Strategic Analysis Project

Transcription

Strategic Analysis Project
Final Report
(For project related internal discussion only – not approved for any publication or sharing
of information outside defined project team)
Sofia, January 28th, 2011
This document is created with the financial support of the Operational Programme "Competitiveness of
the Bulgarian Economy 2007-2013", funded by the European Union through the European Regional
Development Fund. All responsibility for the content of the document lies with the Bulgarian Investment
Agency, and under any circumstances cannot be assumed that this document reflects the official
position of the European Union or the Ministry of Economy, Energy and Tourism.
Този документ е създаден с финансовата подкрепа на Оперативна програма „Развитие на
конкурентоспособността на българската икономика" 2007-2013, съфинансирана от
Европейския съюз чрез Европейския фонд за регионално развитие. Цялата отговорност за
съдържанието на документа се носи от Българска агенция за инвестиции и при никакви
обстоятелства не може да се приема, че този документ отразява официалното становище
на Европейския съюз или Министерство на икономиката, енергетиката и туризма.
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p
2
Table of contents
 Executive summary
 Analysis of the current state of the Bulgarian economy
 Changes and improvement initiatives to catch up with EU average levels (Vision 2020)
 Appendix I: Global FDI trends
 Appendix II: Criteria for selection of prioritized industries
 Appendix III: Industry snapshots of prioritized industries
 Appendix IV: Effect of the crisis on industries in Bulgaria
3
Executive summary – Bulgaria and selected sectors


Bulgaria needs to refocus its FDI attraction strategy to export-oriented sectors with relatively higher-value added
and with long-term positive employment benefits. Given the current economic and educational structure, Bulgaria
needs a comprehensive, segmented strategy focused on both traditional and emerging global industries
•
Bulgaria’s overall FDI experience is positive in terms of absolute numbers and relative to GDP. But the growing end
consumer market as the key driver for FDI in the last decade is facing already a high saturation level across key
industries, while the market shrunk due to macro crisis and limited buying power. As other countries in the geographic
neighborhood, Bulgaria is at the cross roads of a FDI strategy and needs to target investors in export oriented and highervalue added industries.
•
However in these areas of today’s target investors, Bulgaria failed to attract major investments in production, R&D, or
high-value added sectors
•
While availability of high skilled people is confirmed as key criteria across different surveys to attract target investors,
Bulgaria’s labor force is employed in relatively low-skilled sectors and the educational system currently does not provide
enough graduates in global, emerging high-tech sectors.
•
The possibilities for cluster-focused FDI-approach are also limited due to the lack/low availability of developed clusters in
Bulgaria. As investors are moving towards a logic of geographic industry clusters – Bulgaria is at risk that attractive
investors are not considering Bulgaria adequately.
Bulgaria’s FDI promotion strategy should focus on sectors that allow sustainable growth through attractive industry clusters.
The marketing mix utilized within sectors will need to differ based on the structure of targeted sectors and their relative
priority:
•
Transport equipment and machine building, electronics and electrical, chemical & plastics, food & agriculture,
logistics, IT, outsourcing – high priority sectors where Bulgaria has certain competitive advantages (traditions,
geography, education, labor force, cost advantages) and which have significant export, employment, and regional
development potential. No major institutional changes are needed to attract investment and significant marketing
resources should be directed there to attract both global leaders as well as smaller players. Therefore, IBA should employ
a full marketing mix for these industries (direct meetings at government level, direct mailing, industry conferences,
specialized magazine publications and PR)
Source: A.T. Kearney analysis
4
Executive summary – selected sectors

•
Healthcare and pharmaceuticals are high-value added, high-potential sectors, but require institutional efforts in order to
attract large-scale investments. IBA should dedicate resources for marketing efforts to attract potential case-study
investors, but there needs to be an overall government commitment and strategy for these sectors if they are to become
major sectors of the economy. BIA and the government may take a role in providing quick feedback to drive needed
institutional changes in order to attract larger-scale FDI
•
Bulgaria should also start building capabilities in a select number of emerging global industries with a 5-10 year
perspective. Industries with high potential and where Bulgaria may have certain traditions and endowments upon which to
build and develop include cleantech, biotech
Overall, Bulgaria should focus on a number of broader clusters, where it should seek to establish itself as a an innovation
leader in the next 10 years.
•
IT & outsourcing – focus on attracting additional investments in IT/software and outsourcing and seek to drive spread of
industry to the rest of the country. In parallel, attract R&D investment in latest IT technology
•
CleanTech – cleantech is an emerging cluster industry, which incorporates a number of sub-industries (manufacturing of
mechanical components, electronics, chemistry, biotech). Bulgaria’s attractive renewable energy legislation should be
used as a marketing base for attracting manufacturing and R&D capabilities in the sector (and not only wind, photovoltaic
parks)
•
Food and agriculture-related biotechnology – Bulgaria should seek to attract basic FDI in the food and agri-sector as
well as investments related to bio-foods, nutraceuticals, and others
•
Healthcare and wellness related industries – Bulgaria can use its natural endowments to build an infrastructure in the
healthcare, pharmaceuticals, and medical device industries
5
Executive summary – global trends

Global FDI flows are likely to recover starting 2011, which provides an opportunity and urgency for Bulgaria to
position itself early on the post-crisis FDI flow map:
• FDI flows decreased almost twice in the 2007-2009 period as a result of the crisis. However, there is an expected rebound
in FDI starting 2010/2011 and as TNCs are generally willing to continue internationalizing their operations
• Production, call centers and shared services are among the industries with highest probability for internationalization in
2011 and beyond
• Many business-cycle-sensitive industries such as automotives and other transport equipment metal and non-metal
products, chemicals, and, more generally, the manufacturing sector as a whole, have been among the worst affected by
the crisis, resulting in a direct negative impact on their FDI plans
• Some less cyclical activities that rely more on stable demand, such as agri-food and many services, or on supplying
markets with quick growth prospects in the medium term, such as pharmaceuticals, have been less affected

There are a number of important global economic and FDI trends, which should be taken into account for
Bulgaria‟s FDI and overall economic strategy
• China is the world’s second-largest economy and likely to become a major FDI exporter. EU is the largest economic
block. Bulgaria should seek early on to position itself as a gateway to Chinese investment in the EU
• Population is growing, aging, and with longer life expectancy. Longer life expectancy is no longer a rich-world only
phenomenon. Bulgaria can use its natural endowments to become a recognized healthcare destination
• Food demand is growing. Bulgaria significantly underutilizes its food production potential at the moment

Investment agencies in Europe try to have a focused approach of promoting several industries or clusters of
industries. They also try to promote the new industries (biotechnology, clean-tech, life sciences)
6
Bulgaria – overview of positives and negatives

Bulgaria‟s macroeconomic stability, low tax rates and labor costs are clear advantages – but compared to other
alternatives (competitive countries) not sufficient enough to attract target investors.

From human resource and industrial structure perspective there are a number of major challenges:
• An industrial structure, which is heavily skewed towards low-value added employment. FDI is one of the major ways to try
to shift employment to higher productivity sectors
• A heavy emphasis on business/finance studies by university graduates and relatively small number of technical graduates
• Lack of strong established clusters that can serve the basis of attracting FDI at the next level of the value chain

Investors deem the lack of trained personnel, bureaucratic inefficiencies and lack of incentives as the basic
obstacles for investing in Bulgaria. Major areas for improvement according to investors include:
• Long term view of government, and macroeconomic and legal stability and predictability
• Reduction of bureaucracy, easy and transparent for business environment
• Investment agency should be empowered to help find a site, negotiate tax incentives, remove barriers and smooth the
process for investors
• External promotion can be improved; Bulgaria has favorable investment environment but is still not known abroad
• Improve efficiency of state institutions and law applicability
• Increase ease of financing for the industries, requiring heavy investments
7
Table of contents
8
Bulgaria is a stable country with low tax rate and relative
low costs of local business operations
Stability
Access to markets
• Bulgaria is an EU and NATO member
• The country has the lowest budget deficit in the EU and its credit rating was
recently
upgraded by Moody’s
• No currency fluctuations due to a currency board
• Lowest cost location within the EU - zero tariff access to a €800 mm market
• At the center of South - East Europe - a 122 mn inhabitant high growth market
• Access to EU, Russian, Middle East and Africa markets
Economic development
• Constant growth of above 6% in the period 2000-2008
• Consistent FDI inflows of more than €5 bn/year in the pre-crisis period
• Commitment to economic reforms and fiscal planning
Cost of doing business
• Flat tax of 10% on corporate and personal income – lowest in EU
• Tax exemptions and investment incentives for qualified investment
• Lowest salary costs in EU
Access to skilled labor
• Relatively large number of universities and specialized higher education centers
• A relatively high number of young Bulgarians studying in prestigious
international universities
• Strong traditions in engineering and exact sciences
9
Within EU Bulgaria has the lowest GDP/capita while the
GDP growth is too low to enable a short term solution
Summary of macroeconomic indicators
European Comparison 2009
Comments
GDP/capita (EUR „000)
13.1
9.3
4.7
EU27
EU15
34.6
29.3 29.6 25.2
23.6 27.5
BG
CZ
DE
FR
IT
HU
NL
8.1
5.5
PL
RO
Peer Comparison 2010F
Comments
GDP Growth
7,4%
TK
4
SK
1
0
0
-2
CZ
HU
BG
RO
Source: EIU, Eurostat, A.T. Kearney analysis
• Despite being one of the countries with highest GDP
growth in recent years, Bulgaria remains the poorest
member of the EU
• Even immediate peers like Romania have surpassed
Bulgaria in terms of GDP per capita
• Compared to EU 15, Bulgaria has almost 6 times lower
GDP/capita
• GDP decline improved in Q1’10 to -4.0% compared to
-5.9% in Q4’09, and -5.4% in Q3’09
• Analysts consensus for 2010 is growth close to 0%,
following positive net exports, weak domestic demand
and increasing unemployment
10
Earlier growth was fueled by significant inflow of foreign
direct investment…
FDI flows by type of FDI
(EUR mil)
9,052
17%
6,697
6,222
15%
53%
2,736
1,851
137
95%
1996
1999
605
570
98%
94%
1997
1998
Reinvested profits
866
61%
980
76%
903
69%
64%
2000
2001
2002
Equity Investments
58%
3,152
62%
52%
3,213
57%
67%
69%
33%
30%
41%
30%
2003
2004
2005
22%
2006
2007
2008
2009
Other Equity
Overall FDI inflow levels in Bulgaria are relatively high with a peak year in 2007, when
FDI were the highest since 1996
Source: BNB, A.T. Kearney analysis
11
…but a sustainable growth was challenged by the
investment in relatively lower productivity, non-export
oriented sectors
Sector Distribution of FDI
(EUR mil)
906 980 1,851
1,047
2%
2,736
3,152
6,222
9,052
6,686
29%
30%
28%
3,282
7%
15%
28%
24%
8%
32%
51%
22%
13%
24%
25%
12%
9%
15%
19%
19%
17%
15%
18%
2006
2007
2008
2009
22%
27%
17%
28%
24%
19%
16%
25%
37%
21%
25%
13%
18%
8%
18%
7%
2000
2002 2003
2001
2004
Construction & Real Estates
2005
Energy
Financial Services
Manufacturing
Trade and Repair
Other
12
Beside closing the GDP gap more than 1 mn employees
need to be moved to higher productivity sectors
Employees in select low-productivity sectors
Number
Land transport
Construction
Textile and
apparel
Wholesale and
retail
1.580
90
140
Comments
138
138
50
Bulgaria
Czech
13
20
Estonia
Hungary
612
612
475
206
80
Unknown(1)
600
Bulgaria
Czech
Estonia
Hungary
• Structurally, Bulgaria may employ
much less people in the wholesale
and textile sectors and possibly in
the construction and transport
sectors
• Possibly, the following labor force
may be reallocated to other sectors
if there are available opportunities:
− 200K people from wholesale and
retail
− 50K from textile
− 20-50K from transport and
construction
− 500K from other
2007
• Sectors such as textiles, wholesale and retail and repairs are unlikely to become much more productive with existing labor
force due to internal and external constraints
• Possibly around 1 mn employees must be “moved” to higher productivity sectors by attracting relevant FDI
(1) Assumed at 600K for conservatism
Source: Eurostat. 2006 data, A.T. Kearney analysis
13
As of today Bulgaria‟s manufacturing structure is similar to
peers but oriented towards lower value added sectors
Manufacturing sector revenues
(% of total manufacturing)
100%
Coke and refined petroleum products
15%
Basic metals
14%
100%
1%
6%
100%
1% 2%
8%
4%
7%
16%
14%
Other non-metallic mineral products
Chemicals and chemical products
Machinery and equipment n.e.c.
Fabricated metal products
Electrical equipment
Beverages
Rubber and plastic products
7%
5%
5%
5%
5%
4%
4%
All other manufacturing
20%
Bulgaria
16%
4%
8%
6%
6%
9%
Food products
100%
3%
10%
6%
2%
7%
3%
11%
4%
7%
2%
4%
4%
4%
4%
100%
0%
7%
7%
4%
6%
7%
12%
5%
2%
40%
44%
46%
Czech Rep.
Estonia
Hungary
10%
1%
7%
38%
Slovenia
• Coke, petroleum products, basic metals, and foods are the leading manufacturing
sectors
Source: Amadeus, A.T. Kearney analysis
14
Compared to Czech Republic and Hungary, Bulgaria lags
behind in the high-tech sectors
Manufacturing sector revenues
(% of manufacturing revenues)
Motor vehicles, trailers and semi-trailers
Fabricated metal products
Machinery and equipment n.e.c.
Computer, electronic and optical products
Food products
Chemicals and chemical products
100%
0%
5%
5%
3%
100%
100%
3%
100%
100%
18%
11%
16%
13%
5%
4%
12%
21%
7%
3%
7%
3%
14%
Basic metals
Other non-metallic mineral products
All others
10%
4%
5%
5%
9%
14%
8%
7%
36%
5%
16%
4%
6%
7%
1%
6%
8%
7%
7%
6%
6%
4%
10%
28%
24%
Hungary
Slovenia
6%
7%
4%
40%
17%
Bulgaria
7%
8%
4%
4%
4%
4%
3%
Czech Rep.
Estonia
• Bulgaria has relatively small production of higher value-added sectors such as motor
vehicles, computers and electronics, other fabricated metal products
15
In Bulgaria, ~80% of employment is within wholesale and
retail, manufacturing, construction, and transport sectors…
Employment and revenues
% of total
All other
16%
17%
Public administration and defence
Administrative and support services
3%
Human health and social work
4%
Professional, scientific
Transportation and storage
n/a
Construction
Manufacturing
4%
4%
4%
6%
7%
1%
4%
1%
1%
0%
1%
7%
18%
18%
33%
Wholesale and retail
18%
Employment
Revenues
More than 80% of the employment in Bulgaria is within wholesale, manufacturing,
construction, transportation, and professional and technical services
16
…which are generally low value-added sectors
Employment and revenues
% of total
All others
Less-knowledge-intensive
market services
Medium-low-technology
n/a
Knowledge-intensive market
services (excluding high-tech and
financial services)
17%
16%
5%
5%
7%
6%
8%
11%
10%
2%
2%
8%
9%
Low-technology
Other knowledge-intensive
services
13%
48%
Less knowledge-intensive market
services
34%
Employment
Revenues
Bulgaria has only one sector where it has relatively higher productivity than
CEE countries
17
There are only 500,000 people employed in relatively highvalue added sectors
Total employment
% of total
493,000
7%
17%
14%
4%
Knowledge-intensive market
services (excluding high-tech)
43%
20%
5%
13%
57%
High
Medium-low
Low
Medium-high
Medium
n/a
€10 bn
Knowedge-intensive services
High-tech knowledge-intensive
services
Knowledge-intensive financial
services
High-technology
15%
21%
11%
9%
5%
5%
7%
Medium-high-technology
21%
25%
Employment
Revenue
Less than 20% of total employed are in relatively high value added sectors
18
One reason is that Bulgarian higher education is heavily
skewed towards business and finance, not engineering
Students enrolled by type of specialty
(% of total)
Total students (2009):
254,160
Other
Environmental Studies
8%
Social Services
Tourism 2%
1%
National security and Police
2%
3%
Mining
3%
Art
3%
IT 3%
Business and Finance
30%
Construction & Architecture 4%
Agriculture
4%
4%
Public Services
12%
5%
Law
Pedagogy and Education
Manufacturing
6%
6%
6%
Medicine
Phylology and History
Students prefer business administration/finance to technical studies, which
creates shortage of technical specialists in the country
Source: NSI; A.T. Kearney analysis
19
There are no technical/engineering specialties among the
top preferred study programs
Top university specialties
(number of students)
254,160
All others
101,922
Agriculture
Public Services
Law
Pedagogy and Education
Medicine
10,044
9,908
11,573
14,170
14,639
15,389
Comments
• More than 75,000 students are involved
in business and finance-related studies
• Philology and history majors comprise
the second-largest student body
category
• Agriculture and public services are also
prominent student specialties
Philology and History
Business and Finance
76,515
The majority of students in Bulgaria are in non-technical specialties
Source: NSI; A.T. Kearney analysis
20
Macro analyses
Only 20% of all students are in technical/engineering
specialties
Technical specialties
(number of students)
Other technical
51,682
Geology
Mathematics
Physics
Geography
1,268
1,407
1,821
Biology
Comments
• There are only 30,000 students in
manufacturing related specialties
• There are ~8,000 students in IT-related
specialties
• Students involved in sciences are in the
range of 500-2,000 per discipline
Chemistry
Communication
technology
20
539
799
923
939
6,449
Mining
IT
7,838
Manufacturing-related
29,679
Only 50,000 students are in technical/engineering specialties
Source: NSI, A.T. Kearney analysis
21
Table of contents
22
The strategy “Vision 2020” outlines the path for Bulgaria
to catch up with EU economies through a targeted FDI
strategy
Increase share of
priority industries
• On the basis of a set of
selection criteria, we
have prioritized the
following industries for
targeted FDI marketing
campaign:
− Electronics and electrical
equipment
− Chemicals, rubber and
plastics
− Agriculture and food
production
− Transport equipment and
machine building
− Transport and Logistics
− ICT
− Outsouring
Provide
incentives to
investors
Attract back
students from
abroad
• Questionnaire, sent to
investors in Bulgaria,
shows that they believe
the government can
provide additional
incentives to stimulate
FDI growth
• It is assumed that more
than 30,000 Bulgarian
students study abroad
• These incentives could
be not only in the form of
subsidies, but also
support for training
employees, etc.
• Cooperation between the
government and various
universities and industry
organizations could
facilitate the FDI growth
• Most of them plan to stay
working there as low
salaries and corruption
are preventing them from
coming back
• Through a targeted
strategy and increased
information flow, these
students and many
young professionals
could come back to
Bulgaria and bring
international know-how,
which would boost the
development of local
companies
Change the
skills set to
meet investor
needs
Vision
2020
• One of the biggest
problems for investors
currently is the people skills
set and the limited
improvement of these skills
in the past 5 years
• In order to meet the
requirements of current and
potential investors, Bulgaria
needs to take some
measures to improve the
quality of the labor force
• This could be done, on the
one side, with bringing back
people from abroad. On the
other, it could be achieved
through better
communication between
the industry and the
educational system
− Healthcare and pharma
Source: A.T.Kearney analysis
23
The structure of the Bulgarian economy lags significantly
to other CEE in terms of priority sectors‟ share
FDI priority sectors in Bulgaria and their share in the economy of some CEE countries
(revenues)
40,4%
5,8%
32,6%
Agri-food
Chemicals, rubber and
plastics
26,9%
T&L
6,9%
4,3%
8,7%
6,2%
7,1%
4,1%
1,7%
3,2%
6,4%
8,3%
2,0%
2,0%
5,1%
5,3%
5,1%
5,3%
3,4%
1,2%
3,4%
1,9%
3,8%
1,2%
4,0%
0,6%
Bulgaria
Czech Rep.
Hungary
Romania
ICT
Healthcare and Pharma
25,2%
4,5%
E&E
Transport eq.
and
Machine building
8,7%
4,9%
Through a targeted FDI approach, Bulgaria could increase the share of these
industries to catch up with peers
Source: Amadeus, A.T.Kearney analysis
24
Our joint project analysis indicates that the investments in
priority industry clusters could contribute to 33% of
Bulgaria‟s output in 2020
Industry output, EUR bil.
Food and
agriculture
Chemicals
Healthcare and
pharma
E&E
Transport
equipment
Transport and
Logistics
ICT
Outsourcing
89
182
6
13
4
9
24%
1
1
1
18
12
3
3
2
4
5
33%
6
9
2
0
207
6
4
1
13
9%
Others
68
139
6
2
139
2010
2020
Baseline
2020
Expected
Source: A.T. Kearney Analysis, Amadeus
25
This output will be generated by a cumulative investment
effort for the next 10 years in these industries
Cumulative Investment
(2011-2020, mill. EUR)
Expected output within a range
(2020, bill. EUR)
500
Food and agriculture
8
500
Manufacture of chemicals, rubber
and plastics
9
500
Healthcare and pharma
Electronics and electrical
equipment
400
350
700
350
100
13
4 5
-20
18
78
22
12
9
6
26
18
86
17
Transport equipment and
machine building
6
9
Transport and Logistics
6
8
ICT
-2
3 6 7
Outsourcing
-2 2
9
10
13
15
Bulgaria’s
position
35
(1) Ranges have been determined by looking at the elasticities of these industries in peer countries. Ranges will vary when the amount of investment
changes
Source: A.T. Kearney Analysis
26
With professionally planned investments, Bulgaria could
achieve the 12,000 EUR GDP per capita target till 2020
GDP per capita growth
(2010 – 2020, EUR)
Nominal GDP growth
(2010 – 2020, bill. EUR)
82.7
12.000
+112%
+131%
38.9
5.200
2010
2020
Expected
2010
2020
Expected
4.4% per annum real growth of the economy
Source: A.T. Kearney аnalysis
27
Successful FDI strategy in the selected industries will lead
to beneficial side effects in other industries…
Priority sectors and clusters in them (revenues)
Processed food
Maritime
Priority sector
Cluster name
Local
Farming & animal husbandry
Natural resource driven
T&L
Local
Pharmaceuticals
Tourism &
hospitality
Oil and gas
Local
Tobacco
Other
Agricultural pr.
Healthcare
Agri-food
Transport Eq &
Machine building
Buildings related
IT & Outsourcing
Production tech.
Pharmaceuticals
Textiles
Aerospace
Business services
Metal manuf.
Heavy Machinery
T&L
Sport &
Maritime
Recreation goods
Other
Local
Other
Natural resource
driven
Oil and gas
Telecom
Other
Paper pr.
Electronics & Electrical
Power
Automotive
Construction
Automotive
Textiles
Chemical
Buildings related
Paper pr.
Processed
food
Transport & Logistics
Instruments
IT
Telecom
Medical devices
Other
Metal manuf. Lighting & electrical eq.
Plastics
Construction Chemical pr.
The activities in every priority sector are inter-related with other industry
clusters
Note: Local cluster is the one, which serves only the local market
Source: Centre for Economic Strategy and Competitiveness, EU Cluster Observatory, MOC, Amadeus, A.T.Kearney analysis
28
…as formation of clusters in the priority sectors has
already started
Priority sectors and clusters in them (employees)
Processed food
Maritime
Farming & animal husbandry
Priority sector
Cluster name
Local
T&L
Local
Pharmaceuticals
Local
Tourism &
hospitality
Tobacco
Oil and gas
Other
Agricultural pr.
Healthcare
Agri-food
Transport Eq &
Machine building
Buildings related
IT & Outsourcing
Paper pr.
Production tech.
Processed
food
Sport &
Maritime
Recreation goods
Local
Pharmaceuticals
Power
Instruments
Metal manuf.
Construction
Automotive
Textiles
Electronics & Electrical
Chemical
Buildings related
Aerospace
Heavy Machinery
T&L
Other
Telecom
Textiles
Business services
Automotive
Plastics
Oil and gas
Paper pr.
Other
Construction Other Chemical pr.
IT
Telecom
Medical devices
Other
Metal manuf. Lighting & electrical eq.
The activities in every priority sector are inter-related with other industry
clusters
Note: Local cluster is the one, which serves only the local market
Source: Centre for Economic Strategy and Competitiveness, EU Cluster Observatory, MOC, Amadeus, A.T.Kearney analysis
29
Investors indicate that the government plays a crucial role
to facilitate the investment process and to boost FDI in the
future
Extract from investors‟ opinions and improvement suggestions (Survey 2010)

