/F/ /9

DISCUSSION PAPER

Coping with Capitalism

The New Polish Entrepreneurs

Bohdan WyznikiewiczBrian Pinto

Maciej Grabowski

INTERNATIONALFINANCE

CORPORATIONl

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Pub

lic D

iscl

osur

e A

utho

rized

Recent IFC Discussion Papers

No. 1 Private Business in Developing Countries: Improved Prospects. Guy P. Pfeffermann

No. 2 Debt-Equity Swaps and Foreign Direct Investment in Latin America. Joel Bergsmanand Wayne Edisis

No. 3 Prospects for the Business Sector in Developing Countries. Economics Department, IFC

No. 4 Strengthening Health Services in Developing Countries through the Private Sector.Charles C. Griffin

No. 5 The Development Contribution of IFC Operations. Economics Department, IFC

No. 6 Trends in Private Investment in Thirty Developing Countries. Guy P. Pfeffermannand Andrea Madarassy

No. 7 Automotive Industry Trends and Prospects for Investment in Developing Countries. YannisKarmokolias

No. 8 Exporting to Industrial Countries: Prospects for Businesses in Developing Countries. EconornicsDepartment, IFC

No. 9 African Entrepreneurs-Pioneers of Development. Keith Marsden

No. 10 Privatizing Telecommunications Systems: Business Opportunities in Developing Countries.William W. Ambrose, Paul R Hennemeyer, and Jean-Paul Chapon

No. 11 Trends in Private Investment in Developing Countries, 1990-91 edition. Guy P. Pfeffermannand Andrea Madarassy

No. 12 Financing Corporate Growth in the Developing World. Economics Department, IFC

No. 13 Venture Capital: Lessons from the Developed World for the Developing Markets. Silvia B. Sagariwith Gabriela Guidotti

No. 14 Trends in Private Investment in Developing Countries, 1992 edition. Guy P. Pfeffermannand Andrea Madarassy

No. 15 Private Sector Electricity in Developing Countries: Supply and Demand. Jack D. Glen

No. 16 Trends in Private Investment in Developing Countries 1993: Statistics for 1970-91.Guy P. Pfeffermann and Andrea Madarassy

No. 17 How Firms in Developing Countries Manage Risk. Jack D. Glen

I INTERNATIONALFINANCECORPORATION

DISCUSSION PAPER NUMBER 18

Coping with Capitalism

The New Polish Entrepreneurs

Bohdan WyznikiewiczBrian Pinto

Maciej Grabowski

The World BankWashington, D.C.

Copyright © 1993The World Bank and

International Finance Corporation1818 H Street, N.W.Washington, D.C. 20433, U.S.A.

All rights reservedManufactured in the United States of AmericaFirst printingJune 1993

The International Finance Corporation (IFC), an affiliate of the World Bank, promotes theeconomic development of its member countries through investment in the private sector. It is theworld's largest multilateral organization providing financial assistance directly in the form of loanand equity to private enterprises in developing countries.

To present the results of research with the least possible delay, the typescript of this paper has notbeen prepared in accordance with the procedures appropriate to formal printed texts, and the IFCand the World Bank accept no responsibility for errors. This is a study by the staff of theEconomics Department of the IFC, and the judgments in it do not necessarily reflect the views ofthe Board of Directors or the governments they represent. The World Bank does not guaranteethe accuracy of the data included in this publication and accepts no responsibility whatsoever forany consequence of their use.

The material in this publication is copyrighted. Requests for permission to reproduce portions of itshould be sent to Director, Economics Department, IFC, at the address shown in the copyrightnotice above. The IFC encourages dissemination of its work and will normally give permissionpromptly and, when the reproduction is for noncommercial purposes, without asking a fee.Permission to copy portions for classroom use is granted through the Copyright Clearance Center,27 Congress Street, Salem, Massachusetts 01970, U.SA

T'he complete backlist of publications from the World Bank, including those of the IFC, is shownin the annual Index of Publications, which contains an alphabetical title list (with full orderinginformation) and indexes of subjects, authors, and countries and regions. The latest edition isavailable free of charge from the Distribution Unit, Office of the Publisher, The World Bank, 1818H Street, N.W., Washington, D.C. 20433, U.SA, or from Publications, The World Bank, 66, avenued'Iena, 75116 Paris, France.

ISSN: 1012-8069

*Lbrary of Congress Cataloging-in-Publication Data

Wyznikiewicz, Bohdan.Coping with capitalism the new Polish entrepreneurs / Bohdan

Wyznikiewicz, Brian Pinto, Maciej Grabowski.p. cm. - (IFC discussion paper, ISSN 1012-8069 ; 18)

Includes bibliographical references.ISBN 0-8213-2519-11. Privatization-Poland. 2. Businessmen-Poland. 3. Poland-

Economic policy-1981- 4. Poland-Economic conditions-1980-5. Capitalism-Poland. I. Pinto, Brian. II. Grabowski, Maciej,1959- . III. Title. IV. Series: Discussion paper (InternationalFinance Corporation) ; no. 18.HD4215.7.W98 1993338.9438-dc2O 93-8930

CIP

Foreword

Poland is regarded as a front runner in the recent wave of economic reforms sweeping Centraland Eastern Europe. The Economic Transformation Program (ETP) was launched with the nowlegendary 'big bang" on January 1, 1990, which substantially freed prices and lowered entry barriers forprivate business. The response was swift and huge, with the share of the private sector growing rapidlyin economic activity.

This paper tells the story of the ETP as seen through the eyes of 75 Polish entrepreneurs drawnfrom across Poland, who are engaged in various activities. In addition, profiles of 17 entrepreneurs arepresented.

The paper shows that the decisive liberalization accompanying the big bang was instrumental inpointing out the shape of new opportunities even though goods prices did not jump instantaneously tointernational levels. As an enabling mechanism, the Law on Economic Activity of December 1988proved to be a crucial move. This law demonopolized state control over economic activity and pavedthe way for new entrants, who have responded agilely to the economic liberalization.

Entrepreneurs face the usual problems one would expect for an economy in transition. Inparticular, access to bank loans is limited as banks are reluctant to lend to untried, private clients withno track record. The positive side of limited bank finance is that the process of private equity creationis underway as profits get reinvested. There is little doubt that as private entrepreneurs establish theirreputations, access to bank loans should become easier.

Another important trend is that the relative charm of trading is waning as cost-price distortionsand arbitrage opportunities vanish. Manufacturing is becoming more attractive. Although entry and exitare easy, entrepreneurs felt the legal framework was deficient regarding contract enforcement and thecollection of overdue receivables. But all-in-all a very positive and energetic process of private sectorgrowth is underway.

Gk PmannDirector, Economics Department

and Economic Advisor of the Corporation

...

Acknowledgements

The authors warmly thank the 75 Polish entrepreneurs who participated in this study, and the 17who consented to having their profiles documented. Without this, the paper would not have beenpossible.

Anna Rogut of the Department of Entrepreneurship and Industrial Policy, Lodz University,Poland, prepared draft material for four of the profiles and interviewed 15 entrepreneurs.

Damian Damianos, IFC's Resident Representative in Poland and Charles van der Mandele,General Manager of the Polish Business Advisory Service, gave valuable guidance in conceptualizing thestudy. Beata Tuszynska of the IFC's Warsaw office skillfully administered the project.

v

Contents

Background ................................. 1

Review of Recent Private Sector Developments .............................. 3

Summary of Survey Findings .............................. 5

Polish Entrepreneurs .............................. 9

Mr. Miroslaw Baj .............................. 9

Mr. Wojciech Nosowski .............................. 10

Mrs. Hanna Wlodarczyk .............................. 12

Mr. Andrzej Krasinski .............................. 13

Mr. Jerzy Bulawa .............................. 15

Mr. Jerzy Mielcarz .............................. 16

Mr. Jan Soldaczuk .............................. 17

Mr. Blacha (alias) .............................. 19

Mr. Wieslaw Kolasa .............................. 20

Mrs. Anna Pieniek-Tobiasz ........... ................... 22

Mr. Miroslaw Jablonski .............................. 24

Mr. Ludwik Molenda .............................. 25

Mr. Krzysztof Hirszfeld .............................. 27

Mr. Jaroslaw Gawryluk .............................. 28

Mr. Lech Michalczewski ......... ..................... 30

Mr. Tomasz Studzinski .............................. 31

Mr. Andrzej Kubasiewicz .......... .................... 33

References ............................... 35

Background

By all accounts, the private sector in Poland has responded with alacrity to the new businessenvironment following the launch of the Economic Transformation Program (ETP) in 1990. The nimbleresponse of private business has put paid to any notion that forty years of socialism may have dulled thespirit of enterprise in Poland. Early economic reviews have painted a picture of a flourishing privatesector coexisting with moribund state enterprises, fuelling speculation that growth would have to comefrom new private business. The expectation has been that the pressure of market forces would lead toa shrinking of the state sector and redirection of resources towards private hands, through privatizationand the demise of the state firms.

Apart from the picture of a dynamic private sector displacing a dying state sector conjured byaggregate statistics, there has been little post-reform study of what has actually transpired at the individualprivate firm or entrepreneur level.1' Today, three years and more into the ETP, the state sector isshowing signs of recovery and adjustment to hard budgets and import competition. And the private sectorremains impressive in its achievements. In spite of signs of revival among state companies, it is likelythat the heavy industry bias of the central planning era will give way increasingly to smaller, privatebusinesses. This will happen directly as a result of new ventures and as part of the splitting up andprivatization of large state companies. Statistics certainly point in this direction, with the share of theprivate sector continuing to grow in all economic spheres - manufacturing, trading, transportation,construction and especially services, a sector that was neglected during the central planning era.

Despite its evident buoyancy, studies show the private sector to be constrained in many ways,particularly regarding access to credit, inadequate market information and impediments caused by thelegal and regulatory framework. This paper attempts to get behind the numbers and aggregateinformation by directly interviewing entrepreneurs to find out what they are doing, and how the economicreforms affected their decisions and business efforts.

The paper chronicles Poland's impressive ETP through the eyes of 75 of its entrepreneurs, basedon interviews, and by documenting the experiences of 17 of them. These entrepreneurs have undoubtedlybeen through one of the sharpest and most interesting economic transformations in recent times. Intelling their stories, this paper is divided into three sections: a quick review of private sectordevelopments; a summary of the main patterns emerging from the survey of entrepreneurs; and detailedprofiles of 17 of them.

WrUeful finn-level marveys arc contained in Gnbowcki and Kulawczuk (1992), Johnson (1992) and Webaer (1992).

Il

Review of Recent Private Sector Developments

Poland heralded its Economic Transformation Program with its now legendary 'big bang' ofJanuary 1, 1990. The currency was sharply devalued and rendered convertible for all commercialtransactions, prices and interest rates were substantially freed and subsidies to the state sector weredrastically cut. The era of the "hard budget' constraint and the discipline of import competition hadarrived. Price liberalization met with almost instant success. In a matter of days, queues for food andconsumer goods had vanished and shops were full. There was an explosion of street vendors, licensedand unlicensed, selling everything from music tapes to clothes to footwear to meat from the backs oftrucks to fresh fruit and vegetables. This captured newspaper headlines and made the internationalfinancial press. In the minds of many, but not completely accurately, these were the first Polishentrepreneurs. Over the course of the year, there were two other spectacular achievements: hardcurrency exports to the west increased a phenomenal 40 percent in volume and the share of the privatesector in non-agricultural GDP climbed from 19 percent in 1989 to 25 percent in 1990. Industrial outputfell by some 23 percent, composed of a 25 percent fall in the state sector but partly compensated by an8 percent increase in the private sector. Overall, GDP declined by 11 percent in 1990 compared to 1989;but this was confined mainly to the state sector and to private firms with close links to the state sector.In any event, the response of private businessmen to the ETP was huge, especially evident in services,transportation and construction. This led to an image of a withering state sector being replaced by adynamic private sector.

The experience of 1990 and after naturally led to expectations that the private sector would playa strong role in Poland's growth and transformation into a market economy. These expectations are beingborne out by continuing private sector developments in Poland. By 1992, the private sector (includingagriculture) accounted for more than 50 percent of GDP and employment in the Polish economy. Butthe seemingly instantaneous response of the private sector captured vividly by the swarm of street vendorsin Warsaw and other big cities was not without prior foundation, briefly traced here.

Private farming has always had a niche in Poland, unlike in other formerly communist states,though even here, inputs and marketing were state monopolies. On the non-agricultural front, theprimary focus of this survey, some stimulus for the development of private small and medium sizeenterprises appeared in the 1970s. But entry, including access to credit allocations and all-importantinputs in Poland's shortage economy, was controlled by communist party insiders, better known as thenomenklatura. Despite these barriers, by 1980 the non-agricultural private sector employed some600,000 people (about 4 percent of the civilian workforce) and contributed 3 percent of GDP.

