Business

Upwardly mobile

Cars and wireless telephone operating have been among the most successful of France's endeavours in Romania, as The Diplomat - Bucharest quizzes some of the largest names in French investment

Once the grandest symbol of Romania's Communist period, car-maker Dacia had been canvassing foreign automobile firms for a buyer when Renault arrived in 1999 to buy out its automobile factory in Pitesti.
Since then, the French-owned firm has launched the Logan, a budget car retailing at between 5,000 and 6,000 Euro, which has successfully leveraged itself on the home market and proved to be a pretty popular purchase as an alternative to a second-hand car in Paris. Its next ambition is to become an affordable family motor in Moscow.
According to Francois Fourmont, general director of Dacia-Renault, the Romanian company's trump card was “a tradition of relations between the two companies, language and cultural ties, the competitiveness of production costs, young and competent employees.”
The Renault group decided that it was promising to invest in the Dacia plant with a figure of 650 million Euro from 1999 until the end of 2005.
Its development plans include the extension of its Logan production line and sales abroad. So far the Logan has launched on the French, Spanish and German markets. The Belgian, Swiss, Dutch, Italian and Austrian markets will follow, plus others in central and eastern-Europe.
A fresh issue on the Dacia menu will be the 'Break'(Combi) and 'Van' versions of the Logan, due to be launched in 2006 and 2007. Together the firm plans to invest in 2005 and 2006 over 300 million Euro.
Over 20,000 Logans were sold in 2004, out of which nearly 2,500 were for export. In total, Dacia has sold 50,000 units on the Romanian market and exported 20,000 units. Dacia had a 48.4 per cent market share for passenger vehicles and 63.6 per cent for commercial vehicles in the first five months of 2005 on the Romanian automobiles market. That is a 50.5 per cent market share for both.
“The Romanian automobile market follows a strong growth trend, an increase twice as fast as predicted,” Fourmont told The Diplomat. “This tendency will be confirmed in 2005, if we consider the exceptional results of the sales of the first five months [of this year], without any doubt triggered by the excellent level of Logan orders.”

ORANGE BLOSSOMS

Romania currently has around 10.6 million mobile telephone subscribers, a rate that is rapidly expanding and eclipsing fixed telephone users by two to one.
In such a competitive environment, Orange Romania has become the leader on the local telecommunication market with 48 per cent, says the firm.
But right behind them is Connex, a brand recently bought out by British giant and world leader Vodafone, which will certainly raise the bar in the competition stakes.
Although Connex has already launched its third generation (3G) phones, with a video and high speed data transfer service, Orange has yet to bring this on the market.
The phone firm has bought a license for 3G from the Government and this year will be the date for a launch, says Yves Gauthier, Deputy CEO of Orange Romania, although he does not give a firm time.
Orange Romania is part of the France Telecom Group and is the most important French investment on the local market. The company has been in Romania since 1997 and achieved a 624 million Euro turnover last year. By the end of the year the number of its customers increased by seven per cent, up to five million.
Orange is trying to bring on the market new technology, so in April the company announced its first cooperation with Research in Motion (RIM) to launch BlackBerry on the Romanian market.
“The BlackBerry solution will revolutionise communication in business. This device combines the characteristic of a mobile phone with the advantages of e-mail and data transfer,” says Gauthier. The product launches on the market this summer.
Orange is the only operator in Romania that offers video services on the mobile phone, including live TV. This is possible after the extension of the firm's partnership with local media company Media Pro, a cooperation which started last year in October. Another step forward is offering roaming services to Pre Pay users.
There was a rumour which said Orange would list on the Romanian stock exchange. But Yves Gauthier denies this.
“Orange won't be listed on a stock exchange, either in Romania or aboard. We have no reason to do it. 98 per cent of the shares are ours and in the future we will probably buy out the remaining shares,” says Gauthier.
Orange has the largest number of retail branches among mobile phone firms, with 20 locations in the country and its services are also available through a series of authorised dealers. The company has invested one billion USD in Romania and this year is going to invest more then 200 million USD.
“We have opened a new office building in Timisoara and this Autumn we are going to open an Orange call centre in the Iride Business Park, north Bucharest, and of course we will open other stores around the country,” says Gauthier.
Now that Greek mobile phone operator Cosmote is investing over 100 million USD in relaunching the Cosmorom brand, Gauthier believes that the Romanian market is mature and it will be hard for other mobile phone companies from aboard to launch in Romania, even, he says, for a company such as Germany's T-Mobile.

