Export strategy for sector MANUFACTURE OF WOOD AND OF PRODUCTS OF WOOD, EXCEPT FURNITURE

Transcription

1 of the competitiveness of the Bulgarian economy , Priority axis 4.2. BG161РО Promotion Of The Internationalization Of The Bulgarian Enterprises Export strategy for sector MANUFACTURE OF WOOD AND OF PRODUCTS OF WOOD, EXCEPT FURNITURE Bulgarian Small and Medium Enterprises Promotion Agency 2012 This project is co-financed by the European fund for Regional Development through Operational programme Development of the competitiveness of the Bulgarian economy

2 This document was developed under project BG161РО PROMOTION OF THE INTERNATIONALIZATION OF THE BULGARIAN ENTERPRISES. Beneficiary: Executive agency for promotion of small and medium enterprises This document was developed with the financial support of Operational programme Development economy cofinanced by the European fund for Regional Development. The overall responsibility of the document s content lies with the Executive agency for promotion of small and medium enterprises and under no circumstances it can be accepted that this document reflects the official statement of the European Union and the Contract authority. Page 2 of 106

3 CONTENTS INTRODUCTION...8 APPROACH TO DEVELOPING THE EXPORT STRATEGY FOR SMALL AND MEDIUM ENTERPRASES IN SECTOR MANUFACTURE OF WOOD AND OF PRODUCTS OF WOOD, EXCEPT FURNITURE...10 MAIN CONCLUSIONS OF THE ACTUAL SITUATION ANALYSIS...17 SWOT ANALYSIS OF SECTOR MANUFACTURE OF WOOD AND OF WOOD PRODUCTS, EXCEPT FURNITURE...64 STRATEGIC OBJECTIVES FOR PROMOTING THE EXPORT BY SMALL AND MEDIUM ENTERPRISES FROM SECTOR MANUFACTURE OF WOOD AND OF WOOD PRODUCT, EXCEPT FURNITURE...70 STRATEGY FOR PROMOTING THE SECTOR SMEs EXPORT...73 SEGMENTATION AND SUCESSFUL POSITIONING OF THE IDENTIFIED EXPORT MARKETS...77 ACTION PLAN FOR SECTOR MANUFACTURING OF WOOD AND OF PRODUCTS OF WOOD, EXCEPT FURNITURE...84 MONITORING AND CONTROL SYSTEM BIBLIOGRAPHY AND STATISTICAL SOURCES Page 3 of 106

4 LIST OF TABLES: Table 1 Regional distribution of companies and employed in sector Manufacture of wood, of products of wood, except furniture in Table 2 Base index, 2001=100, Dynamics of the export by sectors, Table 3Indicators of the condition of the export of the SMEs in the manufacturing industry...33 Table 4 Index of the turnover of the international market for the period (to the month of December of the corresponding year, where the base is 2005)...37 Table 5 Export of Bulgaria in sector Manufacture of wood and of products of wood, except furniture (million EUR)...37 Table 6 Indicators of the condition of the export of the SMEs in the frame of sector Manufacture of wood and of products of wood, except furniture...38 Table 7 Structure of the export of wood and articles of wood; wood charcoal Chapter 44 under CN 2010 for the period , Main commodity groups with relative share of over 1% (in thousands EURO)...40 Table 8 Dynamics of the export of wood and articles of wood from Bulgaria in total under chapter 44 and by CN commodity groups: 4403, 4407, 4415 for the period (2001 =100)...42 Table 9 Dynamics of the export of commodity group 4403 worldwide for the period (%, 2002=100), Source: ITC, own calculations...44 Table 10 Dynamics of the export of commodity group 4407 worldwide for the period (%, 2001 = 100)...44 Table 11 Dynamics of the export of commodity group 4415 worldwide for the period (%, 2001 = 100)...45 Table 12 Leading export partners for the commodity groups in sector Manufacture of wood and of products of wood, except furniture for the period Table 13 Leading countries importers of the Bulgarian products of group 4403 Rough wood materials in total for the period (in % of the total export of Bulgaria of the products of group 4403)...50 Table 14 Leading countries importers of the Bulgarian products of group 4403 Rough wood materials in total for 2010 (in % of the total export of Bulgaria of the products of group 4403)...50 Page 4 of 106

5 Table 15 Leading countries importers of the Bulgarian products of group 4407 Wood, sawned in total for the period (in % of the total export of Bulgaria of the products of group 4407)...51 Table 16 Leading countries importers of the Bulgarian products of group 4407, in total for 2010 (in % of the total export of Bulgaria of the products of group 4407)...51 Table 17 Leading countries importers of the Bulgarian products of group 4415 Packing cases, boxes, crates, drums and similar packing of wood in total for the period (in % of the total export of Bulgaria of the products of group 4415)...52 Table 18 Leading countries importers of the Bulgarian products of group 4415, in total for 2010 (in % of the total export of Bulgaria of the products of group 4415)...52 Table 19 SWOT analysis...64 Table 20 PESTEL analysis...67 Table 21 Action plan...84 Page 5 of 106

6 LIST OF GRAPHS: Figure 1 Labour productivity, measured as value added in BGN per one employed in SMEs of the manufacturing industry by sectors in Figure 2 Turnover in BGN per one employed in SMEs of the manufacturing industry by sectors in Figure 3 Distribution of the SMEs of sector Manufacture of wood and of products of wood, except furniture by activity groups...24 Figure 4 Indices of industrial production, turnover at the external and the domestic market of sector Manufacture of wood and of products of wood, except furniture for the period (average annual value for 2005 = 100)...26 Figure 5 Prognosticated values for export growth / / (in mln. EUR)...29 Figure 6 Distribution of the companies in sector Manufacture of wood and of products of wood, except furniture by size according the number of employed in Figure 7 Export in BGN per one employed in SMEs out of the total 18 studied sectors of the manufacturing industry...35 Figure 8 Index of the turnover of the international market for the period (to the month of December of the corresponding year, where the permanent base is 2005 = 100)...36 Figure 9 Dynamics of the export of wood materials and of products of wood, except furniture (million EUR)...38 Figure 10 Development of the export of wood and articles of wood from Bulgaria in total under chapter 44 and by CN commodity groups: 4403, 4407, 4415 for the period (in thousand EUR)...42 Figure 11 Export markets of the studied companies (in %)...53 Figure 12 Percent ratio of the export by number of export markets...54 Figure 13 Development of the strategy for product positioning...79 Figure 14 Basic corporate strategies...83 Page 6 of 106

7 LIST OF ABBREVIATIONS: ЕU BSMEPA SME CM MEET NCEA NIS OP ITC BCWFI MFA CIS CN UAE VAT SAPARD European Union Bulgaria Small and Medium Enterprises Promotion Agency Small and Medium Enterprises Council of Ministers Ministry of Economy, Energy and Tourism National Classification of Economic Activities National Institute of Statistics Operational Programme International trade centre Branch Chamber of Woodworking and Furniture Industry Ministry of Foreign Affairs Commonwealth of Independent States Combined Nomenclature United Arab Emirates Value Added Tax Special Accession Programme for Agriculture & Rural Development Page 7 of 106

8 INTRODUCTION The export strategy for sector Manufacture of wood and of products of wood, except furniture has been developed under Project No BG161РО Promotion of the internationalization of the Bulgarian enterprises under Priority Axis 4 Strengthening the international market positions of Bulgarian economy under Operative programme Competitiveness of the Bulgarian economy, in the frame of Contract BG-161PO C00001 for direct financial contribution, being the Bulgarian Small and Medium Enterprises Promotion Agency (BSMEPA) the institutional beneficiary thereon. The objective of the export strategy for sector Manufacture of wood and of products of wood, except furniture is to support the Bulgarian micro, small and medium-size enterprises within the sector, in order to enhance their competitiveness, internationalization level and initial entering or expansion of the market share of Bulgarian products, in particular of those with higher value added. The Bulgarian state, represented by BSMEPA, MEET and other government bodies, has recognized the SME sector to be extremely sensible and at the same time as having decisive importance in the economic field, deserving special attention. The diversity in the development of the various industrial sectors, where the SME development has its place, as well as national priorities, related to promoting the country s export, require drafting of export strategies for certain sectors, being the Manufacture of wood and of products of wood, except furniture sector one of them. Focusing the support and giving of precise reference points for State intervention through its institutions, as well as offering development options for the rest of the participants in the process will strengthen in positive aspect the plan-based principle in State activities and as a result will improve the sectors functioning. The successful realization of the Expert strategy is expected to result in the improvement when entering international markets and the active expansion and strengthening of the market positions of the Bulgarian small and medium enterprises, manufacturing wood and of products of wood, except furniture. Page 8 of 106

9 At the strategy development, general consideration has been made of the results and the conclusions of the carried out studies of the existing strategic and legal acts. The Methodology of strategic planning, drafted by the Administrative reform council at the Council of Ministers of the Republic of Bulgaria has also been taken into account. Page 9 of 106

10 APPROACH TO DEVELOPING THE EXPORT STRATEGY FOR SMALL AND MEDIUM ENTERPRASES IN SECTOR MANUFACTURE OF WOOD AND OF PRODUCTS OF WOOD, EXCEPT FURNITURE The export strategy is a strategic document, setting short-term objectives and priorities within the SMEs export development. It has been drafted on the basis of the strategic planning approach, which adroit use has the following advantages: Ensures good comprehension among the stakeholders for the trends and what could bring the future; Creates general vision and consensus among the stakeholders, coordinating the various initiatives under the chosen objectives; Identifies the projects and actions undertaken or planned; Strengthens the partnership among the management bodies, the business and others for solving complex problems. When developing such a strategic document it is extremely important to precisely formulate the owner of the strategy, i.e. the institution or institutions responsible for the overall implementation of the strategic documents, as well as the concrete phases of the strategic planning. Most commonly the phases of elaboration of the strategic document are: Assignment; Preparation; Development; Coordination; Adoption; Page 10 of 106

11 Implementation; Evaluation; Update. Each of these phases contains different activities, some of which, as assignment, preparation, elaboration, coordination, adoption and update at a later stage, will be part of the project, implemented by the contract, mentioned at the beginning. Consequently, the main owner of the export strategy is the Bulgarian Small and Medium Enterprise Promotion Agency. This formal logic does not contradict to the fact that as stakeholders in the different phases are included significant number of institutions, businesses and even the country s population. Strategic planning tools The strategic planning process includes the following steps: Identification of the stakeholders; Analysis of the environment; SWOT analysis; PESTEL analysis; Vision; Definition of the targets; Selection of alternative development strategy; Action plan; Monitoring system. Each of these steps has certain peculiarities, mainly: Page 11 of 106

12 Identification of the stakeholders. A stakeholder is each person or group, that requires attention, that can influence certain decision, may contribute with resources or may be affected by given decision. The implication of the stakeholders at an earlier stage of the strategic document development may lead to better expressed consensus on the targets and bigger readiness to support the decision. The stakeholders to the Export strategy may include different people and organizations: companies, government bodies, manufacturer associations, certain businesses, the corresponding products consumers, non-governmental organizations and experts. Analysis of the environment. The analysis of the environment (the conclusions on which is based the SWOT analysis) permits the definition of targets and priorities that are going to synchronize the efforts and to be inline with the time and environment. The analysis describes the present situation of the SMEs in the sector and the export process, establishes the reasons that provoke problems in the development, and sets the future development trends. SWOT analysis. The SWOT analysis gives the opportunity to identify the main internal factors, differentiated as strengths and weaknesses and the external factors opportunities and threats, helps formulating the strategic objectives, priorities and measures. The use of SWOT protects from setting unreachable objectives and priorities for the export development of the SMEs of sector Manufacture of wood and of wood products except furniture within the Strategy period. The use of SWOT analysis when developing the Export strategy has certain specifics, as the owner of the strategy is the BSMEPA, but the analysis is focused on the export process of the SMEs in this exact sector and not on the industry itself. PESTEL analysis. There are number of factors and variables that have a direct or indirect influence on the business environment in our country as well as on the whole Page 12 of 106

