It has been three years since 10 countries—Cyprus, Czech Republic, Estonia, Hungary, Latvia, Lithuania, Malta, Poland, Slovakia and Slovenia—joined the EU (EU 10), adding 5% to the GDP of the world’s largest economy. In January, Bulgaria and Romania also became members the EU. EU membership has strengthened new member states’ (NMS) trade status, financial stability and economic resources. Even before accession, NMS experienced rapid economic growth, driven by privatization of state-owned enterprises, foreign direct investment (FDI), and EU funding for infrastructure and economic development. Following accession, the NMS have continued to post strong GDP growth (see graph, page 6) and FDI. Pre- and postaccession developments provided new market opportunities for analytical instrument companies. FDI, particularly in the food, transport and basic metal industries, drove increased investment in manufacturing and R&D. However, it was the investments made to harmonize NMS’ regulations with EU environmental and food standards and to improve associated infrastructure that produced the largest market opportunities for instrument makers. Due to continued EU investments, growth among domestic businesses and increased funding for government and academic R&D, demand for analytical instruments should continue to be healthy in the region. In order to harmonize NMS regulations and standards with EU environmental directives, instruments for the monitoring and analysis of air, water and soil quality have been one of the fastest-growing segments of analytical instrument sales to NMS. An estimate by the European Commission put the total cost of environment harmonization for the EU 10 at €50–€80 billion ($62.5–$100 billion). Eurostat estimates that from 2000 to 2003, the EU 10 received €3.4 billion ($4.25 billion) from the EU’s Instrument for Structural Policy for Preaccession program for environmental infrastructure projects. From 2004 and 2006, the EU Cohesion Funds allocated €616.7 million ($770.9 million), €472.6 million ($590.8 million) and €210.9 million (263.6 million) to Hungary, the Czech Republic and Poland, respectively, for environmental spending. Several transitional deadlines for meeting EU wastewater and integrated pollution prevention and control directives are set for the 2010s. US-based HANNA Instruments, a company with more than 1,000 employees and 40 subsidiaries, opened its Romanian and Polish subsidiaries in 1999 and its Hungarian subsidiary in 2000. The company develops, manufactures and sells a variety of laboratory and process instruments, including electrochemistry equipment, titrators and photometers. Asked about the sales to environment analysis customers in Central and Eastern Europe, Martino Nardo, the company’s CEO, told IBO, “It’s a fast growing market. . . . The standards to which Western Europe is adhering to today are slowly but surely being implemented in Eastern Europe as well. When it comes to environmental testing and monitoring, these are all regulations that follow Western European standards.” The progress has been tremendous, according to Mr. Nardo. “I’ve been traveling to these countries for the last seven or eight years, and I can tell you that the differences when it comes to water in these countries are noticeable almost on a monthly basis.” The changes are evident not only in the public sector, but the private sector as well. “[T]he governments have helped a great deal, not only by setting an example, but certainly by helping industry with monies. The countries have responded, all the way down to the private industries that have complied and are very aware of the regulations that are necessary to meet. Don’t forget, a lot of these countries bank on tourism, as well as local manufacturing.” In regard to his company’s sales in the countries where HANNA Instruments sells directly, Mr. Nardo cited the agricultural market as particularly noteworthy. “With regard to Hungary and Poland, the industrial sector that is particularly active, I would say, is agricultural because lots of fertilizers are involved in today’s modern agriculture: they are absorbed by the ground and you find them in rivers. I know for a fact that the governments have put a great deal of emphasis on this sector,” he explained. Compliance is prompted not only by regulation, but to improve operations. “Of course, there is also the fact that a lot of what goes on in the agriculture industry benefits greatly from monitoring and control because of efficiencies.” For agriculture and other food products, compliance with environmental, as well food safety regulations, is necessary for exports. “These countries tend to export a great deal of locally produced products. . . . Companies and industries are forced to follow these regulations in order to be accepted by neighboring countries and by customers,” he noted. Asked to comment on future growth in these countries, Mr. Nardo emphasized that regulatory progress is still being made and domestic industrial development has much potential. “[Although] the changes have been great in the last decade or so, there is still a long way to go. . . . I don’t really see growth in this area slowing down,” he stated. “If anything, potentially it could actually grow faster than it has done in the last five to seven years because of the fact that the industries that are in these countries are growing tremendously because of investment and local businesses starting up.” Although local businesses have benefited from privatization efforts and exports, the bulk of the NMS’ economic growth since accession has resulted from increased FDI. According to the UN Conference on Trade and Development, FDI in the EU 10 grew 12.8% from 2004 to 2006. A Spring 2007 survey by Ernst & Young ranked Poland and the Czech Republic as the seventh and tenth most attractive countries, respectively, for FDI. However, Central and Eastern Europe slipped from second to third place in terms of regional attractiveness due to mounting labor costs. FDI was primarily made in the manufacturing and services sectors. One company which has increased its presence in NMS to take advantage of this growth is Analytik Jena AG. According to Thomas Fritsche, head of Investor Relations, Analytik Jena’s presence in the region is well-established in part due to its AJZ project engineering business and its acquisition of Carl Zeiss Jena’s analytical instrument business in 1995, which gave it customers in the region as well as a distributor network. This year, the company opened a Competence Center in Romania. Customers in industry make up the largest share of its customers, followed by academia. Asked about the future prospects for sales in this region, Mr. Fritsche expects no big increase, but “a steady development of our turnover.” For Prague-based DataApex, the NMS region is not a focus of its sales activities. Established in 1992, DataApex sells chromatography data systems. Its Clarity software is sold in 60 countries and it has OEM agreements with seven chromatography suppliers. Barbora Prokešová, DataApex’s Sales and Marketing director, told IBO that the NMS represent only about 5% of the company’s business. Asked about growth prospects for the region, she said, “There is almost a saturated market in the Czech Republic. DataApex sales are low to Central and Eastern Europe due to low purchasing power and cheap local competition.” However, the Czech Republic’s accession to the EU did affect the company. “DataApex benefits from EU membership in two ways: There is less paperwork for business between EU members and EU countries generally have a better reputation,” Ms. Prokešová explained.