Heat pumps expansion from United Kingdom to Poland
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Angela Medzela
Final Project, AP
FINI0912, UCN
‘Financial Management’
Aalborg, 26.05.2014
Heat pumps
expansion from
United Kingdom to
Poland
What is the profitability for UK FM Group Ltd, entering in the Polish Market
for heat pumps?
Report analysing profitability of expansion of heat pumps from medium sized, privately
held company from UK to emanating with potential Polish Market.
Image from http://geogteacher.wordpress.com/2014/03/18/revising-eu-poland-and-uk-
case-study/
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Number of key strokes in the project: 74,559
TABLE OF CONTENTS
Introduction............................................................................................................................- 2 -
Motivation..............................................................................................................................- 4 -
Problem statement ................................................................................................................- 4 -
Methodology ..........................................................................................................................- 5 -
Brief description of the company ...........................................................................................- 8 -
Internal analysis .....................................................................................................................- 9 -
VISION ...............................................................................................................................- 9 -
PRODUCT MIX OF RENEWABLE TECHNOLOGY LTD DEPARTMENT ....................................................- 9 -
PRODUCT LIFE CYCLE ......................................................................................................... - 11 -
VALUE CHAIN ................................................................................................................... - 12 -
SWOT and Polish investment environment......................................................................... - 15 -
SWOT FOR UK FM GROUP LTD. ........................................................................................ - 15 -
INVESTING IN POLAND ....................................................................................................... - 16 -
External analysis ................................................................................................................. - 18 -
PEST ............................................................................................................................. - 19 -
PORTER’S 5 FORCES........................................................................................................... - 20 -
SUPPLY CHAIN .................................................................................................................. - 21 -
MARKET OVERVIEW ........................................................................................................... - 22 -
MARKET STRUCTURE ......................................................................................................... - 23 -
MARKET TRENDS............................................................................................................... - 23 -
CUSTOMER’S BUYING BEHAVIOUR ........................................................................................ - 24 -
Cultural differences ............................................................................................................. - 25 -
Investment proposal ........................................................................................................... - 28 -
Conclusion ........................................................................................................................... - 39 -
Appendixes .......................................................................................................................... - 41 -
Bibliography ........................................................................................................................ - 43 -
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Introduction
Being more environmentally friendly is becoming an economic trend. There are many
organizations, which are protecting nature and encouraging people to join them to make
changes in people’s behaviour and together protect the planet. Mostly they are non-
government organizations like e.g. WWF (World Wide Fund for Nature) or Greenpeace, but
there are also government ones, like Danish Ministry of Climate and Energy in Denmark.
Increased conscious about environment is also influenced by new restrictions and laws,
which are made, among others, by European Union to force people to act wisely and
responsibly towards our planet. ‘Protection of the environment and sustainable
development are policy areas of the European Union where numerous initiatives were
developed in the last 40 years. These initiatives resulted in a large amount of legislations,
policy papers and judgments by the European Court of Justice (ECJ)’1.
The more man is changing the Earth, the more problems start to occur. In present moment,
situation is becoming more serious with time, but unfortunately a lot of people still do not
see it and do not believe that small changes in human behaviour can make big impact on
our environment and do not understand how important it is. People explore planet more
and more, wasting non-renewable resources to heat up houses, use cars and in this way
humans produce gases, which influence atmosphere. The results are, among others,
opening and growth of ozone depletion and ice melting, what leads to increase in sea level,
what causes flooding islands and other areas.
Through thousands of years human kind explored big part of available resources. Therefore
one of the most essential things to do right now is to explore new sources of energy to be
able to function after resources will be explored.
People who understand the vitality of it are often joining groups, in order to influence
others with bigger impact and catch attention of people on things that should matter for all
of us. There are plenty of ways man can contribute to positive changes on planet.
One way to contribute to it is to act sustainably. Don’t waste paper, use less plastic bags and
cups, turn off the light, water, recycle, etc. These are easy, cheap, known for all ways to
help nature that every each of us should implement in everyday life.
Other way is to use more ecological and environmentally friendly ways of e.g. heating our
houses, using eco – friendly parts while building and using alternative energy sources. This
can be done by, for example, solar collectors or heat pumps.
1
Citation from: http://www.asser.nl/default.aspx?site_id=7
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Heat pumps are a very interesting product. They are not only able to heat up our apartments, but also to ventilate them and cool them down.2 This is why they are accurate as much during the winter as during the summer. What is more, they do it in very environmentally friendly and pocket friendly way. For example, ‘the most common type of heat pump is the air-source heat pump, which transfers heat between your house and the outside air. If you heat with electricity, a heat pump can trim the amount of electricity you use for heating by as much as 30% to 40%. High-efficiency heat pumps also dehumidify better than standard central air conditioners, resulting in less energy usage and more cooling comfort in summer months.’3 In this way we care not only about nature, but also our households’ budgets. This may be one of the reasons why recently the number of sales of heat pumps, among others on Polish market, is increasing and is expected to grow even more in the future. Poland is a country, which huge potential from human power to growth in many different areas. After the time, when communism had been replaced with democracy, Poland started slow recovery process and slowly but surely is becoming one of the more important countries in Europe. Currently Poland is considered one of the most interesting countries to expand to4, what should be treated as invitation to invest there. Recently there is much information that suggests expansion from United Kingdom to Poland, and it is advised especially for small business. Possibilities and opportunities are waiting for foreigners; heat pumps sales are increasing and if we would add to it high level of communication between Poland and UK we would see that this idea has a lot of advantages. UK FM Group Ltd. is medium- sized, private limited company, which has been till now offering their products on UK market. They were founded in 2005 and since then they became one of the leaders in providing mechanical services in United Kingdom5. One of the products they provide is heat pump. They offer heat pumps in two types: ground and air. On their website6 we can find benefits for both of them and also check which one will suit us best. 2 http://energy.gov/energysaver/articles/heat-pump-systems 3 http://energy.gov/energysaver/articles/heat-pump-systems 4 http://www.startupoverseas.co.uk/expanding-a-business-in-poland 5 https://www.linkedin.com/company/2439838?trk=tyah&trkInfo=tarId%3A1399014427051%2Ctas%3AUKFM %20%2Cidx%3A1-1-1 6 http://www.ukfmrt.com/domestic/domestic/about/ -3-|Page
Motivation
For some people topic of heat pumps and expansion for another market may seem boring
or at least not as interesting as exotic type of coffee or tea expansion or other thrilling
uncommon product. However I find it very intriguing, mostly because of the rapid increase
in sales of this product. The reasons might be different, but this is interesting why suddenly
item, which is still one of the most expensive ones and is available only for people with
income higher than average had gained such popularity and sales of it are predicted to
constantly increase.