13 manufacturing industry state. Tax rates, changes in law, trade barriers and administrative requirements, political and social trends represent macro factors having perceivable effect on the enterprise operation. PESTEL analysis is focused on analyzing the factors and tendencies on macro level influencing the development of Bulgarian manufacturing industry, SME and the Medical, precise and optical equipment and instruments sector in particular. The use of this analysis shall present key conclusions for the positioning and planning of SME development in this sector. Vision: Defining the vision is extremely important for the future development of the export of the Furniture manufacturing sector SMEs, as it demonstrates the view of the institutions and the business towards the future. The vision seeks answer of one basic question How do the stakeholders and the main participants in the process want the sector export to look at the end of the period, covered by the strategy? Vision: Defining the vision is extremely important for the future development of the export of the SMEs of sector Manufacture of wood and of wood products except furniture, as it demonstrates the view of the institutions and the business towards the future. The vision seeks answer of one basic question How do the stakeholders and the main participants in the process want the sector export to look at the end of the period, covered by the strategy? Definition of the targets. The strategic planning is focused on the issues of critical importance, the opportunities and the problems, faced by the SMEs export of sector Manufacture of wood and of wood products except furniture. It helps to outline the really important decisions from those decisions with temporary impact. The definition of the targets by making hierarchical tree of goals is a working instrument, giving the opportunity to work out in detail as the most common general objectives, as well as the most specific ones. Page 13 of 106

14 Reaching the level of the specific targets permits finding the answer of the questions who, what and when, as to guarantee the achievement of the defined general goals. Selection of alternative development strategy. After the objectives definition, the paths for their achievement are sought. Practice shows that this may be done through different ways, representing different alternatives for development and achievement of the set objectives. At this stage of the strategic planning the various alternatives are evaluated by different point of views and criteria, and as a result one alternative is chosen, that is to become a development strategy. Action plan. The chosen strategy is to be supplied with certain activities and measures, bound by deadlines, people in charge, executors and funding. The action plan and the measures provided therein represent the transformation of this strategic instrument into our everyday work and the realization of policy of supporting the Manufacture of wood and of products of wood, except furniture sector SMEs export. Monitoring system. The last stage of the strategic planning process is the monitoring and evaluation of the progress of implementing the general and specific objectives, laid down in the export strategy and in the action plan. Monitoring is important as it gives the possibility to undertake corrective actions, if the progress is unsatisfactory or if the conditions are changed. Reporting the progress in achieving the general objectives in front of the society and the business is also important, as to grant them the possibility to evaluate the work of the corresponding institutions and stakeholders for the strategy realization. We must note that very often impacts may not be visible or obvious, that makes their measurability difficult. Moreover, impact may often result in cumulative effect and it may additionally complicate the analysis. This gives particular importance of the monitoring, which is closely related with all stages of implementation of the Export strategy preliminary (ex ante), current (parallel to realization) or posterior (ex post) evaluation. In order to monitor the export strategy implementation and to evaluate the results achieved in terms of the set goals, it is necessary to use a set of indicators related to the Page 14 of 106

15 implementation of the strategic document, that are to be determined preliminary or early enough, as to use the data obtained thereof. In most of the cases these will be targets, which in aggregate will correspond to the objectives of the strategic document. The monitoring provides the feedback, helping to render account about the success or failure of the planning document. In order to perform the monitoring process is it necessary to define: Monitoring indicators (what is to be monitored); Periodicity of the monitoring and the evaluation (when are going to be prepared the corresponding reports); Responsibilities, related to the monitoring and evaluation implementation (who and for what is going to be responsible), and competences on taking decision on changes (update of the strategic document). Information sources When developing the export strategy the following basic information sources have been used: National Institute of Statistics; Information, given by BSMEPA; Information from the Ministry of Economy, Energy and Tourism; Eurostat; World Trade Centre; Information, published in relation to the celebration of international forums and meetings; Official electronic information sources; Information, published by the Branch chamber of wood-working and furniture industry Information by the Bulgarian Chamber of Commerce and the Bulgarian Chamber of Commerce and Industry, as well as their regional divisions; Page 15 of 106

16 Information from sociological survey, carried out within the period October 31st November 28th, 2011 together with the senior management of 23 SMEs, working in the sector, as well as of the carried out discussions in focus groups. Structure of the Export strategy for sector Manufacture of wood and of products of wood, except furniture At determining the structure of the Export strategy for sector Manufacture of wood and of products of wood, except furniture has been considered the use of the strategic planning approach, setting the general parameters of the strategic document. At the same time has been conducted a survey of the structure of other institutional strategic documents, using for evaluation the following criteria: Is there a possibility for comparatively easy acquaintance with the document through a comprehensive and logic structuring of the various parts; Is the content represented in an attractive and easy to understand way, accessible for non-professionals; Is it possible to grant the information thematically, i.e. is the material structured in a way to allow in-depth introduction into the issues and analysis only if the reader is willing to. Some of the studied strategies met the so selected criteria, where there was a clear distinction between tow separate parts, in particular: 1. Main document, where according to the described above logic of the strategic plan tools contains definition of the various sections. 2. Annexes, containing the complete text of the prepared analysis, including the introduced in the main material conclusions. This approach was preferred also when structuring the Export strategy for sector Manufacture of wood and of products of wood, except furniture. Page 16 of 106

17 MAIN CONCLUSIONS OF THE ACTUAL SITUATION ANALYSIS This part contains the conclusions of the various analysis, included in the Analysis of the environment, being one of the main steps in the strategic planning technology. In addition to this strategic document is given the complete text of the facts, as well as of the made analysis, on the basis of which made conclusions have been formulated. The conclusions and the analysis themselves are structured in 5 parts, as follows: CONDITION AND DEVELOPMENT OF THE SECTOR IN BULGARIA EXPORT ORIENTATION OF THE SECTOR PRODUCTS WITH EXPORT ADVANTAGES AND POTENTIAL COMPETITIVENESS OF THE EXPORT OF GOODS TO FOREIGN MARKETS BARRIERS TO THE INTERNATIONALIZATION OF SMALL AND MEDIUM SIZED ENTERPRISES AND MEASURES AND PERSPECTIVES FOR EXPORT PROMOTION AND DEVELOPMENT CONDITION AND DEVELOPMENT OF THE SECTOR IN BULGARIA Small and medium enterprises are the backbone of European economy, its priority and long-term commitment, being also an important social factor for the development of common economic space. The situation in Bulgaria is similar and requires long-term vision and particular efforts supporting the non-financial sector and enterprises, ensuring employment to more than two thirds of the population. Page 17 of 106

18 Especially vulnerable of the abrupt changes in economic cycles, SMEs are following the upsurges and falls of the global financial and economic path. Among the basic principles of the European Community principles Bulgaria has always underlined its aspiration to follow is the commitment to ensure stability and protection namely of such priorietary economic structures, combining important economic and social roles. This priority of National and European performers, lawmakers and consultative bodies require far-sighted strategic and export interference in the last three years, as a result of the global and economic crisis. The growth in the industrial production of the EU Member States marked sensible fall; the mutual export, as well as export to third countries, has also suffered negative development. And in Bulgaria, a country, still lagging behind the cohesion indicators and possibilities for long-term industrial investment, theses trends were especially forced by the role of the decreased industrial export in the period A motor for the national GDP forming, the export potential of over 99% of the companies in the non-financial sector, requires a package of incentives for reaching the generally accepted principles of sustainable economic development in the European economic space. Similar national and branch policies, through concrete objectives and systematized measures are to be guided by the indicators for strong and weak sides of our manufacturing industry, but at the same time, by the in-depth analysis of the possibilities and upcoming trends on international markets, comparisons between present and future competitors, usage and long-term application of recognized good practices. What is peculiar for our manufacturing industry, in particular for sector Manufacture of wood and of products of wood, except furniture, according the statistics of NIS and Eurostat, is that it is lagging behind in the scientific and technology field and in the field of modernization, leading to characteristically low share of the added value. The indicated below findings represent a concentrated expression of the conclusions, based on the detailed analysis and sociological surveys made with representatives of the SME of sector Manufacture of wood and of products of wood, except furniture in the process of drafting the present strategy. The objective is to emphasize the place of the SME in the sector and their export possibilities. The sector Manufacture of wood and of products of wood, except furniture has clearly expressed possibility to strengthen its export positions, but at the same time it should Page 18 of 106

19 not be ignored that the fight for conquering market shares depends on the personal imitativeness of the Sales executives and managers, who usually are long-term experts in the field they are working in, but are suffering serious financial difficulties to organize business trips, participations in international meetings, fairs, symposia, etc. The manufacture consists in manufacture of profiles for windows and doors, veneer sheets and wood-based panels; assembled parquet floors; builders carpentry and joinery; wooden containers; other products of wood; manufacture of articles of cork, straw and plaiting materials, etc. The sector for wood manufacturing comprises about 1.5% of the industrial manufacture in the country and is creating also approximately 1.5% of the added value in the industry. The participation of the sector in the external trade of the country is amounting to approximately 1.3% of the total export and less than 1% of the total import. The revival of the manufacture in the sector will impact the export dynamics that grew in 2010 by 36.5%. There is clearly expressed uneven distribution of enterprises and people employed by regions. There are 950 companies operating in the sector, small, medium and large sized, where around 40% of them are situated on the territory of the South-western and Southern Central planning region. Lowest is the concentration of companies in the North-eastern region. Table 1 Regional distribution of companies and employed in sector Manufacture of wood, of products of wood, except furniture in 2009 Employed in the sector (prs) % of employed in the manufacturing industry % of employed in the sector Companies in the sector (uts) % of companies in the sector North-western region ,4% 16,0% ,2% Northern central region ,7% 13,5% ,4% North-eastern region ,6% 8,9% 182 8,8% South-eastern region ,6% 12,6% ,1% Southern central region ,5% 28,3% ,4% South-western region ,2% 20,6% ,1% Source Eurostat The level of salaries in the sector is around the average for the country. The average monthly remuneration is estimated at 480 BGN and ensures employment of approximately 16.7 thousand persons (3.5% of the employed in the manufacturing industry). Page 19 of 106

20 Among the companies, operating in the field of wood industry could be distinguished the following: State Hunting Area Borovo SF, Tundja SF, State Hunting Area Alabak SF, State Hunting Area Kotel SF, factory Mediket PLC, and among those dealing with woodworking Lessoplast PLC, Rodopi PLC, Kronoshpan BG SPLC, Woodworking VT PLC, Technowood SPLC. The index of industrial production and that of the turnover in the sector in 2010 have improved respectively by 12.6 and 7.1 points. At the same time there is change in the producer prices in the sector (-5.6 percentage point relative to 2009). At the end of 2010 the number of SME in the sector was 1962 SME, where the reduction relative to 2009 is approximately 7%, following the general trend of decreasing the number of enterprises, operating in the industry field and in particular in the manufacturing industry in Bulgaria. In 2010 in terms of number of small and medium size enterprises in sector Manufacture of wood and of products of wood, except furniture holds fifth place in the manufacturing industry after sector Manufacture of furniture. The relative share of the SMEs in the sector in comparison to those in the industry is 0,63%, and relative to those of the manufacturing industry is approximately 6.5%. The realized turnover by the SMEs in sector Manufacturing of wood and of products of wood, except furniture turnover of approximately 473 million BGN ranks it on 11th place among the observed 18 sectors of the manufacturing industry in the country, in terms of this indicator. It represents 0,38% of the turnover realized in 2010 within the industrial sector of Bulgaria and approximately 2,7% of the turnover of the manufacturing industry. The increase rate of the turnover in the sector in 2010 in relation to 2009 of 10% significantly outruns the average increase rate of the turnover in 2010 in relation to 2009 for the SMEs in the manufacturing industry, accounting for 1, 78%. The disadvantageous economic conditions have pushed the sector SMEs managers to optimize their resources and to increase their effectiveness, and as a result the turnover reached in 2010 exceeds by 41 million the values of 2009, independently of the essential work force contraction. As a result of the above fact, the labour productivity of the sector SMEs, measured as a ratio of the created value added and the number of employed, has increased by approximately 8,5% in 2010 in relation to 2009, accounting for BGN/employed. However, the sector is Page 20 of 106

21 situated in one of the last places among the studied total of 18 sectors of the manufacturing industry in terms of the indicator value added per one employee, as well as by the turnover, realized per one employee. Figure 1 Labour productivity, measured as value added in BGN per one employed in SMEs of the manufacturing industry by sectors in 2010 (source: NIS, own calculations) *Translation: 21 Manufacture of basic pharmaceutical products and pharmaceutical preparations 26 Manufacture of computer, electronic and optical products 20 Manufacture of chemical products 28 Manufacture of machinery and equipment n.e.c. 18 Printing and reproduction of recorded media Page 21 of 106

22 23 Manufacture of other non-metallic mineral products 27 Manufacture of electrical equipment 30 Manufacture of other transport equipment 22 Manufacture of rubber and plastic products 25 Manufacture of fabricated metal products, except machinery and equipment 10 Manufacture of food products 17 Manufacture of paper, paperboards and of paper and paperboard products Figure 2 Turnover in BGN per one employed in SMEs of the manufacturing industry by sectors in 2010 (source: NIS, own calculations) Page 22 of 106

