Strategic partner search: Central Europe

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Strategic partner search: Central Europe

Who’s looking for a partner in Central Europe these days? Well, it seems that almost everyone is. With Poland, Hungary and the Czech Republic jockeying for entry to the EU before 2004, and other countries in the region close behind, if you are not already here, it is the place to go. Like most everything else in life worth doing, it is not easy.

Once you have decided what business you want to open, and in which country you want to begin, you must then do your research carefully. Although the countries have characteristics in common, there are still significant differences. The effectiveness of the preliminary research—a key ingredient in your long-term success—will depend to a large extent on who does it and how well. We recommend a combination of a knowledgeable local lawyer and a consulting investigative firm which is international, and has expatriate agents who live and work locally, to ensure that you have looked at the market and the issues from all sides. A local lawyer will be better aware of the potential pitfalls in contracts and negotiations and will know the local players, as well. A competent locally resident expatriate can ensure that cross-cultural communication is accurate and that western business practices and standards are understood and met.

What happens if you do not do the above? You could get lucky or you could end up like Central European Media Enterprises—that thought it owned the rights to a broadcast license, but discovered to its dismay that it did not. (See the front page of various business publications!) And these fellows knew the region and had connections. You could find that the contract you signed for a property or business will not be honored because a better offer has come along. (The wait for a court hearing is currently 6-7 years in the Czech Republic.) If you do not have the right intellectual property protection you could find that your “Gentleman’s Agreement” has cost you dearly when your counterpart takes your idea/product and simply begins producing his own. The stories of scams and business deals gone awry are legion.

So why bother? Quite simply because there is a wide open market for many goods and services. In addition, there are bright, ambitious young entrepreneurs with know-how and energy; potential products that need only some capital behind them and marketing exposure to enter the multi-million dollar markets; and talented people with new ideas that may be big moneymakers. Unlike the saturated markets in west Europe and North America, there are huge holes waiting to be filled.

Searching for a partner or a new opportunity is not as easy as opening the phone book or looking through the Embassy Commercial Section’s list of companies. Many of the best potential partners are hidden away, perhaps even doing entirely unrelated work or with a cottage-industry approach. Someone living locally who is plugged in has the best chance of finding the ideal match for you. It requires language skills, a different kind of networking and simply being there.

Once you have located the potential partners, you must do a thorough due diligence that goes well beyond the usual financial sort of looking at the numbers. Record checking takes on a new meaning in Central European countries where unpaid tax bills can be passed on to the new owners sometimes years after the transaction has been completed. Tangled ownership resulting from two world wars and multiple regimes can mean that property can be restituted to a rightful owner who appears long after the property has been sold and developed. Poorly written contracts can have holes an elephant could walk through if the lawyer is not familiar with the local and international law and the scams of recent years.

Who is your partner? In what some refer to as the “Wild East,” it is prudent to be absolutely sure with whom you are doing business. Perfectly legitimate businessmen may have very unsavory connections to which an outside firm will not be privy. The various Mafia groups are prevalent and pervasive. Also, the politics of business in the region plays a role in your long term success: Understanding the alliances and connections are key. That is where the right local legal advisor can be invaluable. Not only legal advice, but who’s who and what they are up to or involved in should be part of the package you are seeking.

Chances are you will not escape unscathed—few do—but you can make the experience far less painful and more rewarding by choosing the right team to help you get started.

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