Eastern Europe Breakdown
There is a wealth of information on all of the countries within Eastern Europe. To help prioritise which countries to focus on, A.T Kearney developed the Global Retail Development Index (GRDI). This annual survey ranks emerging countries based on four key variables: country risk, market attractiveness, market saturation and time pressure. Eastern Europe benefits from high annual growth rates, 4 to 5 percent for real GDP growth in the past three years. These countries represent fertile ground for retail expansion as they gain financial and political stability, and consumer demand increases for high quality goods at a fair price. In order to gain a strong understanding of the differing issues and challenges, the remainder of this report focuses on two contrasting countries: Russia and Poland. Countries with insufficient market potential (either low GDP / Capita / small population etc) have been excluded as the plethora of information available has supported this decision.
Table 2: A.T.Kearney's 2004 Global Retail Development Index (Top 12 emerging markets in Eastern Europe)
1 The weighting is 25%. This is made up of Law and regulations (5%), Population (5%), Urban Population (5%) and Retail sales per capita (10).
2 The weighting is 30%. This is made up of Share of modern retailing (10%), Modern retail sales per inhabitants (5%), No, International retailers (10%) Market share
leading retailers (5%).
3 Total weighted score is
recalculated based on
maximum score of 71 for
Russia to equal 100.
A Highly Diverse and Unique Market
Russia’s macroeconomic environment has seen enormous improvement since the financial crisis of 1989. Taking steps to improve economic and political stability has not only moved it closer to entering the WTO but its country risk has decreased slightly. Russia is home to 143 million people and is highly urbanised (69.5%),
Table 3: Unemployment Figures for Russia (millions)
however there has been a decline in birth rate with the majority of the population being aged 15+. Nevertheless, the economy is still highly sensitive to instability and price fluctuations within the world raw materials market. The driver behind economic growth has been the oil industry. Due to this economic growth, Russia has experienced a significant consumption boom (30% growth since 2003), which can be attributed to the recovery of real incomes and the reduction of unemployment rates. Furthermore, Russia is now looking at a booming consumer sector with personal finance becoming more readily available in the form of Credit and Loans. Russia’s low cost, highly skilled labour force is highly attractive to investors. However, poor education has meant there are significant skill shortages at industry and regional levels: there is an underlying reliance on an unskilled workforce to fill low paying jobs, however, in regions the labour market is more comparable to developing countries.
In contrast to Russia, Poland’s macro economic environment has known turbulent and violent times. Poland was one of the first countries to overthrow communist rule and as a result has achieved some success in creating a market economy however, unemployment remains high while incomes and GDP growth low (3.8%). Poland joined the EU in May 2004, which caused concern for the Roman Catholic Church (a very strong force in Poland) who thought the modern lifestyle was crippling moral values. Poland is home to 38 million people and, like Russia, has a significant
Table 4: Unemployment Figures for Poland (millions)
net movement of urban population (66.5%) and a significantly older aged population (69.7% aged 15+). Unemployment levels remain high due to ongoing structural reforms, high non-wage
labour costs and subdued economic growth. What is increasingly disturbing is that 1.65 million of registered unemployed inhabitants have been so for over a year now. However, stabilisation of public finances and an increase in social and regional equality has resulted in a variation in incomes
and lifestyles.
- Food and Beverages. B. Clothing, Footwear. C. Rent, Electricity, Heating etc.
D. Household operation. E. Healthcare. F. Education and leisure. G. Transport and communication. H. Other
Importing and Exporting
Both Russia and Poland are situated near the great market of the European Economic Community; another important component of liberalisation has been the opening up of international trade. In the short term the opportunity to trade with the West has provided instant competition, greatly diminishing the domestic monopoly power of colossal state enterprises. In the long term, international trade holds the key to the eventual integration of the economies of Eastern Europe with the economies of the West
Table 5: Export and Import Figures for 2003 (US $ millions) – source Euromonitor 2004 (GMID)
There are copious levels of challenges and opportunities for retail and consumer goods companies for example: within Poland, market saturation has led to a consolidation phenomenon, which is still in its early stages elsewhere. Speciality chains (e.g. Ikea in Russia and Kingfisher in Poland) are expanding their core business model within the same countries. For example, Ikea has been in Russia since 2000 – it is a pioneer in DIY and Home Furnishing within Russia.
