Wednesday Column - Croatia Business 7: Is Business in Croatia Doing You In?

Since last Sunday, when we finished our marathon haul exhibiting at the nine day Croatia Boat Show, and after following the repercussions of the failed “First Ever Croatia Exclusive Exhibition” in Earls Court, I’ve had no shortage of topical issues to feature in today’s Business Column. However I guess that those readers who aren’t into boats are a bit bored with the Boat Show, and those affected by the “postponement” of the Earls Court Exhibition would rather forget about it now. So this week’s column is a slightly introspective personal look at doing business in Croatia.

To put things in context, my partner, John, and I could probably fairly be described as old fashioned in our way of doing business. We believe in turning up to meetings on time, we know it is possible to plan our diaries around events fixed some weeks in advance, without forgetting them, and we firmly believe that it is more effective for all if everyone is as direct and open as possible in their business dealings, with, of course, due respect for confidentiality where it is essential. We could also perhaps be described as spoilt in our careers to date – king and queen of our own mini empires, working in established and well respected organisations and therefore not having to work too hard to have our voices heard and our efforts appreciated. In fairness to our Croatian hosts, it is perhaps not the Croatian business environment that continues to send culture shockwaves around our offices, but what we are trying to do and how we are going about it. This probably applies to most people trying to earn a crust in a foreign country.

If you’ve attended any management courses, you’re bound to have come across Ansoff’s Matrix. Even the very successful Beermat Guides (http://www.beermat.biz/) for salesmen and entrepreneurs, which generally and mercifully cut through the more esoteric management tools and theories, refer to it. Essentially the matrix has four quadrants which reflect the degree of difficulty of an organisation’s approach to expanding or improving its business. Selling existing products into existing markets is the easiest way to make money but when that market becomes saturated, and too many competitors force the prices down, it’s time to move onto stage two, selling existing products to new markets, then stage three, new products to existing markets, and finally, when all else fails, the “don’t go there” stage four – new products into new markets. Well, we started in stage four and that’s where we’ll finish!

We were reminded just how hard our core business model was when, quite recently, we had the opportunity to assist a well respected organisation moving, as we originally thought, into stage 2 of the matrix in Croatia. This was a real breath of fresh air, both in terms of finding a “supplier” with similar business ethics, and having a product that we knew was a market leader of great quality. However the reality was that it was a kind of hybrid stage 4. Although a similar product had been successful elsewhere, it was entirely new to the Croatians. Although our contacts are an existing market now to us, they were a new market for the new product and we had the greatest success with entirely new contacts. Bizarre.

The above is designed to give you some background and context within which to interpret the comments that follow. I’ve drawn parallels before, between Croatia and Ireland (http://croatiaonline.blogspot.com/2006/01/croatia-online-parable.html), and if we were asking for directions now from the Irish, they’d probably say “I wouldn’t start from here!” Having worked in Ireland for 18 months, about 10 years ago when conditions were similar, I should have known better.

So what exactly are the problems? Some of them are self inflicted by us and some of them are symptomatic of the growing pains of a transitional company. Croatia has arguably been held back by conflict, communism and bureaucracy for many years and has now had the touch paper of progress well and truly lit. The learning curve for Croatian organisations, getting used to doing business in a country that is trying to move so far so quickly, will be much steeper than ours.

Self Inflicted Problems

Hindsight is a wonderful thing and it does serve a useful learning purpose if applied with circumspect. If we were starting over again in Croatia, we would probably change the following:

1. Language

Although English is widely spoken, there’s no substitute to being able to chat freely with your potential customers in their own language. We’re learning Croatian hard now but should have done so earlier.

2. Portfolio

The Croatian market, with a population of 4.5 million, is just not big enough for any organisation to earn a bread and butter living from a niche sector, with only a small capital investment, unless it’s within the catering industry or unless you’re selling an essential, rather than a luxury product. You need a number of strings to your bow and enough alternative income not to have to count on Croatia for a couple of years.

3. Initial Investment

If we’d been able to, we would have persuaded our suppliers to commit some extra funds, and found some ourselves, to speed up the process of recognition of our products in Croatia. The overall cost of getting to the same stage would probably have been the same but we’d have got there quicker. As a counter argument to this, one of the things that has stood us in most stead is that we have stuck at it. The Croatians have seen a lot of initially excited foreign entrepreneurs dabble in their market and then disappear. That’s something that we’re still tarred with but much less so now after nearly four years.

