Country Profile Romaina

8/8/2019 Country Profile Romaina

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COUNTRY PROFILE

IV Trimester Part Time

MBA 2009-12

Prepared for

Prof. Dr. Pinaki Dasgupta

Prepared by

Saurabh Agarwala

Roll No. 44

Preamble: This paper is submitted as part ofInternational Marketing Management course.

The course has developed an appreciation for fundamentals in International marketing

scenario.The fundamentals gains relevance especially for the fact that the nature of most of

the businesses is becoming global.

During selection of a country for market profiling I was tempted to look for countries which

have recently gone for branding themselves and opening their markets to the world.

Singapore has been a success story in terms of attracting tourists with its Uniquely

Singapore campaign and adding to its tourists attractions events like F-1 racing (night-time

event). Incredible India with roadshows in countries like Germany and UK was also an

attempt in the similar direction. Romania after its inclusion in European Union block ( in year

2007) got funded for its Branding Romania campaign. Important to note is that Romania

is emerging quickly as a potential exporter and importer for various products and services.


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IntroductionRomania is the 9th largest member of the EU 27 by size (238,931 square kilometeres) and the 7th

largest by population (21.7 million) and is located in South-Eastern Europe.

Neighbouring countries are Ukraine in the North, Republic of Moldavia in the East, Bulgaria in the

South and Hungary and Serbia in the West.

Located within the confluence of the Carpathians-Danube and Danube-Black Sea ecosystems,

Romania is much admired for its beautiful and diverse natural landscape.

Romania joined the EU on 1 January 2007 and had one of the fastest growing economies in Europe

until 2008. In 2009, due to the impact of the global recession, Romania experienced negative growth

though consensus is for between 1-1.5% growth this year.

In 2009 Romania Nominal GDP was 115.7 billion and the inflation rate estimated at 5.16%.

Romania intends to enter the euro-zone in 2014.

Key Figures at a glance

Financial assistance from the EU will play a crucial role in stimulating economic recovery in 2011

and after. Romania's main foreign policy priority is to join the Schengen agreement in 2011.

ROMANIA


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Country Forecast Overview (3 Year)

Key Indicators 2009 2010 2011Real GDP Growth (%) -7.10 -1.10 3.50

Consumer Price Inflation (av;%) 5.59 6.00 5.20

Budget Balance (% of GDP) -7.41 -7.00 -5.00

Current-Account Balance (% of GDP) -4.43 -5.60 -6.80

Exchange Rate US$:Euro (av) 3.05 3.32 3.63

Exchange Rate US$:Euro(year-end) 2.94 3.69 3.64Source: Country Forecast Romania June 2010

Year GDP in Billions of USD PPP % GDP Growth2005 202.70 4.64

2006 225.84 8.10

2007 246.24 6.20

2008 269.36 7.20

2009 253.08 -7.10Source: EIU Country Data

Romania: risk assessmentRisk September 2010Sovereign risk BB

Currency risk B

Banking sector risk B

Political risk BB

Economic structure risk BBSource: Romania: Country risk summary

Countrys Imports


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Countrys Exports

Strengths of the market

A strategic location - access to countries of former CIS, Balkans, the Middle East and Northern

Africa; junction of 3 prospective European transportation corridors 4,7 and 9. Romania a Latin

Island in a Slavic Sea

Stability factor in South Eastern Europe (EU, NATO and UN) Beneficiary of EUR billion 31 of structural and agricultural funds over the period 2007-2013

An important domestic market of 22 million consumers, 100 million when taking into account

neighbouring countries

A young, well trained and educated work force; English is widely spoken

The availability of support from foreign lawyers, accountants and consultants, already well

established in Romania, to help foreign investors

Opportunities in Romania

Energy - the National Energy Strategy has set the following objective: electricity from renewable

sources to reach 33% of the total energy consumption in 2010, 35% in 2015 and 38% in 2020.

The EU Climate Change/Energy package includes the following objective for Romania:

24% of total energy consumption in 2020 to come from renewable sources.

