European Recession? Croatian Companies Turn to Asian and African Markets

Lauren Simmonds

As Novac/Adriano Milovan writes on the 26th of August, 2019, leading Croatian exporters are anxiously following the signs of a slowdown in the European, especially the German and Italian economies, and are preparing for the possibility of a new recession in order to attempt to weather its effects on their business.

This was confirmed by leading people in several large Croatian companies, which, in their work, are closely linked to two “critical” European markets – Germany and Italy. Both countries are on the verge of a new recession. As these are the countries that are also Croatia’s leading foreign trade partners, with the largest number of tourists coming from those countries. It is therefore clear that their fall into a new recession ”abyss” could also drag Croatia down with them.

Everyone remembers the last recession, which also made itself very well known here in Croatia. To quickly recall, Croatia had the longest recession in Europe, which lasted for six years and left behind a real economic graveyard. It is enough to recall the fact that, during the crisis years, the country lost about 200,000 jobs, according to research.

”The past recession has hit us hard. Almost overnight, we had to lay off 150 employees,” recalls Zdravko Jelčić, CEO of the Spin Vallis, one of Croatia’s largest exporters in the wood processing industry.

It is therefore not surprising that Croatian companies are very concerned about the current developments in Germany and Italy. Special crisis teams have not been formed yet, but a strategy for responding to a possible new recession in Europe has already been developed.

Jelčić tates that there is already a slight decline in demand for certain products. This is mostly in regard to semi-final products at the moment. It is worth mentioning here that Spin Vallis accounts for about 85 percent of its revenues in exports, its main markets being those if Germany, Italy and Austria.

”We don’t have a special team of people to deal with a possible new recession, but we’ve become more cautious about investing and hiring. So far, we’re not turning to other markets, but if a crisis erupts, and we still hope it doesn’t, then we will have to think about it,” explained a worried Jelčić.

Končar, another well known Croatian company, is yet to set up any special measure to deal with the possible upcoming recession, either but that does not mean that they aren’t closely monitoring developments in all markets in which they operate.

On the contrary, says Darinko Bago, CEO of Končar, there are people in every sector who constantly analyse the risks in their areas of work. The recipe for resisting the affects of a potential European recession in Končar is seen in dispersing business to various markets, to limit the spillover of negative effects from only one market.

”Business needs to be dispersed across multiple markets. If you do business on multiple markets, and if none of them have a stake in the company business greater than 10 to 15 percent, then you won’t lose much,” says Bago. He adds that this Croatian company is expanding its business beyond Europe to Asian and African markets, and so far has not seen a decline in demand for their products.

Ivan Miloloža, Munja’s (Lightning) leading man, says he sees possible salvation in the event of a new recession in turning to new markets. Moreover, he adds, Munja is already focused on the markets of the Middle East and North Africa, with traditional markets in the region and over in Ukraine.

”We can adapt to the eventual recession because we have focused on new, non-European markets, in which we will strengthen our presence,” notes Miloloža.

Economic analyst Damir Novotny sees the recipe for surviving a potential new recession precisely in the dispersion of business across multiple markets, especially non-European ones.

”The recession will come sooner or later, it does so about every ten years. It’s high time for Croatian companies to disperse their business towards third (third country) markets,” estimates Novotny.

Novotny sees good opportunities in India, Central Asia, Arab countries and sub-Saharan Africa. These are fast-growing markets. However, competing products and accumulated funds are also needed to compete with them, and few Croatian companies have them.

Novotny warns that Croatian labour legislation is still not flexible enough and that in Croatia, unlike Germany, it is difficult to negotiate in recessionary conditions with unions.

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