Romanian Car Manufacturer ROMANIA Dacia Began Selling Its New Nova Model This Year

CENTRAL COVERING THE EUROPE CENTRAL EUROPEAN AUTOMOTIVE INDUSTRY AUTOMOTIVE REPORT July/August 1996 Volume I, Issue 3 ISSN 1088-1123 ™ Romanian car manufacturer ROMANIA Dacia began selling its new Nova model this year. The five PROFILE ROMANIA door sedan was developed Rodae: Striving to entirely in Romania and is sold Become Industry Leader Awaiting Foreign Investment Surge with 1.4 and 1.6 liter engines. Dacia was the top seller of cars Daewoo’s recent investment of over USD 600 Companies Looking for Partners in Romania in 1995 with over million in Rodae Automobile S.A. makes 63,000 units sold. Daewoo the largest foreign investor in Romania. Daewoo plans to increase its investment to USD A new joint venture in Romania will man- In September of this year, Romcar S.R.L., 1 billion by the year 2000. When 4500 workers ufacture buses for the Romanian market and the exclusive dealer for Ford in Romania, will at Rodae’s new car manufacturing plant went on for export. Bucharest-based RomAmerica open another dealership in Bucharest which strike in February of this year, Dong Kyu Park, has teamed up with Romanian manufacturer will include a showroom, offices, and work- then the President of the Overseas Operations Romprim S.A., and the Dutch companies shop. Romcar currently has 11 dealerships in Division of DAF Bus International and Berkhof Bus Romania. [for more on Romcar, see Daewoo Company. Romprim will provide the space Distributors on p. 3. ed.] Motor for the manufacturing of bus bodies and Company in components, DAF will initially supply the Auto Market Figures: Production of vehi- Korea, was joint venture with chassis, Berkhof will pro- cles in Romania began in 1954; until 1990 the called to vide bus body technology, and RomAmerica market was closed. Romania’s auto sector Romania to will handle the marketing and sales. currently has the capacity to produce 300,000 negotiate with Production is expected to begin January 1, units a year. The auto industry experienced a the striking 1997. Total investment is USD 6 million, half boom in 1991, and then suffered through a workers. of which is for the purchase of capital equip- sharp decrease in demand. A recovery is now After conclud- ment. Although the joint venture will underway and growth rates are increasing. ing a five-year initially import most of its supplies and The total market expanded 20% in 1995, and settlement inventory, it will eventually shift to local sup- a 25% growth rate is projected for the future. with the labor pliers. [for more on RomAmerica see Such continued expansion, of course, depends union, Mr. Distributors on p. 3, and for more on Romprim on the success of government measures to Dong-Kyu Park Park was see Spotlight on p. 8. ed.] improve the economy and boost the buying asked by power of Romanians. Romanians’ low buying Daewoo founder Chairman Woo Chong Kim to Daewoo plans to begin this year the second power has fueled a strong used car market. head the Rodae company. Mr. Park has been the stage of its Romanian investment which will Eighty thousand used cars were sold last year. Chairman of the Board of Directors and Director involve the production of engines and gear- This trend, however, may be changing. “The General of Rodae since April. boxes. The planned amount of investment market for new cars is beginning to move for the second stage is over USD 370 million. faster,” says Marius Carp, Director of The CEAR: Why did Daewoo choose Romania The first stage of Daewoo’s investment, pro- Association of Automotive Manufacturers for its huge investment in the automotive duction of the Cielo model, is already and Importers. “Many buyers who in the industry? underway at Daewoo’s Rodae Automobile fac- past have bought used cars are starting to Park: It was determined in 1990 that tory in Craiova. [for more on Rodae see this buy new cars.” Daewoo’s globalization strategy must include month’s Profile interview. ed.] the production of at least two million cars.

