Survey Among Business Representatives from Montana Project “Stimulation of Economic Exchange in the Cross-Border Region Montana – Pirot”

BULGARIA - SERBIA EUROPEAN UNION IPA CROSS-BORDER PROGRAMME

Survey among business representatives from Montana Project “Stimulation of economic exchange in the cross-border region Montana – Pirot”

Montana, Bulgaria 2014

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT

Contents

Main objectives of the survey ...... 5 Methodology ...... 7 Overall presentation of the economic and business environment in the Municipality of Montana ...... 12 Place in the national economy ...... 12 Sectorial structure of the economy ...... 14 Structure of the business units ...... 19 Workforce ...... 23 Investments ...... 24 Conditions for research and development ...... 25 Profile of the key enterprises in Montana ...... 28 Financial aspects of the enterprises ...... 28 Economic aspects of the enterprises ...... 36 Field of work ...... 40 Average number of employees in the enterprises ...... 47 Export orientation ...... 48 Manufacturing and export ...... 50 Main products and services ...... 50 Competitive advantages ...... 54 International markets...... 56 Measures ...... 65 Conclusions ...... 69

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 1 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT

Tables

Table 1 Main data for the economic development in NWR, 2010 ...... 21

Table 2 Structure of the enterprises in Montana, 2010 ...... 23

Table 3 Main financial data for the key enterprises in the Municipality of Montana, 2010, thousand BGN ...... 30

Table 4 Main financial data for the key enterprises in the Municipality of Montana, 2011, thousand BGN ...... 30

Table 5 Main financial data for the key enterprises in the Municipality of Montana, 2012, thousand BGN ...... 30

Table 6 Grouping of the enterprises per financial year ...... 31

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 2 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT

Figures

Figure 1 GDP at current prices (2006 – 2010), mln. BGN ...... 13

Figure 2 GDP per capita (2006 – 2010), BGN ...... 13

Figure 3 GDP per capita, BGN, 2010 ...... 14

Figure 4 Sectorial distribution of the number of enterprises ...... 14

Figure 5 Structure of the production in the Montana region, %, 2009 - 2010 ...... 15

Figure 6 Structure of the production of the manufacturing enterprises in the Montana region , %, 2010 ...... 16

Figure 7 Dynamics of the GVA of the manufacturing industry in NWR, mln. BGN, 2006 - 2010 ...... 17

Figure 8 Dynamics of the GVA of the agriculture in NWR, mln. BGN, 2006 – 2010 ...... 18

Figure 9 Dynamics of the GVA of the service sector in NWR, mln. BGN, 2006 - 2010 ...... 19

Figure 10 Economic structure in NWR, %, 2010 ...... 21

Figure 11 Net income per person and per employee, BGN, 2010 ...... 22

Figure 12 Costs for R&D in the BWR, thousand BGN ...... 26

Figure 13 Employees working in R&D in NWR ...... 27

Figure 14 Change in the turnover ...... 32

Figure 15 Return on assets for the chosen enterprises in the period 2010 - 2012 .. 34

Figure 16 Return on equity for the chosen enterprises in the period 2010 - 2012 .. 35

Figure 17 Dynamics of the revenues and costs of the chosen enterprises, thousand BGN, 2010 ...... 36

Figure 18 Dynamics of the revenues and costs of the chosen enterprises, thousand BGN, 2011 ...... 36

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 3 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT Figure 19 Dynamics of the revenues and costs of the chosen enterprises, thousand BGN, 2012 ...... 37

Figure 20 Change in the companies’ assets, % ...... 39

Figure 21 Costs for salaries, thousand BGN ...... 39

Figure 22 Average number of employees in the enterprises, 2012 ...... 47

Figure 23 Location of the factories of Monbat AD ...... 57

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 4 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT

Main objectives of the survey

The present survey is elaborated as part of the project “Stimulation of economic exchange in the cross-border region Montana – Pirot” implemented by NALILG Branch Montana as Lead Partner and the Municipality of Pirot as Project Partner under Bulgaria-Serbia IPA Cross Border Programme.

The overall objective of this project is to increase the competitive advantages of the economic sector in the region and to improve its positions in the EU markets through developing an economic synergy and co-operation between the business representatives from Bulgarian–Serbian cross-border region and strengthening their competitiveness.

The project is mainly related to improve the capacity of the region to deal with regional issues as partnership establishment, strengthening of institutional and business structures to respond to EU markets requirements and establishment of models for cooperation based on best practices and common needs. Through the development of economic and market analysis, the organization of business forums for shearing best practices and establishing business contacts, and the development of a strong institutional cooperation the project will support Bulgarian and Serbian enterprises from priority export sectors to enhance their competitiveness, their degree of internationalization and enter or expand their market positions.

The project has 2 specific objectives:

a) improvement of the partnership establishment in the cross-border region and creation of conditions for meeting the high standard required by the EU market;

b) establishment of models for cooperation based on best practices and common needs.

The main objective of the present survey is to help the project to fully address the needs of the companies from the region by providing practical information through studying the economic situation, investigating and identifying all the enterprises with export orientation in the municipality of Montana and collecting the opinion of the business representatives from the region. The main questions in the survey include: products and services with export potential; competitive advantages of the companies from the region; potential international markets; measures that should be undertaken in order to stimulate the export, etc. The results from the implemented

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 5 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT survey will be used in the studies planned under the project as well as in the organization of business forums for sharing best practices and establishing business contacts and the development of a strong institutional cooperation.

Finally the implementation of the present survey and the rest of the activities planned under the project “Stimulation of economic exchange in the cross-border region Montana – Pirot” will enhance the synergy and partnership between the companies in the region, their economic development, competitiveness in the international market, the meeting of the EU market requirements and the attraction of investments. The implementation of the project activities will further provide access to relevant and useful information for the companies in promoting and supporting their export, foreign markets where their goods have a competitive advantage will be identified, a specific set of promotional measures for successful positioning on the identified markets will be offered.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 6 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT Methodology

As stated above the objective of the present survey is to study the economic situation, to investigate and identify all the enterprises with export orientation in the Municipality of Montana and to collect the opinion of the business representatives from the region. For that purpose the methodology of the survey includes three main processes:

1. Study and representation of the economic situation and environment in the Municipality of Montana

This process includes gathering and analyzing statistical and economic information about the Municipality as a whole. It will represent the micro economy in the Municipality including:

- Place in the national economy; - Sectorial structure of the economy; - Main economic activities; - Structure of the business units; - Workforce; - Investments; - Conditions for research and development.

The provided information will draw the entire picture of the economic environment in which the enterprises in the Municipality are operating, the possible problems they are facing and the opportunities they have for economic growth and development. It will further help identify potential competitive advantages of the companies and determine suitable measures for stimulating their export.

In this first process of the survey several data sources will be used, including:

- Statistical data from the National Statistical Institute; - Information from Ministry of Economy and Energy; - Information from the Municipality of Montana; - Eurostat; - International trade center; - Information from the Bulgarian Industrial Association and the Bulgarian Chamber of Commerce and their regional offices; - Official electronic information sources;

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 7 of 70 CCI Number 2007CB16IPO006

2. Investigation and identification of all the enterprises with export orientation in the Municipality of Montana

The second process of the survey is focused on creating a profile of the enterprises in the Municipality of Montana that are export oriented and have the potential and the competitive advantages to further develop their international operations. The profiling will be implemented by analyzing the following information about the identified enterprises:

- Financial aspects; - Economic aspects; - Field of work; - Average number of employees; - Export orientation.

The created profiles will help form groups of enterprises in different stages of their development, with different competitive advantages, problems and perspectives for growth. Specific measures will be determined for stimulating the export and growth of each identified group of enterprises. The targeted enterprises will also be invited to participate in the planned businesses forums under the project and the profiles created by the present survey will help the organizers to better match companies from the two municipalities and thus establish better business relations and synergies in the region.

The data sources that will be used to provide the necessary information for the profiling of the enterprises in the Municipality of Montana include the following:

- Information from the Municipality of Montana; - Information from the Bulgarian Industrial Association and the Bulgarian Chamber of Commerce and their regional offices; - Annual financial statements published in the National Trade Register; - Official web-sites of the identified companies; - Official electronic information sources; - Information published by professional organizations.

3. Collection of the opinion of the business representatives from the region

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 8 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT The opinion of the business representatives from the region is extremely important for the actualization of the prepared studies. It will provide up-to- date information about the perceptions of the business representatives, their main concerns about the economic environment and the business development, their plans and view for the future of their enterprises, etc. The opinion of the business representatives is collected throughout the dissemination of questionnaires focusing on the following topics:

- Corporate profile – economic sector, scope of activities, sales revenues, costs, tangible assets, employees, market scope and share, export destinations; - Products/services – main products/services, competition, demand, participation in trade fairs; - Potential markets – share of the Bulgarian export, share of the incomes from export, innovation costs, investments in IT, investments in intangible assets, main competitors (exporters), main importers, need for support for the export from the public institutions, main measures that the public institutions should take in order to promote the growth and the export of the sector.

Apart from this questionnaire another specific questionnaire is disseminated among representatives of the municipal institutions. This second questionnaire is looking to provide information on the following:

- Profile of the organization – scope of activities, employees; - Products/services – main products/services with greatest potential for export, competitive advantages of those products/services, problems of the enterprises, main channels of marketing and promotion in the international markets; - Potential markets – main support of the export, activities of the organization for export support, incentive policies for business development, forms of marketing and promotion of the local business at international trade fairs, main international markets, need of specific municipal structure export promotion and support, etc.

The chosen questionnaires are a flexible tool for research because of the opportunity they provide to present the questions in many different ways. They require careful development, testing and removal of deficiencies found. The study, based on questionnaires is appropriate, since it is necessary to collect a significant amount of information from a large number of respondents in a relatively short period of time.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 9 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT

The questionnaires can be three types:

- Closed questionnaires - in this type of questionnaires answers to the questions are standardized and the respondent selects one of all possible answers. The advantage of this type of questionnaires is that there is no possibility of misleading answers that will lead the identification of risk which does not exist. The disadvantage is that if there is no question related to a risk identified during the project implementation, there is no possibility for its identification. The compilation of closed questionnaires can be done using standard, pre- developed and used questionnaires. - Open questionnaires - the open type questionnaires include specific questions without offering ready answers to the respondents. The advantage of this type of questionnaires is that different types of risks can be identified that are not included in the survey. The disadvantage is the degree of reliability of the described information. - Mixed questionnaires - such questionnaires are a mixture between open and closed questionnaires. They increase the possibility of identifying a risk to the maximum extent and substantially minimizing the disadvantages of each of the above described types of questionnaires.