23 *Translation: 20 Manufacture of chemical products 26 Manufacture of computer, electronic and optical products 10 Manufacture of food products 21 Manufacture of basic pharmaceutical products and pharmaceutical preparations 22 Manufacture of rubber and plastic products 27 Manufacture of electrical equipment 30 Manufacture of other transport equipment 23 Manufacture of other non-metallic mineral products 17 Manufacture of paper and paper products 11 Manufacture of beverages 28 Manufacture of machinery and equipment n.e.c. 18 Printing and reproduction of recorded media 25 Manufacture of fabricated metal products, except machinery and equipment 13 Manufacture of other transport equipment 16 Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials 31 Manufacture of furniture 14 Manufacture of wearing apparel 15 Manufacture of leather and related products The total added value created in the sector in 2010 is accounting approximately to 109 million BGN and it ranks it immediately after sector Manufacture of chemical products. This added value forms about 2,61% of the added value in the SMEs of the manufacturing industry and 0,56% of the added value in the industry. In 2010 in sector Manufacture of wood and of products of wood, except furniture is witnessed growth trend of the total volume of added value in comparison to 2009, accounting for 2%,. At the same time, there is a decrease trend of the added value in SMEs in the Page 23 of 106

24 manufacturing industry of almost 1 %, that together with the decrease in employment, results in the increase the value of the labour productivity indicator of up to 8,5% on annual basis The contribution of the SMEs of sector Manufacture of wood and of products of wood, except furniture in the field of employment, turnover and value added of the SMEs in the manufacturing industry gives grounds to determine the sector as perspective and having export potential. The relatively low values of labour productivity are due to greater extent to the still existing strong dependence on the traditionally high employment rate, which is an important social factor in regions of concentration of sector SMEs, as well as to the low level of processing of the raw material, i.e. there is lesser added value. The dynamics of the manufactured production and the turnover of the companies, manufacturing wood and products of wood, except furniture, measured in terms of the productivity and turnover index show the existence of ongoing positive trends in the sector for the period , but at the same time, there is strong dependence on the development of other industrial sectors, at first place the construction. The larger export orientation will ensure to the sector a possibility of sustainable development and lower conjuncture dependence on the domestic market. Figure 3 shows the inter-sector distribution of the SMEs: Figure 3 Distribution of the SMEs of sector Manufacture of wood and of products of wood, except furniture by activity groups (source: NSI, own calculations) Page 24 of 106

25 *16.1 Sawmilling and planing of wood; impregnation of wood (39% companies) 16.2 Manufacture of products of wood, cork, straw and plaiting materials (61% companies) The vast majority of the sector SMEs (61%) are employed in group according to the CEA , 16.2 Manufacture of products of wood, cork, straw and plaiting materials, that includes manufacture of veneer sheets and wood-based panels; of assembled parquet floors; of builders carpentry and joinery; of wooden containers; of other products of wood; of articles of cork, straw and plaiting materials. In group Sawmilling and planing of wood; impregnation of wood are engaged a total of 39% of the SME. It includes: sawing, planing and machining of wood; slicing, peeling or chipping logs; manufacture of wooden railway sleepers; manufacture of unassembled wooden flooring; manufacture of wood wool, wood flour, chips, particles; drying of wood; impregnation or chemical treatment of wood with preservatives or other materials; manufacture of split and sharpened piles and pallets. Out of the two main groups in the sector, group Sawmilling and planing of wood; impregnation of wood marks an increase in the employed accounting for approximately 2,5%, and group 16.2 Manufacture of products of wood, cork, straw and plaiting materials a decrease of 11% in 2010 relative to More than 60% of the turnover in the sector is realized by group 16.2 Manufacture of products of wood, cork, straw and plaiting materials. It marks turnover growth of 3,5% in 2010 in comparison to 2009, while the growth in group Sawmilling and planing of wood; impregnation of wood it is significantly higher over 20%. The labour productivity (added value per one employed) in both groups of sector Manufacture of wood and of products of wood, except furniture marks growth in 2010 relative to 2009, whereas the growth is more significant in group Manufacture of products of wood 10,5%. In the case of group Sawmilling and planing of wood; impregnation of wood there is an increase of 6,5%. In the case of the first group the main reason for the significant increase of the created value added is the increase of this indicator in Page 25 of 106

26 comparison to the previous year, and in the case of the second group the reason is the significant decrease in employment. The analysis of the index of industrial production within the sector shows fast growth rates for the period after 2001, peaking in The production and turnover growth rates for the sector, especially those of the internal market, follow the general trends in the industry and the manufacturing industry, but differ by its accelerated development within the period, characteristic with the active construction period in Bulgaria and the huge amount of investments in this sector. After 2007 all indices reflect the influence of the world economic crisis, returning to levels of The turnover index on the world market follows more gradual development and for the whole period the values are under the average for After 2009 this index shows ascending trend. Figure 4 Indices of industrial production, turnover at the external and the domestic market of sector Manufacture of wood and of products of wood, except furniture for the period (average annual value for 2005 = 100) (source: NIS, own calculations) *Index of industrial production/index of turnover on the international market/index of turnover on the domestic market/index of industrial production in the industry as a whole/index of industrial production in the manufacturing industry Page 26 of 106

27 The unfavourable economic conditions have pushed the sector SMEs managers to optimize their resources and to increase their effectiveness, and as a result the turnover reached in 2010 exceeds by 41 million the values of 2009, independently of the essential work force contraction. The contribution of the SMEs of sector Manufacture of wood and of products of wood, except furniture to the employment, turnover and value added of the SMEs in the manufacturing industry gives grounds to suppose, that, if in a more favourable macroeconomic environment it could show characteristics of a perspective, adaptive, fast-reacting sector with significant export potential that could play a vital role in the future economic development of the country. In sector Manufacture of wood and of products of wood, except furniture in the frame of a sociological survey have been studied a total of 23 enterprises in 18 different locations in the country, including 5 villages. There are situated in 12 districts. The highest number of companies is from the region of Pazardzhik (4) and Sofia-city (3); in six districts have been studied per 2 business units and in the rest per 1. Situation analysis Main factors, representing a barrier to the export of the SME of sector Manufacture of machinery, equipment and home appliances are the following: Deteriorated policy of crediting; Insufficient financial resources; Seriously limited and insufficient choice of funding sources; Risk of insolvency due to the specificity of the SME structure; Incapability for entering into the field of highly industrialized export. Page 27 of 106

28 Analysis of the Bulgarian export of products, marking the highest values within the studied period. Among all studied products there are such, being absolute leaders by indicators both concerning absolute value and growth for the period. There are products with relatively constant levels of demand and such, having more specific demand. In order to evaluate the possibilities of the present strategy to help them develop even more, identical indicators for monitoring and evaluation of the set measures will be undertaken, as there are different possible development scenario and the market situation at the moment is unfavourable. From the time perspective the main task and objective of the present strategy will be to introduce strategic planning into the sector. This is first and foremost related to overcoming falls in export and achieving sustainable growth, as each harsh reduction in the export value may result fatal for one small or medium-size Bulgarian enterprise. An evaluation of the present strategy efficiency may give a more complete and deeper analysis of the reached results about the export values. Without considering the absolute values, it is important to find the trend development and to analyse the export development line. The introduction of the strategy is expected to promote the export and to lead it to sustainable growth, subjected to stable development rates. Another key instrument is to build systematic monitoring and to perform analysis of different product segments. Analysis of the Bulgarian export of products, marking the lowest values within the studied period. If in the case of the products having stable export positions, marking the highest export values the objective is the achieve sustainable development, in the case of the products with relatively lower export values the priority should be to push it out to higher export levels. It could be realized through aggressive policy on behalf of the exporting country in relation to the price level or preferential conditions. The export value is determining to a higher extent if a trade policy is effective or not. In the case the aim is to break or enter into a foreign market by all marketing tools. This may include discounts for larger orders, preferential prices for regular and loyal clients, as well as other bonuses. Occupying new niches by the SME in the sector, willing to establish their position into the foreign market is related to finding ways to produce and export channels. One of the Page 28 of 106

29 possibilities before the small and medium-size business is equipment hiring or licensing and cluster creation, specialized in producing the good. The set strategic goals, measures and the following of certain action plan to promote the economic activity production export may be done mostly if performing regular market monitorings and publishing specialized bulletins, as well as information from the NSI for the development of the sector and alternative market studies, carried out by business or non-profit organizations. Otherwise, the established indicators would have representative role and could easily be approved by various market stakeholders. The given 5 graph shows the prognosticated values for the development of various market segments for the period Figure 5 Prognosticated values for export growth / / (in mln. EUR) Фурнир и дървени плочи Сглобени паркетни плочи Опаковки от дървен материал Разкрояване, рендосване и импрегниране на дървен материал Други изделия от дървен материал, корк, слама и материали за сплитане Source: Own calculations *Translation: Page 29 of 106

30 manufacture of veneer sheets and wood-based panels assembled parquet floors wood packaging Sawmilling and planing of wood; impregnation of wood other products of wood; of articles of cork, straw and plaiting materials As it may be seen on the graph enclosed the products of veneer sheets and wood-based panels undergo the most dynamic development and have the biggest export potential, second come other products of wood; of articles of cork, straw and plaiting materials ; on third place are assembles parquet floors ; fifth not far of the opportunities for strong export development are wood packaging. In other words, the sector companies must have clear and precise vision regarding the extent to which they could apply the strategic objectives of the present document and what expenditure levels they need to realize export. Therefore it should be added that a number of methods could be applied to optimize the financial structure of given company with view to reducing costs and increasing the relative income share. In the case of companies from this economic activity Manufacture of wood and of products of wood, except furniture, it is necessary to act in both directions or rather to reduce the expenses for an activity, redirecting them to investment in developing the export activity. This restructuring is related to costs for drafting prognosis, strategic plans, projects and mainly vision for introducing the product into the foreign market. EXPORT ORIENTATION OF THE SECTOR As in the rest of the European countries, in Bulgaria the sector Manufacture of wood and of products of wood, except furniture is sector of the small and medium-size enterprises more than 99% of all companies are small and medium-size enterprises, where approximately 78% are micro enterprises. Page 30 of 106

31 Figure 6 Distribution of the companies in sector Manufacture of wood and of products of wood, except furniture by size according the number of employed in 2007 Sources: NIS According to Eurostat data the number of SMEs in the manufacturing industry of Bulgaria amount to in The number of SMEs out of the determined as priority 18 sectors for same year is , representing 81% of the manufacturing industry. Consequently, as a conclusion of the analysis of the SMEs we could say that these 18 export-orientated sectors could be accepted as representative for the SMEs from the whole manufacturing industry sector. Table 2 Base index, 2001=100, Dynamics of the export by sectors, Sector number Manufacture of food products ,5 126,9 163,0 186,1 201,4 222,7 369,3 373,2 458,4 Manufacture of beverages ,5 94,1 93,5 108,3 116,3 144,7 139,6 104,7 120,2 Manufacture of textile and textile products, except wearing apparel Manufacture of wearing apparel, incl. leather clothes, tanning and dressing of leather Manufacture of rubber and plastics products Manufacture of chemical and pharmaceutical products Manufacture of non-metallic and mineral products ,3 145,0 171,0 173,3 206,2 236,2 217,1 164,8 180, ,5 126,0 131,0 129,7 136,3 136,4 124,6 106,7 112, ,9 126,7 149,1 187,9 237,3 287,8 271,4 235,7 321, ,2 93,4 96,8 131,2 138,6 186,3 224,3 168,2 224, ,5 113,5 116,4 129,3 198,9 237,4 244,9 217,5 266,3 Page 31 of 106