Continued on page 2 Continued on page 14 CENTRAL Feature Country Continued From page 1 impressive 6.9%. It is estimated that the private sector accounted for 45% of the EUROPE Most all makes of cars are imported into GDP in 1995, up from 16% in 1990. The AUTOMOTIVE Romania. A few of those that are not cur- industrial sector’s contribution to GDP was REPORT rently imported are Subaru, Seat, and Saab; 16%. The government has reigned in infla- starting this year, Jaguars will be sold in tion from its high of 314% in 1993 to 29% Romania. In 1995, 17,000 new imported in 1995. The goal for 1996 is 20%. As of July/August 1996 cars were sold in Romania. Over 14,000 of the first of this year, unemployment was just Volume I, Issue 3 this amount were Daewoo models which under 9%, and the average monthly wage Formerly Published as the were less expensive in 1995 due to a customs was approximately USD 110. The wage Central Europe Business Report duty exemption related to Daewoo’s invest- rate, however, is probably understated due ment in Rodae Automobile S.A. Romanian to black market transactions and From August 1995 to April 1996 importers are either representatives of the unreported payments. Publisher Ronald F. Suponcic, Jr. parent companies or local companies who have a contract, often exclusive, to import Investment: Romania has yet to see the Editor-in-Chief Jeffrey A. Jones, Esq. the cars. Importers are hurt by the low type of inward investment experienced by its purchasing power of Romanians and high Central European neighbors. Total foreign Central Europe Automotive Report™, 4800 customs duties. Romanians are also investment in Romania is only USD 1.7 bil- Baseline Rd., Suite E104-340, Boulder, CO reluctant to buy foreign makes because lion. In 1995, foreign investment per capita 80303 USA, is published monthly, except spare parts are difficult to find and expen- was USD 79 compared to USD 970 in August, by Central European Trade & sive to purchase. Hungary and USD 530 in the Czech Marketing, L.L.C. in Boulder, Colorado. Republic. From 1994 to 1995, the amount of The mission of the Central Europe Automobile Dacia SA is the big domestic foreign direct investment in Romania fell Automotive Report is to provide market, producer of cars and controls approximately from USD 650 million to USD 312 million. investment, and business information that 80% of the market with its inexpensive mod- According to some industry experts, can lead to joint venture, greenfield invest- els selling for around USD 3,500. A new Romania needs foreign investment totaling ment, and product distribution Opel or Toyota, by comparison, can cost USD 1.5 billion annually for at least five opportunities in the automotive sectors of USD 10,000. In 1995 Dacia will produce years to develop a genuine market economy. Slovenia, Hungary, Czech Republic, Slovak 80,000 units and is likely to exceed this Some investors may be waiting on the side- Republic, Poland, Bulgaria, and Romania. amount in 1996. The company’s goal is to lines until Romania’s privatization program The Central Europe Automotive Report produce 120,000 units annually. Fifty-five is complete. intends for its information to be used to increase foreign investment in the Central percent of Dacia’s production is exported. European auto sector; improve the avail- Dacia is looking for a foreign partner to Over one-half of Romania’s foreign ability, quality, and competitiveness of manufacture a new model of car, one with a investment is from EU member states. The products and raw materials available to new engine and modern style. The engine principal investors are South Korea, Central European auto manufacturers and must meet EU non-polluting regulations so Germany, Italy, France, U.S., Netherlands, suppliers; strengthen existing Central that it can be sold in Western Europe. U.K., Turkey, Luxembourg, and Switzerland. European companies by introducing foreign capital, technology, and expertise; and pro- ARO, the Romanian manufacturer of off- Although Romania has great investment vide opportunities for auto manufacturers road vehicles, is also looking to manufacture potential with its natural resources, seaports, and suppliers to expand their markets. new engines. ARO currently installs foreign and pool of skilled labor, political problems The entire contents of this magazine are engines in its vehicles based on customers’ may keep it from realizing its full potential. copyrighted by Central European Trade & requests. Before 1990, ARO exported 90% “Many foreign investors have come here and Marketing, L.L.C. with all rights reserved. of its production, but it is now facing tough just walked away,” says Brian Lait, Reproduction or use in any form, without competition in this segment. The company Managing Partner of Deloitte & Touche in permission is prohibited. Annual subscrip- currently exports 25% of its production. Bucharest. “The bureaucracy is a problem tions are $95 in the United States and $135 ARO is the only Romanian light vehicle pro- here.” Nonetheless, says Lait, “if a company outside the United States. ducer manufacturing without a foreign is prepared to battle with the bureaucracy, partner. Another domestic company, the country is here and they can be king.” Mecatim Timisoara, is no longer producing Colgate, for example, came to Romania Ad & Subscription Sales cars in Romania but is looking for a foreign early, fought, and now controls close to 70% Tel: [1](303) 784-5653 partner to resume production of its inexpen- of the market. US Fax: (800) 684-3393 sive, small cars. Typical problems faced by International Fax: [1](510) 927-2630 Romanian vehicle manufacturers are aging Rolem S.R.L., is another example of a Email: [email protected] industrial structures, poor quality, and out- successful investor in Romania. Rolem is a Europe Office: dated models. Romanian manufacturer of high quality wood parts for Mercedes passenger cars. Tel./Fax: [42](7) 374-431 ul. L. Derera 2, I./48 Economy: The Romanian economy is sta- The company is a joint venture between 830 00 Bratislava Slovak Republic bilizing and GDP growth in 1995 was an Holz Industrie Bruchsal (a company 100% Continued on page 10 2 July 1996 • CENTRAL EUROPE AUTOMOTIVE REPORT © Central European Trade & Marketing, L.L.C. 1996 Romania Romcar S.R.L. is the exclusive dealer for Ford in Romania. The company was started DISTRIBUTORS FINDING in 1993 with only 4 employees and has now expanded to 143 employees and 11 dealers. SUCCESS IN ROMANIA Five hundred vehicles, including cargo trucks, are imported by the company each year. Romcar supports its dealership network by helping with logistics, paying for advertising, With its population of 23 million people, that 10% of truck customers in Romania do and training employees. According to Viorel Romania is an attractive market for foreign not know what leasing is. Niculescu of Romcar, the Romanian market manufacturers of cars and trucks. Setting up a According to Secara, the keys to being a is difficult due to the presence of local manu- distribution network in Romania, however, pre- successful distributor in Romania are 1) have facturer Dacia. “Dacia cars are cheap and sents unique challenges. The experiences of a good information gathering and processing affordable,” says Niculescu. He notes, how- three companies currently importing Western system; 2) maintain good relationships with ever, that Dacia’s low prices may disappear vehicles and distributing them in Romania are the local financial institutions such as banks, when the Romanian market truly becomes reviewed below. mutual funds, and leasing companies; 3) free and competitive. develop strong after sales such as spare parts RomAmerica is a Bucharest-based and servicing; and 4) find the right people. Despite the challenges of the Romanian importer of DAF trucks and buses and Contact: Bogdan Secara, RomAmerica, 14 market, Romcar sees future potential and is Thermo King truck temperature control Luterana Str., Sector 1, Bucharest, Romania; increasing its investment. A USD 5 million products. Since its formation in 1991, the tel: (40 1) 312-5679, fax: (40 1) 312-1492. credit facility is being worked out with Ford company has had gross sales of DM 100 mil- Credit that will allow Romcar to have a more lion; two hundred heavy trucks and 220 buses have been imported and sold in Romania. Continued on page 15 “We’ve seen success in Romania,” says company President Charles E. Spry, Jr. CENTRAL ORDER TODAY! RomAmerica is in the process of developing a dealership network. According to TO SUBSCRIBE, FAX Bogdan Secara, RomAmerica’s Business EUROPE THIS PAGE TO 1-800-648-3393 Development Manager, there are two (FROM OUTSIDE THE US approaches to setting up a network. A com- AUTOMOTIVE FAX TO [1] (510) 927-2630) pany can develop it internally by operating through its own subsidiaries, or an independent company can be used. Under the first REPORT ❑ INVOICE ❑ CHECK ENCLOSED approach, government bureaucracy can make finding suitable sites for the network difficult. Name ______Using an independent company, however, presents even greater challenges. “We found Company ______that most of the Romanian companies didn’t Address ______meet our standards in terms of personnel City ______State ______skills and market orientation,” says Secara. RomAmerica eventually found a foreign- Zip/Post Code ______Country ______owned company to work with. “A reliable Tel: ______Fax: ______partner is essential,” notes Secara. BY U.S. CHECK OR INTERNATIONAL U.S. DOLLAR MONEY ORDER

One of the most difficult aspects of doing Payable to: Central European Trade & Marketing, L.L.C. business in Romania is obtaining quality Mail to: 4800 Baseline Rd., Suite E104-340 information. To overcome this obstacle, Boulder, Colorado 80303 USA RomAmerica surveyed over 300 transport ❑ ONE YEAR (11 Issues) - US $95.00 Outside US - $135.00 companies. “The results were incredible,” says Secara. “Some of the responses were Which one category best describes the principal business of your company? astonishingly different from our expecta- ❑ Manufacturing ❑ Freight/Transport/Shipping ❑ Financial Services tions.” One finding was that warranty and ❑ Wholesale Trade ❑ Professional Services ❑ ______post warranty options are in high demand by customers because of the poor road condi- Which one title best describes your position? tions in Romania and because of the high ❑ President/Owner/ CEO ❑ VP ❑ Logistics ❑ Sales/ Marketing/Advertising price of spare parts. The survey also revealed ❑ Other______

