For businesses flocking to Central Europe, most roads lead to Vienna Austrian capital has history and geography on its side


Vienna, Austria -- If you want to peddle Cokes, PCs, Big Macs or other products in Eastern Europe, where should you set up your business headquarters?

Maybe Budapest or Prague, important capitals that are evolving? Or bustling Berlin or Bonn, which offer the strength of Europe's most powerful nation?

More likely, Vienna. Although attention has been focused on united Germany's economic clout and the revolutionary changes former communist countries, tiny Austria has quietly but firmly assumed the role of Central Europe's business center. Austria's nimble companies form a counterweight to Germany's presence in the region, especially for foreign companies investing in the old Soviet bloc.

More than 700 foreign companies have set up regional headquarters in Vienna, a relatively small but highly sophisticated city. The U.S. delegation of more than 200 companies includes such big ones as Coca-Cola, IBM and McDonald's. And 6,000 managers and students from the former Communist bloc are in Vienna learning business skills.

In Hungary, Austria leads other countries, with 2,000 joint ventures and $350 million -- or 17 percent -- of Hungary's total investments. Another sign of close cooperation: Twenty-five Hungarian companies now trade on Vienna's stock market.

With a population of 7.5 million, Austria is too small to dominate the region's other countries, but it does manage to take second or third place behind German or U.S. investors.

One reason for Austria's central role may be historical connections. Virtually the entire region was part of the Austro-Hungarian Empire, which collapsed in 1918. It was made up of modern-day Austria, Hungary, Czechoslovakia, Slovenia, Croatia, Bosnia-Herzegovina and parts of Italy, Ukraine, Poland and Romania.

The Danube River is another thread linking many of these countries.

With 10 million inhabitants and comparatively good infrastructure, the valley connecting Vienna with Bratislava in Slovakia, Prague in the Czech republic and Budapest in Hungary has the region's most dynamic economy.

The river forms the heart of Vienna's proposed business district, the "Danube City." The project, to be built on a 100-acre site on an island in the Danube, is to have 1 million square feet of office space and 30,000 apartments and is designed to serve as Central Europe's financial hub.

"Logistically, this is the right place to be for Central Europe," said Geoff Harrison, external programs manager at IBM Eastern Europe Inc. "Prague is only three hours away, Budapest two and Bratislava only an hour. By contrast, Warsaw is the only capital near Berlin, and that's five or six hours."

IBM just opened a new office in Vienna for 850 employees, including 200 who deal exclusively with Central Europe. Austria offers another advantage: eager corporate partners.

"American companies investing [in Eastern Europe] would do well to go in with a partner, and I don't think you could find better ones than Austrian companies," said Henry Owen, who specializes in Central Europe as a consultant to Salomon Brothers.

Austrian companies are eager for U.S. partners because -- in contrast to their German neighbors -- their small size means they need partners, he said.

Their experience and the strength of U.S. companies make for ideal pairings.

Berlin, meanwhile, remains handicapped in vying for the role of the region's business capital.

Companies in east Berlin struggle simply to survive. And those in west Berlin generally are small and accustomed to decades of West German subsidies, which were designed to keep companies from leaving the city's otherwise unattractive location the middle of East Germany. The result is that few Berlin companies are internationally active or outward-looking.

As for cities in Eastern Europe, most are ill-suited for major corporate operations.

IBM's strategy, Mr. Harrison said, is to use Vienna as the center but to develop local operations according to the size of the market. Warsaw and Budapest, for example, already have fairly large local offices and someday could become independent of the Vienna headquarters.

But, for now, those countries' weak economic recoveries, poor living conditions, primitive communications links and high office

prices have limited their lure.

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