Competing in COMECON Countries

Abstract

In June 1991, Jack Schmuckli, Chairman European Operations at Sony Europa GmbH in Germany, recalled the evening of 9 November 1989, when the Berlin wall was opened: Suddenly, one of the most potent symbols of Europe’s political and economic division was breached. As I watched television and saw the crowds streaming from East into West Berlin, it was evident that we were confronted with a significant business opportunity and needed to rethink our strategy regarding the COMECON countries.1 Imagine, a region comprising some 400 million consumers, 20% more than Western Europe, was at last opening up. In 1989, the COMECON markets accounted for roughly 1% of our DM7.7 billion in sales for all of Europe. This region, which we once considered low priority and best served by intermediaries, was at last joining the world of free markets. Sales of consumer electronics in these markets, estimated to be worth nearly $40 billion by the turn of the century, had to be looked at in a new perspective. How was Sony to enter this world and serve these countries? I immediately called Kazuo Matsuzaki, General Manager of Sony’s European Operations Office, and urged him to accelerate Sony’s development in Eastern Europe. At the time, he reminded me that we were in the midst of a major expansion with Mitte, an Austrian trading company that acted as the distributor of our products to Poland, Hungary and Czechoslovakia, through those countries’ foreign trade organizations (FTOs). He was quick to point out, however, that with the collapse of the wall, Mitte’s value as a distributor became questionable. For that matter, we had to reconsider our trading arrangements throughout the region, and ask whether they would hold up or whether we should begin to build national subsidiaries immediately. Our initial focus concentrated on Poland which accounted for almost 35% of our 1989 East European sales. Moreover, Poland, with over 40 million inhabitants, was the first country in the former East bloc to attain a non-Communist government and to implement market reforms.