CHAPTER 2

INTERACTION OF TRADE ACTIVITIES BETWEEN SELECTED SOUTHEAST EUROPEAN COUNTRIES

Sanda Renko

AbstractPurpose – The purpose of the chapter is to explain the interrelationships between trade markets of Croatia, Bosnia & Herzegovina and Serbia, whose countries have experienced the same political, economical and social changes due to their post-war market orientation. Particularly, the research is focused on the relationships between retailers and their suppliers, the effects of 2008 financial crisis, and changes in customer behaviour on those markets.

Design/methodology/approach – The chapter builds upon the investigation of the existing literature on trade in selected Southeast European countries targeting three time-periods: planned economy; after the launch of the economic transition period; and the EU accession preparation era. The supporting fieldwork is based on qualitative interviews with senior managers in trade companies operating on all investigated markets. Results are compared with other secondary data sources.

Findings – The research has contributed to the understanding of similarities and differences on three markets of former Yugoslavia: Croatia, Bosnia and Herzegovina and Serbia. Four areas are used as a framework for explaining the level of co-operation and interdependence between trade companies on investigated markets: changes in retail forms, growth in retail operations, increasing importance of the relationships with suppliers, and penetration of private labels.

Practical implications – Results of the chapter provides some directions for suppliers on the selected markets and for retailers as well. As retailers rely on their key suppliers, local suppliers should offer them elements of differentiation. On the other hand, results give an insight into actual situation on the markets of Bosnia and Herzegovina, Croatia and Serbia, regarding retail structure, number of retail forms, private labels, etc.

Originality/value – Considering an extensive literature review, the analysis of data given in official statistical databases, as well as qualitative study among trade managers, these findings have important managerial implications for retailers and suppliers. .

Key words trade, relationships, Croatia, Serbia, Bosnia and HerzegovinaPaper type Research paper

1. Introduction

Southeast European region is usually treated as the European periphery in the economic literature, connected to negative economic developments (Buturac et al., 2011, p.485). Moreover, this region is usually neglected in the literature on macroeconomic performance of the European economy, due to its low impact on the rest of the European economy or simply due to a lack of comparable data. The region includes all the countries on the Balkan Peninsula: Albania, Bulgaria, Greece, Romania and former Yugoslavia. The term „former Yugoslavia“ is used after the outbreak of wars which destroyed and caused the disintegration of the federation of six republics, „the sovereign states“ in the region of South Eastern Europe after the year 1991 (Mocnik, 2001, p. 100). Bjelic states (2005) that former Yugoslav republics developed a market economy in the conditions of the socialist political system, but in the early 1990s they went through tremendous political, social and economic changes. Transactions which were formerly considered national have suddenly become international (Mocnik, 2001, p. 107). Markets have opened to the entry of foreign companies and the competition has intensified. Former Yugoslav republics started to build a market economy and strive to create a new structure of the economy that is more in accordance with world and European market demands. Having in mind their joint economic development in Former Yugoslavia, and the fact that those countries had already formed common market, with many brands already known from the past, markets of the Former Yugoslavia are still economically interdependent. Accordingly, our major premise is that markets of Former Yugoslavia have experienced high complementarities of their economies. For assessing the major premise of this research, three Former Yugoslav republics: Bosnia and Herzegovina, Croatia and Serbia, were compared. This selection of countries is based upon the work of Zabkar and Makovec Brencic (2004) who suggested that Serbia and Croatia have witnessed similar destruction and reconstruction of their economies in a way that affected the development, maintenance, and re-establishment of business relationships profoundly (Zabkar and Makovec Brencic, 2004, p. 203). The decision to include Bosnia and Herzegovina in the research was supported by the findings of Čausevic (2006) and of the Ministry of Foreign Trade and Economic Relations of Bosnia and Herzegovina. In their analysis they found out that there was intensive trade cooperation between Bosnia and Herzegovina, and Croatia and Serbia. The main goal of this chapter is to investigate whether trade activities on one of investigated markets reflects equally on other two markets. In other words, the purpose of the chapter is shed light on the interrelationships between trade markets of Croatia, Bosnia & Herzegovina and Serbia. In order to explore similarities and differences on three retail markets of former Yugoslavia: Croatia, Bosnia and Herzegovina and Serbia, the relationships which have arisen among trade companies on the markets of Croatia, Bosnia and Herzegovina and Serbia, the research was guided by the following research questions:

RQ1. Do retailers rely on regional suppliers and on the advantages of collaboration in the supply chain or are they committed to their key suppliers while operating on trade markets of Croatia, Bosnia and Herzegovina and Serbia?RQ2. Are there similar effects of 2008 financial crisis on retailers` marketing decisions on markets of Croatia, Bosnia and Herzegovina and Serbia?RQ3. What are the responses of customers in Croatia, Bosnia and Herzegovina, and Serbia toward changes on their trade markets?

