REPUBLIC OF BULGARIA Bulgarian Small and Medium Enterprises Promotion Agency

Transcription

1 REPUBLIC OF BULGARIA Bulgarian Small and Medium Enterprises Promotion Agency PROJECT BG161РО , PROMOTION OF THE INTERNATIONALIZATION OF THE BULGARIAN ENTERPRISES Проект BG161РО , НАСЪРЧАВАНЕ НА ИНТЕРНАЦИОНАЛИЗАЦИЯТА НА БЪЛГАРСКИТЕ ПРЕДПРИЯТИЯ This project is financed by the European fund for regional development through an Operational programme Development of the competitiveness of the Bulgarian economy Този проект е получил финансиране от Европейския фонд за регионално развитие чрез Оперативна програма Развитие на конкурентоспособността на българската икономика EXPORT STRATEGY Manufacture of Beverages June

2 LIST OF ABBREVIATION EU European Union BSMEPA Bulgarian Small and Medium Enterprises Promotion Agency MAF Ministry of Agriculture and Food MEET Ministry of Economy, Energy and Tourism MRDPW Ministry of Regional Development and Public Works SME Small and Medium-size Enterprises ITC International Trade Centre NCEA National Classification of Economic Activities NSI National Statistical Institute OP Operational programme ECO Economic and commercial offices 2

3 TABLE OF CONTENTS INTRODUCTION APPROACH FOR DEVELOIPING THE EXPORT STRATEGY MAIN CONCLUSIONS FROM THE ANALYSIS OF THE CURRENT STATE SWOT AND LOED ANALYSIS OF THE EXPORT PROCESS OF SMES IN SECTOR MANUFACTURE OF BEVERAGES OBJECTIVES STRATEGY FOR PROMOTION OF EXPORT OF SMEs IN THE SECTOR ACTION PLAN SYSTEM FOR MONITORING AND CONTROL APPENDICES 3

4 INTRODUCTION The export strategy of sector Manufacture of Beverages is developed under Project BG161РО Promoting the internationalization of the Bulgarian enterprises, Priority Axis 4 Strengthening the international market positions of Bulgarian economy of Operational Programme "Development of the Competitiveness of the Bulgarian Economy", pursuant to contract BG-161PO C00001 for providing direct grants under which the Bulgarian Small and Medium Enterprises Promotion Agency (BSMEPA) is an institutional beneficiary. The goal of the Export Strategy for sector Manufacture of Beverages is to provide support to the Bulgarian micro, small and medium-sized enterprises in the sector to enhance their competitiveness, degree of internationalization and entering or expanding the market positions of the Bulgarian products and particularly of these with higher value added. The Bulgarian state in the face of BSMEPA, Ministry of Economy, Energy and Tourism (MEET) and other state institutions has identified the SME sector as particularly sensitive and at the same time of crucial importance for economic life which should be paid special attention. Diversity in the development of different economic sectors and the place of SMEs therein, as well as the national priorities related to the promotion of national exports, require the development of export strategies for particular sectors, one of them being the sector of Manufacture of Beverages. Focusing of the support and defining of precise benchmarks for state intervening through its institutions, on the one hand, and providing options for development to other participants in the process, on the other, will strengthen in a positive way the planning aspect of state activities and will at the end improve the performance of the sector. The successful implementation of the Export Strategy is expected to result in improvement of the process of going international and active expanding and strengthening of market positions of Bulgarian SMEs producing beverages. In developing the Export Strategy, the "Methodology for Strategic Planning" is taken into account prepared by the Council for Administrative Reform to the Council of Ministers of the Republic of Bulgaria. 4

5 1. APPROACH FOR DEVELOIPING THE EXPORT STRATEGY The Export Strategy is a strategic document defining the medium-term goals and priorities of the export development of SMEs. It is developed on the basis of the strategic planning approach, the skillful implementation of which has the following advantages: Creates an understanding among stakeholders on trends and prospects for the future. Establishes a common vision and consensus among stakeholders, by coordinating different initiatives in the selected targets. Identifies already undertaken or planned projects and actions. Strengthens partnership between government, business and other parties to solve complex problems. In developing such a strategic document, it is of crucial importance to formulate properly the "owner" of the strategy, i.e. the institution or institutions who will be responsible for the overall implementation of the strategic document as well as for the different stages of strategic planning. In general, the development of strategic documents includes the following stages: Assignment Preparation Development Coordination Approval Implementation Assessment Updating Each of these stages contains specific activities, some of which, such as assignment, preparation, development, coordination, approval and, at a later period, updating, are part of the project performed under the contract mentioned above. Therefore, the principal owner of the export strategy is the Bulgarian Small and Medium Enterprises Promotion Agency (BSMEPA). For this reason, the goals, measures and actions set in the strategic document must first help BSMEPA to improve the planning and implementation of activities related to the support of exports of SMEs in sector Manufacture of Beverages. This formal logic does not contradict the fact that a significant number of institutions, businesses and even the population are involved as stakeholders who might be influenced by means of different mechanisms, for example, the state institutions through the forms of coordination of strategic documents of such rank, and the branch associations and businesses by providing incentives to increase their export potential. It is of extreme importance for SMEs in the sector of Manufacture of Beverages to be able to see a clear and predictable export supporting state policy, which, though in the medium run, will allow them to decide whether to benefit or not from the created opportunities. 5