What is even more surprising is the fact that Poland is not a pioneer in environmental issues
in Europe and though since 1989 many things changed, Poland is still country with high air
pollution, what is followed by acid rain and destruction of forests.7Additionally, Poland is
country with increasing, but still low income per household, especially when compared with
Western Europe countries. This raises even more questions how it is possible that sales are
so quickly going up.
To find out if this potential may be used with advantages for both company, supplier, and
for the customers abroad I will prepare this report, in which I will try to come up with some
answers, among others, is expansion for heat pump Polish market profitable for foreign
company.
Problem statement
According to ‘The Guardian’8 Poland is very interesting country to invest also for smaller,
British companies. Among many reasons why to do it, there is mentioned increase in wealth
of Poles. Connecting this information with increase in pro – green behaviours, awareness
about environment, EU restrictions and higher from year to year number of people
implementing environmentally friendly products, it seems logic to expand market of heat
pumps to Poland.
However, expansion on other territory always has to be preceded by detail analyses, in
order to eliminate risk of failure, which also entails losing significant amounts of money. This
is why I will prepare internal and external analyses, to determine if expansion of UK FM
7
http://www.indexmundi.com/poland/environment_current_issues.html
8
http://www.theguardian.com/small-business-network/2014/mar/27/british-businesses-exporting-to-poland
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Group Ltd. in three years period into polish market will be able to bring some profit for the
company.
In this case the problem statement would be:
What is the profitability for UK FM Group Ltd, entering in the Polish Market for heat
pumps?
As the topic is very broad and can consist of broad analysis I will only focus on internal
analysis of the company and external analysis of the environment only with key
competitors. I will focus on data needed to prepare the business plan. Everything beyond it
will not be included here in this report. I will not focus on how it can help decrease
operational costs, improve marketing, etc. I will solely focus on matter of profitability of this
investment – is it profitable investment to expand into polish market. To narrow it even
more, I will focus particularly on Renewable Energy brand of the company, and even more –
only on heat pumps, so the report will not include other departments or products. This will
allow making this report concrete and focused.
Methodology
Throughout this project, I will describe and analyse the present situation of UK FM Group
Ltd., and determine its strengths and weaknesses. Based on a weakness, I will analyse a
series of models and financial projections to determine what the profitability of this
expansion is. Afterwards, I will propose how to fund the project and analyse how profitable
it will be.
To begin, I will give a description of the present situation. I will do this to show how UK FM
operates and what current state is, what products they offer, the organizational structure,
and the history of the company so far. It will help in better understanding of the company.
After the company description, I will conduct a situational analysis of ICC through external
and internal analyses. In the external analysis, I will include: PEST analysis, Porters-5-forces
analysis, supply chain, market structure, competitive position, and strategy, & customers
buying behaviour. A PEST analysis is used to find out the external factors that can affect the
company, and give an overall picture surrounding the company through political, economic,
socio-cultural and technological factors. Porters-5-forces is used to determine the level of
competition in the heat pumps industry, through 5 key external forces: threat of entry,
bargaining power of suppliers, bargaining power of buyers, threat of substitutes, and the
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industry rivalry. The supply chain analysis is used to state and examine the group of economic agents that contribute directly to the determining of a final product; it shows the operation sequence from raw materials to production to the consumer. The market structure is used to show the overall structure of the heat pumps industry and the type of competition we are dealing with. The competitive position distinguishes between four distinct positions on the market: market leader, market challenger, market follower, and market niche companies. This links to the competitive strategy of the company, which is related to their competitive position; each competitive position is linked to specific competitive strategies for that placement. I will also analyse the customers buying behaviour to see is there need and what the trends among polish customers are. Internal analysis will consist of: Product Life Cycle, value chain analysis, and Porters generic strategies. The Boston model is used to evaluate the strategic position of the business brand and understand which companies are worth investing in. In the PLC curve, we determine the maturity phase of the different brands to decide what strategies each brand should implement to improve. A value chain analysis is used to analyse internal activities and to recognize which activities are valuable, and to determine the primary and support activities of the company. Porter’s generic strategy distinguishes between cost leadership strategy, differentiation strategy, and focus strategy to optimize competitive advantage for the company. After completing both analyses I will prepare also SWOT analysis, which involves both internal and external factors. It is used to identify the strengths and weaknesses that are relevant in meeting opportunities and threats in particular situation. After the analysis, I will prepare investment proposal and first few years after implementation, which will allow determining what the profitability of this expansion is. The summary with answer for problem statement will close the report. Here is the flow of the report presented in a chart (on the next page): -6-|Page
FIGURE 1, FLOW OF THE REPORT
Brief description of the company
Internal analysis
Vision, Product mix, Product Life cycle, Value chain, Porter's Generic Strategies
SWOT and Polish investment environment
SWOT for UK FM Group Ltd., Investing in Poland
External analysis
PEST, Porter's 5 Forces, Supply Chain, Market overview, Market structure, Market trends,
Customer's buying behaviour, Cultural differences, Poland in & dimensions of culture,
Investment Proposal
Investment proposal, Financial analysis(Depreciation, Profit and Loss, Cash Flow, Balance
Sheet, Profitability Ratios)
Conclusion
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Brief description of the company
UK FM Group Company is on the market already 9 years, which is relatively long time. It has
been settled to provide services like commercial heating, ventilation, air conditioning and
renewables. It is company that consists of separate firms, which were merged and now are
working under one brand name – UK FM Group. It has started in 2005 with four companies:
Coolair Services Ltd., G8 Environmental Solutions Ltd., D&D Heating & Electrical Services and
Thermotech Engineering Services (Scotland) Ltd. Together they were growing and
strengthening their position on UK market.
