The Benefits of Complementarity and Collaboration:

The Benefits of Complementarity and Collaboration: An analysis of special economic zones, industrial parks and technology parks in Poland Report ADVISORY

Contents Introduction 1 and special economic zones () 2 What are and? 2 Research Methodology 2 Overall Characteristics of and 6 History 6 Founding Bodies 6 Legal Status 7 Public-Private Collaboration 8 Financial Performance 9 Revenues 9 Profits 9 Employment 1 Budget Distribution 11 Area and Locations 12 Area and its Usage 12 Usage of Available Land and Space in 12 Number of Locations 13 Customers 14 Number of Entities 14 Customer Profile 14 Infrastructure 15 Available Transport 15 Quality of Transport 15 Utilities 16 Investor Relations 17 Incentives for Investors 17 Forms of Promotion 18 EU Funds 19 Problems 2 Performance Assessment 24 Summary 26

Research report 1 Introduction Collaboration between enterprises is a natural phenomenon in market economies. Collaboration between complementary agents, i.e. enterprises, research centres and local governments, should be even more natural. Do industrial parks, science and technology parks and special economic zones provide examples of such collaboration and, as such, can they be considered a miraculous cure-all for the problems faced by Poland s economy? To what extent do they represent a paragon of beneficial collaboration? and Zones are established for a variety of reasons. Some are created to improve the competitiveness of their respective regions, others are established with the aim of reducing unemployment and yet others to attract investors. However, all of them are based on the idea of beneficial collaboration between enterprises and institutions (local governments, universities etc.) in a shared location. Our main goal was to characterise and Special Economic Zones (Polish abbreviation: SSE) operating in Poland to show how they are creating conditions which boost competitiveness. We hope that our synthesis of their track record to date gives some perspective on the key advantages associated with a location in a park or a zone but also sheds some light on the problems faced by parks and zones as well as enterprises which chose to establish themselves there. It is likely that parks and zones help enterprises mitigate or even partly eliminate many problems associated with logistics and infrastructure. Is this indeed the case? Can parks and zones boost the competitiveness of a region? Can they bring new life to post-industrial areas and drive innovation? We hope to provide an answer to this and other questions in this report which we trust you will find insightful. Mirosław Proppé, Director Mariusz Strojny, Ph.D., Project Manager Advisory Advisory

2 Research report and Special Economic Zones () What are and? The following definitions were adopted for the purposes of this study: Industrial Park a separate real property complex with the pertaining infrastructure, established with the participation of local government, enabling business operations on preferential terms. (Source: Act of 29 August 23, amending the act on financial support for investments and the act on conditions of permissibility and supervision of financial aid for entrepreneurs). Technology Park a separate real property complex which includes relevant technical infrastructure, established to stimulate the knowledge and technology transfer between research organisations and industry. Here entrepreneurs who employ high technology are offered advisory services on business management, technology transfer and transformation of research and development into technological innovations. These enterprises are offered the opportunity to use real property and infrastructure on contractual terms. (Source: Act on 29 August 23, amending the act on financial support for investments and the act on conditions of permissibility and supervision of financial aid for entrepreneurs). Science Park an institution managed by skilled specialists which aims to improve the welfare of the local community by promoting the culture of innovation and competition among enterprises and knowledge-based institutions (universities, research and development organisations). (Source: International Association of Science, IASP). Special Economic Zone (SEZ) a separate and uninhabited part of a country s territory where business operations may be conducted on preferential terms defined in the Polish Act on Special Economic Zones. Research Methodology The study was conducted in January and February 26 on a representative sample of and operating in Poland. It consisted of a questionnairebased survey and in-depth interviews with the management of and Zones. During the study a total of 14 special economic zones and 31 were identified. While the number of is stable and confirmed by other sources (e.g. the Polish Ministry of Economy), the number of is difficult to determine with precision because new parks are being created on an ongoing basis (e.g. Podlaski Industrial Park or Warsaw Technology Park), and some are being liquidated or have gone bankrupt (e.g. Częstochowski Technology Park or Technopark Tychy).

Research report 3 8 7 6 5 4 3 2 1 55% Percentage of participating in the study 79% Percentage of participating in the study 62% Percentage of and participating in the study A structured questionnaire was used to survey 11 and 17, which represents 8 percent of all existing and 55 percent of identified, respectively. Information on the remaining and which did not complete the questionnaire was collected on the basis of desk research (i.e. on-line content, newspapers, magazines, reports etc.). We also provide detailed characteristics of and in this report. In many cases the results are radically different. It is important to point out that this does not stem from any inherent weakness of one or the other business formats under review but, rather, from their respective individual characteristics and different models of business and organisation. Industrial (IP) represented the largest share (nearly 4 percent) of the 45 identified institutions. Special Economic Zones (SEZ) represented nearly one third, and one in four was either a Technology Park (TP) or a Science and Technology Park (STP). We have also identified two Industrial Technology (ITP) which represented approximately 4 percent of the survey sample. The geographic distribution of and is not even. The largest number of such institutions is found in the Dolnośląskie and Śląskie voivodeships (higher level administrative units). A detailed distribution of and is shown on maps on pages 4 and 5. Percentages of and operating in Poland 31% 4% 13% 13% TP STP IP ITP SEZ 38%