Due to the advantages of the mixed questionnaires the two questionnaires under the present survey are using both close and open questions.

The method of using questionnaires for providing additional information to the survey was chosen because of the following advantages in its application in the process of collecting primary data:

- enables the collection of large amounts of primary qualitative information on individual opinions, interests, preferences and motives of the interviewed representatives; - in carrying out the survey pre- developed for this purpose thematic questionnaires are used which minimizes the variations in respondents' answers; - enables efficient and fast collection of large amounts of data; - allows the respondent to complete the questionnaire at the most convenient time for him ; - adaptable to dynamic situations.

A major shortcoming of the use of questionnaires is that it relies on the accuracy of the information provided. The impact of this disadvantage is

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 10 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT minimized by asking a question in several different ways, in different forms and at different locations within the questionnaires and comparing the answers.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 11 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT

Overall presentation of the economic and business environment in the Municipality of Montana

Place in the national economy

The Municipality of Montana is part of the North-West Region which is one of the regions most affected by the economic and financial crisis. In the moment the region has the longest trend of creating the lowest GDP and GDP per capita. For the last year with statistical data – 2010, the contribution of the region to the national GDP is only 7.2% and the GDP per capita is 60.4% of the average for the country. Among the Municipalities within the North-West Region the Municipality of Montana has one of the lowest GDP at current prices and ranks only before the Municipality of Vidin.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 12 of 70 CCI Number 2007CB16IPO006

Figure 1 GDP at current prices (2006 – 2010), mln. BGN

Source: NSI

As for GDP per capita the Municipality of Montana is again ranked penultimate in the region only before the Municipality of Vidin almost reaching 5000 BGN per person and marking a decrease after the pick in 2008. This indicator shows the level of regional and municipal development, for the Municipality of Montana this indicator is just above half of the average for the country (52.7%) and 84.5% of the average for the North-West Region.

Figure 2 GDP per capita (2006 – 2010), BGN

Source: NSI

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 13 of 70 CCI Number 2007CB16IPO006

Source: NSI

Sectorial structure of the economy

The sectorial structure of the economy of Montana Municipality is dominated by activities related to engineering, electronics and food industries. Other important enterprises are those working in the light industry, the construction industry and the manufacturing. A number of well-established and diverse companies are operating in the Municipality of Montana, they have successful partnerships with international companies for investment, production and sales. Among those companies are: MONBAT, MONOLIT, AVA Sport, BALKAN, CROSS and others.

Figure 4 Sectorial distribution of the number of enterprises

Source: NSI

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 14 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT The economy of the Montana region is characterized by sectorial diversity. Some of the main industrial sectors are preserved, others are transformed and the ratio between the sector has been changed. By 2010 there have been no significant changes in the economic structure and the proportion between the three main sectors - industry, services and agriculture. The industry is forming 68.3% of the production, followed by the service sector with 18.4% and the agriculture sectors – 13.3%.

Figure 5 Structure of the production in the Montana region, %, 2009 - 2010

Source: NSI

The industrial sector for years dominates the regional economy. In 2010 its production amounts to 656 mln. BGN. The sales revenue is surpassing 653 mln. BGN which is 49.1% of the total revenue for the area. The industry provides the highest employment in the region. In 2010 11 066 people or 47.3% of those employed in the region work in this sector. All activities in the Industry sector with the exception of construction mark an increase in production and sales in 2010 compared to the previous year 2009.

The main economic activity in the Industry sector is the manufacturing. In 2010 the production in this sector is around 555 mln. BGN and the revenues at current prices are higher than the previous year by 105 mln. BGN. Despite the improved production activity the major problems for the business development in the sector remains the uncertain economic environment and the insufficient demand. In terms of sectorial specialization in Montana there are significant capacities in the manufacture of electrical equipment - 29% of the total production of industrial enterprises, in the production of food and drinks - 22.5%, in the metallurgy (9.2%), the production of vehicles (7.7%), clothing (7%) and furniture (6.3 %).

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 15 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT Figure 6 Structure of the production of the manufacturing enterprises in the Montana region , %, 2010

Source: NSI

The manufacturing industry is also a leading sector for the entire North-West Region. For 2010 the production of this industry is 3 624 mln. BGN and it employs 590 thousand people (10.4% of the national employment in the industry). Due to the effects of the economic and financial crisis there is a slight decrease in the share of the region in the national GVA of the industry – from 9.2% in 2007 to 8.1% in 2010. The same trend is observed in the GVA of the manufacturing industry in Montana where after a peak in 2008 reaching 200 mln. BGN its value for 2010 is around 160 mln. BGN, ranking it only before Vidin. This value is only 23% of the GVA of the manufacturing industry in the leading region for this indicator – Vratsa.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 16 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT Figure 7 Dynamics of the GVA of the manufacturing industry in NWR, mln. BGN, 2006 - 2010

Source: NSI

Over the years the traditional for Montana agricultural sector has undergone a severe crisis and numerous structural transformations, including slow and difficult recovery. In 2010 there is a growth of the production in the industry compared to the previous years. The generated sales revenues in this sector for 2010 amount to 96.0 mln. BGN.

The structure of the agricultural production is the same as in the previous year – the production of the horticulture forms 60.0% of the total production in the agriculture, followed by the livestock breeding - 35.5%, and agricultural services - about 5 %. Over two-thirds of the area of Montana are occupied by agricultural land with high agronomic qualities suitable cereals - mainly wheat, maize and barley, technical crops - mainly sunflower and rapeseed, vegetables, grapes and potatoes. The livestock breeding is mainly represented by cattle, sheep, poultry and pig farming.

The agriculture sector is of great importance for the economic structure of the North-West Region with a contribution of 14.4% to the production and 12% of the employment. For 2010 among the regions of level 2 the NWR is the region with the highest share of the agriculture in the GVA – 11.9% (average for the country – 4.9%). This high share is mostly due to the lower performance of the rest of the sectors.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 17 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT The highest contribution to the agricultural production in NWR is for Pleven (26%) followed by Vratsa (23%), Lovech (20%), Montana and Vidin (15%). Montana is also ranking third after Vratsa and Pleven in terms of GVA in the agricultural production with about 110 mln. BGN, which is again a significant decrease from the levels of 2008 – 150 mln. BGN.

Figure 8 Dynamics of the GVA of the agriculture in NWR, mln. BGN, 2006 – 2010

Source: NSI

The services are a sector that employs a significant portion of the population in Montana. This sector is the main direction in which the small and family businesses are developing. The operating enterprises in this sector are 3480 or 77.6% of the companies operating in the area. In 2010 the Services sector is also affected by the economic crisis. The generated sales revenues for 2010 are 581.8 mln. BGN at 580.4 mln. BGN for the previous year.

The main activity in the Services sector is trade and repair of motor vehicles and motorcycles, which gives generates 82.5% of the sales revenues in the sector and 44.6% of the production. Despite the increase of 4.5% in the consumer prices in 2010 the sales revenues of the commercial enterprises in Montana are at the level of 2009 (increase by only 0.3%). In 2010 59 out of 2071 companies involved in the trade and repair of motor vehicles have ceased their operations. At the same time the financial performance of the industry has improved as the commercial enterprises have ended 2010 with 1 mln. BGN more in profit compared to 2009.

Of the total production in the Services sector 18.2% is formed by the activity "Transport, storage and post services". In comparison to 2009 the revenues at current prices in the sector have increased by 11%. There is a registered sales

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 18 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT growth in 2010 compared to 2009 in the following activities: "Culture, sports and entertainment" - by 22.9 %, "Production and distribution of information and communication" - by 7.1 %, "Real estate" - by 4.3 %. The largest declines in sales revenues at current prices in 2010 compared to the previous year in the Services sector are registered by companies involved in the following activities: administrative and support services - by 30.1% , education - 18.8 % and restaurants and hotels - 6% .

For the North-West Region as a whole there is a negative trend for decrease of the share of the services in the GVA for the last 5 years – from 73% in 2006 to 6.0% in 2010, this trend is mainly a result of the slower development rates in the region before the economic and financial crisis and the further decrease in 2010. The dynamics of the GVA of the services in the period 2006 – 2010 shows similar trends in the different municipalities in the region. Pleven has the highest share of 33% while Montana ranks only before Vidin with 16% of the GVA in the service sector.

Figure 9 Dynamics of the GVA of the service sector in NWR, mln. BGN, 2006 - 2010

Source: NSI

Structure of the business units

28 621 non-financial enterprises operated in the North-West Region in 2010 or 7.8% of those in the country. The people employed in them, which are 7.4% of employment in the country, are distributed in areas with the highest share in Pleven - 34%, Vratsa -23%, Lovech - 19%, Montana – 16%, and the while the lowest Vidin -

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 19 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT 9%. The structure of the net sales revenues and number of enterprises is similar – Montana ranked penultimate before Vidin with 15.4% and 15.7% respectively.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 20 of 70 CCI Number 2007CB16IPO006

Source: NSI

Table 1 Main data for the economic development in NWR, 2010

Number of Number of Net sales revenues Fixed assets enterprises people (thousand BGN) (thousand BGN) employed Total 366 929 2 081 299 188 419 152 106 397 669 NWR 28 621 154 752 8 667 989 5 689 623 Vidin 3 243 13 740 791 908 342 030 Vratsa 6 120 35 252 2 149 726 2 421 304 Lovech 5 435 29 852 1 586 914 932 741 Montana 4 484 23 406 1 331 097 527 397 Pleven 9 339 52 502 2 808 344 1 466 151 Source: NSI

The net sales per capita of the enterprises in NWR for 2010 are 39% of the average for the country, which supports the conclusion that there is a serious economic gap in the region. The labor productivity measured by the sales revenues for 1 person are 62% of the average. The level of entrepreneurship in NWR is 32.8 enterprises per 1000 inhabitants, the national average being 48.9. As most problematic in economic terms within the North West Region are Vidin and Montana.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 21 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT Figure 11 Net income per person and per employee, BGN, 2010

Source: NSI

For a period of 5 years (2006 – 2010) only the number of micro enterprises has increased by 2890, representing 92%, along with the small enterprises with up to 50 employees - 28,210 or 98.6%. There is a decrease in the group of medium-sized enterprises with around 100 enterprises, which is explained by the shift into a lower group or closures of part of those entities. The number of large enterprises during this period has also decreased by 14 enterprises and is 49.

