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Bulgarian market

Bulgaria, as Romania, is the country that will become a member of the European Union on January 1 2007. The acceptance of the European Union for Bulgaria to be a member represents a very important factor for it to become a capitalist country. On the financial, economical, political, internal and external aspects that will be a part of Bulgaria, people represent a high importance. After the integration, the needs of Bulgarian people will have a tremendous growth. They will see their life style with different eyes and from a different perspective.

Many companies, with great ideas, are likely to enter the Bulgarian market and local companies will have to come with unique ideas to approach the consumers. Bulgarian producers have a strength comparing to the foreign producers, because they know Bulgarian people how they think and act. People would likely want their residential or second house to be built as soon as possible and with low costs, so this means that Bulgarians will have a competitive advantage over foreign companies.

Building the houses in the American style is a good idea, because we are talking about a building strategy that will last about three months.  If we compare this to the fact

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that the normal house is generally built in about two years, we have a strong argument in favor of such a business.

The company proposes to build houses on the suburban areas, away from the noise, dust and crowded areas from the center of the city center, where they could come home and have a nice and quiet evening family reunion, and their children could be safe. The company will have to take into consideration the rather chaotic development of the real estate market in this country.  This idea is supporting by several theoreticians.

As such, “because of underdeveloped infrastructure construction activities in the big Bulgarian cities has concentrated mainly in the districts close to the city centre. As a result many of the districts have become overbuilt. The living conditions have worsened because of the lack of free space between the buildings and the lack of green areas and public gardens. While the districts near the city centres have become overbuilt the suburbs have remained relatively not so built up. That is why finding attractive places to build its houses is a cornerstone of the firm’s business strategy”[1]

When constructing a business plan, the company has to think about everything: humane resource strategy, operational plan, financial objectives, marketing strategy, financial statements. These are the main requests for the plan to go well.

The company has the idea, but it is not important only the idea but also the way it is being realized.  Building a business plan needs to rely first of all on the main characteristics of the business and, notably, of the product or service that is being commercialized.  These are American style houses.  They are cheaper than the traditional houses, the building period is shorter, the prices are cheaper than “the traditional brick houses”. Because of the structure of the market and the profile characteristics of the customers, American style houses are a good idea for Bulgarian people, but the company has to think about the attitude these people will have and adapt its marketing tools to approach incumbent problems such as the rejection of the idea.

First of all, the company will have to implement a marketing strategy, it will have to promote the idea, to let Bulgarian people know more about American style houses. We need to start from believing that Bulgaria was a Communist country where most of the population lived in apartments in blocks until 1989.  The company needs peoples’ approval, otherwise it will be a waste of time, energy and, more important, money. In this way, even people will not agree with the idea, the company will have the perspective of introducing it to them, of getting them acquainted with it etc. By promoting the American style houses, people will see the advantage of having such houses, they will know that will have a great main residential or a second home in a short term with low costs.  Again, we are emphasizing on the two main advantages of these types of houses: low costs and short term fort the construction.

Being new on the market, the company has to gain peoples’ trust with the quality and the costs of its houses. Buying a house is not like going to the supermarket and buying a toothbrush. It is a big investment, and not lots of people can afford this. Even the company refers to the people that gain a little bit more than the average, this is not easy for them either. The financial strategy that will be shown for the potential customer has to be an excellent one, to convince him/her that buying a house from them is a good choice. Lots of people think this way: if they can afford to rent a house, and this is cheaper than buying one they will stick with the rented one. Buying a house is not a priority anymore for most of the people, even in Bulgaria. But, if the cost of the house is low, they will think of the offer, and in a short notice they will come back and fill the papers for a new house.

The location, the actual land on which the house will be build is an important aspect of the company’s strategy.  The respective plot of land needs to have good infrastructure, like water, gas pipes, and also a good superstructure with garbage disposal, electricity, telephone etc.  These are some of the basic characteristics that the plot must have, otherwise the cost of the house for the buyer is likely to increase and this will make the offer less attractive.

In this sense, as part of the business plan we should propose that the company purchases a large surface of land and divide it into plots.  This can mean also important discounts for the company when the costumer will go to that company and will ask for a house to be built the plot will be cheaper than buying it himself.

Marketing Mix

We can resume all of the above paragraphs in a comprehensive marketing mix, which includes the main Ps.

