November - 2005



Come on over

High growth, millions of hungry consumers, a relatively stable Government and EU membership in 14 months. So, asks ‘The Diplomat’, why are so many multinationals staying away?

            Romania is not perfect.
            Its roads are bad. The poverty is rampant. The middle class has not grown as fast as many neo-liberal commentators have forecast.
            But in shopping, hotels, banking and cars, major successes have been registered by the few multinationals who took the risk of coming here.
            Yet many brands, present in neighbouring markets, are conspi-cuous by their absence in Romania.
            Tesco, Sheraton, Radisson, Mediamarkt, Spar, Ikea, H&M and Electroworld, for example, have yet to take that final step.
            Therefore The Diplomat examines who is here, who is absent and reasons why they will be coming, or will not be.
            Corruption does not seem to be a problem. While this is a domestic issue harming the day-to-day life of Romanians, it is unlikely to put off investors.
            “I have not heard any potential British investor say that they will not come to Romania because they consider that corruption will prevent them from running their business successfully,” says Ray Breden, chairman of the British-Romanian Chamber of Commerce.
            If a multinational company has to pay a big bribe to someone to enter the country, it can just leave and go to another. Romania may need it more than it needs Romania.
            However, at the gateway to entering a country, heavy and convoluted bureaucracy could deter investors.
            Bad press, contributing to a poor image abroad, has also made some multinationals decline the invitation to invest. Roberto Musneci, president of the American Chamber of Commerce Romania, says the media has not recognised the progress the country has made in the past few years and months.
            “Bulgaria has overtaken Romania in its image development,” he adds.
            Selling the country on the facts may help.
            “The level of needs is high,” says Musneci. “The growth and wealth is increasing - among the highest growth in Europe. Monetary policy has been very stable.”
            Romania is not the only developing country in the world. Nor is it the fastest. Although its growth rate compared to other European countries is pretty good.
            Breden says that UK investors, while placing Romania on their list of potential markets, do not always put the country at the top.
            Therefore something beyond Romania's control - other, better markets for multinationals to conquer - is an impediment.
            Parts of China, India and the Middle East are growing at a rapid pace, and their rich minorities often follow the trend of assuming the tastes of the west in terms of automobiles, hotel accommodation, shopping and dining.
            So international firms are diving into these countries and making Romania wait that little bit longer.


(with a branch presence)
Societe Generale, HVB, Unicredito, ING, ABN Amro, Raiffeissen, Citibank, OTP

Credit Agricole, HSBC, BNP Paribas, Royal Bank of Scotland, Barclays, Rabobank, KBC, Santander, Fortis, Dexia, Deutsche Bank

            Romania has been prevented from becoming a fully liberalised banking market over the last five years owing to the fact that over 25 per cent is still in state hands.
            The last chance for a bank to gain a major foothold will be the purchase of the two state banks, Banca Comerciala Romana (BCR) and national savings bank CEC, which has a vast network.
            Only three of the top 20 global banks by capital have a significant presence in Romania: Citigroup, ABN Amro and ING, as ranked by magazine The Banker in 2004. 
            Notable absentees are any Swiss or British banks, as well as most of the French and all the Belgians. 
            Instead it is Austria, Greece, Turkey, Societe Generale and the Netherlands who have moved in pretty fast.
            “A big international bank is missing from Romania,” Steven van Groningen, president and CEO of Raiffeisen Bank Romania tells The Diplomat. “Of course here is Citibank, but it seems it does not consider Romania an international market yet.”
            BNP Paribas, with a presence in Bulgaria, Poland and Hungary, is one of the most obvious absentees. Although it has a representative office in Romania and its credit arm Cetelem recently bought Romanian consumer credit company Credisson, its only recent venture is becoming a bidder for BCR.
            The Brits are also staying away.
            Maybe the small and tricky east European markets are not big or easy enough for them to tap into. Only HSBC is present in the region and only in Poland.
            Meanwhile a spokesman for Royal Bank of Scotland tells The Diplomat: “We have no interest in Romania nor do we have any plans to expand into the eastern European market.”
            He added that Romania's joining up to the European Union would make “no difference” to this decision.