The Romanian-American Enterprise Fund my. The amount of capital that such com- ket is developing rapidly. The government encourages private sector development in panies can invest in projects presents a real is moving slowly in this area and it’s frus- Romania by providing debt and equity financ- capital barrier for most local competitors, trating. One of the big cautions we must ing to small and medium-sized private even when we’re talking about a several mil- build into our investments here is the inabil- enterprises. The $50 million Fund began lion dollar investment. It will be a long time ity to exit easily. operating in 1995 and has committed more before the local companies will have similar than $5.5 million in approximately six major amounts of capital to invest, and this creates CEAR: What can you do for a foreign debt and equity projects and 14 micro-loans. a nice lead time for a company that invests investor who comes to Romania? Joel D. Hayes is Senior Investment Officer of in Romania now. Hayes: It depends on the level of devel- the Fund. opment of their project. At the very least, CEAR: What should foreign investors we can put them in touch with potential CEAR: What kind of investment opportu- expect when investing in Romania? local partners or people who can locate nities do you see in the Romanian Hayes: They can expect to find labor facilities for them. Further down the road, automotive industry? costs that are among the lowest in the when the investment is more defined, we Hayes: Right now, we’re looking at a region, and a technically well educated and would be ready to consider a joint invest- wiring harness manufacturer, a tire compa- available work force. If you need a nuclear ment. We generally invest in the $250,000 ny, and an electrical component physicist, they’re on the market. Romanians to $3 million range. We’re also able to raise manufacturer. As is common in this whole have a fairly solid work ethic. Under funds from other investors in the region region, there are a lot of old state compa- Ceausescu, it was clear that everybody had who can co-invest with us. In general, the nies that have the grounds, the machinery, to pull their own weight. Romania also has opportunities in the Romanian automotive and some of the necessary technology to great access to the rest of the world through industry are the types of investments we’d manufacture automotive parts and compo- the port of Constanta on the Black Sea, and seriously consider getting involved in. nents. It’s just a matter of finding the need products can be moved easily to Western Other than ensuring that the investment is and adapting the equipment. With Europe via the Danube. environmentally sound, there aren’t many Daewoo’s large investment in Rodae, we restrictions on our activities. We can struc- anticipate that there will be some interesting Investors here may also find manufactur- ture the deal in many ways, using debt and opportunities for us to pursue as they look ing facilities and machines that are more equity mixes if appropriate. for Romanian companies to supply them obsolete than expected. Large capital with parts. Another sector we see potential investments will be needed to bring some CEAR: What are the keys to being a suc- in is the machine tool and metal forming factories up to speed. Furthermore, the cessful investor in Romania? sectors. There’s great pride in the special- bureaucracy here is thick and convoluted Hayes: A foreign investor must have a ized tools that are made here in Romania. and nothing happens quickly. Things that local presence and must come in with full appear to be straight forward take eight technical support. Trying to remote control We also see opportunities in the leasing more steps than planned. It’s definitely the investment from Detroit would be diffi- sector. We’d like to set up a company that frustrating, but if you stick with it things do cult. The hands and minds are here but will provide leasing or consumer financing get done. It’s important to have a compe- they need instruction and guidance. There for the purchase of vehicles. A very small tent local partner. Not only will they help are opportunities in Romania. It’s early percentage of domestic car purchases in you get through the local red tape, but they enough in the development of this economy Romania are funded by leasing. There are can help you avoid the automatic price that companies that are willing to come here only a few leasing companies operating here inflation Western investors experience in and slug it out should find success. now, but the effective cost by leasing through Romania. Prices seem to be doubled auto- them is greater than the effective cost of pur- matically for foreigners. Romanian-American Enterprise Fund, Str. chasing, so there’s no real benefit to the Vasile Conta, Nr.4, Sector 2, Bucharest, lessee. What we’re trying to do now is unrav- CEAR: What kind of barriers should for- Romania; tel: (40 1) 210-0701, el the law relevant to leasing to find out how eign investors expect? fax: (40 1) 210-0713, we can do it efficiently and competitively. Hayes: Figuring out how to harvest your e-mail: [email protected] ■ investment can be a problem. They’re liber- CEAR: Are there opportunities for medi- al about expatriating profits here, but um-sized companies in Romania, not just exiting investments can be tricky. With CENTRAL for the Daewoos of the industry? hope, a few years down the road the market EUROPE Hayes: Definitely. What we would con- will be liquid enough to allow easy exits. AUTOMOTIVE REPORT sider a medium-sized company in the West We don’t have high hopes for the Bucharest can be a real power in the Romanian econo- stock exchange right now, but the OTC mar-

