Automotive industry in Bosnia & Herzegovina

Automation & RoboticsTechnical ArticlesSouth-East European INDUSTRIAL Мarket - issue 4/2021 • 03.11.2021

Similarly to other countries in the region, Bosnia and Herzegovina’s automotive industry is based on a long tradition dating back to the times of ex-Yugoslavia. Its early days are connected to special-purpose industry (military vehicles), which was later extended to include a civilian program. 

At the time, the most important enterprise was Pobjeda, Tesanj, founded in 1954, along with other companies that pursued production of parts and components for common automotive industry (Zastava, TAM, FAP, IMT, Duro Dakovic, etc.). Many enterprises ceased to exist during the 1991 – 2000 period, while others continued production for the international market. Since 2000, a number of new enterprises manufacturing parts and components for the automotive industry emerged, in addition to a limited number of enterprises that have undergone privatisation and managed to survive. Today, BiH’s automotive sector includes some 30 medium size and large enterprises in the branch, and some 40 automotive companies that may be classified as small-size companies.

According to a 2019 report by PricewaterhouseCoopers (PwC), since 2011, the export-oriented BiH automotive sector has grown significantly, and is quickly becoming the leading branch of the country’s metal processing industry. There might not be a large number of companies, but those that operate in this sector are some of the fastest growing and best developed in terms of technology, management and organisation.

Bosnia and Herzegovina has a favourable geographical location in the Southeast Europe region being close to many European automakers. It still has a relatively inexpensive workforce and energy inputs compared to the most of the Central Europe countries. Many companies operating in the sector are small and therefore flexible in terms of their products and production facilities. The extent of customisation of their products is also sufficient to satisfy the needs of many clients. Delivery is rather fast due to flexibility and vicinity to buyers’ markets.

There are however, many limitations that the BiH business climate poses for attraction of investments. Although subsidies are provided from the country and entity levels, the extent of foreign investments to BiH automotive sector continues to be far below its potential. This may considerably affect BiH competitiveness compared to the other countries, even if compared with those in its region, such as Serbia and North Macedonia, who offer far more benefits for investors in many industrial areas, including the automotive industry.

BiH’s automotive companies primarily supply the parts and components for European Tier 1 and Tier 2 suppliers. Parts and components produced in BiH include: seats, wheel components, ICE engine components, exhaust systems, cabins, cables, electric vehicle parts, parts for starting systems, plastic, metal and rubber parts, as well as plastic deformation tools. Several companies produce parts and components for machines used in automotive industry.

 

Companies in the sector

As of 2019, BiH’s automotive landscape consisted of 67 active companies, operating fully or partially, as producers of parts and components. This number includes all companies representing automotive suppliers, provided their share in the automotive sector is not insignificant.

These companies employed approximately 11 thousand persons. Between 2016 and 2018, the number of employees grew by some 2,4 thousand (29%). The revenues of these companies amounted to KM 1,7 billion in 2018, with average net profit margin of some 8,46%. The total assets amounted to KM 2,1 billion (in 2018), while the investments in 2016 – 2018 period exceeded KM 340 million.

According to BiH’s official company size classification, over 50% of the country´s automotive enterprises may be classified as large companies, while small and medium-sized companies are almost equally represented. Although the majority of BH automotive companies (26) employ less than 50 employees, 18 of them employ more than 250 persons, and this makes them important economic pillars in their respective regions.

Most of the companies are almost exclusively export-oriented, with an export share of over 80%. Important export markets include: Germany, Austria, Croatia, the Netherlands, Czech Republic, Luxemburg, Hungary, Slovenia, Italy, Spain, and Slovakia, as EU members; as well as Turkey, being the most important trade partner outside the EU. The regions with strong concentration of automotive companies in BiH are as follows: Jelah – Tesanj – Gradacac (North-East), Banja Luka – Laktasi (North-West), Mostar – Siroki Brijeg (South), and Sarajevo – Gorazde (East).

As for their technological level, 59% of BiH automotive companies are below average, 28% average, while 13% have above-average technological competence index. In regards to the quality standards, 30% of the 67 companies are IATF-certified (Automotive Quality Management System), and 76% have introduced ISO 9001 quality standard. Over 95% of the BiH automotive companies fall under the group of component specialists, according to the redesigned role in the automotive value chain and this indicates their dependence to developments in the European and therefore global automotive market.