4 Research report Locations of 21 Gdynia 3 Police 29 Goleniów Szczecin 32 32 Stargard Szczecinski 4 5 6 Swiecie Bydgoszcz Solec Kujawski Torun 7 Suwalki 2 Czarna 19 Bialostocka 27 Zlotniki 26 Poznan Srem 28 Kutno 11 Zgierz 12 Plock 14 Warszawa 15 Legenda: Liczba Parków Legend: no. of across Voivodships w poszczególnych województwach: i wiecej 4 or more 3 2 1 Brak None Brzeg Dolny - Bukowice 2 1 Nowa Ruda 3 Wroclaw Kedzierzyn Kozle 13 Opole 14 Kluki Kleszczów Gliwice Katowice Goleszów 1 25 22 24 23 Belchatów Sosnowiec Kraków 33 Tarnów 13 Pulawy 8 Glogów Malopolski Swilcza Trzebowisko 18 Rzeszów 9 Swidnik No. Park Voivodship Locations 1 Park Przemysłowy Bukowice Dolnośląskie Brzeg Dolny - Bukowice 2 Noworudzki Park Przemysłowy Dolnośląskie Nowa Ruda 3 Wrocławski Park Technologiczny Dolnośląskie Wrocław 4 Bydgoski Park Przemysłowy Kujawsko-Pomorskie Bydgoszcz 5 Park Przemysłowy w Solcu Kujawskim Kujawsko-Pomorskie Solec Kujawski 6 Vistula Park Kujawsko-Pomorskie Świecie 7 Park Technologiczny w Toruniu Kujawsko-Pomorskie Toruń 8 Puławski Park Przemysłowy Lubelskie Puławy 9 Park Technologiczny PZL Świdnik Lubelskie Świdnik 1 Bełchatowsko Kleszczowski Park Przemysłowo Technologiczny Łódzkie Bełchatów, Kleszczów, Kluki 11 Kutnowski Park Agro-Przemysłowy Łódzkie Kutno 12 Park Przemysłowy Boruta Zgierz Łódzkie Zgierz 13 Zielony Park Przemysłowy 'Kryształowy' Małopolskie Tarnów 14 Płocki Park Przemysłowo-Technologiczny Mazowieckie Płock 15 Warszawski Park Przemysłowy Mazowieckie Warszawa 16 Kędzierzyńsko-Kozielski Park Przemysłowy Opolskie Kędzierzyn Koźle 17 Opolski Park Technologiczny Opolskie Opole 18 Podkarpacki Park Naukowo-Technologiczny Podkarpackie Rzeszów, Trzebowisko, Głogów Małopolski, Świlcza 19 Podlaski Park Przemysłowy Podlaskie Czarna Białostocka 2 Park Naukowo-Technologiczny Polska-Wschód Podlaskie Suwałki 21 Pomorski Park Naukowo-Technologiczny Pomorskie Gdynia 22 Park Naukowo-Technologiczny Technopark Gliwice Śląskie Gliwice 23 Goleszowski Park Przemysłowy Śląskie Goleszów 24 Regionalne Centrum Innowacji i Transferu Technologii Śląskie Katowice 25 Sosnowiecki Park Naukowo-Technologiczny Śląskie Sosnowiec 26 Poznański Park Naukowo-Technologiczny Wielkopolskie Poznań 27 Nickel Technology Park Poznań Wielkopolskie Złotniki 28 Śremski Park Inwestycyjny Wielkopolskie Śrem 29 Goleniowski Park Przemysłowy Zachodniopomorskie Goleniów 3 INFRAPARK Police Zachodniopomorskie Police 31 Stargardzki Park Przemysłowy Zachodniopomorskie Stargard Szczeciński 32 Szczeciński Park Naukowo-Technologiczny Zachodniopomorskie Szczecin 33 Krakowski Park Technologiczny Małopolskie Kraków