Over 90% of interviewed investors see some or major barriers to opening new business in Bulgaria. This is mostly
due to complicated, expensive and complex procedures

Some of the issues investors face include:
• Lack of competent network in automation / tooling
• Not adequate infrastructure and rule of law
• Not enough production companies
• Lack of technical expertise and management experience

Major areas for improvement according to investors include:
• Long term view of government, and macroeconomic and legal stability and predictability
• Reduction of bureaucracy, easy and transparent for business environment
• Investment agency should be empowered to help find a site, negotiate tax incentives, remove barriers and smooth the
process for investors
• External promotion can be improved; Bulgaria has favorable investment environment but is still not known abroad
• Improve efficiency of state institutions and law applicability
• Increase ease of financing for the industries, requiring heavy investments
Source: Questionnaire among foreign investors in Bulgaria, A.T. Kearney analysis
30
From investor perspective bureaucracy as a major problem
their company faced during the investment process
Factors creating difficulties
Improvement over the years
5=most important
Inefficient bureaucracy
3=improved
3.1
Lack of skilled labor
2.6
Political influence
1.2
0.9
2.5
Legal barriers to
foreign investors
Difficult access to
financing
1=worsened
1.3
2.1
1.2
1.3
1.1
Investors see some improvement in decreasing political influence and
reducing legal barriers to foreign investors
(1) Distribution is calculated on the actual responses, and exclude questionnaires with no response on the particular question
31
Providing more incentives is one way of promoting
Bulgaria to investors
List of practical initiatives to support IBA

Supplier network program – develop data base with information about the major companies in the country, the services
and products they provide. This information should be accessible by foreign companies so they can properly evaluate the
opportunities provided by the Bulgarian industry.

Revision of incentives law – the available incentives should be targeted, easily applicable and independent on the other
long, bureaucratic processes.
• Development of HR subsidies:
– Publicly-supported training and education programs to alleviate the shortcoming of qualified labor.
– Temporary wage subsidies. The start-up phase can be further supported through the temporary coverage of part of the
new corporate unit’s wage bill.
• R&D subsidies – no clear incentives mechanism for development of R&D activities in the country
– Cost participation under the form of direct subsidy
– Credit to investors
• Infrastructure should be a given, not an incentive – necessity for wider development of industrial zones meeting the
investors needs

Increase administrative power of IBA
• Shift focus from „information center“ towards role in supporting the complete life cycle of targeted investments.
• Provide coordination in development of industrial zones any apply global best practices for industry zone management
• Ensure „one voice“ of Bulgarian investment initiative and streamline interfaces between public institutions. (Position IBA
as central project office)
• Authority to guarantee implementation of incentive plans
• Authorize (or support) IBA to impose penalty in case of non-execution of certain measures
32
For investors in Bulgaria, people‟s skills and qualifications
are of highest importance for investment decisions
5=most important
Labor force
qualifications & skills
3.2
National tax regime
3.1
Stable macroeconomic &
political environment
3.1
Stable regulatory environment
2.9
Labor cost
2.9
Access to local market
2.4
Level of corruption
2.4
Reliability and quality of
infrastructure & utilities
2.4
Ease of doing business
2.2
Access to other markets
2.1
Access to suppliers
Access to raw materials
1.9
1.6
Foreign investors rank highest the quality of labor force, while labor cost
ranks lower in terms of importance
33
They see the lack of significant improvement in the skills
sets as one of the biggest problems currently
Skills and qualifications ranking
Improvement over the years
5=most important
Language skills
1=worsened
3.1
Local managerial staff
3.1
Technical staff
3.1
Restrictiveness of
labor laws
2.9
Labor productivity
1.3
1.3
1.0
1.0
2.7
Other staff
Labor force mobiity
3=improved
2.7
2.4
1.5
1.0
1.3
Language skills and experienced, highly skilled labor force are of the highest
importance to investors
34
Building a highly skilled and trained employees will be
essential for Bulgaria to improve its attractiveness for
investors
Difficulty of replacing skills
Specialists
Critical Workforce Segments
Employees with specific skills that are not
present or are scarce in the economy and
cannot be developed in the short-term or in a
cost-effective way
Consists of highly skilled, highly trained
individuals who drive revenue growth and valueadded
Core Workforce
Flexible Labor
Reflects alternatives the economy can use to
meet periods of high demand for employee or
the need to lower costs
Reflects the backbone of the economy – people
who are well trained on general processes but
whose knowledge and skills are more easily
replaced
Impact on value chain
35
Therefore a targeted cooperation with universities and
associations could close the gap to the FDI 2020 target
List of practical initiatives to support IBA

Program for attracting Bulgarian students and professionals from abroad
• IBA to coordinate development of data base with information about the Bulgarian students and professionals abroad
• Regular distribution of informational newsletter among the Bulgarians abroad in order to inform them about the business
opportunities in the country
• Approach Bulgarians on key positions in international companies who can direct investments to the country

Co-marketing with established cluster and industrial associations – these organizations are close to the market, have
direct contact with the companies and specific expertise so the joint marketing activities with IBA will improve their impact

University partnerships – education is a major factor for FDI attraction, so IBA should work closely with the educational
institutions in order to structure the mechanism for development of programs tailored to the needs of specific big investors
and investment flows.

