JP Director's Report

Projects - Opportunities - Information

 

Toppics of this issue:
▪	Editorial
▪	Current Projects
▪	Is Poland an attractive market for foreign direct investment?
▪	Reporting - more than simply a burden?!
▪	Imprint

Dear Madam or Sir,

Many politicians and economists are talking up the end of the crisis and economic recovery. In actual fact the trend to recovery seems to have stopped. But let’s not forget basis mathematics: if the gross national product in 2009 fell by 6 % and is then forecast to rise by 1 % in 2010 then we still have a shortfall of over 5 % since 2008.

The boom is, however, beginning already in some countries. Look at Poland. The national economy there is the engine for growth in the EU. The demand for M&A services is rising rapidly in Poland and Polish companies are on their way into Western Europe. The high number of purchase mandates from our Polish clients for western European targets emphasises this development. On the other hand Poland continues to be an extraordinarily interesting destination for investors. Hans-Dariusz M. Budzen, the CEO of our Polish cooperation partner Augeo Ventures sp. z o.o., reveals in this edition of the JP Director’s Report why it is worth investing in Poland.

We also have a lot of purchase enquiries from India. India, together with its competitor China, is one the world’s largest boom countries. We receive enquiries from India almost every day.

The situation in Turkey is different. The financial crisis hit hard and we have a corresponding number of sale offers for company shares. However in the long run we see Turkey as a country of great opportunity and European entrepreneurs shouldn’t miss the chance to make acquisitions on the other side of the Bosporus.

We wish you good business at the end of the year, Merry Christmas and a Happy New Year.

Yours

  Heinz Jäger

CEO, JP Mergers & Finance AG

Is Poland an attractive market for
foreign direct investment?
by Hans-Dariusz M. Budzen, CEO of Augeo Ventures

Introduction

Poland as the largest market among new EU members is one of the largest recipients of foreign direct investments in the emerging markets. Among the largest investors in Poland are: Metro Group, Bayerische Hypo- und Vereinsbank, Volkswagen, MAN, Commerzbank, RWE, Deutsche Bank, Bosch-Siemens, British American Tobacco, Fiat, Unicredit Group, GM, Lidl.

In the times of crisis, Poland is still able to attract new investors. Recently, Dr. Oetker built the largest pizza factory in Europe, Globalmalt decided to open a new production facility, ALDI decided to enter the Polish market and Indesit and Bosch-Siemens launched their white goods manufacturing plants. Lafarge and Cargotec have just started construction of new manufacturing plants. Procter & Gamble recently opened its new manufacturing plant (largest in Europe), Cadbury followed suit. In this article, we will look into the reasons behind these investments.

Why Foreign Direct Investment

Foreign direct investment is defined as making physical investments by an entity from one country in another country. This may for example take the form of developing a manufacturing plant abroad or establishing a branch office as well as an acquisition of an already established company in a foreign country.

Foreign investments are driven by a set of factors:

• finding new markets for products or services,
   

• search for resources, that might be scarce at home, such as supplies of quality parts, or cheaper and higher quality raw materials,
   

• better treatment by local regulatory environment,
   

• achieving additional efficiencies e.g. benefits of realigning processes geographically from and thus streamlining the supply chain.

Market Factors

Many companies are driven to grow abroad by the qualities of the foreign market that might vastly support the development of their respective businesses. Aspects that affect decision makers in such cases are, among others: market proximity, population size and growth rates, levels of retail spending per capita, levels of investments.

Taking population size (38 million) into account, Poland is the 6th largest EU country. Despite the crisis, Polish consumer spending is on the rise with 16.5 % growth in 2008 and retail sales in 2009 up by approx. 4 % (as of the end of August). In addition, booming infrastructure spending fueled by EU structural funds in the range of 67 billion EUR in the period 2007-2015, of which almost 50 % will be spent on infrastructure, transportation and environmental investments.

Businesses that are most likely to benefit from the trends are primarily construction companies (road, environmental). In consumer related industries, Poland is a country where it should be feasible to defend already established market position albeit, market expansion at this point in time might not be the best idea.

Resources

What drives companies to expand abroad is often the availability of unique or inexpensive resources. Although Poland is abundant in certain natural resources, such as coal and certain ores, still it is mainly skilled labor availability, wage differentials and educational attainment levels that attract investors to Poland.

