discussion papers
FS IV 92 - 2
Upswing with Brakes
Horst Albach
January 1992
ISSN Nr. 0722-6748
Forschungsschwerpunkt Marktprozeß und Unter
nehmensentwicklung (UMV) Research Unit
Market Processes and
Corporate Development (UM)
Zitierweise/Citation:
Albach, Horst, U p sw in g w ith Brakes,
Discussion Paper FS IV 92 - 2, W issenschaftszentrum Berlin, 1992.
W issenschaftszentrum Berlin für Sozialforschung gGmbH, Reichpietschufer 50, W -1000 Berlin 30, Tel. (030) 2 54 91 - 0
ABSTRACT
Upswing with Brakes
The brakes on the upswing of the East German economy turned out to be stronger than it was at first expected. Transforming a former socialist economy to a social market economy proved to be a tougher and more difficult task than could be foreseen. This paper gives an account of the problems managers in East Germany are confronted with, reaching from the "decapitation" of East German management by the removal of its top management because of its member's former allegiance to the communist party or the secret service of the GDR, the necessity to change from a distribution mentality on a seller's market to a marketing mentality on a buyer's market, or a general lack of market economy know-how and commercial skills, to the problems of contaminated sites, obsolete machinery or a labor force unskilled in the handling of modem equipment.
Additionally, the role of West German experts - sometimes retired managers - that "go East" in order to assist in the transformation process and face the same challenges as their eastern colleagues and do pioneers' work on the frontier is examined. The paper concludes by giving a prospect of the development to be expected in the next years.
ZUSAMMENFASSUNG
Gebremster AufschwungDie Hindernisse für den Aufschwung der Wirtschaft in den fünf neuen Bundesländern erweisen sich als schwerwiegender als zuerst angenommen. Der Übergang von einer zentralen Planwirtschaft zur freien Marktwirtschaft stellt sich als problematischer und komplizierter heraus als vorausgesehen werden konnte. Diese Arbeit gibt einen Über
blick über die vielfältigen Probleme der Manager in der ostdeutschen Wirtschaft: Ange
fangen von der Entlassung quasi des gesamten Top-Managements aufgrund der Ver
strickung dieser Führungskräfte mit der Staatssicherheit oder ihrer Zugehörigkeit zur kommunistischen Partei der ehemaligen DDR, über die Notwendigkeit völligen Um
denkens - einer neuen Marketing-Mentalität, wie sie der neue Käufermarkt erfordert, anstelle der alten bloßen Verteiler-Mentalität zu Zeiten des reinen Verkäufermarktes -, das Fehlen jeglicher Erfahrung mit dem System der freien Marktwirtschaft und fehlen
des Know-how, bis hin zu den Problemen, die sich aus Altlasten, überholter Technik oder im Umgang mit neuem technischen Gerät ungeschultem Personal ergeben. Einge
gangen wird auch auf die Rolle westdeutscher Experten, zum Teil pensionierte Mana
ger, die dem Ruf "go East" folgen, um ihr Wissen und praktische Erfahrung dem Wie
deraufbau der ostdeutschen Wirtschaft nutzbringend zur Verfügung zu stellen. Die Ar
beit schließt mit einem Ausblick auf die für die nächsten Jahre zu erwartende Entwick
lung.
Upswing with brakes
Horst Albach
A. Introductory Remarks
German unification was one year old on October 3, 1991. As I forecast in my lecture to the annual assembly of the Fraunhofer Gesellschaft in Bremen on October 18, 19901 the economy of the former German Democratic Republic landed on the economy of the western German states with a "crash". But phoenix was slow to rise from the ashes of this crash. M y early optimism of an early upturn of business investments faded. The brakes on the upswing turned out to be stronger than expected. But I should like to leave no doubt. I am as convinced as I was then, that by 1994, the next election year, the second German economic miracle will be
underway.
