The company’s coowner Solange Olszewska.

Solange Olszewska, CEO and co-owner of Solaris Bus & Coach, is one of very few women occupying a top-level position in the European automotive sector. With 2,500 employees and Solaris buses, coaches and trams running in 32 countries, her company is one of the leading bus manufacturers in Europe. But Olszewska still recalls the uncertainty of the 1990s when, shortly after communism fell, she and her husband decided to return to Poland and manufacture buses: “I had nothing and he had nothing so, together, we had enough to build a factory.”  

Olszewska’s success illustrates the development of the Polish economy over the 26 years since the country completed its transition from communism to a free market economy. Founded in 1994, her company is an example of the increasing technical sophistication of Polish industry generally – but also shares some of the growing pains of other Polish businesses. 

Scale and location 

Ranked 24th in the World Bank Group’s recent Ease of Doing Business survey, Poland remains perhaps the most attractive country in the region for investor due to its scale and central location within the EU. With Germany, the Czech Republic, Slovakia, Ukraine, Belarus, Lithuania and Russia as neighbors and sea access to the north, transferring goods is easy. Gdansk, Poland’s sixth-largest city, boasts the second-largest container port on the Baltic Sea. It has become the principle maritime gateway for Central Europe, with container ships with an average gross tonnage of 18,304 handling more than 37 million metric tons of cargo in 2016. 

Although trade with Russia faltered following the conflict over Crimea, Poland has recently become the primary gateway for intercontinental rail transport between Europe and Asia. China’s One Belt One Road Initiative sees goods bound for Western Europe come from Chinese megacities to be consolidated in various forwarding facilities – most notably in Poland’s largest freezone, Małaszewicze.

Małaszewicze – Poland’s largest free customs zone

The town of Małaszewicze, located 120 kilometers from the Ukrainian border and just five kilometers from Belarus, boasts the largest free customs zone in Poland with more than 410 acres (166 hectares) of development area. The dry cargo port has enjoyed increased international importance ever since the Chinese government started investing in the One Belt One Road Initiative. The facility has a handling capacity of 24,000 tons per 24 hours.

Goods from Asia arrive in Małaszewicze via broad-gauge railway and are then transferred onto other, standard- gauge trains or onto trucks, commissioned or stored. The free customs zone is conveniently located along the E 20 railway and the E 30 road, the main transit routes from the EU to Russia. It also serves as the gateway for European shipments to Asia.  

“Małaszewicze is becoming a boom town, with all the major logistics companies, including DHL, opening offices and warehouses in the area to offer a broad range of logistics services,” says Thomas Kowitzki, Head of Multimodal, DHL Global Forwarding. The importance of having an efficient customs zone is also being acknowledged by the Polish government, which recently transferred several dozen customs officers to work in the zone. The government in Warsaw hopes that maintaining a good relationship to China will boost Polish exports to Asia. One of the projects being discussed by the governments in Beijing and Warsaw is the opening of a joint parcel distribution center for the Chinese and Polish postal services in Małaszewicze. And the growth story is just beginning – Cargotor, the administrator of the railway infrastructure in Małaszewicze, has already commissioned a study of the potential for further modernizing the cargo terminals.

While Poland’s population of 38 million counts as one of the larger in Europe, wages are still considerably lower than in Western Europe – another important factor for foreign investors. In 2015, the average hourly labor cost in industry, services and construction was €9 ($11) per hour, one euro lower than in the Czech Republic or Slovakia and less than a third of equivalent wages in Germany. Meanwhile, workers in the information and communications technology sector make €15 per hour on average, compared to the EU average of €28 per hour and €44 per hour in Germany, according to McKinsey. While some manufacturers have relocated to Romania, which has even lower wages, most of them stay in Poland due to lower corruption levels and better infrastructure, as well as a larger domestic market.  

 

Over the years, Poland has developed into one of Europe’s major manufacturing locations. Specializing in skilled but not high-tech manufacturing, the country lists machinery, vehicles, electrical equipment and furniture as its top four export sectors in 2016. Industry giants such as BSH or Whirlpool make home appliances in the country and the automotive sector has a strong presence too, with Volkswagen, Fiat, GM, MAN and Mercedes-Benz all maintaining plants there. The country has turned into a brand in its own right, says Olszewska: “We are proud to see our trademark, a green dachshund, on buses across Europe. Our goal is to stand out as a great bus manufacturer – and as a Polish brand.” 

According to a report by Stratega Market Research, Poland is the fastest-growing e-commerce market within the EU, with 31 percent of the population having shopped online in 2016 – an increase of 25 percent compared to 2015. Tomasz Buraś, Managing Director of DHL Express Poland, has been witnessing this growth first hand. “We have experienced Poland’s e-commerce boom in our own business. Over the past four to five years, the proportion of our e-commerce-related business has risen steadily and it is now at 28 percent of our business volumes, but growing steadily,” said Buraś. He identifies the country’s rapid economic growth and improving infrastructure as the key factors of success. “Between 2002 and 2016, the international parcel delivery market has tripled. Polish exports are growing, and an increasing number of Polish companies are successfully selling their products abroad.”

A parcel sent from Warsaw takes a little bit more than an hour to reach Berlin by plane or roughly six hours via road transportation. As noted by Hendrik Venter, CEO Central Europe at DHL Supply Chain, “Poland’s central location, as well as its improved road and railway in­frastructure, have made the country the center of gravity for regional distribution centers and a cost-effective location for e-commerce return centers along the German border.”

