Central European firms expand east and into the Balkans

BUDAPEST (Reuters) – Domestic firms in new European Union members are seen expanding robustly into the fast-growing markets in Eastern Europe and the Balkans, two international economic think tanks said yesterday. While the eight post-communist new EU members in central Europe have retained their allure for capital inflows from western Europe, local firms face problems competing in western Europe, the Economist Intelligence Unit (EIU) said in a report. These firms are increasingly, and effectively, turning toward neighboring non-EU states, which they better know than western rivals, to expand their business size. «The concentration is expanding into other post-communist markets,» the EIU report said. «This is turning out to be the strategy for many of the new members’ medium- and big-sized firms, who generally accept that they will struggle to expand into crowded west European markets but reckon they have an edge in the old communist world.» Hungarian firms like OTP Bank and MOLB are focusing their acquisitions in neighboring non-EU states and Hungarian exporters have already strongly benefited from rising demand in the region. Their main competition so far for acquisitions has been from Austria, Greece and Turkey, although Romania’s big bank privatizations have attracted interest from a diverse range of foreign insititutions. Three-quarters of Hungary’s exports went into the EU in the January-July period and they rose by 4 percent year on year, while exports grew by around 40 percent to Croatia, Romania and Serbia-Montenegro and it had strong surpluses toward them. «Too small to expand westwards, central European firms will grow big by expanding to the east instead,» the EIU said. «In time, this could help expand the European market to cover the entire continent.»