GOING BANANAS FOR HYPERMARKETS

Bananas have been the surprise hit of Carrefour's entry on the Romanian market, while the firm is looking to expand its activities into the lucrative wedding list market.
Hyparlo's franchise for Carrefour has focused on the hypermarket formula so far with an ambition to reach 20 stores, opening two per year.
The company will open a hypermarket in Ploiesti this summer, and is preparing two others in Constanta and Baneasa next year.
For this moment the opening of any smaller format stores, particularly in a city centre remain at the “research” level, says Francois Oliver, executive director of Carrefour Romania.
“The Romanians are Latin clients, they love the novelty, the quality, the good taste and we have 60,000 products under the same roof,” adds Oliver.
Around 60 per cent of sales are through food products, especially the firm's own brand.
“Bananas are the best sold product in the shop, that was certainly a surprise,” says Oliver. “Another was sales of 51 cm-diagonal TV sets, also biscuits and products available in bulk.”
Problems Carrefour faces in terms of offering products are that sometimes the demand is higher than the delivery capacity.
The other in-store services the retailer aims to bring to Romania include services such as the free gift pack, fresh flowers in bouquets and holding wedding lists for marrying couples that their guests can access.
The total value of the investment so far in the stores is 203 million Euro including the new Ploiesti, Baneasa and Constanta hypermarkets and the firm employs currently 2,500 people. When the business opens Ploiesti the number will increase to 3,000.

CATERING FOR BUSINESS

Sofitel, a brand of French-based Accor Group, was the first international hotel chain to set up shop locally back in 1994. More than ten years on, the French group is kicking off another investment, valued at more than 40 million Euro, to launch Romania's first Novotel hotel on Calea Victoriei.
“Sofitel was very successful from the beginning,” general manager Bruno Vinette tells The Diplomat. “It had a good occupancy rate and fair rates, not to mention that other international chains came to Bucharest only later. With time, we have found ourselves on a very promising market.”
Vinette says this year the hotel expects a 75 per cent average occupancy rate, “which is very good for a four star hotel. On top of this, 2005 seems to be a very good year.”
Seen as the leader of the four star hotels in Romania, Vinette said Sofitel is even competing with five-star hotels. “For example in the month of May we achieved a higher occupancy rate than five-star hotels,” he claims.
Sofitel boasts 203 rooms, one restaurant, Les Oliviades, a bar, a casino and a huge conference complex, the World Trade Center.
“At the beginning we were labelled as a French hotel and we want to keep this image by capitalising on the French business, basically we are really targeting the French community,” says Vinette.
With a turnover of seven million Euro last year, the general manager says plans for this year aim for a 7.5 million Euro figure.

ACCOR TRAINS UP

With two of Accor operations, hospitality and corporate service, already present in Romania, the latest news on the French front heralds the launch locally of training company Accelera, according to Accor Services marketing manager Cristina Prelipceanu.
“Accelera is a subsidiary of Accor Services Academy which opened locally just two months ago,” she tells The Diplomat. “It is not too visible yet, as it is quite new, but it will become very active in providing training for management, service and sales.”
In the mean time, she says, Accor Services focuses on capitalising on other products it offers locally: Ticket Restaurant food vouchers, Ticket Cadou gift vouchers and Ticket Assist, a newly-introducer social care voucher. These vouchers, often exchangeable for food, gifts and homecare products in selected retailers, have become an alternative form of currency and salary for many Romanians. So much so that in the recent strike by the railway workers union, one of the demands of the workers was an increase in the number of tickets from five to twenty.
“We are the sole supplier of social tickets for the time being, targeting NGOs and foundations who provide social care for individuals in need,” says Prelipceanu. “The voucher comes in three special values, namely 100,000, 150,000 and 200,000 lei, and was launched in the fourth quarter of 2004. We believe this will develop in the future as it is a niche product.”
She adds there are 2,000 affiliated stores throughout the country which accept the vouchers and the number of NGOs, which will supply them, varies from month to month.
The company's flagship product, Ticket restaurant, was launched back in 1998 and has, over time, grown in popularity and attractiveness.
“Over 18,000 companies currently use the Ticket Restaurant food voucher as an incentive for their employees now, these vouchers are accepted in more than 27,600 stores nationwide,” she says.
Along with the company's other product, Ticket Cadou, over 600,000 Romanian employees benefit from such a scheme. “Ticket Cadou has been present for 25 years in 19 countries worldwide,” says Prelipceanu.

TICKET TO RIDE

French airline Air France is the third largest airline company on the local market after Tarom and Lufthansa.
Air France has launched its fifth direct daily flight (in a co-share with Tarom) to Paris with departure from Bucharest at 20:10 hrs.
“There is place for one flight more, maybe two or three depending on the route. We have to study this possibility with Tarom and probably we will start thinking about the implementation of it in the future,” says Rodolphe Lenoir, general manger of Air France in Romania.
On 9 June the SkyTeam Governing Board announced the finalisation of the alliance's Associate Program and named the first carriers selected to join: Air Europa (Spain), Copa Airlines (Panama), Kenya Airways and Tarom Romania, which means the airlines could combine in services, offers and loyalty programmes. Along with the new flight, Air France has new offers for their customers.
Although the low budget companies may represent a threat, Rodolphe Lenoir states that: “Air France is not competing with them and we don't intend to drop our prices to the same level. Anyway the low budget companies have only three to five seats at 50 Euro, and people have to watch the period when they are available.”
Part of their business includes the loyalty programme 'Flying Blue', a new frequent flyer program in association with recently-merged partner KLM which helps the passenger to earn flight miles.
“Starting with July, Air France will introduce on the market the e-cheking service to facilitate the customer's flight. This service puts new technologies to customer services: electronic ticketing, online check-in and self check-in terminals,” says Lenoir.

