Eastern Europe Market And Country Profile Sis International Research

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Presented to:AIMRI

June 20, 2008

By: Ruth StanatPresident, SIS International Research

Opportunities & Challenges inResearching Eastern Europe

SIS InternationalCustom Research

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Table of Contents

1. Growth Opportunities

2. Market Opportunities

3. Pitfalls in Researching these Countries

4. Where to Focus your Clients’ Research Efforts

5. Managing the Research Budget

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I. Economic Snapshot

• Economic Indicators

• Demographic Profiles

• Sector Analysis

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Economic Comparison Chart

85.99

85.73

-7.1%

5.5%

13.879

138.2

Hungary

109.8

113

-3.8%

2.0%

17.139

175.3

CzechRepublic

150.7

137.9

-2.8%

2.0%

11,057

421.5

Poland

1.121

1.361

4.4%

1.4%

40,247

3,323.9

Germany-Benchmark

260.4Imports

(US$ bn)

365Exports

(US$ bn)

5.1%CurrentAccountBalance (%of GPD)

12.5%CPI Inflation

14,662GDP percapita (US$)

1,289.6GDP

(US$ bn)

Russia

Source: The Economist.com and the CIA World Factbook

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Economic Comparison Chart (cont’d)

25.7857.0628.7964.3354.3Imports

(US$ bn)

12.1155.3119.7740.2546.68Exports

(US$ bn)

-7.1%-6.9%-12.2%-9.4%2.8%CurrentAccountBalance (%of GPD)

2.6%5.2%6.1%9.4%9.9%CPI Inflation

12,86313,7385,2207,805.63,056GDP percapita (US$)

50.967539.6168.8141.2GDP

(US$ bn)

CroatiaSlovakiaBulgariaRomaniaUkraine


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Economic Comparison Chart(cont’d)

22.6413.730.2214.7118.3Imports(US$ bn)

17.097.55128.1811.318.824Exports(US$ bn)

-9.2%-15.8%-2.6%-13.3%8.9%CurrentAccountBalance (%of GPD)

2.4%6.5%3.5%3.9%11.2%CPI Inflation

11,32911,91522,85215,8575,665GDP percapita (US$)

28.572745.921.241.44GDP(US$ bn)

LithuaniaLatviaSloveniaEstoniaSerbia


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Poland (Economic)

• Memberships: EU Membership and Structural Funds since 2004

• GDP: $421.5 bn

– GDP Growth Rate: 7%; Inflation: 2.0% (2007 CPI est.)

• Per Capita Income: $11,057; 17% of population below poverty line

• Unemployment: 12.8%

• Current Account Balance: -$2.8 billion

– Exports have more than doubled since 2002

• Forecast:

– GDP growth: 5.1% in 2008, 4.3% 2009-2012

• Goal to adopt Euro in 2012

– Labor market problems

• 54% participation rate in the labor market

• Wages growing faster than productivity– Need to liberalize market regulations

“Poland: Factsheet” Economist Intelligence Unit. May 16, 2008.

“Poland” Central Intelligence Agency World Factbook. May 15, 2008.

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Poland (Demographic)

• Median Age

– male: 35.8 years

– female: 39.5 years

• 11 million Internet users in population of 38 million

• Low divorce rate compared to the rest of Europe

– Country is Catholic, 90% of people define selves as “religious”

• “Brain drain” worker migration to UK

– Trend should reverse over long-term

– Firms need to know how to attract best talent

http://culture.polishsite.us

http://data.un.org

“Divorces by urban/rural residence” UNSD Demographic Statistics

“Poland” Central Intelligence Agency World Factbook. May 15, 2008.

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Poland (By Sector)

• Machinery and Transport equipment– 30% of imports

– 38% of exports

• Packaging– 1.5% of GDP

– Metal and Paper Packaging expected 5-10% annual growth

• Foreign Investment– Driver of recent economic success

– Computers

– Consumer Electronics

– Automobile Component Production

• Agriculture– Inefficient small farms without investment

• Oil, Coal, Refining (controlled by government)

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Czech Republic (Economic)

• Stable, prosperous economy fueled by exports to EU

• Real GDP: $175.3 billion

• Real GDP growth forecast: 4.7% in 2008, 5.4% in 2009– Slowed by US credit crunch, will begin to expand again

• Forecast:– Domestic demand will drive economic expansion in 2008

• Led by new availability of credit cards, mortgages

– In 2009, GDP boost will come mostly from trade (exports)

• Unemployment: 6.6% (2007)

• Inflation: 2.0% (2007 CPI est.)