During the 1980s, more dynamic development of private business occurred facilitated by variousmechanisms.

First, 874 Polonia firms were created and employed over 100,000 workers by 1989, bringingnew management methods, a market-oriented work ethic and new links to Western economies.1

Second, starting from the mid-1980s, incorporated firms set up by Polish residents wereregistered by Polish courts according to the resurrected 1934 Commercial Code. In 1989, theseemployed 134,000 people in over 11,000 firms.

_Zlb PoloRia finnm law was introduced in 1932 to allow tho sMablishmwna of an umncorpomted firm by a aom-WeWnt of Polish eactioa.

Then, what subsequently proved to be a watershed, the Law on Economic Activity was passed inDecember 1988, abolishing most of the licensing requirements for setting up and running aprivate business. This turned out to be a master stroke, eliminating entry barriers forentrepreneurs and releasing the stranglehold of the state sector on economic activity.

In the meanwhile, the Government allowed private computer (software and hardware) activity toflourish, as a way of circumventing barriers on the transfer of technology to east bloc countries.Computer products denied Poland by COCOM (Coordinating Committee for Multilateral Export Control)could be obtained from the Far East through private companies in the second half of the 1980s. Thesefirms created a completely new domestic market for computer products.

The Polish market was one of the most constrained in Eastern Europe in the 1980s, with couponsfor foodstuffs. Shortages created incentives for unrecorded private imports of cheap commodities, likegarments and audio-video equipment from Thailand, Hong-Kong, or Taiwan (China) and second-handgoods from Western Europe. This trade was initially dominated by tourist-marketeers - the so-calledsuitcase traders -who after 1989 registered as unincorporated foreign trade firms. The freedom to travelabroad was unusually high for a communist country.

Severe shortages and the flat salary structure in state owned enterprises (SOEs) did not providemuch motivation for working there. At the black market exchange rate, the highest salaries in SOEs wereless than USD 100 per month. Not surprisingly, high ranking officers from SOEs numbered among thefirst entrepreneurs.

These economic circumstances preceding the ETP were unique among the East EuropeanCountries. In short, two processes were under way. Legal barriers to run private firms were graduallydissolved during the 1980s. And economic changes created incentives for running private businessesrather than working for SOEs.

Two laws, both passed in May 1990, gave further impetus to private sector development. TheAct on Local Self-Government granted municipalities property rights to shops, premises and municipalenterprises. This facilitated the mass leasing of retail shops to private owners under the so-called "smallprivatization", effectively privatizing retail trade. The second was somewhat more questionable, awardingtax concessions to new trading firms established in the second half of 1990. This resulted in an explosionof such firmns, which were used for tax avoidance through innovative transfer pricing with manufacturingestablishments.

Jfhis act was approved by be bat communist govenument. Som wupect that the communist nomenklature were c pitalizing on their insiderknowldge and conacts to obtein economic privileges insted of political ones, for exancmp, thrugh contects among directors of SOEs.Whatever the motive, this act has had ong, positive benefits for the economy.

4

Summary of Survey Findings

The findings reported here are based on a survey of 75 entrepreneurs in late 1992 and early 1993,of which 10 are Polish Business Advisory Service clients, 5 received IFC loans and 6 unsuccessfullyapplied for IFC loans." The remaining 54 were randomly selected from registers of private businessmaintained by the Central Statistical Office and from databases in academic centers specializing inentrepreneurship. Two criteria were applied in sample selection. The entrepreneur should place his orher own money at risk; and employ at least 20 persons. These entrepreneurs reside in some 30 placesall over Poland: Warsaw, other big cities such as Lodz, Wroclaw and Gdansk, and small and mediumtowns and villages. Their activities cover a wide spectrum including horticulture and food processing;manufacture of garments, wood products, cosmetics, plastics, pharmaceuticals and toys; construction andcivil engineering; road transport and wholesale and retail trade. 1992 sales ranged from an equivalentof USS 100,000 to US$ 10 million with an average of US$ 2 million. Profits-after-tax averaged someUS$ 100,000. Employment ranged from a low of 20 to 400 at the upper end.

There are the usual caveats in extrapolating from a small sample; but casual observation suggeststhat the findings have general validity. The survey finds that there is no dearth of entrepreneurship,ability to exploit profit opportunities or think big. The biggest constraint is financial. Perhaps the mostimportant facilitating factor has been the Law on Economic Actiity of December 1988, whichdemonopolised state control over the economy.2' The profiles below show time and again that this lawwas instrumental in stimulating private business. Further, the decisive signals from the big bang indicatedthe shape of future opportunities, even though prices took time to adjust to international levels.Y

By and large, entrepreneurs are well-educated with technical and engineering backgrounds. Suchqualifications were highly prized during the central planning era, a gateway to top positions in statecompanies. No less tnan two-thirds of the interviewed entrepreneurs had worked in state-ownedenterprises, many in managerial positions, before venturing out on their own. They left with domesticand/or international business contacts, sometimes even with substantial contracts.

The typical entrepreneur is between 36 and 45 years old, with those over 50 more frequent thanthose below 30. Every tenth person interviewed was a woman. Half said they could communicate withtheir foreign contacts without interpreters. German and English were the best-known foreign languages.

Typical reasons given for venturing into private business are the desire for independence,challenge and more money. Some were continuing the family business. In only one case was job lossthe reason for going private. By and large, the motivation is positive and the decision to set up abusiness is a deliberate choice.

A third of the entrepreneurs already set up their ventures before 1980, a third during the 1980s(mainly those who got into trouble during martial law) and the final third after 1989, when restrictions

4/PBAS, joindy sponaoed by the IFC, EC, EBRD, mome European countuies and the U.S. and Canada, was created in 1991 to provide financialand technical adviaory services to emerging Polish businesews and entrepreneurs,

5/Webster (1992) highlights the inportance of this law in her survey of private manufacturing firma. Grey et a (1991) discus the legalfoundations for private ector firma in Poland.

6/See for example, Pinto, Coricelli and de Is Calle (1990) and Weiliazci al. (1991).

on private activity were lifted.2' The average length of activity is eight years. Iterestingly, there isno correlation between duration of activity and value of 1992 sales. The skills acquired before 1990 havenot always been useful in the new economic environment.

Workers hired by the sample entrepreneurs come mostly from state-owned enterprises. But someprefer to employ 'unspoilt' graduates or unemployed workers.

Linkage with the state sector as supplier and client is slowly diminishing. The attitude towardsSOEs is ambivalent. Some 32 percent expressed reluctance to do business with SOEs; but acknowledgethat SOEs often have access to better technology and products. Many feel that state enterprise managersare responsive in the new economic dispensation. Thus, 57 percent expressed indifference about whetherbusiness is with the state or private sector, being concerned only about quality and reliability.

The typical financing pattern is the following: personal savings and loans from friends and familytend to be the source of the founding capital of private companies. In many cases, these savings camefrom speculative trading profits associated with rents and chronic shortages in the pre-reform period.This reached feverpitch during the hyperinflation at the end of 1989. Anticipating the devaluation of thezloty and the price liberalization of the big bang, households went on a buying spree which resulted inwindfall profits for many small private traders. These savings provided seed capital for new ventures.Subsequently, profits are being reinvested in the business. This is borne out by the numbers. The samplefirms in 1991 and 1992 paid out only 6 percent of profits after tax in dividends, the bulk of earningsgoing into investments, working capital and repaying bank loans.

This creation of private equity has been spurred by three considerations. First, interest rates roseto positive real levels and businessmen have been reluctant to borrow. Second, term finance is typicallynot available, partly because of the uncertainty and macroeconomic instability characteristic of transitionaleconomies. Third, local banks accustomed to lending to state companies that offer their assets ascollateral are reluctant to switch to untried private clients, who have no track record or security to offer.But this is likely to improve as entrepreneurs establish their reputations. Thus, some 40 percent of thesample had obtained bank loans. A preference was expressed for hard currency loans, especially USdollars and deutsche marks, the expectation being that the depreciation of the zloty would never catch upwith the interest differential. Close to 40 percent of loans received were in hard currency.

Trading, especially importing, is losing its charm as cost-price distortions and arbitrageopportunities created by wedges between domestic and international prices disappear. More and more,traders are thinking of going into manufacturing. Interestingly, manufacturing firms expand fairlysuccessfully into marketing and trade. Trading firms find it much harder to go into manufacturing. Theimpulse for this switch from trading, with its short horizon, to manufacturing, with its implied long-termcommitment, comes from profits and sales trends. On average, the 32 manufacturing firms surveyedreported an 81 percent increase in sales in 1992 over 1991 and an increase in profitability (profits aftertax to sales) from 11 percent to 13 percent. The 16 trading companies saw sales increase by 61 percentand profitability fall from 8 percent to 2 percent over the same period.'

7/This uniforn disribution is an outcome of the survey and not part of sample design.

Srlese are based on unaudited profit numbers supplied by the interviewees. The profit and los account nmy not conform to wesem accountingprinciples and conventions.

6

Remarkably, even with the uncertainty of the first years of the ETP and the high real interest rateenvironment (in comparison to bygone days), many entrepreneurs are embracing manufacturing. Theyare also agile in switching from one opportunity to another, attesting to the relative ease of both entryand exit. This also shows that the big bang has been instrumental in clarifying economic signals andbringing new opportunities to light. There are examples where saturation as a result of new entrantsdrove profits to zero, leading to exit decisions by entrepreneurs. This is a welcome development as itshows that the market is beginning to work efficiently and that information is used in economic decision-making, an important step forward for an economy in transition.

Entrepreneurs are willing to invest and 96 percent of them did so, although 15 percent reportedzero profits or losses. This is partly explicable by profit and loss accounting. Firms often treatmachinery and other capital purchases as current costs and write these off immediately instead ofamortizing them over time. This is done by recording machinery purchase as a set of components ratherthan a whole unit, which enables an immediate write-off under the tax code.

By and large, the state sector is not considered a strong competitor for private firms. The lattercompete among themselves and with imports. Most are price-takers and described the environment ascompetitive.

Ninety-three percent of the sample entrepreneurs declared personal contacts as the most frequentand efficient way of finding clients. This sometimes works even for export contracts, where contacts inthe Polish community abroad are proving valuable. Although entrepreneurs understand that marketingis essential, they are reluctant to supplement their knowledge with the professional expertise of marketingcompanies and consultants. They admit sometimes spending large sums on misdirected marketing efforts.

Complaints about the legal framework center around the difficulty in enforcing contracts and incollecting overdue receivables. But free entry and exit were never at question.

Other complaints are the usual gripes about taxes being too high and customs procedures inparticular being burdensome. The absence of smoothly working telephones and inadequatecommunication facilities in general is often mentioned.

Regarding future prospects, most entrepreneurs see financial limitations as a main barrier togrowth. This is followed by burdens from taxes and payment arrears. Other specific barriers mentionedinclude troubles with custom clearance, poor labor, attitude of incompetent bureaucrats and bank officersand shrinking domestic demand. Some entrepreneurs admit they are not well-prepared to manage theirfirms. When a firm is small, they do not have problems, but as it grows and expands, they feel the lackof managerial experience and methods.

When asked to rank prospects of their own particular firm, the industry and the national economy,entrepreneurs are invariably more optimistic about their own prospects. Confirming the evidence citedabove on profits and sales, trading companies assess their prospects as much poorer than manufacturingand service firms (2. 8 on a 5-point scale versus 3.7 for the others). This suggests that speculative gainsin trade, a hallmark of 1990 and 1991, are disappearing.

This overview cannot fully capture the drama and economic energy released as a result of the bigbang and the Law on Economic Activity. The profiles below open a window into various opportunitiescreated by the Poland's economic changes that have fostered a veritable burst of entrepreneurship.

7

Polish Entrepreneurs

Mr. Miroslaw Bay

Before the start of Poland's economic reforms in 1990, internal distribution and retailing werecontrolled by the state through various product-based and geographical monopolies. Following the bigbang and the dismantling of entry barriers, new opportunities arose for private entrepreneurs in trade.The profile of Mr. Baj illustrates such an opportunity.

Mr. Miroslaw Baj is a co-owner of an unincorporated company 'Pro Hurt' ("for wholesale")formed in 1990. He is a graduate of a secondary technical school. Before creating his own firm, he hadbeen working in the socialized sector.Y In 1990 he decided together with a partner, the owner of a carrepair shop, to establish "Pro Hurt" with the intention of wholesaling spare car parts produced by FSO,the Warsaw-based state-owned passenger car company.

