Why Companies Should Look into Expanding to Southeast Europe

Online, June 13, 2013 (Newswire.com) - Why companies should look into expanding to Southeast Europe

When we talk about Southeast Europe - in essence we talk of region with many names (Balkans, Adriatic region, South-eastern Europe, etc.) consisting of perhaps too many countries for the geographic space in which it found itself and with complicated history and foremost high cultural and religious diversity. Such diversity and historic background can seem frightening to those looking at it from global business perspective as a potential point of market expansion, however things are today much simpler and could provide a number of opportunities.

Here we will put an emphasis on countries of former Yugoslavia (now, another name for at least part of the region) that includes Slovenia, Croatia, Bosnia and Herzegovina, Serbia, Montenegro, Kosovo* and Macedonia as this is the region that our team primarily covers and has extensive know-how with either in terms of assisting in market entry or doing local market research in.

Situation in the region

All countries of former Yugoslavia are at a relatively stable point and continue to work on regional cooperation and joint development. Here we have to have in mind that almost all societies (most notably perhaps Bosnian due to its divisional structure) are to a certain degree polarized, either between somewhat conservative and liberal poles or due to religious or cultural differences. However, such polarization is now common in a way that it stands in no way as a barrier to business development - as economic growth is the number one priority for each and every local society or political party.

Business played a vital role in regional cooperation development.

All countries in the region are highly dependent on mutual foreign trade - Bosnia is most dependent on trade with Serbia and Croatia, whereas Serbia, Croatia, and Slovenia all have mutual trade between themselves around or more than 1bil USD in 2012 which makes a significant share in their overall foreign trade (we have to have in mind here that these markets are still transitional markets and not entirely developed yet).

Region that went through political disintegration in recent decades witnessed (and is still going through it) reintegration of markets and build-up of economic and communal links. These competitive markets today strongly encourage and even depend on foreign and cross-regional investments and trade as countries on their own have limited capacity for expansion at one point due to their relatively small population, but in whole this region has population of 20+ million.

There are a number of companies that are active on all the regional markets and originating from one of the local countries where leaders in such cross-regional presence are mostly active in fmcg retail and food production. It is common that once most treasured local brands are today owned by companies from neighbouring former Yugoslavian countries once at war with - today Serbian company owns the most important Slovenian juice brand or Croatian company owns most important Serbian sweets brand, etc. There are countless examples of today's inter-connectivity within regional businesses.

Why Southeast Europe?

Former Yugoslavian emerging economies, already a part - or on their way to become a part of EU, are all rather interesting investment points due to mostly demographic and geographic specifics. These are: low costs, strong incentives, and educated and competent workforce, while on the crossroads of neighbouring Italy, Austria, Hungary, Romania, Bulgaria, and Greece.

Southeast Europe is a region from which whole Europe is easily reachable, stands close to emerging economy of Turkey while also having strong ties in economic and historic sense with Russia and Ukraine.

From the demographic standpoint, local workforce has excellent language skills and overall productivity is higher than in other central or eastern European countries - making former Yugoslavian region's human capital very effective while preserving very low cost in some regions.

Risks involved and market vulnerabilities

What companies looking at former Yugoslavia from an investing or expanding point of view have to have in mind is that these markets are still in part in their transitional phases.

Many established local businesses have insolvency problems, some big local companies are over-indebted and there is a high level of debt collection difficulty with or without collateral. This is why especially local buy-outs should be very carefully investigated.

Political fragility and effects of political parties on local business is high in some countries; however this issue should not be high on agenda due to simple need for FDI and the earlier stated fact that every foreign investment is highly sought after in the whole region.

On the logistics side, rail transportation is still not on a level that is needed to be efficient enough; therefore road transport is heavily prioritized for most of the goods traded while there are enough storage/warehousing options strategically positioned in the region.

Bottom line

Countries of former Yugoslavia still present an interesting option for companies looking for low labour cost and high efficiency and know-how in Europe and in a vast spectrum of industrial/production processes and especially within IT and service industry.

By carefully navigating market risks with local support, companies that invest in the region should expect well balanced manufacturing or outsourcing opportunities that can bring in long-term return and quality service/product.

This article was prepared by team of consultants at www.adriaticmarkets.com. Among other, we provide services such as consulting on market entry to Southeast Europe, market research in Serbia or market research in Croatia.

Some of the companies that invested significantly into former Yugoslavian region already are: Actavis, Albon, Alstom, Aquafil Group, Assa Abloy, Axereal, Banca Intesa, Banco Populare, Benetton, Bosch, Brigl & Bergmeister, BSH Bosch Siemens, Carlsberg, Coca-Cola Hellenic, Danfoss, Delhaize, Deutche Telekom, Ericsson, Erste, Goodyear, Telenor, Fiat, Fondiaria, GazpromNeft, GKN, Gramer, Heineken, Hella, Henkel, Holcim, Hypo Alpe, InBev, Interbrew, Intesa Saopaolo, Johnson Controls, Knauf, Kronospan, Lactalis, Lafarge, Lukoil, Mayr-Melnhof, Meggle, Messer, Michelin, Mobilkom, MOL, Montana Tech Components, NBG, Novartis-Sandoz, Raiffeisen, Rauch, Renault, Rockwool, Societe Generale, Stada, Starco, Tarkett, Teva Pharmaceuticals, Titan, Unicredit, etc.

Our team helps businesses in their process of examining local opportunities and market entrance to Southeast Europe and provides market intelligence and market research in Southeast Europe with focus on Serbia, Croatia, Slovenia and Bosnia.