The task of transformation of the former socialist economy to a social market economy proved to be tougher and more difficult than we expected in early 1990. It may be interesting to give you an indication of the magnitude of the problem to be solved in the unification process. The Treuhandanstalt has to privatize or to liquidate 8.000 companies with 40.000 plants. 100 former
combinates operated 2.000 subsidiaries. Together with the utility companies, with the transportation companies and with the credit institutions they form roughly 2.600 companies that are held and eventually led into private ownership by the headquarters of the Treuhandanstalt. The rest, 5.400 firms, come under the authority of the 15 regional offices of the Treuhandanstalt. These include
IDritte Wege und Königswege - Wirtschaftliche Reform und
Integrationsprozesse von Bundesrepublik und DDR, in: Fraunhofer Gesellschaft (Hrsg.): Transformation und Integration, Reden und Ansprachen der Jahrestagung 1990, München 1990, S. 25
see also: The Economics of Transformation. Economics Aspects of German Unification. The Tore Browaldh-Lecture 1990, University of Gothenburg, November 9, 1990
2
- 22.000 retail stores 7.400 restaurants
425 hotels
2.000 drug stores 900 book stores
- a fairly large number of movie theaters
By mid-November 1990 forty firms with 40.000 employees had been closed down by the Treuhandanstalt, 400 small and medium-sized firms with 250.000 employees had been privatized. In December, 5.000 small retail stores and 800 drug stores had been sold. By the end of March 1991, all 900 book stores were sold, and all the movie theaters were sold by early April. By the end of August 1991
13.000 retail stores and restaurants had been privatized, 6.000 could not be privatized because local authorities and private owners refused to renew rental contracts with new private
entrepreneurs. 120.000 of the 280.000 workplaces in retail stores were saved by this date. Of the 7.400 restaurants 5.800 had been privatized and 1.510 had been closed. At the present rate of
privatization it will still take the Treuhandanstalt 5 to 6 years before all the former state-owned companies are sold. However, the Treuhandanstalt has indicated to step up the speed of
privatization, and announced recently that it has reached the peak of its own employment. The Treuhandanstalt is expected to reduce the number of its employees constantly starting in the beginning of 1992.
My own experience stems from visiting plants and taking part in decisions to purchase firms with several plant sites as a member of the board of West-German companies. I am also a board member of an East-German company still held by the Treuhandanstalt. This company is a former combinate with 63 plants all over the GDR. In my institute we have analyzed several cases of privatization. I also consult with the Ministry of Economics in the State of
Brandenburg on questions of technology policy. The Ministry wants to introduce a program to support all efforts on the side of the significant technology potential in the state to become more market-oriented.
B. Experiences with East German Managers
I. Experiences with Top Managers
The East-German companies suffer from a severe lack of
professional managers. However, there are not enough West-German managers available, and it would be politically unwise to send too many westerners to fill top management positions even if they were available. Therefore, top positions have to be filled by East
Germans. Most of the top managers of the old state companies have been removed from their positions in the meantime because either they were too closely connected with the socialist party or with the state security service or with both. It is the second or third rank managers that have been moved to the top positions.
Let me introduce the experiences for these managers by telling you about one of my first impressions on the board of an East-German company. Top management submitted a report on the strategy to be applied in the future. They talked consistently about the proposed
"strategy under the conditions of a market economy". I replaced the words by the formulation "under the conditions of present socialism" - and the text read as if taken from a report to the Planning Committee of the GDR! The verbalism of socialism is so engrained in the minds and tongues of managers in the new states that one of the first problems for these managers is to learn to think freely and to formulate independently of the socialist
jargon which was used as a camouflage for opposition or as lip service to the omnipresent party.
I I . General Impressions
1. From Plans to Profits
Eastern managers have to perform a major transitions they no longer have to manage to fulfill plans but to make profits. This transition from plan to profits is a great opportunity but also a major task.
