COMPETITIVENESS OF LITHUANIANFOODINDUSTRY:THE MARKETING POINT OF VIEW
Angele Kedaitiene
M.RomerisUniversity, Department of Economics
Ateities 20, Vilnius,Lithuania
Tel. +370 620 45118
ABSTRACT
Paper deals with issue of thecompetitiveness ofLithuanian food industry, analyzed on the basis of the research project, initiated by Lithuanian ministry of Agriculture in 2005, and done by the authors. Theoretical framework of the analysis is taken from the marketing point of view to the competitiveness, basing the competitive advantage on the price, quality, brand and other market factors from the consumers prospective. Analysis shows that domestic food producers are used to compete by price and quality, however other factors – brand, image, relationships, promotion and logistics are equally important. For higher competitiveness, Lithuanian producers lack financial and capital investments, and better relationship building. They consider that high competition on foreign markets is the major barrier. Majority of Lithuanian companies consider conditions on the foreign markets as very different from domestic ones, and harder. Basic recommendation upon the increase of the competitiveness focus around the foreign direct investment as well as better representation in the international professional organizations.
Key words: Food industry, competitiveness, export markets, Lithuania.
INTRODUCTION: THEORETICAL FRAMEWORK
Issue of competitiveness is always on the scheduler. Countries, industries and companies worldwide directing significant resources, and paying desirable attention whilemonitoring state of competitiveness, and seeking for a new means, attitudes, and theories of advance (Trail, Pitts, Langevik, 1998).
Along with the well developed agriculture, Lithuania, as part of the food chain, has technologically progressive food industry. Lithuanian food producers export more than half of theirs production, mainly – to the countries of the European Union and USA, as well the trade balance of last years is positive.
In 2005 Lithuanian ministry of agriculture has initiated project aiming to look at the competitiveness from marketing point of view. This paper presents findings of this project.
Aim of the paper – to analyze the situation of Lithuanian food producers regarding theirs competitiveness on the export markets and to set up the measures of higher competitiveness.
Theoretically, research was based on two main theories of competitiveness – M.Porters framework of the forces of competitiveness, and on the marketing framework of competitiveness. M. Poters framework of competitiveness is the theory of worldwide importance, application of which is often done along with other theories of competitiveness (Porter, 1990; Langevik, 1998).However, this paper examines the marketing view.
Competitiveness from marketing point of view is complementary, and explains factors of competitiveness, acting on the consumer’s level, including quality of products, price and brand (Kotler, 2001;Peter, 2001). These are important ones, because finally, companyisto be considered as competitive, if products are bought, thus, it has resources for further production. It is considered, that consumers on the market can be affected by three general factors: price, quality, and brand, – by one of them, which is of particular importance to the consumers of the defined market, and can be considered as competitive advantage of the company. Many companies even in nowadaysmarkets basing strategies of the competitiveness on the price. There are always markets, and the consumers, which are sensitive to the price. Finally, even in well developed markets, consumers of the middle class are used to the concept of the “good value for money”, and thispricing strategy used by many companies worldwide. Factor of the quality is well developed in all markets, and is understood as the factor of being on the markets. Performance of the companies is regulated by various standards and regulations of quality which should be fulfilled in order products to be placed. However, from marketing point of view, quality means not only the technological specifications, but also the other issues, namely – packaging, design, and image of the company, advertising, and recommendations of others. Branding is the most complex factor of the competitiveness from marketing point of view. Building of the brand requires significant investment, marketing efforts and time. Strong brand guarantees loyalty of the consumers, repeated purchases, and, thus – higher competitiveness. This is the theory, which confirms itself on the markets. However, it might be different reaction of the consumers, depending on the maturity of the market, local traditions, and culture. Research shows, there are other factors, acting along with the branding even on the mature markets, and branding is not an absolutely positive factor.
DISCUSSION: RESULTS OF THE RESEARCH
Information on the marketing factors of the competitiveness, applicable to the Lithuanian food producers, was collected by primary research – survey of the companies, domestic and foreign participants of the Agrobalt exhibition, taken place in May 2005 inVilnius. Totally, 44 companies from various branches were surveyed.
Majority of surveyed companies export theirs production to the countries of the European Union as well as to the Baltic States (Latvia, Estonia) and Russia. This reflects the export trends of the general population of the domestic food producers. Analysis shows, that Lithuanian food producers are used to diversify the direction of the export.
