Macedonian brands in EU

Minco Jordanov, Makstil - Skopje

 

Gligor Cvetanov, Makprogres - Vinica

 

Aleksandar Gecev, IGM - Kavadarci

 

Macedonian brands in EU

As a small economy with limited domestic absorption capacity, Macedonian economic entities must consider the additional foreign demand when designing their development strategies. In certain industries the additional foreign demand becomes much more important, even in terms of domestic consumption. At the end of 2014, Macedonian companies exported goods and services in the amount of 4.057 million euros. Out of this total amount, goods imported to be finalized accounted for 979 million Euro or 24 percent of total exports of goods and services. Besides this processing of goods, a good portion in the structure of exports accounted for: chemical products - catalysts 20.2 percent of total exports, 19.4 percent in metals and textile with 18 percent of total exports. These products accounted for 2/3 of the Macedonian exports (Table 1). Agricultural goods and their products, which are considered as Macedonia’s comparative advantage, accounted for 13.6 percent of total exports (food products 9.9 percent, and fruit and vegetables 3.7 percent).

As evident from the presented data, three strategies are predominant while choosing the strategy of exporting: using the advantages of cheap labor force and other benefits for the rework of imported products for finalizing (24 percent of exports of goods and services), exports of products designed and produced in the country (about 50 percent of exports of goods and services) and the manufacture and export of goods and services through the affiliation of domestic companies in global corporate systems and direct investment abroad. Some of these strategies are presented through the experiences of three companies: Makstil – Skopje, IGM – Kavadarci and Makprogres – Vinica.

Empirical analysis of the role and the importance of industry of base metals as one of the leading industrial branch of the Macedonian economy

For the first time, the Association of Metallurgy within the Economic Chamber of Macedonia came up with objective and scientifically based assessment and quantification of the direct impact on the GDP, national exports, employment and opportunities for creating new jobs, salaries, taxes and contributions as revenue accounts of the State budget and the practices of corporate social responsibility and behavior, which showed that the relative direct participation of the base metal industry amounted to 5.7% and 1.4% in 2007 and 2014 in the country's GDP, while the relative participation in the value of industrial manufacturing it is significantly higher and amounted to 33.5% and 7.6% in 2007 and 2014. The relative share of the export of base metals industry in the value of total exports amounted to 31.5% and 13% in 2007 and 2014, respectively. Companies in the base metals industry employ around 6500 employees, which would mean 3.5% of total employment in the industry. The contribution of these companies, through the amounts of taxes and contributions and their participation in financing the activities of special public interest and importance, as performance indicators for measuring the direct impact, indicates that have disbursed to the state a total of 2.060 million and 730 million denars only in the form of personal income tax and corporate income tax in 2007 and 2014, respectively. Additionally, in the form of contributions for social and pension insurance, contributions for a beneficiary working experience and other payments to the state institutions and funds have paid 373 million denars and 609 million denars in 2007 and 2014, respectively. If we also consider the fact that one of the main corporate values of most of them is implementing practices of socially responsible business behavior and active participation and support in the realization of numerous projects of special social interest and importance, it can be concluded that the impact of this industry for the national economy is significant and under no circumstances can be denied or challenged.

The mentioned study titled "Economic impact analysis and study for studying the development potential of base metals industry in the Republic of Macedonia", which is based on the application of scientific methodological approach specific to this type of analysis, only verifies this conclusion.

In the quantification of the economic impact of base metals industry to the national economy, the multiplication effects that are generated through the chain of suppliers and the effects of consumption were also taken into consideration. The base metals industry results in additional 20,000 employees in various sectors and encourages a further round of production (through the chain of suppliers and stimulation of final consumption in the economy), which is reflected in increasing its contribution to the GDP for 18.3% and an additional 4.4 % in 2007 and 2014. The greatest multiplication effect of the added value, through reproduction links, is the supply chain of the industry with the basic metallurgical raw materials, energy resources, electronic parts and services, various consumable products, wholesale and retail and the service sector understood in it's widest meaning (finance, insurance, consultancy services, transport and shipping services).