• Current Account Balance: -$3.8 billion

• Currency: The Czech government and the central bank havereached an agreement on measures designed to stem theappreciation of the currency

“Czech Republic: Factsheet” Economist Intelligence Unit. May 16, 2008.

“Czech Republic” Central Intelligence Agency World Factbook. May 15, 2008.

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Czech Republic (Demographic)

• Median Age



• Sex Ratio

– under 15 years: 1.06 male(s)/female

– 15-64 years: 1.01 male(s)/female

– 65 years and over: 0.65 male(s)/female

• Per Capita Income: $24,400

• One of Eastern Europe’s highest life expectancies

– Life expectancy at birth: 79 years

– Behind only Germany and Slovenia

“Czech Republic” Central Intelligence Agency World Factbook. May 15, 2008.

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Czech Republic (By Sector)

• The cabinet endorsed the first draft of a healthcare reform billin April 2008

• Restructuring of Czech firms allows for more US FDI• Rapid growth in use of cell phones

– Privatization of telecommunications was slow starting

• Financial Sector not exposed to international credit crunch– Czech Komercni Bank not affected by parent SocGen scandal

• EU funds• 58% occupations in services sector• Sale of CZK150bn in state-owned firms• Tourism

– 5% growth in 2005 has slowed to 1%

• Automotive– 2008 opening of Hyundai plant– Industry to double from 2005 to 2011

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Hungary (Economic)

• Transitioned from Planned to Market Economy

• Remarkable turnaround of budget deficit

– 4% of GDP in 2008 from near 10% in 2006

– Low budget, low growth

• GDP: $138.2 billion

– Real GDP growth rate: 1.3% (2007), 2.3% 2008, 3.4% 2009



• Current Account Balance: -7.1% of GDP

• Private sector 80% of GDP, FDI $60 billion since 1989

“Hungary: Factsheet” Economist Intelligence Unit. May 16, 2008.

“Hungary” Central Intelligence Agency World Factbook. May 15, 2008.

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Hungary (Demographic)

• Median Age



• Sex Ratio




• Income per Capita: $19,500

• 4.4 million Internet users in a population of 10million

• Only recent emergence of middle class

“Hungary” Central Intelligence Agency World Factbook. May 15, 2008.

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Hungary (By Sector)

• Industrial Growth

– Mining 28.2%

– Manufacturing 13.8%

• From 1989-2000, 1/3 FDI into East Europe went to Hungary

• Investment concentrated around Budapest

– Special initiatives for doing business in eastern Hungary

• Agriculture

– Land 1/10 price of Western Europe

– Speculating issue as EU ascension imminent

• Financial Services

– Foreign companies do not need government approval

– May conduct cross-border financial services

– Hungary issues investment-grade sovereign debt

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Russia (Economic)

• GDP: $1,289.6 billion

• GDP Growth: 8% in 2008 so far



• Heavily dependent on Oil

• Domestic Investment:

– Increased at a rate of 21% in 2007

– Necessary for diversification and modernization of infrastructure

• Outflow of foreign direct investment increased by55% in 2007

“Russia: Factsheet” Economist Intelligence Unit. May 16, 2008.

“Russia” Central Intelligence Agency World Factbook. May 15, 2008.

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Russia (Demographic)

• Median Age

– Male: 35.1 years

– Female: 41.4 years

• Sex Ratio





• Highest number of legal abortions in the world

– 1.8 million in 2004, down from 4 million in 1992

– 53.7 abortions for every 1,000 women

• Income Inequality

– Very high inequality in distribution of wealth


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Russia (By Sector)

• State control in key sectors

– Oil, Titanium (Russia produces 66% world’s titanium)

• Heavy Industry concentrated in European Russia

• Agriculture concentrated in warmer-climate South

• Oil-fueled future growth is major concern

– Official statistics hide growth because transfer prices allowprofits to occur in non-energy sectors

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Ukraine (economic)

• Domestic Consumption– Rising Wages and Pensions

• GDP: $141.2 billion (2007)– Real GDP Growth: 6.9%

• GDP - composition by sector:– Agriculture: 9.2%

– Industry: 32.6%

– Services: 58.2%


• Steel Exports, solid growth in metals

• Continual economic reforms improve businesslandscape

“Ukraine: Factsheet” Economist Intelligence Unit. May 16, 2008.