In 2010 in the region of Montana there are 4484 active enterprises with a production of over 960.6 mil. BGN and 1 331 mil. BGN net sales revenues. The enterprises have fixed assets of 527.4 mil. BGN. In 2010 they have acquired fixed assets for 96.7 mil. BGN. Of these, 41.2 mil. BGN are the acquired buildings, facilities and structures, 33.9 mil. BGN - plant and equipment, 14 mil. BGN - vehicles. The structure of the active enterprises of Montana is dominated by micro enterprises employing up to 9 people - 92.2% of the total. Only 8 companies or 0.2% of all active enterprises have over 250 employees, but they produce a quarter of the output of the region and one-seventh of the employed work in them.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 22 of 70 CCI Number 2007CB16IPO006

Share in % in Type The total The volume of the The total number of production number of enterprises the people employed Total 100,0 100,0 100,0 Micro enterprises / up to 92,2 19,0 35,4 9 employed/ Small enterprises /10-49 6,3 23,2 25,5 employed/ Medium enterprises /50- 1,2 32,8 25,2 249 employed/ Large enterprises /over 0,2 25,0 13,9 250 empolyed/

More than half of all active enterprises in the region of Montana (51.4%) are concentrated in the Municipality of Montana - 2127 enterprises, 95% of which are private enterprises, followed by the municipalities of Lom - 16.2% and Berkovitsa - 13,6%. The smallest number of active enterprises is in the municipalities of Georgi Damyanovo - 1.1% and Yakimovo - 1,4%. In the municipalities of Brusartsi and Medkovets the share of micro enterprises is about 98%. The large enterprises with employees over 250 people are only located in the municipalities of Lom and Montana. The enterprises in the Municipality of Montana form 66.1% of the production in the region and 63.4% of revenues from sales. They own 50.7% of the fixed assets of the regional economy and 57.4% of the employees.

Workforce

As part of the North-West Region the Municipality of Montana is one of the municipalities in the country with the highest rate of decrease and aging of the population. For 2011 the relative growth in the region of Montana is negative and equals -18.7%. Nevertheless the Municipality is ranked fourth in the North West Region in terms of population with 54 thousand inhabitants more than 60% of which are in the age between 15 and 64, followed by those in the age of above 64.

In terms of employment there is also a significant decrease as for 2010 in the region of Montana the number of the people employed is only 45.5 thousand

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 23 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT compared to 58 thousand in 2007; the number of the unemployed is 11 637 thousand (11 749 thousand in 2007); the coefficient of employment of the population in the age of 15 – 64 is 52% (54.7% for 2007); and the level of unemployment is 12.2% (10.9% for 2007). The Municipality of Montana in particular is one of the municipalities in the North-West Region with the lowest coefficient of unemployment in the range of 8-15%.

Despite the growing rate of the aging population the percent of the population in working age in the region of Montana that has high school or higher education is respectively 45.6% and 12.2%. For the Municipality of Montana in particular the percent of people with high school education is 52.6% and for those with higher education – 16.9%. The high level of education is supported by the established web of high schools, professional high schools, specialized high schools as well as the proximity to cities with big universities such as Svishtov and Sofia. These high percent of education are a beneficial factor for the enterprises operation in the region as they have a wide pool of educated employees to contract.

The average monthly wage in the region of Montana in the third quarter of 2011 is 517 BGN at 525 BGN for the second quarter of 2011. Compared to the third quarter of the previous year, it has increased by 2.2% or about 11 BGN. The employees in the public sector traditionally receive higher salaries than those in the private sector. In the third quarter of 2011 the average monthly salary in the public sector is 590 BGN and in the private sector - 468 BGN. Compared to the same period of the previous year, the average salary in the private sector for the region of Montana grew by 24 BGN, while the income of the employees in the public sector decreased from 604 to 590 BGN. The average salary in the area traditionally lags far behind the national average. For the third quarter of 2011 the employees in the region of Montana have received an average monthly salary of 176 BGN less than the average salary for the country. The amount of the average monthly salary in the third quarter of 2011 ranks the region of Montana 24 out of 28 regions in the country.

Investments

The industrial enterprises from the region of Montana have fixed assets of 234.4 mln. BGN. The acquisitions of fixed assets during the year amounted to 37.8 mln. BGN, 51.5% of them are buildings, facilities and structures. Over 11 mln. BGN are invested in machinery, manufacturing equipment and apparatus. Only in 2010 the industrial investments made equal 41.6 mln. BGN, which is about 40.2 percent of the investments in the region. There are also foreign investments concentrated in the

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EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT sector (about 21 million), but they are insufficient. The main investing countries are Spain, Italy, Greece and Germany.

For the North-West Region as a whole the investments, both in absolute terms and relative to the population, decrease in 2009 and 2010, which is related to the economic crisis. The overall reduction in the investment in the North-West Region in 2010 compared to 2008 has the lowest values (23.3%) due to the small total volume of the investments (6% of the investments in the country in 2010). In 2007-2010 the investment structure is relatively constant - 14-15 % - primary sector, 45-50% - industry - 40% services. It is noteworthy the decrease in the share of the investments in the trade in 2010 (13%) and increase in the proportion of those in the agriculture (17%), as the European funds have great contribution for the latter.

The share of the investments in the period 2008 - 2010 is higher in Pleven and Vratsa (33%), followed by Lovech and Montana (16 and 12%) and the lowest level is registered in in Vidin - 7%.

The share of foreign direct investment (FDI) in the nonfinancial sector up to 31.12.2010 shows significant inter-regional and intra-regional disparities. NWR is last in the country attracting only 2.3% of the total FDI.

Conditions for research and development

Although there has been a positive trend in the penetration of ICT and IT applications (accounting, internet, office software) the SMEs do not usually engage with major innovations due to their limited capital and capacity for risk. The SMEs are lagging behind in competitiveness compared to large enterprises with about two times lower productivity, lower profit margins and lower wages. The Bulgarian SMEs have from 2 to 7 times lower rate of labor productivity in comparison to the new member states of the EU and 15-30 times lower than that of the countries in the EU - 15. One of the main reasons for the low performance of the SME sector is the underdevelopment of great part of the manufacturing equipment and assets as well as the low levels of innovation and ICT.

As an EU member Bulgaria has declared its intention to participate actively in achieving the goal of intensification of the research, the technological development and the innovations. With the implementation of the strategy "Europe" 2020 the country has adopted a national goal "Investments in R & D to reach 1.5% of the GDP."

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 25 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT The R & D expenditures and their share in the GDP of the country (0.6% in 2010) and of all regions are unsatisfactory. In the North-West Region the R & D investments are extremely low - 0.13% in 2010. Only 3.2% of the total R & D expenditures are spent in the public sector and the invested resources in research products of the enterprises are less than 2% of the total costs of the enterprises. For comparison, 0.83% of the costs in the public sector and 2.52% of the cost of the enterprises are concentrated in the NCR and for the SIR these percent are respectively 3% and 5%. Only the SWR have more resources (83% of R & D expenditures and 85 % of the costs in the business sector).

Figure 12 Costs for R&D in the BWR, thousand BGN

Source: NSI

The EU values for 2010 of the personnel engaged in R & D are 1.03% of the economically active population, in Bulgaria this indicator is 0.7%. Only the SWR is characterized by higher than average for the EU-27 performance for personnel engaged in R & D (1.36%). In the North-West Region the personnel engaged in R & D in 2010 is only 0.21%.

In intraregional plan Pleven emerges with the highest potential for research, but it should be noted that the employees are only 379 in 2010 and there is a decrease in their number compared to 2008 (430 people). Such unfavorable trend is reported in Lovech, where the number of employees in R & D decreased from 217 people in 2008 to 196 in 2010. In Montana since 2008 there is no data on employment in R & D and in Vidin and Vratsa similar activity is carried out only by a single organization.

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Figure 13 Employees working in R&D in NWR

Source: NSI

These specific data show very weak development of the R & D activities throughout the NWR. One reason for the huge gap of the R & D and innovation investments in NWR is the lack of education (only in Pleven) and research centers, and a qualitative shift towards applied research and transfer of innovation and technology from other organizations in the country. The serious underestimation of the opportunities provided by the interaction between the units of the innovation system and the business is a problem for all regions and municipalities. The relationship between research and education institutions and businesses in all regions is weak or missing. There is still no project for technological parks or other structures of this type implemented on the territory of any of the regions.

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Profile of the key enterprises in Montana

The Municipality of Montana strongly dominates among the rest of the municipalities in the Montana region and determines the regional economy. 51.9% of the total number of business units are located on its territory, that includes the largest companies in the region. The economic structure of the Municipality includes the industry as the leading sector and the manufacturing industry, which is represented by all sectors. One of the largest manufacturers of batteries in the country - "MONBAT” AD is also located on the territory of the Municipality of Montana. In the sector "Manufacture of fabricated metal products, machinery and vehicles" the most significant representative is "Berg Montana Fittings" OOD, which manufactures plumbing parts from white cast iron (ISO 9001), "Balkan" AD - metal products, machinery and equipment (ISO 9001), and "Mir Montana” EOOD - manufacturer of rollers, belt conveyors, hoists, mast climbing platforms. "Cross" OOD is a manufacturer of bicycles, the production of which is sought in the country and abroad.

The sector "Manufacture of food and beverages" is presented by "Voinov & Co" SD and "SiS-7" EOOD - processing of milk under the brand name "Laktis", "Mesotsentrala” OOD and "Lorelei" OOD are manufacturers of durable and non- durable sausages.

In the sector "Manufacture of apparel and textiles” company “May 04 Holding” AD is the biggest manufacturer of clothing to order. "Trimona" AD, Montana is a manufacturer of shoes. SD "Ava sport and Co." produces seats for paragliders, hang gliders and reserve parachutes. Sector "Manufacture of other non-metallic mineral products" is presented by the major manufacturers "Monolit" AD - processing of aggregates.

Financial aspects of the enterprises

In order to present the financial aspects of the key enterprises operating in the Municipality of Montana the following three tables contain the main financial data of the chosen companies for the last three financial years – 2010, 2011 and 2012. All the collected data is from the public financial reports of the chosen companies.