4 July 1996 • CENTRAL EUROPE AUTOMOTIVE REPORT © Central European Trade & Marketing, L.L.C. 1996 Romania When negotiating a production contract, it is advisable to conduct a detailed survey of LEGAL ADVISOR the producer’s equipment and facilities. ROMANIAN DISTRIBUTION & PRODUCTION AGREEMENTS Although Romania has high engineering capabilities and skilled labor, the machine tools and production lines of many factories The num- for it to the authorities. For foreign compa- are similar to those that were replaced in ber of public nies without a taxable presence in Romania, advanced countries over 30 years ago. and private it is essential that distribution agreements Furthermore, if entering into an agreement automobiles provide that all sums receivable by the for- to construct parts and components in on the roads eign companies will be grossed up to ensure Romania, it is suggested that any trademarks of Romania that the amount received is equivalent to be registered in Romania. Romania has has the full invoiced cost and not the invoiced modern trademark, copyright, and industrial increased cost less the amounts to be contributed to design regulations, and is a signatory to all significantly the authorities. major trademark and copyright conventions. in the last If finished products are to be exported from six years. In A distribution agreement must also con- Romania to other markets, it is also advis- 1995 there tain provisions regarding the relevant import able to look into whether any anti-dumping was a 43% procedures to be followed. Goods can be rules in the other countries apply. increase in imported into Romania only through a registrations Romanian company that holds an Although courts in Romania have not yet Nicholas S. Hammond and a simi- import/export license issued by the awarded product liability damages which in lar rise is estimated for 1996. Foreign Romanian customs authorities. Customs the West would be considered exorbitant, it manufacturers are taking advantage of this agents are responsible for giving a detailed may be advisable to obtain product liability increase in demand for automobiles and declaration of goods to the customs authori- insurance that will cover actions in Romania automotive products by entering into distrib- ties, handling transit, storage and other as well as in other countries. Compulsory ution, production, or technical assistance clearance operations, and paying duties to product liability insurance is not yet avail- agreements with Romanian firms. When the customs authorities. No person other able on the local market. Romanian product entering into such agreements, a foreign than an authorized clearing agent can act as liability law is not as advanced as in other company should be aware of certain tax, cus- a customs clearing agent. Therefore, in con- countries, but manufacturers are held to a toms, financing, intellectual property, and nection with any distribution agreement it is certain standard of care. liability issues. important that the Romanian partner (whether a subsidiary of the foreign compa- The Romanian legal system provides that A foreign company may carry on business ny or Romanian corporation) clearly contracts freely entered into that are not in Romania by setting up a Romanian com- understands what procedural steps must be contrary to Romanian public policy or con- pany or foreign branch. Such entities are taken during importation to ensure that the trary to Romanian law, are binding upon the subject to Romanian taxation of 38% plus an proper arrangements are made and regula- parties and will be enforced by Romanian additional 6.8% for a branch. If a foreign tions followed. courts. Although a standard Western distri- company sells its goods into Romania to a bution agreement can probably be used in Romanian company for subsequent distribu- Financing pursuant to a distribution Romania, it is necessary for it to be adapted tion or use by that company, the foreign agreement is usually in the form of immedi- at an early stage to agree with and comply company is not carrying on business in ate payment in cash or security, or letters of with Romanian law. Romania is an associ- Romania and can invoice in hard currency. credit, confirmed or otherwise. If the inter- ate member of the European Union. In any The Romanian company may remit the hard nal distributor is a subsidiary of the foreign negotiation, therefore, it is necessary to con- currency so long as it fulfills all necessary company and financing is not an issue, cross sider not only Romanian law but inter- administrative requirements of the National border transfer pricing must still be consid- national law and European requirements. Bank of Romania. ered. In times of hard currency shortage, serious liquidity problems may prevent the Nicholas S. Hammond is a senior associate If a foreign company does not have a tax- Romanian distributor company from paying with the law firm Taylor Joynson Garrett and able presence in Romania, a distribution the parent company for its goods. runs their Bucharest office. He has worked in agreement must address this matter clearly. Consideration must also be given as to what Romania for six years and has advised a num- In certain circumstances the Romanian com- inventories the distributor will maintain and ber of international firms on joint ventures and pany is required by law to deduct from how those inventories will be funded. The associated transactions. Taylor Joynson payments a sum equivalent to taxation and Romanian customs regime allows a scheme Garrett, Bd Nicolae Titulescu nr. 1, Bloc 7, remit this to Romanian tax authorities. of bonded warehousing which is a way of Scara 3, Etaj 9, Apartment 88, Sector 1, When the Romanian company applies to the alleviating, in part, some of the cash flow Bucharest, Romania; tel: (40 1) 210-6738, fax: bank for permission to remit the funds requirements of the distributor. (40 1) 211-7589. ■ abroad, it may be asked to confirm that it has made such a deduction and accounted

Romania, with its population of 23 million, strategic location on the Black Sea and Danube River, attractive labor rates, and growing economy, presents unique opportunities for foreign investors. Although it hasn’t seen anywhere near the levels of foreign investment enjoyed by its smaller Central European neighbors like Hungary and the Czech Republic, this is by no means indicative of Romania’s potential. Since Romania is in the early stages of its transformation to a market economy, and has attracted only USD 1.7 billion in foreign investment, the investment terrain is less picked over and excellent opportunities can still be uncovered. The risks may be higher than in other parts of Central Europe, but the rewards are greater as well.

Ronald F. Suponcic, Jr. And the opportunities are not only for the big companies. As Joel Hayes from the Romanian Publisher American Enterprise Fund says in his interview on page three, medium-sized investors can be real powers in the Romanian economy. A several million dollar investment can create a significant capital barrier for many local companies, giving the foreign company an immediate advantage. In this month’s Opportunity Spotlight, Rodae Automobile’s Adrian Spulber also notes that foreign companies can set up competitive assembly operations in Romania for a small investment. Such assembly operations can take advantage of Romania’s available supply of skilled, low cost labor.

Of course, barriers exist for foreign companies in Romania, especially in the form of government bureaucracy, and larger investments will be needed to exert market power as the economy matures. But the companies that invest now, establish themselves, and start expanding their market share can do so at a lower cost than those companies that wait until it is common knowledge that Romania is a safe and lucrative place to invest. ■