Research report 5 Locations of Krokowa 3. Goleniów Karlino Slupsk 8. 7. Gdansk Bartoszyce Elblag Tczew Lidzbark Warminski Malbork Paslek Starogard Gdanski Dobre Miasto Sztum Gniew Morag Mragowo Kwidzyn Olsztyn Ostróda Szczytno Goldap Olecko Elk Suwalki 11. Nowe Miasto Lubawskie Barlinek Mlawa 14. Gorzów Wielkopolski Kostrzyn Slubice Kutno Gubin Bytom Odrzanski 1. Legend: Legenda: no. Liczba of SEZ lokalizacji locations SSE across Voivodships w poszczególnych województwach Over Powyzej 1 1 7-1 7-1 4-6 4-6 1-3 1-3 None Brak Nowa Sól Polkowice Krzywa Lubin Legnica Sroda Slaska Zlotoryja Nowogrodziec Luban Legnickie Pole Wroclaw Jelcz-Laskowice Jawor Piechowice Zarów Olawa Swidnica Kamienna Krzeszów Góra Walbrzych Strzelin Dzierzoniów Lubawka 13. 5. Nowa Ruda Kudowa Klodzko Zdrój Nysa 6. Tubadzin Sieradz 2. Leczyca Ozorków Zgierz Ksawerów Rawa Mazowiecka Lódz Chociw Tomaszów Mazowiecki Wolbórz 12. Piotrków Trybunalski Radom Slawno Konskie Szydlowice Radomsko Staporków Skarzysko-Kamienna Starachowice Ostrowiec Swietokrzyski Tulowice Jaslo Gorlice Staszów 9. Tarnobrzeg Stalowa Wola Nowa Deba Sosnowiec Gliwice Mielec Katowice Lezajsk Tychy Pustków Zory Kraków Tarnów Debica Jaroslaw 4. 1. Sanok No. SSE Voivodship Selected locations 1 Kamiennogórska SSE Dolnośląskie Kamienna Góra, Krzeszów, Lubawka, Nowogrodziec, Lubań, Jawor, Piechowice 2 Katowicka SSE Śląskie Katowice, Gliwice, Sosnowiec, Tychy, Żory 3 Kostrzyńsko-Słubicka SSE Lubuskie Kostrzyń, Słubice, Gorzów Wielkopolski, Goleniów, Gubin, Barlinek, Karlino, Nowa Sól, Bytom Odrzański 4 Krakowska SSE Małopolskie Kraków, Tarnów 5 Legnicka SSE Dolnośląskie Legnica, Lubin, Polkowice, Złotoryja, Środa Śląska, Krzywa, Legnickie Pole 6 Łódzka SSE Łódzkie Łódź, Kutno, Sieradz, Rawa Mazowiecka, Tomaszów Mazowiecki, Sławno, Piotrków Trybunalski, Radomsko, Łęczyca, Ozorków, Zgierz, Ksawerów, Wolbórz, Chociw, Tubądzin 7 Pomorska SSE Pomorskie Gdańsk, Tczew, Malbork, Kwidzyń, Starogard Gdański, Sztum, Chojnice, Człuchów, Gniewo, Krokowa 8 Słupska SSE Pomorskie Słupsk 9 SSE "Starachowice" Świętokrzyskie Starachowice, Ostrowiec Świętokrzyski, Skarżysko-Kamienna, Końskie, Stąporków, Szydłowiec, Tułowice 1 SSE EURO-PARK Mielec Podkarpackie Mielec, Dębica, Gorlice, Sanok, Pustków, Jarosław, Leżajsk 11 Suwalska SSE Podlaskie Suwałki, Ełk, Gołdap 12 Tarnobrzeska Specjalna Strefa Świętokrzyskie Tarnobrzeg, Stalowa Wola, Radom, Jasło, Nowa Dęba, Staszów Ekonomiczna Euro-Park Wisłosan 13 Wałbrzyska SSE Dolnośląskie Wałbrzych, Wrocław, Dzierżoniów, Nowa Ruda, Kłodzko, Kudowa Zdrój, Nysa, Strzelin, Oława, Żarów, Świdnica, Jelcz, Laskowice 14 Warmińsko-Mazurska SSE Warmińsko- Mazurskie Olsztyn, Elbląg, Ostróda, Dobre Miasto, Lidzbark Warmiński, Mława, Morąg, Mrągowo, Nowe Miasto Lubawskie, Olecko, Bartoszyce, Pasłęk, Szczytno

6 Research report Overall Characteristics of and History The idea of establishing special economic zones as separate areas which enjoy more favourable business conditions under the law can be traced back to ancient Rome (the origins of free harbours) and the Middle Ages (Hanseatic League). The first economic zone in the modern sense was the one in Puerto Rico, established in 1951. The first SEZ in Poland was set up in Mielec in 1995. 1997 saw the arrival of the largest number of in Poland. The newest SEZ is the one in Cracow which opened in 1998. The average age of Polish at present is over 9 years. All of the currently operating zones were founded as early as in 199s. The need to establish collaboration between science and industry gave birth to industrial parks. The first institution of this kind in the world was the Stanford Industrial Park, founded in 1951 at the Stanford University in California. As for Poland, the Warsaw Industrial Park, founded in 1993, was the first, with more parks being established in 1995 (Science and Technology Park in Poznań) and in 1997 (the Park in Koszalin). The average age of parks in Poland is 3.5 years. Average age of and in Poland 1 9.3 8 6 4 3.6 2 Founding Bodies The state treasury is the founding body for most in Poland. This is related to the fact that according to the act on special economic zones a zone may be governed by a corporation where the treasury or the voivodeship authorities hold the majority of votes at the general assembly. The only case where territorial authorities hold the majority of votes is the Słupska SEZ. Over 4 percent of were founded by the state treasury with the territorial authorities. One in four was established by either the state treasury and a corporation (a syndicate), or by the state treasury, local government and another organisation (e.g. a university).