4
Formerly managers had to fulfill plans that were either
unrealistic or uneconomical or mostly both. In order to meet production targets that would have been unrealistic under the given state of productivity, managers tried to lie about capacity in formulating production plans. They lied about inventories in formulating delivery requirements for supplies and raw material.
They lied about capital requirements for replacement investment and yet did not get enough money for necessary modernization. They were forced against their will to invest heavily in totally
uneconomical projects that had high political priority like chips and computers.
The transition from plans to profits means therefore more than introducing economics into management. It means a transition from lying and cheating to telling the truth. Telling the truth has to be done by writing correct monthly reports. Eastern managers have to introduce reporting systems, particularly financial accounting systems that are absolutely novel to them. Formerly controlled prices and a multitude of subsidies obscured reports and distorted reported "profits". Today managers can measure their firm's
achievements properly if reporting is done properly.
2. From Distribution to Seeking Customers
Eastern managers were until January 1, 1991 under the impression that at least some of them had a strategic advantage over their western partners: they know the Soviet Union better and speak Russian fluently. This would help them in maintaining the market of the Soviet Union, they thought. The collapse of the COMECON and the economic and political crisis in the Soviet Union have reduced this strategic advantage to almost zero. With the transfer roubel gone as a means of doing trade with the Soviet Union it has become extremely hard for eastern managers with all their knowledge of the country to book orders from Soviet customers. Furthermore none of their old acqaintances is still in a position to place orders.
This is as difficult for an East-German manager as it is for a western manager to find reliable customers. In Eastern Germany customers have become very selective to the point where western products are preferred over eastern products even if they are of
the same quality (as is the case with some agricultural products).
Eastern managers must change from a distribution mentality on a sellers' market to a marketing mentality on a buyers' market.
Peters and Waterman in their study on the excellent companies found out that the best American corporations fight for each customer as if it was their last one. Eastern managers have the great opportunity to become excellent managers: many of them do in fact fight for their last customer! Many of them have
unfortunately already lost this fight, however.
3. From Skilled Workers with Obsolete Machinery to Unskilled Workers with M o d e m Equipment
Eastern managers have to manage a highly skilled work force with obsolete machinery. It was one of the misconceptions about East- German firms held by observers in the West that the labor force in East Germany was highly skilled and would therefore be a great asset in an acquisition. There is no denying the fact that about 80% of the labor force in an East-German plant have gone through the apprenticeship system. However, these skills are obsolete. The labor force is unbeatable in improvising and in repairing ancient machinery, but is unskilled in the operation of modern equipment.
Managers therefore have to retrain their labor force to operate modern technology machinery. This is a formidable task, as will be
shown in a subsequent section of this paper. Computer-based manufacturing has so far been a word in the dictionary only.
Eastern managers use the term "complex qualification strategy" for this challenge of retraining their employees. This again is a word from the socialist vocabulary. In present practice it means to take the opportunity offered by the German Labor Office to be reimbursed for training employees in the use of modern
manufacturing equipment.
6
4. Investement, Investment, and Investment
However, workers can only be trained in the use of modern
production equipment if such equipment is available. This requires investment. This is a new experience for eastern managers. When at a recent board meeting the managers submitted an investment plan for approval by the board they were amazed the plan was rejected because it only asked for funds that amounted to 6 % of total s a l e s . They had to redraw the investment plan to require funds of about 10 % of sales. The argument of the board was: "If you do not take the opportunity to invest now, when are you going to invest?"
In the past, East-German managers expected their investment plans to be curtailed and to be forced in a direction they did not
actually approve of. Today they have to present ambitious
investment plans that are expression of their own determination and efforts to reach their goals.
Investment is truly a great challenge for eastern m a n a g e r s . Most of the products that they have previously produced are
uncompetitive in western markets. Therefore, simply replacing old machinery by new would be a waste of funds. The managers have to first identify the products with which they want to compete on the western m a r k e t s . Then they have to decide on the machinery to be used to manufacture these products most efficiently. This requires a thorough knowledge of the markets, a thorough knowledge of the manufacturing technology for these products, and a thorough
knowledge of the market for such manufacturing equipment, all at the same time. And most of these eastern managers have never been in the West before!