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Company Assets Capital Sales Costs Costs for Employees Revenu salaries es Monbat AD 193 119 - - - - 229 646 Monolit AD 14 602 5 446 8 180 7 565 1 328 237 AVA sport SD 2 215 364 1 094 1 113 225 Balkan AD 12 284 13 348 15 604 16 2 412 169 Berg Montana 29 789 15 543 35 070 27 4 448 Fitting OOD 745 Cross OOD 24 232 8 308 42 670 38 2 037 580 May 04 Holding 1 789 792 1 050 1 046 166 AD "Mir Montana” 9 700 9 700 2 200 84 - EOOD 646 Trimona AD 592 3 200 1 288 1 187 143 156

Table 4 Main financial data for the key enterprises in the Municipality of Montana, 2011, thousand BGN

Company Assets Capital Sales Costs Costs for Employees Revenu salaries es Monbat AD 197 121 181 148 167 940 14 686 - 408 091 Monolit AD 15 001 5 362 11 037 10 471 1 520 251 AVA sport SD 2 129 - 1 258 1 251 262 Balkan AD 13 002 11 656 12 668 13 687 2 719 Berg Montana 30 050 15 371 36 543 30 786 5 143 Fitting OOD Cross OOD 28 633 10 197 63 036 58 420 2 243 May 04 Holding 1 869 879 1 430 1 364 186 AD "Mir Montana” 1 300 1 200 - 84 646 - EOOD Trimona AD 568 1 400 1 262 1 127 120 145

Table 5 Main financial data for the key enterprises in the Municipality of Montana, 2012, thousand BGN

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EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT Company Assets Capital Sales Costs Costs for Employees Revenu salaries es Monbat AD 212 126 201 776 187 13 996 450 565 251 069 Monolit AD 14 734 5 457 8 222 7 654 1 165 212 AVA sport SD 2 155 411 875 963 257 72 Balkan AD - 15 340 19 998 22 037 4 291 100 Berg Montana 31 851 13 246 35 334 31 799 5 107 600 Fitting OOD Cross OOD - - - - - 480 May 04 Holding 2 022 817 1 541 1 692 218 370 AD "Mir Montana” 3 870 7 500 1 139 1 076 120 210 EOOD Trimona AD - - - - - 150

The presented financial information shows that three main groups of enterprises can be formed in terms of the registered turnover – enterprises with turnover of above 100 thousand BGN, enterprises with turnover of 10 thousand BGN to 100 thousand BGN and enterprises with turnover up to 10 thousand BGN. The first group includes one of the biggest enterprises in the list – Monbat AD with turnover for the last year of 201 776 thousand BGN. The enterprises in the second group are Berg Montana Fitting OOD and Balkan AD with respectively 35 334 thousand BGN and 19 998 thousand BGN. The last group includes the rest of the studied enterprises and that with the lowest turnover being AVA sport SD with only 875 thousand BGN of turnover.

Table 6 Grouping of the enterprises per financial year

Group 2012 2011 2010 Company Turnover Company Turnover Company Turnover thousand thousand thousand BGN BGN BGN Turnover of Monbat AD 201 776 Monbat 181 148 above 100 AD thousand BGN Balkan AD 19 998 Monolit AD 11 037 Balkan AD 15 604 Berg 35 334 Balkan AD 12 668 Berg 35 070 Turnover of 10 Montana Montana thousand BGN Fitting OOD Fitting to 100 OOD thousand BGN Berg 36 543 Cross 42 670 Montana OOD

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EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT Group 2012 2011 2010 Company Turnover Company Turnover Company Turnover thousand thousand thousand BGN BGN BGN Fitting OOD Cross 63 036 OOD Monolit AD 8 222 AVA sport 1 258 Monolit AD 8 180 SD AVA sport 875 May 04 1 430 AVA sport 1 094 SD Holding SD AD Turnover up to May 04 1 541 Trimona 1 262 May 04 1 050 10 thousand Holding AD AD Holding BGN AD "Mir 1 139 "Mir 2 200 Montana” Montana” EOOD EOOD Trimona 1 288 AD

If we look at the previous financial years we will see almost all of the enterprises are not changing groups by except for Monolit AD – in 2010 the company is in the last group but registers a growth in 2011 reaching a turnover of 11 037 thousand BGN. Unfortunately it does not manage to sustain that growth and in the last financial year returns to a turnover of 8 222 thousand BGN which is close to the level of 2010.

Figure 14 Change in the turnover

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EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT

250

200 Хиляди 150

100 2010 50 2011 0 2012

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 33 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT As we can see from the presented figure most of the studied enterprises do not mark a significant change in their turnover. There are three companies that register a significant growth – Monbat AD (increase of almost 12% for 2012 compared to 2011), Cross AD (increase of almost 48% for 2011 compared to 2010) and Balkan AD (58% in 2012 compared to 2011).

The stable turnover and the reached increase for some of the companies show that despite the unfavorable economic situation in the country and in the region of Montana in particular the companies that are chosen as companies with export potential indeed show a sustainable growth. This means that they are implementing successful strategies for company development and have developed the needed competences and made the needed investments for keeping their competitive advantages and even to increase their market shares.

Figure 15 Return on assets for the chosen enterprises in the period 2010 - 2012

2,5

1,5

1 2010 0,5 2011 0 2012

None of the studied companies has a ROA above 5% which shows that their activities still require large investments. What is more important is the fact that for many of them that coefficient is even decreasing in the last year. That indicated that those companies still do not manage to use their assets to full extent and need to improve their processes by making them more efficient and lean.

The highest increase in ROA is registered by Cross OOD but it is still below the required 5%. Other companies that also mark an increase in that indicator are Monbat AD and Trimona AD. These companies are managing their assets more efficient but still will need to improve their operations in order to reach the required minimum.

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Figure 16 Return on equity for the chosen enterprises in the period 2010 - 2012

7 6 5 4 3 2 2010 1 2011 0 2012

The conclusion made from the analysis of the ROA is also confirmed by the indicator Return on equity, which is measuring the rate of return on the ownership interest. It measures a firm's efficiency at generating profits from every unit of shareholders' equity and shows how well a company uses investment funds to generate earnings growth. ROEs between 15% and 20% are generally considered good.

None of the studied companies is reaching the required good level of ROE but Cross OOD is showing a good development in that aspect with a ROE of 6% for 2012. Most of the other companies are also registering an increase in that indicator for the last years which is showing that they are starting to better use their investment funds and are generating more growth in their earnings.

All enterprises should continue following their growth strategies and should focus even more on their efficiency and effectiveness in order to achieve a long-term sustainable growth. Such strategies will also help the companies increase their shares in the national and international market and consequently their sales and revenues.

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Economic aspects of the enterprises

The following three indicators will be used in order to represent the economic aspects of the chosen companies – dynamics of the revenues and costs; change in the company’s assets; and costs for salaries.

Figure 17 Dynamics of the revenues and costs of the chosen enterprises, thousand BGN, 2010

90000 80000 70000 60000 50000 40000 30000 20000 10000 Sales Revenues 0 Costs

Figure 18 Dynamics of the revenues and costs of the chosen enterprises, thousand BGN, 2011

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200000 180000 160000 140000 120000 100000 80000 60000 40000 Sales Revenues 20000 0 Costs

Figure 19 Dynamics of the revenues and costs of the chosen enterprises, thousand BGN, 2012

250000 200000 150000 100000

50000 Sales Revenues 0 Costs

Only two of the companies register higher costs than revenues for the observed period 2010 – 2012, these are “Mir Montana” EOOD and “Balkan” AD. While for “Balkan” AD this difference may be considered as a constant and a deficiency that the company does not seem to be able to eliminate for the moment, for “Mir Montana” EOOD the volume of the costs of the company for 2010 and 2011 is extremely high with very low revenues. The company manages to efficiently decrease its costs to 1 076 thousand BGN in 2012 and even reaches higher revenues of 1 139 thousand BGN.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 37 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT The rest of the companies in this survey register higher revenues than costs, but it should be noticed that the difference between the two is not that big. The indicator once again confirms the conclusions of the financial analysis showing that the enterprises in the Municipality of Montana that have a potential for export and growth should put more focus and the efficiency and the effectiveness of their operations.

The change in the companies’ assets is presented by the percent increase/decrease in the asset for 2011 compared to 2010 and 2012 compared to 2011. Looking at this indicator most of the companies are registering a slight increase in their assets, there are only significant fluctuations in the assets of “Mir Montana” EOOD with decrease in 2011 and big increase in 2012. The increase in the companies’ assets indicates that most of them are investing in the improvement of their operations and production, that their productivity has increased and that they are working on improving their quality and leveraging their competitive advantages.

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200%

150%

100%

50% 2011/2010

0% 2012/2011

-50%

-100%

Analyzing the changes in the costs for salaries we can identify how much the companies are valuing and rewarding their employees and the changes they introduce in their pay system due to cut offs or increases in the number of employees or due to the increase/decrease of the company’s revenues.

Figure 21 Costs for salaries, thousand BGN

16000 14000 12000 10000 8000 6000 4000 2010 2000 2011 0 2012

All of the companies included in the survey except for Balkan AD and Cross OOD have decreased their costs for salaries in the last years. This is mainly due to the decrease in the number of people employed and is not related to the changes in the revenues of the companies. That fact indicates that most of the companies are not

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On other hand the decrease in the costs for salaries and the cut offs of employees can be seen as a result of the investments in better assets with more automation, the desire of the companies to be more efficient and to make their working processes more lean.

Field of work

Monbat AD

MONBAT is a leading company in Montana that produces over 1 million lead-acid batteries per year, with sales in Greece, Macedonia, Hungary, Belarus, Romania, Russia, Ukraine, Serbia, Turkey, England, Norway, Sweden, Czech Republic, South America and the Middle East. MONBAT employs over 450 people who design and produce batteries for cars, trucks, locomotives, military aircraft and helicopters.

During the last 10 years the Group proved to be also a leading producer of lead and lead alloys through its subsidiary Monbat Recycling EAD. Monbat Group of Companies consists of:

 MONBAT PLC - manufacturer of starter lead-acid batteries and AGM batteries for various applications;  START PLC - manufacturer of lead-acid starter batteries for trucks, buses, heavy-duty automotive and road Construction Equipment;  MONBAT RECYCLING EAD - recycling of lead and lead alloys;  OCTA LIGHT PLC - manufacturer of powerful high-brightness light emitting diodes and LED luminaries.

MONBAT was privatized in 1998 and is currently owned by "PRISTA" and Texaco. Their investments in the local production are more than 6 million dollars. The company is focused on quality improvement through continuous upgrading of its equipment, technology, design and processes. Evidence of their commitment to quality is the fact that they are the only company in the country in its sector which has ISO- 9001, ISO- 14001, ISO- 18001 and the Certificate of NATO. Montana's

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EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT proximity to Sofia allows the company to work closely with the Bulgarian Academy of Sciences, which is one of the four leading institutes in the world with special focus in the area of batteries. MONBAT is also a leader in environmental protection through the use of efficient processes to recycle old batteries.

Monolit AD

The main activity of Monolit AD is construction and execution of building and repair works. It is a fact that at present the company can proudly declare their participation in the construction of several large projects on the territory of almost the entire country.

Over 200 employees at Monolit are working in mining and processing of natural stone blocks that are used for exterior and interior wall cladding, flooring and architectural design elements and buildings. Limestone and marble are extracted from 8 quarries owned by the company. Monolit exports stone tiles and flooring throughout the world, including Europe, USA, Canada and the Far East. Moonolit continuously updates its core technology and provides high quality products with high strength, stable at atmospheric pressure and virtually maintenance free. Proof of the quality of the production is shown by the use of their products for the construction of many monuments, buildings, etc. including stadium "Wembley" in London, England.

