U.S. investors continue to roll into Romania

Newsroom 07/07/2008 | 16:16

“Romania is currently one of the most attractive destinations for investment in Europe and will probably remain for another year or two. It is so due to the size of its market (and this is an advantage to Bulgaria), talented workforce and great opportunities for investments in many fields,” says Friedrich Niemann, Vice-President of the American Chamber of Commerce (AmCham) Romania.
Comparing to previous years, Romania grew in attractiveness for foreign investors. “Romania benefits from many advantages, among which are the geographic position, the experienced labor, and the competitive business environment. It is important that Romania continues to absorb EU best practices,” Mugurel Radulescu, Public Affairs and Communication Manager Coca-Cola Hellenic in Romania tells Business Review.
Data published by the U.S. Department of State, as of August 2007, indicate that U.S. direct investments accounted for USD 915.7 million, ranking sixth among national investors but first among non-EU countries. “As for their value in 2008, while we do not have such estimates, our organization is a promoter of the business opportunities in Romania, and we hope to see more American companies coming to invest in our country,” says Niemann.
So far, those American companies that have established offices in Romania took particular interest in telecommunication and IT, mechanized agricultural and consumer goods sectors.
However, future opportunities lie in other areas of the economy as well. “The strongest areas of opportunity for U.S. exports and investment potential include the following sectors: automotive, building products, electrical power equipment, franchising, IT&C – computer software, pharmaceuticals, pollution control equipment, telecommunication, safety and defense,” says Niemann.
At this point, there are more than 2,000 firms registered in Romania that claim 51 percent or more U.S. participation. However, since a notable amount of American investments in Romania is made by U.S. companies through their European subsidiaries, the actual amount of U.S. investments is higher.
“Large corporations might have easier access to the local market, due to more financial resources and sometimes, also because they have other European chapters. Yet, we are also receiving inquiries from smaller companies prospecting the Romanian market,” says Niemann.
Among the measures that should be enforced to increase Romania’s attractiveness for investments, the AmCham representative mentioned the improvement of transport and communication infrastructures, ensuring the stability and predictability of legal and fiscal policies and a crackdown on bureaucracy. “In the current situation, I think what is most crucial is fiscal predictability. An investment is made on the long term, so it is necessary to create the right expectations at least from the legal and fiscal perspective. The evolution of the economy and the market can be less predictable,” Silviu Hotaran, General Manager of Microsoft Romania tells Business review.
Additionally, Romania should also take steps to tackle a growing delicate issue: the lack of available labor force. It should improve the quality of the education system to produce a competitive workforce, Niemann says.
“It is the responsibility of the Romanian authorities to continue adopting policies and incentives that would maintain Romania’s attractiveness compared to other Eastern & Central European countries. Since neighboring countries are also offering comparable incentives to investors, Romania will be able to maintain its attractiveness provided that the shortage of qualified workforce with certain specializations is overcome through a proper educational system,” says Niemann.
While increasing costs with the labor force (which is not as cheap as peanuts anymore) may dissuade some investors to set camp in Romania, those who are already here are doing what they can to find solutions and weather the storm.

McDonald’s undergoes campaign for older people to up number of employees

Well-known U.S. brand McDonald’s Romania, which employs over 2,500 people with half of its staff in Bucharest, has recently started a recruitment campaign for elders, hoping to employ people aged over 40, in an attempt to avoid a labor shortage.
It is crucial for the company to find employees in order to support its development plans. Thus, for the last 14 years since it has entered the Romanian market, McDonald’s has been growing steadily, and still has plenty of room to expand. McDonald’s chain in Romania currently counts 56 restaurants, of which 26 are in Bucharest, but it plans to grow its network to 150 restaurants in the next five years, Marian Alecu, general manager of McDonald’s Romania, Moldova, Bulgaria and Macedonia told Business Review. The company plans to invest EUR 300 million in this expansion plan, a sum which includes revamping works for existing restaurants.
The fast food operator will invest an average of EUR 3 million in a new restaurant, but the amount can reach even EUR 4 million in some cases.
There are some neighborhoods in Bucharest that have not been covered. “For Bucharest, we are now negotiating for some spaces which will be open in 2010. In the capital city we will open more once we will have secured locations. The higher business potential is still in Bucharest, where we should open 40 new restaurants, compared to the existing 26,” says Alecu.
In the rest of the country, McDonald’s will first target cities with more than 100,000 inhabitants, at least for the next two – three years, after which it could enter smaller cities. Apart from expanding the network of restaurants, McDonald’s plans to enter the local coffee shops market with its McCafe brand at the end of 2009 or the beginning of 2010.