Research report 7 Question: Who was the founding body? 8.3% 41.7% 11.8% 5.9% 41.2% More than 4 percent of the studied were founded by territorial 25% 17.6% government. A similar percentage of was established jointly by territorial government and enterprises (or other organisations). One in ten was set up by a corporation or 25% 23.5% a syndicate of firms. One example is the Nickel Technology Park in Poznań. State Treasury + territorial government State Treasury + territorial government + corporation (syndicate) State Treasury + territorial government + another organisation (e.g. university) territorial government Question: What is the legal status of /? territorial government territorial government + corporation (syndicate) Legal Status Pursuant to the Polish act on special territorial government economic zones only a corporation may + another organisation (e.g. university) govern a zone. Consequently, all of the corporation or syndicate studied were either joint stock other mixed forms companies or limited liability companies, the former being four times more common. On the other hand, the legal status of can be very varied. Also in this case companies incorporated under the Commercial Code are most common. In contrast to, limited liability companies are more widespread than joint stock companies. One in three parks has no legal status or has a different status. The former occurs in Koszalin, Gdynia and Goleniów, where parks have the format of projects undertaken respectively by universities and gminas (the lowest administrative unit). Other options for a legal status include a foundation (Science and Technology Park in Poznań), association (Technology Park in Częstochowa), or even a partnership under the Polish Civil Code (Podlaski Industrial Park). A company incorporated under the Commercial Code seems to be the most appropriate format for both and as it ensures a clear definition of the rights and duties of those involved in the project, proper protection of their rights, transparency of mutual relations as well as transparency of financial relations. If these conditions are met, zones/parks can attract strong partners/investors who can guarantee the success of the undertaking. Limited liability company Joint stock company None or other legal status 2 4 6 8 1

8 Research report Question: Are the operations based on a PPP? 41.2% Public-Private Collaboration None of the studied operates on the basis of public-private collaboration and, in particular, public-private partnership (PPP). This is because when they were founded, PPP was not formally regulated in the law and such collaboration model is not very popular. 58.8% Yes No The picture is quite different in the case of. Over 4 percent of them reported they operate under PPP. This concerns, in particular, science and technology parks founded in 24 (among them: Science and Technology Park Poland-East, Science and Technology Park in Płock or Technopark Gliwice), as well as some industrial parks (Podlaski Industrial Park and Bydgoszcz Industrial Park). Because of the individual characteristics of parks as well as various formats of support available for joint public-private initiatives, PPP-based operations or similar formats may become more and more common in practice.

Research report 9 Financial Performance Only one in four in Poland reported profits in 25. Selective financial data for the last three years of operations for and show clear differences between these two types of players. Notably, were much more willing to share financial data. Most of them provided such data to us, whereas the proportion of providing the information was under 5 percent. Consequently, the results we arrived at do show some trends but should not be treated as a completely representative sample but, rather, as a fragmentary picture of the financial situation of the studied entities. Average operating revenues PLN 8 7 592.3 635.2 6 543.3 5 4 3 2 1415. 1899. 654.4 1 23 24 25 Revenues Over the last three years both the revenues and profits reported by have been consistently rising, with record-breaking performance last year. Revenues earned by rose by over 7 percent, whereas profits increased by nearly 8 percent as compared to 24. also reported an increase in revenues since 24. The average value of operating revenues in 25 exceeded PLN 6 million for and PLN 1.4 for. This considerable spread follows from the different profile of, whose regular operations have a larger scale than is the case with and, on the other hand, from the high dispersion of, particularly those established most recently. Averaged net financial result PLN Profits 3 25 2 15 1 857.2 1433. 2546.7 Over the last three years most of the studied reported losses. Only one in four parks which decided to disclose their data reported a profit in 25. This is largely caused by their relatively short presence on the market: many parks established over the last two years are still at the stage of making investments for their future. 5-5 -26.3-144.5-134.9 23 24 25

1 Research report Employment The possibility to create new jobs, both directly and indirectly, is a very important aspect in the operations of and. Given their individual characteristics and market experience, perform much better in this respect. In all 14 zones employment rose by nearly 22, (or 26 percent) between 24 and 25 alone. At the end of 25 all entities located in employed a total of 13,5 people. The average employment at the end of 25 was 7,4. Most jobs have been created so far in the Katowice and Mielec zones, mainly by the major investors (Opel, Isuzu, Lear Corporation, FIAT-GM Powertrain in Katowice SEZ and BRW, Lear Automotive in Mielec SEZ). The picture is radically different in where the average employment in all entities operating in a park reaches a mere 75. As not all have disclosed employment data, no estimate of the total employment can be provided. Average employment (all entities jointly) 8 7 746 6 5 4 3 2 511 5856 1 14 6 75 23 24 25