Оne of the top places in the reference list of the company is the reconstruction and expansion of the entire production of nitrogen fertilizers in Neochim, Dimitrovgrad - the sole producer of nitrogen fertilizers in Bulgaria and one of the biggest on the Balkan Peninsula. Monolit AD is a contractor and operator of one of the 18 registered dung-hills for municipal solid wastes in Bulgaria, namely in the town of Harmanli. The company has completed several projects on elimination of environmental damage from old industries in the mining production and is also one of the main contractors in the field of railway infrastructure in southern Bulgaria during 1997-2002. At present the company has many projects which are under development, in the field of industry, but also in water and sewerage field, housing and public buildings.

At present Monolit AD has an extremely modern equipment and several basic and satellite directions/ production departments, concrete centers, quarries, etc. as well as its own fleet and heavy machinery. Great potential of the company as material resources and personnel are shown by the development of new activities

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EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT which are although not directly related to construction. These are tourism, consultancy, sale of real estate, energy. They identify some guidelines for the future development of Monolit AD and are sure sign for continuous market presence of the company.

AVA Sport SD

The company specializes in the design and manufacture of high quality, comfortable harnesses, parachutes and related accessories for many well- established international companies. Currently the company employs over 70 people. The sales of the production are rapidly increasing around the world, including Canada, Europe, Japan, Middle East and USA. Their products have been awarded international certificate DHV in Germany. The company also annually organizes competitions in this field.

AVA Sport is equipped with new and contemporary machinery deploying CAD- CAM technologies. A specialized machine for fine cutting – Wastema, is used for cutting out the materials. The tailoring machines of the world famous makers Durkopp-Adler and Pfaff are computerized as well and produce precise sewing. A special embroidery machine makes it possible to produce divers’ inscriptions and logos. The company is using heavy-duty machines for the production of harnesses and more conventional ones for making safety systems. Not just the modern machines guarantee the excellent quality, but also our professional tailors, who have graduated from specialized schools. All of the AVA Sport articles are made of high quality materials of the world leading manufacturers.

Balkan AD

Manufacturing factory Balkan is created in 1963 as an industrial integrated works. In 1995 it was reorganized as a monocracy /a privately-owned limited liability company/, and in 1996 as a joint-stock company. Since 1997 Balkan is a private joint stock company with personnel of 100 people, 20 of them are administrative staff - highly educated and qualified engineers and experts.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 42 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT The company is specialized in design and production of metal products, trade furniture and warehouse equipment, netlike and compact pallets and tubular and wire constructions. Its production is exported to many EU countries such as - the United Kingdom, France, Austria, Netherlands, Germany, Belgium, Sweden (IKEA) and Poland. The factory of Balkan is situated on an area of 22 300 sq. meters, and 16 000 sq. m of them are built-up area with the following production workshops:

 Cutting - Includes cutting out of pipe, pole, sheet and shape material. The workshop is equipped with strap-cutting and abrasive machines, cutting out sheet machines for material with length up to 3000 mm and thickness from 1 to 6 mm;  Pressing - It is equipped with eccentric and hydraulic presses from 25 to 315 tons. The workshop is arranged also with sheet-curving machines with length up to 3000 mm and thickness up to 4 mm, pipe curving machines for pipes with diameter from 14 to 45 mm;  Resistance welding of nets - Equipped with spot-welding machines SCHLATTER - Pgl2.1/6/B for production of nets with diameter of wire from 2.5 to 5 mm, spacing pitch divisible to 25 mm, width 1100 mm and length up to 3000 mm; specialized welding machine SCHLATTER -MG 911 with CNC for welding of nets for metal constructions of wire with diameter from 2.5 mm to 7 mm with maximum dimensions - width 1000 mm and length up to 2000 mm, depending on the type of construction. The workshop is equipped also with wire straightening machines for wire with diameter from 2.5 to 12 mm. The factory also disposes wire welding machine CFM 1020 -TWR-2D with CNC for bending open and closed outlines with dimensions 1000 x 1000 mm;  Welding - Hall welding operations under MIG/MAG, TIG methods and basic fitter - assembling are implemented in it. Welding is realized with welding machines with power from 150 to 350 A, and 200 ampere TIG devices "ESAAB";  Resistance powder coating - The company has three semi-automatic transfer lines for electrostatic powder coating. The coating is realized with powder epoxy-polyester dye after surface pretreatment: degreasing, pickling and phosphatizing. The capacity of coating is 32 square meters per hour;  Warehouse area - Warehouse for metals - covered premise 712 square meters area with capacity to 1000 ton; Warehouse - equipment completion and fittings - 500 sq. meters; Warehouse for finished goods - covered premises 1500 sq. meters.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 43 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT Berg Montana Fitting OOD

Berg Montana Fitting was established as a state metal foundry in 1960 and is now the leading fittings manufacturer on the Balkans. The company, based in the northwestern town of Montana, produces cast iron pipe fittings, iron and steel castings and other details for export in the EU. In May 1994, Switzerland's Berg AG purchased 50.04% in Montana Fitting for 3.6 million DEM and renamed the factory into Berg Montana Fitting. In August 1996, the Spanish company Accesorios de Tuberia purchased the stake of Berg AG in Berg Montana Fitting. This is the largest Spanish investment in Bulgaria. The company is a leading employer in Montana with over 600 people. Berg Montana Fitting is certified with ISO-9001 Certificate.

Cross OOD

Cross OOD is a Bulgarian Company established in 1995 specialized in bicycle manufacturing. Both brands – Cross and Crosser are registered trademarks for the company’s bikes and wheels. The company has a designer’s team in house, whose responsibility is to develop a wide range of new models every year. Keeping the brand identity of each model is the Cross designers’ first priority. They achieve this through creating conceptual elaborations, engineering and graphic designs which are intellectual property of Cross OOD. The company has 480 qualified specialists involved in management and production processes and this fact guarantees the high reputation of Cross branded bikes in Europe.

Cross OOD has two factories in Montana and Vidin where it possesses warehouse areas and production halls equipped with special conveyors for bicycles building. It also has powder paint shops for frames and wheels, as well as special high-tech machines for wheels assembling. Cross OOD produces around 250 000 bicycles per year. About 98% of them are exported mainly to Germany, Holland, Austria, Switzerland, France, Denmark, Sweden etc.

May 04 Holding AD

The company was founded in 1965 and now is a leading designer and manufacturer of women's clothing, which produces over 300,000 garments per year. The company employs over 370 people in its two completely technologically

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 44 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT detached and independent subsidiaries – “May Central” and “May Hall” which carry out all production activities related to the confectioning of garments. The company works for export to France, Germany, Belgium, Italy and the Netherlands.

Mir Montana EOOD

Mir Montana EOOD is a company in the machine manufacturing sector and was established in 1951. The company disposes of area of 144 000 m2 of that 35 000 m2 is covered area. It is working in partnerships with MANNESMANN-DEMAG, DURR, RIELA and ACCO which helped the company to expand its market coverage. Mir Montana EOOD is specialized in the manufacturing of:

 Mobile and stationary belt conveyors;  Spare parts for all kinds of belt conveyors;  Steel structures and platforms;  Non-standard equipment in fields of general machinery construction and building;  Filters  Spare parts and equipment for ceramic plants.

The rich production range of articles is grounded by the fact that the company has at its disposal design CAD systems, tools and technological equipment: belt cutting and circular machines, guillotine cutting machines up to 20 mm, bending machines, hydraulic presses up to 250 t, eccentric presses from 63 to 250 t, bending rolls, milling machines, planers, coordinate machines as well as a wide range of machines with CNC control, welding machines and aggregates for hand arc welding and aggregates for СО2 – shielded arc welding.

The company’s quality control systems are in accordance with European norms and standards concerning machinery construction and ISO 9001 Quality Assured in 2000, SGS Belgium. The team of more than 200 good trained workers, engineers, designers and managing staff guarantees for a high quality of the production.

Trimona AD

Trimona AD produces casual and sports shoes and slippers for 40 years. In the recent years the company has received prestigious national awards for quality and

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 45 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT design of the shoes produced. The company consists of four main workshops, built and equipped production building on two floors with ground floor, a technical workshop and steam plant. In partnership with European companies, it continues to update its products with new technology for sales in Bulgaria and Europe. Trimona AD currently employs 150 people and is the only company in northwestern Bulgaria equipped with modern equipment and technological capacity to produce women's, men's and children's casual, sports and domestic leather footwear and textiles.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 46 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT

Average number of employees in the enterprises

Figure 22 Average number of employees in the enterprises, 2012

Employees 600 600 450 480 500 370 400 300 212 210 150 200 72 100 100 0

Looking at the average number of employees two major groups of companies emerge – medium sized companies (employing 51 – 250 people) and large companies (employing over 250 people).

The group of the medium sized companies includes – Monolit AD, AVA sport SD, Balkan AD, Mir Montana EOOD and Trimona AD.

The group of the large companies is formed by – Monbat AD, Berg Montana Fitting OOD, Cross OOD and May 04 Holding AD.

As seen above the number of the people employed in most of the companies is decreasing, which is mainly due to cuts in costs or to the automation of the production processes.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 47 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT

Export orientation

From the data gathered for all of the enterprises included in the survey we can see that the great majority of them are exporting part of their production to countries from Europe, USA, Canada and the Middle East. This shows that these companies have already established business relations with foreign companies and have tested their products on the international markets.

The companies producing apparel and those in the metal industry have also established relationships with big international companies (IKEA) for the production by order of different products or parts for them. Such contracts are beneficial for the Bulgarian companies as they have the opportunity to gain access to valuable design and production information of big companies and use those practices in their operations. These best practices can further be used for the enhancement of the production process and for the export of products under the proper brand of the companies. The only disadvantage of these contractual relations is the fact that the Bulgarian companies are not selling their production under their own brand which does not make them visible and popular on the international markets.

Another proof of the export orientation of the chosen companies is the fact that many of them have already introduced and have been certified under various International standards such as ISO - 9001, ISO - 14001, ISO - 18001 etc. These are internationally used certificates proving that the used materials, products, processes and services are fit for their purpose. ISO International Standards ensure that products and services are safe, reliable and of good quality. For business, they are strategic tools that reduce costs by minimizing waste and errors, and increasing productivity. They help companies to access new markets, level the playing field for developing countries and facilitate free and fair global trade. Seeing that a company has been certified under such standard a foreign company is more secure about the quality of the final products and about the final implementation of signed contracts. Such certificates also facilitate the faster contracting.

