The Central Europe Report: Thriving Markets Confront a Crisis

Sopot Harbor, Poland

Investment Incentives

What some might perceive as an economic negative--a relatively high unemployment rate, currently about 10 percent--has kept wages down and made Poland a low-cost alternative to Western European countries for companies with labor-intensive businesses. Swiecicki notes a current trend of businesses moving operations to Poland from elsewhere in Europe as their need to economize becomes more pressing. The workforce is well educated, with a younger generation that commonly speaks English.

Hungary: Distressed Darling

During the 1990s, Hungary was the belle of the Central European ball. Blessed with a capital city perched on the Danube, rich in architectural charm, and just a short drive from Vienna, it lured international business people eager to cash in on the newly freed Soviet bloc. Hungary's "goulash communism," which permitted limited private enterprise, paved the way for foreign investors. The government passed laws providing for foreign investment and joint ventures in 1988, a year before it opened its borders to the West. Once Hungary became a free country, the government rushed to privatize state-owned enterprises, providing attractive investment opportunities.

"Those factors led Hungary to be the destination in the region that many investors chose first in the early '90s," says David Dederick, managing partner at Weil Gotshal's Budapest office.

Investor Assistance

Those factors attracting foreign investors include Hungary's location, adjoining Western Europe, and its skilled, low-cost labor force. English is becoming a more common second language, replacing Russian and German. And after five years of EU membership, the country's laws have been harmonized with EU directives, though Dederick says the speed and transparency of the court system still need some improvement.

Prague, Czech Republic

Czechoslovakia had been a founding member of the International Monetary Fund and World Bank Group before the communist takeover in 1948, and after post-Velvet Revolution economic reforms and its split from Slovakia, the Czech Republic excelled at attracting foreign capital. The country shifted its export focus to Western Europe from the former Soviet states, and began adjusting its laws and regulations to match--a process that reached its apex when it became an EU member in 2004 and adopted its directives. That means a degree of comfort for foreign companies accustomed to doing business in the EU--with a caveat for locals. "Czechs might tell you it's not all good because of this new layer of regulation," says Vladimira Papernik, managing partner of Squire Sanders' Prague office.

In 1994 the Czech Republic repaid an IMF loan two years ahead of schedule, making it the first former Soviet bloc state to operate without IMF aid. The next year the Czech koruna became fully convertible for business purposes, and by 1996 President Klaus had declared the transition to a free market complete.

Bratislava, Slovakia

Crisis Watch

But while the new government takes some blame for Slovakia's slowdown, the global economic crisis also had an impact, although it hit Slovakia differently than the U.S. and Western Europe. In late 2008, as the U.S. watched Lehman Bros. fall and confronted a new reality, Slovakia was still riding its wave of growth. "If you'd have asked anyone in Slovakia in November or December whether they see any approaching drop in GDP, most of the people and politicians would have said no," Magal says.

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Melissa Maleske

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Senior Editor

Mary Swanton

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