32 Sector number Manufacture of machinery, ,6 114,3 135,4 164,8 198,6 275,8 311,6 219,6 275,1 equipment and household appliances Manufacture of medical, precise ,0 224,5 220,2 300,0 443,5 524,9 576,9 573,2 700,2 and optical apparatus and instruments Manufacture of office equipment ,8 206,3 256,5 319,6 398,2 479,5 571,3 481,1 593,7 and computers Manufacture of electric ,1 151,6 166,4 195,2 250,3 321,1 368,9 369,2 493,7 machinery and apparatus Manufacture of wood and ,5 127,7 149,8 148,7 161,9 198,1 142,5 135,1 186,8 products of wood, except furniture Manufacture of pulp, paper and ,0 141,5 163,1 166,1 158,5 196,7 219,7 111,4 252,0 paperboard Manufacture of furniture ,1 187,0 227,0 256,1 274,5 316,1 296,7 238,8 274,0 Publishing, printing and ,7 242,1 183,8 222,9 272,7 527,5 617,1 425,9 354,4 reproduction Manufacture of motor vehicles, except cars ,2 121,3 147,8 271,5 349,5 526,0 730,1 886, ,7 Manufacture of metal products, ,6 102,5 142,3 161,9 238,8 307,2 286,8 210,6 271,4 except machinery and equipment Manufacture of radio, television ,9 191,3 208,7 530,2 576,6 472,2 591,8 549,3 520,1 and telecommunication equipment Total for the 18 sectors ,5 123,4 138,4 158,5 183,7 215,8 235,0 198,9 245,1 Total export from BG ,6 116,8 140,0 165,3 210,8 237,6 267,9 207,5 272,1 Source: International trade centre The table 2 data analysis shows that out of the export-orientated sectors from the manufacturing industry sector Manufacture of wood and of products of wood, except furniture is registering the biggest growth (over 2 times) of the export in 2010 relative to This demonstrates trade of recovering the export positions of the sector and is indicating the existence of process of overcoming of the effects of the crisis. Page 32 of 106

33 Table 3Indicators of the condition of the export of the SMEs in the manufacturing industry Groups of companies Export share in the total export of SMEs in the manufacturing industry (%) Change in export 2010/2009 Export volume per 1 employed (BGN) Manufacture of food products 4,32 3,00 92, Manufacture of beverages 0,34 0,16 61, Manufacture of textiles and textile 0,57 0,34 79, products, except wearing apparel Manufacture of wearing apparel 6,18 4,36 93, Manufacture of leather, manufacture of 1,15 0,96 110, footwear and other related products Manufacture of wood and of products of 0,50 0,27 72, wood and cork, except furniture; manufacture of articles of straw and plaiting materials Manufacture of paper, paperboard and 0,27 0,13 64, products thereof Printing and reproduction of recorded 0,16 0,10 85, media Manufacture of chemicals and chemical 1,26 0,70 74, products Manufacture of basic pharmaceutical 0,10 0,07 88, products and pharmaceutical preparations Manufacture of rubber and plastics 1,43 1,12 104, products Manufacture of other non-metallic 0,41 0,29 94, mineral products Manufacture of fabricated metal products, 1,36 1,09 106, except machinery and equipment Manufacture of computer and 1,05 0,52 66, communication equipment, electronic and optical products Manufacture of radio, television and 0,08 0,05 92, telecommunication equipment and apparatus Manufacture of electrical equipment 1,00 0,74 98, Manufacture of machinery and equipment, with general and special purpose 0,96 0,81 112, Page 33 of 106

34 Manufacture of motor vehicles, except 0,27 0,18 88, cars Manufacture of furniture 0,49 0,42 114, Source: NIS, own calculations The analysis of the date from table 3 gives ground to make the following conclusion: In contrast to sector Manufacture of wood and of products of wood, except furniture as a whole, the export of SMEs therein is reducing its export in 2010 relative to 2009, proving the necessity of a longer period for overcoming the effects of the crisis. The SMEs of the sector are going down to 10 th place in 2009 and are holding hardly 13 th place (after Manufacture of products other non-metallic mineral products) among the studied sectors in terms of export share in the total export of the country in There is an unfavourable trend of specialization of the sector SMEs in satisfying the needs of the domestic markets. Although small in number, in the last years several large companies from the sector have attracted significant foreign investments and have created significant export capacity, thanks of their foreign partners. The indicator volume of the export per 1 employed in 2010 going down by 23% in relation to Page 34 of 106

35 Figure 7 Export in BGN per one employed in SMEs out of the total 18 studied sectors of the manufacturing industry (Source: NIS, own calculations) *26 Manufacture of computer, electronic and optical products 27 Manufacture of electrical equipment 30 Manufacture of other transport equipment 20 Manufacture of chemical products 15 Manufacture of leather and related products 22 Manufacture of rubber and plastic products 14 Manufacture of wearing apparel 13 Manufacture of other transport equipment 28 Manufacture of machinery and equipment n.e.c. 10 Manufacture of food Page 35 of 106

36 21 Manufacture of pharmaceutical products and pharmaceutical preparations 25 Manufacture of fabricated metal products, except machinery and equipment 31 Manufacture of furniture 11 Manufacture of beverages 17 Manufacture of paper and paper products 16 Manufacture of wood and of products of wood and cork, except furniture; manufacture of articles of straw and plaiting materials 23 Manufacture of other non-metallic mineral products 18 Printing and reproduction of recorded media Figure 8 Index of the turnover of the international market for the period (to the month of December of the corresponding year, where the permanent base is 2005 = 100) Source: NIS *Industry general/manufacturing industry/c 16 Manufacture of wood and of products of wood, except furniture Page 36 of 106

37 Table 4 Index of the turnover of the international market for the period (to the month of December of the corresponding year, where the base is 2005) Year Industry - general 64,2 55,0 73,5 69,3 91,5 112,2 120,6 139,3 97,0 110,3 176,9 Processin g industry 60,4 53,7 73,0 68,5 91,9 110,1 119,8 140,0 98,3 113,8 180,0 Manufact ure of wood and of products of wood, except furniture Source: NIS Sales incomes on the international market in the manufacture of wood and of products of wood, except furniture have grown after 2001, following more slowly the general development of the index of the industrial sector and the manufacturing industry. In 2010 the values of the index for the sector almost reach their pre-crisis levels of 2005, while the indices for the industrial sector and the manufacturing industry reach their highest values for the whole period. This may be followed in the next tables and graphs. Table 5 Export of Bulgaria in sector Manufacture of wood and of products of wood, except furniture (million EUR) Export of Bulgaria 5253,1 5714,2 6062,8 6668,2 7984,9 9466, , , , , ,2 Total for the sector 233,3 278,1 294,9 334,4 346,4 364, ,7 257,2 228,3 308,3 Share of the sector of the total of Bulgaria 4,4 4,9 4,9 5,0 4,3 3,9 3,2 2,2 1,7 2,0 2,0 Base index (base 2000) ,6 503,2 570,6 591,1 622,4 662,1 501,2 438,9 389,6 526,1 Chain index ,2 106,0 113,4 103,6 105,3 106,4 75,7 87,6 88,8 135,0 Source: ITC and BNB Page 37 of 106

38 млн.евро Operational programme Development Figure 9 Dynamics of the export of wood materials and of products of wood, except furniture (million EUR) Износ на дървен материал и изделия от него, без мебели г 2001г 2002г 2003г 2004г 2005г 2006г 2007г 2008г 2009г 2010г Source: ITC Based on the data from table 5 most significant is the export share of wood and of products of wood, except furniture, of group Manufacture of products of wood, cork, straw and plaiting materials 60% of the export in the sector for 2009, marking increase to 72% in Notwithstanding the increase of the share in the export structure for group Manufacture of products of wood, cork, straw and plaiting materials ", the volume of the total export in the sector is going down by approximately 30% in 2010, relative to In group Sawmilling and planing of wood; impregnation of wood the decrease is by approximately 20% for 2010, relative to Table 6 Indicators of the condition of the export of the SMEs in the frame of sector Manufacture of wood and of products of wood, except furniture CEA Groups of companies Export (thousand s BGN) 16 Manufacture of wood and of products of wood, except furniture 16.1 Sawmilling and planing of wood; impregnation of wood Export (thousan ds BGN) Export Structure of the export % Export per one employed Export per one employed / ,00 100, Page 38 of 106

39 16.2 Manufacture of products of wood, cork, straw and plaiting materials Source: NSI Summary conclusions: In 2010 the export, realized by the SMEs in sector Manufacture of wood and of products of wood, except furniture falls down by almost half in relation It is due to a great extent to the fact that large companies in the sector have taken market niches, that, although few in number, have significant export capacity. In 2010 the indicator volume of the export per 1 employed of the SMEs of sector Manufacture of wood and of products of wood, except furniture has decreased by 23% in relation to Main export share of the SMEs of the sector hava the companies, manufacturing products of wood, cork, straw and plaiting materials 72%. GOODS WITH EXPORT ADVANTAGES AND POTENTIAL The world import of wood and articles of wood; wood charcoal is estimated on slightly over 83 billion EUR for 2010, where the share of the Bulgarian export therein for 2010 is accounting for 0,24%. For the whole period worldwide has been imported wood and articles of wood to the amount of approximately 820 billion EUR. The Bulgarian export is over 1, 498 billion EUR and constitutes around 0,18%. Page 39 of 106

40 Table 7 Structure of the export of wood and articles of wood; wood charcoal Chapter 44 under CN 2010 for the period , Main commodity groups with relative share of over 1% (in thousands EURO) Code Commodity group Thousand EUR Share in the group % '4410 Particle board and similar board (for example, oriented strand board (OSB) and waferboard) of wood or other ligneous materials, whether or not agglomerated with resins or other organic binding substances '4407 Wood sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded or endjointed, of a thickness exceeding 6 mm '4411 Fibreboard of wood or other ligneous materials, whether or not bonded with resins or other organic substances '4403 Wood in the rough, whether or not stripped of bark or sapwood, or roughly squared '4412 Plywood, veneered panels and similar laminated wood '4415 Packing cases, boxes, crates, drums and similar packings, of wood; cable-drums of wood; pallets, box pallets and other load boards, of wood; pallet collars of wood '4401 Fuel wood, in logs, in billets, in twigs, in faggots or in similar forms; wood in chips or particles; sawdust and wood waste and scrap, whether or not agglomerated in logs, briquettes, pellets or similar forms '4409 Wood (including strips and friezes for parquet flooring, not assembled) continuously shaped (tongued, grooved, rebated, chamfered, V-jointed, beaded, moulded, rounded or the like) along any of its edges, ends or faces, whether or not planed, sanded or end-jointed '4402 Wood charcoal (including shell or nut charcoal), whether or not agglomerated '4408 Sheets for veneering (including those obtained by slicing laminated wood), for plywood or for other similar laminated wood and other wood, sawn lengthwise, sliced or peeled, whether or not planed, sanded, spliced or end-jointed, of a thickness not exceeding 6 mm '4418 Builders' joinery and carpentry of wood, including cellular wood panels, assembled parquet panels, Page 40 of 106

41 shingles and shakes '4421 Other articles of wood '4404 Hoopwood; split poles; piles, pickets and stakes of wood, pointed but not sawn lengthwise; wooden sticks, roughly trimmed but not turned, bent or otherwise worked, suitable for the manufacture of walking-sticks, umbrellas, tool handles or the like; chipwood and the like '4419 Tableware and kitchenware, of wood (source: ITC, own calculations) In the structure of the Bulgarian export for 2010 the biggest share 31% have the products under group 4410 Particle board and similar board (for example, oriented strand board and waferboard) of wood or other ligneous materials, whether or not agglomerated with resins or other organic binding substances, for which is characteristic that are manufactured in the big companies of the branch. At second place with 19% follows group 4407 Wood sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded or end-jointed, of a thickness exceeding 6 mm and group 4411 Fibreboard of wood or other ligneous materials, whether or not bonded with resins or other organic substances with 10%. The three groups together comprise 60% of the Bulgarian export of wood and articles of wood for the period In order to receive more clear vision of the export development of the sector SMEs and as recommended by the experts, in our further analysis other three commodity groups, the SMEs manufacture and export, will be observed. These are the following: 4403 Wood in the rough, whether or not stripped of bark or sapwood, or roughly squared 9% share of the total export in the sector for the studied period 4407 Wood sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded or end-jointed, of a thickness exceeding 6 mm 19 % Packing cases, boxes, crates, drums and similar packing, of wood; cabledrums of wood; pallets, box pallets and other load boards, of wood; pallet collars of wood 4%. Page 41 of 106

42 Figure 10 Development of the export of wood and articles of wood from Bulgaria in total under chapter 44 and by CN commodity groups: 4403, 4407, 4415 for the period (in thousand EUR) (Source: ITC, own calculations) *Chapter 44 by CN Wood and articles of wood; wood charcoal /4403 Wood in the rough, whether or not stripped of bark or sapwood, or roughly squared/ 4407 Wood sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded or end-jointed, of a thickness exceeding 6 mm/ 4415 Packing cases, boxes, crates, drums and similar packings, of wood; cable-drums of wood; pallets, box pallets and other load boards, of wood; pallet collars of wood For the period 2001 until 2010 as a whole the Bulgarian export of wood and articles of wood follows ascending development, due to the export of wood particle boards, manufactured and exported mainly by the big companies. The three commodity groups of the above graphics, representing the main export products of the SMEs show uniform and almost parallel development of the export with low rates and slightly ascending trend in the last year of the period. Table 8 Dynamics of the export of wood and articles of wood from Bulgaria in total under chapter 44 and by CN commodity groups: 4403, 4407, 4415 for the period (2001 =100) Wood and articles of wood; wood charcoal Chapter 44 WORLD Page 42 of 106

