Robert Heeg
After years of explosive growth, the young markets of Central and Eastern Europe are feeling the squeeze.
The region’s research sector also sees opportunities. Predictions vary from total collapse to steady growth. Overall, the ‘noughties’ have been kind to the Central and Eastern European (CEE) countries. Key for market research growth was the influx of international companies. On the consumer front, particularly the FMCG companies, and in the research industry, large global organisations saw growth opportunities in the region’s fledgling economies.
“Research activity in Russia is mainly driven by international companies that consider the country as a strong distribution market,” says Tatiana Barakshina, research director at Russia’s Bazis Intelligence Group and an ESOMAR Council member. She estimates the research market in Russia to measure between US $300 million and US $320 million in 2010, showing a 15% growth on the year before. Apart from FMCG, mobile phone service providers, pharma, banking and big retailers are often mentioned as industry boosters.
Outsourcing of online research and data-processing services also enabled strong and sustainable growth, as in Bulgaria, according to Stoyan Mihaylov, CEO of Junction Bulgaria, and president of BAMOR, the country’s research association.
Local customs
Despite the troubles in the eurozone, the activities of FMCG companies are still increasing in some CEE markets, says Daniel Enescu, managing partner of Daedalus Millward Brown and president of the Romanian Society of Marketing and Public Opinion Research (SORMA). “The research market grew by 9.5% in 2010, while the income of most multinational companies fell by 5-10%. The Romanian market is not yet saturated.”
As these multinationals make inroads, they need to understand consumer behaviour, especially during the crisis, comments Alina Serbanica, senior vice president of Ipsos Interactive Services and ESOMAR representative in Romania. “This stimulates specific types of research like ethnographic studies.” Indeed, a very precise knowledge of these markets is needed, explains Annelies Verhaeghe, who is setting up an office for InSites Consulting in Romania’s Timisoara. “The research toolbox needs to be adapted to local customs. I see a great role for research agencies in this region to translate the results for foreigners. Understanding culture is key.”
Janja Bozic Marolt, general manager at Mediana and ESOMAR representative for Slovenia, sees similar developments in her country. “Successful businesses are using research to find new opportunities, niche markets and competitive environments, or to evaluate their market position.”
Growth has been uneven, though, observes Croatia-based Ina Ivekovic, manager marketing services & consumer research CES at Philip Morris International. In the southern part of Central Europe she sees a large discrepancy between the well-off North (Slovenia, Croatia) and the poorer South (Kosovo, Albania). “Southern areas lack market research agencies. The majority of companies still do not recognize market research as an investment, and therefore don’t have budgets to support its development in this region.” She adds that research methods are often still traditional.
Budget cuts
Although there is room for growth, the industry has been struggling since the crisis struck. Csilla Vörös, managing director of AGB Nielsen Hungary, reports a 4.5% fall in the country’s industry turnover between 2009 and 2010. “Research budgets have been cut, and prices also.” And there is not much chance for a quick recovery, adds József Mészáros, managing director of Cognative Ltd. and ESOMAR representative for Hungary. “Multinational clients downsized, merged regions, and eliminated local budgets. The state also cut its oversized research budget.”
A similar message from Jan Herzmann, managing partner of Factum Invenio and ESOMAR representative for the Czech Republic, where industry-watchers expect at least a 5% decline in 2011, with a highly uncertain 2012 to follow. With the exception of high-flying Poland, he sees a similar situation across the region. In Russia, Barakshina reports that the impact of the 2008-2009 crisis caused several prominent agencies to close and others to show a sizeable decline in turnover. “But the Russian market seems to have recovered faster than many other CIS countries.”
Positive effect
In Romania, Enescu describes the market as “quite volatile.” In 2009 it had a double-digit decrease, while 2010 brought almost 10% growth. 2011 looks stable but is highly dependent on the multinationals’ budgets. He warns: “We expect economic difficulties in the coming years.” Cost reduction is largely to blame, adds Serbanica. “Clients are more interested in data collection alternatives like CATI and online research.” Verhaeghe observes that the economic turmoil encourages both companies and people to leave the region. “A lot of young talent is leaving this area.” But she feels that the crisis can also have a positive effect on innovation and transformation of the research industry, stimulating efficiency and quality.
Elena Onbright, CEO of MAP Marketing Research and ESOMAR representative for Bulgaria sees “shrinking revenues, significant restructuring and consolidation in 2011.” Ivekovic sees lower research investment. “The decline started in 2009, and still no sign of recovery.” Marolt describes the clients’ pressure for discounts as ‘horrible,’ but feels the industry is improving thanks to advanced methodology and the fact that all Slovenian ESOMAR members abide by the ICC/ESOMAR code.