6 Technology of strategic planning The process of strategic planning encompasses the following steps: Identification of stakeholders Analysis of the environment SWOT analysis Goal setting Selection of an alternative a development strategy Action plan Monitoring system Each of these steps is characterized by its own specifics, namely: Identification of stakeholders. A stakeholder is any person or group that requires attention, can influence a decision, can contribute by resources or be affected by a certain decision. Involving stakeholders at an early stage of the strategic document can lead to a stronger consensus on goals and a greater willingness to support decisions. Stakeholders of the Export Strategy may involve various persons and organizations, such as companies, state institutions, producers associations, businesses, consumers of the products, NGOs and experts. The specifics of developing business supporting strategies is that prepared documents shall not favour some and/or discriminate other businesses. This is the reason why there was a pursuit for equality when involving business organizations and different branch associations, as well as a search for an opportunity that the majority of businesses could benefit from the analysis made. Analysis of the environment. The analysis of the environment (the conclusions of which serve as a basis for the SWOT analysis) allows the formulation of goals and priorities which shall align the efforts and shall not be dissociated from time and environment. Analyses are focused on: Current state of affairs of sector Manufacture of Beverages in Bulgaria, trends, dynamics and growth; Characteristics of export oriented SMEs, incl. regional distribution; State of the exports of goods and services; Analysis of goods and services with export advantages or export potential produced by sector Manufacture of Beverages ; Estimation of productions with the highest value added growth potential in the export of goods and services in which Bulgaria has a global market share; Size of the international market; Competitiveness of exports of goods and services, for existing and for potential foreign markets; Share of products with origin from Bulgaria; 6

7 Share of the Bulgarian exports of analyzed product groups in total imports on the global market; Leading importers in the sector; Value and volume of imports on certain foreign markets for a specified product group; Main suppliers on a certain market; Identification of barriers to internationalization of enterprises in the sector and measures for their overcoming. Based on these analyses, the current problems and achievements of the sector shall be clearly defined, and some forecasts, opportunities and prospects for development shall also be motivated, such as: Achieving a significant growth of Bulgarian goods in total, and particularly of those with higher value added; Identification and prioritization of target markets by commodity groups; Forecast for the development of exports and imports of goods and of trade balance in the next five and more years. Analyses are based on existing analytical and program documents, available statistical information and information from conducted surveys interviews and focus groups. The analysis of the environment describes the current situation of SMEs in Manufacture of Beverages and the export process, establishes the reasons that cause developmental problems, and sets the guidelines for future development. SWOT analysis. SWOT analysis allows the identification of the main internal factors defined as strengths and weaknesses and the main external factors, defined as opportunities and threats, and it also assists the formulation of strategic goals, priorities and measures. Using SWOT analysis prevents the setting of unattainable goals and priorities for the export development of SMEs in sector Manufacture of Beverages over the period of the Strategy. Using SWOT analysis in the development of the Export Strategy has some specifics, as though BSMEPA is the owner of the strategy, the analysis is focused on the export process of SMEs in the sector and not the institution itself. LOED analysis. LOED analysis is an instrument used to show how to build on strengths, to overcome weaknesses, to seize opportunities and to defend against the threats identified by the SWOT analysis. Goal setting. Strategic planning focuses on critical issues, opportunities and problems faced by the export of SMEs in Manufacture of Beverages. It helps to distinguish really important decisions from decisions with temporary effects. Defining of the general strategic goal is particularly important for the future development of exports of SMEs in Manufacture of Beverages as it reflects the view of institutions and business for the future. The general strategic goal seeks to answer a single basic question: How should the export of SMEs in the sector look like in the long-term period according to the main institutions and stakeholders? 7