In 2010 UK FM Group noticed demand for renewables technologies and higher interest in
acting sustainably. Therefore they established another department: UK FM Renewable
Technologies Ltd. This is department on which I will focus the most, because it provides air
and ground heat pumps to clients. They do provide their products and services not only to
private clients (which are called domestic), but also to commercial customers. This means
that they work with two customers: business to consumer (B2C) and business to business
(B2B).
The structure of management in the company is following9:
Table 1, Management structure in UK FM Group Ltd.
Board of Directors
Managing director
Sales team Health
Operations directors Admin Manager Finance manager
and safety
Operations manager Admin team Finance team
Regional service Co-ordinators
Engineers
Currently UK FM Group Ltd. is employing between 51 and 200 employees10. Company is
focusing more on qualified workers than on empty number of non-qualified people.
9
http://www.ukfmgroup.com/index.php/the-ukfm-team
10
https://www.linkedin.com/company/ukfm-group-ltd
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Year 2012 has been worse for the overall financial situation than previous years, what was
caused by crisis in Europe.11 Even though the number of sales has been increased, costs
were much higher, what leaded to smaller profit for the year. However, the numbers were
still satisfying, because they were on plus.
Table 2, Current (2012) numbers of UK FM Group Ltd.
2012 2011
Turnover 10,570,360£ 9,688,954£
Gross Profit 2,308,006£ 2,981,098£
Operational profit 507,653£ 1,265,684£
Profit for the year 322,536£ 993,905£
Internal analysis
Internal analysis is giving a better understanding of the company, their abilities and
limitations, values, etc. We can make assumptions on what steps should be taken next and
in which direction company should go. It is also good way of reviewing company’s present
situation, looking where company is at the current moment, if the goals (and maybe
milestones) are achieved, or if company is heading towards completely different direction.
Internal analysis part will include vision of the company, product mix, product life cycle,
value chain and porter’s generic strategies.
VISION
Vision of the Renewable Technology Ltd. department was to become ‘the UK’s leading
supplier and installer of micro renewable technologies.’12 They achieved their goal, at least
partly, because currently they are one of the leaders in whole United Kingdom.
PRODUCT MIX OF RENEWABLE TECHNOLOGY LTD DEPARTMENT
Solar Photovoltaic
Solar Thermal
Air Source Heat Pumps
LED Lighting
Ground Source Heat Pumps
Biomass Wood Boiler
11
Annual report 2012
12
http://www.ukfmrt.com/domestic/domestic/about/
-9-|Page Gas Boiler
From all these products, two will be main focus in this report, air and ground source heat
pumps. I will focus on these two, because of the Polish market demand on especially these
products. As mentioned before, Poland noted rapid increase in sales of heat pumps, both air
and ground, and therefore I would like to focus on its, as there is visible potential and big
chance of success with these products.
Air pumps ‘Heat is absorbed from the air which forms as a fluid. The fluid is then passed
to a compressor to increase the temperature. Once the temperature has been
increased the heat is transferred to the heating and hot water in your house.
As the air source heat pumps heat is extracted from the air it is constantly
being naturally renewed. Heats pumps do use a small amount of electricity to
run but will keep on extracting heat even when it is as cold as -15°C.’13
Ground ‘Water and antifreeze are sent round a ground loop underground. The heat in
pumps the ground is absorbed into the fluid and then passed to a heat exchanger
which in turn passes the heat to the pump. This method works well as the
area underground stays at a constant temperature providing heat even when
the ground looks frozen.’14
Benefits are the same for both types of pumps– they will reduce emissions of CO2 and bills,
while at the same time they will heat and ventilate apartments/houses without dwellers
worrying for the resources. 15 The difference is that air pumps are easier to install, and
ground pumps are more efficient.