Following this introduction, the chapter presents a review of the relevant literature regarding trade activities between the markets of Bosnia and Herzegovina, Croatia and Serbia. Then a methodology and results of the qualitative study with senior managers in trade companies operating on all investigated markets are explained. Although this relatively small number of companies presents the main limitation of the study, their choice is not questionable in order to obtain comparability of data. Namely, only companies that operate in all three Southeast European countries could give objective review of the problems that they are facing with and the characteristics of the situation on selected markets. The chapter concludes with a summary of the major findings of the study, where limitations of the study and managerial implications are also discussed.

2. Literature review

There is a very long history of trading in the region of Southeast Europe and it is not surprising that early written sources about trading activities can be traced back to the year 1458, when the masterpiece of Croatian economist, Benedikt Kotruljevic, „The book about the art of trading“ was published. In order to provide the insight into the trade and distribution changes in the investigated area, we are in the line with the work of Lorentz et al. (2007). Accordingly, the academic research on our focus subject in the context of selected Southeast European countries was divided into three time periods:(1) research targeting the planned economy (pre-transition) era;(2) research targeting issues after the launch of the economic transition period in the 1990s (post-transition era); and(3) research targeting the EU accession preparation era and 2008 financial crisis (late post-transition).

In the pre-transition era (prior to 1990), markets of Croatia, Bosnia & Herzegovina and Serbia were not analyzed separately. Economically and politically they formed quite a unique state under socialism. They formed a common market and the literature on trade treated them like that. They were a part of Yugoslavia, and at the end of 1980s` it was the most developed economy in the region of Southeast Europe. Cviic and Sanfey (2008) suggest that Yugoslavia presented an unique economic region, with strong trade-flows and investments connections between its six republics. Moreover, Vlahinic-Dizdarevic (2004) noted that in this era little trade existed among SEE countries except for economic links within ex Yugoslavia. The great contribution to the understanding of the role of trade in the area of Yugoslavia between two world wars and in the conditions of the socialist political system was given by Mirkovic (1931; 1968). A large body of literature analyses trade industry and changes in the trade patterns of Yugoslavia in the period of planned economy. Radunovic et al. (1990) investigated structural changes which affected the creation of growth strategies of trade companies in contemporary market conditions. Renko (1966) explained the regulation of Yugoslav trade and preconditions that trade companies had to obtain in the period of planned economy. There is also the worth mentioning work of the Yugoslav Institute for trade promotion of trade (Institut za unapređenje robnog prometa, 1984) about business principles in trade industry. Kalinic et al. (1982) analyzed the development of wholesale and retailing in Yugoslavia in the period from 1955 to 1979. Besides, the authors gave some projections on trade development till 2000, but their projections related to the introduction of new forms in retailing, changing consumer behaviour, distribution channels integrations, role of technology, etc. in Yugoslavia as the unique market. Using a broad historical approach in explaining the role of trade, Alfier (1967) explained principles and problems of Yugoslav domestic trade. The author also

