American Investor Summer 2016 by AmChamPoland

American

Summer 2016

Vol. XXVI, No. 3 â&#x20AC;¢ ISSN 1506-3240

Investor The quarterly of the American Chamber of Commerce in Poland

amcham.pl

Inside impact The contribution of American investment to Polish society goes deeper than the numbers INSIDE: OVER 100 PICTURES FROM AMCHAM EVENTS IN MAY-JULY

In this issue SUMMER 2016 Vol. XXVI No. 3

COVER STORY

MONTHLY MEETING May A less perfect union The European Union has problems internal and external, and lessons to be learned, p. 18 June Friends will be friends The role of business, economic and people-to-people links grows as US-Poland relations intensify, p. 20

Inside impact The contribution of American investment to Polish society goes deeper than the numbers, p. 12 talks about the trends in the construction market and the company’s strategies to stay on top of the game, p. 32

SPECIAL FEATURE Keep it coming While American companies in Poland talk about their success stories, Poles look forward to seeing more of them, p. 22

EXPERT Skin in the game 3PLF, the next frontier in global finance, is starting to generate significant interest on the Polish legal market, p. 34

More than words Despite its populist rhetoric, the Polish government knows foreign investors are essential for economic growth, p. 24 Too big to comprehend? TTIP may be an opportunity for economic growth, but the public doesn’t trust the negotiators, p. 25 FOCUS The final frontier The Polish space sector needs a national strategy to get ahead of the curve, p. 26 MICE to see you The hospitality industry has done its part to accommodate the growing supply of tourists in Poland, and now it’s the turn of local and central government to foster further growth, p. 28 COMPANY PROFILE Where’s your talent? Aneta Fita, CEO and managing director of SHL Polska, the distributor of CEB SHL Talent Measurement solutions in

What next? The legal ramifications of Brexit will play out for months and years to come, p. 36 Call me a cab An innovative taxi service triggers legal controversies, p. 38 Poland, talks about the challenges organizations face hiring talent today, p. 30

Play and pay Tax aspects of organizing consumer contests, p. 38

Flying colors Piotr Szajczyk, acting executive director for sales and distribution at Poland’s flagship carrier LOT Polish Airlines, talks about the company’s growth strategies, p. 31 Growing resilience and competencies Matthew Skuse, director and group leader of Arup Polska,

Departments:

Letter from the Chairman, p. 3, Newsline, p. 4, Agenda, p. 8, AmCham Committee Guide, p. 11, Photo Coverage of AmCham Events, pp. 40-56. SUMMER 2016 AMERICAN INVESTOR

Your American

YOUR AMCHAM

On-line resources to AmCham

BoArd oF dirEctors Tony HousH – APCO Worldwide Chairman

Joanna Bensz – CH2M Polska Vice Chair

JudiTH Gliniecki – Individual Member Vice Chair

Paul FoGo – JF Legal Treasurer

Rick lada – Individual Member Secretary

MEMBERS Robert Bednarski

Roman Rewald

Magdalena BurnatMikosz

Sławomir Sikora

Facebook

Deloitte

Jolanta Jaworska

Weil Gotshal & Manges

Citi Handlowy

Joseph Wancer BGŻ BNP Paribas

IBM Poland & Baltics

John Lynch Lynka

Advisory council

Check out our revamped website, with enhanced functionality including intuitive grouping of topic threads and multimedia coverage of our events! MEMBERS This link includes access to AmCham community news, the member directory, information on how to become a member, and a list of companies and individuals who have received AmCham awards. EVENTS The link Upcoming Events will take you to announcements of our future events. Past Events will take you to our events archive, which includes photo and multimedia coverage of selected events. COMMITTEES AmCham’s 13 committees are the heart of the organization, providing a forum for business leaders with similar interests to network, share best practices, and discuss relevant topics and issues. This enables active participation and input on matters of vital importance to members. The link will take you to a pop-up menu to choose the committee of interest to you. MEDIA This link will take you to ﬁve databases: AmCham in the Press is a database of press clippings about AmCham in Poland. American Investor will take you to a .pdf version of our print quarterly, American Investor, including the most recent edi-

tion as well as archives of past issues. Video Clips will take you to multimedia coverage of selected AmCham events. AmCham Media Contacts provides contact information for members of the media. Galleries will take you directly to the vast archive of photo coverage of our events. ADVOCACY This link will take you to the archive of our position papers, policy statements, official letters to government ministers, and research papers—all produced in our effort to build a more open and business-friendly economic environment. REGIONS AmCham may be closer than you think. Apart from Warsaw, AmCham has three regional branches, which are active all year long and offer many exciting opportunities to interface with regional business leaders and politicians. Use the Regions menu to find out more about our services in Gdańsk and northern Poland, Kraków & Katowice and southern Poland, and Wrocław and Lower Silesia. USEFUL LINKS This section provides links to other important US business organizations, such as the US Chamber of Commerce and the American Chamber of Commerce to the European Union, and other organizations working for the benefit of transatlantic trade and investment relations.

What’s on

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Your online guide to AmCham activities

AmchAm Auditor

AMERICAN INVESTOR SUMMER 2016

Investor Letter from the Chairman

Dear Members and Friends of AmCham

ummer 2016 is behind us and the remainder of the year will be as busy and exciting as the runup to the vacation season was, capped off with the NATO Summit in Warsaw. In the next few months AmCham will be active at the Krynica Economic Forum and the European Forum of New Ideas in Sopot, hosting our regular series of governmental meetings, and holding our Annual General Meeting in December. The year to date has been a productive one for AmCham. As an organization we have established an open dialogue with the government on a wide range of investment and economic issues as well as maintained our good relationships across the political and policy spectrum. This outreach will continue unabated as we move toward the end of the year and beyond. Our thanks to all who attended the wonderful Independence Day celebration this July in the English Park at Służewiec. We could not have had such a great event without our sponsors—and of course the amazing work of the AmCham team. I was pleased to see so many familiar faces together with their families, as well as having the opportunity to welcome a number of diplomatic, political and government leaders to our gathering. This summer has also seen a change on the AmCham Board. Marek Kapuściński and Anna Jakubowski stepped down from the Board as they transitioned to other roles in their careers. On behalf of the entire AmCham family, I would like to thank them for their time, energy, insight and commitment to the organization during their service. AmCham is better for their time on the Board. And as change begets change, I am pleased to welcome two new members to help us carry on Marek and Anna’s work. Sławomir Sikora of Citibank and Robert Bednarski of Facebook have joined the Board, and it is a great pleasure to extend a warm welcome to them. It is a commitment to the investment and business comTony Housh AMCHAM CHAIRMAN munity, and their willingness to serve is much appreciated. Another new and welcome member of the investment and trade community is the new Commercial Counselor on the Warsaw Embassy team. Charles Ranando arrived this summer, just in time for the July 4th parties. As with the departing counselor, Bill Czajkowski, we look forward to close cooperation with Charlie. He brings a great deal of experience to his new post. I encourage you to reach out and introduce yourself to him as he gets settled in this year. All eyes will be on the US Presidential election in the coming months. The ramifications it has for international trade, global prosperity and security around the world—and in the NATO sphere in particular— are significant. We all know the difference that investment and trade make to our countries, our citizens and the interconnected world we live in today. It is our hope that increasing prosperity and cooperation across the Atlantic will be the watchword in the next American administration as it has been during President Obama’s time in office. In a world that at times seems to be rather more than less unstable and unpredictable, we will continue to work together to ensure that our companies, employees, communities and countries focus on our common good. That is our ongoing commitment to our membership, now and in the future. With best regards,

SUMMER 2016 AMERICAN INVESTOR

Newsline YOUR AMCHAM AMCHAM STAFF

News from AmCham and its members 3M Poland

Dorota Dabrowski

Managing Director director@amcham.pl

Marzena Drela

Deputy Director marzena.drela@amcham.pl

in Poland and one of AmCham Poland’s founding companies. In picture in previous column: Sebastian Arana Araya, managing director of 3M Poland, Dorota Dabrowski, Tony Housh, H.C. Shin, 3M Executive Vice President, International Operations.

Avis

Anita Kowalska

Events & Media Manager anita.kowalska@amcham.pl

Robert Kruszyna

Office Manager robert.kruszyna@amcham.pl

Barbara Pocialik-Malinowska

Membership and Committees Coordinator barbara.pocialik@amcham.pl

Marta Pawlak

Policy Counsel marta.pawlak@amcham.pl

Dorota Serafin

Project Manager dorota.serafin@amcham.pl

AmCham in Gdańsk

Alina Gronek

gdansk@amcham.pl

AmCham in Kraków & Katowice

Joanna Bensz

krakow@amcham.pl

AmCham in Wrocław

Monika Ciesielska-Mróz

amcham.wroclaw@pmg.pl

3M received an Eagle award from Wprost weekly for its contribution to the economic development of Poland, as the company generated its highest net profit growth in 2012– 2014. Hubert Harań, financial director of 3M Poland, accepted the award from Wprost editor in chief Tomasz Wróblewski at a gala in June (pictured) at the Warsaw Marriott hotel. 3M has been present in Poland for 25 years, investing over USD 500 million and maintaining 2,900 technical jobs here.

AmCham Poland EDITOR

Tom Ćwiok tomasz.cwiok@amcham.pl

ENGLISH EDITOR

cHRisToPHeR smiTH christopher.smith@neostrada.pl

Printing

Q Invest Ltd +48 22 424 6600 To contact AmCham please write or call: Spektrum Tower, 16th Floor ul. Twarda 18 00-105 Warsaw tel: +48 22 520 5999 fax: +48 22 520 5998 e-mail: office@amcham.pl www.amcham.pl © American Chamber of Commerce in Poland 2016. All rights reserved.

American Investor is the official publication of the American Chamber of Commerce in Poland. It is a voice for foreign investors and the business community in Poland. The magazine strives to keep our members and other readers up to date by following chamber news and reporting on the leading trends in business and policy. Unless otherwise indicated, all articles authored by Tomasz Ćwiok. letters to the editor should be e-mailed to tomasz.cwiok@amcham.pl Cover Art: Drawing by Magda Aranży. Used with permission of MillionYou

AMERICAN INVESTOR SUMMER 2016

Celebrating its 25th anniversary in Poland, 3M awarded AmCham Poland special recognition for the chamber’s achievements in promoting American business in Poland and promoting Poland among the international business community. The recognition was delivered during a meeting in May. Tony Housh, AmCham Chairman, and Dorota Dabrowski, AmCham Managing Director, represented the chamber at the meeting. 3M was one of the pioneering US investors

Car rental company Avis celebrated its 25th anniversary in Poland with a gala at the Fort Sokolnickiego Arts Center in Warsaw (pictured), joined by its business partners. The host of the gala was Radosław Lesiak, Avis country manager in Poland, and the special guest was Piotr Kuczyński, a journalist specializing in business and financial market analysis. The evening included an exhibition of the newest models from Audi, BMW, Ford, Nissan, Toyota and Volvo—all available to rent from Avis. Avis opened its first location in Warsaw in 1991. Today it has a fleet of 2,000 cars and 70 rental offices in major cities across Poland.

CMS

Law firm CMS has advised petrochemical company PKN Orlen on an investment in a new metathesis unit for the production of polymer-grade propylene. It will enable propylene production capacity at PKN Orlen’s plant in Płock to increase by about 100,000 tonnes a year, to 550,000 tonnes. The project is now entering the implementation phase. Its value is estimated at PLN 400 million. CMS’s work included preparation of the contract for the design, supply and construction of a turnkey metathesis unit and representation of PKN Orlen in negotiations with potential contractors. Partners Tomasz Minkiewicz, Karolina Siedlik and Iga Lis, as well as senior associate Maciej Ziółkowski, made up the team from CMS Warsaw’s Energy and Projects Department.

Cushman & Wakefield

Commercial real estate consultants Cushman & Wakefield represented Warburg-HIH Invest Real Estate GmbH in its purchase of Prime Corporate Center (pictured), an office building in the Wola district of Warsaw, from the developer Golub GetHouse. The building was designed by Solomon Cordwell Buenz (Chicago) and Epstein (Warsaw). The BREEAM-certified 23-storey building with over 20,000 m2 of office space has been fully let to Raiffeisen Bank Polska.

Lynka

output of one of the units by 6 MW and improve the turbine efficiency by up to 6%, and enable the operator to disconnect the steam from the turbine during periods with low demand for electricity while generating hot water for the city’s heating system. The upgrade is scheduled to come online in August 2017.

Apparel producer Lynka received two gold medals at the CEE Manufacturing Excellence Awards 2016, for Sustainability & Environment and Textile Manufacturer of the Year (pictured). At the award ceremony at the Warsaw InterContinental,, Lynka founder and CEO John Lynch said Lynka had “made great strides” in sustainability and environmental practice in the past few years. The

Dentons

Law firm Dentons was named Professional Services Company of the Year 2016—Legal in BizPoland magazine’s CEE Clean Energy Awards, for its “long-standing commitment to supporting energy clients in this extremely challenging market in Central & Eastern Europe.” In addition, Dentons has signed a Diversity Charter in 7 countries across Europe, including Poland. The Diversity Charter is a voluntary initiative providing companies support and best practices in promoting diversity. As a signatory, Dentons commits to taking action to promote diversity and inclusion and combat discrimination at the workplace.

GE has announced it will upgrade a set of steam turbines at the district heating plant in Poznań operated by Veolia Energia (pictured in the next column). One 65 MW unit and two 105 MW units were originally made by Polish producer Zamech. GE plans to increase the

SUMMER 2016 AMERICAN INVESTOR

Newsline News from AmCham and its members

Members on the move

awards are organized by CEO Manufacturing magazine and EuropaProperty.com. Lynka, a full-service supplier of corporate apparel, workwear, and promotional clothing and accessories, was founded in 1992.

Citi Handlowy

Manpower

Recruitment company Manpower has moved its Polish headquarters to a new location at ul. Nowogrodzka 68 in Warsaw. The modern office design (pictured) follows recent trends in creating a people-friendly work environment. Iwona Janas, managing director of ManpowerGroup in Poland, said the relocation to downtown Warsaw reflects the company’s growing role among providers of innovative solutions to the labor market in Poland, where Manpower has been active for 15 years.

signed a lease with Allegro, the largest ecommerce platform in Poland, for 21,950 m2 at Prologis Park Błonie (pictured), a state-ofthe-art distribution centre with 7 buildings totaling 152,000 m2, 25 km west of the Warsaw city center.

Weil, Gotshal & Manges

Law firm Weil, Gotshal & Manges was recognized as a leading firm in 52 categories in the 2016 edition of Chambers Europe. Weil lawyers received 86 recommendations in the 2016 guide. Weil was named a “leading” firm for Corporate/M&A, Restructuring/Insolvency, Private Equity, and Tax, Europe-wide, and for Corporate/M&A and Projects & Energy in Central & Eastern Europe. The Warsaw office of Weil received Band 1 rankings in Banking & Finance, Capital Markets: Debt, Capital Markets: Equity, Competition/Antitrust, Corporate/M&A, Dispute Resolution, Energy & Natural Resources, Private Equity, Real Estate, Restructuring/Insolvency, and Tax.

Sławomir S. Sikora, CEO of Bank Handlowy w Warszawie SA (Citi Handlowy), has been appointed a member of the AmCham Board of Directors, following vacancies of two members due to career changes. Sikora is a graduate of the Warsaw School of Economics and was a Konrad Adenauer Research Fellow at the University of Cologne. In 2005–2008 he was a member of the Citigroup Management Committee in New York and in 2001–2003 was CEO of American Bank in Poland. Sikora’s earlier career included head of corporate and investment banking at Powszechny Bank Kredytowy SA (1994–2001). Prior to that Sikora held a number of senior positions at Poland’s Ministry of Finance, including head of banking and ﬁnancial institutions (1989–1994), overseeing the government-run banking sector rehabilitation program in 1992–1994. In 2010 he was awarded the Knight’s Cross of the Order of Polonia Restituta by the President of Poland.

Facebook

Robert Bednarski, Country Director of Facebook in Central Eastern Europe, has been appointed a member of the AmCham Board of Directors. Bednarski, who is based in Warsaw, is lead manager for Facebook’s CEE operations and sales team, working closely with Facebook clients across the region. Bednarski’s career over the past 15 years has included many senior leadership positions. Before joining Facebook he held a number of top executive positions at Grupa Onet.pl SA, concluding as CEO. Bednarski is a highly recognized business leader and expert in the ﬁelds of economics, ﬁnance, advertising, sales and management.

Westin Warsaw MSD

Pharmaceutical company MSD celebrated its 25th anniversary in the Polish market at the European Economic Congress in Katowice in May. As Erik Plas (pictured), managing director of MSD in Poland, said, “Pharmaceutical companies not only deliver innovative therapies to patients but are also important for economic development.” MSD is currently conducting 40 clinical trials with Polish investigators from more than 200 research facilities. Its Data Management Center in Warsaw, opened in 2009, now employs 160 people, analyzing patient data from clinical trials around the world, along with similar centers in Argentina, China and Colombia. MSD has invested over PLN 30 million in clinical trials in Poland.

Prologis

Logistics property developer Prologis has

AMERICAN INVESTOR SUMMER 2016

The Westin Warsaw (pictured in the previous column) has been awarded LEED Silver certification for operations and maintenance as an existing building. LEED is a sustainability standard from the US Green Building Council. The Westin Warsaw, the first hotel in Poland to earn LEED certification for existing buildings, was built 13 years ago by Skanska Property.

•

Agenda Intelligence from AmCham Committees Defense & Security

In May, Jacek Kotas, president of the National Center for Strategic Studies, an independent Polish think tank specializing in defense, and Mariusz Kordowski, a defense expert at the center, met with the AmCham Defense & Security Committee to discuss Poland’s defense strategies and what they mean in terms of business opportunities for the private sector. The discussion focused on the modernization plans for the Polish Armed Forces for which the government has earmarked about USD 40 billion. The speakers agreed that the money should be spent in such a way that the military gains versatile capacities for different types of conflicts that modern warfare supports, while opening up the defense industry in Poland to new technologies and areas of conflicts for which it supplies equipment and systems. In June the committee met with Michał Baranowski, director of the Warsaw office of the German Marshall Fund, who talked about the potential outcomes for Poland of the NATO Summit held in Warsaw in July. Baranowski listed the priorities of the summit’s agenda and talked about the extent to which they followed what was agreed at the previous NATO Summit in Wales. He said that for NATO the threats posed by the “Islamic State” are as important as the threats posed by Russia’s hybrid and cyber threats. He also said that the outcome of the presidential election in the United States will have a huge impact on NATO going forward.

