8.2 Strategies for the Polish market
Successful foreign market entry requires a systematic and long- term strategic approach and entails numerous managerial decisions. Due to the complexity of international operations it is often hard to recognize the interdependence of the various stages of market entry and each tends to be dealt with in a fairly isolated way in the international marketing literature (for an overview see Schuh, 2000, p. 138). Only a few approaches, such as Dunning s eclectic paradigm, which will be discussed in the next section, offer an integrated framework.
This section first outlines the conceptual framework for market entry and then “ since a thorough examination of the related risks and opportunities forms the basis of any market entry strategy “ the present situation in Poland is analyzed .
8.2.1 Strategic planning and decision making for market entry
Careful planning is fundamental to any company s future success abroad. This entails the construction of an internationalization strategy that covers all the markets to be served and provides overall guidelines for market entry decisions. Some of these guidelines cannot always be rigidly adhered to as multinational enterprises (MNEs) often have to adjust their market entry tactics to the characteristics of the prospective host country. Consequently the exploitation of new geographical markets requires a refinement of the overall strategy.
The various facets of strategic planning are shown in Figure 8.1. First, comprehensive analyses of the environmental situation and the company s SWOT position (strengths, weaknesses, opportunities and threats) generate the necessary data to begin the planning process. A company s competitive position will be determined by its own resources and factors specific to the host country. For example if a company has certain skills resulting from its R&D activities it might exploit these in foreign markets to realize economies of scale and scope due to a larger market size , and host-country economic factors such as low wages will enable comparatively inexpensive production. Moreover a clear definition of the goals and objectives of market entry is essential and should correspond to the general visions of the MNE.
Figure 8.1: Strategic planning of market entry
The development of the market entry strategy involves defining the relevant market and the market segment, determining the timing and form of entry and deciding on a product strategy in terms of differentiation versus standardization. All of these factors are interdependent and decisions on them have to be made more or less simultaneously . A strategy aimed, for example, at securing first mover advantage cannot be realized with a market entry form that needs preliminary time for development, such as the construction of a new subsidiary. Similarly, if a company plans to enter several markets at the same time it probably will not be able to differentiate its products or services but rather will have to offer a more standardized package. Similar interdependencies exist for alternative combinations of the strategy parameters.
The degree to which competitive advantage can be achieved depends particularly on the form of entry chosen , that is, exporting, the establishment of wholly owned subsidiaries or engaging in cooperative ventures such as licensing, franchising or joint ventures . Cooperative entry requires activities such as searching for, evaluating and choosing suitable partners , as well as decisions about the individual organization of the venture.
Finally, all of these strategic decisions have to be implemented and thereafter subjected to permanent evaluation and control in order to identify shortcomings and improve the market entry concept. Altogether, this general overview places emphasis on the systematic and situational character of the international marketing cycle. As an environmental situation analysis of the Polish market is fundamental to this concept, it will be examined more closely in the following paragraph.
8.2.2 Risks and opportunities in the Polish market
Enterprises that are planning to engage in business in Poland first have to collect relevant data in order to assess the risks and opportunities. Whereas little statistical data could be obtained when the markets opened after the fall of the Iron Curtain, in the course of transition and European integration more and more has become available to Western companies.
While Poland s eventual accession to the EU will more or less guarantee economic stability and will ease the conducting of intra-European business, there is still a chance that the present membership negotiations will fail and accession will be postponed. When it does join the new risks will include greater competition, especially from low-cost Polish competitors , who might even expand into Western markets. In general country risk assessment involves measuring the likelihood of changes to the business environment that will reduce the profitability of doing business in the country concerned by, for example, increasing operating costs or reducing the value of assets. One of the most popular measures of country risk is the BERI index (Business Environmental Risk Intelligence), which includes figures on corruption, bureaucratic delays, the risk of expropriation, rules of law and so on. It mainly consists of three data sets: a political risk index, an operations risk index, and remittance and repatriation factor ratings, which together enable a composite score to be calculated (Backhaus and Meyer, 1985).
Nowadays CEE country risk analysis is greatly facilitated by data collected by financial institutions and governmental organizations in relation to the planned EU enlargement . Ascertaining which CEE states are likely to be the first to join the EU is aided by a new risk measurement instrument developed by the German DGZ Deka Bank: the Deka Converging Europe Indicator (DCEI), which measures the convergence progress using macroeconomic data and institutional convergence indicators. The DCEI is based on a scoring model that leads to four indicators (real economic convergence, institutional convergence, monetary convergence and fiscal convergence) and thus in some ways resembles the BERI index.
| Total | Real economic convergence | Institutional convergence | Monetary convergence | Fiscal convergence | |
|---|---|---|---|---|---|
| Czech Republic | 78 | 85 | 70 | 95 | 65 |
| Estonia | 77 | 70 | 80 | 75 | 85 |
| Hungary | 77 | 80 | 80 | 70 | 80 |
| Slovenia | 76 | 95 | 85 | 65 | 65 |
| Poland | 72 | 60 | 75 | 80 | 75 |
| Lativa | 70 | 60 | 70 | 75 | 75 |
| Slovakia | 67 | 45 | 75 | 80 | 75 |
| Lithuania | 66 | 35 | 70 | 90 | 85 |
| Bulgaria | 51 | 30 | 55 | 70 | 60 |
| Romania | 40 | 45 | 50 | 15 | 75 |
Notes : Within the parameters of 0 “100 points, status as of January 2002.
Source : Adapted from Hornung, (2002), p. 15.
The constituents of the DCEI are shown in Figure 8.2. The choice of performance figures for real economic convergence and institutional convergence corresponds to the overall EU membership criteria of 1993, as defined in Copenhagen. All five Maastricht criteria are covered: inflation, interest rate and exchange rate are part of the monetary convergence indicator, while budget balances and public liabilities relate to fiscal convergence. Each of the items in the four groups of indicators and the general DCEI are ranked from 0 to 100, the latter indicating full convergence or conformity to EU average (Hornung, 2002, p. 15).
