The document discusses competitiveness in South-Eastern Europe. It finds that GDP per capita in the region is less than 50% of the EU average, and competitiveness scores based on factors like infrastructure, education, and institutions lag behind OECD standards. The global financial crisis significantly impacted the region's economies. Large companies in the region struggle with issues like achieving economies of scale across borders. The future of companies in the region is discussed in the context of globalization, regionalization, and semi-globalization strategies.

1. Kumanovo
Ivana Jordanovska
(Macedonia)
Institut d’Etudes Politiques de Paris
Damjan Denkovski
(Macedonia)
University of Cambridge

2. Introduction
In our research on the future of work, we concentrated on the region of South-East Europe (SEE), or more precisely, the
Western Balkans. It includes Macedonia, Kosovo, Albania, Montenegro, Serbia, B&H and Croatia. All of these countries,
except for Croatia, have a GDP (in PPP terms) that amounts to less than 50% of the EU average, which makes it a crucial
variance compared to the Eastern European EU members. We see fit to include Croatia due to its economic ties in the
region, also known as the Yugosphere.
The Global Competitiveness Index (GCI), organized
by the World Economic Forum measures the
fundamentals for a competitive environment, based
on 12 weighted pillars. The SEE countries show
minimal differences in the scores, and thus in the
relevant areas. The overall average is lower than the
OECD average (4.05 compared to 5.0). The EBRD
distinguishes 5 main elements of competitiveness in
SEE countries:
1. Business environment and corruption: Main
problems identified are tax regulations and
corruption
2. Trade: There seems to be a lower level of trade
with EU countries than expected from economies of
 Making sense of competitiveness indicators in south- this size. However, there is very high level of trade
eastern Europe, Peter Sanfey & Simone Zeh, EBRD, St. among the countries of the Yugosphere (-Kosovo).
Antony’s College, Oxford, 2012 3. Infrastructure: Lower level than OECD countries
 Knowledge Economy Index, by World Bank 4. Human Capital Development: Lower quality of
http://info.worldbank.org/etools/kam2/KAM_page5.asp education compared to EU countries,
 Yugoslavia Is Dead, Long Live the Yugosphere, Tim Judah, 5. Institutional Framework: Considerable gap
LSEE Research on SEE, LSE, London, 2009 between SEE and CEB rankings.

3. Impact of the crisis
Just as any other region, SEE countries
experienced a serious drop in real GDP of
about 5,5% in 2009. The slow recovery, and
the recent fall of GDP shows us that we are
facing a W-shape recession. This has made
the business conditions significantly worse,
shown on the consumer, as well as supplier
side. 40% of consumers in SEE countries
think that the crisis has made their life a
great deal worse. Consumer confidence is
way below pre-2008 levels and NET FDI
has decreased.
Companies in SEE countries SEE Companies and the EU
According to the Top100 SEE for 2012, the highest EUROCHAMBERS measures an improvement in the
ranking companies according to size, are part of the acquis requirements for companies, particularly in Croatia
petroleum industry (28 out of 100), wholesale trade (13 and Serbia. With 80% of companies complying with EU
out of 100), telecommunications (10 out of 100) and legislation as of December 2012, it is expected that these
pharmaceuticals (2 out of 100). However, if we take out companies will be able to increase their trade levels with
the companies that belong to the SEE region, but are EU countries. Also, since December 2012, the EBRD
already part of the EU since 2004/2007, we are left with together with International Financial Institutions (IFIs) are
only 26 companies out of 100. No companies from backing small and medium-sized companies from SEE
Albania, Kosovo, B&H, or Montenegro made the list, and countries with a 145 million euro credit facility. The hope is
only one company from Macedonia qualified. to see high-potential companies, as well as the creation of
a regional venture capital market.