LOCAL MARKET: WORTH IT

World leader in the cosmetics industry L'Oréal has many of its products available on the local market including its Garnier, Maybelline, Vichy and La Roche-Posay brands. The business model of the French company is based on three values: technological research, product innovation and advertising, says Alessandro d'Este the country manager of L'Oréal Romania and almost every three years the company renews its range of products.
In Romania, according to the latest statistics, L'Oréal is the seventh largest advertiser.
While on the make-up market, the company has only a seven per cent market share. This is because Romania is dominated by sales agents such as Avon who go door-to-door to sell products, according to L'Oreal's country manager.
“This is part of the Mediterranean mentality, but compared to western countries Romania is a very fast moving market,” says d'Este.
Although many products from the company's portfolio are not available on the local market, there are few differences between the Romanian market and France, Italy and Spain, says D'Este. “And it seems to me that the attitude of the Romanians is very similar to the Italians. Romanian women love to take care of themselves, love beauty and along with these qualities come the desire to be trendy and fashionable,” he adds.

TESTING THE WATER

Making the capital city's water drinkable is the role of Veolia Group-owned Apa Nova Bucuresti, an example of a foreign company involved in private public partnership (PPP) to build up the utility infrastructure in Romania.
The firm won the public tender in 2000 for 25 years for servicing the water and sewerage systems in Bucharest.
So far it has invested 2,000 billion lei (55 million Euro), which has included improving the water quality, rehabilitating and extending the water and sewerage networks.
Andreas Baude, general director Apa Nova Bucarest says this managed to “relieve” the city's budget.
“The water supplied to the inhabitants of Bucharest meets European standards in quality, at the lowest price in Europe,” he says. But once it leaves the firm's jurisdiction, the quality is dependant on the connecting pipe network of the company's clients, “which are often broken or rusted,” adds the manager.
This year the company will spend 20 million Euro, 85 per cent of which will be invested in the public sector such as pumping stations and networks, and the remainder in the private sector, which includes vehicles and computers for the company.
Apa Nova will also complete a 50 million Euro investment in a water treatment plant at Crivina, funded by the European Bank for Reconstruction and Development and DEG (Deutsche Investitions-und Entwicklunsgesellschaft MBH).
The firm intends to expand in Romania, but this depends on whether a municipality wishes to take them on. “We have participated in the bid organised by the county of Constanta, in order to provide this service,” says Baude. “We are open to PPPs only in the context of complete transparency and of fair competitiveness.”

ALL CREDIT TO THE FRENCH

Gallic firms have been active in picking up the lucrative market of consumer credits, an industry that makes long-term returns with its lack of necessity for large investment in space and machinery, huge growth potential and steady cash flows.
Leading European consumer credit firm Cetelem, part of finance giant BNP Paribas, bought out local leader Credisson last April for an undisclosed figure (thought to be around 40 million Euro) from Swedish investment fund Oresa Ventures and the firm's CEO Florin Andronescu.
The company is now planning to launch cash loans on the market through selected outlets and also further co-branded credit cards, the first of which was launched last year with Banca Transilvania.
Credisson currently has a staff of almost 700, servicing retailers such as Flanco, Romsoft, Praktiker, Best Computers, Cora, Rombiz, Cosmo, Elvila and Delta, with 224 credit desks.
“Cetelem brings experience and knowledge of the Eurozone and now we have the strength of a large financial group,” says Andronescu. “Credisson already has creative products, but now we can develop future financial products and will soon offer a cash loan system, not only through Flanco outlets, and co-branded credit cards.”
The company now has three call centres in collection, customer service and sales. “This needs to be developed,” says Andronescu.
The credit company estimates it has a market share of between 18 to 20 per cent, by value. So far it has given 300 million Euro in loans to around 700,000 people, as the credit market grew by nearly 50 per cent last year, according to Cetelem officials.
The firm has three models: an in-store credit desk, with Credisson-branded staff, a Credisson agency which serves a group of retailers, present in towns with over 20,000 people. Thirdly there is a kit terminal, a kind of 'virtual Credisson' on a laptop, which staff at retailers can access. This third sector is where Andronescu sees a lot of future development.
What Cetelem should bring is the chance to speed up the customer process and consumer access to credits, says Andronescu, who will retain his position for around three more years. “We are not ready to compete on prices, but in services, transparency, speed and simplicity,” he adds.