Transport - 4.6 billion to be allocated to construction/rehabilitation of national roads, by-passes,

motorways and railway rehabilitation (network, bridges, tunnels and services), navigation, ports


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and airports

Environment - 5.6 billion to be allocated to water /wastewater systems, waste management &

rehabilitation of contaminated sites, nature protection and risk prevention;

Rail/Road Transport & Logistics- 5bn of EU funding available for road and rail projects until

2013. About 50% to be devoted to rail sector. UK has extensive experience in these sectors and

could offer support especially in the potential privatisation process of CFR Freight and CFRPassengers.

Automotive- Sector is developing fast both in terms of new cars sales and investment mainly by

1st and 2nd tier foreign manufacturers. Over 40 foreign manufacturers of components have

established manufacturing facilities in Romania to take advantage of lower wages (up to 8 times

less than some EU countries) and very good technical skills. By 2010, the automotive

manufacturing sector forecasts 10bn turnover, based on a total investment of 8bn. For

instance, Dacias exports 3rd qtr 2009 reached 1.5 bn, a 500m increase on previous year. Main

market Western Europe

Consultancy: Accessing and absorbing EU structural funds has been recognised as a priority by

the Romanian Government.

Political Factors

Romania is an independent parliamentary republic with judicial, executive and legislative branches

of government. The president serves as Romanias chief of state. The Prime Minister serves as the

head of the government and is appointed by the president with the consent of the Parliament. The

seat of the government is in the capital of the country Bucharest.

According to the reputable Ducroire/Delcredere agency for risk assessment, Romania haslow political risk.

Political background

In Romania, the fall of the communist regime was marked by the execution of the emblematic leader

of the communist party Nicolae Ceausescu on the Christmas Day of 1989. Ion Iliescu, a former

communist, took over the power in the country and was elected as a president. It was not until 1996

when the communist era ended in reality in the country and a centre-right government came into

power. However, the new leaders - Emil Constantinescu as a president and Victor Ciorbea as a

prime minister, failed to implement their economic reforms which led to the re-election of Ion Iliescu

in 2000. Another failure of a successful execution of key economic and social reforms meant that the

country was not put on the list of the countries to join the EU in 2004. In March 2004, at the end of

Iliescus mandate, Romania was admitted to NATO. Despite all the hardships, in April 2005

Bucharest signed the European Union accession treaty and since January 2007 the country has

been an official member of the EU.


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Since the fall of communist regime in 1989, Romania has pursued a policy of strengthening its

relations with the other European countries and the United States. Romania is a member of more

than 60 international and regional organizations. It joined the International Monetary Fund and

the World Bank in 1972. The country is part of the European Union since January 1, 2007 and an

active member in the North Atlantic Treaty Organization (NATO) since 2004. World Trade

Organisations (WTO), United Nations (UN), World Health Organization (WHO) and UNESCO areother international organizations in which Romania is a member.

Romania is an active member in regional organizations as well. The country is part of the Southeast

Europe Cooperation Initiative (SECI) and the Stability Pact for Southeast Europe. Romania also is a

founding member of the Black Sea Consortium for Economic Development and has been a positive

force in supporting stability and cooperation in the area

Furthermore, Romania has good relations with the Middle East, Israel in particular. The Balkan

country was an active participant in the negotiations after the Gulf conflict in 1991.

Economic Performance

Following the collapse of communist rule in 1989, Romania underwent a long period of economic

transition to a market economy. Compared to its Central and Eastern European neighbours, this

process has been neither smooth nor particularly well-managed, and included two periods of

economic recession.

Since 2000 there has been more progress. An extensive programme of economic reforms has

included the privatisation of a large number of state-owned enterprises and the restructuring of

Romanias energy, mining and industrial sector. The reform programme closely followed IMF

requirements for fiscal restraints and economic restructuring, particularly in the energy sector. In

2004, the European Commission gave Romania 'functioning market economy' status. The economy

grew at an average annual rate of 6% between 2000 and 2008, with a peak of 8.5% in 2004, mainly

driven by strong domestic demand. There has been rising demand for Romanian exports of steel,

cars, and light machinery.