COACHING SESSION: Engineers train at Solaris, one of the leading bus manufacturers in Europe.

Labor shortages and Economy 2.0

Emerging from the role of cheap labor provider and Europe’s back office constitutes a major challenge for the Polish economy. The development of high-tech and innovative ideas-based industries is seen as a key enabler of this transformation. According to McKinsey’s 2016 Digital Poland Report, Poland’s productivity levels are still far below those of Western Europe: the gap between Poland and the EU-15 is estimated at 32 percent. Resources such as raw materials, labor, skills, equipment, land, intellectual property, management, technology and capital could all be used far more effectively, thus adding value to the Polish economy. Increased digitalization could help reduce the current productivity gap between Poland and the EU-15 by an additional 27-47 percent, though this doesn’t appear to be a priority for the government as yet, choosing as it is to focus on mining and other fundamentally labor-intensive industries over clean energy or other innovations.

That said, some companies are already making Industry 2.0 a reality. According to Polish Startups Report, there were almost 2,700 such businesses in the country in 2016, compared to roughly 6,000 startup founders in Germany, a country with twice the population. The cities of Krakow, Poznan, Warsaw, and Wrocław are considered the major hubs. Warsaw-based Saule Technologies is a great example of a new Polish company, delivering revolutionary solar panels in the form of low-cost, flexible and lightweight foil. Wrocław-based Sky Tronic develops drone steering mechanisms based on artificial intelligence – one of very few companies in the market anywhere in the world. Meanwhile ChallengeRocket, another Wrocław-based startup, has developed a platform that enables companies like Honda, Vodafone and Philips to recruit IT specialists through international programming contests known as hackathons. There is much work to be done before Poland is a world leader in information technology industries, however: according to McKinsey, Poland could become an even stronger digital economy if it manages to increase the number of graduates in technical subjects – and stop the outflow of talent.

The enlargement of the EU in 2004 was a major step for Poland, as the ex-communist country started benefiting from a dynamic growth process. However, the opening of the EU labor market resulted in a major problem for Poland’s service and industry sectors: more than 1 million predominantly young Poles left the country seeking better-paid jobs in other corners of the EU. Far from slowing over time, this level of emigration appears to be the new normal – remittances exceeded 1 billion euros a year in 2008 and have remained at that level since, strengthening the domestic economy while reducing its workforce. These factors, as well as increasing wages in Poland and a historically high employment rate, have resulted in a growing shortage of skilled labor – put simply, the healthy economy means Poles can afford to be pickier about the work they do, and jobs frequently go unfilled. “There is competition among employers for labor. We feel it very strongly in the automotive sector and resort to employing workers from other countries, for example from Ukraine,” said Olszewska. Her experience isn’t unique: a recent influx of more than a million economic migrants from Ukraine is saving the economy from an even more severe shortage. Like Olszewska, Buraś notes a similar need for experienced labor. “What I hear from my customers, as well as my experience at DHL Express, indicates that the gap between the availability of and demand for skilled people is growing,” he said. ­“Companies need to review existing HR approaches and adopt new smart strategies in terms of recruitment, onboarding, remuneration, incentives, development and training in order to attract and retain the best talent. It is not a one-time exercise but a constant review and adaptation process that we are implementing.”

However, increasing the participation of women in the labor market would also be beneficial. Despite making up 40 percent of senior management roles (compared to the EU average of 26 percent), Polish women remain underrepresented in the workforce as a whole, with 61.4 percent currently professionally active compared to 67.1 percent in the wider EU.

GOING DIGITAL: Poland’s high-tech and innovative ideas-based industries are attracting global players such as Google.

The labor shortage challenge is also present in logistics. To help address it, DHL Supply Chain has started to implement smart warehouses and develop mechanization and automation so as to help the staff that are available perform tasks as efficiently as possible. Technologies such as augmented reality glasses and improved hands-free scanners, as well as the implementation of autonomous transport inside the warehouses, are aimed at increasing overall productivity without necessarily making many more hires. “Supply chains of the future will have to be more agile, scalable to demand and connected,” says Venter.

Challenges for the future

While EU membership brought great demographic changes, it was also a source of huge investment: Poland became the largest net recipient of EU funds and is expected to receive a total of €106 billion ($125 billion) from the 2014-2020 EU budget pool. Citizens have become more affluent: According to the European Commission, Poland’s GDP per capita expressed in purchasing power was 69 percent of the EU average by 2015, up from 53 percent in 2007. The results are tangible: Flags showing EU financing are visible on recently completed highways and other developments, and young entrepreneurs have also benefited from EU loans to fund their businesses.

Could Poland become an economy of similar size – and power – to Italy or Spain? According to McKinsey, it will have to invest in innovation, further improve its infrastructure, simplify regulations and move in the direction of specialized manufacturing and technologies. To that end, Solaris is currently focusing on manufacturing emission-free buses. But Poland, like the bus company and all the other companies that have contributed to the good state of its economy, needs to focus on the demands of tomorrow’s markets in order to continue its growth. To make that possible, both government and industry will have to maximize the potential heralded by the digital revolution and increase productivity across the board. The foundations are there. But it’s up to the Polish people, industry and government to build on them. —  Julia Szyndzielorz

Published: November 2017

Images: pzstudio/Adobe Stock; Marcin Mizerski/Solaris; Solaris; Adobe Stock; Wojtek Radwanski/AFP/Getty Images; Alistair Berg/Getty Images