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The Polish promotional products market, Part I

After Poland joined the EU, the country in Central Europe has finally managed to get closer to its neighbouring countries. The best prerequisite for doing business with a bustling region, where a pulsating industry has developed within less than twenty-five years.

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In the fast lane

It is almost 24 years since Poland managed to bring communism to a gentle close – with the first discussions between representatives of the Communist Party and the social opposition at a Round Table in February, the first more or less free Parliament elections in June and the constitution amendment in December 1989. The Balcerowicz plan, which foresaw a fast transition of the economic system into a functioning market economy, was presented in the same year – i.e. just under 25 years ago. Yet the days of the “Iron Curtain” seem to be an eternity ago: Anyone, who strolls through a big Polish city today, can of course still see many artefacts from the Communist days, but the differences between “East” and “West” have blurred at an astonishing pace.
The same also applies for the “micro-cosmos“ of the promotional products industry, which as in many other branches of industry more or less evolved from nowhere in Poland at the beginning of the 1990s.
“Promotional products didn’t really exist in Communist Poland – quite simply because advertising didn’t exist,” reported Grzegorz Pawłowski, CEO of Plastolan Polska. “The first TV spots didn’t appear until the end of the 1980s. Occasionally companies from the West that operated in Poland brought a few promotional products with them.“
These products had an air of “guest gifts” as Magdalena Owczarska, Vice-President of the Polish industry association, PIAP, explained: “You weren’t allowed to set up your own company in Communist countries, but the “Iron Curtain” wasn’t as impenetrable as it seemed. Large Polish state companies often profited from the Western know-how and maintained business relationships to Western firms, some of which were located on the other side of the curtain. These companies brought ‘tokens of appreciation’ with them, i.e. to training courses or sales negotiations.
The Foreign Trade Centre was responsible for foreign contacts and they were prepared for such opportunities and also ordered gift items, which in turn were presented during foreign missions or when foreign delegations visited the country. However, such products were hardly implemented on the Polish market itself.“22222222Initial trigger

According to Owczarska, things really kicked off after the political turnaround: “Polish capitalism was born in the 1990s and this was also when the promotional products market got off the ground. Together with the economic development, which was accompanied by a strong increase in foreign investment, everything became ‘civilized’. International concerns suddenly popped up in Poland and implemented Western patterns.“
John Lynch, CEO of the Krakow-based textile specialists, Lynka, was one of the pioneers, who discovered the emerging Polish market during the economic turnaround: “I originally came to Poland as a part of a US funded program to help the new economies of post-communist Eastern Europe. The program was called the MBA Enterprise Corps – about 40 American MBA’s from top business schools came to work with local entrepreneurs to start businesses. After I finished one year in that program, I decided to stay and launched Lynka. We chose Poland because we saw that the country had huge potential and that there were many opportunities.”

Pioneering spirit

Whereas Lynch founded a company in Poland, Christian Huff, CEO of Macma, was one of the first Western suppliers to start exporting to Poland: “Poland was a sales market for us from the very beginning. There weren’t any Polish Far East importers at the time, there simply wasn’t sufficient capital, know-how or contacts. So, our products went down extremely well and it was great fun doing business. Incidentally, at the time the tastes were very different – we were able to sell products in Poland that had already gone out of fashion back home. Today, the market has become more uniform.

As the business in Poland continued to grow even further, we started looking for local partners, who took over the responsibility for handling the customs formalities.“
The German plastic specialist, Plastolan, already set up a sales office in Słupca, Poland in 1994. Today, Plastolan Polska operates autonomously as a Sp.z.o.o. – the Polish equivalent of a limited company. Pawłowski recalled: “Promotional products were very, very popular, initially predominantly the ‘classics’ such as ballpoint pens, ashtrays, key fobs, bottle openers or textiles. Western Europe had spotted its chance and wanted to get in on the act. Especially since only very few Polish companies were proficient in the import/export business back then. After all, at the time there was a real customs border with a complicated, drawn-out customs clearance process, which was considered to be a huge obstacle by many companies. It was easier to cooperate with European suppliers, for instance from Germany, France or Italy, rather than import goods from the Far East.
Nevertheless, simultaneous to this the first regional production sites appeared in Poland, among others in the plastic sector, but also bag manufacturers or producers of wooden articles opened factories.”

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Coal mine in Katowice: Some structurally weak
regions – for example the former coal mining
regions in Silesia – are experiencing a migration of
workers.

Boom

Those firms that managed to establish themselves on the market experienced a real boom: “The 1990s saw an explosion in our industry due to all the multi-national corporations, who were struggling to build brands here,” commented Lynch. “Our first clients were almost entirely American and European-based consumer goods companies and other companies that were striving to heighten their brand recognition. At the same time, the number of promotional agencies exploded. Trade shows were formed, industry organizations evolved, and in general, the industry flourished.”