8 Reaching the level of specific goals makes it possible to answer the questions about who, what and when, so as to guarantee the attaining of general goals set higher in the hierarchy. Selection of an alternative a development strategy. Once objectives are defined, ways are sought to achieve them. Experience shows that this can be done in different ways, which represent different alternatives for development and achievement of the objectives. At this stage of strategic planning, different alternatives are evaluated from different perspectives and criteria, and as a result, an alternative is selected which then becomes a development strategy. Action plan. The selected strategy shall be supported by certain actions and measures, which are linked to terms, supervisors, performers and financial resources. The Action plan and the related measures therein transform this strategic instrument into daily work and implementation of the policy supporting the export of SMEs in sector Manufacture of Beverages. Monitoring system. The last step of the process of strategic planning is monitoring and assessment of the progress in implementing the general and specific goals set in the export strategy and in the Action plan. Monitoring is important as it allows taking corrective actions, provided that progress is unsatisfactory or conditions change. It is also important that the progress in achieving general objectives is reported to the public and business, so that they can estimate the work of relevant institutions and stakeholders in the implementation of the strategy. It should be noted that often the effects may not be visible or apparent, which hampers their measurability. Moreover, the impact is often a cumulative effect, and this may further complicate the analysis. This gives particular weight to monitoring, which is closely related to all stages of the implementation of the Export Strategy - preliminary (ex ante), current (parallel with implementation) and subsequent (ex post) assessment. In order to exercise monitoring of the implementation of the export strategy and to assess performance against the defined targets, it is necessary to use a set of indicators which should be determined in advance or early enough regarding the implementation of the strategic document, so as to use data received on them. In most cases, these will be targeted values which in aggregate will correspond to the goals of the strategic document. Monitoring provides the feedback that helps to assess the success or failure of the planning document. To perform the monitoring process, it is necessary to determine: Monitoring indicators (what will be observed); Frequency of monitoring and assessment (when the relevant reports will be prepared); Responsibilities for monitoring and assessment (who does what) and competences for decision-making to change (updating of the strategic document). INFORMATION SOURCES The following main information sources have been used in developing the export strategy: - National Statistical Institute 8

9 - Information provided by the BSMEPA - Information from the MEET - EUROSTAT - International Trade Center - Published information related to international forums and meetings - Official electronic information sources - Information published by branch associations in the sector - Information of the Bulgarian Industrial Association and the Bulgarian Chamber of Commerce and Industry, and their regional divisions - Information from a survey conducted in the period 31 October to 28 November 2011 with the senior management of 1 micro, 9 small and 14 medium-sized (total of 24) enterprises operating in the sector and from a focus group. The objective analysis of information requires underlining that in general there are serious deficits in objective, mostly statistical, information to allow deepening of the analysis and making informed management decisions. Information is processed with the will for maximum objectivity of the findings. In many cases, the analyzed information applies to the sector as a whole, i.e. the information covers both SMEs and large enterprises, based on the assumption that if a Bulgarian company has been successful on certain markets, the same could be expected for another company as well, incl. from the group of SMEs. This specifics is explicitly emphasized during the analysis. STRUCTURE OF THE EXPORT STRATEGY FOR SECTOR MANUFACTURE OF BEVERAGES The structure of the Export Strategy for sector Manufacture of Beverages is based on the strategic planning approach which sets the general parameters of the strategic document. At the same time, a study was made of the structure of other institutional strategic documents, and they were estimated with regard to the following criteria: - providing opportunity for relatively easy access to the document through understandable and logical structuring of different parts; - presenting the content in an attractive and easy-to-understand manner accessible to non-specialists as well; - providing information thematically, i.e. structuring the material in a way that allows in-depth penetration of problems and analyses only if desired by the reader. The above mentioned criteria were met by several of the studied strategies and they contained two clearly distinguished separate parts, namely: 1. A main document, in which according to the above described technology of strategic planning the separate chapters are defined. 2. Appendices that contain the complete text of the analysis, including conclusions, transferred to the main document. 9

10 This approach was preferred in structuring the Export Strategy for sector Manufacture of Beverages. Following consultation with stakeholders, the initial approach was slightly altered, as findings and conclusions in the main document were supplemented with specific data and visualized with graphs and diagrams, thus relieving users who do not intend to go in depth of the analyses included in the Appendices. 2. MAIN CONCLUSIONS FROM THE ANALYSIS OF THE CURRENT STATE This part contains the conclusions of different analyses, included in Analysis of the environment, one of the main steps in the technology of strategic planning. In application to this strategic document, the complete text of data and analyses is presented, on which basis the respective conclusions are drawn. The conclusions and the analyses themselves are structured in 6 parts, namely: STATE AND DEVELOPMENT OF THE SECTOR IN BULGARIA EXPORT ORIENTATION OF THE SECTOR GOODS WITH EXPORT ADVANTAGES AND POTENTIAL COMPETITIVENESS OF THE EXPORT OF GOODS ON FOREIGN MARKETS EXPORT PRIORITY PRODUCT GROUPS AND MAIN MARKETS BARRIERS TO THE INTERNATIONALIZATION OF SMALL AND MEDIUM ENTERPRISES AND MEASURES FOR THEIR OVERCOMING Conclusions are clearly structured according to the scope of analysis, as first are presented those valid for the whole sector, incl. large (according to the classification) enterprises, and second come the conclusions regarding small and medium-sized enterprises in the sector. STATE AND DEVELOPMENT OF THE SECTOR IN BULGARIA Sector Manufacture of Beverages, general The negative impact of the financial and economic crisis on the sector (expressed in shrinking in activity, a decrease in employment and ever greater losses) is most strongly pronounced in 2009 and 2010, as the sector is much more vulnerable to them in comparison with industry and manufacturing. The dynamics of production of enterprises in the sector, measured by the industrial production indices, shows negative trends following 2006, which deepen in the years of economic crisis. Changes in indices of turnover on domestic market show a similar trend with that in manufacturing. Indices of industrial production and turnover on the domestic market in Industrial production indices Manufacturing 71,7 79,3 92,8 106,5 118, ,6 114, ,3 Manufacture of beverages 95,7 98,2 129,3 159,4 167,8 163,6 156,9 146,8 103,5 102,3 10