Research report 11 Budget Distribution There seem to be no significant differences between and in regard to cost structure. In both cases investments and development is the major cost item (41 percent and 47 percent respectively). Administration and payroll make up just under one third of the budget. Expenditures on promotion and advertising are twice as high in (6 percent) as they are in (3 percent). Question: What is the share of budget that goes to [%]: 31.3% 26.7% 47.% 4.3% 6.1% 3.2% Administration and payroll Promotion and advertising Investments and development

12 Research report Area and Locations Area and its Usage In 25 the area occupied by expanded by 884 hectares and now stands at 7,485 ha, almost reaching the threshold (6,325 ha) defined in the Treaty of Accession signed with the European Union. However, at present there is a possibility to expand the area covered by an SEZ by a further 1,675 ha, provided that it goes towards major investment projects (worth EUR 4 million or employing a minimum 25 of people). The area is used in 62 percent but the most attractive locations have either been taken or are about to be utilized. In some zones the available area is used in 7-8 percent, whereas some others have used only 1/3 of it. The average figure for is under 32 percent on average, while office space is being utilized at nearly 5 percent. This means that both and have sufficient space to attract further investors. Usage of land and office space 8 7 6 5 4 3 2 1 31.8% Land usage 62.% 46.8% Office space usage Usage of Available Land and Space in So far the highest usage levels have been recorded in the Tarnobrzeg SEZ (more than 8 percent of its area has been put to use). Five further zones (Mielecka, Starachowicka, Łódzka, Wałbrzyska and Pomorska) the land is used in 71 percent to 76 percent. The highest reserves of free area available for further investments are found in the Krakowska and Warmińsko-Mazurska where approximately two-thirds of the area is still available for use.

Research report 13 Total area (in ha) and its usage (in %) by Source: KPMG s own data developed on the basis of Special economic zones as of 31 December 24, Ministry of the Economy and Labour, Warsaw, March 25 (updated by 25/26 changes wherever possible). Number of locations: / 1 8 6 4 9.1 Number of Locations One distinctive feature of is their geographic dispersion. An average zone in Poland has nine different locations, often at considerable distance from one another. Such considerable dispersion stems from the fact that locations selected by major investors have been included in as such investors agreed to build plants or branches in Poland in exchange for promised incentives and benefits. In contrast, most operate in a single location. Exceptions include the Kędzierzyńsko-Kozielski Industrial Park with four locations, or Podkarpacki Science and Technology Park with three locations. 2 1.4 Again this stems from the individual characteristics of which, particularly as of late, have included locations and areas identified by investors. Such possibilities also exist, or need to in.

14 Research report Customers of and Number of entities operating within / 6 5 4 3 2 1 17.9 53.3 Number of Entities Due to the individual characteristics of versus the average number of entities operating within is nearly three times the number of entities in (respectively, 5+ and 18 entities). The largest number of companies which established themselves in an SEZ chose the longest established special economic zones in Poland: Mielec and Tarnobrzeg (more than 1 in each). As for the surveyed, the largest number of investors came to the Warsaw Industrial Park (the oldest park in the study). Between 24 and 25 we also noted a rapid increase (71 percent) in the number of entities operating in that zone. Customer Profile Are there specific groups of businesses that are particularly attractive targets for and? The survey results give a definitive answer to this question. However, the target group for is different than the one for. The former are geared towards large companies (more than 25 employees) and foreign investors. target small and medium-size enterprises, particularly from the high-tech sector. Interestingly, both and aim to attract manufacturing companies rather than those from the service sector. Nearly one in three is interested in establishing collaboration with academic and research organisations. What kind of entities do you most seek to attract to your Park/SEZ? 8 71% 7 71% 73% 64% 8 7 73% 6 55% 55% 6 5 47% 5 47% 4 3 2 1 SMEs High tech companies Foreign investors 29% % Academic institutions 24% Large enterprises (over 25 people) 4 3 2 1 Manufacturing companies 12% 18% Services companies This means that attempt to attract major financial investments, whereas prefer smaller, high-tech-oriented investments.

Research report 15 Infrastructure Available Transport Infrastructure within and is crucial for attracting investors. In this context, easy access to the economic Zone/Park is a high priority. All surveyed provide both road and rail transport, which are especially important for large enterprises that chose to establish their manufacturing operations there. In road and rail transport is provided in, respectively, 94 percent and 76 percent of cases. Quality of Transport What matters in business is not just the sheer availability of transport but its quality as well. The majority of respondents gave positive assessments of the road transport in both and. In the case of railway infrastructure within the quality is similar to the road infrastructure but the ratings are lower. In the case of, the railway infrastructure is assessed as `good` or `very good` by as many as 91 percent of respondents. The lowest marks were assigned to waterway transport in both and, which may be connected to its lesser availability. Question: How would you assess the availability of transport infrastructure? Road Rail Air Water Road Rail Air Water excellent good medium poor none/very poor

