SIS International

Custom Research

Opportunities & Challenges in

Researching Eastern Europe
Presented to:
AIMRI

June 20, 2008

By: Ruth Stanat

President, SIS International Research

1
 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

2
 I. Economic Snapshot

• Economic Indicators
• Demographic Profiles
• Sector Analysis

3
 Economic Comparison Chart

Germany- Poland Czech Hungary Russia

Benchmark Republic
GDP 3,323.9 421.5 175.3 138.2 1,289.6
(US$ bn)
GDP per 40,247 11,057 17.139 13.879 14,662
capita (US$)
CPI Inflation 1.4% 2.0% 2.0% 5.5% 12.5%
Current 4.4% -2.8% -3.8% -7.1% 5.1%
Account
Balance (%
of GPD)
Exports 1.361 137.9 113 85.73 365
(US$ bn)

Imports 1.121 150.7 109.8 85.99 260.4

(US$ bn)

4 Source: The Economist.com and the CIA World Factbook

 Economic Comparison Chart (cont’d)

Ukraine Romania Bulgaria Slovakia Croatia

GDP 141.2 168.8 39.6 75 50.96

(US$ bn)
GDP per 3,056 7,805.6 5,220 13,738 12,863
capita (US$)
CPI Inflation 9.9% 9.4% 6.1% 5.2% 2.6%
Current 2.8% -9.4% -12.2% -6.9% -7.1%
Account
Balance (%
of GPD)
Exports 46.68 40.25 19.77 55.31 12.11
(US$ bn)

Imports 54.3 64.33 28.79 57.06 25.78

(US$ bn)

5 Source: The Economist.com and the CIA World Factbook

 Economic Comparison Chart
(cont’d)
Serbia Estonia Slovenia Latvia Lithuania

GDP 41.44 21.2 45.9 27 28.57

(US$ bn)
GDP per 5,665 15,857 22,852 11,915 11,329
capita (US$)
CPI Inflation 11.2% 3.9% 3.5% 6.5% 2.4%
Current 8.9% -13.3% -2.6% -15.8% -9.2%
Account
Balance (%
of GPD)
Exports 8.824 11.31 28.18 7.551 17.09
(US$ bn)

Imports 18.3 14.71 30.22 13.7 22.64

(US$ bn)

6 Source: The Economist.com and the CIA World Factbook

 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.

7
“Poland” Central Intelligence Agency World Factbook. May 15, 2008.
 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

8
“Poland” Central Intelligence Agency World Factbook. May 15, 2008.
 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)

9
 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 have
reached an agreement on measures designed to stem the
appreciation of the currency

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

10
“Czech Republic” Central Intelligence Agency World Factbook. May 15, 2008.
 Czech Republic (Demographic)

• Median Age
– male: 38.2 years
– female: 41.6 years
• 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

11
“Czech Republic” Central Intelligence Agency World Factbook. May 15, 2008.
 Czech Republic (By Sector)

• The cabinet endorsed the first draft of a healthcare reform bill

in 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

12
 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
• Unemployment: 7.1%
• Inflation: 5.5% (2007 CPI est.)
• 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.

13
“Hungary” Central Intelligence Agency World Factbook. May 15, 2008.
 Hungary (Demographic)

• Median Age
– male: 36.8 years
– female: 41.8 years
• Sex Ratio
– under 15 years: 1.06 male(s)/female
– 15-64 years: 0.97 male(s)/female
– 65 years and over: 0.57 male(s)/female
• Income per Capita: $19,500
• 4.4 million Internet users in a population of 10
million
• Only recent emergence of middle class

14
“Hungary” Central Intelligence Agency World Factbook. May 15, 2008.
 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

15
 Russia (Economic)

• GDP: $1,289.6 billion

• GDP Growth: 8% in 2008 so far
• Unemployment: 5.9%
• Inflation: 12.5% (2007 CPI est.)
• 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 by
55% in 2007

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

16
“Russia” Central Intelligence Agency World Factbook. May 15, 2008.
 Russia (Demographic)

• Median Age
– Male: 35.1 years
– Female: 41.4 years
• Sex Ratio
– under 15 years: 1.05 male(s)/female
– 15-64 years: 0.93 male(s)/female
– 65 years and over: 0.45 male(s)/female
• Income per Capita: $14,600
• 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

17
“Russia” Central Intelligence Agency World Factbook. May 15, 2008.
 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 allow
profits to occur in non-energy sectors