The new companies in the industry account for one quarter of the 67 BiH automotive enterprises. The strong potential of the automotive sector for leveraging new business opportunities is obvious due to the fact that several established companies operating in other sectors have considered entering the automotive industry. These newcomers primarily intend to pursue business operations in automotive design, development of electrical vehicles and their components, and application of software solutions in the automotive sector.

 

Opportunities and challenges

The global automotive industry will undergo significant changes due to several new trends on the market. Some of those technology trends are aimed at the automotive industry in particular, while others are relevant for all sectors. It is expected that all of them will impact both BiH’s and the region’s automotive industry. Data shows that the presence of global automotive industry in the region is not very strong. Currently, Tier 3 suppliers that process raw materials are strongly represented. But the industry is changing rapidly and it becomes visible on BiH market as well. The local market companies are of medium and small size, but in the upcoming years this will be their biggest advantage. According to PwC’s analysis being able to deliver high quality products and remaining flexible to the changing customer needs will be something that the most of the large automotive players will desperately look for and this constitutes a huge opportunity for local BiH companies.

It has to be noted that new megatrends will also gradually shift the focus from “classic suppliers” of predominantly metal and plastics components to the more ICT-like companies able to quickly implement new technological solutions in the sector. This is particularly valid for the growing market of autonomous and connected vehicles, where the rapid development of new automotive technologies will require swift adjustment to technological changes. The big automotive companies have become aware that they are too slow to timely apply the new technological solutions. This is the reason why they are turning to smaller, high-tech companies, who are able to respond quicker to swift technology changes, and are willing to outsource the applied research work and share R&D budgets.

Depending on their position and prospects in terms of identified global automotive industry trends, the BiH automotive sector companies are divided three groups: those whose production programs are not directly threatened by new trends (around 31 enterprises); those who are, to some extent, threatened, by new industry developments (also around 30); and those whose production programs could be exposed to the anticipated changes (around 6 companies).

Overall, BiH’s automotive industry is well positioned on the regional and the European market. With 11 000 employees, more than 60 companies operating in the sector and strong share in the national exports, it is one of the most advanced parts of the country’s economy. Some of the companies in the sector are the branches of international corporations, and this allows them quality monitoring and swift adjustment of their technological setting to new trends. BiH’s automotive companies use a variety of production technologies and this facilitates adjustment to the changing needs in the industry.

Generally, automotive companies in Bosnia and Herzegovina (particularly the largest ones) are well prepared to face the future challenges, states PwC’s report. They carefully observe developments in the automotive suppliers’ components markets in an effort to adjust in time and keep their relevancy and competitiveness. Information on future trends and the latest market developments is obtained from their parent companies, buyers and suppliers, and through participation in trade fairs.

Being aware of the new trends and potential subsequent changes, BiH companies choose their own ways to adapt and stay relevant. They may not be overly concerned with the extent of anticipated changes, but they are trying to adjust their approach to their human and financial capabilities.

However, companies in the sector are exposed to obvious limitations and threats in regard to the workforce (skills and availability), technological background (low technological base), lack of their own R&D facilities, low level of digitalisation and automation, limitations in certification and modest investments in marketing activities. Overcoming these challenges may prove to be difficult for single companies. Measures that can and should be implemented by the groups of companies, or even by the sector as a whole, include: joint R&D projects; addressing the educational gap by taking an active role in shaping the school/university curricula; developing internship programs to help build the necessary competencies. All of these can be coordinated by industry associations, chamber of commerce or other government organizations. It is also worth noting that the level of R&D and technology investments that is required poses a major challenge especially for small and medium-sized companies. Introduction of targeted tax relief systems or providing other means of financial support may be vital factors that will allow BiH’s automotive industry to leverage available opportunities.

The 4 major megatrends in the automotive sector: electrified vehicles, autonomous vehicles, shared economy and connected vehicles – give rise to development opportunities in many fields, for example batteries, fast charging technology, hydrogen fuel cells, hybrid vehicles, sensors, connectivity, low mass components, integrations, applied research funding, new exploitation models, etc. BiH’s automotive producers that successfully anticipate future demands and desires will certainly take the lead in the industry.

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