This is a clear argument that base metals industry through, primarily its direct involvement, but even more through its indirect contribution to the GDP creation, is the main pillar and a principal sector of the Macedonian economy in the most recent period, which logically imposes the creation of adequate industrial policies aimed at performing the best operative results. This is yet another strong reason for the country to follow the example of other industrially developed countries, including EU member countries, for this industry structure, as well as for some other influential industries (primarily construction and agriculture), to apply a selective approach and support for dealing with the current problems in their work environment in these times of crisis and thus help to overcome the key structural problems in the national economy.

MAKPROGRES – Example of successful Macedonian export oriented company

Makprogres LLC Vinica is a successful family company which exists 25 years and today it is one of the largest food industries in the country and the largest exporter of food products for several years now. Makprogres products are placed on the market in 50 countries worldwide. Two factories and eight production lines produce more than 15,000 tons of food products annually. Vinchinni products and Vinchinni Finest are sweets confectionery products which are characterized with a rich taste, high quality packaging, constantly follow the needs, desires and requirements of consumers worldwide concerning weight and appearance, the products of salty snacks under the brand name Armonia complementing the rich portfolio of products and lastly Sonceva Dolina and Natura which contаin a wide range of granular and powdered products necessary in every kitchen, as well breakfast cereals and health food products.

Being a Macedonian exporter is a major challenge and satisfaction, the country is a region where all the conditions for quality and healthy food are met, the area where people are gourmands and an area of clean nature and abundance of sunlight. There are no boundaries for nicely packaged and properly presented high quality products sold at a competitive prices. In 2015, 500 Makprogres employees achieved export of approximately 17 million euro, which is around 75% of the company’s production. The largest export partner are the EU countries, which account for 54% of the exports. Apart from the traditional markets of Central and Southeastern Europe, the company has distributors in some of the Arab countries and the MAGREB member states. Initial contacts were established in 2002, on the SIAL food fair in Paris where Makprogres products were introduced for the first time at a large world fair. Pretty soon, the company was familiarized with the mentality and needs of the foreign consumers and traders, so the products and packaging were adjusted for easier market access.

The company has worked on the objective to sell Makprogres products regionally and internationally, so they would be found on the shelves of major supermarkets in developed countries. The export to numerous states was also awarded with a prestigious and very valuable recognition from the Economic Chamber of Macedonia for an exporter that has exported in biggest number of countries.

In the efforts to manufacture international products intended for export, it is crucial to respect systems and quality standards such as: HACCP, ISO9001: 2008, Kosher and Halal, as well as IFS and BRC standards, as the most important standards for export to EU countries.

Regarding the conditions of conducting business, the fixed exchange rate against the euro, low taxes and social contributions, the Republic of Macedonia is a great place for running any business. The access to markets without customs of countries that have concluded free trade, including all the countries of EU, CEFTA, EFTA, are additional advantages of the country.

Makprogres strives to ensure the growth of production and revenues through the development of all current markets and access new markets. To meet this objective Makprogres tirelessly invests in new production facilities and production lines. In 2015 the investments exceeded 4 million euros and with the medium-term plan 2016-2020 there are planned 10-15 million euros in additional investment.

If I were to answer the question “How to export more?” my answer to that question would be a combination of:

• First and foremost - to have a competitive offer: quality at reasonable price;
• To apply international design products;
• To implement all necessary regulations and standards for food safety in foreign markets;
• To have a regular presence in markets;
• To give established marketing support to the distributors;
• To take part in the world's most important food fairs and confectionary.

IGM acquisition of ALPOS – how Macedonian companies are expanding to EU markets

The economic slowdown of developing countries, most notably China, as the largest producer and consumer of steel in the world, has massive influence over the global steel prices. Decreasing consumption, combined with the excess supply in China, leads to a saturation of the Chinese domestic market and even greater focus towards exports as a solution to the crisis. The overload of the European market which cheap steel imports in the last couple of years, results in the erosion of the South/North price divide, which is traditional for the European steel industry. In the past, these price discrepancies allowed for profitable sale of steel products from Macedonia to the countries of Western and Northern Europe in spite of the large transport costs. Even though transport costs are decreasing, their share in the final sale price increases resulting in reduced export competitiveness. In such a scenario, the strategy of IGM is to get closer to its European clients allowing the company to tap into the huge potential of the European market. Increasing the market share in EU countries is the main motive behind the acquisition of a production facility in Slovenia, an EU member-state since 2004.