The International Standards are strategic tools and guidelines to help companies tackle some of the most demanding challenges of modern business. They ensure that business operations are as efficient as possible, increase productivity and help companies access new markets. The main benefits include:

 Cost savings - International Standards help optimize operations and therefore improve the bottom line;

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 48 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT  Enhanced customer satisfaction - International Standards help improve quality, enhance customer satisfaction and increase sales;  Access to new markets - International Standards help prevent trade barriers and open up global markets;  Increased market share - International Standards help increase productivity and competitive advantage;  Environmental benefits - International Standards help reduce negative impacts on the environment.

Furthermore many of the companies are investing in modern machines, software and other production equipment in order to meet the requirements of the EU and other international markets. This is also a way of reaching higher product quality, being able to meet the client requirements and to successfully compete in the international markets. It is clear that the smaller companies do not have the sufficient funds to become market leaders but their efforts to increase their assets and to improve their final products indicate that they are following specific growth strategies and are doing their best to reach their set objectives.

Finally having some initial experience in the international business and trade will facilitated the future expansion of those companies. They already have some knowledge about international transfers, the International Commercial Terms, EU export regulations, international trade law, distribution channels, customs duties etc. The determined companies will be able to benefit from efficient support by the government and the Municipality more easily and effectively. And their experience will also be helpful for other companies in the region that have the desire to develop and to expand abroad. It will also be key for the planned business forums under the present project as the companies will already know the terms of international business and negotiations and will be able to achieve better synergies with their Serbian partners.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 49 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT

Manufacturing and export

Main products and services

Cross OOD

In its range the company has the most popular in Bulgaria types of bikes like Junior and MTB (26”, 27.5” and 29”), as well as the best sellers in Europe like Cross, Trekking, City & Urban type of bikes. Cross OOD produces bicycles for some of the most famous worldwide brands, where its products are famous with their high quality. This is due to the ISO 9001 standard on one hand and the components the company uses for assembling of the bikes on the other hand. These parts are supplied by well-known companies like SHIMANO, SRAM, SUNTOUR, SCHWALBE, KINESIS, KENDA, PROMAX, SELLE ROYAL, HERRMANS, TEKTRO, MAGIRA, SELLE ITALIA, AXA, SKS etc.

Mir Montana EOOD

The range of products that the company offers on the national and international market includes:

 Mobile and stationary belt conveyors, designed for horizontal and sloping transportation of different kinds of loads in mining, metallurgy, cement, chemical and etc. industries.  Spare parts for all kinds of belt conveyors, as follows:  rollers – with guarantee high quality, corresponding by DIN, bearer of gold medal of 55th International Trade Fair in Plovdiv, Bulgaria. Warranty 24 months.  drive stations;  tensioning stations;  roller ways;  self-alignment stations;  cleaners and scraped ploughs.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 50 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT  Steel structures and platforms, roller decks and roller ways used in the different production lines for car plants and cargo-transport lines for airfields.  Non-standard equipment in fields of general machinery construction and building, equipment for shops producing steel fixtures and reinforcement structures and constructional cargo gigs.  Filters – designed to meet environment requirements, ensure a normal working environment as well as discharging of the finest fractions at the different technological processes. The company has know-how of the following kinds of filters:  dry sleeve impulse filters;  wet inertia filters.  Spare parts and equipment for ceramic plants.

Balkan AD

The range of products of Balkan AD includes:

- Commercial set-up -the constructions are intended for setting-up goods storage in supermarket and selling room; - Wire nets - electric resistance welded. Produced under a special technology on a "SCHLATTER" spot welding machine with wire diameter from 2,5 to 4,5 mm and spacing pitch 25 or 50 mm, width to 1000 mm and length to 3000 mm.; - Pallet support - storage and transport of general purpose goods not only for stores, but for in-plant transport as well. Suitable for use with standard wooden EUR pallets; - Metal pallet sectional - the sectional metal pallet is a transportation and storage unit, intended for large size goods, permitting mechanized handling. Easily folded for transportation and storage. Suitable for use with standard wooden EUR pallets; - Metal BOX pallet the metal box pallet is a transportation and storage unit, intended for large size goods. Suitable for stores and in-plant transport as well, permitting materials handling mechanization; - Pallet on rollers - the pallet on rollers (roll - pallet) is a transportation and storage unit for range of different goods sizes. Suitable for store, selling room and premises; - Tabular furniture & chairs - the tubular furniture is intended for office, home and even outdoors furnishing;

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 51 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT - Wire shelves – furniture metal and wire construction made on a module principle permitting for a spatial set up. It is intended for office and home furnishing; - Bicycle carrying units - rear-mounted bicycle carrying unit (holder) including additional lighting and number plate. The bicycle holder is attached to the tow ball and fits almost all kinds of balls. The holder transports 2, 3 and 4 bicycles standing steady on the bent bars. The holder is treated with pure zinc and painted for best corrosion protection. Impact resistant lighting with protection on all sides. The bicycle carrying unit is available with a plug.

Monolit AD

The main activity of Monolit AD is woodworking, metalworking, manufacturing of concrete products and preparation of construction iron. At present the factory traditionally produces PVC windows with profiles "REHAU", "Blick" and "Profilink”, aluminum profiles with profiles „Alumil” and MDF doors - smooth and veneered. The product list of the company also includes:

Wooden joinery and PVC windows with profiles "REHAU" and other quality profiles on the Bulgarian market;

- Aluminum windows with profiles "Alumil"; - MDF interior doors - smooth and veneered; - Furnishing commercial sites:  Stands;  Furniture for commercial sites. - Home Furniture:  Office furniture;  Kitchens;  Bedrooms;  Equipment for children's rooms;  Other. - Railings, fences and awnings; - Hotel furnishing

Monolit Cranes LTD. offers rental of different models auto cranes and use of services of trained professionals to work with these facilities.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 52 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT

Monbat AD

- Starter batteries for:  Cars;  Trucks and commercial vehicles; - Stationary batteries; - Deep cycle batteries; - Batteries for special applications; - Locomotive batteries; - Leisure batteries.

AVA Sport SD

The company specializes in the design and manufacture of:

- Harnesses - Tanto Race; Student NG, Cruiser NG, Okuri MF; - Parachutes; - Related accessories.

May 04 Holding AD

In total the holding is producing about 300,000 ladies clothing per year. The range of production is approximately as follows:

- Pants and skirts - 40% of the capacity; - Blouses, dresses, tops - 25% of the capacity; - Ladies jackets and coats - 35% of the capacity.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 53 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT

Competitive advantages

The competitive advantages give a company an edge over its rivals and an ability to generate greater value for the firm and its shareholders. The more sustainable the competitive advantage, the more difficult it is for competitors to neutralize the advantage.

There are two main types of competitive advantages: comparative advantage and differential advantage. Comparative advantage, or cost advantage, is a firm's ability to produce a good or service at a lower cost than its competitors, which gives the firm the ability sell its goods or services at a lower price than its competition or to generate a larger margin on sales. A differential advantage is created when a firm's products or services differ from its competitors and are seen as better than a competitor's products by customers.

The Bulgarian companies from the Municipality of Montana have a great comparative (cost) advantage since they have access to cheaper inputs, efficient processes, favorable location, skilled and cheap workforce and lower taxes. These lower production and operation costs give the companies the opportunity to produce cheaper products of good quality compared to other foreign competitors. The fact that Bulgaria is a member of the EU and that most of the companies from the Municipality are exporting to EU member countries is additionally benefiting the low price advantage compared to companies from non-EU countries which have to add to their prices the due customs duties and other costs related to the import in the EU.

Another specific competitive advantage of the companies from the Municipality of Montana that is also contributing to their low end product prices and to the easier product distribution is the fact that they are located very close to two key Pan- European transport corridors:

- Pan-European transport corridor VII - The Danube River, (Northwest- Southeast) - 2,300 km (1,429 mi) long – this corridor is providing river transport through the rivers Danube, Main and Rein and is giving access to cities such as Belgrade, Budapest, Bratislava and Vienne; - Pan-European transport corridor X - Salzburg - Ljubljana - Zagreb - Beograd - Niš - Skopje - Velez – Thessaloniki with its four branches:  Branch A: Graz - Maribor – Zagreb;  Branch B: Budapest - Novi Sad – Beograd;  Branch C: Niš - Sofia - Plovdiv - Dimitrovgrad - Istanbul via Corridor IV;

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 54 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT  Branch D: Veles - Prilep - Bitola - Florina – Igoumenitsa.

The low labor costs are also a key aspect of the comparative (cost) advantage of the companies from the Municipality of Montana. The average monthly salary in the Montana region for 2013 according to the data from the National Statistical Institute is 582 BGN or only 297 euros, for the country that values is 799 BGN or 409 euros. For the rest of the EU member states the average monthly salary is ranging from 1 830 euros to 10 416 euros.

A final factor contributing to the low end product prices of the companies from the Municipality of Montana are the low corporate taxes in the country. The corporate tax in Bulgaria is only 10% while in the rest of the European countries it is ranging from 10% (Hungary) to 33.99% (Belgium). The maximum income tax rate in Bulgaria is also one of the lowest – 10%, for the European countries the lowest maximum income tax rate is again in Hungary – 16%, and the highest is in Sweden - 56.6%. The country also has a relatively low standard VAT rate of 20%, for Europe the lowest is in Luxembourg – 15%, and the highest in Hungary – 27%.

In order to enhance their differential advantage many of the companies in the Municipality of Montana are working on increasing the quality of their end products so that they can be seen as better than those of the competitors. Cross OOD for example is using lightweight aluminum basic parts for its frames, forks, brakes, hubs etc. The exceptional quality of the Crosser wheels has been gained by using the double wall alloy profile and Robot machines for wheels assembling. By painting the wheel and the frame in the same color the company achieves the unique and complete look of each bicycle. By the words of its business partners, the great advantages of the Cross bicycles are their high quality and the original design which gives them a unique look and increases the interest in the company’s products.

Trimona AD is constantly enhancing the design of its products and is being awarded different national awards for its quality and design of its shoes. AVA Sport SD is another company focused also on the high quality of its products. The company is applying modern technologies and is using high quality materials to produce its end products. All of the observed companies are employing highly qualified experts in order to assure the efficiency of their processes and the quality of their end products.

