Assessing Competitiveness In Moldova's Economy - Economic Growth

Development Alternatives, Inc. Moldova Competitiveness Assessment: Market Architectures
Wholesale and Retail Operations
MARKET LINKAGES AND SERVICES
Overall Deficiencies in Market Architectures
Services make up about 75 percent of the total value created in an economy, less in
developing countries and particularly in transition economies. Much of that share is included
in the final price of tangible goods. On average, one-third of the economic value reflected in
the sale price of a consumer good is generated by the transportation, wholesaling, and
retailing functions that deliver a good from the producer into the hands of a buyer—the
operating elements of a country’s market architectures 1 . When such services in a country do
not exist, are inefficient, or are provided by a monopoly, the cost of producing goods
increases, consumers pay more, and productivity suffers, as does the competitiveness of
companies in that country. As global competition increases, global retailers increasingly
make decisions about where to source the production of their goods on the basis of how
reliable, efficient, and available are in-country services to support the export of products.
Companies in countries with poor services must find ways to provide them or improve them.
Export and industry associations and clusters are in a good position to drive efforts to
improve the service sector within a country.
Weaknesses and gaps in the country’s market architectures, along with difficulties in adapting
to the evolving market architectures in global markets, impair the competitiveness of
Moldova’s economy. One of the biggest contributions that cluster-oriented interventions
could make in Moldova would be to bring together the value chains across industries to help
the various actors understand where there are missing links, limited services, and major
inefficiencies that could be solved with coordinated actions. There is a shortage of
wholesalers, retailers in nonfood products, full-service logistics companies, and trucking
companies with international permits. The monopoly railroad service provider is reportedly
charging higher rates than its competitors in neighboring countries. Women with small retail
operations in the state stores are not getting discounts from wholesale buyers because they
travel by bus to department stores in foreign countries and buy at retail prices. Popular
supermarkets are so powerful that they sell Moldovan products on consignment because there
are no equally powerful Moldovan wholesalers; instead, individual farmers deliver their own
goods to food stores.
When large foreign-owned supermarkets, department stores and furniture stores enter the
Moldovan market, they should do well, given the current lack of large convenient retail
space. Even if foreign retailers wanted to source products locally, it would be practically
impossible, given the underdevelopment of middleman functions in the value chains. As a
result, foreign retailers would need to import foreign goods, because it would be more
convenient and more efficient. Moldovan producers would be left out in the cold. The large
1 William W. Lewis, The Power of Productivity, The University of Chicago Press, Chicago, IL, 2004.
July 2004 • DRAFT Page 1