Energy & Environment

In May, Krzysztof Kowalik, director of the Office for Strategic Energy Infrastructure at the Ministry of Development, met with the AmCham Energy & Environment Committee to discuss the main challenges and opportunities for companies in the Polish energy market under the European Union’s new energy policy, known as Energy Market Design. Kowalik also gave an overview of the government’s policies for boosting the capacity of Poland’s electric power system and mitigating power blackouts. In June, the committee met with members of the delegation of the AmCham EU Environmental Committee to talk about a range of specific topics, such as the EU policy on chemicals and the ambitious Circular Economy Package, which is meant to support the transition of the European economy toward adoption of more competitive and sustainable growth models covering the whole life cycle of products—from production to consumption to waste management and the market for secondary raw materials.

European Union Affairs

In May, the AmCham EU Affairs Committee held a meeting with Sebastian Płóciennik, head of the EU program at the Polish Institute of International Affairs, who talked about the balance of power between EU member states and how it affects Poland’s position in the Union.

AMERICAN INVESTOR SUMMER 2016

In the past there were not so many debates about the role of Germany in the EU. But when the unification of the EU monetary system began, the Deutsche Bundesbank headed up the process. Other member states began to complain that the new system gave them a “five-minute freedom” because they had only “five minutes” to adjust their policies following the decisions of the German central bank, which, they complained, were taken with no regard for the interests of most of the other member states. Then there was the problem of German unification following the fall of the Berlin Wall in 1989. Płóciennik quoted the late British Prime Minister Margaret Thatcher, who said she loved Germany so much that she preferred to see “two of them” instead of one unified Germany. This notion reverberated similarly in many different member states of the European Community at that time, Płóciennik said, citing for example French headlines claiming that a united Germany would amount to the Fourth Reich. Later, when the EU began to experience a crisis in its monetary system, other EU member states criticized Germany, the largest EU economy, for distributing money arbitrarily without consulting other member states. Today, in the same fashion, Germany is criticized for its policies regarding the current problems in the EU, including the eurozone and the inflow of refugees—“and in general the political methods of Angela Merkel,” Płóciennik said. Political scientists in Europe come up with different theories of the role of Germany in the EU. One approach assigns Germany the role of hegemony in the EU—stabilizing the Union. This is reminiscent of the role of the US in the 1970s for the world, when the US developed monetary and economic systems for globalization. But the American proposition, Płóciennik argued, does not attach benefits to only one country: “It is a system of sharing benefits among the players in the system.” The question is whether Germany, in its role of establishing such a system in Europe, can match the Americans, who, with the flexibility of the system they devised, enabled expansion of the liberal economy globally. Another issue Płóciennik talked about was the alleged German domination in the economy. “German domination does not stem from the sheer size of the country’s economy but rather from its structure,” he explained. “Germany could have been twice as big, but it would not have been so dominant had it not been for its economic system, which dominates other ideas for a free-market economy in Europe.” He characterized the German economic system as completely different from the US free-market economy, and compared it to that in Sweden and Austria. First, the stock market does not play such a big role in those economies, because people there are much more conservative investors and unwilling to buy stock of companies selling new products and services. “The dominant source of capital

in Germany is banks, which prefer long-term relations with the companies they invest in,” Płóciennik said. This is about mutual trust, confidence and loyalty. The labor market in Germany is oriented to the long term when it comes to the relationship between employer and employee. Salaries are negotiated by workers’ unions— each for a specific industry. While in the US people invest in learning general skills, such as marketing, which can be used across many different industries, in Germany, because of the expected long-term relationship between employer and employee, people may invest in learning specific skills. “This is why in Germany there is the lowest unemployment rate in the EU among youth,” Płóciennik said. He added that this is why there are a lot of incremental innovations in the German economy, while the US economy leads in radical innovations. In practice this means that German products are perfected in every detail. In this aspect American products lag behind German products. Germany built its service sector around this skill-driven economy, but governed by different principles. Employer-employee relations are very liberal. Workers do not need to have high skills and are not low-paid. Their employers actually pay only part of their salary, with the other part paid by the state. With this solution, low-skilled people still have a chance to get a job which is not a financial burden for the employer and can still afford decent living standards. Thanks to this solution, unemployment in Germany is kept at a “natural” level of around 4%. Another difference between the US and German market economies is that Germans are sensitive to macroeconomic stability and do not allow it to slip from their hands. Płóciennik said it is no accident that the word “debt” has negative connotations in German. Talking about social security in Germany, Płóciennik said it is connected with skills. People with skills get a higher pension after retirement because as workers with skills their salaries are higher and thus they pay higher premiums into their pension fund. But despite its strong economy, Germany is still prone to economic crises. Another important pro-stability feature of the German economy is that on a regular basis, trade unions and the government discuss wage rises and take into account many economic factors that contribute to economic stability. If for the good of the economy wages have to be frozen for some time, the trade unions go along with it. This prevents boosts in the supply of cheap money to the market, excessive consumerism, and its ultimate consequence—a bust. Płóciennik concluded his presentation by saying that the source of “conflict” between Germany and other EU member states stems from the fact that German politicians expect other member states to behave in a similar fashion when it comes to safeguarding their economic stability. This was especially visible during the financial crisis in Greece, when

Agenda Intelligence from AmCham Committees Germany insisted that the Greeks should introduce austerity measures in their economy, which would hit workers in government-controlled sectors the most. Meanwhile, other countries have other ideas how to contain economic crises, including boosting the economy with huge government spending, as the US does. In June, the EU Affairs Committee met with lawyers from Squire Patton Boggs—Dr Jens Rinze from the firm’s Frankfurt office and Aline Doussin from the London office—who talked about the legal challenges posed by Brexit. Doussin gave an overview of the political developments that led to the referendum on whether or not the UK should leave the EU, while Rinze discussed specific issues raised by Brexit. It was a long list, because after the initiation of the leave process within the EU, the UK will remain a full EU member for only two years. After this period expires, the UK’s status in the EU will be like that of any other country outside the Union. This means that the status of all British companies, including financial institutions, will change, as well as the EU treaties the UK was part of. This period may be extended if the British government negotiates such an option, but if it is to become reality it has to be approved by all EU member states. What the UK will lose out on is the freedoms that all EU member states enjoy: free movement of people, free movement of goods, free provision of services, free movement of capital, and freedom of establishment. The last of these provides that a company established in any EU country may operate in any other EU country with no restrictions—as if it were established in the country it operates in. With Brexit this rule will be gone for UK-based companies and they will no longer enjoy the freedom of doing business in the remaining 27 EU countries. The UK will need to have a separate bilateral agreement with each EU member state governing the rules under which companies from the UK may operate in each particular country, and the other way around. Rinze noted that companies that have longterm supply agreements in place with companies in the UK will have to watch how the import/export situation is resolved when the leave process is over in two years. “Custom duties for exports will simply kick in,” he explained, “and somebody will have to pay it.” Thus long-term supply contracts should be reviewed and amended accordingly. He added that while he did not have numbers showing how much of the UK’s GDP is generated by providing services to the 27 remaining EU member states, he said that it was no doubt considerable. Rinze also said that one of the problems during the leave process may be the different understanding of how a termination notice works. In the Continental approach to the law, a termination notice cannot be revoked once it has been delivered, but under English law it can be revoked. This may lead the UK to the

AMERICAN INVESTOR SUMMER 2016

conclusion that in case leave negotiations do not bring the UK to a successful Brexit as they see it, they may simply try to revoke their termination notice under the treaty and continue as an EU member until they negotiate better leave conditions. This would not be possible from a Continental legal perspective—all leave negotiations have to be concluded within the maximum two years stated in the EU treaty.

AmCham breakfast meetings

In May, AmCham held a breakfast meeting devoted to legal aspects of inheritance under Polish law, with speakers David DeBenedetti, a lawyer at DeBenedetti Majewski Szcześniak, Matt O’Shaughnessy, a tax adviser at Taxperience, and Paweł Orłowski, a Polish notary. DeBenedetti said that the provisions of law on wills and estates are not that difficult. It is the surrounding psychology that makes it a really difficult area of law. This is why there are cases of estates where family members of the decedent fight for years in the courts—like the family of Jimi Hendrix. The guitarist died in 1970 but the legal fight over his estate went on until 2015. O’Shaughnessy presented the main differences in inheritance taxation in Poland and the US. He said that the fundamental difference between Polish inheritance tax law and US inheritance tax law is that in Poland it is the beneficiary, the heir, who is taxed. In the US system it is the estate that is taxed. He said that in the Polish regime there are a number of specific exemptions where there is no inheritance tax at all. “We can leave in our will any asset, house, land and any tangible property rights to an immediate family member without any tax,” he said. The second useful exemption is that in Poland one can pass on an apartment or house up to 110 m2 to a more distant family member or an unrelated individual who was a caretaker for the decedent under a written agreement. An inheritance acquired in this way is tax-free under the condition that the individual uses the property as his or her residence for at least 5 years, does not sell it in the meantime, and has no other real estate. The third exemption is for household furnishings and equipment, which can be passed on to anybody within the family without any tax. Those three exemptions apply to Polish citizens, EU citizens, and Polish residents. O’Shaughnessy said that the inheritance tax rate in Poland ranges from 3% to 20%, and the rate depends on the amount of the inheritance and the relationship between the decedent and the recipient. The more distant the family relationship, the higher the tax rate. Inheritance tax has to be paid within a month after the inheritance is accepted or a 20% penalty tax applies. An inheritance has to be declared with the tax office within six months or the recipient is subject to a 20% tax. Another breakfast meeting in May focused on different approaches to the selling process. The speakers were Beata Niklas, a

business developer at Sandler Training, and Bartek Posmyk, a partner at the same company. Niklas gave a presentation explaining, from the perspective of sales efficiency, the most critical elements in the relationship between salesperson and prospective customer, why certain elements of the communication pattern work, and under what conditions. Posmyk addressed a range of HR issues that companies try to cope with today, and said that companies should not try to fix the easiest things they think would help them achieve better sales, but focus on the most critical problems that are holding them back. He said the most critical part of communicating with customers is to understand what they mean when they say what they say. It is wrong to assume that one customer is just like any other. He suggested a radical approach to enhancing sales processes based on an understanding of the company’s customers and their needs, sales team performance, and market trends, rather than focusing on product quality. In June, an AmCham breakfast meeting focused on corporate fraud and why things may go wrong, with speakers Piotr Szymankiewicz and Magdalena Simkowska from the forensic department of PwC, and David Rapkiewicz and Maciej Antoniak, lawyers at K&L Gates. The teams held a presentation of the problem of fraud in business from a general perspective, focusing on how to detect critical situations within the company, how to work with law enforcement authorities, how to follow through the law enforcement process, and also what to do afterwards and why it is important for companies to manage crisis situations. The underlying message was that no organization should think that their internal structure protects them entirely from fraud. Fraudulent activities may take place in any company. According to PwC’s statistics, there is a high perception of fraud-related problems in Polish companies, with some 33% of managers aware first-hand of how fraud can harm their organization. That means that one in three managers of Polish companies have had some experience with fraudulent situations in their organization. This in turn means that Poland has a relatively high rate of fraud, and business organizations still have a lot of work ahead to tackle the problem in terms of prevention and detection.

Correction

In the Spring 2016 issue of this magazine, reporting on the AmCham Tax & Financial Services Committee meeting in April, we incorrectly stated that the speaker was Anna Łaszczuk from Norton Rose Fulbright. In fact it was Marcin Matyka from the same law firm. We apologize to the people concerned and our readers.

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For the most recent information about the AmCham Committees and upcoming events visit amcham.pl Agri, Food & FMCG

Mission: To provide a platform for discussing and overcoming issues and identifying opportunities related to operational activity for companies in the agricultural and food sectors in Poland by creating a basis for dialogue and expertise leveraged among producers, sector professionals, experts and decision-makers in the Polish government. Co-Chairs: Piotr Bonisławski, Eli Lilly Polska; Andrzej Pawelczak, Animex.

Business Technology & Services

Mission: To provide a platform for discussing, identifying and addressing common SSC/BPO issues related to hightech operations; to maintain contact with local authorities, educational and governmental institutions to present a unified business perspective and options for cooperation. Co-Chairs: Jacek Stryczyński, Lionbridge; Angelo Pressello, Direct Communication.

Defense & Security

Mission: To discuss issues regarding the defense industry and exchange information, to create a networking forum for members, and to lobby and encourage decision-makers in government. Co-Chairs: Stan Prusiński, Boeing Europe; Marta Frąckowiak, DLA Piper.

Digital Economy

Mission: To provide a forum for innovative companies to support the digital economy in Poland as a key driver of sustainable growth. It aims to raise awareness about the importance of balanced investments in digital infrastructure, fully exploiting digital potential, and increasing competitiveness in the global environment. Co-Chairs: Patrycja Gołos, UPC; Igor Ostrowski, Dentons.

Energy & Environment

Mission: To help members develop their energy and environmental business in Poland. By helping members work collectively to overcome any systemic difficulties encountered in their business the committee aims to increase the level and quality of investment and activity in these sectors. Co-Chairs: Michał Koczalski, CEC Government Relations; Mariusz Mielczarek, GE Central and Eastern Europe.

European Union Affairs

Mission: To provide a platform for discussing business-related issues coming out of the EU, including EU funds; to work with AmCham EU on mutual lobbying initiatives; and to represent member companies before the European Commission and the government of Poland. Co-Chairs: Magdalena Burnat-Mikosz, Deloitte; Jerzy Thieme.

Health & Pharma

Sustainable Real Estate

Mission: To discuss issues regarding the complexities of the real estate market in Poland, and exchange information. To be an educational and networking forum for members and to lobby and influence legislative departments of the Polish government. Co-Chairs: Halina Więckowska, K&L Gates; Magdalena Pavlak-Chiaradia, ERM Polska.

Tax & Financial Services

Mission: To represent the voice and opinions on various issues of the health sector, to discuss conditions, news and challenges of the sector; to provide expertise. Co-Chairs: Ernest Bartosik, Unipharm; Aldona Zygmunt, Pfizer.

Mission: To provide a platform for identifying tax and financial issues and create an educational forum to keep AmCham members informed on current and upcoming legislation. Co-Chairs: Adam Soska, GE International; Marcin Matyka, Norton Rose Fulbright.

Human Resources Management

Travel & Tourism

Mission: To create an information exchange forum of HR professionals to share, discuss and learn about the latest trends in HR management and influence local policy and decision-makers. Co-Chairs: Jolanta Jaworska, IBM Poland; Agata Dulnik, Accenture.

Mission: To provide a platform for discussing issues and problems related to travel, leisure and the hospitality industry and to provide networking opportunities and to discuss trends and standards in the industry that will allow members to fully benefit from AmCham. Chair: Tim Hyland, FCm Travel Express.

Manufacturing

Mission: To provide a platform for discussing issues and problems related to the manufacturing sector in Poland and to provide networking opportunities; to discuss conditions, news and challenges in the manufacturing sector across Poland; to coordinate with AmCham’s annual Manufacturers’ Forum. Co-Chairs: Joanna Bensz, CH2M Polska; Przemysław Paździorek, 3M Poland.

Marketing & Communications

Mission: To provide a forum for member firms to share knowledge and exchange experiences in marketing, communications and PR, provide educational and networking opportunities for member firms interested in these areas, and serve as an advisory body for AmCham. CoChairs: Anya Ogorkiewicz; Ewa Suszek, Deloitte.

THOUGHT LEADERS

Individuals who are point people and experts for specific areas of interest for AmCham that do not require a formal committee structure or activity level. SME & Entrepreneurship Alain Bobet

Innovation Bogusława Skowroński

SUMMER 2016 AMERICAN INVESTOR

Cover Story Corporate culture

Inside imp The contribution of American investment to Polish society goes deeper than the numbers

any roads approaching Warsaw offer great views of the city’s downtown skyscrapers. They stand in the middle of the city, steel-and-glass testimony to the country’s successful economic transforma-

AMERICAN INVESTOR SUMMER 2016

tion. Depending on where you are looking from, the tall vertical structures overshadow the Palace of Culture, for some a gem of Soviet-era architecture, for others a relic of the country’s bad old days. Those who drive the

Siekierkowski Bridge heading west can catch one of the most spectacular panoramas of the Warsaw downtown. Owing to a twist in the Vistula River which makes part of the river invisible from the bridge as it disappears behind the

bend, the city looks as if it occupied the river’s right bank. The unusual perspective makes the panorama feel uncharacteristic, as if the city across the river, marked by a succession of tall ofﬁce towers, was not in Europe but in

the American Midwest—a Mazovian Minneapolis or Milwaukee. Or maybe the contemporary landscape of Poland’s capital suggests that American culture has penetrated deep into the core of Polish business?

