CZECHOSLOVAKIA BIDS FOR A LARGER SHARE OF WESTERN MACHINE TOOL MARKETS

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP79T01003A002200130001-2
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• Document Page Count: 16
• Document Creation Date: December 9, 2016
• Document Release Date: March 20, 2001
• Sequence Number: 1
• Publication Date: February 1, 1965
• Content Type: BRIEF

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INTELLIGENCE BRIEF
CIA/ RR CB 6 5 -13
February 1965
Copy No. 13 Q 13
t
CZECHOSLOVAKIA BIDS FOR A LARGER SHARE
OF WESTERN MACHINE TOOL MARKETS
DIRECTORATE OF INTELLIGENCE
Office of Research and Reports
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WARNING
This material contains information affecting
the National Defense of the United States
within the meaning of the espionage laws,
Title 18, USC, Secs. 793 and 794, the trans-
mission or revelation of which in any manner
to an unauthorized person is prohibited by law.
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C-O-N-F-I-D-E-N- T-I-A-L
CZECHOSLOVAKIA BIDS FOR A LARGER SHARE
OF WESTERN MACHINE TOOL MARKETS
A unique marketing arrangement for the sale of Czechoslovak machine
tools in the US through a US machine tool firm is indicative of the current
attempt by Czechoslovakia to achieve great increases in its exports of
machine tools to the industrial West, long a virtually impenetrable market
for Communist producers of machine tools. Under the agreement the
Simmons Machine Tool Corporation of Albany, New York, has imported
a group of "elephant-type" machine tools (very large and expensive --
$350, 000 per unit), has made certain modifications to the electrical sys-
tems, and is offering them at attractive prices in the US. The Czecho-
slovak machines -- a 17-foot vertical boring mill and two horizontal boring
mills -- are of good quality and are technologically suitable to the require-
ments of Western industry. Simmons contemplates selling at least $13
million to $14 million worth of the Skoda machines by the end of 1966.
Such marketing agreements, along with overdue domestic reforms
now being implemented, should enable the Czechoslovak industry to increase
markedly exports of machine tools to the industrial West. The economic
liberalization proposed in October 1964, which permits leading firms to
undertake direct export dealings, also allows more freedom in determining
inputs and is encouraging a program of standardization of parts and sub-
assemblies, all of which should help to reduce costs. Czechoslovak nego-
tiations to alter quotas and tariffs are now in progress with several West
European countries and already have been successful in the UK.
to Background
The industrial West long has been a virtually impenetrable target for
Communist exports of machine tools. Requirements in the West for top-
quality, well-designed, technologically advanced types very nearly preclude
any chance for Communist countries to sell equipment at prices representing
a reasonable return on the real cost of manufacture. Service organizations,
supplies of spare parts, and extensive marketing arrangements also are
necessary for the sizable export of machine tools. Thus, even at consider-
able price concessions, Communist countries have experienced great dif-
ficulty in selling machine tools to the industrial West. Most exports have
gone to less developed countries in transactions that usually involve credits
and not sorely needed hard cash.
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Z. Czechoslovak Machine Tools for US Industry
A unique marketing arrangement for the sale of Czechoslovak machine
tools in the US by the Simmons Machine Tool Corporation of Albany, New
York, and the Skoda Works of Plzen, Czechoslovakia, is indicative of
c urrent Czechoslovak attempts to achieve great increases in exports of
machine tools to the industrial West. Under the agreement, Simmons, a
rebuilder of machine tools that is now expanding into manufacturing, has
i reported "elephant-type" (very large, heavy-duty) machine tools from
-.koda and has made certain modifications to the electrical systems, These
machines will sell for approximately $350, 000 per unit.
Simmons has advertised the machines as "especially built for the US
market" and "built by Skoda under the Simmons name and to our specifica-
tions. " Actually the machine tools are nearly identical with models that
have been made by Czechoslovakia since 1958. Lead screws of a US type
have been installed instead of metric screws, and Simmons will accept
requests for reasonable modification from a prospective customer.
The Czechoslovak machines were introduced to US buyers in November
and December 1964 in the Simmons factory, along with working models of
other giant Skoda machine tools. Three pieces of equipment were on the
floor -- a 17-foot vertical boring mill and two horizontal boring mills, one
of 8-inch and one of 10-inch bar capacity. All three are modern and well
built and should be competitive in the US market. Simmons expects first
that delivery times should be shorter -- only a few months for the Czecho-
slovak machines compared with 14 months for comparable US-made types --
and, second, that prices should average approximately $100, 000 (30 to 40
percent) below prevailing U S price , In order to provide further inducements
to buyers, Simmons has guaranteed the machines under its own new machine
warranty and will provide all necessary services and spare parts.