Intrinsic Problems

1. Early Recognition

Borrowing from a Beermat principle (see above) you need to find a Croatian entrepreneur who will champion your product amongst his contacts. Once someone has it, others will follow and the local network is more powerful than most other marketing or advertising tools within Croatia itself. Croatians can tell which village someone comes from by their surname and anyone in business will have been to school with some influential contacts elsewhere. They can get you a meeting when no end of emails and telephone calls might go unanswered.

2. National Pride

Croatians, particularly Dalmatians, are understandably very proud of their country, their resources and their skills. That can make it even harder to convince them that a foreign product is worth having, even if there is no local competitor. If a similar product is made locally then you really do have an uphill climb to convince Croatian customers of the advantages of your product, even if they are significant.

3. Bureaucracy

Croatia Online has probably said enough about this already. Red tape exists on a huge scale sufficient for some organisations, depending on their sector, to be unable to plan their business at all in the long term. Some of the red tape is already likely to be judged un competitive and hopefully Croatia’s wish for early EU entry will help speed up the removal of obstacles in certain areas. Red tape affects local and foreign business equally but the local entrepreneurs have a better chance of finding the right person to “help” them get round it.

4. Corruption

The news reports suggest that Croatia is not doing enough to stop the corruption that goes hand in hand with undue bureaucracy. We haven’t come across it much but whenever there’s a bit of mystery surrounding business negotiations, or a sudden reversal in interest, it’s not difficult to imagine that someone has got what they want from elsewhere. Alternatively, you’ve been led to believe you’re talking to a decision maker when you’re not – see below.

5. Management Culture

Old systems die hard and the “IBM culture” still prevails in large organisations, ie the safest option normally wins since no one wants to stick their head above the parapet. In smaller, privately owned organisations, autocracy rules which is great if you find yourself dealing with a benevolent dictator and not so great if the boss doesn’t take a shine to you. The best organisations to deal with are those that are run by “returnees” – Croatians who have worked abroad for a number of years and come back home. They share the same frustrations with the bureaucratic regime, have a more modern and open management style, and are prepared to take more risks in order to be successful. Moreover, they tend to empower the people below them rather than treating them as glorified clerks.

6. The Economy

Despite the increase in tourism, which accounts for about 20% of Croatia’s GDP, Croatia is still a relatively poor country. Furthermore, the government and the banking system are not yet geared up to encourage long term investment for growth. Organisations in the tourist industry have incredibly seasonal cashflows and it’s not so long ago that their business worlds collapsed when the Homeland War broke out. Memories fade slowly and its important to get the timing right when seeking to sell to organisations involved in tourism.

7. Time Wasting

You can waste a lot of time, making multiple phone calls to organise one meeting, only for it to be delayed, postponed or simply not have the person you are meeting turn up. In the early days of a business, you feel you have to follow up every single lead, but as time progresses, you do get to know the signals of a serious businessman rather than a dreamer, though there is always that fear that the most disorganised person you have ever had to deal with is the one that will make your fortune.

8. Traps

Many business contacts we have talked to, local and foreign investors, feel they have put so much time, money and effort into the Croatian market that they must carry on, despite all the signs suggesting the contrary. Croatia may have a different business culture, compared with western European economies, but it’s important to retain a sense of proportion and not forget essential principles of business. Almost everyone gets very excited about the potential but if this potential does not turn into reality for your business, within a reasonable timescale, you are in danger of burning a large hole in your pocket and joining the ranks of “dreamers” rather then entrepreneurs. If you’ve followed through on your initial business plan, have given it adequate time, and are still well wide of your targets, don’t throw good money after bad. Walking away from something may be one of the hardest business decisions you can make but not taking the decision is probably the worst mistake you will ever make

***

Despite all the above, Croatia is a great place to live and becoming an easier place to do business in. Zagreb is a cosmopolitan city and dealing with business people there is much less of a culture shock, for western Europeans, than negotiating with their Dalmatian cousins. That’s no different from most countries in the world. We have found some great people to work with – reliable, on time, honest about their capabilities and enthusiastic about new ideas. However, unfortunately that’s still the exception rather than the rule though, in fairness, Croatians might say the same about the foreigners they have dealt with.

Our plan is to stay focused but flexible, adapt to the rapid changes, build our portfolio around those whom we trust and are committed and sincere, and develop the areas that provide the best return with the least bureaucratic obstacles. After all, we left the city rat race to have some fun as well as earn an honest buck!