Market Entry of Swedish Fashion Retailer in Estonia taking into consideration European Competition Law

Diplomarbeit von Heike Kiefer

Abstract:

One of the most considerable trends in today’s business environment seems to be the increase in the internationalisation of firms and markets. International expansion represents a chance for companies to achieve further growth and may also become a necessity when international competition gets intense even in the domestic market. Thus, not only large-scale companies integrate the internationalisation of business activities into their strategic and operational business planning, but also small and medium-sized enterprises (SMEs) realise that internationalisation is an inescapable step within the dynamic market environment.

In particular the European Union (EU) represents such a dynamic market environment. With several accession negotiations (Northern enlargement 1972, Southern enlargement 1981/1986, Eastern enlargement 1995) it increased from six to 15 member states. Another ten states, namely, Hungary, Poland, the Czech Republic, Slovakia, Slovenia, Latvia, Lithuania, Malta, Cyprus and Estonia joined the EU in May 2004. Bulgaria and Romania hope to become part of the EU in 2007. The enlarged EU of finally 27 countries will account for a population of nearly half a billion people – creating a huge market potential.

Within the EU, it has been especially the transition economies in Central and Eastern Europe that have been opening up new trading opportunities for European companies. In particular the Baltic Sea region can be seen as the fastest growing business region in Europe. The trade flows as well as the foreign direct investments (FDI) have been significantly increasing year by year.

With its consequent liberalisation policy pursued since 1991 Estonia has become the leader among all new EU-accession countries regarding growth: the Estonian economy is booming. This boom is originated by its extensive trade activities. Here, Finland, Sweden and Germany are Estonia’s major trading partners. In addition, Sweden as the major investor in the Estonian market, accounted for approximately 40 percent of the FDI in 2003.

Estonia provides foreign companies not only an entrance to the large and fastgrowing markets of the Baltic Sea region, but it can also be viewed as a bridge to Russia. The open economy, good transportation links and central location plus the local understanding of both, European management culture and the Eastern European way of doing business, bring Estonia into a very suitable position to be one of the major business hubs in the heart of Northern Europe.

Being a small state, Estonia has to import numerous goods because it is impossible to produce all the required products locally. However, from an economical point of view, imports have to be financed by exports. Thus, in order to afford the imports, Estonia has been emphasising the increase of exports with the result that its economy is largely influenced by foreign trade. Herein, the clothing and textile industry is of great importance: in 2003 textile products accounted 11 percent of total exports (3rd rank) and 7 percent of total imports (5th rank).

Since the country’s transition to a market economy, foreign investors have been taking advantage of the cheap, skilled and experienced workforce in this sector. Small enterprises allow a flexible production process and make it possible to adapt the range of the manufactured goods according to individual requirements. In the first instance the production of textiles and clothing is taking place locally. However, the design and in a consequence the creation of fashion collections are largely effected abroad.

In the last few years, Estonia has become more multifaceted also with respect to consumer goods like clothing. Even if textiles and clothing are manufactured locally, clothing is mostly delivered abroad and is often re-imported as branded-assortment by a fashion retailer. In this context, also Swedish design is actually demanded in Estonia: according to the Swedish Trade Council there is an explicit need for Swedish fashion in Estonia.

This demand may be traced back to the fact, that Swedish design is distinctive in the world. Hennes & Mauritz, Ikea, Volvo, Kosta Boda – these are all popular brands representing Swedish design. Simplicity mixed with aesthetic considerations but also influenced by international trends is only one characteristic distinguishing this broad spectrum. Furthermore, Swedish fashion goods are consistently characterised by high quality. Overall, Swedish fashion designers have managed to create their own niches and to contrast with those from other countries.

Thus, a small and medium-sized Swedish fashion retailer with its own brand could benefit from entering this market. But what are the market conditions in detail? Do crucial entry barriers exist? What does the market potential look like? Which entry strategy should be chosen?

This study provides a market research of the Estonian market combining theoretical aspects with empirical data. The research has been done by considering a small and medium-sized rather than a specific fashion retailer within the Swedish fashion industry. To start with an analysis of the market environment taking into consideration particularly European Competition Law and its enforcement in Estonia, the market potential for the Swedish fashion retailer has been focused upon. Further on, classical entry barriers have been investigated and crucial ones have been identified. Finally, different market entry strategies have been reflected from an external point of view by taking the prevailing facts into account.

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