Figure 8.2: The four pillars of the DCEI. Source: Adapted from Hornung (2002), p. 15.
The DCEI figures for 2001 are shown in Table 8.1. As can be seen, Poland ranks fifth after the Czech Republic, Estonia, Hungary and Slovenia. According to these DCEI figures and a progress report by the European Commission on the EU membership negotiations, the 10 CEE candidates are well on their way to becoming full market economies. However they are not yet considered able to withstand the competitive pressure that exist in the EU. [2]
With regard to the constituents of the category ˜real economic convergence , unemployment and inflation have risen considerably in recent years in all applicant countries but Hungary and Slovenia. The Polish unemployment rate rose from 13.0 per cent in 1999 to 15.0 per cent in 2000 and an estimated 17.1 per cent in 2001. However in terms of inflation Poland appears in a more positive light: having increased from 7.3 per cent in 1999 to 10.1 per cent in 2000, the inflation rate fell to approximately 5.5 per cent in 2001 (Ludwig, 2002, p. 14). While none of the CEE countries has managed to stabilize its public budgets, the European Commission has been particularly critical of Poland s efforts. Poland s evident decline in economic growth is a result of mistakes in its economic policy, especially its failure to synchronize fiscal and monetary policy. The stabilization of public budgets is regarded as crucial by the Commission if markets are to be encouraged and investors confidence won. The Commission disapproves of the way in which competition law is practiced in all the applicant states “ almost without exception they are not able effectively to control the amounts of allowances and antitrust laws (FAZ, 2001b, p. 15). There are also problems with industrial standardization, the protection of intellectual property, mutual acknowledgment of job qualifying degrees, and the non-existence of regulatory authorities for the telecommunication sector.
The differences in economic wealth between the EU and the applicant countries did not reduce in 2001. As shown in Table 8.2, the economic profiles of the 13 applicants differed quite markedly. Whereas Poland s per capita income amounted to only 39 per cent of the EU average, Slovenia scored higher than Greece, which was already an EU member. (Per capita income reflects the countries economic development in terms of absolute economic performance.) GDP composition is also of interest in that a disproportionately large agricultural sector hints at structural defects. As indicated in Table 8.2, the size of the agricultural sector varies considerably between the countries concerned. With 18.8 per cent of the working population employed in the agricultural sector, Poland obviously has structural problems. The government failed to conduct the necessary reforms (Green et al., 2001, p. 192; Hare, 2001) and the agricultural sector has a strong backlog. Poland s structural problems also include marked differences between rural and urban areas. The former are disadvantaged in many respects, for example in terms of educational and medical services, water supply, sewerage provision and communication infrastructure. Even though the EU financial aid that has already been granted has not yet been utilized, the funds that will be paid after joining the EU are already integrated into reform project plans. Moreover the quoted GDP growth of 4.0 per cent in 2000 is misleading, since this figure dropped to just 1.0 per cent in 2001 and is expected to stay at this level in 2002. This means that Poland ranks last of the EU applicants with regard to economic development (Ludwig, 2001, p. 14; FAZ, 2001b, p. 15; Dietrich, 2002, p. 12). Although it made excellent progress in the early 1990s, during the past few years it has suffered an economic downturn.
| GDP in purchasing power equivalent value | Agriculture | |||||
|---|---|---|---|---|---|---|
| C= billion | C= per inhabitant | Per capita income* (%) | GDP growth in 2000 (%) | Share of value added (%) | Share of employment (%) | |
| Bulgaria | 44.3 | 5 400 | 24 | 5.8 | 14.5 | n.a. |
| Estonia | 12.1 | 8 500 | 38 | 6.9 | 6.3 | 7.4 |
| Latvia | 15.6 | 6 600 | 29 | 6.6 | 4.5 | 13.5 |
| Lithuania | 24.3 | 6 600 | 29 | 3.3 | 7.6 | 19.6 |
| Malta | 4.6 | 11 900 | 53 | 5.0 | 2.3 | 1.9 |
| Poland | 337.9 | 8 700 | 39 | 4.0 | 3.3 | 18.8 |
| Romania | 135.4 | 6 000 | 27 | 1.6 | 12.6 | 42.8 |
| Slovakia | 58.3 | 10 800 | 48 | 2.2 | 4.5 | 6.7 |
| Slovenia | 32.0 | 16 100 | 72 | 4.6 | 3.2 | 9.9 |
| Czech | ||||||
| Republic | 135.1 | 13 500 | 60 | 2.9 | 3.9 | 5.1 |
| Turkey | 433.3 | 6 400 | 29 | 7.2 | 14.6 | 34.9 |
| Hungary | 117.0 | 11 700 | 52 | 5.2 | 4.8 | 6.5 |
| Cyprus | 12.4 | 18 500 | 83 | 4.8 | 3.8 | 9.2 |
*Percentage of EU average.
Source : Quoted from FAZ (2001b), p. 15 (original in the Eurostat from national sources).
In spite of the challenging political and economic situation depicted above, Poland can offer Western companies numerous opportunities (Hare, 2001). When it eventually joins the EU its economic growth is likely to be higher than that of the existing member countries, and the transition process has created a dynamic that should continue for some time, providing a good basis for growth. In order to capitalize fully on this economic potential, companies must choose the right strategy, the theoretical underpinnings of which are discussed in the following section.
[2] The non-CEE candidates Malta and Cyprus are in a much better position and are the only applicants to meet all the requirements of a functioning market economy (FAZ, 2001b, p. 15).
EAN: 2147483647
Pages: 121