Computer giants seek pole position in a new market: Sally Hamilton describes how Western manufacturers are facing up to the end of the Communist era

SOMETHING akin to a gold rush is developing in Eastern Europe. It is not for a precious metal but for customers, and it involves Western computer companies.

The next stage in their scramble for customers is about to unfold in Poland with the re-equipping of the nine regional banks that were carved out of the old Communist monopoly, the National Bank of Poland, in 1989.

IBM has just announced that it is bidding to supply software, consultancy and hardware, including automatic teller machines, to Bank Zachodni, one of two banks due to be privatised shortly. IBM, the world's largest computer manufacturer, has won the only big Polish bank contract so far, to supply at least dollars 20m worth of equipment and consultancy to the other immediate privatisation target, Bank Slaski in Silesia.

The company admits that it made a loss on the deal, which cost more in consultancy time than the fixed-price contract had anticipated. According to Maciej Borysoglebski, IBM's project manager at the bank: 'It was worth it for the investment. There will be other contracts.'

It is estimated that the nine banks need at least dollars 200m worth of equipment to spearhead their move away from the old-style central savings banks of the Communist era. That excludes the potential business from scores of rival banks setting up in Poland, not to mention similar deals in neighbouring countries. A pack of Western suppliers - including ICL, Digital Equipment, Hewlett Packard and Bull - are likely to be snapping at IBM's heels on the Bank Zachodni deal.

Competition between Western suppliers in Eastern Europe is so fierce that 47 of them recently bid for a big personal computer contract at a Bulgarian university. The trophy went to IBM, which has also practically given away a mainframe to a Czech university in order to encourage students to adopt IBM skills. The university will have to pay for the machine in four years' time, but by then its value will be much lower.

Jane Doorley, a consultant at the market research group Dataquest, confirms that companies do cheap deals because they believe in the potential of the market.

Such keen, but generally unpublicised, pricing makes it difficult to estimate the current and future value of the market.

A KPMG Peat Marwick consultant, Franz Nawratil, says the most popular hardware is probably IBM's mid-range AS/400 machine as organisations upgrade from personal computer-dominated systems. In the past year IBM claims its business in Poland, Czechoslovakia and Hungary grew 150 per cent, with sales touching dollars 250m.

Hewlett Packard, which says it refuses to offer heavy discounts just to gain market share, claims sales of around dollars 160m in these countries, plus the former Soviet Union. HP won a dollars 10m deal to supply the privatised VZP health insurance company in Czechoslovakia with workstations and personal computers for its 75 branches.

Meanwhile, Digital has its foot in the door of Czechoslovakia's ambitious voucher scheme, which appears ready to privatise large companies in the Czech lands.

In the Communist era East European organisations had few computers. Those they did have were often poor imitations of Western models.

For all suppliers the CIS has become a troublesome market. HP admits that Russia 'has suddenly become a big disappointment'. The company had triple-digit growth there in 1991, but business has since been punctured by the political and economic crisis.

'In Russia we had a lot of bad debts,' says an HP spokesman. 'A lot of pieces of paper were not valid. We had to escalate it to ministers in government and we got the money eventually. But the effort involved is disproportionate to the amount of business done.'

This experience can be duplicated elsewhere in Europe. Dilip Chandra, general manager of IBM Eastern Europe, says: 'You often bid for a contract without knowing whether the money is available.' Most suppliers now check a customer's hard currency credit before embarking on any contract.

The problems of trading with Communist Poland pushed ICL into an imaginative deal in 1985.

It bought a 35 per cent stake in a Polish furniture factory so that it could take furniture out of the country in payment for computers.

Eastern European companies are already seeing results from their investment in up to date Western technology. Bank Slaski has completed the first stage of its modernisation, bringing the first ATM to Eastern Europe a year ago. According to IBM's Mr Borysoglebski, the book's customer base has increased 300 per cent to 75,000 since then.

'In the old days customers had to sit in the bank all day signing different papers to withdraw money,' he says. 'It was a social occasion. Now they can do it immediately. They can see the appeal of not keeping the money at home under the mattress.' Mr Borysoglebski adds that IT should reduce the risk of fraud, which was rife in Polish banks in the past, because of the lack of management information.

Selling the technology is only the beginning of the problem. As IBM discovered, the difficulty for Eastern Europeans is combining the skills of management with those of information technology.

At Bank Slaski consultants had to be brought in to teach staff about banking methods as well as technology. Exports to the East may face continuing obstacles from Cocom, the Co-ordinating Committee for Multilateral Export Controls, a body created in the late 1940s to stop the Soviet Union and its allies obtaining militarily useful technology.

Despite steps taken so far by the former Nato countries, plus Australia and Japan, to relax restrictions, IBM admits to being frustrated because they impede the export of its RS/6000 workstation, a fast-selling product in the West that relies on new processor technology.

'The US government regards the RS/6000 as a sensitive product,' Mr Chandra says.

The former Eastern bloc countries may in one way be in a fortunate position. They should be able to move straight to 1990s hardware and software without the pain of rewriting old systems and patching together a hotchpotch of old equipment.

Mr Nawratil says the Eastern Europeans should not be underestimated just because they are backward in hardware technology. They had to be very inventive in software in the past in order to get round the limitations of their hardware. They are well educated and some experts reckon they could become to software what the Far Eastern countries are to electronics.

An example of the software skills in the East - albeit a warped one - is computer viruses. Many of the most disruptive viruses to hit computers in the West have been traced to delinquent programmers in Bulgaria. Soon this could be tapped for more commercial purposes.

(Photograph omitted)