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Defining competitive business models for manufacturers in the New Europe

Central Europe is unique among emerging markets. Its sixteen countries vary widely in terms of size, population and economic development., says KPMG. And although not every country in the region has managed entry into the European Union the expectation is most or all will do so within the next decade. Despite this, the region is frequently maligned or misunderstood by foreign direct investors, leaving the specter that opportunities have yet to be fully exploited by companies whether already operating within the region, or still considering their entry into this dynamic market place.

This survey seeks to understand and address how companies currently operating in the region will capitalize upon and be shaped by the trends in overall business performance, as well as the underlying management drivers that ultimately drive this performance. As a start point we have identified three different business models operating in Central Europe as follows:

• Local companies operating principally in their own country
• Multinational corporations (MNCs), typically headquartered in the more industrialized countries and operating across the globe
• Regional companies, originating from a single country in Central Europe but whose operations have spread across the region.

We then segmented these companies according to both geographic orientation and industry type, and benchmarked them on a wide range of operational and financial performance indicators. Our key findings include:

• Strong business performance is generating a positive strategic outlook across the entire region, including all industry sectors, all geographic locations and all business models. Companies successfully grew their top lines, increased productivity and remained profitable while adding employees.
• Some regional companies at the forefront of strategic thinking are shifting their organizational focus to emulate more effective structures of their larger multinational cousins and as a result there is direct evidence that these companies are participating more and more in the global economy. This is evidenced by stronger management focus on critical activities, typically further up-stream or down-stream in the value chain, while outsourcing other non-core activities.
• Concerns about increasing levels of competition in the region and consumer choice are forcing companies to respond by increasing their product quality. Focus is shifting away from mergers and acquisitions and restructuring activity towards launching new products in order to address narrow and aging product portfolios – an issue which was most relevant for local companies.

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KPMG is the global network of professional services firms who provide audit, tax and advisory services. KPMG LLP operates from 22 offices across the UK with 9,000 partners and staff. KPMG recorded a UK fee income of £1,066 million in the year ended September 2004. KPMG LLP, a UK limited liability partnership, is the UK member firm of KPMG International, a Swiss cooperative.