The FINANCIAL — The large scale Georgian companies interviewed by The FINANCIAL admitted that they do not plan to expand their operations to the country’s neighbouring markets in the near future.
Some of the key companies like Goodwill and Wissol which are winners of the Ruban d’Honneur prize as well as BG Capital, M Group, and Elit Electronics stated that the main reason is to focus on their operations on the local market, which still provides vast opportunities for further growth and development.
Fady Asly, Chairman of the ICC, said that neighbour countries limit access to their markets for foreign companies, which is one of the major obstacles today related to the investment and business climate in Georgia.
“Georgia is a small market and when you produce, whether you are a foreign or local company, you want to sell in neighbouring markets. Unfortunately we do not have access to those markets, as those neighbour markets are protecting their own businesses and have monopolies. It is very difficult for Georgian businessmen to enter Azerbaijan, Armenia, Kazakhstan, and this is not related only to Georgia, even French and American businesses have problems in entering those markets,” said Asly.
“There should be collective and consolidated effort from the international community to put pressure on those neighbour countries to open their borders so they become permeable rather than semi-permeable, which means they can do business in Georgia but Georgians can’t do business in Azerbaijan and Armenia. This is very unfair and undermines the interests of foreign and Georgian businesses which are operating in the country. The neighbouring countries should become transparent and part of international open trade,” Asly believes.
“The major strategy for Goodwill in the next 2-3 years will be to expand its chain in Georgia, primarily in Tbilisi, consequently we do not plan to start up business in neighbouring countries Armenia and Azerbaijan,” said Nugzar Maghularia, General Director of Goodwill, one of the leading supermarket chains in Tbilisi.
“BG Capital has been actively examining markets in the Caucasus region surrounding Georgia for the last couple of years. However we feel it is still too early in the cycle of market development to massively expand into those markets given their small size and very challenging legal environment. However, we continue to look at opportunities there as they become available,” said Nick Piazza, CEO of BG Capital.
Piazza explained that Azerbaijan and Armenia are both very different markets from Georgia where liberal reforms have allowed the investment banking market to grow, and he believes that they are likely to see new IPOs out of Georgia in 2011-12 on international markets.
“Azerbaijan is a very wealthy country, this wealth leaves little demand for external financing and the country’s level of corruption leaves much to de desired. With Armenia, it is a very small market with a low level of economic freedom making it a less attractive environment for us than larger markets like Poland,” Piazza added.
Neither does Wissol plan to expand its operations and operate its subsidiaries in neighbour markets. As Tornike Guruli, Head of the Marketing Department at Wissol Group admitted, the company is doing business diversification and focusing on developing its subsidiary companies.
“Each year we define our strategy and during 2011 we plan to develop the supermarket chain Smart and Auto Express direction, as well as transfer cars on gas and widen the petrol station chain. Consequently we do not intend to start operations in neighbour markets,” Guruli added.
Elit Electronics, one of the leading retailers of household appliances in Georgia, plans to expand the chain and add 10 shops throughout Georgia in 2011, adding to their current number of 29 shops.
“We believe that the Georgian market still needs to be further developed, consequently we do not plan to expand in neighbour countries. In the future if we see that the Georgian market has no further potential of increase, we will be considering going over borders. However, currently we do not see such perspective,” said Ia Gogoladze, Marketing Manager at Elit Electronics.
MGroup does not plan to expand its operations and restaurant chain to neighbour markets either. According to Nino Mamaladze, PR Manager of MGroup the case might be discussed in a future perspective, but not at the moment.
Entrée, the popular bakery chain in Tbilisi, turned out to be the only company among those interviewed which plans to expand its operations abroad and develop the brand in foreign countries as well.
“Currently we are accumulating more and more contacts and it is a matter of time before we start to develop Entrée in different countries. Maybe in 2011 we will embark on our first branch in a foreign country,” Jean-Michel Charles declared.
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