Webinar – May 11, 2021

As small and open economies, Slovenia and Slovakia have been harder hit than other CEE countries by the Covid-19 pandemic. The automotive and machinery industry, key sectors in both countries, were plagued by lockdowns and supply-chain interruptions. Slovenia also suffered from declines in tourism revenues. However, besides a strong presence of foreign MNCs both countries have successful domestic firms that use innovation and internationalization to grow their businesses. Soňa Ferenčíková from the Bratislava University of Economics, and Andreja Jaklič from the University of Ljubljana shared their views on the responses of local firms to the crisis and on the business opportunities and risks for the future with the audience.

Panelists:

• Soňa Ferenčíková, Professor of International Business and Management, Bratislava University of Economics

• Andreja Jaklič, Professor and Chair of the Center of International Relations at the Faculty of Social Sciences, University of Ljubljana

Moderator: Arnold Schuh, Competence Center for EM & CEE
 

Prof. Ferenčíková opened the webinar by spanning a bridge between the transformation crisis in the 1990s, the global financial crisis in 2009 and the Covid-19 pandemic. She pointed out that Slovaks as most people from CEE have learned how to master crises. Economically, the impact of the coronavirus pandemic with a GDP decline of 7.5% was a stronger hit than the 5.5% in 2009. But given the longer duration and broader effect on the economy, Slovakia’s crisis management was quite effective. Furthermore, Slovakia could keep unemployment low, even below the EU average.

Then Prof. Ferenčíková presented three case studies from different industries. The first one covered the automotive sector, Slovakia’s key industry, which faced a fall of output by 11% due to production stops and lack of demand. Car production at VW Slovakia, the leading car company with 11.500 employees, decreased even by 18%. 75% of its production are fossil fuel driven vehicles, 25% electric cars and hybrids. While the demand picked up again in 2021, the plants had to close for two weeks due to a global microchip shortage in May. At least the outlook is positive: Slovakia will receive a new VW factory with a capacity for 300,000 cars (originally planned for Izmir in Turkey) - that will secure Slovakia’s strong position in the automotive sector. The other case was about the GSK toothpaste plant in Levice that astonishingly benefitted from the pandemic. The former privatized cosmetics company with sales of € 5 million was sold in the 2000s to Safosa, an Italian firm, which nearly went bankrupt during the global financial crisis in 2009. Then British GSK took the firm over and turned the company with 500 million tubes of toothpastes per year into one of its largest worldwide production sites for brands like Sensodyne and Paradontax with annual sales of € 120 mio. In 2020, sales and profits increased by 25% and 35%, respectively, due to stronger demand in the pandemic.

Finally, for the founders of the Slovakian start-up Slido the pandemic became an unexpected exit opportunity. Slido was founded in 2012 as a virtual communication platform for audience interaction with Q&A and polling functions. Originally, designed for communication in the university classroom, it soon expanded into the meetings and events sector. The year before 2020, the software was available in 32 languages, had 7 million participants per month and was represented by subsidiaries in the USA, UK and Australia. In 2020, Slido passed the one million events milestone. Slido was integrated into MS Teams and Google Meet. In a single week in May 2020, it had one million participants. In the same month, Cisco acquired the firm of 150 employees by an undisclosed amount and integrated Slido into its Webex platform.

Prof. Jaklič began her presentation with an overview of the Slovenian government’s measures to fight the Covid-19 pandemic. Summing up, the government acted better than in previous crisis situations, was innovative – for instance, by launching a tourist voucher for Slovenians to stimulate the domestic tourism sector – and plans to invest large parts of the EU recovery & resilience funds and next multiannual budget (in total € 10.2 bn.) into green technology and digitalization. Then she presented the findings of two surveys on organizational resilience strategies of firms in Slovenia in 2020. She and her research group identified four different clusters of businesses according to the strategies they employed to deal with the economic downturn: defensive, wait-and-see, omnibus and innovation-oriented firms. Firms pursuing proactive multifaceted business strategies with several activities in different areas (e.g., product and service innovation, targeting new markets, digitalization) such as the ones from the omnibus cluster performed better during the crisis. A strong foreign market orientation – especially, beyond EU markets – and the implementation of initiatives in the areas of digitalization and automation were helping too. Based on the research findings, Prof. Jaklič recommended a layered-model for building organizational resilience. Starting point is employee development, so that the necessary skills and experiences are ready when the crisis hits. This step is accompanied by investments in digitalization and automation. Given such a broad competence base, it is easier to churn out process, product and service innovations that address changing and newly emerging needs during and after the crisis. A broader portfolio of products and services makes successful market developments and new market entries more likely.

In the following discussion, we learned that business relations count high in a crisis. Successful firms activate all the relationships that they have: personal ones, official ones with business partners on the supply and sale side, links to foreign markets through the chamber of commerce and even diplomatic ties with other countries. In one case, a new Chinese supplier helped to penetrate the growing Chinese market. Both researchers were quite optimistic regarding potential foreign direct investment inflows in their countries due to the strong manufacturing sector and increased EU funding. It seems that the businesses in these small Central European economies will emerge from the crisis stronger than expected thanks to quick strategic reorientations and organizational adaptations.

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Soňa Ferenčíková
Andreja Jaklič