The decision to start Pro Hurt was prompted not only by the desire to make money and secureindependence but also by earlier contacts with FSO in its search for new distribution channels. FSOstarted this search in anticipation of the expiry at the end of 1990 of its existing contract with Polmozbyt -a traditional state-owned monopolist engaged in distributing cars and car parts in Poland. The search

for new distributors came about as a consequence of social and economic changes occurring in Polandand the reorganization of Polmozbyt (division of the company, spin-offs with participation of differentpersons, opportunities for privatization), which were adversely affecting the business relationship withFSO.

Initially, Pro Hurt planned to restrict its operations to a wholesale center for FSO supplying sparecar parts in the area of Lodz and nearby Voivodships. However, the terms offered by FSO andfavorable cost and income estimates led Baj and his partner to establish an independent business whichwould sell spare car parts purchased from FSO under a signed agreement. Although the market for spareparts was still a sellers' market in 1990, the factory offered generous credit terms, inducing the partnersto go independent. But risks were also involved. The partners were under obligation to punctuallysupply stations providing warranty services for FSO cars with car parts. Fines would be payable if therewere delays that required the service stations to temporarily provide substitute cars.

During the first stage of its operation, the partnership ran a small wholesale center (employingless than 10 persons) along with a small retail shop attached to it. The business expanded dynamicallywith rapidly increasing sales, a broadening range of products, new retail shops and an additionalwholesale center outside Lodz. This expansion was accompanied by a five- to sixfold growth inemployment.

In 1991, the partners decided to embark upon new activities including retail trade in foodstuffs,industrial and chemical products. The main reason was to counterbalance the seasonal nature of trade

9/-Socialized sector' was a terrn used during the centrally planned economy to denote tate-owned enterprise. cooperatives and socialorganizations.

in car parts, forcing the company to look for alternative sources of income. A large, three-floor pavilionin the nearby town of Pabianice was leased from a state-owned enterprise. Substantial debt was incurredto finance major repairs and refurbishing of the building to meet the standards of a modern and efficienttrade center. This rehabilitation project created dozens of new jobs - among others, for 30 unemployedpersons. The firmn grew rapidly with 1992 turnover exceeding Zi 80 billion - US$6 million - and thenumber of employees growing to 115 persons as a result of this expansion.

In 1992, the company decided to diversify further into an auto sales center, which marked thebeginning of a new phase of activity calling for additional investment and advanced training of staff, inconnection with opening a service station for cars produced by FSO under license from Fiat and by Fiatin its newly acquired company, FSM, including warranty service. The company also started exportingparts for Polish-made cars to countries such as Indonesia.

Although Pro Hurt has a relatively short history, according to Mr. Baj it has already managedto create a flexible organization structure and develop a network of suppliers and customers. In fact, themain supplier to the company is the state-owned sector. However, the share of the private sector assupplier is growing owing to privatization, a steady improvement in the quality of private sector productsand competitive prices.

Although the firm faces keen competition from Polmozbyt and its spin-offs, as well as fromunregistered traders, Mr. Baj evaluates its prospects for the next few years as good. This is a result ofthe strategy adopted, which is based on the expected market evolution of the automobile industry inPoland. Future plans include creating an expanded chain of own retail shops, first of all in the motorcar branch, although the firm may also expand its multi-branch department store. To accomplish thesegoals, the company is holding talks for purchasing the building being leased hitherto in Pabianice andconstructing a modern car park in its vicinity. The partners plan to establish international co-operationties, although barriers include a shortage of own financial resources, reduced consumer spending (whichis tangible in the hard-hit region of Lodz) and high interest rates.

Mr. Wojciech Nosowskd

Mr. Nosowski's experience is a classic illustration of a manufacturing opportunity created by the'big bang' of January 1990 and liberalization of domestic and retail trade that accompanied it. Theexplosion of street vendors became the stuff of newspaper headlines at the time, and Mr. Nosowski wasquick to seize on a business idea this generated. Aged 40, he is the managing director and a shareholderof the Mini Menu System - Polish Corporation of Fast Food and Trade, a limited liability companymanufacturing multiple-use kiosks and presently organizing a chain of 'fast food' bars supplied by thecompany.

Mr. Nosowski was close to completing his M.A. degree at Poznan University. He worked ina huge state-owned tourist bureau PTTK, in the managing section. In addition to standard touristservices, PTTK owned several small auxiliary production establishments, most of them subsidized by theparent organization. These establishments produced various equipment that PTTK needed for its touristactivity.

10

By 1989, it became clear that private initiative and entrepreneurship would develop and expand,replacing the command economy. Mr. Nosowski spent time dreaming about how to change the countryand his own life. At that time, streets and squares in Warsaw and in other Polish cities were coveredwith thousands of ugly camping trailers used as mobile bars serving hot-dogs and similar 'fast food'.The state-owned restaurant and bar network was not geared to catering to this new demand. In 1990,this sector was quickly transferred to private hands under the so-called 'small privatization' program.

Nosowski's idea was to establish a company producing attractive and functional kiosks for thesefirst Polish "transition' entrepreneurs. Later, the thought was to produce fast food for supply to theseentrepreneurs as well. It took him two weeks to conceptualize the project, which would use some ofPMTK's existing facilities. Kiosks could be produced by one of PITK's establishments in a small towncalled Miastko in northern Poland. This small factory located near the Baltic sea employed experiencedspecialists producing boats and kayaks from laminate. Owing to a collapse in orders, the factory was onthe verge of liquidation.

Nosowski managed to convince several friends, the private insurance company Westa and PFTKto establish a limited liability company, Mini Menu System (MMS), in November 1989 with headquarterson the outskirts of Warsaw. The founding capital was contributed 45 percent by Westa, 45 percent byPTIK and 10 percent by Nosowski and his friends. The factory in Miastko was leased by P1TK toMMS and the employees saved tlheir jobs. Reputable local experts were hired to design the kiosks.

The plan of MMS is to create a chain of fast-food kiosks under a franchise system. MMS is ableto deliver and install kiosks fully equipped with electricity, gas and water and to supply these with fastfood. The good impression that the well-designed kiosks makes on the public is essential for new orders.

The main obstacle faced by MMS is lack of financial institutions serving franchising in Poland.Franchising itself is little known in the Polish business community. Young people, the potential MMSfranchisees, are unable to meet initial cash deposit requirements, and MMS is not in a position to investin the network either. For the time being, to increase sales, MMS sells some kiosks for other purposes:coffee and flower shops, tourist information points, cashiers, police stands etc. Kiosk modules can becombined according to the individual needs of a client.

Another barrier that MMS has to overcome are burdensome bureaucratic procedures concerningpermits for kiosk location. Different administrative departments must give their consent: the firedepartment, environmental protection, sanitary authorities etc. But MMS is learning how to proceedsuccessfully and to minimize the burden connected with securing permissions.

A general perception is that private enterprises are more flexible and cooperative than state ownedfirms; but that state enterprises have access to better and more modern technology and are therefore ina better position to produce high quality goods. Mr. Nosowski himself did not see much differencebetween the quality and behavior of state firms and private entrepreneurs. The latter are, however, moreflexible and can be relied upon in extreme situations. For example, they agree to work on weekendswhen the need arises. MMS chooses its collaborators on the basis of firm quality rather than ownership.

Nosowski is active in finding business partners and establishing connections with differentorganizations. As an outstanding example, MMS established contacts with the International ExecutiveService Corps, Stamford, Connecticut, an American organization helping Polish businessmen. The IESCarranges assistance of retired executives who are experts in certain fields. Two experts were helping

11

MMS - one on polyester technology, the other, a former McDonald's executive of Polish origin, on thestrategy of fast food organization and management. The three-month visit of the McDonald's executivewas of considerable importance for the firm's development. His contacts and advice helped MMS todevelop a relationship with a Swiss company producing frozen fast food, for which MMS is an exclusivedistributor in Poland.

Mr. Nosowski estimates that his 30-employee company will be able to create up to 1000 directjobs next year with 250 new kiosks in the chain. Running an MMS kiosk could be a perfect opportunityto gain practical experience in small business, especially for young people with limited financialresources.

The prospects for exporting kiosks to Western Europe are good. The price of an MMS kiosk isonly 30 to 40 percent of similar German products. In addition, Mr. Nosowski believes his kiosks aresuperior in design and appearance to those of potential West European competitors. The first kiosk hasbeen already sold to Germany with positive reactions that harbinger good prospects for further orders.

Mrs. Hanna Wlodarczyk

Mrs. Hanna Wlodarczyk, aged 35, graduated from Warsaw University in 1981, having studiedcomputer science in the Department of Mathematics. The demand for computer science specialists waslow at that time and she found her first job with some difficulty. For a few years, she worked for aprivate computer software company. However, she soon realized that she could do a better job on herown. In 1989 she established a limited liability company K.O.T., located in downtown Warsaw thatwould enable her to concentrate on her passion - personal computers and computer programming; andearn income comparable to Western European levels.

The company specializes in complex computer services. The idea behind its name (which hasno meaning) was to demonstrate that the firm is non-standard. The founding capital was symbolic andthe company is really based on Mrs. Wlodarczyk's and her employees' intellectual abilities. K.O.T. iskeen to employ university graduates. Mrs. Wlodarczyk concentrates more on substantial work for thecompany rather than on management. Her husband manages the company. Services provided by K.O.T.include hardware deliveries (personal computers and related equipment), computer programming andother software services, creation of computer networks and after-installation service. The company's goalis to keep abreast of the latest technology in the computer science area. Recently, it added optical databases (pictures of maps, real estate documents) to its range of products.

K.O.T. does not invest in fixed assets with the exception of computers. According to Mrs.Wlodarczyk, service oriented companies based on intellectual abilities, experience and know-how ofhighly skilled employees do not need to invest much, except for basic equipment. But the quality ofsoftware services is limited by the quality of computers the employees are working on. This pushes thecompany to purchase more advanced computers.

The company has permanent clients and personal contact is considered the best way of findingnew clients. Satisfied clients recommnend K.O.T. to new ones. At the same time the company's strategyis to maintain existing business contacts not only by providing back-up services for installed computers,

12

but also by bringing in new models and improving existing software. Foreign firms operating in Polandnumber among K.O.T.'s clients and the company is negotiating contracts for serving clients locatedabroad.

K.O.T. also provides security services. This activity was started to overcome temporary financialdifficulties, turned out to be profitable and so was retained as it requires limited management. Of thethirty persons employed by K.O.T., twenty work in the security agency.

Less profitable was the involvement in editing and publishing a newspaper. A private companywhich asked for help on this turned out to be unviable and K.O.T. barely covered its costs. However,the staff gained valuable experience in using computers for editing and publishing that may be used moreprofitably in the future.

Net profits (profits after all taxes) in service enterprises like K.O.T. are often only slightlypositive. These are relatively small companies with limited financial resources. Not many of them intendsignificant expansion and frequently keep the company small to preserve the quality of service. K.O.T.'sapproach is to pay the employees well and expect good performance in return.

Mr. Andrzej Krasinski

Mr. Krasinski has been an agile entrepreneur, moving first from an electro-mechanical workshopinto producing cut flowers and then into road transportation. His experience indicates relatively low entrybarriers for small entrepreneurs. Interestingly, both his shifts occurred before the ETP.

Mr. Andrzej Krasinski, aged 39, started his own business in 1976 by taking over an electro-mechanical workshop from his father in a small place called Magdalenka, 15 kilometers from Warsaw.He had graduated from a technical high school and had no work experience. His workshop producedmetal and plastic spare parts for motorcycles and other similar components for various end-uses.

After five years, he decided to close the workshop and moved into horticulture. He invested theaccumulated profits in constructing a greenhouse for growing flowers on the family plot of land. Duringthe central planning era in Poland greenhouse horticulture, especially around cities, was largely in privatehands. Socialized enterprises were not able to compete in this activity, which demands arduous work ofup to twenty hours a day. Until the mid-eighties, greenhouse horticulture was a popular and extremelyprofitable activity in the Polish private sector. Seeds were imported from the Netherlands. Energy,mostly hard coal-based, was relatively cheap and subsidized if the greenhouses supplied tomatoes andother vegetables in return.

In 1988, Krasinski gave up his personal involvement in horticulture, leaving it to his wife, andagain used the accumulated funds to open a new business. This time it was an unincorporated goodstransport company, "Eurocamion".

The timing proved to be excellent. The liberalization of trade following the big bang on January1, 1990 greatly increased the demand for haulage services. At the end of 1992 the company employedfive people: Mr. Krasinski and his cousin, who is the second shareholder, and three truck drivers. The

13

partners take care of all duties and maintain contacts with company clients. A bookkeeper is employedon a part-time basis. Trucks are repaired and maintained in private service stations, which according toMr. Krasinski are better equipped than state-owned service stations.

