In recent decades the Western Balkans have attracted some of the lowest levels of foreign direct investment in Europe, due in part to the messy situation after the break up Yugoslavia. According to the latest Bank of Slovenia Direct Investment Report, by the end of 2009 Slovenian companies had invested 68.8 percent of the total FDIs received in the countries of the former Yugoslavia. All of these investments were in greenfield projects, while Slovenia's total contribution in Croatian and Serbian brownfield investments represented 24 percent and 21.2 percent respectfully.
Some of the most successful blue chip Slovenian companies are growing their businesses in the former Yugoslav countries. Although in some cases already having a presence in the region's markets before Yugoslavia's demise, most businesses are now engaging in more aggressive market expansion campaigns.

Back in time

Slovenia's companies already had a strong presence when it was still a part of Yugoslavia. Brands such as Slovenijales and Lesnina supplied wood products all over the Balkans; Peko and Mura sold high quality footwear and textile products; and Laško and Fructal beverages quenched the thirsts of most Yugoslavs from time to time. In the present day, all these companies besides Mura continue to operate and supply products to most of the former Yugoslav markets. There are of course others that have failed to survive but many new businesses have been quick to maintain and strengthen Slovenian business presence in the region.

Retail expansion

With a presence in seven countries in the Western Balkans, retail chain group Mercator certainly represents one of Slovenia's most impressive market expansions in the region. Besides Slovenia, they have stores in Croatia (entry in the market in 2000), Serbia (2001), Bosnia and Herzegovina (2003), Montenegro (2007), Bulgaria and Albania (2009). They are also keen to expand into the Macedonian market.
The company says the Balkans is a focal point for the company's development strategy. "We want to be present in the region in the mid to long term, because these countries have the potential to grow," the firm says. Mercator is confident of its success in these markets and attributes it to the fact that they "know the local business environment well and know the culture and have the expertise to meet the needs and expectations of the consumers".
Knowing their consumers and understanding the "Slavic mentality" is something that Mercator stresses as their decision for expansion in the region, explaining that they feel "well-acquainted with this type of consumer". They also argue that Slovenian businesses and brands are valued in the region. Despite this they agree that it is a varied but compact region, which is why the retail chain's strategy is successful. "We don't 'copy-paste' solutions from one market to another as many global retailers do, we carefully sort out best solutions for each market even on a micro-location level," the firm says.
Mercator is now the market leader in Slovenia and Montenegro, the second largest retailer in Croatia and Serbia, and third in Bosnia and Herzegovina. It looks set to enhance this position in South-Eastern Europe in the long-term saying: "This is the place where we want to do our business".

Keeping up appliances

They are not alone. The Gorenje Group, a leading producer of household appliances, has a well established history extending back to the time of the former Yugoslavia. Established in the early 1950s, just a decade later the company's products were being used by West German customers. Today the business has expanded even more and over 90 percent of Gorenje's products are purchased in 70 countries around the world including Australia, USA, the Middle East and Asia.
Just recently the company bought the prestigious Scandinavian appliance maker Asko and will continue production locally. For decades the global brand has held strong sales in foreign countries by creating employment for its consumers, mostly in the form of production facilities, something it has also implemented for its Serbian market. "In Serbia we are establishing our third production facility in Zaječar, where the shells for washing machines, dryers and plastic wash basis will be produced," the company explains.
Prior to 1991, all of Yugoslavia was considered as Gorenje's domestic market, but even today the company maintains the position as the leading brand of household appliances in each of the ex-Yugoslav republics, despite fierce competition. With Serbian production facilities and vast networks of showrooms and stores, the brand is focused on maintaining its local market share.
Gorenje has chosen to open up a production plant in Serbia not only because of the country's cheap labour force and favourable FDI incentives. Serbia also has a free trade agreement with Russia and Gorenje plans to make most of this opportunity to expand into the huge Russian market. Gorenje has ambitions further afield too and is continuing to expand to new markets like Brazil, where it sold its first few appliances only months ago. Another niche for the group is the sale of premium consumer appliance products to the Hong Kong and Chinese markets.

The right medicine

Pharmaceutical giant Krka is also well established in the Balkans. Krka's business seems to be growing and currently its products sell in over 70 countries. Last year it generated turnover amounting to around EUR 905m. Of this total just over EUR 132m came from South East Europe (mostly from Croatia and Romania).
According to Krka, the company is now looking at other places rather than the ex-Yugoslav markets. "Although total exports grew by 10 percent last year, the south-eastern European region (including ex Yugoslavia) only generated 14 percent of total revenue compared to 29 percent of sales received from Central European markets (which includes Poland, Czech and Hungary) and 26 percent from Eastern Europe," the firm says. "Closely following were the Western European and international markets which made up 21 percent of sales (mainly Germany, Great Britain, France, and the Scandinavian countries)".
Although there might be room to grow, for Krka the Yugoslavian market may not be such a focus, but like Mercator there is a strong link to "Slavic societies". In recent years the company has invested into production facilities including one in Croatia. With most of the sales from former Yugoslavia coming from this country, the company is considering establishing production facilities in other ex-Yugoslav countries especially considering the likely future of healthcare.
'Trends indicate that the generic pharmaceutical industry will further develop in the future," the firm explains. "Due to austerity measures planned in the field of health care, health care providers [have] started prioritising generic products, because they are aware that they offer quality, safety and efficacy as well they are more accessible in terms of price. With lower pricing levels the economy of scale is gaining importance for us all".
Although Krka plans to maintain its markets in the former Yugoslavia, it is firmly focused on building its market share globally. "Our key market in is the Russian Federation, which also remains the company's largest individual market. Other important markets in this part of the world are Ukraine, Uzbekistan and Kazakhstan."

What the future holds

Despite varying levels of importance placed on the ex-Yugoslav markets, most large Slovenian businesses and exporters couldn't imagine not having some kind of cooperation with their southern neighbours. The Merkur Group, a hardware and electronics retailer with a 115-year history, has been opening branches in the ex-Yugoslav states since the 1980s. Despite strong local competition, the company is today one of the largest hardware and electronics chains in the region.
Other enterprises which have similar ambitions are showing that their first important trade partners are those from the Balkans. Perutnina Ptuj, a poultry food processing company has subsidiaries in most former Yugoslav countries and is arguably the best producer of poultry products in the region.
However it is not always success for Slovenian investors in ex-Yugolsav markets. Retailer Tuš tried expanding its supermarket store concept into the Serbian market recently but due to financial problems had to sell its Serbian supermarket chain to Croatian retail giant, Agrokor.
Despite the warnings that come from the media and economists alike that Slovenian companies need to look beyond their comfort zone in the Balkans, many Slovenian companies still mainly turn to the region when expanding beyond Slovenia. Due to cultural similarities, investing in the Balkans is seen as less risky but also as the first stepping stone in the attempt to expand globally. The safe strategy has worked for many for now but what will work in the future is dividing opinion.