Chapter 1: Regional Overview

(continued)

1.2 The Status of Environmental Businesses Ð Results of the Survey

Since 1990, the market for environmental services and technologies has grown steadily in all the surveyed countries, leading to the dynamic development of local environmental businesses. It is estimated that 700 small and medium-sized enterprises are currently active in the environmental market, and the number is still growing. It should be noted that most of them suffer significant setbacks from various local conditions (i.e. troublesome economic or political conditions, lack of information on project opportunities and financing aspects, etc.). This section analyzes the results of the survey of more than 450 environmental businesses interviewed at the end of 1996. The goal is to compare the size and activities of environmental businesses, assess their information and training needs and determine the best channels for disseminating needed information. In addition, a short section is dedicated to the forms of assistance needed and the barriers which hinder business development.

Profile of Environmental Businesses

Age, Ownership Structure and Size

Although the marketplace is different in each country, results showed several similarities between the group of countries in this survey and those considered in the 1995 Visegrad survey. In all the countries, the market is extremely young, with the vast majority of companies established after 1990. Also, the companies are generally small. This is especially true in Slovenia and Croatia, where more than half of the companies have fewer than 6 employees. In Bulgaria and Romania, the proportion of small firms is lower (38 percent and 42 percent respectively), showing a tendency in these countries toward larger, state owned companies. Again, throughout both surveys the privatization process was found to have moved very quickly in the environmental business sector. Nearly two-thirds of the companies interviewed for the latest survey are privately owned. Still, this figure was considerably lower than in the Visegrad countries, where 85 percent of companies were privately owned.

TABLE 1.5: PROFILE OF ENVIRONMENTAL COMPANIES
  Bulgaria Croatia Romania Slovenia
Number of companies interviewed 68 141 122 121
Size (% with less than six full-time employees) 38% 53% 42% 57%
Ownership (% that are fully privately owned) 54% 81% 68% 57%
Age of companies (% founded after 1990) 60% 56% 69% 52%

Company Gross Revenues

In order to show spending on environmental activities, the survey asked companies to indicate their annual income from environmental activities. Not all of the businesses were willing to provide income information and some had difficulties separating out their environmental activities income from their total annual revenues. Especially in Bulgaria and Romania, interviewed businesses were reluctant to report their income situation because of tax declaration concerns, business secrets and cultural attitudes.

The combined annual turnover of the 337 companies that responded was approximately USD 247 million. Croatian and Slovenian environmental businesses indicated the largest annual turnover from environmental activities (USD 99 million and 87 million respectively). This reflects not only the large amount of environmental spending in these countries but also the large number of businesses that were willing to provide financial data. Table 1.6 shows the breakdown for each country based on total turnover in 1995.

TABLE 1.6: BREAKDOWN OF FIRMS BASED ON TOTAL TURNOVER FROM ENVIRONMENTAL ACTIVITIES IN 1995
Total Turnover Bulgaria (42)1 Croatia (118)1 Romania (82)1 Slovenia (95)1
Less than 25,000 22% 18% 37% 21%
25,000-100,000 37% 29% 22% 13%
101,000-250,000 17% 12% 12% 20%
251,000-500,000 5% 10% 15% 10%
501,000-1,000,000 6% 10% 4% 13%
More than 1,000,000 13% 21% 10% 23%
Combined annual turnover of surveyed companies2 23 mln 99 mln 38 mln 87 mln

1. Number in brackets indicates the number of businesses that provided income data
2. Calculation of combined annual turnover: The average value of total revenues was calculated by multiplying the number of companies within a given range by the mean USD amount in the range. For the first range, USD 20,000 was used in the calculation.

Companies were also asked to provide information about their income to determine their business activity in type of services offered (e.g. technical services, environmental technology, testing/monitoring) and in media areas (air, water and wastewater, waste, energy, etc.). Again, many of the interviewed companies were not willing to provide information about their annual turnover.

Across the four countries, 28 percent of the annual income came from the sale of environmental technologies and 47 percent came from technical services, including engineering and planning and general consulting activities. Analytical testing and monitoring accounted for 13 percent of turnover. Table 1.7 presents the breakdown of revenues based on business activity for the individual countries.