“Ukraine” Central Intelligence Agency World Factbook. May 15, 2008.

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Ukraine (Demographic)

• Median Age



• Sex Ratio

– Under 15 years: 1.06 male(s)/female




– Projected 104% growth through 2012

“Ukraine” Central Intelligence Agency World Factbook. May 15, 2008.

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Ukraine (By Sector)

• Metals

• Internet

– Users grew by 17.8% in 2007

– Rapid acceleration of speed and availability

• Food & Drink

– Projected 47% increase by 2012

– Mass grocery retail is a developing market

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Romania (Economic)

• Joined EU Jan. 1, 2007

• Real GDP: $168.8 billion (2007)

– Real GDP Growth: 5.9%




“Romania: Factsheet” Economist Intelligence Unit. May 16, 2008.

“Romania” Central Intelligence Agency World Factbook. May 15, 2008.

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Romania (Demographic)

• Median Age



• Sex Ratio





“Romania” Central Intelligence Agency World Factbook. May 15, 2008.

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Romania (By Sector)

• Occupations 41% agriculture

• 4 million internet users increasing (21 millionpopulation)

• Tax rate 16%

• Textile and Footwear

• Light machinery and Auto assembly

• Italy major import and export partner

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Bulgaria (Economic)

• Strong Economic Growth since 1996– Inflation (6.1% 2007 CPI est.) , Corruption still a problem

• GDP: $ 39.6 billion

• Real GDP Growth: 6.2% in 2007– Peak of Economic Boom Cycle

– Projected 6% annual growth through 2012

• Unemployment: 6.9% (down from 9.7%)

• Nominal Wage Growth: 20.6%


• Opportunity for Consumer Good Importers– Imports: EUR24bn, EUR39bn by 2012

– Exports: 18 EURbn

– Consumption: 88% of GDP

“Bulgaria: Factsheet” Economist Intelligence Unit. May 16, 2008.

“Bulgaria” Central Intelligence Agency World Factbook. May 15, 2008.

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Bulgaria (Demographic)

• Median Age



• Sex Ratio





• Marriage 4x as common in urban areas as in ruralareas

– 26,658 urban marriages versus 6,843 rural marriages in 2006

“Bulgaria” Central Intelligence Agency World Factbook. May 15, 2008.

“Marriages by urban/rural residence”. USND Demographic Statistics. February 21, 2008 .

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Bulgaria (By Sector)

• Minerals

– Coal, copper, and zinc

• Tourism

– 6% projected annual growth 2008-2012

– January 2008, government announced national strategy forincreasing tourism from EUR2.4bn to EUR6bn

– Massive construction in hot spots (e.g. Black Sea)

– Residential House Prices: 30% Increase

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Slovakia (Economic)

• Successful transition from planned to market economy

• Joined EU in May 2004

– Goal to adopt Euro on Jan 1, 2009

• GDP growth: 5.7%

– Fueled by exports and high domestic investment

– Manufacturing and construction

• Forecast

– 2008 GDP: 4.4%

• Government expenditures more significant than investment

– Inflation predicted to decrease from 2007 level (6.9%)

– Large Current Account deficit (-6.9% of GDP)

• Higher trade deficit expected for 2008

“Slovakia: Factsheet” Economist Intelligence Unit. May 16, 2008.

“Slovakia” Central Intelligence Agency World Factbook. May 15, 2008.

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Slovakia (Demographic)

• 60% of Slovaks live in villages with fewer than 5,000inhabitants

– To reach consumers, far reaching marketing efforts necessary

• Sex Ratio




• Median Age



• GDP per Capita: $19,800

“Slovakia” Central Intelligence Agency World Factbook. May 15, 2008.