discussed the necessity for the planned orientation of domestic trade development. This planned character of Yugoslav economy did not diminish the importance of market research (Radunovic, 1967, p. 47). Instead of that, thanks to planned character of the economy Yugoslavia was not affected by crisis and other capitalism disturbances (Radunovic, 1967). Benic (1990, p. 21) points out that under socialism traders were motivated not only by profit, but by meeting customer demands and by the protection of customer living standards as well. In the 1990s, Southeast Europe went through a turbulent development, partly because of the violent conflicts on the territory of Yugoslavia, partly because of the lack of political support for transition, and partly because of the confused international involvement and intervention (Gligorov, 2007, p. 266).The interest in the field of Former Yugoslavia after the launch of the economic transition period in the 1990s (so-called post-transition era) are regional trade integrations, trade agreements and the preparation for joining the EU. During the 1990s, mutual trade between the countries of Former Yugoslavia was still very intense compared to their trade flows with the EU and the rest of the world and Damijan et al. (2008, p. 9) concluded that “political disintegration does not lead systematically to severe and rapid trade disintegration”. Sabolovic (1994) also agrees that it is natural for neighbours to trade and that intra-regional trade flows in this region are higher than inter-regional due to language similarities, low transportation costs, lower communication barriers, etc. According to Grupe and Kusic (2005), a look at the data of inter-republic trade in Yugoslavia would imply that the re-integration of the region should be considered a step back to normality, and it always represented an important part of overall trade in the republics of Yugoslavia (Uvalic, 2000). However, Pjerotic (2008, p. 498) points out that due to adverse political conditions in the region very little progress had been achieved although regional cooperation in Southeast European region has been an objective of the EU since as early as 1996. Cviic and Sanfey (2008, p. 131) also mentioned the year of 1996 as the turning-point in the economy of the region as a whole. Pjerotic (2008) suggested that literature on regional trade in the period of the second half of 1990s` could be divided on two groups: (1) literature which advocated the creation of a free trade area between countries of Former Yugoslavia (Kovac, 1998); and (2) literature which considered risky the creation of a free trade area between countries of Former Yugoslavia (Kaminsky and de la Rocha, 2003b). Using a gravity approach, Kaminski and de la Rocha (2003a) confirmed the results of Christie (2002) that Southeast Europe could not be considered a region in economic terms due to the low level of intra-regional trade. Bartlett (2009) argues that the conflicts of the 1990s, followed by the global economic crisis pushed Southeast European countries into the European „superperiphery” that could be the foreseeable future of the countries in the case of a slower process of their accession to the EU. Similar observations are found in Vojnic (1994), who points out that there are few countries in the world with so great internal differences as former Yugoslavia, and that any real integration, based on a unified market,among the newly-formed independent states is only feasible within the framework of the European Union.Importantly, literature review suggests that the majority share of the research has been concentrated on the post-transition period with reflections on the pre-transition era, describing the effects of transitional disruptions, restructuring, deregulation and privatisation on potential trade between countries of Former Yugoslavia in general. Buturac et al. (2011) showed the relationship between macroeconomic performance measured primarily through speed of EU convergence process and trade competitiveness of selected South-east European countries. By analysing Croatian trade flows, Derado (2006) explored the effects of trade liberalisation between Croatia and the rest of the Southeast European countries. Bjelic (2005) analyzed

intraregional trade in Southeast Europe in the period from 1995 to 2003, and concluded that only Bosnia and Herzegovina, Serbia, Montenegro and Macedonia were trading extensively with countries in the region of Southeast Europe. The author (Bjelic, 2005, p. 6) explained that by high complementarity of the economies of selected countries resulting out of joint economic development in the Former Yugoslavia, and by favourable trade regime that existed between these countries.Zabkar and Makovec Brencic (2004) analyse trust, relationship commitment, and values in the context of business relationships in two former Yugoslav markets, Serbia and Croatia. In her study, Renko (2012) examined buyer-supplier relationships within a retailing sector context in Croatia and Bosnia and Herzegovina. The author emphasizes the prioritizing of supply chain collaboration on the Croatian retail market. Vlahinic - Dizdarevic (2004) and Skuflic and Vlahinic-Dizdarevic (2001) analyse growth potentials and trade possibilities of Free Trade Area in SEE, with special reference to Croatia. The findings of Buturac and Teodorovic (2012) confirmed the possibilities of strengthening mutual economic cooperation in the market of the region of Southeast Europe especially in the circumstances of the global recession. In their work, Ivankovic and Bojnec (2006) draw attention to problems of Bosnia and Herzegovina agricultural and food trade and recommend positive experience of Croatia and Slovenia to be considered. Furthermore, a number of studies (Dmitrovic and Vida, 2007; Vida and Dmitrovic, 2001; Vodlan and Vida, 2005) enable better insights into the consumer purchasing behaviour in South-Eastern European markets. Lovreta and Stojkovic (2012) argued the importance of designing long-term relationships between the members of marketing channels in the countries of Southeast Europe. In examining the importance of private brands in retailing of Bosnia and Herzegovina, Croatia and Serbia, Petljak et al. (2012) also described the actual situation on selected markets. A step further in investigating differences and similarities between trade markets of the Southeast European countries was made by Knego et al. (2011), who initiated the International scientific conference “Distrubutive trade as SEE and CEE development driver“. The conference served as the platform for discussing trade revolution in the region, the impact of regional integrations on distributive trade in region, the development of relationship between the countries of Southeast Europe, strategies of trade internationalization, etc. With respect to the literature framework, similar to Vlahinic-Dizdarevic (2004, p. 26) conclusion could be drawn that after the decade of very low level of intra-regional trade, trading within the region is becoming more important in recent years.

