February 2004
This is the title of a BusinessWeek article, found via A Fistful of Euros. Lots of good meat there, I am not going to get into details. One thing though,the "near-shoring" concept or shifting work to countries that cost less but are only a short hop away. Romania, Bulgaria and the newly-admitted-to-EU Central Eastern European countries are doing that, with the cultural and time zones, also mentioned here, as competitive advantage versus the Indians.
The transportation service across the country is quite underserved nowadays in Romania. Taking buses is time and nerve consuming since roads are bad and crowded; besides Romanians have not a very good rep when it comes to safe driving. Travelling by trains is cheap and decent (at times) with the fast ones, yet, even with those, slow for long distances due to poor conditions of the railroad tracks. Travelling by airplanes is quite expensive. As such, I think that there is a lot of money left on the table because the market is not targeted in a segmented way, perhaps for the investors' belief of Romanians low buying power. It is obvious that a low cost airline carrier such as Irish Ryan Air or US Southwest Airlines would challenge the present industry landscape. At the same time, there is an increasing segment of business people who need to travel across Romania, and the distances may become an issue. If not only at the national level, serving the regional one might be more attractive. For people not familiar with Romania's size or distances, the country is the second largest (235,000 sqm) in Central Eastern Europe after Poland and totals some 21m souls.
In this context there was little surprise this weekend when I read about the German VCs from Adval Capital Management which just lanched two ventures (plane rental and limo rental) that appear to target the high end of the business community market. Those businesses are clearly complementing each other and my guess is that the initial idea implied the jet rental only, as currently there's too few local companies providing this kind of service. The car rental involves luxury ones because of the target business people who would be renting a jet. Smart move, though not a first mover on the local level, but competition is heating up. I am convinced that it is a matter of time until the low cost end would see increased competition as well. To my knowledge, presently there is only one company of this kind, web-based and servicing Romania-Italy routes.
Central Eastern European countries are quite famous for their engineering and technology-related schools. Moreover, during the cold war and communist times they used to have companies with strong engineering and technology capabilities. For the last 15 years, after the Iron Curtain fall, most of the companies didnot have the resources to invest in technology upgrades, and especially in the last decade the technology change rate has been quite dramatic. Things seem to have changed in the last years though, since, as I mentioned in the post from below, the investment community interest and awareness of the tremendous potential from the area increased considerably. As such, the emergence of new technology players fighting for becoming competitive at the regional and global level.
Deloitte has made a research study with the fastest growing technology companies in Central Europe. Growth is computed in years 1998-2002. The countries accounted for and the number of companies that made it to the top are:
- the Czech Republic - 15
- Estonia - 1
- Hungary - 3
- Latvia - 4
- Lithuania - 0
- Poland - 9
- Slovakia - 6
- Slovenia - 2
Unfortunately only the increasing rates are provided, the study would have been more interesting if we had the turnover or profit figures.
You can find here a PE confidence survey made by Deloitte and released in November indicating the increasing interest of the investment community in the Central Europe area. It should be noted that Romania and Bulgaria are among the ones with the biggest potential for capital attraction, since in the past the foreign direct investment (FDI) figures were not so great. In Romania the net FDI was around EUR 1.3bn in 2003. As I mentioned yesterday the investemnt management industry seems to be one of the most interesting in Romania.
There's a lot of debates about outsourcing nowadays - especially in the USA. Since in the beginning most of the outsourcing was represented by opening calls centers in India, people would find it naturally to imply that outsourcing a job implies offshoring. However there is a big difference beteween the two concepts. While you could always outsource a job somewhere in your country or even your city, offshoring implies that the outsourcer is located abroad. You can read about it here, as well as about some of the (dis)advantages of each.
Interesting stats found over at "Lista lui Filip" (a newly-discovered Romanian blog - thanks Filip for the email). It looks like in 2001-2003 there were more than 2200 ordinary laws adopted by the Romanian governement. More interestingly this number is by far higher than the one representing the laws adopted in 1992-2000 period. Does this mean they've been working harder lately? Or maybe less efficient?
Presently in Bucharest you can book movie tickets online via Cinemagia or Hollywood Multiplex. Looks like the guys from Diverta saw this opportunity and are exploring the online booking for the theater plays in Bucharest (link in Romanian). While the initiative is notable, why not bother having a business gathering all sorts of online booking under a single website - theater, opera, movies, concerts, sport events? Why this chunks approach, since the marginal costs for developing the software application will be very low. Nevertheless it is true that this requires a close cooperation with the ticket issuers, and, more importantly, a heavy upgrade of their technology for being able to make use of the system. And that means $$.
