In our work, we focused on the region of South-East Europe (SEE), more specifically the Western Balkans. The countries we are analysing are Macedonia, Kosovo, Albania, Montenegro, Serbia, Bosnia and Herzegovina and Croatia.

All of these countries (with the occasional exception of Croatia, but we include it due to ties remaining from Yugoslavia):

◦ Have a GDP (PPP) that is less than 50% of the EU average, differentiating them from the 2004 and 2007 EU enlargement countries

◦ They all rank a 4 out of 7 on the global competitiveness index

◦ They have all had a GDP drop of around 5,5% in 2009 due to the crisis, and a drop in FDI since then

◦ They are experiencing a slow recovery (W shape recession)

◦ Have a problem fostering environments in which companies can achieve economies of scale (only one Macedonian company ranked in the top 100 SEE companies, none from Kosovo, Montenegro, B&H and Albania

◦ They are all being supported through EBRD and IMF funds to foster development of business conditions, and these are funds that can be used towards regionalisation

Our subsequent research agreed with our original assumptions: businesses in the Western Balkans have little hope of becoming globally competitive if they continue operating as they do at the moment. This is due both to internal (business strategy) and external (business environment) challenges. There are currently no companies that employ the strategies we proposed in our original submission, except for a few wholesale chains (such as Tus and Konzum) and the metallurgy industry.

Strengths Weaknesses

- Cultural and geographic proximity

- Educated human capital

- Low industrial pollution (significant for

agriculture)

- Resources/transit between cheap raw

materials market and rich buyers

- Low operational costs

- Fixed costs, rigid legislation

- Unqualified human capital

- Unprofessional approach

- Mindset barrier

- Low economies of scale

- No brand equity for SEE businesses

Opportunities Threats

- EU moves towards standardisation and

quality control makes transfer costs lower

- Potential for more value-added production

- Becoming a region of cheap, low-value

added outsourced labour

- Unable to compete with larger markets,

such as Asia

- Becoming economically insignificant

In order to ensure quality of analysis, we conducted a SWOT analysis of SEE

businesses using data from our research and interviews

Cultural and geographic proximity: SEE countries are culturally, linguistically and geographically closer to their target markets in Western Europe. As such, they can be the markets which avoid the traditional cultural and linguistic issues which Western European and US companies face when outsourcing or moving production to Asia. Moreover, the geographic proximity significantly decreases transport costs, especially if economies of scale are achieved.

The human capital is paradoxically both educated and underqualified. While the labour market in SEE is filled with people who hold degrees and are theoretically well versed in their field, they hold little to no qualification and professional training as well as managerial and strategic skills.

These countries have a further competitive edge in the low levels of industrial pollution present. Considering the growth of organic food markets, SEE businesses can (if they develop economies of scale and quality control) become the market for organic foods. The climate is a further strength here.

Lying between the East and the West, SEE companies can benefit from importing cheap raw materials that they lack from Asia, produce a full package (something that is yet to be done) and export it to Western European and US markets with significant value-added.

The relatively weak economies in SEE countries mean that operational costs are significantly lower than elsewhere. This applies to fixed and variable costs alike. With Croatia’s EU accession later this year, businesses that want to remain close to the EU market, but don’t want to be based in the EU will relocate to neighbouring countries and the businesses expertise that Croatia will receive can be transferred across the borders into the rest of the Western Balkans region.

In order to develop a successful business model, we had to identify what opportunities

SEE businesses could capitalise on.

Business model of a hypothetical organic foods company

In our research we identified several industries that can profit from the business model we present (pharmaceutical companies, the telecommunications providers and the textile industry). We chose agriculture as the industry we see with the most unexplored potential, none of which has been explored and modernised.

Combined

value chain

Gather fresh produce

according to regional

comparative advantage

Organise into fresh and

processed foods

Synthetise into fresh

produce and packaged,

process food

Distribute using satelites,

e-sales (Using the

Croatian market as a

doorway to the EU)

Cost structure

Low operational costs

(both fixed and variable)

Comparative advantage

production maximizes

yield

Hub strategy ensures

efficiency

Revenue model

Sales (internet and

physical)

Advertising (physical, SEO

and PCC)

Internal sales

Export (bulk and retail)

Market

segments

/consumer

relationships

Domestic buyers:

cultivate 'buy domestic'

and 'organic'

relationship

External retail and

wholesale: 'organic',

'untouched nature'

Competitive

strategy

Differentiation: organic

and fresh produce

Full package proposal

Innovation

Operational effectivenes

Key points of our business model

Government action needed

The combined value chain envisions a sequence of complementary activities that give a holistic and well-rounded final product, taking into account customers’ preferences and the cost structure:gathering fresh produce according to regional comparative advantage, then dividing for preparation into fresh or processed, synthesize and distribute.

The cost structure: low operational costs due to a mixture of intrinsic Eastern European labor market characteristics and well-developed management strategies

The concrete management strategy that must be implemented is the development of regional hub centers that will make use of the regional comparative advantage mentioned before.

To ensure the success of our revenue model, we suppose that this future company will sell its products via the internet, as well as in the well-established method of physical sales. Furthermore, we expect heavy advertising to develop the brand identity of our company (e.g. Search Engine Optimisation and Pay Per Click advertising)

In building our relationship with the consumers, we work on two main attitudes. domestic buyers’ need for locally-produced and organic goods and developing a brand name for the external buyers which will focus on “organic” and “natural” as main characteristics of the products

The competitive strategy of our company centres on four aspects: differentiation, innovation, full package proposal and operational effectiveness

Make full use of the dialogue potential of the Chambers of Commerce in SEE

Recognize the need for regionalisaion and make appropriate administrative facilitations (e.g. Harmonizing legislation) on top of current efforts to facilitate intra-region trade (Yugosphere) http://www.neweasterneurope.eu/comment/41290

Further liberalise internal markets to attract FDI

Support small and medium-sized businesses (which make an overwhelming proportion of these markets)

Executive education programmes, management exchanges to share experience

A comprehensive, practical and studious approach can make a substantial difference in a matter of months, according to representatives of the Centre for Women Entrepreneurs

A joint capacity building effort between managers and the official administration

Collecting, publishing and disseminating models of successful business practice to complement theoretical knowledge

Foster a culture of mergers and avoid short-termism in business practice

Mindset change