"Caution" Is Watchword in Poland

By Lambert, Robert T. | Business Credit, September 1991 | Go to article overview

"Caution" Is Watchword in Poland


Lambert, Robert T., Business Credit


Come, invest in Poland." These were the words of Polish president, Lech Walesa, as he issued an open invitation to American business leaders in speeches to the U.S. Chamber of Commerce and National Press Club in March, 1991. Walesa stipulated that all foreign partners were welcome and compared the opportunity to that of the American West in the 19th century. In contrast with other Eastern Bloc leaders who fear American industrialization and colonization, Walesa envisions a Poland where every second company is American owned.

Alluring Invitation Extended

The Polish government has opened up the country to foreign investment with changes in legislation and banking practices which make it easier for foreign investors to operate in Poland and repatriate their profits. Poland's economy is considered wide open and has the most liberal private investment laws in Europe. The invitation is alluring and some companies have already formed joint ventures or purchased businesses outright. Outside capital investment in Poland is estimated at $100 million, much lower than anticipated.

For the exporter, import tariffs have been reduced to zero on 57.9 percent of the tariff lines. However, tariffs have been raised on Agro-foodstuffs from Western countries as a result of protests by Polish farmers. Grain will be levied at 10 percent; pork, beef and meat products at 20 percent; and butter, sugar, and vegetables at 30 percent. Pressure from other groups will increase as jobs are lost. Letters of credit are available, but due to high interest rates, many importers are requesting open account or draft terms.

Back to Basics

Before rushing into either exporting goods to Poland or acquiring a Polish company, you must first go back to the basics of international credit management. Investigate the commercial risk and then the country risk.

First, one quickly finds an information void on Polish companies. Few private businesses in Poland have any history. Under communism, the national pastime was hiding information from the communist tax collector. Poland does, however, support a fledgling credit reporting industry and others are sure to follow as the demands for commercial credit reports on Polish businesses increase.

Second, track records of Polish entrepreneurs are short and providing a financial statement is almost an unknown business practice. If a financial statement is obtained, Poland lacks any standard accounting practices.

Third, the customer's bank may provide an opinion if authorized by its customer.

Polish business executives have learned that appearances can lead to success in a business environment where real credit history is in short supply. Your customer may be driving a new luxury car which represents most of his or her tangible assets. The international credit executive will not only be challenged to develop credit and financial data, but to evaluate it properly in the new environment of dealing with the Eastern Bloc countries. Customer visits may be necessary to adequately evaluate the commercial risk when extending a large credit.

In time, credit reporting will improve as agencies provide more and better information. Accounting standards will be established, probably by adopting Western standards rather than by trying to reinvent them. The evaluation of a Polish customer's credit worthiness will be easier as the amount and accuracy of the information increases. In the interim, let "caution" be the watchword.

After accepting the commercial risk, the international credit executive must evaluate the country risk. Evaluating the country risk is similar to evaluating the commercial risk. The credit executive analyzes the country's financial statement and looks at the country's payment history. …

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