STRATEGIC OPPORTUNITIES FOR DEVELOPMENT OF MANUFACTURING INDUSTRY IN BRODSKO POSAVSKA COUNTY

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1 Lena Duspara, univ.spec.oec. College of Slavonski Brod Dr. Mile Budaka 1, Slavonski Brod, Hrvatska Telefon: Fax: STRATEGIC OPPORTUNITIES FOR DEVELOPMENT OF MANUFACTURING INDUSTRY IN BRODSKO POSAVSKA COUNTY STRATEŠKE PRILIKE ZA RAZVOJ PRERAĐIVAČKE INDUSTRIJE U BRODSKO POSAVSKOJ ŽUPANIJI ABSTRACT Global economic crisis affects the Croatian economy systematically since This is mostly reflected in the least developed regions in the Republic of Croatia, and one of them is Brodsko Posavska County (BPC), which has much worse indicators in relation to the national level. In 2013, the share that contributing BPC in relation to the overall level of the Republic of Croatia for the following indicators are: the number of enterprises 1.52%, the share in total employment is 1.8%, the share of total assets is 0.8%, the share of income makes 1.18%, net profit 0.96% etc. Strategy presents a series of competitive moves and business approaches that company uses to increase the level of business, ensure the desired market position, attract customers, compete successfully, and accomplished the desired objectives. Strategy of each company, same as the economy is the key to development and success. All weak indicators can be explained by poor and almost non-existent strategy for the development of county economy and stimulate entrepreneurial activity. Manufacturing industry historically has great significance for the BPC and has been a holder of the economy. However, badly managed privatization is almost destroyed many sectors. Because of this, it should develop a strategy to enable to existing enterprises enviable business results. The aim of this paper is to show status and basic financial indicators for the sectors which comprise more than 15 companies in the manufacturing in BPC, which are according to the CNAE 2007 (CNAE-National Classification of Economic Activities) Sector: C10 Manufacture of food products, C16- Manufacture of wood and of products of wood and cork, except furniture, C22- Manufacture of rubber and plastic, C25-production of fabricated metal products, except machinery and equipment. This paper will use the methods of analysis, induction, deduction, synthesis and comparison. As a result, based on research, it wants to find strategic opportunities that could improve the economy in BPC. Keywords: Strategy, Development, Competitiveness, Industry, Company SAŽETAK Velika gospodarska kriza pogađa hrvatsko gospodarstvo sustavno od godine. To se najviše odražava na najslabije razvijene regije u Republici Hrvatskoj, a jedna od njih je i Brodsko posavska županija (BPŽ), koja ima puno lošije pokazatelje u odnosu na nacionalnu razinu. U udio koji pridonosi BPŽ u odnosu na cjelokupnu razinu RH za sljedeće 71