Establishment of better direct marketing capabilities within the Agency – Structuring the whole process of direct marketing:
database with potential investors, targeted and credible message, responsible people and consecutive actions.
36
Young professionals are opportunity driven, seeking new
chances for career enhancement over greater salary
Factors influencing job selection process
Opportunities for growth
and development
63.5%
Salary and
benefits package
49.8%
Company culture/
reputation
47.0%
34.5%
Location
Job responsibilities
32.1%
Company brand
27.8%
Good recruiting experience
Better job security
13.6%
7.9%
Young professionals are confident and motivated: more than 60% prefer
opportunities for growth, while only 7.9% are looking for better job security
Notes: The survey is conducted among individuals of different nationalities aged between 14 and 29 years
Source: Deloitte survey, A.T.Kearney
37
Currently, corruption and lower salaries are the major
impediments to their coming back to Bulgaria
If you have any worry to work in Bulgaria, what are the reasons for that?
(Times mentioned, total respondents 1425)
0
100
200
300
400
500
600
700
800
900
1.050
Corruption, incompetence,
bureaucracy in State institutions
Lower paymentties
Lack of organization
in the Social system
Corruption in the
job selection process
Underdeveloped infrastructure
Lack of enough security
Less opportunities for development
of the expert knowledge
Underdeveloped Public society
Lack of interesting employers
Personal reasons
No idea
Other
Corruption, lower salaries and the lack of organization in the social system
are the major impediment for the Bulgarian students to come back to Bulgaria
Notes: The survey is representative for the Bulgarian students in Germany
Source: www.baiganyo.de, A.T.Kearney
38
Bulgaria needs to develop a program for attracting back
students and young professionals back to Bulgaria
Creation of
encouraging
and favorable
environment
 Provide institutional support for the young, foreign educated Bulgarians with extravagant ideas.
 Support for business start-up of the young people
 Change in attitude of the institutions. The negative approach of the population /institutions is often
demotivating
Social
entrepreneursh
ip
 Inclusion of young people in the process of market economy and society development via various non-
Improve access
to information
 Organize database and mailing list with the students abroad. Regularly send business data regarding the
profit organizations, which attract young people willing to develop their personal skills
 These organizations provide the basis for business entry of the young graduates
available opportunities like companies, job positions and requirements, funding programs, available
projects and news
 Stimulate participation of young people in crime prevention and build trust between them and law
Security
enforcement institutions.
 The students build their negative impression based on the information for the unsuccessful business
ventures of relatives and the publicly available information about kidnapping and phone tapping
Target
experienced
people
Attract young
people to state
institutions
Expectation
management
 The experienced people above the entry level positions will not face the obstacles of the deficit of entry
level positions and will bring important international know-how to the local economy
 Moreover, these people have been living abroad for a longer period and homesickness might be stronger
decision factor
 Improve bureaucracy in the state structures in the process of recruitment and decision-making. Develop
“fast lane” for development of exceptional employees.
 The project based approach, which involves external experts, will engage the young people who want to
contribute to the economic development , but do not want to work in the bureaucratic State structures
 Improve access to quality services in support of career and personal development of young people
 Make it clear from the beginning that there are certain difference in Bulgaria. Still, the balance between the
risk to loose motivation from this fact and reality should be carefully kept
Source: “Forum Career in Bulgaria – Why not?” A.T.Kearney
39
The level of information flow to these people needs to be
improved
Data Base
 Gather information about the Bulgarian students abroad by specialty as well as the available
experts by specialty
 Direct contact with the universities from the countries with major presence of Bulgarian students
Mailing list
 Distribution of a periodical information (newsletter) by e-mail with the major job opportunities in
Bulgaria, profile of the major employers, as well as news about different initiatives of the State
(and private) institutions
 Collaboration with the private organizations sending Bulgarian students abroad (Integral, Darby,
Collaboration
Work and Travel etc.)
 Collaboration with the informal students organizations in Bulgaria (Back2BG, Tuk-tam etc.) as
well as with the Bulgarian students organizations abroad in the different countries
Information
campaigns
Direct
marketing
Marketing
 Preparation of information materials about the labor market in Bulgaria, the various opportunities
for funding and development, as well as the requirements for that
 Information about the security, rule of law and protection of personal rights in Bulgaria
 Direct contact with Bulgarian experts from abroad in order to be attracted for certain investment
projects
 Preparation of bonus programs for attraction of Bulgarian experts from abroad
 Sending a message to the society with stressing on the importance of the family values, friends
and social circle.
 Adoption of the positive approach in order to improve the society attitude
Source: “Forum Career in Bulgaria – Why not?” A.T.Kearney
40
The recent investor survey and a first comparison with
other agencies indicates that IBA needs to be further
empowered
Sources of information used when entering Bulgaria
5=most important
Investment or commercial bank
2.2
InvestBulgaria Agency
2.1
Regional / industry
business associations
2.1
International accounting firm
1.9
Mgmt consultancy /
investment boutiques
1.8
Other
Real estate brokerage firms
1.4
1.0
Investment and commercial banks are the major sources of information for
investors
41
Appendices
42
Table of contents
43
Global FDI inflow slowed down to 3% in 2000-2009, after a
period of 20% annual growth in the previous decade
FDI inflow of the world, 1990-2009
(USD bil.)
+3%
2,100
1,771
1,459
1,401
+20%
707
191
1,088
228
8
256
1990
2000
1991
1992
1993
Developing economies
1994
1995
1996
1997
Transition economies
1998
1999
986
825
215
1,138
630
434
7
486
389
8 851
343
191
147
208 35 154 40 166 53 223 77
116
10 508
6
4
285
236
173 0 114 0 111 2 143 3 151 2 222
256
104
565
91
601
2001
732
628
10 176
566
11 184
441
362
410
2002
2003
2004
292
20 30
1,114
123
55
330
31
478
1,444
1,018
970
625
2005
-37%
70
566
2006
2007
2008
2009
Developed economies
Remarks and conclusions
• Historically, developed economies attracted higher share of FDI due to sophisticated business environment and
infrastructure, stable economic and political systems and qualified labor force. With the EU integration of CEE countries,
they started a convergence path, which in combination with lower labor costs and tax rates have increased their
attractiveness to foreign investors.
• With the fast growth of Asian economies like China, India, Korea, Thailand, Singapore, FDI to these developing economies
increased driven by booming economies and low labor costs.
• Due to the crisis, FDI on a world level contracted by 37% in 2009 compared to 2008.
(1) Classification of countries is provided in the back-up
Source: UNCTAD, A.T. Kearney analysis
44
Global development trends are changing our societies and
demand for products and services…
12 trends that will shape the global business environment by 2020
The world‟s middle class is
exploding
Food demand is growing
Population is growing and
quickly aging
Freshwater is increasingly
scarce
Sub-Saharan Africa
experiences booming
development
China is the world‟s secondlargest economy
Women become the primary
breadwinners in developed
economies
The EU is the world‟s largest
economic bloc
World‟s health dynamics is
changing
The world is urbanizing
Long life expectancy is no
longer a rich-world-only
phenomenon
International migration
impacts world economic and
social patterns
Source: A.T. Kearney’s Global Business Policy Council
45
...with some of them having higher impact on Bulgaria
Growing middle class
and urbanization
• Although still having very low GDP per capita, Bulgaria is experiencing growing middle
class and increasing urbanization, impacting consumer demand
• The most dramatic growth in spending of the new middle class globally will be seen in
consumer spending and health care
Industries like food production and healthcare are likely to grow
Declining birthdates,
aging population,
increasing life
expectancy
• Declining birthrates, aging population and increasing life expectancy observed in
Bulgaria are following Europe’ pattern
• Healthcare and services for aging population are expected to rise. This dynamics
however puts pressure on retirement system and public spent
Healthcare will continue to have prominent importance
China is the world‟s
second largest
economy
• China is currently the world’s second largest economy
• China is increasingly becoming an exporter of FDI
• With the EU as the world’s largest economic block, Chinese companies will be looking
for increased access to the EU markets
Bulgaria should seek to establish close cooperation with China at all levels
early on (FDI, R&D, tourism, university partnerships, cultural exchange, etc)
Access to EU‟s market
• Bulgaria is part of the world’s largest economic bloc representing around 30% of the
global economy.
• EU membership notably eases investors in doing business, and gives access to the
common market and EU subsidies and funds to support convergence
Bulgaria should seek to position itself as a gateway for Chinese and other
non-EU investments into the EU
46
Industry landscape is changing as sustainability is
expected to endure as a major post-recession theme…
Consumption patterns (% of respondents)
Impact on industries
60%
• The growing importance of “Go green”
concept will drive industry sectors such as
renewable energy, recycling, etc. More
companies are expected to invest in
sustainability creating growing demand for
“green” products
52%
45%
38%
28%
27%
25%
8%
"Go green" Internet
Private
Thrift
Product
Fewer
Product
or
shopping savings’ shopping quality
leisure
price
sustainagains
share of increases
more expenditures more
bility
market
income
important
important
awareness share
higher
than
than
increases
than in
product
product
the past
price
quality
Other
• Internet shopping is expected to change the
retail landscape as internet penetration
across the world increases. Many retailers
are expected to focus on developing
internet portals along with shop expansion
• Fewer leisure expenditures, combined with
higher share of private savings are expected
to negatively affect tourism as less people
will spend money on holidays. The recession
has made consumers insecure, thus
preferring to keep their money in savings.
Banks would focus on expanding their
deposit portfolios to meet the growing
demand
(1) Companies participating in the index represent 44 countries and span 17 industry sectors across all 6 continents. Respondents include C-level
executives, as well as regional and business heads
Source: A.T.Kearney FDI Confidence Index 2010
47
…and industries face different pressure to consolidate
depending on their development cycle
CR3 1)
Opening
Opening
100%
Scale
Scale
Balance/
Alliance
Focus
Focus
HHI 2)
Defense Electr.
90%
Cigarette
80%
Distillers
Aluminum Producers
70%
Shipbuilding
Natural gas liquids
Integrated oil & gas
Soft drinks
60%
Truck & Trailer Mfrs.
Confectionary
Consumer Electronics
50%
 45%
Semiconductors
Steel Producer integrated
Cosmetics
40%
Food Retail
Railroad
30%
Restaurants & Fast Food
Automotive Supplier
Divers. Chemicals Paper
Rubber & Tire Mfrs.
Divers. Food
Automotive Mfrs.
Paper
Ore Mining
Brewers
Drugs
Utilities
Telecom
Airlines
20%
Insurance
Banks
10%
0%
- 10
-5
0
5
10
15
20
25
Years
1) CR3: Market share of the three largest companies of the total market based on Value-Building Growth database (34,000 companies)
2) HHI: Hirschman-Herfindahl Index corresponds to the sum of the squared market shares of all companies, the axis is logarithmically plotted, CR3 and
HHI correlate with r2 = 0.78
Source: Value-Building Growth database; A.T. Kearney analysis
48
Expected internationalization is set to continue post the
crisis
Level of expected internationalization
2011 (in %)
Less than 10%
10% - 50%
More
than 50%
Corporate functions
Production of goods and services
Sales offices
Logistics and distribution
18
16
27
34
37
37
48
48
37
Call centres and customer relations management
44
28
28
Administrative support and shared service cent
Research and development
Finance
Headquarters and decision-making centres
Common indicators
Sales
Investment expenditures
Employment
Capital stocks
40
41
45
61
40
43
45
33
20
15
10
6
2
12
12
26
31
40
42
49
68
48
46
25
Level of expected internationalization
Production, call centres and shared services are among the corporate functions with
highest probability for internationalization in 2011
49
Size and growth of regional markets are key decision
factors for company location
Leading factors influencing the location of
companies
2009 - 2011 (% of responses)
Primary sector
17%
16%
10%
Growth
of market
Manufacturing
sector
Services sector
Access to natural
resources
Size of local
market
Size of local
market
Stable and
business-friendly
environment
Growth of market
Growth of market
Size of local
market
Presence of
suppliers and
partners
Presence of
suppliers and
partners
Growth of market
Access to
Access to
international/regio international/regio
nal markets
nal market
10%
8%
Size of local
market
Most important location criteria by sector
2009 - 2011
Presence of
Access to
Stable and
suppliers international/ businessand partners
regional
friendly
markets
environment
The size and growth of local market are the major factors influencing location
decisions
50
EU 12 are a medium priority region on a global scale
Regional prospects
Level of priority for each region as an FDI location 2009–2011 (1=marginal; 5=very important)
3.9
1.9
2.8
3.1
3.9
3.9
3.0
1.7
2.3
2.6
2.9
Expected change in FDI by region, 2009–2011 (1=decrease of more than 50%; 5=unchanged; 9=increase
of more than 50%)
5.0
5.1
5.6
6.4
5.8
5.4
5.4
5.7
5.2
5.3
5.6
35.1%
31.8%
36.4%
38.3%
New EU-12
Other
Europe
Other
developed
countries
SE Europe
& CIS
Companies with FDI stocks in the relevant regions in 2009 (% of respondents)
74.7%
64.9%
37.0%
19.5%
16.9%
North Africa
SubSaharan
Africa
West Asia
77.9%
44.2%
South, East
Latin
and SE Asia America &
Caribbean
US &
Canada
EU-15
New EU-12 and SEE regions are medium priority for the major investors
51
Uncertainty is the major impediment to FDI in the post
crisis period
Importance of risk factors for FDI decisions, 2009 – 2011
(average value of respondents)
0.0
-0.5
-1.0
-1.5
-2.0
-2.5
-3.0
-3.5
-4.0
Worsening
of the global
economic
downturn
Increased
financial
instability
Rise of
protectionism
Changes
in investment
regimes
Volatility of
petroleum
and raw
material
prices
Exchange
rates
fluctuation
War and
political
instability
Volatility of
Threats to
prices in general personal and
(inflation,
business safety
deflation etc
(e.g. terrorism,
Uncertainty is the major impediment for FDI in the post-crisis period
Bulgaria‟s top priority in terms of PR should be to convey a message of
macroeconomic and political stability
Note: -4=large negative impact very probable; 0= negligible impact very probable
52
Internationalization is set to continue
Proportion of various corporate functions undertaken abroad
2008 and 2011 (average value of responses)
5.0
2008
2011
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.5
0.0
Sales offices
Production
of goods
and services
Logistics
and
distribution
Administrative
support &
shared-services
centres
Call centres
and
CRM
R&D
Finance
HQ & decision
making centres
FDI is likely to rebound due to expected continuation of internationalization
of corporate functions
Note: 1=not internationalized; 5=very internationalized
53
SEE and EU12 are medium priority region for TNCs
TNCs‟ regional preferences
2008 and 2011 (average value of responses)
European TNCs‟
North American TNCs‟
5
5
4
4
3
3
2
2
1
1
0
0
Japanese TNCs‟
Asian developing countries TNCs‟
5
5
4
4
3
3
2
2
1
1
0
2008
2011
0
EU-15 South, North New LA and SEE
East America EU-12 the
and
& SE
Caribbean CIS
Asia
West Other North ODC SubAsia Europe Africa
Saharan
Africa
EU-15 South, North New LA and SEE
East America EU-12 the
and
& SE
Caribbean CIS
Asia
West Other North ODC SubAsia Europe Africa
Saharan
Africa
Naturally, European TNCs view new EU 12 as highest priority relative to North America
and Japanese TNCs
Note: 1=not internationalized; 5=very internationalized; ODC = Other Developed Countries; LA = Latin America
54
The primary and service sectors were least affected by the
crisis
Impact of the economic downturn on TNCs‟ investment plans
2009–2011, by sector/industry (average value of responses)
Manufacturing
Primary
Services
Other manufacturing
Wood and wood products
Metals and metal products
Motor vehicle and trailers
Electrical equipments
Machinery and equipment
Non-metalic mineral products
Chemicals and plastics
Textiles, clothing and leather
Electronic equipment
Other transport equipment
Transportation services
Trade
Coke, petroleum products and nuclear fuel
Other services
Precision instruments
Food, beverages and tobacco
Telecommunications
Construction
Electricity, gas and water
Business services
Pharmaceuticals
-2
-1.8
-1.6
-1.4
-1.2
-1
-0.8
-0.6
-0.4
-0.2
0
Primary and Services sectors were least affected by the crisis.
Pharmaceutical industry almost did not feel negative impact.
Note: 0=no effect; -2=very negative effect
55
Transport equipment, electronics, and business services
are the top job creating FDI sectors
Top ranking sectors by estimated jobs
(2009)
0
50,000
100,000
150,000
Comments
Transport Equipment
Electronics
Business Services
Chemicals
ICT
Food, Beverages
& Tobacco
Industrial Machinery
& Equipment
Pharma, Medical
& Healthcare
Electrical Equipment
Logistics
2008
• Traditionally dominant sectors of investment,
such as transport equipment, chemicals, and
information & communications technology
(ICT), all saw significant declines in numbers of
jobs created from FDI
• Life sciences, energy and logistics sectors all
saw varying degrees of recovery in investment
levels
• Investment activity within some clusters has
been more pronounced than what is discerned
within individual sectors
• It is becoming increasingly important for
locations to understand how they are
positioned for investments within the new
clusters rather than in the traditional sectors
2009
There is an emergency of industry clusters (e.g. renewable energy), which
span multiple traditional sectors
Source: press search, A.T. Kearney analysis
56
Ireland, Hungary and Singapore topped the list of recipient
countries FDI countries in terms of jobs created
Top ranking destination countries by
estimated jobs, created by FDI projects
(2009)
0
20,000
40,000 60,000
80,000
USA
India
China
Mexico
UK
Malaysia
Phillippines
Poland
France
Hungary
Russia
Brazil
Canada
Spain
Thailand
Czech Republic
Germany
Vietnam