43 Wood and articles of wood; wood charcoal Chapter 44 Bulgaria 4403 Wood in the rough, whether or not stripped of bark or sapwood, or roughly squared 4407 Wood sawn or chipped lengthwise, sliced or peeled 4415 Packing cases, boxes, crates, drums and similar packing, of wood; Operational programme Development (Source: ITC, own calculations) The development rates of the Bulgarian export of wood and articles of wood for the period as a whole are outrunning the rates of development of world import. Same is valid for the rest of the commodity groups with one exception commodity group 4407 Wood sawn or chipped lengthwise, sliced or peeled, whether or not planed, sanded or end-jointed, of a thickness exceeding 6 mm, that is lagging behind the development rates of the world import, as well as of the development of the export of the Bulgarian small and medium-sized enterprises. Attracts the attention the fast development rate of commodity group 4415 Packing cases, boxes, crates, drums and similar packing, of wood; cable-drums of wood; pallets, box pallets and other load boards, of wood; pallet collars of wood 4-fold increase of the export turnover in 2010 in relation to The total export volume for the period of commodity group 4403 is exceeding 77 billion EUR. The top five countries exporters are forming in total 52% of the world export in this group, with relative shares of the world export, as follows: Russia - 24%, USA - 14%, Malaysia -5%, Myanmar - 5%, New Zealand - 4%. Bulgaria is ranked 50 th place with a relative share of 0,17%. Page 43 of 106

44 Table 9 Dynamics of the export of commodity group 4403 worldwide for the period (%, 2002=100), Source: ITC, own calculations Year TOTAL WORLD Russia USA Malaysia Myanmar New Zealand Bulgaria Position of Bulgaria in the world export % of the export of Bulgaria relative to the export of the leading world exporter % 0.37% 0.70% 0.65% 0.79% 0.77% 0.60% 0.77% Source: ITC The above table is representing data, showing the threefold higher growth of the Bulgarian export of rough wood of commodity group 4403 relative the global export growth for the period None of the leading five countries exporters are even close to half of the value of the index of the Bulgarian export for the last year of the period. The total volume of the export of sawn wood material of commodity group 4008 for the period is exceeding 229 billion EUR. The top five countries exporters are forming in total 55% of the world export in this group, with relative shares of the world export, as follows: Canada - 25%, Sweden - 10%, USA -7%, Russia - 7%, Finland - 6% Bulgaria is ranked 54 th place with a relative share of 0,12%. Table 10 Dynamics of the export of commodity group 4407 worldwide for the period (%, 2001 = 100) Year TOTAL WORLD Canada Sweden USA Russia Finland Bulgaria Page 44 of 106

45 Year Position of Bulgaria in the world export % of the export of Bulgaria relative to the export of the leading world exporter Source: ITC, own calculations The data of table 10 are showing similar development rate of the Bulgarian export of sawn wood material of commodity group 4407 with that of the world export for the period , demonstrating a slow down and decrease in the index values in the last years with certain increase in The total volume of the export of wood material of commodity group 4415 Packing cases, boxes, crates, drums and similar for the period is approximately 18 billion EUR. The top five countries exporters are forming in total 40 % of the world export in this group, with relative shares of the world export, as follows: Poland - 12%, Germany - 9%, Belgium - 7%, Canada - 6%, The Czech Republic - 6%. Bulgaria is ranked 54 th place with a relative share of 0,12%. Table 11 Dynamics of the export of commodity group 4415 worldwide for the period (%, 2001 = 100) Year TOTAL WORLD Poland Germany Belgium Canada The Czech Republic Bulgaria Position of Bulgaria in the world export % of the export of Bulgaria relative to the export of the leading world exporter Source: ITC, own calculations Page 45 of 106

46 The above table is representing data, showing the nearly four-fold higher growth of the Bulgarian export of products of commodity group 4415, relative the global export growth for the period The data for the percentage ration of the export of Bulgaria relative to the export of the leading world export of export groups under CN 4403 Rough wood material and 4415 Packing cases, boxes, crates, drums and similar packing for the period , are showing stable trend of stabilizing the reached positions and are demonstrating export potential. The sector is disposing of quality and recognized products, especially those of group 4415 Packing cases, boxes, crates, drums and similar packing, exporting to traditional markets, mainly in Balkan countries, non-balkan EU countries and to the Middle East. Table 12 presents the leading trade partners in the export of Bulgaria under for the commodity groups in sector Manufacture of wood and of products of wood, except furniture, according to data of the ITC for a 10-year period. Page 46 of 106

47 Table 12 Leading export partners for the commodity groups in sector Manufacture of wood and of products of wood, except furniture for the period EUR' mln 2001 EUR' mln 2002 EUR' mln 2003 EUR' mln 2004 EUR' mln 2005 EUR' mln Other products of wood, cork, straw and plaiting materials 143,6 193,6 188,0 211,5 203,3 216,6 1 Italy 109,1 Italy 149,9 Italy 142,8 Italy 152,9 Italy 137,1 Italy 147,5 2 Germany 6,5 Germany 8,6 France 13,6 France 15,2 Austria 14,1 Austria 17,5 3 France 3,8 France 8,0 Germany 6,7 Austria 10,5 France 10,5 Germany 11,7 4 UK 2,9 UK 4,0 Greece 3,3 Germany 5,5 Germany 7,6 France 10,6 5 The Netherlands 2,6 The Netherlands 3,9 UK 3,2 UK 4,4 UK 7,5 UK 6,1 Sawmilling and planing of wood; impregnation of wood 52,2 47,8 47,2 48,8 56,1 57,4 1 Greece 17,2 Greece 22,7 Greece 19,3 Greece 21,8 Greece 29,0 Greece 25,3 2 Turkey 9,9 Italy 8,1 Italy 8,0 Macedonia 6,9 Italy 6,2 Turkey 10,0 3 Macedonia 6,7 Macedonia 5,2 Macedonia 7,6 Italy 6,7 Turkey 5,9 Italy 8,8 4 Italy 6,3 Turkey 3,4 Turkey 3,8 Turkey 3,9 Macedonia 5,5 Macedonia 4,3 5 F. Yugoslavia 4,7 F. Yugoslavia 1,1 France 1,6 France 1,7 France 2,0 France 2,2 Wood packing 3,0 3,1 3,9 4,3 5,0 4,9 1 Greece 2,1 Greece 2,1 Greece 2,2 Greece 2,5 Greece 3,2 Greece 3,0 2 Germany 0,2 Italy 0,2 Italy 0,5 Italy 0,5 Italy 0,6 Italy 0,6 3 Italy 0,2 France 0,1 France 0,2 Austria 0,2 Austria 0,2 Austria 0,3 4 France 0,1 Germany 0,1 Austria 0,2 France 0,2 Turkey 0,2 Turkey 0,2 5 Israel 0,1 Israel 0,1 Germany 0,2 Germany 0,2 France 0,2 France 0,2 Assembled parquet 6,9 8,1 6,9 9,5 9,3 10,6 floors 1 F. Yugoslavia 1,3 Russian 2,1 Italy 1,2 Greece 1,2 Greece 1,4 Italy 2,4 Federation 2 Greece 1,1 Italy 1,2 F. Yugoslavia 1,1 F. Yugoslavia 1,2 Italy 1,2 Greece 1,1 Page 47 of 106

48 3 Bosnia and 0,9 F. Yugoslavia 1,0 Germany 0,9 Italy 1,2 F. Yugoslavia 1,1 F. Yugoslavia 0,9 Herzegovina 4 Russian Federation 0,8 Germany 0,6 Greece 0,9 Albania 0,7 USA 0,7 USA 0,7 5 Macedonia 0,7 Greece 0,6 Macedonia 0,6 Croatia 0,5 Spain 0,6 Germany 0,6 Veneer sheets and woodbased panels 27,7 25,5 48,9 60,3 72,7 75,1 1 Italy 7,8 Italy 9,4 Italy 10,1 Italy 12,4 Turkey 16,9 Turkey 18,7 2 Greece 5,5 Greece 5,1 Greece 6,6 Turkey 10,2 Italy 11,8 Italy 10,1 3 Germany 4,8 Germany 4,2 Turkey 5,8 Greece 6,1 Greece 7,3 Greece 8,1 4 Sudan 2,8 Sudan 2,1 Germany 3,7 Sudan 3,1 Macedonia 3,1 Azerbaidjan 4,4 5 Turkey 1,5 The Czech Republic 0,8 UK 2,5 Germany 2,5 Azerbaidjan 3,0 Rumania 3, EUR' mln 2007 EUR' mln 2008 EUR' mln 2009 EUR' mln 2010 EUR' mln Other products of wood, cork, straw and plaiting materials 226,5 197,1 183,4 59,7 211,5 1 Italy 151,6 Italy 140,0 Italy 124,4 Italy 39,4 Italy 137,3 2 Austria 20,4 France 12,1 France 10,8 Hungary 5,7 Hungary 24,6 3 UK 10,9 Hungary 10,3 The Czech 10,0 France 3,2 Rumania 9,7 Republic 4 France 10,8 Greece 5,9 Germany 6,6 Rumania 2,6 Germany 7,6 5 Hungary 8,6 Germany 5,8 Hungary 6,0 Germany 2,3 France 7,3 Sawmilling and planing of wood; impregnation of wood 65,5 58,0 42,4 30,9 69,5 1 Greece 28,2 Greece 29,2 Greece 26,8 Greece 24,4 Greece 24,4 2 Turkey 13,2 Turkey 12,0 Italy 4,9 Turkey 13,4 Turkey 20,1 3 Italy 10,2 Italy 8,1 Turkey 3,3 Macedonia 8,3 Italy 7,6 4 Macedonia 4,2 Macedonia 2,3 France 2,1 France 1,3 Macedonia 6,9 5 France 2,0 France 1,8 Macedonia 1,7 Italy 0,8 France 3,3 Page 48 of 106

49 Wood packing 5,3 7,4 8,7 0,6 11,8 1 Greece 3,0 Greece 4,2 Greece 5,0 Greece 1,8 Greece 4,6 2 Italy 0,7 Italy 1,0 Italy 1,0 Rumania 0,3 Italy 2,9 3 Turkey 0,3 Rumania 0,4 Rumania 0,7 Italy 0,3 Rumania 2,5 4 Austria 0,2 Hungary 0,3 Germany 0,4 Germany 0,1 Germany 0,4 5 Rumania 0,2 Turkey 0,3 Austria 0,2 Serbia 0,1 Austria 0,3 Assembled parquet 12,0 14,4 9,5 2,9 9,9 floors 1 Italy 1,9 Italy 3,7 Italy 1,3 Greece 0,4 Italy 1,4 2 Greece 1,8 France 1,7 France 1,3 Italy 0,3 UK 1,2 3 France 1,2 Greece 1,5 Greece 1,2 France 0,2 Greece 1,1 4 USA 0,8 Serbia 1,4 Germany 0,9 Germany 0,2 France 1,0 5 UK 0,7 Germany 1,1 Serbia 0,7 Switzerland 0,2 Germany 0,9 Veneer sheets and woodbased panels 78,7 16,8 13,3 3,3 5,6 1 Turkey 18,2 Turkey 3,2 Greece 2,9 Greece 1,7 Greece 2,6 2 Greece 11,4 Greece 2,4 Rumania 2,3 Turkey 0,6 Serbia 0,9 3 Italy 11,3 Rumania 2,1 Turkey 1,3 Rumania 0,4 Turkey 0,7 4 Rumania 7,0 Italy 1,7 Germany 1,2 Germany 0,2 Italy 0,5 5 Macedonia 4,3 Poland 1,2 The Czech Republic 1,1 Poland 0,1 Austria 0,2 Source: ITC Page 49 of 106