5. Survival or Perish
Of course, investment takes time. Most industrial property is so polluted that new machinery cannot be installed before the soil under it has been completely cleaned from industrial pollutants.
Delivery times for modern equipment are rather long also. Even western firms have been waiting for 12 to 18 months for deliveries of machinery. Therefore, the eastern manager not only has to win the race between cost, particularly wage costs, and investment,
7
but also to win the race between scrapping old machinery and investing in new technology. This is a fight for survival. The present downturn in domestic demand for machinery and equipment may prove to be beneficial for eastern firms: it may reduce delivery times and also prices for machinery to be installed in privatized firms in the East.
III. Experience with East-German Middle Managers and ExpertB
The Industrieforschung Foundation started a program to help middle managers and experts from companies in Eastern Germany develop their technical and commercial skills. West German firms offered them a 3-months' internship. The experiences with the first group of East-German managers and experts are quite illuminating.
The following figure (fig. 1) shows the deficiencies that the host companies noticed in their East-German participants.
The following figure (fig. 2) indicates that managers and group leaders dispose of no commercial know-how whatsoever, and the same holds true with 75 per cent of the department heads.
Most disappointing is the fact that experts and managers alike are not even aware of the necessity to change their behavior. They want to improve their professional and technical expertise. Only one third of the participants want to improve their commercial skills, and it comes as no surprise that only 30 per cent report a learning success in this respect. Figure 3 gives details.
Compared with employees in their western host companies the experts and managers from the East lack readiness to take
decisions, to take risks and to see a decision through to the end.
They lack, as a Finn would say: "sizu". Figure 4 gives a
comparison of caracteristics and skills between West-German and East-German employees.
The experts and managers from East German companies voice their apprehension that the conditions in their home companies are not conducive to apply their new knowledge. This again may be an
Eigure 1 : D e ficien cies in the Q u a lifica tio n s of East G erm an M anagers and E xp erts
M ark et E co n o m y K now -H ow C o m m e rc ia l S kills
C om puter Skills
O rg a n iz a tio n M arketing
P ro fe s s io n a l a n d T e c h n ic a l S kills
P e r s o n n e l M a n a g e m e n t
03
Sam ple: 50 West German Com panies. Multiple answers admissible.
Source: Icks. A.: Betriebspraktika von qualifizierten Mitarbeitern aus Unternehm en in Ostdeutschland oder gründungswilligen Bürgern aus der ehemaligen BUH in w estdeutschen Betrieben, M aster’s Thesis, Bonn, November 1901
9
F ig u re 2 : D eficiencies in Q u alificatio n s by P o sitio n in E a s te rn C om pany
M a rk e t E c o n o m y K now -H ow
O r g a n iz a tio n
M a rk e tin g
L e a d e r s h ip
C o m m e r c ia l S k ills
P r o f e s s i o n a l a n d T e c h n ic a l S k ills
C o m p u te r S k ills
0 20 4 0 60 8 0 in %
| E x e c u tiv e s
B U I D e p a r t m e n t H e a d s
Group Leaders
W ith o u t M a n a g e m e n t F u n c tio n
Sam ple: 41 P articip an ts Source: Icks, A.: loc.cit.
1 0
F ig u re 3 : E x p e c ta tio n s a n d L e a rn in g S u c c e s s
S a m p l e : 41 E a s t G e r m a n P a r t i c i p a n t s . M u ltip le A n s w e rs a d m i s s i b l e
S o u r c e : I c k s , A.: lo c . c i t .