Heat pumps are not equally efficient everywhere. There are some indicators and conditions
that have to be met, in order to make the most out of these renewable technologies. In
order to make it easier for customers, UK FM Group includes in their service advising, also
about what type of heat pump can customer install if can install any. 16 17
13
Quote from website. Product description: http://www.ukfmrt.com/domestic/domestic/products/air-source-
heat-pumps/
14
Quote from: http://www.ukfmrt.com/domestic/domestic/products/ground-source-heat-pumps/
15
Data from official site. http://www.ukfmrt.com
16
http://www.savewithsrp.com/advice/heatpump.aspx
17
http://www.enviko.com/technology/heat-pumps/ground-source-heat-pumps-2
- 10 - | P a g ePRODUCT LIFE CYCLE18
Product Life Cycle model consists of four main stages: introduction, growth, maturity and
decline phase. Introduction is phase where product is newly launched on the market and
number of people who are buying it is small, as well as number of competitors. Next phase
is when product has more and more followers and competition is growing. Maturity is when
product has stable position on the market and decline phase is when product is not as
tempting and/or useful anymore and is slowly replaced by other product till the point it will
not be produced anymore.
Arrow points a place on the Product Life Cycle curve, in which phase we can find heat
pumps from UK FM Renewable Energy Group. This department is relatively young (4 years)
and therefore its products are in the growth stage. We can observe it also in Annual Report,
Profit and Loss statement, when we analyse, e.g. number of sales. Other characteristics are
Figure 2, Product Life Cycle with placement of UK FM Group Ltd.
focus on gaining market shares, targeting moderate customers, which are willing to be with
trends and got products that are already widely available on the, but still are not owned by
everyone. Number of competitors is still increasing, mostly because of the huge potential of
this market.
Product Life Cycle is useful tool to analyse in which directions company should go and helps
predict the future. In this case we can establish few facts. First, the potential of the market
18
http://indrajitdas89837.blogspot.dk/2013/10/product-life-cycle-of-tzinga.html
- 11 - | P a g eis really big, so it should be used. Second, number of competitors is still increasing; however
the competition is not focused on price wars yet, but on quality and service differences.
Third, business focus should be on getting market shares and establishing better position.
VALUE CHAIN
Value chain is a tool, which company can use to optimize processes and deliver greater
value for the customers, what should help increase sales and with this – profits. 19 It is built
from two parts: primary and additional (supporting) activities.
Figure 3, Value chain
20
Organizational system
Support activities
Human resource management
Technology development
Procurement
Strategic objective
Marketing
Inbound Operations Outbound Sales Service
logistics logistic
Primary activities
‘Primary activities relate directly to the physical creation, sale, maintenance and support of
a product or service. They consist of the following:
Inbound logistics – These are all the processes related to receiving, storing, and distributing
inputs internally. Your supplier relationships are a key factor in creating value here.
Operations – These are the transformation activities that change inputs into outputs that
are sold to customers. Here, your operational systems create value.
Outbound logistics – These activities deliver your product or service to your customer. These
are things like collection, storage, and distribution systems, and they may be internal or
external to your organization.
19
http://www.mindtools.com/pages/article/newTMC_10.htm
20
Service logo - http://www.barnabeservice.com; sales logo - http://www.powerthechange.com/sales-skills/;
inbound logistic - http://www.training-classes.com/publications/00/12/1206_inbound_logistics.php; outbound
logistics - http://doodleslide.com/porters-value-chain-analysis-powerpoint-templates/; operations -
http://www.clker.com/clipart-operations-banner-logo.html
- 12 - | P a g eMarketing and sales – These are the processes you use to persuade clients to purchase from you instead of your competitors. The benefits you offer, and how well you communicate them, are sources of value here. Service – These are the activities related to maintaining the value of your product or service to your customers, once it's been purchased.’21 Value chain can be also analysed in three steps: activity analysis, value analysis and evaluation stage22. UK FM offers not only the product itself, but also service, which brings big value and is what differentiate them from other companies. Besides heat pumps, they offer service, installation, on-going maintenance and supply23. They rely on theirs qualified workers, which are able to provide valuable services to customers. Analysing products and services that UK FM is providing to their customers, there is one factor that makes it all possible – qualified workers. Without them, firm will not be able to provide good services, help with installation, maintenance, advices and others. Therefore the human resources management should be on the highest level. Workers should feel appreciated and always have opportunity to develop. Technology development is what drives all businesses nowadays. This is a way to get ahead of others and not get out of a track. It must be controlled and updated all the time. Organizational systems make is easier to run operations and manage company and processes. They had to be optimized from time to time, and adjusted with any changes that company is making. Procurement and marketing are areas which you always can improve and adjust, and there is no one, ideal way to do it. It has many variables and depends on the target group, timing and much more. It is changing constantly and it is important to always be with or even ahead of trends. PORTER’S GENERIC STRATEGIES24 In business there are many jokes about how client can choose the product and there are three possibilities: cheap and good but slow, fast and good but expensive, cheap and fast but inferior.25The lesson behind this is that we cannot get everything at once. We cannot provide cheap, very good quality and original product at the same time. This is why we have 21 Quotation: http://www.mindtools.com/pages/article/newSTR_66.htm 22 http://www.mindtools.com/pages/article/newTMC_10.htm 23 Data taken from official website 24 http://www.learnmarketing.net/generic.htm 25 http://www.sixside.com/fast_good_cheap.asp - 13 - | P a g e
to choose one specialty and focus on it, to compete with other firms. Model, which helps us to define it, is called Porter’s generic strategies. We have three main areas to choose. Company can either do cost leadership – which is providing very cheap prices compared with competitors and no differentiation (like e.g. Ikea). Differentiation is going for original, not mass products, with prices little bit higher. The third is cost focus and is usually involving niche market, but not necessarily. Usually when company is following cost focus strategy is choosing niche market and focusing on low prices within. Fourth option is differentiation focus. This strategy is based on differentiated products in niche markets (usually). Sometimes, company does choose all of these four and then is placed in grey area, which on this chart is called ‘stuck in the middle’. That means that company has no advantage over competitors, which is the worst scenario for company. Figure 4, Porter's Generic strategic model Offered by UK FM Group Ltd. products and services are indicating their strategy is differentiation. They do not offer the lowest prices in the country or on the market in general, but, on the other hand, they are not the most expensive ones either. Products they offer are similar to other products offered on the market, but what differentiates them is the service and additional features they provide. They do have many features in their service, like installation, maintenance, guarantee, etc. and moreover they do have highly skilled workers, engineers, on every position, and this is huge advantage over competitors. - 14 - | P a g e
Additionally, they offer some kind of financial help – they got proposal of wide range of
‘energy efficiency finance schemes through a variety of funding partners’.26 This gives even
higher value to value proposition they have for customers, because beside core product and
service they also make it easier for buyers to purchase the product in financial terms.