50 Based on the data of table 12, the traditional markets for export of sector Manufacture of wood and of wood products, except furniture are those of our neighbour countries Greece, Turkey, Macedonia, Serbia, Rumania, and for the products of higher processing level these are the markets of Italy, France, Austria. Potential markets for the SME of the sector are those of Germany, The Czech Republic, Hungary, Russian Federation, Israel, Azerbaijan, Sudan, Poland, UK, where in the last years the registered export of Bulgarian products is with higher level of processing as wood packing, veneer sheets, wood-based panels. The manufacture and export of these products is concentrated mainly in large companies and requires the SMEs to make the necessary investment for modernization of their production capacity and diversification of their production in order to successfully enter into these market niches. Analysis of the priority markets by the various commodity groups of the sector: Table 13 Leading countries importers of the Bulgarian products of group 4403 Rough wood materials in total for the period (in % of the total export of Bulgaria of the products of group 4403) Position Country partners % TOTAL WORLD 100% 1 Greece 61% 2 Turkey 33% 3 Macedonia 3% 4 Italy 2% 5 USA 0.43% (source: ITC, own calculations) Table 14 Leading countries importers of the Bulgarian products of group 4403 Rough wood materials in total for 2010 (in % of the total export of Bulgaria of the products of group 4403) Position Country partners % TOTAL WORLD 100% 1 Turkey 54% 2 Greece 34% 3 Macedonia 9% 4 Austria 2% 5 Italy 1% (source: ITC, own calculations) Page 50 of 106

51 The given in the above tables data (table 13 and 14) are showing that in commodity group 4403 Rough wood material the factor, determining the success of the export activity is the geographical proximity. The relatively low prices of the product relative to the price of the transport service for the delivery, is transforming the distance in main factor for the more successful realization into domestic markets. Out of the top leading markets - Turkey, Greece, Macedonia, Austria, Italy, for the products of commodity group 4403 Rough wood material, in 2010 the Bulgarian SMEs of the sector have gained best positions in Greece, where Bulgaria is leading importer with almost one third of the total import of this commodity group, market share and incomes of over 7.5 million EUR for Into the Macedonian market Bulgaria is also holding leading position with 73% of the local market. Although in 9 th position, the export of products of group 4403 in Turkey are ensuring incomes of nearly 12 million EUR in Main competitors to the sector on the leading markets in this group are the CIS countries, the Balkan and African countries and some of the EU countries. Table 15 Leading countries importers of the Bulgarian products of group 4407 Wood, sawned in total for the period (in % of the total export of Bulgaria of the products of group 4407) Position Partner country % TOTAL WORLD 100% 1 Greece 44% 2 Turkey 20% 3 Macedonia 16% 4 Italy 5% 5 Jordan 3% Source: ITC, own calculations Table 16 Leading countries importers of the Bulgarian products of group 4407, in total for 2010 (in % of the total export of Bulgaria of the products of group 4407) Position Partner country % TOTAL WORLD 100% 1 Greece 42% 2 Turkey 18% 3 Macedonia 16% 4 Italy 11% 5 Jordan 2% Source: ITC, own calculations Page 51 of 106

52 The main market, where the products of the sector of group 4407 Wood sawn or chipped lengthwise, sliced or peeled are realized are the neighbour to Bulgaria countries, namely Greece, Turkey and Macedonia. In this commodity group, as in the sector as a whole, is witnessed the strong dependence on a small number of markets with similar characteristics, making the sector extremely vulnerable from the unfavourable development of the economy conjuncture in this region. Out of the five leading markets - Greece, Turkey, Macedonia, Italy, Jordan, for the products of commodity group 4407 Wood sawn or chipped lengthwise, sliced or peeled, in 2010 the Bulgarian SMEs of the sector have gained best positions one more time in Greece, Turkey and Macedonia. Main competitors in the sector of the leading markets in this group are some of the Scandinavian countries, the CIS countries, USA and some EU countries. Table 17 Leading countries importers of the Bulgarian products of group 4415 Packing cases, boxes, crates, drums and similar packing of wood in total for the period (in % of the total export of Bulgaria of the products of group 4415) Position Partner country % TOTAL WORLD 100% 1 Greece 58% 2 Italy 14% 3 Rumania 8% 4 Germany 3% 5 Austria 3% Source: ITC, own calculations Table 18 Leading countries importers of the Bulgarian products of group 4415, in total for 2010 (in % of the total export of Bulgaria of the products of group 4415) Място Страна партньор % TOTAL WORLD 100% 1 Greece 39% 2 Italy 25% 3 Rumania 21% 4 Germany 3% 5 Austria 2% Source: ITC, own calculations Page 52 of 106

53 The main market, where the products of the sector of group 4415 Packing cases, boxes, crates, drums and similar packing, of wood are exported, are: Greece, Italy, Rumania, with main weight of the Greek market. This is putting the sector on test considering the unfavourable economic process within three of the above indicated countries. Due to the high level of processing, the products of this group have an advantage before the other two groups in relation to the realization opportunities and the more distant markets in Europe and abroad. Out of the five leading markets - Greece, Italy, Rumania, Germany and Austria, for the products of commodity group 4415 Packing cases, boxes, crates, drums and similar packing, of wood, in 2010 the Bulgarian SMEs of the sector have gained best positions again in Greece 1 st 38.6% market share, Italy and Rumania. Main competitors in the sector of the leading markets in this group are the Western European countries as Germany, Italy and Poland, speaking of quality and competitiveness of the exported by the SMEs products of group 4415 Packing cases, boxes, crates, drums and similar packing, of wood. The information of the carried out survey in sector Manufacture of wood and of products of wood, except furniture gives the possibility to follow the main export destinations of the companies and the approximate export share of their products and services.. Figure 11 Export markets of the studied companies (in %) Source: Sociological survey Page 53 of 106

54 *Africa and Middle East, 1.82 Asian countries, 3.64 Other European countries, 5.45 Other, 7.27 Balkan countries out of the EU, EU countries, Operational programme Development On Figure 11 are shown the export markets of the studied companies. The main destination is the EU more than the half of the export. At the front positions as destinations are Germany and Greece (most companies have indicated namely these two countries). Second are ranked the Balkan countries, non-eu members mainly Turkey, but also Serbia, Macedonia, Kosovo. Almost 40% of the export destinations of the companies are the Balkan countries (in and out of the EU). This represents a serious challenge for the sector companies, as one of their main competitors on the international markets are namely the countries from our regions. Among the European countries out of the EU most commonly is indicated Russia. The rest of the export destinations have shares under 10%. On Figure 12 are given the export shares of the studied companies of sector Manufacture of wood and of wood products, except furniture. Figure 12 Percent ratio of the export by number of export markets *number of markets /export percentage up to 30%; 31-60%; 61-99%;100% Observation: Four companies of the sector haven t indicated their export shares Sociological survey Page 54 of 106

55 The most are the markets where the export is up to 30%. Follow those, with export shares between 31 and 60%. To seven export destination is exported by 100% of the companies production. It may be also indicated that the number of markets with export share up to 30% is almost equal to the number of market share of over 30%. The main competitors on the world markets for the studied companies are the EU countries. The competition is quite strong at first place, with almost 30% of the opinions come Germany and Rumania. Follow Italy, Greece and the Czech Republic. The other competitors (Spain, Portugal, Austria, Slovenia, etc) are in the rear positions in the ranking. Among the countries out of the EU main competitor to the Bulgarian companies is Turkey. Follow China, Russia and Ukraine. It is noteworthy that the companies from the branch are also competing with the USA, Canada and India, but these countries are given by smaller number of respondents. If talking about the regional aspect and to Turkey we add also Rumania and Greece, we may say that the companies from the branch have serious competition in the frame of the Balkan peninsular. However (as said above) these are also one of the most serious export destinations of the Bulgarian companies. The export production of the SMEs of sector Manufacture of wood and of products of wood, except furniture still has low level of processing and is impossible to ensure an added value in the export incomes that is big enough, as the major part of the export production represent raw material for further manufacture abroad. Due to the low level of processing and respectively the low price of the production of the sector, the transport expenses are resulting to be of great importance in order to determine the export destination of the Bulgarian manufacture, that are mainly our neighbour countries - Greece, Turkey, Macedonia, Serbia, Kosovo, Rumania, and for the products of group 4415 are Italy and Germany. The SMEs of the sector should streamline their efforts on the one hand towards keeping the gained market positions on the traditional markets of the region and on the other to diversify their production with products of higher processing level, in order to be able to count on realization into foreign markets outside the region. Page 55 of 106

56 COMPETITIVENESS OF THE EXPORT OF GOODS ON INTERNATIONAL MARKETS The low level of manufacturing of the exported products makes the export of the SME of the sector dependant on the geographic proximity of the markets. In all three commodity groups (4403, 3307 and 4415) the top five countries-importers of Bulgarian wood products and materials are ensuring more than 50% of the export incomes. This is a sign of strong dependence on small number of markets and clients. The sector SMEs are leading importers on the markets of the neighbor Balkan countries. Although with leading market positions in the surrounding countries, the low level of manufacturing and the small volume of added value in the sector products cannot contribute to significant incomes of the realized export. In almost all commodity groups the main competitors are the CIS countries, the Balkan countries, some African, Scandinavian and other European countries. Main advantages of the EU competitors, indicated by the respondents, are related to: favourable custom regulation; geographical situation (lower transport costs); imposed brand of certain products on the markets; the financial resources these are disposing of, and least but no last the State support and the good business climate therein. Unfavourable trend, leading to lower competitiveness is the low-developed research activity. The made findings and conclusions give ground to expect that within the next five years the export of Bulgarian wood and of products of wood, will grow, although slowly. Page 56 of 106

57 BARRIERS TO THE INTERNATIONALIZATION OF SMALL AND MEDIUM ENTERPRISES AS WELL AS MEASURES AND PERSPECTIVES FOR STIMULATION AND DEVELOPMENT OF EXPORT Internalization is one of the ten main principles of Small Business Act (SBA) the main document of the European Committee regarding the policy to SMEs in EU developed in 2008 and it includes all different groups of activities related to connections with foreign markets that one company starts at accomplishing its economic activity. The global dynamics regarding the political and macro-economic circumstances results in internalization and in our days it includes not only goods and services for foreign countries but also a great number of other activities like investing in foreign country (direct foreign investments), formation of partnerships with foreign companies, recruiting foreign experts as sub-contractors, participation in international networks and others. There is tendency to continuous increase in the number of SMEs operating on the international markets. This results in increase of their contribution to the world economy and respectively changes their significance as business partner. This strategy is focused on improving the process of exportation of SMEs of the sector, so internalization is considered as narrower term, including only export of goods. The barriers to entering the market are factors, that make difficult or prevent the entering of new companies into given industrial sector. The existence of barriers to the entering into the market is always a factor, limiting the development of a competitive market. The term obstacle to trade or barrier refers to any trade practice, adopted or supported by third country, in relation to which the international trade rules foresee a right to undertake actions. Usual obstacles to trade may be: Import-related national provisions (import licenses, inspections and examinations); Obligations to assign a representative or to ensure warehouse premises in the State of export; Page 57 of 106

58 National control on prices and reimbursement of expenses. Operational programme Development The most serious barriers to the Bulgarian export of the small and medium size enterprises in sector Manufacture of wood and of products of wood, except furniture, based on the carried out sociological survey and discussion of the present strategy in the focus groups, are related mainly with external factors: barriers for entering into foreign markets; need of upgrading the economic and administrative support of the State to support the sector in formulating the tasks for the new programme period of European funding; high risk of the various foreign markets; unfavourable business environment in Bulgaria; technical and technological indicators insufficiently high level of goods and services; the human factor relatively less risky for the export. The analysis of the effectiveness of the measures for promoting the export of the small and medium-size enterprises and development perspectives is organized in a way to give answer to the following questions: 1. What are the priority measures for supporting the production process of the small and medium-size enterprises and of the export, in particular 2. Which are the measures, influencing the most the SMEs export 3. What is the efficiency of the services, provided by BSMEPA, on the export activity of the SMEs 4. Which are the main sources of information for the export possibilities of the SMEs In relation to the above indicated serious barriers are also the suggested as priority measures for overcoming the obstacles to the export of the companies and the sector as a Page 58 of 106