Australia
Morocco
Top ranking destination countries by
estimated jobs – per 100,000 inhabitants
(2009)
0
20
40 60
80 100 120 140 160
180
Ireland
Hungary
Singapore
Costa Rica
Czech Republic
UAE
Lithuania
Slovenia
Liberia
Slovakia
Estonia
Malaysia
Tunisia
Georgia
Bulgaria
Serbia
Nicaragua
Belgium
Uruguay
Canada
It‟s not unrealistic for Bulgaria to be able to at least double number of jobs created by
FDI projects in other countries
Source: press search, A.T. Kearney analysis
57
With the changes in global trends, new high-impact
technologies will emerge from the convergence of
scientific disciplines
Robotics and Artificial
Intelligence
Physics
Nanotech
Energy Technology
Medical
Devices
Clean tech
(wind and
solar power,
biofuels, etc.)
Smart
materials
Thermodynamics
Nuclear Chemistry
Chemistry
Neurochemistry
Nutraceuticals
Biotechnology
(biochemistry, cloning,
Pharmacogenomics)
Medical
Diagnostics
Biology
Stem Cell
Technologies
Investors estimate biotechnology, clean-tech, nanotechnology as the ones of
highest future investor interest
58
Some investment agencies in Europe have already started
to promote these new industries
Focus of investment agencies in Europe
Finland
• Focus on clean-tech, ICT
and renewable energy
Sweden
• Strong focus on
clean-tech
Ireland
• Focus on ICT, cleantech, life sciences
Estonia
• Since recently, clear
focus on biotechnology
Denmark
• Focus on technology-intensive
industries such as renewable
energy and life science
Belgium
• Clear focus and government
support on biopharmaceuticals
R&D and manufacturing
Czech Republic
• Focus on the high-tech
industries such as
nanotechnology, life sciences
and clean-tech
Portugal
• Focus on ICT, renewable
energy, biotechnology, cork
industry
Austria
• Focus on high-tech industries
such as mechatronics, life
sciences and biotechnologies
Slovenia
• Focus on chemicals and
pharmaceuticals
Croatia
• Focus on biotechnology
and pharmaceuticals
(1) Mechatronics – a fusion of machine construction, electronics, and information technology, deemed to be a high growth sector in Austria
59
ICT, Pharmaceuticals and Electronics are leading industries
in focus by most European investment agencies
Industry focus of investment agencies
5=most important
ICT
4.0
Pharmaceuticals
3.7
Electronics
3.7
Cleantech
3.7
Life sciences
3.6
Automotive
3.4
Machinery&equipment
3.2
Healthcare
3.1
Chemicals
2.8
Logistics
2.7
Tourism&wellness
2.3
Retail&wholesale
Real estate
Oil&gas
1.3
1.1
1.0
European agencies encourage investments in high value adding industries
Source: Questionnaire among European investment agencies, A.T. Kearney analysis
60
People skills and infrastructure are seen as equally
important competitive advantages in the majority of
European countries
Country competitive advantages
People skills
20%
Supporting
infrastructure
20%
Education &
research centers
18%
Industry clusters
Comments
• Current trend is to promote R&D
activities in steadily established
industries: automotive, electronics,
medical products, renewable, Hightechnologies, IT technologies”
(interviewee comment)
17%
Government support
15%
Natural endowments
5%
Other
5%
• People skills and availability of
supporting infrastructure are important
factors for promoting development of
new and high-value adding
technologies
Focus on developing people skills is key for the industries of the future
61
Qualified labor and access to larger (EU) markets are the
most important country promotion arguments
Key country promotion arguments
5=most important
Labor force
qualifications & skills
3.9
Access to other markets
3.9
Stable macroeconomic &
political environment
Reliability and quality of
infrastructure & utilities
3.4
Ease of doing business
3.4
3.6
Access to local market
3.2
Access to suppliers
3.2
Favorable national tax regime
3.1
Labor costs
3.1
Availability of land plots
3.1
Access to raw materials
1.9
Access to raw materials is the least used promotion argument
62
Investments in education and in infrastructure are key
priorities in most European countries
Key investments priority for the agencies
Invest in education
28%
Invest in infrastructure
28%
Comments
• Some of the other areas for
improvement identified by European
agencies include:
– Innovation environment
Improve institutional
efficiency
25%
– More attractive tax regime
Introduce tax incentives
Other
– More flexible labor legislature
12%
7%
– High-tech strategies on
governmental level
– Targeted investment and operational
incentives (rather than tax
incentives), etc.
Building upon people skills would be the differentiating factor for attracting
investments
63
Greenfield investments in R&D and manufacturing were
preferred in Europe during the last 5 years
Preferred way of entry
Preferred types of activity
R&D
Greenfield
72%
21%
Manufacturing /
Processing
18%
Regional
headquarters
M&A
Privatization
17%
11%
17%
Sales
operations
16%
Call center /
shared services
16%
Distribution /
Warehousing
Other
10%
2%
Manufacturing and R&D are historically the most important types of
investments in Europe
64
Table of contents
65
Electronics and Electrical engineering
Global trends
Endowments in Bulgaria
Potential impact
Targets
• The 2nd largest industry in the world in terms of FDI job creation with 89 000 new
jobs in 2009
• Expected significant FDI rebound and specifically increase in investments in
Eastern Europe
• High-tech, export oriented sector
• Strong traditions in Bulgaria – more than 130,000 employed in the past
• Proximity to the key markets of Western Europe
• Presence of some international companies
• Relatively good educational resources
• High potential impact for productivity improvements and export.
• Possibility to attract medium-skill level electronics and electrical firms in regions
outside of Sofia with the potential to employ relatively less skilled labor (e.g.
product assembly)
• Potential to increase employment in the sector with up to 100% and reach 1980s
level.
• Focus on attracting both OMS and EMS firms from major countries like
Germany, Italy, UK, China, South Korea, Japan, US, Taiwan
Source: UNCTAD, “Global Location Trends”, A.T.Kearney analysis
66
ICT
Global trends
Potential impact
Targets
• The 5th largest industry in the world in terms of FDI job creation with 53 000 new
jobs in 2009
• CEE market for IT services is growing and is expected to continue the growth in
the future with higher rates
• High value-added and Knowledge intensive sector, Export oriented services
sector
• Strong traditions in Bulgaria – IT leader in the CEE in the 80s
• Presence of major big international IT companies
• High-speed broadband network
• Possibility to upgrade to higher knowledge intensive sub-sector of IT industry
• IT is enabler for development of technologies and improve of productivity in
other sectors
• Driver for improvement of the educational structure
• Possibility for development outside of Sofia
• Focus on attracting of companies in the Software Development and Higher value
added IT services. Development of newer tendencies like cloud computing, and
software-as-a-service (SaaS).
• Targeted countries: Western European countries - Germany, France, UK,
Belgium, Netherlands , Sweden, Denmark, Finland; Other developed countries USA, Japan; EU representatives for the growing IT companies in China and India
67
Outsourcing
Global trends
• The 3rd largest industry in the world in terms of FDI job creation with 56 000 new
jobs in 2009
• Expected significant FDI rebound and specifically increase in investments in
Eastern Europe
• Export oriented services sector
• World competitive in terms of cost and availability of skilled labor - high ranking in
Global Services Location index
• Relatively good educational resources with multi-language skills
• Presence of major big international IT companies
• High-speed broadband network
Potential impact
• Possibility to upgrade to higher value-added activities or attract higher-skill
sectors like financial or mathematical analysis
• Know-how attraction , productivity and quality improvement of the whole industry
• Possibility to attract medium-skill level firms in regions outside of Sofia with the
potential to employ relatively less skilled labor with the only requirement of
language knowledge
Targets
• Focus on: Business process outsourcing (BPO), Service centers and some
emerging outsourcing fields like R&D, Financial analysis and Mathematical
analysis.
• Targeted companies: the major international corporations who can benefit from
outsourcing.
• Targeted countries: USA, UK, Germany, France, Belgium, Netherlands ,
Sweden, Finland
Source: UNCTAD, A.T.Kearney’s “Global Services Location Index”, IBM’s “Global Location Trends”, A.T.Kearney analysis
68
Food & Agriculture
Global trends
Potential impact
Targets
jobs in 2009
• The impact of the crisis on the FDI plans has been more limited than average.
The growth in FDI is expected to continue
• The low growth in EU production can be resolved by exploiting markets in the
new EU member states.
• Recurrent trend of healthier food products
• Strong traditions in Bulgaria – main exporter for the USSR market in the past
• Fertile land in various areas of the country
• Presence of major international food companies
• Possibility to provide employment for less skilled labor in regions outside of
Sofia.
• Development of the Wine cluster
• Focus on: Organic farming and finished goods ; Convenience products - portable
and convenience foods that do not compromise quality and taste
• Targeted companies: Companies and investors in farming and food & beverages
producers.
• Targeted countries: with high expertise in agri-food like France, Germany, Italy,
Netherlands, Israel and countries with strong food demand like China, the Arab
world and Japan.
69
Transport Equipment and Machine building
Global trends
Potential impact
Targets
• The largest industry in the world in terms of FDI job creation with 160 000 new
jobs in 2009
• Expected growth of more than 30% in the next years in light vehicles
• Trend of relocation of some manufacturing activities from developed countries to
low-cost countries
• Chinese manufacturers are entering the European market
• Proximity to the automotive clusters of CEE
• Presence of international auto-parts manufacturers
• Possibility to attract medium-skill level transport equipment and machine building
firms in regions outside of Sofia with the potential to employ relatively less skilled
labor (e.g. product assembly)
• Focus on attraction of some of the main Chinese car manufacturers, as well as
to target some of the international car manufacturers of electrical cars for the
initiation of electric car components production
• Focus on other transport equipment production (agricultural machinery, buses,
ship building, wagon and rolling stock, bicycle)
• Targeted countries: China, US, UK, South Korea, Germany, etc
70
Global trends
Potential impact
Targets
jobs in 2009
• The sector is expected to grow with more than 30% in the next 20 years.
• Expected significant increase in investments in Eastern Europe due to formation
of Regional Distribution Centers
• Service oriented sector with focus on export and value-added activities
• Extremely favorable location on the cross road of Europe and Asia with 5 PanEuropean Transport corridors crossing the country
• Availability of all modes of transport
• Infrastructure development is Government priority
• Possibility to attract other industries, highly reliable on fast and reliable Transport
& Logistics services
• Possibility to employ a combination of high skilled logistics experts and low
skilled labor in the transportation and processing activities
• Focus on attraction of: Logistics hub for regional distribution centers, shippers,
LSPs, logistics facilities developers
• Targeted countries and companies: China, international transport, logistics and
warehouse operators (Maersk, CMA CGM, DHL, etc)
71
Healthcare
Global trends
Potential impact
Targets
jobs in 2009
• The aging and relatively wealthy population is likely to demand more medical
services.
• Reduction of the in-hospital treatment time and promotion of treatment in
outpatient settings
• The pharmaceutical industry is non-cyclical and is among the least affected
industries by the crisis, with one of the most positive outlooks for FDIs in 2011.
• Generics producers niche development due to patent expiration
• Long traditions in wellness tourism and experienced Bulgarian staff. Traditions in
Pharmaceuticals
• Excellent geographical, climate and natural conditions
• 80% of Bulgarian pharma production is in the sphere of generics
• High potential impact for pharmaceutical production and export.
• Possibility to employ more medium-skilled people in service related activities
through-out the whole country
• Year-round development of tourism
• Improvement of the whole healthcare structure
• Focus in Healthcare on medical tourism, spa and wellness, end-of-life care,
R&D, medical suppliers
• Targeted countries: Germany, Italy, UK, Nordic countries, France
• Focus in Pharmaceuticals on generics, production outsourcing, early stage R&D,
bio-similars
• Targeted countries: France, Germany, Italy, Spain, UK, US, Switzerland
72
Manufacture of Chemicals, Rubber and Plastics
Global trends
Potential impact
Targets
jobs in 2009
• Chemical companies undertake major capital investments in emerging markets
for lowering structural costs and for capturing new market opportunities
• High value added, technology intensive, export oriented sector
• Extremely favorable location on the cross road of Europe and Asia
• Traditions in the sector – 113 000 employed in the 1980s
• Presence of few big international companies
• Access to some natural resources
• Possibility to employ a combination of high skilled chemistry experts and low
skilled labor in the production process, in factories outside of Sofia.
• Potential to increase employment in the sector with up to 100% and reach 1980s
level.
• Focus on fine and consumer chemicals, bio-based materials, nanotechnologies,
cleantech
• Targeted countries: Germany, France, UK, Italy, Belgium, Netherlands, US
73
New industries – Cleantech, Biotech, New Generation IT
Global trends
• New funding in clean-tech industry are expected to more than double by 2018
• The increasing need of drugs and growing number of clinical trials will drive the
biotechnology industry in the next several years
• Cloud Computing and Software-as-a-Service are gaining popularity worldwide. IT
decision are being integrated in almost every sector of economy
• Presence of some research facilities
• Relatively good development prospects of supporting industries like IT,
Chemicals, Renewable energy production
• High awareness of intellectual property and patenting and adequate legislation
in place
Potential impact
• Key enabling technologies for other sectors development
• New technologies open new perspectives for applications in the pharmaceutical,
food and environmental markets.
Targets
• Targeted countries:
• Cleantech: USA, Nordic Countries
• Biotech: USA, Germany, France, South Korea
• New Generation IT: Top international IT companies
74
Table of contents
75
Industry overviews – Electronics & Electrical equipment
Electronics and electrical equipment snapshot
Strengths and Weaknesses
Industry Size and FDI Flows
Industry size
Size
% econ
% manuf.
1 504 749
1,9%
8,7%
Employees
44 679
1,6%
7,7%
Firms
2 249
0,6%
7,3%
Revenues (€ „000)
FDI flows
95
(EUR mm)
68
35
11 5
34
30
9
3
0
00
01
18
69
39
58
34
24
9
0
21
-4 -2
-12
02
03
04
05
06
07
08
Strengths
• Strong traditions – more than 130,000 people in the industry ’80s
• Availability of qualified engineers
• Appropriate technologies conformable with the EU standards
• Modern equipment from EU, American and Japanese suppliers
• Good quality/price ratio
• Good overall educational level of the population
• Member of EU – access to the community market
Weaknesses
• Ageing of the qualified engineers
• Amortization of the equipment due to lack of investments
• Lack of significant investments and supplier base
• The higher education structure does not stimulate the development of
the industry in the whole country
09 Q3 10
Geographic Concentration
Educational and Other Resources
Employees
University students
0.4
• Electronics & Electrical = 9 000 students
0.4
0.2
0.4
0.2
1.5
1.2
1.2
0.5
0.1
0.7
1.9
0.3
4,5
0.5
10,5
0.7
1.1
0.8
2,9
2.4
1.1
4,1
4,8
0.6
1.2
0.5
• Other relevant = 21000 students
• (Communication technology; IT;
• Manufacturing: aviation; freezing technology; machine-building;
materials; metals; transport equipment and other technical specialties)
0.1
Source: Amadeus, BNB, A.T. Kearney analysis
Other resources
• 22 Professional schools with specialties in E&E
• Active research institute in Bulgarian Academy of Science (BAS)
• Active industry association
• EU funding
76
Only a few sub-segments are sizeable
Sub-segments within the industry
Sector and Sub-segments
Revenues
Other electrical equipment
Electric motors, generators and transformers
Other electronic and electric wires and cables
Electricity distribution and control apparatus
Electric domestic appliances
Electric lighting equipment
Batteries and accumulators
Non-electric domestic appliances
Computer, electronic and optical products
Electronic components
Communication equipment
Irradiation, electromedical and electrotherapeutic equipment
Computers and peripheral equipment
Optical instruments and photographic equipment
Instruments and appliances for measuring, testing and navigation
Magnetic and optical media
Watches and clocks
Employees
991 842
125 707
198 817
188 903
75 701
225 332
67 810
108 946
627
512 907
280 600
62 509
57 943
71 527
13 089
11 019
15 050
1 169
29 291
8 645
5 268
4 368
3 817
2 940
2 016
1 904
333
15 388
5 655
3 249
2 931
2 133
700
583
95
42
Companies
1017
343
158
54
270
18
140
31
3
1232
151
223
642
168
13
21
2
12
Certain sub-segments have very low revenues overall
77
Top players in the electronics industry (1/2)
The top players in the Electronics industry, according to its corresponding subsegment
% of Industry
Revenues
% of Industry
Employees
Sub-segment
% of SubSegment
Rev
EPIQ Electronic Assembly
22%
15%
M-e of electronic components
40%
Sensor Nite Industrial
14%
0,4%
26%
Melexis Bulgaria
7%
1%
12%
DATECS
7%
2%
M-e of computers and peripheral equipment
51%
Videoton Bulgarian Holdings
4%
0,1%
7%
Deltacom Electronics
3%
2%
M-e of communication equipment
27%
BTL Industries
3%
0,3%
M-e of irradiation, electromedical and
electrotherapeutic equipment
26%
Kanon Bulgaria
2%
0,1%
M-e of optical instruments and photographic
equipment
59%
Company
The industry and sub-segments are defined by a few successful / sizeable, foreign and
domestic companies
78
Top players in the electrical engineering industry (2/2)
The top players in the electrical engineering industry, according to its
corresponding sub-segment
Company
Liebherr Hausgerate Marica
Yazaki Bulgaria
% of Industry
Revenues
% of Industry
Employees
Sub-segment
% of SubSegment
Rev
16%
6%
M-e of electric domestic appliances
72%
13%
M-e of other electrical equipment
52%
7%
Monbat
6%
2%
M-e of batteries and accumulators
59%
SE Bordenetze Bulgaria
6%
6%
M-e of other electronic and electric wires and
cables
31%
Filkab
5%
1%
M-e of other electronic and electric wires and
cables
24%
Hyundai Heavy industries
5%
2%
M-e of electric motors, generators and
transformers
26%
Schneider Electric Bulgaria
5%
2%
transformers
24%
AMK Motor Reduktori
4%
0,01%
transformers
18%
Enersys
3%
2%
M-e of batteries and accumulators
27%
domestic companies
79
Summary of global trends in E&E industry











