Romania is an attractive destination for automotive companies

The Romanian operation of IPEC Group makes it easy for companies wishing to set up base in the country. The company’s core competences include location search and analysis, acquisition of private or public land according to customer specifications, providing full design or bringing customers’ existing designs into compliance with Romanian regulations, finding qualified contractors for the construction work, managing the entire construction project, and, importantly, enforcing the highest standards of ethics and financial transparency of the entire process. The two basic operating modes of IPEC Group are project management and leasing of built-to-suit or multi-tenant production plants.

Romania is an attractive destination for automotive companies. Renault was one of the first to enter the East European country in the late 60’s with a plant in Pitesti that assembled Dacia passenger cars under license from Renault. By 1999, Renault had bought the ailing Dacia for US$ 592 million, turning the company’s fortunes around. Today, companies like Schlemmer, Continental, Aker-Kvaerner, Landini, Johnson Controls, Delphi, Manufactura Moderna de Metales, Pirelli, and Yazaki have a presence in the country. Reportedly, even Chinese automotive manufacturer Chery Vehicles is scouting around for manufacturing locations in Romania.

Direct foreign investment in Romania stood at 4.5 billion Euros in 2005, which was a leap of 106% from the previous year, according to the National Bank of Romania. A sizeable chunk of that investment is being brought in by automotive companies. One of the Romanian auto industry’s success stories is Renault. Its Romanian subsidiary Dacia found that its 5000 EUR Logan model was a runaway success, contributing handsomely to the company’s 31 billion Euro revenues. Renault is investing 219 million Euros to manufacture MT1 Renault Nissan gear boxes in the country.

“In the Romanian industrial equipment we have already invested 650 million Euros and will further allocate 150 million Euros next year, not to mention the investments in the gearbox plant But also in training and developing the expertise of the Dacia – Renault – Nissan employees in Romania, who make our success possible and to whom I dedicate our present success,” said François Fourmont, general manager of Dacia.

Other automotive investments include 5 million Euros by Spanish company Manufactura Moderna de Metales to manufacture tubes for automotive systems and other engine parts. Schlemmer is investing 10 million Euros to manufacture cable protection systems for the automotive industry. A joint venture between Pirelli and Continental to produce metallic cord is bringing in 40 million Euros into Romania. Yazaki is investing 14 million Euros to build a wire harness factory in the country.

With the countries recent membership of the EU it has meant an opening up of markets and a reduction in red tape. Romania’s salary costs are also more attractive than those in neighboring countries – according to some estimates, salaries in Romania are one-third those in other Central European countries. With the collapse of state-owned industrial companies, there is a large pool of skilled workers and professionals that can be tapped. And Romania’s economy has become increasingly stable since the overthrow of Communism in 1989 which means that automotive companies are finding the domestic market nearly as attractive as overseas markets.

“Purely by observing some of our customers settling and expanding in the country I see the rather obvious success story of labor-intensive manufacturers such as Delphi and Yazaki. While Delphi’s US parent is making Chapter 11 headlines its Romanian subsidiary is looking very strong and growing. Delphi, as far as I can see, is a stereotypical pioneer who is able to successfully stake out “virgin” areas with ample supply of inexpensive labor and set up shop at these locations. The second category of manufacturers bets not only on inexpensive labor but also on lower-cost high-tech production and even R&D. I believe that Hella Electronics SRL, a relatively new operation in Romania, as well as Siemens VDO are examples of such strategy,” said Matt
Carnogursky, general manager, IPEC Management Eastern SRL in an earlier interview to AI.

Automotive Industries caught up with Matt Carnogursky, general manager, IPEC Management Eastern SRL again to find out why automotive companies should head towards Romania.

AI: Please tell us a little about the growing automotive business in Romania?

The level of interest by automotive suppliers in Romania was, in relative terms, moderately active for most of the last year (2006). In fact, our largest project in 2006 was for non-automotive industry in the city of Cluj, a former capital of Transylvania. Since the EU accession in the fall of 2006 it seems as if the flood gates opened and a large number of automotive manufacturers started coming into the country. Currently we are rolling out projects for close to 10 automotive suppliers ranging from the US to Sweden to France. Demand by German companies is still strong but we have seen a substantial increase of, e.g., French investors, linked to the new investments by Renault in Romania.

AI: How easy is it for companies to manage their investments in the country and how can IPEC help?

The investments have their strategic and their tactical parts. The tactical part, the execution, became more predictable from the bureaucratic point of view. However, the recent real-estate and construction boom in the country brought new challenges in terms of land prices and contractor availability. Meanwhile, the strategic part of the investment, a choice of the right location, became even more significant as a result of the ongoing run on the available locations by so many foreign investors. Romania’s advantage of low pay relative to most European countries still holds true but there are several exceptions of which we should be aware: managers with foreign experience, experienced technical specialists, civil engineers, to name only some professions, and, last but not least, computer programmers, fetch near-western salaries. Labor mobility in some cities is limiting the companies’ potential to train own specialists. It seems that the headhunting business in Romania is as hot as it was in the Silicon Valley during the dot-com boom. Therefore, did investing in Romania become easier with the EU accession? Not really, only its critical success factors changed.

AI: How does IPEC help automotive companies set up shop in Romania?

IPEC Group has been closely tracking the trends, the depletion of labor resources in certain areas, and geographic directions in which the run on the resources has continued. To offer a newly arriving company an insight about these trends may prove invaluable – you surely would want to make your multi-million-euro investment at a location where you can operate it profitably for many years to come. While the insight is important, acting upon it is the next step. Where do you turn to secure land for your plant when the land prices seem to be escalating? Well, for some companies a purchase of private land is a valid option because they value a greater flexibility to choose their location. Meanwhile, many other companies can take advantage of public land, which is available for sale by auction in many municipalities – although the process could be daunting. The next task becomes sourcing good architects, design specialists, contractors, and, ultimately, employees. IPEC supports its customers in all these areas and, even better, manages the entire process.

Increasingly we see demand for leased factories, which simplify the investor’s task to first determining the plant specification with us and then paying the rent. For these companies IPEC offers pre-built or custom-built rental space at locations “off the beaten track, where first of all we offer good access to stable labor resources, in conjunction with good logistics access. How do we differentiate ourselves from industrial parks in major cities – by listening to our customers as to what they want most: labor, logistics access, and investment longevity.

AI: You have been pushing Romania’s attractiveness as an automotive manufacturing base due to its location – could you please tell us why Romania’s location is so important to auto companies?

Automotive companies come to Romania for two reasons: to produce for the local market and/or to have a low-cost production base for export. The local automotive market consists of only two OEM’s: the booming Renault in Pitesti and the Daewoo plant in Craiova, for which the Romanian government has been finding an investor. Both these plants are in south-eastern part of Romania, relatively inaccessible by road from Romania’s western border. However the growing number of tier-1 and tier-2 suppliers, many of them clustered along the western border, from where they can easily reach the OEM’s of Central and Western Europe, create an automotive market in its own right. E.g., a cable-harness manufacturer needs suppliers of automotive wire and connectors. A supplier of fuel injectors or transmission gears needs special heat treatment of metal parts. And almost everybody needs metal stamping and/or plastic injection molding. Importantly, whether you produce relatively simple fuel lines or complex sun-roof systems you need a good supply of affordable and stable labor. Just 2-3 years ago the supply of labor was very good while the supporting technologies were scarce. Now the technologies are moving in at the expense of the available labor. But there is lots of labor in this country of 22 million – but sometimes you have to look more carefully.