            A bidder for both BCR, and now CEC, is Austria's Erste Bank, which is present in Hungary and Serbia and has a strong focus on retail banking.
            Andreas Treichl, the bank's chairman of the managing board, tells The Diplomat the bank can offer a “satisfying price” and can provide a “more profitable business plan” than the other suitors.
            Romania is the biggest light pulsating on its radar screen at present. “We do follow what's going on in the whole central and eastern European region,” says Treichl, “including Ukraine, but there are currently no other concrete targets - we are fully focused on Romania.”
            Banks are still attracted to this country's high growth, large market and trade opportunities. Corporate and consumer financing demands also still give a lot of scope for development.
            Brussels-based banking and insurance provider KBC has a strong presence in central Europe and is smart to the demands of such a purchase. With Romania under its microscope, it has noted its steady economic progress and now sees the country as a front runner in the second wave of EU accession countries.
            “KBC has identified [these nations] as the single most important driver for securing its leading position in its extended home market - central and eastern Europe,” Andre Bergen, CEO of KBC tells The Diplomat. Bergen, who is responsible for the bank's east European strategy, says Romania is a “top priority”.
            Currently KBC is present in Slovenia, Slovakia, Czech Republic, Hungary and Poland and in order to enter the local market, the bank is keen to join forces with a “strong domestic bank” says the boss. 
            Joining the EU is likely to give these countries above average growth, so there is only 14 months to get in before the door closes.
            “It is much more difficult to enter and achieve a significant market share in a mature market than in a fast growing market,” Bergen adds.


            KBC has decided to pull out of the race to buy BCR, but Bergen says setting up a greenfield operation in Romania could be on the cards.
            The organic option means upfront investment is lower and the bank has greater corporate freedom to set up its own products and services. For KBC, the bank also says that moving into Romania is a natural extension of its existing presence in the region. “Hence, a greenfield operation is definitely a possibility,” says Bergen.
            However he concedes that focusing on pure organic growth takes more time and energy, especially when trying to gain a significant market share.
            Setting up a bank from ground zero may not be such an easy option anymore, says Raiffeisen's van Groningen.  “I think it will be almost impossible to acquire a significant market share through a greenfield entry in Romania,” he says.
            At the same time some of the smaller private banks on offer may be too tempting a purchase to miss out on. “Anyone coming through a greenfield investment with a long term interest will sooner or later start looking around for a possible acquisition,” van Groningen adds. “There are banks already active in Romania that deserve a try from this point of view.”
            Specialist in local authority financing and with a universal bank presence in Belgium, Luxembourg and Slovakia, Dexia is currently bidding for both BCR and CEC.
            Stephane Vermeire, head of Dexia's Business Development, tells The Diplomat that along with its size and growth rates, Romania fits into Dexia's business profile.
            “Dexia considers Romania as a country with low banking penetration for retail banking and with important infrastructure needs,” he says.
            BCR would give Dexia the chance to capture a significant market share in one fell swoop and create a “significant position” in central and eastern Europe, says Vermeire.
            But with CEC, he says the business case is completely different.
            “The main advantages of this bank are the name, its vast branch network and the value creation potential given the limited product offer today,” he adds.
            With claims of being a world leader in financing local authorities, Dexia opened a marketing office in Romania (Dexia Kommunalkredit Romania) earlier this year and, if it fails to purchase either of the top banks, the bank says it will continue to develop its public finance activity in the region and “investigate other options.”
            But on whether the bank would consider a greenfield investment, Vermeire says: “It is too early to talk about this. We still consider BCR and CEC as the most attractive options.”


McDonald's, KFC, Pizza Hut, Gloria Jeans

Dunkin Donuts

Burger King, Starbucks, Haagen Dasz, Domino's, Coffeeheaven

            Virtually risk-free, a guaranteed cash flow and knowledge that the brand is being stretched to the limit, without spending a cent.
            Yes -
            It's franchising. The tool many international cafes, restaurants and take-aways now use to muscle into developing markets.
            In Romania, McDonald's is the exception to this rule and it took until last year for the company to post its first annual profit, after ten years of local operations.      
            Rival Burger King, which mostly runs through international franchisees in developing countries, has yet to come to Romania, although in eastern Europe it is present in Hungary.
            “We are constantly looking at new opportunities where the Burger King brand can expand and this has included some research on Romania,” Brian Johnston, franchise contact for Africa, Europe and Russia at Burger King tells The Diplomat.
            Johnston says franchising would be the “most likely” model for Romania and the candidates could come from either inside or outside the country.
            Partners for Burger King are those who can 'build out' a particular market, such as a town or city, says Johnston. This means a development of many restaurants in a series of locations in one market place.
            “As an example a franchisee will have a development target to 'build out' all the possible restaurants in, say, Arad in three years' time,” says Johnston.
            As well as having a passion for the brand, customer service and leadership skills, a franchisee needs, according to Johnston, “a level of financial resources to be able to develop a number of restaurants in a short timeline.”
            So that's anyone with cash up-front and an iron will.


