Hundreds of brave investors from the Netherlands are moving east, but not all firms may be prepared to fill in thousands of pages of documents just to export a truckload of chairs
A shift eastward is happening in Europe, argues Lotte Schippers, second secretary economic affairs and the environment at the Netherlands embassy, and this will see increases in not just trade, but also investment.
What only remains is the ambitions and pragmatism of Dutch firms and whether they want to take the risk on Romania.
Trade is “stable, but rising slightly,” she says. There are also around 1,700 Dutch companies registered in Romania and FDI in Romania is a whopping 1.8 billion USD, but many of these companies are from outside of the EU, using Holland as a vehicle for investment. This is because, while the European Union has open trade agreements with Romania, global firms prefer Holland as the tax regime is favourable to companies in terms of profits and liabilities.
“Cheap labour, a highly qualified workforce for companies who have rising expenses, and need to outsource some of their operations, particularly in manufacturing are why firms are investing in Romania,” she says.
Rather than outsourcing as a way of reducing jobs in her own country, Schippers argues that it is possible for some industries, such as furniture makers, to relocate their manufacturing to Romania and still manage to employ the same number of staff in their Dutch operations.
“We can see Romania becoming a transport hub,” says Schippers of the nation's status as a crossroads, “and see opportunities by rail and road and by ship in the future.”
But there are drawbacks, especially in the unpredictable legal system and problems with VAT refunds, where firms in Holland who have operations in Romania are taxed on re-importing products back to the Netherlands. The length of time and administrative delays in gaining these refunds are unacceptable to some firms.
Obtaining permits can take too long and, in the past, the total number of documents needed to process import and exports can amount to around 8,500 pages.
For the liberal Dutch, who are sticklers for clarity and conciseness and as little paperwork as possible, this can prove too much.
In 1994 international shipbuilding firm Damen started co-operating with Galati shipyards by sub-contracting the production of cargo vessel hulls. This co-operation worked so well that, in 1999, the Dutch Group decided to buy up the yard from the State. Now Damen Shipyards Galati has a total surface of 54 hectares, 2,950 employees and a production capacity divided into a dry dock, a Danube slipway for side launching and a basin slipway with one single mounting line for building vessels.
“Damen is able to deliver annually about 20 to 24 vessels such as cargo vehicles, oil and chemical tankers, research vessels, navy vessels, barges and tugs,” says Gelu Stan, its managing director in Romania.
With a turnover of 72 million Euro and a 10.4 million Euro profit for 2004, Damen has so far invested only 26 million Euro in the shipyards and this year plans to invest three million Euro in modernising its infrastructure.
The firm chose Romania “for its tradition in naval constructions and because the labour force is cheap,” says Stan.
For 2004 Damen Galati had sales of about 400 million Euro and orders until 2007. The Dutch company had wanted to expand into purchasing the Tulcea shipyards, but was beaten to it by a Norwegian firm.
On the back of Damen Galati, electric installers Eekels Romania specialises in services for shipbuilders. Since opening in 2001, the firm has made a two million Euro turnover in Romania and a 400,000 Euro profit for last year, says general director Henk Jager.
Last year the firm opened its own electrical panel building facility and now has customers in Ukraine and China.
“We want substantial customers on the domestic market,” says Jager, “we're hoping to grow, not directly by having more staff, but increasing productivity.”
Laying the foundations
Early investors ABN Amro and ING have chosen an organic path to develop, expressing no interest in past or future privatisation of state banks or buying up the smorgasbord of smaller banks on offer.
Since launching retail banking in July last year, ING Romania has signed up 50,000 new customers in its retail network of 40 branches, which the bank estimates to increase to 75 by the middle of this year.
“In the next years we will see consolidation in the banking market,” says Dirk Serbruyns, country chairman ING Romania. “At present the top ten banks have 80 per cent of the total assets and the next 20 per cent have a lower market share than three per cent.” In typical central and eastern European countries it is common, he says, to see seven or eight large players on the market, which could happen in Romania.
