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 Food Products June

2 LIST OF ABBREVIATIONS 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 FOOD PRODUCTS OBJECTIVES STRATEGY FOR PROMOTION OF EXPORT OF SMEs IN THE SECTOR ACTION PLAN SYSTEM FOR MONITORING AND CONTROL

4 INTRODUCTION The export strategy of sector Manufacture of Food Products is developed under Project BG161РО Promoting the internationalisation 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 Food Products 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, represented by BSMEPA, MEET and other state institutions has identified the SME sector as particularly sensitive and at the same time as having crucial importance for economic life, deserving special attention. The 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 Food Products. 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 of the active expanding and strengthening of market positions of Bulgarian SMEs producing foods. 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 DEVELOPING THE EXPORT STRATEGY The Export Strategy is a strategic document defining the medium-term goals and priorities of the export development of SMEs in sector Manufacture of Food Products. 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 the 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 Evaluation 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 implementation 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 improve the planning and implementation of activities related to the support of exports of SMEs in sector Manufacture of Food Products. This formal logic does not contradict to the fact that a significant number of institutions, businesses and even the population are involved as stakeholders and they 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 Food Products 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. Technology of strategic planning The process of strategic planning encompasses the following steps: Identification of the stakeholders 5

6 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 some specifics, namely: Identification of the 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 Food Products 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 Food Products ; 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; 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; 6

7 Main suppliers on a certain market; Identification of barriers to internationalization of enterprises in sector Manufacture of Food Products 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; A forecast 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 Food Products 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 export development of SMEs in Manufacture of Food Products over the period of the Strategy. Using SWOT analysis in the development of the Export Strategy has some specifics, as though BSMEPA is the strategy owner, 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 protect 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 Food Products. It helps to distinguish really important decisions from decisions with temporary effects. Goal setting, by establishing a hierarchical tree of goals, is a working tool that allows detailing of the most common general goals to specific ones. Defining of the general strategic goal is particularly important for the future development of exports of SMEs in Manufacture of Food Products 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? Reaching the level of specific goals makes it possible to answer the questions about who, what and when, so as to guarantee attaining of the goals set higher in the hierarchy. Selection of an alternative a development strategy. Once objectives are defined, ways are sought how 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 7

8 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 for supporting the export of SMEs in Manufacture of Food Products. Monitoring system. The last step of the strategic planning process is monitoring and evaluation 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 the 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 complicate further the analysis. This gives particular weight to monitoring, which is closely related to all stages of implementation of the Export Strategy - preliminary (ex ante), current (parallel with implementation) and subsequent (ex post) evaluation. In order to exercise monitoring of the implementation of the export strategy and to evaluate 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 evaluation (when the relevant reports will be prepared); Responsibilities for monitoring and evaluation (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 - Information provided by the BSMEPA - Information from the MEET - EUROSTAT - International trade center - Published information related to international forums and meetings 8

9 - 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, 11 small and 8 medium-sized (total of 20) enterprises operating in the sector, and from a focus group. 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. These specifics are explicitly emphasized during the analysis. 9

10 STRUCTURE OF THE EXPORT STRATEGY FOR SECTOR MANUFACTURE OF FOOD PRODUCTS The structure of the Export Strategy for sector Manufacture of Food Products 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. This approach was chosen in structuring the Export Strategy for sector Manufacture of Food Products. 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. 10

11 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 the 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 Food Products, general The dynamics of production and turnover of enterprises in the sector, measured the by production and turnover indices, shows positive trends for the sector in the whole period Industrial production indices Manufacturing 75,1 71,7 79,3 92,8 106,5 118, ,6 114,4 96,0 103,3 Manufacture of Food Products 81,5 70,1 76,5 93,7 100,5 115,5 125,9 131,5 137,1 126,2 126,9 Industrial turnover indices on domestic market Manufacturing 75,7 75,6 82,5 88, ,4 144,0 155,7 157,4 135,6 136,9 Manufacture of Food Products 77,9 70,7 79,5 106,5 104,6 118,8 156,1 179,0 189,1 190,5 220,2 Note: December of the year, 2005=100; Source: NSI. 11