Jeffrey A. Jones, Esq. Editor-in-Chief

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6 July 1996 • CENTRAL EUROPE AUTOMOTIVE REPORT © Central European Trade & Marketing, L.L.C. 1996 Romania actually the legal owner of the land and that the land can be conveyed. Everyone in Romania has a different opinion regarding FOCUS ON INVESTMENT the extent to which a wholly foreign-owned SUCCESSFULLY INVESTING IN ROMANIA Romanian company can own land. A foreign person cannot. Foreigners, however, can own Romanian buildings. Regardless of As a the company and its majority shareholder at the popular uncertainty surrounding land potential the bargaining table from the beginning. ownership issues, there are many ways to investor, structure land ownership to achieve a for- you’ll be Develop a Personal Relationship with Your eign investor’s goals. welcomed Negotiating Partner. Personal relationships warmly to are important to Romanians. It is the glue Don’t Assume You Can Do It Here. Romania. that holds society together. Such relation- There are two very common assumptions But don’t be ships can be critical to the success of business that foreign investors often bring to misled by negotiations with a Romanian partner. Romania. The first is that the country is a the pleasant blank slate on which they can write any for- smiles The reason is simple. Due to the coun- eign investment rules they like. The second beamed in try’s previous isolation from the West, many is that the rules, whatever they are, are just like they are at home. Neither assumption is Andrew B. Kingston your direc- financing techniques and other common tion from business strategies are not well understood correct. If anything, there are too many across the protocol table. Chances are it in Romania. History and experience teaches rules in Romania. Some are beneficial, if a won’t be easy to close your deal. Investing your Romanian partner that it is always safer bit dated. Business relations are governed in Romania is not a user-friendly experi- to say no to an unfamiliar proposal. If you by a commercial code borrowed from the ence and it helps to know a few things make an effort to develop a relationship of Italians and a civil code copied from the about the process in advance. trust and mutual respect with your French. Both have been changed little since Romanian negotiating partner, you will be in adoption in the nineteenth century. So, for Talk to the Right People. Many foreign a much better position to explain new pro- example, don’t count on getting a useful investors waste time and money negotiating posals and to persuade your partner to security interest. with the wrong representative of their poten- consider them with an open mind. If you are tial partner. For example, an investor who negotiating with a team, look for the individ- Other laws are new. During the past wanted to privatize a state-owned manufac- ual who has respect and trust of the others year, Romania has enacted a comprehensive turing company traveled to a remote part of and focus on that person. bankruptcy law, a modern copyright law, the country every other week for six months and, very recently, laws on environmental for meetings with the company’s general Do Due Diligence! If you are acquiring an protection and competition. All meet inter- director. The subject was formation of a ownership interest in a Romanian company, national standards and, so far, all are joint venture to produce and export equip- examine its business and legal relationships completely untested. ment parts. The general director assured with particular care. Major contracts can be the investor that the State Ownership Fund, legally unenforceable. Taxes can go unpaid Conclusion. Romania is no longer part of the company’s majority shareholder, would and interest penalties can be very high. the untamed frontier, but neither is it firmly go along with any agreement reached. Debts can be hidden on the balance sheet placed within the family of developing and dividends distributed by insolvent com- Central European countries. In the future, Two weeks after the joint venture agree- panies. Intellectual property rights can be as the list of multinational companies with ment was finalized, the investor contacted infringed. For example, some companies successful investments in Romania grows, the general director to find out when the that evolved from former communist state patience and flexibility will become less closing would take place. After receiving a enterprises still make products under trade- important than they are today. By then, variety of excuses, the investor learned that marks that they do not own. In the past it however, many of the best opportunities will the State Ownership Fund had decided not didn’t matter but today it does. Take the be gone. to approve the contract unless the investor time to investigate and verify. agreed to major changes. The changes were Andrew B. Kingston is with Kingston demanded by the company’s trade union, Accounting rules combined with currency Petersen S.A., a consulting firm which, togeth- some of whose members owned a minority devaluation can create huge paper profits er with the Romanian law firm of Nestor & interest in the company. that evaporate when a company’s financial Nestor S.p.a., represents a wide range of for- Rather than walk away from the deal, the statements are converted to IAS. Hire good eign investors in Romania. He is a cum laude investor began a new set of negotiations with accountants and let them spend enough time graduate of Harvard Law School. Str. Iuliu the State Ownership Fund. This time an at the site to prepare a meaningful report. Teodori Nr. 1, Bucharest 5, Romania; tel: (40 employee representative was at the table, 1) 312-5196, fax: (40 1) 311-0646. ■ too. Valuable time was lost because the If you plan to buy undeveloped land for a investor did not have representatives of both greenfield facility, verify that the seller is

© Central European Trade & Marketing, L.L.C. 1996 CENTRAL EUROPE AUTOMOTIVE REPORT • July 1996 7 Romania It is likely that approximately 20% of EP’s shares will be available for sale to investors. OPPORTUNITY SPOTLIGHT “EP would like to find foreign companies to invest here,” says Carsteanu. “We need to modernize our machines, equipment, and This month’s Opportunity Spotlight features buses. ed.]. Romprim’s manufacturing facility technology.” Carsteanu notes that EP could four of the big Romanian manufacturers of includes over 1,500 machine tools, specialized be an ideal partner in a venture that involves vehicles and automotive equipment. Excellent assembling and mounting lines, and a paint- the manufacturing of parts and components opportunities exist with these companies in the ing hanger. Capabilities exist for cast iron which require a large quantity of labor. form of supply, purchase, and production agree- and non-ferrous metals elaboration, forging Products such as ignition distributors and ments, and direct investment. and secondary thermal treatment, and starters would be especially suitable for such mechanical processing. Contact: Moisescu a venture. Carsteanu also suggests that good S.C. Romprim S.A. is a manufacturer of Sergiu, Director General Adjunct, S.C. opportunities may exist for the manufacture bodies for special vehicles and is interested in Romprim S.A., Sos. Oltenitei Nr. 388, Sector of oil pressure and temperature transmitters. cooperating with foreign companies. IV, Bucharest, Romania; tel: (40 1) 634-6620, EP is also interested in ventures in which the Romprim manufactures bodies for large and fax: (40 1) 330-6604. foreign partner supplies a product design and small refrigerated trucks, fire trucks, tankers technical specifications and EP manufactures for fuel or drinking liquids, garbage trucks, *** the product accordingly. snack-bar trucks, grain carriers, dump trucks, Electroprecizia S.A. is a Romanian pro- and personnel vans and trucks. Yearly vehicle ducer of electric and electronic equipment for Carsteanu says EP plans to be a part of capacity is 5000 and the company is operating cars, trucks, buses, and tractors. The compa- Rodae’s supply program. “There are some at full capacity. Romprim has 170 employees ny is interested in cooperating with foreign products that we don’t currently produce that and is privatized; 60% of its shares are in pri- firms in a variety of capacities. The main with foreign help we could produce and sell vate hands and 40% are held by the State equipment supplied to the automotive indus- to Rodae,” he says. EP is frank about its limi- Property Fund. Vehicle bodies are mounted try is alternators, electronic and tations. “Our conviction is not to make the on various Romanian chassis, as well as on electromagnetic voltage regulators, starters, mistake of saying that we can solve all our Peugeot chassis imported from France. ignition units, relays, transducers, tempera- problems,” he added. “We need to cooperate Horizontal engines (192 hp) for buses are ture switches, flexible shafts, instrument with interested companies.” Contact: Serban currently produced under a MAN license and panels, and oil pressure, water temperature, Carsteanu, Electroprecizia S.A., Parcului St. capacity is 300 engines per year. A 600 hp fuel level, and voltage indicators. EP current- 18, 2212 Sacele, Brasov, Romania; tel: (40 68) engine used for marine propulsion and ly supplies original equipment to the 270-308, fax: (40 68) 271-998. drilling is produced under a Maybach license. Romanian companies Dacia, ARO, Roman, Rocar, and Tractorul. Spare parts are sold to *** Spare parts are manufactured by Romprim Romanian and international companies such Daewoo’s massive investment into Rodae for all of their vehicles. Wheel drivers, pis- as Renault and Citroen. Turnover in 1995 Automobile S.A. will create numerous oppor- tons, and pins are produced for Dacia was USD 40 million and thirty-percent of tunities for suppliers of parts and engines, and pistons, pins, and crankshafts are turnover is exported, primarily to Germany, components. Pursuant to its agreement with manufactured for ARO engines. Most sup- France, Italy, and Spain. According to the Romanian government, Rodae must plies are purchased by Romprim from Serban Carsteanu, Export-Import Director, localize 60% of its parts and components pur- Romanian manufacturers. For the last two “there’s potential for doubling, tripling, or chases. By the end of this year, 25% of years, horizontal engine parts have been pur- even quadrupling our current turnover.” The supplies will be produced in-house, and 10% chased from a Turkish company that produces company is ISO 9001 certified and employs will be purchased locally. Rodae currently under a Goetze license, and Thermal King over 6,000 workers. refrigeration units are imported from Italy. Romprim currently exports to twenty coun- Electroprecizia purchases from Romanian BACK TO SLOVAKIA tries, including Egypt, Germany, Cuba, Iraq, and foreign suppliers parts, components, and Angola, Philippines, Columbia, and Nigeria. raw materials such as steel, copper wire, plas- In our May issue we mistakenly omitted the Engines are exported to Russia and Pakistan. tic materials, electric graphite brushes, and American Chamber of Commerce in the electronic components (e.g. diodes, transis- Slovak Republic from our list of helpful Romprim is interested in cooperating with tors, and resisters). Some Western European organizations. the AmCham office is an excellent source of business and professional foreign partners for the production of chassis suppliers provide EP with electronic compo- contacts, provides business, legal, and politi- for medium capacity vehicles (3500-5000 nents, high quality brushes, special plastics, cal information, and is actively involved in kilos) at its Bucharest factory. Romprim is and copper wire. According to Mr. advising the U.S. and Slovak governments of currently involved in cooperation agreements Carsteanu, quality, price, and delivery time the business community’s concerns. Contact: with Peugeot, the Italian company are the most important factors considered Beverly I. Douglas, Executive Director, Electromeccanica, and Rosenbauer from when choosing a source of supply. “We are Safarikovo nam. 4, 811 02 Bratislava, Austria. [See page one for a discussion of open to all suppliers, not just Romanian sup- Slovak Republic; tel: (42 7) 365-191, (42 7) Romprim’s joint venture for the production of pliers,” says Mr. Carsteanu. 365-108. ■