It seems that in Romania blogs are not very popular. Yet. Last night I was debating with some friends about blogs future in Romania and one of them made a point by saying that actually (most of) Romanians are just not ready yet for blogging. I agree, it is something relatively new and it comes as a result of a certain lifestyle that involves getting and sharing news and information mostly from the internet. Nowadays the most popular info sources for Romanians are the TV and newspapers. People are just not used to have the internet as a medium for info, communication or social activity.
However, my guess is that some socio-technical shifts will be inevitable once the computers/capita and the internet penetration rate will increase - main drivers for internet/PC usage. And looking at the computer sales growth and the high demand for broadband (at least that is the case in Bucharest) I think this will happen rather sooner than later.
PS. You can read what Ed Sim, an American VC, thinks about blogging and its advantages for his job. Also, people who do write online have a cool tool to find out if they write as a man or a woman.
UPDATE: Kit - one of the few Romanian bloggers I am aware of - also has some insights about what a blog is and means.
The Romanian-American Investment Fund consolidated its position in the investment management industry by acquiring the brokerage firm Intercapital Invest. The investment management industry grossed about $43 mil last year and I believe it is one of the most attractive industries to go into nowadays in Romania. Even though in the past there were some problems with the late SAFI and FNI which gave a bit of a bad reputation, this can be overtaken by a good portfolio manager/good portfolio performance and the right market positioning. Actually these are the keys for a tremenduos growth in the future.
What are the products? I think mutual funds present a bit of an interest, serving all types of risk appetites. At the same time hedge funds are not to be underestimated - actually MAN is already present in Romania targeting the High Net Worth Individuals (HNWI) - a segment that seems to have grown in the last years in Romania. Also, more private equity placements are expected to appear, as foreign investors eyes were caught by Romanian potential in the light of EU accession. Finally, the real estate remains one of the favourite investment areas in Romania, there's lots of new office buildings built in Bucharest lately and this only means flourishing business.
What is the market? The savers first of all, used only to save foreign currency either depositing in banks or keeping cash. Good marketing and smart branding are more than necessary for making the switching costs appear not as high or risky as they seem to be (due the the lack of market education.) This and a good communication strategy will win small investors confidence. Secondly, the newly-emerged HNWI will also be interested in attractive returns, perhaps in more sophisticated products such as the hedge funds. Finally the institutional investors segment which still seems to be in a strong inertia, the industry definitely needs the big private pension funds active role.
On the sell side the market certainly seems to heat up with the M&A predicted to grow from $400mil in 2001 up to $1bn in the following years - this means more business for investment bankers as well. There are a few fragmented industries with growth potential worth a look at - my takes are banking industry (Tiriac Bank is for sale, Banca Romaneasca is already sold), tellecommunications (consolidating segments predicted to grow with few big players and several small emerging ones fighting for the pie - Astral and RDS, Connex and Orange) or retail (there's been a tremendous growth of the retail chains lately)
Some links to fill up your lunch break with:
- the story of Skype's founders, the people who formerly founded Kazaa. They are Estonians and they are smart. Skype is a company producing software allowing PC to PC phone calls. For free. Remember the times when we used Dialpad for calling abroad? Skype's quality is better, might disrupt some businesss models that nowadays look solid. Did I mention it is free?
- a good story about challenges Yahoo faces in trying to catch up with Google's search engine. For people who are not familiar with the story, Yahoo brought in Terry Semel from Warner Brothers a couple of years ago for moving the company to the next level. Everybody expected that Yahoo would become a media company as a consequence, instead the guy understood the lucrative model of search engines and acquired Overture last spring. (at that time Overture was topping the search engine ads based industry revenues)
- an interesting article from The Economist presenting the comparative advantages of US economy for using outsourcing/offshoring jobs. Again, you may know that nowadays US is facing some scandals about job migration to India, with Bush even forbidding the outsourcing of federal contracts overseas. My take is that outsourcing is inevitable, in spite of that, it is the free laws of economics that will govern.
- the Romanian flavour of the first part of the day with a Smartree research claiming that Romanian managers biggest problems are bureaucracy, wasted time staying online and the excessive formalities. I guess those problems have nothing to do with management skills, or lack thereof. And this happens more in the SMEs than in large corporations. The sample size is 145, I wonder which is the split between SMEs and the big ones, and what the geographical spread is. Finally, it seems that the biggest pains are waiting in line to pay taxes and dealing with authorithies. Any feedback from the other side in this sense?
- more stories about international corporations investing in or expanding their operations in Romania: the Americans from Honeywell looking to expand in the chemical industry and sensor producing capacities, the Swedish automotive safety equipment maker Autoliv relocating in Romania or the Italian furniture manufacturer Ciatti building a factory to make furniture for electronics.
