Austrian enterprises stick to the East

Contrary to security analysts and exchange specialists Austrian enterprises assess the Central and Eastern European countries significantly more positive. This attitude is revealed by a recent survey of the management consultants Horvath & Partners (”CEE-Barometer 09”) carried out among Austrian enterprises present on the CEE-markets.

Almost every second interviewee expects the market to continue growing. Almost one fifth of the interviewees expect an at least constant level, while 35 per cent expect the economy in the CEE-area to decline.

On judging the future growing of the market smaller enterprises are especially optimistic. Only 10 per cent of the entrepreneurs achieving a total turnover of less than € 100 million assume that the market growth will decline. Larger enterprises are significantly more sceptical. Nevertheless, 37 per cent believe in an increasing market growth, while 42 per cent expect the economic activity to decline.

For 67 per cent of the interviewees Eastern Europe is a very attractive selling market. This view is even more popular among those enterprises which do not only have branches in the neighbouring CEE-countries but have expanded farther east - to, e.g., Bulgaria, Moldavia, the Baltic States or the CIS-countries. 80 per cent of the large enterprises with a turnover of more than a billion Euro are interested in Eastern Europe. This interest is smaller among enterprises with a turnover of about € 100 million. Only half of them consider the CEE-region a very attractive selling market.

More competition

Austrian enterprises, however, expect rougher conditions on the eastern markets. More than three quarters of the interviewees believe in growing competitive pressure and 71 per cent face a growing pressure on margins. Expansion plans for this region are cautiously developed. Almost half of the interviewees expect direct investments to decline in future.

According to the survey business locations will neither be relocated farther east nor back to Western Europe. ”In general the entrepreneurs consider the expansion of the distribution channels as well as measures to improve customer relations their biggest challenge”, Stefan Bergsmann, head of the study and managing director of Horvath & Partners, points out.

Working their markets CEE-branches enjoy a relatively great freedom. Even under present conditions returning to closer central managing is not expected. Almost 30 per cent of the enterprises direct their activities in the CEE-countries from special CEE-headquarters. Their competences have slightly increased over the last three years. This is revealed by comparing results with the former survey.

CEE-headquarters of medium-sized enterprises

Special CEE-headquarters are particularly interesting for medium-sized enterprises. 34 per cent of the interviewees with a turnover between € 100m and 1 billion favour this way of management. Independent CEE-headquarters are highly uncommon in enterprises with a turnover of more than € 1 billion. This group of enterprises still favours the company headquarter for managing their CEE-activities (68 per cent). The reason for this may be that their locations have already exceeded a certain critical size.

CEE-headquarters seem especially appropriate for managing smaller and medium-sized locations. Thus 38 per cent of the enterprises with less than 250 employees follow this concept to manage their CEE-activities.

Companies with longstanding CEE-experience see the future development of the region different from those having become active on this market just during the last ten years. Enterprises with a CEE-presence of more than ten years consider the market growth more positive. But they also expect competition and pressure on margins to grow more strongly than those do that have been active in this region for a shorter time.

Potential for optimization

Definitely all enterprises consider the focus of the current challenges to lie on distribution and marketing. To use the market potential, which they still consider a good one, successfully despite of modified and more difficult conditions – keywords:  shortages in financing, pressure on margins, increasing competition - 74 per cent of the companies plan activities to optimize products and services. 24 per cent specify this as their top-priority. 73 per cent aspire to improve their distribution channels (top-priority for 29 per cent).

Especially when working a variety of small national markets it is necessary to transfer best practises and optimal cost structures from one CEE-location to the other countries as quickly as possible. But presently the instrument for this – bench-marking – is just scarcely used by companies in CEE. With a utilization rate of 27 per cent bench-marking still drops significantly behind all other management instruments such as reporting systems (75 per cent) or budgets (70 per cent). It is thought to have to catch up.

153 Austrian companies from all branches were interviewed for this survey (”CEE-Barometer 09”) in March 2009. The majority of the enterprises have been present in Eastern Europe for many years. Almost half of the interviewees have been active in this region for more than 10 years.