Transcript Folie 1 - EF UMB

Going East – CEE seen from
a Western MNC perspective
Arnold Schuh
Competence Center for Central & Eastern Europe
Presentation at the Matej Bel University, Banska Bystrica – October 4, 2011
Let‘s go east – What motivates
Western MNCs to expand to CEE?
• 20 countries in close
proximity
• 330 mio. inhabitants
• Underdeveloped markets
• Educated workforce at
lower costs
• European culture
= Baltic states
= Central-Eastern Europe
= South-Eastern Europe
= European CIS
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Before 2008: CEE as a highly
dynamic but fragmented region
Per Capita GDP 2007 (in €)
40,000
35,000
Austria
30,000
25,000
Germany
20,000
Czech Rep.
15,000
Hungary
10,000
5,000
Poland
Romania
0
0
Estonia
Russia
Serbia
Ukraine
5
10
Real GDP Growth 2007 (in %)
15
Pre-crisis economic growth
model for CEE
Bruegel, 2010; EBRD Transition Report 2010
 Intention to achieve a rapid political & economic
integration into EU (single market, EU funds, EU norms)
 High degree of liberalization in external economic
relations
 Opening of financial markets to foreign financial
investors
 Strong technology & know-how transfer and FDI from
the West to CEE
 Access to high-income countries
 Integration into transnational production networks
Significantly higher growth than
in Western Europe
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CEE even outperformed other
emerging markets
Bruegel, 2010
Average GDP growth rates 2002-08
GDP at constant prices; Horizontal lines refer to group averages;
blue line: unweighted averages; red line:GDP-weighted averages
Economic growth varied due to
starting positions and reform speed
Roland Berger, 2009
Real GDP development (1989-2008, in %)
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FDI as driver of change: Nearly
€600 bn. since 1993
Roland Berger, 2009
Total FDI inflow by year, 1993-2008, in € bn.
The business model for CEE
before 2008
Skilled
labor at
lower costs
Huge
market
potential &
growth
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Favorable
resource
situation
Above
average
returns
High
business
risk but „EU
umbrella“
Fast entry
& quick
expansion
Convergence drives market growth
& development in banking industry
Convergence drives market
growth & development in banking
industry
CEE was a good investment
story – at least until 2008
Erste Group Bank
share price
Early 2009 - CEE in big trouble
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CEE was the hardest hit region by
the recent economic slowdown
UniCredit, 2010
GDP growth/decline in % YoY (2008-10)
10
5
0
-5
-10
-15
-20
2008
2009
2010F
Was CEE to blame for the
crisis?
 Crisis was imported to a high degree
 Collapse of markets – dependence on Western markets
for growth (automotive, consumer electronics)
 Drying-up credit from abroad
 Currency weakening in late 2008
 Difficult liquidity situation of households & companies
 „Home made“ problems
 Overheated economies & real estate markets
 Excessive external debt
 High proportion of loans in foreign currency
 LAT 90%, EST 86%, HUN 60% vs. POL 32%, CZ 9%
 Fiscal irresponsibility (e.g., Hungary)
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Impact of crisis on CEE
economies varied
Schuh, 2009
Fiscal deficit
Industry
specialization
Foreign exchange
regime
Dependence on
exports
Impact of crisis on
CEE economies
External financing
gap
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Size of domestic
market
Stock of foreign
investment
Is the business model for CEE
still valid after the crisis?
Lower
input
costs
Still huge
market
potential but
slower growth
Resource
situation
remains
favorable
Still
reasonable
returns
Higher risk
premia & more
caution in new
investments
Selective
approach &
optimization
of operations
After grim year 2009, region is
back to growth path
UniCredit CEE Quarterly, 02/2011
GDP growth rates (2009-12)
UA
RUS
SER
ROM
EST
2012f
HUN
2011f
2010e
POL
2009
SLK
CZR
Euro zone
-20
-15
-10
-5
0
Changes in real GDP (in %)
5
10
By 2020 many countries will still be
significantly below Western levels of 2010
Erste Bank, 2011; EIU
By 2030 the most developed part of CEE
will be where Western Europe is today
Erste Bank, 2011; EIU
Back to business as usual?
EBRD‘s new growth agenda for CEE
EBRD, Transition Report 2010
Strategy review for CEE –
Major decision areas for MNCs
Role of CEE in the
global strategy
Organizational
model
Product &
marketing
strategies
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Participation in
CEE markets
Activity
location in
CEE
CEE has lost its luster but
remains attractive
 CEE lost its former status as growth region –
especially compared to BRIC and Turkey
 However, CEE remains attractive for Western MNCs due
to higher growth rates and market potential
 CEE is not regarded as homogeneous region anymore
 MNCs pay more attention to soft factors such as quality
of institutions, political stability & competitiveness
 MNCs follow a more cautious and selective
investment approach
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R
O
L
E
O
F
C
E
E
CEE lost its position as a global
growth engine
Roland Berger, 2010
GDP development (2000 = 100)
R
O
L
E
O
F
C
E
E
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CEE countries are losing on competitiveness,