Agriculture has remained a weakness. It represents about 8.1% of GDP but it is mainly of a

subsistence nature. After 15 years of slow progress, the reform of the sector has been sped up in

the last couple of years. However, it is still characterised by low productivity and small land-

holdings, despite being largely in private hands. Direct payments from CAP and rural development

funds are likely to raise living standards in the poor countryside as farmers and local authorities are

eagerly applying for funding. Significant amounts of structural funding have been allocated for the

2007-2013 timeframe and despite a slow start in absorbing them, Romania is expected to reap the

benefits and develop its underdeveloped infrastructure.

The global financial and economic crisis hit Romania late, but hard, at the beginning of 2009.

Economic growth dropped from 7.1% in 2008 to -7.1% in 2009. The construction sector went into


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dramatic decline, and credit activity slowed. Both the trade and current account deficits adjusted

rapidly. Struggling with rising public expenditure and lower revenues, the Government requested

IMF and EC financial assistance in March 2009. The agreed package totalled 19.95 bn. The IMF

agreement had a positive impact on investors confidence that was eventually cancelled by the

political instability that preceded the Presidential elections in December 2009.

What happens in the months to come depends partly on the ability of the new Government to cutspending and restructure the public sector. Getting a grip on public expenditure remains a tough

challenge but the Government needs to reduce the public wage bill in order to continue the IMF

agreement. Public spending on wages still represents 9% of GDP. For the IMF agreement to

continue it has to be cut to 5.9% in 2010 and at least 30 000 public sector jobs need to be cut. R o

mania hopes to adopt the euro by 20 14.

The short-term picture is thus not very optimistic. However, Romania remains well placed to resume

a path of above average economic growth once the global crisis ends. It remains an attractive

destination for foreign investment, particularly in sectors such as environment and renewable

energies, IT and infrastructure.

Trade Partners

The two main trade partners of Romania, in both import and export terms, are Italy and Germany.

Imports from the EU weight 70% of overall imports. The value of imports in the first three months of

2008 reached 12.9 billion euros, an increase of 12% compared to the same quarter of 2007. The top

five partner countries are Germany (16.8%), Italy (11.6%), Hungary (6.7%), Russia (6.4%) and

France (6.3%).

The value of exports in the first three months of 2008 got close to EUR 8 billion, an increase of 14%

compared to the first quarter of 2007. Exports to the EU weight 71% of overall exports. The top five

partner countries are Germany (16.5%), Italy (16.3%), Turkey (7.9%), France (7.7%) and Hungary

(5.3%).

FDI

Over the past few years, Romania has experienced a steady increase in FDI flows. The quality of

the business environment has improved significantly and in 2007 Romania progressed from 55th to

48th place in the World Bank's Doing Business report, ranked higher than other countries in the

region such as Hungary, the Czech Republic and Poland. In addition, Romania emerged as the

leading Eastern/Central European economy in attracting FDI with 150 projects taking it to sixth

position in The Ernst & Young European Investment Monitor (EIM) league table.

Romania is more and more appreciated as a destination of investment, as it has many

incentives for it:

- second largest market in Central and Eastern Europe, with a population of 21.7 Million,


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which is opening more and more

- geographically in a strategic position, at crossroads of traditional commercial routes, establishing

a link between Central and Eastern Europe, targeting over 200 million people

- labor is very cheap, and is predicted to stay the cheapest in Europe for at least next 15 years,

highly skilled and able to communicate in foreign languages (English, French and German)

- wide range of natural resources- industry potential, agriculture and tourism

- EU membership

- Fiscal reforms, flat tax of 16%

As a relatively new member of the EU, Romania shows a strong integration into the European

economic life. More than 80% of the total invested capital in 2007, which amounted to EUR 7 076

million, came from European countries. At the moment, the foreign capital comes from many

countries, Netherlands being on the first place, with investments of over 1.9 billion EUR, Austria is

next with 1.4 billion, Germany with 930 million, and others like Italy, USA, UK, Turkey, Switzerland

and Greece.