1 1
F igure 4 : C o m p ariso n of C h a ra c te ris tic s an d Skills b etw een West G erm an an d E ast G erm an E m ployees
A b ility t o w o rk in a T e a m
A b ility to w o rk
under Stress
I n i t i a t i v e
F a i r n e s s S u c c e s s — a n d P r o f i t - O r i e n t a t i o n R e s p o n s ib ility A b ility t o so lv e P r o b le m s C re a tiv ity
F le x ib ility Leadership
R e a d in e s s to t a k e D e c is io n s
W illin g n e ss to t a k e R isk s
C o m p e titiv e S p ir it A b ility t o c a r r y o u t D e c is io n s
““y y
: <. :|'i
0 20 40 60 80 in %
ijliiylltlii
H ig h e r E q u a l SmallerSam ple : 50 West Germ an Com panies Source: Icks, A.: lo c.cit.
1 2
expression of their lack of sizu and determination to carry a
decision out. However, there are differences. Managers and experts from companies that have already been taken over by a West-German mother company face problems upon their return that are strikingly different from the problems envisaged by managers and experts from companies that are still owned by the Treuhandanstalt. Figure 5 shows very clearly that managers in privatized eastern firms are well aware of the fact that tearing down old structures is not enough. This has already been achieved by privatization. All the employees have to change their patterns of thought very radically.
This requires a tremendous effort in retraining and changing behavior patterns of employees. Managers from Treuhand firms are not aware of the necessity to change thinking and behavior of each employee very radically. They attribute all the problems of
applying their new know-how to the old organizational structures that still exist in their old state-owned companies.
I V ,, Experiences with Start-up Firms
Several sources are now available that report on experiences with start-up firms in the new states. The Ministery of Economics for some time boasted with a figure of 300.000 start-up firms in 1991 alone. By February 1991 the Ministry had to acknowledge that for every two start-ups there was one business that had to close down again. Fig. 6 gives an overview of the quality of start-up films.
It should be noted that roughly 40 per cent of the business start
ups was of satisfactory quality. 60 per cent were considered to be in critical condition.
We have also assessed the chances of survival of our sample of business start-ups. Fig. 7 shows the results. Under present
conditions only one third of the companies have reasonable chances of survival. However, under the fourth scenario which assumes
satisfactory growth of demand in the East-German economy two thirds of the start-up firms would survive.
The following figure (fig. 8) shows the problems that start-up firms have encountered. 77 per cent of the firms name lack of demand as the most serious problem. 67 per cent point out that
1 3
F ig ü re 5 : P ro b le m s of A pplying th e new Know -How
O w n e rs of s t a r t - u p F ir m s
E m p lo y e e s in S u b s id i a r i e s of W est G e r m a n C o m p a n ie s S am ple: 41 P a r tic ip a n ts E m p lo y e e s in T r e u h a n d F ir m s
S o u rce: lc k s , A.: lo c .c it .
1 4
F ig u r e 6 : Q u a lity o f S t a r t - u p F ir m s ( p e r c e n t )
I n d u s tr y
Q u ality i n a d e q u a te v e ry
c r itic a l
le s s
c r itic a l s a t is f a c to r y v e ry good | I n d u s tr y
( w i t h o u t
C o n s t r u c t i o n )
0,0 33,3 16,7 50,0 0,0
C ra fts
( w i t h o u t
C o n s t r u c t i o n )
5,6 38,9 27,8 27,8 0,0
C o n s tr u c tio n 0,0 12,5 31,3 56,3 0,0
W holesale 0,0 14,3 71,4 14,3 0,0
R e ta il 0,0 20,0 30,0 40,0 10,0
P ro fe ssio n s 0,0 0,0 50,0 50,0 0,0
T ra ffic a n d
C o m m u n ic a tio n 0,0 0,0 100 0,0 0.0
H o tels, R e s ta u
r a n t s , T o u rism 0,0 25,0 50,0 25,0 0,0
O th e r S erv ices 8,3 41,7 8,3 41,7 0,0
Total 1,7 29,3 27,6 39,7 1.7
S o u r c e : B ran d k am p , M. : E r fo lg s a u s s ic h te n von U n te r n e h m e n sg r ü n d u n g e n in d en fü n f n e u e n B u n d e slä n d e r n , M aster T h e sis, Bonn 1991
F ig u re 7 : P r o s p e c ts of S t a r t - u p F irm s in th e new G e r m a n S t a t e s
A u sp ic e s S c e n a r io 1 S c e n a r io 2 S c e n a r io 3 S c e n a r io 4
