Opening a new vista for business
Trade ties have always been close between Turkey and Romania, but the
Government still needs to prove the nation is a free trade zone
Following the Revolution, Turkey saw a market
opportunity in Romania and then the holding companies
dived in. Since then the Anatolian nation established itself as a firm partner in business, often due to the
entrepreneurial zeal of Turkish traders and a shared style of
business practise.But a climate that still fails to consistently punish firms in
debt to the state and restrictive legislation has meant that
Romania's trading environment is far from fair, free and
competitive enough for a developing country that wishes to
attract and retain high-performing companies.
Trade relations at the end of 2004 showed 2.5 billion USD
total bilateral trade and, for the last two years, this has been 20 or
30 million USD in Romania's favour, making Turkey the fourth
largest business partner.
“This is a satisfactory point of view,” says Guven Gungor,
general manager of The Turkish Business Association (TIAD). “Especially as Romania has oriented itself to the existing
European Union and we face big competition from Western
Europe.”
This will continue, promises Gungor, who believes trade can
easily reach a level of five billionUSDper year.
Operations in packaging, wood processing, garment
manufacture, fertilising and white goods production in
Romania have seen success for Turkey, where the country has
also great leverage inSMEsand in retail, travel and banking. “Now is a peak point in construction and many companies
are already settled,” says Gungor. Some businesses are at
project and development stage so are still silent in the market,
but many major projects are either built by Turkish companies,
or have Turkish subcontractors. In construction, firms such as
EMCO Engineering & Contracting Romania, Ozer, Samko and
Synergy have a solid foothold on the local market. Ozer Construction established in 1997 (with 100 per cent ownership
by Ozer-Turkey) worked on numerous high-profile
construction projects such as: Europe House, Mecano Business
Center,America House and Bucuresti Mall.
In the banking sector Finansbank entered the market in 2000
through the aquisition of a local bank and aims for a market
share of two per cent at the beginning of this year. Meanwhile
electronic payment system provider Servus now owns 75 per
cent of the POS installed base in retail, 14 per cent of the ATM
sales and 30 per cent of theATMservice.
But, due to financial reasons, many of the Turkish firms and
brands enter the market through the Netherlands (such as
Garanti Bank) and the DutchAntilles.About 300 to 400 millions
worth of investment has come through this channel, rather than
through FDI fromTurkey.
There are also many obstacles to achieving a strong business
bond. “Changes in legislation are problematic,” says Gungor,
who adds that when a firm is looking for an incentive to invest, it
is often attracted to an area or plot of land which is given a
development zone status by the Government for a ten year
period.However successive Governments or
ministers have, in the past, taken away
such a status before this time has elapsed,
upsetting the business strategy of the firm
and incurring further costs. Gungor adds
that the Government needs to stick to its
contracts, like in any other business
arrangement.
A door to further investment facility.
Door and timber product
manufacturer Prolemn is one of the
largest direct investors from Turkey, with
50 million Euro so far invested in its
Reghin factory. In 1998, Turkish
company Kastamonu Entegre, part of
wood firm Hayat Holding, bought 98 per
cent of the shares and redeveloped the
factory, which now has about 750
employees on a surface of approximate
35 hectares. But the Turkish owners are
preparing for a massive expansion
project worth over 100 million Euro.
Prolemn's general manager Dogan
Gures says his firm will invest 15 million
Euro in its own timber manufacture,
while its parent company will invest in
two other wood processing factories in
Romania. For this the total investment
will be around 50 million Euro for each
Developments at Reghin have so far
included the replacement of the timber
factory's saw system with a modern
multi-blade system and a replacement of
the chipboard factory with a new
plywood plant.
Total sales in 2004 doubled on the
previous year to 36 million USD and
Gures expects sales to rise to 44 million
USDfor 2005.“I chose Romania for its geographic
position,” says Gures. “For exports
Romania is close to almost all the ex-
Soviets countries, Turkey and has an
opening to Europe, as well as proximity
to the Balkan states where our parent
company makes other investments.
Another argument is the superior
qualifications of the employers and the
presence of the raw materials, in our case,
wood.”
In industry, bearings manufacturer
Rulmenti Barlad was privatized in 2000,
when it was picked up by Turkish firm
Kombassan, who have since then made
an investment of 25 million USD.
Halil Kaymal, general manager
Rulmenti Barlad, says: “When we came
to Romania to expand our investments,
we tried to purchase bearings manufacturer Rulmenti Suceava,
Rulmentul Brasov and cellulose and
paper producers Palace Constanta. These
privatizations were not fulfilled, but
Kombassan didn't give up.”