Photo by Tom Cwiok

pact

The facts There are approximately 800 American companies in business in Poland. Some 42% of them have their head offices in Mazovia province, which practically means Warsaw or its outskirts. The impact of those hundreds of American companies on the Polish economy is a well-recognized and positive fact. In tangible terms it has been described in many investment reports issued by government agencies, independent economic consultancies, and business organizations, AmCham included. According to a report compiled for AmCham by KPMG in 2014, the total value of investment from US companies reached USD 24 billion by 2013 (and over USD 30 billion by mid-2015), while American investors had added nearly 200,000 jobs to the Polish economy directly in their companies. (This number should be multiplied by a factor of 3 to 7, depending on the sector of the industry, to get a picture of the number of jobs maintained by American companies indirectly. There are around 16 million people employed in the whole Polish economy.) In 2011, American companies paid their employees USD 4.5 billion in salaries, which translates into nearly USD 2,000 a month per person. US companies are especially active in technological and manufacturing sectors. They are big contributors to Polish exports (90% of cars that roll out of the GM production plant in Gliwice are sold abroad), and notably, based on numbers from the portal Trading Economics, 42% of the value of Poland’s exports is generated by electromechanical products, mainly vehicles, aircraft and vessels (UTC, GM and GE come to mind immediately), and over 50% by processed fruits and vegetables, meat and dairy products (e.g. Animex, Mars and McDonald’s). In order to crank out good financial results, American investors who came to Poland relatively early after the country began its economic transformation in 1989 had to pioneer some previously almost unknown approaches to business, such as technology clusters (UTC and the Aviation Valley; GM and the automotive industry cluster in Upper Silesia) and R&D centers—nearly 160 business and R&D centers in Poland are owned by American companies, a number that translates into 33% of all such centers established by foreign investors in Poland. The efficiency and business acumen of American investors have impressed many people in Poland, among them Janusz Piechociński, formerly Deputy Prime Minister and Minister of Economy. In 2015, the Ministry of Economy bestowed a distinction—Honorary Medal of Merit for Economic Development of the Republic of Poland—on 16 American companies for their

SUMMER 2016 AMERICAN INVESTOR

Cover Story Corporate culture “outstanding achievements in the area of innovation, promotion of Polish industry, implementation of new technologies, research, development and introduction of effective methods of management.” Among them were such “American icons” as 3M, CocaCola, GE, GM, IBM, McDonald’s, Marriott, Mars, Motorola and P&G. But the recognition did not go to those companies just because they were American, but because they were extremely successful, which above all means that they were successful at managing their people—Polish people. don’t call me boss! Marzena Winczo-Gasik, head of the Culture Audit Team at Great Place to Work in Poland, a company specializing in evaluating the quality of human relations in organizations and how they affect their business efficiency in different market conditions, noted that the first US investors in Poland, in the early 1990s, were big companies that had been around in the US since the early 20th century and in that time had acquired a fair share of experience in managing cross-cultural workplaces both in the US and globally. And it was in the US in the 20th century that most of the modern science of human relations, management, sociology and psychology developed. One of the best examples of this oldschool fusion of management ideas is represented by Mars Polska. Mars came to Poland 24 years ago and today supports 2,670 jobs. The company is known for its Five Principles (Quality, Responsibility, Mutuality, Efficiency, Freedom)—the staples of a business culture proclaimed in 1947 by Forrest E. Mars, Sr. He saw an ideal business organization as something that delivers not only financial benefit but also “life value” for all its stakeholders, not just the owners. Another American icon, 3M (established in 1906 in the US, in Poland for 25 years), developed a strong corporate culture that puts the worker at its center. According to Małgorzata Golatowska, a 3M Poland leadership team member, “Our people are our best assets, and this is why each new person goes through training programs right after the recruitment process. This is how they get to know the basics of our corporate culture, our organizational culture and our values. It is when they learn that we do not tolerate any diversions from our core values.” The company has a set of clearly defined values, supported by transparent rules and regulations. The values are about mutual respect, dialogue, professional and personal development, knowledge transfer, orientation on goals, and ethical conduct. “Our system makes us open to the needs and professional ambitions of our people,” Golatowska said. At International Paper Kwidzyn, the corporate culture focuses on teamwork and em-

AMERICAN INVESTOR SUMMER 2016

ployee engagement. According to IPK VP Aneta Muskała, “There are several management programs running across the company to do that. To foster open communication and mutual trust between employees, it has a form of mentoring. Managers meet one-onone with their subordinates on regular terms to discuss whatever is important at the moment. It is important in sharing the company’s culture. Good results can be achieved in a relatively short time, which boosts the engagement of our people in the company.” But it is not an easy task to get Poles to speak to you on a first-name basis. When American investors landed in Poland, bringing with them their business culture, it was a cultural shock for the market in Poland. According to Winczo-Gasik, “The first such shocking thing was that you were supposed to be on a first-name basis with your boss, instead of sir or madam. It was an element of the open-door policy and meant to simplify communications, to make them more direct.”

She said that the reluctance of Poles to speak openly may be “a cultural thing, something people in Poland found difﬁcult to accept then. Still today we know that it takes a while for young people in Poland, especially university graduates, to adapt to it.” Get engaged and help Corporate social responsibility, volunteering and charitable work are other aspects of American business culture which came to Poland with US companies and now are being recognized and embraced by increasing numbers of Polish companies. “It was mainly big companies with their headquarters in the US which brought these aspects here,” Winczo-Gasik said. “They had their general CSR policies but let their operations in Poland decide what should be done on the local level. So they came up with their own ideas. People from one company were planting trees, from another were volunteering to meet juvenile delinquents to help them feel like valuable members of society. Today CSR

Drawing by Magda Aranży. Used with permission of MillionYou

and volunteering are becoming very popular in Poland. Their importance for business management will grow as new generations of people, who are very sensitive about such issues, enter the labor market.” The seriousness with which American companies embrace CSR and charity, and the enthusiasm with which their Polish workers participate, is best illustrated by the scope of activities held by International Paper Kwidzyn—25 years in Poland. IPK is a huge employer in the region, as it maintains almost 2,000 jobs directly plus several hundred jobs with companies that predominantly supply the paper mill. Aneta Muskała said IPK has the ambition to put its CSR footprint on the region. The form this takes has changed over the years to match the needs of the local community. IPK provided ﬁnancial support for the renovation of the municipal hospital and bought equipment for the maternity ward, helped build the town’s foreign language and computer training center, built a water purifying station for the communal

system, renovated the local cinema, and built bike lanes and a sports hall. Today the emphasis has shifted more to the area of cooperation with schools and polytechnics, where the company is engaged and sponsors a range of professional and ecological education programs. IPK has also supported and promoted physical activities on the regional level. When it held the 7th edition of its Kwidzyn Papermaker’s Run in May, it attracted 3,400 runners for its ﬂagship 10k race and nearly 2,000 children in the second Kids Papermaker’s Run. This annual run, which cuts through part of the factory, has grown to become a huge event visited by runners from across Poland and many foreign countries, culminating in an evening concert attracting people of all ages from the town of Kwidzyn and surroundings. As Muskała pointed out, “The events are held and organized by IPK employees, who volunteer to be part of this magniﬁcent undertaking, which is one of International Paper’s biggest CSR events glob-

ally.” While the run is a big and noisy event, as it should be, the company also runs a quiet charity program. “Each month the employees donate to it,” Muskała said. “The company matches all the employees’ donation to double the amount with its own money, to aid individuals in need both in and outside of the Kwidzyn community.” Marzena Ignaczak, corporate affairs director at Mars Polska, explained that in light of one of the company’s principles, Mutuality, long-term benefits for the company have to translate into the well-being of the local community where the company is located. For people employed by Mars, that means good working conditions and extensive opportunities for professional growth. But those who are not Mars workers, but part of the Sochaczew community where the factory is located, benefit directly or indirectly through numerous CSR programs. One of them is a feeding program for 23 lifeguard dogs and 5 guide dogs. Mars volunteers cooperate with local animal shelters and take part in a local river cleaning program. The company supported a sidewalk building project for the city and was pivotal in facilitating a program linking a number of local households to the municipal gas pipeline. The company also facilitates canine therapy programs for mentally disabled children who attend a school near Sochaczew. In sports, Mars Polska built a family playground in Sochaczew and two sports fields, and for the last 21 consecutive years has held a major sporting event in the region called the European Run of Young Olympic Champions. And as Ignaczak underlined, the company pays all its taxes in Poland: “For the Sochaczew city council, that means they have the money to support all their social aid programs.” The world is diverse Beyond CSR and volunteering, there is yet another new cultural concept American companies introduced to Poland: diversity and inclusion management. According to Marzena Winczo-Gasik, “It is a natural thing for companies that originated in such a diverse society as the US to attach special importance to it. It works perfectly well in Poland too, and the importance of diversity and inclusion has become more widespread across the board in the Polish corporate world in recent years.” She added that American companies pioneered cultural diversity management in Poland. “It was not through declarative formulas and well-wishing,” she stressed, “but concrete communication policies that empower local staff and bring them close to the management process.” According to Winczo-Gasik, diversity management is becoming increasingly critical in the Polish market today, as different generations of workers, old and new, meet in

SUMMER 2016 AMERICAN INVESTOR

Cover Story Corporate culture one company. “It is a market condition which it seems is not only characteristic to Poland but to Europe.” Feedback please! Another “American invention” popularized by US investors in Poland is the culture of feedback—coaching and mentoring. “Americans brought coaching to business, and all the most important ideas were developed by US coaches, who are the best in the world,” Winczo-Gasik said, adding that coaching has rapidly spread in Polish companies as well and today is taken for granted in top positions. The feedback culture delivers, according to IPK’s Aneta Muskała. “To monitor how all the programs work across the company, the corporation runs periodic polls of its workers around the world to find out what they think and how deeply they are engaged in the company,” she explained. “The results for the Kwidzyn mill are always near the top. This translates into our financial results.” Winczo-Gasik noted that a new variation of mentoring, known as “reverse mentoring,” has recently been introduced into the Polish corporate world by US companies. In this approach, young and inexperienced workers tell their senior colleagues about certain aspects of life. “It is about sharing different perspectives on business,” she said. “It may be shocking for old-school managers that the perspective of young and inexperienced people may matter, but it is a fact that it helps build a better business organization when such perspectives are also taken under account.” it pays to be human The influence of American business culture on the Polish economy is hard to overestimate, because it is unorthodox, pragmatic and ready to take risks to reinvent itself and adopt new solutions, even from different cultures, which gives the company an edge. So what can be learned from the “American way” of managing people? According to Winczo-Gasik, “They should be treated like human beings by the management—they feel their needs and aspirations are something that the company cares about. For real. Only knowing that are they trustful of the management and willing to get engaged, innovate and go the extra mile to keep the company going in a time of crisis. And the reality of the modern-day economy is that it is disruptive and increasingly hard to predict, with change becoming constant and the next big crisis lurking just around the corner.” Muskała said that the original culture of International Paper, once implemented in Poland, has flourished ever since. As a result, the position of the Kwidzyn mill within the group is strong. “When the corporation made

AMERICAN INVESTOR SUMMER 2016

the decision to invest in Poland 25 years ago, there was risk attached to it,” she said. “Today the headquarters knows that if we say we can do something, we will deliver.” She added that the IP Kwidzyn team always wanted to get the best out of the culture of the corporation. In time it became a twoway process. “While we learn from the corporation, we also contribute and distribute our ideas and solutions across the organization,” Muskała said. “We use the knowledge, experience and expertise of our people and talents. When IP decided to start a big investment project with a joint-venture partner in Russia, our Russian colleagues were trained by the Kwidzyn team to use our experience and help start up the production lines in Russia efﬁciently and according to IP standards.” Muskała also noted that people’s engagement in the company makes it go beyond the obvious—“an important aspect in a place where innovation and constant process perfection is a must.” She gave a concrete example of how that culture works: “Someone in the company had an idea that the waste heat from the pulp mill would be put to better use if it was channeled to the municipal heating system instead of being released into the air. Today the company delivers municipal heat to the town of Kwidzyn which covers a majority of the city’s entire demand for heat.” 3M Polska’s corporate culture, which rests on its value system, not only works for the 3M people within the company but transcends it and boomerangs. Golatowska explained that when 3M began its business in Poland, the market was in its infancy. “We were looking for local partners to sell our products,” she said. “We helped them develop business, shared our knowledge with them, and they were happy to learn from us. Together we established successful business cooperation. Today some of our partners have grown and become huge companies in their own right. They evolved following the market and today we may learn from them. And because we shared with them, now they share their experience with us. It is about ethical business and mutual respect and trust.” The company works with its customers in this spirit all the time. Its engineers work closely with the customer to develop solutions for them. “The work is a constant dialogue,” Golatowska said. “Both sides exchange ideas and get to know each other better. It is about innovating for the client. But to make it work the process must be based on respect and mutual trust.” Golatowska added that with the 3M business culture, the company in Poland is one of the most dynamically developing ﬁrms within the 3M group globally. And it is viewed with interest by the 3M headquarters in Minnesota: “Our headquarters in the US found Poland a very interesting market because

they know we have highly educated people, many young, talented and ambitious individuals with new ideas who are looking for opportunities to be successful. So Poland is in focus in the US headquarters and new investment projects are coming our way soon.” Going further The inﬂuence of American business may soon spread beyond areas directly associated with business. In May, four chambers of commerce in Warsaw—American, British, French and German—were invited to take part in an interactive workshop designed to source ideas about what Warsaw should take into account when drawing up its development policy for the next 15 years. The workshop was moderated by Alain Bobet, AmCham individual member and Thought Leader for SME & Entrepreneurship, and Jan Kasprzycki-Rosikoń, partner and managing director of MillionYou, a crowdsourcing consultancy that advises the City of Warsaw. The city was represented by Deputy Mayor Michał Olszewski. It was the ﬁrst time the city had invited representatives of foreign companies to express their views and ideas regarding Warsaw in non-business areas. The workshop was part of a large program called #Warszawa2030, which activates different target groups from the Warsaw population to share their visions of the capital as a modern and dynamic city 15 years from now. Participants in the workshop were subject to different brainstorming techniques and activities, which they enjoyed a lot, according to Kasprzycki-Rosikoń. The ideas they produced were visualized by an artist in real time (as captured in the photo on the previous spread). “It was my idea to invite foreigners living in Warsaw to take part in this project,” said Kasprzycki-Rosikoń. “Foreign company executives are obviously people with extensive business knowledge and expertise, but they also have fresh perspectives on Warsaw as they can compare Warsaw with the cities they come from or have worked in earlier. So I sent invitations to the four foreign chambers of commerce. The response surpassed our initial expectations because more people actually showed up at the meeting than signed up. The representatives of AmCham were the most numerous.” Kasprzycki-Rosikoń said that the city was very happy with the outcome of the workshop, and it will continue to collaborate with foreigners in sourcing their feedback on a number of issues in the future. So the next time you see the Warsaw downtown from a distance and it strikes you as looking familiarly American, remember that there is more to it than meets the eye.

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AmCham Advisory Council The Advisory Council accumulates the knowledge and experience of its member companies and is a point of advice to the AmCham Board of Directors. With its global business expertise the Council has helped the American Chamber of Commerce in Poland to become one of the leading advocates of business in the country.

Monthly Meeting May

A less perfect union The European Union has problems internal and external, and lessons to be learned

oland’s role in the European Union and the challenges the Union is facing were the timely topic of the AmCham Monthly Meeting in May with expert panelists Krzysztof Blusz of WiseEuropa Institute, Prof. Leszek Jesień of Collegium Civitas, and Filip Skawiński from the Representation of the European Commission in Poland. The discussion was moderated by AmCham Chairman Tony Housh (APCO Worldwide). Introducing the discussion, Housh observed that 2016 is a critical year for the European Union, as it faces many complex challenges, including terrorist attacks, an influx of refugees, and the clash in the UK over whether to stay or go. Housh also noted that the long period of economic instability in the EU has had a negative impact on EU institutions. The challenge is to redefine the value proposition the EU offers, so more EU citizens understand and appreciate it. One such area is the EU single market, which, Housh said, should be further liberalized for the benefit of the EU economy and its citizens. Housh said that following the accession to the EU in 2004, Poland has played an important role in the Union. Poland’s voice remains important in the EU especially when it comes to solutions to challenges that EU institutions face, as well as the EU economy and consumers. what role? But according to Krzysztof Blusz, Poland’s strong position in the EU deteriorated in recent months after the new Law & Justice (PiS) government took power, as it used its EU policies for the purpose of reinforcing its domestic position—even though the EU is, strategically, one of Poland’s key partners. “The trouble is that for various stakeholders in Poland, there is no clear position of what the EU should be for Poland in the future,” Blusz said. Poland will still remain in the EU, he said, but the problem with defining the role of the EU for Poland will continue: “There is no clear vision of what kind of member of the EU Poland will be.”

AMERICAN INVESTOR SUMMER 2016

Hard to reform The trouble in defining Poland’s role in the EU may be caused by the EU’s inability to deal properly with external and internal challenges, argued Prof. Leszek Jesień. He said that one of the problems of the EU now is its structural inability to address external pressures the EU was not originally designed to deal with. It is a big problem, which Jesień depicted by comparing the EU to the US after the September 11, 2001, attacks. While the US reacted to 9/11 with a new global policy, for the EU such a reaction to its external threats is impossible at present because EU member states that were colonial powers in the past isolated themselves from their former colonies and their problems, and today are incapable of having a positive impact on the situation there. The question now is how effective the EU’s internal mechanisms are, and how the Union will be able to reform them further so it can effectively face the challenges coming from the outside. Jesień said he is skeptical of the ability of EU institutions to reform. In the past, EU institutions often did not deliver solutions to external problems, and the solutions that were delivered did not meet with acclaim from many EU member states. This relates to many key EU institutions, including the European Commission. For Jesień this is a major problem, because delivering solutions is “a prerequisite for the existence of the EU institutions. To change that should be one of the fundamental objectives of the EU.” Meanwhile, Jesień said, the EU is not responding to internal and external challenges the way it should. The best example is the way the EU has been handling the migration crisis. Before 2015 the crisis was viewed as something far away from the EU. Since the wave of refugees hit the EU borders, the EU and the European Commis-

sion held a numbers of special councils and meetings trying to figure out what to do to eliminate human trafficking. This was not the right way of dealing with the immigrant crisis, Jesień said: “The challenge is not the criminal, but the political.” new narrative needed Blusz explained that the inability to resolve present political pressures within and without the EU stems from the fact that the original reasons for which the EU was established have ceased to exist. This is why many people today think the EU is an old and outdated institution. Such thoughts are being expressed all around EU member states by radical parties that want to undermine the importance of the Union for its member states and create a feeling of mistrust towards the Union and its institutions. “They talk about the euro crisis and

The lesson the EU must take is that the 7-year ﬁnancial perspectives used for the EU’s budget planning are too long and do not allow for the ﬂexibility required to deal with unexpected strategic challenges. the migrant crisis and underline that those did not meet with a uniform action from all member states, which is presented by them as proof that the EU as such is unable to deliver,” Blusz said. Filip Skawiński explained that one of the problems the European Commission is facing in communicating its policies in the member countries is that it is the local media in each member state that deal with such communication. The problem here is

that they are often biased or do not understand the implications of EU policies. “This is why there is a predominance of a negative narrative about the EU in the member states,” he said. “If there is something negative coming from Brussels, ‘It is the EU’s fault.’ If there is something positive coming from Brussels, the media attribute it to the policies of their own country.” Blusz noted that such all-out criticism of the EU leads to delusions. One of them is the crisis narrative. “We are talking about the EU as if it were in crisis everywhere, which is not true,” he said. “There are member states which are doing quite well and those that are not doing so well. There are some types of crisis that are not in other countries. The migration crisis is one such phenomenon.” The other problem is the “decadent delusion” that the EU is at the verge of collapsing under the weight of problems it is incapable of solving. “It is far from the truth,” Blusz said. “Many countries, such as Russia, Brazil and Turkey, have been facing some difficulties in recent years and the EU is not an exception. However, there are some accomplishments in recent years too, such as the COP agreement, the deal with Iran, the united policies vis-à-vis Russia. The single market of the EU is still working, so we should not be so fatalistic about the future of the EU.”