Very c r it ic a l 35 % 33 % 16 % 0 %
Less c r it ic a l 33 % 34 % 34 % 34 %
S a tis f a c to r y 17 % 17 % 34 % 50 %
Good 15 % 16 % 16 % 16 %
S c e n a rio 1 : S ta tu s Quo
S c e n a rio 2 : I m p ro v e m e n t of I n f r a s t r u c t u r e
S c e n a rio 3 : P ro b le m s of O w n ersh ip Solved
S c e n a rio 4 : G row th of D em and
1 6
F ig u re 8 : S u rv e y of m o s t i m p o r t a n t P ro b le m s e n c o u n te r e d
by S t a r t - u p F irm s
1 7
communication technology is their greatest handicap. About 40 per cent cite local authorities and 40 per cent again cite legal
questions with respect to property ownership as great problems. It should be interesting also to notice that 57 per cent of the firms complain about general demand conditions while only 30 per cent complain about intensive competition from firms in Western Germany when they talk about difficulties in selling their products.
(Fig.9)
C. Experiences with West-German Managers
I. Retired Managers, Specialists, and Apprentices
Firms in the West, particularly banks and certified public
accountants, were the first to move managers to the eastern part of Germany. The Treuhandanstalt hired or leased managers from western corporations to work for the companies or for the Treuhandanstalt itself.
Many retired managers were called back out of retirement. They spend the week in uncomfortable hotels and in their offices and fly back home for the weekend. Many experienced managers who had been deprived of their chance to become top managers (for whatever reason) are now called to the front in eastern companies. And
young line managers with just a year or two after passing their apprenticeship exam are given the opportunity to prove themselves as good assistant managers in a local branch of a bank or a
department store.
II. Managers as Pioneers on the Frontier
For all these western managers, young or old, male or female, life in the East is very different from their management life in the West. Inadequate infrastructure, practically no telephones,
sanitary and heating systems of the fifties set a pioneer's
surroundings. They soon give up jogging in the morning because the air is so polluted from the homes burning lignite with a high
F’i g u r e 9 : C a u s e s of S a le s P r o b l e m s
1 9
sulphur content that jogging is more detrimental to their health than not jogging. And yet all these western managers seem to enjoy the challenge of working as pioneers on the frontiers of a market economy. They want to contribute to this great effort of
transforming a bankrupt socialist country into a flourishing market economy. Managers that work in Dessau or in Senftenberg with their families in Bonn take two hours to fly to Berlin and two and a half hours to drive to Dessau or Senftenberg to get to work. Senftenberg and Dessau are as close to Bonn as Moskau and A t h e n s !
III. Pioneers and Old Power Structures
Rebuilding an efficient economy means more than just replacing obsolete machinery. It means replacing the old power structures and replacing old managers by new promising o n e s . This is a very delicate problem indeed. It is also a unique opportunity for
western managers to form an alliance with the labor force against the old power structures.
Western managers learn fast that their arrival in the eastern firms and their first moves are critically observed by the lower echelon employees: Do the Westerners really mean business or do they team up with the former power elite? Will the old guard be effective in exploiting their information monopoly to maintain their positions? The German Co-determination Act and the Works Constitution Act have in the meantime proven to be most helpful tools for western managers who want to avoid falling into the
traps of the old socialist power groups. The labor representatives inform the western managers openly about feelings in the labor force about the professional and personal background of former m a n agers. This seems important in motivating the labor force in eastern companies. It shows that their fight for freedom from socialism has in fact borne fruit: the representatives of the hated socialist regime will not return to their key positions.