SWOT and Polish investment environment
This section is placed between internal and external analysis, because it will include some
models that entail both types. Moreover, I will place here some facts about Polish
investment environment, e.g. how easy is to open business in Poland, and is it worth to
invest there, what is the advantage with other countries.
SWOT FOR UK FM GROUP LTD.
SWOT analysis is presented to give an overview of the company’s situation. Acknowledging
the strengths shows what firm is good at, opportunities show where to go next, weaknesses
give chance to improve ratings and threats let us prepare, or at least realise things we
should be aware of and watch out for. SWOT is model used for both internal and external
analyses and this is why it is placed in section between two mentioned ones.
Table 3, SWOT for UK FM Group Ltd.
Strengths Weaknesses
Environmentally friendly solutions Financial situation of some of
Energy saving products departments28
Money saving products Lack of international presence
Very good quality Marketing and advertisement
Customer oriented
Great service
Qualified workers
Few departments
Growth of the company27
One of the leaders in UK
26
http://www.ukfmrt.com/domestic/domestic/about/
27
number of employees increased from 91 to 188 in just one year; based on numbers from Annual report
2012;
28
In 2012, Renewable technology department faced the loss of approximately 136 000 £. Also overall profits
dropped in 2012; based on Annual report 2012.
- 15 - | P a g eOpportunities Threats
International markets Many competitors
New eco trends Price wars
Improved advertising Change in trends
Creating stronger and more Economic situation changes
recognizable brand New technologies – new ways of
heating
UK FM Group Ltd. has very good position. Is one of the leading providers in UK, has wide
range of products, amazing service and qualified workers. However, there are some
weaknesses, like lack of presence on international markets. Eliminating this particular
weakness will be also using opportunity of expansion on different territories. In this way, UK
FM will be able to create stronger and more recognizable brand, what will bring more
benefits for them.
One of the possible markets is Poland. There are lot of information and statistics, which
indicate that Poland is one of the best choices as place for investment and expansion.
‘Given the recent increase in energy costs and the impact on household budgets and
consumer spending, it is not surprising that most Polish households have been looking for
ways to cut their energy use. In a recent survey conducted by optimalenergy.pl, 82% of
respondents in the south of the country said they regularly try to control their energy
consumption and 98% of those said they have seen the results on reduced bills. In the north
of the country, 78% of respondents said they try to save energy, and 67% of those said they
believe they can lower their bills through their own energy-saving efforts. In central regions,
82% of respondents said they make efforts to save energy.’29
INVESTING IN POLAND
On the graph it is visible, that Poland is very good country to invest. In the Global
Competitiveness Index Score ranking from 2013 (which is created by World Economic
Forum), out of 148 countries Poland held very high 42nd position. That indicates the
conditions to open new business/ new department in this Eastern European country are
more than good.
Poland: Global Competitiveness Index Score 201330
29
Quote from Euromonitor International, Consumer Lifestyles in Poland, 2014
30
Figure from Euromonitor International, Business Environment Poland, 2014
- 16 - | P a g eFigure 5, Competitiveness Level of Poland according to Euromonitor
Poland is good place to invest because of many reasons. First is that it has lots of labour
force. In Poland live nearly 40 millions of people. Out of this number 1.8 million of people
are studying. What is more, every 10th student in Europe is Polish. Out of 1.8 million
students, majority learns two or more languages. That shows how educated Polish nation is.
One of the economic reasons may be that in Poland unemployment is relatively high (even
14% on January 201431), what means there is a lot of well-educated people that seek jobs.
Additionally, the salaries grow slower than work force productivity, and therefore salaries
are lower compared to most of the Western European countries. This is great opportunity
for foreign investors. Moreover, every 2nd new opened job in Europe after crisis (2012) is
opened in Poland.
Investors can also find stability in Poland. Both economic and political. It was visible also
during the crisis in 2012, when Poland was only country in European Union that was not in
recession, but, even better, had positive growth.32
Additionally, Poland is European leader in home appliances, electronics and automotive.33
One more very important highlight about Poland is that according to United Nations Poland
holds 6th place for the most attractive location in the world and is 21st world’s largest
economy.34 These information are the best advertisement for Poland, and with these two
rankings there should be no doubt that Poland is really one of the best places to expand to.