4. Highlights from Discussions and Interviews
 Companies struggle to achieve economies of scale across the region. The expansion of each
company is still somewhat limited by national borders, which leaves fixed costs per product/service
(especially energy) unusually high for European standards.
 Level of deregulation and decentralization remains relatively low. At the Brown Forum in Croatia in
2012, participants, mainly CEOs, complained that the level of decision-making is still highly
centralized. This causes for slow and often misinformed policy response to economic turbulence.
The difficulty of trading with the EU due to numerous non-tariff barriers was also mentioned.
World Bank Data – GDP per Capita in US Dollars

5. The Future South-Eastern Company
When it comes to business strategies for Multi-National Companies (MNCs), we note three distinct approaches.
Globalization Regionalization Semi-Globalization
 Companies produce and sell  Companies sell  De factio regional markets
products/services wherever products/services within a for companies, but increase
there is demand, and buy region that has common in sales beyond the home
resources at the lowest characteristics, and tend to region. Off-shoring and out-
market price available. produce in and buy resources sourcing outside the home
 Companies have from the same region. region are also factors.
transcended national borders,  A very limited number of  Sufficiently big companies
and a significant body of companies have transcended simply compensate for the
international law exists to national/regional borders. weak sectors by moving
allow them to function above Institutions are not prepared to them to other regions.
states. handle global companies.  Firms have to balance
 Path towards  Internalization doesn’t display between integration and
internationalization, global traits, regional local/regional
companies develop global strategies approach responsiveness.
strategies.  Companies aim to maximize  Companies aim to maximize
 Companies aim for their sales within their home their sales and lower their
standardization to serve the region. costs, regardless of the
global market.  Regional strategies are region.
 Regional strategies are a devised to create a regional  Regional strategies
step towards a world player. markets as an end goal. accompany environmental
trends to reach global sales.

6. Semi-Globalization
• The unequal global sales distribution convinced
Rugman* that:
1. No global products exist
2. Transferring non-location bound FSAs across
regions is challenging
3. Transferring location bound FSAs is still
challenging
4. Different regional markets require different
strategies
5. A regional component to structure is needed in
order to deal with distinctive regional (Ghemawat 2008) (Derived from Bartlett & Goshal (1989))
characteristics
Earlier research assumed a trade-off between
*Rugman, A.M. 2005b, "Rethinking international responsiveness and integration, either on the regional
management in a world of regional multinationals" in
Internalization, International Diversification and the or global level, creating multifocal companies. This was
Multinational Enterprise: Essays in Honor of Alan M. Rugman,
ed. A.M. Rugman, Elsevier ltd, , pp. 165-202. a compromise, and thus a sub-optimal solution for the
business. Ghemawat (2008) argued that taking the
International markets are characterized “…neither by extreme
contingency approach, it is possible to maximize both
geographical distribution of sales, nor complete integration*”.
aspects of spreading across borders. This is done by
This argument suggests that regionalization is a form of semi-
dividing the environmental pressures on two different
globalization which means both a regional construct of
levels: those affecting the location-bound Firm-Specific
strategy and structure to reach global sales.
Advantages (FSAs) and non-location bound FSAs. B
constructing a two-level structure with regional/national
Multinational Corporations & Regional Strategy, Oscar
centers within a company, one can achieve a
Franklin, Copenhagen Business School, 2010
transnational perspective.

7. Regional Strategies
• Ghemawat (2005) argues that “…regionally focused strategies aren’t just a halfway house between
local (country-focused) and global strategies but a discrete family that, used in conjunction with local
and global initiatives, can significantly boost a company’s performance.”
1. Home Base Strategy: Is very similar to a normal exports strategy. It assumes that a company produces in one
country and exports to the neighboring and the region. As a home region based strategy, it is successful for
companies that have a high product value relative to transport costs. Example is Samsung, which produces mainly
in South Korea.
2. Portfolio Strategy: Is applied when there are organizations set up outside of the home region that report directly
to the home base company. This strategy is usually used by companies that wish to establish new markets outside
of their home region. If done properly, the strategy achieves faster growth in non-home regions, home position that
generates a lot of money and a chance to average out economic shocks.
3. Hub Strategy: “…Builds regional bases or hubs, which provide a variety of shared resources and services to local
operations.” (Franklin, 2010).Hubs are supposed to be standalone units that produce region-specific products.
4. Platform Strategy: Aims at achieving economies of scale across regions. A platform should be invisible for the
customers, so that a subtle amount of standardization goes unnoticed by the customers. The idea is to launch
similar or the same product across regions by using location-based FSAs.
5. Mandate Strategy: Is in some regard very similar to the Platform Strategy. It envisions granting wide mandates to
different regions for achieving economies of specialization, as well as scale. Number of mandates increase with
increase of standardization.