- finally, for dessert you may try take a short quiz for testing your math skills.
Shortly some of the yesterday's news:
- SAP signed a deal with CODECS -- important to notice that CODECS is not a big account, on the contrary, interesting to learn about the background of this deal - is it just a coincidence, or SAP also targets the local SMEs?
- Microsoft confirms what I was saying the other day about big corporations taking action for speculating the potential of the IT Romanian market -- it looks like they will pour another million into elemenatry and high schools (besides the IT Academy from the Galati software park)
- SIVECO declares that more than 75% of the participants at their roadshow "consider" purchasing a software application for enterprise productivity - of course they will say they "consider" since it is not polite to claim they are there for cookies and snacks. On a serious tone, the IT Romanian market is not to be neglected by the (local) software manufacturers, and companies like SIVECO understood it very quickly. Some industries became quite competitive and IT upgrade might be a sine-qua-non condition for survival. Sadly enough though, nowadays in Romania running a decent ERP can give you a competitive edge in terms of efficiency.
- an update on the Oracle story, apparently their strategy is opening a center dedicated for servicing their partners in Central Eastern Europe, a second that would be a logistic center and the third acting as a telecom solution provider, the latter two servicing the worldwide Oracle clients. Also very good marketing gimmick they use - brain gain vs. brain drain - a response to the Romanian programmers runaway.
- the MCTI minister finally acknowledges what we signaled a few days ago about a beautiful e-Governemnt system that is functional but people are not aware of it. Not to mention most of them may not be at least computer literate, I think this is the point they should start designing their strategy with in the first place.
- more specifics on the Galati software park story: there will be 21 firms - 12 from Galati, 4 big Romanian ones (Softwin, Totalsoft, Siveco, UTI) and 5 big international corporations (Microsoft, Oracle, HP, IBM and Cisco). The total budget is about 100k euros, with 75% coming from the local budget (hence the local management). It looks like the rent is free for the first 4 years, so there is a financial incentive after all. A small step but important.
- finally, since I mentioned just IT-related news, some inserts about politics - Nastase, the Romanian PM is going to go to Bruxelles to show he is not a bad guy after all, all these scandals are just some misunderstandings --- bla-bla-bla. My guess is that everybody knows the truth, but the diplomacy asks to behave in certain ways. Anyway, it looks like the issues are quite serious this time. At the same time, I was mentioning about the money received from external institutions (EU, IMF, WB) the government was not able to entirely spend last year -- it seems that there's several scandals about bribes around allocating these funds. Here is the link to a comment about one of them. (in Romanian) Nothing surprising though, that is something very Romanian like.
Tonight I have spent 2 hours with my accountant for preparing/understanding the financial statements and related documents for the year-ended official reports. Apart from the pile of the papers I had to look over, sign and stamp, and chew the awful language that (I have the impression) is not saying anything, there was this special software application that we were supposed to use for having the required data in the formal format the officials asks for.
It should be mentioned that this is the only application one can use for having the paperwork done, and don't ask why. Also, I can say that since we are running a software development shop we happen to know some things about how applications work out. Nevertheless, for some reason, it took us a considerable amount of time trying to figure it out. Imagine that this application is for everybody, and that not all people are computer literate. Then imagine the frustration, the precious time wasted away and figure out how much truth is in the claimed support of the governemnt for the companies (especially SMEs). On the other hand this definitely is a good source for business opportunity, I guess anybody would gladly outsource the process.
Tomorrow I will have the second episode, I will go to three different places for having the papers accepted. Show must go on, I will keep you posted.
Here is a somewhat detailed story about what the software park is all about (thanks everybody for the emails with the details and links).
The good news is that the piece of news about a somewhat tech agglomeration from Galati is true. In addition, people in the industry started to get the interest and acknowledge the need of such a park. The bad news is that what we have here is not a true software park, but rather the Romanian interpretation of it. Here is why I think it eventually will not be something sustainable:
1. A software park means a FISCAL tool -- whereas the firms located in it have financial incentives on taxes. What do we have here? NOTHING. Companies located in the park have no financial benefits from the state whatsover.
2. A software park is a business like any other business. It has to be profitable, and thus has to have a decent management in order to survive. Who is managing the park? The local authorities. Now, I don't know these particular folks, I have nothing personal against them, but what is the reputation of Romanian management at the governemntal level? Very bad. Why? Because the people from these positions are persons in their 40s or 50s with a long life experience under the former communists regime. THAT'S IT!! I tend to agree with Radu Georgescu's cynicism when saying that in order to move on we have to wait until some of the old folks would just go away. As simple as that.