The firm uses two trucks with carrying capacity 24 and 26 tons. One truck is owned by thecompany while the second is leased. In 1992 the firm purchased a third truck. But it had to be scrappedafter an accident. The insurance compensation was not high enough to buy another new truck. A morelikely possibility is that the old truck that the company owns will be exchanged for a new one. In themeanwhile, the third driver is a reserve employee. The more difficult and urgent orders are served bythe other two drivers. The drivers are paid a fixed wage; but the per diem they receive for the time spentabroad is considered by them as a special bonus.

Eurocamion operates in West European countries (90 percent of haulage) such as Germany,Austria, Belgium and Derunark; and domestically as well. The majority of the firm's clients are privatecompanies, which "Eurocamion" found through personal contacts. This guarantees full employment fornine months a year. During the remaining three months, the charges are lower owing to low seasonaldemand. Eurocamion attempted a newspaper advertisement which did not yield desired results; but thepartners are thinking of using the services of an advertising agency.

Eurocamion has neither a specialty nor a preference in transporting any particular kind of goods.The firm is a universal carrier. Loading and unloading services are not provided by the firm and are leftto the clients. Prices for transport services are established by the market and the only way to competeis to provide fast, punctual and reliable services.

In the last two years, the company took two bank loans. The first, a short-term zloty loan, wasrepaid. The second is a three-year hard currency loan from an IFC credit line. Both shareholders areoptimistic as far as repayment prospects are concerned. In 1991, profits were sufficient to re-invest andincrease the working capital, while in 1992 more than half the net profit was used to repay credits.

Krasinski and his associates view the future optimistically. According to their projections, thedomestic demand for road transport services will grow more than the international demand. As for thecommodities of their interest (package cargo transported in trucks), they assume that imports to Polandwill diminish. The quality of domestic goods has been improving since 1990 and domestic productionwill able to compete with imports. The partners also believe that Polish exports to the EC will bereduced, because the EC countries will prefer their internal trade to external trade. As a result, the maingrowth for their services will come from the domestic production and distribution of commodities. Atpresent, according to Krasinski, domestic demand is relatively low. The company can, however,maintain a presence on the international market as long as there is demand for its services.

The most significant barrier to the company's growth are the zloty interest rates. It is difficultto pay 50 percent interest with an 8 percent net profit to sales ratio, according to Mr. Krasinski. In thisregard, the hard currency loan is a blessing as Eurocamion has a natural hedge. Other barriers arecorporate income tax and duties plus insurance and transport license fees that are due at the beginningof each year.

14

Mr. Jery Bulawa

Mr. Jerzy Bulawa, aged 55, is a mathematician. During the centrally planned era he wasinvolved in anticommunist opposition and for years he was without a permanent job. He lived off varioussmall jobs given by universities, research institutes and private persons. When favorable conditions forprivate initiative and entrepreneurship were established following the 1989 Law on Economic Activity,Mr. Bulawa decided to go into "big business".

Since Bulawa did not possess sufficient financial resources, he asked several friends andacquaintances to lend him money for big purchases of personal computers from abroad. At that time withno custom duties on electronic equipment, Poland was an absorptive market for personal computers withconsiderable pent-up demand. The imported computers were successfully sold and Mr. Bulawa used theprofits to start a business. In 1989 he registered a limited liability company, "INAR", being the mainshareholder and managing director.

The main activity of INAR is foreign trade in food and agricultural products. The company isinvolved in Polish exports and imports as well as trade transactions between other pairs of countries. Themarket conditions in this area have been changing during the ETP with the real appreciation of the zlotyand sharply reduced input and interest rate subsidies for agriculture. Mr. Bulawa's company switchedfrom being a net exporter to net importer, while the real turnover of the company has been decliningsince 1990. Presently INAR employs 25 persons while at its peak in 1990, it had 70 employees.

Mr. Bulawa's business strategy is not typical. Instead of spending money on advertising, heprefers to use money for what he calls "costs of maintaining economic links", which in practice meanshelping suppliers and collaborators. This includes different free services like consulting or instructionand loans for regular suppliers in the hope of securing low procurement prices. This strategy leads notonly to close relations and links between the company and its suppliers, but also to very quick responseswhen the situation requires in this volatile business.

Another element of Mr. Bulawa's strategy is to create task groups within the company to analyzefuture plans instead of hiring consultants. He believes that his own well-paid employees can providebetter and cheaper expertise than the best consulting company. One example is a two-year planning andpreparation of an investment project in agriculture. "INAR" has prepared a detailed investment projectwhich has not been implemented so far because market conditions are not yet advantageous. The taskgroup has gained knowledge and experience. These people temporarily work outside the company; butare ready to join INAR if there is a demand for their work.

New employees of INAR receive basic training and must go through a trial period. So far, onlyhalf of the employees hired have been retained. INAR's wages are higher than the average on theWarsaw labor market, and are competitive for similar positions. The basic salary is fixed and guaranteedbut there are possibilities for bonus that could be as high as six times monthly average salaries. Bulawa'sprinciple is to guarantee a minimum level of security to people who work for his company.

INAR has been competing by conscious reductions of its trade margins to minimal levels. Somecontracts are at zero profits. In large transactions, for instance in the case of twenty five or more tons

15

of wheat, the trade margin is less than one percent. The strategy of low margin, high volume has enabledINAR to survive.

INAR is active on the world market (Europe, Asia, America) and on the market of the FSU. Thelatter market is difficult because these countries have limited hard currency funds and unusually highinflation rates. In such circumstances, the only way is barter trade. Barter trade covers not only foodand agricultural goods but also raw materials, manufactured goods and services. Certain transactions ofMr. Bulawa in the FSU area have government guarantees, and all trade transactions are subject to importlicenses.

INAR does not borrow from banks and fully depends on its own financial resources. Debtservice with the low trade margins applied by "INAR" would hardly be possible. Borrowing foragricultural production (which is a pet idea of Mr. Bulawa) that could be a base for supplies is notguaranteed to be a success at the moment. Return on invested capital at the rate of 12 percent - asindicated by computer simulations - and a nine- month production cycle would make it impossible toservice debt. Therefore, he has decided not to invest yet in direct agricultural production.

Mr. Jerzy Mielcarz

Mr. Mielcarz is an entrepreneur who has paid considerable attention to strategic planning,product-mix and marketing. The stimulus has come from import competition as a result of tradeliberalization during the ETP, to which Mr. Mielcarz has ably responded. He grew up in a family witha deep tradition of entrepreneurship in the Wielkopolska ("Great Poland") region. This region in westernPoland, which borders on Germany, is regarded as having the best-developed agriculture in Poland andits people are known for their frugality and hard work. Mr. Mielcarz's family lives in Dobrzyca (80 kmsouth of Poznan), a small town, where it owns a 20-hectare farm. This is why Mr. Mielcarz specializedin agricultural technical studies in Poznan.

When in 1976 Mielcarz took over the family farm, his idea was not to continue traditionalagricultural production; but to utilize his technical knowledge of agriculture in setting up a large-scaleeconomic activity. At first, he ran a hop-growing farm including a hop-kiln for drying hops used for beerbrewing. The activity was profitable and in 1987, he established an enterprise "Vitax" dealing withtherapeutic herbs. Vitax employs 120 persons in Dobrzyca, which has 1500 inhabitants. Production ison three shifts. Mielcarz intends to purchase more land and expand the factory. The firm producestherapeutic herbs, food concentrates and spices. Mielcarz intends to enrich the product mix byintroducing herb-based cosmetics. This activity, which is on the border of food and pharmaceuticalproduction, faces strong competition from domestic firms, from foreign firms operating in Poland andfrom regular and unrecorded imports.

Mielcarz's efforts have met with considerable success. He was awarded a gold medal during thefirst Herbs Products Fair in Lublin in 1992, where some fifty private and state enterprises competed forthe prize. Mielcarz's success has its roots in his capacity for long-term strategic planning and hisconstant focus on the product-mix. Thirty new products have been introduced each year with 150products currently manufactured. Mielcarz follows developments in herbal products in Poland andabroad. He participates in fairs and other trade events of interest. During visits abroad he, his family

16

and friends look for new products. Mielcarz is a careful reader of the specialized literature as well asof financial and macroeconomic reviews.

Production operations are also carefully managed. The firm stores stocks of basic raw materialingredients to cope with unexpected events like drought or poor crops. Formulations are prepared bythe best Polish pharmacists and experts in food concentrates. From the very beginning, all the firm'sformulations have been registered in the patent office along with the firm's name and trademark.

Twenty percent of Vitax's production is exported to the West. Mr. Mielcarz intends to exportto eastern markets as well. He is waiting for a more stable market situation in the FSU. Difficulties withhonoring agreements in these markets is the main reason he is not operating there.

Packaging has been weakest point of consumer products in Poland. During the last three years(1989-92) the situation has changed as a result of competition and import pressure. Mr. Mielcarz basdecided to purchase packing equipment for his factory and to order printing services from an Austrianfirmn in Vienna. This decision is expected to reduce packing costs, eliminate dependence on outsidesuppliers and improve the quality of packaging, hence, product competitiveness.

Advertising is another of Mr. Mielcarz's concern. According to him, it should be directed,towards final consumers rather than towards wholesale traders. The latter already know the firm well.In 1993 'Vitax" will spend 2 percent of sales on advertising on an experimental basis.

Mr. Mielcarz has started thinking about the firm's long-run future when, with the inevitableintegration with the EC, Polish business will have to compete with big western corporations. Heanticipates stiff competition. A well-known German company has proposed a joint venture. He isconsidering this proposal.

As in the case of other Polish entrepreneurs, the biggest constraints for Mr. Mielcarz are financialconstraints, including limited access to bank credit, high interest rates and problems with financialliquidity. 'Vitax" has to pay farmers supplying the factory with raw materials over a fairly short andconcentrated cycle. He would like to have preferential credit for this. Another barrier he faces areineffective economic laws in Poland, which make it impossible to enforce financial and business contracts.Even if there is clear evidence of fraud by a firm which is in a state of bankruptcy, courts disregard this,regarding the problem as a natural business failure instead.

Mr. Jan Soldaczuk

With the launch of the ETP, the demand for business services, which had been virtually non-existent before, grew dramatically. In the eighties, such demand was restricted to foreign companiesentering Poland and creating joint ventures with local partners. A feasibility study prepared by a Polishconsulting firm was an obligatory requirement imposed (later given up) by the Foreign InvestmentAgency for such ventures. After 1989, the demand from Polish private and state firms started growing.

17

Professors of economics in universities and research institutes, as well as those working part-timein banks or central administration, provided a natural base for forming firms providing consulting andbusiness services. Mr. Jan Soldaczuk was well placed to take advantage of the emerging opportunity.

Soldaczuk, aged 34, graduated from the Central School of Planning and Statistics in 1981. Thisis the biggest school of economics in Poland and reverted to its original name, The Central School ofCommerce, in 1990. Soldaczuk specialized in international finance at the school's Institute for the WorldEconomy, teaching and researching until 1989. To supplement his income, he held a part-time job inthe Economics Department of Bank Handlowy, in the Economic Analysis and Currency Forecasts section.In the eighties, Bank Handlowy was one of two banks which specialized in financing foreign trade andcurrency operations for the Polish economy.

In 1988, Mr. Soldaczuk attended the "Industrial Projects Course for Loan Officers' held in theNational Bank of Poland (NBP) by the World Bank's EDI. Subsequently, Soldaczuk was hired by NBPto deliver a similar course for NBP employees who were to be transferred to commercial banks beingspun off from NBP in the process of transforming it into a regular central bank. This led to the creationof "Effect", a financial consulting company based in Warsaw.

At the end of 1992, Effect's activities were concentrated in four areas: financial consulting,financial analysis of companies, software services and training services in banking, finance, marketingand management.

Services provided by Effect evolve according to changing demand. Recently, banks were offereda set of economic indicators at the industry branch level (based on aggregated official statistical data) thatcan be used to compare the performance of loan-seeking enterprises to the branch averages. Effect offersa tool that computes a set of indicators based on standard statistical, accounting and fiscal data availablein each enterprise.

Effect has set up two branch offices outside Warsaw in Lomza and in Rzeszow. Both towns arevoivodship capitals, but neither is a major industrial area nor academic center and both haveunemployment rates higher than the average in Poland. The idea is to employ qualified people living inthese places at low cost. Some of Effect's projects are executed there, however the core job of thebranches is training courses in banking sponsored by local labor offices. Those four-week courses aremeant for unemployed economists. After Effect's training they find employment in the banking sector,mainly in local branches of major Polish banks.

The company employs 25 persons (full time) in its three branches. Excepting secretaries, all staffmembers are university graduates. For 14 of them, Effect is their first job. In employing and traininguniversity graduates, Mr. Soldaczuk sees a way of having efficient and professional staff satisfying therequirements of the market economy, free of bias towards the old economic system and ways of thinking.Effect employs university students on a part-time basis, offering permanent jobs only to the best of them.In two cases, projects undertaken by Effect were desc-7. ' in master's dissertations.