8 July 1996 • CENTRAL EUROPE AUTOMOTIVE REPORT © Central European Trade & Marketing, L.L.C. 1996 purchases 6%-7% of its supplies locally, Romania; in 1995, 150 such trips were made. meet environmental requirements and fitting including batteries, seat belts, small plastic Rodae has not started to transport shipments these engines onto vehicles for export. and rubber parts, loudspeakers, small between Romania and Daewoo’s Uzbekistan Roman is looking for a strategic partner with stamped parts, hardware, and machined factory. Finding a suitable transport compa- which it can produce such engines in parts. Rodae has already found suppliers for ny for this route is difficult as the rail gauge Romania. Contact: Gheorghe Traian Belei, seat cushions, fuel tanks, mufflers, seats, and is different and the region is unsafe. Contact: Roman A.S., 5 Poienelor Str., 2200 Brasov, bumpers. “We’re open to all other suppliers,” Adrian Spulber, Technical Director, Rodae Romania; tel: (40 68) 311-222, says Adrian Spulber, Rodae’s technical direc- Automobile, Soseaua Caracal, dm 3, 1100 fax: (40 68) 311-222. ■ tor. Rodae’s goal for 1997 to purchase 15% Craiova, Romania; tel: (40 51) 146-902, fax: of their supplies from Romanian companies. (40 51) 144-875. To report news of acquisi- According to Spulber, many local *** tions, joint ventures, sales Romanian companies cannot, without for- Roman S.A. is a large manufacturer of eign assistance, supply Rodae with the parts commercial vehicles and subassemblies, contracts, new offices, or job and components that they need. “Rodae will machine tools, and castings and forgings. changes write to Opportunity help foreign companies find suitable Although the company must still undergo Spotlight, CEAR at 4800 Romanian partners who manufacture parts privatization and has seen its production of and components,” he says. “Many of us have trucks plummet from 30,000 units in 1985 to Baseline Rd. Suite E104-340, been here for a long time and we know these below 4,000 units in 1994, opportunities exist Boulder, CO 80303 USA, or suppliers well.” Even items as simple as for cooperation with foreign companies. E-Mail to [email protected]. screws and washers can be difficult to find in Romania since many companies have outdat- Roman has improved and modernized its ed equipment and technology. “Not one of truck production under a MAN license. our suppliers has said they don’t need help,” Trucks are produced with gross weights rang- Spulber notes. “They’re all looking.” ing from 7 tons to 32 tons. Over 1500 different truck models can be produced by Spulber says that it is difficult to find a Roman, including tractors, fuel tankers, and ROMANIA parts supplier in Western Europe for some cranes. Trucks are currently exported to small quantity purchases. He thinks, howev- South Africa, Italy, Thailand, Hungary, FACTS & FIGURES er, that such small quantities can be China, Indonesia, Malaysia, and Dubai. produced in Romania at a good price, espe- Form of Government: Republic cially those products that require a lot of Pressed components are exported to hand work. Complex, high quality compo- Germany, and engine components such as President: Ion Iliescu nents can be purchased from other countries crankshafts and camshafts are exported to and then shipped to Romania for assembly. Cuba, Russia, China, and Vietnam. Most of Capital: Bucharest (pop. 2.3 mil) “Such assembly operations do not require a the important parts used by Roman, such large investment,” he says. “Labor costs in as vehicle subassemblies and components, Population: 22,651,000 Romania are low and the people are highly are produced in-house. Clutches and gear- productive.” Rodae’s seat belt supplier, for boxes, however, are purchased from a Labor Force: 5,706,500 example, established a joint venture in Romanian supplier. Romania for the assembly of seat belts and Land Area: 238,391 sq. km. has now expanded into producing other parts Roman is developing a new range of dri- and components. ving and non-driving axles. The axle division Borders: Moldova, Ukraine, Black has the capacity to manufacture 26,000 Sea, Bulgaria, Yugoslavia, Hungary Opportunities may also exist related to front/rear driven axles each year. Roman Rodae’s supply and distribution activities. also manufactures and sells to foreign com- Black Sea Ports: Constanta, Mangalia, Disassembled car kits are currently shipped panies axle components and other machined Sulina from Pusan, Korea to the Romanian port of parts such as pinions and gears. Excess Constanta. A typical shipment involves 30 capacity exists at the Roman factory for the Natural Resources: oil, natural gas, containers which are then shipped via rail to production of truck cabins, chassis frames, coal, iron ore, non-ferrous ores, gold, the Rodae factory in Craiova. By August, and pressed and stamped sheet metal parts. silver two to three rail shipments per day will run between Constanta and Craiova. Roman is looking for a strategic partner to Major Industrial Branches: machine modernize its existing range of engines and building, food industry, metalurgy, Until recently, materials were transported to produce new engines. “We have a good chemicals, light industry, wood pro- from Europe to Romania via truck, but technological base,” says Gheorghe Traian cessing. Rodae has started to use rail shipments as Belei, Export-Import Director. “What we’re well, especially from Germany. Trucks are looking for are partners and capital.” Currency: Leu used for shipments between Turkey and Roman is currently importing engines that