16 Research report Utilities Alongside transport infrastructure, the availability of utilities and telecommunications infrastructure also plays an important role. All of the in the study provide basic utilities (water, electricity, sewerage) and telephone lines. Only one zone did not provide broadband Internet. The availability of utilities in is much less. At present some do not provide utilities which may could be considered essential for any business operations. The reason behind this is that these are still at a very early stage in their development. As a result, they brought the overall ratings down. Availability of utilities 8 76% 7 6 5 4 3 2 1 12% 12% 76% 18% 6% 71% 24% Electricity Water Sewerage Telephone Internet (broadband) 6% 65% 29% 6% 53% 35% 6% 41% 12% 47% Internet (dial-up) 1 1% 8 6 4 2 1% 1% 1% 91% Electricity Water Sewerage Telephone Internet (broadband) 9% 1% Internet (dial-up) Available Planned Unavailable or no answer

Research report 17 Investor Relations IIncentives for nvestors The act on special economic zones, dated 2 October 1994, defines financial incentives which were meant to provide a powerful stimulus to establish new businesses in the zones. An entrepreneur with a permit was entitled, in particular, to a 1 percent income tax exemption for the first 1 years and a 5 percent exemption for the subsequent years until the closure of the zone. Entrepreneurs could also rely on an exemption from real estate tax. Poland s accession to the EU enforced harmonisation of public aid in which consequently restrained the scope of available support. When asked about factors which drive investments over 9 percent of mentioned tax exemptions, whereas only one in two can offer this type of support. As for tax exemptions the difference is also quite conspicuous (82 percent for vs. 24 percent for ). Other aid instruments (e.g. financial support for training, reimbursement of a portion of costs involved in employing unemployed citizens, consulting, lower costs of utilities) are offered by over 8 percent of and under a half of. Curiously, although do not offer as broad an array of tax incentives as, they do not attempt to develop other forms of aid/support for investors. Investor incentives 1 91% 82% 82% 8 6 53% 47% 4 24% 2 Tax exemptions Tax reductions Other instruments

18 Research report Forms of Promotion Both and vigorously employ various forms of promotion and advertising. All use the press, the internet and direct encounters to find new investors. The most popular forms applied by include the Internet and direct encounters with prospective partners. Interestingly, more than a half of the and use television. It is also worth noting that use a broader array of promotional methods such as fairs, exhibitions, road shows and conferences. Question: Which forms of promotions do you use for your /? 1 1% 1% 1% 8 88% 82% 76% 82% 71% 65% 82% 6 55% 55% 4 41% 2 18% Direct encounters with prospective partners Internet Liaisons with local government Press Television Radio Other

Research report 19 EU Funds Utilisation of EU funds among is almost non-existent. The respondents from only occasionally mentioned this form of support. The picture looks radically different in as their arrival in the recent years can be largely attributed to the large pool of resources earmarked for business environment in the National Development Plan. At present the largest (over 7 percent) use support within the SPO WKP (Sectoral Operational Programme: Improvement in competitiveness of enterprises). The most popular priority is the one marked 1.3. (Creation of favourable conditions for enterprise development) whereas two other priorities were chosen less frequently, i.e. 1.4. (Strengthening of co-operation between the R&D sphere and the economy) and 2.2 (Support to product and technological competitiveness of enterprises). One in three still used pre-accession funds, mainly PHARE. Fewer than one in three used support from the European Regional Development Fund (ERDF). One in two used funds from the Integrated Regional Operational Programme and the European Social Fund (ESF). One in eight also used funds from SPO RZL (Sectoral Operational Programme Human Resources Development). The overwhelming prevalence of priority 1.3 within SPO WKP results from the fact that it is targeted at industrial, science & technology parks and offers support of up to 1 percent. Utilisation of EU support funds by 8 7 71% 6 5 4 3 35% 29% 2 18% 18% 12% 1 SOP Competitiveness Pre-accession funds ERDF IROP ESF SOP Human resources

2 Research report Problems The development of and has not been trouble-free. Some problems are shared by the two types of entities, especially the shortage of funding for further growth this problem was mentioned by over a half of the respondents in both groups. Other problems are much more likely to affect (poor infrastructure, legal issues) whereas some others are much more common among (poor or non-existent collaboration with research centres). Only a fraction of the respondents indicate collaboration with local governments or access to highly skilled personnel as a source of problems. Current problems faced by / 59% 6 55% 55% 5 4 41% 36% 35% 36% 36% 3 24% 27% 2 1 9% 12% 12% 9% 6% 9% 6% % Unavailability of funds for growth Abilities to find new investors Ability to obtain EU funding Poor/non-existent collaboration with research centres Legal issues Poor infrastructure Collaboration with local governments Lack of skilled personnel Other