TABLE 1.7: PERCENTAGE OF TOTAL REVENUES GENERATED FROM VARIOUS ENVIRONMENTAL ACTIVITIES IN 1995
  Bulgaria (42) Croatia (118) Romania (82) Slovenia (95)
Technical services 46% 51% 50% 40%
Environmental technologies 33% 30% 26% 26%
Testing/monitoring 11% 14% 10% 15%
Other 10% 5% 14% 19%

Note: Number in brackets indicates the number of businesses that provided income data

When total revenue was broken down by media, 36 percent came from water and wastewater projects. Solid waste-related activities generated 29 percent of annual income, followed by air and energy related activities, which generated 10 percent. Table 1.8 shows the breakdown for the individual countries. The percentages are continually changing, though, due to the dynamics of the market and the changing environmental priorities set by the governments. Therefore, these figures reflect just a snapshot of the market in the surveyed countries.

TABLE 1.8: PERCENTAGE OF TOTAL REVENUES GENERATED FROM DIFFERENT MEDIA IN 1995
  Bulgaria (42) Croatia (118) Romania (82) Slovenia (95)
Water and wastewater 39% 29% 46% 30%
Waste 25% 40% 19% 30%
Air 8% 7% 13% 9%
Energy 8% 7% 12% 7%
Other 20% 17% 10% 24%

Note: Number in brackets indicates the number of businesses that provided income data

Foreign Cooperation

Both local and foreign companies can benefit from business cooperation and the creation of joint-ventures. Foreign businesses generally have better management and marketing expertise, access to financial resources and modern technologies, while local companies have a better knowledge of local market conditions and rules. Furthermore, successfully operating joint-ventures facilitate the development of the environmental market and strengthen a country's ability to solve its environmental problems.

The survey showed that so far there is little cooperation between local and foreign companies - only 9 percent of the surveyed companies have foreign partners. Croatia and Slovenia have the highest percentage of joint-ventures with 14 and 13 percent respectively. In Romania, the figure is about 10 percent, while Bulgaria trails with just 7 percent - a figure that likely reflects the extremely shaky economic conditions foreign companies see in the country.

Most of the foreign partners in Croatia and Slovenia come from Austria, Germany and the United States. In Romania, environmental businesses mainly indicated partnerships with companies from the United States, Germany and France, while the main foreign players in Bulgaria come from Austria and Germany. Table 1.9 lists the percentage of joint-ventures and the leading partner countries for each country.

TABLE 1.9: JOINT-VENTURES AND MAJOR PARTNERS
  Bulgaria Croatia Romania Slovenia
% of joint-ventures 7 14 11 13
Top joint-venture partner countries Austria
Germany
USA		 Germany
USA
Austria		 France
Germany
USA		 Austria
Germany
Croatia

Language barriers can often hinder the successful operation of joint-ventures. However, language problems do not appear to be a major barrier for business development in the surveyed countries. Eighty percent of respondents said they spoke English, and 50 percent spoke German. The three most common foreign languages for each country are listed in Table 1.10.

TABLE 1.10: MOST COMMONLY SPOKEN FOREIGN LANGUAGES
Bulgaria Croatia Romania Slovenia
Russian (80)
English (73)
German (30)		 English (82)
German (62)
Italian(18)		 English (80)
French (68)
German (34)		 English (88)
Croatian (84)
German (71)

Note: Numbers in brackets indicate the percentage of respondents who said they could speak the language

Income from Foreign Sources

Due to the relatively small size of the environmental business sector and the fact that the market has just recently begun to develop, only a few companies were actively exporting environmental technologies and services. Almost 60 percent of the respondents received no income from foreign sources, while another 16 percent indicated a minor income of less than 10 percent of total revenue. Just over 18 percent earned between 10 and 50 percent of their income from foreign sources, and less than 6 percent of the companies earned more than half their income from exporting products and services.

The companies that indicated a higher income from foreign sources generally were large firms or firms with foreign partners. This seems to indicate that joint-ventures increase a local company's business opportunities in other countries. As shown in Table 1.11, Croatia and Slovenia are the most active on the foreign markets, while Bulgaria and Romania are still held back by their unfavorable economic conditions.