In four years the firm claims it has
managed to double the turnover from 25
to 50 million USD and, as we went to
press, Kombassan was intending to enter
in a competition to buy abrasive wheels
producer Abrom Barlad in a late January
tender.
The competition myth
But business is not always this
fragrant. Due to rising gas costs, bad laws
and an unfair and uncompetitive business
environment that punishes clean and
transparent firms, will chemical fertiliser
producerAzomures stay or go?
The value of its investments so far in
Romania, including reinvested profits, is
close to 90 million USD, says the firm.
According to temporary results for the
end of year, Azomures total revenue in
2004 fiscal year is 251 million USD, with
a gross profit of around eight million
USD.
“We chose to invest and develop our
business in Romania simply because all members of our Holding Company
[Transworld Fertilisers] have been doing
business with Romania since the mid
1970s,” says President Azomures M.
Fuat Kalgay. “Romania was like a home
territory for the investors.”
But recently Fuat Kalgay has stopped
investing and expanding to take stock of
how the Romanian business climate
develops, until something positive
happens.Whyrein in the finance?
“A 260 per cent increase in the cost of
natural gas,” says Fuat Kalgay, “which makes
it impossible for us to compete with our
competitors on international markets any
more. Regretfully, this year, if the cost
hike continues at same rate, we may be
forced to shut-down.”
He says the Work Code at present is “totally unrealistic, making it impossible
for us to cope up with irrational demands
of the work force.”
A failure by the Government to
monitor businesses which do and do not
abide by regulations regarding the
treatment of the environment has also
tipped the playing field against
Azomures, argues Fuat Kalgay. “We have invested over 30 million
USD in projects for environmental
protection,” he says, “and we know for a fact that our competitors in Romania
don't care about the environment and
have no investment in this regard,
however, the State permits them to
operate without limitations".
Another factor that has led to an unfair
trade environment is the fact that many
firms are in debt to the tune of millions to the State, which they have used as a kind
of bank to take out a loan they have no
hope of honouring, for their lack of
initiative in paying back such penalties
remains unpunished.
“There are competitors of our
Company who owed close to 50 million
USD to the State in un-paid gas bills,”
says Fuat Kalgay. “We had similar debts at this
stage of privatisation and paid all of them
with no single day of delay. Despite that,
there is a law which makes it compulsory
that all gas debts be cleared before the
State permits new gas supplies. Some of
our competitors continue operating with
no debts settlements.”
Cool customer
Home Appliances giant Arcelik
decided to make its entry into Romania
through an acquisition of existing
production expertise. “We found a very powerful brand in
Romania, Arctic, with a huge potential to
sustain our business growth in the
Romanian market,” says Oguzhan
Ozturk, General Manager Arctic
Romania. The firm now intends to extend
the business throughout central and
eastern Europe, with an ambition to become the leading refrigerator producer
in the region.
Since 2003 the firm has invested
around 17 million Euro and has seen a
turnover of 90 million Euro in 2004.
Ozturk estimates that this will increase to
105 million Euro for 2005. Adds Ozturk: “To get, or even keep the leading position
in this industry we need to invest
consistenly in production capacity
extension, product development and cost
reduction projects.”
Retail frenzy
“Shopping centres did not have a
great presence in Romania when we first
came,” says Ali Ergun Ergen, general
manager of the Anchor Group, who
established the first large-scale shopping
mall in Romania, Bucuresti Mall on
Calea Vitan. “There was a great demand
for such a concept coming from the
retailers and from the Romanian people,”
he says.
The mall has become a destination for
the new rich, who have, in their
thousands, used its open plan
environment and temperate climate as a
place to hang out and be seen.
Since then Anchor Group has opened
Plaza Romania on Bulevardul Timisoara,
Bucharest, which claims to be the largest
shopping centre in southeast Europe. A series of giant pure-white masses set
around by anonymous grey tower blocks,
the Plaza is arranged over five levels and
100,000 sqm, with space for 2,400
parking places and 150 outlets, that now
includes a Gima Supermarket, Zara,
Franco Benussi, Mango and Marks and
Spencer. A fitness centre, entertainment
complex and multi-screen cinema were
yet to open their doors (as we went to
press).
The latest incentives to shoppers
include giving away one Volkswagen
Polo every two weeks for a three monthperiod.
At the beginning, the initial
investment was Turkish, and in order to
complete the building of the new mall,
the Group needed a loan fromHVBBank
to the tune of 45 million Euro. So far
Anchor has invested more than 100
million Euro, which is set to rise.