Plan for the shorter term Skawiński observed that despite problems, the EU has had significant successes, and one such instance is the economy and the EU single market. “The EU economy is still growing, but the growth is not so dynamic as it used to be in the past,” he said. There are other problems in the EU, such as the inflow of migrants from the Middle East and Africa, which overshadow the economic success of the EU and impact mid-term EU policies. But the lesson the EU must take is that the 7-year financial perspectives used for the EU’s budget planning are too long and do not allow for the flexibility required to deal with unexpected strategic challenges. “It has to be somehow compromised,” Skawiński said. “So while the EU is doing its best to deliver on economic policy, it lags behind the changing reality in such areas as security policies and other external pressures.” Brexit? Speaking a month before the Brexit referendum in the UK, it was natural for all speakers to refer to such an unprecedented event in the history of the EU (save for the Greenland exit in 1985), when one of the strongest economies of the EU was on the verge of pulling out. According to Blusz, if the UK left,” the EU would no longer be as we knew it.” First, a set of uncertainties across the EU would unfold as the process

of the UK’s leaving the EU started. It would be “a messy and volatile period of working out how they possibly leave the EU,” Blusz said. This could affect business, Blusz added: “In a corporate office you don’t wait for the politicians two years to come up with a solution and tell you what you do. You come to the office next morning and you make a decision. So we are going to have massive uncertainty for two years.” But Blusz also said that Brexit would not be likely to initiate a domino effect with similar referenda taking place in other EU member states. For Prof. Jesień, the potential Brexit did not look so dramatic. He argued that the EU single market—the European Economic Area—would continue to be attractive for the UK, which would want to be a part of it despite its desire to leave the EU. That in turn would work as a stabilizing factor in the Brexit process. He said he hoped the process of disengaging the UK from the EU would be managed well and not last too long.

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MEET THE SPEAKERS

Krzysztof Blusz is vice president of WiseEuropa Institute, an independent, Warsaw-based think tank specializing in foreign policy and economics. Blusz is a political analyst and policy consultant covering the EU’s foreign policy, the political economy of European integration, and EU policies on energy and climate, trade and ICT. Blusz previously co-founded and managed demosEUROPA—Center for European Strategy and served as a member of the Scientific Council of the Western Institute. Blusz is a social scientist and a graduate of the University of Lódź and King’s College London.

Leszek Jesień is an associate professor at Collegium Civitas and serves as director of the Department of Strategy and International Cooperation at PSE, the transmission system operator for Poland’s power grid. He served as an advisor on EU affairs to three Polish prime ministers and a number of ministers of economy and environment. Earlier, he advised Poland’s chief negotiator for EU accession. Jesień earned a PhD in social studies from the Polish Academy of Sciences and a PhD in political science from the University of Warsaw.

Filip Skawiński is a member of the Representation of the European Commission in Poland, where he works as a policy analyst following Poland and the Polish context of several EU policies, including single market, budget, cohesion policies, transport and competition. Skawiński holds a PhD from Jagiellonian University in Kraków and masters in EU law from the University of Rennes, France, and political science from Jagiellonian.

SUMMER 2016 AMERICAN INVESTOR

Monthly Meeting June

Friends will be friends

The role of business, economic and people-to-people links grows as US-Poland relations intensify

s part of a long tradition of cooperation between AmCham and the US Embassy in Warsaw, once a year, in June, the US Ambassador hosts a meeting for AmCham members at the residence to update the American business community on issues in US-Poland relations and hear the members’ feedback. This year the weather permitted the meeting to take place in the garden of the ambassador’s residence, a fortunate coincidence given the high number of guests. intensive relations Ambassador Paul W. Jones assumed his post in September 2015, just a month before a signiﬁcant political shift occurred in Poland when a new government was formed by Law & Justice (PiS). Since then, US-Poland relations have remained intensive, according to Ambassador Jones. “Our ﬁrst high-level visitor in Poland since I’ve been here was Ambassador Michael Froman, US Trade Representative. I wanted that so much because I wanted to signal to

MEET THE SPEAKER

the new government that our relations are not only about security. The important ties that we have are in business and economic relations. We have an outstanding investment relationship and a trade relationship that is very good but frankly could be better, and that’s one of the things that the Transatlantic Trade and Investment Partnership can bring, along with many other things.” Other top-level visitors from the US to Poland included James R. Clapper, Director of National Intelligence, Antony Blinken, Deputy Secretary of State, and Robert O. Work, Deputy Secretary of Defense. In that time many top Polish ofﬁcials traveled to the US, including President Andrzej Duda, who was in the US twice, for the UN General Assembly in New York and in March for the Nuclear Security Summit. Polish Minister of Foreign Affairs Witold Waszczykowski traveled to the US, but also met with US Secretary of State John Kerry twice in Brussels for bilateral meetings. Jones said that the US would bring a big representation to Warsaw in July for the NATO Summit, including President Barack Obama, Secretary of State John Kerry, and Secretary of Defense Ash Carter. Higher security Talking about the NATO Summit in Warsaw, Jones said that while the event will focus on a number of security issues the alliance is facing, the most important aspect for Poland is strengthening NATO’s military deployment in the eastern ﬂank of NATO, “in the face of Russia’s aggression in Ukraine and destabilizing actions across the northern part of the NATO boundary with Russia.” Jones explained that the US will take the lead in this initiative by putting a brand-new armored brigade combat team in Poland. Along with the existing combat teams in Germany and Italy, the one in Poland will be the third such US team in Europe. It will consist

Paul W. Jones assumed the post of United States Ambassador to Poland in September 2015. Prior to that, as Principal Deputy Assistant Secretary of State for European and Eurasian Affairs in 2013– 2015, he was responsible for all aspects of US policy and operations in Europe, particularly Russia and Ukraine. He was Deputy Chief of Mission at the US Mission to the Organization for Security and Cooperation in Europe in Vienna (2004–2005) and at the US Embassy in Skopje, Macedonia (1996– 1999). Jones served at the OSCE Mission in Sarajevo in 1995, implementing the Dayton Peace Accords, as well as at the US Embassy in Moscow

AMERICAN INVESTOR SUMMER 2016

(1992–1994). In Washington, he was director of the Office for South Central Europe and, previously, desk officer for the Benelux countries. He served twice on the staff of the Secretary of State, as director of the Secretariat Staff and in the 24-hour Operations Center. Jones also served in US diplomatic missions in Asia and, early in his career, in Bogota, Colombia. Jones is a career diplomat. He graduated from Cornell University and received master’s degrees from the University of Virginia and the Naval War College.

of about 250 armored vehicles, including tanks. Jones explained that the brigade will be present in Poland on a rotational basis because the US government and Congress do not think that creating a new permanent base in Europe would be the best use of US government resources. He added that the brigade is just one of the US commitments to the security of NATO’s eastern ﬂank, but the US is discussing more commitments. “We put that on the table to our allies and ask them what they can do, and that conversation is going on.” supporting business Responding to a question from the audience about the perceived drop in pro-business attitudes of the current government, especially when it comes to foreign investment, Jones said there is a difference between perception and reality, and if there is any movement from perception to reality he will ﬁnd out what it means for US investors. However, he noted that US investment and particularly US activity have played a pivotal role in the tremendous economic success of Poland, and US business continues to play a symbiotic role with Polish companies—one that develops human talent and experience. “With that and the technology transfer, the closeness of our business communities is the most promising opportunity for Poland to boost its economy, get out of the middle-income trap up to a higher income level and a higher level of economic productivity and activity.” Jones added that other countries have faced similar economic challenges as Poland today and made that leap. “They made it in tandem with foreign investment,” he said, “mostly relying heavily on foreign investment. That, in my view, is shared in the big picture by the new Polish government, and it has been made very clear during Ambassador’s Froman visit to Warsaw.” Jones added that in the economic arena there have been several business disputes between the US and Poland that have lingered for some time. “We urged the new government to pay attention to them,” he said. “Some of them made some progress.” TTiP Jones said one thing that may help Poland boost its economy is the Transatlantic Trade and Investment Partnership, the free-trade agreement between the US and the EU currently under negotiations. While the negotia-

tions are still underway, Jones said that the positive outcome of TTIP for both US and European economies can hardly be overestimated. “The only way such an agreement may get done is if people have conﬁdence that it is, in a bigger picture, a good thing,” he explained. “For Poland, for Europe and for the US, it does a few things. One is that it cements the strategic link which it is sort of shocking we don’t have in our relationship between the US and Europe. But it is also a free-trade agreement of a completely different level of standards than normal free-trade agreements around the world that other countries and the US conduct. For Poland, it will provide easier access to the US market for small and medium-sized enterprises, which are not very present at the US market right now. We think it is a big win/win situation. Trade Representative Michael Froman came here and this is what exactly every businessperson he talked to in Poland agreed with.” Forging ties Jones said that one of the most important aspects of US-Poland relations is people-topeople ties. “This is something we have to

constantly rejuvenate—the incredible ties that we have between our countries and our peoples,” he said. New projects the embassy has led this year include the American Corner at the downtown library at Plac Konstytucji in Warsaw. “It will be a place where people can go for resources and advice—in addition to the Fulbright Commission—on studying in the US,” the ambassador said. Another project is an exchange program aimed at high school students in Poland who would like to spend a year in the US. It starts with 30 people in September. “Polish high school students will go for one year to live with American families and attend a high school in the US,” he explained. “We hope to broaden that program soon to keep making sure that our people ties are experienced by the young people as well.” working with amcham According to the ambassador, AmCham in Poland has always been “a really valued partner in the US-Poland relationship.” Among other things, AmCham has been a great partner advocating for TTIP and helping the embassy achieve its other goals.

“We do many great things together between the embassy and AmCham, and we are delighted whenever they happen,” Jones said. “Some are annual events, and others are new events. Recently we had an Earth Day— Smart Cities event here at the residence. It brought in many people from municipalities around Poland to connect with American businesses that can help them develop and put into practice different smart city concepts.” Jones also mentioned one of the AmCham flagship conferences, the Manufacturers’ Forum, which for the first time took part in Warsaw this year. Deputy Chief of Mission John Law hosted the event from the embassy side. It attracted many US companies in Poland and featured top-level government officials from Poland among the speakers. Another joint project from AmCham and the US Embassy which the ambassador talked about was the education fair featuring 15 US colleges at the landmark building of the University of Warsaw Library. The fair was attended by some 800 students. Ambassador Jones thanked the AmCham staff, Chairman and Board for their great partnership and cooperation.

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Special feature AmCham Diner at the European Economic Congress

Keep it coming

While American companies in Poland talk about their success stories, Poles look forward to seeing more of them

n May, the American Chamber of Commerce in Poland rolled out its AmCham Diner at the 8th European Economic Congress in Katowice, marking its presence for the second time at this annual event. The diner served as a meeting point for congress participants, over coffee and donuts provided courtesy of the McDonald’s McCafé. But while the diner buzzed with conversations from opening to closing time for the threeday conference, it was the diner’s Media Corner where the host, Michał Kobosko, head of the Polish office of the Atlantic Council, and his guests set the tone for the discussions of US-Poland relations. The interviews conducted by Kobosko with a number of business leaders, local government representatives and journalists revealed that US-Polish links have interwoven on many levels, from economy and business to social and community issues. Part of the union It is universally acknowledged that over the years Poland has been a good place for investment. American companies were among the first foreign investors to set up shop in Poland, and their stories speak of growth and commercial success. One such company is CitiHandlowy, one of the largest banks in Poland today, present in the country since 1991. Jacek Czerniak, director of the global subsidiaries commercial and corporate group sub-sector at CitiHandlowy, interviewed by Michał Kobosko at the AmCham Diner Media Corner, said that the bank has been very successful in Poland and today it shares its experience with foreign firms who invest in Poland and Polish companies who invest abroad. “We have a program called Emerging Market Champions,” he said. “It is about supporting Polish companies in their expansion abroad as well as foreign investors in Poland whom we help to invest in Poland.” Czerniak added that the bank, which is a global institution, promotes Poland abroad because despite “questions about politics” the business basics are the same: “Growth projections are there. Poland is still a big market in the EU, despite lower ratings than before, and Poland is one of the most attractive places for BPO and shared-services centers, including R&D centers.” Czerniak concluded by saying that he was an optimist about the prospects of the banking sector in Poland. Despite challenges, such as a new tax on banks, in Poland “banks will be in demand because clients need experts to guide them.” Andrzej Korpak, the general manager of

AMERICAN INVESTOR SUMMER 2016

GM factories in Gliwice and Tychy, emphasized that Poland is a part of the European Union’s single market, and this is a big market indeed. The Gliwice production plant can roll out up to 200,000 units of the 5thgeneration Opel Astra annually, and this year the company was on its way to beating its record of annual sales by selling more than 170,000 units. GM will sell as much as 90% of that number abroad. “The automotive market in Europe is growing,” Korpak explained. “Not steeply, but it is robust growth of 2–3%.” Erik Plas, managing director of pharmaceutical company MSD Polska, stressed the importance of Poland’s being a part of the EU market. “Health industries support 8% of jobs in the EU and generate 10% of GDP,” he said. “It is government-supported, and government may see it as a cost or an investment. Most governments see it as an investment, because healthcare makes people more productive and contributing to the economy.” Plas also said that with the company’s 25 years in Poland, the experience is that the country has a friendly environment for American business, “with plenty of highly skilled scientists and life-science specialists” who make Poland “one of the most attractive markets in Europe in this respect.” To make his point, Plas said that ﬁve years ago MSD Polska established its Data Management Center in Poland, which analyzes medical data from the company’s patients 24/7. The center is a success. It is one of only four such centers MSD operates globally, and the only one in Europe. John Lynch, an AmCham Board member and president of apparel producer Lynka, said that the best thing for his business was that Poland joined the EU. “Before that, customs were time-consuming and it was killing business because our clients in other EU countries could not wait so long. Now 70% of our sales are generated in other EU countries. That’s since 2004, when we started selling to those markets,” Lynch said. He also underlined that Poles are very friendly towards US investors: “Poles have entrepreneurial spirits and are very positive about Americans too.” Ryszard Kruk, an advisor to the board of Enterprise Investors, an equity investor with 25 years in Poland under its belt, talked about the similarities between American and Polish entrepreneurs. “US companies have an entrepreneurial spirit, and Americans saw that Poles were also entrepreneurial,” he said. “Out of all credit that we issued to small and medium-sized companies in Poland in the

early 1990s, only 2% turned out to be bad credit. It shows the effectiveness of Polish entrepreneurs.” According to Kruk, the equity market in Poland is mature, with over 40 active privateequity funds. “Private equity is perfect for company owners who want to grow the value of their companies over the years,” he explained. EI helps them ﬁnd new, bigger investors or list their shares at the Warsaw Stock Exchange. The demand for such assistance is strong. The strength of Poland’s economy and its cross-border ambitions was best illustrated by another speaker, Frank Wagner, country manager for Poland at Lufthansa, a company with 45 years of business experience in Poland. As he said, “Poland is not an emerging market, but a star market for corporate travel—the second-most important market after Germany in this niche.” Lufthansa has around 800 corporate contracts in Poland, which is more than the company’s corporate contracts in the rest of Europe. Forging ahead Joanna Bensz, AmCham Vice Chair and managing director of the design and project management company CH2M Polska, underlined that Poland has quality engineers who still sell their knowledge and expertise for competitive wages as compared with their colleagues in Western Europe. CH2M Polska has a staff of 700, and as Bensz noted, they are ﬁrst-class people able to work internationally and in international teams. “Polish engineers are well-respected the world over,” Bensz said. She concluded her interview by saying that Poland is a very attractive place to invest, and CH2M Polska knows how to take advantage of that. CH2M is now building a global shared-services center in Poland, and when it is delivered next year it will be “the company’s second-largest such center in the world, following the company’s headquarters in the US.” Another speaker at the AmCham Diner Media Corner, Ales Bartunek, country manager for Poland and the Baltics at IBM, said that the company has been very successful in Poland, tapping into valuable human assets— IT specialists and engineers—in Kraków, Katowice and Warsaw. As the company consults in a range of areas, including cognitive solutions and cloud platforms, being in Poland is a good place because its solutions are applied in a range of industries, such as healthcare, energy systems, banking, defense and security. All those areas are on the growth path in Poland.

This was echoed by HSH Prince Michael von und zu Liechtenstein, founder and president of GIS, a Liechtenstein-based geopolitical consultancy. Prince Michael said it was a good move to relocate part of his firm to Poland, because as time showed, “there are excellent people in Poland.” He also spoke in high terms of the Polish economy: “Poland is still an attractive investment destination because investors are happy in Poland and want to do more. Poland still has one of the highest growth rates in Europe and will keep it that way.” Strong confidence in the Polish economy was expressed by another interviewee, Robert Stankiewicz, CEO of Dow Polska, a chemical company with 45 years in Poland. He said that many sectors of Polish industry are growing fast, which is good for Dow because “Poland it is a very diversified market and has produced for many sectors.” He added that as a chemical company, Dow is sensitive about energy prices. Although the price of gas is higher in Poland than in the US, Stankiewicz said, “The price of gas is not so different now than it was a few years ago, because Poland imports gas from many sources, and the price of gas we

we want more! Appreciation for American investment in Poland was expressed by a number of representatives of local governments and economic commentators. Marcin Krupa, Mayor of Katowice, said there are a number of suc-

cessful US investors in the Katowice Special Economic Zone, including such big names as GM and IBM. “We are very happy about them,” he said. Such companies are changing the face of Katowice and the region of Upper Silesia, from the Polish heartland of heavy industry to a modern, innovation-driven economy. Krupa said the region has 2 million inhabitants, including 160,000 students. The region welcomes foreign investors, as they offer jobs and thus keep those young people in the region. Otherwise they would leave in search of economic opportunities elsewhere. A similar notion was expressed by Andrzej Nowakowski, Mayor of Płock. He spoke highly of the Levis Strauss jeans factory, which opened in Płock 1990 and has been “one of the most important companies in the city, along with the Płock reﬁnery.” The factory maintains several thousand jobs, more than the reﬁnery, and is the largest employer in the city. “We are open to US investors, and other investors as well,” Nowakowski said. “We help them establish their presence, offering tax incentives for several years.” The importance of US investors in Poland was best summarized by Bogusław Chrabota,

hope will go down.” According to Daniel Bienias, managing director of commercial real estate consultancy CBRE, whose 700 employees in Poland manage commercial properties for their owners, the ofﬁce market has yet to mature in Poland, as there is still strong demand for new ofﬁces, especially in such cities as Kraków, the Tri-City, Wrocław and Poznań. An advantage of investing in developing commercial real estate in Poland is still the price of land and building materials—they are cheaper than in the West. “The growing trend will continue with more capital investors in Poland,” Bienias said, adding that the total amount of capital invested in commercial real estate in 2015 was PLN 4 billion. He said CBRE is working to make the Polish market more mature, and is pressing lawmakers to adopt regulations for real estate investment trusts in Poland.