MODERN BUILDER

Construction, real estate and communications company Bouygues arrived in Romania in 1990 as the first foreign investor to gamble on the country following the revolution. According to Alexandru Missirliu, commercial director of Bouygues Romania, this status of debutant meant the administration at the time allowed the company to start its activity rapidly.
Since then it has worked on building some of Bucharest's most visible modern constructions, such as the World Trade Center, Hotel Sofitel and the French Village in 1993 and Bucharest Financial Plazza in 1995.
Last year, the firm started two large scale operations on the new four star Novotel hotel in Bucharest, with 287 rooms, a sports hall and a commercial gallery, as well as strengthening and renovating the Palace of Justice (Palatul de Justitie)
Bouygues Romania's turnover is almost 4.5 million Euro and profit is over 72,000 Euro for 2004, says Missirliu.

WELDING POTENTIAL

Buzau-based Ductil, part of French welding leader Air Liquide Welding, plans to expand its range of products and services this year and invest almost 80,000 Euro in a service unit for the equipment it merchandises.
Ductil deputy general manager, Razvan Batranu, says the company has managed to attain an almost 50 per cent market share, and aims to post a turnover of 30.4 million Euro this year, up from 2004's 28.2 million Euro.
“In turn, this year's estimated profit stands at 3.6 million Euro, from 3.4 million Euro last year,” he tells The Diplomat.
Batranu continues: “The Romanian welding and cutting market follows a positive trend, also supported by the upcoming EU accession and economic growth. Our specialists estimate the market will grow in the following years, as right now it is way under its full potential, and under the potential of other similar markets in Europe.”
The manager says post privatisation investments Ductil has seen since 1999 amount to a total of five million Euro, mainly targeted at quality increase through automating the production lines. “By investing we have secured positive results, which in their turn have allowed us to close business partnerships with strategic companies that include Aker Tulcea and Braila, Damen Galati, Kvaerner, ABB and Mittal Steel,” he adds.

Independent spirit

Construction and food production have already seen large investments from Switzerland, while the liberalisation of the energy sector could also bring more opportunities

Generally speaking Swiss business activity in Romania is like its watches: precise.
“In Switzerland we have a very clear view of how business should be dealt with and of how the laws and the administration should be,” says Paul Nuber, president of the Swiss-Romanian Chamber of Commerce.
Yet, Swiss precision does not always find a great partnership with the simply surprising Romanian business environment.
“Some people have got burned here in Romania, so that does not fit too well with the reputation of how easy it is to do business,” adds Nuber.
But after only two years in Romania, Nuber says he has already seen improvement.
“The trends are in the right direction, but we could debate about the rhythm, which could be substantially accelerated. There is no doubt that Romania missed the train in the 1990s, being overly protective, overly complicated, with overly unfair competition,” he adds.
Swiss save the main criticisms for bureaucracy and legislation. “There are still a lot of artificial, unjustified, based-on-habits obstacles that, when you become a EU member, just disappear. Having spent ten years in eastern Europe, I've witnessed it. Though the EU is not the simplest bureaucracy I've ever seen, let's say that it is stable and based on rules that are applied.”

POWER BROKER

A promising field in the business cooperation of the two countries is energy. Switzerland and Romania signed a treaty in the energy sector this June which should trigger a strong involvement of Swiss energy companies in the next stage of the sector's evolution.
Since 1997 private power supplier Energy Holding has undertaken consultancy and technical assistance services for VA Tech Hydro in modernisation of the hydropower plants on the Danube near the Serbian border, Portile de Fier I and II. In March this year, Energy Holding opened an Energy Management Center in a two million Euro investment.
“With the privatisation process going on, the Romanian energy field has all the chances to become more and more competitive in a market that is moving towards a regional basis,” Enrique Ferrer, the company's general manager tells The Diplomat.
Next the company says it will support the creation and the implementation of the mechanisms needed for 'a power exchange', where players in the energy field can trade electricity on the market. This exchange should bring opportunities for investment in the transmission and generation of energy.
“Being a member of the World Business Council for Sustainable Development, we plan to help promote future use of clean technology in the power generation sector. This means not only in windmills, but also support towards the introduction of clean-coal technology,” says Ferrer.
The Romanian utility market is still in the process of privatising some of its utility companies. “As the authorities decide to put up its power generation assets for sale, our company will look thoroughly at the possibility to acquire some of them. We have already bought five small hydropower plants and we intend to further develop in that area, but not exclusively, we are also looking at gas-fired or coal-fired power plants,” says Ferrer.

