By JOHANNES HUTH, Tomas Kubica Nov 02, 2014

5. Conclusion

Over the past 25 years, the CEE region has experienced strong albeit uneven economic growth, democratization, and political development. Most CEE countries have integrated into the Euro-Atlantic security and governance architecture or are in the midst of doing so; capitalism has broadly taken root in the region; and citizens’ disposable incomes have increased although there is need for continued growth. The region’s strategic location and educated, low-cost labor force, have attracted significant foreign direct investment. The convergence process has successfully started, and the gap between Western Europe and CEE has narrowed significantly.

We believe that the next 25 years for CEE will be marked by a full convergence to Western Europe and an emergence of numerous global champions, bringing valuable innovations to the world. CEE demonstrated in 1989 that it can stand up for its dreams; we are confident it will harness the talents and hard work of its people to realize its full potential now again

During this time, while foreign investors have moved into the region, private CEE companies have started branching out internationally. Their starting position has been challenging, characterized by a lack of entrepreneurship experience, limited international know-how, an immature business environment, and constraints on access to capital. Yet success stories – truly global companies with a CEE origin – have emerged, underscoring the region’s potential and comparative advantages.

Companies, governments, and investors have roles to play in overcoming the remaining obstacles to propel more CEE companies to the global stage. Many companies in CEE stand to benefit from adopting a more global outlook and adapting their business models to the international marketplace, while taking advantage of their unique comparative advantages. Governments can do more to support the private sector by strengthening their business climates and legal systems, combating corruption, and investing in education and infrastructure, while avoiding interference in otherwise well-functioning market processes and resisting the siren songs of populism and democratic backsliding. Rather than being deterred by headline risk or stereotypes, investors should pay greater attention to CEE, seeking out opportunities to be long-term partners for the next generation of entrepreneurs and sharing their experience and knowledge, rather than just providing short-term capital.

The bottom line is clear: a quarter century after the fall of the Berlin Wall and the demise of communism in CEE, we are optimistic about the region’s prospects. We believe that the next 25 years for CEE can be marked by further convergence with Western Europe and the emergence of global champions, bringing valuable innovation to the global marketplace. The people of CEE inspired the world in 1989 by peacefully standing up for their dreams; we are confident that, over the next quarter century, they can harness their talents to realize their region’s enormous economic potential too.

Tale of Two Salesmen

Tomáš Baťa, the founder of Baťa, a leading shoe company founded in the Czech Republic in 1894, was fond of telling the story of how he sent two salesmen to explore market potential in Africa.

One sent home the following message: “No one here wears shoes. No potential.”

The second salesman responded: “Everyone here is barefoot. Infinite potential.”

Baťa was known for his optimism, courage, and hard work to make his dreams a reality.

Baťa Shoes today serves a million customers a day through 5,000 locations in 60 countries globally.

Bata

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Endnotes
  1. For the purposes of this paper, the authors define CEE as the countries in Central Europe (Czech Republic, Hungary, Poland, and Slovakia), the Baltic states (Estonia, Latvia, and Lithuania), countries of the former Yugoslavia (Bosnia and Herzegovina, Croatia, Kosovo, Macedonia, Montenegro, Serbia, and Slovenia) and Southeast Europe (Albania, Bulgaria, and Romania). We exclude Belarus, Moldova, Russia, Ukraine, and the former Soviet republics of the Caucasus due to their significantly different political and economic characteristics.
  2. The Nordic region consists of Denmark, Finland, Iceland, Norway, and Sweden.
  3. The World Bank, World Development Indicators. http://databank.worldbank.org/data/views/variableSelection/selectvariables.aspx?source=world-development-indicators
  4. Measured at purchasing power parity to remove price and currency effects. Excludes Estonia due to data comparability issues.
  5. IMF World Economic Outlook Database, Data as of October 7, 2014. http://www.imf.org/external/pubs/ft/weo/2014/01/weodata/index.aspx
  6. The European Union’s acquis is the body of common obligations and rights that is binding on all member states. EU candidate countries are required to accept the acquis prior to membership.
  7. Albania, Bosnia & Herzegovina, Macedonia, and Montenegro are excluded due to data availability issues.
  8. The World Bank, “Strengthening Recovery in Central and Eastern Europe,” July 11, 2014. http://www.worldbank.org/en/news/press-release/2014/07/11/strengthening-recovery-avoiding-risks-in-eu-11
  9. KPMG, “Corporate Tax Rates Table,” 2014, available at: http://www.kpmg.com/global/en/services/tax/tax-tools-and-resources/pages/corporate-tax-rates-table.aspx.
  10. Nasdaq citing FactSet, data supplied June 16, 2014.
  11. Forbes, “Global Forbes 2000,” 2014, available at: http://www.forbes.com/global2000/.
  12. Market capitalization data as of September 8, 2014, from Bloomberg; 2013 GDP sourced from the IMF World Economic Outlook. A total of the 3,000 largest listed companies in each region used as a proxy for the total market capitalization.
  13. The European Private Equity and Venture Capital Association, “2013 European Private Equity Activity,” 2013, available at: http://www.evca.eu/media/142790/2013-European-Private-Equity-Activity.pdf.
  14. European Commission, “Entrepreneurship in the EU and Beyond,” 2012, available at: http://ec.europa.eu/public_opinion/flash/fl_354_en.pdf.
  15. Albania, Bosnia & Herzegovina, Macedonia, and Montenegro are excluded due to data availability issues.
  16. European Bank for Reconstruction and Development, “Transition Report 2013: Stuck in Transition,” 2013, available at: http://tr.ebrd.com/tr13/images/downloads/357_TR2013.pdf.
  17. The World Bank Group, “Doing Business,” 2014, available at: http://www.doingbusiness.org/rankings.
  18. Transparency International, “Corruption Perceptions Index,” 2013, available at: http://cpi.transparency.org/cpi2013/results/.
  19. European Commission, “Corruption,” 2013, available at: http://ec.europa.eu/public_opinion/archives/ebs/ebs_397_en.pdf.
  20. Business Insider, “Estonia’s Tech Success Comes Down to 2 Factors,” 2013, available at: http://www.businessinsider.com/estonias-tech-success-comes-down-to-2-factors-2013-9.
  21. The Economist, “How did Estonia become a leader in technology?” 2013, available at: http://www.economist.com/blogs/economist-explains/2013/07/economist-explains-21.
  22. The Technological Incubators Program.
  23. STHLM Tech Meetup.
  24. PISA ranking, 2012, available at: http://www.oecd.org/pisa/keyfindings/PISA-2012-results-snapshot-Volume-I-ENG.pdf.