9.2 Motives for market entry

The liberalization of the political and economic systems in Central and Eastern Europe opened a huge new market for foreign firms. In particular the enormous growth potential of the region prompted a rush into these markets in the early 1990s. The CEEC-10 alone “ consisting of the more economically advanced countries of Central Europe (Slovenia, Hungary, Poland, Czech Republic, Slovak Republic), the three Baltic states and Romania and Bulgaria “ constitute a consumer market of about 105 million people. When the countries of former Yugoslavia, Ukraine and Russia are added the number rises to 325 million people, close to the 370 million in the EU-15. GDP growth rates are expected to rise above the EU average in the course of the catching up process.

The prospect of building a market almost from scratch fuelled the expansion to the east. However the average consumption of typical consumer products such as toiletries, beverages, confectionary, detergents and household cleaners is still well below Western levels and a considerable proportion of people still have no insurance cover or cheque accounts. Therefore it is no surprise that entry into these markets was and still is market driven (Engelhard and Eckert, 1993; EBRD, 1994; Wes and Lankes, 2001).

In the case of European and global MNCs that are major players in oligopolistic industries, competitive considerations are important drivers too. ˜First mover advantage is seen as vital to success in CEE (Quelch et al ., 1991; Schuh and Damova, 2001) as first entrants can outmanoeuver their competitors by occupying ˜first in the market status in consumers minds, blocking access to marketing channels or buying leading local firms to secure local production facilities, established brands and the existing customer base. More recently a quicker and less cautious entry pattern has been exhibited by Western companies in the countries of Eastern Europe (for example Ukraine) and South-Eastern Europe (Bulgaria, Croatia, Bosnia-Herzegovina). The major players in the region are now fighting for dominance and are trying to complement their existing Central European operations. Having a presence in these new markets is regarded as a strategic necessity and this seems to outweigh the rather low attractiveness of certain country markets. Production-oriented considerations also play a part as the lower local production costs allow Western firms to service price-sensitive mass markets that could not be covered by exporting.