A FUTURE SET IN CONCRETE

As Romania experiences a construction boom with more infrastructure projects and building works than the country can often cope with, those set to continually gain are cement firms. CarpatCement Holding (Heidelberg Group) and Lafarge Romania have built up modern and state of the art operations, along with Swiss giant Holcim, which sees an increase in the cement market of five per cent this year.
Cement, aggregate, concrete and construction-related service firm Holcim bought out the cement plant in Turda, Cluj county in 1997 in an initial 6.1 million Euro investment, but so far the company's total investment to Romania has reached approximately 300 million Euro. Last year's local turnover was 130 million Euro.
Now the company has three cement plants, 13 ready-mixed concrete plants and four aggregate plants.
Eight of these concrete plants “meet the latest environmental standards” by reducing dust emissions and sound pollution to zero and allowing recycling of fresh concrete residue, says Markus Wirth, country manager of Holcim Romania.
Further investment plans include, in 2005, the launching of three new environmentally friendly concrete plants in Bucharest, Timisoara and Targu Mures.
In the construction market, Wirth considers that office space acquisitions and real estate market will rise, that there is a focus on infrastructure rehabilitation and therefore the construction market will see further growth. “We estimate that the construction market will continuously grow in the next five years. Holcim (Romania) estimates an increase of the cement market of about five per cent in 2005,” Wirth tells The Diplomat.

CHOC THERAPY

“Nestle never thinks 'why should we invest in one place or the other?' We're in food. So as far as our research goes: every human being eats.”
Paul Nuber, general manager of Nestle Romania, may make this comment with a pinch of salt, but the Romanian food industry is quite busy.
From wafers to coffee and from cereals to baby food, the Nestle products have as main competitors the full roster of big players: Kraft (and soon Wrigley), Unilever, Elite, Amigo, Alka, Orkla and Milupa and Hip.
Nestle started its Romanian branch in 1995 and in 2001 bought out Timisoara-based snack firm Joe and its popular wafer brands.
Besides the Joe wafers like Joe Crunch or Joe Milky, Nestle also sells in Romania Nescafe, Maggi products, Nesquik, Chocapic and Cini Minis and cat and dog food Purina, Darling and Friskies.
This summer Nestle has brought to its Joe range, Joe Delight, wafers with fruit filling. “It's a summer snack. When it's 36 degrees, you're not going to spontaneously think of chocolate.”
Neverthess, business is not always a piece of cake. According to the general manager of Nestle Romania, a framework that is “inefficient and bureaucratic with limited competence” slows down the pace of Romania's economic development and consequently “the whole administrative environment needs dramatic improvement”.
In such a context, the Romanian GDP is still low, believes Paul Nuber, “because of the labour code, most of the time, as unions make it so rigid, to the detriment of employees, that there's no incentive for investors to come, then there's less competition for good professionals, therefore salaries remain low.”

KITCHENS OF DISTINCTION

Latin tastes with an edge of simplicity are currently the trend in fitted kitchens, according to Swiss kitchen systems and foodservice systems producer Franke, which now has over 20 showrooms in Romania.
The Romanian arm of Franke launched in 1998 with an intention to expand in the southern Europe region, an area of “atypical markets” by entering the “interesting and important” Romanian market, as Valeriu Cobaschi, general manager of Franke Romania, tells The Diplomat.
For their preference in kitchen systems, Romanian consumers are “very similar to those from Italian or other Latin countries” and their common tastes explain the fact that 95 per cent of the Franke kitchens imported in Romania come from Italy and not Germany.
The general trend is to choose fitted kitchens with “a trend of simplicity and minimalism, as compared to, say, a few dozens of years ago when curved lines were in fashion,” says the general manager. “The Romanian market is a flexible market, it's open to what is new and it values the quality of prestige brands.”
On Swiss firms locally, Cobaschi says: “Swiss companies are generally small and medium-sized, but they are flexible, well financed and with clearly established objectives in their returns on investment. I was surprised to see the Swiss flight fully booked also on Sundays, this says a lot about the co-operation between our countries.”
EU integration should hopefully bring a turnover boost. “Yet, with the experience of Hungary, an increase in sales did not happen,” he says. “But what we expect in Romania is an increase in the purchasing power in the mid and long term and a change of attitude towards quality products and services of the Romanians.”
Seven year after entering Romania, Franke is now present, besides its Bucharest-based headquarters, in 23 showrooms and many other local retailers. In total it invested 2.5 million Euro and had sales of seven million Euro last year.

POWER PLANTS

Agribusiness firm Syngenta ranks third in the high-value commercial seeds market, merchandising maize, sunflower, cereal, sugar beet and vegetables.
Since 2001, its Romanian arm Syngenta Agro SRL has developed new farming technologies which target compliance with local and EU requirements. Its current portfolio includes 70 products in plant protection and 60 varieties of seeds.
“Our company promotes solutions and technologies not only for modern farms, where an intensive agriculture is implemented, but also for smaller farms, conducted on small plots,” says Marc Bonfils, CEO of Syngenta Agro.
In its crop protection and seeds divisions Syngenta's turnover for last year was 20 million Euro. In Romania, Syngenta employs 40 people and the organisation is still under development, adds the CEO.
“One of the main objectives of our activity here is to help local farmers to keep competitiveness on the market, to produce under EU standards and to create the conditions for a sustainable agriculture,” says Bonfils.
So far the company has invested three million Euro locally, renting offices and two large warehouses.