TABLE 1.11: SHARE OF INCOME FROM FOREIGN SOURCES
Percentage of Income from Foreign Sources (in the past two years) Bulgaria Croatia Romania Slovenia Average
None 66% 50% 72% 54% 60%
Less than 10% 8% 18% 17% 23% 16%
10-50% 18% 21% 10% 20% 18%
More than 50% 8% 11% 1% 3% 6%

Information Channels for Business Opportunities

Major Sources of Information for Business Opportunities

Table 1.12 shows the percentage of respondents in each country who considered the various information channels to be major sources of information regarding opportunities for environmental businesses in each country. In general, the survey respondents were not aware of any central body or organization that collected information on environmental business opportunities. Because of this, and because all the countries except Slovenia are still in the process of establishing transparent bidding procedures, informal contacts and daily newspapers were ranked in all four countries as the most useful information channels. Other major sources were the Ministry of Environment, fairs and trade shows and environmental publications. Chambers of commerce and professional associations were not regarded as essential sources of information, an indication of the low priority given to the environmental business sector by the chambers of commerce and the early stage of development of professional associations.

TABLE 1.12: INFORMATION CHANNELS FOR BUSINESS OPPORTUNITIES
Source of Information Bulgaria Croatia Romania Slovenia Average
Personal contacts 94% 97% 93% 96% 95%
Daily press 65% 56% 63% 61% 61%
Environmental Ministry 60% 56% 55% 70% 60%
Trade shows and fairs 59% 68% 52% 61% 60%
Environmental publications 66% 63% 57% 49% 59%
Direct mail 46% 41% 69% 57% 53%
Conference attendance 65% 46% 42% 57% 52%
Local authorities 35% 55% 54% 54% 50%
Business publications 40% 43% 38% 36% 40%
Chamber of commerce 15% 42% 35% 43% 34%
Professional association 22% 40% 43% 36% 35%
International organization 34% 23% 25% 31% 28%
Broadcast fax service 16% 18% 51% 26% 28%
University/academy of science 30% 26% 33% 24% 28%
Ministry of Economics/Trade 13% 28% 26% 29% 24%
E-mail 10% 8% 7% 20% 11%
Commercial banks 6% 7% 12% 7% 8%

Major Publications

Surprisingly, no single business or environmental publication reaches the majority of respondents in any country. The main environmental and business publications read by environmental professionals surveyed are listed in Table 1.13.

TABLE 1.13: MAJOR ENVIRONMENTAL OR BUSINESS PUBLICATIONS AND READERSHIP (%)
Bulgaria Croatia Romania Slovenia
Pari (19%)
Kesh (9%)
Bulgarian Business (6%)
Capital (6%)
Eco (6%)		 Gospodarstvo i okolis (38%)
Okolis (21%)
Hrvatske vode (16%)
Banka (16%)
Zubor (10%)		 Capital (34%)
Tribuna Economica (13%)
Mediul Inconjurator (11%)
Bursa (7%)
Protectia Mediului (7%)		 Gospodarski vestnik (36%)
Uradni list RS (19%)
Okolje (16%)
Gospodarjenje z odpadki (13%)
Manager (9%)

Major Professional Associations

Although personal contacts are the most important source of information for business opportunities, only a third of the survey respondents belong to a professional association. In Slovenia, more than a quarter of the respondents were members of the chamber of commerce. In all the countries, environmental associations tend to focus on specific scientific topics; therefore, names of associations mentioned by the respondents varies significantly. This explains the relatively low occurrence of membership in any given association - even the most popular professional organizations count less than 10 percent of respondents as members. There also is only limited cross-border cooperation, with no professional association operating beyond its own borders.

