Tuesday, May 02, 2006

Polish Productivity Surges

A report by the Conference Board has found that Poland’s productivity growth accelerated by 7.7 per cent last year, second to China and much higher than the rich economies of western Europe or the US. It calculated that gross domestic product per hour worked was $19.90 for Polish workers, outpacing the $19.40 for South Korea.
But Polish productivity is still less than half the average of west European countries, and trails most of its ex-communist neighbours.

David Yoon, human resources director at the LGE factory about 100km north of Warsaw, says that Polish workers were initially unhappy about some of his company’s management techniques, such as hanging large signs above the production line exhorting workers to “Get it right the first time”, and “Don’t say ‘No’ but seek alternative solutions”.

“Some of the older workers said it reminded them of communist times, but now they are used to it,” he says.

The Korean company is setting up training programmes as it starts to exhaust the local talent pool of workers for the factory, which has become LGE’s main European flat-screen television set producer.

“The fundamentals of Polish workers are not bad,” says Mr Yoon. “And once they have been taught a technique, they stick to it exactly. Every month, we break production records.”

The Koreans are not the only ones impressed with the quality of their Polish workers.

A recent study by KPMG, the auditing company, found that most foreign investors were impressed by the high level of qualification in their Polish workforces.

Poland’s rapid leap in productivity is taking place in spite of the drag caused by the 20 per cent of the Polish workforce that is employed in agriculture – producing only 3 per cent of GDP. The country also has the highest level of unemployment in the European Union, at 17.8 per cent, and the lowest level of labour participation in the OECD, the world’s most industrialised countries.

Many of those out of work are unemployable in a modern economy and some Polish companies are experiencing difficulty in finding qualified workers. A recent study by Poland’s central bank found that 42 per cent of firms had trouble finding qualified workers.

The booming city of Wroclaw in western Poland is trying to lure expatriates working in the UK to return home to take up jobs with the many foreign companies relocating there.

Although Polish companies restructured following the slump in the economy in 2001-2002, the fastest productivity growth is found in businesses owned by foreign investors.

“Productivity is higher for most foreign investors than for the average Polish company, since investors build new, modern facilities using the latest technology and operations design know-how” says Michal Kwiecinski, of McKinsey & Company, the management consultants.

“Very often, their productivity is even higher than in their home country facilities, because companies tend to optimise their processes in parallel to transferring production or service centres to Poland.”

That is the case with LGE, which has expanded so rapidly in Poland that it quickly outgrew the factory built in 2004, when it began production in Mlawa. It has now moved into a much larger new factory.

Other plants are being built by the company near Wroclaw in a joint venture with Philips of the Netherlands.

Polish salaries, although much lower than western Europe, are 200 per cent higher than in LGE’s factories in China and Indonesia, and went up 6 per cent last year.

But LGE has no plans to reduce its Polish investment.

“We can overcome wage differences by productivity,” says Mr Yoon.