Croatia - Country Guide

EXECUTIVE SUMMARY

Croatia, a country of some 4.5 million inhabitants, is located in South Central Europe. With its almost 1000 miles of scenic Adriatic coastline, Croatia is known to many as a vacation and tourist destination.

A stable government, educated work force, growing economy and plans to join both the European Union and NATO make Croatia a market worth considering. Think Europe, not the Balkans, and you will grasp the current sentiment.

Not surprisingly, Croatia conducts most of its trade with its nearby European neighbours Austria, Hungary, Germany and Italy reflecting long-established patterns of trade. EU goods and services enjoy a good reputation, are well-accepted and today, attractively-priced, thus bringing Croatia into focus for our exporters. Investment follows trade, and both Austria and Germany are major players – the is the largest non-EU investor but ranked number seven overall.

Recent presidential elections (January, 2005) were held without incident and the coalition government is scheduled to begin EU accession negotiations in March, 2005 with an entry date of 2009/2010 considered realistic. The government is under considerable pressure to accelerate its privatization efforts, reduce large state subsidies to a number of industries including shipbuilding and railroads and move forward with sales of substantial interests in the telecommunications and oil and gas concerns. While reduced government expenditures should not have a direct effect on our export activity, it will delay planned infrastructure upgrades in the transportation sector which could, in turn, delay other key investments.

MARKET CHALLENGES

The perception of Croatia as a Balkan country and not as a soon-to-be member of the European Union is dated, inaccurate and causes EU exporters to overlook a niche market that is geographically significant and offers growing regional advantages. State-owned companies are still a major component of the economy and are heavily subsidized. Despite requirements and procedures for public procurement, lengthy delays, irregularities and lack of transparency are still far too common in many tenders.

Many investors, with the exception of the explosive growth in large retail chains from neighbouring EU member countries, are still wary due to uncertainties in land ownership, a complex and sometimes conflicting bureaucracy and the reports of corruption. To the government’s credit, they have announced plans to streamline foreign investment and if realized, a privatization push could be met with increased investment activity.

Although the Croatian language can be daunting to EU exporters, many Croatians are fluent English speakers and interpreters are seldom needed. Documents are easily translated and it is not uncommon to see branded products labelled in several languages to thus be sold throughout the region. Croatian, not Serbo-Croatian is the official language.

MARKET OPPORTUNITIES

As Croatia prepares for its EU accession negotiations, expect to see preliminary steps to conform with EU product standards, processes and procedures. Not only is this expected to introduce transparency and efficiency, it will make it easier to introduce products into this market. A “border effect” due to candidate status also comes into play – opportunities will be created, primarily within the agricultural sector, that should stimulate agricultural production, establishment of farms and expansion of acreage under cultivation.

EU and Multilateral Development Bank-funded projects offer opportunities for consultants and suppliers. Infrastructure projects will gain momentum – wastewater treatment plants, port infrastructure (airports and seaports) and highways.

Tourism infrastructure offers many opportunities, from resort development to golf courses to hotel refurbishment, from architectural to management contracts, equipment and consumable supplies, fixtures, etc. A number of hotels and resort properties are included in the Of the several hundred firms slated to be privatized, A number of hotels and resort properties are included in the

Best prospects listed this year include telecommunications equipment and services (the tender for the third wireless supplier was just awarded in February, 2005), energy services, medical equipment and environmental equipment and services.

Market Entry Strategy

There is no single best way to do business in Croatia. Successful exporters are those that get to know the market and their partners/clients. Personal relationships are important. While the Internet provides an excellent starting point, there is no substitute for a visit, be it to select an agent or representative or to introduce your firm’s capabilities to an important customer.

Sales agents, representatives and distributors all have important roles to play in this market. Regardless which channel is selected, sales support and after-sales service are critical. Financing is a key factor for a Croatian company making a decision to take-on a new EU product line and terms should be mutually agreed with the business partner.

For a new-to-market company, there is no substitute for a local partner. Make your selection based on his or her knowledge of the local market - your focus should be to support your partner with the proper training and sales materials.

Selling EU Products and Services

Using an Agent or Distributor

A carefully chosen local agent or distributor is the most effective method for entering this market. Reliable and capable representatives can be found. Some firms may lack sufficient capital to handle product marketing and wide distribution. It is recommended that a confirmed letter-of-credit be used in conducting business with a new local partner since some firms may have payment problems.

Selling to state-owned companies and other state entities depends on establishing your company or product creditability. Internationally financed public procurements offer the best opportunity for transparent purchasing decisions.

Croatia's private sector should be targeted. Private sector growth augers well for western businesses that are accustomed to selling products based on pricing, product quality and servicing ability. The government states that the private sector accounts for more than 50 percent of GDP. Marketing techniques will not vary greatly with this business segment. Some techniques for developing greater product awareness are discussed in the next section.

Trade Promotion and Advertising

Advertising is a key marketing tool in Croatia. Nearly all companies engage in some form of advertising. While the number of publications is growing, television is the most important media in Croatia. Outdoor advertising is also expanding. In fact, 59 % of advertising expenditure went to TV, 14 % on newspapers, 10 % on magazines, and 7 % to outdoor billboards. Radio is experiencing growing interest, currently receiving 10 % of advertising expenditure.

Television, which reaches 90 % of the market, has the broadest reach of all media. Croatia has two state-owned and two private TV channels as well as five regional and six local channels. The law restricts advertising on state television to nine minutes per hour for the first two national channels. Advertising on privately-owned (regional and local) television stations can not exceed 25 percent of total program length.

The advertising sector experienced 12 % growth because of the extensive advertising campaigns of the mobile telecommunications firms. The most advertised products are telecommunications, vehicles, financial institutions, beverages and newspapers. Croatian regulations prohibit television advertisement of tobacco, alcohol, and spirits.

Magazines, particularly specialized magazines, are growing in circulation. The six national daily newspapers account for 62 % of advertising expenditures for print periodicals. The balance of the revenue is shared among the sixteen high circulation periodicals and over 45 other specialized magazines.

More than 6,000 billboards populate Croatia. Prices range from $150 per month to $250 per month depending on frequency and category. It is recommended that 15-200 billboards be used for a nationwide launch campaign.

Sales Service/Customer Support

Sales service and customer support is developing as a marketing tool in Croatia. Emphasis on customer support is an initial step in developing consumer loyalty.

Leading Sectors for EU Export and Investment

Telecommunications (TEL)
Energy (ELP, OGM, OGS, TRN)
Medical Equipment (MED)
Port Infrastructure (TRN, CON)
Environmental Equipment (ENV)
Tourism Infrastructure (TRA)
Franchising (FRA)

Free Trade Agreements

Croatia has free trade agreements with EU, EFTA countries (Norway, Iceland, Liechtenstein, and Switzerland), CEFTA countries (Slovenia, Poland, Czech Republic, Slovakia, Hungary, Romania, and Bulgaria), and with Albania, Bosnia and Herzegovina, Serbia and Montenegro, Lithuania, Macedonia, and Turkey. Negotiations are underway with Moldova.