AmCham Diner speakers 1

21 20 19 1. Ales Bartunek, IBM. 2. Joanna Bensz, AmCham Vice Chair (CH2M Polska). 3. Robert Biedroń, Mayor of Słupsk. 4. Daniel Bienias, CBRE. 5. Bogusław Chrabota, Rzeczpospolita daily. 6. Jacek Czerniak, Citi Handlowy. 7. Wojtek Ciszek, EBRD. 8. Tadeusz Donocik, Katowice Chamber of Commerce and Industry. 9. Tony Housh, AmCham Chairman (APCO Worldwide). 10. Anna Jakubowski, AmCham Board Member (Coca-Cola). 11. Andrzej Korpak, General Motors. 12. Ryszard Kruk, Enterprise Investors. 13. Marcin Krupa, Mayor of Katowice. 14. John Lynch, AmCham Board Member (Lynka). 15. Marek Matraszek, CEC Government Relations. 16. Paweł Panczyj, ABSL. 17. Marcin Petrykowski, Standard & Poor’s. 18. Erik Plas, MSD Polska. 19. Robert Stankiewicz, Dow Polska. 20. Krzysztof Szubert, Ministry of Digital Affairs. 21. Frank Wagner, Lufthansa Group. SUMMER 2016 AMERICAN INVESTOR

Special Feature AmCham Diner at the European Economic Congress editor in chief of Rzeczpospolita daily. “There are not enough American companies in Poland,” he said. He hoped that US companies would beat German investors and “be the number one foreign investor in Poland” because “Poland, along with the UK and Romania, is the most pro-American country in Europe and welcomes US investors with hopes.” The aspect of hope was perhaps best illustrated by Robert Biedroń, Mayor of Słupsk, a city which now cooperates with the US government because of the antimissile shield installation under construction near Słupsk. Biedroń explained that hosting US troops in

Poland is about not only national defense, but also cultural links. “For Słupsk it means that the city may become more culturally rich and capable of attracting more than US troops,” he said. “One good inﬂuence of the American military personnel who have become part of the Słupsk community is that English has become popular among the city’s population—a good sign for the city’s future.” a bit of explaining But while businesspeople talk about the markets in Poland with conﬁdence and anticipate further growth, leading rating agencies have lowered Poland’s rating in recent months.

Why this occurred was explained by Marcin Petrykowski, general director of the Polish ofﬁce of Standard & Poor’s. His agency was the ﬁrst to cut Poland’s rating, in January 2016, from A- to BBB+, with a negative outlook. Petrykowski said that rating agencies do not evaluate the economy, but debt issuers, so in the case of Poland’s rating it would be the debt issued by the Polish government. “This is why we take politics into the whole evaluation,” he said. “It is onefourth of the whole weight of our rating. We know that 8 in 10 cases when countries refused to honor their debt were politically motivated.”

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More than words Despite its populist rhetoric, the Polish government knows foreign investors are essential for economic growth

long with a continuous flow of business executives, local government officials and economic experts interviewed at the AmCham Diner Media Corner, diner guests could watch two discussions with panelists representing a range of different industries. The first, entitled “Investment Climate in Poland: Political Risk,” moderated by Wawrzyniec Smoczyński, head of Polityka Insight, an economic and political intelligence unit of Polityka weekly, focused on whether the government formed late last year by the populist Law & Justice (PiS) may have a negative impact on the business climate and markets in Poland. a threat? According to Jacek Siwicki, CEO of Enterprise Investors, a private-equity group, the government has been sending mixed and confusing messages about its take on foreign investment. On the one hand, Minister of Development Mateusz Morawiecki said in his economic plan that there are not enough exporting companies with Polish capital, as 2/3 of Poland’s exports are generated by companies with foreign capital. On the other hand, Morawiecki spoke enthusiastically about a planned investment from VW when it announced it would open an engine factory in Poland. Siwicki noted that, ironically, such messages may suggest that notwithstanding its nationalist rhetoric, the government has a good understanding of the importance of foreign investment. This view was shared by Joanna Bensz, AmCham Vice Chair and managing director of CH2M Polska, a design and project management company. Bensz said that at a meeting with AmCham, Morawiecki had said he was positive about helping international investors in Poland in their new proj-

AMERICAN INVESTOR SUMMER 2016

ects. Bensz noted that the “pro-Polish” rhetoric may be part of the new government’s policy to promote Polish companies in Poland and abroad, “because Polish companies had bad PR in the past.” She said that the new government is very focused on “economic diplomacy.” While declaring that there are not enough Polish companies versus foreign companies in an economic sector is perhaps not the most sophisticated way of promoting Polish business, the government should not be discredited for trying. Another panelist, Paweł Tynel, a tax partner at EY, said that the anti-foreign investment rhetoric is just words. When it comes to real actions, the government “welcomes foreign investors who create new jobs.” Maciej Dyjas, co-CEO of Griffin Real Estate, said that business partners abroad do ask questions about the political situation in Poland and how it could affect business. They have issues with Poland’s budget deficit and the exchange rate of the złoty against other world currencies. He also said that while his company used mostly banks in Poland to refinance some of its projects, now banks outside of Poland seem to be more interested in lending. “Polish banks have too many question marks because of new government regulations affecting their sector that are now being drafted,” he explained. “So they had to stop and see.” Wojciech Ciszek, principal banker on the Poland team of the European Bank for Reconstruction and Development, noted that while there is “a lot of negative noise in the media” about the plans of the PiS government, it is obvious that some sectors, such as banking and retail, will be negatively affected by new taxation that the government has announced. However, he said that the

economic fundamentals are strong in Poland and will continue at least as long as public finances remain stable. At this point it is impossible to say whether any problem with public finances will occur. Meanwhile, the SMEs in Poland which EBRD is financing say they are investing more. “This may signal growth,” Ciszek said. This notion was echoed by Zbigniew Pawłucki, a director at petrochemical group Orlen, who said that the company had no problem with executing its investment projects after the new government took power. “The złoty exchange rate affects us,” he admitted, however. The company has started successful projects in Germany, Czechia, Lithuania, the US and Canada. He proudly noted that Orlen buys oil and gas in the US and sells it in Poland. opportunities? Asked where they thought the best investment opportunities lay in Poland, the panelists presented a range of ideas, each characteristic of their core business. Jacek Siwicki from EI and Maciej Dyjas from Griffin said that a good investment strategy is always to follow the money. And, according to Siwicki, because of the PiS government and its flagship social aid project Family 500+, which pays monthly handouts to families with two or more children (PLN 500 per child, after the first), it would be wise to invest in companies that cater to individual consumers, such as those offering consumer products and healthcare services. Dyjas noted that Griffin had bought a stake in the Smyk chain of stores for children, which may benefit beyond earlier expectations if the Family 500+ program continues long enough. Dyjas added that there is a “mega-trend”

of investing in BPO centers in Poland: “Outsourcing companies employ more people than all government-owned companies. It is a very promising sector.” According to another panelist, Łukasz Wasiak from Penta Investment, a Katowicebased enterprise fund, the private healthcare sector is promising. He noted that 20% of Penta’s portfolio is in healthcare and outpatient services companies. Joanna Bensz said that companies connected with infrastructure may have a lot of work to do. “The infrastructure has to be

upgraded in many areas,” she explained. The government has already announced some projects, such as a new gas terminal and flooding prevention infrastructure. “There are bid delays, however,” she added. don’t get distracted In conclusion, all panelists agreed that foreign investors who eye Poland for the first time may somehow be discouraged by the negative media reporting that has accumulated around the PiS government in Poland and abroad. On the other hand, companies

that have invested in Poland before and know the economic reality of Poland, the markets and how they work, should not be discouraged by the political change, because they know that most industries in the country are on the growth path, and Polish entrepreneurs are hungry for more success. And it must always be remembered that as part of the EU, Poland has business links with the 27 other EU member states. Those are strong links that benefit the Polish economy.

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Too big to comprehend?

TTIP may be an opportunity for economic growth, but the public doesn’t trust the negotiators

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Partnership Between the US and the EU: Now or Never” was the title of another discussion panel at the AmCham Diner Media Corner in Katowice. Moderated by Michał Kobosko, the panel included representatives of the American business community in Poland and the central government, and also one of the most outspoken opponents of the Transatlantic Trade and Investment Partnership, the free-trade agreement currently being negotiated between the US and the EU. The big picture The first panelist, Howard Chase, director of government affairs at chemical company Dow Europe, said that the fact that TTIP negotiations are taking place reflects the obvious truth that trade is an engine of economic growth. As he put it, “The lack of trade never causes growth.” While the negotiations have been carried out by experts with a political mandate, he admitted that the negotiation process should be more open: “It may take longer, but it will be a benefit for all stakeholders if it is more transparent.” According to Tony Housh, AmCham Chairman (APCO Worldwide), there is a lot of criticism of TTIP. But when it comes to sustainable economic growth in Europe, there do not seem to be many alternatives. While Europe has the ambition to continue to have a leading position globally as a trading block, it will not maintain that if it opts out of what may be the largest global freetrade zone—that between the US and the EU. Another panelist, Katarzna Kacperczyk, Deputy Minister of Foreign Affairs, noted that while there may be different reservations about TTIP itself and the way the TTIP negotiations have been conducted, they should not obscure the perception of the US as Europe’s best and most proven strategic partner in the world—particularly considering that

TTIP would open up US markets to European companies. Incidentally, she noted, in 2015 alone the EU’s exports to the US rose by 20% year-on-year. “TTIP is a huge opportunity for the EU,” Kacperczyk concluded. Bartosz Kwiatkowski, public policy manager at PwC, said that there is evidence of how countries that entered into free-trade agreements with the US have benefited from them. Although not all industries in those countries benefited in equal measure, and there were industries that lost out, in total the economies of all countries that have freetrade agreements with the US have gotten an additional growth stimulus. devilish details Another panelist, Marcin Wojtalik, head of the Global Responsibility Institute, an NGO he co-founded to raise awareness of the economic problems of nations from the Southern Hemisphere, and who is a leading opponent of TTIP in Poland, talked about a number of issues surrounding the TTIP negotiations, such as their secrecy. He also criticized the unrealistic timeframe for their conclusion before the end of US President Barack Obama’s term in office. He said that while TTIP may help generate GDP growth for the countries concerned, GDP must not be the only indicator of economic wealth. It does not reflect many intangible factors, such as technological advancement, infrastructure, and many more. Wojtalik also said that while TTIP may be good for the US and the EU, it may hit countries outside of the free-trade area, such as Turkey and countries in Africa and South America, very hard. In addition, he said that the TTIP narrative looks great on the surface, but its details are where the problems are hidden. One such area is the investor-state dispute settlement mechanism that TTIP will include. It may not be good for Polish companies be-

cause the ISDS mechanism grants investors the right to resort to an independent arbitral tribunal in disputes against the host country’s government. In his opinion such tribunals are biased against governments, as they are “private, cryptic courts.” Kacperczyk rebuffed this view, saying that for TTIP the European Commission has devised a new definition of ISDS which ensures the objectivity and transparency of arbitration proceedings. She criticized Wojtalik for “making people afraid of TTIP with things they don’t know about.” Housh said that while there may be many question marks regarding details of TTIP, the bottom line is that it will simplify procedures and cut bureaucracy in transatlantic trade. “It is good for companies, and good for consumers,” he said. “It is about the ease of access to the EU market, and that’s why US companies support it.” Gnarly reality The panel concluded that the TTIP negotiations leave a lot to be desired in terms of transparency for all stakeholders, and the political process in the US—the fast-approaching end of Obama’s term—is no excuse for speedy and perhaps “sloppy” negotiations. The American business community in Poland joins the Polish government in supporting the idea of free trade between the US and the EU, because they both look at the big, strategic picture. Nonetheless, the discussion showed, the voices against TTIP may gain the upper hand in the public debate, as they loosely define economic benefits and often resort to conspiracy theories. With their scandalous undertones, such views may be appealing to the uninformed.

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Focus Space

The ﬁnal frontier The Polish space sector needs a national strategy to get ahead of the curve

n April, AmCham Gdańsk held a mini-conference with top management of the Polish Space Agency (Polsa), headquartered in Gdańsk, and the Polish armaments group PGZ, who discussed with AmCham members business issues surrounding the commercial exploration of space technologies in Poland. Prof. Marek Banaszkiewicz, head of Polsa, Col. Marek Malawski from the Polsa Defense Projects Department, and Michał Wierciński, director of the Space and Satellite Technology Department at PGZ, gave a summary of the space market in Poland from the perspective of the research community and the defense industry and talked about how the neglected market can grow to meet EU standards. academic experience Banaszkiewicz said that the involvement of Polish scientists and engineers in space research dates back to 1970, when they carried out the first rocket experiment involving a space spectrometer. The first satellite experiment involving Polish scientists took place in 1975. In 1977 Poland established its own Space Research Center, under the auspices of the Polish Academy of Sciences, and in 1978 the Polish astronaut Bronisław Hermaszewski spent a week in space. All those accomplishments took place as part of InterCosmos, a program of joint space research led by the Soviet Union. The program ended in 1992. After Poland’s political and economic transformation began in 1989, and the Soviet Union collapsed in 1992 (at which time the InterCosmos program was discontinued), Polish space scientists turned their attention to their colleagues in Europe. Their first assignment came from the European Space Agency’s UK team in Canterbury, and called for creating a sensor and other instruments to be used as part of the Cassini–Huygens satellite mission. Polish engineers delivered, and the mission was successfully accomplished in 2005 with Cassini land26

AMERICAN INVESTOR SUMMER 2016

ing on Titan, Saturn’s largest moon. After that Poland participated in numerous ESA assignments as an ESA non-member, to be formally admitted to the ESA in 2012. Two years later Poland established its own space agency, Polsa, to coordinate space-related research and the budding space industry in Poland. Today, the Polish Space Agency has bilateral agreements with Russia, France and the US, and its areas of expertise include solar physics, spectrometry, plasma physics, planetology and astrophysics, with some technical expertise in building subsystems such as power subsystems, advanced electronics and mechanics, electronic and ground support equipment, and related software. no direction home Despite that relatively rich experience and the large competence pool of Polsa, so far Poland has failed to come up with its own national space strategy. The reason, the panelists explained, is that there have been too many decision centers involved in it. Those are the Ministry of Development (controlling commercial cooperation with foreign partners), the Ministry of National Defense (paying the largest part of Poland’s fee to the ESA and interested in developing satellite surveillance systems), the National Center

Foreign companies are indispensable to give the space industry a boost in Poland with their expertise and technology transfers. The downside is that they pose competitive threats to Polish companies.

for Research and Development (allocating money, including EU funds, to R&D projects in Poland), the National Security Bureau (conducting satellite surveillance and data encryption), the Prime Minister’s Office (supervising space programs because of their strategic significance), and last but not least, Polsa (coordinating space research in Poland in terms of ESA requirements and ESA funding for it). There is a chance, however, that a draft of such a strategy will see daylight by the end of this year. If that happens, it will be the basis for Polsa to draw up an industry policy: how to deal with companies on the main strategic objectives, and where the money for concrete programs comes from. Whatever Poland’s space strategy ends up looking like or how it may contribute to the creation of the country’s space industry, the goals will have to relate to the needs of the space industry. There are plenty of them. First, the industry needs investment capital. Only a few Polish companies in the space market have successfully accumulated venture capital to grow. Most of them are SMEs without sufficient financial backing to undertake any serious space projects. The solution, which the national strategy hopefully will bring, may be financial schemes involving venture capital from the private sector as well as state funding. The need for Polish core funding for the national space program was raised by all the panelists. As Col. Malawski put it, “There cannot be a Polish space program without Polish funding.” Another problem of the budding Polish space industry is a lack of knowledge. Prof. Banaszkiewicz said, “There are not enough engineers in the market, especially in systems engineering, so education of new generations of engineers is a must for the Polish space sector.” Here, technical universities and scholarship programs from Polsa will be only part of the solution. What the industry also needs is involvement of business, including foreign companies.

Yet another problem is the lack of infrastructure. Polish scientists cannot complain about the lack of basic infrastructure, such as cleanrooms and labs, but when it comes to advanced test facilities, such as optical benches for big instruments, they are few and far between. The lack of technical people and inadequacy of the infrastructure amount to a significant drawback for the Polish space industry, the panelists agreed. For instance, it takes about 10 years for a project to develop to the so-called technical level with the use of Polish science—far too long for many companies to be interested in potential cooperation. One of the goals of Polsa’s head is to cut that time to 5 years, if the right investment is available from the national space program. Another problem for developing the space industry in Poland is the dominant position of the Ministry of National Defense. First, the ministry is the largest

PGZ looks to boost its own credibility and awareness, because the space industry involves high standards and very advanced technologies, which always go with prestige and acclaim. contributor to the fee Poland pays to the ESA, and this has numerous implications for the types of projects Poland should pursue. When it comes to the space market in Poland, the ministry puts enormous weight behind it, as it is the largest contracting authority for defense companies in the country. As a result, the Polish defense sector is traditional and conservative, suffering from an acute deficit of new technologies, R&D capacity and innovative thinking. This has its consequences. For instance, the need to develop a satellite-to-earth surveillance system has been discussed for many years, but as of now the Polish Armed Forces still have to make do without one. developing market All the speakers agreed that while the space market in Poland is promising in terms of business growth, the market needs at least 10 years to mature, that is, to start delivering concrete, world-class solutions. At present, the market can be seen as a four-tier structure, with the biggest

space companies, such as Airbus Defense and Space, Thales Alenia Space, and OHB System, atop it. The second-tier companies, such as Ruag, Selex, Sener and about a dozen others, are those that deliver subsystems to the systems that first-tier companies develop. No Polish company has reached that level. Thirdtier companies are those that build parts of systems as subcontractors to secondtier companies. The lowest-level companies are those subcontracted to deliver certain elements for companies that deliver primary platforms, systems and subsystems. According to Banaszkiewicz, foreign companies are indispensable to give the industry a boost in Poland with their expertise and technology transfers. On the other hand, they also pose certain competitive threats to Polish companies. First, because they have the knowhow for doing business in many markets, something that Polish companies lack. They also have money to invest or know how to generate investment capital, something that is very difficult for Polish companies. They also compete for the talented, but not so highly salaried workforce available in Poland. For instance, foreign companies look to build satellite factories in Poland, because as Banaszkiewicz said, satellites today are smaller and can be built “like cars in a car factory.” Banaszkiewicz explained that with a national space strategy, Poland may resolve to allow foreign players limited access to the market in Poland, up to 30% measured by the value of all projects. He also said that while Polish space companies are unable to compete in the European space market, perhaps Poland should not pay so much in fees to the European Space Agency. “Those are elements of a space market policy that we will need to formulate when we have the strategy,” he said. According to Banaszkiewicz, the bestcase scenario will be if PGZ, which in his view is the only group in Poland that can do it, becomes “a partner to foreign investors who brings in certain assets.” But as he admitted, “This is not an easy thing to do in practice, because there are not enough investors.” To attract all the important investors, Poland will need to come up with an incentive program, “such as access to the infrastructure owned by the Polish government at present.”

