Online growth companies make “New European Tigers” roar

Online growth companies make “New European Tigers” roar
By bne IntelliNews March 26, 2018

The CEE region is enjoying strong GDP growth and an increase in productivity driven partly by online small and medium-sized enterprises (SMEs). Developments in the region are so promising that a new study by PayPal and Deloitte talks about countries from Northern, Central and Southeast Europe as the “New European Tigers”. 

The study focusses on 13 countries that lie in a near vertical line down the EU’s eastern flank. They run from Finland in the north, via the Baltic states, to the Visegrad 4, to the four EU member states of Southeast Europe, ending in Greece. 

What all these countries have in common is that they are catching up with Western Europe in terms of education, internet access, investment in infrastructure and in other segments.

“We found the results of the research so interesting and positive that we named the markets covered in it “The New European Tigers”. This report will show how the region is growing, thanks to the positive changes in infrastructure, increasing penetration of technologies and innovation, local talent and last, but not least, the development of online commerce,” stated Matt Komorowski, senior director and general manager for Northern and Central Europe at PayPal.

“Natural development for the economies of ‘The New European Tigers’ focuses on other investment into innovative fields, development of the online business sector and other expansion on the foreign markets. The key driver of the region are small and medium-sized businesses, which are the core of the development of the region,” said Marcin Glogowski from PayPal.

Looking at some of the factors behind the region’s rapid growth, the report notes that “The region is very competitive in terms of the labour market. There is significantly smaller operational costs-average compensation per hour in the region is about one-third of that in the rest of the EU — €10 in the region, compared to €27 in other EU economies.” 

The productivity of the region increased by 9% when compared to 2007, which is almost twice as much as the increase in Western, more developed economies. “High volume of export is showing the economic book and is a natural way for the companies in this region. Internet, as a driver of the growth, is making trans-national business easier than ever for the [small and medium sized businesses],” commented Julia Patorska, the head of economic analyses department of Deloitte.

Supporting the development of online businesses, the report also points to the sharp increase in the number of households with internet access, which is now at 80%, albeit 10 percentage points lower than the level in the western part of the EU. Mobile adoption is faster than in the west, and around 55% of citizens used their mobile phones to go online in 2017. Moreover, residents of the eastern part of the EU are increasingly using bank cards rather than cash to make payments, with card transactions per capita soaring by over 250% since 2007. 

Accordingly, the study says, “online is an increasingly common strategy for running a business in the region”. The share of firms receiving online orders was hiked by 81% since 2006, compared to just 15% in other parts of the EU. Still, the size of the e-commerce market in the region is still only 7% of the total European e-commerce market, leaving plenty of room for future growth. 

SMEs produce almost a half of the overall exports of the CEE region including the Baltic states and Finland, but excluding the non-EU countries of Eastern Europe. SBMs also generate 49% of the overall value of the sold markets and goods, which is 4% more than Western Europe.

Still, there are significant differences across the region. The Czech Republic, for example, is above average when compared to other countries, especially in when it comes to infrastructure, digitalisation and availability of talent. On the other hand, the country is a relative under-performer in the institutions and legal environment areas.

Although there are almost 1mn SBMs in Czechia, the role of the SBMs in the Czech economy is lower than in Western Europe or studied region. The Czech economy is still driven by larger companies. However, Czechia has the highest number of online-exporters (about 3,500). “This is the highest number among the countries analysed. 94% of them are SMEs, and 71% have from 10 to 49 employees,” says the report.

Meanwhile, in the CEE region’s biggest economy, Poland, SMEs are behind the regional average in terms of digitalisation, with only around 66% having websites, and just 26% having a social media presence. By contrast, Poland’s exports as a share of GDP are close to west European levels, though as in Czechia, big companies dominate in exports. 

 

Data

Dismiss