11 Indices of turnover on domestic market Manufacturing 75,6 82,5 88, , ,7 157,4 135,6 136,9 Manufacture of beverages 67,9 104,2 84,4 151,8 167,1 138,7 145,5 181,4 145,1 151,9 Note: December of the year, 2005=100; Source: NSI. The regional distribution of enterprises in sector Manufacture of Beverages is relatively even, yet regarding the number of employed, larger companies are located in the South-Western region, followed by the South Central region, while the lowest concentration is observed in the North-Western region. Regional distribution of enterprises in sector Manufacture of Beverages SMEs in sector Manufacture of Beverages Source: Amadeus database, MEET, 2011 SMEs in sector Manufacture of Beverages numbered 780 in The average decrease in the number of companies in manufacturing in 2010 compared to 2009 was 4,6%, while SMEs in sector Manufacture of Beverages increased by 0,26%. Sector Manufacture of Beverages provided 1,96% of employment in SMEs in manufacturing in 2009, yet in absolute numbers employment in 2010 declined (by 3,7%). The decrease, however, was lower than the decrease registered in SMEs in manufacturing by 7,5%. Value added generated by SMEs in the sector shows different trends of development depending on the sub-sector, namely: substantial growth in the manufacturing of spirits (27,2%) which resulted in higher value added in 2010 compared to 2009 in the sector average (by 16,2%), and considerable decrease in the production of wine, by 31,9%. Labor productivity (measured as value added generated per employed person) recorded a growth of 20,6% and in 2010 it was higher (BGN ) than the average of SMEs in manufacturing (BGN ). 11

12 Despite the growth, labor productivity remains far lower than that in other sectors, such as Production of pharmaceutical products (BGN 29418), where components like research and innovation are most developed. This implies that sector Manufacture of Beverages does not contain a high innovation component. Structure determining are the sub-sectors of Manufacture of spirits, Manufacturing of wine from grape and Manufacture of soft drinks, production of mineral waters and other bottled waters which account for the largest number of enterprises and generate the highest employment and turnover in the sector. In inner-sector aspect, the sub-sectors of Manufacturing of wine from grape and Manufacture of soft drinks, production of mineral waters and other bottled waters created the highest shares in turnover of SMEs in 2010, resp. 52,4% and 23,9%. The manufacture of soft drinks, production of mineral waters and other bottled waters recorded small growth in turnover (1,76%), while the turnover of manufacturing of wine from grape decreased by 5,04%, due to the general decrease in prices of exported Bulgarian wine. Regarding value added generated by SMEs in the sector, a restructuring is observed in 2010 compared to 2009, as the manufacturing of spirits ranked first by an increase of 27%, while the manufacturing of wine recorded a significant decrease of 32%. This decrease is probably related to the above-mentioned drop in selling prices of wine in Financial analysis of companies included in the sample of the conducted survey shows that the financial condition of SMEs worsens over the entire examined period - the studied enterprises operate at a loss, which increased considerably in 2010 as a result of the global financial crisis. Companies face clearly outlined problems resulting from the economic crises, the first signs of which appeared in 2008 and worsened further in 2009 and A proof for that is the increasing number of companies with declining turnover in the examined years. EXPORT ORIENTATION OF THE SECTOR Sector Manufacture of Beverages, general: The volume of exports from sector Manufacture of Beverages in 2010 is small 0,59% of Bulgaria s total exports. According to data of the International Trade Center (ITC), this is the worst position of the sector during the analyzed 10-year period, despite the registered increase in the absolute volume of exports of the sector in 2010 compared to Exports of sector Manufacture of Beverages increase by a slower rate in comparison with the average growth rate of Bulgaria s total export 120% in 2010 compared to 2009 for the sector and 272% for national exports. 12