In terms of labor market, Poland with unemployment levels at 10.8% can no longer be considered a labor market promoting employees interests. Furthermore, labor costs favor Poland to other EU countries with average monthly salaries in business varying from EUR 500 to EUR 1.000 depending on the region.

Most importantly though, Poland is the country where a baby boom generation of the early 1980’s is currently entering the labor market. Over 2 million Poles are students and this group of highly skilled employees will soon enter the labor market.

Industries most likely to benefit are mainly labor intensive. Commonly, Business Process Outsourcing centers are located in Poland, with finance and accounting, information management, human resources. Among companies that decided to outsource some of its processes to Poland, are: Accenture, Credit Suisse, GE, IBM, Shell and Volvo. Manufacturing industries with a considerable share of labor costs are also likely to benefit from setting up facilities in Poland. Obviously, Poland will never compete with China or India on cost alone. However, its short distance from Western Europe, resulting in lower transportation costs and lead times, as well as cultural similarities can, in many cases, compensate for higher wages.

Efficiency

Lastly, efficiency reasons are a common motive for venturing abroad. Key factors that influence decisions in this respect are: governmental aid, state spending levels, regional taxation levels and the level of development in target regions.

Poland offers several aid programs that are worth noting by foreign investors. Special Economic Zones (SEZ) are parts of the Polish territory with preferential treatment of businesses. Companies located in SEZs can benefit from tax exemptions (CIT, PIT and property tax). Furthermore, investors in Poland can take advantage of subsidies from EU structural funds, especially in case of innovative technologies, considerable R&D investment and development of human capital. The level of state support may reach as much as 50% of investment outlays.

How to Go About Investing in Poland

Once an investor has made a decision to venture into Poland, it is essential to properly execute the decision. The list below shows the essential steps that are worth remembering when considering direct investment in Poland.

• Find a local business partner to gain insights into local business culture
   

• Seek out contacts to fellow business people that have both failed and succeeded in the target countries, to avoid replicating their mistakes
   

• Prepare a sound business plan, taking into account all possible risk factors, determining the optimal entry mode (greenfield, brownfield, M&A)
   

• Leverage the support from institutions that help foreign investors, as they may significantly speed up the investment process and help in obtaining governmental financial assistance. In Poland, these are the Polish Information and Foreign Investment Agency as well as local authorities.

Reporting – more than simply an administrative burden?!
by Tobias Kemmerer, JP Mergers & Finance AG

Imagine you had an established plan – and nobody follows it! Unimaginable! So we agree that a reply instrument is necessary – and that is what we will discuss in the following article.

As far as your legs will carry you

Caesar taking the salute. That is what your morning round at five past nine looks like, just after the beginning of core working time. You are seen and everybody gives you a respectful nod. Except, of course, the ones who arrive at ten past nine, which you, of course, register out of the corner of your eye. Everyone knows. So Mr. Maier, let’s call him that, will be more punctual in future or come to you personally with his solid explanation involving a doctor’s appointment. There is no way to replace mixing with the staff. Sure, the coffee goes cold. That doesn’t matter; the coffee could be made half an hour later.

The next exercise comes at ten past one, when production has switched the machinery back on. If one of them stops it causes logjams in material supply. You know about it long before the next day’s production report signals the stoppages on Line 3. And you are also seen in places where you can only communicate in nods because of the noise. And the machine operator likes to nod because he is being seen.

The last round, at six, takes place at the warehouse. You see that people are working overtime to get the last truck but one out because the client needs the goods early tomorrow morning.

But the most important thing is your physical fitness. Better than playing tennis. You see everything with your own eyes. Nobody needs to explain anything to you. The scenes speak for themselves. And you are being seen and that motivates everyone you see.

Do you think we are talking about the 19th Century? Not at all. This is the here and now! This is irreplaceable.

But: That is only true for wherever you are at the time. You can’t be everywhere!

Reporting Duties increase Discipline

Wherever you can’t be in person the report takes over. It is not based on administration and tedious obligation but rather communication between reporters and the superior who receives it. The former is forced to think about what he does and about success and putting what he experiences into words. The latter knows that he must deal correctly with the information he receives because of the distribution list. Everyone must be answerable to their own actions.

