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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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 2
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 3
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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 4
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 higher-value 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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 5
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
Source: A.T. Kearney analysis
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 6
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)
Source: A.T. Kearney analysis
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 7
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
Source: A.T. Kearney analysis
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 8
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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 9
Bulgaria is a stable country with low tax rate and relative low costs of local business operations
Source: A.T. Kearney analysis
Stability
• 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
Access to markets
Economic development
Cost of doing business
• 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
• 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
• 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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 10
Within EU Bulgaria has the lowest GDP/capita while the GDP growth is too low to enable a short term solution
-20014
ROBGHUCZSKTK
7,4%
GDP Growth • 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
Peer Comparison 2010F Comments
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
European Comparison 2009 Comments
EU-15
13.1
FR
23.6
EU-27
BG DE RO
25.229.6
IT
34.6
NL
27.5 29.3
CZ
8.14.7
PL
9.3
HU
5.5
GDP/capita (EUR „000)
Summary of macroeconomic indicators
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 11
Earlier growth was fueled by significant inflow of foreign direct investment…
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
2009
2,736
67%
2003
1,851
58%
2002
980
64%
2001
903
69%
2000
76%
1999
866
61%
1998
605
94%
1997
570
98%
1996
137
95%
3,213
22%
69%
2008
6,697
41%
62%
2007
9,052
30%
53%
17%
2006
6,222
33%
52%
15%
2005
3,152
30%
57%
2004
Reinvested profits Other EquityEquity Investments
FDI flows by type of FDI(EUR mil)
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 12
…but a sustainable growth was challenged by the investment in relatively lower productivity, non-export oriented sectorsSector Distribution of FDI(EUR mil)
Source: A.T. Kearney analysis
2%
2002
980
27%
2001
906
37%
32%
2000
1,047
13%
25%
51%
2009
3,282
18%
8%
18%
22%
8%
28%
2008
6,686
15%
19%
9%
25%
28%
2007
9,052
17%
15%
12%
24%
30%
2006
6,222
19%
16%
17%
13%
29%
2005
3,152
7%
18%
28%
22%
15%
2004
2,736
25%
19%
24%
7%
2003
1,851
21%
24%
OtherTrade and RepairManufacturingFinancial ServicesEnergyConstruction & Real Estates
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 13
Beside closing the GDP gap more than 1 mn employees need to be moved to higher productivity sectors
(1) Assumed at 600K for conservatismSource: Eurostat. 2006 data, A.T. Kearney analysis
Unknown(1)
Wholesale and
retail
Textile and
apparel
Construction
Land transport
2007
1.580
600
612
138
140
90
206
80
475
612
Bulgaria Estonia Czech Hungary
2013
50
138
HungaryEstonia CzechBulgaria
Employees in select low-productivity sectors Number
• 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
Comments
• 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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 14
As of today Bulgaria‟s manufacturing structure is similar to peers but oriented towards lower value added sectors
Manufacturing sector revenues(% of total manufacturing)
Source: Amadeus, A.T. Kearney analysis
4%
5%
7% 6%
7%
4%6%
4%
14%
8% 16%
8%
7%
14%4%
7%
4%7%
4%
4%
6%
7%6%16%15%
Chemicals and chemical products
Machinery and equipment n.e.c.
Fabricated metal products
Other non-metallic mineral products
Electrical equipment
Food products
Basic metals
Coke and refined petroleum products
Slovenia
100%
38%
1%
10%
12%
7%
0%
Hungary
100%
46%
2%4%
5%4%
3%
Estonia
100%
44%
4%2%
7%
11%
3%
1% 2%
Czech Rep.
100%
40%
All other manufacturing
2%6%
Rubber and plastic products
Beverages
10%
9%
1%
Bulgaria
100%
20%
5%5%
5%
• Coke, petroleum products, basic metals, and foods are the leading manufacturing sectors
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 15
Compared to Czech Republic and Hungary, Bulgaria lags behind in the high-tech sectors
Manufacturing sector revenues(% of manufacturing revenues)
Source: Eurostat. 2006 data, A.T. Kearney analysis
• Bulgaria has relatively small production of higher value-added sectors such as motor vehicles, computers and electronics, other fabricated metal products
7%
4%
4%
14%
8% 8%
7%8%
21%
5%
9%
4%
7%
10%
11%
5% 12%
6%
7%
6%
5%
5%13%
18%3%
36%
0%
14%
5%5%4%
6%
16%
7%
7%
3%
3%
Czech Rep.
100%
17%
Bulgaria
100%
Other non-metallic mineral products
All others
Basic metals
Electrical equipment
Chemicals and chemical products
Rubber and plastic products
Food products
Computer, electronic and optical products
Machinery and equipment n.e.c.
Fabricated metal products
Motor vehicles, trailers and semi-trailers
Slovenia
100%
24%
10%
6%
7%
3%
Hungary
100%
28%
3%4%
4%4%
4%
16%
Estonia
100%
40%
1%7%
6%4%
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 16
In Bulgaria, ~80% of employment is within wholesale and retail, manufacturing, construction, and transport sectors…
Employment and revenues% of total
Source: Amadeus, A.T. Kearney analysis
18%
18%7%
7%
17% 16%
6%
1%0%
Revenues
All other
1%
18%
4%
1%
4%3%
4%4%
4%
Employment
33%
Manufacturing
Wholesale and retail
Construction
n/a
Transportation and storage
Professional, scientific
Human health and social work
Public administration and defence
Administrative and support services 1%
More than 80% of the employment in Bulgaria is within wholesale, manufacturing, construction, transportation, and professional and technical services
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 17
…which are generally low value-added sectors
Source: Amadeus, A.T. Kearney analysis
Employment and revenues% of total
13%
9%11%
8%
17% 16%
8%
5%
7%
5%
2%2%
34%
10%
Employment
6%
Less knowledge-intensive market
services
Other knowledge-intensive
services
Low-technology
Knowledge-intensive market
services (excluding high-tech and
financial services)
n/a
Medium-low-technology
Less-knowledge-intensive
market services
All others
Revenues
48%
Bulgaria has only one sector where it has relatively higher productivity than CEE countries
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 18
There are only 500,000 people employed in relatively high-value added sectors
Source: Eurostat. 2006 data, A.T. Kearney analysis
57%
13%
5%
7%
4%
14%
n/a
Low
Medium
Medium-low
Medium-high
High
5%7%5%
9%11%
21%
Medium-high-technology
High-technology
Knowledge-intensive financialservices
High-tech knowledge-intensiveservices
Knowedge-intensive services
Knowledge-intensive marketservices (excluding high-tech)
Revenue
25%
20%
17%
Employment
21%
15%
43%
493,000 €10 bn
Total employment% of total
Less than 20% of total employed are in relatively high value added sectors
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 19
One reason is that Bulgarian higher education is heavily skewed towards business and finance, not engineering
Students enrolled by type of specialty(% of total)
Students prefer business administration/finance to technical studies, which
creates shortage of technical specialists in the country
Source: NSI; A.T. Kearney analysis
3%
5%
6%6%
6%
12%
3%
Construction & Architecture 4%
4%
IT
Mining3%
Art
Agriculture
2%Tourism
2%National security and Police
3%
1%
Social Services
Other
8%Environmental Studies
Public Services4%
Law
Pedagogy and Education
MedicinePhylology and History
Manufacturing
Business and Finance
30%
Total students (2009):254,160
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 20
There are no technical/engineering specialties among the top preferred study programs
Top university specialties(number of students)
The majority of students in Bulgaria are in non-technical specialties
Source: NSI; A.T. Kearney analysis
Business and Finance
Philology and History
Medicine
Pedagogy and Education
Law
Public Services
Agriculture
All others
254,160
76,515
15,389
14,639
14,17011,573
10,0449,908
101,922
• 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
Comments
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 21
939
923799
53920
Manufacturing-related
IT
Mining
Communication
technology
Chemistry
Biology
Geography
Physics
Mathematics
Geology
Other technical 51,682
29,679
7,838
6,449
1,821
1,4071,268
Only 20% of all students are in technical/engineering specialties
Technical specialties(number of students)
Only 50,000 students are in technical/engineering specialties
Source: NSI, A.T. Kearney analysis
Macro analyses
• 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
Comments
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 22
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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 23
The strategy “Vision 2020” outlines the path for Bulgariato catch up with EU economies through a targeted FDI strategy
Vision 2020
Increase share of priority industries
Provide incentives to
investors
Attract back students from
abroad
Change the skills set to
meet investor needs
• 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
− Healthcare and pharma
• Questionnaire, sent to investors in Bulgaria, shows that they believe the government can provide additional incentives to stimulate FDI growth
• 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
• It is assumed that more than 30,000 Bulgarian students study abroad
• 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
• 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
Source: A.T.Kearney analysis
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 24
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)
Through a targeted FDI approach, Bulgaria could increase the share of these industries to catch up with peers
Source: Amadeus, A.T.Kearney analysis
Healthcare and Pharma
ICT
T&L
Transport eq.
and
Machine building
E&E
Chemicals, rubber and
plastics
Agri-food
Romania
25,2%
0,6%4,0%
5,3%
3,2%
1,7%
4,1%
6,2%
Hungary
40,4%
1,2%
3,8%
5,1%
7,1%
8,7%
8,7%
5,8%
Czech Rep.
32,6%
1,9%
3,4%
5,3%
8,3%
4,3%
4,5%
4,9%
Bulgaria
26,9%
1,2%3,4%
5,1%
2,0%2,0%
6,4%
6,9%
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 25
Our joint project analysis indicates that the investments in priority industry clusters could contribute to 33% of Bulgaria‟s output in 2020
207
33%
9%
Others
Outsourcing
182
ICT
Transport andLogistics
Transportequipment
E&E
Healthcare andpharma
Chemicals
Food andagriculture
2020Expected
1392
6
13
6
6
5
12
18
2020Baseline
139
14
9
24%
33
9
13
2010
89
68
2
2
4
111
4
6
0
Industry output, EUR bil.
