Bulgarian engineering companies in the EU

BusinessSouth-East European INDUSTRIAL Мarket - issue 2/2008

One year after our joining the Union the engineering branch demonstrates optimism and confidence

TLL Media Publishing House carried out a large-scale marketing research among engineering companies in the field of industry. With the joint efforts of the whole team the editors investigated, inquired and analyzed the business moods among a representative portion of the engineering companies operating in industry in relation to the end of the first year of Bulgarian membership in the European Union. Up to “closing” the issue by the editors 52 engineering companies took part in the marketing research. We would like to thank our colleagues who responded to our initiative. Due to the large scope of the engineering branch, our editor’s office would like to apologize to those companies we probably missed to invite to participate by sharing their opinions on this subject.

The general conclusions from the research carried out indicate that Bulgarian engineering companies demonstrate

Confidence and high professional self-esteem

As well as active behaviour in searching for business opportunities outside the borders of our country. The predominant share of questioned companies have not yet taken advantage of European development programs but around 1/3 of them are in the process of preparation for that and another 1/3 “see” certain opportunities in this area. Among answers to the question what fields display the most serious investment interests, 40% pointed out to construction, and 33% - power engineering. Immediately after those branches but with the far more modest 12% follow the food and beverage industry and tourism. There is also potential for development in the construction material production, telecommunications, metallurgy, pharmacy and processing industry.

More than 1/3 or 38% pointed out to power engineering as the sector in which most serious investment interests are to be expected in the future, followed by construction (15%), tourism (10%), infrastructure and machine engineering with 8% each.

Today the business climate is more favorable than in the year 2006.

The results that also speak for themselves are those received in answer to the question “How would you evaluate the business climate in the country compared to the period prior to our accession in the European Union” (Fig.1). Sixty-two percent of the inquired persons think that at the moment the business environment is more favorable compared to the period before Bulgarian membership in the European Union. About 1/3 of the inquired persons – 27% do not notice a change in the market climate. Just 8% of the inquired persons believe that today the business environment in the engineering branch is less favorable.

Our next question to the engineering branch was whether they “saw” new growth in investments in the year 2007. In answer to that question, which to a considerable extent determines the situation and perspectives for development before the engineering business in the field of industry, half of the enquired companies pointed out that there is a growth in investment but it is not significant (Fig. 2). Approximately 1/3 do not see a change, while 17% believe that the growth in investments in 2007 was very serious. Only 2% pointed out that not only is there no investment growth but there is a decrease.

Indications of interest by Western engineering companies

With our next two questions we turned to the engineering branch for an opinion whether and to what extent Bulgarian industry has become “more attractive” for foreign competitive engineering companies after our accession in the European Union. The question “Did any Western engineering companies not present in Bulgaria so far enter the market” (Fig. 3) 17% of the inquired companies answered affirmatively emphasizing that powerful Western companies are concerned. More than half of them, however, were more moderate in their answers and they thought there were indications of interest on the part of Western engineering companies new for the Bulgarian market. Twenty-three percent of the inquired persons do not see any changes at the market.

In contrast to the above, there was no prevailing opinion to the next question “Did the interest in the Bulgarian market by foreign engineering companies represented here increase after 1.01.2007” (Fig. 4). Approximately the same share of the inquired companies believe that the interest by foreign companies in our market has increased considerably (37%), while 35% “see” only an insignificant change in a positive direction. Respectively, 23% do not see any change. Only 2% of participants in the research think that after our acceptance as members of the European Union the interest of foreign companies represented in Bulgaria decreased.

A serious percentage – 44% of the Bulgarian engineering business believe that after Bulgarian accession in the European Union there is also an increased although only slightly so far marketing activity by foreign manufacturers of technical equipment and technical solutions represented here (Fig. 5). Twenty-nine percent define the growth of their marketing activity as serious, while 23% do not see a change in the policy of foreign manufacturers present at our market. None of the inquired persons has said that marketing interest of foreign manufacturers has decreased.

High professionalism of Bulgarian specialists

Are Bulgarian engineering companies competitive in terms of financial resources, professional training, deadlines and quality of execution of projects of Western engineering companies – that was what we asked the branch with our next three questions. The results express sufficiently clearly that Bulgarian business has confidence in terms of professionalism, organization and quality of the engineering activity. More than ѕ of the inquired people or 77% are convinced that the Bulgarian specialists are equal and competitive to their Western colleagues in terms of their professional qualification (Fig. 6). Even 8% of them think that we are better trained. Thirteen percent think the professional training of Bulgarian specialists is not as good as that of their Western colleagues. The results speak for themselves also concerning the organization of work, the deadlines and quality of performance of the projects by Bulgarian engineering companies compared to competitive foreign companies. A serious share of the inquired companies – 69%, are convinced that our engineering business is totally competitive to foreign companies (Fig. 7). Eight percent even believe Bulgarian engineering companies fall within the category “we are better than them in many respects”. In contrast to that, 21% consider Western engineering companies are better than us in terms of organization of work, deadlines and quality of execution of the projects.