3. Who are the shareholders? The Romanian State. Where is the money coming form? Errrr, from the budget, of course, and perhpas some funds from the EU. Again what does history show us? Until 2003 The Romanian government was unable to spend its money allocated by the EU for developing infrastructure or viable projects. Why is that? They say because they didnot have the projects. I say it's because they didnot have the competent people to get involved
4. A software development park is what its name implies. A place where companies in the field have (some of) their offices and where employees perform their daily jobs. What is our case? Microsoft will be present in Galati through the Microsoft IT Academy, "hoping to develop later". That speaks for itself! There is a long way to the true technological park that allows competition or firms from up or down the value chain sit under the same roof and benefit form what theory calls "knowledge spillover". Unfortunately the way this story looks like shows no evidence of meeting criteria for what the technology parks are famous for.
My guess is that both parties are satisfied with what is going on. This way the government can claim that they did something to help the IT Romanian industry, while the others may think that this is better than nothing. BTW, I googled "parc tehnologic" galati, and "technology park" Galati, and guess what? In the first two pages, in both cases there is NO OFFICIAL INFO from it, just links to some bits and pieces from news feeds. If that. Very professional, boys!
Finally, besides the positive and negatives of this story, I think it is worth mentioning Tatomir's words from the above linked story from BusinessRomania: "out of the three elements needed for a successful IT (good management, tax incentives and lobby) software/hardware park, Romania has only one: the technology and know-how support". Too bad that we are famous for this but have no idea how to make it a national asset.
The good news of today is the announcement of a software park opening in Galati in March. Big names, both Romanian and international, announced they'd establish an office there, and it seems that the places are 95% booked up. It is a good sign, it needs however to be backed up by consistency in the strategic development and legal aspects, or else it'd become another bubble. At Krogos we actually considered making the step as well, I am interested to find out some specifics about the park though, and how the SMEs will benefit out of it - the Romanian perspective, of course. If anybody has more specifics, please email me.
I have been seeing this debated over and over again on several discussions and articles, plus in this morning's article. The discussion seems to be a very Romanian-like type of perspective, without any constructive outcome out of it.
Why would we care in the first place about Bulgaria? How its evolution or involution would solve our problems anyway? If Bulgaria is the benchmark, why do we bother to adopt all EU legislation? If Bulgaria is our competitor why not choose it as one and behave accordingly? Why Bulgaria and not Albania, or Hungary?
The answer to all these is close to a very popular Romanian saying about waiting for the death of the neighbor so that we'd take possesion of his goat. Bulgaria used to be just a scapegoat in some of the EU circumstances both for most politicians failures/success and for more journalists stories. Most of Romanians perceive them as being at a level behind us from many perspectives - especially economical and I guess all our frustrations from the internal failures and problems were somehow ameliorated by seeing that these folks around were doing worse. And this is wrong!!
"It is not only the image that makes the difference here" says in the article, it is more. Guess what, of course it is more, we're behind, if we were in competition, then they have already started to take the lead. We'd better take them in sight since they seem to have understood better than us the importance of the moment and fulfilling or snicking around all the EU-related requirments, even though in a Balcanic way. Keeping an eye on them and just complaining or inferring "look at these guys, we're better than them, but somehow they're perceived otherwise" will not do any good. But looking at them and learning from their lessons seems to be a more appropriate strategy. And I think this should start not only from the top level, but also from the society level -- especially from the voice-makers.
You can find here a synthetic review of Romanian macroeconomic figures for 2003 made by Raiffeisen Bank. Besides the elections, which IMO have a somewhat clear outcome, some of the most important events to be followed in 2004 are the privatizations of BCR (Romanian largest comemrcial bank) and Petrom (one of the largest Romanian oil companies).
Interesting article predicting that Linux is rapidly gaining market share in the desktop market (via slashdot). IDC forecasts that by 2007 Linux will have been installed on about 6% from the existing machines. Is Mac going to be #3 in a market dominated by a single vendor? You may want to check some current stats (found on the same slashdot story)
Here is a link (via SAP Ventures) explaining why a company - be it a start-up or a big corporation - should use weblogging (or blogging).
I am aware of the fact that entire blog concept is quite new in Romania, most people I am talking to about it have no clue what it is, so perhaps this is a good place to start from for understanding some of the benefits and its commercial advantages when used on the corporative level. I particularly liked this one: "If you think that the only marketing you should do is to buy a $100,000 billboard along the freeway, or buy a $500,000 ad in USA Today, or a million dollar ad during the Super Bowl, then weblogging is probably not for you."
UPDATE: If interested in some more, you can read what John Patrick, former IBM's technology strategist, has to say about it.
