Newspaper article The Christian Science Monitor

Schwinn's Bike Venture a Model for East Bloc

Newspaper article The Christian Science Monitor

Schwinn's Bike Venture a Model for East Bloc

Article excerpt

CSEPEL Island, an industrial complex on the Danube River south of Budapest, seems an unlikely place for Chicago-based Schwinn Bicycle to forge a capitalist success story.

Nicknamed "Red Csepel," the island is the home of the Hungarian government's ailing Csepel Works, whose giant automotive unit has slipped into insolvency. By contrast, the nearby bicycle plant, which Schwinn bought operating control of from the Hungarian government in January 1989, is posting its second straight year of profits.

Now making 200,000 bikes annually, mainly for the domestic market, Schwinn Csepel will increase output to 300,000 next year and to 500,000 units in 1995, largely for export to Western Europe, the United States, and Asia. By then, the plant will produce nearly a quarter of the 2.2 million bikes that Schwinn sells annually.

That performance is "pretty darned good," says E. R. Schwinn Jr., president of the family-owned company, in a telephone interview. "We are making good-quality bikes."

Schwinn Csepel is one of 2,500 joint ventures that have set up shop in Hungary in the past three years. These ventures are crucial to Hungary's effort to move to a market economy. More important than the foreign capital they provide is the "new technology and Western management know-how," says Theodore Boone, head of the Budapest office of US law firm Baker & McKenzie. Long-term approach

The Schwinn deal shows that foreign ventures can succeed in the East bloc if investors choose the right market sector and are willing to invest for the long term. Despite Schwinn Csepel's progress, "it will take four to six years to get our profits to Schwinn's US levels," says Steven Bina, director of the company's European operations. The venture's partners, which include a state-owned Hungarian company, agreed to invest 85 percent of Schwinn Csepel's profits back into the plant for the next five years.

Schwinn targeted Hungary in 1987 as the optimal site for expanding its international production. The reasons: The nation offered a skilled work force, low wage rates, one of the most stable governments in the East bloc, and easy access to the growing Western European bike market. …

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