2 pokazatelje iznosi: broj poduzeća 1,52%, udio u ukupnoj zaposlenosti 1,8%, udio ukupne imovine 0.8%, udio prihoda čini 1,18 %, dobit nakon oporezivanja 0,96% itd. Strategiju predstavlja niz konkurentskih poteza i poslovnih pristupa koje poduzeće koristi kako bi povećalo razinu poslovanja, osiguralo željenu tržišnu poziciju, privuklo kupce, uspješno konkuriralo, te ostvarivalo željene ciljeve. Strategija kako pojedinačnih poduzeća, tako i gospodarstva je ključ za razvoj i uspjeh. Svi loši pokazatelji se mogu objasniti lošom i gotovo nepostojećom strategijom županije za razvoj gospodarstva i poticanje poduzetničke aktivnosti. Prerađivačka industrija i povijesno ima veliki značaj za BPŽ i oduvijek je bila nositelj gospodarstva. No, loša privatizacija je mnoge sektore gotovo uništila. Upravo zbog toga, treba razvijati strategiju kako bi se postojećim poduzećima omogućili zavidniji poslovni rezultati. Cilj ovog rada je dati prikaz stanja i temeljnih financijskih pokazatelja za sektore koji broje više od 15 poduzeća u prerađivačkoj u BPŽ, a to su prema NKD 2007 (NKD - Nacionalna klasifikacija djelatnosti) sektor: C10- Proizvodnja prehrambenih proizvoda, C16- Prerada drva i proizvoda od drva i pluta, osim namještaja, C22- Proizvodnja proizvoda od gume i plastike, C25-proizvodnja gotovih metalnih proizvoda, osim strojeva i opreme. U radu će se koristiti metode analize, indukcije, dedukcije, sinteze i komparacije. Kao rezultat, na osnovi istraživanja, žele se promaći strateške prilike koje bi mogle unaprijediti gospodarstvo BPŽ. Ključne riječi: Strategija, Razvoj, Konkurentnost, Industrija, Poduzeće 1. Introduction Strategy can be defined as a series of competitive moves and business approaches that are used to increase the level of business, ensure the desired market position, attract customers, compete successfully, and accomplished the desired objectives. Brodsko Posavska County is one of less competitive and developed regions in Republic of Croatia, but manufacturing industry is leading industry and core business of the County. For determination of strategic opportunities it is important to present the most important indicators that can show a possible pathway for development. 2. Strategy implementation Characteristics of a good strategy implementation involve the creation of strong links between company strategy and on the other hand, organizational skills, awards, internal operating system and working environment within the company. What is the connection between those elements is greater, it is better to implement a strategy, and thus increases the probability to achieve the desired objectives of the company. Implementation of the strategy involves daily decisions about resource allocation. Implementation of the strategy is a process that can be implemented throughout the entire company, but most often carried out within the middle and lower management levels. Application and development of strategies are not one-time because of customer needs and competitive market conditions are constantly changing. It is important constantly to evolve new opportunities, and new threats. "Some aspects of the strategy may be unacceptable in view of the new situation caused by changes in the market or changes within the company. For example, new managers may have different ideas and visions of the development of enterprises. All these changes create the need for control, adjustments and corrections of strategy. Control, correction and evaluation are counted as the final stage of the development strategy, but they are determined and weaknesses of the previous stage, and enable their removal in the new cycle of creation "(Zeckhauser, I.R., 1991., p. 1). This fact is important for research because if previous level of development and 72

3 its weaknesses, new strategy implementation should open new opportunities for development of manufacturing industry. 3. Economy of Brodsko Posavska County That the competitiveness of the Croatian economy as a whole is largely dependent on the strength of and competitiveness of the Croatian manufacturing industry shown by the fact that more than 90% of exports is made by that industry. Croatian should make effort to make strategic changes in the structural characteristics of the manufacturing industry. In Brodsko Posavska County in 2013 there were active 1,352 enterprises with 13,254 employees. 868 companies achieved a profit after tax of 234 mil. kn, while 467 enterprises in the Brodsko Posavska County in 2013 operated with loss. ( ) The structure of the economy of Brodsko Posavska County is measured by the share in total revenue and profit after tax is shown in table 1. Table 1 Structure of economy in Brodsko Posavska County Share in total revenue Profit after tax 48,55% 15,09% 9,64% 9,03% Manufacturing Trade Construction Agriculture, forestry and fisheries Professional, scientific and technical activities Electricity, steam and air conditioning Transport and storage Other activities 6,56% 3,08% Manufacturing Trade Construction Agriculture, forestry and fisheries Professional scientific and technical activities Water supply and sewerage Mining and quarrying Transport and storage 1,43% 6,62% Other activities Source: made by author according ( Historical development of manufacturing industry 60,53% 10,01% 8,00% 5,45% 3,73% 3,13% 2,32% 1,59% 5,24% How powerful some industry is depends on its quality. The quality of the industry is determined by the branch structure, technological and capital development, competitiveness of products, age and gender structure, qualification of workforce etc. From different types of industry depends on the creation of industrial and economic region. "Manufacturing industry in Croatia increase in potential in period from 1945 to for almost four and a half times the amount of gross domestic product, per capita for 3.8 times. Average annual growth rates from 1956 to 1989 amounted to gross domestic product for 4.6% and 4.2% per capita." (Statistički godišnjak Jugoslavije, 1990., p.406) This development and growth is the result of development policy with the basic aim was industrialization. Were found in a very high growth rates of industrial production, and the industry soon became the dominant industry in the total production. In the period 1954th- 1989th the rate of growth in the industry was 6.2% per year, which is in the period meant an increase of 7.8 times. Average Yugoslavia was even greater: 7.1% amounted to annual growth rate, and the increase was 10 times higher. Employment has risen considerably slower than the domestic product except for the period after Structure of development of manufacturing industry is shown in table 2, also as its comparison with other developed countries and regions. 73