12 Regional distribution of enterprises and employees in sector Manufacture of Food Products is uneven. The biggest concentration of companies and employees is in the South-Western region, followed by South Central region, and the lowest level is observed in the North-Western region. This location is closely related to the markets of manufactured products. Regional distribution of enterprises in sector Manufacture of Food Products Source: Amadeus database, MEET, SMEs in sector Manufacture of Food Products Sector Manufacture of Food Products is a leader in terms of number of SMEs in The percentage of decrease (0,98%) in the number of SMEs in 2010 compared to 2009 is much lower than the average decrease in manufacturing (4,6%), which implies weaker effects of the crisis on the production of foods. The sector provides 18,5% of employment in SMEs and given the relatively small decrease in the number of employed in 2010 compared to 2009 (4,5% compared to 7,5% in manufacturing), it can be concluded that it has significant national importance for the stabilization of the labor market and particularly for the reduction of unemployment in the country. In inner-sector aspect, the sub-sectors of Processing and preserving of meat and production of meat products, excluding ready dishes and Manufacture of bakery and farinaceous products generate the highest employment, value added and turnover resp. 26%, 21% and 20% for the former, and 11%, 18% and 35% for the latter in Due to their nature, these sub-sectors are considerable in volume and have their own market characteristics. 12

13 The conducted survey and the analysis of the financial situation of SMEs with export potential show that these enterprises have relatively good development and they are in generally good financial condition. This allows stating that export orientation stems from good company development and it is also an opportunity to weaken the negative effects from decreased domestic demand. Due to the high-turnover character of activities in food production, the availability of own resources creates better financial comfort for the analyzed enterprises. In 2010, SMEs in the sector provided about 29,1% of turnover and 20,3% of value added generated by SMEs in manufacturing, as both indicators are higher compared to This means that sector Manufacture of Food Products is less influenced by the crisis in comparison with other sectors. The higher percentage of turnover compared to that of value added confirms the thesis that food production does not contain a high innovation component. The above statement is further confirmed by the fact that in 2010 labor productivity of SMEs in the sector (BGN 12516) is similar to labor productivity in manufacturing (BGN 11421), yet it is far lower than that in the most productive sector, production of pharmaceutical products (BGN 29418), where components like research and innovation are most developed. The sector disposes of high qualified working force, possessing the knowledge and skills to apply traditional good practices in production. This estimation results from the relatively low priority of measures for improving the qualification of personnel pointed out in the company survey and the opinions of experts in food production shared during the discussions in the focus groups. Preserved nature and therefore good quality of raw materials are emphasized by experts as national advantages, though, at the same time, stressing on the lately established trend of Bulgarian agricultural products being supplanted by imports from neighboring countries. EXPORT ORIENTATION OF THE SECTOR Sector Manufacture of Food Products, general Export growth is a continuous trend in the period According to preliminary NSI data for 2011, this trend was interrupted and the reported exports, though slightly (- 4%), fell below the 2010 volumes. These results show a weak and, in some sense, delayed influence of the global financial and economic crisis on the sector. Sector Manufacture of Food Products has the biggest volume of exports in Data of the International Trade Center (ITC) show that by its share of 9,73% in total exports, it is the best positioned sector in manufacturing. In dynamics, the reported increase of nearly 4% (from 5.78% to 9.73%) in the share of the sector in national exports in the period shows clearly that the export potential of this sector is significant. The export growth rate in Manufacture of Food Products is nearly twice higher than the average growth rate of total Bulgarian exports, i.e. in 2010 the exports of the sector 13