The next step, says Ergen, is for the
Anchor Group to continue developing its
core business of shopping centres, but
also to expand into the real-estate
business and office buildings.
Tourism opportunities
Turkey has built up a strong business
expertise in the tourist industry over the
last twenty years and has become a
destination for Romanians looking for a
cheap seaside holiday.
While in Romania, Majestic Tourism,
which was founded in 1993 with a 7.4
million USD investment from Turkish
firm Ener Holding, has transformed the
two-star Majestic Hotel near Calea
Victoriei into upmarket, four-star
accommodation.
Mihail Corneliu Acatrinei, General
Director of Majestic Tourism adds that as
the business was going well, the share holders decided to reinvest in the
development of the hotel and the new 5.2
million investment, finalised by 2003,
expanded the hotel from 66 to 111 rooms.
Ener Holding's next plan is to acquire two
plots of land at Snagov and Mogosoaia,
on which the firm will build a country
village, sometime during the next two to
three years. But the firm also has bigger
ambitions. Part of the Ener-Yuksel
consortium, Ener Holding has also built a
30 km segment of the Bucharest
Constanta motorway, between Fundulea
and Lehliu, in a construction worth over
80 million USD.
“One of the reasons the business works
so well here is because the distance
between Romania andTurkey is not big,”
adds Acatrinei, “it's no more than
between Bucharest and Cluj.”
And maybe, come Turkey's EU joinup
sometime in the next ten years, it will
be just as easy to get to.
Holding out
for a stable
future
Economic consistency and a
fair level of customs duties in
line with Europe would help
stimulate Japanese investment
in Romania
Although diplomatic ties between the
two nations have always been tight, the
bilateral trade that Japan and Romania
have enjoyed has not yet reached a
satisfying level.
On the one hand there is a land of a
high-technology industry and a
demanding consumer base and, on the
other, a developing nation with a shaky
political system that does not always
strike confidence in the cautious
Japanese investor.
The average total of imports and
exports for the last five years has been
between 70 and 80 million USD
annually, while foreign investment has
remained low in comparison with the
USA and EU.
In automobiles the average market
share for Japanese brands in the
European Union is between 12 and 13 per
cent, but for Romania this is only six per
cent. Bulgaria is much higher.
Bucharest has not been seen as a viable
place to start a business because it lacks a
major motorway connection, according
to second secretary at the Embassy of
Japan Kenichiro Tanaka. “Many
Japanese companies are exporting
products to EU countries, but not near
Bucharest, because they cannot be sure
they can deliver on time,” he says.
Transylvania and the Banat have
instead been the best regions to set up a
business. Timisoara is especially
attractive, argues Tanaka, because of its
Technology University and competent
labour force.
This year Sumitomo Electric Wiring
Systems Romania finished the
construction of a production unit in Alba
Iulia, to add to its two plants in Deva and
Orastie. Wire harness manufacturer
Yazaki has opened a production plant in
Ploiesti and is constructing another in
Arad for car parts. Meanwhile car
component producer Takata-Petri has
been producing seat-belts and wheels in Arad and will build a new plant in Sibiu,
according to the Embassy.
Tanaka says that, on the whole,
Japanese companies are satisfied with the
method and quality of the workers, but
they have preferred to build up factories
on greenfield sites, rather than through
the privatisation process, so have not had
to deal with an existing and organised
labour force.
Privatisation opportunities, however,
have not in the past offered much interest
to Japanese firms, argues Hitoyuki Nara,
general director of trade body Jetro
(Japanese Export and Trade Romania). “They are particularly concerned with
the opportunity for introducing Japanese
equipment in the factory after its
privatisation,” he adds.
One example of a large greenfield
investment is clothes fastening
manufacturer YKK, which turned up in
Romania in 1998 and has since invested
8.5 million Euro. In 2003 production
started in a factory in Buftea, for zippers
mainly targeted at the large domestic
clothing market. “Romania is a good
market for clothing accessories,” says
Katsuya Kawanishi, General Manager
YKK Romania, which has a turnover of
three million Euro per year. “We have
competition from China,” he adds, “which finds it easy to approach the EU. But Romania is fast-moving. When I saw
the statistics I was certain. The Czech
Republic, Hungary and Poland are going
down, but Romania is increasing.”
Kawanishi admits there are problems in
the speed of the administration process
and that it is hard to keep up with the
changing laws. His firm is not planning
any big investments at present, “but if the
things will get better in two years time,
we will build an extension to our Buftea
site,” he says.
Wire harness firm Sumitomo Wiring
Systems (SEWS) has so far invested
around 25 million GBP in the country
since starting up in 2000.