However, one should not be fooled. Even a year after German unification cases of collaboration with the secret service are still discovered. In several cases, board members from the West have to learn the hard way that all their efforts to save eastern
2 0
companies will fail unless they exchange very radically East- German managers and replace them with managers from the West. In some cases they have resorted to a "BBO", a board buy-out. Members of the board of directors decided to buy the company from the
Treuhandanstalt and to run them as their own businesses.
IV. New Managerial Decisions
However, even managers from the West find themselves in completely new circumstances. Managing a company in the eastern part of
Germany poses great new challenges to western managers. They have to learn new managerial decisions:
- merger and acquisition decisions without decision support data
- valuation of companies without net present value calculations - valuation of risks without reliable external and internal
data
Managers in the West have made merger or acquisition decisions without an opening financial statement, without adequate data on the market size in the five new states, without reliable data of the future market potential in the socialist countries, without complete lists of former owners of the nationalized companies and without any knowledge of the whereabouts of former creditors.
Feasiblity studies have told more about the western managers' psyche than about the eastern firm's profit potential.
Valuation of companies in the East had nothing to go on in the past. Profits in the past were manipulated by regulated prices and wages, by subsidies and by volume requirements in the plans. Most companies had to be valued more on the basis of an assessment of their potential for change than on the basis of continuing in their past line of business. Attempts to value the companies on the basis of assets owned proved in most cases to be more of an exercise in the ingenuity of finding equipment in museums of technology than in the ability to make appropriate price
comparisons.
21
In most cases the valuation of eastern companies hinged critically on the assessment of the redundancy risks and of the pollution risks as well as on the question of how much of the old debt would be borne by the Treuhandanstalt. These fields offered great
opportunities for negotiation skills.
In some cases western managers have seen their opportunities thwarted by the German Cartel Office. In the case of the
Interhotels and in the case of the Interflug Airline, just to cite two well-known examples, the Cartel Office rejected applications by West German firms to merge with these eastern companies. Hopes that the managers of the Cartel Office might seize the opportunity to apply the theory of contestable markets to mergers and
acquisitions of firms in the eastern part of Germany did not come true. The cartel office has adhered to its well-established
practice of applying the theory of workable competition to mergers and acquisitions in the new states, and the Treuhandanstalt
breathes the same spirit.
V. The New Experience: Cooperation with an efficient State Bureaucracy
Of course western managers face the same challenges as their eastern counterparts. They have to make their companies
competitive, and they have to do this fast. Even though they may have a clear vision of the new structure of the product portfolio to be marketed, they still encounter the same problems of
investment: there are innumerable barriers - legal and administrative - to overcome.
Attempts of western managers to speed up the process of investment has taught them a very clear message: there is nothing like an efficient state bureaucracy. After many years of campaigning
against overbureaucratization in the West this is a new experience for them. They have learned this lesson the hard way: they are confronted with an inexperienced, unqualified and extremely risk- averse bureaucracy in the new states. Property rights are still unclear, and administrative procedures are very slow. This
experience has certainly helped to improve mutual understanding.
22
Of course, these managers could have learned this lesson a lot easier: they would only have had to observe the highly efficient Japanese bureaucracy and their dealings with company managers!
D. Conclusion
This has been an account of the problems encountered in the
transformation process in the new East-German states. Let me close by saying that being involved in this transformation is a very satisfying experience also. Despite all the setbacks, all the necessary dismissals of personnel and despite also of all the
problems of power play of western companies in their dealings with eastern competitors one can already notice very clearly progress everywhere. The roads are being improved, the homes are being repainted on the outside, small crafts businesses and restaurants emerge like mushrooms, the plants are cleaned up, and not few have already found their market niches in the West as well as in the East. I am confident that in two or three years' time we will all witness a booming economy and flourishing businesses in the
eastern part of Germany.