14 increased 4,87 times in comparison with 2001, while national exports increased 2,72 times (272%) for the same period. SMEs in sector Manufacture of Food Products The share of SMEs in the export of sector Manufacture of Food Products is high in both years of the analyzed period, for which statistical data is available 60% in 2009 and 42% in The registered trend in the share of SMEs in exports of sector Manufacture of Food Products in 2010 compared to 2009, given the general increase in exports which is due to large enterprises, allows concluding that small and medium enterprises are most severely affected by the global financial and economic crisis and need targeted support. The above conclusion is confirmed also by the results of the conducted survey, according to which companies with decreased turnover in comparison with 2007 have increased in number in the last years, as in 2010 this applies to 8 firms, or 40% of the surveyed sample. Within the sector, the greatest share in exports belongs to the group of Manufacture of vegetable and animal oils and fats, the exports of which increased by nearly 48% in 2010 compared to 2009 and its share in total exports of the sector raised from 17% to 27%. Enterprises Food production Processing and preserving of meat and production of meat products, excl. Prepared dishes Processing and preserving of fish, crustaceans and mollusks, excl. Prepared dishes Processing and preserving of fruit and vegetables, excl. Prepared dishes Manufacture of vegetable and animal oils and fats Manufacture of dairy products Manufacture of grain mill products, starches and starch products Manufacture of bakery and farinaceous products Manufacture of other food products Exports (BGN thous.) Exports (BGN thous.) Structure of exports (%) Change in exports 2010/2009 (%) Exports per 1 employed (BGN) ,0 100,0 92, ,5 17,3 91, ,5 0,7 45, ,2 19,1 83, ,0 27,2 147, ,1 8,2 75, ,0 15,0 86, ,6 1,6 40, ,0 8,9 103, Animal feed preparations ,1 2,0 35, Source: NSI and own calculations 14

15 In terms of export value per 1 employed, sector Manufacture of Food Products ranks 11th among all analyzed sectors 1, which is due to the big number of employed in enterprises working entirely for the domestic market. The presence of export oriented SMEs is confirmed by the conducted survey. Results show that one-fifth of the companies export over 60% of their production. Accounting for the fact that the sample includes only enterprises which make exports or have stated their will to do so, it can be concluded that the total number of SMEs with real export activity is relatively small. Companies in the sample export directly, without using trading or distribution organizations, or creating joint trading companies, etc. GOODS WITH EXPORT ADVANTAGES AND POTENTIAL Sector Manufacture of Food Products, general Product groups manufactured and exported by sector Manufacture of Food Products are extremely numerous. For this reason, goods and services with export advantages and export potential are selected on the basis of two main criteria, namely: highest share in the export of the relative product group combined with a trend of increase over the examined period. These criteria were applied for the sector as a whole, since no official statistical information exists on SMEs. Applying the selected criteria to data of the International Trade Center allowed identifying 15 product groups with export advantages and potential, as follows: Bread, biscuits, wafers, cakes and pastries Meat & edible offal of poltry meat Cane or beet sugar and chemically pure sucrose, in solid form Safflower, sunflower/cotton-seed oil & fractions Cheese and curd Preserved fruits nes Chocolate and other food preparations containing cocoa Sugars, nes, incl. chemically pure lactose etc; artificial honey; caramel Animal feed preparations, nes Prepared or preserved vegetables nes (excl. frozen) Natural honey Frozen fruits & nuts Beet-pulp, bagasse and brewing or distilling dregs and waste 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 Food Products is compared (where appropriate) to data for the rest of the sectors, so as to outline their positions and export potential. 15

16 Oil-cake nes Frozen vegetables The selection of product groups confirms the findings of the Ministry of Economy, Energy and Tourism, Economic Policy Directorate, in outlining the export profile of the sector 2. The product groups cheese and curd, natural honey, sunflower oil, preserved meat, sugar and sugar products, bread and bead products, preserved vegetables and fruits, are identified as the main products exported by sector Manufacture of food products. The largest shares in exports of the sector in 2010 are contributed by the groups of Bread, biscuits, wafers, cakes and pastries and Meat & edible offal of poltry meat (see, figure below), i.e. predominantly goods with low value added. Exports of food products from Bulgaria in 2010 (thous. Euro) Source: International Trade Center The main findings of the analysis of Bulgaria s position in world exports, export dynamics, and Bulgaria s position in terms of export value by selected product groups in the sector, are summarized in the following table:

