Environmental Factors Relevant to Poland as a Potential Market

1.INTRODUCTION

Servcorp is an Australian-owned services company that specialises in the provision of business solutions. Its main offerings include fully-serviced office packages (office space bundled with IT and communications infrastructure and accompanied by IT and administrative staff), virtual office products such as communications and address services, and meeting rooms for hire (Servcorp, n.d.). Servcorp has expanded its operations into New Zealand, the U.S., Asia, and Europe. While the company operates in the UK, Belgium, and France, it does not currently operate in Poland.

In this report, I will analyse five environmental factors relevant to the consideration of Poland as a potential market for Servcorp. These are the country’s political and legal environment, economic environment, trade and financial environment, social and cultural environment, and infrastructure. The ensuing discussion will integrate these findings and provide an overall outlook for Poland. Finally, based on these analyses, a number of recommendations will be put forward regarding Servcorp’s potential expansion into Poland.

3.ANALYSIS OF THE BUSINESS ENVIRONMENT

3.1.Political and legal environment

Poland has become one of the most politically stable European countries since it joined the European Union (EU) in 2004 (Bujnicki, 2013). In 2012, Poland ranked below the OECD average on the FDI Regulatory Restrictiveness Index (where a lower score indicates fewer restrictions on FDI) (OECD, 2012). Poland also has a number of state aid measures in place to attract foreign investment. For example, the country has 14 Special Economic Zones; these areas have relaxed income taxation rules and have the appropriate infrastructure in place for starting a business, though businesses require a license to operate in these zones (Lex Mundi, 2013). In Poland, then, Servcorp would find political environment that actively encourages FDI with the view that it is vital to developing the country’s economy.

While Poland has few restrictions on FDI, its overall regulatory environment is somewhat complex. The World Bank (2013) ranked Poland 45 of 189 countries on the ease of doing business in 2013, though pointed out that the country’s tax system remains complex and outdated. It takes an average of 685 days to enforce contracts in Poland compared to the OECD average of 529 days, and a number of other bureaucratic hurdles remain (World Bank, 2013). For Servcorp, these factors mean that the company might have to do substantial research into Poland’s tax system, as it contains intricacies not present in Australia’s taxation laws.

Property registration is a vital consideration for Servcorp, as the nature of the business means that they must acquire office space to hire out to clients as well as a building for their own use. The World Bank (2013) ranked Poland 54 on the ease of registering property. This is compared with a rank of 40 for Australia; however, there is only one more procedure involved in registering property in Poland than there is in Australia, so red tape in this arena is only slightly more pronounced.

3.2.Economic environment

Real GDP growth in Poland ranged from 1.6% to 6.8% during the period 2005-2012; Poland was the only country in the EU to experience a growth in GDP during the 2008-2009 global financial crisis (OECD, 2013). Real GDP in Poland is expected to grow by 2.7% in 2014 and 3.3% in 2015 (OECD, 2013). However, Poland experienced a small slump in economic growth in 2013; recent changes in fiscal policy have been aimed at encouraging economic growth through expanding the budget deficit and eliminating restrictions on fiscal stimulus measures (Onoszko & Krasuski, 2013). Overall, demand for the modern services provided by Servcorp may increase as Poland’s citizens experience an increase in wealth and the economy continues to grow at a healthy rate as a result of these fiscal measures.

The slight downturn in real GDP growth in 2013 has been accompanied by low inflation (Eglitis, 2013). This is promising for Servcorp, as it means that the business may be in a better position to make long-term plans with the knowledge that their purchasing power will not decline, and borrowing costs may be lower. With the Polish government’s planned relaxation of fiscal policy, however, Servcorp must continue to track changes in inflation given that these measures may work to raise inflation.

3.3.Trade and financial environment

Relevant bilateral agreements between Australia and Poland include the Investment Promotion and Protection Agreement and the Double Taxation Agreement (DFAT, 2013). These agreements ensure that the interests of foreign investors are protected in Poland, and in the case of the latter agreement, that foreign businesses do not have to pay taxes on their business profits in each of the two countries. In short, both agreements are conducive to Servcorp doing business in Poland. A discussion regarding tariff and non-tariff barriers to trade in Poland will not take place here as Servcorp is not seeking to export to or import from Poland—rather, this report considers the risks and opportunities Servcorp faces in establishing operations in Poland. For similar reasons, free trade agreements that Poland has with other European countries will not be discussed here.

In 2012, Poland ranked 37 on the Financial Development Index, which along with other factors, considers a country’s financial stability (World Economic Forum, 2012). Specifically, the WEF found that Poland performed particularly well in terms of the stability of its exchange rate and banking system. The leniency with which currency transactions are treated in Poland depends heavily upon the nature of the relationship between the transactor’s home country and Poland (Lex Mundi, 2013). Because Australia has a tax treaty with Poland (ATO, 2012), Australians can expect to face minimal problems when engaging in currency transactions in Poland. It appears that Servcorp would face little financial risk in the country.

3.4.Social and cultural environment

In Poland, 60.9% of the total population live in urban areas (Central Intelligence Agency, 2013). This is compared to 80% in the UK, 97% in Belgium, and 85% in France. Poland’s comparatively low rate of urbanisation suggests that there may be less of a demand for the services that Servcorp offers (office space, IT and communications infrastructure for businesses) in Poland compared with the other European countries in which the company operates.

Religion plays a prominent role in Poland, with 89.8% of the population identifying as Roman Catholic (Central Intelligence Agency, 2013). Servcorp must recognise and close business on religious occasions that are not recognised as national holidays in Australia, such as Corpus Christi. Poland also tends to score highly on uncertainty avoidance, meaning that citizens may reject unorthodox or innovative ideas put forward by some businesses (The Hofstede Centre, n.d.). This poses a small risk to Servcorp given that much of their product offering rests on their “virtual office” innovation; Poles may be wary of this unfamiliar idea.

In terms of corruption, Poland’s score on the Corruption Perceptions Index (CPI) in 2013 was 60 of a possible 100 (where 100 indicates no corruption whatsoever), above the world average (Transparency International, 2013). However, there is some concern that Poland does not have the appropriate frameworks in place to manage the growing risk of foreign bribery that comes with its expanding economy (OECD, 2013). Servcorp must be aware of this risk while simultaneously recognising that bribery is not an endemic part of Polish culture.

3.5.Infrastructure

Poland’s score on the Logistics Performance Index (LPI) in 2012 was 3.10 (where the maximum possible score is 5) (World Bank, 2012). This is substantially lower than the 2012 scores received by the European countries in which Servcorp currently operates (the UK, Belgium, and France, which received scores of 3.95, 4.12, and 3.96 respectively). The OECD (2013) remarked that the quality of Poland’s transport and communications infrastructure “are among the lowest in the OECD” (p. 217). A finding of particular concern is that Poland’s fixed broadband coverage is the lowest in the EU, at only 69.1% (Point Topic, 2012).

Poland’s relatively low fixed broadband coverage may prove problematic for Servcorp given that a substantial portion of their business model rests on their provision of modern IT and communications infrastructure to organisations. When acquiring office space for company use as well as for hiring out to clients, a constant concern may be whether or not there is broadband access at that location. Though this is an issue, things may be set to improve: a joint venture between Hawe and TP Teltech is aimed at substantially improving Poland’s broadband infrastructure (van Blommestein, 2012).

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