Effect's turnover in 1992 was ZI 6.4 bill. (US$470,000) and net profit ZI 350 mill. (US$26,000).Profit is re-invested in computers and software. Other investments are not necessary at the moment. Thecompany does not borrow from banks: its financial liquidity is sufficient, and bank interest rates are toohigh.

18

As for the future, Mr. Soldaczuk is a moderate optimist. He sees bureaucratic obstacles to newactivities such as those performed by Effect as well as unstable legal regulations as barriers todevelopment. According to him, the development of market for consulting services has been artificiallycreated. Firms are approaching consultants to get their help in meeting requirements imposed by banksor the administration, rather than from their own conviction or desire. Krzysztof Grzybowski, anotherof Effect's shareholders, wishes to have a group of clients that would establish long-term contacts forpermanent consulting and not on an ad hoc basis. This has already happened in the case of a few clients.

Mr. Blacha (alias)

Not all entrepreneurs have adapted successfully to the new rules of the game, as this profileshows. Mr. Blacha owns a car body repair shop in a big city. He graduated from a mechanicalsecondary school and for several years was an athlete employed by a factory for representing its sportsclub. Formally, he was a full-time employee of the factory; but he had no work obligations. He was onlyrequired to do well in sports. His salary paid from a factory payroll was considered as a scholarship andfully depended on his sports achievements. This was a typical status of many 'amateur' sportsmen inPoland.

With hard currency savings - coming mainly from money from competitions abroad - and hisfather's financial support, Blacha opened a car body repair shop in the late sixties. He gained someexperience in this area working six months in France as an assistant in a body repair shop for Mercedes-Benz cars. From the very beginning, he decided to specialize in the repair of luxury western cars. Hisemployees are, as a rule, graduates of mechanical secondary schools trained either by him or by moreexperienced workers. He imports equipment in order to apply the latest technology. With high qualityservice, his repair shop quickly acquired a reputation as one of the best in the city.

In addition to regular services, he bought western luxury cars severely damaged in accidents atsalvage prices and repaired these in his shop for sale on the Polish market at high profit. With a highblack market premium on foreign exchange, this activity was extremely profitable since cars alwaystraded at western prices. Labor and other services were paid in zlotys.

Blacha also catered to foreigners living in Poland and foreigners living abroad who wanted tohave their cars repaired more cheaply than in their countries but with comparable quality of service. Hemoved his shop several times, always to plots with better location and to places with more space. Hewas a successful entrepreneur and in his best times he employed over 20 workers.

During the shortage economy in Poland, before the ETP, a client who wanted to have his carrepaired in Blacha's shop, or another body car repair shop, had to wait between two and four weeks.A client could use this period to find and purchase all the necessary body parts, paints etc. This was theclient's problem, not the body repair shop's. There was always a line of clients who completedeverything necessary for repairs.

Mr. Blacha was approached by several worldwide car companies to became an authorized dealerof their cars. He did not consider any proposal because he had more confidence in his repair shop than

19

in the risky car sales business. His margin on repaired cars was much higher than a regular dealer'smargin.

Blacha never considered using bank loans. He was able to accumulate a surplus that was enoughfor expansion. With the coming of the ETP in 1990, he decided to erect another building on his plot.The building has two floors and was planned as an auto sale salon on the ground floor with office spaceon the first floor. Cars for sale could be either relatively new damaged vehicles repaired by him orluxury cars sold on commission.

In addition to this main activity, Blacha participated as a shareholder in a limited liability tradecompany importing office supplies in the second part of 1991. This was profitable in 1991, but withmany new entrants, profits shrank and the company folded.

The new investment on the plot absorbed all Blacha's savings. During the time of this surveyin January 1993, the building had almost been completed, but Blacha ran out of funds to implement hisidea of auto sales. His present dilemma is whether to open a car sales salon or to rent the space for otherbusinesses like furniture or office supplies.

In the meanwhile, his main business has deteriorated dramatically, with fewer clients and nolonger any black market premium on foreign exchange. The number of employees has shrunk to 12.Blacha is able to accept clients immediately, however, the spare parts are still the client's problem. Hestarted thinking of helping clients with paint purchases. He has never advertized the services of his repairshop because in the past there was no need to do so: satisfied clients recommended his shop to theirfriends and Blacha could barely accommodate everybody who appeared.

In the new market situation he does not see a place for himself. First, there is no black marketpremium on foreign exchange. Second, the good reputation of his shop is not enough to have new clientscoming: they probably found repair shops that gladly buy body parts and paints for them. Third, thenew, more competitive car market calls for a flexibility that he never exercised in his twenty years ofbusiness. Blacha is seriously thinking of giving up his repair shop and renting both the shop and the salessalon.

Mr. Wieslaw Kolasa

Mr. Wieslaw Kolasa is one of the owners of an unincorporated trading company, 'Hawek",established in 1989 in Lodz. He is an M.A. in economics and has had work experience both in the stateand private sectors.

Kolasa first went independent in 1987, when the old economic regulations were still in force,posing major barriers to private entrepreiieurship. His motives were a desire to operate his own businessand to test himself. The business involved the launching of clothing production and trade in industrialproducts, activities which till 1989 were characterized by excess demand and high profitability.

20

When the new Law on Economic Activity became effective at the beginning of 1989, he decidedto establish jointly with other persons an unincorporated company, of which he has been the chairmanof the board.

The company is engaged in trade, mainly wholesale trade in foodstuffs and to a much smallerextent in industrial products; production of clothing and medical articles; and to a small degree, shippingservices. The biggest part of the business is the export and import of foodstuffs.

In 1990, the firmn decided to embark upon the export of agricultural crops using its own resourcesand bank loans for working capital. It was entering an area traditionally dominated by powerful state-owned foreign trade organizations such as HORTEX, POLKOP and ROLIMPEX. This requiredovercoming major entry barriers and competitive pricing. According to Kolasa, the venture proved tobe a complete success, especially with respect to the export of onions, but involved a major organizingeffort and keen trading skills. The company organized a network of its own centers for purchasingvegetables, mainly onions and cabbages and cucumbers and fruit, concentrating on the Voivodship ofPlock. In addition, these centers dealt with the distribution of high quality seeds, an indispensablecondition for entering the relatively inaccessible markets of the EC; and with the control of crops. Thecompany plans to include the provision of modern plant protection agents in its offered services.

Although the source of supply for crop exports are based on stable relationships with farmers,long-term contracts have not been signed because of the difficulty of fixing forward prices withoutsuitable hedging instruments.

The crop exports led to the import of foodstuffs (mainly oils, wines, peanuts, citrus fruits), andto related wholesale trade. The expansion of export-import operations and the large number of shippingtransactions in turn led to forwarding services based on fully using trucks and earning higher revenues.

At present, export-import is the company's dominant activity, although there could be changesin the future. This is because of the imposition of turnover taxes on processed food imports and to time-consuming and costly customs procedures.1- The latter is considered by Mr. Kolasa to be the mostserious barrier to the firm's operations, all the more so because in 1993 the practice of placing tustomsagents within enterprises is to be stopped. This will result in a marked growth of costs because thecustoms clearance procedures will become much more cumbersome, reducing export profitability, whichis already low, by about 50 percent. In addition, for the company to continue its exports, whichconstitute about fifteen percent of its total revenues, it would have to make big investments in packagingequipment that involves long pay-back periods. With high costs of current operations and paymentdelays, the investments would require loans. But limited access to loans, especially to western creditlines, and high interest costs discourage the partners.

The company has already started diversifying into alternative activities. A special emphasis hasbeen placed on the production of medical kits, which started in 1990 when the firm decided to invest itsaccumulated capital in the production of diagnostic sets. The related investments were financed byinternal resources. At present, these sets account for about ten percent of total revenues with gooddemand prospects. But there is keen competition, especially from foreign finrns.

aQ/Food impons wem originally exeniptad from turnover, or sales, taxc. which wen mubequely inmoeed to put inqost and dosnwticproduction of foodstuffs on an equal footing; and tariffs were aisd.

21

Employment has grown from an initial level of 10 to 80 at present. According to Mr. Kolasa,the growth in and diversification of the firm's activities, its emphasis on expanding and strengtheningdistribution channels, and most importantly, the constant search for new products demanded by themarket augur well for the firm's future. But the strategic planning of operations is hampered by theinstability of the legal and economic infrastructure.

Mrs. Anna Pieniek-Tobiasz

Mrs. Anna Pieniek-Tobiasz, a chemical engineer, is a shareholder and a board member of InsopCompany Ltd. based in Radom, which is a medium-sized industrial town 100 km south of Warsaw. Formany years, she worked for state chemical plants. But health problems forced her to switch jobs and shestarted working in the Environment Protection Department of Radom Voivodship in 1985.

Two years later, her husband was appointed vice-president of the Voivodship. There wereinformal pressures on her to resign from her position. At the same time, her friends encouraged her toinvest money in a company being set up by a local horticultural cooperative along with others.

The Voivodship of Radom is a major fruit center, boasting excellent soil and well-developedproduction of vegetables and fruit. But the food processing industry is poorly developed, creating anatural opportunity. Mrs. Pieniek-Tobiasz and her partners decided to establish a company offeringdesigning, construction and auxiliary services for this industry. Initially, the company had 16shareholders including the cooperative and was therefore classified as part of the socialized sector.

Until 1990, the company was engaged in several activities: land surveying services, designingand construction, preservation of historical building and environment protection services. This range wasprompted by the skills and work experience of the shareholders, with practically all of them leaving anexisting job to join the company.

Successive amendments of the cooperative, commercial and financial laws after 1989 (includingtax relief for newly established entities) led some partners to set up their own businesses taking with themsome areas of the company's activities. Only construction and, to a small extent, environment protectionservices remained. The exit of several partners, including the horticultural cooperative, and the purchaseof their shares by those remaining, placed the company in the private sector.

Thus, since 1990 the company has been mainly providing construction services to housingcooperatives, because of related tax exemptions. These services include new investments and majorrepairs of existing housing and utilities. The company also tried to enter new areas of activity. For sometime, it was involved in producing and selling votive candles. This project had to be abandoned becauseof market saturation by new firms entering since 1990, pushing profitability to zero. Further, thecompany was unable to compete with small firms on cost and price.

According to Mrs. Pieniek-Tobiasz, in the next few years the company will concentrate onconstruction activity aimed as before at the local market, where it enjoys a strong position and has regularcustomers. It has been operating on this market for five years and is one of the few firms surviving thechallenge of the last two years. It owes its position to reputation and contacts established during its five

22

years of operation, although it seeks to promote its services in different ways. The advertising of thefirm is aimed at Radom area customers and at consolidating the existing business, which is also donethrough personal contacts.

Mrs. Pie.niek-Tobiasz claims that going beyond the Radom area will become necessary once thedemand from the local market is exhausted. The main reason for restricting operations to the local areais cost. Launching operations outside Radom would involve substantial set-up costs and necessitate majororganizational changes.

Insop is linked both to the state sector, its main customer, and to the private sector, its mainsupplier. According to Mrs. Pieniek-Tobiasz, the company buys its supplies from private firms as theyoffer reliable and prompt deliveries, charge competitive prices for products of similar quality, giveflexible payment terms and minimize paperwork.

The firm's strategy is to grow by improving the quality of its services and making relatedorganizational changes. These goals are sought to be reached by appropriate investment decisions andhiring highly qualified employees. The investments include machines and equipment for operationsperformed manually hitherto and raising the quality of construction services.

At present Insop employs over 100 persons, but the quality of labor (skills, reliability, discipline)is not fully satisfactory. There is high labor turnover, which seems to be the rule in the constructionsector in Poland, and which has not been changed even by slow employment generation in the Voivodshipof Radom. Only twenty percent of the employees have been working in the firm for a long time.Another 10 percent hired more recently have proved their usefulness, resulting in permanent contracts.Of the remaining employees, many were jobless persons sent by employment agencies and have beenhired temporarily. The quality of their work leaves much to be desired. Taking into account theconstruction cycle, the firm would like to employ about 60 construction workers on a permanent basissupplementing them with temporary workers during periods of more intensive activity.

Over a longer time horizon, the company might start directly investing in housing includingpurchase of sites, building of houses and sales of built houses. However, this would require majorexternal funding, which is not presently feasible in view of the limited financial resources of potentialbuyers and the shortage of long-term mortgages, as borne out by the experience of a rival company thatattempted such activity. The desire to minimize risk, financial considerations and tax concessions makesit advantageous for the firm to work with housing cooperatives, which receive preferential financial andtax treatment. This enables the firm to obtain payments immediately once a given construction cycle hasbeen completed without any risk.