Source: A.T. Kearney Analysis, Amadeus
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 26
This output will be generated by a cumulative investment effort for the next 10 years in these industries
188 13
Outsourcing100
ICT350
Transport and Logistics700
Transport equipment andmachine building
350
Electronics and electricalequipment
400
Healthcare and pharma500
Manufacture of chemicals, rubberand plastics
500
Food and agriculture500
Cumulative Investment(2011-2020, mill. EUR)
26
9
4
-20
6
6
-2
-2
22
9
17
9
8
3
9
78
86
10
15
7
35
18
12
6
5
13
2
6
Expected output within a range(2020, bill. EUR)
Bulgaria’s position
(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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 27
With professionally planned investments, Bulgaria could achieve the 12,000 EUR GDP per capita target till 2020
2010 2020Expected
+112%
38.9
82.712.000
5.200
2010
+131%
2020Expected
4.4% per annum real growth of the economy
Nominal GDP growth(2010 – 2020, bill. EUR)
GDP per capita growth(2010 – 2020, EUR)
Source: A.T. Kearney аnalysis
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 28
Successful FDI strategy in the selected industries will lead to beneficial side effects in other industries…
Note: Local cluster is the one, which serves only the local marketSource: Centre for Economic Strategy and Competitiveness, EU Cluster Observatory, MOC, Amadeus, A.T.Kearney analysis
Other
Automotive
Plastics
TextilesPharmaceuticals
Oil and gas
Buildings related
Paper pr.
Chemical
Lighting & electrical eq.
Power
Metal manuf.
Electronics & Electrical
Natural resource
drivenTelecom
Construction
IT
Local
Instruments
OtherTelecom
Business services
IT & Outsourcing
Paper pr.
Maritime
Textiles
Other
Aerospace
Sport &
Recreation goods
Medical devices
Metal manuf.
Automotive
Processed
food
Buildings related
T&LHeavy Machinery
Production tech.
Transport Eq &
Machine building
Oil and gas
Other
Tourism &
hospitality
T&L
Local
Construction
Pharmaceuticals
Local
Healthcare
Maritime
Tobacco
Local
Natural resource driven
Farming & animal husbandry
Agricultural pr.
Processed food
Agri-food
Other
Chemical pr.
Transport & Logistics
The activities in every priority sector are inter-related with other industry clusters
Cluster name
Priority sectorPriority sectors and clusters in them (revenues)
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 29
…as formation of clusters in the priority sectors has already started
Local
Natural resource driven
Farming & animal husbandry
Agricultural pr.
Processed food
Agri-food
Tobacco
Local
Instruments
Medical devicesOther
Lighting & electrical eq.Natural resource driven
Power
Construction
Metal manuf.
AutomotiveITTextiles
Telecom
Pharmaceuticals
Electronics & Electrical
Oil and gas
Buildings related
Other Paper pr.Telecom
Plastics
Business services
Chemical pr.
IT & Outsourcing
Other
Paper pr.
Chemical
Maritime
Textiles Automotive
Other
Processed
food
Aerospace
Buildings related
Sport &
Recreation goods
T&LConstruction
Heavy Machinery
Metal manuf.
Production tech.
Transport Eq &
Machine building
Transport & Logistics
Oil and gas
Pharmaceuticals
Other
Local
Tourism &
hospitality
Healthcare
T&LMaritime
Local
Cluster name
Note: Local cluster is the one, which serves only the local marketSource: Centre for Economic Strategy and Competitiveness, EU Cluster Observatory, MOC, Amadeus, A.T.Kearney analysis
Priority sectorPriority sectors and clusters in them (employees)
The activities in every priority sector are inter-related with other industry clusters
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 30
Investors indicate that the government plays a crucial role to facilitate the investment process and to boost FDI in the future
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
Extract from investors‟ opinions and improvement suggestions (Survey 2010)
Source: Questionnaire among foreign investors in Bulgaria, A.T. Kearney analysis
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 31
1.1
1.3
1.3
0.9
1.2
1.2
2.1
2.5
2.6
3.1
Difficult access tofinancing
Legal barriers to foreign investors
Political influence
Lack of skilled labor
Inefficient bureaucracy
Factors creating difficulties Improvement over the years
Investors see some improvement in decreasing political influence and reducing legal barriers to foreign investors
From investor perspective bureaucracy as a major problem their company faced during the investment process
(1) Distribution is calculated on the actual responses, and exclude questionnaires with no response on the particular questionSource: Questionnaire among foreign investors in Bulgaria, A.T. Kearney analysis
3=improved1=worsened5=most important
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 32
Providing more incentives is one way of promoting Bulgaria to investors
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
List of practical initiatives to support IBA
Source: A.T.Kearney analysis
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 33
For investors in Bulgaria, people‟s skills and qualifications are of highest importance for investment decisions
1.6
1.9
2.1
2.2
2.4
2.4
2.4
2.9
2.9
3.1
3.1
3.2
Access to raw materials
Access to suppliers
Access to other markets
Reliability and quality of infrastructure & utilities
Level of corruption
Ease of doing business
Access to local market
Labor cost
Stable regulatory environment
Stable macroeconomic &political environment
National tax regime
Labor force qualifications & skills
Foreign investors rank highest the quality of labor force, while labor cost ranks lower in terms of importance
(1) Distribution is calculated on the actual responses, and exclude questionnaires with no response on the particular questionSource: Questionnaire among foreign investors in Bulgaria, A.T. Kearney analysis
5=most important
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 34
They see the lack of significant improvement in the skills sets as one of the biggest problems currently
1.3
1.0
1.5
1.0
1.0
1.3
1.33.1
2.4
2.7
2.7
2.9
3.1
3.1
Labor force mobiity
Other staff
Labor productivity
Restrictiveness of labor laws
Local managerial staff
Language skills
Technical staff
Skills and qualifications ranking Improvement over the years
Language skills and experienced, highly skilled labor force are of the highest importance to investors
(1) Distribution is calculated on the actual responses, and exclude questionnaires with no response on the particular questionSource: Questionnaire among foreign investors in Bulgaria, A.T. Kearney analysis
3=improved1=worsened5=most important
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 35
Building a highly skilled and trained employees will be essential for Bulgaria to improve its attractiveness for investors
Source: A.T.Kearney analysis
Specialists
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
Flexible Labor
Reflects alternatives the economy can use to meet periods of high demand for employee or
the need to lower costs
Critical Workforce Segments
Consists of highly skilled, highly trained individuals who drive revenue growth and value-
added
Core Workforce
Reflects the backbone of the economy – people who are well trained on general processes but whose knowledge and skills are more easily
replaced
Dif
fic
ult
y o
f re
pla
cin
g s
kil
ls
Impact on value chain
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 36
Therefore a targeted cooperation with universities and associations could close the gap to the FDI 2020 target
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.
Source: A.T.Kearney analysis
List of practical initiatives to support IBA
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 37
Young professionals are opportunity driven, seeking new chances for career enhancement over greater salary
Young professionals are confident and motivated: more than 60% prefer opportunities for growth, while only 7.9% are looking for better job security
Factors influencing job selection process
Notes: The survey is conducted among individuals of different nationalities aged between 14 and 29 yearsSource: Deloitte survey, A.T.Kearney
7.9%
13.6%
27.8%
32.1%
34.5%
47.0%
49.8%
63.5%
Company culture/
reputation
Salary and
benefits package
Opportunities for growth
and development
Job responsibilities
Location
Company brand
Good recruiting experience
Better job security
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 38
Currently, corruption and lower salaries are the major impediments to their coming back to Bulgaria
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
If you have any worry to work in Bulgaria, what are the reasons for that?(Times mentioned, total respondents 1425)
Notes: The survey is representative for the Bulgarian students in GermanySource: www.baiganyo.de, A.T.Kearney
Corruption in the
job selection process
Lower paymentties
Lack of enough security
Other
Personal reasons
Lack of interesting employers
0
Underdeveloped Public society
Lack of organization
in the Social system
Underdeveloped infrastructure
No idea
Corruption, incompetence,
bureaucracy in State institutions
Less opportunities for development
of the expert knowledge
100 200 300 400 500 600 700 800 900 1.050
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 39
Bulgaria needs to develop a program for attracting back students and young professionals back to Bulgaria
Source: “Forum Career in Bulgaria – Why not?” A.T.Kearney
Creation of encouraging and favorable environment
Improve access to information
Social entrepreneursh
ip
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
Organize database and mailing list with the students abroad. Regularly send business data regarding the available opportunities like companies, job positions and requirements, funding programs, available projects and news
Inclusion of young people in the process of market economy and society development via various non-profit organizations, which attract young people willing to develop their personal skills
These organizations provide the basis for business entry of the young graduates
Expectation management
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
Security
Target experienced
people
Stimulate participation of young people in crime prevention and build trust between them and law 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
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
Attract young people to state
institutions
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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 40
The level of information flow to these people needs to be improved
Source: “Forum Career in Bulgaria – Why not?” A.T.Kearney
Data Base
Collaboration
Mailing list
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
Collaboration with the private organizations sending Bulgarian students abroad (Integral, Darby, 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
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
Information campaigns
Direct 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
Marketing 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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 41
The recent investor survey and a first comparison with other agencies indicates that IBA needs to be further empowered
2.2
1.0
1.4
1.8
1.9
2.1
2.1
Real estate brokerage firms
Other
Mgmt consultancy / investment boutiques
International accounting firm
Investment or commercial bank
Regional / industry business associations
InvestBulgaria Agency
Investment and commercial banks are the major sources of information for investors
(1) Distribution is calculated on the actual responses, and exclude questionnaires with no response on the particular questionSource: Questionnaire among foreign investors in Bulgaria, A.T. Kearney analysis
5=most important
Sources of information used when entering Bulgaria
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 42
Appendices
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 43
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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 44
• 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.
Remarks and conclusions
Global FDI inflow slowed down to 3% in 2000-2009, after a period of 20% annual growth in the previous decade
222 285508
851601
441 362 410625
970
566236151143173
2011
10
7
8
8
106423200
10477534035
17630
825
215
630
2001
+20%
2009
2,100
1,444
91
565
2006
1,459
55
434
2005
986
2000
1,401
1,138
256
1999
1,088
228
1998
707
123
2007
70191
1997
486
191
1996
389
1,114
31
330
2004
732
+3%
292
2003
566
478
2008
1,771
1,018184
2002
628
147
1995
343116
1994
256
1993
223
1992
166
111
1991
154
114
1990
208
-37%
Transition economies Developed economiesDeveloping economies
FDI inflow of the world, 1990-2009(USD bil.)