It should also be noticed that many of the chosen companies have a long history of operating in the national and some of them in the international market. Some companies such as Balkan AD, Mir Montana EOOD, May 04 Holding AD and Berg Montana Fitting OOD have more than 50 years long history on the market. For such a long period of time these companies have been able to develop their practices and

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 55 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT processes and to train and hire highly professional experts. They have also been able to develop long term relations with buyers, suppliers and dealers as well as with governments and thus compared to new companies have better bargaining power in the market. For their long history of operating in the market the stated companies have also established well-known brands and have developed successful and strong reputations. They have also built strong clients’ trust and loyalty. Nevertheless such a long history and experience should not be regarded only as a strong competitive advantage, but its limitations should also be considered. It is very probable that companies with long years of experience may not be able and not be willing to modernize their practices and production, to change old and not working strategies, to accept new trends in the market and thus be stuck in their old customs which could lead to loss of clients, reputation and market share.

Some of the companies in the Municipality of Montana are partially owned by big foreign companies. Such type of ownership is beneficial for the future growth of the enterprises as it bring fresh capital in them, introduces successful changes in the operations of the companies and may be even in their strategies, brings new best practices, enhances the working environment, builds on the reputation of the companies and enlarges the network of buyers, suppliers and dealers throughout the established relations of the investing company in the foreign markets.

A final aspect of the competitive advantages of the observed companies is the fact that some of them are working by order for big international companies and brands. Through these contractual relations and due to the fact that the companies are obliged to meet certain production standards and requirements they are able to easily observe and introduce best practices, product designs and know-how from the international contractor in their operations. This can further help the companies enhance their products or develop new ones and develop and establish their own brands on the market.

International markets

According to the retrieved information great majority of the companies is exporting to countries that are geographically and culturally close to Bulgaria and that are members of the EU. Only a few companies are exporting to distant countries such as USA and South Africa. Some of the companies have also established good partnerships with companies and organizations from foreign countries or are working by order for foreign companies. The list of countries to which each one of the selected companies is exporting its production is the following:

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 56 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT  Monbat AD - Greece, Macedonia, Hungary, Belarus, Romania, Russia, Ukraine, Serbia, Turkey, England, Norway, Sweden, Czech Republic, South America and the Middle East;  Monolit AD - Europe, USA, Canada and the Far East;  AVA sport SD - Canada, Europe, Japan, Middle East and USA;  Balkan AD - United Kingdom, France, Austria, Netherlands, Germany, Belgium, Sweden (IKEA) and Poland;  Cross OOD - Germany, Holland, Austria, Switzerland, France, Denmark, Sweden etc.;  May 04 Holding AD - France, Germany, Belgium, Italy and the Netherlands;  Mir Montana EOOD – USA, Italy, Germany, Denmark.

It is important to notice also that Monbat AD has already established two factories on the territory of Romania (Bucharest) - MONBAT RECYCLING EAD - recycling of lead and lead alloys; and in Serbia (Indjila) - MONBAT PLC - manufacturer of starter lead-acid batteries and AGM batteries for various applications. This local presence of the company helps it gain valuable local knowledge about the foreign markets, the customer preferences, the local government regulations, it also allows it to develop valuable relations with dealers and suppliers as well as local research centers and it gives it better access to wider pool of highly skilled and experienced workforce. It also helps it decrease its costs for warehouse and distribution as these factories are located closer to the targeted foreign markets.

Figure 23 Location of the factories of Monbat AD

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 57 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT

Source: Official web-site of Monbat AD

According to the results of the conducted surveys among business representatives and representative from the Municipality of Montana there are 7 countries to which the production of the local business should be directed:

1. Macedonia; 2. Russia; 3. Serbia; 4. Turkey; 5. Romania; 6. Italy; 7. Ukraine.

These results are confirming once again that the international markets to which the companies from the region should focus are those that are geographically closer to Bulgaria and are culturally similar to the preferences and habits of the customers from the national market. These are also countries with which we have established good business partnerships and relations for trade.

Bulgaria has the following contractual legal basis with Macedonia:

1. Agreement for commercial cooperation (22/02/1999) - effective from 5.05.1999 onwards;

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 58 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT 2. Agreement between the Government of the Republic of Bulgaria and the Republic of Macedonia on mutual protection and promotion of investments (on 02/22/1999), effective from 5.06.1999; 3. Agreement between the Republic of Bulgaria and the Republic of Macedonia for the avoidance of double taxation on income and capital (22.02.1999 in Sofia), effective as of 24.09.1999 (published in SG. 57 of 1999); 4. Agreement concerning the international carriage of passengers and cargo (on 02/22/1999) - effective from 12.06.1999 onwards; 5. Air service agreements (02/22/1999) - effective from 8.06.1999 onwards; 6. Agreement between the governments of the Republic of Bulgaria and the Republic of Macedonia to connect railway networks of the two countries (on 03/12/1999) - effective from 06.23.1999 onwards; 7. Contract for exchange of electricity (in English) - effective from 12.14.1996 onwards; 8. Agreement between the governments of the Republic of Bulgaria and the Republic of Macedonia for cooperation and mutual assistance in customs matters - effective from July 15, 2000; 9. Agreement between the governments of the Republic of Bulgaria and the Republic of Macedonia to open two new border crossings and road links between the two countries (on 14.06.1999); 10. Agreement for cooperation in the energy field - signed on 25.03.2000, in Ohrid; 11. Agreement for cooperation between Bulgaria and Macedonia in the field of standardization, metrology, accreditation and conformity assessment - signed in Skopje on 05.15.2000; 12. Agreement for cooperation in the field of tourism, signed in Skopje, 15.05.2000; 13. On 05.26.2000 signed in Sofia the Operational Programme for cooperation between statistical institutes of Bulgaria and Macedonia. 14. On 15.12.2008 in Skopje was signed a new agreement on economic cooperation between the governments of Bulgaria and Macedonia on the accession of Bulgaria to the EU and new commitments of Bulgaria as a member. Internal procedures for entry into force of the Agreement have been met by both parties.

Bulgaria has the following contractual legal basis with Russia:

1. Agreement between the Government of the Republic of Bulgaria and the Government of the Russian Federation for Economic, Scientific and Technical Cooperation (21.05.2009 );

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 59 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT 2. Convention for the avoidance of double taxation (on 8.06.1993); 3. Agreement to regulate the mutual financial obligations (on 28.03.1995) and the Appendix thereto (from 5.06.2002 ); 4. Agreement between the Government of the Republic of Bulgaria and the Government of the Russian Federation on cooperation in the field of tourism (08.05.2007); 5. Agreement concerning the international carriage (on 19.05.1995); 6. Agreement on Maritime Merchant Shipping (on 19.05.1995); 7. Air service agreements (26.11.1997); 8. Agreement concerning the organization of direct international railway - ferry service between the ports of Varna (Bulgaria) and the Caucasus (Russian Federation), (18.01.2008) 9. Agreement on cooperation and mutual assistance in customs activities (on (19.05.1995); 10. Agreement for cooperation in the field of antimonopoly policy (on 19.05.1995); 11. Agreement between the Patent Office of the Republic of Bulgaria and the Russian Agency for Patents and Trademarks (Rospatent) for cooperation in the field of industrial property (on 03/26/1998); 12. Agreement on cooperation and mutual assistance in the fight against illegal financial operations (on 06/07/1999); 13. Agreement between the Government of the Republic of Bulgaria and the Government of the Russian Federation on cooperation in the field of nuclear energy from May 19, 1995; 14. Agreement between the Government of the Republic of Bulgaria and the Government of the Russian Federation to assist the development of cooperation between regions and municipalities of the Republic of Bulgaria and the subjects of the Russian Federation (19.10.2004); 15. Contract for the Promotion and Reciprocal Protection of Investments (1993, in force from 18.12.2005 years) and the Protocol thereto; 16. Agreement between the Government of the Republic of Bulgaria and the Government of the Russian Federation for Social Security (20.03.2010) and its Implementing Agreement (signed on 13.11.2010).

The legal and contractual basis with Russia is being updated in relation to the membership of Bulgaria in the EU from 01.01.2007.

Bulgaria has the following contractual legal basis with Serbia:

1. Contract for the Promotion and Reciprocal Protection of Investments (13/02/1996);

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 60 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT 2. Agreement on scientific - technical cooperation (07/03/1996); 3. Agreement between the Government of the Republic of Bulgaria and the Government of Yugoslavia on customs cooperation and mutual assistance (04/06/1997) - effective from 05.02.1999 onwards; 4. Agreement for cooperation in the field of tourism (17.12.1997); 5. Convention for the avoidance of double taxation (14.12.1998) - effective from 10.01.2000; 6. Convention for quarantine and plant protection (14.12.1998) - effective from 09.02.2000 onwards; 7. Agreement for Veterinary (14.12.1998) - effective from 10.01.2000; 8. Agreement for cooperation in maritime (24.04.2001); 9. Air service agreements (24.04.2001); 10. Agreement for cooperation in the field of Post and Telecommunications (effective from 15.06.2002); 11. Agreement concerning the international carriage of passengers and cargo (25.07.2002); 12. FTA (13.11.2003, Rome), effective from 01.06.2004 (denounced by 01.01.2007); 13. Agreement on Economic Cooperation between the Republic of Bulgaria and the Republic of Serbia (30.11.2007, Belgrade). Approved by the Council of Ministers Decision № 101 of 26 February 2010.

Bulgaria has the following contractual legal basis with Turkey:

1. Convention for the avoidance of double taxation; 2. Agreement on mutual protection and promotion of investment; 3. Agreement for cooperation in the field of tourism; 4. Agreement on cooperation and mutual assistance in customs activity; 5. Agreement for cooperation in energy and infrastructure; 6. Treaty of Friendship, Neighborhood Security and Cooperation signed on 6.05.1992 and is one of the most important components of modern contractual legal basis of bilateral relations between Bulgaria and the Republic of Turkey; 7. Signing of the Declaration of the Black Sea Economic Cooperation on both sides of 25.06.1992 in Istanbul as well as Yalta Declaration of 05.06.1998, new opportunities for the development of trade and economic relations between the two countries.

Bulgaria has the following contractual legal basis with Romania:

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 61 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT 1. Convention for the avoidance of double taxation and prevent fiscal evasion with respect to taxes on income and property (June 1994 in force on 12.09.1995). 2. Agreement on mutual promotion and mutual protection of investments (June 1994 with effect from 05.23.1999); 3. Agreement on production, trade, economic, scientific and technical cooperation (March 1995); 4. Agreement for cooperation in tourism between Bulgaria and Romania (November 1998 with effect from 16.07.1999); 5. Agreement on cooperation and mutual assistance in customs (November 1998 with effect from 31.10.1999); 6. Protocol between the Government of Romania and the Government of the Republic of Bulgaria on the final settlement of mutual financial obligations between the Republic of Bulgaria and Romania (27.03.2000); 7. Memorandum of Cooperation between the Ministry of Economy, Energy and Tourism of the Republic of Bulgaria and the Ministry of Economy, Trade and Business Environment of Romania (23.09.2010 in Sofia); 8. Memorandum of Understanding between the Minister of Economy, Energy and Tourism of the Republic of Bulgaria and the Minister of Economy, Trade and Business Environment of Romania for planning and implementing the market integration of the two countries (30.11.2010 in Sofia); 9. Memorandum of Understanding between the Ministry of Economy, Energy and Tourism of the Republic of Bulgaria and the Ministry of Economy, Trade and Business Environment of Romania for preparatory actions in connection with the hydroelectric complex on the Danube (12.10.2011 Bucharest); 10. The accession of Bulgaria and Romania to the European Union 01.01.2007 placed in a new environment and brought a new dynamism in the development of bilateral relations in trade and economic sphere, transforming them into intra EU relations.