Here is what happens if instead of having a national strategy incorporating the European integration you bet everything on the joining card hoping that joining EU will solve the problems at the national levels. Moreover, it looks like not even this card was played fully right. Hopefully this is a wake up call even though I personally doubt it having in mind the last years attitude on dealing with integration issues related to the national problems (checking points just because the EU comissions were asking for them). Besides, let's not forget that 2004 is an election year.
Today's press comments on some Romanian managers turning down $20k monthly packages (keep in mind that the minimum wage is about $1000 per year, while the average is about $2500). It is evident that this is the direct result of the big discrepancy between the labour supply and demand. There are very few true professionals in Romania (too few) and the tough business environment also forces them to adapt standard management practices to local needs. Also, it is very sad that in spite of the Romanian engineering school tradition and of the evident need of technology-related investments, the engineers are among the last ones in a list with wages to be turned down - $3000. (Romanian only). Of course, some of them prefer to take crap jobs to learn something while waiting for about 2 years to get the Canadian immigrant visa. And then start it all over again from the very bottom.
Altex's Media Galaxy is opening up to the public on Saturday morning. It is an all-in-one electronics supermarket stretching over 3000 sqm on the last floor from Bucharest Mall. During last December the company totalled about 20% of their sales. Also, for the entire 2003 70% of the sales were made by using consumer credits. It is interesting to note that in spite of the two-month late opening time, (and thus missing the Christmas rush) the officials still anticipate more than 4 mil. euros in sales for the first 3 months of operations from this outlet, also having in mind the context of a regulation change in the consumer credit policy.
Quick facts: Altex grossed 135 mil EUR from 100 outlets and directly competes with Flanco (120 mil EUR/70 outlets) and Domo (88 mil EUR/90 outlets). In addition to these guys there is indirect competition from the IT retailers such as Best Computers or Flamingo. The retail electronics market was about $500 mil. last year and it is estimated to grow by 10-15% this year.
I was mentioning a few days ago about the existence of the e-Government initiative whereas the public would have the chance to deal with the authorities via internet. I was also mentioning the lack of the promotion and visibility of such an initiative. It looks like there is a bit of awareness at least among the hackers since one of the websites part of e-Government -- e-licitatie.ro -- had about 1.38 million hacking trials in 2003, according to the MCTI officials. They claim however that only some 2% were of high level alert, about 55% medium and the rest low.
This is the title of an article from last week's HBR Working Knowlegde. I found some interesting similarities between an organization stuck in neutral when in need for implementing a strategy and the Romanian (business) environment - or society if you like.
"The lack of openness lies behind many failures to implement strategy. We've become convinced that the most powerful way for leaders to realign their organization is to publicly confront the unvarnished truth about the barriers blocking strategy implementation. Typically, this involves looking closely at the roles and decision rights of various parts of the business, as well as changing the behavior of people at all levels. Public, organization-wide conversations about such fundamental issues are difficult and likely to be painful. But pain contributes to a species' survival by triggering learning and adaptation; it can have the same effect on organizations. Businesses and the people inside them don't learn to change unless they have the courage to confront difficult truths."
This is what is happening in Romania right now, it isa semi-closed society and because most initiatives fail to uncover the truth, they lead to only superficial change (if that). Authors recommendation is society-wide conversations whereas all stakeholders are involved in honest communication. It is however the nature of the conversation that matters ("strategy is all about communication" one of my strategy professors used to claim all the time - he is a strong adept of Porter's ideas); as such, here are some ideas to be kept in mind and applied thereof by the Romanian leaders:
1. A conversation about strategy needs to move back and forth between advocacy and inquiry - communication is a two way street from top-down and from down to top. It looks like here it is only one way, messages like "don't bother, we know what we've got to do coz we know what's best for you" are quite frequent, be it from governemnt representatives or Parlaiament.
2. The conversation has to be about the issues that matter most -- identify the list of the most important strategic issues and then focus on discussing about it across the entire society level. Apparently they did identify, or so they claim, but it is not like I am seeing public debates about them too often.
3. The conversation has to be collective and public - that would help realigning the national strategy with the general consensus (see the obsessive EU integration - this is not necessarily a good example because EU integration must be part of a wider national strategy). However, the view is presenting only one side of the EU integration coin, the downsides are approached like "we'll deal with them when we'll face them"
4. The conversation has to allow employees to be honest without risking their jobs - people must be sure that openly talking about inefficient strategies or measures will not affect their lives - -this is what is NOT happening mostly in the public and administrative sector, where people are (still) comfortable with a work environment inherited from the 45 years of communism. They are reluctant to taste the change or even think about it, consequently the few that dare to challenge "the system" are either excluded or leave by themselves.