(1) Classification of countries is provided in the back-upSource: UNCTAD, A.T. Kearney analysis
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 45
Sub-Saharan Africa experiences booming
development
Long life expectancy is no longer a rich-world-only
phenomenon
The EU is the world‟s largest economic bloc
International migration impacts world economic and
social patterns
World‟s health dynamics is changing
Freshwater is increasingly scarce
The world is urbanizing
Women become the primary breadwinners in developed
economies
Population is growing and quickly aging
The world‟s middle class is exploding
Global development trends are changing our societies and demand for products and services…
12 trends that will shape the global business environment by 2020
Source: A.T. Kearney’s Global Business Policy Council
Food demand is growing
China is the world‟s second-largest economy
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 46
...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
China is the world‟s second largest
economy
• 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 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 marketsBulgaria should seek to establish close cooperation with China at all levelsearly 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 othernon-EU investments into the EU
Source: A.T. Kearney analysis
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 47
Industry landscape is changing as sustainability is expected to endure as a major post-recession theme…
Consumption patterns (% of respondents)
8%
25%27%28%
38%
45%
52%
60%
"Go green" or
sustaina-bility
awareness increases
Private savings’ share of income higher than in the past
Internet shopping
gains market share
Product price more
important than
product quality
OtherThrift shopping increases
Fewer leisure
expenditures
Product quality more
important than
product price
(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
• 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
• 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
Impact on industries
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 48
…and industries face different pressure to consolidate depending on their development cycle
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 = 0.78Source: Value-Building Growth database; A.T. Kearney analysis
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
45%
- 10 - 5 0 5 10 15 20 25
CR3 1) HHI 2)
Years
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
45%
- 10 - 5 0 5 10 15 20 25
CR3 1) HHI 2)
Years
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
45%
- 10 - 5 0 5 10 15 20 25
CR3 1) HHI 2)
Years
OpeningOpening ScaleScale FocusFocusBalance/
Alliance
Balance/
Alliance
Paper
Drugs
Natural gas liquids
Semiconductors
Telecom
BrewersRailroad
Divers. Chemicals
Utilities
Automotive Supplier
Restaurants & Fast Food
Steel Producer integrated Automotive Mfrs.
Confectionary
Truck & Trailer Mfrs.
Shipbuilding
Distillers
Cigarette
Defense Electr.
Soft drinks
Aluminum Producers
Food Retail
Airlines
Integrated oil & gas
Banks
Consumer Electronics
Divers. FoodRubber & Tire Mfrs.
Paper
Telecom
Brewers
Defense Electr.
Soft drinks
Brewers
Insurance
Defense Electr.
Soft drinks
Ore Mining
Cosmetics
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 49
Expected internationalization is set to continue post the crisis
Level of expected internationalization2011 (in %)
Production, call centres and shared services are among the corporate functions with highest probability for internationalization in 2011
Source: UNCTAD, A.T. Kearney analysis
Level of expected internationalization Less than 10% 10% - 50%More
than 50%
Corporate functions
Production of goods and services 18 34 48
Sales offices 16 37 48
Logistics and distribution 27 37 37
Call centres and customer relations management 44 28 28
Administrative support and shared service cent 40 40 20
Research and development 41 43 15
Finance 45 45 10
Headquarters and decision-making centres 61 33 6
Common indicators
Sales 2 31 68
Investment expenditures 12 40 48
Employment 12 42 46
Capital stocks 26 49 25
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 50
Size and growth of regional markets are key decision factors for company location
The size and growth of local market are the major factors influencing locationdecisions
Source: UNCTAD, A.T. Kearney analysis
Leading factors influencing the location of companies2009 - 2011 (% of responses)
Most important location criteria by sector2009 - 2011
Primary sectorManufacturing
sectorServices 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 marketAccess to international/regional markets
Access to international/regional market
17%
Access to
international/
regional
markets
Growth
of market
10%
Size of local
market
Presence of
suppliers
and partners
16%
Stable and
business-
friendly
environment
10%
8%
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 51
EU 12 are a medium priority region on a global scale
Regional prospects
Sub-Saharan
Africa
North Africa
38.3%36.4%31.8%35.1%
77.9%74.7%
44.2%
64.9%
37.0%
16.9%19.5%
SE Europe & CIS
Other developed countries
Other Europe
New EU-12EU-15US & Canada
Latin America & Caribbean
South, East and SE Asia
West Asia
5.65.35.25.75.45.45.86.45.65.15.0
2.92.62.33.0
3.93.93.1
3.92.8
1.71.9
Companies with FDI stocks in the relevant regions in 2009 (% of respondents)
Expected change in FDI by region, 2009–2011 (1=decrease of more than 50%; 5=unchanged; 9=increase of more than 50%)
Level of priority for each region as an FDI location 2009–2011 (1=marginal; 5=very important)
New EU-12 and SEE regions are medium priority for the major investors
Source: UNCTAD, A.T. Kearney analysis
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 52
Uncertainty is the major impediment to FDI in the post crisis period
Note: -4=large negative impact very probable; 0= negligible impact very probableSource: UNCTAD, A.T. Kearney analysis
Importance of risk factors for FDI decisions, 2009 – 2011(average value of respondents)
-0.5
-4.0
-3.5
-3.0
-2.5
-2.0
-1.5
-1.0
0.0
Threats to
personal and
business safety
(e.g. terrorism,
Volatility of
prices in general
(inflation,
deflation etc
War and
political
instability
Exchange
rates
fluctuation
Volatility of
petroleum
and raw
material
prices
Rise of
protectionism
Changes
in investment
regimes
Increased
financial
instability
Worsening
of the global
economic
downturn
Uncertainty is the major impediment for FDI in the post-crisis periodBulgaria‟s top priority in terms of PR should be to convey a message of
macroeconomic and political stability
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 53
Internationalization is set to continue
Note: 1=not internationalized; 5=very internationalizedSource: UNCTAD, A.T. Kearney analysis
0.5
5.0
4.5
4.0
3.5
3.0
2.5
2.0
1.5
1.0
0.0
HQ & decision
making centres
FinanceR&DCall centres
and
CRM
Administrative
support &
shared-services
centres
Logistics
and
distribution
Production
of goods
and services
Sales offices
20112008
FDI is likely to rebound due to expected continuation of internationalization of corporate functions
Proportion of various corporate functions undertaken abroad2008 and 2011 (average value of responses)
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 54
SEE and EU12 are medium priority region for TNCs
Note: 1=not internationalized; 5=very internationalized; ODC = Other Developed Countries; LA = Latin AmericaSource: UNCTAD, A.T. Kearney analysis
TNCs‟ regional preferences2008 and 2011 (average value of responses)
5
4
3
2
1
0
20112008European TNCs‟
5
North
Africa
Other
Europe
West
Asia
SEE
and
CIS
LA and
the
Caribbean
New
EU-12
North
America
South,
East
& SE
Asia
EU-15
4
3
2
1
0
Sub-
Saharan
Africa
ODC
Japanese TNCs‟ Asian developing countries TNCs‟
Naturally, European TNCs view new EU 12 as highest priority relative to North America and Japanese TNCs
5
4
3
2
1
0
North American TNCs‟
5
North
Africa
Other
Europe
West
Asia
SEE
and
CIS
LA and
the
Caribbean
New
EU-12
North
America
South,
East
& SE
Asia
EU-15
4
3
2
1
0
Sub-
Saharan
Africa
ODC
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 55
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)
Note: 0=no effect; -2=very negative effectSource: UNCTAD, A.T. Kearney analysis
Other manufacturing
Transportation services
Electricity, gas and water
Electrical equipments
Electronic equipment
Wood and wood products
Chemicals and plastics
Business services
Metals and metal products
Precision instruments
Pharmaceuticals
-1-2 -0.6-0.8
Construction
-0.2 0-1.2
Manufacturing
-1.4 -0.4-1.6-1.8
Trade
Motor vehicle and trailers
Machinery and equipment
Telecommunications
Non-metalic mineral products
Other services
Rubber and plastic products
Primary
Textiles, clothing and leather
Services
Other transport equipment
Coke, petroleum products and nuclear fuel
Food, beverages and tobacco
Primary and Services sectors were least affected by the crisis. Pharmaceutical industry almost did not feel negative impact.
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 56
Transport equipment, electronics, and business services are the top job creating FDI sectors
Source: press search, A.T. Kearney analysis
50,000 150,000100,0000
Logistics
Electrical Equipment
Pharma, Medical
& Healthcare
Industrial Machinery
& Equipment
Food, Beverages
& Tobacco
ICT
Chemicals
Business Services
Electronics
Transport Equipment
Top ranking sectors by estimated jobs(2009)
There is an emergency of industry clusters (e.g. renewable energy), which span multiple traditional sectors
20092008
Comments
• 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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 57
Ireland, Hungary and Singapore topped the list of recipient countries FDI countries in terms of jobs created
0 20 40 60 80 100 120 140 160 180
Lithuania
UAE
Belgium
Nicaragua
Serbia
Bulgaria
Georgia
Malaysia
Estonia
Tunisia
Slovenia
Slovakia
Liberia
Canada
Uruguay
Czech Republic
Costa Rica
Singapore
Hungary
Ireland
Top ranking destination countries by estimated jobs – per 100,000 inhabitants (2009)
Top ranking destination countries by estimated jobs, created by FDI projects (2009)
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
80,00060,00040,00020,0000
Morocco
Australia
Vietnam
Germany
Czech Republic
Thailand
Spain
Canada
Brazil
Russia
Hungary
France
Poland
Phillippines
Malaysia
UK
Mexico
China
India
USA
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 58
With the changes in global trends, new high-impact technologies will emerge from the convergence of scientific disciplines
Source: A.T. Kearney analysis
Physics
ChemistryBiology
Robotics and Artificial
Intelligence
Biotechnology
(biochemistry, cloning,
Pharmacogenomics)
Energy Technology
Clean tech
(wind and
solar power,
biofuels, etc.)