18
 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%
• Inflation: 9.9% (2007 CPI est.)
• Steel Exports, solid growth in metals
• Continual economic reforms improve business
landscape

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

19
“Ukraine” Central Intelligence Agency World Factbook. May 15, 2008.
 Ukraine (Demographic)

• Median Age
– Male: 36.1 years
– Female: 42.5 years
• Sex Ratio
– Under 15 years: 1.06 male(s)/female
– 15-64 years: 0.92 male(s)/female
– 65 years and over: 0.51 male(s)/female
• Income per Capita: $6,900
– Projected 104% growth through 2012

20
“Ukraine” Central Intelligence Agency World Factbook. May 15, 2008.
 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

21
 Romania (Economic)

• Joined EU Jan. 1, 2007

• Real GDP: $168.8 billion (2007)
– Real GDP Growth: 5.9%
• Unemployment: 4.1%
• Inflation: 9.4% (2007 CPI est.)
• Current Account Balance: -9.4% of GDP

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

22
“Romania” Central Intelligence Agency World Factbook. May 15, 2008.
 Romania (Demographic)

• Median Age
– male: 35.9 years
– female: 38.7 years
• Sex Ratio
– under 15 years: 1.05 male(s)/female
– 15-64 years: 0.99 male(s)/female
– 65 years and over: 0.69 male(s)/female
• Income per Capita: $11,100

23
“Romania” Central Intelligence Agency World Factbook. May 15, 2008.
 Romania (By Sector)

• Occupations 41% agriculture

• 4 million internet users increasing (21 million
population)
• Tax rate 16%
• Textile and Footwear
• Light machinery and Auto assembly
• Italy major import and export partner

24
 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%
• Current Account Balance: -12.2% of GDP
• 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.
25
“Bulgaria” Central Intelligence Agency World Factbook. May 15, 2008.
 Bulgaria (Demographic)

• Median Age
– male: 38.9 years
– female: 43.4 years
• Sex Ratio
– under 15 years: 1.05 male(s)/female
– 15-64 years: 0.97 male(s)/female
– 65 years and over: 0.69 male(s)/female
• Income per Capita: $11,800
• Marriage 4x as common in urban areas as in rural
areas
– 26,658 urban marriages versus 6,843 rural marriages in 2006

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

26
“Bulgaria” Central Intelligence Agency World Factbook. May 15, 2008.
 Bulgaria (By Sector)

• Minerals
– Coal, copper, and zinc
• Tourism
– 6% projected annual growth 2008-2012
– January 2008, government announced national strategy for
increasing tourism from EUR2.4bn to EUR6bn
– Massive construction in hot spots (e.g. Black Sea)
– Residential House Prices: 30% Increase

27
 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.

28
“Slovakia” Central Intelligence Agency World Factbook. May 15, 2008.
 Slovakia (Demographic)

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

inhabitants
– To reach consumers, far reaching marketing efforts necessary
• Sex Ratio
– under 15 years: 1.05 male(s)/female
– 15-64 years: 0.99 male(s)/female
– 65 years and over: 0.6 male(s)/female
• Median Age
– male: 34.8 years
– female: 38.2 years
• GDP per Capita: $19,800

29
“Slovakia” Central Intelligence Agency World Factbook. May 15, 2008.
 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

30
 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 at
slow 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.
31 “Croatia's current account deficit reaches 5-year high” The Earth Times. Apr 22 2008 .
 Croatia (Demographic)

• Median Age
– male: 38.9 years
– female: 42.6 years
• Sex Ratio
– under 15 years: 1.05 male(s)/female
– 15-64 years: 0.99 male(s)/female
– 65 years and over: 0.63 male(s)/female
• Largely Catholic population

32
“Croatia” Central Intelligence Agency World Factbook. May 15, 2008.
 Croatia (By Sector)

• Tourism
– Tourism receipts cover about two-thirds of the merchandise
trade deficit
– The tourism industry accounted for almost $10.8 bn last year
• Major trading partners are Italy, Germany, and
Bosnia 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” Central Intelligence Agency World Factbook. May 15, 2008.
33
“Croatia's current account deficit reaches 5-year high” The Earth Times. Apr 22 2008.
 Serbia (Economic)

• GDP: $41.44 billion

– Real GDP growth rate: 7% (2007 est.)
• Inflation: 11.2% (2007 CPI est.)
• Current Account Balance: 8.9%
• High unemployment rate: 18.8% (2007 est.)
• Increase in economic growth rate after ousting Milosevic in
2000
• Political instability due to unresolved Kosovo issue
• Country has a large amount of foreign debt and a high export
deficit
– 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.