The electronics industry is a cyclical industry, dependent on the economic cycle. The industry experienced a decline in FDI
flows during the crisis and may expect recovery starting in 2011
It is an infrastructure industry and therefore underpins a lot of other sectors. This drives characteristic long-term cycles.
Latest cycle will be driven by growth in medical devices, security, energy, cleantech, and other sectors
The industry is one of the top ranking sectors by estimated jobs by FDI
CEE countries saw significant investment in the industry in the past, but Bulgaria didn’t attract major players. Major OEMs
and EMSs are present throughout CEE
The value of the electronics production for one year in CEE is $85bn with tendency to reach soon $100bn. Nearly 50% of the
major manufacturers on the European market prefer CEE to Asia as location for their facilities.
Main advantages of CEE are low transportation and labor costs and qualified labor pool
The main growth opportunities within the sector are within the professional (vs. consumer) applications. These include
segments such as automotive electronics, medical device, energy, industrial, telecoms related
The EU remains the largest market in terms of consumption and the second largest in terms of production of electronics.
Main countries manufacturers are China, Japan, USA, South Korea, Germany, Italy, UK, Taiwan, Singapore
Within the EU, the sector employs 3,5 mn people and generates €500 bn in revenues. The sector has a two-tier system – a
few large companies and many smaller players
Within this sector, Bulgaria should approach the following strategy and tactics:
• Focus on industrial electronics (automotive, medical device, energy, telecoms). Basis of competition there are engineering
skills, labor costs, proximity to markets. These segments are characterized by smaller players and are dominated by EU
firms
• Target also large OEMs and EMSs on an opportunistic basis. Contact both established global players as well rising
Chinese electronics companies who wish to enter the EU market
BIA should have a segmented approach given the structure of the sector – direct contact at BIA/governmental level with the
industry giants in EU, USA, China, Japan, South Korea (Panasonic, Flextronics, Samsung etc) and direct mailing to smaller
EU players
80
Electronics and electrical equipment industry: EU snapshot
•
Facts & Figures
•
•
•
Competitiveness
Assessment
•
•
•
R&D and Innovation
•
•
Areas of Growth
•
•
Structure of Sector
•
The sector employees around 3,6 mm people and with an output of €50 771 mm in 2007 represented
9,8% of the total EU manufacturing industry
All sub-sectors showed modest to dynamic growth rates, except for transmission apparatus and
telephones, which declined
Between 2006 and 2007 the overall weight of this subsector decreased from 10,3% to 9,8% of total
EU-27 manufacturing output
As a major supplier to other sectors, the E&E is very “cycle-sensitive” as a result of the overall
slowdown of the EU economy, the growth rate of the E&E industry has fallen below the overall GDP
growth rate
Counterfeiting of EU E&E brands is a serious and growing problem for European manufacturers
Access to third countries is also frequently hindered by local safety standards and certification/testing
procedures which are not in line with international standards
E&E is closely involved in the Framework Program 7 and the European technology platforms research
programs
The creation of joint research initiatives between public and private sectors at EU level is seen as the
right step forward to foster sustainable growth, competitiveness and durable job creation
Two sub-sectors have shown the highest growth over the long term: electric motors, generators &
transformers and other electrical equipment (27% and 22%, respectively, for the period 1999 – 2005)
Currently, the focus is on energy efficiency and energy security, which is widening the scope of growth
The structure of the E&E industry is characterized by a two-tier system: a few large corporations
producing a large range of electrical and electronic equipment, and many small companies specialized
in niche markets
A characteristic of the industry is the relatively high level of employment relative to output
Source: Commission of the European Communities – “European industry in a changing world 2009”
81
Opportunistic trends for Bulgaria in the E&E industry
Opportunities for/in Bulgaria
Who to target for FDI?
Medical
• 14% CAGR in Europe, from professional to mass market applications
• Innovation : well being, new services like patient monitoring,
Heterogeneous integration (biology, SC, power, High Reliability)
• Opportunities: Imagery and Telecom leadership, European medical
expenses 600 billion euros = 6% of the GDP and growing faster
(major productivity gains required)
• Smaller international companies, mainly in Europe
• Countries: Germany, Italy, UK, US
Energy
• Outlook: Solar cells shortage, Investment in PV = investment in SC in
2010
• Innovation: Energy mix to increase requiring system approach (modal
approach) and specific technologies (components, power
management, storage)
• Opportunities: German leadership in PV, Spain and Denmark in Wind
Energy, major operators and investments
• Countries: Germany, Italy, UK, US, China, Spain,
Denmark
Industrial
• Outlook: 5.0% CAGR in Europe, a strong European leadership in all
the value chain
• Innovation: large scale smart infrastructures, increased global
operations productivity (design, manufacturing, supply chain), energy
efficient systems require new product & technology from component
to software
• Opportunities: European regulations and consciousness ahead of the
market
• Countries: Germany, Italy, UK, US, Japan, South
Korea
• Outlook: 4.5% CAGR in Europe, strong investment in emerging
regions
• Innovation: Electronic content to experience a new boost following
new car architectures (impact from 2010), mechatronics integration
• Opportunities: technological leadership and industrial infrastructure,
new innovators like Michelin, Continental, Bolloré, Dassault
• Countries: Germany, Italy, UK, US, Japan
Automotive
82
Opportunistic trends for Bulgaria in the E&E industry
OEMs
• High growth potential and value added
• Availability of engineer skills
• Low labor and production costs
• Proximity to EU markets, Middle East
• Traditions in sector
• Presence of international leading players
• International global companies leaders in the
industry
• Countries: Germany, China, South Korea, Japan,
US
EMS
• High growth potential and value added
• Availability of engineer skills
• Proximity to EU markets, Middle East
• Traditions in sector
• Presence of international leading players
• International global companies leaders in the
industry
• Countries: Germany, China, South Korea, Japan,
US, Taiwan
83
Industry overviews – Chemicals, Rubber and Plastics
Chemicals, rubber and plastics industry snapshot
Electronics Industry Size and FDI Flows
Industry size
Size
% econ
% manuf.
1 669 603
2,1%
9,6%
Employees
47 687
1,7%
8,2%
Firms
2 720
0,7%
8,8%
170
FDI flows
(EUR mm)
2 4
97
6 1
18
1
91
1 8
6
04
-44
05
36 25
27
01
02
03
06
07
08
09 Q3 10
Employees
0.9
0.3
1.2
0.4
0.3
0.2
0.4
3
-9 -1
-9
00
7 3
4,5
0.5
3,0
0.6
1.6
0.3
2,7
0.8
1.5
3,5
7,7
10,5
1.1
0.2
0.3
Strengths
•
Availability of qualified and experienced engineers and employees
•
Low production costs
•
Existence of raw materials for some sub-sectors, especially the
ones with future growth potential (energy and energy saving
sectors, biotechnologies)
•
Presence of big international companies on the Bulgarian market
(Air Luiquide, Solvay Sodi, etc)
•
Strong traditions in the industry
Weaknesses
•
Lack of modern and cost-effective technologies and equipment
•
Interruption of the innovations process after liquidation of the
supporting R&D structures
•
Lack of or not developed cluster structures
•
Lag of the higher and professional education to the actual needs of
the chemical needs
3,6
University students
•
Chemistry and chemical manufacturing = 6,245 students
•
Other relevant = 2,622 students
•
(Biotechnology, cosmetics and manufacturing of materials)
2,1
2,9
4,10.5
8,8
4,8
2,6
1.8
0.7
0.3
84
There is a diversified chemicals and plastics supplier base
Chemicals
Other chemical products n.e.c.
Soap and detergents, cleaning and polishing preparations
Perfumes and toilet preparations
Man-made fibres
Fertilisers and nitrogen compounds
Paints, varnishes, printing ink and mastics
Explosives
Essential oils
Synthetic rubber in primary forms
Dyes and pigments
Plastics in primary forms
Pesticides and other agrochemical products
Industrial gases
Glues
Rubber and plastics
Other plastic products
Rubber tyres and tubes
Plastic packing goods
Plastic plates, sheets, tubes and profiles
Builders' ware of plastic
Revenues
916 274
356 623
104 579
193 400
14 920
52 865
47 889
23 399
11 462
11 604
15 907
25 787
22 998
24 554
10 285
753 328
169 761
169 800
199 169
118 466
96 133
Employees
17 919
4 363
3 533
1 714
1 685
1 527
1 084
773
554
538
525
449
444
387
343
29 768
9 002
8 830
6 107
3 207
2 622
Companies
756
180
214
99
7
7
86
5
36
17
21
30
18
9
27
1 964
617
1 045
130
118
54
The leading position of certain sub-segments is a result of the presence of large
international companies
85
Top players in the chemicals industry (1/2)
The top players in the chemicals industry, according to its corresponding subsegment
% of Industry
Revenues
% of Industry
Employees
Sub-segment
% of SubSegment
Rev
Solvay Sodi
7%
1,2%
M-e of other inorganic basic chemicals
36%
Agropolychim
7%
1,5%
35%
Orgachim
3%
1,4%
17%
Neochim
3%
3%
M-e of fertilizers and nitrogen
95%
Ficosota Syntez
2,6%
1%
M-e of soaps, detergents and cleaning
products
41%
Panchim
0,8%
0,2%
4%
Air Liquide Bulgaria
0,8%
0,2%
M-e of industrial gases
57%
Agri
0,8%
0,4%
M-e of pesticides and agrochemicals
60%
Dunarit
0,8%
1,1%
M-e of explosives
59%
Company
domestic companies
86
Top players in the rubber and plastics industry (2/2)
The top players in the Rubber and plastics industry, according to its
corresponding sub-segment
% of Industry
Revenues
% of Industry
Employees
Sub-segment
% of SubSegment
Rev
3%
2,1%
M-e of plastic packing goods
16%
Natalia MM
0,2%
1,9%
M-e of other plastic products
11%
Plastchim T
1%
1,5%
12%
Vidahim
2%
1,3%
M-e of rubber tires and tubes
7%
Assenova Krepost
1%
1,3%
10%
Extrapack
1%
1%
8%
Megaport
1%
0,9%
7%
Danik
n/a
0,8%
M-e of other plastic products
4,6%
Company
Gotmar
The rubber and plastics industry is dominated by small and medium firms
87
Summary of global trends in the chemical industry
Globalization /
Structural
changes
•
•
•
Cost Reduction
R&D and
innovation
•
•
•
•
Product
portfolios
•
•
Talent
management
Environmental
sustainability
•
•
Industrialized nations have lost their traditional positions as largest exporters of chemicals to countries
like China and India
Responses to globalization include restructuring, joint ventures, M&A and shifting of production facilities
Chemical companies undertake major capital investments in emerging markets for lowering structural
costs and for capturing new market opportunities
Volatile input costs are a major challenge for chemical producers. Sourcing from emerging markets
reduces costs
Discovering, adopting and commercializing new chemical substances, preparations and technology is a
key driver of future developed countries competitiveness in the chemical industry
Clustering, collaboration and formation of strategic alliances are becoming increasingly important
As customer industries are rapidly changing as a result of continuous innovation, the chemical industry
will eventually restructure its product portfolio, stressing the importance of bio- and nanotechnologies
In order to minimize cyclicality, companies need to expand into high growth specialty chemicals, such as
fine chemicals and consumer chemicals
The manufacturing labor market shrinks; the average age of chemical industry employees in the U.S. is
around 50 years
Companies are also challenged by the changing expectations of the workforce due to growing demand
for complex skill sets; the industry is also challenged to locate and retain skilled workforce in emerging
markets
The sub-sectors in the chemical industry that are active in the fields of energy and energy saving (solar
panels, insulation, carbon capture) and water purification have enormous growth potential. Electronic
chemicals have very good growth prospects too
Source: Mergent, Commission of the European Communities , Staff working paper, European industry in a changing world, 2009, A.T. Kearney analysis
88
Chemicals, rubber and plastics industry: EU snapshot
•
Facts & Figures
•
•
•
Competitiveness
Assessment
•
•
•
R&D and
Innovation
•
•
•
Areas of Growth
•
•
Structure of
Sector
•
•
With a turnover of €537 bn, the EU is the leading chemicals producing area in the world (29% of world
production)
The industry employees about 1,2 mm, although employment has fallen by 2,1% per annum over the last
10 years
The EU has a substantial trade surplus in chemicals (€35,3 bn), although its share in the global market
falls constantly
The key factors influencing competitiveness of the EU chemical industry are access to energy and
feedstock, innovation, R&D and international trade
The EU has recently increased its trade surplus in specialty chemicals, consumer chemicals and
polymers
The challenges facing the industry are slow demand growth in Asia, delocalization of customer industries,
higher production costs and highly regulated environment
In 2004, R&D spending accounted for 1,8% of the sales of the EU chemical industry, slightly higher than
US (1,7%) but two times less than Japan
The chemical industry is responsible for about 15% of all filings at each major Patent Office
Clustering, collaboration and strategic alliance formation are becoming very important
The sub-sectors that are active in the fields of energy or energy saving (solar panels, insulation, carbon
capture) and water purification have enormous growth potential
Electronic chemicals and pharmaceuticals have very good growth potential too
The chemical industry consists of about 27 000 enterprises, 96% of which are SMEs generating 30% of
sales and 37% of employment
The EU rubber industry comprises some 4 200 companies and employees 360 000 people
The plastics industry is comprised of approx. 50 000 enterprises employing some 1,6 mm people
89
Opportunistic trends for Bulgaria in the chemical industry
Production
outsourcing
•
•
•
•
Low production and labor costs in Bulgaria
Long traditions and skilled staff
Access to EU market, Middle East, Russia
Successful FDI case studies
• International companies, especially ones whose
strategies include outsourcing and M&A
• Countries: Germany, France, UK, Italy, Belgium, the
Netherlands
Fine and
consumer
chemicals
•
•
•
•
Sub-sectors with high growth potential
Traditions in the sectors with export orientation
Presence of big international companies
Existing modern technologies and equipment in certain companies
• Big international producers
• Countries: Germany, France, UK, Italy, Belgium, the
Netherlands
Bio-based
materials
• Agriculture occupies an important place in the Bulgarian economy
• Bulgaria counts with necessary resources and at lower prices
• Availability of skilled labor force and relatively good supply of newly
graduates from relative specialties
• Strategic alliances with major producers/research
institutes, international chemical companies
• Countries: Germany, UK, France, US
• A few developed countries have positioned as leaders in
nanotechnology
• Although Bulgaria lacks skilled personnel and experience, it can try to
attract outsourcing of nanotechnology-based production
• Cooperation with international technology and R&D
companies/centers which subsequently to assist in
the production companies’ targeting
• Countries: Germany, France, UK, Netherlands
• Bulgaria counts with the necessary natural and environmental
conditions and resources (solar, wind, geothermal, etc)
• Availability of experienced labor force, local developers and currently
there is interest from foreign investors
• Foreign investment funds, as well as equipment
producers (solar panels, wind generators)
• Countries: Germany, Italy, Spain, France, the
Netherlands, US
Nanotechnologie
s
Clean
technology
Source: AT Kearney Analysis
90
Industry overviews – Food & Agriculture
Food products and agriculture industry snapshot
Industry size
Employees
Firms
Size
% econ
% manuf.
4 058 942
5,1%
23,4%
114 222
4,1%
19,6%
7 170
1,9%
23,3%
Strengths
• Low production costs and relatively good quality of final products
• Continuous modernization of existing technology and equipment, as
well as technological standards
• Availability of qualified and experienced engineers and employees
• Presence of big international companies on the Bulgarian market
• Strong traditions in the industry
FDI flows
(EUR mm)
49
23 20 29 20 11 12
0
0
61
35 36 35
20
1
0
45
17
4
-1
50 35
50
69
15
25 27
13 22
0 -3
-11
-36
00
01
02
03
04
05
06
07
08
09
Q3 10
Employees
1.00
2.00
2.00
1.00
4.00
2.00
2.00
3.00
2.00
24,00
3.00
7.00 2.00
3.00
2.00
5.00
3.00
5.00
16,00
University students
• Agriculture = 9 908
• Manufacturing: biotechnology = 969
• Manufacturing: food = 2 143
3.00
4.00
1.00
Weaknesses
• Scarcity and low quality of raw materials
• Lack of cost-effective technologies and equipment
• Limited investment in new technologies, innovations and R&D
• Relatively big part of the industry is in the grey sector
• Lack of qualified and experienced labor force
• Lack of or not developed cluster structures
2.00
6.00
Other resources
• 157 251 students in professional schools
• Industry associations
• EU funding
4.00
4.00
1.00
1.00
91
The food industry is one of the main manufacturing sectors
Sector and sub-segments
Manufacture of food products
Processing and preserving
Cocoa, chocolate and sugar confectionery
Oils and fats
Operation of dairies and cheese making
Bread, fresh pastry goods and cakes
Other food products n.e.c.
Grain mill products
Sugar
Production of meat and poultry meat products
Condiments and seasonings
Prepared feeds for farm animals
