(This case study was produced on the request of the Enhancing Youth Employment project in Kosovo (eye-kosovo.org) and is re-published here with the permission of the project and Rugove)

Background

In April 2014, the Agency of Statistics of Kosovo reported that the country’s trade deficit is still growing. Export in March 2014 amounted to €23,1 million (0.1% increase), while import amounted to €202,4 million (3,7% increase). As such, Kosovar products cover only 11% of the domestic market.

The World Bank calls Kosovo’s current growth model unsustainable over the longer period. Growing private sector activities and investments will become increasingly critical as engines to generate growth and, in turn, improve job and income perspectives.

For the most part, companies are not yet in a position to compete successfully in local and international markets. Reflecting binding public infrastructure and business climate constraints, domestically produced goods, including in the agriculture sector, have not yet been supplied at the quantity and quality required to compete successfully in either domestic or foreign markets, despite some improvements. (World Bank in Kosovo, Country Snapshot, April 2014)

On the question why he chose the bottled water business, Mr Visar Kelmedi, the CEO of Rugove, plainly explained that the demand for water was strong and growing on the local market, which was dominated by international companies. “I wanted to show that it is possible to manufacture a product in Kosovo and sell it to Kosovo consumers, and with time substitute imports”. In 2012, the import of foodstuff, including bottled water, was approximately €300 million, second only to mineral products (gasoline, oil).

The Rugove tale is about understanding the customers, keeping a watchful eye on the competition and the importance of being open to a continuous process of change in management, human resource and production. But foremost, it is a tale about people and how a company can succeed in the market by investing in its human capital.

The Challenge

The Rugove was established in 2006, as a joint venture with a Slovenian partner. Within two years the company had become the market leader in bottled water in Kosovo selling over 5 million liters per year. At this point in time, Rugove was very much a family managed company. “We were acting more like firemen, trying to satisfy new orders as they popped up”, Mr Kelmendi explains. By 2010, competition on the market was becoming stronger. In a situation of growing demand and competition, there was a decision to be made for the company. According to Mr. Kelmendi, “we could go on as a family operation with an uncertain future, or we could accept the market situation and become a more professional, structured and efficient company”. The second option would require significant investments and a fundamental re-organization of the company. Yet, this was the path chosen.

About the same time, Rugove made the decision to diversify its business and enter into the market of production and sales of white cheese. Such a venture would require additional investments and the strengthening on the internal management and organisation to cope with a completely new line of business.

The proposed solutions and interventions

The first intervention of the company management involved restructuring its financial system, replacing it with a more modern model, and most importantly building the capacity of internal staff to manage the new financial system. For this very important and sensitive task Rugove acquired the services of Arizona Partners (AzP) a local tax, accounting consultancy company. “I am not Superman to know everything, and I am the first to admit that we are were we are today thanks to the support we have received from consultants”, Mr Kelmendi explained his decision to bring in external experts to facilitate the change process at Rugove.

In 2014, Rugove’s working relationship with AP became more strategic. Rugove then entered a triparti agreement with AP and the EYE project, in which AP would supply a full range of strategic consultancy services to Rugove. The aim of the intervention was to produce a business plan that would be used for the company’s future business development, strategic direction, operational planning, and external financing.

Special focus was on HC development, where AP supported Rugove in recruiting a HR manager and in establishing an HR Department. The newly appointed HR manager participated in the HCDI formal training and AP followed up with the development of internal HR policies and procedures as well as a software based HR system for Rugove, and trained the HR manager to operate the new HR system with confidence.

Rugove highly appreciates the way AP transfers new ideas, skills and knowledge to staff members through coaching and on-the-job training. “To me all change is about the people who work at Rugove. Yes, I admit, we push our employees to perform their best, but we can do that because every employee knows that we support them, both on and off work – they are all covered by insurances, we have a generous bonus system in place, we support them in learning new ways of working and building their confidence in implementing their work tasks”, Mr Kelmendi explains how Rugove’s continuous focus HC development has received renewed momentum from the cooperation with AP and EYE.

Over the years Rugove has engaged the expertise of a number of local consultancy companies for specific tasks, such as ‘Paper Communication’ on marketing linked to target sales and strengthening the internal capacity of the company to manage its marketing work. The consultancy ‘ATARE’ was brought in to work on structured sales, branding and development of key accounts, while the IT company ‘CACTTUS’ was assigned to design software solutions linking the company’s Enterprise Resource Planning (ERP) system to its sales processes. Another local consultancy company, ‘RECURA’ produced a feasibility and investment project.

Mr Kelmendi speaks very positively about the Rugove’s experiences working with local consulting companies. “They understand the local context, market and culture, and they offer practical and sustainable solutions. Most important, they understand that their task is to build up the capacity of our managers and staff in order for them to implement the activities themselves, manage change and move the company forward.”

Beyond investing in consultancy services, Rugove has recently invested in a new fully automated water supply and bottling unit. Mr Kelmendi is quick to point out however that this €2 million investment in fully automated machinery will not lead to staff reduction. Rather, staff will be moved into new work opportunities linked to the manufacturing of new 10 liter bottles and the new range of glass premium bottles.

In a final push, in line with the overall re-organisation of the company and in response to a more competitive market, Rugove has also invested in the construction of a brand new distribution centre and corporate head office in the outskirts of Pristina. As well, the company has purchased a new fleet of 20 distribution trucks, capable of delivering water and cheese products simultaneously, which will reduce transportation costs dramatically.

The outcome and lessons learned

“These investments are already starting to pay off”, observes Mr Kelmendi proudly. In 2014, the total sale of bottled water is expected to reach 15 million liters, representing a 20% increase compared to 2013. The sales growth of the cheese production is even more phenomenal, expected to jump 70% this year. In the words of Mr Kelmendi, Rugove will employ approximately 35 new staff in 2015, increasing the company’s total pay-roll to 140 or more persons, mainly located in the villages around its production units in Western Kosovo.

When asked to reflect on the very rapid growth of Rugove, Mr Kelmendi highlights his personal approach to business development and management. “I had the vision of where the company should go, but I realised that I needed external experts with specific subject skills to help us get there”. For Mr Kelmendi, a company that is too conservative in its management style and blocks new learning will sooner or later be overwhelmed by a market it does no longer understand. “Too many company owners in Kosovo have not yet realised that they must open up to new ideas, new ways of organising and managing the company, and external advise in order for their companies to change and grow.”