5. The conversation has to be structured. That is you will have to speak up what you have to say, there is this tendency to say what "domnul director" (that is the MD, or the minister or whatever leader) wants to hear or has on its agenda. This comes at the cost of the lack of spontaneity, and there is this general belief that "domnul director" is too busy to listen to my "small little things". Believe it or not, it is quite widespread on the Romanian society level. If you dare to speak up and honestly name things you are to be judged.
It looks like the news of today was Oracle's opening of three Global IT and Technology Centres in Bucharest. As such there will be around 100 engineers working for this centers, and company's officials claim that the figure might reach 3-400 if business will develop according to their plans. The centers will serve the Western Europe clients, with staff from Ireland planned to relocate to Romania. Oracle claims that they also considered Turkey, Poland and the Czech Republic as possible locations but they decided for Romania "not only for the low cost of the workforce, but also for the number and quality of specialists". Hmmmm.
In the meantime, Siemens VDO Automotive AG, the automotive equipment division of Germany's largest engineering company, announced plans to double the number of software programmers it employs in Romania to help keep costs down. The company currently employs about 500 software programmers in Romania and plans an increase up to 1000 in the coming years.
What does this say? I guess that in spite of the lack of the government promotion abroad for our IT skills, (about every Romanian IT company is complaining about) the big players begin to realize the advantages of cheaper labour force which provides a little extra (QUALITY) in comparison to their Indian counterparts. My guess is that in addition to serving better (read cheaper) this part of the world cultural differences may play an important role as well. Moreover, if we're to believe the diplomatic declarations from Oracle, Romania was chosen from 2 Eastern European countries and Turkey. Of course, one might argue that nowadays Turkey presents quite an unstable business environment besides the lack of tradition in the software industry while Polish and Czech labor became a bit more expensive as compared to the Romanian one (mainly because of their already admission to EU).
All in all, encouraging news and good examples for other multinationals to follow. The bothering thing is that critics might argue that their appearance in Romania was not a direct result of a governmental strategy but rather a ROI-based calculus when discussing budgets in the BOD. Of course this is a very difficult argument to quantify when making a point. Or maybe too trivial?
UPDATE: Siemens' move seems to be part of a global strategic intention of relocating some 15,000 programmers from US and Western Europe to India, China and Eastern Europe. More info here (registration required) via TJacobi.
A month ago, Doug from Halfway down the Danube was commenting about his trip to Calarasi, noticing the poor economic conditions from the county and mentioning two main reasons to visit the area: a former steel factory - which was an industrial giant during the communist time and now just wreckage - and the museum of the Lower Danube.
It looks like in spite of the poor conditions from the area, the French Saint-Gobain Group - oneof the world's biggest glass producer in the world - will make a $100m investment in a production facility exactly in Calarasi. This factory is supposed to have a yearly capacity of 180,000 tonnes and the production will be directed both to the Romanian and Eastern European market. My take is that what they considered in choosing Calarasi is the presence of cheap labour that can be re-qualified (still), the distance to Bucharest which is relatively short and the Danube which is in the proximity, permitting quick and cheap transportation.
Yesterday Bucharest Business Week organized a seminar session about Romania's integration in EU. While you could read more about the highlights here, it should be noted Mugur Isarescu's scenarios (the Central Bank Governor) regarding Romania's catching up with EU. The good scenario with Ro GDP increase of 5% and EU GDP increase of 2% implies Rom-Eu convergence in about 50 years. The better scenario involved an additional assumption of a stable exchange rate diminuation of 3% leads to a convergence in some 20 years.
This is the raw data, however, I have the sensation that the problem per se may be perceived from a different angle. It appears to me as if it was a competition with the leading runner taking a considerable advanced position. While it is true that there are several standards Romania has to comply with and several conditions it has to fulfill in order to be part of the EU, it is implied that being EU-admitted will mean a better living standards for Romania. I disagree, i think that the EU admission is just a mean not an end and several additional problems will arise anyway when its time will come. The EU accession should be just a (small?) part of a national strategy for turning around the economy by finally restructuring it, making it functional, deciding about the State competency(ies) (and focusing on it accordingly) and promoting a healthy environment for letting the private companies competing on theirs.
Besides being reactive at EU compliants, the government should proactively look at the big picture and execute a strategy that includes the EU standards as part of the rules of the game in a functional market economy. There's no evidence of doing this so far. A small example is the e-Governemnt initiative, which they boast to be the first one in CE Europe, and, more important, to be functional. Nobody says anything about the usability rates and about the promotion tools used for making a good use of it. My guess is that nobody followed up on the execution. The tool is there and apparently very few individuals make use of it. I intend to look more into it and will post details about it.