Land of opportunities

Privatisation is a category not to be overlooked, says Obie Moore, managing partner of the Romanian branch of international law firm Salans.
“There are the old industrial companies and those that are partly privatised, where the value of the real estate of the company is often more than the hard assets,” he adds.
Moore sees more privatisations targeted at real estate to clear out the old industry and transform the land into a commercial, retail or residential complex.
Many of the industries left to privatise have to be realistic about their future. Workers in such businesses “know they have to move on,” says the lawyer. “They can't be life insured in an industrial-state kibbutz forever.”
In the service sector, Moore sees Romania as a place of opportunity for providing residential healthcare for the elderly from other parts of Europe, even hospice care. “Children could fly in from Austria and visit their grandfather staying in the countryside near Cluj-Napoca,” says Moore. This could also take advantage of Romania's under-developed spa towns.
With the banking industry it will be less likely for new companies to enter without acquisition. “I can't see a serious bank coming in now with a greenfield investment,” he says.
Entering the market through purchasing homegrown firms is also not an ideal option. Moore says “not many companies” are attractive to investors. Although he says there are some food and drink producing businesses which could sell their manufacturing and distribution business to an investor.
Outsourcing, however, offers a growing market. European firms in law, banking, IT or accounting, could outsource their entire back office operations to Romania, such as some secretarial, database and invoicing functions, while retaining the intellectual input at home.

SPACE TO BUILD

With a strong presence in central and eastern European markets, real estate firm CB Richard Ellis started with a 30,000 USD investment and last posted a one million Euro turnover.
“We made a profit, not so much, which is okay because we have only been on the market for a few years,” says Ioana Momiceanu, managing director of the Romanian branch, who says the majority of her clients are potential property buyers.
In land, the market is dominated by greenfield investments, she argues. This includes investors interested in logistical centres for the big retailers. In residence, the market is dedicated mostly to the middle classes looking for personal comfort. “Everyone is expecting investments in dwellings for the mass populace. But we can't speak about that yet,” says Momiceanu.
The construction of suburbia is a growing trend in developing markets, but Momiceanu is sceptical about the expansion of this at present, because of the slow transport system from the outskirts to the city centre.
In offices, Bucharest has the fewest office spaces per 1,000 habitants among central and eastern European capitals. “Office buildings in the city do not have as high a quality as many international capitals. To be a high standard building, this doesn't mean luxury necessarily, but good equipment high-quality air conditioning, quick elevators and underground parking places,” she adds.

SWEET DEAL

World leader in chewing gum Wrigley has a 98 per cent share of its main category in Romania, with Orbit the most popular brand.
Entering the market in 1993, the firm has since launched Winterfresh and Airwaves. A few years ago products such as Juicy Fruit and Big Red were present on the market, but the company pulled them from the shelves.
“But very soon you will find cinnamon gum Big Red again on the market,” says regional managing director Balkan East Mihai Georgescu, who sets a re-launch date for the gum brand in a few weeks' time. Juicy Fruit should also make a re-entry at a later date.
In the drops market, the American company has made a promising impact with Orbit drops, launched in 2003 and now owning nine per cent of the market.
Last year the mother company bought the sweets division from Kraft Foods. In Romania Wrigley takes over two brands and a production factory from Kraft in Brasov, adding confectionery brands Sugus and Silvana to its portfolio.
“We will finish the transaction in a few months and we intend to keep the brands,” says Georgescu. Last year Wrigley launched Solano, sugar free drops, primarily targeted to women.
Recently bought by PepsiAmericas, Quadrant Amroq Beverages (QAB) owns the franchise for producing and distributing Pepsi in Romania and the Republic of Moldova, making major investments of 31.5 million USD between 2002 and 2005.
“This year we will invest 11.5 million USD in increasing the production, distribution, new products and new projects,” says Florin Radulescu general manager of QAB.
The turnover of the company increased in 2004 to 100 million USD, up 42 per cent on the previous year. QAB owns a production factory in Bucharest and also a factory in Covasna county for the mineral water brand 'Roua Muntilor', which was launched last year and has a seven per cent share.
The trend on the beverages market is light drinks, with Quadrant Amroq Beverages becoming an important player. “We started with Pepsi Max and then developed Pepsi Light, Twist Light, Seven up Light and Prigat light,” says Radulescu. The company's best sold product is Pepsi and its carbonated products have a 26.2 per cent market share. The non-carbonated drinks' market share is 31.9 per cent, and, in the Iced Tea segment, Lipton is leader with 34 per cent.

GET RAIL

In Europe, worldwide freight manufacturer Trinity chose Romania as a base for production because the manufacturing facility was the “right size” of plant and the low labour costs, according to Albert Hartmann, vice president of marketing and sales, Trinity Rail Europe.
The business established its local operations in July 1999 through the acquisition of Astra Vagoane in Arad, Romania and now employs around 1,700.
Although the production costs are lower, there is a downside. “Most of our customers are based in western Europe, so the transport cost of the wagons are higher than those of our competitors,” he adds.
At present the firm is not looking for further investments or expansion. “As the freight car market in Europe is down right now we are even not in a position to fill the factory with orders,” says Hartmann.
With its factory in Romania, Trinity provides a manufacturing capacity of 3,000 freight wagons per year in Europe. The firm is “mainly focused” on western European market but also has its first orders from central Europe.