Now the fifth largest bank on the market with a market share of 5.62 per cent, total assets more than doubled last year from 2003, exceeding 1,275 million Euro. “We're growing faster than the market at the moment,” adds Serbruyns.
First arriving in Romania in 1994, on the back of global Dutch firms investing in the country, ING then started to offer life insurance products in 1997 and retail banking last year. ING Life Insurance registered 75.9 million Euro in premium income, while total assets reaching 167.6 million Euro. The bank will also be looking into the private pensions market soon.
Serbruyns stresses that everything has been a greenfield investment. “The advantage is that you can pick your own clients and do not have organisations you might not want to see in your own portfolio,” he says. In Romania, the bank targets medium-sized companies with above five million Euro in turnover, who are sometimes being privatized or taken over. Then, when it can, uses its global network to help keep all transactions in-house.
Since July 2004 the firm has offered retail banking services, with its SelfBank option, which means deposits and withdrawals and some e-banking can take place at a screen inside the bank. After hiring 150 more staff next year, the bank now has around 800 employees and 2,000 consultants selling ING life insurance products.
Opening in Romania in 1995, ABN Amro has offered retail products and services to consumers since September 2004, the sector where chairman of the board Henk Mulder sees the largest growth.
With 500 employees, around a five per cent market share and fifteen branches around the country, he says the bank will need more and initially plans to open two to three by the end of the year in Bucharest.
“The point is not to have a lot of branches,” he says, “but to invest in Internet banking, call centres and direct sales agents who go straight to the workplace. We don't want people to stand in line to get along with us.”
In corporate banking, Mulder says the energy sector offers the greatest possibilities, because of the richness of its potential and restructuring opportunities, while private banking should launch by August this year.
“What the corporate banking sector needs is new products,” says Mulder, “the security market needs to develop and to be more liquid and the debt insurance and derivatives also need to grow. Now there is greater focus on the lei and more interest rate lending as the lei becomes a more interesting currency. The strengthening of the local currency happened in Czech Republic, Hungary and Poland, so will happen here.”
ABN Amro's global strategy is to enter large developing countries, so it does not have a presence in Bulgaria or Moldova. But could the new Ukraine be next? “Let's see if it's sustainable,” says Mulder.
Is business flying high?
“The airline product is still considered a luxury service and it's not taken into consideration as a primary means of fast and safe transportation, therefore we believe that consumer market has had only a marginal growth,” says Alexandru Dobrescu, general manager of the Romanian branch of KLM.
In 2004 KLM transported more than 200,000 passengers to and from Bucharest and has three daily flights between Bucharest Henri Coanda and Amsterdam Schipol.
“The business-travel segment is still at a low level in Romania compared with other European countries and the average tourist segment is based only on low-budget,” explains Dobrescu, adding that he does not see any major increases in the take-up of either of these offers.
“Airlines are a very sensitive barometer reacting to the ups and downs of a country's economical development,” he adds. “KLM Romania has recently increased the number of flights as a result of demand for air transport, in the light of a rapidly and positive economical change, in favour of business and leisure travel. Next year we do not plan another increase in flights, but if the market demands it we will.”
Meanwhile Dutch aeroplane producer Stork Fokker currently operates a joint venture of the Romanian plane producer Aerostar Bacau to process aircraft mechanical components, with Aerostar owning 51 per cent of the company and its Dutch partner the rest.
A regional capital
Looking for a centre for trading and production in the central and south European region, global personal care, cleaning product and food firm Unilever chose Romania.
It was the nation's size and its attraction to western brands that convinced the multinational to make a firm commitment to the country, where it now launches a different product almost every week.
The firm bought out local detergent company Dero factory in Ploiesti in 1995 and now produces Delma and Rama margarine in a factory in Targu Mures and most of its Knorr products in an Otopeni-based facility.
“Today Dero is volume market leader and is purchased by every second household at least once per year,” says Martina Kastler, chairman of Unilever south central Europe, where the local strategy includes targeting families with incomes below 150 Euro per month household (about the national Romanian average).
“Across south central Europe there is still much work to do to develop our brands to the level of Romanian's market shares,” says Kastler. “This development requires heavy investment and a range of launch and re-launch activities to keep the portfolio up to date.”