Eventually the "Simmons-Skoda" line will be expanded to include other
types of elephant machine tools, such as heavy-duty lathes (up to a 13-foot
swing), vertical boring mills (up to a 60-foot swing), planer-type millers,
milling machines, and roll and crankshaft grinders. Simmons expects to
sell $5 million worth of the Skoda products in 1965 and $8 million to $9 mil-
lion worth the following year. In view of the interest shown last December
by potential customers, these projected sales may well be realized.
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The Czechoslovak machine tools sold to Simmons probably are priced
below the real costs of manufacture. This is a common Communist tech-
nique to achieve market penetration, for once name and quality are estab-
lished, prices can be raised. Czechoslovakia is faced with a tariff of
30 percent of the value on the boring mills exported to the US; countries
with a "most favored nation" stature pay less than half these rates. High
packaging and shipping expenses, when added to tariff charges, add up to
$90, 000 per unit on the type of machine tools imported by Simmons. Batch
production of heavy machine tools for customers in the Soviet Bloc and
cheaper labor give Czechoslovakia a certain production advantage, but it
is not likely that even the marginal costs incurred by adding a few extra
units to production can be covered by the revenue gained from the sale of
these machines to the US without changes in existing tariff rates.
3. Czechoslovak Prospects of Entering Western Markets
Of all the Communist countries, Czechoslovakia has the best oppor-
tunity to crack Western markets for machine tools. Although the industry
is by no means modern and up to date by Western standards, many prod-
ucts, especially large multipurpose types, incorporate enough modern
design features to make them attractive buys in world markets. A very
wide variety of machine tools is built and, with production of about 21, 600
metalcutting machine tools in 1963, Czechoslovakia ranks second of the
European Satellites. 1/ US and UK experts on machine tools have com-
mented favorably on many models exhibited at the 1964 Brno International
Fair.
Foreign sales are vital to Czechoslovakia's machine tool industry;
of the approximately $90 million worth of such machines exported in 1.963=7=
(one-half of total production in terms of units), the Free World received
about one-quarter -- $22 million. 2/ West Germany, Switzerland, France,
Italy, and the UK received only $6 million of that amount, whereas the
remaining $16 million went to the less developed countries of the Free World,
reflecting Czechoslovakia's dependence on them as markets for its machine
too: S.
The Czechoslovak machine tool industry lost ground in the industrial
West in 1963. The major nations of the industrial West reduced their pur-
chases of Czechoslovak machine tools by nearly 40 percent, from $9. 9 mil-
lion in 1962 to $6. 0 million in 1963. Moreover, preliminary production
figures for 1964 do not suggest a substantial improvement. Higher prices,
caused in part by higher costs du.e to overdiversification of types and models,
contributed to the decline.
Mc-ta worMing machinery, nearly all of which is machine tools.
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4. Domestic Reforms to Boost Exports
Realizing the importance to the economy of exports of machine tools
and its poor performance in the past 2 years, Czechoslovakia has begun to
take concrete steps to make domestic producers more competitive in world
markets. A standardizationprogram, underway since mid-1962, is designed
to reduce the number and types of machine tools produced and to increase
the use of standardization parts and subassemblies. This program could go a
long way toward reducing overly high costs of production.
Draft plans for liberalization of the Czechoslovak system of economic
planning unveiled in October 1964, even if only partly adopted in the Fourth
Five Year Plan (1966-70), may ease bureaucratic shackles that have
hobbled leading industrial sectors for the past few years. 3/ The draft
proposals should aid the program to reduce costs in the machine tool indus-
try by permitting greater autonomy for larger plants in determining their
inputs of labor and raw material and by allowing certain decisions on in-
vestment to be made at the plant level.
Of equal importance, however, is the fact that major plants are expected
to receive more freedom in dealing with foreign customers. At present the
state export monopoly, Strojimport, handles all but the smallest details in
contracts for exports of machine tools. The reforms will increase pro-
ducers' responsiveness to foreign demand by permitting customers to place
orders directly with suppliers without the usual long delays. In addition,
efforts now in progress to have Western import quotas and tariffs on Czecho-
slovak machine tools altered resulted early in 1964 in the UK's dropping
import quotas on many Czechoslovak engineering products, including machine
tools.
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1. Rude pravo, I1 Feb 64, p. Z. U.
2. Facts on Czechoslovak Foreign Trade, 1964. U.
3. Rude pravo, 17 Oct 64, p. 3-4. U.
Analyst:
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