Assessing Competitiveness In Moldova's Economy - Economic Growth

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Development Alternatives, Inc. Moldova Competitiveness Assessment: Market Architectures Consumer Durables The existing large retail establishments (TSUM, Gemini, Elat, Sun City, and Grand Hall) rent out small areas of space to individuals or individual companies. The individuals (traders), often women, typically purchase their inventory at retail prices in nearby countries (Poland, Hungary, or Slovenia), on trips to Dubai, or at the Odessa port, where containers filled with goods from a variety of countries, including China and Turkey, are opened and displayed at a bazaar near the port and sold in large lots. The shortage of custom warehouses means that small and medium-sized importers do not have access to custom warehouses, which would help them better manage their cash flow, since they would be able to pay duties and VAT on the goods as they use them rather than all at once at point of entry. This requirement puts pressure on working capital, and explains at least in part why small importers prefer to bring goods in by bus or their own truck and cars, thus avoiding the tax altogether. Of course, what they may gain in avoided taxes, they certainly lose in buying goods at retail rather than wholesale prices. Surprisingly, there are no distribution firms that trade in clothing, textiles, or shoes 2 . In the case of imported shoes, for example, individual importers get their (cheap) products to sellers operating market stalls. Domestic Market Channels Moldovan companies compete globally every time consumers have a choice of imported versus domestically produced products. The lack of channels or lack of interest in using channels puts Moldovan producers at a disadvantage. Figure 3: Market architecture for domestically produced goods 2 Confirmed by market research undertaken by Metro Cash & Carry International. July 2004 • DRAFT Page 5
Development Alternatives, Inc. Moldova Competitiveness Assessment: Market Architectures Food and Nonfood Groceries The large wholesalers and wholesale bases are set up to distribute Moldovan-made grocery products and function fairly well in this capacity. As competition increases among them, they are beginning to specialize, in order to buy higher volumes of a narrower range of products at lower prices. These trends are welcome and they increase the competitiveness of these services and the efficiencies in the value chain. Wholesalers are also buying the property on which their warehouses are located, as an investment and to avoid the leasing charges that cut into their margins. Large and medium-sized wholesalers prefer not to sell to smaller stores because smaller stores usually need 30 days to make payment and the wholesalers generally have to make payment upon delivery or within 3-4 days, maximum. It is therefore the smaller wholesalers that are serving the small stores. Our interviews with owners and managers of small stores indicate that they spend a good deal of time and effort trying to find the lowest cost goods from wholesalers that will extend them the payment terms they need. Both the small stores and small wholesalers are getting crowded out of the market. If some operation like Metro were to come into the market, it would provide strong competition to the current network of wholesalers, but might benefit the smaller stores, especially if it provided 30-day terms of credit. Bakeries and dairy and meat suppliers handle their own distribution. Many of them operate their own, or leased, trucks with their own drivers. This helps to ensure on-time deliveries for goods that need to be fresh. One dairy company has offered its distribution services to beverages companies as well as yogurt and canned goods companies. A few have taken them up on the offer, but others prefer to sell their goods at the bazaar or are not prepared to increase their volumes (although they have the capacity) to meet the higher volume of orders. Meat suppliers make extensive use of the bazaar to sell their products and a variety of customers buy their meat there. A high percentage of food items (approximately 50 percent) are sold through the bazaars or municipal markets. Farmers, their representatives (friends or family), or individuals who travel by train to agricultural areas to buy produce, set up their goods at the large bazaars in the center or outskirts of Chisinau, as well as in other cities. Hotels, restaurants, and cafés reportedly buy 40 percent of their fruits and vegetables and 35 percent of their meat at the bazaar. Grocery stores and minimarkets buy 50 percent of their meat at the bazaar. However, according to market research conducted by Metro, between 65-85 percent of institutional buyers would substitute Metro as their wholesale supplier for fresh food, dry food, and nonfood groceries, if given the option. Construction Materials Our research indicates that the construction materials industry has the most sophisticated market access channels, with several levels of distributors organized geographically. Producers sell their products at two discount levels so that the final prices of their products are the same to final consumers no matter where they buy hem. The construction materials companies with which we spoke used their own trucks for transport because this was cheaper and more reliable. July 2004 • DRAFT Page 6
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Assessing Competitiveness In Moldova's Economy - Economic Growth

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