Rivalry of domestic and foreign retailers in Croatia.doc

75 rivalry of domestic and foreign retailers in croatia dario dunkovi received 6 7 2004 preliminary communication accepted 14 09 2004 udc 339 37 497 5 foreign retailers are gaining progressively more of the croatian retail market share this paper is an analysis of the retail structure in the republic of croatia sector g 52 with respect to the origin of trading companies domestic and foreign retailers to their size small medium and large companies and to sub sectors within a sector g 52 the aim of this paper is to contribute to the understanding of causes underlying the foreign retailers expansion regarding their business success the paper includes an analysis of the structure of household consumption in the republic of croatia as an important condition for the development of the retail structure the analysis involves the indicators of domestic and foreign retailers business success the turnover per one trading company and the turnover per one employee of the trading company the comparison of these indicators for domestic and foreign retailers lead to certain differences foreign retailers are slightly more productive than the domestic retailers and to the evaluation of the differences caused by the size of the company since a correlation of the size of the structure of domestic and foreign trading companies in certain sub sectors within sector g 52 must not exist the conclusion suggests itself in the form of a need to investigate other features of the retail structure the research is related to the year 2001 nevertheless the research presented in the paper points at an inadequate adaptability of domestic retailers to the structure of demand in the republic of croatia as the cause of the insufficient trading success dario dunkovi m sc ph d candidate at the faculty of economics in osijek g ninskog 25 31221 josipovac osijek phone 385 0 91 28 000 24 385 0 31 35 35 36 e mail dunkovic geli hr management vol 9 2004 2 pp 75 96 d dunkovi rivalry of domestic and foreign retailers in croatia 76 1 introduction in the croatian retail market the increasing number of foreign retailers that glut the domestic market in the form of retail chains is evident hence domestic retailers are faced with a reduced market share trading activities are important for the croatian economy1 therefore the research into its structure could present a significant contribution to domestic development hereby the research is directed towards one of the trading sectors the retail sector in the paper there is a comparison of available structural and financial data of domestic and foreign retailers in the domestic market the aim is to find reasons why foreign retailers are slightly more successful than the domestic retailers in their home market moreover the paper is based on the assumption that foreign retailers have a better market performance this was also implied by their different inclusion structure into sub sectors g 52 1 62 and turnover per employee the appeal of a retail structure depends on its harmonization with the structure of consumer needs therefore the structure of personal household consumption is investigated first i e the demand trends in the retail sector in croatia the research includes all companies active in the retail sector in croatia i e group g 52 1 6 which submitted their annual financial report by december 31 2001 to the financial service agency fina the retail sector involves economic activities g 52 1 63 which can be performed only by business entities trading companies or tradesmen registered at a commercial court there is a distinction in croatian retail terminology between bodies which are primarily registered to perform trade activities according to nace g 52 and bodies retailers which regardless of their economic activity registration can perform retailing activities in both cases the ultimate goal is to sell products or services to final consumers the data are grouped into two statistical sets one of which includes the data obtained from domestic trading companies registered for activities in the retail sector the other includes data from foreign trading companies in croatia the division emerged from the need to compare some elements of their retail structure the comparative analysis includes data from sector g 52 such as the number of trading companies 1 statistical yearbook of croatia 2003 table 11 4 trading accounted for 8 9 of gross value added in gdp in 2001 whereas it took the second position by its share in the added value of gdp the largest share of 17 6 was taken up by the processing industry 2 nace classification statistical yearbook of croatia 2003 3 sub sector g 52 7 also includes retail business in a wider sense management vol 9 2004 2 pp 75 96 d dunkovi rivalry of domestic and foreign retailers in croatia 77 trading branch activities number of employees and total and average turnover the data are collected from several official sources and categorized in crossed tables the methodology is also related to the use of the graphic presentation methods economic trading activities differ with respect to the type of merchandise and selling location and it can be said that they are different among other things with respect to the trading branches4 table 1 classification of economic activities in retail sector nace codedescription economic activities sub sectors g 52retail sector g 52 1 non specialized stores with food beverages or tobacco predominating and other stores g 52 2 specialized stores with food beverages and tobacco g 52 3 pharmaceutical cosmetic toiletry and similar articles g 52 4 specialized stores with textiles clothing footwear household articles appliances hardware and other specialized stores g 52 5 sale of used goods in specialized stores g 52 6 retail sale not in stores source statistical yearbook of croatia 2002 ani 2002 showed that the retailing sector is marked by dynamic changes in the retail structure he used the statistical