The results from the answer to the question “Do Bulgarian engineering companies posses the financial potential to compete with Western engineering companies?” were also predictable. The predominant share – 44%, of the inquired have selected the answer:

Yes but we are still behind them in terms of financial resources

Only 10% of the inquired persons believe that the financial potential of Bulgarian engineering companies is competitive to that of Western companies and that both have sufficient financial stability (Fig. 8). A considerably greater share of the inquired have pointed out that Bulgarian engineering companies do not have the financial potential of Western companies but are sufficiently competitive to them. Fifteen percent think that in terms of financial resources our engineering companies are far behind Western ones and the difference in their financial levels is quite significant.

Almost half or 48% of the participants in our research share the opinion that the prices in engineering services in the field of industry in Bulgaria are still much lower that in other member-states of the European Union (Fig. 9). Just 6% of the inquired define the prices of engineering services as similar to those in other member-states. The remaining 44% think the prices have not yet become equal but are getting closer.

Engineering labour is 4 times cheaper than the equipment

The following question is directly related to price formation of engineering services in Bulgaria and in other countries in the European Union: “What is the ratio in the financial value of a project between engineering labour and the equipment input?”. Thirty-five percent of the participants chose not to answer that question. The remaining answers are extremely diverse. Nevertheless, a greater part of the answers are concentrated around the ratio of 20% engineering labour to 80% technical equipment or close to that. Some of the persons inquired have pointed out to even more unfavourable for the price of labour ratios, for example 10%/90%. The highest price of engineering labour compared to the equipment input pointed pout by participants in the inquiry is 60%/40%. The representatives of Bulgarian engineering business have also pointed to a ratio of 50%/50% in the financial value of one project of engineering labour compared to equipment used. Along with the options listed, in some of the questionnaires other ratios were also pointed out but due to their negligibly small share and proximity to those already mentioned we will not quote them here.

Only 8% of the persons questioned have more than 50% Bulgarian commodities in their projects

We tried to “shed some light” by means of this questionnaire on an issue very important for the branch, namely whether Bulgarian engineering companies use domestically manufactured equipment with industrial application in execution of their projects. The results are quire expressive – 35% of those who filled in the questionnaire answered that the share of Bulgarian commodities in executed projects is below 10% (Fig. 10). What is interesting is the fact that a company among the inquired ones has pointed out that 99% of the equipment it uses is domestically manufactured, which is only logical in view of the fact that the company is a manufacturer of C&I automated equipment. The share of Bulgarian commodities input by 19% of the participants in the implemented projects is between 10 and 20%. More than 20% is the share of Bulgarian commodities input in projects realized by 27% of participants in the inquiry. Only 8% of the Bulgarian engineering companies specified that more than 50% of the commodities input in the projects are manufactured in Bulgaria.

23% are already working in other EU member-states

After our joining the European Union, along with the expansion of foreign engineering companies, it is logically to ask if Bulgarian engineering branch feels ready to “attack” the markets of other member-states of the European Union. In reply to the question “Do you execute engineering projects in other countries in the European Union”, 8% of the inquired companies specify that they are already working in the union and they had worked for years before our accession (Fig. 11). On the other hand, 15% of the inquired companies have recently begun to implement engineering projects in EU member-states. A serious share of the companies inquired – 38%, are not yet working in other countries from the community but declare serious plans in that direction. Also, a relatively large share – 30% of participants in the inquiry not only do not implement projects in EU countries but also indicate that they do not have any such capacities.

With our next question: “Are you working in any other countries outside the European Union?” we tried to find out to what extent Bulgarian engineering market is “open” to the execution of projects in neighbouring countries, Russia and the CIS countries, the Near East, Asia, the USA, etc. Completely logical, bearing in mind the closeness both in geography and in economy, and even in the social aspects, 33% of the companies pointed out that they are working in neighbouring countries (Fig. 12). The share of Bulgarian engineering companies executing projects in Russia and the CIS countries is relatively smaller – 12%. Immediately after them, with a share of ten percent are the engineering companies working in Asia. Just 2% of the inquired companies have pointed out the USA as an answer. Another interesting fact is that 23% from the inquired companies that declared their intentions of expanding their acitivty point out to countries outside the EU. Nineteen percent of the participants answered they do not work in countries outside the community and do not plan to do so. The sum of percents displayed in Fig. 13 is greater than 100 because some participants have pointed oput to more than one answer.

Bulgarian projects 95%/projects in other countries 5%

The question that followed was directly linked to the previous two questions: “What is the share of projects executed by you in the country as to projects in other countries?”. The answers were quite diverse. Nevertheless, there is a sufficiently large share of participants in the inquiry whose answers were the same or close to the 95%/5% ratio. Also, the share of inquired companies that pointed out to 100% or 99% of engineering projects executed in Bulgaria only is not small. There is another inquiry to the quite opposite position where it is stated that the ratio between projects implemented in the country and those implemented in foreign countries is 2%/98%. There were answers such as 30%/70%, 40%/60%, as well as 60%/40% and 80%/20% within the range between the above extreme borderline answers.

The remaining questions from the inquiry of the Engineering Review magazine refer to knowledge of European legislation, of common European standards, European development programs, as well as the current status of the structural development plans of Bulgarian engineering companies. The summarized results of the answers to those questions have been displayed graphically.

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