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Slovakia (By Segment)

• Growing Tourism Sector– Overnight stays above 8 million in 2007 for first time

– Italian and Austrian visitors largest groups

– More jobs in hotels, restaurants

• Manufacturing– Advanced technology sectors growing

• Automotive, Transport Equipment

– Least advanced technology manufacturing sectors declining

• Leather, Textiles

• Banking Sector– Largely in foreign control

• Major construction of highway infrastructure

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Croatia (Economic)

• GDP: $50.96 bn– Moderate, steady GDP growth around 4-6%

• Per Capita Income: $12,863• Unemployment: 11.8%• Current Account Balance: -$3.836 bn, -7.1% of GDP• Forecast: GDP growth expected around 10% for 2008-2009• Trade deficit growing: $5.07 bn in 2007, a 5-year high• Uneven regional development• Economy heavily influenced by state

– Privatization often resisted by both politicians and the public

• Currently furthering agenda of EU mandated reforms, though atslow pace– Especially slow in politically sensitive areas such as agriculture, fishing,

ship-building, and steel

• EU entry expected in 2011, at earliest

“Croatia: Factsheet” Economist Intelligence Unit. May 16, 2008.

“Croatia” Central Intelligence Agency World Factbook. May 15, 2008.

“Croatia's current account deficit reaches 5-year high” The Earth Times. Apr 22 2008 .

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Croatia (Demographic)

• Median Age



• Sex Ratio




• Largely Catholic population


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Croatia (By Sector)

• Tourism

– Tourism receipts cover about two-thirds of the merchandisetrade deficit

– The tourism industry accounted for almost $10.8 bn last year

• Major trading partners are Italy, Germany, andBosnia and Herzegovina– Major imports are machinery, transport and electrical equipment;

chemicals, fuels and lubricants; and foodstuffs

– Major exports are transport equipment, textiles, chemicals,foodstuffs, and fuels

“Croatia: Factsheet” Economist Intelligence Unit. May 16, 2008.


“Croatia's current account deficit reaches 5-year high” The Earth Times. Apr 22 2008.

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Serbia (Economic)

• GDP: $41.44 billion– Real GDP growth rate: 7% (2007 est.)


• Current Account Balance: 8.9%

• High unemployment rate: 18.8% (2007 est.)

• Increase in economic growth rate after ousting Milosevic in2000

• Political instability due to unresolved Kosovo issue

• Country has a large amount of foreign debt and a high exportdeficit– Country is making attempt to dramatically increase exports

• Major goal is to gain admission to EU– EU is Serbia’s most important trading partner

“Serbia: Factsheet” Economist Intelligence Unit. May 16, 2008.

“Serbia” Central Intelligence Agency World Factbook. May 15, 2008.

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Serbia (Demographic)

• Median age


– Female: 39 years

• Sex Ratio


– 15 – 64 years: 0.97 male(s)/female

– 65 years and older: 0.68 male(s)/female

• Highest malnutrition rate in Eastern Europe as of2003

– 9% of population undernourished, compared to 2.5% inGermany, Ukraine, Poland, United States, etc.

“Serbia” Central Intelligence Agency World Factbook. May 15, 2008.

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Serbia (sector)

• Exporter of manufactured goods, food, and liveanimals

– In last 10 years, EU has contributed money to increasinglivestock inspections, food safety, and lab modernization

• EU also contributing to infrastructure development

– Serbia is looking to become a regional hub for air transportation

• Serbia will import environmental technology to fulfillits EU admission requirements

– Will see increase in unleaded gasoline, filters, etc.

• Telecom is Serbia’s fastest-growing industry

– Annual growth-rate of 18.3% in telecom sector

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Estonia (Economic)

• 2004 Joined NATO and EU– Stronger economic growth due to structural funds and foreign

investment

• GDP: $21.2 billion– Real GDP Growth: 7.3%, projected 2.2% 2008, 3% 2009

• Overheating?– Demand putting upward pressure on prices, wages

• Losing competition to China

– Inflation: 3.9% (2007 CPI est.)

– Current Account Balance: (-$3.1 billion)

– Unemployment: 5.2%

• Major trade partner with Finland (16% imports, 22%exports)

“Estonia: Factsheet” Economist Intelligence Unit. May 16, 2008.

“Estonia” Central Intelligence Agency World Factbook. May 15, 2008.

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Estonia (Demographic)

• Conflict between Estonians and Russians

– Highlighted by relocating Russian statue

• Median Age



• Sex Ratio




– total population: 0.84 male(s)/female


“Estonia” Central Intelligence Agency World Factbook. May 15, 2008.