method of correlation in order to correlate some variables of the economic environment important for retail examination the result pointed at a strong correlation between gdp income personal consumption and retail turnover5 the statistical correlation method in retail research can be used to examine the relationship between the two sets of static variables across sectors or other different structures dinlersoz 1999 6 this approach is used for the analysis of retail structure elements 2 structure of personal consumption in croatia and eu personal consumption per household in croatia relies mostly on consumption in retail which is caused by a lower standard when croatia is compared with eu states and also with some countries in transition the actual turnover of the retail sector in croatia in the period between 1998 and 2003 is 4 according to segetlija 1999 a trading branch is to be understood as a set of goods that are the same or similar with respect to their components production features or purposes 5 see ani 2002 table 10 p 893 analysis of value changes between 1994 and 2000 6 dinlersoz 1999 based his research on this methodology management vol 9 2004 2 pp 75 96 d dunkovi rivalry of domestic and foreign retailers in croatia 78 marked by oscillations7 however the actual turnover in 2003 was 18 9 higher than in 2000 table 2 personal consumption per household in croatia 1998 2002 consumption in household in hrk structure of consumption category year 1998 1999 2000 2001 2002 1998 1999 2000 2001 2002 personal consumption 53 67752 38258 61361 14164 736100100100100100 food and non alcoholic beverages 20 48519 82618 84520 58520 81639 137 832 233 732 2 alcoholic beverages and tobacco 2 4732 3912 2732 4862 5754 74 63 94 14 0 clothing cosmetics jewelry footwear 3 3673 9115 9075 5855 7356 47 510 19 18 9 furnishing household equipment 3 3873 0812 8803 4503 5736 55 94 95 65 5 total retail sector 29 71229 24529 90532 10632 69956 755 851 152 450 6 housing and energy consumption 5 8006 9587 8118 1878 87511 113 313 313 413 7 health services 8989571 2281 2321 4421 71 82 12 02 2 transport7 2045 7527 1567 0287 16713 811 012 211 511 1 communicat ion 1 0081 1131 6192 1273 1151 92 12 83 54 8 recreation and culture 2 7582 9943 9313 5764 1555 35 76 75 86 4 education3303684315054390 60 70 70 80 7 hotel and restaurant services 1 6351 4292 1551 8212 0493 12 73 73 03 2 misc goods and services 4 3323 6024 3774 5594 7958 36 97 57 57 4 index 1999 100 102100112117123 chain index 97111104105 source author s calculation of data given in table 10 4 of the statistical yearbook of croatia 1999 2003 7 turnover indices expressed in actual prices oscillated according to the statistical yearbook of croatia 1999 2002 and 2003 data available since 1998 management vol 9 2004 2 pp 75 96 d dunkovi rivalry of domestic and foreign retailers in croatia 79 changes in the structure of personal consumption per household i e the consumption of income available are of vital importance for turnover and retail development according to ani 2002 the personal consumption structure determines the structure of retail turnover according to trading branches a relative increase in personal consumption in a certain category informs retailers about the growing market potential of a certain branch household consumption is a retail demand therefore in order for a certain retail structure to be appealing to consumers it must reflect a specific structure of household market demand if the retail structure in croatia was to be viewed as the retail structure of domestic and of foreign retailers the more successful of the two would be the one more appealing to the final consumers the structure and changes in personal consumption per household in croatia according to categories are shown in table 2 it can be seen that the most significant is the decrease in the share of food and non alcoholic beverage consumption whereas the most significant increase is achieved in the communication category only the consumption of clothing and footwear from the retail categories shows a relative increase whereas a reduction is noted only in the categories of other types of consumption i e in household consumption for transport and miscellaneous goods and services figure 1 shows that households in croatia primarily spend their income on satisfying their existential needs and once this is achieved only then are other needs satisfied 20 25 30 35 199819992000200120022003 in 000 kn retail categories other categories figure 1 structure of personal consumption per household in croatia 1998 2002 and projection for 20038 source cbs newsletters 13 2 1 9 1 1 and 13 1 2 in 2003 8 denotes author s estimation management vol 9 2004 2 pp 75 96 d dunkovi rivalry of domestic and foreign retailers in croatia 80 0 5 10 15 20 25 30 austriaczech rep ireland slovenia croatia in 000 eur retail categories other categories figure 2 comparison of structures of personal consumption per household in some european countries in 2002 source author s calculation of personal consumption per household from the statistical yearbooks of ireland 2003 austria 2003 czech republic 2003 slovenia 2003 and croatia 2003 in eu countries in 2001 the ratio from figure 1 was on average 36 64 in favor of other types of consumption9 the structure of personal consumption with regard to the consumption share in retail differs between eu states as well as between transition countries figure 2 the structure in croatia in 2002 was still disproportional to the structure of eu states but also to some applicant countries in 2004 the czech republic has a lower total value of personal consumption per household and a significantly lower relative value of personal consumption in retailing when compared to croatia among eu 15 member states the structure in austria shows the sharpest deviation in these shares whereas the circumstances in ireland and slovenia are representative of the average in the eu10 9 author s thorough examination of data from the on line