The reporter can pass on superficial information so that it is noticed a long way away and he knows that he will receive attention. They are only a small name on the distribution list but they know, immediately, directly, without a filter, without correcting comments from the superior. The writer of the report knows that he cannot just ignore what has happened. He must speak about it, put the events into words, and give account. This already affects his behaviour while the event is happening. We all profit from it.

No statistics, just forming the future

Let’s avoid any misunderstanding: it’s not about a confusing mess of figures that can only be understood with exact instructions. Obviously the advantages of numbers are used to depict an event or scale differences, but statistics are only of marginal interest. The view of what has happened is less important than getting a feeling for the effect of discrepancies, for whatever reason they occurred. It is then possible for the recipient of the report to engage in his most important task: to take countermeasures so that the feared result does not happen at the end of the chain of activities and can be prevented. If he succeeds in this then the report was worthwhile. It then becomes apparent: a number is by far the shortest and most effective form of information but it cannot replace a word of evaluation.

A comparison of planned and actual figures brings plans to life

In order to be able to experience and read the information in the number it is necessary to set a benchmark. In a business that is working to goals the plan is the most important goal. If the actual event is reported in the same format as the plan and if the planned figure is also shown as a reference then it is immediately possible to see the degree to which the goal has been achieved. The reader’s curiosity is then drawn immediately to the planned measure in order to shape the actual events in such a way tomorrow that the goal can still be achieved. This means that each figure in the plan must correlate to an actual recording instrument, and vice versa. Planning and reporting follow on from one another and require each other. There can be no report and no comparison of planned and actual figures without a plan; and there can be no plan for the next year without reports and statistics from the last year.

Turnover is the starting point

The first report everyone thinks of is the financial reports at the end of a period. Measured by importance and creation this report should, however, come last. By the time the profits in one period are on paper this period has long since passed and can no longer be influenced. For this reason: reporting begins with expected turnover, products, opportunities and prospects. It is only possible to take proactive measures once this report is totally full and includes new information from the last month, and only then can we expect a harmonious financial report. Once the prospects are complete the sales figures can then be depicted. After that comes production, storage, shipping and, of course, payment! Only assurance that liquidity – the bloodstream of every company – is retained can give you peace of mind, until the next report. As you can see the monthly report has historical value in this round and forms the pillow. But again and again: the opportunity to mould the future is more important.

Reporting keeps organisation together

The report is not an end in its self. It must inform the recipient, must commend to him actions in order to bring the company back onto the planned track. The better and more instructional the report, the better the quality of the reporter. It provides an objective picture of broad field of observation from which the next decorations and promotions result as well as sanctions and personnel measures. Through the description of an event the report automatically calls for action in order to bring the quality back to its planned level.

Preparation

Standards, especially comparisons with plan data: the comparison between actual and planned figures must result from operational reporting almost like a by-product. Newer book entry systems, of which SAP is only one example, carry out the task almost automatically. But they do not replace the written word, the evaluation, the suggested measures and drawing attention to potential risks.

Company at the crossroads

Large companies have a coherent, functioning reporting system with planning, comparison of planned and actual figures, comments and warning instruments. As they are usually incorporated companies they must have the necessary internal transparency for their reports to the capital market. Otherwise they cannot be controlled. The other extreme, small companies do not need a reporting system to penetrate the market; the man in charge has an overview of everything and believes he has everything under control. Medium-sized businesses are the ones we are worried about. They only have two possibilities: either they develop into large companies with the corresponding systems and establish their management structures step by step, including a functioning reporting system and can continue to grow. Or they refuse to go down this path and create this kind of structure. Then they are sure to revert into a single-dimension small company where visual inspection is sufficient. We come from large companies. We know their structures and know how to move within them. We can develop them from our own experience on how much system is needed to realise what goal.

 

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JP Mergers & Finance AG

Schillerstr. 101 • 63512 Hainburg • Tel.: +49 (6182) 990483 • Fax: +49 (6182) 990488
Website: www.jpmergers.de • E-Mail: vorstand@jpmergers.com • CEO: Dipl.-Kfm. Heinz Jäger
Head of Advisory Board: Adam Jörges • HRB 22655 AG Offenbach • VAT-Ident-Nr. DE-114 166 970