Under the leadership of the Ministry of National Defense, the Polish defense sector has been working for years to meet the domestic demand for armaments and defense-related equipment. The largest group on the market in Poland, PGZ is a key player in the defense sector and one of the largest defense groups in Central & Eastern Europe. It comprises 60 companies, including 48 of strategic importance for the defense sector in Poland. They employ over 17,000 people and had a combined annual turnover in 2014 of USD 1.4 billion. The bulk of PGZ’s production caters to the Ministry of National Defense, but recently the group began to extend its offering to civilian industries in Poland and abroad. This is part of PGZ’s new strategy to serve the defense needs of Poland with its core business, such as tanks, artillery maintenance, munitions, and aircraft parts, and at the same time “to open to the space industry, satellite technologies and IT.” With this move, PGZ hopes to attract new people who will build new technologies within the group, which PGZ then hopes to apply in other products. Also, with space-related projects, according to Michał Wierciński, “PGZ looks to boost its own credibility and awareness, because the space industry involves high standards—including high work standards—and very advanced technologies, which always go with prestige and acclaim.” To fill the gaps, PGZ has to have international cooperation with partners in the EU and beyond, including US, Israeli and other companies, the speakers observed. PGZ is now in the process of building such a strategy. PGZ management is trying to map the competencies of its companies to find which have potential for the space market. When the technology capability assessment is finished, PGZ will start to compile its development strategy embracing space. Some key strategic decisions are expected to be made by the end of 2016.

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defense to the rescue The panelists agreed that because of the relation between space and defense, the space sector in Poland may grow and mature in close cooperation with the defense sector, notably the armament group PGZ. SUMMER 2016 AMERICAN INVESTOR

Focus Hospitality

MICE to see you

The hospitality industry has done its part to accommodate the growing supply of tourists in Poland, and now it’s the turn of local and central government to foster further growth

n July Poland hosted two international events that brought thousands and thousands of guests from abroad to the country’s two largest cities, Warsaw and Kraków. The ﬁrst was a two-day event, the NATO Summit, in Warsaw on July 8–9. Its 2,100 delegates from 60 countries, and international organizations such as the World Bank, the European Union and the United Nations, included 18 heads of state, 21 heads of government, 38 defense ministers and 40 foreign ministers. The summit was covered by some 2,000 journalists. To accommodate them all, it took over 4,100 hotel rooms in Warsaw, including all top hotels. The US delegation, headed by President Barack Obama, stayed at the Marriott. Another big event—the Catholic Church’s World Youth Day—took place on July 26–31, and at its peak, on Saturday, July 30, attracted over a million people, including some 600,000 foreigners from 185 countries. While most of the participants were young people who took rooms in private homes or pitched tents at campgrounds in Kraków and neighboring cities, sometimes as far as 40 km from the center of action, the event generated huge demand for top hotel rooms in Kraków to accommodate wealthier pilgrims, media covering the event, and some government ofﬁcials, including observers from Panama, which will

AMERICAN INVESTOR SUMMER 2016

host the next World Youth Day in 2019. The event in Kraków put Poland on the map as a tourist destination for hundreds of thousands of foreign participants who, having gotten a feel of the country, may consider coming back as regular tourists instead of pilgrims in the future. The event in Warsaw put the city on the map as a destination for conferences and conventions. All participants of the NATO Summit took home swag including gift bags with the “Fall in Love with Warsaw” slogan on them, part of a promo campaign by the Warsaw Convention Bureau and the Warsaw Tourism Organization. While they may not swear undying devotion to Poland’s capital, they may do something even more beneficial for the city: consider it as a location to hold a conference. Those were the days In short, 2016 has been a good year for the hotel industry in Warsaw and Kraków, not only profit-wise but also considering the impact of the events on raising the awareness of Poland abroad, which in turn may pay off with more inward traffic in the future. In many ways 2016 was like 2012, when Poland and Ukraine co-hosted Euro 2012, the European soccer championship, an event that attracted an unprecedented inflow of foreign tourists to Warsaw, Gdańsk,

Wrocław and Poznań—the cities hosting matches on the Polish side—and Kraków, which served as an accommodation center. The year was so successful for the hospitality industry in Poland that the numbers generated in 2012 have become a benchmark. “2012 was incomparable, but some hotels are already reaching those levels in 2016,” said Gonçalo Duarte Silva, area manager of Starwood Hotels and Resorts in Poland. “Since then we have always tried to catch up, and it took some time, but after that time we are starting to see hotels reach those levels again.” Higher and higher But generating 2012 levels of revenue with no equivalent of the Euro championship in sight takes extra effort. Even if the inflow of clients is on the rise, its density can hardly be compared to that during Euro 2012. Thus the prices hotels can charge are way below 2012 levels. Also, with the influx of tourists on the rise, the market is becoming more competitive. Top players, such as Starwood, which operates properties in Warsaw including the Sheraton, the Westin and the Bristol, have to upgrade their offering to attract top clients. The competition has been growing, and since 2012 a few new hotels have been added in Warsaw and other tourist destinations across the country, such as Kraków and the Tricity of Gdańsk, Gdynia and Sopot. “The offering has been evolving,” said Duarte Silva. “We have to adapt to the sort of demand we are having. Sometimes that demand is based on price. People take decisions based on price, for instance, or other criteria. One such criterion is that you are attractive.” The attractiveness factor in the industry is obviously the standard. The higher the standard, the more attractive a hotel is for tourists. The first standard boost undertaken by Starwood in Poland and the owning companies was the renovation of the Hotel Bristol, a landmark property located on one of the most intensively touristed streets in Warsaw, Krakowskie Przedmieście. With the upgrade, the Bristol became part of the Luxury Collection portfolio, one of the top brands in the industry. Learning from that experience, Starwood and the building owning companies decided to give a shake-up to its another top property in the capital, the Westin Warsaw. It renovated the hotel’s public areas and has upgraded 40% of its bedrooms so far and now continues with restoration of meeting facilities. In July, the hotel was LEED-certified, the first hotel in Poland to obtain this world standard for sustainability. In the meantime, the Bristol decided more could be done, and did up state-of-the-art banqueting and conference rooms. And the company plans to

launch two new brands in Poland—a Four Points by Sheraton will appear in 2019 in the Mokotów district, and another Starwood brand, Aloft, in a yet undefined location. Aloft is a lifestyle brand that caters to millennials, offering, along with superb service, a mobile device-supported chat communication system with the hotel staff and a lot of open space and modern design to create a community feeling for the guests. The Aloft brand has more than 100 hotels around the world, and the one in Warsaw will be the brand’s premier property in Poland. city of kings Kraków is another city where the tourist market has been booming in recent years. It is the only city in Poland that attracts more foreign tourists than domestic. (In 2014, 57% of all bed-nights in Kraków hotels were sold to foreigners, compared to 40% in Warsaw, according to the Meetings Industry Report 2015 published by the Warsaw Convention Bureau and the Warsaw Tourism Organization.) It is natural that the competition for affluent foreign tourists is strong. In recent years new properties were added in the city, but the lodging industry has also seen a new segment emerge: private apartments. This is why in May Starwood announced an upgrade to its 12-year-old Sheraton Kraków, now the Grand Sheraton and one of only 25 Grand Sheratons in the world. The brand means the property offers a unique location (in the Kraków city center, with a rooftop restaurant offering a grand view of Wawel Castle and the Vistula, pictured on the opposite page), top service (guests rate the hotel), and unique interiors (designed by London-based Alex Kravetz). According to Duarte Silva, “The Kraków market is moving, and to remain competitive you have to change. Supply has increased and you have to be the leader on the market and have to step up. This is why we decided to upgrade the Sheraton Kraków to the Sheraton Grand Kraków.” The potential As the numbers of foreign tourists visiting Poland are on the rise, the hospitality industry is evolving to capitalize on the growing demand. Other stakeholders, such as cities themselves, do the same. The most outstanding example is Katowice, a city that has changed its public image from the capital of Poland’s rust belt to a center for meetings and conferences. With such initiatives as the European Economic Congress and other programs invigorating the city’s cultural life (initiated and led, with EU funding, by Katowice’s former mayor Piotr Uszok and continued under the new mayor, Marcin Krupa), the city has begun to attract such a huge international crowd of visitors that it turned out there are not enough five-star

properties to accommodate them all in Katowice. But market experts agree that Warsaw has the largest growth potential when it comes to the MICE (meetings, incentives, conferences and events) and hospitality industries. First, it is the nation’s capital, with nearly all government institutions headquartered there. Its population is also the most affluent, and its wealth is the fastest-growing in the country. Internationally, the city is known for its relatively competitive valuefor-money proposition in culture and leisure areas. It is the only city with two international airports. And it is the city of Chopin. As underlined in the Meetings Industry Report 2015, Warsaw has been growing in a number of international rankings. In Hot Spots 2025 by the Economist Intelligence Unit, which benchmarks the competitiveness of 120 cities based on their capacity to attract capital, businesses, talent and visitors in the future, Warsaw is ranked 43rd—the highest score among CEE cities, below Berlin but above Budapest, Prague, and Kraków. In another ranking, Most Livable Locations 2015, also from the EIU, Warsaw was listed among the top 10 cities with the most improved livability scores over five years, and ranked 64th out of 140 cities worldwide. In the Innovation Cities Global Index 2015 by 2thinknow, an agency that measures cities’ potential for boosting the innovative economy, Warsaw was ranked 86th worldwide. Cities from the region such as Berlin, St. Petersburg, Prague and Budapest were ranked higher, but other destinations in Central & Eastern Europe, such as Bratislava, Kraków, Tallinn, Vilnius and Katowice, were ranked much lower. Room for improvement Potential sounds nice, but it will not generate more conferences, meetings and general tourism if actions at the municipal level fail to deliver. According to Gonçalo Duarte Silva, if Warsaw wants to grow as a tourist destination it needs to boost its offer for tourists. “The leisure bit is very interesting for Warsaw in terms of market development,” he explained. “One reason is historical, but it is still value for money that you can find here. Warsaw is a lovely city from spring to summer and a bit of fall. The food and beverage offer is very nice. There is a great facility in the National Stadium, and big events do take place in town. Those big events help bring guests to the city, but guests also choose destinations because of their offer. They come to Warsaw and they’ll follow up with one or two more visits. It is important that Warsaw keep working on museums. There is the great National Museum, but also we need other museums, because those are the offers that guests compare versus other cities. So Warsaw has to be

more aggressive on that side.” He noted that with the opening of the Polin Museum of the History of Polish Jews, tourism from Israel to Warsaw has skyrocketed. Another pointer for Warsaw is that it would be a much more attractive destination for MICE if it had “a proper conference center to host conferences of 15,000 to 20,000 people with a main congress hall.” The Meetings Industry Report 2015 puts the number of meetings and conference venues at 220, but they are small. According to the report, “The vast majority of events and meetings (88.4%) were organized at the request of companies. Most represented were events dedicated to medicine, pharmacy and healthcare (14.7%) and education (13.0%), as well as IT, telecommunications and online services (8.4%), travel and leisure (6.0%), and finance (5.3%). At the same time, 75% of events were of a corporate nature, and it’s the dominant segment in Warsaw.” So while the city has successfully created supply for the small and medium-sized MICE segment, it has yet to make a leap and establish a large convention center to boost its offering compared to such competitors as Prague, Vienna and Budapest. Another area for improvement Duarte Silva noted does not apply specifically to Warsaw but to the entire country: communication. English has to be widely used in public spaces and cultural locations. With tourists coming from different countries and often different cultures, “You have to assume that English is a must,” he said. He added that as LOT Polish Airlines opened direct flights between Warsaw and Tokyo earlier this year, there are crowds of tourists from Japan coming to Warsaw for whom English is the only language of communication in Europe. The last issue Duarte Silva mentioned was of a national scope: the availability of people to serve the growing tourism sector. “If we want to have more hotels and restaurants,” he said, “we need to have people to work in the sector. There are not enough trained people to serve all the new offers. We try to retrain in this case to susit our offer— we call it employer branding—but at the same time it is not enough. More has to be done.” The call for more vocational training for the tourism industry came on the back of a larger worry: the lack of workforce supply in Poland. As he put it, “The country needs to take a decision: Do we need to facilitate people with other nationalities to come and work here or not? It opens a lot of different questions but that needs to happen. The industry cannot grow because the workforce is not there—not necessarily in the hotel sector, but more generally in the hospitality business.”

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SUMMER 2016 AMERICAN INVESTOR

Company profile SHL Polska

Where’s your talent? American Investor’s Tom Ćwiok talks with Aneta Fita, CEO and managing director of SHL Polska, the distributor of CEB SHL Talent Measurement solutions in Poland, about the challenges organizations face hiring talent

what can you tell us about ceB? CEB is a leading member-based advisory company. We give senior leaders and their teams insight into how the most successful organizations operate, equipping them with actionable solutions to transform operations. We have a range of offers. CEB’s Integrated Talent Management Services help executives improve business performance by realizing the value and potential of people. We offer support across the entire employee life cycle, engaging HR and leaders from ﬁnance, IT, sales and other organizational teams. Our SHL Talent Measurement Solutions offer science-based assessments, benchmark data, technologies and consultancy services to help organizations assess, select and develop the right people for the right roles. CEB Talent Assessment addresses an increasing concern among leaders about how to manage and leverage talent to achieve business goals. Our insights and solutions help the executives we serve improve business performance by realizing the value and potential of their people. Clients using our solutions see outcomes such as better employee perform-

AMERICAN INVESTOR SUMMER 2016

what’re the numbers behind your services? Our talent measurement capability builds on more than 30 years of technology, innovation and expertise. Our insight is based on more than 30 million talent assessments delivered every year across 110 countries and in 30 languages. We have the largest portfolio of 1,000+ off-the-shelf assessments that precisely measure skills, behavior and performance and accurately predict potential for all major job categories and levels in every sector.

what is driving your business forward? We look at market trends and customers’ needs from two perspectives. The ﬁrst one is recruitment and selection. Recruitment and retention are essential at any time, but in the current economic climate, with real talent in short supply, recruitment at all levels is proving highly competitive. So we see a shortage of talent, especially at senior levels. The second perspective is development and engagement. Here, I have to say that talent is increasingly scarce. Employers are facing a widening skills gap and the retirement of the baby-boom generation. According to our research, almost 22% of the potential value from strategic change initiatives is lost due to poor talent alignment. What is more, 72% of HR executives do not know if they have the leaders for the future in their organizations. It’s clear for us then that organizations need real insight into the ability, potential and needs of their people. so you can help? Our solutions are focused on aligning people competencies to strategic goals. Our expertise is a valuable asset for companies that are future-oriented and need access to best-in-class tools and best practices.

Photo courtesy of SHL Polska

what is the history of the company in Poland? SHL Polska, for many years part of the global company SHL Group, has been present on the Polish market since 1991. For the last 25 years we have mainly been recognized as a leading developer of psychometric tools and assessments that measure behavior and predict the performance of people in organizations. In 2013 SHL Group was acquired by the American consulting company Corporate Executive Board—CEB.

ance, increased sales and improved staff retention, which all lead to higher revenue and proﬁt.

Our priority will be to promote and implement CEB solutions on the Polish market. It is particularly important for us to introduce the CEB brand to the market and increase market share by offering the most innovative integrated talent assessment solutions.

what are your company’s plans? We are proud to say that Forbes in the US has ranked CEB among the top 50 most innovative growth companies. The list, which identiﬁes the 100 best-performing companies under USD 10 billion in market cap, distinguishes organizations based on their “innovation premium.” Globally, we want to continue our innovative strategy, which is focused on integrated solutions based on well-proven analytical tools and methodology. Locally, our priority will be to promote and implement CEB solutions on the Polish market. It is particularly important for us to introduce the CEB brand to the market and increase market share by offering the most innovative integrated talent assessment solutions. I am sure that the next years will be very exciting for our customers, for my team and for myself. It is a great pleasure to be part of a company that offers modern, innovative, business-oriented solutions. CEB’s motto is “What the best companies do.” So our future plans are simple: to help make every company the best company.