13 SMEs in Sector Manufacture of Beverages SMEs in sector Manufacture of Beverages contributed to 30% of total exports of the sector in 2010, which is a considerable decrease compared to 2009, when this share was 54,4%. The latter implies that this is one of the sectors where the support to SMEs will be of crucial importance for its revival, hence for the national economy as a whole. Exports of SMEs in sector Manufacture of Beverages decreased by 38,7% in 2010 compared to 2009, while total exports of beverages registered an increase (14,8%), which indicates that small and medium-sized enterprises are more strongly affected by the global financial and economic crisis. The weaker export orientation of SMEs in the sector in 2010 is also confirmed by the low value of export per 1 employed person (BGN 6325) in comparison to the other examined sectors 1. It should be pointed out that many of the enterprises operating in the sector are part of multinational companies, which excludes them from the scope of SMEs analyzed in this export strategy. Despite the lack of data on SMEs in most of the classes in sector Manufacture of Beverages, it is obvious that the decrease in exports relates both to the manufacture of wine from grapes (a drop of 38,9%), similarly to the sector in general, and to the manufacture of spirits (a drop of 50,6%), where large enterprises perform better. The export of beer from malt and soft drinks by SMEs is very small and there are no data available on it. According to data from the conducted survey, over 90% of SMEs included in the sample export part of their production. Direct exports prevail, without using intermediary enterprises, trading organizations, etc. GOODS WITH EXPORT ADVANTAGES AND POTENTIAL Sector Manufacture of Beverages, general The product groups manufactured and exported by sector Manufacture of Beverages are limited in number and for that reason the export advantages and potential of all eight groups are analyzed and estimated, namely: Wine of fresh grapes Ethyl alcohol & other spirits (if undenatured then 80% vol.) Non-alcoholic beverages (excl. water, fruit and vegetable juices) Spirits, liqueurs and other spirit beverages Fermented beverages, nes (for example, Cider, Perry, Mead) 1 In the framework of Project No. BG161РО Promoting the internationalization of the Bulgarian enterprises, export strategies are developed for other 17 sectors in Manufacturing considered to have export potential. The state, development and export orientation of sector Manufacture of Beverages is compared (where appropriate) to data for the rest of the sectors, so as to outline their positions and export potential. 13

14 Beer made from malt Vermouth & other grape wine flavored with plants or aromatic substances Mineral & aerated waters In 2010, the groups of Wine of fresh grapes and Ethyl alcohol & other spirits (if undenatured then 80% vol.) had the biggest shares in the export of the sector respectively, 51,42% and 21,54%. The main findings about the position of Bulgaria in world exports, dynamics of exports, positions of the country in terms of value of exports of selected product groups manufactured by the sector are summarized in the following table: Product Groups Rank in World Export in 2010 Rank in World Export in 2001 Share in World Export in 2010 Share in the Export of the World Leading Exporter in 2010, as of 2001 Share in the Export of the World Leading Exporter in 2010, as of 2010 Export Growth Rate for the Period Wine of fresh grapes % 1.24% 0.75% 106% Ethyl alcohol & other spirits (if undenatured then 80% vol.) Non-alcoholic beverages (excl. water, fruit and vegetable juices) Spirits, liqueurs and other spirit beverages % 0.41% 2.61% 6918% % 0.60% 0.59% % % 0.08% 0.12% % Fermented beverages, nes % 1.53% 3.39% % (for example, Cider, Perry, Mead) Beer made from malt % 0.02% 0.22% % Vermouth & other grape % 1.23% 1.52% % wine flavored with plants or aromatic substances Mineral & aerated waters % 0.13% 0.02% 19.50% Source: International Trade Center and own calculations In general, the production of spirits and wine is with higher export orientation compared to the production of beer from malt, non-alcoholic beverages and mineral waters. The largest share of Bulgarian exports in world exports is registered by the product groups Vermouth and other grape wine flavored with plants or aromatic substances and Other fermented beverages (for example from apples, pears, mead), and the lowest share - by Mineral and aerated waters. In 2010, the best ranking among world exporters is registered by the product group Vermouth and other grape wine flavored with plants or aromatic substances 10th position. The main reasons for this position include export to traditional markets, of products with well-known quality, and at prices on and below the average world level. 14

15 The product group Mineral and aerated waters registers the lowest ranking in world exports among the analyzed products in 2010, as it loses 52 positions during the period Given the fact that Bulgaria has the most mineral waters in the EU, this ranking shows the serious deficiencies of the Bulgarian business and the lack of targeted state support, including lack of promotion and established image of Bulgarian products in this product group. SMEs in Sector Manufacture of Beverages The above presented data on analyzed product groups apply to all companies in the sector, and not only to SMEs. The lack of sufficient statistical information does not allow identifying the share of SME export in the export of each analyzed product group. Some orientation is provided by the results of the conducted survey. Companies in the sample declare that in 2010 they exported mainly white and red wines, distillates from grape and non-alcoholic beverages. According to 92% of interviewed managers of companies, the production capacity for manufacturing products for export is high. Even those of the companies which have not exported their products yet, but are willing to do so, declare such capacities. About 96% of the companies state that their managerial teams have the singular will to export the products they manufacture. The interviewed SMEs export predominantly end products with high degree of processing (according to suggested classification raw materials, semi-finished goods, and end products), which means that the Bulgarian small and medium-sized enterprises in the sector manufacture products with high potential to generate added value. The above conclusion is further confirmed by the fact that according to the managers of surveyed companies, the critical (most important) factors for export success of SMEs are the high technological level, the qualification of personnel and the availability of own research and development base, which are the main prerequisites for creating products with high added value. COMPETITIVENESS OF THE EXPORT OF GOODS ON FOREIGN MARKETS Sector Manufacture of Beverages, general Wine of fresh grapes The main market for Bulgarian products of this group is Russia. Our prices are competitive and our products are well-known there, so this is one of our most promising markets, despite the serious reduction in the Bulgarian wine exports to Russia, compared to the 1980s. Another priority market for the Bulgarian wines is Poland. In 2010, a significant increase is observed of the competitive pressure from Italy, France and Spain, both on the biggest market for Bulgarian wines, Russia, and in Poland. The three main products from the group "wine of fresh grapes" exported on the main market, Russia, include bottled red and white wines in standard sizes, which is the result of traditional demand on the Russian market. A small share of export goes to wines in larger than standard sizes. It should be noted that due to increasing demand 15