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Estonia (By Sector)

• Freight Transport

– Port of Tallinn

– Dependant on Russian cargos

• Fluctuates with political environment

– Air freight

• 8-9% annual growth through 2011

– Road frieght

• 4.5% annual growth fueled by trade with Europe

• Electronics and Telecommunications

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Slovenia (Economic)

• Richest nation in Eastern Europe

– Former trading arm of Yugoslavia

– Strong ties with western trade partners


• Real GDP growth: 6.3%

• Inflation: 3.5% (2007 CPI estimate)

• Current Account Balance: -$1.5 bn

“Slovenia: Factsheet” Economist Intelligence Unit. May 16, 2008.

“Slovenia” Central Intelligence Agency World Factbook. May 15, 2008.

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Slovenia (Demographic)

• Median Age



• Sex Ratio




• GDP per Capita: $27,300

• Religiously diverse

• Literacy rate: 99.7%

“Slovenia” Central Intelligence Agency World Factbook. May 15, 2008.

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Slovenia (By Sector)

• Increase in light manufacturing and services– Pharmaceuticals

– Electrical Engineering

• Automotive– Revoz is top exporter

• Slovenia division of Renault

• Ideal geographic location– Transportation services for increasingly integrates nations

• Heavy investment in infrastructure

– Tourism

• Recent increase in tourism receipts

• Financial Services– Domestically grown, difficult for foreign firms to invest

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Latvia (Economic)

• Latvia faces economic problems

– Overheating? Government/Central Bank slow to respond

– Current Account Balance: -$5.84 billion, 22% of GDP

– High inflation: 6.5% (2007 CPI est.)

– Currency is pegged to the Euro, increasing inflation

• Privatization of Real Estate and Banks

• WTO in 1999, EU in 2004

• GDP: $27 billion

– Real GDP Growth: 10.7%


• Riga (capital) produces 57% of GDP

“Latvia: Factsheet” Economist Intelligence Unit. May 16, 2008.

“Latvia” Central Intelligence Agency World Factbook. May 15, 2008.

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Latvia (Demographic)

• Median Age


– Female: 43 years

• Sex Ratio





• Ethnically diverse

• Life expectancy at birth: 72 years

“Latvia” Central Intelligence Agency World Factbook. May 15, 2008.

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Latvia (By Sector)

• Forestry and Woodworking

– Large natural supple of timber

• Dependence on Russia

– Hurt by Russian financial crises, major import/export partner

– Russia attempting to transport goods via its own ports

• Construction

– 14% increase in 2007, 7% of overall GDP

– Strong investment and booming housing market

• Population density linked with job opportunities

– Fewer schools, healthcare, public services in rural areas

– Best to concentrate focus on major cities

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Lithuania (Economic)

• Rapid growth following 1998 Russian financial crisis


– Real GDP Growth: 8%


• Rapid Real Wage Growth


• Current Account Balance: -9.2%

“Lithuania: Factsheet” Economist Intelligence Unit. May 16, 2008.

“Lithuania” Central Intelligence Agency World Factbook. May 15, 2008.

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Lithuania (Demographic)

• Median Age



• Sex Ratio





• 2008 population growth estimate is flat (-0.284%)

• Literacy rate: 99.6% (for men and women)

“Lithuania” Central Intelligence Agency World Factbook. May 15, 2008.

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Lithuania (By Sector)

• Agriculture

– Changes from collectivization to private to capital-scaled farms

• Construction

– 15% annual growth

– Almost completely privatized

– Shift from Russian to domestic contracts

• Manufacturing

– Leather and Textiles are largest manufacturing sectors

– Wood and Furniture growing the fastest

• Export to UK and Sweden (60% of exports to Sweden are for IKEA)

• Financial Services

– Consolidation: 9 commercial banks, 90% foreign capital

– Falling interest rates fuel strong growth

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II. Market Opportunities

• Comparatively high growth rate– Most countries have projected 5-10% annual GDP growth– Economies like Poland are among the fastest growing in Europe

• Exports are growing– Exports are growing in many countries, indicating a need to find new

markets for their products

• Relatively untapped domestic market– Clients of market research can benefit by introducing their products to

the domestic market (e.g. Poland has a large domestic market)

• Numerous opportunities for market researchers– Growing markets require more research– CATI call centers– Increased need for fieldwork

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Industries withGrowth Potential

• EU Structural Funds support new EU members’ infrastructuregrowth and economic development