Well it looks like it is official now, Citibank is the appointed investment bank to take charge of finding a buyer for Cosmorom. Quick facts as a reminder: Cosmorom has operating losses of about EUR 7m, and declining market share of about 85000 customers in a 9 mil. potential clients market. According to Dan Nica, the Romanian communications minister, Cosmorom needs between 100 million and 150 million euros to extend its coverage from 53% to 80-85% of the country to match rival networks. Nevertheless, here is what Nic Oaca, a communication industry analyst, in a message from Romania Economics says:
"CosmoRom needs much more than E150m to have a good coverage to compete with GSM90 operators. GSM operators invested more than $750m each for a 96% pop coverage, while Cosmorom...Do not forget using upper frequency band is more expensive (antennas ..) Maybe E150m could help CosmoRom to repay debts. CosmoRom is to be bought, but expensive to renovate..."
I am always overwhelmed by the Romanian officials' optimism.
Alex from Ulmablogger signals about OJR's website as having a similar design to Onlinesport's - a sport news portal. I happen to be familiar with the Romanian sport news environment from the virtual space as I used to follow it pretty close in the last 3-4 years. Besides the online editions of the sport newspapers, there are two main portals providing latest sport news and discussions covering Romanian area - this one and Totalsport. While Onlinesport was founded earlier (with a different design though) people would always pend between its live transmissions and the news and discussions forum from Prosport. Then the quality of Prosport's forum started to deteriorate, perhaps also because of the its sale to Ringier. Consequently people started to migrate to Onlinesport.
Then Totalsport was founded and some of the people started to switch while some would use both. Nowadays opinions are divided among people enjoying the more sober style with more objective comments, live transmissions and apparently serious (and moderrated) discussions from Totalsport and readers more comfortable with a freer way of speech from the forums and just facts-type of news from Onlinsport.
Now, this is the context. I wouldn't have made this comment if I hadn't noticed in time Onlinesport's aggresive way of promoting its "new and slick" website which claimed to be proffesional and the best in what they do, at the cost of denigrating its competition. Put this together with the plagiarism accusations (if you look at Onlinesport vs. OJR it is evident) and we have a somewhat big picture. I am curious to see what the outcome of this will be and how the story go. I also recommend www.plagiat.ro for reporting the similar designs.
I cannot finish the day's comments without mentioning Lia Roberts' running for this year's presidential elections. She is a Romanian who used to live for a long time in USA, and has as main strategist Dick Morris, former campaign advisor for Clinton and Putin. Today's newspapers comment that her appearance for officially announcing her candidacy was rather improvised, without a clear political message and full of mistakes. Here is the link. (Romanian only).
While the Romanian media comments in several ways her candidacy, I tend to agree with commentators claiming that she is just behind the PSD's (government party) maneuvers for stealing away votes from the main opposition alliance. Time will tell.
UPDATE: Alex from Ulmablogger also points to a link from CNN commenting on this.
Another interesting piece of news from today was Romtelecom's payment of about $24m in debt for Cosmorom - its mobile operator. The money went to Alphabank ($10m out of $24m) and ING ($14m out of $15m). Presently, Romtelecom, which is the main Romanian telecom provider, is screening for an investment bank that supposedly would find a buyer for its bankrupt mobile operator.
Romtelecom doesn't appear to be in a favourable position since the market deregulation in January 2003. While the European telecoms announce higher results for Q42003 and estimate promising returns in 2004 (mainly from mobile operations and broadband), the Romtelecom's fixed line business unit and the main revenue driver is facing tough competition from the newly emerged players (mostly VOIP-based). In 2002 Cosmorom, the mobile service provider, lost about 35% of its customers, with losses of some 20m euros. In 2003 the operational losses were about 5 mil. euros. No news from the broadband segment, neither in the past nor in the future. Shareholders publicly announced that they won't invest a single cent in Cosmorom (that is basically the reason of the bad shape) and consequently started looking for a divestiture. The process prolonged though, and officials announced to take a decision sometimes next month. Now, the question is: is the effort worth?
Well, the mobile business environment in Romania is quite competitive with two main GSM players having about 6 million subscribers - Connex and Orange. Also, in 2001 a new mobile company - Zapp - operating under the CDMA standard was launched, but the market acceptance doesn't seem very impressive. In this context though, there are about 3 more million subscribers to fight for, so the market potential is there. In addition, the rate of increasing subscribers was one of the highest in Europe in 2003. As such, Cosmorom appears to have good chances of grabbing some market share in the turnaround case and become the revenue engine for Romtelecom. Perhaps finding a strategic partner would be a wise decision for the turnaround, especially because of the necessary expertise in the infrastructure investments. Otherwise the perspectives are grim, Romtelecom would probably have to reconsider its entire strategic positioning in the Romanian market.