Based on the experience gained by the firm, its market position and portfolio of orders, Mrs.Pieniek-Tobiasz is optimistic about the future of her firm, although she is aware of the persistentdownward trend in demand, of payment arrears affecting cash flow, and of the growing activity rate ofunregistered contractors.

23

Mr. Miroslaw Jablonski

Mr. Miroslaw Jablonski is a co-owner of Pneufilter company located at Zgierz near Lodz. Heis an engineer who had worked in the Lodz Institute of Textile Industry before starting his own business.

While at the institute, Jablonski participated in research on developing a technology formanufacturing an unwoven fabric (such as felt) to be used for certain materials and equipment in the fieldof work hygiene and safety. He decided to set up his own business because of the poor link between hiscontribution to innovations and his financial rewards. This came about when he was offered a job andpossible collaboration with a small private workshop producing work hygiene and safety articles andfiltering materials. The entity established by Jablonski in 1988 in co-operation with three otherworkshops was changed in 1991 as a result of a merger among these groups. Merging enabled thepooling of resources, leading to major investments and increased production capacities.

The entity thus created in 1991 produces work hygiene and safety equipment and filteringmaterials such as filters and face guards. On a smalier scale, the company produces substances forremoving pollutants from the surface of water reservoirs. The company operates throughout Poland, itsproduct line binding it closely to a definite group of customers, with its main outlets located in miningareas.

The firm's product line also means strong links with the state-owned sector both on the side ofpurchasing and selling. Its inputs are supplied by the state oil refinery in Plock. Imported inputs are apossibility, but increases in customs tariffs in 1991 eliminated small importers of raw materials and madeit necessary for small plants using relatively small quantities of raw materials to rely on domesticsuppliers. As a result, the Plock refinery regained its near-monopolistic position. The situation is furtheraggravated by the fact that the refinery operates through a circle of small local middlemen, who have easyaccess to products of the refinery and who re-sell these products at much higher prices. On the sellingside, the firm also relies on the state sector, as the mining industry, being the firm's main customer, doesnot lend itself easily to privatization.

Growing difficulty in securing inputs at a reasonable price led the firm to set up a separate unitdealing with the production of the unwoven fabric on a scale considerably exceeding the firm's ownneeds. This allows the firm in turn to play the role of a supplier to competitors that also produce filteringmaterials and face guards.

This key strategy of lowering the costs of the main raw material has allowed the firm to competesuccessfully with its biggest rival, which is a cooperative employing disabled persons. Legislation on therehabilitation of disabled persons requires that bigger companies, those employing more than 50 persons,must either directly create jobs for invalids or use the products and services of cooperatives employingdisabled persons. The poor financial standing of mines induces them to seek cheap supplies, giving thecooperative an advantage. Hence the challenge faced by Pneufilter is not so much to meet qualitystandards (the firm meets EC standards) but to match the cost-price conditions of a competitor thatreceives special privileges.

According to Jablonski, the strategic goals and objectives of a firm should match the skills andqualifications of its owner. From this point of view, he believes that the firm's position will not undergo

24

any changes within the next few years. The main goals will be to stabilize business, lower risk andmaintain the competitiveness of its product line. The possibility of launching a modified and improvedproduct also in the field of work hygiene and safety equipment with foreign collaboration should not beexcluded. This would protect the firm against any shrinking of the domestic market and also open upthe export market. The company is geared for export production organizationally and in terms of qualitystandards. The main barrier to exports is that the EC requires a quality certificate each time exports aremade, and this is costly.

Mr. Ludwik Molenda

Mr. Ludwik Molenda is a high skilled engineer with a technical university education. He is inhis forties and has been running his own business for eleven years. The ETP brought new circumstancesand opportunities into the Polish market. Mr. Molenda managed to shift from metal and wood workingto meat processing and baking. At present, he employs 150 people in two enterprises. He is a co-ownerand the chief executive officer in both of them. In 1992, combined sales reached 23 billion zloty (orabout US $1.6 million). The enterprises are located in a rural area, 100 km south of Warsaw. He hasalso embarked on other more ambitious and challenging projects, having convinced other partners,including an American company, to build and run a soft drinks plant jointly.

Molenda started his professional carrier in the early seventies in an R&D institute specializingin office work organization and the design and production of office equipment. At that time, this wasan ambitious and pioneering undertaking in Poland because there was no interest in work organizationamong state enterprise managers. Then, Molenda worked in the state-owned sector, in an industrialenterprise producing subassemblies for telephone exchanges. He rose to the position of CEO there.

Molenda quit this enterprise when martial law was introduced in December 1981 because thismeant subordination to a military governor and political considerations. Frustration from an inability toimplement his own ideas and run the company autonomously led him to resign. In the beginning of1982, he established his own small workshop, producing metal parts for big state-owned enterprises. Thefounding capital originated from his personal savings. Molenda borrowed from banks later, when hisworkshop started getting long-term contracts for deliveries.

Under the centrally planned system, a striking feature of the distorted industrial structure was thesize and degree of integration of state-owned enterprises. Most were large factories empioying thousandsof workers and producing all the necessary components for their final product. This structure createdserious problems as far as linkages with small business were concerned. Therefore, not many smallworkshops supplied state industry. Additional barriers were raised by administrative restrictions on co-operation with the private sector. Molenda managed to overcome all formal obstacles and his smallestablishment with 15 employees started generating sales.

In a relatively short time, the profits were enough not only to expand production, but also topurchase a plot of land in Garbatka Letnisko - a town of 5,500 inhabitants 25 km from Radom, avoivodship capital south of Warsaw. The plot located on the edge of the town was cheap, but lackedconnections for electricity and water, which required investments by Molenda. Molenda erected buildingsfor the purpose of expanding his carpentry and metal working venture.

25

In late 1989, when wood prices were liberalized and the prospects for wood and metal workingdeteriorated, Molenda together with several shareholders and the state-owned foreign trade companyVarimex, established a limited liability company, Wimopol. The main field of activity of Wimopol ismeat processing, the other activity is a bakery. The new space that was intended to be used for carpentryand metal working was adapted for these new activities. Then in 1991, Molenda together with theexisting and new shareholders of Wimopol established a limited liability company, Wimotech, to supportWimopol with trade and technical services. Wimopol's production is sold mainly in the local market ofRadom voivodship. Most payments are in cash to avoid payment arrears.

Mr. Molenda is the chairman of the Board and CEO in both companies. At present, he wantsto replace both limited liability companies by a joint-stock company, so that the new equity contributedby old and new shareholders can be used to retire bank loans. According to him, at the present interestrate (about 50 percent per annum) debt repayment will jeopardize the companies' development.Production is run on modern and efficient equipment imported from the West and is environmentallysound. Loans taken out to equip the companies are the source of the present debt. The shareholders'intention is to create a dynamic enterprise with a rich product mix that will generate profits in the future.For this reason not a single zloty has been paid as dividend and all profits have been re-invested in thebusiness. On this, there is unanimity and full acceptance from all shareholders.

At the end of 1992, the unemployment rate in Radom voivodship was 14 percent, slightly higherthan the national average (13.5 percent). Unfortunate as it is for the region, it is advantageous for thecompanies. On one hand, there is enough skilled labor mainly coming from state enterprises in trouble,on the other hand, offered wages are close to the relatively low regional average. Molenda hires newworkers from the local labor office and unemployed list.

Molenda keeps looking for new opportunities and is engaged in various negotiations. Recently,he established contact with a Dutch entrepreneur and signed a contract for processing animal intestinesfor sausages. A significant new undertaking is a contract on constructing a soft drinks plant. Theinvestment is being made jointly by both companies managed by Molenda, an American company, ColdStorage Building International Inc., the Radom Commodity Exchange and Varimex. Varimex willdistribute the future output and has secured a USS 4.5 million credit for the project. The equity in theproject is US$ 0.5 million. The plant is to be fully automatic with two workers on each shift and dailyproduction of 96,000 bottles. Most of the output is to be sold to the Central and East European countriesthrough the distribution channels of Varimex. Another shareholder, the Radom Commnodity Exchange,will distribute soft drinks domestically.

The plant is expected to be ready in six months. In the meanwhile, Molenda has to face strongcompetition from other private firms processing meat. He is therefore putting special emphasis on themarketing of his products. A serious obstacle is the lack of automatic telephone communication withdomestic and foreign partners. However, this problem is expected to be solved soon, when automatictelephone connections with the external world will be established.

26

Mr. Krzysztof Hirs.feld

Mr. Krzysztof Hirszfeld, 46, is a mechanic who worked in a state-owned enterprise until 1989.In 1990, Hirszfeld and his friend Pajdowski started a venture for delivering hamburgers and relatedcooking equipment to small street bars and kiosks. But they soon quit this and went into the second-handcar trade. In addition, they publish a nationwide weekly magazine on automobile issues. In 1991, theirfirm reached a sales level of two billion zloty (or about US$ 140,000) with a profit margin of about 30percent.

When Hirszfeld and Pajdowski went into the hamburger business in 1990, the founding capitalwas niodest: two cars. One was a station wagon, used for deliveries. This went on for a year, but wasmuch too time-consuming compared to the financial reward. So in 1991 they decided to change fields.As they had always liked cars and knew a lot about them, they decided to sell used cars on a commissionbasis.

During the central planning era in Poland, the market for cars reflected all the distortions of thesystem, suffering from enormous shortages. Nearly half of all domestically produced cars and a big partof the imported cars were distributed through a system of personal coupons at administrative prices muchbelow the equilibrium price. Both domestic and duty-free imported cars were available in dollar shops,but dollars had to be purchased at the black market exchange rate. Another possibility was costlyindividual import with payment of customs duty. A peculiar car market developed. The privilegedrecipients of car coupons either re-sold new cars pocketing the free market premium, or sold used carsat prices higher than their original purchase price. For typical citizens, who had no access to coupons,the only possibility was to go to an open air car market - typically located on a field on the outskirts oftown - and buy a car without benefit of technical inspection at an agreed price close to those listed innewspaper advertisements. As a result, the car market was inactive before 1990. In contrast, during thefirst two years of the ETP, some 250,000 new and used cars, or 25 percent of all cars existing in 1989,were newly registered in Poland.

Hirszfeld and Pajdowski realized that the market for second-hand cars would grow and so theyopened up one of the first commission sale shops for used cars in Warsaw. They named their firmA'propos. In order to improve their service they established business ties with Mr. Miroslaw Czub, anelectronics engineer, who owns MZ Trading, a company active in technical consulting, finding domesticbusiness partners for foreign companies and in importing cars.

Czub's experience in the car trade turned out to be crucial for the development of A'propos.A'propos not only sells cars on a commission basis, but also accepts orders for imported cars that MZTrading implements. Both companies also engage in leasing passenger cars, vans and lorries, acting asmiddlemen between leasing firms and their growing permanent clientele.

A'propos rents a plot of land (3,000 sq. meters) on one-year renewable contracts from the sportsclub Hutnik. The sports club is owned by the steel mill Huta Warszawa, which was recently bought bythe Italian group, Lucchini. The easy financing of the sports club by the enterprise was over and it hadto look for new sources of income. The land itself is perfectly located on the highway leading to Gdanskon the edge of Warsaw, and is sufficient for parking one hundred cars.

27

The first year for A'propos was difficult but challenging. Lack of experience was a drawback.More serious was the lack of organizational and legal regulations on sales of used cars. There weresituations when stolen cars were traded, resulting in legal problems. A'propos and MZ Trading aim atimproving sales. All cars on commission sales are carefully checked regarding origin. The firmestablished contact with a state company, Center for Information Organization and Consulting (CIOC),that runs a data base of stolen cars. The company operates a nationwide data base on specially markedvehicles and cooperates with 450 places where vehicles are marked.

Co-operation with CIOC resulted in the creation of a new partnership called A'propos Bis,established by A'propos, MZ Trading and CIOC. A'propos Bis edits and publishes a nationwide weeklymagazine Auto-Moto-Komis with a circulation of 25,000. The magazine is distributed free of chargethrough gasoline stations and car markets using the CIOC channels. Money comes from sellingadvertising space to auto dealers, auto spare parts shops etc. The magazine contains articles formotorists, offers of used cars by commission shops and lists average prices according to car model andage. Prices are collected from CIOC's collaborators and by employees of A'propos and MZ Trading andcover three forms of market: commission sale, open air markets and newspaper advertisements.According to the editors, thanks to reliable sources of information and a computerized data base, theseprices can develop into a nationwide reference for pricing used cars.

Another activity that the partners are trying to introduce is an arrangement whereby a buyer ofa new car leaves his old car and the sales price is accordingly reduced. This system of trade-ins iscompletely unknown in Poland. A'propos is negotiating with dealers of big brand companies to introducesuch a system and to sell used cars for them.