4 Table 2 Structure of GDP (in %) and structure in employment (in %) in the manufacturing industry GDP(%) Employment (%) Hrvatska Jugoslavija EEC OECD Japan Source: Made by author according Sirotković, J., 1996., p. 17 The main feature of industrial development is the technological sophistication of production. "The cause of the success and competitiveness of Japanese industrial products is more in constant technological development, but in the big scientific discoveries. Industry, which is technologically not improved doomed to failure. Technology to improve the production requires significant resources and special professional qualifications of the workforce. (Sayer, A., 1989., p ) As everywhere in the world, just at different times, so it was in Brodsko Posavska County (part of Slavonia): the growing industry driven by the current outlook and the case it is cited in a roundabout and right path. So industry in Slavonia carries the same feature, creating a rash. No one has studied the Slavonia as a whole: its soil, water, climate, energy, all forms of life, neither the people, that arises from a thought about the activities nor business dealings that would satisfy domestic needs and serve as a substitute for others what others have offered. What types of economic activities, as a way of earning and what products to choose from, so that it may go well over the long run. Population of Slavonia has a special, highly expressed in industrialization. People from Slavonia did not initiate the industry, what it represents; they were the drivers of those industries that they needed and, strangely enough, it just is today the largest. (Zbornik radova prvog Znanstvenog sabora Slavonije i Baranje, 1970.) 4. Research As it is presented manufacturing industry is historically most important for economic development in Brodsko Posavska County. Since early 1990es, with beginning of Civil War and transition system which results with bad managed privatization are destroyed industry in County. This research presents basic financial indicators for the sectors which comprise more than 15 companies in the manufacturing in BPC. According to the CNAE 2007 sectors are: C10 Manufacture of food products, C16- Manufacture of wood and of products of wood and cork, except furniture, C22- Manufacture of rubber and plastic, C25-production of fabricated metal products, except machinery and equipment. Through analysis of given data it is important to predict strategic opportunities that could improve manufacturing industry in Brodsko Posavska County. Research is based on data for period from to year Analysis of financial indicators For recognizing of strategic opportunities, firstly it is important to present current condition, and then give possible directions how to develop it. First indicators are number of enterprises and number of employees and are shown in table 3. in text below. 74

5 Table 3 Number of enterprises and employees in BPC in period Number of enterprises Number of employees C C C C Table 3. shows that global economic crisis affected very badly on sectors C 10 and C22, because they have decrease of enterprises and number of employees. Sector C25 is strongest and counts majority of enterprises in manufacturing industry except C 25 and records constant increscent of enterprises, but have stagnation of growth of number of employees. Net wages for each sector are shown in table 4. Table 4 Net wages in BPC in period C C C C From table 4. It is obvious that sector C 25 have highest amount of wager, just because they have the most employees, but the sector doesn t have growing rate of employees, but have growing rate of wages, that is result of better and higher standards. Strategic opportunity is to modernize existing capacities and to employ new workers. Next indicators are financial indicators that will present total profit and loss of given sectors, amount of export and import. First and most important indicator is shown in table 5. Table 5 Total profit in BPC in period C C C C Profit is one of most important indicators that present level of financial development. Profits are not so high in comparison with revenues of each sector. The main problem of not so high revenues, and high losses (shown in table 6.) are high cost. One of main problem is inefficiency of manufacturing. Industry can reach high revenues but isn t able to manage high cost of production. Strategic opportunity for development is cutting of costs. Development is possible, but each enterprise should have better control of costs. Other problem is impossibility to find business partners. Historically Croatian business partners were socialist countries. But after process of transition many business partners are lost, because of opened market. Also, it is important to support development of new small private enterprises which would develop manufacturing industry and employee new people- which is one of the greatest problems in BPC. In table 6. it is 75