  • Product – American style houses, built with cheaper materials than traditional houses and in a shorter period of time. Offering the land as part of the package will increase the product’s targeted group of consumers.
  • Price – lower prices than traditional houses. Notably, the prices will need to be adapted to the purchasing power in Bulgaria.
  • Promotion – different forms of promotion are available. This includes online promotion through the Internet, brochures, participations in international fairs, building one or two houses that can be visited and where the consumer can make first contact etc.
  • Place – throughout Bulgaria, but most likely in the residential areas outside Sofia and other larger cities in the country.

Targeted Group of Consumers – sociodemographic and economic characteristics

This is practically formed of two different set of individuals.  First of all, the well to do Bulgarian upper class will be targeted, although only in a minor way since, as we have shown, it is less likely they will be adapting so easily to the new concept.

The most important categories are foreign and, especially, American expats working in Bulgaria.  First of all, such a category has very high income levels, benefiting from well-paid jobs in foreign companies or governmental institutions.  From this point of view, they will certainly have the necessary purchasing power to afford such houses.  Second of all, from many perspectives, these are the kind of consumers that are used with the product, they have seen it before and are familiar with its main characteristics.  Third of all, it is the kind of house that requires a reasonable investment and can be sold at a lower price when leaving the country to move somewhere else or back home.  From this point of view, given the prices, the difference in price from purchase to sale will be proportionally less than in the case of a traditional house.

Human Resource

The company needs well prepared talented and capable employees, with good knowledge of their jobs and hard workers.  In this sense, the entire human resource strategy is essential in the success of the business. The employer has to invest in his employees in terms of training, motivational tools etc.  They need specialization courses, they have to be trained to be ones of the best on the market, and so the company will grow.

The first step is related to the actual recruitment and hiring process and the company’s efforts at this phase must be directed towards acquiring the best on the market.  Linking and bonding the employees is also very important in creating a coagulated organizational structure that would promote company objectives and that would sustain the development of the company’s strategies and tools[2].

The employer has to know that the employees play a central role in the company.  Larry Bossidy, former CEO of Honeywell, once said that it’s really all about people, not the strategies, because it is the people/the employees that make the strategies become a reality in the everyday life of the company.

The motivational policy of the company is very important too and closely linked to the recruitment policies as a component of the HR sttrategy.  In this sense, the best employees have to be stimulated, and the firm will consider a variety of rewards such as gain sharing programs, profit sharing plans or attractive bonus systems.  For a country such as Bulgaria, living and developing for such a long period of time in the Communist economy meant the virtual inexistence of any motivational policy.  Financially, you gained the same salary whether you worked hard and had ideas or if you didn’t do anything.  Therefore, the new market-oriented motivational policies will need to be adapted to this reality and to the fact that it will take a while to implement such ideas to the Bulgarian employee.

One of the biggest mistakes that a company could make is not to take into consideration the importance of the employees into a firm. The work depends on how they do their job, the way they understand it and most important the payment they receive for the work they have done. Employees react at the way they are treated and, maybe most important, the way they are paid. The income has to be according to the job.

Bartlett and Ghoshal (2002) are quite right to say that ‘today managers must compete not just for product markets or technical expertise, but for the hearts and minds of talented and capable people”[3].

The list below should present the main HR necessities for the company in its starting phases, together with an estimated monthly salary. We should point out that the estimated salary is adapted to the Bulgarian reality, a country where the minimum wage is around 100 euros and the average salary does not go over 200 euros. As such, the company will need:

  • CEO – General Manager. The most important function in the company, the CEO will be in charge with the development of long-term objectives and strategies of development. Given his responsibilities, a salary up to 1500 euros is realistic. A person with at least 2-3 years of managerial experience would be suitable.
  • Assistant Manager. This is not necessarily a secretary job, the person in charge will be in charge with organizing the entire schedule of the CEO. A dynamic person, with an inclination for foreign languages would be required. A salary of 450 euros would be a reasonable starting level.
  • Logistics Manager. The logistics manager is in charge with ensuring that the supply chain management functions efficiently. A salary of 850 euros a month would be reasonable.
  • Development Manager. This position will be in charge with managing the construction of the houses. In this sense, he will coordinate the different construction teams and will ensure that all resources are well distributed. A salary of 1000 euros a month will be a good starting level.
  • Marketing Manager. In charge with the marketing policies and the marketing mix, this position will also need to coordinate the relationship with the media. Salary: 850 euros a month.
  • Sales Manager. The sales manager will virtually be in charge of the sales team and will ensure their coordination towards reaching the objectives of the company. 900 euros per month.

The main weaknesses of the firm’s business model are lack of expertise and capital restraints. The lack of expertise is related, as previously mentioned, to the rather low level of knowledge of the Bulgarian market and, especially, of the reaction of the Bulgarian market to the company’s policies.  In this sense, a good solution could be to collaborate with a firm that knows more about this kind of business or enter into alliances with suppliers of American style houses.