Figure: Percentage of foreign currency invested capital in companies as of 31 December 2007

Stable FDI inflows have been concentrated in export-oriented industries, such as machinery and

equipment, textiles and footwear, metals and metal products, minerals and fuels, which shows

strong interest and profitability in Romanias export-oriented industries and suggests that potential

for future real economic growth is present.

At the moment, the foreign capital comes from many countries, Netherlands being on the first place,

with investments of over 1.9 billion EUR, Austria is next with 1.4 billion, Germany with 930 million,


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and others like Italy, USA, UK, Turkey, Switzerland and Greece.

To mention some of the global players already present in Romania, are Kodak, MAN Trucks,

Microsoft, Nokia, OMV, Oracle, Philips, Siemens, Bosch, Unilever, Procter and Gamble, Vodafone,

Orange and many others.

Foreign Investors Incentives

Since the fall of the communist regime, Romania has been gradually liberalizing its trade regulations

and incentives and now follows the guidelines set by the EU. The ruling government is constantly

updating the laws and financial conditions for doing business in Romania in order to maintain the

positive growth of the economy. On June 27, 2008 the Romanian Government approved the latest

investment law, the aim of which is to provide an umbrella framework in which processes of

application and allocation of state aids will be made more consistent and transparent.

Other business incentives that the country offers are no limits of foreign participation in commercial

companies (a foreign investor may establish a 100% owned enterprise in Romania), full repatriation

of capital and profits, and equal treatment of residents and non-residents investors.

Population

It is estimated that Romania had a population of 22 246 862 in 2008 with an average population

density of 94 people per sq. km. The population growth rate is -0.136%, birth rate and death rate

being 10.61 births/1,000 population and 11.84 deaths/1,000 population respectively. Life expectancy

in the country is calculated to be 72.18 years.

Figure: Population by AgeGroup(1975-2025)

The majority of Romanians are of Latin origin. There are sizeable populations of ethnic Hungarians

and Germans living mainly in Transylvania.The fact that the population is a conglomerate has also

an effect on the Romanian language, which is the official language, but there are different accents


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from region to another: to the West, and the center the accent has influences from Hungarian

language, in Moldova North- East of Romania influences of Russian language, and to the south,

in Wallachia influences of Turkish and Slavic languages.

In a region of predominantly Slav linguistic base, Romania is the only country having Latinity.

Hungarian and German are also widely spread. Nearly 87% of the population belongs to theRomanian Orthodox Church. The Hungarian minority makes up almost the entire group of followers

of the Roman Catholic Church. Reformed Protestant, Baptist, and Pentecostal add up to 5% of the

population, the rest being adherents to the Muslim and Jewish faiths.

Demographics

Naturally, the Romanians dominate by far the ethnic composition in the country. The second largest

group is Hungarians with near 7% of the population and the rest are Roma, German, and Ukrainian.

The lack of diversity in the ethnic composition is due to the restricting policy of movement of people

in Romania forced by the communist party during the second half of last century.

7% 2%2%

Romanians

Hungarians

Roma

Others

89%

Figure: Ethnic Composition of theRomanian

The age structure of the country is as follows: 0-14 years: 15.6%, 15-64 years: 69.7% and 65

years and over: 14.7%. Due to the ex-communist regime policies, Romania has extremely high

proportion of young adults in its population. The only Western country with higher ratio is Slovenia.

8.55% of the Romanian population was born in the period from 1976 to 1980, compared with

6.33% of the Britons, however, after the fall of the communist regime, the country has been

experiencing a downturn in this trend.

Households

Household expenditures on food, beverages and tobacco amount to 50% of the total household

expenditures in Romania. Standard house expenditures, including rent, water, electricity and other

furnishings and fuels, amount to 19.4% and expenditures for clothing equals 6.2% of total

household expenses. The average size of a Romanian household in 2007 was 2.92 people.