6 clearly visible that losses are very high especially in C 10, and are incomparable with revenues. Sector C 25 has constant and exponential growth of losses. Table 6 Total loss in BPC in period C C C C Table 7 and 8 Presents rate of export and import made in manufacturing industry in given period. Export and import are not in positive correlations, which is not good situation for economy development in Brodsko Posavska County. Manufacturing industry should produce competitive products and should export the majority of its products. Table 7 Export in BPC in period C C C C General conclusion is that rate of export is too low, and rate of import too high. Completely unfavorable situation for economy development. Rate of export for sector C 28 becoming higher by time, and rate of import have significant decline. One of reasons for such import is no existing of market for inputs in Republic of Croatia, and enterprises are forced to importespecially in metal production industry. This situation impairs the development of the whole economy in Brodsko Posavska County. Table 8 Import in BPC in period C C C C The last indicator and one of most important is shown in table 9 and presents amount of investments in each sector in Brodsko Posavska County. Table 9 Investments in BPC in period C C C C

7 It is significant that rate of investments is very low. It is important to change that negative practice. Investments are most important for manufacturing, because it is important to follow development if companies want to be competitive on market. Majority of enterprises in Brodsko Posavska uses old and uncompetitive technology and production processes. To be competitive on global market it should have competitive product. The product can be competitive only if it is produced with new technology, in modern and superior production process, with low cost and implementation of knowledge. 5. Conclusion The fact is that the observed sectors in BPC are not competitive and that currently do not have great strategic opportunities for growth and survival in the market. Possible solutions are implementation of strategies that will lead to big changes. The first strategy is to introduce radical changes in existing systems operations and better management of resources and the other option is to change the structure of the companies in the BPC, and to implement organizational redirection of existing companies that positively cannot operate. It is important to act fast and to support fallen industry. REFERENCES Savezni zavod za statistiku: Statistički godišnjak Jugoslavije 1990 (SGJ-90), Beograd, 1990, str. 406 Sayer, A. (1989) Postfordism in question, International Journal of Urban and Regional Research, 13, p Schroeder, R.G., Bates, K.A. i Juntilla, M.A. (2002) A resource-based view of manufacturing strategy and the relationship to manufacturing performance, Strategic management journal, Vol. 23, No. 2, str Sirotković, J. (1996.) Hrvatsko gospodarstvo- privredna kretanja i ekonomska politika, Hrvatska akademija znanosti i umjetnosti, Golden Marketing, Zagreb, Hrvatska, str. 17 Thompson, A.A. i Strickland, S.J. (2006). Strateški menadžment, Mate, Zagreb Wolf, J. i Egelhoff, W.G. (2002) A reexamination and extension of international strategystructure theory, Strategic management journal, Vol. 23, No. 2, str Zbornik radova prvog Znanstvenog sabora Slavonije i Baranje, Osijek, V 1970, pod pokroviteljstvom Jugoslavenske akademije znanosti i umjetnosti. Zeckhauser, I.R. (1991). Strategy and Choice, Massachuesetts Institute of Tehnology Zmijewski, M. E. (1984)., Methodological issues related to estimation of financila distress prediction modelas, Journal of accunting research, str