34
“Serbia” Central Intelligence Agency World Factbook. May 15, 2008.
 Serbia (Demographic)

• Median age
– Male: 36.1 years
– Female: 39 years
• Sex Ratio
– Under 15 years: 1.07 male(s)/female
– 15 – 64 years: 0.97 male(s)/female
– 65 years and older: 0.68 male(s)/female
• Highest malnutrition rate in Eastern Europe as of
2003
– 9% of population undernourished, compared to 2.5% in
Germany, Ukraine, Poland, United States, etc.

35
“Serbia” Central Intelligence Agency World Factbook. May 15, 2008.
 Serbia (sector)

• Exporter of manufactured goods, food, and live

animals
– In last 10 years, EU has contributed money to increasing
livestock 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 fulfill
its 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

36
 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.
37
“Estonia” Central Intelligence Agency World Factbook. May 15, 2008.
 Estonia (Demographic)

• Conflict between Estonians and Russians

– Highlighted by relocating Russian statue
• Median Age
– Male: 36.2 years
– Female: 43.2 years
• Sex Ratio
– under 15 years: 1.06 male(s)/female
– 15-64 years: 0.91 male(s)/female
– 65 years and over: 0.5 male(s)/female
– total population: 0.84 male(s)/female
• Income per Capita: $21,800

38
“Estonia” Central Intelligence Agency World Factbook. May 15, 2008.
 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

39
 Slovenia (Economic)

• Richest nation in Eastern Europe

– Former trading arm of Yugoslavia
– Strong ties with western trade partners
• GDP: $45.9 billion
• 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.

40
“Slovenia” Central Intelligence Agency World Factbook. May 15, 2008.
 Slovenia (Demographic)

• Median Age
– male: 39.8 years
– female: 42.9 years
• Sex Ratio
– under 15 years: 1.06 male(s)/female
– 15-64 years: 1.02 male(s)/female
– 65 years and over: 0.64 male(s)/female
• GDP per Capita: $27,300
• Religiously diverse
• Literacy rate: 99.7%

41
“Slovenia” Central Intelligence Agency World Factbook. May 15, 2008.
 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

42
 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%
• Unemployment: 5.9%
• Riga (capital) produces 57% of GDP
“Latvia: Factsheet” Economist Intelligence Unit. May 16, 2008.
43
“Latvia” Central Intelligence Agency World Factbook. May 15, 2008.
 Latvia (Demographic)

• Median Age
– Male: 36.9 years
– Female: 43 years
• Sex Ratio
– under 15 years: 1.05 male(s)/female
– 15-64 years: 0.95 male(s)/female
– 65 years and over: 0.49 male(s)/female
• Income per Capita: $17,700
• Ethnically diverse
• Life expectancy at birth: 72 years

44
“Latvia” Central Intelligence Agency World Factbook. May 15, 2008.
 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

45
 Lithuania (Economic)

• Rapid growth following 1998 Russian financial crisis

• GDP: $28.57 billion
– Real GDP Growth: 8%
• Unemployment: 3.2%
• Rapid Real Wage Growth
• Inflation: 2.4% (2007 CPI est.)
• Current Account Balance: -9.2%

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

46
“Lithuania” Central Intelligence Agency World Factbook. May 15, 2008.
 Lithuania (Demographic)

• Median Age
– Male: 36.4 years
– Female: 41.6 years
• Sex Ratio
– Under 15 years: 1.05 male(s)/female
– 15-64 years: 0.96 male(s)/female
– 65 years and over: 0.53 male(s)/female
• Income per Capita: $16,700
• 2008 population growth estimate is flat (-0.284%)
• Literacy rate: 99.6% (for men and women)

47
“Lithuania” Central Intelligence Agency World Factbook. May 15, 2008.
 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

48
 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

49
 Industries with
Growth Potential

• EU Structural Funds support new EU members’ infrastructure

growth and economic development
– More government contracts
• Luxury consumer goods (cosmetics, clothing)
• Automotive
• In most post-socialist countries, we see tremendous growth in
the services sector
– Opportunity for…
• Real estate construction
• Retail
• Services sector
• Tourism, hotel construction
• Financial services