– More government contracts

• Luxury consumer goods (cosmetics, clothing)

• Automotive

• In most post-socialist countries, we see tremendous growth inthe services sector

– Opportunity for…

• Real estate construction

• Retail

• Services sector

• Tourism, hotel construction

• Financial services

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Market Opportunities in Electronics andFast Moving Consumer Goods Segments

• Expect growth in Internet and small electronics users

• Eastern Europe will be manufacturing small electronics inincreasing amounts

– Electronics suppliers are operating in Eastern Europe, where the cost oflabor is up to 70% less than the rest of Europe

• Countries attempting admission to EU are undergoingmodernization and inspection of food industries

• Companies will benefit from research in DIY products andservices, consumer electronics, and clothing

– These are sectors with opportunity for growth

– Multi-channel retailing should be researched

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Energy & Natural Resources

• New Infrastructure

• Oil & Russia

– Russia provides Europe with 25% of their oil

– Leverages its relationship with Germany to prevent marketchange

– Russian economy is overly-dependent on oil

• Natural Gas

– Russia has the largest proven natural gas reserves in the world,(47.57 trillion cubic meters in reserves)

– Russian natural gas exports are rising (up 22.7% Jan-April 2008compared to same time period in 2007)

• Green Energy


“Russian natural gas exports up 22.7% in Jan-April – ministry” Interfax InformationServices International Information Group. May 30, 2008.

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Healthcare

• All Eastern European countries required toparticipate in Public Health Insurance System

– Lowest income bracket is main beneficiary because standardsstill poor

• Poor public healthcare standards are leading manyto buy into private healthcare systems– Private medical insurance has doubled in growth in Eastern

European Region

• Increase in household income and living standardsenables more consumers to buy into the privateservices

– Obvious correlation between income and health conditions

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Healthcare (cont’d)

• Rural areas very limited in healthcare options– As countries develop and join EU, they will need to provide healthcare

to these areas

– Average private spending on healthcare:

• 10% in Slovakia and Czech Republic

• 25% in European Union Countries

• Very low public spending in countries with poorhealthcare systems– Reforms are pending—they are urgent but difficult with current budget

deficits

– In majority of countries, already see sharp rise in healthcare budgets

• New opportunity for previously understaffed, dormant industry

“Health care systems in Central and Eastern Europe” Euractive. 21 April 2004

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B2B

• Transition from state-run to privatized industries– Most ex-communist states are transitioning into privatized systems

opening up a large new sector that has been largely un-researched

– Increasing importance of B2B relationships and information

• Emphasis on primary research– “Channel Research” to determine market landscape

– Need for interviews with manufacturers, distributors and reps, suppliers,and customers

• Need for aggregated information– Primary research should be compiled with secondary research and

primary research results

– Analysis can help businesses understand market sizing, marketpotential, key competitors, and the market landscape

56

Consumer Goods

• Rapid consumer demand growth

– Current Account deficits show import potential

– Increasing per capita income means increasing consumption propensity

• Disposable income in Eastern Europe is still below theEuropean average

• Governments expenditures are increasing consumption

– Rising per capita income also responsible for increased consumption

• Discount stores in Poland have made private labels popular

– 85% of discount stores’ products consist of private labels

– Supermarkets make up a smaller but still significant portion of privatelabel sales

www.prmpublications.com

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Retailing

• Increased consumption creates opportunity for retailing

• Markets are already saturated with modern brands

• Retailers are realizing that multi-channel retailing isunderdeveloped in Eastern Europe

• Russian opportunities:

– Russia has opportunities for grocery retailing

– 2007 International Retailer’s Survey found that retailers will target St.Petersburg and Moscow in the next 5 years

• Corruption in Russia and Ukraine make bribery common

• Reform and opening of previously Soviet countries areencouraging international retailers to enter Eastern Europe

Corruption Perceptions Index, Transparency International 2007surveywww.prmpublications.com

58

Financial Services

• Privatization and consolidation of banks

• Foreign capital stakes are enormous

• Growing domestic wealth and income lifts industry

• Technological leaps and bounds

– Stock exchange improvement

• MSCI Frontier Markets Index

– Tracks the performance of the equity markets in the frontiermarkets (Bulgaria, Croatia, Estonia, Romania, Slovenia, andUkraine)