31
http://www.tradingeconomics.com/poland/unemployment-rate
32
Graph and text from: http://www.edufeedr.net/pg/edufeedr/view_post/34/296659
33
https://www.youtube.com/watch?v=BBbtig6-kFQ
34
http://www.santanderbreakthrough.co.uk/advice/distribution/exporting-poland
- 17 - | P a g eFigure 6, Opening business in Poland factors. Appendix nr1
In figure number 6 there are listed few of the features of opening business in Poland. At the
very top of the table we can see that in another ranking from 2014, out of 189 countries,
Poland was rated 45th in terms of how easy is to make business there. That is another
classification in which Poland shows its potential.
Next listed thing is how many days it takes to start a business and number of procedures it
takes to make it. In Poland you can open business in 30 days with 4 proceedings.
When business wants to (or requires) place build from the scratch, then it should be taken
under consideration, that number of days it take to get construction permit in Poland is 161
days and number of proceedings is 16.
Another listed characteristic is number of hours that manufacturer workers spend daily at
work, which is usually 8 and the number of annual pay days for worker who has been over 1
year in a company is 20 days.
Here comes tax data. Total tax rate is 41.6% of income, labour tax is 26% and the VAT is
23%. What is important to know, corporate tax (CIT – corporate income tax) in Poland is
19% compared to 24% in UK.35
Time to export things takes 17 days, and to import to Poland takes 14 days. Costs of
importing are slightly lower than exporting (1025 for import and 1050 for export in US
dollars per container).
Last figure on the list is how much, in a scale from 0-10, country is protecting theirs
investors. Poland got a high score 6, which shows that investors are in good position and are
protected.
External analysis
External analysis is prepared in order to analyse the environment of the business and the
country. It can be done domestically, for United Kingdom, or externally, for country to which
business wants to expand. In this report I will focus on foreign environment, due to fact that
it is more useful and logic to have an overview of market, to which company wants to move
in to.
External analysis consists of PEST analysis, Porter’s 5 forces, supply chain, market overview
and customer buying behaviour.
35
Data found in document: ’Taxation trends in European Union’ 2013.
- 18 - | P a g ePEST
PEST is model which analyses features of four main areas of environment. These areas are
Politics, Economics, Social, and Technology. Each of these four blocks covers different
subjects. For example Politics includes laws and restrictions, what type of country it is:
monarchist, democratic, etc. Economics sums up the current economic situation like
unemployment, currency, imports, exports, labour costs, financial situation, growth of the
country, etc. Social factors are presenting trends among customers, facts about society and
culture. Technology covers all discoveries, level of usage of new technologies, predictions
about using them, etc.
PEST model normally is focused on one country, and if there is need to analyse two, it’s
done separately. In my report I compare some of the facts about Poland with UK, so reader
got, at least, little overview of the differences between these lands.
Table 4, PEST analysis of UK and Poland
Political Both countries are in EU, so there will be no political problems.
Laws are common for both counties, due to EU membership, so
there are no (or only minor) differences, what will make
processes easy.
Poland is stable country in terms of politics.
Economic Higher labour costs in UK than in PL
Demand for energy saving products is growing, especially on
heat pumps (both)
Financial situation of Poles is getting better
Poland is one of the fastest growing EU countries in past few
years( in terms of economy)
In the next few years Poland may take EURO as currency.
‘More than 90% of Poland’s electricity requirements comes
from coal-fired power stations but the government wants to cut
this to less than 60% by 2030. Rising demand for power will be
met by nuclear facilities and renewable sources.’36
Unemployment in UK is lower than in Poland.
Social Polish society is getting more focused on acting sustainably and
being ‘green’ and ecological.
Poles are expected to spend more money in 201437
Every 10th student in Europe is polish.
Majority of students in Poland learns two or more languages.
36
Passport: Poland Country Profile; pdf
37
Passport: Poland Country Profile; pdf
- 19 - | P a g eTechnology
Poland is slowly heading towards new, renewable technologies
Poland is European leader in home appliances, electronics and
automotive.
‘The EU and Poland are working together to develop a solar-
energy network’38
PEST is little sum up of things that were mentioned before in this reports. Reader can mark
once again that Poland is stable country, also in EU like UK, economically stable with
increase in income of Poles and lower labour costs than in United Kingdom, but higher
unemployment. Social features present highly educated nation with a lot of potential, and
technologies reveal that Poland is heading towards new technologies and is willing not only
to wait for them, but to explore them together with EU.