17 Product Groups Rank in World Export in 2001 Rank in World Export in Share in World Export in 2010 Share in the Export of the World s Leading Exporter in 2010, as of 2001 Share in the Export of the World s Leading Exporter in 2010, as of 2010 Export Growth Rate 2010/2001 Bread, biscuits, wafers, ,72% 1,58% 5,00% 662% cakes and pastries Meat & edible offal of ,74% 1.71% 2.66% 449% poltry meat Cane or beet sugar and % 0.06% 0.83% 5350% chemically pure sucrose, in solid form Safflower, % 4.96% 4.35% 648% sunflower/cotton-seed oil & fractions Cheese and curd % 1.12% 1.88% 271% Preserved fruits nes % 0.99% 3.59% 898% Chocolate and other % 0.39% 1.88% 946% food preparations containing cocoa Sugars, nes, incl. chem. pure lactose etc; artif. honey; caramel % 2.58% 5.15% 476% Animal feed ,31% 1,50% 2,33% 272% preparations, nes Prepared or preserved % 1.47% 3.26% 294% vegetables nes (excl. Frozen) Natural honey % 3.70% 16.37% 569% Frozen fruits & nuts % 3.06% 5.56% 295% Beet-pulp, bagasse and ,67% 0,34% 0,97% 583% brewing or distilling dregs and waste Oil-cake nes ,55% 2,32% 3,98% 493% Frozen vegetables % 1.94% 1.83% 140% Source: International Trade Center and own calculations Data show that in 2010 the groups of Safflower, sunflower/cotton-seed oil & fractions, Sugars, nes, incl. chemically pure lactose, etc; artificial honey; caramel and Natural honey had the best ranking among world export leaders. Two of these product groups, Natural honey and Safflower, sunflower/cotton-seed oil & fractions, occupy the best positions in Bulgaria s share in world exports (2% and 1,6%, respectively). These product groups have export advantages due to the fact that they rely on local raw materials which are traditional for Bulgaria. The group of Cheese and curd has the lowest share (0,29%) in world exports. The export of all analyzed product groups grows by high rates which indicates an increasing demand in food products manufactured in Bulgaria.

18 SMEs in sector Manufacture of Food Products 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 dairy products (cheese, cottage cheese, and white cheese), preserved fruits and vegetables, and chicken meat, which corresponds with the presumed profile of small and medium enterprises. According to 85% of interviewed managers, the companies have high production capacity for the manufacture of export goods. Even part of the companies that do not export yet, but are willing to do so, declare the availability of such capacity. All of the companies (100%) declare that their managerial teams have unanimous will for making exports. Due to the profile of interviewed companies in the sample, they export final products with more specific qualities (by suggested classification raw material, semi-finished goods, final products), with a high degree of processing and, respectively, high value added. It can be concluded, therefore, that this is the niche for greater success of SMEs in exports. The above conclusion is further confirmed by the responses of interviewed managers of SMEs, who consider high technology level and high level of qualification of personnel in small and medium-sized enterprises as the key (most important) factors for export success. These are also the main prerequisite for creating goods with high value added. Participants in the focus groups underlined explicitly that generally Bulgarian products are not recognizable on international markets, or, if recognizable, they are associated with lower price and quality levels, which doesn t meet the truth for many of today s export goods. COMPETITIVENESS OF THE EXPORT OF GOODS ON FOREIGN MARKETS Sector Manufacture of Food Products, general The main markets of the analyzed fifteen product groups exported by sector Manufacture of Food Products are in the EU, as follows: Bread, biscuits, wafers, cakes and pastries - The main markets include Romania, Poland, UK and Greece, determined by factors such as geographical proximity, presence of traditional relations and taste preferences. - On the leading market, Romania, the products with largest export include toasted bread and similar toasted products, pizzas, quiches and other unsweetened bakers and fruit tarts, currant bread, panettone, meringues, Christmas stollen, croissants and other bakers '' wares with added sweetener, i.e. goods with longer expiry date and easy to transport. - Bulgaria s main competitors on the Romanian market are importers from Poland, Germany and Italy, which are among the leading exporters of this product group. 18

