Industry Snapshot

The wood sector covers many related industries. They include furniture, housing, energy, pulp and paper, and crafts.

The Croatian wood processing industry is a big domestic employer. The industry employs over 27,213 people in directly linked industries and innumerable others in supporting industries. The wooden furniture industry is the largest portion of the wood processing industry in Croatia. However, it is at risk of succumbing to competitive global pressures.

Wood production and processing are important for Croatia’s foreign exchange earnings. Despite comprising less than 1 percent of the national economy, wood production and processing accounts for more than 8 percent of Croatian exports. These values have increased by over 31 percent since 2012.

Emerging Strategic segments

Among wood products, furniture has the highest exported value worldwide. Furniture is a high value product, and the capital technologies and knowledge required for furniture production are leading this segment into ever higher degrees of specialization.

Firms are increasingly offering customized furniture and interiors and the services to install them. Customized products go beyond simply tweaking the design of furniture. Rather, they imply a more intensive capacity to tailor-make a solution for an individual buyer. The buyer may have an extremely specific set of demands in terms of measurements, space, look, and so on. Installation is a key service because buyers may not have the time or the ability to affix the purchased solution in the desired space.

There are two key types of buyers: (1) individual buyers and (2) commercial and institutional buyers. Individual buyers purchase for individual consumption. These individual users may buy their furniture directly from the manufacturer or from wholesalers such as Ikea. Commercial and institutional buyers include a range of private companies, organizations, and government entities. The most notable buyers in this category are hotels, office buildings, universities, municipal procurement offices, and commercial outlets.

“Customized interior solutions”

The “customized interior solutions” strategic segment is especially attractive for Croatia. In this emerging strategic segment, firms offer customized wood furniture and paneling and the sophisticated services necessary to install them in the interiors of commercial and institutional buildings. Commercial buyers are increasingly looking to firms that can design their interior spaces, manufacture custom wood paneling and furniture for them, and then outfit their spaces with the bespoke products. The hospitality industry and luxury retail stores, especially, are demanding interior solutions to differentiate their brands.

The “customized interior solutions” strategic segment is a just-in-time market. Because interior solutions are not the core businesses of these commercial buyers, they need to minimize management of multiple furniture suppliers and contractors. Moreover, opening dates of stores and hotels often place significant pressure on commercial buyers. The just-in-time nature of this linkage creates bargaining power for competent contractors who conduct the installation.

Commercial buyers want hardwood. Commercial and institutional buyers focus on the durability of the solution because the products sustain heavy use. Moreover, many fashion-conscious buyers want to build a luxury brand identity such as “rich,” “rustic,” “masculine,” “cozy,” “natural,” or “traditional.” Hardwoods are both more durable and less common than other woods, contributing to their perception as exclusive. As such, the interior design segments consider them to be more desirable.

Making Croatia Competitive

Where is the value chain weak?

Several crucial activities in the value chain for the “customized interior solutions” strategic segment are missing in Croatia:

  • Customized processing and finishing. Firms in Croatia are focused on traditional furniture manufacturing. They lack the knowledge, capital, machinery, staff, and flexibility necessary to offer design customization and installation.
  • Research, development, and innovation. Croatia has no institutionalized mechanism to facilitate research, development, and innovation. These activities are needed to develop the capacities needed to make production systems more responsive to needs of commercial and institutional customers.
  • Skills for installation and repair. Workers trained in carpentry, woodworking, interior design, architecture, or engineering are hard to find. The few firms that perform installation train their staff in-house. In-house training is costly, and project management is a knowledge and coordination intensive activity. Croatia needs to develop a broader cohort of skilled labor.
  • Certification in upstream activities. Upstream skills in drying and primary processing are lacking in Croatia. Introduction, adoption, and application of quality grading to address the needs of the interior design sector would reduce imperfect market information and enhance value chain efficiency.

Areas for reform

Certain aspects of the industry ecosystem limit Croatia’s competitiveness in the emerging “customized interior solutions” strategic segment.

Factor conditions

Croatia’s supply of high-quality natural resources is fragmented and inefficient. Approximately 2.6 million hectares of land in Croatia are forested. Of this amount 500,000 hectares are privately owned by a fragmented set of nearly 600,000 proprietors. These privately-owned forests produce 12.5% of the growing stock. The state-owned enterprise Hrvatske šume owns the remaining 2 million hectares.

Labor productivity is low. From 2000 to 2014, productivity increased by only 20 percent while real wages increased by over 70 percent.

Vocational education and training could better match wood industry needs. Secondary schools inadequately prepare graduates for the jobs in the real sectors. Some technical secondary schools and vocational training institutes relevant for the wood production and processing industry do exist in Croatia. However, the curriculum is not advanced enough. The graduates lack professional practice and experience.