3. Methodology

Besides an extensive literature review as well as the analysis of data given in official European statistical databases, documentary research of trade companies` business reports, newsletters, memo and other official publications was conducted to provide an overview of the situation on trade markets of Croatia, Bosnia & Herzegovina and Serbia. The supporting fieldwork is based on six semi-structured in-depth interviews conducted with senior managers working in the sale and marketing department of trade companies operating on all investigated markets. It should be pointed out that there are only three trade companies that simultaneously have business operations on the market of Croatia, Bosnia and Herzegovina, and Serbia. Therefore, the number of respondents was limited, and the qualitative approach was used to overcome this limitation. According to Eisenhardt and Graebner (2007) a qualitative approach is particularly suited for gaining a better understanding of collective and individual perceptions, and open or semi-structured interviews are suitable means to gain such

perceptual data with respect to a given phenomenon of interest. Berg (2001, p. 66) suggests that interviewing could be defined simply as a conversation with a purpose.The research instrument comprised questions about pricing strategy, decisions related to stores` product assortment, promotion decisions, relationships with suppliers, private labels management, etc. A particular emphasis was placed on similarities and differences in business actions of each of investigated retailers on markets Croatia, Bosnia & Herzegovina and Serbia.In order to avoid unnecessary vast of time, the research instrument was sent to companies few days before interviewing.

4. Findings

With regard to the actual level of economic development (Table 1), Croatia is better positioned than Bosnia and Herzegovina and Serbia. However, Nikolic et al. (2011) argue that till 2015, Purchasing Power Parities (PPP) of Serbia will be higher than those in Croatia and Bosnia and Herzegovina. Additionally, UNCTAD (2012) published foreign direct investments (FDI) Attraction Index which ranked Serbia better than Croatia and Bosnia and Herzegovina. Namely, Serbia has achieved the rank of 50, Croatia the rank of 84, and Bosnia-Herzegovina the rank of 150, respectively. The explanation relates to the growing trend of GDP in Serbia, and the decline of GDP in Croatia in the last four years. We should mention that Euromonitor (2012) predicted recovery of the economy of Bosnia and Herzegovina in 2011.

Table 1 Basic Economic Indicators for selected Southeast European EconomiesBosnia & Herzegovina Croatia Serbia

Population (mil.) 3,8 4,3 7,1

GDP (mil. EUR) 14.619 45.620 31.143

GDP/capita (EUR) 3.807 10.287 4.288

Export (mil.EUR) 4.111 8.737 8.439

GDP PPP growth rates (estimation)(2015/2008)

33,0 16,0 36,7

Source: www.hgk.hr; www.stat-gov.rs; www.fzs.ba; www.parlament.ba, IMF World Economic Outlook database October 2010 (2012, November 17)

Particularly important for the comparative analysis of trade activities on selected markets are data presented in Table 2. It seems that market of Bosnia and Herzegovina has still not organized its retail market and it is still lagging behind the market of Croatia and Serbia. According to the presented data, an ordinary Croatian customer usually spends five times more than a customer in Bosnia and Herzegovina.

Table 2 Basic retail market indicators for selected Southeast European EconomiesBosnia & Herzegovina Croatia Serbia

Total consumption (mlrd EUR) 8,9 26,8 24,9

Total Retail Market (mlrd EUR) 3,1 11,8 9,4

Grocery Retail Market (mlrd EUR) 1,6 4,9 6,1

Grocery Retail Spend/capita (EUR) 431 2.250 616

Source: www.retailanalysis.igd.com , (2012, March 02).

