Assessing the market and the opportunities.

• Author: Siren, Michelle
• Position: Doing business in Eastern Europe - Chairman's Agenda: Acquiring in Eastern Europe

The best immediate possibilities for U.S. companies are in priority industries targeted by the governments. Here are some of those priorities.

Eastern Europe and the Soviet Union together represent the last untapped market in the developed world. With more than 420 million people, it is significantly larger than the European Community (320 million) and more than 50 percent greater than the U.S. (250 million). However, the move from a planned economy to a free market has never been attempted, let alone successfully achieved. So, while the opportunities appear numerous and great, the risks to Western investors are equally great.

At this point in the reconstruction of Eastern Europe and the Soviet Union, trying to guess the timetable for successful implementation of the reform programs and austerity measures under way is like gazing into a crystal ball through a piece of heavy gauze. No one knows when it will be "safe" to invest in these countries. Companies willing and able to pioneers in the region have a very special opportunity to shape these markets for the long-term success that is inevitable for the neighbors of the European Community.

Western firms have been quick to appreciate the potential of the region. The abolition of central planning and the relaxation of government controls have already led to the creation of scores of joint ventures between Western firms and local enterprises. Of the more than 9,000 joint ventures in the region, only 700 or so have U.S. partners. Currently, U.S. investment is concentrated in Poland, where there are over 150 U.S. joint ventures, in Hungary (more than 200), and in the Soviet Union (over 200).

This low direct-investment level is not surprising, given the U.S.'s historical trading patterns with the region, as well as its commitments to other parts of the world. The U.S. share of Western exports to Eastern Europe remains relatively low, but recent trends indicate some improvement. In 1989, U.S. exports increased 45 percent to $5.3 billion, with exports to Hungary increasing by 56 percent, to Poland by 36 percent, and to the Soviet Union by 54 percent. In the first nine months of 1990, U.S. exports to Romania increased threefold over the same period in 1989, while exports to Hungary rose 15 percent. Czechoslovak exports grew almost 26 percent.

The export picture for the other countries in the region was less rosy, due primarily to the internal policies of these countries rather than a reluctance of U.S. businesses. The Polish austerity program has limited export opportunities in the short term, with U.S. exports decreasing over 10 percent in the first nine months of 1990. Exports to the Soviet Union declined 16 percent compared with the first nine months of 1989.

U.S. companies lag

In terms of overall interest, U.S. companies continue to lag far behind their Western European...