only Poland, Russia & Czech Republic
improved
Roland Berger, 2010; World Economic Forum, 2010
Global Competitiveness Report (2004-2010, ranks)
R
O
L
E
O
F
C
E
E
Mixed foreign investment
pattern in CEE
wiiw, 2011
FDI inflows, in mio. €
R
O
L
E
O
F
C
E
E
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Regional players benefit from
the withdrawals of weaker firms
 The crisis triggered a round of portfolio restructuring
among MNCs in CEE
 Most direct investors stick to their presence in CEE
 Geographic expansion into new countries is on hold for
now
 Regional players are better positioned to take
advantage from the situation than newcomers
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P
A
R
T
I
C
I
P
A
T
I
O
N
Examples of country portfolio
restructurings (2009-11)
Withdrawals
 ABInBev sold 11 breweries
in CEE
 Carrefour exits Russia
 Vattenfall withdraws from
Poland
 Allied Irish Banks sell Polish
subsidiary to Santander
 GE Money withdrew from
Romania
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Expansion
 PepsiCo bought 66% of
Russian Wimm-Bill-Dann
 Groupe Danone merged
its dairy unit with Russian
Unimilk to become the
largest dairy company in
Russia and CIS
 UniCredit plans to open
900 branches in CEE and
Turkey
P
A
R
T
I
C
I
P
A
T
I
O
N
Manufacturing continues going
East
 Subsidiaries in CEE expand their production capacity at
the expense of their West European sister companies:
 Modern technology, more flexible & cost efficient
 „Re-industrialization“ of CEE is best reflected in
automotive sector: + 27,000 new jobs in 2009 compared
to +6,000 in Western Europe (Ernst & Young European
Investment Monitor 2010)
 CE & SEE countries also improved their position as
service providers (IT, business processes)
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A
C
T
I
V
I
T
Y
L
O
C
A
T
I
O
N
Local foothold & diversified
approach characterizes winners
 Local producers have lower costs and benefit from
depreciating local currencies
 MNCs with multi-tier strategies are in a better position
than focused premium-product marketers
 Increased price-sensitivity favors business models
centering on affordability
 Geographic & segment-related diversification as a
winning strategy to cope with fluctuations in demand and
increased uncertainty
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P
R
O
D
U
C
T
M
A
R
K
E
T
I
N
G
Multi-tier brand strategy immunizes
Henkel CEE against market swings
Schuh & Holzmüller, 2003
PriceIndex
100
80
60
Detergent brands
Persil
Palmex,
Tomi
Rex
Brand
Positioning
Premium brands stand
for quality, performance,
image & innovation
Medium-market
brands: good quality for
traditional & brand-loyal
customers
Economy-segment:
„More value-for-money“
claim for price-sensitive
segment
P
R
O
D
U
C
T
M
A
R
K
E
T
I
N
G
Organization for CEE: Centralize
> decentralize > centralize …?
 Expansion to CEE has been guided by highly centralized
control
 Good performance and improved qualifications led to
more autonomy for local management
 Need to balance entrepreneurial spirit of local
management and desire for control
 During crisis pendulum swung towards centralization
again:
 Lack of restructuring experience in most CEE countries
 Centralized management of investments, costs,
liquidity, capacity & key accounts
 Use of simplified structures
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O
R
G
A
N
I
Z
A
T
I
O
N
Switching from survival to
growth mode again
 Wait for completion of strategy reviews to understand
organizational rearrangements
 Pendulum swings back to a more decentralized
organizational model again
 Slower market growth forces management to continue
the search for cost savings: clustering of smaller
markets, concentration of back-office functions in shared
service centers
 Challenge for management to find a good balance
between strict cost discipline and encouragement of
new growth initiatives
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O
R
G
A
N
I
Z
A
T
I
O
N
Great challenge: How to
manage complexity in CEE?
How to respond strategically and organizationally to
these biased structures?
Country
Product
Segments
• EU vs. nonEU
 Advanced vs.
emerging
 Large vs.
small
 Low vs. high
price
 Global vs.
local
 Essential vs.
„luxury“
 Growing vs.
mature
 Urban vs.
rural
 Modern vs.
traditional
trade
 Young vs. old
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Company
 Markt leader
vs. follower
 Profitable vs.
loss-making
O
R
G
A
N
I
Z
A
T
I
O
N
Conclusions – “CEE reloaded”
 For CEE the recent crisis was an interruption of the
catching-up process
 The image of CEE as a growth region is shattered,
however, the business model for CEE is still valid
 Improving the competitiveness of the economies should
be on top of the national agenda – more attention is paid
to quality of institutions and business climate
 Crisis means the end of CEE as a homogeneous region,
we see a more differentiated investment approach today
 Challenge for MNC management is how to deal with this
multifaceted hybrid market situations and how to
integrate the operations into the corporate group
 Dual focus on growth and cost efficiency will continue
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References