TABLE 1.14: MAJOR PROFESSIONAL ASSOCIATIONS AND MEMBERSHIP AMONG RESPONDENTS (%)
Bulgaria
Bulgarian Association for Water Supply and Sewage (9%)
Phoenix Resource Waste Branch Association (4%)
BIEA - General Constructions (4%)
Association for Water Quality (4%)

Croatia

Croatian Water Pollution Control Society (10%)
Croatian Association of Energy Experts (4%)
Association of Recyclers (4%)

Romania

Association of Environmental Private Companies (10%)
Association of Engineers (6%)
Association of Hydrogeologists (3%)
Association of Environmental Engineers (3%)
Romanian Society of Chemistry (3%)

Slovenia

Chamber of commerce (28%)
Association of the Protection of Water (5%)
IAH (International Association for Hydrogeology) (3%)
Association of Landscape Architects and Urban Planners (3%)
Ecological Association of Slovenia (3%)

Conference Attendance

A significant number of business representatives said they regularly attend environmental conferences, fairs and trade shows to learn more about business opportunities. The conferences also provide additional training, networking opportunities and a chance to market products and services. In most of the countries, more than half the survey respondents attended at least two conferences per year. Environmental professionals in Romania and Slovenia tended to participate in conferences more often than their counterparts in Bulgaria and Croatia. Conference attendance frequency for the 12 months prior to the survey is presented in Table 1.15.

TABLE 1.15: NUMBER OF ENVIRONMENTAL CONFERENCES ATTENDED IN A YEAR
  Bulgaria Croatia Romania Slovenia
None 10% 17% 10% 14%
1-2 43% 42% 35% 29%
3-5 33% 35% 33% 36%
More than 5 14% 6% 22% 21%

When asked to indicate the major reasons for attending conferences, the survey respondents overwhelmingly pointed to the importance of personal contacts and networking. As shown in Table 1.16, 71 percent of respondents cited meeting others in the same professional area of expertise as a reason for attending conferences. Two-thirds said they learned about new project opportunities at such events, and 60 percent stressed their goal of finding potential partners. Increasing the marketing capabilities of their companies was cited by 59 percent of the respondents. Surprisingly, receiving training was mentioned by only 57 percent as a reason to attend conferences.

TABLE 1.16: MAIN REASONS FOR ATTENDING CONFERENCES
  Bulgaria Croatia Romania Slovenia Average
Meet others in the same field 70% 69% 75% 68% 71%
Learn about new project opportunities 72% 66% 74% 57% 67%
Find potential partners 72% 56% 59% 53% 60%
Marketing of firm products 48% 56% 43% 26% 43%
Participate for professional training 44% 55% 68% 63% 57%
Participate as speaker 35% 32% 61% 44% 43%

Information and Training Needs

Demand for Information

To be successful in the environmental market, companies need a thorough understanding of the financial and regulatory constraints that affect their daily business. In CEE countries especially, companies suffer from a lack of information that is essential for doing business successfully. In most of the surveyed countries, business success depended strongly on personal contacts with various governmental agencies and local authorities. Public procurement processes are, except in Slovenia, in their early stages, and clear bidding processes are not yet in place.

Companies were asked to indicate the importance of several different information resources. The results are shown in Table 1.17. Because governmental regulations affect the demand for environmental services and technologies, it was not surprising that the respondents indicated a great need for information on environmental regulations. Information about domestic partners for joint projects and for experience exchange was also ranked as very important. Information about national environmental problems and new environmental technologies was identified as a high priority, followed by information on sources of project financing and on domestic tenders for projects. Information regarding EU environmental regulations was also deemed important, especially in Slovenia, which is a potential candidate for EU membership in the next few years.

TABLE 1.17: IMPORTANCE OF SELECTED ENVIRONMENTAL INFORMATION TOPICS
  Bulgaria Croatia Romania Slovenia Average
Domestic environmental regulations 3.5 3.6 3.2 3.7 3.5
Information on where to find domestic partners 3.3 3.7 3.1 3.1 3.3
Domestic environmental problems 3.4 3.3 2.9 3.4 3.2
New environmental technologies 3.2 3.2 2.9 3.3 3.2
Sources of project financing 3.3 3.2 2.6 3.4 3.1
Domestic tenders for projects 3.2 3.0 2.9 3.4 3.1
Environmental quality standards for industries (e.g. ISO 14000, EMAS) 3.3 3.1 2.8 2.8 3.0
EU environmental regulations 3.0 3.1 2.6 3.3 3.0
Eco-efficient and cleaner production practices 3.3 3.1 2.4 2.9 2.9
Announcements of domestic conferences or trade-fairs 2.9 2.8 2.7 3.1 2.9
Certification requirements for environmental professionals 3.0 3.0 2.5 2.8 2.8
Information on where to find international partners 3.0 2.9 2.5 2.8 2.8
Contact information to government agencies 2.8 2.7 2.3 2.6 2.6
International environmental problems 3.0 2.4 2.2 2.7 2.6
Announcements of international conferences or trade-fairs 2.7 2.5 2.1 2.8 2.5
International tenders for projects 2.6 2.3 2.1 2.8 2.4

Note: The following scale was used for rating information demand: 4 = very important; 3 = important; 2 = somewhat important; 1= not important.