            Romanians drink a lot of coffee. The cult of the sit-down coffee shop has become a favoured place to languish for the nouveau riche. And as for investors, well, once the unit is hired and the interiors designed, the profit margins are gorgeous.
            But the trend of take-away coffees with a plastic lid has yet to rise.
            Some entrepreneurs have tried, some have failed, yet no foreign chain has made a large step into the market.
            Mother of the global coffee revolution, Starbuck's, is yet to capitalise on eastern Europeans' appetite for the bean, although it has opened outlets in Cyprus, Greece and Turkey.
            A spokeswoman for the brand stated that the company is “aware of the potential of Romania.”
            But, because they do not have franchise operations nor have any plans to franchise soon, “when we open a new market, we take time to make sure we have the right joint venture partner or licensee to help develop the brand,” she says.
            This process of finding a partner can take a long time.
            “We will open each market when the time is right, one store at a time,” she adds.
            We asked Starbuck's for a picture of one of their stores, so that we could show Romanians what they were missing.
            But the coffee chain refused to do this.
            “In general, we would provide an image of a store that we have in the local market so that it is relevant to the readers, but since we do not have any Starbucks location in Romania that will not be possible,” the spokeswoman said.
            However smaller but dynamic operators may seize the chance to enter a market where, in take-away coffee, there is zero brand recognition.
            British-owned and east European based caffeine-stop Coffeeheaven is present in 39 sites in Poland, Czech Republic and Latvia and is looking to open in Bulgaria and Romania before March 2006.
            “We cannot wait to open the first Coffeeheaven store in Bucharest,” says Richard Worthington, executive chairman Coffeeheaven international. “Hopefully that will be very soon now.”
            But in Bucharest the store chain has yet to find a space. Worthington himself says his is searching for a “good site” between 80 and 150 sqm which is looking for a “strong and reliable” international tenant. “Or maybe,” he adds, “there is even a current coffee bar owner out there that wants to sell up?”
            So, any offers?


Delhaize (Mega Image, Cora), Carrefour (Hyparlo), Rewe (Billa, Penny Market and Selgros), Metro, Tenglemann, Kaufland

Metro's Real

Tesco, Auchan, Wal-Mart, Spar, Groupe Casino (Leader Price)

            Retailers require a massive investment to set up a supermarket in a new country, so no brand would dare take a chance on a new country without massive research and enormous risk.
            International brands have therefore been scouting Romania, looking at oppor-tunities and raising rumours of an imminent entry.
            Some of these, mainly from France and Belgium, have made a significant step into the Romanian hyper-market sector, while the             Germans are slowly monopo-lising discount stores.
            But other big names have yet to take on Romania.
            Auchan has four hyper-markets in Poland and nine in Hungary, as well as a chain of supermarkets, while Tesco has also reported massive succes-ses in eastern European hyper-markets. The world's largest retailer Wal-Mart, however, is pretty much staying out of mainland Europe.
            Richard Perks, senior retail analyst at UK research firm Mintel says that Tesco's entry to Romania “is likely” and Auchan could follow.
            But Wal-Mart is probably not the case.
            “I don't think the com-pany has the humility to succeed in different markets,” Perks says. “Its German venture has been loss making from the start and I suspect that its German experience may have put it off further expansion in continental Europe.”
            Market rumours have pushed Tesco's expected arrival back and fourth between 2006 and the future in general. Experts say Tesco's entry would probably focus on the capital. “It has been highly successful in adapting its formats to local conditions and in developing and promoting local management, so I would expect it to succeed,” Perks adds.
            Sir Digby Jones, director-general of the Confederation of British Industry would like to see British retailers in Romania. But he says one thing putting them off is the lack of a decent infrastructure, especially the bad roads. There is also the perception of corruption, which he says is not as bad as it seems.
            Tesco, meanwhile, will not give away any details other than saying it could en-ter “if the market was right”.
            In the discount sector the Germans have taken Romania by storm. From the absentees, Groupe Casino's Leader Price is present in Poland, but not Romania, while smaller, local retailer Spar has circled Romania, digging into markets in Hungary, Poland and Ukraine, but staying out of the southern Balkans.