Coca- Cola, one of the most present brands on the market
One of the most well-known brands in Romania among consumers, Coca-Cola has been present on the local market for 17 years. “In 1991, it started with zero market share and only two years later became the leader of the soft drinks market. Currently, the permanent investment in the improvement of the factories and in the expansion of production, places the company within the top investors in Romania,” Mugurel Radulescu, Public Affairs and Communication Manager Coca-Cola Hellenic in Romania tells Business Review. The Coca-Cola System has five factories in Romania, at Ploiesti, Timisoara, Oradea, Iasi and Vatra Dornei and commercializes over 100 flavors and packages. “Over the time, we have invested in product development, research, testing, production and introduction of brands created for the tastes and needs of the Romanian consumers. Furthermore, besides all the promotional campaigns in which Coca-Cola constantly invests, together with Coca-Cola Hellenic, the bottler and distributor of Coca-Cola products, we annually invest close to EUR 1 million in CSR programs,” says Radulescu.
The company representative refused to disclose financial results of the company, but said the strategy in the future will concentrate on profitable volume growth and consequently the company is “concentrating resources to enlarge the production capacities. Another important area of investment is human resources,” says Radulescu.

U.S. IT&C giants look for solutions for labor force shortage
One example in this direction is IBM Romania, the local branch of the software giant, which is present in Romania through the organization that sells services and support for clients but also via two international centers which offer support, development and application testing services for customers in Western Europe, the United States and even Romania. Such a support center requires using a high class location, using IT equipment, specialized testing equipments, important communication costs and first of all labor force costs. In Romania IBM has more than 1,000 employees, both in the base organization and the support centers. Each of the centers has between 250-350 people. “The majority of the cities, especially those with university centers, are taken into consideration for our future development, including disfavored areas with a reservoir of talents,” Mihai Tudor, country manager IBM Romania tells Business Review. The company finds it hard to recruit for key positions in soft skills areas, such as sales and management, due to the analytically-oriented educational system before 1989. Therefore, it is acting at university level by trying to induce changes in the curricula so that universities should produce graduates who are prepared not only in a certain specialty but also have the knowledge of working with organizations, economic and social knowledge.
Moreover, IBM Romania implements programs for attracting Romanians who work abroad. “We have managed to attract to our centers many Romanians who return to Romania,” Tudor says.
While acquisitions are part of the IBM business model and may take place even on emerging markets like Romania, the company would prefer an organic growth model based on increasing activity through increasing offer capabilities, the capabilities of implementing projects, including infrastructure projects nationally, developing strong sectors of services both traditionally and in consultancy and system integration. Moreover, it serves varied customers in banking, utilities and telecommunications as well as governmental and SME sectors, the last of which is expected to increase, even double, year on year.
Romania is very close to Hungary in level but “we hope to reach levels that are specific to larger markets such as the Czech Republic or Poland, where the number of projects that are implemented and the expenses of the private sector in this direction are at much higher levels than in Romania,” says Tudor.
The market on which corporations such as IBM or Microsoft run is part of the group of emerging countries. “Any emerging country has to grow with at least 20 percent to be considered part of this group,” says Tudor.
Due to the specific business model that Microsoft has, relying entirely on partners, the accelerated increase of the turnover would not have been possible in the absence of an equally developed local IT&C industry, says Hotaran. “I think the IT&C industry is one of the most dynamic in Romania and can act as a real engine of economic growth for Romania. Of course, there are enough challenges and here, I would mention the labor force. Until recently, it was one of the competitive advantages of the country, today we are already facing problems regarding the quantity, quality and the dynamics of the salaries,” he adds.
At the beginning of this year, the Microsoft global technical support center celebrated one year since it was opened in the presence of the company founder Bill Gates. The Microsoft Romania team has around 160 employees, many of whom work in the center.
In the fiscal year that started on July 1, 2007 and ended on June 30, 2008, Microsoft Romania posted a growth of approximately 45 percent, while the CAGR (compound annual growth rate) over the last 12 years since the local office was opened was 50 percent. “For the next fiscal year it is forecasted that there will be an increase in the Microsoft turnover in Romania of approximately 30 percent,” says Hotaran.
Apart from the already mentioned Microsoft and IBM, other U.S. IT&C giants such as Oracle and more recently, Adobe, find Romania an appealing ground for their technical support centers that cater for customers not only locally but internationally.
Recently, U.S. software producer Adobe has announced its intention to open a technical support center in Romania in order to provide local support for customers in Romania who at the moment have to call outside the country. Christoph Sahner, PR manager Adobe for Central and Eastern Europe, told Business Review: “We can confirm that it is part of our plans to open a technical support center in Romania next year. Since we are at the moment in the process of evaluation and prioritization of the various elements of this project, we cannot offer further details on this matter.” Currently, the company does not offer technical support services, having so far concentrated on software development.
Adobe entered the Romanian market in 2006 with the acquisition of software company InterAKT Online, founded by Alexandru Costin and Bogdan Ripa. In March, Adobe announced that it intended to increase the number of its employees by 60. Most new positions were those of software developer but the firm also hired managers and quality engineers. The most acute shortage of personnel that Adobe was confronted with was quality engineers and quality managers who should adapt to the company's working standards, Alexandru Costin, Adobe Romania manager, said previously.
Another global name, Oracle chose Bucharest for the location of its centers due to the local people's high level of education and competences, like foreign language skills and technical knowledge. Moreover, it is close to European markets, with similar culture, understanding of business culture and similar time zone. According to Anita Kerekes, regional PR manager for Oracle, the firm currently has 1,300 employees who were selected on grounds such as good foreign language skills and, for certain positions, good technical knowledge or sales skills. At this point there are 22 Oracle centers in Romania which provide services such as global product support for Oracle product users worldwide, support for Oracle partners in the EMEA region, software development for Oracle, support renewals services, and Oracle University Sales for the EMEA region.
Oracle has been active on the Romanian market since 1992, and it opened its first services and technology centers in Bucharest in February 2004.
This year Oracle Romania will direction its strategy on the public sector, telecommunication and financial services, areas which will have an upward trend on the local software and IT services market.