© Central European Trade & Marketing, L.L.C. 1996 CENTRAL EUROPE AUTOMOTIVE REPORT • July 1996 9 Feature Country Continued From Page 2 suppliers to deliver to us products with the lished in the maritime and river ports along necessary quality,” says Andreas Lettner, the Danube-Black Sea Canal and other navi- owned by Daimler-Benz), Behr (an interna- Economic Director of Rolem. “For us, it gable canals and in the territories tional supplier of wooden parts to the would be safer if the companies had foreign neighboring the frontier checkpoints. automotive industry), and Keziah (a technology and capital.” Contact: Andreas Activities that can be carried on in the zones Romanian financial partner). Production Lettner, Rolem S.R.L., Str. Fabricii 11, Ro- include production, assembling, processing, began in October 1994, only six months after 2252 Codlea, Brasov, Romania; fax: (40 68) storage, and packaging. End users in the initiation of the project, and over 2 million 153-429 or (40 68) 151-716. zones 1) are exempted from custom taxes pieces are produced each year. Eight- and VAT for the whole period of activity; 2) hundred skilled workers are employed at Trade: In 1995, Romania’s exports can transfer abroad profit and are exempted the factory. increased by 22% and imports grew by 32%. from taxes for transport and production The main export partners are Germany, means; 3) have the possibility of transferring The wooden parts were originally pro- Italy, France, Turkey, and the U.S. Fifty- capital at company liquidation; and 4) can duced in Germany, but Mercedes decided to three percent of Romania’s exports were to have 100% foreign ownership. turn production over to its suppliers Holz EU countries. Textiles, common metals and and Behr. Rolem is now the sole producer metal products, minerals, and chemicals are There are currently four free trade zones of wooden parts for Mercedes; over DM 55 the chief exports. Romania imports primari- in Romania. Free Zone Sulina is at the east- million worth of product is exported each ly from Germany, Italy, Russia, and France, ern end of the Danube where the Sulina arm year. Romania was chosen for its attractive and fifty-percent of imports come from EU flows into the Black Sea. This zone has labor rates and the Romanians’ skill in countries. The main imports are mineral available complex infrastructure and port working with wood. Finished pieces are fuels, machinery, equipment, textiles, and equipment. Free Zone Constanta-South is transported to Germany from the agricultural products. Romania has excel- in the southern part of the port of Constanta Romanian factory via four truck shipments lent links with the rest of the world via and provides access to sea, river, railway, each week. Rolem has found that the truck Constanta, the largest Black Sea port, and and land transportation. Good links are transport is more reliable and flexible than the Rhine-Main-Danube canal which pro- offered to Central Europe, Mediterranean rail. The 1800 kilometer journey to vides a direct link between the Black Sea Basin, and the Near and Middle East. Free Germany takes three days and Rolem has and the North Sea. Zone Galati is the most important had no difficulty meeting just-in time dead- Romania signed an Associate Agreement Romanian port on the Danube and offers lines. A private transport company is used with the EU in 1993, and has a free trade access to water, rail, and road transport. for these shipments. agreement with the CEFTA countries. Free Zone Braila is located in one of the Romania has agreed with the EU that cus- oldest harbors on the Danube and has access Rolem purchases 90% of its supplies from toms duties for cars will decrease from 30% to the raw materials and skilled labor in the Germany, but would like to increase the to 0% by the year 2001. The customs duty town of Braila. For more information on local content of its purchasing. Spare parts, on cars imported from the EU is currently these free trade zones, contact: The Free packaging materials, plastic, and auxiliary 21%. Japanese manufacturers, for example, Zone Agency, Bd. Dinicu Golescu 38, 77113 materials are currently purchased from local take advantage of this by exporting cars into Bucharest, Romania; tel (40 1) 223-0880, producers. Rolem is looking for local suppli- Romanian from their European operations, fax: (40 1) 311-0728. ers of base woods, aluminum pieces, thereby paying only 21% instead of 30%. grinding paper, polishing disks, and paints. Problems: A 1995 survey conducted by “For all of the products we’d like to pur- Free Trade Zones: According to the law Deloitte & Touche on investing in Romania chase locally, I think it is hard for Romanian on free trade zones, zones may be estab- revealed a number of problems faced by Romania in 1996-97

1996 Sept. 18-22 Bucharest Int’l Exhib. for motor vehicles, spare May 5-9 Bucharest Int’l Exhib. of heating, cooling, air parts, and accessories conditioning, & insulating equipment Oct. 7-12 Bucharest Int’l Technical Fair Sept. 9-17 Bucharest Int’l Exhib. for motor vehicles, spare Oct. 29-31 Bucharest Int’l Exhib. of Business Information parts, & accessories Dec. 1 Holiday Oct. 14-19 Bucharest Int’l Technical Fair Dec. 25-26 Holiday Oct. 28- Bucharest Int’l Exhib. of inventions, scientific research, and new technologies 1997 Nov. 11 January 1-2 Holiday For additional information, contact Romexpo, 65-67 Marasti Blvd., May 5-9 Bucharest Int’l Exhib. of equip. & technologies P.O. Box 32-3, Bucharest, Romania; tel: (40 1) 223-1160, fax: (40 1) for environmental protection 312-8400.

