"Bringing growth back – Time to rethink the business strategies for Central and
Eastern Europe" www.groweast.eu

On November 14, 2023, the 14th Grow East Congress took place again in the WKO Conference Center
and was live-streamed simultaneously. 120 guests followed the congress on site and more than 40
guests online. The initiators of this congress series, Arnold Schuh, Director of the Competence for
Emerging Markets & CEE at WU Vienna, and Manfred Berger, Partner of ICONIC Consulting &
Founder of Neusicht Think Tank, organized this event together with Gudrun Hager and Gerd
Bommer of Aussenwirtschaft Austria/ADVANTAGE AUSTRIA.

The theme of the congress was well chosen. After three years of pandemic and more than a year of
war in Ukraine the world feels differently. The recovery from the pandemic was accompanied by
immediate surges in demand, supply chain bottlenecks and labor shortages. With the invasion of
Ukraine by Russia in 2022 security and political aspects came to the fore. An accelerated
digitalization and rise of AI, demands for more sustainability and inclusion, high inflation and
changed attitudes towards work have further complicated the situation for management. On the
other hand, crises create opportunities and room for new ventures. Entrepreneurial thinking and
drive are even more needed to succeed in such critical times.

At the Congress we addressed the following questions:

- What do these global and regional developments mean for the economies of Central and Eastern
Europe and the businesses operating there?
- How are they affected by these developments and how do they adapt to these changes?
- What are the growth opportunities in this context? What new products, services and business
models will drive future growth in the countries of CEE?

To discuss these questions the organizers invited representatives of institutions, executives,
entrepreneurs, experts, and academics:

• Martin Selmayr, Head of Representation of the European Commission in Austria
• Gunter Deuber, Head of Economics, Raiffeisen Research, Raiffeisen Bank International
• Vladimir Vano, Chief Economist, GLOBSEC, Bratislava
• Marcus How, Head of Analysis, ViennEast Consulting GmbH, a risk advisory firm
• Gudrun Hager, Regional Director Western and Central Europe, ADVANTAGE AUSTRIA
• Marlene Hölsken, Head of R&D, CEE Henkel Consumer Brands
• Frank Gawor, CFO, Benedict GmbH
• Zsolt Kelliar, COO, and Maria Baumgartner, CEO, HROS
• Kurt-Stuart Ristl, Head of Project Development, LSG Group
• Tobias Schediwy, Commercial Director CEE - Consumer Panel Services, GfK
• Matthias Koch, European Policy Department, Austrian Federal Economic Chamber
• Gerd Bommer, Regional Director Southeast Europe, Eastern Europe/Central Asia, ADVANTAGE
AUSTRIA
• Valerie Breitenfeld, Austrian Deputy Trade Commissioner for Poland, ADVANTAGE AUSTRIA

Gudrun Hager, Regional Director Western and Central Europe, ADVANTAGE AUSTRIA, welcomed the
guests and emphasized the long tradition of the Congress and its important role as promoter of
Vienna as a business hub for CEE. Co-organizer Manfred Berger gave an overview of the program and
the three sessions and emphasized the necessity to focus on economic growth in CEE.

Session 1: “Drivers of Growth in CEE – The big picture”

The invited speakers shed light on the developments in CEE from different perspectives - EU, politics,
economics, and business. Arnold Schuh, Co-organizer and Director of the Competence Center for
Emerging Markets, WU Vienna, started with an introduction into the topic. “Bringing back growth to
CEE” fits perfectly the DNA of the Grow East Congress series. He denied that the choice of the theme
in 2023 was an act of “growthwashing”. There are plenty pockets of growth in the region when you
just look closer. He suggested exploiting the growth differential in the region where Southeastern
Europe and the Western Balkans outperform the Central European economies, riding the waves of
green & digital transformation (and getting financial support from EU’s RRF), looking beyond the
regional and business core and betting on structural changes in industries such as the automotive
industry’s turn to electromobility and the related investments in gigafactories in Hungary and other
CEE markets. Growth is not a gift from heaven – it needs an entrepreneurial mindset, profound
analysis and consequent measures.