19 - Trade balance of this product group on the Romanian market is strongly negative which makes it a lasting export destination in future. Meat & edible offal of poultry meat - The main markets are France, Romania and Belgium, i.e. countries which use these products as raw material in other productions. - On the leading market, France, the products with the largest export volumes include frozen edible fatty livers of ducks of the species domesticus, fresh or chilled boneless cuts of ducks and guinea fowls of the species domesticus, and fatty livers of domestic ducks, edible, fresh or chilled, which are with low value added. - Our main competitors on the leading market are companies from Germany, Poland and Italy, where poultry farming is highly developed. - Trade balance of this product group on our leading market is positive, since France is a traditional producer of Meat & edible offal of poltry meat. Nevertheless, this market remains of considerable importance to the Bulgarian producers due to large volumes imported. Cane or beet sugar and chemically pure sucrose, in solid form - The main importer of the Bulgarian products is Romania due to the geographical proximity of the countries. - Products with the largest exports in this group include white sugar, containing in dry state>= 99,5% sucrose (excl. flavoured or coloured), raw cane sugar (excl. for refining and added flavouring or colouring), raw beet sugar (excl. for refining and added flavouring or colouring, i.e. products with low level of processing and therefore, low value added. - Our main competitors on the leading market are companies from Brazil, Hungary and Serbia, which have advantages related to geographical proximity and good raw material basis. - Imports of this product group in Romania increase in the period , which strengthens the importance of this market as an export destination, particularly combined with the fact that Bulgaria is a leading importer. Safflower, sunflower/cotton-seed oil & fractions - The main markets are Greece and Romania, i.e. the geographical proximity is decisive for this product group. - On the leading market, Greece, the products with largest export volumes include crude sunflower-seed oil (excl. for technical or industrial uses), sunflower-seed or safflower oil and their fractions, whether or not refined, but not chemically modified (excl. for technical or industrial uses and crude), sunflower-seed or safflower oil and their fractions, whether or not refined, but not chemically modified, for technical or industrial uses (excl. crude and for manufacture of foodstuffs), which are products with low value added. - The main Bulgarian competitors on the leading market are from Russia, Romania and Ukraine, i.e. countries, which possess large capacity for producing agricultural products used as raw material. - Greece is a net importer of Safflower, sunflower/cotton-seed oil & fractions. The registered trend of increasing trade balance deficit is a positive factor for Bulgarian 19

20 exports and the expectations are for further growth of imports in our southern neighbour. Cheese and curd - The main markets are Greece and Romania, i.e. the geographical proximity is decisive for this product group. - On the leading market, Greece, products with the largest export include kefalograviera and kasseri, cheese, of a fat content by weight of <= 40% and a water content, by weight, of non-fatty matter of > 72%, sheep's or buffalo milk cheese, in containers containing brine, or in sheepskin or goatskin bottles (excl. feta), i.e. products from the segment of low processed raw material. Before the entry of Bulgaria into the EU, the Greek companies took advantage of the good quality of Bulgarian products and exports in the EU has been done on their behalf. - The main Bulgarian competitors on the leading market are from the Netherlands, Germany and France, which are traditional producers of cheese. - Dynamics of imports and exports of Cheese and curd on the Greek market in shows that it is high competitive and open. This advantage should be used by the Bulgarian producers. Preserved fruits nes - Our main markets are Germany and Romania. - On the leading market, Germany, the products with largest export include cherries nes, o/w prepared or preserved whether or not sugared, sweetened or spirited, i.e. products with low level of processing in Bulgaria, which are used as raw material in Germany. - The main Bulgarian competitors on the leading market are from Turkey, Italy, Greece, China countries with favourable climate and traditions in this production. - The size of the German market and its dependence on imported preserved fruits determine the importance of this market for Bulgarian exports of this product group. Chocolate and other food preparations containing cocoa - The Bulgarian main markets are Romania and Austria large producers of chocolate products. - On the leading market, Romania, the products with largest export include chocolate and other preparations containing cocoa, in blocks, slabs or bars of <= 2 kg (excl. filled and with added cereal, fruit or nuts), chocolate and other preparations containing cocoa, in blocks, slabs or bars of <= 2 kg, with added cereal, fruit or nuts (excl. filled), chocolate and other preparations containing cocoa, in blocks, slabs or bars of <= 2 kg, filled. - The main Bulgarian competitors on the leading market are from Germany, Poland, Hungary and Belgium, which have long traditions in manufacturing of this product group. - The increasing trade balance deficit in this product group and the growing share of Bulgarian imports in Romania make it an important market for the Bulgarian producers. 20

