It's A Small World

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Then came what Hlavácek says may be a final blow: E.U.-related hygiene and operation standards. These rules, which regulate everything from the proper handling of foodstuffs to production equipment, came into effect in 2000 as a precursor to the Czech Republic's joining the E.U. next year. But by the end of the year, some 400 of the country's 4,000 larger food-processing plants, and a number of small ones, will be forced to shut down for failure to meet the standards, according to the State Veterinary Administration. Meatpacking and production will be the hardest hit. Many facilities are obsolete or redundant, but others simply don't have money for necessary upgrades. Hlavácek's is one of them. He has already invested €61,000 in a new smokehouse, stainless-steel kitchen equipment and other upgrades, but balks at further enhancements. "This is not a business anymore," he says, estimating that his turnover has dropped by 30% over the past five years. "This is a hobby."

In theory, the government has programs to support small- and medium-sized businesses. Last year, 12,000 entities drew some €115 million in state funds, and the Czech Agriculture Ministry distributed an additional €8 million in subsidies aimed at increasing the competitiveness of the Czech food industry. Hlavácek says he has never heard of such programs, and Jaroslav Vlcek, general director of the Association of Small- and Medium-Sized Enterprises, calls their funding level "zero, zero, nothing" in a country where the SME sector employs 60% of the workforce and produces 37% of GDP. He argues that only lower taxes and less bureaucracy can make a difference.

Unless an investor materializes, which is unlikely, Hlavácek plans to close shop by Dec. 31. He is trying to take a broad view. "My headcheese is not irreplaceable," he says. "People will ask about it several times and then move on to other products. Headcheese doesn't make history." — By Jan Stojaspal

GERMANY: LOCAL TARIFFS
Friedrich Scharf has had enough. at 63, he plans to retire in two years and turn his struggling landscaping and gardening business over to his two children. "We're in a very difficult economic situation," says Scharf, whose business has an annual turnover of €8 million.

Scharf, who joined the company in 1960, when it was still run by his father, once stayed busy building tennis courts and athletic fields in Berlin. As of the mid-1990s, more than 80% of his business came from the city of Berlin. But today the city is almost bankrupt. Even when there is a contract open for bid, Scharf's company finds competition tough. His company is based in West Berlin, which until 1990 was categorized as part of West Germany — yet it is surrounded by the state of Brandenburg, formerly part of East Germany. Thanks to contracts negotiated by unions and employers' associations, wage rates — known as the tariff — are 7.5% higher in West Berlin than in Brandenburg. This used not to be a huge problem. "Ten years ago, the quality of East German work wasn't good enough," Scharf says. "But now they have reached our level." Is there any relief in sight? Maybe. The government of Chancellor Gerhard Schröder has proposed a set of economic reforms designed to lower nonwage costs in Germany, currently 42% of salary and a heavy burden for small employers like Scharf. Perhaps even more importantly, the opposition Christian Democrats have demanded a number of additional reforms, such as ending the tariff system of national wage settlements and making it easier for medium-sized companies to fire employees when economic conditions turn bad. Scharf says the employers' association that he belongs to is trying to reach an agreement with Brandenburg's employers to harmonize wage rates in both states. But Brandenburg employers are understandably unwilling to raise wages. "The government should abolish the tariff because it's an old-fashioned concept that doesn't work anymore," Scharf says. But, if necessary, Scharf has an exit strategy. In 1996 he bought a new one-hectare warehousing complex for his company — in Brandenburg. — By Charles P. Wallace