PORTER’S 5 FORCES
This model is great tool for analysing power of external factors, like suppliers, buyers, and
new competitors. There are signs that this view is rapidly changing, however, as the power
of customer service as a potential means of differentiation is increasingly recognized. In
more and more markets the power if the brand has declined and customers are more willing
to accept substitutes.’39
1. Threat of
substitute
product
Competitive 2. Threat of
4. Bargain
new
power of rivaly entrants
suppliers
3. Bargain
power of
customers
38
Passport: Poland country Pulse; pdf
39
‘Logistics and supply chain management’ Martin Christopher; Third edition
- 20 - | P a g eThreat of substitute product exists in every business and branch. Here substitute products can be used till now sources of heating. However, they are more expensive, and are not environmentally friendly, so the value proposition is completely different in this example. We cannot eliminate the risk of substitution completely, because ‘the old’ product has been for a long time and many people is still using it due to habits, fear of new technologies or prejudices. Though, I would still risk statement that there is no substitution with the value proposition air and ground heat pumps have. Threat of new entrants is medium. Barriers are medium. As barrier we can count specific knowledge in engineering field, time to open the business, which in this case is not short, because of obtaining all approvals for selling specific appliances and certificates, money to invest into it, where it has to be considered that these products are quite expensive. So barriers exist, but are not impossible to overcome, what can indicate e.g. increasing number of competitors on heat pump market. Answer will be that there is medium threat of new entrants, but only in monopoly situation there is, almost, no threat. In any other business there is medium or high threat of new competitors, which in natural things on market. Bargain power of customers. Buyers can’t drive prices easily. Not at present time at least. Their price sensitivity is small, because people who invest into new solution are usually people who care more about other factors than price. New technologies cost always more than old, not ecological solutions. Therefore currently the buyers do not have big power, however, if the competition and number of buyers will increase significantly, the business can move into price wars, what will cause bigger power of customers. Now it is not the case, so the power of customers is small. Bargain power of suppliers. In this case there is no bargain power of suppliers, because there are a lot of suppliers of these materials and the number will probably increase. Additionally it will be easy to change from one supplier to another at no costs, therefore power does not exists, or even if, is very, very small. To sum up, the competitive rivalry is on medium level. In conclusion the UK FM Group LTD. is in good position to enter the market. SUPPLY CHAIN This is commonly known, simple supply chain. It consists of suppliers, purchasing raw materials, production, quality inspection, delivery and end consumer. - 21 - | P a g e
Suppliers Purchasing
Quality Delivery of
raw Production Sales Customer
inspection products
materials
First company contacts suppliers, and purchases raw materials. Sometimes companies by
ready product, to which they add some kind of value. Normally, however, firm will buy raw
materials to create product themselves. After purchase and delivery of materials goes
production process followed by quality inspection. This is very important steep, because
here we can spot defective units and eliminate them, so they will not be sold to customers,
what, if happen in big quantity, will make clients unpleased, lower company’s good image
and may even cause losing some of the customers. Additionally, it gives company a chance
to improve their production processes. Next steps are sales and delivery of products to mid-
seller or straight to consumer. Now product reached end of the supply chain.
Supply chain is not only going into one direction. The process is influenced very much by
end chain, which is in this case customer. When company gets feedback from clients, it is
wise to use it, by implementing changes in order to improve. Therefore the feedback from
customer will go all the way backwards to the supplier, if there is a need for it.
There are many variations of supply chains. Here is supply chain model, which main goal is
to help companies to develop supply chains models.
Figure 7, supply chain model with 3 pillars. Appendix nr2
In this model (appendix number 2) we can distinguish three pillars, which are operational,
transactional and organizational supply chain. All three of them have got a goal, and
depending on needs, company can focus on one of them, or if it is really necessary,
implement all of them. Model can be found in appendixes.
MARKET OVERVIEW
Market overview will be analysis of Polish market, which will include market structure,
market trends. Market position will not be used, because lack of presence UK FM Group Ltd
on polish market.
- 22 - | P a g eMARKET STRUCTURE40
Table 5, Market structure
Comparing Market types
Another
Type of Number of Kind of Barriers to
name for Special traits
market Producers competition entry
Firms
Monopoly No entry
One None Price-setter Only one firm
possible
Firms can
Primarily
Medium collude and
Oligopoly A few non-price N/A
barriers behave as
competition
monopolist
Non-price
Product
Monopolistic competition;
Many Low barriers Price-maker differentiation
competition price
and branding
competition
Perfectly
Prefect Price
A great many No barriers Price-taker elastic
competition competition
demand
At this moment, market structure of heat pumps is closest to oligopoly. There are not so
many providers, number of people, who want to buy it, is somewhat high and still growing,
but not too high, the entry barriers exist. One of the most important barriers is highly
educated group of workers. The competition is not based on price wars, due to the fact, that
every, even small change in price of one of the suppliers will have immediate influence on
all the others and therefore no company will make changes in prices before considering it
and consulting with others.
What characterize UK FM Group Ltd is existence of some medium barriers, number of
competitors is high, but compared to, for example, number of competitors in fashion
industry the number of competitors for heat pump market is relatively small, price wars are
not implemented yet, number of customers is growing, and workers are highly skilled and
educated.
MARKET TRENDS
In recent years polish heat pumps sales noted very high increases. In 2012 the growth was
as high as 20% and the number of heat pumps was equal 12 650 units sold. Actually growth
40
Figure from: http://mrshearingeconomics.weebly.com/market-structures.html
- 23 - | P a g esince year 2006 is impressive. From 2006 Polish heat pumps market grew almost five times
in just 4 years.
Sales of heat pumps in Poland in years 2006-201041
Figure 8, Sales of heat pumps in Poland 2006-2010
What is more, predictions show that till year 2016 number of sold heat pumps should reach
16000 per year. It is trend, which will continue on going, because of change in Polish mind-
set. They finally start to see benefits of air and ground heat pumps and this shift is visible in
number of sold products. 42
CUSTOMER’S BUYING BEHAVIOUR
Customers in all sectors have got their own favourite time in the year, when they do specific
shopping. In case of heat pumps it is October and November. 43
Customers pay attention to price, very close to quality, but are very open minded, when it
comes to source of the product, what means they do not mind if product is domestic or
foreign.44 Clients at the current moment are more focused on quality than price. However
we cannot forget that price is also very relevant for them, and it will be more and more,
along with growth of the heat pump market and increased number of competitors.
Polish consumers do not have preferences about the origin of the product, what is good
news for companies from abroad.
41
Figure from presentation about ‘Polish market of Heat pumps’ from Międzynarodowe Targi Instalacyjne -
INSTALACJE 2010, Poznań 26 - 29 IV 2010.