Medical
Diagnostics
Medical
Devices
Nanotech
Stem Cell
Technologies
Smart
materials
Nutraceuticals
Nuclear Chemistry
Thermodynamics
Neurochemistry
Investors estimate biotechnology, clean-tech, nanotechnology as the ones of highest future investor interest
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 59
Some investment agencies in Europe have already started to promote these new industries
Focus of investment agencies in Europe
Belgium
• Clear focus and government
support on biopharmaceuticals
R&D and manufacturing
(1) Mechatronics – a fusion of machine construction, electronics, and information technology, deemed to be a high growth sector in AustriaSource: A.T.Kearney analysis
Czech Republic
• Focus on the high-tech
industries such as
nanotechnology, life sciences
and clean-tech
Austria
• Focus on high-tech industries
such as mechatronics, life
sciences and biotechnologies
Denmark
• Focus on technology-intensive
industries such as renewable
energy and life science
Finland
• Focus on clean-tech, ICT
and renewable energy
Ireland
• Focus on ICT, clean-
tech, life sciences
Portugal
• Focus on ICT, renewable
energy, biotechnology, cork
industry
Sweden
• Strong focus on
clean-tech
Croatia
• Focus on biotechnology
and pharmaceuticalsSlovenia
• Focus on chemicals and
pharmaceuticals
Estonia
• Since recently, clear
focus on biotechnology
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 60
ICT, Pharmaceuticals and Electronics are leading industries in focus by most European investment agencies
European agencies encourage investments in high value adding industries
3.6
1.0
1.1
1.3
2.3
2.7
2.8
3.1
3.2
3.4
3.7
3.7
3.7
4.0
Tourism&wellness
Retail&wholesale
Real estate
Logistics
Healthcare
Electronics
Chemicals
Automotive
Pharmaceuticals
ICT
Cleantech
Life sciences
Machinery&equipment
Oil&gas
(1) Distribution is calculated on the actual responses, and exclude questionnaires with no response on the particular questionSource: Questionnaire among European investment agencies, A.T. Kearney analysis
5=most importantIndustry focus of investment agencies
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 61
People skills and infrastructure are seen as equally important competitive advantages in the majority of European countries
Focus on developing people skills is key for the industries of the future
20%
5%
5%
15%
17%
18%
20%
Other
Natural endowments
Government support
Industry clusters
Education & research centers
Supporting infrastructure
People skills
(1) Distribution is calculated on the actual responses, and exclude questionnaires with no response on the particular questionSource: Questionnaire among European investment agencies, A.T. Kearney analysis
Country competitive advantages
Comments
• Current trend is to promote R&D activities in steadily established industries: automotive, electronics, medical products, renewable, High-technologies, IT technologies” (interviewee comment)
• People skills and availability of supporting infrastructure are important factors for promoting development of new and high-value adding technologies
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 62
Qualified labor and access to larger (EU) markets are the most important country promotion arguments
Access to raw materials is the least used promotion argument
3.4
1.9
3.1
3.1
3.1
3.2
3.2
3.4
3.6
3.9
3.9
Ease of doing business
Availability of land plots
Labor costs
Favorable national tax regime
Access to local market
Access to raw materials
Access to suppliers
Stable macroeconomic &political environment
Access to other markets
Labor force qualifications & skills
Reliability and quality of infrastructure & utilities
5=most importantKey country promotion arguments
(1) Distribution is calculated on the actual responses, and exclude questionnaires with no response on the particular questionSource: Questionnaire among European investment agencies, A.T. Kearney analysis
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 63
Investments in education and in infrastructure are key priorities in most European countries
Building upon people skills would be the differentiating factor for attracting investments
7%
12%
25%
28%
28%
Invest in infrastructure
Other
Improve institutionalefficiency
Invest in education
Introduce tax incentives
(1) Distribution is calculated on the actual responses, and exclude questionnaires with no response on the particular questionSource: Questionnaire among European investment agencies, A.T. Kearney analysis
Comments
• Some of the other areas for improvement identified by European agencies include:
– Innovation environment
– More flexible labor legislature
– More attractive tax regime
– High-tech strategies on governmental level
– Targeted investment and operational incentives (rather than tax incentives), etc.
Key investments priority for the agencies
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 64
Manufacturing and R&D are historically the most important types of investments in Europe
Greenfield investments in R&D and manufacturing were preferred in Europe during the last 5 years
(1) Distribution is calculated on the actual responses, and exclude questionnaires with no response on the particular questionSource: Questionnaire among European investment agencies, A.T. Kearney analysis
Preferred types of activityPreferred way of entry
11%
17%
72%
Privatization
Greenfield
M&A
2%
10%
16%
16%
17%
18%
21%
Other
Distribution / Warehousing
Call center / shared services
Sales operations
Manufacturing / Processing
R&D
Regional headquarters
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 65
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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 66
Electronics and Electrical engineering
Global trends
• 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
Endowments in Bulgaria
Potential impact
• 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.
Source: UNCTAD, “Global Location Trends”, A.T.Kearney analysis
Targets• Focus on attracting both OMS and EMS firms from major countries like
Germany, Italy, UK, China, South Korea, Japan, US, Taiwan
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 67
ICT
Global trends
• 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
Endowments in Bulgaria
Potential impact
• Strong traditions in Bulgaria – IT leader in the CEE in the 80s
• Relatively good educational resources
• Presence of major big international IT companies
• Proximity to the key markets of Western Europe
• 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
Source: UNCTAD, “Global Location Trends”, A.T.Kearney analysis
Targets
• 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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 68
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
Endowments in Bulgaria
Potential impact
• 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
• Proximity to the key markets of Western Europe
• High-speed broadband network
• 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
Source: UNCTAD, A.T.Kearney’s “Global Services Location Index”, IBM’s “Global Location Trends”, A.T.Kearney analysis
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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 69
Food & Agriculture
Global trends
• The 6th largest industry in the world in terms of FDI job creation with 42 000 new
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
Endowments in Bulgaria
Potential impact
• 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
• Relatively good educational resources
• High potential impact for productivity improvements and export.
• Possibility to provide employment for less skilled labor in regions outside of
Sofia.
• Development of the Wine cluster
Source: UNCTAD, “Global Location Trends”, A.T.Kearney analysis
Targets
• 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.
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 70
Transport Equipment and Machine building
Global trends
• 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
Endowments in Bulgaria
Potential impact
• Proximity to the key markets of Western Europe
• Proximity to the automotive clusters of CEE
• Presence of international auto-parts manufacturers
• Relatively good educational resources
• High potential impact for productivity improvements and export.
• 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)
Source: UNCTAD, “Global Location Trends”, A.T.Kearney analysis
Targets
• 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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 71
Transport & Logistics
Global trends
• The 8th largest industry in the world in terms of FDI job creation with 25 000 new
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
Endowments in Bulgaria
Potential impact
• Extremely favorable location on the cross road of Europe and Asia with 5 Pan-
European Transport corridors crossing the country
• Availability of all modes of transport
• Infrastructure development is Government priority
• Relatively good educational resources
• High potential impact for productivity improvements and export.
• 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
Source: UNCTAD, “Global Location Trends”, A.T.Kearney analysis
Targets
• 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)
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 72
Healthcare
Global trends
• The 7th largest industry in the world in terms of FDI job creation with 35 000 new
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
Endowments in Bulgaria
Potential impact
• Long traditions in wellness tourism and experienced Bulgarian staff. Traditions in Pharmaceuticals
• Excellent geographical, climate and natural conditions
• Relatively good educational resources
• 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
Source: UNCTAD, “Global Location Trends”, A.T.Kearney analysis
Targets
• 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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 73
Manufacture of Chemicals, Rubber and Plastics
Global trends
• The 4th largest industry in the world in terms of FDI job creation with 54 000 new
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
Endowments in Bulgaria
Potential impact
• Relatively good educational resources
• 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
• High potential impact for productivity improvements and export.
• 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.
Source: UNCTAD, “Global Location Trends”, A.T.Kearney analysis
Targets
• Focus on fine and consumer chemicals, bio-based materials, nanotechnologies,
cleantech
• Targeted countries: Germany, France, UK, Italy, Belgium, Netherlands, US
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 74
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
Endowments in Bulgaria
Potential impact
• 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
• High potential impact for productivity improvements and export.
• Key enabling technologies for other sectors development
• New technologies open new perspectives for applications in the pharmaceutical,
food and environmental markets.
Source: A.T.Kearney analysis
Targets
• Targeted countries:
• Cleantech: USA, Nordic Countries
• Biotech: USA, Germany, France, South Korea
• New Generation IT: Top international IT companies
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 75
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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 76
Electronics and electrical equipment snapshot
0.2
0.4
1.51.9
1.2
2.4
0.5
0.8
0.4
0.7
1.2 0.10.4
0.5
1.1
0.2
0.3
0.7
0.1
0.6
1.1
0.5
1.2
4,1
4,5
10,5
4,8
2,9
-4
0243439
93
-120
911
-2
21
58
956968
18303435
5
Q3 1009080706050403020100
FDI flows(EUR mm)
Industry size
Size % econ % manuf.
Revenues (€ „000) 1 504 749 1,9% 8,7%
Employees 44 679 1,6% 7,7%
Firms 2 249 0,6% 7,3%
Employees
• 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
Strengths
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
• Electronics & Electrical = 9 000 students
• Other relevant = 21000 students
• (Communication technology; IT;
• Manufacturing: aviation; freezing technology; machine-building;
materials; metals; transport equipment and other technical specialties)
University students
Other resources
• 22 Professional schools with specialties in E&E
• Active research institute in Bulgarian Academy of Science (BAS)
• Active industry association
• EU funding
Source: Amadeus, BNB, A.T. Kearney analysis
Industry Size and FDI Flows Strengths and Weaknesses
Educational and Other Resources Geographic Concentration
Industry overviews – Electronics & Electrical equipment
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 77
Only a few sub-segments are sizeable
Sub-segments within the industry
Sector and Sub-segments Revenues Employees Companies
Electrical equipment 991 842 29 291 1017
Other electrical equipment 125 707 8 645 343
Electric motors, generators and transformers 198 817 5 268 158
Other electronic and electric wires and cables 188 903 4 368 54
Electricity distribution and control apparatus 75 701 3 817 270
Electric domestic appliances 225 332 2 940 18
Electric lighting equipment 67 810 2 016 140
Batteries and accumulators 108 946 1 904 31
Non-electric domestic appliances 627 333 3
Computer, electronic and optical products 512 907 15 388 1232
Electronic components 280 600 5 655 151
Communication equipment 62 509 3 249 223
Irradiation, electromedical and electrotherapeutic equipment 57 943 2 931 642
Computers and peripheral equipment 71 527 2 133 168
Optical instruments and photographic equipment 13 089 700 13
Instruments and appliances for measuring, testing and navigation 11 019 583 21
Magnetic and optical media 15 050 95 2
Watches and clocks 1 169 42 12
Source: Amadeus, A.T. Kearney analysis
Certain sub-segments have very low revenues overall
Industry overviews – Electronics & Electrical equipment
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 78
Top players in the electronics industry (1/2)
The top players in the Electronics industry, according to its corresponding sub-segment
Company% of Industry
Revenues% of Industry Employees
Sub-segment % of Sub-Segment
Rev
EPIQ Electronic Assembly 22% 15% M-e of electronic components 40%
Sensor Nite Industrial 14% 0,4% M-e of electronic components 26%
Melexis Bulgaria 7% 1% M-e of electronic components 12%
DATECS 7% 2% M-e of computers and peripheral equipment 51%
Videoton Bulgarian Holdings 4% 0,1% M-e of electronic components 7%
Deltacom Electronics 3% 2% M-e of communication equipment 27%
BTL Industries 3% 0,3%M-e of irradiation, electromedical and
electrotherapeutic equipment26%
Kanon Bulgaria 2% 0,1%M-e of optical instruments and photographic
equipment 59%
Source: Amadeus, A.T. Kearney analysis
The industry and sub-segments are defined by a few successful / sizeable, foreign and domestic companies
Industry overviews – Electronics & Electrical equipment
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 79
Top players in the electrical engineering industry (2/2)
The top players in the electrical engineering industry, according to its corresponding sub-segment
Company% of Industry
Revenues% of Industry Employees
Sub-segment % of Sub-Segment
Rev
Liebherr Hausgerate Marica 16% 6% M-e of electric domestic appliances 72%
Yazaki Bulgaria7%
13% M-e of other electrical equipment 52%
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
transformers26%
Schneider Electric Bulgaria 5% 2%M-e of electric motors, generators and
transformers24%
AMK Motor Reduktori 4% 0,01%M-e of electric motors, generators and
transformers18%
Enersys 3% 2% M-e of batteries and accumulators 27%
Source: Amadeus, A.T. Kearney analysis
The industry and sub-segments are defined by a few successful / sizeable, foreign and domestic companies
Industry overviews – Electronics & Electrical equipment
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 80
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
Source: A.T. Kearney analysis
Industry overviews – Electronics & Electrical equipment
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 81
Electronics and electrical equipment industry: EU snapshot
Source: Commission of the European Communities – “European industry in a changing world 2009”
Industry overviews – Electronics & Electrical equipment
Facts & Figures
• 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
Competitiveness Assessment
• 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
R&D and Innovation
• 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
Areas of Growth• 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
Structure of Sector
• 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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 82
Opportunistic trends for Bulgaria in the E&E industry
Medical
Energy
Industrial
• 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
• 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
• Smaller international companies, mainly in Europe
• Countries: Germany, Italy, UK, US, China, Spain, Denmark
• 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
• Smaller international companies, mainly in Europe
• Countries: Germany, Italy, UK, US, Japan, South Korea
Who to target for FDI?Opportunities for/in Bulgaria
Automotive
• 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
• Smaller international companies, mainly in Europe
• Countries: Germany, Italy, UK, US, Japan
Source: A.T. Kearney analysis
Industry overviews – Electronics & Electrical equipment
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 83
Opportunistic trends for Bulgaria in the E&E industry
OEMs
EMS
• 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
• 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, Taiwan
Who to target for FDI?Opportunities for/in Bulgaria
Source: A.T. Kearney analysis
Industry overviews – Electronics & Electrical equipment
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 84
Chemicals, rubber and plastics industry snapshot
4,1
4,5
10,5
4,8
2,9
Q3 1009080706050403020100
FDI flows
(EUR mm)
Industry size
Size % econ % manuf.
