gets feisty over Germany’s attempts to lecture them about policies, they are nothing if not pragmatic about their business interests. They know that as an export-led economy they have to cultivate the market of 200 million people that EU membership gives them, which they are beginning to do with a particular emphasis on Scandinavia. Outside of Europe, they are looking at developing more trade ties with the Middle East. Polish engineering and construction companies have been there before, and the Middle East seems to harbor goodwill toward Poland.

The Poles have been quick studies in mastering the economic strategies they need to get ahead since the fall of communism. When I first went there in 1990, with a $240 million U.S. government grant to invest, they had only a vague idea of the meaning of such concepts as equity, return on investment and corporate governance. I once went to a 9 am meeting at a bank where our hosts served coffee, tea and cognac. (We were special guests, so we rated cognac instead of vodka.) The drinking culture disappeared for the most part, especially among executives, within a few years. One of the local partners in our firm had previously worked as a translator and another was an engineer by training, but after nearly 15 years of experience in a free market economy, they have become exceptional investment managers. Back then it was not uncommon for Polish manufacturers to send their products to Germany or Austria for finishing so that they could be sold as Western-made brands, figuring that a “Made in Poland” label would carry the same sort of stigma of inferior quality that “Made in Japan” did a half-century ago. The Poles are still hesitant to go to market nose-to-nose with the Western Europeans, but that is changing.

Managerial Brass
What propels any company forward is smart managers, and Poland has plenty of these. The whole region has an ambitious young managerial class coming into its own, but Poland is already into its second generation of managers, who have been to business school, often in the West, and are very much aware of the need to measure up to Western standards. I see in them the same kind of energy level and adaptability that brought technology wealth to places such as Silicon Valley, Boston and the North Carolina Research Triangle.

Now the Polish government and business leaders know that they have to work hard, and rapidly, to stay ahead within the former Soviet bloc. There is no reason that they should not see GDP growth of around 5 percent in the next few years—6 percent is probably not sustainable—but the moves they make now will be something of a barometer for whether EU membership is truly a good idea for economies that are still in the emerging stage. There are several vital signs to watch. Poland will be well on its way to being a first-world economy, riding no one’s coattails, if it succeeds in all of these areas:

Establishing recognizable brands and service-industry capabilities is going to be important. This is particularly so because foreign investment in Central and Eastern Europe is moving away from privatization and production for local markets and into export-oriented operations, including business-service outsourcing. Hungary is ahead of Poland in taking advantage of intellectual capabilities in the software industry, although Poland will certainly be getting more into information technology. Poles have something of a reputation for good engineering and production processes, particularly in semi-tech products. Their creativity is becoming more apparent in the fashion area, and their proprietary retail stores have the potential to become better known.

It will need to create research and development capabilities and a viable technology sector, and enforce the laws to protect intellectual property. In the early 1990s, our firm looked at some software development deals in Poland. While we believed software manufacturing for the Western markets made sense from a cost standpoint, it was at a time when the world was in a tech frenzy, and, for the most part, potential joint venture partners and investors saw no reason to go all the way to Poland when there were so many opportunities in locales that already had all of the necessary infrastructure. Today, Poland has enough science graduates to staff biotechnology and pharmaceutical manufacturing ventures at around one-tenth the cost in Western Europe. We have seen some pharmaceutical companies go from making commodity products to licensing and importing technology from major U.S. concerns. Still, such ventures can go only so far without stricter enforcement of patent laws. Poland has the D in R&D but so far has not been able to achieve the R.