Food products are the commodity of primarily importance for human survival, thus, there are many companies-producers as well as many companies-exporters. In order, to maximize the export profits, enterprises should focus on a few markets.
Fig. 1. Concentration of the export shares (Strategies.., 2005)
Within the project, companies were asked to estimate marketing factors of the competitiveness. Estimation was made for several markets, to grasp the differences of competition factors.What conclusions can be drawn out if this distribution of factors by export markets? Lithuanian food producers are used to compete using multiply factors. However, almost in all markets price and quality are perceived as the basic ones. Lithuanian food producers have weak brands, these are mostly known on the local market, and thus, it is not possible yet to base the competitive advantage on this. On the other hand, costs of production is still lower in Lithuania than in old EU member states, mainly due to lower labor costs, and this allows to base the competitive advantage on the price as well as on the quality. As were mentioned, even developed markets react to the stimulus of the price, especially in consumerproducts.
Country and company image plays the role, however mainly if this is negative one. Relationship building and promotion were recognized as important factors, especially in Baltic States. Lithuanian food producers are not used to the necessity of day-to-day relationship building and lobbying both – with partners and on the market. However, relationship buildingis especially important in Scandinavian markets as well as traditionally in Russia, were number of business deals are made on this basis, other factors (quality, price, etc.) to be considered as being.
Competitiveness is tough issue. Enterprises, acting on the foreign markets, facing barriers and other difficulties.
Table 2. Barriers of higher competitiveness (Strategies…, 2005)
High competition / Instable prices / Lack of finances for promotion / Lack of experience / Dishonest competition / Dishonest partnersfrequency / % / frequency / % / frequency / % / frequency / % / frequency / % / frequency / %
Very important / 22 / 50.0 / 14 / 31.8 / 1 / 2.3 / 1 / 2.27 / 4 / 9.09 / 5 / 11.36
Important / 10 / 22.7 / 7 / 15.9 / 19 / 43.2 / 15 / 34.09 / 5 / 11.36 / 4 / 9.09
Neither-Neither / - / - / 6 / 13.6 / 9 / 20.4 / 9 / 20.45 / 7 / 15.91 / 13 / 29.55
Non-important / - / - / 5 / 11.4 / 6 / 13.6 / 9 / 20.45 / 13 / 29.55 / 7 / 15.91
Very non-important / - / - / - / - / - / - / - / - / 5 / 11.36 / 5 / 11.36
No estimate / 12 / 27.3 / 12 / 27.3 / 9 / 20.4 / 10 / 22.73 / 10 / 22.73 / 10 / 22.73
Totally / 44 / 100 / 44 / 100 / 44 / 100 / 44 / 100 / 44 / 100 / 44 / 100
Market/estimate / Price (low) / Quality (high) / Price+
Quality / Country image (pos) / Country image (neg) / Brand / Company image (positive) / Company image (negative) / Logistics / Relation
ships
lobbying / Promo-
tion (adver-
tising)
EU – old
Very important / X / X
Important / X / X / X / X / X / X / X
N-N / X / X
Non important
Very non-important
EU - new
Very important / X / X / X
Important / X / X / X / X / X / X
N-N / X / X
Non important
Very non-important
USA/Latin America
Very important / X / X / X / X / X / X / X
Important / X / X / X / X
N-N
Non important
Very non-important
Baltic countries
Very important / X / X / X
Important / X / X / X / X / X / X / X
N-N / X
Non important
Very non-important
Asian countries
Very important / X / X / X / X / X / X / X / X / X / X / X
Important
N-N
Non important
Very non-important
Table 1. Estimates of the factors of competitiveness by export markets (Strategies…, 2005)
The major obstacles are high competition, instable prices, and lack of resources for promotion. Such factors, as lack of experience, dishonest competition, and dishonest partners, enterprises did not estimate as being the decisive barriers. High competition is the major obstacle. Nowadays markets are overfilled, and there are many companies with identical commodities. Lithuanian food producers learning to compete. They can hire the specialists, graduating business administration in Lithuanian or foreign universities. However, again, often the negative role is played by level of technologies and innovations, indicators of which are low in Lithuania.