Revenues (€ „000) 1 669 603 2,1% 9,6%
Employees 47 687 1,7% 8,2%
Firms 2 720 0,7% 8,8%
Employees
• 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
Strengths
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
• Chemistry and chemical manufacturing = 6,245 students
• Other relevant = 2,622 students
• (Biotechnology, cosmetics and manufacturing of materials)
University students
91
7
-9
36
-44
1
97
-9
62 33
-1
27256818
114
170
0.5
0.3
0.9
0.3
1.2
0.7
0.3
0.3
1.5
0.20.6
0.4
0.8
0.2
0.5
0.4
0.3
1.6
1.1
1.8
3,6
2,77,7
3,0
8,8
2,6
2,1
3,5
Source: Amadeus, BNB, A.T. Kearney analysis
Electronics Industry Size and FDI Flows Strengths and Weaknesses
Educational and Other Resources Geographic Concentration
Industry overviews – Chemicals, Rubber and Plastics
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 85
There is a diversified chemicals and plastics supplier base
Sub-segments within the industry
Source: Amadeus, A.T. Kearney analysis
The leading position of certain sub-segments is a result of the presence of large international companies
Sector and Sub-segments Revenues Employees Companies
Chemicals 916 274 17 919 756
Other chemical products n.e.c. 356 623 4 363 180
Soap and detergents, cleaning and polishing preparations 104 579 3 533 214
Perfumes and toilet preparations 193 400 1 714 99
Man-made fibres 14 920 1 685 7
Fertilisers and nitrogen compounds 52 865 1 527 7
Paints, varnishes, printing ink and mastics 47 889 1 084 86
Explosives 23 399 773 5
Essential oils 11 462 554 36
Synthetic rubber in primary forms 11 604 538 17
Dyes and pigments 15 907 525 21
Plastics in primary forms 25 787 449 30
Pesticides and other agrochemical products 22 998 444 18
Industrial gases 24 554 387 9
Glues 10 285 343 27
Rubber and plastics 753 328 29 768 1 964
Other plastic products 169 761 9 002 617
Rubber tyres and tubes 169 800 8 830 1 045
Plastic packing goods 199 169 6 107 130
Plastic plates, sheets, tubes and profiles 118 466 3 207 118
Builders' ware of plastic 96 133 2 622 54
Industry overviews – Chemicals, Rubber and Plastics
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 86
Top players in the chemicals industry (1/2)
The top players in the chemicals industry, according to its corresponding sub-segment
Company% of Industry
Revenues% of Industry Employees
Sub-segment % of Sub-Segment
Rev
Solvay Sodi 7% 1,2% M-e of other inorganic basic chemicals 36%
Agropolychim 7% 1,5% M-e of other inorganic basic chemicals 35%
Orgachim 3% 1,4% M-e of other inorganic basic chemicals 17%
Neochim 3% 3% M-e of fertilizers and nitrogen 95%
Ficosota Syntez 2,6% 1%M-e of soaps, detergents and cleaning
products41%
Panchim 0,8% 0,2% M-e of other inorganic basic chemicals 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%
Source: Amadeus, A.T. Kearney analysis
The industry and sub-segments are defined by a few successful / sizeable, foreign and domestic companies
Industry overviews – Chemicals, Rubber and Plastics
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 87
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
Company% of Industry
Revenues% of Industry Employees
Sub-segment % of Sub-Segment
Rev
Gotmar 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% M-e of plastic packing goods 12%
Vidahim 2% 1,3% M-e of rubber tires and tubes 7%
Assenova Krepost 1% 1,3% M-e of plastic packing goods 10%
Extrapack 1% 1% M-e of plastic packing goods 8%
Megaport 1% 0,9% M-e of plastic packing goods 7%
Danik n/a 0,8% M-e of other plastic products 4,6%
Source: Amadeus, A.T. Kearney analysis
The rubber and plastics industry is dominated by small and medium firms
Industry overviews – Chemicals, Rubber and Plastics
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 88
Summary of global trends in the chemical industry
Source: Mergent, Commission of the European Communities , Staff working paper, European industry in a changing world, 2009, A.T. Kearney analysis
Globalization / Structural changes
Cost Reduction
Product portfolios
• 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
• 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
R&D and innovation
• 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
Talent management
Environmental sustainability
• 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
Industry overviews – Chemicals, Rubber and Plastics
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 89
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
Source: Commission of the European Communities – “European industry in a changing world 2009”
Industry overviews – Chemicals, Rubber and Plastics
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 90
Opportunistic trends for Bulgaria in the chemical industry
Source: AT Kearney Analysis
Production
outsourcing
Fine and
consumer
chemicals
Bio-based
materials
Nanotechnologie
s
Clean
technology
• 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
• 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
• 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
Who to target for FDI?Opportunities for/in Bulgaria
Industry overviews – Chemicals, Rubber and Plastics
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 91
Food products and agriculture industry snapshot
FDI flows(EUR mm)
Industry size
Size % econ % manuf.