Martin Selmayr, representative of the EU in Austria, countered the notion that the EU is losing
economically against the USA. When using the ratio of EU/US GDP at 2017 international PPP US-$,
then the ratio has remained the same since 1995. He also made the case for an EU-enlargement to
the Western Balkans and Eastern Europe as the accession of those countries would be a driver of
growth. The old EU-CEE enlargement tripled the trade between the old EU15 and the new EU12 but
boosted the internal trade among the EU12 fivefold. The further EU enlargement is necessary for
economic and security reasons. However, convincing the Austrian public will not be easy as 60-70%
of the population are against the enlargement (although Austria was one of the biggest beneficiaries
of EU membership and EU’s enlargement to CEE).

Gunter Deuber from RBI pointed in his presentation at the higher growth rates in Southeastern
Europe than in Central Europe. A combination of economic stagnation with high inflation (stagflation)
has been plaguing most of Central European economies in the last year. However, on a positive note,
the unemployment is low due to tight labor markets (“Job-rich downturn”). He expected that CE/SEE
will be on aggregate larger than Italy by 2025. And strong growth impulses by the re-emerging EU-
enlargement initiatives to the Western Balkans and Ukraine.

The political risk analyst Marcus How highlighted the current four drivers of the political discussion in
CEE: security, energy independence, economic liberalization and institutional reform. There is still a
tendency to increase the (already large) role of the state in the economy, e.g., to escape the “middle-
income-trap”. At the same time, we see a backsliding in terms of quality of institutions in Hungary,
Poland and Serbia (eroding rule of law and less willingness to fight corruption). In his opinion we
have to prepare for a long war in Ukraine and there will be no return to business as usual with
Russia. In his view there will be no sustainable cooperation with Russia as we had it before. As the
expropriation of Carlsberg shows there are no safe spaces anymore in doing business with Russia, the
separation between sanctioned and non-sanctioned gets blurred and doing business with Russia is
therefore very risky. Multinational firms need to pay more attention to the local environment and
current situation (main players, their interests etc.) to reduce political risks and find the right mode
of presence. Vladimir Vano from the Slovakian think tank GLOBSEC pointed at the risks resulting
from too low gas storage levels and fluctuating prices for gas and LNG. Sufficiently accessible and
affordable energy are a precondition for growth. In his opinion the economic catching-up has stalled
in CEE. He did not see “more government as the solution” - as we accepted it during the Covid-19
and energy crises – and pleaded for gravitating back to more private investments and private-public
partnerships.

Session 2: “Growth strategies for CEE – The business view”

The development of the EU towards a greener economic model found a strong consensus among the
executives. Henkel CEE’s R&D head, Marlene Hölsken, mentioned the lack of proper waste
management and recycling systems in CEE what hinders the sourcing of recycled plastic for
sustainable packaging. And CEE consumers are not ready for this change yet. Kurt-Stuart Ristl of LSG
Group explained that a successful rollout of photovoltaic plants needs certain preconditions. For
instance, the discontinuation of power plants driven by fossil fuels, so that renewable energy can
replace them and use their capacity in the grid. Finding people for installing large-scale plants is no
problem as the own staff of 20 people is complemented by up to 200 people from the region.
Security is not a problem too as photovoltaic plants create income in the region by renting out land
and creating jobs for operating the facility. It is in the interest of the local community to have a well
running operation.

Frank Gawor, CFO of Benedict GmbH, used specific examples from his experience and Benedict
GmbH's current projects in Bosnia-Herzegovina and North Macedonia to underline that those
countries are good locations for outsourcing for Austrian and German firms and that you can expect
the same quality level as in DACH. Green- and brownfield projects in the Western Balkans don’t face
more risks than anywhere else in the CEE-region.

That people are the core of each success story was also shared by Maria Baumgartner and Zsolt
Kelliar from the Austrian-Hungarian “joint venture” HROS, a talent platform for startups and tech
companies. Nationalities play no role in the search for talents. Digital qualifications, good command
of English, flexibility, and an entrepreneurial mindset count. 30-40% lower wages for tech talents in
the emerging markets of Europe make them attractive for tech firms in the DACH region. Work ethics
in CEE differ positively from Western Europe: they “like to get things done”, are highly reliable and
flexible when necessary. At Henkel CEE the “culture of a large family”, where people know each
other, helps in the implementation of innovations and sustainability in processes and products.