published statistical yearbooks of all eu countries in 2003 10 author s thorough examination of data from the on line published statistical yearbooks of eu countries in 2003 management vol 9 2004 2 pp 75 96 d dunkovi rivalry of domestic and foreign retailers in croatia 81 if disposable income as an independent variable and personal consumption in the retail sector as a dependent variable are put into correlation the result will show the impact of a disposable income fluctuation on the fluctuations in personal consumption in the retail sector pearson correlation coefficient r can be used in order to compare the interdependence of the two sets of variables 2 2 2 2 yynxxn yxyxn r where x is the independent and y the dependant variable with n representing the number of frequencies11 table 3 relation of disposable income and personal consumption in the retail sector in croatia from 1998 2002 function variables xy nr pear coef pearson correlation coefficient disposable income per household personal consumption total retail sector 50 87 source table 2 disposable income per household named in table 10 2 of the statistical yearbook of croatia 1999 2002 2003 the value of coefficient r 0 87 shows that these sets are strongly but not entirely correlated it can be concluded that an increase in the dispensable income per household in croatia significantly affects the level of household consumption in the retail sector 11 petz 1985 p 185 it is one of several forms of formulas that can be used for the pearson correlation coefficient the same is given by ms excel category of statistical functions pearson array1 array2 it measures the strength of the linear relationship between two sets of variables one independent and the other dependant it can range from 1 negative correlation to 1 complete correlation where 0 means no correlation if the coefficient is in the range of 0 8 to 1 the variables are strongly correlated if it is between 0 4 and 0 8 they are significantly correlated and if r is in the range between 0 2 and 0 4 there is a weak positive correlation between variables a negative sign for r has identical meaning but then we speak about negative dependence i e correlation http www hyperdictionary dictionary correlation 2 1 2004 management vol 9 2004 2 pp 75 96 d dunkovi rivalry of domestic and foreign retailers in croatia 82 20 30 40 50 60 70 19992000200120022003 in 000 hrk disposable income 50 of disposable income personal consumption in retail figure 3 absolute change of disposable income and personal consumption per household in croatia from 1999 200312 source table 2 the statistical yearbook of croatia 1999 2002 2003 table 10 2 cbs newsletters 13 2 1 9 1 1 and 13 1 2 in 2003 an increase in disposable income in households will be better registered by retailers of services and goods outside the retail sector this is the consequence of the absolute growth of disposable income compared to the absolute growth of household consumption in the retail sector which is also shown by the steeper curve incline in figure 3 the changes also occur in the structure of personal consumption in retail which is an important factor for the shaping of the domestic retail structure 3 retail sector structure and comparison of financial results in the croatian retail trade the research into the elements of the retail structure could also contribute to determining the causes of a better success of foreign retailers in domestic markets mason mayer 1999 state that the type of ownership over business entities according to descriptive categorization is one of the elements of the retail structure also they find the turnover to be an element to be taken into consideration furthermore the elements can be the size of a business entity involvement in nace sub sectors etc the confrontation of structural features includes data from 2001 1 the number of trading companies in the retail sector 2 the inclusion of those into the sub sectors of g 52 and 3 the number of employees in a company 12 denotes author s estimation on the basis of the examination of changes in relevant statistical indices in 2003 management vol 9 2004 2 pp 75 96 d dunkovi rivalry of domestic and foreign retailers in croatia 83 the data are categorized according to the ownership origin domestic and foreign 13 and the size of a business entity business entities in croatia are by law14 categorized according to their size small15 medium16 and large17 therefore this division is relevant for future research the purpose of dividing retailers into two statistical sets accounts for a separate observation of the sets features and a correlation among variables the analysis of the financial results includes the analysis of the turnover of trading companies in g 52 in 2001 the goal of the comparison of results between domestic and foreign retailers in croatia is to determine the total and average turnover of trading companies as well as the employee turnover achieved the research of some structural features and financial results includes data on domestic and foreign trading companies in croatia mainly registered for economic activities in the retail sector the statistical set includes all 6 262 trading companies that submitted their annual financial report by december 31 2001 to the financial service agency18 that is the actual number of trading companies that in 2001 regularly performed economic activities and paid taxes 4 structure of enterprises in the retail sector the structure of the retail sector presented in table 4 shows that foreign retail companies in 2001 made 4 8 of the total number of active trading 13 for the purpose of this research domestic trading companies are considered as such if their initial capital is by a majority owned by croatian citizens or corporations which are again by a majority owned by croatian citizens 14 legal act of accountancy of the republic of croatia narodne novine br 90 92 4 93 15 those which exceed two out of the three following criteria 1 balance after d