– Financial Services comprises of 57% of the markets in the index

59

Tourism

• New EU Member states benefit from stabilization

– Poland, Hungary, Czech Republic, Slovenia, Slovakia, Estonia,Latvia and Lithuania

• Low-cost airlines allow for cheap travel to EastEurope

• Bulgaria and Slovakia expected to grow the most

– 6% increase in annual visits

• Technology of airports are limiting potential

– Need for up-to-date technology, information

60

Construction and Real Estate

• Tourism fuels massive construction

– Need for more and better airports

• Serbia aims to become a regional air transportation hub

• Real Estate boom

– Foreign investment in fast growing industry led by the US andGermany

– Shortage of housing and consumers with more disposableincome have increased demand for new roads, malls, andhousing

• Russia is increasing roads, pipelines, and ports

– Russia is the leading builder of railroad track in Eastern Europe

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III. Pitfalls in Researching TheseCountries

• Market Research Lacking

• Published Information Often Misleading

• Need for Market Intelligence and CompetitiveIntelligence

62

Market Research Lacking

• Primary Information

– No baseline information

– Censuses not always comprehensive, only basic informationgathered

• Since 2000, web publication of data becoming moreprevalent

• Starting to share information in more languages

• Secondary Information

– Lack of primary information causes a lack of secondaryinformation

63

Market Research Lacking (cont’d)

• Unrecorded economic data

– Transition economies are largely influenced by undergroundeconomic activities, which are unrecorded and often not factoredinto projectable data.

• Lack of Projectable Data

– Tracking Studies needed to incorporate information from rapidmarket changes

“Estimating the Size and Growth of Unrecorded Economic Activity in Transition Countries: A Re-evaluation of ElectricConsumption Method Estimates and their Implications” Social Sciences Research Network. December 2003

64

Published Information OftenMisleading

• Published information is often missing keyinformation and statistics

• Leads to biased publications and rankings forstatistics and industry information

• Russia Oil Figures Misleading

– Transfer pricing de-emphasize importance of oil profits

65

Market Intelligence

• Do not consider Pan-Eastern Europe Market

– Must segment country-by-country

– Each has its own specialties and dynamics

– Why?

• Diversity of geography, culture, level of economic development,disposable income

– Divergent Factors that minimize Pan-European identity

• Strong national identity and ethnocentrism

• Dissatisfaction with E.U. policy

• Convergent Factors that contribute to Pan-European identity

• Creation of European identity post Berlin-Wall era based oncollective economic/political/socio traits

• Convergence of global consumer aspirations in increasingly globalworld

66

Market Intelligence (cont’d)

• Impact of US Recession and EU Slowdown

– “Coupling and Re-Coupling” of economies

• Emerging economies inevitably tied to Developed Countries

• Slowed demand impairs growth in Western Europe, the areamost frequently trading with Eastern Europe

• Heightened macroeconomic instability following global creditcrunch

• Competitor Intelligence

– Do not ignore local competitors

“World risk: Alert - Can emerging markets rescue the global economy?” Economist Intelligence Unit. January 31, 2008

67

IV. Where to Focus Clients’Researching Efforts

• Short-Term:

– Focus on the growth industry sectors [e.g. retail, construction,real estate, fast moving consumer goods, etc.] for primaryexports

• Mid-Term:

– Identification of sales channels and key market opportunities forstrengthening your clients’ brands in these markets

• Long-Term:

– Focus on new product concept development and advertisingprograms for adapting your clients’ products to the local market

68

V. Managing the Research Budget inEastern Europe

Suggested allocation of research budget in Eastern Europeanmarkets:

• Phase I: Market Intelligence from desk research

• Phase II: Qualitative Research– Focus Groups

– IDIs

– Home Visits/ethnography

– Sales Observational Interviews

– Mystery Shopping

• Phase III: Quantitative Research– Face-to-Face [rural areas]

– Online [in major cities]

– CATI - B2B – Channel Studies

69

Summary

1. Multinationals “jump” to China and India and “chase” thenumbers rather than Eastern European markets

2. Research efforts must have a specific research design,methods, and deliverables for this region (e.g. countryby country research)

3. Engage the client in the research design to further theirunderstanding of the local markets

4. Encourage client travel to the region to view theresearch

Eastern Europe Market And Country Profile Sis International Research

Business

Transcript of Eastern Europe Market And Country Profile Sis International Research