How to navigate in 2011

In this time of cold, partly dull weather, it is not so easy to imagine the future objectively. Experts overall agree that 2011 maybe slightly better than 2010. Estimations for economic growth vary somehow between 0 and 2%, the IMF and Economist Intelligence Unit are somewhat closer to the 2 % with 1,5 and 1,7 %, respectively. The government has finally succeeded in getting Parliament support for the tough measures to be taken to meet IMF criteria and to control the budget deficit. A big challenge remains the uncertainty of government measures and the instability in the public sector. I am sure both will remain as a „gift“ for us in 2011. Consumption in the private sector was mainly driven by the sense of realism about financial possibilities and the fear that it may become worse.

Don't forget that the economy does not depend so much on us here. It is clear that somehow, we all depend on world growth indicators. Let`s put it in different words: Romania’s economy depends on 90% on the good health of the World and the European economy. If things are bad around us, it is very likely that the same destiny will hit us also. EU funding and IMF can only delay the process a little artificially. Only 10 % is due to our own initiative and is determined by a good political and economical framework at home. Nevertheless, the „10%“ can be a gatekeeper for recovery. If everybody around us does better, we can only keep up if we manage our own framework right. This, apparently, was not the case in 2010. People are discouraged and either withdrew planned investments or did business elsewhere. Even the single consumer behaves accordingly: Bulgaria is now a privileged location to create companies and to register cars. We cannot blame people for choosing better options abroad. It is more a challenge for the Romanian authorities to do something about it; will they?

We hear already about dozens of foreign brands to enter the Romanian market such as H&M, Lidl and Leroy Merlin. This sounds good. When we see around in Bucharest, also outdoor advertising seems to pick up, all these are encouraging signs.

Let's look more closely at some clusters:

1. International players in Romania who mainly have international clients will profit more intensively if there is a general growth of European economies since they sell to the international market. This goes for car manufacturers like Dacia and Ford but also for the automotive business in general. Dacia has managed in 2010 to increase worldwide sales by 12% in comparison to 2009, while local demand went down. In this category, we also find some service companies like transportation companies who survive here due to international clients also operating in Romania. For the big companies in that segment, it will be very important to count on favorable conditions (tax, salary costs, etc.). The „big fish“ comes to Romania or stays here if there is a clear competitive advantage in costs.

2. International players in Romania having mainly local clients do face the whole consequences of the declining local mass market. Here we find big retail companies, the telecoms, the construction business, electricity companies, etc., but also part of the media. For these companies, all kinds of measures to stimulate the growth of consumption are essential. The government has to create a climate of trust and predictability. Then people will again be more inclined to spend and also to take loans. The nearly overnight increase of VAT and the drastic cuts in salaries and pensions last year were a heavy blow. The big advantage of these players is that they belong to international networks. In difficult years these companies can sustain their Romanian investment.

3. Local players having mainly international clients abroad for export did not do too bad last year. According to ANEIR institute, exports registered a 25% plus in 2010 in comparison with 2009. I am positive that there is much more to export than just Dracula T-shirts. In that respect, we need a strategic analysis about the potential to be indentified in this country. This work is by far not done. What are the strengths and opportunities to grasp here, what products are worth to be invested in?

4. Local players having mainly local clients are the worst off in this analysis. If you look at the recent insolvency list you will find a lot of them there. Companies like Flanco and Diverta had a hard time without international backing. I do believe that here lies the biggest challenge for the future. Romania needs more small and middle sized companies, professionally run and with good products to sell. Countries like Germany owe to a large extent their success to this group of companies, who are often managed by entrepreneurs through several generations. We need programs to facilitate the creation of companies, to stimulate entrepreneurship and to offer adequate credit facilities.
What the country terribly needs is a strategic vision and direction where to go. Isn't that a wonderful playground for thinkers, entrepreneurs, GMs from well established companies and politicians, aside?

Michael Schroeder

Michael’s professional experience encompasses 17 years in the media business, first at European Television Channel ARTE, then within the Burda publishing group.

He was active as General Manager of Burda Romania until 2009. During these last years he also managed several take overs of Romanian companies. He joined one of the largest Executive Search and Coaching company, Stein & Partner at the end of 2009 as Partner.