The company has, however, several advantages comparing to the others from the market. Its cornerstone is represented by the “value proposition”, the ability to build a customized family house in the best possible location at a competitive price.

In order to draw a bit more on the competitive advantages of the company, we should mention several differentiations that the company should count on when it will promote the business. First of all, we should consider the price differentiation. The American style houses are made of prefabricated and also they have standard designs, and this will make them easy to be assembled.  The American style houses have almost the same architectural plans, but the traditional houses have a different architectural plan every time it is built.

The other important advantage to build an American style house is the “shorter order-to-delivery time”. This means that because of the short period of time the house is built, the customers will pay less for that house, while the traditional houses made of brick require up to two years, and it will cost more.

The American style house, being made of prefabricated, these materials will not need to be bought from another firm, and these will be another reason why the house will be cheaper. The traditional houses are built with raw materials and these materials have to be bought from another firm, instead.  Financially, this can be translated in terms of capital by saying that the American style house is likely to tie up capital for a much shorter period of time than a traditional one.

The company wants to save customers money and time with buying the plot himself and wants to give him the opportunity to pay for the house that will be built plus the plot on which it will be placed. Lots of people do not know what king of plot they need, what infra and superstructure is. They could do a tremendous and expensive mistake by buying a plot that is unsuitable for a house or that needs additional investments.  This opportunity that the company gives to the customers is a little bit risky. A possibility to reduce this risk could be negotiating lower prices when buying plots.

At the beginning every company has growing ups and growing downs. In time it will learn how to manage with all the problems that will appear. It will learn how to cooperate and interact with the other firms’ partners in order to increase the level of communication.

In time the company will learn to establish close relationships with all its partners to achieve the flexibility and supply chain activities that it needs, because an easy communication among the companies will increase its informational efficiency.  The firm will have to invest in technology for better results, in better equipments, and well prepared employees, because they are a very important role in the company. As we said without them the company can do nothing. The employees have to be well trained and motivated.

The competition is quite strong on this market in terms of product.  There are four types of competitors on the market:

“Group A, consists of non-integrated American style building companies who offer high quality products at competitive prices.

Group B, consists of non- integrated American style house builders who offer houses with lower quality at lower prices.

Group C, consists of vertically integrated (land purchasing) traditional house builders who offer high quality products at high prices.

Group D, consists of non- integrated traditional house builders who offer products with lower quality at relatively low prices.”

To achieve performance on the market, the company has to be the best in the field, because having a great idea, like American style houses, another company will take the idea and will “steal” the customers.

“Thompson et al. (2004) state that to be the first mover in the industry could be a significant disadvantage when the company does not have enough financial resources or lacks important competencies. Experience in the construction industry is a major key success factor. Thus lack of expertise could be a significant disadvantage for a start-up company.”

“Talent has become the world’s most sought-after commodity”[4], says Adrian Wooldridge. The shortage is causing serious problems. IN A speech at Harvard University in 1943 Winston Churchill observed that “the empires of the future will be empires of the mind.” He might have added that the battles of the future will be battles for talent. To be sure, the old battles for natural resources are still with us. But they are being supplemented by new ones for talent—not just among companies (which are competing for “human resources”) but also among countries (which fret about the “balance of brains” as well as the “balance of power”). Competition for talent offers many benefits—from boosting productivity to increasing opportunities, from promoting job satisfaction to supercharging scientific advances. The more countries and companies compete for talent, the better the chances that geniuses will be raked up from obscurity.

But the subject is strewn with landmines. Think of the furor that greeted Charles Murray’s and Richard Herrnstein’s book “The Bell Curve”, which argued that there are differences in the average intelligence of different racial groups; or the ejection of Lawrence Summers as president of Harvard University because he had speculated publicly about why there are so few women in the upper ranks of science. It would be wonderful if talent were distributed equally across races, classes and genders. But what if a free market shows it not to be, raising all sorts of political problems? And what happens to talented Western workers when they have to compete with millions of clever Indians who are willing to do the job for a small fraction of the price? This survey will argue that the talent war has to be taken seriously. It will try to avoid defining talent either too broadly or too narrowly but simply take it to mean brainpower—the ability to solve complex problems or invent new”[5].

         The Bulgarian market is a fragile one. People do not have money to buy whatever they need, not to talk about whatever they want. So, the companies have to reorganize their activities depending on them.  It is true that the companies can educate people, but when they do not have the finances for buying that product, the companies can do nothing.

