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Thu, Jul 10, 2003 - Page 12 News List

Eastern European firms unprepared for EU expansion

BIG BANG The business consultant PwC believes that firms in soon-to-be EU member countries will be shocked when faced with the EU's rules

AFP , BERLIN

Most Western companies that operate in the eastern European countries to join the EU next year underestimate the impact EU enlargement will have on their businesses, a study published Tuesday by consultants PricewaterhouseCoopers has found.

"Most companies don't realize they're going to face a kind of a `Big Bang' on May 1, 2004," the date when eight eastern countries, Malta and Cyprus become EU members, said Lorenz Bernhardt, a partner at PricewaterhouseCoopers in Berlin.

"Companies are underestimating the impact the EU accession will bring, the time required to make changes in the way business is done and the resources needed to prepare for compliance with EU legislation and regulations," he said.

The study is based on a survey commissioned by PricewaterhouseCoopers among major eastern European investors to discover their attitudes to and preparedness for the enlargement of the EU.

An independent research company, Opinion Window Research International, carried out the survey.

It brings together responses by senior executives from 100 multinational companies, with about a half of them involved in manufacturing, the rest in services and finance.

Almost one-quarter of those companies have a presence in all 10 acceding countries.

While about 90 percent of companies believe that EU enlargement will impact their business, only two-thirds of them have made plans on how to handle this and just 14 percent have budgeted for any changes to be implemented, the study found.

But about one-quarter of the surveyed companies believe the implementation of the required changes will cost them more than 100,000 euros (US$113,000).

Specifically, the study found that most companies expect their sales and logistics operations in the region to undergo fundamental changes, as the movement of goods and services will become unhindered at the borders and customs duties will be abolished.

This will create a need to restructure regional and country-specific logistics networks, as well as to enter a plethora of new parameters into data processing systems, the study said.

At the same time, customs duties will be replaced by taxes such as value-added tax (VAT) which would then lead to a broad need for renegotiating most sales contracts.

Enlargement will also challenge existing invoicing procedures, accounting and resource planning systems and cause a sharp increase in the workload for back office operations.

"Imagine a German exporter to Slovakia who hasn't done his homework and who suddenly gets paid much less for his goods because his customer has subtracted the VAT," Bernhradt said.

"There'll be a lot of unhappy faces around the German company then," he said.

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