Praktiker, Bricostore, Marks and Spencer

Baumax, Debenhams

Ikea, H&M, B&Q, Mediamarkt, FNAC, Toys R Us, DSG International (Electroworld),

            Non-food retail is where the absence of big names is most noticeable.
           Giant format stores have tended to bulldoze into Romania under their own steam. Meanwhile smaller format multinationals have chosen the current retail trend, franchises, to secure a brand presence in Romania, such as Brit retailers Debenhams, Mothercare and Marks and Spencer.
            But acquisitions have not yet happened.
            Multinational brands tend to buy into eastern European markets by purchasing an existing domestic retail chain from a bunch of investors. The buzz in electronic retail land surrounds whether chains, such as Altex, Flanco and Domo, could be sold off to the big boys, such as DSG International or Mediamarkt.
            British-based DSG International has the chains Electroworld in Hungary and the Czech Republic and Kotsovolos in Greece. There is a rumour surrounding Mediamarkt's possible entry to Romania. The German giant is already present in Poland and Hungary. When asked, a spokesman for Mediamarkt told The Diplomat that members of the group “never communicate about our expansion plans.”
            With stores in Slovakia, the Czech Republic and Hungary, Ikea has a production facility in the north of the country. Insiders at Ikea have told The Diplomat: “in maybe two to three years time” entry will be possible.
            High street fashion retailer H&M is also another option. Many well-travelled young Romanians would like to see the clothing store open up ASAP in Bucharest. It manufactures a significant number of its items in Romania, many of which can be found in outlet retailers across the country. It has opened in Hungary, Poland and the Czech Republic, but not here.
            "New markets are interesting, but due to competitve reasons we can not comment on our expansion plans," says a spokeswoman for H&M.
            How about Maybe it is looking for an east European base? “I'm afraid we can't speculate about what countries we would be looking at as potential sites,” says Patty Smith, director of corporate communications. “We can serve customers around the world, even if we don't have a dedicated web site in that particular country.”


Marriott, NH Hoteles, Accor (Ibis, Sofitel and Novotel) Cendant (Howard Johnson, Ramada) Hilton Group (Hilton), InterContinental Hotels Group (Crowne Plaza)

Intercontinental Hotels Group (Holiday Inn), Hyatt, Carlson (Radisson, Park Inn, Regent International), Marriott (Courtyard), Starwood (Sheraton, Westin), Choice (Comfort, Quality)

            Take a look at plans for the major hotel chains in the world and the first thing one notices is -  China.
            Hundreds of posh lodgings are under construction in all the major cities across the orient. But eastern Europe has not been forgotten yet.
            Notably absent in Romania is Sheraton, which has units in Sofia, Zagreb and Poland and the Radisson, which is open in Hungary, Bulgaria, Ukraine, Czech Republic, Slovakia and Croatia.
            High class outlet Hyatt is also staying away for the moment, even though it has a presence in Poland, Russia and Serbia.
            However Antoni Kuhnen, president of the tourism promotional club Skal Club in Romania, says Radisson SAS could have a deal signed to set up Hotel Bucuresti on Calea Victoriei. This giant 400-room Communist-era block has lain empty for many years in the prime retail space opposite the Hilton.
            “Hyatt and Sheraton are also in the pipeline, but no decision has been taken yet by any of them on when or where they will step in,” Kuhnen tells The Diplomat.
            Bucharest is seeing a building boom in two and three-star hotels, especially for business clients. Kuhnen feels this market is “not saturated yet” and will be the future of the hotel business in Romania, with international brands taking a major interest.
            How about stepping out of Bucharest? Kurt Strohmayer, general manager of JW Marriott Bucharest Grand Hotel says the chain would consider this: “If opportunities arise and somebody puts the money on the table.”             He added that one other brand for the Marriott chain, the four-star business hotel Courtyard, would be interested if the chance and the right investors are found.
            For the mid-range, Franz Ratten-stetter, general manager of the Crowne Plaza hotel Bucharest, says his chain, the British InterContinental Hotels Group, has a development team constantly coming to Romania to explore development opportunities.
            “There have been talks to open a Holiday Inn or an Express Holiday Inn in Bucharest or somewhere in the countryside, but no decision has been taken yet,” he tells The Diplomat.
            Holiday Inn tackles the mid-scale customers, while the Express Holiday Inn is more of a budget hotel. “There is definitely place to grow in all segments, from two to five stars, especially in Bucharest, but opportunities are also in cities like Timisoara, Brasov, Sibiu and Constanta, where no international brands are seen, especially in the three to four-star hotel level,” Rattenstetter adds.