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Export Potential - IT Industry Development

The IT sector is of strategic importance for the Romanian economy as it can function as an engine

for the development of every other industry. Romania is one of the strongest markets in Europe for

technology investment and trade, with a highly skilled technology workforce, competitive costs, top

tier investors and a friendly business environment. As the fastest grouwing and top IT market in

Europe, romanian companies serve the worlds most demanding offshore customers in IT

outsourcing, business process outsourcing, call center support, and product development. The

Romanian IT market is, following Polands, the second largest market in Central and Eastern

Europe.

Romania has built up technological capability -a crucial determinant of industrialization- in the

production of both hardware and software.

Software Exports:


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SWOT analysis

Strengths

Highly qualified human resources

Company productivity comparable withthat of developed countries

Low cost of human resources High mobility and flexibility of

manpower

Presence of IT companies from US andEurope

Well-developed education systemproducing out 5,000 IT graduates and

2,000 graduates in other disciplines

Naturally developed industry aroundcentres of excellence in Bucharest, Cluj,Iasi andTimisoara

Sound software industry base employing

over 25,000 people Strategic market location to serve EU

Workforce with knowledge of English,French and German

Attractive contract manufacturingfacilities (e.g. US$3-5 for assembly ofCTV sets)

Inherent cultural and linguistic ability forrendering IT-enabled services such ascall centers

Weakness

Business environment lacks credibility

High cost of telecommunications andIPLC infrastructure

Lack of credible investment policieskeeping foreign investors andcompanies at bay

Lack of IT development entities suchas freedom of information, or dataprotection, enforcement of copyrightlaw

Lack of integration of informationsystems

Lack of financial resources for ITcompanies to start projects anddevelop supports

Insufficient resources for marketing

and brand building Lack of skilled manpower for

managing software projects, softwarequality, certification and developmentmethodologies

Lack of domestic IT projects todevelop credentials and experience

Lack of IT training facilities,management and quality.

Opportunities

Romanian market for e-business, e-

governance and the developinginformation society

Fast growing West Europe IT markethaving cultural similarities

Large emerging global IT market for offshore development, R&D, IT-enabledservices

E-commerce necessitating skilledprofessionals

Telecom privatization market opportunityIT deployment improving productivity ofother sectors

Threats

Lack of market information Lack of a

domestic market to enable industry todevelop expertise

Lack of communication betweengovernment and industry

Lack of support programmes forindustry promotion

Lack of networking in industry

Lack of a coherent industry image

Growing unemployment due to closureof state enterprises and lack of jobopportunities

Industry in Romania has become linked to the new technologies through companies from

developed countries which have established local operations to take advantage of the qualified

labour that has graduated from technical institutes in Bucharest, Cluj, Iasi and Timisoara. Over

1,000 software companies and more than 5,000 hardware, services and telecommunications

companies have formed a Bucharest software industry cluster. The cluster also includes ten

specialised professional associations and three trade associations, which have created synergy for


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the whole group.

Romania has more than 75,000 trained workers in the hardware sector, which are deployed

in state enterprises. Most of them are underemployed as the major state companies are on

the verge of closure. A few successful companies which have emerged, have been taken over

by foreign investors or local entrepreneurs. A striking example is that of Electromagnetica, whichhas diversified into a vibrant multi-product company. Flamingo Computers is another success

story, which has developed an attractive brand of computers and delivered complete

solutions to its clients. NEI Bucharest has emerged as another successful company, which

manufactures CTVs, but is now facing competition from Goldstar and Daewoo.

A successful migration took place in the telecommunications sector where Alcatel and Siemens

entered into joint ventures with local units to manufacture telecommunications equipment for the

domestic and export markets. Intraron produces switching and terminal equipment in Greece

and entered the Romanian market after the participation of OTE in RomTelecom.

In the process control and automation sector, NEI Bucharest and AUTOMATICA Bucharest

produce systems for the local market. They have good capabilities, but have not been successful

in export markets because of their technological obsolescence. Solectron is by far the largest

single investment that has been made in Romania. It employs about 5,000 professionals and is

expanding facilities to accommodate up to 10,000 workers for the production of sub-systems for

network equipment, mobile phones, servers, PCs and computer peripherals. The non-availability of

electronic components is one weakness of the industry, which has led to the erosion of the

industrial base.

