Betting on Industry in the Start-Up Era

Modern political mythology is quite different from political rhetoric and that, in turn, is not the same as economic reality. Which is why it might seem surprising that in Central Europe, once referred to by early 1990s reformists as the heart of the economic reforms, state-owned or semi-state- owned companies have been playing a dominant role. This is particularly striking in Poland, the country which last year—on the 25th anniversary of its first free election—sought to present itself as the cradle of liberal capitalism. Major state-owned companies, even those without post-communist roots, are by definition accustomed to functioning in cumbersome ways.

The situation is similar in the case of multinational corporations. Innovation, passion and creative approaches to business are thus largely associated with the growing wave of start-ups, i.e. small companies that are linked with the Internet economy in one way or another. The key word we have come to identify with companies of this type is ecosystem. We hear of a Polish, Krakow, Budapest or Prague ecosystem, all bubbling with ideas and occasionally paid a visit by an investor since these companies—unlike their US counterparts— usually rely on some degree of European or state funding. An investment culture is only beginning to emerge along with the growing wealth in the region.

The start-ups, i.e. emerging Internet companies, are not well integrated into the region’s real economy. A large number of these firms make the quite logical leap from the local ecosystem straight to Silicon Valley or other US locations (for some reason, Polish companies have taken a liking to Delaware), where it is much easier to raise funds for developing a genuinely global business. Until recently, the Estonians were at the forefront of this type of thinking and company development but lately their successful start-up generating machine has begun to falter somewhat.

The dream of every company founder is to develop his or her company and sell it at a profit. However, not many people in Central Europe have succeeded in this and as Ela Madej, one of the few successful emerging Polish entrepreneurs explained to me last year, the mistake many new entrepreneurs make is not realizing that what a start-up requires first and foremost is a great deal of hard toil, not just an attractive work environment and a related sense of a communal experience. Furthermore, in addition to having an idea, you have to be able to develop it properly and, even more importantly, to sell it. This is what Central Europeans are not so good at. And not just because of their geographical distance from Silicon Valley.

A separate and, potentially, much more interesting story in the Central European context are emerging companies that may not meet the orthodox criteria for a start-up—i.e. companies better integrated with their local environment and its tradition of industry and enterprise. They, too, are only beginning to learn how to sell their ideas but they are not immediately headed for global domination—quite the contrary, they are returning to the region.

In early March 2015 the Wrocław-based company Saule Technologies won the Polish start-up of the year award. The company was founded by young Polish scientist Olga Malinkiewicz and two entrepreneurs. Olga started her career abroad and while doing research in Spain she made a discovery that might revolutionize photovoltaics. Now she is working on turning her discovery—based on developing tiny and widely usable solar rays from perovskite, a precious mineral—into an industrial product. This is precisely the key to success as well as the way of generating extra added value and capacity for innovation at home, since Olga has brought her discovery back to her native Poland, where she is developing her company, albeit with the help of European funding.

Another example of industrial start-up is AerobTec, a Slovak company that produces miniature altimeters for model airplanes and for Polish mining locomotives as well as motion measuring equipment for Australian sheep. The motto of the company’s two young founders, who were at school together, is that Central Europe can produce top-notch articles with great added value. It is still early days but they were not afraid of the complex technology and dared to launch their business, development and production at home. What matters at this stage is not how much and what they produce but rather their attitude: you just have to have the ambition to do something at world-class level with a great added value.

However, not everyone will pluck up the courage to stick their neck out and be confident of success. For seven years now Coda Development, a Czech company, has been trying to conquer the global market with their self-inflating tires, which have earned them a number of awards. They registered a patent in the Czech Republic, Slovakia and the US and are in the process of registering it in a number of other countries. Just like Olga Malinkiewicz, the Czech inventor František Hrabal knows that it’s a long and arduous road from an idea to making money. But he is not afraid.

We journalists often tend to focus our economic reporting on celebrities or on tried and tested stories. We depict the political struggle for jobs. However, trying to attract foreign investors is much easier than supporting indigenous research and development that might generate something of value that will remain at home, so to speak, but is a lot less certain to come about. Moreover, under the shadow cast by the Russian crisis we tend to pay more heed to moaning about the impact of sanctions and lamenting the loss of markets than to thinking of innovation.

Notwithstanding the shadow of the Russian crisis—which is not likely to go away any day soon—we ought to look ahead and develop our economic potential. And in Central Europe the greatest hope lies in industry, in spite of the reams of paper devoted to our dependency on car manufacturing. This is precisely why we have to look for other solutions also in this area, and stop relying on state-run or multinational mega-firms. The former are more inclined to resist innovation, the latter won’t use it to the benefit of local societies and fostering its social capital and energy. Skype provided the Estonians with a great kick-start—not only did its three inventors make huge amounts of money but it has also been an example for young people, demonstrating that even a small nation can achieve global success.

Since Central Europe has more of an industrial tradition, its strength ought to lie precisely in the kind of “industrial start-ups” represented by Saule Technologies, AerobTec and Coda Development. Let’s face it: the chances of a Central European Google are much smaller than the chances of a local version of the American Tesla or Korean Samsung. And Central Europe is still in desperate need of a visible, tangible example of economic and business success. If for no other reason, then to get over its inferiority complex vis-a-vis large economies on which it depends as recipients (Germany) or suppliers (Russia).

Martin Ehl

has been working for different Czech print and online media since 1992, from 2006 to 2018 as Chief International Editor and now Chief Analyst at Hospodářské noviny daily. He writes a regular bi-weekly column Middle Europe for the English language internet magazine Transitions Online, for this column he was awarded the „Writing for Central Europe“ prize in Austria in 2012. Co-editor of Visegrad Insight magazine.

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Saving Europe?

Judging from the recent election to the EP, Europe seems to be increasingly fragmented. However, Czechs and Slovaks, the two most Eurosceptic nations in Europe, elected the two most pro-European delegations to the European Parliament in the region. Perhaps we should not panic.

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