It looks like Akela confirms one of the earlier comments from last week about software companies turning and exploiting opportunities from other segments, this time from the Romanian market. According to BBW, Akela signed a consulting contract with Caroli - a local sausage producer - for advising on choosing an ERP provider, testing and implementing the solution. While Akela's core competency is software development, it is interesting to see how it is testing the waters in the consulting and solution implementation segment.
This is a smart strategic move, especially from a small player such as Akela. The competition in this segment is still in its infancy, with few big names mainly fighting for big accounts. It looks like the big guys in the industry are still considering that the SMEs pie is not big enough, and consequently are not making a move. Yet. However, i am expecting the competition to increase, especially with the Accenture's appearance, which - according to industry rumours - has started the preparations for opening an operational office in Bucharest since last summer. Except for some conferences' appearances of Mr. Viorel Batu, no specific contracts publicly announced. So far.
Here is indeed the link of the week: someone had the idea of having Romania as a country for sale at Ebay. The ad says:
"The government of Romania's biggest fear is to "sell the country." They do whatever they can to make foreign investment difficult. Perhaps they are afraid someone will buy it, fix it, and then make it hard for the crooked government to have it good."
Apart from the comic of the situation I should add that back in the beginning of the 90s "we're not selling our country" was the favourite populist slogan of the former communists - usually people from the 2nd and 3rd layers of governemnt or public administration - when agitating and manipulating the crowds against any reformistic measure anybody would come up with. It is interesting to notice that in spite of the sarcasm and bad feeling a foreigner not familiar with Romania would take away from the ad, most people who went to Romania remained pleasantly surprised by the fact they can have a relatively Western-like lifestyle at a very cheap level, by friendly people always happy to talk to them or show around (beatiful women :)) and by lots of interesting places for all tastes.
What Romania lacks badly now is a healthy business environemnt given by a consistent governmental strategy (now it is just reactive rather than proactive) and a proper marketing tool for a promoting several opportunities that would make a good investment.
UPDATE: EBay has removed the link, you can find entire ad text here. (via http://www.troniu.dk/bilciu.php)
Second conference from Tuesday night gathered some important Romanian software representatives. People talked about outsourcing as a short term strategy bringing good money and yet permitting specialization and getting knowledge and expertise in several verticals.
Several strategies were enummerated, ranging from IP Devel's one on focusing on niche segments by opening offices in the target markets to Kaleidotek's acquisition of a local company for establishing a Belgian presence. I pretty much liked Radu Georgescu's position (from Gecad - the man of 2003 for the deal with Microsoft) in comparing Romania and India in terms of programmers' ability, and arguing that India is not a model Romanian firms should follow in the outsourcing case. "Romanians are better in terms of not only being faster but also being more inventive. We [Romanians] write better code, have lots of great ideas and our only chance is capitalizing on them. India is more like a tax heaven (which is very true compared to the Romanian burdened fiscal policy) with a good management and a better governmental approach."
As soon as you open up an IT firm in India - be it a one-person one located in an apartment, you get 0 (ZERO) tax for export. I will post soon more details about what paying taxes means to Romanian SMEs. Also, Indians are cheaper (according to Radu a programmer can be paid as low as $50 per month) and they have the industrial clusters mostly in the IT field (aka technological parks) but not only that allowed the knowledge spillover from the multinationals outsourcing their operations in there.
On Tuesday I attended 2 very interesting seminars at the Hilton hotel in Bucharest: one about the Romanian technology-intensive industry and another one about the future of IT outsourcing from the Romanian firms' perspective.
The first one consisted of 2 parts, one that considered more the macroeconomical perspective and the other one the market dynamics and its drivers. There were several statistics that I found very interesting:
- The Romanian IT industry presently accounts for about 9% of GDP. (8.4% was the most specific figure)
- The structure of the IT industry is still favorable to the harware industry - about 70% versus the remaining 30% for the software.
- In 2003 the Romanian software industry was valued at approximately $170 mil. with a 30% margin.
- the Romanian IT spending per capita was in 2003 about 35 euro, quite low as compared to the one from Hungary (more than 200) or the EU average (about 600).
It is interesting to note Varujan Pambuccian's prediction of the increase of the IT industry value to 15% from GDP over a 10 year period. This is ONLY in the context of the appearance of at least 20 IT brands (mainly software) from 2 or 3 at the present (the famous RAV sold to Microsft last year or Softwin's Bit Defender) to about 20, AND, more importantly, of a revised strategy in the education area for bringing in enough incentive for competent educators in order to keep the good tradition of the programmers graduating from Romanian universities.