16 for wine in large packs (as a result of increased domestic consumption, due to the impact of financial crisis on consumers of this product group), this is a market niche to be further developed. The Russian market is highly import-oriented regarding this commodity group (it has a negative trade balance), which makes it a priority for the Bulgarian export. Ethyl alcohol & other spirits (if undenatured then 80% vol.) The main market for Bulgarian exports is in the EU - Greece, as in 2010 Bulgaria is the leading importer on the Greek market with a share of over 45%. It should be noted that our southern neighbor is the largest importer of Bulgarian products of the examined product group, which implies that our total exports of this commodity group is strongly dependent on the Greek market. Second in importance for the Bulgarian exports ranks the market of Italy, with a share of 2.75% in Bulgaria s most important competitors on the main market (Greece) are Egypt, Italy, Turkey and Germany. Egyptian products are "exotic" for the European market and with good quality. Competitors on the Italian market are Egypt, Belgium, Bolivia and Germany. The main two products by volume on the leading market are undenatured ethyl alcohol of 80% vol. or higher and ethyl alcohol and other spirits, denatured, of any % vol., and their share on the leading market (Greece) is significant. Generally, both products are used as raw material for end products. The trade balance of Greece by this product group is negative in all years of the analyzed 5-year period and its value decreases, i.e. the country imports ever more and exports ever less volumes. This, along with the fact that Bulgaria is a leading importer in Greece, reinforces the importance of this market. Non-alcoholic beverages Our main markets of this product group are in the EU Romania and Greece. The main competitors of Bulgaria include Austria, Germany and the Netherlands producers with traditions and well established market positions, ranking respectively first, second and forth in the world exports of non-alcoholic beverages. The main product exported to the leading market, Romania, is waters (including mineral and aerated waters) with added sugar or other sweeteners or flavored for direct consumption as a drink, and this export is directly dependent on the geographical proximity of the market. The Romanian market is highly open regarding this product group as the country imports and exports almost equal volumes, with a slight excess of imports. The market share of Bulgaria in 2010 increased compared to 2009, which shows the presence of demand in our products. Spirits, liqueurs and other spirit beverages The main market of Bulgarian Spirits, liqueurs and other spirit beverages in the EU is Poland, where our country holds the biggest share compared to other main markets of this product group. 16

17 The major competitors of Bulgaria are the United Kingdom, the United States of America, Finland, Germany and France, the first four of them being the leading world exporters of the analyzed product group. The main exports from this group include distillates of wine or of grape marc, which accounts for over 90% of exports to Poland. The Polish market is highly open regarding this product group as the country imports and exports almost equal volumes, with a slight excess of imports. Poland is a promising market, as the Bulgarian products are well-known there and our averaged import prices are within the medium to low price range. Fermented beverages, nes (for example, Cider, Perry, Mead) Our main market is a non-eu country Russia. In 2010, Bulgaria was the second large importer on the Russian market, but our export share decreased compared to The main competitors on the Russian market are Lithuania, Italy and Germany. The main part of the export is generated by "Other fermented beverages (for example, cider, perry, mead) and mixtures of fermented beverages and mixtures of fermented and non-alcoholic beverages... over 2l". Total exports of this product group is directed to Russia and regardless of the fact that Bulgaria s share in the Russian imports in 2010 was more than 50%, this shows very strong dependence on the local market. The Russian market relies on imports to satisfy the domestic demand in this product group and this circumstance, along with the fact that Bulgaria is among the leading importers, makes it a very attractive export destination. Beer made from malt Our main markets are Macedonia and Greece, which are close to Bulgaria, but the exported volumes are very small. Generally, Bulgaria has yet to become a successful exporter of beer because the country lacks the image of a beer producer. It should be noted that most of the Bulgarian breweries are owned by multinational companies and their production is primarily targeted at the domestic market. Export is made only to countries where the company has not developed production yet. Small and medium enterprises in the sector lack enough production capacity to meet even domestic demand, therefore, the share of exports by these producers is very small. Vermouth & other grape wine flavored with plants or aromatic substances The main market of the Bulgarian products is Russia. Our main competitor on the Russian market is Italy (the biggest world exporter in all ten analyzed years), which holds a share of 94,4% of total imports of this product group on the Russian market in

