Small private exporting firms prove to be very successful in the Croatian economy

ZAGREB – Defying local trends and a stifling business climate, small Zagreb-based software producer Utilis exports 70 percent of its products to major world markets such as Switzerland, Germany and the United States. The success of Utilis, which exports software for content management, company safety and clinical research, is a rare feat in this European Union candidate member, which regularly runs a large trade deficit. Battered by the Balkan wars of the early 1990s, Croatia’s economy has been recovering steadily in recent years, growing 4 percent a year on average, mostly due to state investments and household consumption. But the country relies heavily on imports, and Croatia’s private sector has yet to catch up with its Eastern European peers. In an effort to narrow the trade gap, the government plans to double the value of exported goods and services and to increase the number of exporters by 25 percent over the next few years. «Our export offensive will last two years,» said Assistant Economy Minister Leo Begovic. «Special attention is being paid to small- and medium-sized enterprises. «They will have a much higher chance of getting subsidies,» he told Reuters. Small is beautiful Smaller and more flexible businesses are widely perceived as being capable of tipping trade imbalances faster than large loss-making industries, many of them formerly state-owned, that are slowly going through restructuring and privatization. The government wants smaller firms to boost the private sector’s share of gross domestic product, 40 percent of which comes from the public sector. Under a new law on investments due to take effect next January, the state will provide up to 70 percent of the start-up capital for small and medium-sized businesses, a senior Economy Ministry official, Slobodan Mikac, told Reuters. The government has also decided to invest between 300 million and 400 million kuna (55.67 million euros) in incentives for such firms this year – up sharply from 160 million kuna in 2005 and 112 million in 2004. Judging by the success of Utilis, which says it enjoys 30 percent annual profit growth, the government has good reasons to commit such vast amounts of money to private exporting firms. «Prices and profit are much higher in foreign markets, but you have to offer high-quality services or products,» said co-manager Zdenko Coric. Money is not enough Cash injections alone may not be enough to transform Croatia into an exporting economy. Goran Saravanja, an analyst at investment bank CAIB, said the government plan was very optimistic and would require longer-lasting and more comprehensive structural reforms to work. «Croatia must reform its labor law and education system, have better market regulators and a judiciary that would work faster and whose decisions would be respected. We are on a good path, but it will take a while,» he said. Small exporters add that specialist expertise and innovation are paramount in order to break into world markets. Utilis is part of the Croatian Technological Park, which helps some 20 firms develop products based on high technology. Marijan Ozanic, who runs the park, said know-how was key. «Our products are competitive globally because a lot of knowledge has been invested in them,» he said. Emin Dzanic owns a small pharmaceutical business, Laboratorij dr. Dzanic, whose natural skin-care products are sold in neighboring Bosnia and Slovenia, but also in Cyprus and Britain. «You cannot sell people something they already have. This is why we must create unique products, to attract foreigners’ attention,» he said, citing as an example «something unique – a liquid soap for the gay market.» Ozanic of the Technological Park said some persistent problems have to be overcome for small firms to develop. «A major one is insolvency. The state and big firms often pay smaller businesses for their goods or services with a huge delay. Widespread corruption is also big problem,» he said.