21 Sugars, nes, incl. chemically pure lactose etc; artificial honey; caramel - The main markets are Romania and Greece, i.e. the geographical proximity is decisive for this product group. - On the leading market, Romania, the products with largest export include isoglucose in solid form, containing in the dry state > 50% by weight of fructose, fructose in solid form and fructose syrup not containing added flavouring or colouring matter and containing in the dry state > 50% by weight of fructose, isoglucose in solid form, containing in the dry state >= 20% and < 50% by weight of fructose. - The main Bulgarian competitors on the leading market are from Hungary, Germany, Italy, and France. - The Romanian market is highly dependent on imports of sugar products and Bulgaria is the leading importer, so it should strengthen further its positions there. Animal feed preparations, nes - The main markets are the Netherlands, Romania and Poland. - On the leading market, Netherlands, the products with largest export include preparations of a kind used in animal feeding, containing no starch, glucose, glucose syrup, maltodextrine, maltodextrine syrup nor milk products (excl. dog or cat food put up for retail sale, fish or marine mammal solubles, residues fro). - The main Bulgarian competitors on the leading market are from Germany, Belgium, France, USA and UK. - The Dutch exports of Animal feed preparations exceed imports, but the latter is quite substantial. This is an important and promising market for Bulgarian exports, as our imports in 2010 made only 1% of total imports in the Netherlands and therefore there is a potential for further growth. Prepared or preserved vegetables nes (excl. frozen) - Our main markets are Greece, Germany and Romania. - On the leading market, Greece, the products with largest export include olives, prepared or preserved otherwise than by vinegar or acetic acid (excl. frozen), probably due to the established Greek and joint Bulgarian-Greek companies on the territory of Bulgaria, vegetables, prepared or preserved otherwise than by vinegar or acetic acid, not frozen, shelled beans "vigna spp., phaseolus spp.", prepared or preserved otherwise than by vinegar or acetic acid (excl. frozen). - The main Bulgarian competitors on the leading market are from Belgium, Germany and Turkey. - The trade balance of Greece in this product group is strongly positive as the country has favourable conditions for vegetables growing. Anyway, imports of prepared or preserved vegetables from Bulgaria show a demand in our products. This notwithstanding, it is advisable to undertake measures to expand our positions on the second important market, Germany, which is a large market with huge number of consumers. 21

22 Natural honey - The main market of Bulgarian natural honey is Germany. - There is no statistical information allowing characterizing different products within this group. - The main Bulgarian competitors on the leading market are from Argentina, Mexico, Chile and Spain. - Good Bulgarian positions on the German market and considerable demand in natural honey make Germany a priority export destination of Bulgarian exports in the future. Frozen fruits & nuts - The main markets on which Bulgarian companies from the sector export are Italy and Germany. - On the leading market, Greece, the products with largest export include fruit of species vaccinium myrtillus, uncooked or cooked by steaming or boiling in water, frozen, unsweetened, strawberries, uncooked or cooked by steaming or boiling in water, unsweetened, frozen, blackberries and mulberries, uncooked or cooked by steaming or boiling in water, frozen, unsweetened, which in most cases are subject to further processing. - The main Bulgarian competitors on the leading market are from the Netherlands, Poland and Serbia. - The increasing trade balance deficit in this product group and the growing share of Bulgarian imports in Italy make it an important market for the Bulgarian producers. Beet-pulp, bagasse and brewing or distilling dregs and waste - Our main market is Greece. - On the leading market, Greece, the products with largest export include residues from the manufacture of starch from maize, of a protein content, calculated on the dry product, of > 40% by weight (excl. concentrated steeping liquors), brewing or distilling dregs and waste, beet-pulp. - The main Bulgarian competitors on this market are from Italy and Hungary. - Although imports of this product group in Greece increase, Bulgarian exports there drop and redirect to Cyprus and Italy, and the importance of these markets for the Bulgarian producers will increase in future. Oil-cake nes - Our main markets are Italy and Greece, but data available do not allow specifying the main products exported in this product group. - The main Bulgarian competitors on the leading market, Italy, are from Russia, Ukraine, Austria and Germany. - Increasing negative trade balance of oil-cake in Italy makes it a highly promising market for Bulgaria. 22