8. SEE&Semi-Globalization: Profile of Companies
• Ghamawat recognizes 4 types Wholesale Trade has seen a rise in intra-regional activities with markets
of distances: such as Tus, Merkator and Konzum opening branches in B&H, Serbia,
1. Cultural
Macedonia and Montenegro. However, they still face fierce competition
2. Administrative from domestic wholesale traders such as Voli in Montenegro and Tineks in
3. Geographic Macedonia.
4. Economic
If we take into account the Telecommunications companies have increasingly transcended borders.
common history, short geographic After the failure of Greek OTE as a mobile provider, Telekom Slovenije
distance (without taking into bought Cosmofon and Germanos networks in Macedonia. The
account the poor infrastructure) substitution of a Greek company for a Slovenian company could be an
and the latest economic indicators argument for thinking of SEE as a micro-region.
that show sizeable similarities, we
can conclude that SEE can be
transformed into a micro-region in The textile industry faces heavy competition from Turkey and is rather
itself.
nation-bound, which means that companies have very low product
• Best performing industries value-fixed cost ratio. In order to achieve economies of scale, companies
(taking into account the need to expand beyond the home market and into the region.
SEE100) are wholesale trade,
telecommunications, textile and
pharmaceuticals, and we would
expect that in the next 10 years The pharmaceutical industry enjoyed some economies of scale due to
these industries will be at the the common market in Yugoslavia. The wars and the transition period
forefront. (Petroleum-related of the 90’s halted their production and exports. Nonetheless,
companies are not considered companies like Alkaloid are increasingly regional, with diversification
as they import more than of products ranging from tea to cosmetics.
export and enjoy monopolies
within national borders.)

9. Possible Strategies for SEE companies
• We highly support a contingency approach to suggesting business strategies, which is why the following overview is
oversimplified and deserves a much more detailed analysis.
Wholesale Trade should The telecommunication The textile companies Pharmaceutical companies
further develop within the companies should attempt should be striving for a should be applying a
region and move from a to take advantage of the home-based strategy. home-based strategy, with
portfolio-oriented strategy short cultural (but not By having their home minor variations to account
towards a more hubs- linguistic) and economic state be the home for for the slight cultural
oriented strategy. The hubs distances. At the same time, the operations, they limit differences. The major
themselves can work they need to further develop the costs and risks of problem that will be
towards establishing local their platform strategy as to moving operations to encountered here are the
units within the national become invisible to another country. By non-tariff barriers and the
borders of the SEE country consumers. This represents achieving economies of level of corruption that is
they function in, but also a challenge for any scale, these companies encountered. As often
across the border, in company due to will be able to develop more expensive and
neighboring countries that do interconnectedness of the and retain a high subsidized by the
not belong to the SEE micro- region. Furthermore, there product value-travel government,
region. In this way, more are good business cost ratio, as the pharmaceutical products
capital (human and opportunities in countries physical distance can be the subject of
otherwise) will be dedicated like B&H. Its ethnically- between national quality standards.
to establishing cross-border fragmented mobile providers markets is small. In this
and cross-region economies are not capable of achieving case, we find a very
of scale. economies of scale and convenient example in
thus lower prices. A single the work of the Spanish
provider with a superb textile mogul, Zara.
platforms strategy will be
more successful.