18 The main exports from the group is formed by "Vermouth and other grape wine flavored with plants or aromatic substances in containers holding <= 2 l - with alc. of <= 18% vol". The strong dependence of the Russian market on imported vermouth and other grape wine flavored with plants or aromatic substances makes it a priority destination for the Bulgarian exports. Mineral & aerated waters The main market of Bulgarian mineral & aerated waters is USA, but the exported volumes are very small. The major competitors of our country are France and Italy, which are the leading world exporters of this product group. The main market of these products in the EU is Romania, where Bulgaria s market share in 2010 was more than 35% - an increase of nearly 8% compared to It s only our northern neighbor, where Bulgaria ranks among the top 5 importers. Nevertheless, the exported volumes are very small. The market of mineral & aerated waters is regionalized and the main suppliers on a certain market are usually countries of close geographical location. Exports to USA are related rather to the search for diversity on behalf of importers, exported volumes are small and because of the great geographical remoteness the American market cannot be defined as important to the Bulgarian export. Finally, the following conclusions can be made for the markets of analyzed product groups in sector Manufacture of Beverages, namely: The export of product groups from the sector is highly dependent on transportation distances and logistics and distribution network, which are decisive factors for the exports of non-alcoholic beverages, mineral waters and beer. In summary, Russia, Greece and Romania are our leading importers, due to geographical proximity and the related low export costs, on one hand, and the good recognition of Bulgarian drinks on these markets, on the other. Analyzed data show high dependence of the Bulgarian export on the Russian market in two product groups: other fermented drinks and vermouth and other grape wine, and on the Polish market in distillates of wine. Estimates of development by 2015 are prepared for each of the analyzed product groups. Simulations of the trend lay on establishing the analytical form of the function through which regularities in the development of exports of each product group in are expressed, and estimating the values of the parameters of the function used. In modeling exports, linear or logarithmic regression is used depending on the regularities manifested in the output period. Regressions are calculated by using the values for each year, not just in the first and last year of the period. The obtained results are presented on the following figure. 18

19 Estimation of the development of exports of product groups by Wine of fresh grapes Ethyl alcohol Non-alcoholic beverages (excl. water, fruit and vegetable juices) Spirits, liqueurs and other spirit beverages Fermented beverages, nes (for example, Cider, Perry, Mead) Beer made from malt Vermouth & other grape wine Mineral & aerated waters Source: ITC 19

20 SMEs in Sector Manufacture of Beverages Insufficiency of available information hampers the making of adequate and timely management decisions to support SMEs on promising markets. A way should be found, including through clearly defined requirements to the NSI, for providing the necessary information. Data from the survey of SMEs do not contradict the analyzed priority export destinations, i.e. the main markets of companies included in the survey are Russia, Greece, Poland, Romania, and Germany. The main advantages of the EU competitors identified by the interviewed SMEs relate to: low cost of production resulting undeniably from the high technical and technological level and equipment; traditionally high quality of products; long traditions in exports of these countries; imposed brands of certain products on the markets; large investments in marketing and advertising, etc.; the role of the state in different forms. In other words, the advantages of competitors are associated exactly with those factors that respondents estimate as highly critical and of high priority for the Bulgarian enterprises. The competitiveness of the Bulgarian drinks is also determined by the fact that a great part of enterprises in the sector have launched a new product on the market since 2007 and they have their own trademark. One of the unfavorable factors for entering foreign markets (EU especially) is the lack of international certificates for the quality of produced goods. Another unfavorable trend, leading to lower competitiveness, is poorly developed R&D activity. Wherever it exists, investments in innovation are related to expansion of the existing business, followed by diversification of the output of the existing business by adding new products. Poor or absent relationships between sector Manufacture of Beverages and scientific and research laboratories and institutes have a negative effect on exports and production as a whole. Maintaining own R&D units is extremely expensive for most of the Bulgarian companies in the sector. The majority (70,9%) of managers of interviewed companies are optimistic and believe that they will retain their export positions in the next five years. What's more - most of them (54.2%) believe that exports will increase, albeit slowly. Pessimists are 8.4% of the respondents - they expect a decline in their future exports. The share of those who cannot make estimation is 12.5%, which implies a degree of uncertainty regarding the export of the sector. The findings and conclusions give grounds to expect that over the next five years exports of Bulgarian drinks produced by SMEs, will stop decreasing in the beginning of the period and will start to increase at a slow pace. At the end of the period, exports will stabilize at the value in about BGN 80 million. The arguments for this expectation are both the developed in-depth analysis of current state-of-affairs and trends in the sector, and the measures aiming to improve export potential of small and medium enterprises in sector "Manufacture of Beverages". 20