With his firm boasting an annual
turnover of 30 million GBP, Ionut Florin,
administrative and Economic Manager
says the volume of production and
turnover is increasing and “we will
probably invest in future production
technology and equipment.”
Florin calls for a more stable business
environment as he has seen a decrease of
the leu between 2000 and 2003 before a leap last year. “The stability of the
national currency would help us a lot,” he
adds.
But some Japanese firms have
preferred to buy into Romania through
acquisition. Bearings producer Koyo
Seiko, bought out "Rulmenti" in
Alexandria for a reported 57 million
USD. In 1999 Japan Tobacco purchased
RJ Reynolds and RJ Reynolds Romania
to become JTI Romania in 2000. Over its
period as two firms, JTI says it has
invested more than 100 million USD in
Romania. The firm has a manufacturing
facility in Bucharest, transforming
tobacco into cigarettes such as Winston,
Camel, Monte Carlo, Winchester and
More.
“Romania is a highly challenging
market, with very demanding customers,
who are seeking for good quality
products at low prices. It is a market
dominated by prices, not by brands,” says
Gilda Lazar, Corporate Affairs Director,
JTI Romania.
But she calls the legislative system “volatile” and says the business
environment is “unstable and
unpredictable”, making it impossible to
make long-term business plans.
Nevertheless JTI predicts it will continue
to invest in Romania in promoting,
distributing and launching new products.
Some EU legislation on the tobacco
industry already faces Romania, argues
Lazar, but the accession could bring the
necessary level of stability. “A positive aspect is the increased
predictability, which gives the producers
the possibility to make realistic business
plans, by estimating the taxation
changes,” she says. “A negative aspect is
this excessive tendency of regulating the
tobacco industry. From 2007, there will be restrictions regarding the cigarette
packaging, the sale of cigarette packs
with less than 20 cigarettes and on
advertising.”
The major reason for Japanese
products' lack of market penetration is
the high import duties. Tanaka says the
country has “problems” with the customs
authorities.
The import of electronic products has
been difficult owing to high duties of 20-
25 per cent. While on Japanese cars this is
as high as 30 per cent.
Adds Nara: “In order to sell Japanese
products on the Romanian market and
make a profit, since the custom duties in
case of direct export from Japan are very
high, Japanese companies focus their
strategy on selling Japanese branded
goods, manufactured in the European
Union area, as European products”.
This has been the global strategy of
major Japanese brands such as
Mitsubishi, Toyota and Sony, which are
firmly established in Romania, but
mostly enter the country through the
European Union.
Sony, one of the world leaders in
consumer electronics technology and
involved in hardware, software and
entertainment development, opened its
Romanian office in 1996. The Bucharest
branch of Sony Overseas SA started
running a substantial business operation
in Romania from 1997 onwards. Every
year the sales were increased rapidly,
nowadays Sony is a major player on the
audio-video market and handles the full
European line-up, except VAIO
computers. The high quality and the
outstanding performance, together with
the right price positioning of the products, secured Sony's
competitiveness on the Romanian market
versus the direct competitors
Sony is the sole brand providing the
whole entertainment package to the
consumer from the full line-up of
electronics, from WEGA television sets,
Handycam and Cyber-shot digital
cameras or Home Theatre Hi-Fi systems
to the unique PlayStation, Walkman or
Sony Mobile, as well as games, music or
movies through the official distributors.
Romania's growing demand for
electronics has been to the advantage of
leading Japanese brands. In 1991
Panasonic made an initial entry in the
market with a 100,000 USD investment,
but Catalin Savulescu, manager
Panasonic Romania, says it is the last two
years when the Romanian market of
home suppliers has speeded up. “One of
the factors that promoted a development
of this field is the access to credits,” he
argues. Panasonic Romania is a 100 per
cent Japanese capital company, set up in
1996, and is also a representative of
Matsushita Electric Industrial Co Ltd in
Romania, he adds.
In the financial year between 1 April
2003 and 31 March 2004, Panasonic
Romania posted a 30 million Euro
turnover, 54 per cent more then with a
year ago. For the financial year 2004
Panasonic Romania is expecting to
increase its turnover by ten per cent. “The keys products that help increase
our turnover are: plasma screens,
televisions, digital and D- Snap cameras,
DVD players and recorders and
projectors,” says Savulescu.
Toyota Romania importsYaris, Corolla
and Avensis from various European countries and therefore enjoys nought per
cent customs duties. “Bulgaria applies ten per cent customs
duties and the rest of EU countries
average ten per cent,” says Stratos
Vakkas General Manager Toyota
Romania. “We would expect the
Romanian state to also come to this level
within the next year or two. Currently
there is a significant and I would say
unfair disadvantage for all non-European
producers in Romania.”