            Judging by its tiny GDP per capita and the 200 Euro-a-month medium salaries, one would guess that no luxury car producer would dare wheel or deal in Romania.
            But sales in luxury cars in Romania are some of the highest in central and eastern Europe. Reasons include Romanians' need to show off and the willingness the large number of overnight millionaires have to spend on luxury.
            Mobile phone sales have also witnessed this phenomenon. Ultimate luxury car brand Rolls Royce will this year open its first showroom in Romania, through local importer Automobile Bavaria. With 15 potential Romanian clients expressing interest in buying a RR Phantom model, priced at almost half a million Euro, the market seems mature enough to have a permanent presence of this brand. Michael Schmidt, the GM of the local importer, estimates sales of between two and five units per year. In sports car, encouraged by the success of Maserati on the local market, Auto Italia is negotiating to bring Ferrari to Romania.
            No specific time frame is in place, but negotiations are underway, according to company president Herbert Stein. Rumours of the Volkswagen group's Bentley have yet to be realised. With sales coordinated by a dealer in Austria, the brand already found a few clients in Romania. Aston Martin, dealt through Austria, also managed its first two sales at this year's Bucharest car fair, at a price tag of over 250,000 Euro.


Playing it safe

Major international firms are now eyeing up Romania's security market. The Diplomat examines the threats, solutions and opportunities

            After the revolution, poor standards of policing, public corruption and little protection for personal property, fed a demand for private security.
            Now private security companies (PSCs) number around 1,000 in Romania. Together they are worth over 100 million Euro in annual turnover. Their activities include guarding offices, factories and public buildings, providing armed response units and escorting valuable commodities in transit.
            Guns with live ammunition are allowed, although instances of use are virtually zero and the crime threat is not that big.
            Romania is now in a more mature stage of industry development than neighbours such as Serbia and Albania. Firms are consolidating. Interest from abroad is rising, but there are still few international brands in Romania. Spanish and Danish companies have already picked up some of the local private security operations. In the future, it is likely there will be fewer but larger companies and a greater workforce.
            But Liviu Muresan, executive director security and defence consultancy and think tank EURISC Foundation, says it is necessary to introduce regulations across central and eastern Europe. This will bring the activities of PSCs up to the standards of western countries.
            In 2003 50 local firms combined to create the Security Company Owner Association (PSS) to represent them in front of authorities. Today PSS has 91 members with national coverage and has joined forces with the Confederation of European Security Services (CoESS) to help gain representation in Europe.


            With competition forcing the industry to reform, a local company can develop itself up to a point, but go no further without international support. The largest international private security firm active in Romania, Group4Falck, was the first foreign name to a buy a local security company, Valahia, in 2002. The latest sale is Romanian-based Dragon Star, which two months ago was sold to Spanish company Prosegur.
            Another option is for a few smaller companies to merge.
            “Many foreign companies want to invest in PSCs,” says Viorel Dumitru, director of Bidepa. His firm has already set up contracts with two American security firms. They are active in Afghanistan and Iraq and would also be interested in working with the new US military air bases.
            The firm is looking for an international partner, ideally an American company. 
            “I am not refusing the idea of a merger,” says Ion Stroe, president of Tiriac Holding-owned Securit Force. Today the company is negotiating to fuse with an unnamed Spanish company.
            Romguard is also in the eyes of some foreign investors, but is not selling yet.
            “Foreigners will buy the Romanian companies and will retain the existing president or CEO for a few years, then step-by-step will get rid of them, at the same time as increasing their share capital,” says Mihai Neicu, president of Romguard. “I negotiate with foreigners, but I don't agree that the money they are offering me is enough.”


