How Attractive Is Romania for Investors?
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Noiembrie 2010 |
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HORVATH & PARTNERS MANAGEMENT CONSULTING S.R.L. |
Adresa
Strada Cretei, Nr. 12
014154 Bucureşti, Sector 1
Telefon
+40-31-620.18.88
Fax
+40-31-620.18.89
Website
www.horvath-partners.ro
The majority of German, Austrian and Swiss entrepreneurs appreciate the Central and Eastern European countries (CEE) as being extremely attractive as sales markets and production locations – in spite of the economic crisis and the increasing role of China and India. Romania in particular was nominated by the 111 business people questioned as being the third most surprisingly attractive country, after Russia and Ukraine. A recent study of CEE locations led by Horváth & Partners has come to the same and other just as interesting conclusions.
The considerable Gap between East and West
Today more than half of the production businesses of Austrian, German and Swiss companies are set on the mature CEE-5 markets and in the Baltic States. Over 20% of the business locations are to be found in the new EU member states Romania and Bulgaria, while the rest spread in the remaining Southern Europe and the GUS-States. Looking into the future we see companies primarily planning to develop their business activities in the GUS states Russia and Ukraine, which are closely followed by Romania on the third place. The continuously high attractiveness of Romania consists of its interesting mixture of cheap production factors and markets that have partially not been saturated yet, as well as of sufficient political and legal stability – advantages over several other CEE countries.
Different than other production locations that have been set up after the fall of the Iron Curtain in the CEE-Region as pure extended workbenches, the newly set locations now truly contribute significantly to supplying regional markets with local made products.
The "East Way Trend" is characterized above all through the varied maturity levels of the individual regions in the CEE- economic area. The margin pressure and the competition on the mature CEE-markets like the Czech Republic, Poland and Slovakia become tougher and disparities between these areas and Western Europe as far as products, distribution, advertising and pricing are concerned seem to be in decline.
Location advantage number 1: the Personnel
One, if not the biggest location advantage of the CEE-Region compared to Western Europe is the unchanged excellent ratio between productivity and costs of hired labour. Romania itself, whose industrial costs are just a bit higher than the tenth part of the costs in Germany, has therefore a significant location advantage.
And so the regional labour market makes the difference in terms of location choice. The productivity of the employees, the availability of highly qualified work power as well as the costs of hired labour are considered by study carriers to be some of the most relevant location advantages.
The political events and the legal stability are ranked as being equally important, as well as the supply guarantee of utilities such as electric current, gas and water. Compared to the labour market these are factors that require a certain level of hygiene for a fluent production flow. All deriving factors make the location only marginally more interesting.
If we look at the political and legal environment, we see that Romania has increasingly improved in the last few years – especially after gaining its EU member status. Several rankings that evaluate the political context and conditions, for ex. the Global Competitiveness Reports, show Romania at the middle of the classification among the CEE-states.
More severe quality control measures are a must
The majority of the companies outsource their production to local firms, to take advantage of the low local costs of hired work – on the one hand – and to avoid in advance possible quality problems – on the other. Thus are half of the businesspeople questioned strengthening their quality control measures and almost half of them have already increased the segment of manual production, while a quarter has reduced the range of alternatives and the complexity of products to the CEE perimeter.
Beginning with the planning of production steps and of manufactured products in the new locations, the attention must focus on the cost reducing potential and on avoiding quality problems: companies should typically relocate the costly hired work in the production process to CEE and keep the complexity of production rather low, whereas highly standardized production processes must be conducted and highly standardized products must be obtained.
A success factor: top-management commitment
When they were questioned about finding the best location for their production businesses, the managers listed the top-management's commitment at the number one success factor.
Only when the management of the company continuously assures the allocation of needed financial and human resources, the implementation of a new location can be successful.
Other indispensable success factors are the studies derived from knowledge transfer (second place) to another location and professional project management within the whole construction process of the location (third place).
While the top-management commitment is generally uncritical, in spite of its high relevancy – the top-management should agree on the necessity of choosing a new location – the knowledge transfer and the project management together with the management of human resources are the biggest challenges of the actual implementation.
If we look at the ranking of the factors that differentiate successful and less successful companies, the entrepreneurs whose self-assessment shows that they had successfully managed the implementation of new locations list the knowledge about the general business environment and the economical conditions in the respective countries as premises of extreme importance.
More than 100 companies with CEE experience have been questioned
The Horváth study "Success Factors of the Off-shoring to CEE" was conducted for the first time in 2010. A total of 111 companies from the DACH-Region and from different sectors offered information about the location and the success factors for an engagement in the CEE countries.
