US investors state their intentions

Nearly USD 1 billion has been officially invested by American companies locally since 1990, with the actual amount probably higher as many US firms invest in Romania through their Europe-based subsidiaries. And more could well follow, despite the lack of transparency and predictability among the issues deterring companies across the Pond, said the US Ambassador to Romania, Mark Gitenstein, last week.

Simona Bazavan

“If you wonder (…) why I speak out on law enforcement or the rule of law and anticorruption, it is because the first questions that any American company or investor asks of me are ‘Will I be treated fairly in Romania?’, ‘Will the rule of law apply?’, ‘Is it transparent?’ and finally “Are decisions predictable as they are in the US or as they are in Slovenia or Germany or the Czech Republic?’,” said Mark Gitenstein, US Ambassador to Romania last week, adding that if these problems were solved there would be more investments in Romania.

“Why? Because this is a great environment in which to invest. You have low labor costs, a very talented labor pool and very smart people. And you have a largely untapped equity market. So the potential for expansion is tremendous if you can resolve these transparency issues. I know it can be annoying but I am going to continue to say this until I leave here,” the ambassador added.

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Asked what can be done to increase US direct investments to Romania, Gitenstein said that the decision to invest in Romania lies entirely with American companies. “It is a private decision. And the most important thing to understand is capital is fungible, it can move anywhere in the world. And in the US in particular it goes where the greatest return is available for the capital. So when a big investor in the US is trying to decide where to put their money, it can just as easily go to Slovenia or Bulgaria or the Czech Republic or Hungary, as it could to Romania. I can do nothing to influence that decision other than encourage Romania to create the most attractive business environment,” he stated.

According to embassy data nearly 100 American companies have invested in Romania since 1990, which provide about 15,000 jobs. These investments are primarily in the areas of IT, automotive, food and agriculture, banking, insurance, hospitality, investment funds, manufacturing and consumer products.

Ford hopes to wheel around initial privatization contract

For about ten months Ford has been negotiating an addendum to its initial privatization contract for Automobile Craiova with no clear deadline being announced so far, either by the American investor or the local authorities.

Ford signed the deal to buy a 72.4 percent stake in Romanian state-owned auto assembly plant Automobile Craiova for EUR 57 million in fall 2007.

The car manufacturer has failed however to meet all the terms in the initial contract. If Ford does not produce 250,000 units locally by the end of this year, it risks a EUR 14 million fine according to Mediafax newswire. In the first quarter production amounted to about 3,000 cars, four times more than the same period of 2010 but still not enough to meet the contractual target.

Ford has invested about EUR 350 million so far at Craiova, according to some reports, whereas, back in 2008 company representatives said investments would amount to EUR 675 million by 2012.

Americans get wired into local IT industry

Nowhere else is the US presence more notable than in the local IT industry. Many major American IT players are active in Romania, some of them having come as early as the 1990s. 2010 and the first months of 2011, even more so, have been busy with announcements of new developments.

In November last year Google established its official presence in Romania by opening an office with a local team

headed by Dan Bulucea, formerly business and marketing director of Microsoft Romania.”Romania is a very interesting country for Google where we can see opportunities on both sides – consumer as well as business” said Bulucea at the time.

The Bucharest office is responsible for developing Google’s presence and strategy in Romania, establishing business relationships with Romanian partners, educating local companies about the benefits of going online and direct advertising sales.

Up to that moment Google had been present in Romania with its consumer products for Romanian users including first of all Google.ro Search as well as Google Maps, Google Places, Google Apps, Google Translate, and many others. The firm’s competition has also been busy. Since this March Yahoo! has been available in Romanian, supplying news and weather information. Local users can also now create an e-mail account with the .ro extension.

Meanwhile in November last year, Intel Romania’s software development center was opened following an investment of several million euros. The facility employs around 25 specialists in software R&D, but the number will increase three or even fourfold as the projects diversify, company representatives have announced.

The center will develop software solutions intended to improve customer experience on a large range of smart devices on Intel architecture such as smartphones, TV sets and infotainment systems in cars.

Renée James, senior vice-president and general manager, Intel Software and Services Group, said at the time that Romania was a good location for developing software, due to a prolific university environment. Other companies that have opened R&D or technical support centers in Romania are Microsoft, Oracle, HP, and IBM.

In April city officials from Targu Mures announced that IBM was planning to set up a local research center there. An agreement was signed between the American giant, represented by Thomas Revees, vice-president global of IBM Research, and Dorin Florea, mayor of Targu Mures, in the presence of PM Emil Boc. The Transylvania Center of Excellence in Research will conduct research in domains such as health, pharma, nanotechnology, life sciences and smart cities.

A working group comprising representatives of the administration and universities from Transylvania as well as international IBM Research specialists will analyze the various areas of competence and the investments necessary to open the Transylvania research center. When these aspects are completed, the next step is to found the center and a research agreement will be signed by the parties involved, which is estimated to take place this month. Once the contract is signed, IBM could contribute with know-how, expertise and patents but the center will employ researchers from Transylvanian universities, who will be trained in IBM research centers around the world.

American giants have history

Last year McDonald’s Romania celebrated the 15th anniversary of the opening of its first outlet in the country in Piata Unirii. The US fast food giant also opened the first local McCafe in Bucharest following a EUR 200,000 investment in the same location.Since 1995, the company has launched 62 branches in Romania, employed more than 3,400 people and invested over RON 300 million in the development of its business. McDonald’s plans to open three new outlets in 2011 and remodel five existing ones. It expects a 5 percent turnover increase this year. One of the biggest US investments last year was the opening of the Procter & Gamble (P&G) shampoo and conditioner plant in Urlati, Prahova county.

The plant, which required an outlay of over USD 100 million, is a greenfield investment which the company says is part of its strategy of sustainable development in Romania.P&G has further expansion plans for the Urlati unit. “We want to develop Urlati into a multi category site. We hope that in time we will produce more than shampoo and conditioner here and, of course, this will require further investments,” said Luc Viaene, GM of P&G Urlati.

Last year P&G also celebrated the 15th anniversary of its detergent and bleach plant in Timisoara. Over USD 50 million has been invested so far in the factory, which employs 300 people and exports 40 percent of the over 30 million liters of Fairy dishwashing detergent, 30 million liters of Ace bleaching detergent and 100,000 tons of Ariel, Bonux and Tide detergents it produces each year.

US investors get heavy

Texan oil company Lufkin Industries announced in November 2010 that construction had been started at a 33-hectare facility in Ploiesti, after an investment of USD 126 million, EUR 28 million of which consisted of state aid from the local Romanian government.

This new facility will provide oil field manufacturing hubs to service the Eastern hemisphere, with a focus on Eastern, as well as Western Europe, Central Asia, the Black Sea region, Middle and even Far East, to which 80 percent of production will be directed, with 20 percent focusing on the Romanian market.

Lufkin Industries expects to achieve a USD 30 million turnover in its first year of production and then to gradually double it, reaching an estimated USD 70 million in the following two years. Future investment is also expected by the company in Romania, especially due to the large surface that the plant in Aricesti enjoys.The firm’s plant in Romania became functional in the fourth quarter of 2010 providing jobs for over 320 employees, mostly local and European workers, Jay Glick, CEO and president of Lufkin Romania, told Business Review last year. In the coming years, the employee base is expected to expand. Among the local oil companies that Lufkin has contracts with is Petrom, mostly for service equipment.

simona.bazavan@business-review.ro