            Romania does not have the mafia of Russia, nor the problems with burglary of the UK or France. “Organised crime is more active in Bulgaria,” says Muresan. “Businessmen are killed on the street there. That's not happening in Romania.”
            This country is very lucky, says Constantin Turmac, a management consultant who has written reports on Romania's security industry. “Romania does not have professional burglars.”
            But as a nation develops, so do its crimes. When Romania becomes both the EU and NATO's border, Muresan says the increasing threats are likely to come from organised crime, such as smuggling, human trafficking and blackmail, but not terrorism.
            “I am sceptical of a genuine terrorist threat,” he says. “We are not on the map as a priority for terrorists.”
            Protecting the infrastructure will be of high importance. This includes oil and gas pipelines, where public and private partnership is essential, especially as Romanians are often caught siphoning off gas and electricity from their own nation's network.
            IT security threats are set to increase, believes Muresan. But he adds that there may be more threats to a company from inside, rather than outside its walls.
            In practice, PSCs have to act, in most cases, only when robbers are committing minor felonies, such as stealing from a supermarket. Violent crime is not high and attempts at mugging are not that common.
            “Romania is okay from the point of view of crime,” says Liviu Tarsea, country manager of Group4Falck Romania.
            But a full transition to the heavy leu and, subsequently, the Euro is likely to see an increase in crimes.
            “There will be more hold-ups,” says Bidepa's Dumitru.
            With many homeowners, the fashion is to have a villa with a security guard  even though there may not be anything worth stealing. This gives the impression of wealth. However, in a mostly plastic economy where the middle class is tying all its money up in property and furniture, there is little money left to spend on luxury goods.
            “A lot of people have security for status,” says Turmac.
            Shops are also wise to a security threat and have, from the start, introduced preventive measures. On the market since 1990, UTI Group has been a distributor of security equipment to both state and private institutions, including retailers and nuclear sites.
            “Retailers' security concepts are well defined and well-adapted to the Romanian market,” says Tiberiu Urdareanu, president of UTI Group. “What happens today in Romania, happened in Poland and at a lower level in Hungary between 1996 and 1997.”


            At the beginning of the 1990s most services aimed at human protection, including body-guarding. But today the field is more diverse.
            Group4Falck's prime area is transporting, sorting and delivering cash in transit. Other firms are looking into this area, with Bidepa saying it will construct a money processing centre.
            In video surveillance Dragon Star is  advanced and private bodyguards are a specialist field of Securit Force. “Our first customer was Ion Tiriac, followed by Enrique Iglesias, Carlos Montoya, Elisabeth Hurley and Paulo Coelho,” says Securit Force's Stroe.
            The company intends to set up a 200,000 Euro bodyguard school next Spring.
            Bidepa is specialised in technical services and ensures surveillance of many oil pipelines in Romania. The company finds human protection more expensive than monitoring technology.
            “The trend is to replace the human force with technical systems, so we are centred on this kind of services,” adds Virgil Sapunaru, marketing manager and country contact at Civis.
            In GPRS services, which monitor every car from a central base, Guard One has an international network, so president Silviu Pena says it can monitor its cars in other countries with its international partners.
            Monitoring systems on vehicles are part of RPG's interest. At the moment the engine starts, a small camera glued to the window begins filming and, behind the car, there is a special device which records everything that happens. When the tape is finished, RPG downloads the information. “It is like a data base,” says Stefan Crisboi, president of RPG.


            Laws do not allow PSCs to use handcuffs or flare guns. Guns with live ammunition can only be carried in certain situations (in banks, value transportation and places of strategic importance, such as nuclear power plants).
            Some automatic weapons can also be carried if necessary, says a recent cross-national Saferworld report, which calls this a procedure of “questionable utility and some risk”.
            Gas guns are permitted, but most guards wear batons and sprays.
            The PSS has sued the Romanian Government because one of its conditions obliged every guard to wear the same uniform, regardless of his employer, making them as easy to identify as a policeman.
            The PSS won the trial, but the state appealed and overturned this on a technicality. This was because the PSS, as a body, was not directly affected by that law, only its members were.
            So the only solution left is for each company, one by one, to sue the state.
            Now the PSS and Romanian authorities are cooperating to create new legislation. “Relations between the authorities are about to be improved,” says Ion Popescu, president of PSS.
            In order for a PSC to operate, it has to apply to the SRI (Romanian Intelligence Service) for a license. If not, it has no choice but to close. Many companies have been rejected.
            There is also a bureaucratic labyrinth each company has to negotiate to obtain a license. In 2005 a further barrier came into play. A new law declared that if a firm had debts to the state, it could not be licensed. 200 to 300 companies failed to register. “Every week there are companies entering and leaving the market,” says Tarsea.
            “About 99 per cent of private security companies have debts to the state,” claims Romguard's Neicu. This means that the small companies will not survive.  “I will escape because I am big and I will associate myself with another company or I will be bought by a foreigner,” he says.
            One firm told The Diplomat it only has debts to the budget because the state has been applying penalties upon penalties.
            This is creating fear among the community.
            Another president of a private security company says: “I don't want anything to be written about my company. I don't want the fact that my company exists to be known. Because, after the article, everyone from the tax collection office will come and will be checking my books and I will have to pay bribery.”
            Dozens of PSCs have disappeared with their debts and then re-emerged, solvent, with the same customers and employees, and, in some cases, almost the same name.