Information on business opportunities abroad, international conferences and potential partners was of minor interest. Surprisingly, information on cleaner production practices was also mentioned as a minor problem. This low demand may be due to the general lack of this type of information.

Preferred Information Services

As part of the survey, respondents were asked to rank the usefulness of several information delivery options using the following scale: 4 = very useful; 3 = useful; 2 = somewhat useful; 1 = not useful. The results are shown in Table 1.18. On average, a regular newsletter was considered to be the most useful. Such a newsletter may address project opportunities, financing methods, development of environmental regulations and legislation, and other topics. Conferences addressing specific environmental problems were also considered an important channel in the dissemination of environmental information. The third preferred option was a printed directory of environmental businesses. Some respondents added that it is important for such directories to include specific market information. Finally, an information research service and partnering workshops also received good ratings as options for information delivery.

TABLE 1.18: USEFULNESS OF SELECTED INFORMATION DELIVERY OPTIONS
  Bulgaria Croatia Romania Slovenia Average
Regular newsletter 3.2 (51%) 3.0 (65%) 2.8 (46%) 2.8 (48%) 3.0 (53%)
Conferences arranged to address specific environmental problems 3.2 (47%) 2.9 (57%) 2.4 (21%) 3.1 (33%) 2.9 (40&)
Environmental business directory (book) 2.8 (46%) 2.7 (54%) 3.1 (54%) 2.8 (36%) 2.8 (47%)
Information research service providing specific information 3.0 (67%) 2.6 (47%) 2.5 (32%) 2.7 (40%) 2.7 (47%)
Partnering workshops designed to introduce participants to Western partners, government environmental officials and NGO 3.0 (37%) 2.8 (46%) 2.1 (19%) 2.8 (41%) 2.6 (36%)
Environmental Business Directory (CD diskette) 2.2 (48%) 2.7 (50%) 2.7 (56%) 2.8 (40%) 2.6 (49%)
Local business coordinator to arrange meetings, contacts and workshops 2.7 (24%) 2.9 (54%) 1.8 (16%) 2.5 (12%) 2.4 (27%)
Computer database of information resources available on Internet 2.5 (33%) 2.6 (42%) 2.0 (32%) 2.8 (40%) 2.4 (37%)
Broadcast fax service 2.1 (14%) 2.4 (35%) 2.8 (32%) 2.3 (15%) 2.4 (24%)

Note: The following scale was used for the ranking: 4 = very useful; 3 = useful; 2 = somewhat useful; 1 = not useful. Numbers in brackets indicate the percent of respondents willing to pay for such services.

Some respondents from Bulgaria and Romania also mentioned a need for an environmental business association that would lobby for the environmental business sector at government agencies, regional authorities, and municipalities.

With regard to the cost of information services, almost half of the companies said they would be willing to pay for most of the information products as long as the price was reasonable and the information received was useful. The percentage of respondents willing to pay for a given information product is shown in brackets in Table 1.18.

Demand for Professional Training

As the environmental field and the local marketplace continue their rapid development, professional training becomes ever more important. Successful business development requires not only expertise in certain environmental areas but also an understanding of financial affairs, regulatory frameworks and project management.

Survey respondents were asked to rate their interest in several different advanced professional training areas. The results are shown in Table 1.19. The most notable topic of interest was the development of environmental regulations and policies. Courses in environmental impact assessment and on methods of financing environmental projects also interested businesses, as did training in environmental economics, environmental management and auditing.