Bulgaria has the following contractual legal basis with Italy:

1. Unlimited settlement payment from 02.25.1958 onwards; 2. Agreement on Scientific and Technological Cooperation, signed in 1963 for a period of 5 years with automatic extension; 3. Agreement between Bulgaria and Italy on the settlement of financial matters, signed in Sofia on 26.06.1965; 4. Indefinite agreement for the development of economic, industrial and technical cooperation between Bulgaria and Italy, signed on 24.12.1966;

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 62 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT 5. Agreement on International Road Transport signed in 1968; 6. Agreement for cooperation in the field of tourism, signed on 04.12.1970, in force since 1972; 7. Long-term agreement for the development of economic, industrial, scientific and technical cooperation for the period of 10 years signed in 1973, extended in 1987 for five years; 8. Agreement on maritime commercial shipping. Signed on 23.06.1975; 9. Intergovernmental agreement on avoidance of double taxation, signed on 21.09.1988, in force from 01.06.1991 onwards; 10. Agreement between the Governments of Bulgaria and Italy to reschedule the debt of Bulgaria, signed on 18.12.1992, in force from 09.01.1993 onwards; 11. Cooperation agreement between the BIA and the Italian Confindustria Industrialists Confederation, signed on 15.10.1998; 12. Statement of Economic Cooperation - signed in February 1999 by the Deputy Ministers of Foreign Affairs of Bulgaria and Italy ; 13. Cooperation agreements between the BCCI and the Italian Institute for Foreign Trade Rome, and chambers of commerce in Vicenza, Trieste, Udine, Gorizia and the Association of Young Entrepreneurs ( ASSO -44 ); 14. Memorandum of Cooperation between the Executive Agency for the promotion of small and medium enterprises and the Italian Institute for Foreign Trade (January 17, 2007); 15. Memorandum of Cooperation between the Bulgarian Investment Agency and the Italian Institute for Foreign Trade (June 15, 2007).

Bulgaria has the following contractual legal basis with Ukraine:

1. Agreement between the Government of the Republic of Bulgaria and the Cabinet of Ministers of Ukraine on economic cooperation, in force from 25.09.2008; 2. Agreement between the Government of the Republic of Bulgaria and the Cabinet of Ministers of Ukraine on Military Technical Cooperation (December 2008); 3. Agreement between the Government of the Republic of Bulgaria and the Cabinet of Ministers of Ukraine on avoidance of double taxation and prevention of fiscal evasion with respect to taxes on income and property, effective from October 3, 1997.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 63 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 64 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT

Measures

Although the Business relations between enterprises from the two countries date from hundreds of years the value of the trade between them is only 749.652 mil euro which is only 2,2% of the total value of the international trade of Bulgaria. The main reasons for the small value of the trade between to two countries are the economic difficulties in them, the vast variety of problems the enterprises are facing in relation the liquidity, investments, marketing, human potential etc. Great part of the enterprises in the target cross-border region is micro, small and medium family companies. They don’t have the needed means to invest in large production, modernization, research and development, marketing strategies etc. this companies are also lacking experts experienced in international trade. For that reasons most of the companies are working only for the national market and don’t plan to export on foreign markets. The lack of valuable information about the demand on the EU and foreign markets, the requirements of the customers, the documents that the companies should prepare to export their products, the competition on the international markets, the products with export potential etc. is another factor that discourages the export interest of the companies form the region.

Despite all of the mentioned problems the companies from the target region also have some very important advantages. Of a great ease to the development of partnerships and business relations are the close culture and history, shared values, common interests, similar languages, near territorial location as well as the favorable contractual and legal basis. Some of the advantages for development of export not only in the region but also in the European and international markets are the low labor costs, the good level of education of the personnel, the favorable territorial location of the region, the production flexibility etc.

If the partnership and the cooperation between the enterprises from the region develop that will help their financial growth and will strengthen their positions not only on the national and regional market but also on the EU markets. The provision of key information about the foreign markets and export requirements will facilitate and improve the export and will strengthen the institutional and business structures in the region.

The results from the conducted survey among business representative and representatives from the Municipality of Montana show that there are three key problems that the companies are facing for being successful in their export:

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 65 of 70 CCI Number 2007CB16IPO006

Although the observed companies were grouped in three specific groups their problems for growth and international expansion are similar for that reason the specific measures that should be planned in order to promote and facilitate the export of the companies from the Municipality of Montana are the same for the three groups of companies and include:

- Increased level of provided information to the enterprises for the opportunities and conditions for financing through structural funds and sector programmes of the EU; - Assistance in developing projects under operational programmes and sectorial programmes of the EU; - Assistance for inclusion in networks and consortia with companies from the EU to develop common projects for exchange of best practices; - Organization of seminars for informing on the opportunities of development of the innovations in the EU; - Promotion of joint projects between companies and research units; - Creation of information database for active cooperation between companies; - Stimulation of the development of high-tech and innovative centers in accordance with the national priorities and in pursuit of the objectives of Europe 2020; - Trainings of the entrepreneurs and the employees using the opportunities for practice abroad; - Exchange of good practices in development of the human resource; - Providing information on EU initiatives; - Supporting the establishment of contacts with foreign partners; - Stimulation and assistance in the creation of export consortia for joint marketing and advertising in the export in external markets; - Organization of common marketing researches from the companies in the sector; - Participation in international fairs and exhibitions; - Supporting the professionals in engineering and other areas to participate in conferences, seminars and joint projects with the aim of promoting Bulgarian products and the work with them; - Training in marketing; - Development of company strategies for internationalization;

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 66 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT - Networking at national and EU level for knowledge transfer and cooperation in project development and export to third countries; - Preparation of annual reports on world markets in order to raise awareness of the global trends in the sector; - Development of export strategies; - Conducting an active policy of establishing contacts with foreign companies; - Diversification of the production; - Introduction of lean management/operations.

According to the answers of the conducted survey the themes that should be included in the range of the incentive policies for business development are:

1. Incentive policies for the creation of business pools/industrial zones with foreign partners on the territory of the Municipality; 2. Municipal plans for promotion of the internationalization of the local business; 3. Preferential taxation/promotion of taxes for the local taxes in development of business partnerships on the territory of the Municipality.

The participants in the survey range the forms of popularization of the local business among foreign partners as follows:

1. International fairs; 2. Multimedia presentations; 3. Business seminars in a specific business area.

The great majority of the respondents think that there should be a specialized municipal structure for the promotion of the development of the international business relations of the local business. Among its primarily tasks the respondents state:

1. Maintenance of a web-page in Bulgarian and in foreign languages; 2. Organization of international seminars, meetings, forums, conferences etc. 3. Specialized marketing studies of the international market.

Finally the companies should focus on sustaining and enhancing their competitive advantages. If we focus on each group of competitive advantages, the companies from the Municipality of Montana should work on the following aspects:

- Customer Loyalty: Customers must be committed to buying merchandise and services from a particular retailer. This can be accomplished through retail branding, positioning, and loyalty programs;

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 67 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT - Location: Location is a critical factor in a consumer's selection of a supplier; - Distribution and Information Systems: try to have the most effective and efficient way to get their products at a cheap price and sell them for a reasonable price. Distributing is extremely expensive and timely; - Unique Merchandise: Private label brands are products developed and marketed by a company and available only from the company; - Vendor Relations: Developing strong relations with vendors may gain exclusive rights to sell merchandise to a specific region and receive popular merchandise in short supply; - Customer Service: This takes time to establish but once it's established, it will be hard for a competitor to develop a comparable reputation; - Multiple Source Advantage: Having an advantage over multiple sources is important. Companies should focus on more than one aspect in order to be more competitive and to attract more buyers.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 68 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT

Conclusions

The companies from the Municipality of Montana are operating in one of the regions with the highest economic problems and within a very difficult economic environment. Therefore they are lacking many opportunities for development and growth. The local market on which they are operating is not big enough for them to be able to generate the necessary funds for investments in equipment and machinery, for modernization, R&D and for development of stronger competitive advantages. They are also lacking the needed competition that would stimulate them to further enhance their processes and products. Another limitation is the lack of research centers and partners whit which to work on innovations and product development.

Despite the stated limitations the companies have some key competitive advantages that they should maintain and even enhance. These are the strategic location they have (close to important Pan-European transport corridors), low costs for materials, taxes, workforce etc., experience in the international trade, benefits from the membership of the country in the EU, long-term experience of operating in the market, good relations with dealers, suppliers, buyers and government institutions.

The companies included in the present survey have good export potential that they should leverage and use to full extent. Their future internationalization and expansion should also be promoted and supported by governmental and municipal institutions by following the stated measures for company growth and development. Apart from expecting help from the institutions the companies should also

A sustainable partnership among Bulgaria and Serbia will further enhance the cohesion in the cross-border territories and provide positive impact. A guarantee for the multiplication effect comes from the fact that local authorities and organizations and engaged businesses will stimulate the economic activity and provide opportunities and information (shared with a larger audience and geographically distant users). Improving the quality of the human resource, establishment of cross- border partnership for future co-operation, gained experience and know-how will be further transferred through organizations and enterprises within the region; the activities planned under the project “Stimulation of economic exchange in the cross- border region Montana – Pirot” will have a catalyzing effect for the initiation of a new

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 69 of 70 CCI Number 2007CB16IPO006

EUROPEAN UNION BULGARIA - SERBIA IPA CROSS-BORDER PROGRAMME PROJECT 2007CB161PO006.2011-2-245 STIMULATION OF ECONOMIC EXCHANGE IN THE CROSS-BORDER REGION MONTANA - PIROT broader process of development of the business relationships, R&D, active exchange of best practices and joint regional planning and preparation of the region’s economic and legal sector for participation in the joint EU market.

The project is co-funded by EU trough the Bulgaria - Serbia IPA Cross-Border Programme, 70 of 70 CCI Number 2007CB16IPO006