Pajdowski, Krzysztof Hirszfeld and Andrzej Hirszfeld (Krzysztof's younger brother) have foundedthe Warsaw Motor Association for commission shops in Warsaw. The association aims at designing andintroducing uniform sales procedures through negotiations with the Finance Ministry, Customs Office,and the Police, for example.

Mr. Jaroslaw Gawryluk

Mr Jaroslaw Gawryluk, 32, is one of the main shareholders and chief executive officer in theElkor Ship Ltd. This company employs sixty workers and provides services for shipyards in Poland suchas painting, sand blasting and anti-corrosion protection. Elkor Ship was established in 1990 by sevenpeople, who had already been together in other businesses since 1985. In 1992, the sales of the companywere slightly over US$ 1 million.

Mr. Gawryluk went into business in 1985, when a group of persons composed mainly ofgraduates of the Gdansk Polytechnic established the Elkor Cooperative. Gawryluk was the only one withan economics education among the founders. The intention was to save money by executing orders forrepair and anticorrosion protection services, and next use it for an investment project in electronic

28

equipment manufacturing. The cooperative was chosen as the organizational form because joint stockcompanies had not yet been reinstalled in Polish economic practice.'

This idea of accumulating capital proved to be successful and the Elkor Cooperative expandedin terms of sales and the number of employees. The demand for Elkor's services was stable, originatingfrom state-owned enterprises that did not have any financial difficulties, so they paid regularly.

In 1990, Mr. Gawryluk and his colleagues concluded that further growth would be impossiblewithout stronger management, on which the cooperative form of business imposed some constraints. Forexample, decisions on whether to reinvest profits or declare dividends were complicated by the need toconvince a majority of the members of the cooperative. The most creative of the persons involved inbuilding up Elkor Cooperative set up a limited liability company, Elkor. Keeping the by-now well-knownname under which they had been working for several years, the new company Elkor came to hold astrong position on the market, offering a similar range of services and products as the Elkor Cooperative.Employees moved gradually to the new company, Elkor Ltd, which was established by seventeen people.

At that time, Elkor Ltd was employing about 500 people in five main branches: electronictelephone exchange manufacturing, digital telephone equipment manufacturing, metal productsmanufacturing, ship maintenance services and foreign trade in consumer goods. Next, in order tostrengthen management, the different activities were spun off into separate limited liability companies.In this way, the Elkor Ship Ltd. was established, and shares were bought by some of the founders ofElkor Ltd. Gawryluk, who had been involved from the beginning in the ship repair business, becameone of the main shareholders in Elkor Ship Ltd, and also held shares in the other Elkor companies, likeElkor Digital Ltd. Therefore the structure of the family of Elkor companies resembles a holding, butshares are held by individuals rather than a parent company. If the partners consider it necessary forlong-run viability, then one Elkor company subsidizes another.

Elkor Ship Ltd inherited a good reputation, well-known name and contacts in the Polishshipyards. The Elkor Ship Ltd. did not have its own equipment, and used machines owned by shipyards.Perceiving the main weakness of the both state-owned and private competitors as lack of high qualityequipment, Gawryluk decided to purchase such equipment gradually, choosing only equipment that wouldallow the company to compete successfully with other repair shipyards in the Baltic Basin. He boughtair-pressure machines from Atlas-Copco and Ingersoll. Because the price of each machine was as highas US$ 100,000, Mr. Gawryluk managed to arrange leasing contracts with these firms. This wasimportant, because leasing payments can be fully expensed in the Polish accounting system.

As a result of the deterioration of machinery in state-owned enterprises and inferior equipmentowned by other competitors, Elkor Ship Ltd. gained a strong position on the market. Gawryluk hasorders from all the main Polish shipyards in Gdansk, Gdynia and Szczecin.

Elkor Ship obtains orders only from state shipyards and cannot get contracts directly from ownersof ships. This creates liquidity problems for the company when state-owned enterprises delay theirpayments, a post-ETP phenomenon. But established contacts with the shipyards and the strong bargaining

Il/Joint sock conpanies axiaed in pro-war Poland and were regiaured accordina to the 1934 Commercial Code. Th. cne code wa apliewhile founding the firs private joint mock conmany in post-war Poland in 19U6.

29

power of Elkor Ship have reduced the arrears problem. Quite simply, shipyards need Elkor Ship toprovide services required by shipowners.

The size of the orders depends on the number of ships being repaired in the Polish shipyards.Gawryluk believes that having access to cheap labor in Poland and sufficient equipment, he will becompetitive with other Baltic shipyards. He has studied the prices for anti-corrosion protection servicesin the main shipyards in neighboring countries, in Kiel and Hamburg (Germany) and in Copenhagen(Denmark).

The main constraint to the growth of Elkor Ship is access to and the cost of financing. Gawrylukwants to expand his business abroad and is looking for opportunities in the EC countries. He has offeredhis services to oil rig companies.

Another problem is in recruiting and retaining properly qualified and responsible workers. Mosthave come from the state sector with poor work habits. Even intermediate level personnel sometimescause problems, but a flat organization structure is maintained in order to reduce labor costs.

Mr. Lech Michalczewski

In the shortage economy that preceded the ETP, advertising was unnecessary. Firms could sellwhatever they produced and paid no attention to quality. But the ETP has re-instated the consumer asking and firms can no longer afford to ignore advertising. This story is an opportunity about billboards,which are lighting up the Polish cityscape.

Mr. Lech Michalczewski, 42, owns a manufacturing company producing plastic items and is alsothe main shareholder and chief executive officer of a Polish-Swedish advertising company. He bas hadlong experience in private business. But the turning point in Mr. Michalczewski's professional life wasJune 1989, when he decided to change his line and enter advertising. He regarded Poland as anadvertisement 'desert' and felt that big demand was just around the corner, anticipating the developmentof the private sector and economic reforms. Today, Mr. Michalczewski employs 38 workers in threebusinesses, namely: plastics production; production of luminous advertising boards; and selling andservicing rotating billboards.

Michalczewski began his professional career in 1973 as a truck driver. Till 1980, the firmoffered rmoving services within the country. Then he worked two years in Germany, where he savedmoney. In 1983, Mr. Michalczewski established a carpentry workshop with his savings. He built theworkshop twenty km from Sopot, where he used to live, hiring six local workers and producing smallwooden items for furniture factories.

In 1989, Michalczewski bought second-hand machines for plexi-production from a Swedishcompany, Acryl Gruppen, investing about US$ 150,000 exclusively from his savings.'2 He was ableto buy these machines thanks to a friend in Acryl Gruppen.

f2/Phxi is a kind of hard phlaic, which requires qcial methods of tmrauit and rachin.

30

He started a new firm called Plexiform. Its main product is small plastic items for offices.Michalczewski closed his carpentry workshop, which turned out to be not very promising after woodprices were liberalized, and retrained the workers from wood to plexi production. The plexi items werenew on the Polish market at the time. Michalczewski employs seven workers and sells 90 percent ofproduction to Acryl Gruppen, the Swedish firm which had supplied the plexi machines. The remainderis sold on the domestic market. The relationship with Acryl Gruppen has engendered substantial stabilityin income for Plexiform.

In parallel since 1990, Plexiform has designed, built and installed big, luminous, streetadvertisements. The firm offers complete service including obtaining all necessary permissions from localauthorities. Plexiform operates mostly in northern Poland and in Warsaw and offers two types of service.If a firm needs an advertisement on its own premises, the advertising board is usually sold. But a firmcan also rent space at a price depending upon the length of time and location, with Plexiform obtainingthe necessary space from municipal authorities or building owners. The luminous boards quickly madea hit and the firm recorded a thousand orders before the end of 1991. Most of these came from privatefirms.

Next, in November 1991, Michalczewski established a joint-venture called Media Pryzma Ltdwith his friend from Acryl Gruppen, who had earlier facilitated the purchase of the plexi machinery.Michalczewski owns fifty percent of the shares and is the CEO. The idea was to start marketing a newSwedish product on the Polish market, a rotating street advertisement board that can depict three differentadvertisements. A single rotating board can cost up to DM 20,000 depending on its size.

Michalczewski started importing rotating boards in 1991. First, he installed second-hand "3-face'boards. In 1992, he signed an exclusive agreement with the Swedish producer Ariab and obtained asignificant discount from it. Demand for rotating boards is high. The customers are mainly big, privatefirms. The same approach is used as with the luminous advertisements, the '3-face' boards either beingsold or rented. They are available across the country, but most have been installed in big cities, likeWarsaw, Gdansk, Poznan and Olsztyn.

Presently, Media Pryzma Ltd, is tightly linked with Plexiform in order to minimize overheads.The firm is organized along product lines: small plastic items, luminous advertisements, and rotating '3-face' boards. The administrative sections, such as accounting, are shared.

The managers of the three sections are independent; but the important decisions are made byMichalczewski himself, who also participates in key negotiations such as in renting new space from thecity or from private owners of buildings. Michalczewski believes in staff training. The manager ofplastics production spent several weeks in Acryl Gruppen learning how to improve productionorganization and presented a report with his recommendations to Michalczewski upon his return.

Mr. Tomasz Studznski

Tomasz Studzinski, a 34-year old engineer, has run his own company manufacturing machinesand spare parts since 1984 in a town called Sopot near Gdansk. Studzinski started out making knittingmachines for the domestic market. In 1990, his business underwent a radical change, moving out of

31

knitting machines and into customized steel machine parts sold mostly abroad. He is now a subcontractorfor big industrial companies and his firm produces customized steel parts and machines. His businessis mainly with shipyards and specializes in marine engine parts. About 70 percent of production isexported to Germany and Finland. Studzinski employs 36 persons.

Studzinski's company was established in 1955 by his father.1' For almost 30 years, knitting-machines were manufactured and repaired there. Domestic demand was stable and the factory wasequipped to make a range of products. Studzinski joined the company after finishing his studies in 1982and took the company over from his father two years later.

During the planned economy era, there were no major changes in the company's productionprofile or markets, with the focus on knitting machines and related spare parts. Capital accumulation wasslow but stable. In 1989 significant changes took place in the business enviromnent, leading to newstrategic decisions.

Restrictions on engaging in foreign trade were removed, the state's monopoly in this area beingended. This opening was iniially most often used by importers of consumer goods, which were broughtinto the country in large quantities. Studzinski saw a different opportunity for himself and his company.He reckoned that he could start exporting customized steel machine parts to Western clients. Thecurrency (Polish zloty) was depreciating rapidly in 1989, increasing competitiveness.

The only constraint was machinery, which would have to be new to ensure export quality andprovide a competitive edge. Following the deregulation of trade in 1989, Studzinski bought machinesfor metal processing from the former Czechoslovakia under CMEA trade. Thanks to the relatively stableexchange rate within Comecon (based on the administratively set zloty/transferable ruble exchange rate),the machines cost him a few times less in dollar terms than if he were buying them today. One machinecost USS 3,000 to 4,000. The purchases were financed with a combination of Studzinski's own fundsand bank loans. When interest rates rose in 1990, Studzinski liquidated his loans with the proceeds oforders secured from Germany.

The new machines were only the first element of the company's strategy. The second was to gainaccess to new markets. Studzinski made his attempt in Germany. He exploited numerous personalcontacts and networked through the large Polish community originating from the Gdansk region nowliving in Germany. This proved to be more effective than utilizing the Chambers of Commerce andIndustry in Poland or the trade counsellors attached to embassies, and resulted in business contracts fortwo years. Studzinski continues to have an agent in Berlin who receives a commission on signedcontracts. Studzinski's factory makes customized steel machine parts for a Berlin customer. It took timeto establish good business relations and only then was the Berlin customer willing to place orders formore technically advanced and expensive parts. The company also produces parts for marine enginesfor a shipyard in Finland, and orders for the remaining 30 percent of production come from Polish firms.Studzinski from time to time subcontracts less specialized jobs to other private firms in the neighborhood.

II/As inendoced in die ReWew of Recent Pf vase Secor Devlopmenu earlier, a small amount of private busineus exibed in Poland even beforethe 1950.; but it wea conitined in many ways.

32

Studzinski feels that under present conditions, investments are not feasible and too risky. Tocreate a new job in metal processing involves the purchase of a machine worth between 200 million and400 million Polish zloty (US$ 12,500 to 25,000) for which long term finance is simply not available.

But he also feels the need for new investments. Machines which are lying idle in state-ownedenterprises have high book values and buyers cannot be found.L' At the same time, there are no taxincentives for investment. If the opportunity arose, Studzinski would take over a medium-sized state-owned enterprise in metal processing. So far, the methods of valuation used and the slow speed ofprivatization have prevented this. A threat to the company lies in gradually decreasing export profitmargins due to the continuous real appreciation of the Polish zloty in recent months (under the crawlingpeg instituted in October 1991, the zloty depreciates at about 1.8 percent per month against a basket ofcurrencies, but inflation is often in excess of this).