TABLE 1.19: INTEREST IN SELECTED PROFESSIONAL TRAINING TOPICS
  Bulgaria Croatia Romania Slovenia Average
Environmental regulation and policy 3.2 3.2 2.4 3.2 3.0
Environmental impact assessment 2.8 3.0 3.0 3.2 3.0
Financing environmental investments 2.9 3.0 2.3 3.0 2.8
Environmental economics 2.7 2.7 2.7 3.0 2.8
Environmental management 3.0 2.7 2.4 2.9 2.8
Environmental auditing 2.6 2.6 2.5 2.8 2.6
Environmental systems and their sustainability 2.5 3.1 2.3 2.6 2.6
Project management 2.7 2.8 2.2 2.7 2.6
Environmental risk assessment 2.6 2.8 2.3 2.7 2.6
Strategic planning 2.6 2.6 2.3 2.8 2.5
Integrated solid waste management 2.3 2.9 2.1 2.5 2.4
Hazardous waste site ranking 2.3 2.6 2.2 2.6 2.4
GIS (Geographic Information Systems) 2.1 2.3 2.1 2.5 2.3

Note: The following scale was used in the ranking: 4 = very interested; 3 = interested; 2 = somewhat interested; 1 = not interested.

Assistance and Barriers to Business Development

Sources of Assistance

To identify the impact of various groups on the environmental business community, the survey asked companies to rate the importance of several institutions to their business development. Table 1.20 lists the institutions and shows the percentage of respondents in each country who rated them as "important" or "very important."

TABLE 1.20: IMPORTANCE OF VARIOUS GROUPS TO BUSINESS DEVELOPMENT
  Bulgaria Croatia Romania Slovenia Average
Government 67% 49% 26% 65% 52%
Business/industrial associations 52% 64% 31% 42% 47%
Financial institutions 62% 56% 19% 43% 45%
Scientific/academic institutions 50% 44% 23% 44% 40%
Professional training institutions 30% 38% 30% 43% 35%
International organizations 48% 34% 13% 41% 34%

Note: Percentages indicate the share of respondents who rated the institution as "very important" or "important."

As expected, governmental institutions and business/ industrial associations were considered important sources of support by most respondents, as were financial institutions. International organizations and professional training institutions were said to be of minor importance.

The environmental business sector in Bulgaria and Slovenia rated information from government institutions as very important, whereas in Croatia and especially in Romania, government institutions were said to have much less impact. Business and industrial associations and financial institutions play an important role in Bulgaria, Croatia, and Slovenia.

Barriers to Development

Environmental businesses were asked to identify the main obstacles to business development. Table 1.21 lists several common barriers along with the percentage of respondents who identified them as "major barriers" or "barriers".

TABLE 1.21: PERCEIVED BARRIERS TO BUSINESS DEVELOPMENT
  Bulgaria Croatia Romania Slovenia Average
Access to credit and finance 67% 77% 62% 64% 68%
Tax regulation 66% 59% 33% 39% 49%
Legal regulations and registration requirements 49% 33% 70% 33% 46%
General access to information 54% 47% 55% 34% 47%
Market demand for products and services 54% 55% 48% 24% 45%
Environmental regulations 45% 42% 39% 49% 44%
Foreign competition 33% 22% 16% 15% 22%

Note: Percentages indicate the share of respondents who rated each barrier as a "major barrier" or "barrier."

Access to credit and finance was rated by the respondents as the biggest hindrance to further business development. This reflects the current severity of the financial markets - commercial loans are difficult to obtain and, when granted, require business to pay extremely high interest rates. Tax and legal regulations are also seen to prevent business development, but the amount of interference varies from country to country. Lack of access to information and low market demand were also cited as significant barriers to business development, except in Slovenia.

Most of the countries are EU associate countries, and their environmental legislation will therefore eventually comply with EU standards. This means, in many cases, the laws will be tougher and enforcement stricter. As of now, environmental regulations were not seen to be a major barrier to development of environmental businesses. Foreign competition within the environmental market was also viewed as only a minor barrier.

Unfortunately for environmental businesses, they have little power to eliminate the obstacles that stand in the way of their development. However, the governments could reduce most of the barriers by introducing instruments and incentives that favor environmental enterprises. Above all, the enforcement of environmental and tax regulations and improved access to financing are key factors in creating a market in which environmental businesses can thrive.

REC * PUBLICATIONS * EMERGING ENVIRONMENTAL MARKET 2 * REGIONAL OVERVIEW

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