Some Irish firms are set to make EU enlargement work to their advantage, writes Colm Ward

In just under a year's time - May 1st, 2004, to be exact - Poland will become one of 10 countries to join an enlarged European Union. For the population of almost 40 million, this will be the most important political event since the overthrow of the Communist regime in 1989.

It will be hugely important too for the rest of the EU, and Ireland in particular. Depending on your perspective, this resource-rich country is either a threat to Irish producers or a huge potential market for Irish businesses.

But even when discussion of EU enlargement was still confined to the salons of Brussels, Poland had caught the eyes of several people in the Irish business world.

In 1995, building products and materials group CRH acquired a small stake in a Polish cement facility. This was followed in 1997 by the acquisition of a second cement business and, eventually, of other related businesses producing clay brick products, ready-mixed concrete, sand and gravel, precast products, insulation and fencing.

"As time went on and as we got more confident in the Polish economy and the country itself, knowing that it was going to join the EU at some stage, knowing it had good potential, we expanded into downstream businesses," says Mr Jack Golden, human resources director with CRH.

Since its formation in the 1970s, growth through the acquisition of other businesses has been an important part of the group's strategy. In particular, the limited size of the Irish market meant that management had to look further afield to find suitable targets for acquisition.

"There wasn't a whole lot of room for expansion in the Irish market so it was a question of where do you go for growth and that idea at the time was very revolutionary - [CRH management\] were thinking in terms of 30 per cent of their profits coming from outside Ireland," explains Mr Golden.

The percentage of profits generated outside Ireland has increased and the Republic now accounts for only 10 per cent of the group's turnover, while growth through acquisition represents about half of its growth.

The first acquisitions were in Britain, followed by the Netherlands and, in 1978, the United States, which now accounts for 60 per cent of the CRH business.

"You invest in the core businesses, the existing businesses, to make them the low-cost leaders in their area and, at the same time, then expand into new geographies, new products or new markets," he says.

Acquisitions are made only after careful consideration of the business potential. CRH personnel are constantly studying possible targets but only a fraction of these will be bought. Following a rigorous financial analysis, other aspects of the business are examined, such as customer type and management structure.

The political and economic stability of the region is also important, as is an effective legal system. Other factors include the size of the market and the quality of the workforce.

Once the decision to acquire a business has been made, the next step is to integrate it into the existing corporate structure. How this is done depends on the geographical location and the existing management structure.

CRH has a series of performance measures that are used to help the newly acquired company measure its performance. Three years after the purchase, the group undertakes an extensive audit to examine if the new business is achieving the targets set out in the initial proposal.

It is important, however, not to stifle the creativity and energy of the existing workforce. "What you have to create there is a certain atmosphere that allows these entrepreneurs to try to continue developing their business without the constraints that you would traditionally have in a large organisation," Mr Golden says.

"From an operational point of view, from decisions about pricing locally and how they're going to manage their own situation, we don't interfere from here because obviously somebody in Warsaw today will know how many zlotys he can get for a tonne of aggregates - we won't know at this distance here."

Another effective way of integrating a newly acquired company is to encourage the movement of staff between different parts of the organisation.

Polish CRH employees are regularly invited to travel to Ireland for training or work placements.

Another Irish company with a large presence in Poland is AIB, which owns one of Poland's five largest banks, Bank Zachodni WBK.

There can be up to 50 Irish people based in Poland at any time. This "hand-in-hand" approach allows AIB to foster western European standards of operating within its Polish businesses, says Mr Alan Kelly, AIB's head of investor relations.

The Polish bank has recently completed a $10 million (€9.1 million) investment to develop a branch network along the lines of the Irish model.

Establishing a presence in Poland not only gives companies access to the market there and in neighbouring countries, it also gives them a toehold in the region from where they can expand.

"Arising out of that expansion in Poland, we used that as a base for development in the neighbouring countries and we have done a number of studies there," says Mr Golden of CRH.

One of those studies resulted in the group acquiring a stake in a cement business in the Ukraine. However, he believes that caution is the best policy when it comes to the less-developed regions of the world.

Although CRH does have a limited presence in some of the developing economies of Africa, Asia and South America, the policy for now is to proceed with caution.