Strategies of the competition, depends on the traditions in the defined markets. Mainly, depending from the market company-leader, and mainly from the persons standing for the competition in that company, depends the morale of the competition: honesty and transparency. In some markets, strategies of the competition are still based on the battle between companies. In this case, sooner or later companiesare loosing the sense of the market and the consumers, and getting bankrupt.Always there are companies ready to fulfill the higher requirements. Competitiveness means the permanent readiness, monitoring of the situation, orientation, and acting according to the current situation. This is ability of changes and minimal anchoring to the previous strategies or ideologies.
Table 3. Factors of greater success on the export markets (Strategies…, 2005)
What do you need for more success on the export markets? / Number of companies / %Support from the State / 12 / 27.27
Experience / 7 / 15.91
Aggressiveness / 1 / 2.27
Marketing knowledge / 3 / 6.82
Relationships / 8 / 18.18
Financial resources / 9 / 20.45
Other / 1 / 2.27
Everything / 1 / 2.27
No answer / 2 / 4.55
Total / 44 / 100
Majority (30%) of surveyedLithuanian companies consider that they need better support from the State, in order to be successful in the foreign markets. This means, that number of export promotion and other initiated by the State programs are ineffective. Hopefully, companies need free consultancy by well established specialists, or State financed agency, while teaching to compete or providing other useful information. They would need seminars and learning material as well as information on the know-how and examples of good practice. Number of companies hasmentioned lack of experience in establishing the relationships as well as better financial resources. This means better programs for investments.
Table 4. Competitive advantage of the foreign companies compared with Lithuanian producers (Strategies…, 2005)
More support from the State / Better financial positions / Better products / More advertising / Better relationships in the markets / Better productsfrequency / % / frequency / % / frequency / % / frequency / % / frequency / % / frequency / %
Very important / 8 / 18.18 / 11 / 25.00 / - / - / 8 / 18.2 / 11 / 25.0 / 3 / 6.82
Important / 1 / 2.27 / 12 / 27.27 / - / - / 1 / 2.3 / 19 / 43.2 / 8 / 18.18
Slightly important / 7 / 15.91 / 5 / 11.36 / 2 / 4.5 / 12 / 27.3 / 1 / 2.3 / 16 / 36.36
Slightly unimportant / 5 / 11.36 / 11 / 25.00 / 9 / 20.5 / 8 / 18.2 / 6 / 13.64
Unimportant / 12 / 27.27 / 2 / 4.55 / 11 / 25.0 / 11 / 25.0 / 2 / 4.5 / 5 / 11.36
Very unimportant / 8 / 18.18 / 28 / 63.6 / 3 / 6.82
No answer / 3 / 6.82 / 3 / 6.82 / 3 / 6.82 / 3 / 6.82 / 3 / 6.82 / 3 / 6.82
Total: / 44 / 100 / 44 / 100 / 44 / 100 / 44 / 100 / 44 / 100 / 44 / 100
Again, competitive advantage of the foreign companies is in what domestic ones consider as theirs disadvantage– better financial powers and stronger relationships.
Majority of Lithuanian companies consider conditions on the foreign markets as very different from domestic ones, and harder. However, success on the export markets is the indicator of higher competitiveness of the producer, and often it means higher revenue. Thus, domestic producers should look upon the foreign markets and take the challenges. For some of the companies, it will mean reexamination of the habits, way of thinking and establishment of the appropriate value set, active attitude. Thinking, “if we build, they will come” is vital among Lithuanian, however among some part of foreign companies also.
CONCLUSIONS
Lithuanian food industry has strong historical traditions in the country, and is considered as one of the most competitive, exporting around half of the production. However, markets are changing as well as means of the competition; thus, state of the competitiveness is under permanent observation. In 2005, following the launched project, competitiveness of Lithuanian food industry was researched taking into consideration marketing factors – price, quality, brand, as well as image, relationships, logistics and promotion. Results show, that Lithuanian food producers are used to compete in the export markets while emphasizing the price as well as the quality. Brand is important on the American markets, and promotion – on Baltic. Scandinavian as well as Russian markets require strong knowledge and skills of relationship building. Logistics and image are the important factors also. In this way, competitive advantage can be achieved by using the set of means. Lithuanian food producers would need better support of the State for higher competitiveness. The weak points of competitiveness are insufficient financial and capital investment as well as poor capacities of relationship building. In this way, the basic recommendations for increase of the competitiveness would focus around foreign direct investment and representation. Foreign direct investment would increase the capital formation, and along with the knowledge transfer would allow for the higher innovations, which are problem of the entire domestic economy.
REFERENCES
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