Revenues (€ „000) 4 058 942 5,1% 23,4%
Employees 114 222 4,1% 19,6%
Firms 7 170 1,9% 23,3%
Employees
• 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• Member of EU – access to the community market• Strong traditions in the industry
Strengths
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
• Agriculture = 9 908• Manufacturing: biotechnology = 969• Manufacturing: food = 2 143
University students
Other resources
• 157 251 students in professional schools• Industry associations• EU funding
13
69
-3
50
-11
203649
112923 22
50354561
3535122020
-36
1525
0
174
-1
10
00
03020100 Q3 1009
27
0807060504
2.00
2.00
1.00
7.005.00
2.00
6.00
3.00
1.00
3.00
1.00
3.00
3.00 2.004.00
2.00
4.00
2.00
2.00
1.00
1.00
4.00
2.00
3.00
5.00
4.00
24,00
16,00
Source: Amadeus, BNB, A.T. Kearney analysis
Industry Size and FDI Flows Strengths and Weaknesses
Educational and Other Resources Geographic Concentration
Industry overviews – Food & Agriculture
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 92
The food industry is one of the main manufacturing sectors
Sub-segments within the industry
Source: Amadeus, A.T. Kearney analysis
The leading position of certain sub-segments is a result of the presence of large international companies
Sector and sub-segments Revenue Employees Companies
Manufacture of food products 2 948 029 84 343 5 456
Processing and preserving 558 006 16 229 528
Cocoa, chocolate and sugar confectionery 343 223 7 690 116
Oils and fats 317 992 3 346 134
Operation of dairies and cheese making 312 748 7 951 383
Bread, fresh pastry goods and cakes 299 334 28 434 3 307
Other food products n.e.c. 198 559 4 277 215
Grain mill products 197 303 3 602 251
Sugar 189 688 1 671 13
Production of meat and poultry meat products 169 897 3 795 36
Condiments and seasonings 114 768 599 31
Prepared feeds for farm animals 101 992 1 753 113
Ice cream 50 436 1 276 91
Fruit and vegetable juice 44 912 916 42
Homogenised food preparations and dietetic food 20 663 572 21
Rusks and biscuits; preserved pastry goods and cakes 12 184 952 99
Macaroni, noodles, couscous and similar farinaceous products 7 822 585 61
Starches and starch products 4 140 49 3
Margarine and similar edible fats 3 586 99 6
Prepared pet foods 776 6 4
Prepared meals and dishes 541 2
Manufacture of beverages 852 002 24 677 1 688
Distilling, rectifying and blending of spirits 291 587 7 975 726
Beer 202 550 7 529 474
Cider and other fruit wines 196 133 2 453 20
Malt 154 927 6 494 450
Other non-distilled fermented beverages 4 417 122 4
Soft drinks; mineral waters and other bottled waters 1 209 35 7
Wine from grape 1 179 69 7
Industry overviews – Food & Agriculture
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 93
Top players in the food industry (1/3)
The top players in the food industry, according to its corresponding sub-segment
Company% of Industry
Revenues% of Industry Employees
Sub-segment % of Sub-Segment
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%
Source: Amadeus, A.T. Kearney analysis
The industry and sub-segments are defined by a few successful / sizeable, foreign and domestic companies
Industry overviews – Food & Agriculture
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 94
Top players in the beverage industry (2/3)
The top players in the beverage industry, according to its corresponding sub-segment
Company% of Industry
Revenues% of Industry Employees
Sub-segment % of Sub-Segment
Rev
Coca Cola Hellenic Bottling Company Bulgaria
4,1% 1,1%M-e of soft drinks, mineral water and
other bottled waters57%
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%M-e of soft drinks, mineral water and
other bottled waters11%
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%M-e of soft drinks, mineral water and
other bottled waters6%
Source: Amadeus, A.T. Kearney analysis
The beer sub-sector is dominated by three companies
Industry overviews – Food & Agriculture
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 95
Top players in the tobacco industry (3/3)
The top players in the tobacco industry, according to its corresponding sub-segment
Company% of Industry
Revenues% of Industry Employees
Sub-segment % of Sub-Segment
Rev
Blagoevgrad BT 2% 0,9% M-e of tobacco products 31%
Sofia Bulgartabac 1,3% 0,4% M-e of tobacco products 20%
Alliance One Tobacco 1,2% 0,5% M-e of tobacco products 18%
Bulgartabac Holding 0,6% 0,2% M-e of tobacco products 9%
Cigarette Factory Plovdiv 0,3% 0,4% M-e of tobacco products 5%
Leaf Tobacco a Michailides 0,3% 0,2% M-e of tobacco products 4%
Missirian Bulgaria 0,2% 0,1% M-e of tobacco products 3%
Isperih BT 0,1% 0,1% M-e of tobacco products 2%
Source: Amadeus, A.T. Kearney analysis
The tobacco sub-sector is still mainly state-owned
Industry overviews – Food & Agriculture
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 96
Summary of global trends in the F&B industry
Source: Mergent, Commission of the European Communities , Staff working paper, European industry in a changing world, 2009
Productivity
R&D / Innovation
Legislation
Consumers purchasing power
Health and wellness trends
• 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
• 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
Convenience products
• 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-to-drink beverages market in Europe
Industry overviews – Food & Agriculture
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 97
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)
Source: Commission of the European Communities – “European industry in a changing world 2009”
Industry overviews – Food & Agriculture
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 98
Opportunistic trends for Bulgaria in the F&B industry
Organic finished
goods
Organic farming
Production
outsourcing /
Logistics center
• 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
• The Bulgarian GMO law remains restrictive
• Low production costs
• Existence of resources and traditions in the sector
• Access to EU funds
• Private fund investors and/or organic farmers
• Countries: US, Italy, Spain, Germany
• Wellness goes mainstream; prevention culture increases
• Excellent geographical, climate and natural conditions
• 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
Who to target for FDI?Opportunities for/in Bulgaria
Source: A.T. Kearney analysis
Industry overviews – Food & Agriculture
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 99
Transport and logistics industry snapshotIndustry Size and FDI Flows Strengths and Weaknesses
Educational and Other Resources Geographic Concentration
FDI flows(EUR mm)
Industry size
Size % econ % manuf.
Revenues (€ „000) 3 735 810 4,7% n/a
Employees 143 336 5,2% n/a
Firms 18 385 4,9% n/a
Employees
• 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.
Strengths
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
• Transportation = 2603 students
University students
Other resources
• 157 251 students in professional schools• EU funding (OP Transport)• Developed Construction cluster• Presence of big international T&L companies• Industry associations
18,6
02
8,9
01
-15,6
00
14,1
Q3 10
3,8
09
5,2
08
84,0
07
47,7
06
54,8
05
-29,1
04
0,0
03
1,3
1,9
1,2
2,415,91,1
3,4
3,0
48,6
2,3
2,7
1,2
2,0
5,5 1,3
11,3
4,1
1,5
2,8
1,9
1,8
1,8
1,3
3,8
1,8
1,8
11,3
4,5
Source: Amadeus, BNB, A.T. Kearney analysis
Industry overviews – Transport & Logistics
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 100
The industry employs a sizeable portion of the labor force
Sub-segments within the industry
Source: Amadeus, A.T. Kearney analysis
Land transport contributes for more than half of the revenues in the industry
Sector and Sub-segments Employees Revenues Companies
Land transport and transport via pipelines 90 172 2 072 137 14 331• Freight transport by road 45 032 1 153 993 7 501• Passenger rail transport, interurban transport 12 136 579 778 26• Other passenger land transport n.e.c. 22 010 297 562 1 994• Taxi operation 10 886 38 803 4 797• Freight rail transport 14 2 000 4• Other 94 n/a 9Warehousing and support activities for transportation 23 936 1 026 380 3 261• Other transportation support activities 5 108 411 210 613• Service activities incidental to air transportation 4 120 179 293 42• Service activities incidental to land transportation 2 057 178 341 201• Service activities incidental to water transportation 3 626 143 590 219• Warehousing and storage 2 812 59 539 85• Cargo handling 6 213 54 407 2 101Air transport 13 527 244 447 588• Passenger air transport 13 350 244 447 586• Freight air transport 177 n/a 2Postal and courier activities 11 230 187 646 108• Postal activities under universal service obligation 6 946 93 879 24• Other postal and courier activities 4 284 93 767 84Water transport 4 471 205 200 97• Sea and coastal passenger water transport 2 737 130 234 69• Inland freight water transport 1 734 74 966 28
Industry overviews – Transport & Logistics
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 101
Top players in the transport & logistics (1/2)
The top players in the Transport & Logistics, according to its corresponding sub-segment
Source: Amadeus, A.T. Kearney analysis
The land transport is fragmented but has one strong player – the national railway company
Company % of Industry
Revenues % of Industry Employees
Sub-segment % of Sub-Segment
Rev
Bulgarian Railways 14,0% 8,2%Land transport and
transport via pipelines26,5%
Somat AD 1,5% 0,4%Land transport and
transport via pipelines3,0%
Stolichen Elektrotransport EAD 1,0% 1,2%Land transport and
transport via pipelines2,0%
Pimk OOD 0,7% 0,4%Land transport and
transport via pipelines1,3%
Union Ivkoni OOD 0,5% 0,4%Land transport and
transport via pipelines0,9%
NK Zhelezopatna Infrastruktura DF 3,8% 0,4%Warehousing and support activities for transportation
14,0%
DPRVD DF 2,1% 0,8%Warehousing and support activities for transportation
8,0%
Sofia Airport EAD 1,3% 1,3%Warehousing and support activities for transportation
5,0%
Gopet Trans EOOD 1,2% 0,1%Warehousing and support activities for transportation
5,0%
Industry overviews – Transport & Logistics
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 102Source: Amadeus, A.T. Kearney analysis
The Air and Water transport as well as the Postal services are dominated by a single player with the rest distributed among many companies.
The top players in the Transport & Logistics, according to its corresponding sub-segment
Top players in the transport & logistics (2/2)
Company % 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%Postal and courier
activities44,0%
Spidi AD 0,7% 0,8%Postal and courier
activities13,9%
DHL Express Bulgaria EOOD 0,6% 0,2%Postal and courier
activities13,0%
Econt Express OOD 0,4% 0,6%Postal and courier
activities8,3%
Navigation Maritime Bulgaria AD 1,9% 1,5% Water transport 54,0%
Bulgarian River Shipping AD 70,0% 40,0% Water transport 13,0%
Industry overviews – Transport & Logistics
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 103
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
Source: A.T. Kearney analysis
Industry overviews – Transport & Logistics
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 104
ICT industry snapshotIndustry Size and FDI Flows Strengths and Weaknesses
Educational and Other Resources Geographic Concentration
FDI flows(EUR mm)
Industry size
Size % econ % manuf.
Revenues (€ „000) 2 139 063 2,7% n/a
Employees 35 068 1,3% n/a
Firms 2 855 0,8% n/a
Employees
• 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
Strengths
Weaknesses
• 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
• IT & Telecommunications = 9600 students• Related specialties = 93 600 students
(Business and Finance, Mathematics, Philology and History, Physics )
University students
Other resources
• Several industry associations (including IT cluster)• 4 VC funds concentrated in ICT• Developing electronics industry• High speed internet connection with growing penetration
Q3 10
-97,7
09
127,9
08
-377,2
07
67,4
06
178,3
05
-129,2
04
343,2
03
-15,7
02
12,6
01
12,3
00
9,0
0,3
0,2
0,1
1,0
0,1
0,1
0,1
0,1
0,1
0,1
0,0
0,3
0,4
0,1
0,1
0,1
0,40,90,1
0,3
0,1
24,4
0,1
0,1
0,1
0,1
0,5 0,1
Source: Amadeus, BNB, A.T. Kearney analysis
Industry overviews - ICT
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 105
Telecommunications have the largest share in the industry revenues
Sub-segments within the industry
Source: Amadeus, A.T. Kearney analysis
The industry is equally separated between the three segments in terms of employment, but Telecommunications contribute for 73% of the revenues.