Table 6: Imports 2002 (Euromonitor, 2004)
Both Russia and Poland are responding strongly to the opening up of international trade: Poland's ability to market its goods abroad has moderated the decline in living standards. The growth in Eastern European exports is vital to the modernisation of the region because it provides the finance for needed imports of capital and technologies. Competition within Russia is increasing as both domestic and international retailers speed up their expansion plans in new sectors and cities. International retailers have rapidly enhanced their foot-prints in the past year although the majority of expansion is within the Capital.
Table 7: Exports in 2002 (Euromonitor, 2004)
The market within Poland is one of the most diverse in the entire EU. Grocery retailing has increased whereas speciality stores have decreased: there has been a dynamic development of pharmacies, petrol stations and super/hypermarkets emerging e.g. Groszetk. A significant issue for importers is the consolidation process that domestic retailers are adopting; this rapid expansion process cuts costs, optimises logistics and defends the country’s independence. Imports are far more popular in Russia with international retailers gradually winning over local consumers (by usage of franchising); this means domestic retailers are having to focus on own brand products. Retailers within Russia are developing supply chains in favour of domestic suppliers rather than imports; this is keeping the domestic retailer alive. Internationals are geographically cautious (with the exception of Ikea) thus resulting in domestic retailers moving away from large cities creating the advantage of being the first movers and supplying a pent up demand.
Barriers to Entry
Barriers to entry can be defined as the “circumstances particular to a given industry that create disadvantages for new competitors attempting to enter the market. These may include government regulations, economic factors, and marketing conditions”. There are numerous risks involved with international retailers entering both Russia and Poland. The following table portrays just some of the major barriers to entry:
Table 6: Barriers to Entry
Source: GMID, , ,
REFERENCES:
WEBSITES:
ANON, 2004. BBC News UK Edition [online]. Available from: [Accessed 27 October 2004].
WARD KINKADE ET AL, W., 1999. Demographic Developments in Eastern Europe and the Former Soviet Union, Present and Future [online]. Available from: [Accessed 27 October 2004].
LIPTON, D., 2004ca. Eastern Europe [online]. Available from: [Accessed 27 October 2004].
THE ECONOMIST PRINT EDITION, 21 September 2001 [online]. Available from: [Accessed 27 October 2004]
STATISTICAL OFFICE OF THE EUROPEAN COMMITEES, 2004. Eurostat Yearbook 2004 [online]. Available from: [Accessed 20 October 2004].
WINIECKI, J., 1999. East-Central Europe: a regional survey - the Czech Republic, Hungary, Poland and Slovakia in 1993 [online]. Available from: Accessed 23 October 2004
ANON, 2004 ca., Ministry of Economy, Labour and Social Policy – Republic of Poland, 2004 [online]. Available from: [Accessed 22 October 2004]
ANON, 2004 ca., Strategy for Poland’s Development Co-Operation 2003 [online]. Available from: [Accessed 28 October 2004]
WALTERS, E., 2004ca. The Other Europe: Eastern Europe [online]. Available from: [Accessed 28 October 2004]
http://en.wikipedia.org/wiki/Eastern_Europe#Eastern_Europe [Accessed 22 October 2004]
ANON, 2004ca. Reducing Structural Dominance and Entry Barriers In Russian Industry. [online] Available from: [Accessed 28 October 2004]
ANON, 2004 ca. Poland At A Glance [online]. Available from: [Accessed 28 October 2004]
ANON, 2004 ca. Russian Federation [online]. Available from: [Accessed 28 October 2004]
KING, R,. 2004 ca. One Year Later: The Transformation of Eastern Europe [online]. Available from: [Accessed 28 October 2004]
[Accessed 28 October 2004]
JOURNALS:
KEARNEY, A.T., 2003. Emerging Market Priorities For Food Retailers [online]. Available from: [Accessed 22 October 2004]
ANON, 2004ca. Strategic Management in Central and Eastern Europe. Journal of East West Business, 5 (4).
EUROMONITOR (GMID) 2003. Country Reports for Those Below [online]. Available from: [Accessed 20 October 2004]
- Belarus
- Bulgaria
- Croatia
- Czech Republic
- Estonia
- Hungary
- Latvia
- Lithuania
- Macedonia
- Moldova
- Poland
- Romania
- Russia
- Slovakia
- Slovenia
- Ukraine
Source: Euromonitor 2004 (GMID) 2004, 2004, 2004, epp.eurostat.lec.eu.int 2004, 2004, 2004
Source: Euromonitor 2004 (GMID), 2004, 2004, 2004, 2004
Source: Euromonitor 2004 (GMID), 2004, 2004, 2004, 2004