59 whole. Analogically, these are related mainly to the State support for the export of the companies and of the sector 1) reducing the bureaucracy and 2) releasing the companies capital, so that these could invest in the production upgrade. Such measures are: In this sense the respondents have indicated that the procedures for export should be relived and the bureaucracy should be reduced, the State should allocate funds for supporting the expenses needed for European and other international exhibitions, to be ensured relieved funding for export. As higher proprietary are offered also measure for improving the business climate. It seems important the measure, proposed by one of the respondents: there are too much procedures for VAT reimbursement in this way the State keeps the free capital of the companies and prevent investments. This proposal concerns: 1) reducing the bureaucracy and 2) releasing the companies capital, these could invest in the production upgrade More than 96% of the interviewed small and medium-size enterprises indicated that they are producing finished product, designated to be exported, where in 64% of the cases the level of manufacturing is high and in the rest of the cases it s average or low. Approximately 35% of the SMEs are exporting raw materials and 43% - semi-manufactured article, mainly with high level of manufacture (The sum of the percents is over 100, as the respondents have indicated more than one answer). support for the technological modernization of the production Encouraging the export of the companies; Improvement of the access to funding; Funding of innovation projects for the development of new products, technologies and services. Training and improvement of the qualification of the employed in SMEs; Support for technological innovations. Among the factors having positive impact on the export activity of the companies of the sector, is the support for the participation in international fairs, exhibitions and business forums. At second place are the factors establishment of contacts with foreign institutions ; Page 59 of 106

60 funding of programmes for the development of innovation activities and communication with trade representatives. Regarding the BSMEPA activity, positively are evaluated: 1) organization of information campaigns ; 2) information for offers and inquiries by foreign companies ; 3) Information about international and regional markets, organization of participation in international exhibitions and fairs, information about international tenders. Additional information the survey companies mainly need is logistics, mechanisms of international trade payments, information about the markets in Asia (Jordan, Iran, Iraq); clearer information for law procedures, information about contractors, etc. Most of the priority measures for overcoming the barriers to the export are expected to be undertaken by the State. At the same time the companies clearly understand the need of technological upgrade of the production and the lack of own resources, indicating mainly the support for the technological modernization as measure with highest priority, as well as measures, related to ensuring financial support by the State under different forms. The companies are usually gathering the necessary information about the export individually through own surveys and through the internet. It is interesting that they don t count much neither on the branch organizations, nor on their colleagues in the country. In third place (after own survey and internet) they indicated colleagues from abroad. Probably, it is related with the competition among the companies in the branch. The corruption risk profile in this sector is determined by the nature of the markets for which such production is exported, the existing export situation as well as the sustainability and economic results of the enterprises which invest its end production in such products. The expert evaluations trace the following profile of potential corruption risk: The relatively conservative nature of this market does not presuppose the putting of systematic effort in innovation development Pressure by the administrative structures and the existing influence networks, also within the relationships between the companies themselves. Page 60 of 106

61 Operational programme Development Relative limitation of the number of potential participants as a result of the economic crisis. The build through the years stable partnerships are determining the common market chances of the new and less potential exporters. Lack of competent personnel for performing the activity. Lack of internal rules and procedures for guaranteeing the interests of the exporters/foreign importers. Lack of regulatory mechanisms and institutions, fixed as competences and responsibilities in the field of the regulatory environment Dynamic change of the requirements of the foreign users. Unstable and/or extremely sensible to the market oscillations regulatory environment, as well as lack of comparability between the external and internal production quality standards. Limitation of the profit and increase of the sense of instability in time of crisis. As tools for assessment of the corruption risk and for planning export strategies could be used three already recognised international surveys of the international anti-corruption organisation Transparency International: Corruption perceptions index (CPI), Global corruption barometer (GCB), Bribe payers index (BPI). These give relative information regarding the level of expansion of the corruption worldwide and the extent to which the national institutions and sectors are affected. A) Markets in European Union Member States: Greece, Italy, Rumania, Germany, UK, France According to the CPI, the index value for the countries is: UK 8,2 points, Germany 8, France 7, Italy 3,9, Rumania 3,6, Greece 3,4. According to GCB the most seriously affected institutions and sectors of corruption are: Greece political parties and media; Rumania political parties and parliament; Italy judicial system, customs, agricultural services and medical services. Page 61 of 106

62 Less affected instutions and sector of corruption are: Greece fiscal services, media and judicial systems; Rumania fiscal services. The highest level of integrity of the work of the institutions and business could be expected in the UK, Germany and France. In Germany, in fact, there is lack of corruption pressure on the business by Customs, fiscal services and Judiciary; the highest percentage of bribe payment is at nationals and companies, having access to registry services (1,9%). Most significant pressure for bribe payment (expressed as percentage of nationals asked to pay a bribe in the last year) exists in the following sectors: Rumania police (16,2%), judicial system (13,0%) and registry services (10,8%), agricultural services (6,4%), customs (5,7%); Greece customs (16,9%), agricultural services (4,9%) and registry offices (4,4%).; Italy judicial system (28,8%), customs (13,9%), agricultural services (12,9%) and medical services (10%)l France agricultural services (8,1%), customs (5,4%) and medical services (5,1%). B) Markets outside the European Union Member States: Turkey, Macedonia, Serbia, Albania, Kosovo According to CPI the above mentioned countries rank as follows: Turkey 4,2, Kosovo 2,9, Albania 3,1, Macedonia 3,9, Serbia 3,3. According to GCB the most seriously affected institutions and sectors by the corruption are: Macedonia customs; Serbia political parties, followed by public administration, Judiciary. Less affected institutions and sectors by the corruption are: Macedonia fiscal services; Serbia registry services. Most significant pressure for bribe payment (expressed as percentage of nationals asked to pay a bribe in the last year) exists in the following sectors: Turkey customs (32,4%), agricultural services (32,2%), fiscal services (34,5%), registry services (31,2 %), police (28,9 %), Judiciary (26,2 %); USA customs (18,3%), agricultural services (12,5%), %), registry Page 62 of 106

63 services (9%), Judiciary (8,4%), fiscal services (5,6%), police (5,7%); Macedonia customs (25%); Judiciary (20,6%); Serbia police (14,5%), Judiciary (13%) and customs (12,4%); Kosovo customs (11,2%), registry services (7,2%) and Judiciary (9,5%). Page 63 of 106

64 Operational programme Development of the competitive the Bulgarian Bulgarian enterp Project BG161РО Promotion Of th Internationalization of the Bulgarian Enterprises SWOT ANALYSIS OF SECTOR MANUFACTURE OF WOOD AND OF WOOD PRODUCTS, EXCEPT FURNITURE STRENGTHS Traditions in furniture manufacturing and export Qualified workforce Sufficient quantities, relatively cheap local raw materials and energy Competitive labour cost Low cost of end products Good technology equipment in large part of the sector enterprises Export orientation of the sector Strong professional organization Contacts through the professional organization with international professional associations (UEA/European association of the furniture-manufacturers and national associations) Table 19 SWOT analysis OPPORTUNITIES The sector is defined as export-orientated by BSMEPA Financial and expert support provided by BSMEPA Project funding under structural funds Public incentives for the formation of clusters, incl. export clusters Improvement of the country s image Increase in demand on target markets Balkan region, EU, Middle East Withdrawal of Western investors from the Far East region and increased interest in the Eastern Europe region Increased interest on behalf of investors from the Far East to the Eastern Europe region Page 64 of 106

65 Operational programme Development of the competitive the Bulgarian Bulgarian enterp Project BG161РО Promotion Of th Internationalization of the Bulgarian Enterprises Flexibility ability to produce small series, quick response to market needs, prompt delivery WEAKNESSES Strong dependence on small number of clients (markets) Production, often not compliant with the target markets requirements regarding quality and design Local raw materials often don t meet the high requirements of target markets Few professionals with trade export experience Insufficient information about foreign markets Difficulty in providing working capital, debt Small number of enterprises, certified according to international standards Low labour productivity Limited experience in organizing and participation in international exhibitions THREATS Deepening of the global economic crisis and consumption contraction Decrease in investment activity in worldwide Difficult crediting Increased competitive pressure Higher barriers to entry the target markets Increased prices of raw materials and energy Increased labour cost Lack of reliable information for management decision making Decrease in the number of Bulgarian trade representations abroad Page 65 of 106

66 Operational programme Development of the competitive the Bulgarian Bulgarian enterp Project BG161РО Promotion Of th Internationalization of the Bulgarian Enterprises PESTEL ANALYSIS The PESTEL analysis of factors and tendencies on macro level, having impact on Bulgarian manufacturing industry development, SME and in particular of the sector of Manufacture of wood and of wood products, except furniture. The PESTEL analysis is abbreviation of the first letters of the English words and it includes several groups of factors that are to be analyzed: political, economic, social, technological, environmental factors, legal. The Republic of Bulgaria as a member state of the European Union having full rights, employ all instruments of political stability and namely democracy, implemented political pluralism, implemented election system, working Bulgarian institutions harmonized with the European legislation. In our country there is guaranteed political stability on national level which is guarantee for realization of investments and development of projects, for financing and organizing export activities. Bulgaria leads active international policy and thus helps the development of the market positions for its export. This factor is of extreme significance for the functioning and main precondition for export increase. In relation to the economic indicators on macro-level, the country depends on the world and European trends due to the openness of the economy and its engagement with the operating markets, international exchanges, international credit evaluations and rating evaluations, etc. that is why the economic processes in the country should be followed in the context of the economic and financial processes within the European Union and the Eurozone. Most of all, however, it should be unambiguously underlined that the current adopted policy of macroeconomic stability and fiscal and financial discipline creates relatively predictable macroeconomic environment for the market participants. The following table shows the PESTEL analysis. Page 66 of 106

67 Operational programme Development of the competitive the Bulgarian Bulgarian enterp Project BG161РО Promotion Of th Internationalization of the Bulgarian Enterprises Table 20 PESTEL analysis Political factors Bulgaria is a parliamentary republic and member state of the EU enjoying full rights Income policy is based on taxes, fees and others as the main division is of state and municipal. As a member state of the EU, Bulgaria is part of the structure for international trade and operating agent on the common European market There are different operating laws and established commissions for protection of the consumers The political stability is main priority for the governing majority Safety and competitiveness stimulation are starting points in promoting trade activity Social factors The cultural-demographic detachment of Bulgaria suggests a lot of everyday life and cultural differences between the wide ranges of ethnic groups. However, the integration of these ethnic groups is successful. Relative ageing of the population and negative population growth (-0.6% for 2010). Positive population Economic factors Despite the world financial instability, Bulgaria manages to maintain levels of stable development and positive economic growth. The interest percentage is determined by the central bank (BNB) and has a tendency to reduction as of , it is 0.22% The country promotes employment as through attraction of foreign investments, it creates new employment positions and re-qualification programs for unemployed people. Income taxing is done by flat stake amounting to 10%. The Bulgarian currency is in condition of currency matching to euro at the rate of BGN per 1 euro. The adopted by the government financial policy manages to retain inflation within its normal values. Consumers trust is put to serious test because the system of regulation and management of quality needs higher effectiveness. Technological factors The research activity in Bulgaria has rich tradition and experience The industry functions and is organized by technological operations which determine the necessity of their knowing and research. Bulgaria is among the world leaders in terms of its Page 67 of 106

68 Operational programme Development of the competitive the Bulgarian Bulgarian enterp Project BG161РО Promotion Of th Internationalization of the Bulgarian Enterprises growth was registered during the period from 1960 to 1990 then it becomes negative and reaches its lowest levels in 1990 and 2001 almost reaching -2.0%. Statistics like this clearly re-create the influence of the political factors over the social and demographic structure of community. At national level it is observed an expressed labour mobility and a certain part of the specialists find professional realization abroad and in particular within the EU. This shows how the mechanisms of the community work and how the labour market creates demand and supply outside the borders of a country. The living standard in Bulgaria is a social category subject to a thorough examination and multi-factorial analysis. The level of net income is relatively low, unlike that of ownership of real estate. Entrepreneurship in Bulgaria is the reason for the implementation of many projects, including the absorption of funds from European fund paths. The issue of education in Bulgaria is a topic of utmost priority. The state provides free elementary, primary and secondary education; higher education also being financially supported for the most part Environmental factors Bulgaria is among the countries with the most widely developed and included eco-tourism in Europe. It is being worked on strategies for wastewater treatment and construction of incinerators for waste incineration. Planned urbanization and cultivation of gardens, research-workers who gave to the world numerous discoveries, inventions and innovative technologies. Few of them reach community due to the fact they do not find investors in the country. The exchange of technology with the rest of the world has marked its beginning since the early years of the last century. With the construction of the modern state, these technologies play a significant role in the construction of each unit. The life cycle of the products, as well as their going out of use, becomes shorter and shorter with the opening of markets and the invasion of newer and more energy-efficient products. Both in political and in purely technical aspect, the global energy saving policy is also applied in Bulgaria. It includes the construction of alternative energy sources that should reduce the levels of harmful emissions and generate lower levels of cost for the end user Regarding the information technologies and the Internet, the country is among the European leaders in the field of their introduction, use and development. Legal environment factors Bulgaria is a statutory Republic and the fundamental law is the Constitution. Bulgaria s judicial system is a direct expression of the judiciary branch and it is divided into different levels and instances for the purpose of being more accessible to people. Of all the rights, the one of private property is the Page 68 of 106