Sector and Sub-segments Revenues Employees Companies
Telecommunications 1 446 569 11 662 104
Other telecommunications activities 245 940 4 600 98
Wired telecommunications activities 135 023 2 815 3
Wireless telecommunications activities 1 065 606 4 247 3
Computer programming, consultancy and related activities 316 087 10 186 1 286
Computer consultancy activities 93 316 4 378 502
Computer facilities management activities 1 368 44 2
Computer programming activities 127 13 2
Other information technology and computer service activities 221 277 5 751 780
Information service activities 124 817 8 460 1 299
Data processing, hosting and related activities 45 570 2 379 225
News agency activities 5 244 379 53
Other information service activities n.e.c. 74 003 5 702 1 021
Other software publishing 101 179 3 114 160
Publishing of computer games 2 847 297 4
Industry overviews - ICT
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 106
Top players in ICT (1/2)
The top players in the ICT, according to its corresponding sub-segment
The Telecommunications companies are dominating the industry in terms of revenues
Source: Amadeus, A.T. Kearney analysis
Company % of Industry
Revenues % of Industry Employees
Sub-segment % of Sub-Segment Rev
Nef Telecom Bulgaria 2,77% 0,01% Other telecommunications activities 4,1%
Eurocom Cable Management 1,35% 2,23% Other telecommunications activities 2,0%
Ericsson Telecommunications 1,23% 0,20% Other telecommunications activities 1,8%
Nokia-Siemens Networks 0,93% 0,35% Other telecommunications activities 1,4%
Alcatel-Lucent 0,54% 0,00% Other telecommunications activities 0,8%
BTC 6,31% 8,05% Wired telecommunications activities 9,3%
Mobiltel 28,99% 8,03%Wireless telecommunications
activities 42,8%
Cosmo Bulgaria Mobile 20,88% 3,93%Wireless telecommunications
activities 30,8%
HP GDBC 2,14% 3,49% Information service activities 36,6%
Sofika 0,12% 0,39% Information service activities 2,1%
Fadata 0,46% 0,47% Computer consultancy activities 2,1%
Telerik 0,42% 0,49% Computer consultancy activities 1,9%
CSC Bulgaria 0,92% 1,30% Computer consultancy activities 4,21%
SAP Labs 0,89% 1,50% Computer consultancy activities 4,05%
Oracle 0,55% 0,08% Computer consultancy activities 2,52%
Industry overviews - ICT
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 107Source: Amadeus, A.T. Kearney analysis
Most of the international software companies are present in Bulgaria
The top players in the ICT, according to its corresponding sub-segment
Top players in ICT (2/2)
Company % of Industry
Revenues % of Industry Employees
Sub-segment % of Sub-Segment Rev
GB Services 0,40% 0,89% Computer consultancy activities 1,8%
SAP Bulgaria 0,26% 0,04% Computer consultancy activities 1,2%
Dir.bg 0,06% 0,10%Computer facilities management
activitiesn/a
CNSYS 1,22% 0,49%Other information technology and
computer service activities 5,5%
IBM Bulgaria 0,87% 0,63%Other information technology and
computer service activities 3,9%
AKT Soft 0,44% 0,03%Data processing, hosting and
related activities 7,5%
Megalan Networks 0,40% 1,18%Data processing, hosting and
related activities 6,9%
Software AG 0,10% 0,16%Data processing, hosting and
related activities 1,6%
Avto Engineering Holding 0,41% 0,03%Other information service
activities n.e.c. 7,1%
Markus Engineering 0,21% 0,00%Other information service
activities n.e.c. 3,5%
Axway Bulgaria 0,20% 0,43%Other information service
activities n.e.c. 3,4%
Industry overviews - ICT
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 108
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)
Source: A.T. Kearney analysis
Industry overviews - ICT
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 109
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 thmost 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
Source: Commission of the European Communities – “European industry in a changing world 2009”
Industry overviews - ICT
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 110
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
BIA should have a segmented approach given the structure of the sector – direct contact at BIA/governmental level with the 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
Source: A.T. Kearney analysis
Industry overviews - ICT
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 111
Pharmaceuticals industry snapshot
Educational and Other Resources Geographic Concentration
FDI flows(EUR mm)
Industry size
Size % econ % manuf.
Revenues (€ „000) 275 408 0,3% 1,6%
Employees 7 111 0,3% 1,2%
Firms 112 0,0% 0,4%
Employees
• 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• Low production costs• Presence of some of the biggest international companies, though
solely on the distributor’s market • Member of EU – access to the community market
Strengths
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
• Biology = 1 268• Chemistry =14 07• Manufacturing: biotechnology = 969• Manufacturing: cosmetics = 9• Medicine = 14 639
University students
Other resources
• Industry associations• EU funding• Experienced workforce abroad
Q3 10
-1,5
09
-5,1
08
5,3
07
5,8
06
41,6
05
-0,6
04
0,2
03
0,1
02
0,1
01
0,0
00
0,5
0,01
0,19
0,030,23
0,02
0,00
2,87
0,00
0,01
0,02 0,35
0,09
0,01
0,19
1,71
0,38
0,81
0,00
0,01
0,18
Source: Amadeus, BNB, A.T. Kearney analysis
Industry Size and FDI Flows Strengths and Weaknesses
Industry overviews – Healthcare and pharmaceuticals
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 112
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
EmployeesSub-segment
% of Sub-
Segment
Rev
Sopharma 37,8% 26,0% M-e of pharmaceutical preparations 39%
Biovet 21,6% 22,9% M-e of pharmaceutical preparations 23%
Balkanpharma na 9,8% M-e of pharmaceutical preparations na
Actavis na 5,3% M-e of pharmaceutical preparations na
Unifarm na 4,5% M-e of basic pharmaceutical products na
Farmatsevtichni zavodi 19,5% 4,4% M-e of pharmaceutical preparations 20%
Vetprom 3,5% 4,0% M-e of pharmaceutical preparations 84%
Salvamed 1,5% 2,7% M-e of pharmaceutical preparations 2%
Chaykafarma 1,4% 2,6% M-e of pharmaceutical preparations 1%
Source: Amadeus, A.T. Kearney analysis
The companies with biggest presence in the industry are from the pharmaceutical preparations sub-sector
Industry overviews – Healthcare and pharmaceuticals
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 113
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
BIA should have a segmented approach given the structure of the sector – direct contact at BIA/governmental level with the industry giants in EU and USA and direct mailing to smaller EU players
Source: A.T. Kearney analysis
Industry overviews – Healthcare and pharmaceuticals
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 114
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 tailor-made 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
Source: Commission of the European Communities – “European industry in a changing world 2009”
Industry overviews – Healthcare and pharmaceuticals
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 115
Opportunistic trends for Bulgaria in the pharmaceutical industry
Generics
Production
outsourcing
Early R&D
• 80% of Bulgarian pharma production is in the sphere of generics
• Strong local companies and foreign investments, presence of most international companies
• Low labor and production costs
• 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
• Low production costs
• Existing legal framework for health products licensing
• International pharmaceutical companies with outsourcing strategies
• Countries: Germany, France, Italy, Spain, UK, US
• 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
Who to target for FDI?Opportunities for/in Bulgaria
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,
Source: A.T. Kearney analysis
Industry overviews – Healthcare and pharmaceuticals
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 116
Healthcare industry snapshot
Educational and Other Resources Geographic Concentration
FDI flows(EUR mm)
Industry size
Size % econ % manuf.
Revenues (€ „000) 816 097 1,0% n/a
Employees 116 785 4,2% n/a
Firms 10 868 2,9% n/a
Employees
• Long traditions in the healthcare sector in Bulgaria• Experienced physicians and scientists• Most of the medical personnel, given parallel private practice, have up-
to-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.
Strengths
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
• Medicine students = 14,639 students• Social services = 4,915 students
University students
Other resources
• Availability of private health insurance funds• Mineral water springs in different cities• Health centers on the seaside and in the mountain
Q3 10
0,3
09
1,5
08
0,0
1,7
07
0,0
4,6
06
0,00,8
05
1,2
04
0,0
03
-0,1
02
0,2
01
-0,1
00
0,1
1,6
3,0
1,5
3,77,8
1,9
5,4
2,5
28,9
1,8
2,8
1,6
2,83,1
1,7
11,6
5,0
1,8
3,5
2,0
2,3
2,2
2,1
2,9
2,5
2,4
4,6
3,5
Source: Amadeus, BNB, A.T. Kearney analysis
Industry Size and FDI Flows Strengths and Weaknesses
Industry overviews – Healthcare and pharmaceuticals
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 117
Future global trends for the industry
Health as an Entertainment Brand
Global Medical Tourism
Health Provider Migration
Demand for Quality
Personalized Assessments
Office health care
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
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
Source: A.T. Kearney analysis
Industry overviews – Healthcare and pharmaceuticals
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 118
Summary of global trends in the healthcare industry
Aging and wealthy population
Tight hospital labor markets
New technologies
Healthcare reforms
Hospital consolidation
Treatment of patients
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
Hospital labor costs are and management is always looking for technologies and procedures that can reduce total expenses
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
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
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
Source: A.T. Kearney analysis
Industry overviews – Healthcare and pharmaceuticals
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 119
Opportunistic trends for Bulgaria in the healthcare industry
Medical Tourism
Spa and wellness
End-of-life care
R&D
Attracting
medical suppliers
• 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
• Wellness goes mainstream; prevention culture increases
• Excellent geographical, climate and natural conditions
• Long traditions and experienced Bulgarian staff
• Existing modern infrastructure in certain locations
• Investors for the construction and infrastructure management
• Countries: Germany, Italy, Greece, Portugal, UK, Hungary, Poland, Nordic countries
• Wellness goes mainstream; prevention culture increases
• Excellent geographical, climate and natural conditions
• Long traditions and experienced Bulgarian staff
• Existing modern infrastructure in certain locations
• Investors for the construction and infrastructure management
• Countries: Germany, Italy, Greece, Portugal, UK, Hungary, Poland, Nordic countries
• 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
• 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
Who to target for FDI?Opportunities for/in Bulgaria
Source: A.T. Kearney analysis
Industry overviews – Healthcare and pharmaceuticals
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 120
157 251 students in professional schools Industry associations
Industry overviews – Transport equipment and Machine building
Transport equipment and machine build. industry snapshot
FDI flows(EUR mm)
Industry size
Size % econ % manuf.
