Meet the new kids on the bloc

"The beer’s very good there and if you pay more than 30p a pint you’re unlucky," he says. But Wardlaw, business development manager at Caledonian Alloys in Livingston, is not in the Czech Republic simply for the beer. He has more serious business in central Europe. Last year the company set up an operation in Kladno, about 20 miles from Prague, in a move that other Scottish companies are watching as they prepare for the Czechs and nine other countries of the former Eastern bloc joining the European Union.

Like it or not, competition is coming, and Scotland is being warned that it has to raise its game in what will become the biggest single trading area in the world. "We are probably different to most UK companies who go out there because of cheap labour rates," says Wardlaw. "We decided to set up a base because one of our main UK customers moved out there and we wanted to be close to them."

Caledonian’s decision to process high value alloys in Kladno is echoed by a small but growing band of Scottish firms that are also recognising the need to be at the heart of the new Europe. It often means following a customer, such as the multinationals which have moved manufacturing operations to these countries.

East Kilbride-based AB Thomson Litho opened a printing plant in Lodenice-u-Prahy last year to print computer software manuals for customers including Microsoft. RB Farquhar, the Huntly-based prefabricated bathroom manufacturer, has just built a 3m plant employing 50 in Chomutov in a move to break into mainland European markets. It cited prohibitive transport costs as one of the reasons it needed to establish a mainland Europe base.

Devro, the Moodiesburn food group, is already a significant employer in the republic with three big production plants. But while some Scottish companies have already acted to take advantage of the opportunities presented by EU enlargement, there are serious concerns that most are in danger of missing a significant boat.

Roland Diggens, government affairs manager at the Scottish Council for Development and Industry, fears not enough is being done. "We really need to develop a very focused strategy on how Scottish companies and organisations can create value from new and existing relationships with these new partners. So far, we have tended to dwell on the negative impacts of enlargement without working towards making the best of the opportunity."

And that economic opportunity is predicted to be staggering. The enlargement will create a market of 450 million consumers - the biggest trading bloc in the world. Although some perceive the new joiners as relatively poor countries which will bring little to the European economic table, their influence is predicted to grow dramatically. SCDI’s latest figures show Scottish exports to the EU running at 9.6bn in 2001/02 with exports to the enlargement countries at 383 million. "The mistake would be to have no vision of how rapid growth could be in the enlargement countries - and a leading driver of that growth will be much increased inward investment," says Diggens.

A new report commissioned by Scottish Enterprise highlights another damaging perception among businesses - that Germany and other major mainland European players have already sewn up much of the benefits to come from enlargement. Although the report concedes that foreign firms already operating in the new member states had secured a competitive advantage it argues there is still huge potential for Scottish firms to benefit.

"The sheer scale of business which will come means that neither the established international companies nor the local businesses will be able to meet the demands." But as well as the opportunities for exports and contracts to work within the accession countries there are significant risks ahead for the Scottish economy - a factor many believe has still not sunk in.

Alongside the threat of reductions in European Union structural funding to existing members and changes to VAT rules and legal issues, enlargement will see 10 comparatively low wage countries join the competition for inward investment projects.

The scale of the growth in appeal of eastern Europe for investment should not be underestimated. In the 1990s alone foreign direct investment into Eastern Europe grew from just $300m a year to more than $70bn.

And the emerging economies - not just of Europe but also the likes of China - are not only competing for the low wage, labour intensive work richer nations can afford to give up but also the hi-tech, R&D-led work on which Scotland is pinning its long term future.

Jim Burberry, partner with PricewaterhouseCoopers in Edinburgh, fears Scotland is not doing enough to take advantage of the opportunities or protect itself from the risks of enlargement. "I think on the risk side many companies won’t do anything until it goes live - it is only when they realise they can’t get their goods from A to B because they haven’t got the right documents that they’ll react."

He also believes Scotland has a real fight on to try and maintain its share of investment.

"These markets will become much more sophisticated and Scotland will have to compete with them for inward investment. Our aim to be a knowledge economy is something that has to happen very quickly."

Significant efforts are being made to raise awareness of the business opportunities from enlargement - SCDI runs regular trade missions to Eastern Europe and a conference this week at Glasgow University is the latest in a long running enlargement campaign by Scottish Enterprise’s Euro Info Centre which has taken on a member of staff dedicated to enlargement.

At the conference Elizabeth Holt, head of the European Commission in Scotland, is expected to warn businesses that they need to act swiftly. "I want to see large numbers of Scottish businesses taking advantages of the opportunities enlargement presents, not in three or four years, but now," Holt recently told Highlands business leaders. "EU enlargement offers huge and as yet only partly understood new opportunities and markets for Scottish businesses."

But as well as those opportunities the opening up of new member countries to the full force of European corporate business also poses potential threats to Scottish firms already exporting there.

Although those that have managed to establish themselves in some of the accession countries have enjoyed a relatively benign business environment up to now, that will change rapidly.

"In 15 to 20 years it will be hard to distinguish between say the Polish and German markets," predicts Simon Graham, exports manager for Eastern Europe at Inver House Distillers. "Poland is being currently being smothered by French supermarkets which will put pressure on prices. But the other side of that is demand for luxury products will increase as these countries become more affluent and even if prices will be lower it is hoped the extra volume will make up for it."

Inver House, the Airdrie distiller behind brands including Old Pulteney, has been selling into Eastern Europe for the past 10 years and has been stepping up its activities in accession countries.

"The great advantage of doing business in some of these countries is that they haven’t had the structures in place that other markets do. If you tried to launch a new brand in France for example you would have to throw huge amounts of money into it but these countries are much more open to new brands and there is far less competition."

Inver House is one of an estimated 700 Scottish companies - out of 14,000 in the UK - already exporting to eastern and central Europe but the potential is there for many more.

With the countdown clock ticking on enlargement - there are now exactly 250 days left - Scotland appears to have much to do to prepare for what Tony Blair has described as Europe’s greatest challenge and biggest opportunity.