Bruegel Study –Becker et al.: Whither growth in central and eastern Europe? Policy lessons for an
integrated Europe, Bruegel Blueprint Series, 2010

EBRD: Transition Report, London 1999-2010

EIU: Corporate Structures in 2010, Economist Corporate Network, Geneva 2004

EIU: Rethinking CEE: Changing Corporate Structures in CEE, Economist Corporate Network, Geneva 2010

Erste Group: A Macro-Economic Picture of Central and Eastern Europe, Presentation to the MKO, May
19, 2011, Vienna.

Roland Berger Strategy Consultants: 20 years of the CEE economic region – Assumptions for sustainable
development, CE Business Club, Zagreb/Vienna Nov. 25, 2009

Roland Berger Strategy Consultants: CEE in 2020 – Trends and perspectives for the next decade,
November 2010

Schuh, A. & Holzmüller, H.: Marketing Strategies of Western Consumer Goods Firms in CEE, In: Stüting
H.-J. et al. (Eds.): Change Management in Transition Economies, New York: Palgrave Macmillan, 2003

Schuh, A.: The Impact of the Current Economic Crisis on Strategies of Multinational Corporations in
Central and Eastern Europe, Akademija MM, 9(14), 2009.

UniCredit Group: CEE Quarterly, UniCredit Research,
http://www.bankaustria.at/de/open.html?opencf=/de/18513.html

World Economic Forum (2010): The Global Competitiveness Report 2010-11:
http://www.weforum.org/issues/global-competitiveness

wiiw: Publications of the Vienna Institute for International Economic Studies, Vienna: www.wiiw.ac.at/
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Data sources for CEE
 Go to the homepage of the Competence Center for
CEE at WU Vienna with more than 50 CEE-related
resources.
 http://www.wu.ac.at/cee/en
 CEE Resources
 CEE Management/Business
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Contact
COMPETENCE CENTER FOR
CENTRAL AND EASTERN EUROPE
Augasse 2-6, 1090 Vienna, Austria
ASS.PROF. DR. ARNOLD SCHUH
Director
T +43-1-313 36-4608
F +43-1-313 36-90 5284
[email protected]
www.wu.ac.at/cee
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