42
http://www.worldpumps.com/view/34479/polish-heat-pump-market-upsurge/
43
http://www.worldpumps.com/view/34479/polish-heat-pump-market-upsurge/
44
http://export.gov/Poland/doingbusinessinpoland/index.asp
- 24 - | P a g eCultural differences45 Cultural differences are also very important aspect to analyse. Knowledge about them gives advantage for the company, because it allows adjusting strategy to these conditions and some unwritten rules. Normally to do this will be used model presented by Geert Hofstede. However I will use expanded, more detailed model identified and presented by Fons Trompenaars and Charles Hampden-Turner. This model is called seven dimensions. Model differentiates fourteen features in seven dimensions. In every dimension there are two features, but country can only by classified with one. It means that country is described in seven dimensions by seven features. Country have got to choose universalism versus particularism, individualism versus collectivism, specific versus diffuse, neutral versus emotional, achievement versus ascription, sequential time versus synchronous time, internal direction versus outer direction. Universalism versus particularism is choosing between the law and the relationships. In universal country, everything is happening along with rules and is solely based on them. There are no exceptions from them and everyone has to follow them. In particular one, rules are not that important as human relations, so things are solved differently, depending on situation. Circumstances can change, so do solutions to situations. Individualism versus collectivism. In individualistic country people can live in a way they think is the best, do not have to think about others. It is not required from them in any way other than morale. Citizens are responsible for themselves. In collective country, there is group responsibility. People are not as free in making own choices and mistakes as in individualistic land. Specific versus diffuse. In specific country citizens focus on professional site of work, and not on building relations with co-workers. Work life is more important than any relationships. In diffuse land people pay equal attention to relationships and work in professional life. They spend social time with colleges and are in deeper relations than purely work ones. Neutral versus emotional. Neutral means people are not bringing any emotions or feelings to business. If it is negotiation or making business deal everything is calm and neutral. In emotional countries people express feelings and emotions at work, during negotiations and business deals. Workers show when they are angry, happy, sad, excited, joyful, disappointed. 45 Theoretic part of this section has been done with use of two sources: http://www.mindtools.com/pages/article/seven-dimensions.htm and ‘Seven Dimensions of Culture’ pdf. - 25 - | P a g e
Achievement versus ascription. Countries where people judge others by their accomplishments and work are achievement countries. There people are not discriminated because of the social status or other independent on person factors. On the other side we can find countries where people judge by place of birth, status, gender, connections. It is very hard to change the image, when one got a label, even if accomplishments are very impressive. Sequential time versus synchronous time. Countries which are very focused on order, planning, clean schedules, punctuality, and selectivity of tasks done at once are sequential. These countries are very concentrated on order. Synchronous countries are very flexible, adjustable, multitasking and handling few projects at once is common thing, but also see how valid is to be punctual. Internal versus outer direction. When people know, or think they know that they are capable of influencing environment and are able to make changes in it, when are open to show there is a conflict and to talk about it, and are in charge of their experience, these people are following internal direction. When people are not changing environment, because they think they cannot and are dependent on it, are afraid to cause open conflicts and usually hide them, and are unsecure and need to be guided, these people follow outer direction. POLAND IN SEVEN DIMENSIONS OF CULTURE46 Poland is country similar to United Kingdom, but also very different. They had different histories, UK did not have to face communism as Poland did, and they got different realities and cultures. But even though, there are many similarities between them. Poland is universal country, because they follow rules more than relationships. However it is not uncommon to use connections to overcome some obstacles. Poland is also very individualistic. People focus on themselves and not on common good and wealth. It is very hard to gain attention of other people in matters that are important, especially if they require some sacrifices, even small as time and presence. Polish people think how to make it better for them and are very jealous, too. This country is also specific. Normally people have their own groups of friends and with them spending time after work, not with co-workers and work relations are not developed very much. However from time to time Poles are having social time with colleges from work and it is also fine. 46 Chosen types were based on http://knowmecct.oncampus.de/loop/Development_of_Trompenaars'_cultural_dimensions, and own knowledge - 26 - | P a g e
Poland is neutral. Polish people will not express their feeling about work towards managers
and people who are up on the leader positions. They will express them to family, friends and
even co-workers, but not to people who actually can have an impact on it.
Poland is trying to make shift from achievement to ascription focus, but is still more
ascription than achievement country. Mainly because of many prejudges. It matters from
which site of Poland you are, where you were going to school, what was your parents and
your social status, etc. In the business world it is however more and more visible, that
people care more about achievement and abilities than origin. Background, on the other
hand will be factor that will always count.
At work Polish people are more strict than flexible. Punctuality, planning and executing
planned tasks is more important than flexibility. There is no place for creativity.47 Tasks are
given and it is required to fulfil them. This is why Poland is sequential.
Poland is internal, but I would say it is both. Many people believe that they got influence on
environment and on their own experience. Nonetheless they do not change it, even if they
are not satisfied, because they think that they do not have other choice. So on the one hand
they think they do have impact on what is happening around, but on the other they do not
use it as often as they would like to or as they should.
To visualise it, in table will be shown Poland’s and UK’s 7 dimensions.
Table 6, Comparison of cultural characteristics of Poland and UK
Poland UK
Universal Universal
Individualistic Individualistic
Specific Specific
Neutral Neutral
Ascription Achievement
Sequential Synchronic
Internal/External Internal
To sum up, cultural differences are not very big. Anyway it is very useful and important to
know them, in order to be able to run profitable business smoothly.
47
Of course it is very general. In jobs that require creativity and innovation it is not the case. Here, however, I
will focus on jobs like shopping assistant, accountant, and company worker.
- 27 - | P a g eYou can also read