Ice cream
Fruit and vegetable juice
Homogenised food preparations and dietetic food
Rusks and biscuits; preserved pastry goods and cakes
Macaroni, noodles, couscous and similar farinaceous products
Starches and starch products
Margarine and similar edible fats
Prepared pet foods
Prepared meals and dishes
Manufacture of beverages
Distilling, rectifying and blending of spirits
Beer
Cider and other fruit wines
Malt
Other non-distilled fermented beverages
Soft drinks; mineral waters and other bottled waters
Wine from grape
Revenue
2 948 029
558 006
343 223
317 992
312 748
299 334
198 559
197 303
189 688
169 897
114 768
101 992
50 436
44 912
20 663
12 184
7 822
4 140
3 586
776
852 002
291 587
202 550
196 133
154 927
4 417
1 209
1 179
Employees
84 343
16 229
7 690
3 346
7 951
28 434
4 277
3 602
1 671
3 795
599
1 753
1 276
916
572
952
585
49
99
6
541
24 677
7 975
7 529
2 453
6 494
122
35
69
Companies
5 456
528
116
134
383
3 307
215
251
13
36
31
113
91
42
21
99
61
3
6
4
2
1 688
726
474
20
450
4
7
7
The leading position of certain sub-segments is a result of the presence of large
92
Top players in the food industry (1/3)
The top players in the food industry, according to its corresponding subsegment
% of Industry
Revenues
% of Industry
Employees
Sub-segment
% of SubSegment
Rev
Nestle Bulgaria
3,2%
1,3%
M-e of cocoa, chocolate and sugar
confectionery
38%
Bella Bulgaria
2,9%
1,1%
M-e of other food products
60%
Kraft Foods Bulgria
2.6%
1,0%
M-e of cocoa, chocolate and sugar
confectionery
30%
Amylum Bulgaria
2,4%
0,2%
M-e of condiments and seasonings
86%
Papas Olio
1,8%
0,2%
M-e of oil and fats
23%
Dil Tur Plovdiv
1,8%
1,2%
Production of meat and poultry products
43%
Chipita Bulgarua
1,7%
0,7%
M-e of bread, fresh pastry goods and cakes
23%
Litex Commerce
1,7%
0,1%
M-e of sugar
36%
Danone Serdika
1,2%
0,4%
Operation of dairies and cheese making
16%
Company
domestic companies
93
Top players in the beverage industry (2/3)
The top players in the beverage industry, according to its corresponding subsegment
% of Industry
Revenues
% of Industry
Employees
Sub-segment
% of SubSegment
Rev
Coca Cola Hellenic Bottling
Company Bulgaria
4,1%
1,1%
M-e of soft drinks, mineral water and
other bottled waters
57%
Zagorka
1,9%
0,5%
M-e of beer
39%
Carlsberg Bulgaria
1,4%
0,5%
M-e of beer
30%
Kamenitza
1,4%
0,7%
M-e of beer
29%
Devin
0,8%
0,4%
11%
Vinprom Peshtera
0,8%
0,9%
Distilling, rectifying and blending of
spirits
15%
Domeyn Menada
0,4%
0,4%
Distilling, rectifying and blending of
spirits
8%
Qadrant Beverages
0,4%
0.3%
6%
Company
The beer sub-sector is dominated by three companies
94
Top players in the tobacco industry (3/3)
The top players in the tobacco industry, according to its corresponding subsegment
% of Industry
Revenues
% of Industry
Employees
Sub-segment
% of SubSegment
Rev
2%
0,9%
M-e of tobacco products
31%
Sofia Bulgartabac
1,3%
0,4%
20%
Alliance One Tobacco
1,2%
0,5%
18%
Bulgartabac Holding
0,6%
0,2%
9%
Cigarette Factory Plovdiv
0,3%
0,4%
5%
Leaf Tobacco a Michailides
0,3%
0,2%
4%
Missirian Bulgaria
0,2%
0,1%
3%
Isperih BT
0,1%
0,1%
2%
Company
Blagoevgrad BT
The tobacco sub-sector is still mainly state-owned
95
Summary of global trends in the F&B industry
•
Productivity
•
•
R&D / Innovation
•
Health and wellness
trends
Convenience
products
Cultural differences and different food habits provide an opportunity for innovation and
development of new products
Consumers’ expectations for high quality and health products, as well as growing concern for
GMOs will further drive innovation
•
The complexity of the EU law and the administrative burdens that this imposes, access to
finance, low investment in R&D and access to raw materials are the among the main
problems that the industry has to confront in order to increase its competitiveness
•
As a result of lower consumer purchasing power, most leading F&B companies throughout
the EU are re-structuring their product ranges and developing new categories and packaging
designs aimed at more budget-conscious consumers
•
With the recurrent trend of healthier food products, food processors and manufacturers are
expected to continue to emphasize the use of premium ingredients, advanced processing
techniques and innovative packaging
•
Consumers are increasingly looking for portable and convenience foods that do not
compromise quality and taste
The growing demand for convenience products is opening opportunities for the ready-todrink beverages market in Europe
Legislation
Consumers
purchasing power
The European food industry is weaker in terms of economies of scale and its performance in
terms of growth or labor productivity is poor
The low growth in production can be resolved by exploiting markets outside the EU area
•
Source: Mergent, Commission of the European Communities , Staff working paper, European industry in a changing world, 2009
96
Food, beverages and tobacco industry: EU snapshot
•
Facts & Figures
•
•
•
Competitiveness
Assessment
•
•
R&D and
Innovation
•
•
Areas of Growth
•
Structure of
Sector
•
•
•
The second largest sector in the manufacturing industry in value-added terms, with a market share of
12,2%; account for 14,5% of total manufacturing turnover (€917 bn) and 13,7% of employment (over 4,5
mm workers)
Limited but stable growth in both production (1,8%) and value-added (1,1%) and negative employment
growth rates
The sector is extremely fragmented and dominated by SMEs
The EU food industry is weak in terms of economies of scale, growth and labor productivity, as well as
low growth in production that will have to be resolved by exploiting markets outside the EU area
the EU food industry faces higher raw materials prices, as well as a large number of tariff and non-tariff
barriers
The food industry is not recognized as being particularly innovative compared to other industry branches.
The share of R&D expenses in value-added in 2005 was between 0,8% and 1,1% for Germany, France,
Spain an the UK
The sector is dominated by SMEs which do not have sufficient resources to invest in research and
innovation. EU food research centers and the industry are not closely related
The EU beverage sector (wines, beers, spirits mineral waters/soft drinks) is the global market leader in all
segments and represents the largest production in the world, as well as accounting for over 73% of world
exports
The fruit and vegetables processing sector is one of the most competitive sectors in the EU, with EU
countries having an export share of about 48%
The food industry is made up of 310 000 companies and provides jobs for more than 4 mm people
Germany, France, Italy , Spain and the UK account for 70% of the EU-27 turnover, whereas the 12 new
Member States account for 8,7%
EU is the largest world exporter (20,8% of share in world exports) and the second largest importer (18%
in world imports)
97
Opportunistic trends for Bulgaria in the F&B industry
Organic finished
goods
• The Bulgarian GMO law remains restrictive
• Low production costs
• Availability of skilled and experienced labor force
• Existence of production base (more than 5 000 companies) that only
need restructuring
• Access to EU funds
• Private fund investors and/or bigger companies with
established brands on the market
• Companies: Earth’s Best, Amy’s Kitchen, Green &
Black’s, 365 Everyday Value, Organic Valley
Organic farming
• The Bulgarian GMO law remains restrictive
• Existence of resources and traditions in the sector
• Access to EU funds
• Private fund investors and/or organic farmers
• Countries: US, Italy, Spain, Germany
Production
outsourcing /
Logistics center
• Wellness goes mainstream; prevention culture increases
• Long traditions and experienced Bulgarian staff
• Existing modern infrastructure in certain locations
• International companies with indication for
production outsourcing rand M&A readiness
• Countries: Germany, Italy, Greece, Portugal, UK,
Spain, Hungary, Poland, Czech Republic, US,
Turkey
98
Industry overviews – Transport & Logistics
Transport and logistics industry snapshot
Industry size
Size
% econ
% manuf.
3 735 810
4,7%
n/a
Employees
143 336
5,2%
n/a
Firms
18 385
4,9%
n/a
FDI flows
84,0
(EUR mm)
54,8
14,1
18,6
8,9
-15,6
00
01
47,7
0,0
5,2
3,8
09
Q3 10
-29,1
02
03
04
05
06
07
08
Weaknesses
• Underdeveloped transport infrastructure – poor inter-connections with
the neighbor countries and few intermodal terminals
• Black sea is dependent on the Mediterranean sea
• Ageing transport equipment. The Rolling stock on the rail system is
antiquated and in poor repair
• Bad Vocational training
Employees
1,2
University students
• Transportation = 2603 students
1,2
1,9
1,9
5,5
4,1
1,8
48,6
1,8
1,3
2,0
15,9
2,7
11,3
3,4
2,8
4,5
1,1
2,4
3,0 1,8
1,5
1,8
Strengths
• Traditions in the sector
• Favorable geographic location on the crossroad of Europe, Asia and
Mediterranean
• Favorable customs arrangements due to EU membership
• Harmonization of Bulgarian and EU transport legislation
• The development of transport infrastructure is government priority
• Availability of all modes of transport – road, rail, water and air.
1,3
11,3
3,8
2,3
Other resources
• 157 251 students in professional schools
• EU funding (OP Transport)
• Developed Construction cluster
• Presence of big international T&L companies
1,3
99
The industry employs a sizeable portion of the labor force
Land transport and transport via pipelines
• Freight transport by road
• Passenger rail transport, interurban transport
• Other passenger land transport n.e.c.
• Taxi operation
• Freight rail transport
• Other
Warehousing and support activities for transportation
• Other transportation support activities
• Service activities incidental to air transportation
• Service activities incidental to land transportation
• Service activities incidental to water transportation
• Warehousing and storage
• Cargo handling
Air transport
• Passenger air transport
• Freight air transport
Postal and courier activities
• Postal activities under universal service obligation
• Other postal and courier activities
Water transport
• Sea and coastal passenger water transport
• Inland freight water transport
Employees
90 172
45 032
12 136
22 010
10 886
14
94
23 936
5 108
4 120
2 057
3 626
2 812
6 213
13 527
13 350
177
11 230
6 946
4 284
4 471
2 737
1 734
Revenues
Companies
2 072 137
1 153 993
579 778
297 562
38 803
2 000
n/a
1 026 380
411 210
179 293
178 341
143 590
59 539
54 407
244 447
244 447
n/a
187 646
93 879
93 767
205 200
130 234
74 966
14 331
7 501
26
1 994
4 797
4
9
3 261
613
42
201
219
85
2 101
588
586
2
108
24
84
97
69
28
Land transport contributes for more than half of the revenues in the industry
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 100
Top players in the transport & logistics (1/2)
The top players in the Transport & Logistics, according to its corresponding
sub-segment
% of Industry
Revenues
% of Industry
Employees
Bulgarian Railways
14,0%
8,2%
Somat AD
1,5%
0,4%
Stolichen Elektrotransport EAD
1,0%
1,2%
Pimk OOD
0,7%
0,4%
Union Ivkoni OOD
0,5%
0,4%
NK Zhelezopatna Infrastruktura DF
3,8%
0,4%
DPRVD DF
2,1%
0,8%
Warehousing and support
activities for transportation
8,0%
Sofia Airport EAD
1,3%
1,3%
5,0%
Gopet Trans EOOD
1,2%
0,1%
5,0%
Company
Sub-segment
Land transport and
transport via pipelines
Land transport and
Land transport and
Land transport and
Land transport and
% of Sub-Segment
Rev
26,5%
3,0%
2,0%
1,3%
0,9%
14,0%
The land transport is fragmented but has one strong player – the national railway
company
Top players in the transport & logistics (2/2)
The top players in the Transport & Logistics, according to its corresponding
sub-segment
% of Industry
Revenues
% of Industry
Employees
Sub-segment
% of Sub-Segment
Rev
Bulgaria Air AD
4,4%
0,6%
Air transport
41,0%
Air Via OOD
1,3%
0,1%
Air transport
12,0%
Bulgaria Air Charter OOD
1,1%
0,1%
Air transport
10,0%
Hemus Air
1,0%
0,3%
Air transport
9,0%
Bulgarian Posts
2,1%
0,3%
Spidi AD
0,7%
0,8%
DHL Express Bulgaria EOOD
0,6%
0,2%
Econt Express OOD
0,4%
0,6%
Navigation Maritime Bulgaria AD
1,9%
1,5%
Water transport
54,0%
Bulgarian River Shipping AD
70,0%
40,0%
Water transport
13,0%
Company
Postal and courier
activities
Postal and courier
activities
Postal and courier
activities
Postal and courier
activities
44,0%
13,9%
13,0%
8,3%
The Air and Water transport as well as the Postal services are dominated by a single
player with the rest distributed among many companies.
Summary of global trends in the transport and logistics
industry
 The transport and logistics industry is an attractive FDI sector for Bulgaria:
• Traditions in the industry (huge export to the USSR market in the past)
• Favorable location
• Availability of all modes of transport
• Projections for consumption growth in the region
• Developing infrastructure
 The industry plays an important role for the EU
• The sector employs more than 9% of the entire EU workforce and accounts for 20% of the EU GDP
• The sector is expected to grow with more than 30% in the next 20 years.
 CEE is a top-priority region for logistics providers and Bulgaria should exploit the window of opportunity
• The emerging region of CEE is the main macro economic driver, impacting European supply chains
• Regional Distribution Centres are established in CEE region. After the Czech Republic, Hungary and
Poland a second wave of expansion to Russia, Slovakia, Ukraine, Romania, Turkey and Bulgaria is
starting.
• Increasing service requirement is recognized as the second most important macro trend
• Increasing demand for warehouse space in strategic locations, close to the market and with high
transport availability due to shortening lead-times and tight delivery windows
 Bulgaria should try to position itself as a logistics hub for the Balkans for the establishment of RDCs
• BIA should target shippers, LSPs, and logistics facilities developers
Industry overviews - ICT
ICT industry snapshot
Industry size
Size
% econ
% manuf.
2 139 063
2,7%
n/a
Employees
35 068
1,3%
n/a
Firms
2 855
0,8%
n/a
FDI flows
343,2
(EUR mm)
9,0
12,3
178,3
12,6
-15,7
127,9
67,4
-97,7
-129,2
-377,2
00
01
02
03
04
05
06
07
08
09
Q3 10
0,1
0,5
0,1
0,1
0,4
0,1 0,1
0,1
0,4
24,4
0,1
0,1
0,9
0,1
0,3
0,3
0,1
0,1
0,1
0,1
0,1
1,0
•
•
•
•
•
•
Brain drain leading to shortage of IT specialists
Limited market size
Few international enterprises
Low e-readiness rankings
Well under EU27 average R&D spending
Concentration of the industry in Sofia
Employees
0,1
0,1
Strengths
• Good labor productivity/cost ratio
• Technical talent pool
• Legacy in electronics and ICT equipment
• Traditionally good educational system
• Small but growing domestic market
• Enthusiasm
• Relationships with MNCs
Weaknesses
University students
• IT & Telecommunications = 9600 students
• Related specialties = 93 600 students
(Business and Finance, Mathematics, Philology and History, Physics )
Other resources
• Several industry associations (including IT cluster)
• 4 VC funds concentrated in ICT
• Developing electronics industry
• High speed internet connection with growing penetration
0,3
0,2
0,1
0,0
Telecommunications have the largest share in the industry
revenues
Revenues
Employees
Companies
1 446 569
11 662
104
Other telecommunications activities
245 940
4 600
98
Wired telecommunications activities
135 023
2 815
3
1 065 606
4 247
3
316 087
10 186
1 286
93 316
4 378
502
1 368
44
2
127
13
2
Other information technology and computer service activities
221 277
5 751
780
Information service activities
124 817
8 460
1 299
45 570
2 379
225
5 244
379
53
74 003
101 179
2 847
5 702
3 114
297
1 021
160
4
Telecommunications
Wireless telecommunications activities
Computer programming, consultancy and related activities
Computer consultancy activities
Computer facilities management activities
Computer programming activities
Data processing, hosting and related activities
News agency activities
Other information service activities n.e.c.
Other software publishing
Publishing of computer games
The industry is equally separated between the three segments in terms of employment,
but Telecommunications contribute for 73% of the revenues.
Top players in ICT (1/2)
The top players in the ICT, according to its corresponding sub-segment
% of Industry
Revenues
% of Industry
Employees
Sub-segment
% of Sub-Segment Rev
Nef Telecom Bulgaria
2,77%
0,01%
4,1%
Eurocom Cable Management
1,35%
2,23%
2,0%
Ericsson Telecommunications
1,23%
0,20%
1,8%
Nokia-Siemens Networks
0,93%
0,35%
1,4%
Alcatel-Lucent
0,54%
0,00%
0,8%
BTC
6,31%
8,05%
Wired telecommunications activities
9,3%
Mobiltel
28,99%
8,03%
Cosmo Bulgaria Mobile
20,88%
3,93%
HP GDBC
2,14%
3,49%
36,6%
Sofika
0,12%
0,39%
2,1%
Fadata
0,46%
0,47%
2,1%
Telerik
0,42%
0,49%
1,9%
CSC Bulgaria
0,92%
1,30%
4,21%
SAP Labs
0,89%
1,50%
4,05%
Oracle
0,55%
0,08%
2,52%
Company
Wireless telecommunications
activities
Wireless telecommunications
activities
42,8%
30,8%
The Telecommunications companies are dominating the industry in terms of revenues
Top players in ICT (2/2)
The top players in the ICT, according to its corresponding sub-segment
% of Industry
Revenues
% of Industry
Employees
Sub-segment
% of Sub-Segment Rev
GB Services
0,40%
0,89%
1,8%
SAP Bulgaria
0,26%
0,04%
1,2%
Dir.bg
0,06%
0,10%
CNSYS
1,22%
0,49%
IBM Bulgaria
0,87%
0,63%
AKT Soft
0,44%
0,03%
Megalan Networks
0,40%
1,18%
Software AG
0,10%
0,16%
Avto Engineering Holding
0,41%
0,03%
Markus Engineering
0,21%
0,00%
Axway Bulgaria
0,20%
0,43%
Company
Computer facilities management
activities
Other information technology and
computer service activities
Other information technology and
computer service activities
Data processing, hosting and
related activities
related activities
related activities
Other information service
activities n.e.c.
activities n.e.c.
activities n.e.c.
n/a
5,5%
3,9%
7,5%
6,9%
1,6%
7,1%
3,5%
3,4%
Most of the international software companies are present in Bulgaria
Summary of global trends in the ICT industry
 The ICT is an attractive FDI sector for Bulgaria:
• Traditions in the industry (in the 1980s Bulgaria was an IT leader in CEE)
• The industry employs 35 000 people and generates revenues of €2,14bn
• 1/3 of the employment is in large companies, but there is a large number of small, innovative IT
companies.