22 Research report SEZ in Mielec Poland s First Economic Zone In 26 EURO-PARK MIELEC, the first Polish special economic zone, celebrated its 11th birthday. The founders of this SEZ drew upon the experience of the very successful SEZ in Shannon, Ireland. In the early 199s Mielec was an industrial centre, almost completely dependent on a single large factory manufacturing transport equipment, i.e. WSK PZL-Mielec. Its financial situation deteriorated considerably after the collapse of trade with the former USSR. A need arose to create conditions conducive to attracting investors to the area. On 5 September 1995 the Polish Council of Ministers issued an ordinance establishing the SEZ EURO- PARK MIELEC for 2 years. During its first two years the zone attracted 28 investors, largely because there was no competition from other which were in a blossoming stage at that time. In the years following investors chose Mielec due to the availability of technical infrastructure and the presence of major investors who had established themselves earlier (this was thought to reduce the investment risk). In 2 the European Union issued a critical assessment of the economic zones which meant that the tax incentives may be abolished. As a result, as many as 3 business permits were issued within only one year. 21 was a record-breaking year for companies which already operated in the zone. While the pace of new investments dwindled and a few investors discontinued their operations in 22-25, and one company went bankrupt, the overall operations of EURO-PARK can still be considered a success. The zone helped Mielec transform from a single-plant industrial centre into a town with a varied industrial structure. The zone attracted over four times more capital than originally intended in the Development Plan for the Zone and the employment targets were exceeded by over 3 percent. Other goals were also fulfilled, e.g. a few manufacturers of high-tech goods established themselves in the zone. Growth of manufacturing within the SEZ proved to be a turning point for the Mielec labour market: in 1997 the SEZ companies provided 6 percent of all jobs in the poviat but this ratio rose to nearly 3 percent six years later. Nearly all major industrial enterprises in the poviat (employing over 25 people) are located in the EURO-PARK. At present the zone spreads over more than 7 ha. It is located in the town s industrial district, on the site previously owned by PZL-Mielec, the aircraft plant. Entrepreneurs can also choose from six other towns in south-eastern Poland. EURO-PARK is the headquarters of many well-known Polish and foreign companies, among them BRW, Kirchhoff Polska, Krono-Wood, Onduline or Lear Automotive. By 26 a total of 16 business permits were issued in EURO-PARK and investors spent a total of PLN 2.3 billion there, which helped to create 1,983 jobs. Source: KPMG, based on information available from the website of EURO-PARK MIELEC at www.europark.com.pl, and Ten years of Poland s first special economic zone, Mielec 1955-25 by B. Domański and K. Gwosdz (editors), IGiGP UJ, ARP Oddział w Mielcu, Urząd Miejski w Mielcu 25.

Research report 23 Nickel Technology Park Poznań Poland s First Private Technology Park Asked about the origins of the technology park, Dagmara Nickel, the president of NTPP (Poland s first private technology park) cites the convergence of two factors: the availability of the right facilities (in the case of Nickel Development, the parent company of NTPP, this was real property located near the planned ring road for Poznań in Złotniki) and the availability of EU funds within SPO WKP (Sectoral Operational Programme: improvement in competitiveness of enterprises) for support to industrial parks and science & technology parks in Poland. The company had submitted two applications, the first in late 24 and the second on 22 February 25, and the latter was successful. Yet, two years earlier the company, together with the Suchy Las municipal authorities, had engaged in efforts to change the local zoning plan. At present NTPP has nearly 3,5 sq.m. of office space and 33 ha of land, out of which over 25 ha are still available for use. Despite its relatively short history, the Park has had some successes. In March 26 a contract was signed with BCC, a consultancy which specialises in SAP development and implementation. Under that contract a half of the first office building, currently being erected in the Park, was rented out with a plan to set up an outsourcing centre there. The data centre to support these plans will be situated in a special reinforced concrete bunker located within the Park and made to exacting safety standards. This means that subsequent business agents which decide to invest in the technology park will avoid the cost of financing their own server rooms and, consequently, significantly reduce their investment costs. The contract creates a win-win situation: NTPP has a case for attracting more investors to the Park (particularly those who seek professional IT support and security standards), while BCC may hope for an inflow of new clients for its SAP services. The management of NTPP has a very clear vision for further growth. It does not settle on finding accidental tenants/investors but, instead, tries to actively mould the profile of the Park to possibly attract many high-tech companies and manufacturing businesses. This is evident in the mission of NTPP which focuses on two aspects: (1) support for knowledge and technology transfer to business practice, and (2) creation of an environment conducive to business. One way to fulfil this mission is through dedicated programmes, e.g. First steps into Business, targeted at entrepreneurs who initiate a business based on high technology, modern solutions or innovative ideas; Support, intended for enterprises operating on the business-to-business market, e.g. business consultancies, financial, legal and technological consultancies, companies which offer training, ICT support, translations etc. NTPP also develops programmes tailored to the needs of research centres, inventors and independent researchers. NTPP s President comments We are constantly seeking benefits that can be derived from collaboration. While the Park still faces some problems (in particular, those stemming from imprecise legal regulations), its current strategy seems to be working.