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LOT Polish Airlines

Flying colors

The american business community in Poland is obviously interested in your connections between north america and Poland. what can you tell me about those? North America is another strategic market, growing just as rapidly as Asia. It is also an attractive destination in terms of both business and leisure travel. Thus the market is also highly competitive. LOT flies to the United States on an everyday basis and offers the shortest and most comfortable journey across the

American Investor’s Tom Ćwiok talks with Piotr Szajczyk, acting executive director for sales and distribution at Poland’s ﬂagship carrier LOT Polish Airlines, about the company’s growth strategies

How do you view the east asia market, where you have just opened new connections? Asia is a strategic market that will grow rapidly in the upcoming years. LOT understands this potential. We are currently offering connections to major cities in Asia, such as Tokyo, Beijing and, from October, Seoul. We have already started selling tickets for flights to South Korea, where LOT’s Dreamliner will take off to for the first time on October 17th. South Korea is one of the most important and fastest-growing business centers and the cradle of gigantic, globally known corporations that have been keen on investing in Poland. Seoul is thus a natural destination for LOT, and our decision to start flying there is clearly backed by economic data.

what loyalty programs do you have for individual travelers? Miles & More is the largest loyalty program in Europe designed for those who love flying. Over 26 million passengers participate in the program worldwide, including 600,000 travelers in Poland. The program enables participants to collect and use miles to purchase tickets for flights operated by LOT and all Star Alliance airlines. Miles can be collected by traveling and by purchasing products and services offered by more than 250 partners globally. Miles & More cards have four levels: Member, Frequent Traveller, Senator, and HON Circle. Depending on the client’s needs and personal preferences, premium miles can be exchanged for airline tickets, travel class upgrades, or hotel accommodations. Status miles enable travelers to upgrade, allowing them additional benefits such as an increased luggage limit, a business check-in desk, or access to the Business Lounge to make travel even more enjoyable. Photo courtesy of LOT Polish Airlines

starting this year loT has opened a range of new international connections. do you see the difference in terms of passenger numbers that you serve? Definitely! Since January, over one million passengers have chosen to travel with LOT. Such a good result is the effect of the hard work of the passionate and committed team of people who make up LOT, both in Poland and in international markets. In 2016 alone, LOT has opened over 20 new destinations. In total, in January to June we carried over 19% more passengers than in the same period of last year. The number of passengers traveling on international routes has increased by over 22%, but that’s not all. We’ve noticed an increase in the number of passengers who travel on domestic flights. In the 1st quarter, there were nearly 11% more passengers than last year who chose to travel with LOT on these routes.

comfortable LOT Economy class. Regardless of the class, all passengers will have at their disposal personal screens with entertainment systems. And we cannot forget about the Polish community in the US, which has significantly contributed to the development of connections on this route. Due to excellent connectivity with other airports in Western and Eastern Europe, we continue to expand the scale of operations, and we are able to reach other European destinations via LOT’s Warsaw hub, offering the fastest transfers in Europe.

ocean from Poland and Central Europe. All long-haul flights are operated using the most modern planes in the world— Boeing 787 Dreamliners. LOT offers three exceptional travel classes on-board: LOT Business Class, with reclined, flatbed seats and restaurant service; LOT Premium Class, with wide and spacious seats and an extensive menu; and the

what can you tell me about your offer for corporations? With Polish businesses in mind, we have created the unique LOT Corporate Program. It enables companies to receive special offers for flights and to collect points for all company business trips on our airline. Participation in the program enables companies to cut costs and exchange the collected points for airline tickets, hotel accommodations, weekend packages, travel class upgrades, additional luggage allowances, and much more. All this is intended to help Polish businesses expand on a larger scale. More than 14,000 companies already participate in the LOT Corporate Program. All readers of American Investor are more than welcome to visit our website lotdlafirm.com to find out how we can facilitate their traveling needs.

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SUMMER 2016 AMERICAN INVESTOR

Company profile Arup Polska

Growing resilience and competencies American Investor’s Tom Ćwiok talks with Matthew Skuse, director and group leader of Arup Polska, about the trends in the construction market and the company’s strategies to stay on top of the game

AMERICAN INVESTOR SUMMER 2016

what are the market trends as you see them today? A lot of EU money went to Poland in the early days—10 to 20 years ago. There is still a lot of EU money coming to Poland, but the Polish economy has matured. For instance, the building sector is predominantly driven by the private sector, which has varying degrees of maturity. Back 18 years ago, there were many more international investors than today. Today, there are many Polish developers who are in local markets, which is a sign of maturity. With infrastructure, the work in Poland is dominated by the public sector. It is a much more difficult market for us, mainly because the terms and conditions are different. Historically it was all about price—the lowest price won the pitch—but we now see a change. So far some of the projects that we have seen are now projects awarded more for quality than just price, and I think again that’s a sign of maturity of the market. That does not apply to all projects in the market, but most significantly to projects financed by international institutions. Those institutions impose the procurement requirements on local beneficiaries, so it is definitely a change coming through where that funding is happening. As an international company, it is more dif-

ﬁcult for us because where we add value is through quality. When you are quality-oriented, not price-oriented, it is good for the country, because the lowest possible price does not give you the best quality. You are investing in assets that are going be around for a generation or more, and getting them at the lowest cost does not nec-

Photo by Tom Ćwiok

with 18 years in Poland i guess you have a long list of projects—but what are arup’s most signiﬁcant projects so far, historically speaking? Our operations in Poland started 18 years ago on the back of the Opel production factory in southern Poland. It was delivered principally by offshore effort from the UK. That led us to have people on site doing design and supervision, and that led us to other projects, and that in turn led us to recruit Polish staff. Since that time we’ve expanded our engineering capabilities and services in Poland. We have been involved in many projects, such as the Złota 44 residential tower in Warsaw, Congress Hall in Kraków and Congress Hall in Katowice, the Wrocław Concert Hall and Wrocław Shopping Center. We also did the Silesia Shopping Center and Medicover Hospital in Warsaw. We are currently involved in a PPP hospital project in Żywiec, southern Poland, the Aviation Museum in Kraków, and the Museum of Jewish Life in Warsaw. When it comes to infrastructure, it started with a major wastewater treatment plant in Kraków. We have also been involved in a project for the Vistula dam in Włocławek, where we have carried out environmental impact assessments and the concept design of a new dam and hydropower plant. Currently, we are bidding for a major water framework for infrastructure improvements around the catchment of the Oder River. When it comes to roads and railroads, about 10 years ago, during the peak of the state’s highway building program, we were involved in several highway projects, as well as advising the Polish railway company PKP on railways. Then there is our consulting sector. It is not technical design but technical advisory and deal-making, transaction advice, and advising clients at the very early stages in project creation. For the last few years we have been advising on Poland’s biggest waste energy plant, in Poznań. We have done master plans for the Chopin airport in Warsaw and an airport city in Gdańsk, and we’re currently engaged on the Kraków airport too. So we have very strong capability in aviation, and Poland is a centre of excellence for our aviation skills globally, for example.

essarily provide the best whole-life cost. When it comes to the consulting sector, it is a growing business for us because it is predominantly private-sector led. We are seeing more emphasis on quality rather than price recently, and it is a gradual thing.

you said that arup leads its aviation skills in the european region from Poland. what is the importance of the Poland office for the company globally? Arup has a certain approach to projects. We have always collaborated well on projects internationally, and ever since Arup was established in Poland those values and principles have been embedded in the way we have grown our business. Recently our people from Poland had a significant input in a major highway project in Denmark— over 45,000 man-hours we contributed to that project from Poland over the last two years. That was a combination of input on highways and bridges. Drainage came from Ireland and other skills came from other offices around the world, and that’s because our operations in Denmark are at the early stages of gestation. Until they build their own capabilities, we will bring capabilities from other places. We made a success of that project and overall the biggest contribution was from Poland. At the moment we have people from our Polish offices on long-term assignments to Denmark, Australia and the UK, so we have Poles embedded there who act as a link back to Poland. I think that collaboration and cross-fertilization of experiences and culture helped add to our success. How intensively do you resort to local people and talent? Gradually, since we established our office in Poland in 1998, the balance between expatriates and local staff has changed completely, to the point now that in total we have about 190 staff, of whom 189 are Poles and one of them is an expat (that’s me)—with offices in Warsaw and Kraków. A large proportion of our staff are below the age of 40. The quality of education in Poland is very high, and that allows us to recruit our high-caliber Polish staff in Poland. We have many young, talented people coming through. We encourage them to have professional qualifications in Poland. We also encourage them to work on projects outside of Poland to get experience, but ultimately we encourage them to come back home to leave a legacy—to leave projects in Poland for Poland. On the other hand, we take the skills that we learned in Poland and apply them to different markets. We have completed a number of projects from Poland in Romania on the back of the Romanian EU accession funds, and similarly in Serbia where they are receiving a lot of EU accession funds to anticipate their full membership in the EU. As far as projects that we have in Serbia at the moment, we are supervising a 160 km highway network which is part of the trans-European transport corridor on behalf of the Serbian govern-

ment, and it is a World Bank and EUfunded project. The other principal project in Serbia is that we do road rehabilitation for the Serbian road authority, currently advising them on the work they have to do to rehabilitate 1,600 km of roads. Those skills that we developed in the early stages of establishing the Poland ofﬁce now we have adapted to other places. Romania and Serbia are good examples of that.

start to grow our operations again by responding to the local market but also by responding to markets outside of Poland. Growth will help us become more costeffective in the local market, and it is selfgenerating it. So it is important to grow to become more efﬁcient in our cost structure. That helps us to respond to more diverse projects and bigger-scale projects too.

How do you position sustainability and environmental issues in your business growth strategy? In Poland we have two principal local capabilities. First, we have an in-house environmental group which supports our infrastructure projects and carries out environmental impact assessments for major schemes, and to support the application of environmental permits for projects. In our building sector we have a strong sustainability group which advises on LEED certification of buildings—an environmental standard for buildings using a US certification method. We have developed a successful business in LEED certification even where we may not be involved in the building design itself but the developer will bring us in to do environmental certification for sustainability standards. I see LEED certification as a growing business for us. Often when we have inward investment, investors are especially interested in those certifications, and Polish developers see them as adding value to their product. They may be developing them and selling on, but it also helps them with attracting tenants to those buildings. So we have a strong capability in Poland, and if we don’t have certain skills for a project, we can draw on skills globally. Arup now has more than 12,000 people working in 92 offices in 40 countries—in Europe 1,400 staff, in the UK 4,500, in the US 1,200, and 220 in Canada, for example.

what is your personal ambition as chief of the Polish operations of arup? One of my personal goals is to learn Polish. I’m six lessons in, and I know I have a challenge around that, but I’m committed to it. In terms of the operations…I’m a Welshman. I was brought up in the UK and I’ve been very fortunate to have worked globally with Arup. What I want to bring to Poland is some of my experiences from other places. It is important to me to empower my staff to make decisions—to make decisions for their future. The structure of Arup allows us to set our own direction in Poland if we so wish, albeit within our wider European and global framework. Arup brings together broad-minded individuals from a wide range of disciplines and encourages them to look beyond the constraints of their own specialties. This unconventional approach to design springs in part from Arup’s ownership structure. The firm is owned in trust on behalf of its staff. The result is an independence of spirit that is reflected in the firm’s work and in its dedicated pursuit of technical excellence. Broadly, Arup has a very flat organizational structure, not overly hierarchical. In all our offices around the world we try to encourage that, and there is nothing stopping the most junior person walking into my office and asking me a question about anything. I’m encouraged to engage our global chairman in London and pose a question to him or send an email. It is really powerful because it establishes a mindset and an operating environment where you are encouraged to think about things, to find your own way to solutions within the support framework. I want to encourage our youngest staff to feel empowered to be part of our decisionmaking process. I told them that I want to challenge them about things, but I want them to feel confident enough to challenge me back. Culturally, that may not have been something which came naturally to them. I want to give them that encouragement. By the end of my term I want them to be challenging me as much as I challenge them.

as a global company you must have been hit by the global economic crisis a few years back. How did the Polish operations fare in this? Economies were hit globally after the financial crisis, but we managed to sustain our Polish operations through these times. Those were difficult times, but I think our global operations allowed us to do that. Because we have a multidisciplinary offering, it gave us resilience, whereas some of our competitors maybe focused on specific offerings and had less resilience. So the way we have established our offices and operations has given us good foundations and resilience. We benefitted from our ability to move our staff around different offices and regions in an agile way. We had little or very small growth in our Polish group since that time, but now we are where we can

• SUMMER 2016 AMERICAN INVESTOR

Expert Litigation funding

Skin in the game 3PLF, the next frontier in global ﬁnance, is starting to generate signiﬁcant interest on the Polish legal market

hird-party litigation funding—3PLF—where an external party finances the costs of litigation, is increasingly seen as a positive tool for legal counsel to fight cash-flow issues and the spiraling costs of litigation. In the UK, the industry has exploded from being a niche area, with just GBP 180 million of funding committed to litigation cases in 2009, to funding of well over GBP 2 billion per year today. Moreover, the amount of capital available for 3PLF continues to grow exponentially, and is increasingly moving from its roots in Anglo-Saxon countries to jurisdictions such as Poland, which are still seen as virgin terrain and where there continues to be a lack of liquidity in many litigation processes. what’s in the name? In short, 3PLF is where litigation claims and their potential future payoffs are treated like an asset. It is the latest example of mankind’s incessant mercantilism, where litigation—like mortgages and equities before it—can be chopped up, bundled and resold to investors external to the claim. The problems of litigation are the same the world over: litigation is expensive, takes a long time, and is inherently unfair. Prices for international arbitration start off at the EUR 1 million mark and can easily spiral into many millions. Litigation is a zero-sum industry: every dollar in damages taken home by the winner (minus fees) must be wrung out of the loser. This of course needs to be priced into the cost of litigation, and a funder can give a smaller company security that their claim is worth something. 34

This expense means that even meritorious claims are often not pursued, due to prohibitive costs and associated risks. External funding allows lawyers and other advisers to be instructed by the claimant to pursue such claims. If the claimant loses the case, the funder receives nothing. If the case is won, the funder gets a success fee, which typically is three or four times the outlay, plus the return of the investment. Litigation funding is seen as a “win-win-win” for the claimant, external counsel, and investors looking to make returns from this new asset class. Claimants in particular are seen to benefit from an injection of capital and another external party that joins them with “skin in the game.” Third-party litigation funders are also seen as positive for the market, as they inject a welcome dose of objectivity on the merits of a legal case and on what the legal costs should be to fight the claim. Lawyers welcome 3PLF as it provides them security that their legal fees will be paid. It also acts as a corporate finance arm for legal firms and allows them to take on cases that they would otherwise need to fight on a contingency basis. Litigation funding is the latest frontier in investment and is seen by institutional and private wealth managers as a very attractive asset class, due to derisory returns in money markets. It is also seen as a countercyclical investment in uncertain economic times. In Western Europe, pension funds, university endowments, family offices and others have collectively pumped billions of dollars into the sector in recent years. The industry’s early growth

AMERICAN INVESTOR SUMMER 2016

also dovetailed nicely with the post-recession corporate climate where in-house counsel were eager to hand off risk. This trend will certainly have been noted with interest by institutional investors in Poland, where there are scant returns at present in other asset classes like the Warsaw Stock Exchange. 3PlF opportunities in Poland A recent survey by Dentons showed that the number of litigation claims fought by Polish companies was on the rise, as well as the costs of fighting litigation. For this reason, the “win-win-win” described above comes into play for Polish companies, lawyers and investors. Poland has two main arbitration courts, with increasing opportunities for funding. In Poland there has been one claim of significant note. US hedge fund Elliott Advisers financed the arbitration of the minority founding shareholders of Internet platform Wirtualna Polska in their dispute with Telekomunikacja Polska. TPSA had purchased a majority stake, with the founders having a put option for the remaining shares, dependent on the number of unique users the platform had. As the dot.com bubble burst, the valuations of Internet assets plummeted. WP went into bankruptcy, while the metrics of the deal for the put options (unique users) were easily fulfilled by the WP management. After financing the litigation, Elliott (which specializes in distressed assets) immediately hired one of the top Polish law firms to represent the founders, and a settlement was reached swiftly.

By Andrew de Roy, managing partner, CEE Consulting Group

There have allegedly been numerous other such transactions on the market, but none that have been significant enough for media coverage. david v. Goliath There are a number of situations in which 3PLF may take root. In the legal world, David v. Goliath is the often-seen situation where a plaintiff is so outmuscled by the defendant that from the very onset the odds are massively stacked against the plaintiff, despite the merit of the underlying claim. Litigation in Poland is unpredictable, expensive, and heavily skewed in favor of large, wellcapitalized entities. In addition, it lasts a long time, is stressful, strains valuable management resources, and frustrates budgeting of future performance. Larger companies can change strategies, throw more money at the litigation, and eventually make the smaller party “go away.” This problem is getting worse, not better, with approximately 70% of in-house counsel claiming that the costs of litigation are rising, not falling. The Polish economy is built on its SME sector, servicing large businesses both at home and abroad. 3PLF is a tool that allows them to deal with expensive claims which simply were way beyond acceptable budgets for them before. In this sense 3PLF will create a fairer economic situation for Polish companies at home and abroad. cash-flow management Even large firms need investment capital, and would rather invest today than wait for future payoffs. 3PLF can act as a way of providing capital for invest-

ment today, and then taking on a significant portion of managing the litigation process. Large firms can see an injection of capital into their full portfolio of litigation claims, where the future returns are then split by the funder and the firm. Last year, in a landmark deal, Burford Capital invested USD 30 million in all current civil litigation of British Telecom, a FTSE 100 company trading on the London Stock Exchange. This deal shows that even the biggest companies on the market can use 3PLF as a cash-flow management tool. As third-party litigation funding has become more respectable and mainstream, it is increasingly blue-chip lawyers who can advise large corporates to de-risk certain high-profile litigation, but legal departments can also become profit centers for companies rather than just a cost item.