Accessing finance is difficult. Entry into the “customized interior solutions” strategic segment requires capital investment. The biggest financing problems in wood industries relate to long-term financing for machinery modernization.

Strategy, structure, and rivalry

Participation is limited and rivalry is low. A few successful Croatian companies have begun to participate in the “customized interior solutions” strategic segment. However, they cannot meet market demand and often must refuse business offers because of limited production capacity.

Cooperation is rare. There are few formal cooperation mechanisms to bring together companies in the “customized interior solutions” strategic segment. Capacities and coordination are dispersed, and successful companies are competing in isolated pockets.

Participation is not clustered. Clustering would be extremely useful for the nation’s competitiveness in the “customized interior solutions” segment. It puts pressure on local firms to innovate and improve. It also creates an environment where firms can more easily share skills. Additionally, cooperation and partnership can help Croatian companies to jointly access the more demanding international markets.

Related and supporting industries

Firms are using outdated equipment. Croatia has insufficient infrastructure and expertise in cutting-edge mechanization. For activities that involve finished or semi-finished products, it is increasingly important to have the latest industrial machinery. State of the art machinery includes 5-axis computerized cutting tools and 3D printing machines. These tools require expert industrial engineering to integrate machinery, software, and control systems into production lines. Additionally, workers using the machinery must be trained.

Firms don’t know what machines to buy, how to operate them, or for what purpose. There are many public tenders and programs to help Croatian companies buy advanced machinery. However, firms first need to reorient toward a better business model (such as selling to institutional customers). Only then can they invest wisely in machinery to make better products.

Croatian companies competing in the “customized interior solutions” segment have difficulties finding domestic supplies of metal, plastics, and other inputs. The efficient supply of high-quality non-wood materials is important for the development of Croatian companies.


Croatia is wasting valuable hardwood. Some 85% of Croatia’s roundwood is hardwood. However, much of the hardwood is improperly processed. Hrvatske šume (the state-owned forestry company) imposes de facto restrictions on the sale and procurement of raw wood. Among other effects, this market distortion forces sawmills to operate at a scale too small to observe proper drying processes. As a result, much of the sector’s raw output is damaged. Thus, most Croatian hardwood is burned, turned into low-value composite woods, or sold as lumber in low-end construction markets.


Croatia could improve its position in the emerging “customized interior solutions” strategic segment by:

  • Organizing a competition to give traditional wood processing firms an opportunity to practice designing and outfitting interior spaces. The Ministry of Economy Entrepreneurship and Crafts (MoEEC) could implement this recommendation (via a ‘level 2’ fiduciary implementing body) as prize financing. Estimated timeframe: 2 years.
  • Using a firm-level technology adoption fund for advanced cutting machinery to modernize production lines for precise cuts and customizable production. MoEEC could implement this recommendation (via a ‘level 2’ fiduciary implementing body) as a matching grants program. Estimated timeframe: 7-10 years.
  • Creating a technical center to help training and dissemination. The most important training need is in advanced manufacturing technology. MoEEC, the Ministry of Science and Education, the Ministry of Labor and Pension Systems, and other line ministries could implement this recommendation (via a ‘level 2’ fiduciary implementing body). Estimated timeframe: 10 years.
  • Building certification capacity. MoEEC could build capacity to meet and obtain certifications as a matching grants program (via a ‘level 2’ fiduciary implementing body). Estimated timeframe: 6 years.
  • Supplying business mentoring in innovation, opportunity recognition, risk perception, entrepreneurship, and professional networking. MoEEC (through EBRD) or the Croatian Chamber of Economy could implement the mentoring program (through a technical assistance program) as a matching grants scheme. Estimated timeframe: 2 years.
  • Liberalizing its forestry tendering policy. MoEEC and other relevant agencies could implement this reform through public institutions and government agencies. Estimated timeframe: 3 years.
  • Helping firms become competitive in foreign tenders. The costs associated with intensive, risky pre-sale design dialogs in the “customized interior solutions” strategic segment are large. A carefully structured guarantee conditioned on costs invested and contracts not won could help motivate firms to enter this segment. MoEEC (via a ‘level 2’ fiduciary implementing body) could coordinate services and guarantees to cover the cost of bidding for foreign tenders. Estimated timeframe: 5 years.


Ministry of Economy, Entrepreneurship and Crafts

Ulica grada Vukovara 78
10 000 Zagreb

tel.: 01/ 6106 111

Croatian Chamber of Commerce (CCC)

Center for Industrial Development (CIRAZ)

Nova cesta 7
10 000 Zagreb

tel.: 01/ 207 80 01


The production of the materials is co-financed by Technical Assistance from the Operational Program on Competitiveness and Cohesion, from the European Regional Development Fund.
The project is co-financed by the European Union from the European Regional Development Fund.
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