Easy come, easy go: is Romania still R&D friendly?

While IBM is reportedly preparing to open a research center in Targu Mures, Nokia has announced it will slash its R&D operations in Cluj. The question is whether Romania is still a low-cost country? Does it still offer attractive conditions for research and development? What other R&D centers are there? Pundits give BR the A-Z of R&D.

Otilia Haraga

“Romania is still a low-cost country and it will stay this way for five years at least… It is not a bad thing for it to be seen this way, because I think it is important that the country attracts investors who will train people, educate them in an organized and responsible manner,” Eugen Schwab-Chesaru, managing director for Eastern Europe at Pierre Audoin Consultants, tells BR.

Arguments in favor of opening R&D centers firstly include “the existence of grey matter, and at a fair price,” Dinu Bumbacea, partner and head of the management consultancy department at PwC Romania, tells BR.

Read more about

Offline vs. Online Wallet Apps: Finding The Right Balance

read more

“Romania is enjoying both at the moment. In fact, Romanians’ presence in large numbers in research centers in the United States (Microsoft, Facebook, Google) supports the argument of grey matter. But not all Romanians are as adventurous,” he continues.

The decision to open an R&D center reflects issues such as the availability of the necessary HR with the required technical and linguistic levels and the right cultural and organizational mentalities. The cost of the location is also a defining factor, including salaries, space rental and state taxes.

The accessibility of coordination, knowledge transfer and controlling teams come into play – this includes logistical factors such as access to an airport, direct flight routes etc.

Then, there is the level of security and predictability of the respective country, city and business environment. Last but not least, social, political, economic and military stability are also significant.

If these conditions are favorable, there is also a strong “friendship” factor. “The respective country via the public and sometimes private system proves its interest in the products/services of the company, which in turn agrees to “return” a part of the earned money by making a medium-to-long-term investment in the territory in question,” says Chesaru.

US giant IBM is in the process of opening a research center in Targu Mures after an agreement was signed between the company and the Targu Mures City Hall. The Transylvania Center of Excellence in Research will conduct research into health, pharma, nanotechnology, life sciences and smart cities. A working group will analyze the various areas of competence and the investments necessary for opening the facility. 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 scheduled to happen in June. Once the contract is signed, IBM may contribute with know-how, expertise and patents, but the center will employ researchers from Transylvanian universities.

But others were ahead of the curve. One of the companies with long-term R&D activities in Romania is Alcatel-Lucent, which has three such centers in Timisoara employing 550 expert engineers. The investments in the R&D centers amounted to tens of millions of euros.

The first, then called Mobile Radio R&D Center but now known as the Wireless department, was opened in 1999 and plays host to R&D into GSM, 3G and LTE. The second R&D center was opened in 2003 and focuses on software development for media servers, digital media applications, video streaming servers, content management applications and e2e test platforms for applications.

Work at the third Alcatel-Lucent facility, which was opened in 2005, has centered on network and system integration dealing with specification, third party customization, configuration, testing, on-site installation, customer support and integration.

Another company with R&D operations in Romania is US Freescale, which in ten years has expanded its software engineer team from 5 to around 200 people. “The Romanian center has around 200 engineers developing software. It is probably our only R&D center exclusively dedicated to software,” Raja Tabet vice-president of the software and system unit of the firm, told Ziarul Financiar earlier this year. Company officials did not comment to BR on this issue.

Elsewhere, software firm 1&1 Romania plans to reach 250 employees this year, and is looking for developers specialized in Java and JavaScript, PHP and C++. 1&1 is active in Romania mainly through its software development center in Bucharest, where work is carried out on products for the entire 1&1 group. It has two kinds of projects in Romania: internal software projects such as applications for monitoring, billing and intranet through to software platforms for data center automatization, and external applications.

But it’s not all about growth and expansion. Just recently, Finnish communications giant Nokia announced that it would close its R&D center in Cluj and axe 120 positions. “Nokia estimates that by the end of the third quarter of 2011, the current projects being developed in this location will be completely scaled back. R&D operations will continue in other Nokia centers around the globe. We estimate 120 people will be affected,” said company officials. These measures are part of the firm’s stated aim to cut unaudited IFRS operational expenses by EUR 1 billion in the services and devices division in 2013, compared to 2010.

In Bumbacea’s view, the relocation of activity from one country to another is generally a rather costly process. “The business case is not positive from the first day. Strictly from the point of view of operating costs, it is possible to save on expenses immediately. But the decision is also based on other reasons – the cost of ending work contracts in the country where the center is closed, costs related to the infrastructure, image benefit versus damage and, last but not least, the legislative stability and facilities obtained following this relocation,” he says.

Pundits predict that centers of this type will continue to be opened in Romania but with “less enthusiasm”. It also depends a great deal on how Romania manages to keep talented people with IT skills from leaving the country.

otilia.haraga@business-review.ro