This was also reflected by the order volumes, as Huff reported: “We already cooperated with one Polish company in the 1990s, with whom we earned a turnover of well over one million German Marks.“ Pawłowski added, “the order volumes were no comparison with those of today. We received orders for 30,000 or 50,000 pieces around once a month. Today, you can count yourself lucky if you can sell such a high order volume once a year, today you have to fight to get orders for 1,000 or 2,000 pieces. The biggest order we ever had was for 600,000 ballpoint pens for a mobile phone manufacturer at the end of the 90s. You can only dream of something like that happening today.“
However, according to Lynch amid all this “gold-digging atmosphere“ the boom did also bring problems with it: “One sad development was that many companies got involved in illicit business practices – i.e. giving bribes to win business –, and that resulted in an uneven playing field. Many companies thrived due to their unethical practices, which put pressure on honest companies. It was a frustrating time for that reason. As time evolved, those practices have become less commonplace.” it further consolidations. As one of the first big European importers, Macma founded a company in Poland in 2003: “In order to further expand our market position, we joined ranks with our long-term Polish partner and set-up Macma Polska. Because it was already certain at the time that Poland would become a member of the EU. Today, Macma Polska turns over around 20% of Macma’s overall turnover.“
Poland officially joined the EU in the scope of the EU expansion on May 1, 2004 – almost exactly ten years after they had applied for membership – and this signified a further quantum leap for the economic development of the country.
Because the annoying customs restrictions became a thing of the past, the liberalisation of the international trade made it much more simple for Poland to enter the import business: “Suddenly a one-man business could import goods without any problem and a row of new players – often small businesses – stormed onto the market,” explained Pawłowski. “Which also contributed to several big players going bankrupt during the crisis in the years 2000/2001, because a lot of their former employees had founded their own new companies and this led to a fragmentation of the market.“

Founder years

A golden age began in 2004 for company founders and production plants: Poland was and still is number one among the new EU member states as far as cohesion policy subsidies are concerned: In total 11.2 bil. Euros from the EU Community structure funds flowed into the Polish economy between 2004 and 2006 alone. Then in 2007, the grants were significantly increased again: In the subsidy period from 2007 to 2013 Poland received a total of 67.3 bil. Euros. In addition to the various EU subsidy programmes, the country benefits from further, regionally organised operational programmes, which are granted by each of the 16 Polish voivodeships individually.
“A lot of companies have taken advantage of the various subsidy and support options,” assessed Pawłowski. “Particularly small and mediumsized businesses took or are still taking advantage of the support offered in many respects. We ourselves were granted funding for a new machine subject to the proviso that we employed another member of staff.“
Of course, problems also arose as a result of the open limits and the liberalised trade: For example the large-scale migration of workers from structurally weak regions – for example from the former mining regions in Silesia. At the same time, the competition from rival companies in the West increased.3

Ready for the Export

Yet the advantages significantly outweighed the drawbacks as Lynch underlined: “On the downside, there were many more EU competitors for us to deal with in our local market. But on the upside, EU markets opened up to Polish suppliers who had the quality, the systems, the capacity and the people to compete on a European basis.”
And many Polish manufacturers were ready for the export business on a big-scale just a few years later. A good indication of this is the growing presence of Polish suppliers at the European trade fairs – for example at the PSI Düsseldorf the number of Polish exhibitors rose from 29 in 2007 up to 42 in 2013 (see box), a further sign is the growing number of Polish market players, who have opened local offices in neighbouring European countries. “The Polish are very diligent and a folk that learns fast, which has enabled us to catch up on Western Europe within a decade. Today, Polish companies compete at eye level with foreign firms,” Owczarska summed up.
Export shares over 50% are not rare for Polish manufacturers nowadays, indeed they are quite normal – as demonstrated by the company portraits on the following pages and by a few figures revealed by Lynch: “We have grown from 5% export sales in 2004 to over 60% today. We now service hundreds of promotional agencies all across Europe – in 22 countries in fact.”
And the Polish domestic market? In terms of pure figures, it is still prospering: Since 2004 the Polish gross domestic product (GDP) has shown constant growth (see box). Hence, together with Brazil, India and China, Poland was one of the only countries to demonstrate positive economic growth in the crisis year 2009. With a GDP of 499.6 bil. US Dollars (approx. 381.4 bil. Euros) in 2011, Poland replaced Belgium as the sixth largest national economy in the EU.
It therefore goes without saying that Poland continues to be an attractive sales market for its neighbours. The coming issue of eppi magazine will reveal how this market works and what challenges it is faced with, as well as supplying data on sizes and turnovers and on which target groups and associations characterise the Polish industry.

photos: iStockphoto (1), Krzystof Duda (1)

Read more: The Polish promotional products market, Part 2 

 

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2016-10-21T14:23:13+00:00 September 5th, 2013|