Further analysis of three markets suggests that there is a higher level of retail concentration Croatia than in Bosnia & Herzegovina and Serbia. Top 10 retailers hold almost 80 percent of the Croatian market, similar to situations on the markets of the developed Central and East European countries. At the same time, other two markets characterize concentration level of 45 percent in Bosnia and Herzegovina, and of 41 percent in Serbia, respectively (Stiplosek, 2012, p. 14).

In discussing of the findings from the research, four areas will be used as a framework for explaining the level of co-operation and interdependence between companies on investigated markets: changes in retail forms, growth in retail operations, increasing importance of the relationships with suppliers, private labels. These will be discussed and considered against other documentary findings.

4.1. Changes in retail formatsIf we compare the structure of retail markets of Bosnia and Herzegovina and Serbia (Table 3), we can conclude that there are more hypermarkets and supermarkets in Bosnia and Herzegovina (they account for a 3,8 percent of market share in the number of formats) than in Serbia (they account for 2,1 percent of market share in the number of formats), but Serbian hypermarkets and supermarkets make larger turnover. In other words, Serbian consumers more often go to hypermarkets and supermarkets than consumers in Bosnia and Herzegovina.

Table 3 Retail market structure in selected Southeast European countriesBosnia & Herzegovina Croatia Serbia

Retail format No. Value No. Value No. Value

Hypermarkets/supermarkets 3,8% 29,0% 4,8% 55,0% 2,1% 34,0%

Large groceries 25,3% 33,0% 9,7% 21,0% 20,0% 28,3%

Medium groceries 27,1% 15,0%

Small groceries 50,5% 35,0% 25,6% 6,0% 52,1% 32,0%

Kiosks 13,3% 2,0% 25,9% 1,0% 25,7% 6,2%

Gas stations 7,1% 2,0% 6,6% 1,0%

Total number 10.120 13.017 20.842

Source: own table according to data in Nielsen Q1 Reports, 2012.

On the other hand, the situation in Croatian retailing is considerably different concerning small store fomats. Modern retailing forms – supermarkets, hypermarkets and discounters accounted for 76 percent of grocery sales in 2011. Small grocery stores are the most popular

formats in Bosnia & Herzegovina and Serbia with some 50,5 percent of market share in Bosnia & Herzegovina, and 52,1 percent in Serbia, respectively, and with similar share of trade (regarding the turnover, small stores account for 35 percent in Bosnia & Herzegovina, and 32 percent in Serbia). However, Croatian market has experienced huge decline in terms of turnover of small stores. It is obvious that Croatian consumers use small groceries for quick and urgent shopping and to complete their ordinary purchasing. Leading retailers operate chained retail outlets. They are able to gain leverage on their size and to offer the best value to consumers. There are important arrangements of wholesalers like Velpro and Metro by which they extend their share on Croatian market. They formed franchises to supply local independent grocers, named Plus and Moj Ducan, respectively. There are also two demographic trends which have affected trade of selected SEE countries and changes in retail market structure accordingly. As to trade sources (Euromonitor, 2012), the population of Bosnia and Herzegovina, Croatia and Serbia is ageing. Thus, there are many consumers that purchase only selected product categories (essential groceries, essential clothes and footwear, basic personal care and basic consumer health products). Such consumers prefer convenience stores. Urbanisation is another important trend which suggests the growth of convenience stores at the expense of large retail formats (such as hypermarkets). Namely, consumers in SEE countries are becoming busier with less time to travel to stores located in the suburbs. Respondents (managers of trade companies which operate on the markets of Bosnia-Herzegovina, Croatia and Serbia) also pointed out increasing quality awareness as well as technological awareness among consumers. Retailers have found that they should implement technology in order to offer more convenience to their customers. At the same time, they found out their costs benefits of some technological solutions. Respondents also believe in the growth of internet sales in grocery and non-grocery, which is still is far from satisfactory. They point out that the main disadvantage of internet sales, a lack of confidence in electronic transfers by consumers, was prevailed. According to Euromonitor (2012), retailing is expected to continue to evolve driven by increases in the disposable income of consumers and technological advancements.

