Time to stop beating around the bush

According to the urban dictionary, to beat around the bush means “to talk about something without mentioning it directly or avoid getting to the core of the subject. Often motivated from a desire not to speak frankly about the subject, either because the subject is taboo, it’s impolite to bring it up directly, or the conversation is perceived likely to be painful.”

In talking about the private sector in Kosovo, it is is now time to ‘speak frankly’, although the content of the conversation is ‘painful’, because without an open and honest dialogue the situation is bound to get even worse. Until now, we tend to drift away from the core subject when discussing private sector development in Kosovo.

The core subject is the necessity for Kosovo enterprises to sell more products and/or services. Selling more most often means producing more, and that is the only viable and sustainable way to generate economic growth and employment.

The core subject is about improving the product offer of the Kosovo enterprises in front of new and existing customers, making the offer more appealing than the competitors’. The consumer’s decision to buy is based on a number of criteria and specific requirements, such as design, price, quality, guarantees, packaging, volume, customer-service, delivery-time, terms of payment, etcetera.

A company’s inability to satisfy the customer’s requirements in any of these areas is in most cases the result of internal company constraints. The product design may be old-fashioned because the company employs no designer. Price should be set to reflect the market demand and cost of production. Non-competitive pricing may be a result of poor cost-calculations, too high profit expectations and/or weak management.

Furthermore, the majority of manufacturing companies in Kosovo are currently too small in production capacity to fulfill the volume requirements of even a middle-sized EU based retailer. This means that even if the price is right and the design is fine, there will be no deal.

For other companies, terms of payment become a hinder in international trade. While a Kosovo company used to trading on the domestic market with cash payments upon delivery, or even beforehand, the international buyers expect to pay 30 or even 60 days after delivery. This change in terms of payments directly affects the producer’s cash flow, potentially throwing the deal off-track.

The potential internal hurdles, constraints and challenges holding back Kosovo enterprises from taking full advantage of existing and potential market opportunities on the domestic and international markets are plentiful, and must to be addressed with the highest priority. Only then will we find out if there is a market place at all for these Kosovo companies. Only then will we find out which company owners and managers are willing and capable of generating company growth and expansion.

Yet, rather than putting companies first, and supporting them to overcome their internal constraints, we tend to drift off the mark and spend much time and resources on preparing indirect support measures, such as policies and strategies, as well as on reducing external constraints to private sector growth in Kosovo.

It is an odd choice of focus, and one that is clearly not delivering the goods. By now, Kosovo has enough strategies to fill a TIR truck, but there is hardly any enterprise growth and unemployment remains very high. These guiding documents were all written with good intentions, for sure, but with limited financial means allocated to actual implementation the strategies remain ‘paper-tigers’ doing close to zero to, for example, improve the product offer among private enterprises of Kosovo.

In 2011, Riinvest research of 800 SMEs showed that the main external constraints to doing business in Kosovo were the overall economic situation in the country, unreliable supply of electricity and non-loyal competition. In 2014, the external constraints for SMEs in Kosovo remained much the same – poverty of people, corruption and informal economy (KOSME, 2014). For companies active on the domestic market, there appear to be no progress in over-coming the external constraints.

A low GDP per capita and high level of poverty reduces the overall purchasing power of the population and consequently the size of the domestic market. To build a business model that involves expanding into regional, EU and international markets is a key option for Kosovo companies to avert dependency on a small and over-crowded domestic market. However, to make this step towards internationalisation, again, the company must be first fulfil ALL the requirements of foreign buyers, which brings us back to the focus on the internal constraints.

Another reason we tend to spend our time and resources on trying to reduce the external constraints to private sector growth is a prevailing belief, very similar to the theoretical base of a state-planned economy, that the demand for products and services are somehow constant. We tend to believe that if we can only reduce the burden of doing business, i.e. reduce the external constraints, then automatically the private enterprises will produce more and customers will buy more. It’s a very naïve and robotic view of how the market functions, which completely ignores the fact that the free market involves fierce competition among private enterprises, and consumers who can choose freely among a large number of products, be it cereal or cars.

There is nothing automatic about the market process. On the opposite, it is very individual. It is the individual enterprise owners, managers and workforce that must do the job professionally in order to grow. They must sell-in their products to the consumers in a pro-active way, convincing them, over and over again, to buy their products/services. It is about knowing and exploring markets and consumer needs.

Reducing the external constraints to business is important, but first we must ensure that we have private businesses at all active in Kosovo, and one that is actually growing and employing more people. At the moment, there are less than 50.000 active enterprises in Kosovo, 95% of which employ less than 10 persons. (Kosovo Tax Administration in KOSME, 2014)

To finally achieve economic growth and employment in Kosovo, we must re-focus our attention to those very few companies that have the internal willingness and capabilities (human, technological, financial) to change and become more competitive, to produce and sell more, and expand their operations.

We must design and implement tailored support programmes around these companies. With time they will come to statute a positive example for other enterprises in Kosovo. Also, as market leaders these companies will be capable of ‘pulling’ with them smaller Kosovo companies within structured value- or supply-chains, generating even higher economic growth and employment.

In turn, this approach is bound to anchor the Kosovo economy to the global economy, and uphold a virtuous cycle of company investments, industrialisation, economic growth, export and employment.

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About Jakob Modéer

22 years of corporate and international investor experience as well as private sector development project management, consultancy in private sector policy and business advisory services, and direct consultancy to companies in South East Europe (and now a blogger on socio-economic issues)
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