The use of a simple SWOT analysis is a short and elegant way of describing the economic feasibility of investments abroad: S – Strengths, W – Weaknesses, O – Opportunities, T – Threats. Primarily the focus is on the positive aspects:

Strengths: The participation of the steel industry in every economy is characterized by a vast number of direct and indirect jobs. Because of the strategic role and wide influence of the industry, the policy makers are inclined to support the industry when it is threatened. Politically-motivated protectionist measures despite Europe’s neo-liberal stance and its role in globalization can be regularly witnessed. In the segment for steel welded pipes, Macedonia was previously subject to antidumping investigation with potential catastrophic consequences. Such investigations continue to be a real threat, but it can be completely eliminated only if production is moved to an EU Internal Market member country. Apart from the economic obstacles, there is also a certain degree of skepticism in EU towards the Balkan countries. Experience shows that many companies still doubt and perceive the quality of Macedonian products as inferior in comparison to Slovenian products, whose brands are based on tradition and quality.

Opportunities: For IGM, the main opportunity comes from the geographical position of Slovenia, its closeness to Germany and to the other equally attractive markets of Central and Eastern Europe. The annual consumption of steel welded pipes and profiles in Germany is estimated at around 450 million EUR. In comparison, the export of steel pipes from Macedonia to Germany is a modest 10,4 million USD or around 2% of the total consumption in Germany. As a comparison of trade relations with Germany, in 2013 the yearly amount of metal exports from Slovenia to Germany is 877 million USD, while the total amount for Macedonia is 10 times lower and stands at 87,5 million USD. Apart from the strong export channels, another opportunity for growth comes from the availability of a developed infrastructure and transport network used for import of raw materials. Slovenia offers connections to a number of strategic ports: Koper (Slovenia), Rijeka (Croatia), Monfalcone (Italy), Trieste (Italy), which is a totally opposite situation to our region where Thessaloniki port enjoys huge monopoly power. Equally important are the following opportunities: long tradition of high-quality, value-added production, transfer of knowledge, opportunity to climb the technological ladder to the level of the Italian competitors.

WEAKNESSES: Slovenia is in the group of developed countries with GDP per capital of 21.308 USD and average net salary of 1.092 EUR per month. In comparison, the average net salary in Macedonia is equal to 22.213 denars or 361 EUR per month. The differences in gross salary are even greater due to the high degree of welfare in Slovenia, which additionally increases the labour costs. Furthermore, slow and bureaucratic administration with lots of red tape, strict building regulations, strict environmental regulations can also be considered as weaknesses.

THREATS: In order to balance out the effect of the high wages, it is vital to establish an organizational structure for increasing labour productivity. It is also significant to achieve high degree of utilization of production lines. In other words, through the employment of high-skilled personnel, continuous investment in human capital and modernization of production lines, IGM plans to achieve high operational efficiency. If these conditions are not met, than costs can easily overrun, which is a potential future threat.

Table 1:

Structure on exports in Macedonia in 2013 (per sector)
1.	Chemical Products	954 million USD (20.2%) * of which 828 million USD accounted for catalyst
2.	Metals	915 million USD (19.4%)
3.	Textiles	833 million USD (18%)
4.	Mechanical industry	538 million USD (11.4%)
5.	Food products	466 million USD (9.9%)
6.	Minerals	336 million USD (7.1%)
7.	Fruit and Vegetables	174 million USD (3.7%)
8.	Footwear and hats	102 million USD (2.2%)
9.	Plastics and tires	101 million USD (2.1%)
10.	Transport	65.7 million USD (1.4%)
11.	Stone and glass	40.4 million USD
12.	Products of animal origin	30,9 million USD
13.	Instruments	23.2 million USD
14.	Fur industry	22.5 million USD
15.	Paper products	19,7 million USD
16.	By-products of animal and vegetable origin	10 million USD
17.	Wooden industry	7.43 million USD
18.	Precious metal	5.56 million USD
19.	Art and antiques	1.95 million USD
20.	Weapons	473,000 USD
21.	Other	74 million USD
Total exports:		4.72 billion USD (2013)

Table 2. Most significant Macedonian export industries/products