Mr. Andrzej Kubasiewicz

Andrzej Kubasiewicz, aged 57 holds a Ph.D. in engineering science, and is fluent in English,French and Russian. He is the founder and president of International Glass Poland (IGP), a successfullimited liability company active in manufacturing and trading construction glass. For most of hisprofessional career, Mr. Kubasiewicz worked for Budimex, a huge state-owned foreign trade company.Prior to the ETP, Budimex had a monopoly on trading building materials. Mr. Kubasiewicz left Budimexas a vice-president in 1990.

In August 1990, IGP was formed as a limited liability company. The enterprise was family-owned, by Kubasiewicz's brother, his son, his daughter and himself. His daughter looks after theadvertising section. The bulk of the founding capital came from his brother, who lives abroad. Recently,IGP went into partnership with Pilkington, a British glass company with annual sales surpassing US$5billion. The Kubasiewicz family owns 55 percent of the shares and Pilkington 45 percent in the jointventure.

IGP employs 135 people and engages in the wholesale trade of glass, mainly construction glass,both imported and produced in its five factories in Poland. It specializes in high quality glass that wasearlier barely available and virtually unknown in the traditional Polish construction industry. It appearedtogether with the inflow of western capital and technologies when the ETP began.

Western construction companies have been involved in Poland since the early 1970s, but theirpresence now is much greater than before. Poland needs modern office and apartment buildings, hotels,exhibition halls etc. IGP is an example of a Polish company that is joining the fray, competing withforeign companies. The glass sold by IGP satisfies West European requirements thanks to importedtechnology, and received the Rosenheim certificate signifying the highest quality standards.

/Statle enterprise asset book values have been revalued aeveral times during te ELTP beause of inflation. TWe has inmom cam readaccounting values far in excess of market prices.

33

Sixty percent of IGP's sales comes from imports and forty percent from domestic production.The share of the latter is growing and is likely to exceed that of imports in the near future. IGP factoiiesalso produce tools for the glass industry, for purchase by small glass workshops.

According to Kubasiewicz, domestic competition (with the exception of small workshops) hasbeen practically eliminated from important markets in Poland by IGP. New office buildings and hotelsin Warsaw and other big cities built by both Polish and foreign companies use IGP glass, which is locallyavailable and competitive with imports. All major new car salons in Warsaw and other downtown shopsare equipped with glass by IGP.

Kubasiewicz prefers to do business with private companies rather than with state enterprises. Hecannot, however, avoid the latter which act as suppliers to IGP. Some state enterprise clients have bigpayment arrears towards IGP. Kubasiewicz asserts that managers of state enterprises retain the mentalityand behavior prevalent during the central planning era, and they do not treat private companies as seriousbusiness partners. The same attitude is encountered, according to Kubasiewicz, in many state banks inPoland. Mr. Kubasiewicz is pleased that his contacts with the state bureaucracy are limited.

34

References

Grabowski, Maciej, and Przemyslaw Kulawczuk. 1992. Small and Medium-Size Enterprises in Poland:Analysis and Policy Recommendations. Economic Transformation Paper 25, The Gdansk Institute forMarket Econoinics, Poland.

Gray, Cheryl, R. Hanson, M. Heller, P. Ianachkov, D. Ostas, and Y. Djehane. 1991. 'The LegalFramework for Private Sector Development in a Transitional Economy: The Case of Poland." PREWorking Paper 800, Country Economics Department, Socialist Economies Reform Unit, The WorldBank.

Johnson, Simon. 1992. 'Private Business in Eastern Europe." Mimeo, The Fuqua School of Business,Duke University, Durham, N.C.

Pinto, Brian, Fabrizio Coricelli, and Luis de la Calle. 1990. "Poland: Macroeconomic Policy in theSecond Phase of the Reform Program." Mimeo, Requests for copies of this paper should be addressedto Brian Pinto, IFC.

Webster, Leila. 1992. "Private Sector Manufacturing in Poland: A Survey of Firms". Industry SeriesPaper 66, Industry and Energy Department, The World Bank.

Wellisz, Stanislaw, Henryk Kierzkowski, and Marek Okolski. 1991. Macroeconomic Policies in Polandin 1990 and 1991. PPRG Discussion Paper 1, Warsaw University.

35

Distributors of World Bank PublicationsARCENTINA The MiddleEntOsrv ICENYA SOUrHAFICA, BOTSWANACarlosHiicb,SRL 41, ShkU Sts e Atrks COk Sal(E.A)Ld FLad. ru1 ailuCalie Gubt C Cairo Quaxn Hour Mfangano Stxt Oxfordl Univxdty PirFlorda 165, 4th loo.Olc. 453/446 P.O. DoD 45245 Southern AMIa1333 u um Ale FINLAND Nairobi P.O. box 1141

Akiateminen iGrjakr uppe Cape Town D0D0AUSTRALIA, PAPUA NEK CUINKA. P.O. Box 123 KOREA, REPURLIC OFoiL SOLOMON ISLANDS, SF40101 Helsinki 10 Pan Korea Book Corpornatn rern eVANUATU. AND WESTEIN SAMOA P.O. Dox 101, Kwangwhamun Inteiational Subwription SrviacDA Sock. & Jourmnal FPANCE Seoul P.O Box 4109544 W hitm Road World Bank Publicabons CiaighaMAixi. 3132 66 avmuedl nx MALAYSIA Johaaunnsr2024Vcteria 75116 Paris Univnesty od Malays Cooprautie

Bookh0p, LimniUtd SPAINAUSTIUA GERMANY P.O. Box 1127. 1alan Pantai DIm Mundi-IP'en LUbroae SACuld nd Co UNO-Verlag 59700 Kuala Lumpur Cxsl lo37Crobse31 Poppaldarfr Ala 3SS 28001 MadridA-lOl Wihn D-S3D0 Bonn I MEXICO

INRYTEC LlbntI Inbrnamal AED(ZDANCLADESH HONG kONG, MACAO Apartado Potbl 224160 Coned] de CAnt, 391Mim lndurbn Development Asia 20DLtM. 14080 Tlalprn, Mmsico D.F. 08009 DSlon.

AdtanceSociety (MIDAS) 4&4 Wyndham SbetHouse 5, Road 16 Wlauing Cenre NETHERLANDS SRI LANKA AND THE MALDIVESDhanxceodl R/Aim 2nd Floor De UndboomA/lnOr-Pubikees Lake Hount BokhopDiaaA 1209 Cntrxl Hong Kong P.O. Box 202 P.O. Box 244

7480 AE H xmkn1 10 0, Slr ChiOtumplam A._Meec hf6 INDIA Gardiner Mawatha

Pine View, lot Flo1r Allied PubIhie Private Ltd. NEWZEALAND Colombo 2IW Apmbed Cowmed l Anm 751 Mount Road ERiCO NZ Ltd.OCtl_gg 4100 Madte -600 002 Privxte Mail D14 99914 SWEDEN

New Market For siegk MWlu76 KDA Avenue IlWA I Auckland Fritgm FackboakforetgetKulna 10 153MN. Hrdles Marg Rgmriwngn 12. Dam 6356

Ballard Estete NIGERIA S-llB27 StkhoLmbELCIUM Bornbxy -400 038 Univrity Pr_m LWititdlIen De LaRmy The Crawm DuIding Jericho Foer sulwi eimld,:Ac. du RId 202 13/14 Aa All Road Privt Ma ilg 5095 Weeuseimnrun-WlillIme AD1060 Dmed. Now Del -110 002 Ibadan P.O BDo 1305

S-171 2SSlnaCAMADA 17 Chitmsnjn Avenue NORWAYLA Duwur CxIcuttx -70 072 Narv_mnInharmadtn Cntew SWITZERLANDCP. 5,1501, ruepe Aeph Book Departent Fey S.e,* eimfBuachb,rviI Qub w layden Hoxl Bulding P.O DX 61U5 Elbtwtd Lbline Pmyot

141150 Sts Main Road. Gandhinepr N0200 Oslo 6 Ca poamde 3211enploo -560 009 CH 1002 Lausnne

CHILE PAKISTANInvutec ICT SA. 3-1129 Kadhiguda Mine Eck AL ncy For uscaohmmdos:AnwisVaspeNdo talS116 Crew Rood 65, Shrhnhh4eQuad-Azam L8Miub PsyotSantego Hydprbxd -50D m P.O. BDx No 729 Sery de Abonenwn

Laxl 5400 Cam pamtl 3312CHINA Prarikaa Flbt, 2nd Fkoor CH 410 LauxnmChinx Financil & Economic Now raxkom Bxug Nsvmngpur PEU

Publhirm Haun Ahmadabad -380 009 Editaila Duirrallo SA TANZANIA8, DO FeSI DongJie Aparfado3824 Odoed Univemty Piq

ein Paala House Liml I P.O. Do 529916-A A hDk Mwg Mxakaba Roed

COLOMUIA Lucknow - 226 W1 PHIUPU INES Dur a SalnmInou,lra Ltda. Internional Book CxnteAparde Armo 34270 Cmntr Dszr Road Suix 1703. tyland 10 THAILANDBD D.E 60 eafj Naar Condominium Tower 1 Cuitrl Depamnt Store

Nugpur440010 Ayala Avenue. H.V. dela 306 51Uom RoadCOTE DIVOIRE Cas Eateuwon BangkokCent, d'Edition at de Diffusion INDONESIA Makai. Mid Manila

Atrian. (CEDA Pt. Indira Limited TRINIDAD & TOBAGO. ANTICUA04 D.P. 541 elain D1orbudur20 POLAND BARBUDA, BARBADOS,Abidjmn 04 Pblmu P.O. BDoX 181 lntuaonal Publiuing Srvice DOMINICA, CRENADA, CUYANA,

akart 10I20 U.l Pteks a31/37 JAMAICA. MONTSEIUAT, STCYPRUS 00-677 Warawa KIlTS & NEV1S, ST. LUCIA,Center of Applied R.wch IRELAND ST. VINCENT t GRENADINESCyprus Colleg CGovenmnt Suppli- Ageny Fet naarctuee rdii: Sysematn Studi.Unit6, Diogus Set, Engomi 4-S Hamurt Road IPS journala i9 Watts StreP.O. Box 2006 Dublin 2 Ul. Okr=a 3 CureN tIcm 02-916 Wartawa Trhiudd, Wit tndiu

ISRAELDENMARK Yoanot Uteratur Ltd. PORTUCAL TURKEYSenlfundsULttentur P.O. Boex S6055 Lin Portupgl InlolR csmowq AIM II Tel Aviv l1560 Rua Do Cao 70D74 Narulbk* SoL No. 15DK-197D Fedewik*mg C 1200 LUsbon Caploslu

ITALY IShanDOMINICAN REPUBUC Lke. Coniniuminas Sansonr SPA SAUDI ARABIA, QATAR6ditor Taler, C. por A. Vi Ducs Di Calebril 1/1 larir Bok Stan UNTTED KINGDOMRluracdn e Isabel Is Cat6lica 309 CAmlil Pastal S52 P.O. Box 3196 Microinlo L.ApartedodeCrram 2190Z-1 SI25Firvnm Riyadci14il1 P.O. Box3Salnt Domingo AlJ, Hanphiu GCU34 2PC

JAPAN SINCAPORL TAIWAN, EnglnEcYPT. ARA REPUBLICOF E"en Book se5vic MYANMAJ.BRUNEIAl Ahm Hano 3-Chome. Bunkyo.ku 113 lnforma on Pubiatabn VENEZUELAAl Galm Se Tokyo Privnt. Ltd. Librria del EAeCairo Golden Wheel Du laing Apdo. 6OM7

41. KaUng Pudding, 004-C3 Carnea 1060-ASinppofe 133.

IFCINTERNATIONALFINANCECORPORATION

Headquarter1818 H Street, N.W.Washington, D.C. 20433, U.SA.

Telephone: (202) 477-1234Telex: RCA 248423

TRT 197688Cable Address: CORINTFTNFacsimile: (202)477-6391

Loudon4 MillbankLondon SWIP 3JA

Telephone: (71) 222-7711Telex: 919462Cable Address: CORThTFINFacsimile: (71) 976-8323

Paris66, avenue d'IEna75116 Paris, France

Telephone: (1) 40.69.30-00Telex: 640651Cable Address: CORINTFINFacsimile: (1) 47.20.77.71

Kokusai Building, Room 9131-1 Maninouchi 3-chorneChiyoda-kuTokyo 100, Japan

Telephone: (3) 3201-2310Telex: 26838Cable Address: INTBAFRADFacsimile: (3) 3211-2216

12519 DEV 1 000-8213-2519.1COPIN WITH CAPITAL: NEW

4000Coo0088,44SE .959

ISBN 0-8213-2519-1