Unilever also has factories in Bulgaria and Serbia. Unwilling to disclose whether a new factory is planned, Kastler says that the Ploiesti and Targu Mures units still have large spaces of empty land next to them, so could be extended.
The firm has invested 125 million Euro in the central and eastern European regions, which saw a small profit and a 95.3 million Euro turnover for Romania. “But we are still in investment mode,” says Kastler.
Green field possibilities
With enormous forests, wine regions and an expanse of pastoral, arable and cheap land on the one side, but a fragmented system of ownership and a lack of quality control on the other, investment in agriculture from abroad will need to be massive to turn the nation into a cash cow.
Currently the Netherlands sells Romania planting materials, cut flowers, tulip bulbs, vegetable seeds, fruit trees and gives expertise in greenhouse manufacture and irrigation.
“There are low labour costs, lots of fertile land and quite a good climate,” says agricultural attaché to the Netherlands Embassy Meeures Brouwer who sees future development in dairies, fruit, vegetables and flowers.
Now there are more than one million farmers with only one hectare each. Ambassador Pieter Jan Wolthers adds: “This is not a proper basis in which to join the agricultural market. We need larger production units and to consolidate the land, then Romania will be in a better position to compete and export.”
Currently farmers are starting to pool their resources in cooperatives and new legislature gives families, who do not have a successor, financial incentives to sell their land over to larger farms, as well as subsidies for enterprising agriculturalists.
Netherlands-founded ecumenical development firm Oikocredit lends mainly to agricultural entrepreneurs so co-operatives of between 1,000 to 2,000 hectares can buy, say, a tractor or combine harvester for up to 200,000 Euro. The organisation is seeing most of its loans go to crop production.
Many Dutch firms are also looking to buy or lease local land or invest in farms, milking parlours, genetics and stables.
In investment, Brouwer sees potential for growing animal feed, which helps develop the pig and poultry market. Entrepreneurs from the Netherlands have also started to grow their own tulips locally.
One problem is that raw milk quality needs to improve and refrigerated as soon as it leaves the cows. At present only three per cent of Romanian dairy and processed meat production units conform to EU standards. So, on 11 May in Cluj-Napoca, the Dutch Embassy and the Ministry of Agriculture is organising seminar on milk quality.
Dairy product firm Friesland Romania is now, with around 20 per cent of the market, consolidating its local operations. The firm has eight dairy plants in Transylvania and Banat, annually processing 160 million litres of milk. For 2004, its turnover was around 71 million Euro, 17 per cent higher than 2003.
For 2005 General Manager Gerbrant de Boer says that his firm “will intensify our branding activities focusing on [chocolate bar] Dots and [dairy brand] Milli. We will continue our programme to upgrade our production facilities and to increase our national distribution coverage.”
E-business gets a grip
E-business solution firm Exact Software Romania offers companies a complex e-business application that automates business processes on each level of activity. The firm says its e-business solutions represent the evolution of Enterprise Resource Planning (ERP) to a higher level of technological development.
“The Romanian market started to understand the benefits of such integrated solutions and identified the huge potential offered in office automation. In my opinion, e-business has a bright future in Romania, a result of a demanding market for high efficiency globally integrated solutions,” says Petre Maran, the company's general manager.
In 2004 Exact Software invested heavily in developing its team and adding new staff, bringing in a 20 per cent growth in revenue and 40 per cent growth in profit compared to 2003.
“We have developed strong objectives in line with the group strategy and objectives which stated that our revenue, profit and head-count will double,” says Maran, adding that the figures for the first quarter of 2005 show the company is transcending this forecast.
Start of work on the Brasov-Bors motorway by American-firm Bechtel represents a great potential for aggregate firm Grandemar, a Dutch-Romanian initiative.
“The location of our quarries and their large production capacity make Grandemar the most important supplier of quarry aggregates for half of the motorway length at least,” says Carmen Ionescu, general manager of Grandemar, which has just made a new investment of around one million Euro to back up the new opportunity.
