Overview

II. Comparative Analysis of the Environmental Business Sectors

This section compares the results from the REC survey of almost 600 environmental companies operating in the four target countries. The goal is to compare the size and activities of environmental businesses, their information needs, the ways those needs are met and their demand for new information services.

Company Profiles

Age, Ownership Structure and Size

Two-thirds of all the companies surveyed were SMEs with less than 25 full time employees; one-third had less than six full-time employees. Although comprising the greatest percentage of the sector, SMEs are often the most difficult to reach with information about new technologies or products. Table 4 compares the profile of the surveyed companies in each country.

Company Gross Revenues

The combined annual turnover of the 568 companies that responded to this question ranged from USD 212 million to USD 366 million. As expected, annual turnovers varied by country in relation to the government estimates of total environmental spending: Polish companies reported the largest annual turnover figures while Slovak companies reported the lowest. Reported gross annual revenues included revenues from environmental, nonenvironmental, local and foreign sources of income. These figures provide an independent representation of the overall activity in the environmental business sector for each country.

Office Equipment

As the CEE companies move to compete in new market-oriented economies, personal computers and fax machines are becoming essential in the technical workplace with more than 90 percent of companies owning both. A relatively high percentage (26 percent) of companies in all four countries reported having a computer modem for accessing and transmitting information electronically.

Market Opportunities

Revenues Generated by Sector

Across the four countries, environmental companies reportedly generated 44 percent of their total revenues from environmental products and 40 percent from technical services. Technical services include engineering and planning, general consultation, and education and training activities. The environmental product markets in Poland and the Czech Republic were more active than in Hungary and the Slovak Republic, where technical services generated 50 and 45 percent of the revenues, respectively. Analytical testing and monitoring activities represented 11 percent of combined market activity.

When examining revenues by media, companies reportedly generated 41 percent of their income from water-related activities. This is not surprising since less than half of the sewage is currently treated in the four countries. Water-related activities were followed by solid waste-related activities (including soil contamination) and air-related activities, which both generated 19 percent of market activity. These figures also correspond to high priority environmental issues.

Tables 6 and 7 compare the revenues generated by activity and by media in each of the four countries. Since activities are always changing due the dynamic nature of the market, this information only presents a Ôsnapshot' of business activities in each country.

Demand for Information

As in the West, government regulations are shaping the CEE market for environmental services and technologies. Industries affected by new regulations rely on environmental professionals to identify low-cost, innovative technologies to help them comply. Therefore, the top two requests for information were related to environmental technologies and regulatory initiatives. With respect to regulatory initiatives, survey respondents specified the impact of EU harmonization on national environmental regulations as the main topic of interest.

Of course, most respondents were also interested in obtaining more information about project opportunities. The survey revealed that firms obtained information about project tenders primarily through personal contacts since most national and regional governments are still in the process of establishing a transparent bidding process for environmental projects. The information topics are ranked from 1 to 12 in Table 8.

Demand for Professional Training

To determine the preferences of CEE environmental professionals, the respondents were asked to rank a list of training topics and suggest other topics. Table 9 presents their ranking of training topics, listed by priority.

Similar to the request for information needs, respondents' number one request for training was related to environmental regulations. This was followed closely by requests for training on financing of environmental investments since environmental professionals are often hired by industrial companies to provide both financial and technical advice. Furthermore, lack of financing is often cited as the number one reason environmental projects fail.

The topics of environmental impact assessment and environmental risk assessment were tied for third place. These topics are essential because environmental professionals are relied on to evaluate the risk from past practices and the potential risk of current or planned operations. Due to ambiguous environmental liability requirements in most CEE countries and increased public participation, these skills are necessary for property transfer studies and risk assessments (environmental impact assessments) of planned developments.

Over 90 percent of the companies surveyed considered it essential or very important to obtain more advanced training on the topic of environmental regulations. Demand for training was still relatively high for the lower ranked topics, such as environmental management, with 40 percent of the companies reporting to be very interested.

Market Channels: How to Reach Environmental Businesses

Current Sources of Business Information

Respondents in all four countries rely mainly on interpersonal relationships to learn about new business opportunities. Personal contacts and professional contacts were ranked as the top two most popular sources. Daily newspapers and trade shows were also ranked as important sources of information.