4.2. Growth in retail operationsIn the period of planned economy, trade (in the context of retailing and wholesaling) served as the intermediary between producers and final users. Trade was predominantly seen as having a smaller and significantly less important role than other industries, such as manufacturing (Gilbert, 2003). Suppliers had more power over retailers to negotiate prices, conditions of payment, offerings, etc. In the process of transition to market economy, value chains are more and more controlled by retailers (Dawson, 2006). Manufacturers are in a position where they must consider producing for third parties in order to maintain previous levels of production.The retail trade of selected SEE countries has been characterized by a consolidation of outlets, while at the same time the square footage of the average outlet has been increasing dramatically (Knezevic et al., 2011). Consolidation did not start in Bosnia and Herzegovina, Croatia and Serbia at the same time. Croatian retailing has experienced consolidation before other countries (it started in 1990s with the entry of foreign retailers). In Bosnia and Herzegovina and Serbia, it commenced in the early 2000s. Retailers figured out that in such economic conditions, only those who are focusing on price are gaining share, while those focusing on quality are losing out. Local grocery chains have realised that only the big ones can expect to survive. For that reason, they are looking for partners to form a cluster. Trade companies have actively started to perform some other functions in the process of distribution. Accordingly, vertical marketing systems arose. They involve production and distribution, and extend their control over the supply chain. The size of market share gives

some retailers power to absorb the role of the former wholesale intermediary. There is an obvious increase in the retail market concentration and in international activities among retailers. Taking into consideration the development of some local retailers, we may conclude that local players have become regional ones. Croatian top retailer Konzum accounted for a 8 percent of the Croatian market share in 2001, while it reached almost 30 percent in 2012 (Croatian Competition Agency, 2012). It consolidates its position through a strong store expansion and selective acquisitions. Additionally, it operates a variety of formats from convenience stores, supermarkets, hypermarkets and Internet. Besides its well defined strategy, its market success is mainly due its central position in the vertical system named Agrokor dd (system which comprises few leading national food producers, wholesaler Velpro and retailer Konzum). Through its large negotiating position in relation to other retailers and its buying power, Konzum (followed by its wholesale part Velpro) was able to enter markets of Bosnia and Herzegovina and Serbia. Slovenian retail chain Mercator is also an example of transforming local players into regional ones. In the same manner as Croatian retailer, through acquisitions and strong expansion, Mercator brought its business and private labels to Croatian, Bosnia & Herzegovina, and Serbian markets.

4.3. Increasing importance of the relationships with suppliersIn the past, retailers have used a large number of suppliers and they were competing against each other for individual order. The increased complexity of distribution channel and more powerful retailers place more requirements to suppliers. The current trend is to reduce the number of suppliers and to develop long-term relationships with a small number of them (Renko, 2011). It is widely accepted that the collaboration between retailers and suppliers improves performance, but collaboration between them is still relatively limited (Deloitte, 2008). The literature review suggests partnering between firms as an increasingly common way for firms to find and maintain competitive advantage (Mentzer et al., 2000) and to reduce inventory and other logistics costs for both retailer and its supplier. Respondents agreed that they recognized the need to transfer from the traditional relationship. They concluded that the greatest value derived from better supplier-buyer relationships is more satisfied customer, because when chain members begin to collaborate to solve possible problems and pitfalls in the chain, and to improve service, the customer is the final winner. As investigated companies operate on three markets, respondents (managers from those companies) were asked about their relationships with regional suppliers. In other words, we wanted to find out whether they rely on regional suppliers and on the advantages of collaboration in the supply chain or they are committed to their key suppliers while operating on trade markets of Croatia, Bosnia & Herzegovina and Serbia. All respondents confirmed that while operating on those markets they rely on suppliers from Croatia, because suppliers on Croatian markets offer higher level of services. When asked about the communications with their suppliers, respondents highly evaluated the possibility to exchange the forecast information provided by the supplier and to improve innovativeness. They completely agreed that flow of information between them and their major suppliers contributed to inventory visibility in the chain and increased flexibility in doing business.