Mainly active in the extraction, processing and merchandising of ballast-pit aggregates, Grandemar has seen demand for its materials in railway maintenance, construction, reform and repair of roads.
The company turnover in 2004 exceeded four million Euro and will increase in 2005 at 5.5 million Euro, Ionescu estimates.
Headquartered in Cluj-Napoca, the 80-person company operates eight quarries in the middle of Transylvania and in the ballast-pits Luna and Rascruci.
In 2001 the firm invested around three million Euro in the opening of the Poieni Quarry with a complete crushing-granulating and sorting installation with a large capacity.
International logistics operators Rynart is opening a new distribution centre 23 km west of the capital Bucharest by the end of 2006 in a 30 million Euro investment for the first phase. The firm says the warehouse will be the largest in Romania, over 20,000 sqm with a total of 57 loading docks, while preparations will be made for a future cold storage facility. The firm plans to employ around 150 staff.
The reason? Rynart's customers see Romania as one of the next markets worth their attention.
“Creating our ‘own’ logistical operation instead of operating via a distributorship is one of the first steps to getting a better market coverage,” says regional development manager Willem van der Vegt. “Bucharest is the most important economic centre and is located where it can not only handle deliveries to the eastern part of Romania but could also serve a part of the Bulgarian market and other parts of south-eastern Europe. The western part of Romania can be handled from Hungary or from Bucharest.”
Logistics service provider Centrum transport will soon plan to invest around two to three million Euro in several big Romanian towns, says Marc Paulissen, general manager Centrum Romania, now based in Oradea.
Having so far invested five million Euro in Romania, Centrum will this year open a 15,000 sqm Logistics Center in the Bucharest Militari area. Its turnover locally last year reached around 5.8 milion Euro.
A new transport corridor could bring opportunities to the area, or maybe not.
“The shortest link between Turkey and Western Europe is not via Romania, but via Bulgaria,” says Paulissen. “So we believe that Sofia will become a more important place [for transport]. But its disadvantage is that it is a big capital of a small country. Bucharest is the second option after Sofia, but is an expensive town and too far away for the importers of goods from Western Europe, who want to distribute their products inside Romania.” He adds that Bucharest is, however, ideal for trade with Turkey.
Global sealant producer Den Braven started-up its distribution network 1997 and has since invested 2.5 million Euro in Romania and the Republic of Moldova, including 92 employees and a fleet of 70 vehicles.
“For the next period, the focus is set on owning our own premises, since its seven branches are rented,” says Adrian State, general manager of Den Braven Romania, who says investments will continue in expanding exports to central and eastern Europe.
The Dutch company has approximately 50 per cent market share in Romania's silicone and polyurethane foam segment, which is aimed at the building industry, the double glazing unit industry and the DIY segment.
Logistics firm Van der Vlist International Group's Romanian subsidiary has three divisions in logistics, international (and heavy) transport and services and a new 1.5 million Euro railway terminal in Bucharest.
“Some of the most unusual pieces of equipment transported by us here weigh 150 to 350 tones or were 50 or 60 m-long with 12 m of height,” says Klaas Scholtens, the company manager for north, central and eastern Europe. A growing demand for capacity provoked the firm to set up a railway terminal, which will receive a further five million Euro investment over seven years.
“This way containers entering the country through Constanta harbour can be transported by railway to Bucharest and the owner can deposit it here until he manages to sell all the merchandise in the cargo,” says Scholtens.
The manager believes one way to boost Romanian heavy industry is to cut transport taxes: “Production costs are low, but transport costs can be high because people have to buy permits from the road administration, that can sometimes be 50 per cent more expensive than in Western Europe, so why then produce in Romania and try to export?”
Since 1995 Quadra Invest has produced and exported pine furniture, delivering to retailers globally. Located in Targoviste, under the brand name 'European Heritage' the firm plans to invest in more intensive marketing in Europe.
In 2004 the company achieved total sales of 6.2 million Euro to more than 70 customers mainly in the USA, UK, Ireland, France and Holland but also to Japan, Korea and Australia.
“Quadra's exports represented 0.8 per cent of the total Romanian furniture exports last year,” says General manager Gijsbert Huijink.
