Western Firms Get a Foot in the Door in Eastern Europe

Article excerpt

DESPITE the recession in the United States and a global economic slowdown, new Western investment continues to edge into Eastern Europe. According to experts such as Steven Nagourney, of Shearson Lehman Brothers, consultants at Washington-based PlanEcon Inc., and William Putsis, a Yale business school professor, foreign investment will increase this year in most of these countries.

Scores of publicly held US companies such as Ford, General Motors, Coca-Cola, Procter & Gamble, and Colgate-Palmolive have established manufacturing or marketing beachheads in Eastern Europe. And that, says Dr. Putsis, a frequent traveler to the region, is good not only for the nations of the former East bloc, but also for US corporations and their shareholders.

Most of the Western overall direct investment to the region has gone to Poland, Czechoslovakia, and Hungary (an estimated $3.4 billion during the past two years in all three countries). Many US companies remain skittish about investing in other Eastern European economies.

Still, Putsis says that it may make far more sense for US firms to establish new manufacturing or marketing ties with Eastern Europe - including Rumania - than with Western Europe. Many former state enterprises are now being privatized in Eastern Europe, i.e. turned into market enterprises. Thus, says Putsis, US firms can literally get in on the ground floor in terms of establishing regional market share in Eastern Europe. The same companies would face expensive competition to garner similar new shares of the Western European market.

New investment should increase for Eastern Europe this year, says Keith Crane, research director with PlanEcon Inc. Dr. Crane estimates that new investment in Hungary will be increasing above the $1.5 billion invested in 1991; in Czechoslovakia, it will reach $1 billion, up from $700 million last year; in Poland, $750 million, up from $450 million last year; in Bulgaria, $50 million, up from $20 million in '91. …