IN THE RIGHT BALL PARK

Established in 1979 under the name of Rulmenti Grei S.A, the bearings factory was set up to cater for Romania's domestic market. But then, in 1997, industrial bearing giant Timken bought a major interest in the factory, transforming the facility into Timken Romania.
The company mainly manufactures bearing products for the western, central and eastern European markets. Customers include rolling mills, mining, oil field, construction, process industries and power generation industries.
Timken Romania's turn-over was over 37 million Euro with a profit of over 2.5 million Euro last year. In 2005, Timken intends to invest almost five million Euro in extending its production capacity and in projects of environment protection.

WIRED UP

IT and communications is where Romania should see its strongest growth over the next ten to 20 years, as there is likely to be an inevitable shift from the manufacturing to the service sector. Obie Moore says he could see space for another telecommunications firm to come in and purchase a GSM license.
Meanwhile IT solutions provider Cisco Romania started its activity in 1998 and works mainly with governmental bodies and businesses, including Romtelecom, MobiFon, Orange and Astral.
“The good news about Romania,” says Bogdan Dragos Constantinescu, Cisco Romania general manager, “is that new technologies, in IT, telecommunications, security, wireless and optical solutions are accepted fast.”
In an IT framework the trend is towards wireless solutions and a question mark hangs over the profitability of still choosing fixed-line technology.
“There are two tendencies on the market: wireless for the final and individual user and fixed media such as cable or optical solutions for corporations,” adds Constantinescu. So a combination at present is desirable.
Broadband, according to Constantinescu, can make the difference between countries. “If broadband is provided, this represents a major advantage for a country. Romania still has big steps to take in this direction,” he adds.
Cable television firm UPC Romania, a branch of UnitedGlobalCom, offers services locally in over 40 cities with a reach of almost 400,000. UPC has so far invested over 75 million USD in its activity in Romania and its 2004 turnover was 26 million USD.
Also, according to Richard Anderson, managing director of UPC Romania, by the end of this year the company intends to offer Internet services in Timisoara, Cluj-Napoca and Ploiesti. Its number of internet service clients is over 1,000.
The local mobile market is mature, according to Aurelian Sima, country manager of Motorola Romania, arguing that the more sophisticated handsets with data transfer and entertainment are available to consumers.
“In Romania the mobile phone is used more as a voice communication device and it represents an indispensable instrument for business men,” says Sima. In Romania, Motorola does not sell directly on the retail market, but through authorised dealers, including six for mobiles, two for broadband solutions and three for walkie-talkies. The company does not consider the resale of second-hand mobiles a threat to the company's sales at present, but is making an effect to combat the effects.
At the beginning of March 2005, Motorola launched in America 'the recycling race', a fund-raising initiative in which kids collect used mobile phones which are turned in to Motorola in exchange for support for school and after-school activities. The company is investigating bringing this to Romania, but no earlier than the Autumn.

SEED NEEDS

A regional centre for seed production is the ambition of Pioneer Hi-Bred International, part of the US Dupont group, which is building a 26 million USD maize production plant in Ganeasa, Ilfov near Bucharest.
This gives the firm a strong position when the EU market is open and Romania aims to become a major agricultural market. However the country still lacks a coherent policy on one of Pioneer's main products, Genetically Modified (GM) seeds and a farming system that is still fragmented and often very inefficient.
By the end of the summer 2006, the company will produce 24,000 tonnes of seed a year, most of which is set for export. Locally, the target market for Pioneer is the east and the southeast of Romania.
Around 80 workers will be employed, helping to produce 30 maize hybrids and seven sunflower hybrids.
Since 1975, Pioneer Hi-Bred has been testing corn hybrids in Romania and in 1993 opened its own local firm. Until now the company has invested between four and five million USD locally.
The firm still imports parent seeds from America and checks them under Romanian climate conditions at its Ganeasa-based research station.
“Farmers are asking for GM seeds,” says operations manager Ion Sabaila, “they are willing to have GM seeds, which have resistance to certain pests. At present the legislation needs to be established. But we don't want to push too hard.”
He continues: “From our own estimates there is around three million hectares of corn in Romania. 1.3 million ha of this is hybrid seeds, while the rest are safe seeds. Pioneer Hi-Bred has around 20 per cent of the hybrid market.”
But this high volume of non-hybrid seeds, Sabaila argues, means that Romania has a slow yield: three tonnes per hectare in Romania, compared to six tonnes per hectare in Hungary.