Outposts
Some parts of the region are hubs for global companies, like Unilever in Budapest, SAB Miller in Pilsen, or the various pharmaceuticals. Barakshina says that all the global companies have regional offices in Russia, predominantly in Moscow, with local staff varying from 50 to 500+. These organizations usually cover not only Russia, but also Ukraine, Kazakhstan and other CIS countries. Ivekovic reports that larger companies are headquartered in Belgrade, Zagreb and Ljubljana, with Croatia expected to become even more interesting after it joins the EU in 2013.
Similarly, Romania is a Balkan hub for several multinationals and most top-ranking market research companies, says Serbanica. “Local strengths are the well-educated, computer literate labour force, with multi-lingual skills including excellent English.” The same is true of the well-educated and highly motivated Czechs, adds Herzmann.
Some areas were more popular in the past. “Hungary was a forward outpost for the promising Eastern and Balkan markets,” says Mészáros. “Now investors have stopped expanding in those directions or relocated their main business activities to the Far East.” The same can be said of Slovenia, reports Marolt. “Larger companies were headquartered here, but moved out over the past few years. Unfortunately, Slovenia could not retain its position as the main gate to Eastern Europe. ”
Globalised
The presence of major headquarters is not the only symptom of the international appeal of CEE. “The region is on its way to becoming highly globalised,” says Marta Hoffmann, CEO of TNS/Hoffmann in Hungary. “And this includes the market research industry.” Mészáros adds: “Multinationals unifying, standardising, rationalising and economising their research activities has a great impact on the region.”
Slovenia has always been too small to attract most global research providers, comments Marolt, but there are exceptions. “One international research company is aggressively trying to destroy the market with incomprehensibly lower prices.” In the Czech Republic, Herzmann sees “the concentration of the research industry leads to an increasing market share for the biggest players, at the expense of local providers.”
Verhaeghe sees many German and Italian companies in Timisoara, which is close to the borders of Serbia and Hungary. Local demand for global brands is growing, she says, but there are also outsourcing trends: “Big companies that used to have their low-cost centre here are moving to cheaper regions like Ukraine or Asia.” She also sees that companies are attracted to Romania by the highly developed tech skills, enabling more online and mobile research. “The quality and availability of internet connection in the cities is better than I am used to in Western Europe.”
Indeed, Serbanica reports a sharp increase in internet penetration as well as mobile technology and smart phones, now owned by a significant part of the urban population. Enescu adds that online access panels have developed recently. “Most new technologies are rapidly adopted in Romania, as demanded by multinationals.” In Slovenia, Marolt’s own agency saw its revenues double in 2011 as a result of selling web panels to foreign research providers. In Hungary, Vörös foresees the growth of online methods and research. Globally used research tools like Link or NeedScope influence the local markets, says Herzmann. “And they stimulated the creation of locally developed models, tailor-made to the CEE mentality.”
As for the adoption of new technologies by the Bulgarian research sector, Mihaylov says that growth consists mainly in providing outsourced online research services, survey programming and hosting, project management, sample management, panel care, and managing translations. But Ivekovic sees no clear evidence of globalisation and new technology in her region. “A few major players are importing innovative tools, but the impact is not significant as the majority of companies still rely on traditional methods.”
Good, bad and ugly
So what can we expect for next year? Opinions vary, depending on the country. Most optimistic is Barakshina, who expects steady growth in Russia where large local FMCG companies have recently been acquired by international giants, stimulating a steady flow of field research.
Others are much less upbeat. In Hungary, Vörös predicts a challenging 2012. “There is no growth in consumption on the horizon.” Mészáros goes further: “Total collapse. At least in Hungary.”
Both Enescu and Serbanica in Romania predict a double-digit decrease of the market. Mihaylov and Onbright in Bulgaria predict 2012 will be flat compared to 2011, but also fear a worst-case scenario of a 25% decline in revenue. Marolt in Slovenia sees “no real potential for significant growth,” whilst Herzmann in the Czech Republic forecasts a 10% decline. “Only a few highly specialized research providers will be able to grow.”
Hoffmann, in Hungary, expects those countries whose governments hit the highest research spenders with taxation and special restrictions to have the most difficulty. Verhaeghe, on the other hand, sees a growing interest in entering the region by global brands. Ivekovic sums up the disparity when she says: “Next year will be better, at least for Slovenia and Croatia, which are slowly recovering from recession and recently had promising elections. I do not think that the future is very bright elsewhere for the next three years at least. Yet, the region still has a lot of potential and opportunities for growth.”
If you’re interested in attending ESOMAR’s CEE Research Forum 2012 on 26 – 27 March more information can be found on our event pages