24 Research report Performance Assessment Due to high dispersion and lacking a satisfactory quantity of data, a comprehensive comparative analysis would not be sufficiently reliable. For this reason we have only compared with respect to their performance. This assessment is based on 16 indices such as the number of business agents, the number of jobs created or the size of an investment. While the majority of indices used in our analysis was quantitative, and, as such, objective, we have also included a number of subjective factors such as, e.g. the quality of infrastructure. Based on collected data each of the fourteen operating in Poland was rated on a three-point scale. which scored over 25 percent higher than the arithmetic mean calculated for all zones were rated +1 (blue colour). Those whose score was over 25 percent lower than the mean received a rating of -1 (red colour) whereas which did not deviate from the mean by more than 25 percent received a rating of (white colour). After adding all partial ratings, five turned out to have a positive result (positive ratings prevailed over negative ones), six performed lower than the average and three received a final score of. The largest number of positive scores were recorded, respectively, for Wałbrzyska, Legnicka and Katowicka. These zones are highly efficient in terms of the number of investments and the number of jobs created per 1 ha. Notably, a high proportion of investments made in those zones are capitalintensive rather than labour-intensive this indicates that they are capable of attracting high-tech players as well as major foreign investors (Toyota, Volkswagen). Słupska SEZ came last in the ranking, with Starachowicka, Suwalska and Warmińsko-Mazurska also holding low positions. These have lower-than-average performance, mainly because they are headquarters for small and medium investors, operating in less modern and, as such, more labourintensive industries. These elements translated into lower positions in the ranking. Ranking of Polish Notes: 1% = the best score -1% = the lowest score % = a score which is closest to the mean value for all SSE - Polish abbreviation for SEZ

Research report 25 Comparison across

26 Research report Summary Special economic zones are flourishing. 25 was a record-breaking year: a total of 18 business permits was issued in 14 Polish zones and the total sum of declared investments reached PLN 7 billion (PLN 2 billion more than in 24). These investments are expected to create 24, new jobs. The total value of investments in since the began equals PLN 27 billion this investment has facilitated the creation of 1, jobs. 1 have been also booming. The average age of in Poland is just 3.5 years. Most of them were founded after Poland s accession to the EU in 24 when structural funds became available (particularly SPO WKP Improvement in competitiveness of enterprises). This boom is best illustrated by the Poznań example where the authorities are planning to create an industrial technology park even though the city already has a science & technology park and a private Nickel Technology Park. What are the future prospects for and? In the former case only one scenario is possible: despite the current boom all zones must close by 217 at the latest (this liquidation date was set in the Treaty of Accession). This means that will continue to attract investors for just a few more years. The investment cycle in large projects is longer and profits do not appear for the first few years, but without profits investors will not be able to take advantage of the most attractive benefit offered by, i.e. income tax incentives. External factors, i.e. increase in direct foreign investment combined with a supply barrier (no new may be established) guarantee a few fat years. Yet the business model is bound to change afterwards. Even now the authorities of some zones are planning transformations into a technology park or an industrial park. However, a sheer change of business status will not guarantee success. For this reason SEZ operators must seek other sources of investments and ways to attract investors in the longer term. Each zone will have a few potential action scenarios to choose from. One of the most natural options would be to transform an SEZ into a cluster of enterprises operating in a single industry or in a few related industries or complementary services, e.g. household appliances in Łódzka SEZ, automotive parts in Katowicka SEZ or high-tech in Krakowska SEZ. Future development directions for are much harder to forecast, one reason being their number and diversity. However, it seems only rational to depart from the perception of as entities which administer office space for institutions that link industry with technology and science. To some extent, successful attempts have been made in the Cracow Technology Park where Motorola opened its Software Development Centre employing 7 people and where a number of technology companies were established on the basis of the region s intellectual capital, i.e. well-educated graduates plus the research facilities available from Cracow universities. The fledgling Warsaw Technology Park intends to follow a very similar path. As the scale of operations is relatively narrow, at least in comparison with, there are many potentially attractive niches which may fill. 1 Oskar Filipowicz, Zone with a view on profits, Nowy Przemysł, March 26. are on the right road to fulfil one of the main goals behind their arrival in Poland: they have reduced unemployment and made a significant contribution to reviving areas whose economies, often reliant on a single industry, were crippled by central planning. According to estimates, every 1 jobs in an SEZ have created a further 5 to 1 new jobs in the surrounding area. The coming years will show if the budding technological and industrial parks can achieve a comparable success.

kpmg.pl KPMG Sp. z o.o. ul. Chłodna 51-867 Warsaw Phone: +48 22 528 11 Fax: +48 22 528 1 9 kpmg@kpmg.pl The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. KPMG and the KPMG logo are registered trademarks of PMG International, a Swiss cooperative. 26 KPMG Sp. z o.o., a Polish limited liability company and a member firm of the KPMG network of independent member firms affiliated with KPMG International, a Swiss cooperative. All rights reserved.