Revenues (€ „000) 354 448 0,4% 2,0%
Employees 15 796 0,6% 2,7%
Firms 657 0,2% 2,1%
Employees
• 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
Strengths
Weaknesses
• 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 value-
added repair works
• R&D infrastructure lags from the modern standards
• Manufacturing specialties = 20 060 students• 5 Technical universities
University students
Other resources
01
1,7
00
-0,1
Q3 10
5,0
09
0,6
08
-0,3
07
0,8
06
8,2
05
-1,4
04
-1,0
03
2,4
02
3,0
0.0
0.1
0.5
0.2
0.2
0.6
0.1
0.1
0.0
0.3
0.70.3
0.0
0.9
0.3
0.1
0.0
0.1
0.2
0.1
0.1
0,0
4,7
1,3
1,6
1,7
1,6
Source: Amadeus, BNB, A.T. Kearney analysis
Educational and Other Resources Geographic Concentration
Industry Size and FDI Flows Strengths and Weaknesses
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 121
Building of ships and floating structures is the biggest segment in terms of revenues
Sub-segments within the industry
Source: Amadeus, A.T. Kearney analysis
Many of the companies from the electronics and electrical engineering can also be placed in this sector
Sector and Sub-segments 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
Manufacture of other transport equipment n.e.c. 853 151 16
Manufacture of motor vehicles, trailers and semi-
trailers66 975 3 955 141
Manufacture of motor vehicles 26 176 335 18
Manufacture of other parts and accessories for motor
vehicles23 801 2 892 108
Manufacture of electrical and electronic equipment for
motor vehicles12 648 494 1
Manufacture of bodies (coachwork) for motor vehicles;
manufacture of trailers and semi-trailers4 351 234 14
Industry overviews – Transport equipment and Machine building
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 122
Top players in the transport equipment (1/2)
The top players in the Transport equipment, according to its corresponding sub-segment
The biggest companies are in ship-building and railway equipment
Source: Amadeus, A.T. Kearney analysis
Company % of Industry
Revenues
% of Industry
Employees Sub-segment
% of Sub-
Segment Rev
ENERGIYNA FINANSOVA GRUPA AD 12,4% 0,04% Building of ships and floating structures 26%
BULYARD SHIPBUILDING INDUSTRY EAD 11,1% 5,7% Building of ships and floating structures 23%
ODESSOS SHIPREPAIR YARD AD 4,2% 5,1% Building of ships and floating structures 9%
TEREM KRZ FLOTSKI ARSENAL VARNA EOOD 4,2% 4,0% Building of ships and floating structures 9%
MAXCOM EOOD 4,8% 2,8% Manufacture of bicycles and invalid carriages 40%
CROSS OOD 4,2% 1,3% Manufacture of bicycles and invalid carriages 35%
LIDER 96 OOD 1,6% 0,7% Manufacture of bicycles and invalid carriages 13%
RAILWAY CARRIAGE REPAIR WORKS 99 AD 4,6% 5,0% Manufacture of railway locomotives and rolling stock 43%
TRAKTSIA AD 2,3% 2,4% Manufacture of railway locomotives and rolling stock 21%
VAGONO REMONTEN ZAVOD KARLOVO AD 1,6% 1,6% Manufacture of railway locomotives and rolling stock 15%
VAGONO REMONTEN ZAVOD LEVSKI AD 0,9% 1,1% Manufacture of railway locomotives and rolling stock 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% Manufacture of air and spacecraft and related machinery 8%
MIKROENERGIA OOD 0,5% 0,2% Manufacture of air and spacecraft and related machinery 5%
AVIO DELTA OOD 0,4% 0,1% Manufacture of air and spacecraft and related machinery 4%
Industry overviews – Transport equipment and Machine building
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 123Source: Amadeus, A.T. Kearney analysis
The auto parts manufacturers are smaller in size and larger in number
The top players in the Transport equipment, according to its corresponding sub-segment
Top players in the transport equipment (2/2)
Company % of Industry
Revenues
% of Industry
Employees Sub-segment
% of Sub-
Segment Rev
AREVA TID 0,5% 0,1% Building of pleasure and sporting boats 67,6%
VRANGOVI 2 OOD 0,1% 0,1% Building of pleasure and sporting boats 15,9%
LODKOSTROITEL K OOD 0,1% 0,1% Building of pleasure and sporting boats 8,7%
BALKANCAR PLEVEN AD 0,1% 0,2% Manufacture of other transport equipment n.e.c. 59,7%
KROS VIDIN OOD 0,1% 0,4% Manufacture of other transport equipment n.e.c. 38,1%
MADARA AD 6,9% 0,9% Manufacture of motor vehicles 93,0%
KENTA AD 0,3% 0,6% Manufacture of motor vehicles 3,9%
TIAT AD 0,1% 0,1% Manufacture of motor vehicles 1,0%
A L FILTER OOD 2,7% 2,2%Manufacture of other parts and accessories for motor
vehicles *39,5%
MTM OOD 0,7% 0,4%Manufacture of other parts and accessories for motor
vehicles *9,8%
DROUZHBA AD 0,6% 1,7%Manufacture of other parts and accessories for motor
vehicles *8,7%
JOHNSON CONTROLS ELECTRONICS 3,6% 3,1%Manufacture of electrical and electronic equipment for motor
vehicles *100,0%
PRK 2002 EOOD 0,6% 0,3%Manufacture of bodies (coachwork) for motor vehicles;
manufacture of trailers and semi-trailers45,3%
L M D OOD 0,4% 0,2%Manufacture of bodies (coachwork) for motor vehicles;
manufacture of trailers and semi-trailers30,8%
Industry overviews – Transport equipment and Machine building
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 124
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
Source: A.T. Kearney analysis
Industry overviews – Transport equipment and Machine building
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 125
Automotive industry: EU snapshot
Facts & Figures
Competitiveness Assessment
R&D and Innovation
Areas of Growth
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
• 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
• 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
Source: Commission of the European Communities – “European industry in a changing world 2009”
Industry overviews – Transport equipment and Machine building
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 126
Opportunistic trends for Bulgaria in the transport equipment industry
Chinese light
automobiles
Other transport
equipment
Electric car
components
Ship building
• 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 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
Who to target for FDI?Opportunities for/in Bulgaria
• 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
Source: A.T. Kearney analysis
Industry overviews – Transport equipment and Machine building
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 127
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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 128
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
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 129
Manufacture collapsed with little signs for recovery in the end of 2010
Crisis affected Manufacture production and FDI much more than mining; FDI in mining decreased as well but starting from a much lower base
0
10
20
30
40
50
60
70
80
90
100
110
120
130
20102009200820072006200520042003200220012000
Manufacture
Mining
Index of turnover in industry(2005 = 100)
Notes: The production index measures changes in the produced goods
The turnover index measures changes in value of sales and pricesSource: NSI, A.T.Kearney
FDI inflows(EUR mm)
555
289
95
532433
613 591
296
1.100
2008
1.073
2005
46
937
2007
892
1.140
45
1.049
2004
11
2001
2955
2000
5616
294
-2
2009 20102002
106
659608
2003
45118
26
18
91
2006
17550
ManufactureMining
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 130
The Electronics production was not affected heavily by the crisis
Index of production in industry(2005 = 100)
Electronics production was least affected by the crisis, although FDI in this sector collapsed
Notes: The production index measures changes in the produced goods
Source: NSI, A.T.Kearney
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
160
170
20102009200820072006200520042003200220012000
Machinery
(production)
Electrical equip.
(production)
Electronics
(production)
FDI inflows(EUR mm)
35
34
30
18
68
6958
21
-3
543
3628
-1
11
2001
53
109
2008
95
34
83
213
2007
0
123
2006
24
41
64
138
43
2009
-4
12
6
2010
30
39
2005
98
69
9
2004
23
2 321
33
15
-12
20022000 2003
M-e of computer, electronic and optical products
M-e of machinery and equipment n.e.c.
M-e of electrical equipment
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 131
The production of non-light vehicles collapsed with 49%
Index of production in industry(2005 = 100)
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.
Notes: The production index measures changes in the produced goods
Source: NSI, A.T.Kearney
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
160
170
20102009200820072006200520042003200220012000
Vehicles exc.
light vehicles
Automobiles &
trailers
FDI inflows(EUR mm)
-10
22
1
2007
1
2010
5
6
2009
1
00
2008
0
-3
-1
2006
8
8
0
2005
-1
-2
0
2004
-1
-10
2003
2
1
2002
3
3
0
2001
2
2
0
2000
M-e of motor vehicles, trailers and semi-trailers
M-e of other transport equipment
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 132
The Food production was the overall least affected industry in the country
Index of production in industry(2005 = 100)
The Food production was the least affected industry in the country
Notes: The production index measures changes in the produced goods
Source: NSI, A.T.Kearney
0
10
20
30
40
50
60
70
80
90
100
110
120
130
200220012000
Tobacco
Beverages
Food
20042003 201020092008200720062005
FDI inflows(EUR mm)
2020
12
35
35 61
45
35
50
27
22
0
85
1-36
13
2009
110
17
-11
2005
85
4
20
50
2006
52
2004
70
15
69
2008
72
25
-3
2007
85
0-1
36
2003 2010
-1
11
23
2002
49
2001
49
0
29
2000
43
0
23
M-e of tobacco products
M-e of beverages
M-e of food products
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 133
There are signs for recovery in chemicals, rubber and plastics and pharmaceuticals industry
Index of production in industry(2005 = 100)
The production and FDI in chemicals, rubber and plastics, pharmaceuticals collapsed, but there are signs for recovery in 2010
Notes: The production index measures changes in the produced goods
Source: NSI, A.T.Kearney
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Rubber & Plastics
Pharmaceuticals
Chemicals
FDI inflows(EUR mm)
-44
97
36
91
-2-5-9-9
1 3
-1
1 510
3 314
7
-8
2000 2001 2002
0
115
7
2003 2004 20072005 2006 20102009
0
2008
-38
42
6
103
6
10
-1
170
60
-5
203
5
92
25 2718
9 7
M-e of rubber and plastic products
M-e of chemicals and chemical products
M-e of basic pharmaceutical products and pharmaceutical p
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 134
The production of basic and fabricated metals, and non-metallic mineral products collapsed in 2008
Index of production in industry(2005 = 100)
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
Notes: The production index measures changes in the produced goods
Source: NSI, A.T.Kearney
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
20012000
Fabricated metals
Basic metals
Non-metallic
mineral products
20102009200820032002 2007200620052004
FDI inflows(EUR mm)
-93
-28-31
101
7
68
92
19
211
109
1
101
2003
135
68
-2
2002
-10
11
2001
123
31
2000
399
373
2005
69
93
4
2004 2010
73
2
63
9
2009
197
42
147
7
2008
82
152
24
2007
423
148
29
245
2006
444
122
21
301
M-e of other non-metallic mineral products
M-e of fabricated metal products, except machinery and eq
M-e of basic metals
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 135
The Transport industry collapsed in 2009, but stabilized in 2010
Index of turnover in industry(2005 = 100)
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
Source: NSI, A.T.Kearney
0
10
20
30
40
50
60
70
80
90
100
110
120
130
140
150
160
170
180
2000 2002 2004 2006 2008 2010
Air transport
Water transport
Land transport
Total
Postal and courier
activities
Waerhousing,
auxiliary transport
services
FDI inflows(EUR mm)
-20
178
12
3724
-1-1-2-10-30
0
-1
1000
1 0
10
5
03
2008
84
5
21
59
1
2007
48
455
2010
4
1 4
2009
5
2
2006
55
26
4
2005
-29
24
2
-37
2004
0
3-3
2003
19
1 1
4
2002
9
-1
2
2001
-16
1
0
3
2000
14
-4
3
Water transport
Warehousing and support activities
Postal and courier
Land transport and transport via pipelines
Air transport
A.T. Kearney 43, Invest Bulgaria Agency, FDI Strategic Analysis, January 2011, 18730p 136
The growth drivers of the last decade are not anymore valid and overruled budget contraction and low buying power
Source: A.T. Kearney analysis
FDI • Relatively low inflows of FDI due to the crisis
Structural
reform• Delay in key structural reforms such as healthcare and education
• Delay in judiciary reform
Banking
System
• 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
Economic
Growth
• 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
Budget deficit
• 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
Potential Risks