Andrej Grubišić: Seven Assumptions for a Greater Number of Top Projects in Croatia

In the new Lider, we published a text on 20 top global projects ‘made in Croatia’. These are companies and products that are among the leaders in their industries on the global and European markets, or are unique and original, thus having no competition.

Croatia is now known for Vegeta and Sumamed, once it was known for Penkala, Torpedo… We asked consultant Andrej Grubišić from Grubišić and Partners whether any of the products from Lider’s list could achieve similar market, and even financial success?

– For most companies in the world, the primary challenge is to remain competitive over the next five years with their entire portfolio of products/services. It is extremely difficult (potentially very risky) to bet on a single product because competition is strong in many respects and there is a high probability that five years from now the structure of the industry in which these companies operate will be significantly changed. Instead of so-called homerun products, the ambition is to stay in the game and be relevant, probably with a range of products/services where none is necessarily a global star but each has its market and reasonable profit margin within the overall portfolio of products that will ensure an adequate return on invested capital for investors.

The ability to adapt production processes, product portfolio, distribution, and other business activities – in other words, the ability to ‘vibrate’ and reject the status quo – in a way that keeps you profitable is much more important than launching a ‘new Vegeta’. There are hundreds of copy-cat products of Vegeta. Likewise, while Sumamed brought fame to Pliva, Pliva also made numerous poor investment decisions – e.g., many acquisitions that had very questionable results. In other words, it has been empirically proven that many cash-rich companies make numerous poor investment decisions ‘because they had free money to invest’. Therefore, the overall quality of investment and management decisions should ensure you enough benefits in the long-term market game to ‘win on points’, not necessarily by knockout.

What do companies that compete equally with the largest on the global market mean for a small, unfortunately too closed and rentier-tourist economy?

– They mean a lot because they show that entrepreneurship plays the role of true economic locomotives. It is hard to imagine a human activity that provides more long-term benefits to the community than entrepreneurship. In the long run, no philanthropy is more effective for the community than the results of entrepreneurship – customers buy a product that gives them marginal benefits greater than or at least equal to the price they have to pay for it, suppliers gain economic benefits by delivering products and services to these companies, employees receive salaries, creditors interest on approved loans, the state taxes, and owners profits (more precisely dividends plus the value of the business they created). It is worth noting that all stakeholders are motivated by their own interests – but at the same time, they must take into account the interests of other stakeholders if they want to participate in creating value from which a part will belong to them (only the state has arbitrary power over all other stakeholders).

Do we have too many or too few such companies?

– In relative terms, there are few, and this is reflected in the level of Croatian GDP per capita. For example, in neighboring Slovenia, there are significantly more, and this is evident in their GDP per capita.

What should be done to have more such companies and projects in Croatia?

– Although this is a complex question, I would mention seven main assumptions:

1. Promote entrepreneurship with lower taxes and reliable judicial protection.
2. Respect all activities and entrepreneurial choices without putting anyone in a privileged or subordinate position through the use of arbitrary state power – e.g., reduce crony capitalism, i.e., situations where a state bureaucrat chooses ‘preferred industries’ to which they give subsidies or preferential tax treatment or otherwise favors certain sectors (e.g., by limiting Sunday work, setting prices, etc.).
3. Gradually reduce the share of state spending in GDP from the current nearly 50 percent to 40 percent over the next 15 years.
4. Publicly highlight failures in entrepreneurial ventures as a fund of valuable experiences from which lessons should be drawn – rise and move forward bravely.
5. Teach high school students and college students the difference between creating wealth through productive entrepreneurial activities (from which ultimately we all live directly or indirectly) and state interventionism that forcibly distributes created wealth with many believing that what is ‘shared’ came ‘by itself’ (there is no state money).
6. Raise awareness of the desirability of participating in the process of creating wealth, rather than in the process of ‘fighting for a fair distribution’ of value created by others.
7. Keep the economy open and exposed to competition so that no one feels ‘untouchable’.

In the examples of former flagships that no longer exist – Penkala, Torpedo, and a number of others… – it seems that the saying too big to fail does not hold?

– All companies that are exposed to real market competition, i.e., do not have political-state-crony-capitalism sponsorship from the state and which are simultaneously large, attract the attention and curiosity of competitors. They must constantly be able to adapt and accept that there is no life on past glory. No global company is immune to poor investment decisions or business failures – because they are run by people, and people make mistakes. As Schumpeter said – we are constantly going through a process of creative destruction. Observing the most valuable global companies (e.g., top 10 or top 100) will show how the structure changes over ten-year historical intervals – new names emerge that did not even exist until recently, new niches and sub-niches arise that did not exist ten or twenty years ago, some companies significantly change their focus, etc. For example, Xerox, Motorola, Nokia, Kodak… mean something to those who are today 40 or older, but not to younger generations. Too big to fail is a construct that is accurate in situations where the state directly or indirectly saves a company. If we remove the element of state interventionism, there are few for whom size is an unconditional guarantee against failure.