That is why, when entering on a market, the company has to prospect it, see what is it capable of.  It will need to investigate the customer profile, the income categories and other socio-economical factors that influence demand.

Subsequently, the firm must build up expertise as quickly as possible because it is vulnerable to competitive attacks from the industry’s competent and resourceful rivals.  We need to remember that the Bulgarian market will soon be part of the European Union market and this mans that the financial resources available in Brussels will soon be transferred, at least partially, into Sofia and the rest of the country.  The new improved business conditions will be attracting other companies as well.

The company’s resources will need to be directed towards developing a well recognizable market sector, profitable enough for starting the business and for developing a clientele.

Financial Statements and Financial Analysis

Despite an initial impression, this type of business is not necessarily a high investment in terms of costs.  Indeed, it is not a business where the product needs to be produced and then sold, rather the building of a solid clientele is the first step and, only following this, the houses will be produced.  From this point of view, we can appreciate that the initial investment (startup) is only concentrated on renting an office (rent on the financial statements) and on purchasing the initial office equipment, as well as on start up expenses related to making the first contacts and developing a showroom, brochures and other marketing materials.

The projected base of sales growth was estimate at an annual 50 %.  This is not necessarily an optimistic rate, given the period we are referring to (2006-2008).  Indeed, as previously mentioned, this is a period when Bulgaria will join the European Union, the confidence in the business climate will gradually increase and more American investors are likely to be players on the market and clients for the company.  In this sense, while in the first year we estimated a projected 10 houses built and sold, this figure is expected to grow to 20 houses by 2008, given the previously mentioned considerations. The growth is sustainable in these terms.

The costs of goods sold has also been noted as growing directly proportional to net sales, also taking into consideration a decreasing rate of inflation, given the accession to the European Union.  Additionally, the infrastructure will need to be improved in order to be able to sustain the volume growth.  This will mean improved logistics and supply chain management so as to make the supplying process more competitive.  We have also estimated an increasing rent, since the presence in the European Union is likely to bring about a higher demand for office space in Bulgaria and a price increase in this area.

From the balance sheet we see these estimates in the income statement being translated in the balance sheet, with a constant growth in terms of current assets and, thus, total assets.  The company is basing its financial activity on private investment and ownership, with no credits from the bank to support its activity.  After the first year of activity, the organization will be able to finance itself from the profits made.

FINANCIAL STATEMENTS

  1. Consolidated Income Statement
  • Unitary price of an American style house is estimated to be 60,000 euros, while the land + house package is evaluated at 75,000 euros.
  • The Cost of Good Sold is formed of materials and shipping/transport, the rest are included as other expenses (salaries etc.)

Bibliography:

  • Slaev,Alexander and Arch, M. 2004. Sustainability in different urban development contexts: The Southeastern European Experience (Bulgaria). On the Internet at http://www.uic.edu/cuppa/cityfutures/papers/webpapers/cityfuturespapers/session1_2/1_2sustainibility.pdf. Last retrieved on October 20, 2006
  • Bartlett, Christopher; Shoshal, Sumatra. 2002. Building Competitive Advantage Through People. Winter 2002, Vol. 43, No. 2, pp. 34–41
  • The battle for brainpower. October 2006. On the Internet at

http://www.uic.edu/cuppa/cityfutures/papers/webpapers/cityfuturespapers/session1_2/1_2sustainibility.pdf

Retrieved: Oct 20, 2006

[1] Slaev,Alexander and Arch, M. 2004. Sustainability in different urban development contexts: The Southeastern European Experience (Bulgaria). On the Internet at http://www.uic.edu/cuppa/cityfutures/papers/webpapers/cityfuturespapers/session1_2/1_2sustainibility.pdf. Last retrieved on October 20, 2006

[2] Bartlett, Christopher; Shoshal, Sumatra. 2002. Building Competitive Advantage Through People. Winter 2002, Vol. 43, No. 2, pp. 34–41

[3] Ibid. Page 41

[4] The battle for brainpower. October 2006. On the Internet at

http://www.uic.edu/cuppa/cityfutures/papers/webpapers/cityfuturespapers/session1_2/1_2sustainibility.pdf

Retrieved: Oct 20, 2006

[5] Ibid.

[6] In the 3rd year consistent raises are awarded to the staff.

[7] Increasing rent costs in 2008, after the accession to the EU.

[8] Used in construction sites etc.

[9] In the 3rd year consistent raises are awarded to the staff.

[10] Increasing rent costs in 2008, after the accession to the EU.

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