23 Frozen vegetables - Greece and Italy change places as major importers of this product group from Bulgarian companies, as both countries are vegetables producers. - On the leading market, Greece, the products with largest export include vegetables, whether or not cooked by boiling in water or by steaming, frozen (excl. potatoes, leguminous vegetables, spinach, New Zealand spinach, orache spinach, sweet corn, olives, fruits of the genus capsicum or of the genus pimento, shelled or unshelled peas "pisum sativum", uncooked or cooked by steaming or by boiling in water, frozen, leguminous vegetables, shelled or unshelled, uncooked or cooked by steaming or by boiling in water, frozen (excl. peas and beans), which are mostly used as raw material or semi-finished goods in other productions. - The main Bulgarian competitors on the leading market are from Belgium, France, the Netherlands and Egypt. - The Greek import of frozen vegetables is bigger than export, which, along with our traditional presence and good quality, makes it a perspective market in the future. However, Italy should also be considered a promising destination for export, as the Bulgarian exports there in 2010 increased (to 5480,9 thous. Euro) compared to 2009, and became similar to our export on the leading market (5793,4 thous. Euro). Data about the main Bulgarian markets in the EU show that exports of the analyzed product groups are concentrated on one or two markets: Greece and Romania are leading importers due to their geographical proximity and the related low transportation costs, and Germany is a large market with huge number of consumers which is also relatively close. Accounting for the fact that the negative effects of the global economic crisis are not overcome yet, export promotion measures should be directed at expanding our presence on main priority markets. Although for fewer product groups, the value of Bulgarian exports in non-eu countries is similar to that in the EU-countries, as for example, bread, biscuits, waffles, cakes and pastries, and oil and fractions from sunflower and cotton seed to the Balkan countries; cheese and curd to USA, Australia; prepared animal feeds to Canada, Thailand, USA; preserved fruits to Russia; preserved vegetables to USA. For all analyzed product groups, Bulgaria ranks among the five main importers on at least one of the leading markets for the country, which indicates the considerable export advantages of the Bulgarian goods. 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. 23

24 Estimate of the development of exports of product groups by Bread, biscuits, wafers, etc. Meat&edible offal of poltry meat Sugar Oil & fractions Cheese and curd Preserved fruits nes Food preparations containing cocoa Sugars, incl. chem. pure lactose etc. Animal feed preparations Prepared or preserved vegetables Natural honey Frozen fruits & nuts Beet-pulp Oil-cake nes Frozen vegetables Source: International Trade Center and own calculations 24

25 SMEs in sector Manufacture of Food Products Insufficiency of available information hampers the making of adequate and timely management decisions to support SMEs on perspective markets. A way should be found, including through clearly defined requirements to the NSI, for providing the necessary information. Nevertheless, data from the survey of SMEs do not contradict with the analyzed priority export destinations, i.e. the main markets of companies included in the survey are in the EU countries, next come countries of relatively close destinations such as Russia, Turkey, the Balkan countries, and last mentioned are export destinations like Australia, USA and Japan. The main advantages of EU competitors identified by the survey are rather heterogeneous, yet all respondents have identified at least two advantages: - First, particular factors relating to prices, organization and other rather production advantages, which implies excellent knowledge of the markets they operate on; - Second, factors relating to state support of the business, starting from general statements like the state supports strongly exports to countries outside the EU, via advertizing campaigns organized by the state and favourable business climate and coming to particular experiences like state support in Turkey and in the Czech Republic. - Third, advantages relating to favourable customs tariffs; geographical location (lower transport costs); well-known brands; available financial resources, etc. All advantages of the competitors should be considered as deficits for the Bulgarian exporters. Competitiveness of Bulgarian food products is determined also by the fact that, according to interviewed representatives of companies with export potential, the majority of enterprises in the sector have clear and well-grounded export strategies, they have implemented a new product on the market after 2007, and possess international certificates and own brands. An unfavorable trend, leading to lower competitiveness, relates to poor developed innovations. If existing at all, innovation investments are made mostly in expanding of the existing business, followed by diversification of output of the existing business by adding new products. Ten of the surveyed companies expect growth in exports in the next period, though at slower rates. Companies planning to start exporting their products declare that this will happen in 2012, or in the next year. Based on findings and conclusions it may be expected that over the next five years exports of Bulgarian food products manufactured by SMEs will grow, although slowly, and by the beginning of the period they will reach the level of 2009 (BGN 987,6 mln). By the end of the five-year period, exports of Bulgarian SMEs in the sector are expected to exceed BGN 1,1 billion. 25