Session 3: “Growth strategies for CEE – The regional view”

The presentations and discussion addressed consumer behavior in CEE countries and promising
initiatives (e.g. RRF) for the whole region or specific countries of the region that represent growth
areas (e.g. infrastructure, green energy). Tobias Schediwy of the market research company GfK
Austria opened the session with a presentation on “CEE consumers between hopes and fears”. The
top concerns among households are “economic, budget concerns” (60% CEE/45% WSE-Western-
Southern Europe), followed by “my own safety/safety of my family” (41%/31%) and “physical health
concerns” (40%/32%) and “climate change” (25%/40%). The higher values for CEE reflect the tighter
economic situation, higher inflation (24% in Hungary!) and probably the mental worries due to the
geographic closeness to the war in Ukraine. By contrast, climate change plays a stronger role in the
West. 40% of CEE households feel a budget squeeze (32% in WSE), in Hungary it is even 57%. The
crises since 2020 led to a significant change in shopping behavior: discounters increased their share
in grocery retail sales up to 42% in Poland and 36% in Hungary and are the dominating shop format
there. Promotion shares went up in most markets too – the Czech Republic stands out with 54%. And
private label shares (i.e., own brands of the retailers) moved up too with Hungary (36%) and Croatia
(34%) leading the CEE group. The presented consumers shopping data nicely complemented the
macroeconomic figures shown by Gunter Deuber and they underlined the stress for households to
make ends meet induced by soaring energy and food prices in particular and the stagflation in
general.

The EU expert at WKO, Matthias Koch, emphasized in his presentation the importance of the EU
Recovery and Resilience Facility that is providing an extra €720 bn. of grants and loans to alleviate
the impact of the crises and to make the EU countries greener, more digital and more resilient. The
EU’s message is clear, we have to reinvent ourselves and now is the best time to begin with it.
Valerie Breitenfeld from the Advantage Austria office in Warsaw pointed at the economic success
story of Poland. Since 1990 the GDP has increased eightfold and the Polish economy grew even in
crises times. EU membership was crucial for Poland and they used the EU funds effectively to
modernize their infrastructure. Poland is the 7th largest export destination for Austria, more than 600
subsidiaries of Austrian firms are present there. With the expected new incoming EU-friendly
government the presumable end of the blocking of the RRF funds will provide a further stimulus to
the economy. “Rebuild Ukraine” is another factor that lures foreign firms to Poland in order to be in
a good starting position when the war ends. The Regional Director for SEE, Gerd Bommer stressed
the good economic performance of the Southeast European countries although they are at different
development stages. Compared to Poland, Romania has still room for improvement of its
transportation infrastructure (highways, railways) which is under pressure now to expand its capacity
given the rerouting of Ukrainian exports on the Romanian road and railways network and through
the port of Constanta. Nearshoring to Southeastern Europe seems to have picked up last year as
increasing FDI inflows demonstrate. Not to forget the high importance of IT outsourcing to Romania
– Porsche Informatik, Frequentis and AVL List are already present there.

Visionary thinking, entrepreneurship and profound analysis as precondition for growth

The Congress clearly showed that growth is happening everywhere even in this stagflationary
environment. But crises are a good time for challenging existing business models and taking new
paths. Entrepreneurship is even needed more during the crisis to find economic and business growth.

A profound analysis of economies, industries, and markets lays the foundation to identify high
growth areas and to reallocate funds and management attention accordingly. Riding the waves of the
twin transformation is a sure bet: the energy transition is necessary for climate reasons, for
diversifying energy sources and for reducing energy costs. Digitalization will help making the new
processes and technologies even more effective. Geographic diversification of sales markets and
sourcing reduces dependencies and, consequently, the risk of major supply chain shocks. Enlarging
the EU is a mid- to long-term project that will help raise the living standards in those target countries
and will make the EU more secure.

The Grow East Congress is a project initiated and organized by Prof. Arnold Schuh, Director of the
Competence Center for Emerging Markets & CEE at WU Vienna, and Dr. Manfred Berger, Partner of
ICONIC Consulting & the Founder of Neusicht Think Tank. Advantage Austria, the international arm of
the WKO (Austrian Federal Economic Chamber), is our Congress partner.

Contact:
Ass.Prof. Dr. Arnold Schuh
Director, Competence Center for Emerging Markets & CEE, WU Vienna
arnold.schuh@wu.ac.at
https://www.wu.ac.at/emcee/

Dr. Manfred F. Berger
IQONIC Consulting
office@berger-m.at