“Furniture in Romania has a good base and a good future due to the availability and quality of timber, craftsmanship and its proximity to the major European markets,” he adds.
A taste for business
Margarine producer Royal Brinkers has posted a 12.5 million Euro turnover and a profit of 800,000 Euro for its Romanian subsidiary, according to director Petru Teodorescu, and last year branched out into frozen dough production. So far the Netherlands group has invested 7.5 million Euro in Romania since 1996.
Meanwhile confectionery and sugar firm Perfetti van Melle will open a new factory in Cluj next month, manufacturing products for Romania and international export, in a total investment worth 2.5 million Euro.
The global exporter, producer and distributor of sugary products in Romania has invested almost five million Euro in Romania, and this year plans to promote its main brands, such as chewing gum Happydent and launch a new product.
“With a seven million Euro turnover for 2004, the [Romanian] company had no profit, which was within our business plan. This year we plan a turnover of eight million Euro and to make a profit,” says Szalma Csilla, director of Perfetti Van Melle Romania.
Wine producers Vinterra International have so far invested two million Euro in Romania. General manager Theo Jansen says Romania will see more bag-in-box packaging, the Vinterra range for the competitive segment, expansion of the vineyards, an improvement in the wineries and a new tasting room for groups and tourists.
In constructing warehousing and production facilities, one Dutch contender has exploited the growing market for large scale, quick to assemble and cheap to erect prefabricated buildings.
With operations in Holland and Poland, building systems firm Remco, part of the Janssen de Jung Groep, opened a sales office in Romania at the end of 2003, having been a local supplier since 1996.
Remco builds light steel buildings, determined in price by the kilo, which are sent over from the Netherlands in a kit form and then assembled by local subcontractors. “This is western-style engineering and expertise, erected at local wages,” says managing director Remco Romania Jan FJ van Vulpen.
At first the firm was reluctant to enter the Romanian market, due to unfamiliarity with the legal and political environment and problems with logistics “until the pressure from clients became unbearable,” says van Vulpen. Now, with 45 projects finished or in the process of completion for companies such as car parts manufacturer ACE automotive group, wholesalers Arabesque, logistic firm Centrum and, most recently, a pasta factory for Arnos, van Vulpen says: “business is rocketing like hell.”
In the future, he sees growth in constructions for the FMCG market, as consumer demand gains sophistication, and also in meat processing and stabling, with future EU investment arriving to take advantage of Romania's large agricultural potential. “Now the wages in the new EU countries are getting too high too fast, the second wave of production companies is coming to Romania, Bulgaria and the Ukraine,” he adds. “But when Romania joins I do not think the wages will go up so fast, there are another five to ten years of competitive advantage here compared to the Czech Republic or Hungary.”
Van Vulpen says the firm is in the middle of transforming into a construction company and the target for 2008 is a ten million Euro turnover for Romania, similar to its current operations in Poland.
On the potential for Dutch business in Romania, van Vulpen thinks a change in mentality may be in order. “The Dutch have no problem with jumping on a plane and travelling to the Canary Islands or Florida, but ask many of them to jet to Warsaw or Bucharest to look for business opportunities and they reach a psychological barrier,” he says. “Don't come to Romania if you don't want to, but don't then come to me and complain that your profit margins are only 0.3 per cent.”
A drink and a place to crash
While managing Lipscani-located Amsterdam Cafe and opening new Rembrandt Hotel, Jerry van Schaik will not take a breather this year, but instead aims to help run a new terrace in Piata Revolutiei with ING Bank.
Amsterdam Grand Cafe opened three years ago by a group of Dutch, Romanian and Belgium friends who decided to run a bar together. After this success and noticing a lack of decent three-star accommodation in Bucharest, one of the Dutch partners and van Schaik opened the new Rembrandt Hotel in a one million USD Dutch investment.
“The Dutch are usually weekend people, and when my friends came to stay in Romania they were surprised at people stay up late even during the week,” says van Schaik, who in looking at cultural differences has noticed that the Dutch, unlike Romanians, tend to be more aggressive after a few drinks.