69 Operational programme Development of the competitive the Bulgarian Bulgarian enterp Project BG161РО Promotion Of th Internationalization of the Bulgarian Enterprises parks and ponds. starting point for most of the changes after the transition to a market economy. Bulgaria is a country with established legal system that allows its citizens position and protection and that guarantee them the full functioning of democracy. Page 69 of 106

70 Operational programme Development of the competitive the Bulgarian Bulgarian enterp Project BG161РО Promotion Of th Internationalization of the Bulgarian Enterprises STRATEGIC OBJECTIVES FOR PROMOTING THE EXPORT BY SMALL AND MEDIUM ENTERPRISES FROM SECTOR MANUFACTURE OF WOOD AND OF WOOD PRODUCT, EXCEPT FURNITURE The carried out studies and analysis of the current situation of sector Manufacture of wood and of products of wood, except furniture show that the sector has the potential to maintain its importance for the national economy and to improve its positions on the international market. The vision for the future of the sector, this strategies aims at, is: Increase of the production share of the Bulgarian sector Manufacture of wood and of wood products, except furniture on the international market The increase in export activity of the SMEs from the sector will play a stimulating role for the overall development of this important for the Bulgarian economy industrial sector. For the vision realization it is necessary the efforts to be orientated towards the following strategic and specific objectives: Strategic objective 1 Increasing the export potential of the Bulgarian SMEs of sector Manufacture of wood and of wood products One of the most serious challenges, the manufacturers from sector Manufacture of wood and of products of wood are facing at home is the considerable growth of international competition as a result of the liberalization of the world trade in the last years. The situation created by the new world economy order proves that to be competitive in the international market is not depending only on the advantages coming from cheap workforce. The competitiveness depends on vast circle of factors, leading to good quality production at reasonable prices and companies having high level of flexibility. On the other side the international markets situation, although dynamic, shows the return of many Western European assignors, working until recently Page 70 of 106

71 Operational programme Development of the competitive the Bulgarian Bulgarian enterp Project BG161РО Promotion Of th Internationalization of the Bulgarian Enterprises in the Far East, towards the production on the Balkans and in particular towards our country. Obviously this trend will be kept due to the necessity of prompt, precise and reliable supplies, as well as of the small series production. The EU policy for keeping such production in Europe is also favouring the sector development in Bulgaria, which promises good growth chances in the following years. For the successful realization of Strategic objective 1, the implementation of two specific objectives is established: Specific objective 1 Increasing the number of the SMEs of sector Manufacture of wood and of products of wood, exporting goods to the world market Specific objective 2 Promoting the competitiveness of the SMEs of sector Manufacture of wood and of products of wood, exporting goods to the world market The implementation of Specific objective 1 and Specific objective 2 will lead to the successful realization of Strategic objective 1. Strategic objective 2 Increasing the market share of the products of the Bulgarian SMEs of sector Manufacture of wood and of products of wood on the world market To expand the presence of Bulgarian enterprises of sector Manufacture of wood and of products of wood on the world market there is need of tenacious and purposeful actions. The approach to keeping existent markets and to entering into new ones is different. While sub-supplier companies are traditionally working for leading companies mainly from the European Union, attracting investments and to conquer new markets is related to a number of difficulties. To overcome these difficulties there is need of State-supported joint actions of the Bulgarian manufacturers. This strategic objective will be realized by achieving the following specific objectives: Specific objective 1 Increasing the market share of the products of the Bulgarian SMEs of sector Manufacture of wood and of products of wood on the existing markets Page 71 of 106

72 Operational programme Development of the competitive the Bulgarian Bulgarian enterp Project BG161РО Promotion Of th Internationalization of the Bulgarian Enterprises Specific objective 2 Entering of the Bulgarian SMEs of sector Manufacture of wood and of products of wood into new markets Page 72 of 106

73 Operational programme Development of the competitive the Bulgarian Bulgarian enterp Project BG161РО Promotion Of th Internationalization of the Bulgarian Enterprises STRATEGY FOR PROMOTING THE SECTOR SMEs EXPORT In order to achieve the set objectives different alternatives for development are possible. Here, two main scenarios were evaluated, in particular: 1. Keeping the present structure of the public institutions, supporting the business, especially the existing relationship between them and the export orientated SMEs from sector Manufacture of wood and of products of wood, except furniture. 2. Change in the structure and transfer of functions for supporting the SMEs towards units and forms, related to funding projects with EU funds and the State budget according to the model of the Operational programmes or the Programme for development of the rural regions. The criteria to evaluate these scenarios are: 1. Possibility for the selected scenario to be realized within the frame of a 5-year period. 2. Possibility to solve the issues related the supporting export orientated SMEs in other EU countries. 3. Evaluation of the efficiency of the activities, related to supporting the business, implemented by created to this exact end structures or by existing programmes, granting support under the project principle. The carried out analysis shows that: The transition from the now existing system to a new one, on a project principle, will require a period larger than 5 years. At the same time, now existing rules for the period up to 2013 it is practically impossible, as the priorities and the main activities in the Page 73 of 106

74 Operational programme Development of the competitive the Bulgarian Bulgarian enterp Project BG161РО Promotion Of th Internationalization of the Bulgarian Enterprises operational programmes are clearly defined. For the next programme period such an approach, if possible, is to be laid down in the negotiation process, but in fact several years will be necessary its actual initiation, in the same way the OP in all EU countries started for the period ; The selected in Bulgaria scheme through BSMEPA is preferred from the major part of EU countries, where the success level is different in different countries, but there is no trend of changes in the near future; The reported difficulties in the business projects realization within operational programmes, as for example Competitiveness show that the efficiency of promoting export orientated SMEs, notwithstanding the critics at the moment due to lack of funds and good focusing, is the relatively much better level than the results reached by the business through project orientated measures. Considering the above conclusions, the first alternative was chosen, namely drafting of Export strategy for the SMEs from sector Manufacture of wood and of products of wood, except furniture. In terms of the strategic perspective, the chosen alternative will require both general measures for the whole system to support the SME, as for example increase of the institutions capacity, introduction of clear and measurable indicators and criteria for evaluation of their work efficiency and support to the business, etc. as well as specific changes, related in particular to the Manufacture of wood and of products of wood, except furniture, as for example export orientated work approach. As far as this was not an object of analysis and study of the present strategy document, it would be probably a part of the elaboration of the institutional strategy of the corresponding public administrations. The present Export strategy for the SMEs from sector Manufacture of wood and of products of wood, except furniture provides for the following principle steps, related to improving the support of export orientated SME: Page 74 of 106

75 Operational programme Development of the competitive the Bulgarian Bulgarian enterp Project BG161РО Promotion Of th Internationalization of the Bulgarian Enterprises Creation of the base for adequate and professional management of the processes of supporting the export orientated SMEs through determining their possible scope number and characteristics of the export orientated SME, usage of the information from the drafted profile, as well as of information from the business regarding the precise formulation of the business needs of support, and of the created to this end institutions, as well as through other forms, as for example the project principle, creation of a model for successful communication with business to be supported. Elaboration of the necessary programmes, policies and measure for support the SMEs to export into foreign markets, through measures, designed to markets where to keep or expand the existing positions, joint work with units, disposing of direct possibilities to support export (for example foreign trade representatives and MEET), as well as measures, having routine nature (for example), participation in fairs, missions, visits, etc.; Measures, designed to certain deficits in export orientated SMEs, barriers for their development in the field of export, as for example: support for the technology modernisation of the SME in relation to improving their export positions, support for creating export companies to help SMEs export; creation of State guarantees for export insurance for SMEs, to complement and develop the now existing forms, advertising campaigns for improving the image of the Bulgarian business, etc Measures, designed to increasing the capacity of the SMEs, mainly through different educational programmes. Considering the deadlines of the Export strategy for the SMEs from sector Manufacture of wood and of products of wood, except furniture the foreseen steps are realistic and would lead to real results in supporting the export. Important precondition for the realization of the set strategy is also the presence of political will to ensure the necessary resources for its implementation. Page 75 of 106

76 Operational programme Development of the competitive the Bulgarian Bulgarian enterp Project BG161РО Promotion Of th Internationalization of the Bulgarian Enterprises Due to the short-term 5-year horizon of the Strategy in the Action plan, the measures are precisely formulated and divided into micro (enterprises), meso (branch organizations) and macro (public institutions) level. The foreseen funds are exemplary and tailored according to the actual possibility to increase the BSMEPA budget. The prognosis for funds coming from Operational programmes through the next programme period is too conditional, as there are no definitely adopted rules by the EU. At the same time it is extremely important that BSMEPA and MEET to defend just requirements for increasing the funds for development of the SMEs that are the backbone of each economy. Important precondition for the realization of the set strategy is also the presence of political will to ensure the necessary resources for its implementation. When drafting the present strategy the leading good European practices and the experience of partners, organizations and institutions, having direct of indirect relations to the development of the small and medium business, were observed. Enclosed is a detail plan for the above described strategic development of the sector. Page 76 of 106

77 Operational programme Development of the competitive the Bulgarian Bulgarian enterp Project BG161РО Promotion Of th Internationalization of the Bulgarian Enterprises SEGMENTATION AND SUCESSFUL POSITIONING OF THE IDENTIFIED EXPORT MARKETS In the frame of the present export strategy are presented detail analysis of the sector, of the development of the export of the various product groups; the markets are identified the export destinations for the SMEs from the sector within and outside the EU; information is given about the main competitors on these markets and about the products with export potential, as well as other key for the export activity of the SMEs information. The complex of analysis is serving as foundation, the basis on which at micro-level each sector SMEs should perform segmentation of the corresponding market and to determine adequate specific measures for the positioning of its productions. It is of key importance for the process of entering into new markets and to the ends of achieving sustainability of the conquered market positions the determination of specific set of promotional measures for the successful positioning of the products of the SMEs on the already identified marketя, on the basis of the carried out surveys, analysis and evaluations. The potential markets, identified as targeted ones for the sector, should be segmented, i.e. to be divided into separate, the most homogenous possible groups of consumers that are defined as market segments. The market segmentation would help export-orientated SMEs to develop and offer such products, meeting to the greatest extent the specifics of the corresponding segments and to provide targeted impact with appropriate marketing tools. Thus the available market potential of the individual enterprise would be utilized in the best way. Markets could be classified by a number of characteristics. Most frequently in the practice are met the following classifications: By geographical sign local, community, national, regional, continental, global; By political and economic principle; Page 77 of 106

78 Operational programme Development of the competitive the Bulgarian Bulgarian enterp Project BG161РО Promotion Of th Internationalization of the Bulgarian Enterprises By commodity group of by concrete articles; By the need the corresponding article of commodity group is satisfying; By way of life for examples luxury goods market, non-brand goods, etc. One of the possible versions of the segmentation procedure is: General definition of the market; Consideration of the external restrictions (if such); Selection of several indicators; Determination of those of them, for which is possible to gather information and surveys are carried out. Selection of appropriate segment (target market) By means of the market segmentation the corresponding SMEs from the priority sector, object of the present export strategy, could define the perspective market segments and to carry out the corresponding type of marketing, depending on segmentation: Non-differentiated marketing aims at big, vast market by means of marketing plan; it is related to the first stages of development of given market through mass approach, where the consumers are alike. Non-differentiated marketing for the various market segments, different marketing mix is applied; Concentrated market the concentration on the separate niche or segment is determined by limited resources of the company or the impossibility to satisfy different market segments. The target market is a segment on which the product corresponds to the greatest extent. The market window is a segment, the manufacturers are ignoring. The market segmentation is one highly professional marketing activity, including the normal combination of high risk level with likely high incomes, as a result of the full Page 78 of 106

79 Operational programme Development of the competitive the Bulgarian Bulgarian enterp Project BG161РО Promotion Of th Internationalization of the Bulgarian Enterprises coverage of the market. Not last, the risk is related to the long-term period, according to which in practice is proved either the appropriateness of the taken decision for market segmentation or the made mistake by choosing the approach of differentiated marketing. Before coming to the positioning of a product or a brand, it is necessary to perform market segmentation and to select the appropriate market segment. The positioning strategy could be developed according to the following algorithm: Figure 13 Development of the strategy for product positioning Page 79 of 106