While Poland may not be a major source of litigation funding claims, a lot of the biggest claims cut across multiple jurisdictions, including Poland. Litigation management by Polish firms is a completely untested tool, but the prospect of using litigation funding to finance growth, by drawing on future litigation awards as a credit line, is undoubtedly an enticing prospect. Restructuring According to one of the main 3PLF funds in the UK, 25% of cases are injections into current restructuring processes. The lack of any working capital is one of the main bottlenecks for resolving issues at distressed companies. This situation is particularly acute in Poland, where recent changes in re-

structuring law with the view to making the process easier have so far resulted in anemic outcomes. According to several mainstream restructuring practitioners on the Polish market, the main bottleneck for pushing cases to closure is a lack of available capital. Often a debtor will not pay and keeps stalling, knowing that the financial distress of the parent company may work in its favor. Injections of capital from third-party funders have the dual benefit of guaranteeing staff and advisers that they will get paid, as well as making debtors realize that the debt is “not going away,” often resulting in much quicker settlement. corporate finance for law firms Increasingly, in a competitive market, law firms are limited on fees and asked to handle litigation cases on contingency. This work is a double-edged sword for law firms, as they do not want to decline work from important clients, but working on contingency is risky in its own right and also can put stress on the firm’s own cash flow, especially as the timeframe for a litigation case is uncertain. 3PLF can bridge this gap by allowing the law firm to diversify the risk of fighting on contingency and also cover the immediate costs. As a result, many third-party litigation funders cast their mission differently: to give corporations and law firms a way to shed risk from their balance sheets. A law firm can get financing for all of its litigation by getting an injection of capital from a fund which, rather than betting on one-off lawsuits, scales up and backs large portfolios of cases to deploy money faster and create more consistent returns for their own investors. Third-party funders are also backing international expansion of law firms, with a good example being Hausfeld’s expansion into the German market, financed by Burford Capital. class actions John Byrne of Therium Capital states that the main area of in-

terest of foreign 3PLF investments may be in aggregating class actions in Poland. Class actions are where multiple parties have the same cause of action due to common or related issues of fact or law. In Poland, class actions are a new concept, with the law allowing them only coming into force in 2010. By the end of 2015, there had been 170 class actions filed. However, to date the vast majority have been rejected and none have gone to settlement. Nevertheless, it is still very early days for class actions in Poland, and the potential for developing them with external funding perhaps is the most interesting short-term opportunity. Perhaps the highest-profile domestic class action cases currently taking place in Poland are the frankowicze claims, where numerous banks mis-sold mortgage loans in Swiss francs to Polish consumers with exchange rates calculated at an improper indexation. Banks did not use the exchange rate of the National Bank of Poland, making it impossible for borrowers to predict the actual value of their installments. According to numerous well-known Polish litigators, the customers have a very strong possibility of winning in arbitration courts in Poland. Several class actions against banks are being prepared at present, with court hearings schedule to take place in several of these cases in the autumn of 2016. In class actions, third parties can subsidize the sign-up costs and the legal fees of the law firm running the book, but can also finance the marketing and media campaigns required to build up the class. The frankowicze claims are one of the most interesting opportunities to observe developments on the local market. While Poland may not be a major source of litigation funding claims, a lot of the biggest claims cut across multiple jurisdictions, including Poland. This includes two of the very biggest current cases receiving funding from litigation funds at present: the European truck cartel and the class action currently being built against Volkswagen for cheating on emissions testing.

cases against governments A lot of litigation funding claims are against governments all over the world. There are many reasons for this. First, governments are very “busy” and involved in a lot of activities, with many departments sometimes competing against each other. Secondly, many governments tend to discriminate against foreign investors, contravening bilateral investment treaties, with such cases going to expensive international arbitration. Thirdly, governments change, and often new governments are loath to honor commitments made by a previous regime with a different philosophy. Finally, third-party funders like such claims because governments are big, usually with significant assets that can be executed against. The CEE region has many examples of cases where thirdparty funders have financed claims against governments. The current political climate in Poland may make it likely that international arbitration claims will appear in areas such as energy, agriculture and finance, to name a few. what’s next for Poland? Because the Polish legal system is volatile and unpredictable, third-party litigation funds remain cautious on the Polish market. However, there is interest being shown by both international funders and local law firms to make deals happen here. To begin with, we expect to see international arbitration claims that originate in Poland being the most likely target for third-party funding. However, we expect to see significant action in the domestic market soon after, most notably in the area of aggregating local class actions. Once the market starts developing, we finally expect to see specific funds developing, adding significant liquidity to the Polish litigation and arbitration market. Watch this space.

SUMMER 2016 AMERICAN INVESTOR

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Expert Brexit

What next? The legal ramiﬁcations of Brexit will play out for months and years to come The win of the proponents of the UK leaving the EU does not by itself alter the legal relationships of the UK with the EU at all. Even if the UK Parliament follows the stated wish of the people and formally petitions to leave the EU, the constitutional procedures for an exit will potentially take years to run their course. There are unlikely to be material changes in UK law during that time. But that does not mean that you should not now be proactive in reviewing how the vote may or may not affect your legal obligations with trading and contracting partners in the UK, and best practice. Below we summarize, by topic, some of the more immediate considerations that may arise in your business. employment Leaving the EU does not by itself change the UK’s domestic employment law, either from today or from whenever the UK does actually leave—even laws that were originally based on EU directives. That means no immediate changes in the UK to TUPE (the Transfer of Undertakings (Protection of Employment) Regulations), the Human Rights Act, works councils, collective information and consultation rules, the Agency Worker Regulations, the Working Time Regulations, or any of the EUderived health and safety rules. Workers in the UK from EU countries will not automatically have to leave the UK or stop working in the UK, though they

may choose to do so. They will still be able to get back into the UK if they go abroad on holiday or business. Nationals of countries in the European Economic Area will still be hired without work visas for the time being, but if a UK business relies heavily on relatively unskilled labor from the EEA, it will need to start considering whether it will be practicable to source such workers from within the UK market. The UK may feel itself no longer obliged to implement into domestic law the EU’s forthcoming Trade Secrets Directive, but will probably do so anyway to minimize the damage to inward investment from EU countries. UK workers employed in Continental Europe will not have to come back home immediately. Longer-term—two years at least— their position will depend on what stance the EU adopts towards its own UK-facing immigration controls. It will remain discriminatory to hire EU staff in place of UK nationals (or vice versa) on racial or needs-a-visa grounds. The vote will probably mean a weakening of Lock-type holiday pay claims, and any other legal arguments or proposals that are based on EU law but not yet incorporated into domestic UK statutes. Whether the UK Government feels it necessary to pass such statutes before the formal point of exit remains to be seen—our view is that this is unlikely.

You should be proactive in reviewing how Brexit may or may not affect your legal obligations with trading and contracting partners in the UK, and best practice. 36

AMERICAN INVESTOR SUMMER 2016

By Peter Święcicki, Managing Partner, Warsaw, and Marcin Wnukowski, Corporate Partner, Warsaw, Squire Patton Boggs

commercial contracts Termination clauses in contracts governed by English law are most unlikely to be triggered by the Brexit vote. Even if a contract allows for termination if the obligations under it become more difficult to perform, Brexit is unlikely to mean that goods cannot be delivered or services provided, so it is unlikely that automatic termination will occur. Whether this applies to contracts governed by law other than English law needs to be reviewed in each individual case. Force majeure clauses in contracts governed by English law are equally unlikely to be triggered immediately. The “leave” vote is hardly an Act of God, even if it may have been beyond the reasonable control of the parties. However, governing law clauses are more tricky to predict in terms of their effect, but again nothing will change immediately or automatically. When it comes to commercial terms, especially where financial instruments are involved and currency hedging is provided for as an option within a contract, provisions may come into play automatically but they will be contract-specific. For longerterm contracts being signed now, consider protection against Brexit consequences such as trade tariffs, exchange-rate swings, capital movements, and tax changes. Trade In the likely event of a total break from the EU Single Market, the erection of trade barriers—whether by way of direct tariffs, re-establishment of customs processes, or non-membership of EU trade facilitation schemes—will be inevitable. However, for the time being, all current internal market rights will apply. Agreements as they

affect trade may be concluded within the two years allowed for a negotiated withdrawal, so companies should begin adjusting to the new situation as soon as possible. In terms of customs duty, and unless otherwise agreed with the EU before formal withdrawal, the UK will lose the benefit of the duty rates afforded by being an EU member state under the existing EU trade agreements with third countries. This would be likely to result in an increase in the cost of many goods imported to the UK, and from the UK to the EU, which may also be affected by any volatility of exchange rates. From an exporter’s perspective, those considerations should be carefully catered for in advance at the contractual negotiations stage, starting now. Financial services One of the advantages of EU membership is the availability of “passporting” rights between EU member countries. Passporting allows authorized companies in one member state to provide services in any other member state. Many financial institutions and fund managers have set up in Britain and rely on their UK authorization and the passport regime to offer their products and services in the EU. Brexit would mean that these financial institutions could no longer rely on their “passports” to offer products and services to customers in EU member states. It is possible that as part of the Brexit negotiations it will be agreed that passporting rights will remain. However, it is unclear how complex or lengthy an exit would be, and many financial institutions may wish to establish subsidiaries and offices within EU member states as a safeguard. Additionally, Brexit may result

in divergence in financial regulations between Britain and the EU, leading to increased compliance burdens for financial services companies seeking to operate across Britain and EU jurisdictions. Parties to contractual documentation referencing EU directive regulatory status (e.g. “credit institution” and “financial counterparty”) as a representation, condition or requirement will need to check whether the consequence of the UK falling outside the jurisdiction of the relevant directives causes an event of default with immediate termination or a right of termination. Consequently, parties may need to agree amendments to that documentation to avoid potentially material financial consequences of termination. In the event that Brexit triggers significant market movement, firms may need to pay attention to margin calls and collateral held by counterparties to collateralize their trading activity. Firms seeking to exercise rights under trading and security documentation in the event of defaults by counterparties will need to be alert to due process to ensure their enforcement rights can be properly executed. uk pensions The immediate focus for UK pension funds will inevitably be on investment, not legal, issues. Optimists before the vote acknowledged the market shock that is already occurring to sterling and equity markets, but suggested that if gilt yields rose on the back of Bank of England intervention, that would reduce defined benefit liabilities. If that scenario plays out, it would be a boon for corporate sponsors, wherever they are based, who are struggling to fund pension deficits, but the truth will no doubt be more complex and declines in asset values may cancel out any rise in yields. Longer term, the vote will mean that institutional investors will be reconsidering their investment strategies. For UK corporates that are heavily reliant on EU earnings, new covenant assessments may be required by trustees.

European-derived equality legislation that applies to pensions will, as with employment law, remain in place, even though speculation will no doubt continue about whether

guaranteed minimum pensions still need to be equalized. In the longer run, arguments about the detail of the draft IORP II Directive (which the Dutch Presidency is in the process of ﬁnal-

izing) may now be academic from a UK perspective but remain highly relevant to the remaining EU member states.

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4th OF JULY

SUMMER 2016 AMERICAN INVESTOR

Expert Competition law

Call me a cab An innovative taxi service triggers legal controversies

oland’s competition authority, the Office of Competition and Consumer Protection (UOKiK), conducted an analysis of the passenger transportation market and in May 2016 issued a notice evaluating Uber’s business in Poland under the Competition and Consumer Protection Act. new business model Uber’s business uses modern technology—a smartphone application—to allow people to order transportation by car, with the possibility of choosing the driver and the car. Uber offers a service of intermediation between passengers seeking transportation and drivers, who are not regulated taxi drivers, willing to offer such service. Uber does not provide transportation services itself, own any cars, or employ any drivers. The entire Uber business is based on the intermediation service provided through its smartphone app and Internet. This is a great example of the sharing economy based on new technologies that is constantly growing throughout the world, changing the terms of competition and providing new services to customers.

it’s controversial Uber’s activities have generated controversy in all countries where Uber has entered the market. Taxi drivers and their associations, as well as various authorities, have accused Uber of violating a range of laws, from the lack of regulatory approvals for transportation of people, to passenger safety, data protection issues, and infringement of competition on the passenger transportation market. Competitors have also alleged that neither Uber nor the drivers are adequately taxed, and therefore the playing field between Uber and traditional taxi/transportation services is uneven, giving an unfair competitive advantage to Uber. Protecting consumer rights Pressed by these concerns, UOKiK conducted a monitoring of the market in order to assess the compliance of Uber’s activities with Polish law. UOKiK assessed compliance of Uber’s business with consumer protection laws and, to a lesser degree, competition law. The general finding was that the Uber business is an innovative solution that improves competition on the relevant

Play and pay Tax aspects of organizing consumer contests

usinesses seeking new customers and encouraging them to buy their goods or services often decide

to hold various promotional campaigns. One of the most popular forms is contests. But in practice it is not as easy as it

AMERICAN INVESTOR SUMMER 2016

By Marcin Wnukowski, partner, Squire Patton Boggs

market by offering consumers a better choice of transportation services. The authority found that Uber properly and adequately informs consumers of the nature of the service, stressing that it is not a provider of transportation or taxi services, and adequately informs consumers of the prices and price variations. Further, UOKiK concluded that Uber has proper procedures for handling customers’ complaints, with sufficient resources backing the procedures. Finally, the authority noted that there have been no consumer complaints since commencement of Uber’s operations in Poland in August 2014. Generally, the message from the statement is clear. From UOKiK’s point of view, Uber is an innovative service provider, offering a new type of service to customers, providing for quality and innovation. unanswered questions However, there are a few points still open for review by other authorities. UOKiK refused to comment on whether the measures taken by Uber to ensure passenger safety (e.g. requirements concerning the age of cars, verification of drivers’

criminal records and traffic violation history, as well as having insurance in place) are adequate, but referred assessment of these matters to other authorities responsible for regulating passenger transportation in Poland. The competition authority also refused to comment on taxation, mentioning however that according to the official standpoint of the Minister of Finance, the income of Uber drivers is taxable under the Personal Income Tax Act. more to come UOKiK noted that changes on the market may require the Polish authorities to review the regulations governing the market in order to allow for the development of innovative solutions, while incumbent market operators cannot expect unjustified protection. Competition should be protected, but this does not mean protection of specific competitors. Therefore, further initiatives by various authorities in Poland, not aimed against Uber but seeking to assess Uber’s compliance with the law, can still be expected.

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By Aleksandra FaderewskaWaszkiewicz, advocate, tax adviser, partner, and Karolina Jesionowska, associate, Łaszczuk & Partners

might seem to organize a contest. To relieve themselves of these difficulties, businesses often hire advertising agencies

to organize contests. This is when the tax hurdles begin to mount, as both the ad agency and the company retaining the

Tax law agency to organize the contest must resolve several important doubts of a tax nature concerning organization of the contest. who remits the tax? In Poland, a consumer who wins a contest will obtain income in the form of the prize which is generally subject to income tax at a flat rate of 10% (although in some cases the exemption set forth in Art. 21(1)(68) of the Personal Income Tax Act may apply). However, it is not the winner himself, but the “entity providing the winnings” who is required to withhold the tax and pay it over to the proper tax office on behalf of the taxpayer (PIT Act Art. 41(4) in connection with Art. 30(1)(2))—that is, to act as the remitter of the tax. A key question for the entities involved in preparing the contest is whether in the case of organization of the contest with the participation of an outside ad agency, the obligations of the remitter of the tax are borne by the ad agency, as the entity actually handling organization of the contest, or the agency’s client, which often has no direct contacts with the participants during the contest. In other words, which of these entities should be regarded as the “entity providing the winnings”? Under the position taken by the Polish tax authorities in the latest tax interpretations (nos. IPPB1/4511-478/15-4/ES, IPPB2/4511-201/15-4/MG and IPPB4/415-1057/14-2/JK3), the remitter of the income tax is always the entity commissioning the organization of the contest, as on the basis of the contract with the ad agency it is the client who bears the full economic burden associated with performance. This position applies as well when the ad agency, as part of its marketing services, both purchases and delivers the contest prizes. It should be stressed that the remitter’s legal duties cannot be transferred to another entity by contract (tax interpretation no. IPPB2/4511-42/15-4/AS). The ad agency cannot undertake as part of its marketing service to withhold and pay the

flat-rate tax on behalf of the contest organizer. Such a contractual provision would be invalid, and the payment of the flat-rate tax by the agency would not release the organizer of the contest from this obligation. what if the winner is selfemployed? Sometimes the participants in the contest are individuals operating their own business (self-employed persons) and the contest is related to their business activity. In that situation, the organizer of the contest, as the potential tax remitter, should consider whether the prize received by self-employed persons in the contest will be subject to the 10% flatrate tax, or perhaps the selfemployed winner should include the value of the prize in his or her other business revenue? In the latter case, the organizer of the contest would not act as the remitter; that is, it would not have an obligation to withhold and pay over the tax on behalf of the contest participant. The position presented by the tax authorities on this issue has changed over the years. Originally the prevailing view opposed application of the 10% flat-rate tax on winnings received by self-employed persons in contests related to their business activity (interpretation no. IBPBI/1/415-1165/12/ESZ). In recent years this position has changed in favor of applying the flat rate of tax (interpretation nos. IPPB1/415-380/14-2/EC and IPPB1/4511-503/15-2/ES). This view is shared by the administrative courts, which consistently hold that Art. 30(1) of the PIT Act, providing for the flat rate of tax, does not contain any subjective limitations preventing it from covering individuals conducting business activity (case nos. II FSK 232/13 and III SA/Wa 203/12). Despite the recent unification of the position of the tax authorities and the administrative courts on this issue, in favor of applying the 10% rate, the Minister of Finance is taking a different line. In a document dated 30 November 2015

(no. DD9.8222.2.41.2015.JQP), the minister on his own initiative amended a tax interpretation favoring use of the 10% tax. In the future, further official amendments of issued tax interpretations can be expected. And recently an interpretation was issued by the director of the Łódź Tax Chamber (no. IPTPB1/4511-442/153/AG) in which the authority followed the position presented by the Minister of Finance. But at the same time, the administrative courts continue to take a different view, confirming the possibility of applying the 10% rate (case no. II FSK 2075/13). To avoid any doubts or negative tax consequences, the organizer of a contest targeted to small business owners should consider applying for a tax interpretation, which will resolve which rate of tax should be applied with respect to winners who are self-employed persons and whether in such a case the organizer of the contest will act as the remitter of the tax. is marketing a complex service? As part of their service of organizing contests, ad agencies sometimes purchase and deliver contest prizes whose value is then added to the fee owed to the agency for this complex marketing service. Then the ad agency issues a single invoice and the client hiring the agency to organize the contest deducts the input VAT from the invoice in full, that is, also including the portion where the agency’s fee really represents the payment for the prizes purchased and delivered to the winners. However, this practice is incorrect, according to the latest tax interpretations (no. IPPP1/4431247/14-2/AP) as well as the case law of the Court of Justice of the European Union (Loyalty Management, joined cases C-53/09 and C-55/09) and the Polish courts (cases I FSK 1652/13 and I FSK 302/14). It is now accepted that the process of organizing a competition and purchasing and delivering the prizes to the winners is two separate activities which cannot be treated as provision of a single complex service.

Consequently, on one hand the ad agency conducts a promotional campaign for the client, i.e. performs a service, and on the other hand it makes a paid supply of goods to the winners. In practice this means that when acquiring the prizes, the ad agency becomes the owner of the prizes and has the right to deduct input VAT on their purchase under general rules. Meanwhile, the client hiring the agency to organize the contest does not have the right to deduct VAT in the portion in which the invoice issued by the agency covers the prizes, because the client does not acquire the right to dispose of the prizes as their owner (tax interpretation no. ILPP2/443497/13-4/MN). In the situation described, the true burden of VAT on the purchase of the prizes is borne by the client hiring the agency to organize the contest. To avoid negative tax consequences, the client should purchase the prizes and deliver them to the winners. In that construction, VAT will be neutral for the client. It should be noted that this problem does not arise in the event of guaranteeing cash prizes or prizes in the form of vouchers. Money, as a means of payment, and vouchers as a marker substituting for cash, do not constitute goods for the purpose of VAT regulations (tax interpretation no. IPPP1/451232/15-4/BS). summary This article covers the issues raising the biggest tax questions in organizing contests. But the tax complexities associated with organizing contests should not discourage businesses from using promotions of this type. The benefits that can be derived from organizing contests can be significant, while with sound advice the tax issues can be resolved.

SUMMER 2016 AMERICAN INVESTOR

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Events AmCham in Gdańsk

Sky is not the limit

ecent space technologies and the business opportunities they offer for the Polish aerospace sector were the focus of a meeting held by AmCham Gdańsk in May. The event brought together space industry practitioners from both business and academic spheres.