50
 Market Opportunities in Electronics and
Fast Moving Consumer Goods Segments

• Expect growth in Internet and small electronics users

• Eastern Europe will be manufacturing small electronics in
increasing amounts
– Electronics suppliers are operating in Eastern Europe, where the cost of
labor is up to 70% less than the rest of Europe
• Countries attempting admission to EU are undergoing
modernization and inspection of food industries
• Companies will benefit from research in DIY products and
services, consumer electronics, and clothing
– These are sectors with opportunity for growth
– Multi-channel retailing should be researched

51
 Energy & Natural Resources

• New Infrastructure
• Oil & Russia
– Russia provides Europe with 25% of their oil
– Leverages its relationship with Germany to prevent market
change
– 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 2008
compared to same time period in 2007)
• Green Energy
“Russia” Central Intelligence Agency World Factbook. May 15, 2008.
“Russian natural gas exports up 22.7% in Jan-April – ministry” Interfax Information
52
Services International Information Group. May 30, 2008.
 Healthcare

• All Eastern European countries required to

participate in Public Health Insurance System
– Lowest income bracket is main beneficiary because standards
still poor
• Poor public healthcare standards are leading many
to buy into private healthcare systems
– Private medical insurance has doubled in growth in Eastern
European Region
• Increase in household income and living standards
enables more consumers to buy into the private
services
– Obvious correlation between income and health conditions

53
 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 poor
healthcare 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

54
“Health care systems in Central and Eastern Europe” Euractive. 21 April 2004
 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, market
potential, key competitors, and the market landscape

55
 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 the
European 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 private
label sales

56
www.prmpublications.com
 Retailing

• Increased consumption creates opportunity for retailing

• Markets are already saturated with modern brands
• Retailers are realizing that multi-channel retailing is
underdeveloped 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 are
encouraging international retailers to enter Eastern Europe

Corruption Perceptions Index, Transparency International 2007

57 survey
www.prmpublications.com
 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 frontier
markets (Bulgaria, Croatia, Estonia, Romania, Slovenia, and
Ukraine)
– Financial Services comprises of 57% of the markets in the index

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 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 East
Europe
• 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

59
 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 and
Germany
– Shortage of housing and consumers with more disposable
income have increased demand for new roads, malls, and
housing
• Russia is increasing roads, pipelines, and ports
– Russia is the leading builder of railroad track in Eastern Europe

60
 III. Pitfalls in Researching These
Countries

• Market Research Lacking

• Published Information Often Misleading
• Need for Market Intelligence and Competitive
Intelligence

61
 Market Research Lacking

• Primary Information
– No baseline information
– Censuses not always comprehensive, only basic information
gathered
• Since 2000, web publication of data becoming more
prevalent
• Starting to share information in more languages
• Secondary Information
– Lack of primary information causes a lack of secondary
information

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 Market Research Lacking (cont’d)

• Unrecorded economic data

– Transition economies are largely influenced by underground
economic activities, which are unrecorded and often not factored
into projectable data.
• Lack of Projectable Data
– Tracking Studies needed to incorporate information from rapid
market changes

63 “Estimating the Size and Growth of Unrecorded Economic Activity in Transition Countries: A Re-evaluation of Electric
Consumption Method Estimates and their Implications” Social Sciences Research Network. December 2003
 Published Information Often
Misleading

• Published information is often missing key

information and statistics
• Leads to biased publications and rankings for
statistics and industry information
• Russia Oil Figures Misleading
– Transfer pricing de-emphasize importance of oil profits

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 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 on
collective economic/political/socio traits
• Convergence of global consumer aspirations in increasingly global
world

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 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 area
most frequently trading with Eastern Europe
• Heightened macroeconomic instability following global credit
crunch
• Competitor Intelligence
– Do not ignore local competitors

66
“World risk: Alert - Can emerging markets rescue the global economy?” Economist Intelligence Unit. January 31, 2008
 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 primary
exports
• Mid-Term:
– Identification of sales channels and key market opportunities for
strengthening your clients’ brands in these markets
• Long-Term:
– Focus on new product concept development and advertising
programs for adapting your clients’ products to the local market

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 V. Managing the Research Budget in
Eastern Europe

Suggested allocation of research budget in Eastern European

markets:

• 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

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 Summary

1. Multinationals “jump” to China and India and “chase” the

numbers rather than Eastern European markets
2. Research efforts must have a specific research design,
methods, and deliverables for this region (e.g. country
by country research)
3. Engage the client in the research design to further their
understanding of the local markets
4. Encourage client travel to the region to view the
research

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