            Each company that employs an agent has to train them at a security school. Following this, the firm needs approval from the police. The agent also has to undergo a psychological test and policemen, from near to where the agent lives, must knock on the doors of the potential guard's neighbours, interviewing them about whether the potential agent shouts a lot, beats up his wife or drinks heavily.
            Popescu hopes new legislation which the PSS has forwarded to the authorities will create a “more accessible law” regarding such hiring practices.


            Bucharest is still the centre for the majority of security firms, followed by Timisoara.
            The next areas of growth seem to be Craiova, Baia Mare, Ploiesti, Brasov, Arad and the Prahova Valley. “If our investment in Bucharest turns a profit, we will expand to other areas of the country,” says Civis's Sapunaru.
            Bidepa's Dumitru says that the Moldavian region is worth watching, especially when it becomes the easternmost border of the European Union. “In two to three years there will be development in the area,” argues Dumitru. “The army will open auctions for protection of the military units.”


            One problem that many firms face is an unstable workforce where security guards do not see this field as a job for life. From every 100 people hired in Romania, around 40 leave in less than a year
            “Bucharest lacks qualified security guards,” says Group4Falck's Tarsea. “We hire about 400 agents from adjacent areas to Bucharest.”
            Guard One's Pena says that some men who have come to present their credentials as a security guard have had criminal records, sentences and jail time.
            But Sapunaru argues that, due to the growing economy, both more professional offenders and a greater professional response from security firms are on the rise.


            With a firm such as Group4Falck, 90 per cent of PSC customers are private companies. But 30 per cent of Dragon Star's 10,000 clients are individuals. All firms have seen an increasing demand for video surveillance for individual home-owners. 
            “The selection criterion for a PSC is the lowest price,” says Bidepa's Dumitru.
            This has prompted an agreement to be made between the companies to set up standards within the industry, including best practises for the prices.
            And as for customers, all the presidents agree on the best client.
            “Working with the banks is the most profitable partner,” says Dumitru. “They always pay on time.”


“This market is still at a very early stage,” says Constantin Turmac, a management consultant who has written reports on Romania's security industry. “It's very cheap to start a company.”

And with 1,000 brands out there, it is essential to do homework to distinguish between a professional firm with a track record in responding to crime and two fat guys in a bad car reading a newspaper.

When shopping for a PSC, Turmac says it is worth checking how much loss the private security firm is insured for. Some companies also do not have the facilities they advertise, such as the ability to monitor 24/7 or their own radio frequency.

Asking for references is a priority. Customers should not take a portfolio of previous client comments as evidence of good work.

There is little risk assessment in Romania. Most of this is carried out by the PSCs, says Turmac, which creates conflicts of interest. He says the nation needs more independent risk assessment companies.

Marketing is also a problem. “Many PSCs do not know how to attract normal clients through transparent procurement procedures,” says Turmac.


994 registered private security firms in Romania
- Over 37,000 people employed
- Half of the licensed firms are operating in Bucharest
- Timisoara is the next most popular city
- One to three per cent of households have a security guard

Though there are around 1,000 security firms in Romania, executive director of think tank Eurisc, Liviu Muresan, says only “some dozens” of these are active and “under ten” have any international standards.

Source: Saferworld/SEESAC

Average cost of guards per hour:
Romania: 0.80 to 1.5 Euro.
Hungary: Three Euro.
France: Ten to 15 Euro.

Source for facts: PSS