Many Romanian IT companies have been successfully transformed by splitting into smaller

entities and divesting non-core businesses. Others have survived by selling space for

manufacturing activities to foreign partners. Some successful companies are those which have

set up manufacturing facilities in alliance with overseas companies with the aim of exporting, as the

local market is too small. Companies which have followed the cluster approach have succeeded in

utilizing the low cost production base in Romania. For example, Renault France integrated

DACHIA into its global production programme to cater to the EU and Central and East European

markets and also initiated an R&D programme to design and develop a small car at a unit price of

Euro 5,000.

Research & Development

Closely related with its excellent economic growth, Romanias Research and Development (R&D)

system is currently recovering after the decline in the transition years when he number of R&D

employees recorded a loss of about 10,000 researchers. The government is increasing with a


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stable pace the public R&D expenditures achieving 0.7% of GDP in 2008. The final aim is to meet

the Lisbon Strategy criteria of 3%. Therefore, the estimation for 2010 is that R&D expenditures will

be 1% of GDP.

According to the 2007-2013 National Strategy for R&D and Innovation (RDI), public investment in

RDI will be oriented towards priority RDI fields such as information and communication

technologies, advanced technologies and innovative products, new materials in industry,agriculture and food safety, health, energy, environment and transportation; sustainable

development (including bio- and eco-technologies), and frontier sciences.

Prime Minister Calin Popescu said that the current government has introduced numerous

fiscal advantages for private companies performing in the field of R&D in Romania. Such examples

are the centers of excellence, such as the ones created by Renault, Microsoft or Ericsson.

Challenges

Romanian labor migration has become a widespread phenomenon in the last 16 years, after the fall

of communism, representing one of the most important migration flows at the European level. While

during the first years, Romanian workers preferred countries like Hungary, Germany or Israel as

their main destinations, nowadays Italy and Spain represent the two most attractive countries,with

numbers estimated at 800,000 and respectively 450,000 economic migrants. Most of the Romanian

migrants that work in Italy and Spain come from the poorest rural areas of the country. Usually,

chain migration effects are formed in these regions, in the sense that if someone leaves to work

abroad he/she will certainly help someone else to come in the same place for a similar job. The

Schengen Agreement (2002) and the European Union accession (2007) made it easier for

Romanians to work abroad.However, things are changing. Now that the global economic crisis has hit Europe, thousands of

companies in Italy and Spain are laying off their employees. The most affected is the construction

industry, which is the main area of activity for Romanian workers. The expected result was that the

migrants would prefer to come back home and start small local businesses with the money they

earned working abroad than to live on employment insurance abroad. This has not happened yet

and the prediction is that the economic migrants will not return during the recession. Although the

Romanian government has organized employment fairs in Italy and Spain to attract migrants back

home, these measures have not been effective, as Romanian workers have developed family ties

in the host country (inter-ethnic marriages, chain migration) and are used to a higher compensationfor the same amount of work they would perform in Romania, as well as better services for the

taxes they pay: competitive schools, respectful institutions, and improved social programs.

Endnote

Romania with its new forged alliance with EU countries, its natural resources and its workforce


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seems to have great economic potential. What happens in time to come depends partly on the

ability of the Government to cut spending and restructure the public sector. Getting a grip on public

expenditure remains a tough challenge but the Government needs to reduce the public wage bill in

order to continue the IMF agreement. Public spending on wages still represents 9% of GDP. For

the IMF agreement to continue it has to be cut to 5.9% in 2010 and at least 30 000 public sector

jobs need to be cut.The short-term picture is thus not very optimistic. However, Romania remains well placed to

resume a path of above average economic growth once the global crisis ends. It remains an

attractive destination for foreign investment, particularly in sectors such as tourism, environment

and renewable energies, IT and infrastructure.

Documents

Country Profile Romaina