Global industry trends are favorable
• The global market for ICT is expected to grow by 1,9% to €2,3 trillion in 2010
• The emerging markets are the main driving force for future growth
• In Europe that Software and IT services are growing faster than the other segments

Bulgaria is already an attractive destination for IT services and outsourcing
• Bulgaria provides one of the lowest cost structures in CEE
• CEE market for IT outsourcing services is growing and is expected to continue the growth in the future
with higher rates
• There is considerable consolidation into large companies in the CEE outsourcing market

BIA should target via direct mailing both larger and smaller players from the key ITC countries: EU
countries (Germany, France, Scandinavian countries, UK, other), USA, Japan, China, India, others)
ICT industry: EU snapshot
•
Facts & Figures
•
•
•
Competitiveness
Assessment
•
•
R&D and
Innovation
•
•
Areas of Growth
•
•
Structure of
Sector
•
The ICT sector employees 6,6 mm people across EU-27, of which 1,6 mm (24,5%) work in the ICT
manufacturing sector, and 5 mm are employed in the ICT service sector
Software has an 11% share, IT services 21% and carrier services 44% of the total ICT sector
The EU ICT sector was worth €670 bn in 2007 and represents around 5,3% of total GDP
A prime driver of growth in the ICT manufacturing sector has been the increasing demand for ICT
services
Average profit margins in 2006 are highest among software (23%), Internet (15%) and semiconductor
(12%) firms, while telecommunication services and communications equipment firms achieved average
margins of 8,9% and 8,2%, respectively
R&D expenditure in the ICT sector and the number of patents exceeds those of other industries. The ICT
industry undertakes a considerable amount of foreign R&D investments
R&D expenditure related to ICT industries increased in the EU-15 from €26,7 bn in 2003 to €29,3 bn in
2005. Most of the R&D expenditure is in the ICT manufacturing sector, but semiconductor firms are th
most R&D intensive and software firms have the highest R&D expenditure growth
Prospects for the ICT sector are much less favorable than in recent years. Impact from the global crisis
are worse for employment in the ICT sector due to increasing competition from developing countries and
global industrial restructuring of the ICT market
Investments are expected in Europe-wide fiber access network and mobile broadband networks
The ICT sector is heavily concentrated; large firms with more than 250 employees account for more than
60% of the employment and produce more than 70% of the value-added in the sector
ICT manufacturing is the most concentrated sub-sector, with 80% of value-added being produced by
large firms, who employed 75% of all those working in the industry; the ICT service industry is
considerably less concentrated
Summary of global trends in the outsourcing industry

The outsourcing and business services industry is one of the least effected sectors by the current economic and financial
crisis

The growth of the outsourcing industry has slowed down across almost all countries in Eastern Europe, with Russia and
Romania coming almost to a standstill (only 11% growth in 2009)

Nevertheless, there is a global trend towards a growing share of outsourcing business services, with call center and
customer service, IT and Internet generating the highest demand. The industry is expected to experience a 25% CAGR for
the 2001 – 2020 period

Around 75 – 80% of this growth will be driven by currently untapped segments, like public sector, healthcare, media, utilities

Poland, Romania, Slovakia and the Czech Republic are the main regional competitors of Bulgaria in the attraction of
outsourced services

Currently, the business service outsourcing in Bulgaria generates between 150 – 200 mm in revenues and employs around
15 000 people

Bulgaria can tap into the upcoming FDI flow in the outsourcing industry offering the following competitive advantages:
• The country adds around 2 000 engineers every year suitable for internationally oriented IT and engineering service s
industry
• Bulgaria’s fully loaded cost of IT operations seems 25% lower than a traditional EE off-shoring country, like Poland

industry cluster representatives, agencies, technological parks and direct approach to the big international companies from
different industries prompt to outsourcing. Overall, countries to be targeted are US, Germany, UK, France, Spain, the
Scandinavian countries, Netherlands, Belgium
Industry overviews – Healthcare and pharmaceuticals
Pharmaceuticals industry snapshot
Industry size
Employees
Firms
Size
% econ
% manuf.
275 408
0,3%
1,6%
7 111
0,3%
1,2%
112
0,0%
0,4%
FDI flows
(EUR mm)
0,5
0,0
41,6
0,1
0,1
5,8
0,2
5,3
-0,6
00
01
02
03
04
05
06
07
08
-5,1
-1,5
09
Q3 10
0,00
0,19
0,38
2,87
0,81
0,09
0,35
0,01
0,03
0,01
0,02
1,71
0,18
0,02
0,01
0,01
0,00
Weaknesses
• Low investments in R&D; focus on generics
• Lack of or not developed cluster structures
• Lag of the higher and professional education
• Burdensome of registration processes for pharmaceuticals
• Lack of clear pricing and reimbursement policy
• Medicine labeling issues
Employees
0,19
Strengths
• Growth potential, with OTC market being the main driver
• Generics account for more than 80% of the market by volume and are
mainly supplied by local producers
• Presence of some of the biggest international companies, though
solely on the distributor’s market
0,23
University students
• Biology = 1 268
• Chemistry =14 07
• Manufacturing: biotechnology = 969
• Manufacturing: cosmetics = 9
• Medicine = 14 639
Other resources
• EU funding
• Experienced workforce abroad
0,00
Top players in the pharmaceutical industry
The top players in the pharmaceutical industry, according to its corresponding
sub-segment
Company
% of Industry
Revenues
% of Industry
Employees
Sub-segment
% of SubSegment
Rev
Sopharma
37,8%
26,0%
M-e of pharmaceutical preparations
39%
Biovet
21,6%
22,9%
23%
Balkanpharma
na
9,8%
na
Actavis
na
5,3%
na
Unifarm
na
4,5%
M-e of basic pharmaceutical products
na
Farmatsevtichni zavodi
19,5%
4,4%
20%
Vetprom
3,5%
4,0%
84%
Salvamed
1,5%
2,7%
2%
Chaykafarma
1,4%
2,6%
1%
The companies with biggest presence in the industry are from the pharmaceutical
preparations sub-sector
Summary of global trends in the pharmaceutical industry

The pharmaceutical industry is non-cyclical and is among the least affected industries by the crisis, with one of the most
positive outlooks for FDIs in 2011

It is a high technology-intensive sector therefore requiring skilled and educated workforce; R&D plays a major role in the
sector

The global pharmaceutical market amounts to $1 045 bn in 2009. Europe is the second largest pharmaceutical producer and
consumer, after the US, with sales of around $300 bn in 2009 and production value of $280 bn. The European pharma
sector employees more than 600 000 employees

Main advantages of CEE are low production and labor costs and qualified labor pool, as well as proximity to major markets
(EU, Middle East, Africa, Russia, etc)

The traditional health products market will suffer from a downturn due to a patent expiration expected in the period 2009 –
2014, which represents a good niche for generic producers

In this regard, generics account for more than 80% of the volume of the Bulgarian pharmaceutical market

Another global trend in the industry is company restructuring and cutting of costs. International pharmaceutical companies
are exploring the possibility of cutting early stage R&D expenses through outsourcing

Within this sector, Bulgaria should approach the following strategy and tactics:
• Attract some of the main international players on the generics market and position itself as a generics production
destination
• Position itself as an outsourcing destination for early R&D, mainly clinical trials