4.4.Private labelsAlthough they share many common characteristics, trade markets of three Southeast European economies also differ a great deal. As the reaction to many economic problems in the last decade and the entry of foreign retailers, private labels have become a growing trend on markets of Bosnia and Herzegovina, Croatia and Serbia. After 2008, global economic recession prompted most Bosnia-Herzegovinian, Croatian and Serbian consumers to change their shopping patterns. Their disposable income contracted and

that had a negative impact on current retail value growth. Grocery retailing is a channel where consumers spend most of their budgets, while they are postponing or stopping purchasing non-essential goods. As all three countries were CEFTA members, similar purchasing conditions were applicable for the same types of goods. Accordingly, respondents confirmed that their pricing policy and marking up are similar on all three markets. There are only differences in VAT policies between countries. Respondents also pointed out they they are taking care about the psychological effect of pricing. For example, in Bosnia and Herzegovina prices usually end with ,95, while prices end with ,99 in Croatia. Namel, consumers became price-sensitive and shifted to cheaper brands within product categories. Consumers realized that private label products are quality ones and that private labels offer them “value for money”. However, the situation on the Croatian market is more like of developed SEE markets (Figure 1 shows the difference in private labels share of trade in selected countries). According to data of Gfk (Stiplosek, 2012, p. 15), the attitudes of Croatian consumers towards private labels are similar to those of consumers of Central Europe (for example, private labels share in Poland accounted for 24 percent in 2011, and it accounted for 20 percent in Czech Republic, respectively). Many retailers and wholesalers of the region use private labels to distinguish themselves and to differentiate themselves from competitors. Moreover, Croatian market experienced private labels before others (Petljak et al., 2012) and the expansion of Croatia`s top retailer (followed by its wholesale part Velpro) contributed to the development of private labels market of Bosnia and Herzegovina and Serbia. Particularly, private labels are generally accepted as a reasonable option, particularly as some private label products are actually manufactured by well-known domestic companies. According to data (Gfk, 2012), Croatian company Konzum is the leading retailer of private label products in this part of region. It accounts for 13 percent brand share in Croatia, 9 percent in Bosnia and Herzegovina, and 2 percent in Serbia, respectively. Slovenian Mercator accounts for 6 percent brand share in Croatia, 7 percent in Bosnia and Herzegovina, and 6 percent in Serbia, respectively. The penetration of private label in Bosnia and Herzegovina was lower than in Croatia and Serbia. However, expected entry of discounters will increase the share of private label on this market.

Take in Figure 1

5. Conclusion

Southeast European region mostly consists of former Yugoslav republics, which went through tremendous political, social and economic changes after 1990s. The research focuses on Bosnia and Herzegovina, Croatia and Serbia as they have experienced high complementarities of their economies and as there is intensive trade cooperation between them. The aim of the chapter was to investigate the interaction of trade activities in those countries and the relationships which have arisen among trade business entities on the markets of Croatia, Bosnia and Herzegovina and Serbia. The analysis of available statistic databases showed that with regard to the actual level of economic development, Croatia is better positioned than other two countries. Moreover, there are differences in the retail structure among three markets, because Croatian market has been characterized by higher consolidation and concentration level comparing to market of Bosnia and Herzegovina and Serbia. The fact is that the size of market share gives some retailers power to extend their operations abroad and in some operations. They involve production and distribution, and extend their control over the supply chain. There is the example of leading

Croatian retailer which considerably affects the situation on retail markets of all three countries. As entering neighbouring markets, large retail chains introduced their private labels on those markets, too. They are aware that consumers became price-sensitive and shifted to cheaper brands within product categories on markets of Bosnia and Herzegovina, Croatia and Serbia. In order to obtain more objective results, secondary data results were completed with the findings of the qualitative study among senior managers in trade companies operating on all three markets. Although this relatively small number of companies presents the main limitation of the study, the findings of the interviews improved obtained secondary data. Respondents pointed out the importance of the collaboration with key suppliers while operating on trade markets of Croatia, Bosnia and Herzegovina and high quality of suppliers from Croatian market. The later gives some directions for local suppliers to achieve higher standards of service or to differentiate themselves on the market (for example, by offering special merchandise). Given this, it seems clear that there are many similarities on three markets. Therefore, it was expected that there are similar effects of global crisis on retailers` marketing decisions, as well as the responses of customers in Croatia, Bosnia and Herzegovina, and Serbia toward changes on their trade markets. Companies which decide to enter those markets have some benefits from those similarities in a way that they can create unique pricing or merchandising policy. At the same time, companies have to take into consideration problems that those markets still have been facing, such as differences in the infrastructure development on some markets.

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Figure 1 Private labels share of trade

Source: own figure according to data in Stiplosek (2012, p. 15)