CEE national governments are only now in the process of establishing transparent and uniform bidding processes. The situation is often less transparent at the regional and local levels where business is still conducted on a personal level and the bidding process is often closed. As a result, the respondents do not rely on government sources of information.

Although interpersonal relationships are important, less than one in four respondents indicated they would use the local chamber of commerce as a source of information on business opportunities. Only about half use professional trade associations to identify business opportunities. This may be due to the early stage of development of these associations. When comparing the development of professional and business associations in the four countries, Hungary appears to be the most advanced.

Environmental and Business Publications

Although they are gaining popularity, no environmental publication reaches a majority of the respondents. This reflects the fact that these publications are very specific in nature and do not appeal to all of the professionals across the broad spectrum of environmental specialties.

The situation for business publications is quite different. A few publications reach a large percentage of the respondents in each country and a few reach the respondents in all four countries. Table 11 provides a list of the business and environmental publications most popular among respondents.

Professional and Trade Associations

There is little regional cooperation as no professional association crossed national boundaries. Most associations, like environmental publications, focus on a very specific scientific specialty or topic. As a result, many organizations were mentioned only once. Table 12 contains a list, in rank order, of the top three associations identified.

Attending Conferences

Except in the Slovak Republic, more than half the companies surveyed send a representative to more than five conferences a year. In The slovak republic, however, almost one-third of the respondents stated that no one from the company attended a conference over the last year. This low attendance figure points to the fact that this market is the least developed of the four countries and does not play host to the same number of conferences and trade shows as the others. In the Czech Republic, Hungary and Poland, there are an increasing number of conferences and trade shows being organized to meet increased market demand for technology and service providers.

When asked about the reason for attending conferences, the importance of personal contacts and networking was stressed: More than 80 percent of the respondents said they attended conferences to meet others in their field. More than three-fourths of the companies stated they often attended conferences to find potential partners for joint projects. This was followed closely by learning about new project information.

Most companies, except in the Czech Republic, attended conferences with the intention of marketing their capabilities. Training was considered the least popular reason for attending conferences. This again points to the preference to network, not to receive training.

Delivery Options for Reaching Environmental Businesses

The number one selected delivery option was a regular environmental newsletter that included information about project opportunities. Professional workshops and partnering workshops ranked next. Professional workshops bring together environmental professionals interested in a particular topic to share and solve problems. Partnering workshops bring together local environmental businesses and potential Western partners and investors.

Respondents gave all delivery options relatively high marks, with approximately 75 percent preferring a newsletter and 40 percent preferring a telephone question and answer service.

Cooperation with Western Firms

The nature of relationships will change as the local environmental business sector develops in these countries. Countries with weak or underdeveloped environmental business sectors tend to import environmental services and products. As the local environmental business sector develops, countries will be better able meet local needs with in-country resources. Also, CEE countries will be able to capitalize on their inexpensive labor markets by exporting certain services or products.

Joint ventures

For the purpose of this survey, a joint venture is defined as investment from a foreign company or individual, and a joint project is defined as a foreign and local company working together on a contractual basis. The results in Table 16 show that the percentage of companies that operate as joint ventures varies from a low of seven percent in Poland to a high of 25 percent in Hungary. These percentages represent the number of joint ventures, not the value of the investment. Most venture partners were Western European.

Experience on Joint Projects

Table 17 presents the responses to a variety of questions evaluating their experiences with Western firms. Local companies usually had high ratings of Western companies' project management skills. However, they believe Western companies did not understand local business conditions.

Surprisingly, language barriers did not rate very high as a problem with joint projects except in the Czech Republic where 52 percent of the companies agreed that language barriers made the joint relationship more difficult. To determine language skills, companies were asked to list the languages that at least one person in the company spoke and wrote fluently. Table 18 lists the language skills for the companies in each of the four countries. The top three most common foreign languages spoken are German, English and Russian.

Most companies did not offer suggestions on how to improve partnerships in the future. Of the companies that did respond, suggestions on how to improve joint projects in the future included:

• Improve the flow of information between companies
• Recognize local companies professional capabilities
• Understand local business practices
• Reduce wage differences between partners

Income from Foreign Sources

Firms with foreign partners reported a higher percentage of income from work on projects abroad. This supports the assumption that partnering activities can increase local firms access to international markets or projects.

When comparing the four countries, Czech companies were most active in foreign markets while Polish companies were least active. Table 19 compares the percentage of income companies reportedly earned from foreign sources.