Chapter 1: Doing Business In Croatia
Market Overview
Croatia, a nation of some 4.5 million inhabitants, is both a Central European and a Mediterranean country making significant progress towards its twin goals of NATO and EU membership, with a NATO invitation anticipated in 2008. Known to many as a tourist destination, Croatia is also well-known for its ship and boat building and is achieving new success in niche manufacturing. With continuing highway construction and increased air links, Croatia’s distribution network is among the best in the region and more and more companies are selecting Zagreb, Croatia’s capital, as their sales and marketing hub. EU regulations are increasingly being viewed as the norm, and there is a concerted effort to prepare the country, especially in the agricultural and prepared food sectors, for membership.
Imports have increased to over $20 billion of which the U.S. represents the tenth largest exporter. The oil and chemical industries along with food and beverages, shipbuilding, communication equipment, and electrical machinery rank as the largest importers.
Economic growth this year is projected by analysts to be lower than 2007 in keeping with an anticipated slowdown in European economies. With the Kuna closely tied to the Euro, Croatia enjoys a stable currency, but is not immune to global economic trends.
In 2007 we saw two new U.S. investors enter the market; Commercial Metals purchased a steel firm in Sisak from the Croatian Privatization Fund and Applied Ceramics opened an advanced manufacturing facility, also in Sisak. Additional U.S. investment is contemplated.
HitroRez, the “Regulatory Guillotine”, was just introduced by the Government of Croatia to eliminate those rules and regulations that are bureaucratic and not business-friendly. This follows the success of their “one-stop shops” called Hitro, which means immediately!
Market Challenges
One of the biggest challenges faced by U.S. companies is “country awareness”. When people are queried about Croatia, some recall that it was a popular tourist destination during the days of former Yugoslavia while others remember a war. More than ten years after the last shots were fired, not enough of our exporters are aware of this small but vibrant and growing market. As discussed in the next section, Croatia is now on the threshold of NATO membership with membership in the European Union also in the offing in the coming years.
Frankly, the challenge is not just Croatia but how to develop business in the region. A small market in and of itself, the business case for Croatia as an export market is generally predicated upon including other neighboring countries in the region, and then Croatia usually emerges as the starting point for sales activities.
Although national treatment is the rule and U.S. products as a rule are well-regarded, Croatia has and continues to be a market dominated by European and, in particular, German, Austrian and Italian trading partners. This, coupled with a lack of business transparency, generally means that market development takes time. Personal contact, often over a cup of coffee, may be preferred to an impersonal e-mail message.
While trade complaints relating to business transactions are infrequent, companies do bring issues to our attention that relate to inconsistency with EU legislation. We are also currently monitoring the implementation of the recently-amended law on foreigners to ensure that family members are able to join employees on long-term assignments as had been the case.
Market Opportunities
We present several sectors that we consider to be “best prospects” in Chapter 4. While not a best prospect per se, foreign direct investment is certain to increase significantly, led at first by tourism and followed by privatization opportunities and new industrial investment. Commercial property development, especially for office space and retail zones, is well underway in the large urban centers and has resulted in a building boom. Free trade or industrial zones are showing early results as European manufacturers seek to profit from a skilled work force, geographic links and tax incentives. The warehousing and distribution sectors are next. EU pre-accession funds, coupled with World Bank and EBRD financing, will enable significant infrastructure improvements, notably in waste water management, transportation and education. Within the health care sector, reform must be balanced with access to innovative products and medicines.
It still remains to be seen if the government can attain similar success with the domestic economy and business climate as it has had in the international political arena. More work remains to be done to increase regulatory transparency, to clarify land ownership and to diminish the government’s presence in the economy. Given that the government carries through its planned privatization activities and completes its country-wide land planning, foreign investors may enter Croatia in large numbers.
Market Entry Strategy
While one can argue that there are as many entry strategies as there are companies and products, some commonality applies. Tried-and-true measures are detailed in Chapter 3 and for most exporters, using an agent or distributor is the best way into Croatia. Having said that, this agent or distributor should be a Croatian agent or distributor, or if not, then one with a substantial presence in the country. After-sales service, follow-up and training are key selling points, and a “European” agent or office doesn’t necessarily gain you additional Croatian sales. However, if you are already selling your product in Europe, then you have already met the technical requirements to export your product to Croatia and the Commercial Service can assist you in doing business in Croatia.
Keep in mind that Croatia is a rapidly-modernizing European country and that although your product may not be on the market here, Croatians no doubt are currently using a competitive, probably European brand or substitute. The U.S. product must therefore likely displace an existing product which requires real and/or perceived benefits which often translates to a persistent local sales presence.
Entering this market is a worthy goal – GDP is on the rise and by its geographical location, Croatia is well-positioned as a regional center for operations in Central and South Central Europe. Almost 90 per cent of Croatian exports enter Europe, and the markets of former Yugoslavia represent a third of the total.