U.S. firms heading for Eastern Europe.

As the New York and national economies continue to be sluggish and new construction is almost nonexistent, development, construction and design firms must look beyond domestic borders for new projects. One region of the world that presents great opportunity in this regard is Eastern Europe and the Commonwealth of Independent States. The influx of foreign capital and the retooling of industry for consumer goods in this region of the world has created a need for capital construction, and therefore, the services of the U.S. real estate industry.

While many U.S. companies have avoided entry into these nascent markets, there are hundreds that have taken the plunge, establishing retail outlets, law firm offices and manufacturing facilities in Warsaw, Prague, Moscow, etC.

In fact, American corporations are leading the way for investment in Eastern Europe and Commonwealth of States. From electronics to fashion and chemicals to tobacco, U.S. firms are investing billions of dollars in Eastern Europe and the Commonwealth of Independent States. According to the Investment Activity Review conducted by East European Investment Magazine the United States has been consistently investing more in th is region of the world than any other country.

According to this survey, U.S. firms topped the list of nations investing in Eastern Europe with approximately $1.1 billion invested in the first quarter of 1992. Germany, the next most active investor in Eastern Europe, committed about $840 million during the same period. Twenty-seven nations are listed as actively investing in Eastern Europe and the Commonwealth of Independent States with a total monetary commitment of $3.7 billion in the final quarter of 1992.

Investment Will Create Opportunities

With investment comes the need for capital construction as well as an increase in demand for consumer products and services, which further spurs the need for new constructinn. From office complexes to healthcare facilities, nations of Eastern Europe and the Commonwealth of Independent States are actively developing a broad range of entrepreneurial projects.

In addition to the need for foreign investment capital, these countries are also looking to the United States and other nations for a wide variety of professional skills, most notably in the fields of construction, design and development. Eastern European contractors are not as well equipped with state-of-the-art technology as their Western counterparts and have limited experience in completing cost-effective projects on time and on budget.

Challenges For American Firms

American firms hoping to develop business in this region of the world are presented with significant opportunities, but they also face difficult obstacles. Most daunting of these challenges is the convertibility and value of the ruble and other local currencies. Only recently have these countries entered the world economy and therefore, they have little or no reserves of foreign currency.

Equally, their own currencies are of little or no value outside their own borders, creating the need for alternative payment structuring.

There are ways that payment issues can be resolved. For example, the wealth of natural resources (i.e., oil, timber, etc.) in Eastern Europe and the Commonwealth of Independent States provides one avenue for foreigners to secure payment. By enlisting the services of a bartering firm for a particular project, natural resources can be converted to hard currency and payment in the desired currency can be obtained.

Alternatively, firms interested in making a long term investment can take payment for their services in the form of a smaller up front fee combined with an equity interest in a specific venture.

Where To Begin

There is also the obstacle of knowledge and information. Who is building what and where? According to a recent survey conducted by Lou Harris & Associates for United Parcel Service (UPS), European business leaders responded that the following countries held the most promise for growth and investment; Hungary (67 percent), Czechoslovakia (65 percent) and Poland (38 percent).

The best way to obtain this type of information is through local and national trade organizations which often have committees that are involved with international business development. Also seminars that feature Eastern European businessman and government officials provide valuable contact with decision makers and information on doing business in these newly opened markets. These are obviously only preliminary steps, and eventually, you must travel to the countries you have designated for business development.

Additionally, Shea & Gould has launched the Eastern European Building and Development Consortium, providing a forum for a broad base of real estate/development focused firms to discuss opportunities in Eastern Europe. The group, which has several projects under development in Moscow and St. Petersburg, welcomes new members on a selective basis. One thing is clear, however. that American construction, development and design firms should not overlook these burgeoning markets. As the world economy begins to recover. investment in these virgin economies will expand further. Firms which have researched and made contacts in Eastern Europe and the Commonwealth of Independent States (CIS) will be the best positioned to secure projects in both the short term and the long term.