Thread by thread; weaving a new work ethic into post-Communist economies

Thread by thread; weaving a new work ethic into post-Communist economies – Global Entrepreneur

Kristin Dunlap Godsey

When Comecon, the Communist trading bloc, disintegrated in 1990, Hungary’s textile industry went into a tailspin. In the three years that followed, the number of textile and apparel jobs fell by one third. The production of fabric and yarn dropped 60 percent.

Like other Western businessmen, Michael Smolens recognized an opportunity. But Smolens did them all one better. He didn’t just tentatively invest in the country; his new company, Danube Knitwear Ltd., fully embraced Hungary’s economy, providing 950 full-time jobs to local workers and investing heavily in new technology for its mill operations.

“We wanted to put something together in a part of the world where there was no competition,” says Smolens. “Somewhere with unlimited upside potential.”

That potential is beginning to blossom: Danube Knitwear recently opened a sewing facility in Romania. But it hasn’t been an easy road. “Here, you’re not limited by market size or financing; it’s resolving the cultural differences that’s a challenge,” explains Smolens.

Now based in New York, Smolens began his international business career in 1971. His first entrepreneurial venture was in Haiti, where he built a 3,000-employee operation that produced apparel, footwear, and handcrafted items for the U.S. market. It was through this company that he met Phil Lighty, then a vice president at Gap. When the U.S. imposed its embargo against Haiti, Smolens closed up shop; he and Lighty joined forces to look for a new venture.

Hungary’s most-favored-nation status with the U.S. made it an attractive opportunity, as did its strategic trade advantages within Europe. They purchased a run-down state factory in Baja and transformed it into Danube Knitwear, a garment mill (producing mostly T-shirts) in an industrial park that combines knitting, dyeing, and sewing. Eventually, Smolens would like each of the plants to be run top-to-bottom by Hungarian and Romanian citizens.

Instilling Capitalist Values

But the cultural differences have taken longer to adjust to than the company had expected. Finding nationals with both experience and willingness to be accountable for challenging responsibilities has been an arduous task, Smolens says. The company has been bringing in younger, inexperienced nationals to train, but unfortunately, that process takes two to five years.

As for the mill laborers, Danube Knitwear continues to learn more about the past work environment and to tailor its management style accordingly. The first step was getting workers used to high Western production standards and motivating them to accept the company’s priorities. Hungary’s low wage base was seen as a big plus when the company was being formed, but absenteeism has been an ongoing problem. In the plant’s first year, employee turnover soared to 120 percent. Smolens realized he’d have to strengthen his wage structure to keep his workers from abandoning the company for the family farms or the black market. He also moved from awarding attendance bonuses to providing other job incentives — in particular, cultivating a more comfortable, open work environment.

“We’re actively soliciting comments from the workers day to day,” says Lighty. “They know what the problems are, but because of the way things used to be in this country, they’re not always comfortable sharing them.”

“It’s a good approach,” Smolens adds, “and we do see progress. They’re starting to realize that what they say is being taken seriously.”

Danube Knitwear has been credited with breathing new life into the region’s textile industry. And after two and a half years, the company is profitable, expecting to bring in $40 million to $45 million in 1996. Its big-name T-shirt clients include Gap, Levi’s, Hanes, and Nike.

The company recently made an acquisition in Hungary and is working on another. Says Smolens, “We plan to be the dominant knitwear manufacturer in this region.”

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