26 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 the primary market of each product group, information is provided on market characteristics and main supplier companies. BREAD, BISCUITS, WAFERS, CAKES AND PASTRIES The leading market for Bulgarian exports of this product group is Romania. Information on the Romanian market and prospects for development is presented in the box below: 26

27 Bread, biscuits, wafers, cakes and pastries in Romania Trends The negative effects of the economic crisis and declining purchasing power led to a change in the consumer habits of consumers who turned their focus from expensive chocolate products to cheaper, but having similar characteristics biscuits, snacks and desserts. Other reasons for growth in sales of bread, biscuits, waffles and pastries in Romania may be sought in the increased consumption of these products "on track" and at the workplace. The economic crisis has intensified the polarization of household incomes and therefore demand is observed in both plain biscuits and premium brands of various international companies. Prospects It is expected that the economic crisis will continue to affect sales in Romania, which will influence the sales of the analyzed product group as well. Bakery products will remain a staple food for Romanians. Consumption will focus on economy class products or premium brands, and movement is expected to take place basically from mid-range products to their cheaper substitutes. However, premium brands will retain or even improve their position. Companies whose brands are expected to strengthen their market positions are large multinationals. Source: Euromonitor International MEAT & EDIBLE OFFAL OF POLTRY MEAT The leading market for Bulgarian exports of this product group is France. Information on the French market and main suppliers is presented in the box below: 27

28 Meat & edible offal of poltry meat in France The main Bulgarian product exported to France in the observed period is frozen edible fatty livers of ducks of the species domesticus. According to Herman Werstapen, representative of Bulgaria to the European Association of States producing livers of ducks (Euro foiе gras), in 2011 Bulgaria exported 2600 tons of livers of ducks, and the major part of it was directed to France. France is the largest world producer and consumer of goose and duck livers and this is associated with French traditions and food culture. The main suppliers on the French market are companies with long-year traditions and image in the branch. Source: Own research CHEESE AND CURD The leading market for Bulgarian exports of this product group is Greece. Information on the Greek market and prospects for development is presented in the box below: Cheese and curd in Greece Trends: There is increasing interest in low fat types of cheese. Several large companies have taken strong positions on the market for low-fat cheese. After 2010, there was penetration of new market players. Prospects It is expected that the bulk of sales of cheese in Greece will be local cheeses. The tendency to "return to tradition" will further enhance consumption of this product. The most popular type of cheese will continue to be feta cheese, while also increasing the sales of kefalotyri and graviera. Source: Euromonitor International 28

29 PRESERVED FRUITS NES The leading market for Bulgarian exports of this product group is Germany. Information on the German market and main suppliers is presented in the box below: Preserved fruits in Germany Germany is the leading importer of preserved fruits in the European Union. The German market is attractive for foreign companies, since only one-fifth of consumed fruits are local production. The market for processed fruits is concentrated in the production of jellies and jams (36%) and fruit preparations (38%). Germany is the leading European producer of jams, and this of sweet cherries is among the most popular types (The main Bulgarian product from this group exported to Germany is cherries nes, o/w prepared of preserved whether or not sugared, sweetened or spirited ). The country relies on imported raw material for the production of jams. The main suppliers on the market of preserved fruits in Germany are international companies, some of them with German ownership. Source: Austrade 29