industry giants in EU and USA and direct mailing to smaller EU players
Pharmaceuticals industry: EU snapshot
•
Facts & Figures
•
•
•
Competitiveness
Assessment
•
R&D and
Innovation
Areas of Growth
Structure of
Sector
•
•
•
The pharmaceutical industry represents a workforce of over 600 000 employees in EU-27, with
more than 100 000 in R&D alone
The industry has experienced a steady growth
Value-added per employee is very high
Several factors are likely drive down returns and limit the industry’s ability to attract R&D
investments: (i) declining R&D productivity; (ii) major blockbuster drugs whose patents run out by
2010; (iii) patents with shorter exclusivity periods; (iv) rising costs of commercializing a new drug;
(v) mounting price pressures exerted by governments and private insurers
Lack of competitive national markets and inadequate protection of intellectual property
The EU lagging behind the US in R&D spending, drawing down the number of patents
Declining productivity results in increased R&D costs (for every 13 compounds found, only one
makes it to the market)
Breakthrough in life sciences will lead to more individualized medicines and ultimately to tailormade medicines
•
•
•
•
The generic sector is expected to enjoy constant growth over the coming years
Restructuring in the innovative sector based on biotechnologies and nanotechnologies
The OTC segment is less likely to be affected by technology and economic changes
The herbal medicines segment and traditional medicines are also likely to grow in response to
social preferences
•
The sector is currently dominated by 25 global big pharma companies, each with an annual
turnover of more than €10 bn
There is also a large number of relatively small global players with focus on one segment of the
medicine market
A multitude of generic producers and numerous start-ups
•
•
Opportunistic trends for Bulgaria in the pharmaceutical
industry
• 80% of Bulgarian pharma production is in the sphere of generics
• Strong local companies and foreign investments, presence of most
• Long lasting traditions in the industry
• Access to EU market, Middle East, Russia and Africa
• International generic producers, companies looking
for acquisitions
• Countries: Germany, UK, France, Spain, Italy
• Availability of skilled personnel
• Excellent geographical location – access to EU, Middle East and
Russian markets
• Existing legal framework for health products licensing
• International pharmaceutical companies with
outsourcing strategies
• Countries: Germany, France, Italy, Spain, UK, US
Early R&D
• Pharmaceutical companies are exploring the possibility of cutting early
stage R&D expenses through outsourcing
• Bulgaria can position itself as a clinical trial destination
• Low R&D costs
• International pharmaceutical companies with large
R&D pipelines
• Countries: Germany, France, Italy, Spain, UK, US
Biosimilars
• The biosimilar market remains embryonic at present
• The commercial value of the biosimilars market is potentially
significant
• Only a small number of generic producers will be able to position
themselves in the market
• Top 5 generic producers with biosimilar products
development potential
• Companies: Roche Avastin, Abbot’s Humira, Teva,
Sandoz, Novartis,
Generics
Production
outsourcing
Healthcare industry snapshot
Industry size
Size
% econ
% manuf.
816 097
1,0%
n/a
Employees
116 785
4,2%
n/a
Firms
10 868
2,9%
n/a
FDI flows
4,6
(EUR mm)
1,2
0,2
0,1
01
0,3
0,0
-0,1
02
03
1,5
0,0
0,0
-0,1
00
1,7
0,8
04
05
06
07
0,0
08
09
Employees
5,0
2,0
3,1
3,0
2,5
3,7
2,3
28,9
2,2
7,8
4,6
1,6
11,6
2,4
Other resources
2,8
5,4
3,5
2,8
1,9
2,5
1,8
University students
• Medicine students = 14,639 students
• Social services = 4,915 students
1,6
1,7
Weaknesses
• Projected shortfall of physician, nursing personnel, home care workers
• Diminishing number of hospital beds
• The existing infrastructure is in urgent need of renovation
• Cuts in the government expenditure on healthcare
• Capital demands increasing / bad debt pressure continues
• Lack of cluster, unified government policy and sector reforms
Q3 10
1,5
Strengths
• Long traditions in the healthcare sector in Bulgaria
• Experienced physicians and scientists
• Most of the medical personnel, given parallel private practice, have upto-date training and knowledge of existing new technologies
• Low costs for medical procedures
• Internationally recognized physicians in certain specialties, such as
heart diseases, orthopedics, cancer, dentistry, etc.
• Availability of private health insurance funds
• Mineral water springs in different cities
• Health centers on the seaside and in the mountain
2,9
3,5
1,8
2,1
Future global trends for the industry
Health as an
Entertainment Brand
The convergence of health
and entertainment evolves
into a new market category
that creates opportunities for
consumer electronics, retail,
travel and the media
industries
The growth of health tourism
continues, as options expand
and more individuals decide
to obtain care in high-quality,
accredited facilities around
the world
Global Medical
Tourism
Health Provider
Migration
Stakeholders, particularly
providers, face new cost and
efficiency pressures as the
health care system continues
to show signs of breaking
down
More health care consumers
will associate quality and
outcomes data with payments
and valuation, forcing
providers to guarantee the
efficacy of their medical
interventions
This development leads to
consumer-focused medical
models that favor retail
channels over clinicians
Employers emphasize health
maintenance, illness
prevention and productivity.
Health information is collected
and used to offer reinforcing
incentives
Demand for Quality
Personalized
Assessments
Office health care
Summary of global trends in the healthcare industry
Aging and wealthy
population
Europe’s aging, active and relatively wealthy population is likely to demand more medical
services. Italy, Greece and Germany have the largest proportion of residents at the age of 60
and above
Tight hospital labor
markets
Hospital labor costs are and management is always looking for technologies and procedures that
can reduce total expenses
New technologies
Europe is lagging behind in R&D and new technologies, mainly due to government budget cuts,
high manufacturing costs and conservative culture that is slow to commercialize scientific
innovations
Healthcare reforms
Governments across Europe are implementing reforms that contain or cut expenses by shifting
more responsibility for financing healthcare to the private sector and encouraging price
competition
Hospital consolidation
Treatment of patients
Hospitals across Europe are suffering from decreasing revenues, resulting in various
restructuring processes and reduced hospital beds base. As a result, competition to supply
hospitals is increasing
The reduction of hospital beds is reducing the in-hospital treatment time and promoting treatment
in outpatient settings
Opportunistic trends for Bulgaria in the healthcare industry
Medical Tourism
• Aging and wealthy European population
• Lower medical costs in Bulgaria
• Long traditions and experienced Bulgarian medical staff
• Could offer specialized/alternative treatment (stem cells)
• Private hospitals with experience in international
patients treatment / medical tourism operators
• Countries: Germany, Italy, Greece, Portugal,
France, UK
Spa and wellness
• Investors for the construction and infrastructure
management
Hungary, Poland, Nordic countries
End-of-life care
• Investors for the construction and infrastructure
management
Hungary, Poland, Nordic countries
R&D
• European companies will increase its R&D activities in order to
increase competitiveness
• Although Bulgaria lacks experience, it counts with educated scientists
• Changes in legislation for clinical trials
• Big R&D companies/medical suppliers for
infrastructure development and know-how
• Countries: Germany, Italy, UK, France, Sweden
Attracting
medical suppliers
• The global medical supplies and equipment industry is with excellent
potential for growth based on new technologies and innovation
• Bulgaria needs to attract the production / research businesses of
supply companies, not pure distribution
• Big medical suppliers for infrastructure development
and know-how
• Countries: Germany, Italy, UK, France, Sweden, US
Industry overviews – Transport equipment and Machine building
Transport equipment and machine build. industry snapshot
Industry size
Size
% econ
% manuf.
354 448
0,4%
2,0%
Employees
15 796
0,6%
2,7%
657
0,2%
2,1%
Firms
FDI flows
8,2
(EUR mm)
5,0
1,7
3,0
2,4
-0,1
00
01
02
03
0,8
-1,0
-1,4
04
05
0,6
-0,3
06
07
08
09
Q3 10
0.3
0.0
0.0
0.0
0.6
0.3
0.1
1,3
0.3
4,7
0.5
0.2
0.1
1,6
0.2
0.9
0.1
0.7
0.2
Absence of car manufacturer and automotive cluster in the country
Small capacity of production lines
Weak internal demand
Decrease in ship-building and concentration mostly on low valueadded repair works
• R&D infrastructure lags from the modern standards
University students
• Manufacturing specialties = 20 060 students
• 5 Technical universities
0.0
1,6
•
•
•
•
Employees
0.1
Strengths
• Traditions in machine engineering and electronics
• Entry point to EU markets
• Presence of port infrastructure (useful for export sectors)
• Close to the CEE automobile clusters
• Component manufacturers are active in producing high precision and
endurance components for various European customers
• Qualified labor and Low labor cost
Weaknesses
Other resources
 157 251 students in professional schools
 Industry associations
0,0
1,7
0.1
0.1
0.1
Building of ships and floating structures is the biggest
segment in terms of revenues
Revenues
Employees
Companies
Manufacture of other transport equipment
287 473
11 841
516
Building of ships and floating structures
167 477
6 801
372
Manufacture of bicycles and invalid carriages
42 445
947
14
Manufacture of railway locomotives and rolling stock
38 223
2 788
22
Manufacture of air and spacecraft and related
machinery
35 841
834
69
Building of pleasure and sporting boats
2 635
320
23
853
151
16
Manufacture of motor vehicles, trailers and semitrailers
66 975
3 955
141
Manufacture of motor vehicles
26 176
335
18
23 801
2 892
108
12 648
494
1
4 351
234
14
Manufacture of other transport equipment n.e.c.
Manufacture of other parts and accessories for motor
vehicles
Manufacture of electrical and electronic equipment for
motor vehicles
Manufacture of bodies (coachwork) for motor vehicles;
manufacture of trailers and semi-trailers
Many of the companies from the electronics and electrical engineering can also be
placed in this sector
Top players in the transport equipment (1/2)
The top players in the Transport equipment, according to its corresponding
sub-segment
% of Industry
Revenues
% of Industry
Employees
Sub-segment
% of SubSegment Rev
ENERGIYNA FINANSOVA GRUPA AD
12,4%
0,04%
26%
BULYARD SHIPBUILDING INDUSTRY EAD
11,1%
5,7%
23%
ODESSOS SHIPREPAIR YARD AD
4,2%
5,1%
9%
TEREM KRZ FLOTSKI ARSENAL VARNA EOOD
4,2%
4,0%
9%
MAXCOM EOOD
4,8%
2,8%
40%
CROSS OOD
4,2%
1,3%
35%
LIDER 96 OOD
1,6%
0,7%
13%
RAILWAY CARRIAGE REPAIR WORKS 99 AD
4,6%
5,0%
43%
TRAKTSIA AD
2,3%
2,4%
21%
VAGONO REMONTEN ZAVOD KARLOVO AD
1,6%
1,6%
15%
VAGONO REMONTEN ZAVOD LEVSKI AD
0,9%
1,1%
8%
EVN BULGARIA TOPLOFIKATSIA EAD
6,2%
1,0%
Manufacture of air and spacecraft and related machinery
62%
TOPLOFIKATSIA VT AD
0,8%
0,4%
8%
MIKROENERGIA OOD
0,5%
0,2%
5%
AVIO DELTA OOD
0,4%
0,1%
4%
Company
The biggest companies are in ship-building and railway equipment
Top players in the transport equipment (2/2)
The top players in the Transport equipment, according to its corresponding
sub-segment
Company
% of Industry
Revenues
% of Industry
Employees
Sub-segment
% of SubSegment Rev
AREVA TID
0,5%
0,1%
67,6%
VRANGOVI 2 OOD
0,1%
0,1%
15,9%
LODKOSTROITEL K OOD
0,1%
0,1%
8,7%
BALKANCAR PLEVEN AD
0,1%
0,2%
59,7%
KROS VIDIN OOD
0,1%
0,4%
38,1%
MADARA AD
6,9%
0,9%
93,0%
KENTA AD
0,3%
0,6%
3,9%
TIAT AD
0,1%
0,1%
1,0%
A L FILTER OOD
2,7%
2,2%
MTM OOD
0,7%
0,4%
DROUZHBA AD
0,6%
1,7%
JOHNSON CONTROLS ELECTRONICS
3,6%
3,1%
PRK 2002 EOOD
0,6%
0,3%
L M D OOD
0,4%
0,2%
vehicles *
vehicles *
vehicles *
Manufacture of electrical and electronic equipment for motor
vehicles *
39,5%
9,8%
8,7%
100,0%
45,3%
30,8%
The auto parts manufacturers are smaller in size and larger in number
Summary of global trends in the transport equipment
industry
 The transport equipment sector was one of the most affected from the present crisis, confronted by a sharp
drop in sales and profits, as well as significant decrease in FDI
 Nevertheless, the light vehicle sector is expected to grow with more than 30% in the next years, lead
mainly by Chinese car manufacturers entering foreign markets more aggressively
 Most of the major car manufacturers are present in the CEE regions but Bulgaria failed to attract any key
investments in the sector
 Bulgaria has never been a major transport equipment producer and it’s unlikely that the country attracts
any of the big Western car manufacturers at this stage given existing capacity in the sector
 Nonetheless, Bulgaria has strong traditions in the ship building sector, as well as the auto components
production
 Currently, the industry employs almost 16 000 people and generates revenues of €355mm and is closely
related with other industries like electronics and electrical engineering
 Although almost 97% of the companies are in the SME segment, 1/2 of the employment is in large
companies
 Bulgaria should focus its efforts on:
• Attract some of the main Chinese car manufacturers, as well as to target some of the international car
manufacturers of electrical cars for the initiation of electric car components production
• Focus on other transport equipment production (agricultural machinery, buses, wagon and rolling stock,
bicycle), targeting countries like China, US, UK, South Korea, Germany, etc
Automotive industry: EU snapshot
•
Facts & Figures
•
•
•
•
Competitiveness
Assessment
R&D and
Innovation
Areas of Growth
•
•
•
Large home market, but flat growth in Western Europe. New Member states used to provide
growth opportunities
Utilization of capacity (dropped to 65% in 2009) remains an issue as there is overcapacity
The sector in EU is world-leader in premium vehicles and has a strong supplier base
Concern over access to raw materials in the future
•
•
•
•
•
Global technology leader due to substantial investments and demanding home market
€ 24bn per annum investments in R&D, representing ~30% of European R&D investments
50% of R&D investments comes from automotive suppliers
Investments in ground-breaking technologies (battery-powered hybrids, electric vehicles etc.)
Joint research projects between the industry and the public authorities
•
In the longer term, growth is expected in the external markets, as rising income levels improve
access to individual mobility, especially in the emerging markets of China and India
Stricter regulations on fuel efficiency are likely to lead to growth in related components and
technologies
The segmentation between city traffic vs. longer distance traffic will impact the relevant products
•
•
•
Structure of
Sector
The automotive sector has a turnover of over €780bn with €125bn in exports and €60bn in
imports
Value added amounts to around €140bn representing about 8% of European manufacturing VA
Generates 12mm jobs across Europe which is about 5,5% of employment in the EU-27
19,7mm vehicles produced in 2007, equivalent to about 27% of total production worldwide
•
•
Division between suppliers (split in tiers) and OEM, 75% of vehicle’s original equipment
components and technology are sourced
Supply chain management is a key strength of the European automotive industry
The suppliers sector includes 3000 companies (2500 are SMEs employing over 3mm people).
For each €1 of VA by the automotive itself, supporting industries generate ~ €2,7 of additional VA
Opportunistic trends for Bulgaria in the transport
equipment industry
Chinese light
automobiles
• China is expected to become the largest car manufacturer in the future,
with light vehicle production reaching almost 16 mln units in 2015
• Given that Bulgaria failed to attract any major Western manufacturer,
the country may target Chinese producers for the location of vehicle
components production in the country
• All Chinese vehicle and automotive components
producers
• Bulgaria may target producers of agricultural machinery, wagon and
rolling stock, bicycle, buses, heavy truck machinery, etc.
• Bulgaria may offer low production and labor costs, skilled labor, access
to key markets
• Smaller international companies
• Countries: US, Germany, Russia, UK, Italy, China,
South Korea
Electric car
components
• Electric vehicle production will significantly increase in the future
• Bulgaria may target major electric car producers to set up components
production and/or assembly
• Major international electric car manufacturers
• Countries: Japan, US, Germany, South Korea, UK,
Italy
Ship building
• Strong traditions in the country, sea and river transport present
• A few major ship builders that need restructuring and may attract
foreign investors’ interest
• Low production costs and access to major markets (EU, Middle East,
Russia
• Major shipbuilders in Europe and Asia
• Countries: Japan, China, South Korea, Pakistan,
Germany, the Netherlands, UK, Turkey
Other transport
equipment
Table of contents
Some industries were very affected by the crisis and their
output contracted significantly; others remained intact

The recovery of the economies in EU, among which the Bulgarian, depends on several external factors: fast world
recovery, return of the confidence in the financial markets, low interest rates and better usage of EU funds.

The recovery was driven by a surge in inventory and exports, whereas consumption and gross fixed capital
formation remained weak.
• Net exports lifted growth in the EU10.
• Overall, gross fixed capital formation remained below pre-crisis peaks in all EU10 countries, and consumption in all EU10
countries with the exception of Poland and the Czech Republic.

In EU 10, industry is leading the recovery, while finance and construction are lagging.
• Industry benefits most from the rebound in global demand for capital goods and durables, helped by its deep integration
into European production chains.

•
The revival of industry supported a return to growth of trade and transport, although at modest rates compared to before
the crisis.
•
Other service sectors remain constrained by weak domestic demand and sharp adjustments in finance and construction.
However, partly helped by public projects, construction activity is slowly recovering, and returned to growth in Poland.
In Bulgaria, industries were affected differently by the crisis:
• Manufacture collapsed with almost no signs for recovery in 2010
• Electronics and electrical equipment were hit by the crisis but started to recover in 2010
• Food production was the one that was almost not affected
• Chemicals, plastics and rubber already started to recover
• Transport decreased substantially in 2009 but started to recover in 2010
Source: NSI, A.T.Kearney
Manufacture collapsed with little signs for recovery in the
end of 2010
FDI inflows
(EUR mm)
Index of turnover in industry
(2005 = 100)
1.100
26
130
120
70
659
46
Manufacture
90
80
91
937
45
110
100
1.140
561
6
550
18
Mining
60
50
555
30
289
20
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
1.073 1.049
892
295
5
40
451
18
608
17
532
613
294
591
433
106
11
95
296
-2
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Mining
Manufacture
Crisis affected Manufacture production and FDI much more than mining; FDI
in mining decreased as well but starting from a much lower base
Notes: The production index measures changes in the produced goods
The turnover index measures changes in value of sales and prices
The Electronics production was not affected heavily by the
crisis
FDI inflows
(EUR mm)
Index of production in industry
(2005 = 100)
213
170
138
95
160
150
140
Electrical equip.
(production)
98
69
130
120
110
100
90
70
28
60
50
40
34
43
5 35
9
10
64
68
53
11
80
58
69
Machinery
(production)
Electronics
(production)
34
123
33
30
23
9
15
18
23
21
36
-1
39
-12
24
21
0
41
43
83
30
6
12
-4 -3
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
30
M-e of computer, electronic and optical products
M-e of electrical equipment
M-e of machinery and equipment n.e.c.
20
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Electronics production was least affected by the crisis, although FDI in this
sector collapsed
The production of non-light vehicles collapsed with 49%
FDI inflows
(EUR mm)
(2005 = 100)
170
160
150
140
130
120
110
100
90
80
70
60
50
40
30
20
10
0
8
0
Automobiles &
trailers
5
3
0
2
0
Vehicles exc.
light vehicles
2
0
3
2
8
1
1
2
1
0
-1
6
2
0
-2
1
0
0
-1
-1
-1
-3
-1
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
M-e of motor vehicles, trailers and semi-trailers
M-e of other transport equipment
The production of non-light vehicles collapsed with 49% with no signs of
recovery. The limited production of automobiles in the country allowed the
fast recovery of the sector.
The Food production was the overall least affected industry
in the country
FDI inflows
(EUR mm)
(2005 = 100)
130
120
110
Food
27
110
100
90
85
85
85
72
70
Tobacco
35
52
35
Beverages
80
43
49
35
61
20
70
20
23
60
23
50
0
40
29
0
50
69
45
49
11 0
50
36
12
1
-1
20
25
17
4
-11
22
0
-3
15
13
-36
30
-1
20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
M-e of food products
M-e of beverages
The Food production was the least affected industry in the country
There are signs for recovery in chemicals, rubber and
plastics and pharmaceuticals industry
FDI inflows
(EUR mm)
(2005 = 100)
203
140
115
130
103
92
120
110
Rubber & Plastics
36
97
100
90
170
Chemicals
91
42
Pharmaceuticals
80
6
70
7
7
413 061
60
50
40
0 0
1 18
-9
-8
10
901
25
6
-44
27
5
-9
-1
-5
5
7 3
-5
3
-2
30
-1
-38
20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
M-e of chemicals and chemical products
M-e of basic pharmaceutical products and pharmaceutical p
M-e of rubber and plastic products
The production and FDI in chemicals, rubber and plastics, pharmaceuticals
collapsed, but there are signs for recovery in 2010
The production of basic and fabricated metals, and nonmetallic mineral products collapsed in 2008
FDI inflows
(EUR mm)
(2005 = 100)
423
150
399
19
140
130
301
7
110
Basic metals
90
Fabricated metals
80
70
Non-metallic
mineral products
60
373
123
101
68
1
109
1
11 10
-31
-10
40
135
92
31
50
245
211
120
100
444
68
-2
29
69
4
93
82
24
21
122
197
7
147
148
73
9
152
42
63
2
-28
-93
30
20
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
10
0
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
M-e of basic metals
M-e of fabricated metal products, except machinery and eq
M-e of other non-metallic mineral products
Although mining was not affected severely by the crisis the production of
basic and fabricated metals and non-metallic mineral products collapsed in
2008 with little signs of recovery
The Transport industry collapsed in 2009, but stabilized in
2010
FDI inflows
(EUR mm)
Index of turnover in industry
(2005 = 100)
180
55
5
Postal and courier
activities
170
160
84
1
48
10
150
140
Air transport
130
Waerhousing,
auxiliary transport
services
120
110
Total
100
Land transport
90
80
37
14
3
24
19
4
17
0
13
-4 -3
-20
70
60
59
Water transport
9
2
12
8 0
1
11
-1
0
4
2 0
6
4
3 1 2
2
-3 -1
0 -1
-37
5
5
4
21
5 0 4
3
5
2 0 140
-2
-1
-1
0
0
-16
50
-29
40
30
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
20
10
Air transport
0
2000
2002
2004
2006
2008
2010
Land transport and transport via pipelines
Postal and courier
activities
Water transport
The Transport industry collapsed in 2009, but stabilized in 2010. Land and
Water transport were affected most severely by the crisis
Notes: The index measures the turnover in Transport and Communications
The growth drivers of the last decade are not anymore valid
and overruled budget contraction and low buying power
Potential Risks
Budget
deficit
Economic
Growth
Banking
System
Structural
reform
FDI
• Falling tax revenues and increasing pressure from unreformed sectors for budget transfers may put at
risk the projected budget deficit
• Policy of delay of VAT return payments to private sector is having negative repercussions throughout the
economy and increased inter-company indebtedness
• Possible negative or low GDP growth in 2010 and 2011 due to weak internal demand
• Lack of government spending due to objective of keeping budget deficit under control
• Export growth may not be sufficient to help take the economy out of the recession due to low share of
export-oriented industries in the economy
• Relatively high level of non-performing loans across both retail and corporate clients
• Still relatively low levels of new credit growth
• High level of inter-company indebtedness
• Delay in key structural reforms such as healthcare and education
• Delay in judiciary reform
• Relatively low inflows of FDI due to the crisis

Strategic Analysis Project

Transcription

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