ACCOMMODATING AMBITION

Just ten years ago JW Marriott Bucharest Grand Hotel was nothing more than a concrete carcass filled with little else but the thwarted idealism of the former Communist regime.
Now it is one of the largest luxury hotels in eastern Europe, with an enviable occupancy rate and a strong business in corporate hospitality and wedding receptions. The American firm Marriott has a management agreement to run the hotel for the long-term, while the building is owned by SCH Grand Holding Company, which includes Strabag, ONT Carpati and individual Fathi Taher. The Bucharest hotel is the first in Europe to have the JW Marriott label, a five star moniker which denotes a luxury member of the Marriott family.
Technically, it is the largest hotel in Bucharest, with 402 operational rooms.
The general manager Kurt Strohmayer still believes there could be a market in Bucharest for a five or four-star hotel and a space for the company's Courtyard brand (a four-star hotel primarily for business travellers) in the capital. He also sees options for a four or five star hotel in Timisoara, Iasi and possibly Constanta.
The hotel was designed in the mid-80s as a guest palace for important dignitaries to the Communist regime, which aimed to serve as the hospitality wing for Ceausescu's People's Palace.
However all that the regime managed to construct was a skeleton of a building, without windows or utilities. It was remodelled with help from the Marriott team, opening in December 2000. The hotel has enjoyed such a fascinating history, that the grand building has become a tourist attraction.
Strohmayer was surprised to find, wandering through the interiors of the hotel, a group of French tourists led by a Romanian guide, who detailed the architectural heritage of the modern building. “Of course, I asked if they wanted to stay here,” he said.
The manager says the occupancy is now around 80 per cent. “The major income comes from business travel through Sunday to Thursday,” he adds, with the average business traveller staying for one or two days. “On Friday and Saturday the business drops off.”
The hotel also boasts around 2,000 sqm of conference space, the largest in a Bucharest hotel, and caters for around 76 weddings per year.

IMI PLACE!

For a long period of time, the success of McDonald's on the local market remained in question. When it arrived in 1995, the business environment was not clearly defined and often unstable, but the Americans took a chance and in ten years opened 52 restaurants in Romania.
Each restaurant costs up to one million USD, although it is more for a McDrive and less for a mall restaurant. So far the company has invested 80 million USD, but only last year did it see a profit, of 1.2 million USD.
And high expectations will continue, says Marian Alecu, general director for McDonald's Romania, Moldova and Bulgaria. This year the firm forecasts a 70 million USD turnover and double its profit, with a plan to open two to three restaurants per year.
In Romania McDonald's has its own meat and bread factories, milk farm, a small factory for salads and a centre for distributing products.
Focusing on urban concentration for development, the manager says its main competitor is the Romanians' low purchasing power. McDonald's has problems in small towns because people have little money, making a trip to McDonald's a special event.
“In the global group three years ago McDonald's Romania had the cheapest prices, now there are two or three countries behind us, one of which is China,” says the manager. “Romania's market has many advantages. First of all it is a huge market, in Europe a few countries have such a market or bigger. And Romanians are pro-Americans who want to assimilate the American style so it wasn't a problem for them to adopt the hamburger.”

FINE PRINT

After 35 years in Romania, photocopying specialists Xerox registered its biggest turnover last year: 40 million USD. At present the company does not have a production capacity in Romania but with the entrance in the EU, this possibility may occur.
“At some point this will be discussed, because Xerox doesn't have a production facility in Europe, except for France,” says Marius Persinaru country general manager of Xerox.
The next stage is the development of the colour market. “In the next two to three years, colour equipment will cost as much as black and white: therefore everyone will opt for a coloured printer,” adds Persinaru.
Owning a brand which has become an adjective in common usage to define its equipment's activity is the best marketing tool a company can hope for. “The quality and the name Xerox is known, but people perceive us as an expensive brand,” says Persinaru.
In Romania, Xerox is the leader in the office paper suppliers category and large-scale printers for industrial use. But in the multi-functional coloured printers category and black-and-white printers with a capacity of more than 20 pages printed per minute, Xerox is in third position.
“We are trying to cover some of the lack in the 'soho' category (small office-home office),” says Persinaru. “This is a retail market, but we plan to come up with the equipment and fight with the competition on prices.”

SMOKE SIGNALS

“Our business is to attract the competition's customers, not minors or non-smokers,” argues Peter Imre, director of corporate affairs with Philip Morris Romania. Mass-media today promotes the message that it is against the law to sell cigarettes to minors and Philip Morris says it supports such initiatives.
According to Imre, if a young girl walks into a store and asks for a packet of cigarettes for her father, she should receive a piece of paper which reads: 'Dear parent don't send your daughter to buy cigarettes because you're making her break the law.'
So why is a multinational cigarette company fighting against smoking? “It is important for people to know that there are no safe cigarettes and there is no cigarette less damaging than another. Even if it is a 'light', 'Four' or 'One', the only difference is the taste,” says Imre. “The only way that someone may maintain his health is either not smoking or quitting.”
Philip Morris is the number one cigarette producer in Romania and its most popular brand is L&M. The company has a network based on local distributors and Imre believes that Romania “along with the integration in EU and because of the qualification of the labour force, also the size of the market and of the country, could become the regional centre for the area.”