21 EXPORT PRIORITY PRODUCT GROUPS AND MAIN MARKETS The analysis of product groups in the sector allows determining the leading export priority product groups and the specific markets. The selection is based on the following criteria: share in sector exports, growing export in the period , global market share and concentration of SMEs in the subsector. For each of the selected product groups, the main markets in 2010, major suppliers and their market shares are presented. For product group "wine of fresh grapes", information is provided on the market characteristics of the two main markets Russia and Poland. Russia 1. Italy (26.65%) 2. France (22.49%) 3. Spain (13.20%) 4. Ukraine (7.57%) 5. Republic of Moldova (5.92%)... 8.Bulgaria (3.35%) Poland 1. France (15.03%) 2. Italy (14.50%) 3. USA (13.33%) 4. Bulgaria (10.50%) 5. Spain (8.91%) The main market of Bulgaria for the analyzed product group is Russia. Information on the Russian market and the leading suppliers is presented in the box below. Similar information is included for the Polish market as well. Wine in Russia Trends: According to a report by Euromonitor (Euromonitor International) wine ranks third in popularity among the Russian spirits after beer and spirits. In 2011, the average Russian consumer has drunk 77 liters of beer, 9 liters of spirits and 7 liters of wine. In the recent years, wine sales in Russia experienced several shocks that prevent more intensive development of the sector, and the ban on imports of Moldovan and Georgian wines leads to changes in consumer preferences. Competition Wine sales in Russia are not consolidated. In 2011, there were no leading companies on the market for wine, which is typical for the markets for beer and vodka as well. The share of "others" reaches 60% of total sales in The considerable number of different brands of wine and the large amount of imported wines make it difficult to select several key brands of wine in Russia. An important trend observed for the sector is the development of a small group of Russian wine producers who have their own vineyards and produce wines of high quality, and therefore can partly replace the imported premium wines on the Russian market. 21

22 Prospects The development of the Russian wine industry is on hold by the economic problems in the country. Expectations are that over the next few years, demand in wine will gradually increase, along with the recovery of consumers purchasing power. The development of wine culture and the higher knowledge of consumers are expected to shift prices from the position of a leading factor in purchase and make quality crucial for the selection of certain product. Wine in Poland Trends: Wine consumption in Poland remains relatively stable despite the financial crisis. Poles travel more and they are more familiar with the advantages of healthy diets and grape wine. Moreover, the strong expansion of discounters makes grape wine more accessible to consumers. All these factors reflect favorably on the sales of this product group. On the other hand, wine sales are affected by weakening of the national currency and the unstable economic environment. Exchange rates of the U.S. dollar and the Euro in the country rise, while inflation in 2011 reached 4.8%. Competition There is a leader in the sales of grape wine in Poland. The leading company owns shares in many other companies-importers of wines, including Bulgarian. Expectations for the emergence of new players in connection with the sales of Chilean and Argentine wines may somewhat alter the picture. Prospects The pattern of consumption of alcoholic beverages in Poland is expected to become more diverse and complex in the next few years. Poles discover new tastes and cuisines. In addition, the aging population shows a keen interest in wine rather than beer and spirits. The growing will for a healthy lifestyle will strengthen this trend. However, wine consumption is highly dependent on the purchasing power of Polish consumers. Expanding the pool of consumers and increased wine events associated with the consumption of wine, are of direct importance for growth of wine sales. Източник: Euromonitor International Ethyl alcohol & other spirits Greece 1.Bulgaria (45.21%) 2. Egypt (13.11%) 3. Italy (10.35%) 4. Turkey (8.41%) 5. Germany (7.59%) Italy 1. France (27.51%) 2. Egypt (19.97%) 3. Belgium (11.90 %) 4. Bolivia (8.66%) 5. Germany Bulgaria (2.75%) 22

23 In conclusion, the main markets of product groups produced by sector Manufacture of Beverages include Russia, where the Bulgarian drinks are well-known, and EU membercountries - Poland, Italy and Greece. Regarding the latter, geographical proximity is an additional favorable factor. BARRIERS TO THE INTERNATIONALIZATION OF SMALL AND MEDIUM ENTERPRISES AND MEASURES FOR THEIR OVERCOMING Based on the conducted survey, barriers to the internationalization of SMEs are identified and analyzed as well as the measures preferred by companies to overcome barriers and to promote exports. Assessment of the severity of barriers to exports of enterprises in (number of responses) For the enterprise Barriers (obstacles) High production costs of goods and services Very serious barrier Serious barrier Not a serious barrier Not a barrier at all High costs for exporting Insufficient quality of goods and services Lack of qualified personnel to ensure quality Lack of experience in foreign trade language barriers Unfavorable business environment in Bulgaria High risk of various foreign markets Customs and non-tariff restrictions from other countries Lack of support by the Bulgarian state for export Source: Survey conducted among representatives of SMEs in the sector, 2011 It is seen from the table that the lack of support by the state and high production costs are the undoubted leaders among responses relating to the barriers to small and medium enterprises. These results do not differ substantially also with regard to responses estimating the barriers faced by the sector as a whole. On this background, suggested measures for supporting both companies and the sector sound logically, as the greatest number of answers and the highest priority goes to measures, such as support for technological modernization of production, assistance in meeting the EU standards/requirements, financing of innovation projects, improving the access to financing and accelerating the procedures under Operational Programs. The organization and financing of participation in global forums, provision of detailed market studies for specific markets, etc. are also included in the proposed measures. 23