Neverthless he witnessed a steady
increase in sales, from 100 in 2000, to
1,453 in 2003 and finally 2,300 in 2004,
totaling 5,000 cars.
This situation does not affect
competition too much, because of the
option of leasing, saysVakkas. “The legal
framework of leasing keeps the
competition fair.
“Under these conditions if a customer
accepts to lease his non-European car he
is able to defer the customs duties until
the end of the lease and to pay a
somewhat lower rate at the end.”
However this is still higher than for
European vehicles but, says Vakkas “it is
not significantly unfair.”
Ambassador to Romania for Japan Naotoshi Sugiuchi agrees with some kind
of harmonisation of customs duties. “I
think it's highly important to have an
equal treatment applicable to products
coming both from EU and non-EU
producers,” he says, “which will boost
bilateral trade and cooperation and which
I am sure will bring more Japanese
investment here… one possible area for future cooperation seems to me IT and
communication.”
In this sector, fibre-optic cable
manufacturer Fujikura has been on the
market since 1993. Cristian Malisevschi,
general manager, claims it is the tenth
largest Japanese firm in Romania, but has
yet to make any large investments. “Fujikura is only participating in auctions to win projects,” he says. “We
will win business this year in the Internet
field, cable television, and phones
through the Internet.” So far the firm has
worked for Romtelecom, Orange and the
NationalAdministration of the Roads.
After visiting countries in eastern
Europe looking for business
opportunities, including Romania last
year, Japan' sleading mobile
communications provider NTT
DoCoMo, and the largest mobile phone
operator in Russia, Mobile TeleSystems (MTS), announced a strategic
partnership under which MTS will
launch Internet and email service 'imode'
in Russia and other CIS countries,
such as Ukraine, Uzbekistan and Belarus,
with DoCoMo providing its brand and
technology.
But, when contacted by The Diplomat
on whether the firm would be interested
in launching i-mode or its third
generation service in Romania, a
spokesman for DoCoMo said that “nothing had been decided yet”.
In the future Nara believes that a more
attractive market will come from “The
elimination of corruption and the
drawing up of a clear legislation”. He
welcomes an “active marketing policy”
adapted to attracting Japanese Investors,
which has been the case in the Czech
Republic.
But, car part producers and some
scattered industries aside, Romania has
yet to make itself as attractive as it could
to the lucrative interests of the Japanese
business market.
A yen to succeed: the Embassy view on Japan's potential |
A combination of meeting
EU standards and maintaining
a low wage workforce
should help more
Japanese companies enter
Romania, argues Ambassador
Naotoshi Sugiuchi,
because there is much room
for development and trade is
only at a modest level.“Recently we have seen
several Japanese companies
such as Sumitomo (SEWS),
Takata-Petri, Yazaki and
YKK manufacturing products
for automobiles and
garments in Romania,” he
says of the bilateral record so
far. “In infrastructure and
energy we see more Japanese
companies involved in
modernising facilities and
equipment.
“However, present economic
and commercial
exchanges seem to me yet at
a modest level if we take into
account the size, population
and economy of our two
countries.”
Japanese consumers have
high expectations of the
quality of imported products. “Successful trade
with Japan requires some
efforts to meet the specific
demands of the Japanese
market,” he adds, “and I
think Romania, with
qualified expertise in a
number of products, has
good potential to succeed.”
One recent example of an
export success is bow
instrument manufacturer
Hora in Reghin, Mures county, which sells its string
instruments to Japan. “I was
very impressed to see that
they were making several
different sizes of violins, the
smallest of which was really
tiny and cute,” he says. “In
Japan many children start
learning violin from the age
of two or three under the socalled
'Suzuki method'. As
they grow and advance in the
study, they need to use larger
sized violins. This manufacturer
has been making its
best effort to respond to the
varied demands of Japanese
consumers.”
Sugiuchi argues that a
sound business environment
reflects the political and
legal stability of a country. “This is one of the sine qua non conditions of attracting
foreign investment,” he
adds. “Romania's hard work
aiming atachieving
economic reform and EU
accession are welcome and
we also appreciate the
progress concerning the
improvement of the business
climate. Still, stronger
efforts are needed towards
this direction.”
This year Japan will host
the World Exhibition in
Aichi between March and
September, where Romania
will have its own pavilion. “It is expected that a high
level delegation will be
dispatched from Romania to
participate in a Romania Day
event, scheduled for 1 June,”
says Sugiuchi. |
|
|