UPC starts procedures for finalizing mergers through absorption
One of the high-profile players on the telecom market, triple-play UPC Romania, subsidiary of Dutch company UPC Holding, affiliated to Liberty Global from the United States, will merge through absorption with Electron M. Bit Telecom, Sebmar and Cablevision of Romania, companies which it already controls. The merger decision was made to simplify the decision-making process and lower administrative costs by forming a unique structure. This is one in a long line of mergers through absorption that UPC Romania has performed over the course of several years.
“Following the merger, UPC Romania will consolidate its position on the telecommunication market becoming a more important presence on the market of the providers of cable television, landline telephony and internet, being able to compete successfully at a national level with the most important companies in the field,” as stated in the merger project published in the Official Registry. The merger will become effective on October 1.
UPC acquired Sebmar Focsani in June 2007 while Cablevision of Romania was acquired in October 2005. In October 2007, UPC announced that it merged through absorption with Minisat Targoviste, Control Ploiesti and Media Post Dej.
UPC Romania reported a turnover worth EUR 173.2 million in 2007, registering an increase worth EUR 16.2 percent compared to previous year. However, the operator also reported losses which were twice the size of those in 2006. In 2007, the losses amounted to EUR 65.3 million, which marked a 107.8 percent increase compared to the level reported in 2006, when the operator posted EUR 31.4 million in losses.
UPC Romania changed management at the beginning of this year as Jack Mikaloff became CEO replacing Richard Anderson who managed the company for almost eight years.

Office Depot inaugurates new Shared Services Center and creates new jobs
Just several weeks ago, U.S. supplier of stationery services and products Office Depot recently inaugurated the new Shared Services Center (SSC) in Cluj- Napoca. The new center is located in Iulius Business Center on a surface of 3,750 square meters and has over 225 employees working on customer service, accounting and financial positions. The activity of the SSC will cover the company’s operations in Europe. So far, operations from England and France have been transferred and in the future, operations for Germany, the Netherlands Belgium, and by the end of the year, Spain, will be transferred. Office Depot does not currently offer products and services to customers in Romania.

Ford, a more recent addition to the U.S. big investors’ league
American car producer Ford closed last autumn the deal to buy a 72.4 percent stake in Romanian state-owned auto assembly plant Automobile Craiova for EUR 57 million.
By the end of this year, Ford would start production at the Craiova plant and intends to reach 300,000 cars annually for a total 2.2 million cars capacity throughout Europe, as announced by John Fleming, president of Ford Europe. “The acquisition of Automobile Craiova by Ford will put Romania top of the list of car makers in South East Europe, which will attract more spare parts suppliers to Romania.” said Calin Popescu-Tariceanu at the signing of the contract. As one more plus of this privatization, he cited the tougher competition between Renault and Ford, which would boost the local car market.
The European Commission approved EUR 143 million worth financial support from the Romanian state to Ford. The American company plans EUR 600 million worth investment at the production facility. The costs for vehicles production line is estimated at EUR 435 million while for the engine production segment requires EUR 165 million investments.
Ford says it is keen to continue to cooperate with all 30 authorized Daewoo dealers. The American carmaker, which says it intends to double its distribution network, adds that such a partnership will depend on whether the dealers are committed to invest in order to reach Ford standards. “We believe that a primary objective for the existing Daewoo dealers is to continue their activities linked to providing parts and service back-up to the Daewoo customer base in Romania.
“In our plans to expand our Ford network we will of course consider all suitable candidates from automotive dealers provided they meet Ford's franchise standards. We are willing to make all the necessary investments to be able to meet growing customer demand and expectations,” said Nadia Crisan, managing director of McGuireWoods Romania, Ford's consultant.

By Otilia Haraga

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