10 July 1996 • CENTRAL EUROPE AUTOMOTIVE REPORT © Central European Trade & Marketing, L.L.C. 1996 investors in Romania. Obtaining hard cur- contacts with members), maintains informa- Division. Can help arrange contacts in the rency was a problem for 70% of the tion on local companies and the Romanian automotive sector and can provide industry respondents, and dealing with local currency market, and organizes trade missions. information. Contact: Victor Cazana, Head is risky because of devaluations and infla- Contact: Anca Ionescu, Foreign Relations of Automotive Sector, 152 Calea Victoriei, 1, tion. Obtaining reliable market information Department, 22 N. Balcescu Blvd., Bucharest, Romania; tel: (40 1) 650-3205, is difficult, and the undeveloped Romanian Bucharest, Romania; tel: (40 1) 613-5271, fax: (40 1) 659-5580. banking system can hinder business activity, fax: (40 1) 312-3830. especially when trying to move money into Tips From the Insiders: or out of the country. Frequent changes of The American Chamber of Commerce in the tax law, ambiguous interpretation of the Romania. Can assist with establishing con- 1) Do your homework. Must have a tax law, and inconsistent information from tacts with local authorities and companies, presence and know how to do battle. tax authorities were cited as major problems maintains statistics on trade and investment, Put in your first team. related to Romania’s legal system. Staffing maintains database with legal and legislative 2) Expect negotiations to take 6-9 problems, such as poor management skills information, and can refer companies to months, not including the research and misunderstanding the nature of the free firms that have resources to undertake large phase. market system, were also experienced by for- research projects. Contact: Gabriel Mihai, 3) Keep away from the stock exchange eign investors. As in most post-communist Executive Director, 105-107 M. Eminescu for now. countries, bureaucracy is a major problem St., Ap. 1, Bucharest 2, Romania; tel: (40 1) 4) Cultural awareness is important. Must and, as mentioned above, has driven many 211-7515, fax: (40 1) 210-9399. understand the locals’ way of thinking. potential investors away from Romania. 5) Have good local contacts, especially in The U.S. Embassy, Commercial Section. the government. Help for Foreign Companies Can help arrange contacts with local compa- 6) Invest for the long-term. nies and provides Romanian business, The Association of Automotive economic, and political information. Some information provided by the Manufacturers and Importers. Can help Contact: Dan Floru, Commercial Assistant, Romanian Development Agency, Chamber of arrange contacts with importers and manu- Str. Tudor Arghezi 7-9, Bucharest, Romania; Commerce and Industry of Romania, and the facturers of vehicles and parts and tel: (40 1) 210-4042, fax: (40 1) 210-0690. Ministry of Industries. ■ components. Organizes yearly motor show. Contact: Marius Carp, Str. Drobeta 4-10, Romanian Development Agency. apt. 1, Bucharest 2, Romania; tel: (40 1) 211- Promotes direct investment in Romania. 5287, fax: (40 1) 211-5255. Provides economic, investment, and legal information, identifies partners and projects CENTRAL for Western investors, and acts as consultant EUROPE AUTOMOTIVE The Chamber of Commerce & Industry of to foreign investors. Contact: Gabriela REPORT Romania. Promotes Romanian trade and Baicu, Foreign Investment Department, 7 industrial activity in domestic and foreign Blvd. Magheru, Bucharest, Romania; tel: (40 markets. Can provide representation ser- 1) 613-9826, fax: (40 1) 613-2415. vices for foreign companies (including trade Ministry of Industries, Machine Building

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© Central European Trade & Marketing, L.L.C. 1996 CENTRAL EUROPE AUTOMOTIVE REPORT • July 1996 11 Romania — two years for investments in trade, tourism, banking, insurance, and ACCOUNTING other services. & FINANCE The Foreign Investment Law provides that if voluntary liquidation of a foreign TAXES AND CUSTOMS DUTIES IN ROMANIA investment occurs within a period shorter than twice the period for which the profit Corporate the provision of services. Unless specifical- tax holiday is granted, then the foreign Taxation. ly exempted, all commercial revenue is investor must pay the taxes on profits for Romania’s subject to VAT. There are no special bene- the whole duration of the investment. Such corporate fits for a foreign-owned company, and taxes shall be paid with priority out of the income tax foreign investors must pay VAT from the profits resulting from the liquidation of the rate is 38%. start of their operations. The standard rate company, or out of the other rights to which Some expens- is 18%, and exports of goods and services the foreign investors are entitled. es, such as are 0% rated. advertising, A further 50% reduction of the profits tax entertain- The taxable base is the net turnover from is granted after the expiration of the profits ment, and the delivery of goods or rendering of ser- tax holiday on profits reinvested in Romania interest are vices. The taxable base does not include for improvements in manufacturing technol- limited for tax discounts and other price reductions granted ogy or expanding company activities, as well purposes. to customers by distributors, interest as investments for the protection of the envi- Constantin Sandu There are two received for late payments, as well as the ronment. A contribution in kind made by a classifications penalties for the complete or partial failure foreign investor to the capital of a company of companies: large and small. In order to to fulfill a contractual obligation. For incorporated in Romania is exempted from qualify as a large company, a company must imported goods, the taxable base is the cus- customs duties and VAT. have a turnover exceeding 10 billion Lei toms value, including handling costs and (USD 1 = 3200 Lei) in a twelve month peri- transport expenses, 0.5% customs commis- In order to be granted the above-men- od, or have at least 299 employees. A sion, and excise duties, if any. Excise taxes tioned tax incentives a foreign investor must permanent establishment of a foreign entity are applicable to some manufactured or have an investment in Romania of at least shall always qualify for the large company imported goods, including cars with an USD 10,000. status regardless of the above-mentioned engine capacity in excess of 1,800 cc. conditions. Small companies must follow According to law number 71/1994, com- the accounting depreciation rules while large Customs Duties. Customs duties vary panies with foreign participation in the field of companies must use separate tax deprecia- depending upon the product being import- industry with minimum foreign capital of USD tion rates (between 2% and 40% per ed. Customs duties must be paid at the time 50 million which are carrying on production annum). Tax losses may be carried forward the goods are imported into Romania. activities with a minimum 60% integration for a three-year period by small companies Import duty rates range between 3% and level (local content) in Romania and a mini- and for five years by large companies. 300%. The rate for vehicles and spare parts mum export share of 50% of their annual is 30%. A 0.5% customs service fee is levied turnover, will be granted a 7-year exemption Withholding Taxes. In the absence of any on the value of imported goods. At present, from customs duties for all necessary double tax treaties, a standard withholding Romanian customs officials consider all imported equipment, machines, outfits, raw tax rate of 15% is levied on the following companies liable for this fee, whether or not materials, consumables, or spare parts for expenses charged to a Romanian entity by they are currently benefiting from other production purposes, and an exemption an overseas company, including the parent import duty concessions. from profits tax for a period of 5 years from company of the Romanian entity: manage- the date profits are first earned, but no more ment fees, technical assistance, training Tax Incentives. According to the than 7 years from commencing production. services, quality control, consulting fees, and Romanian Foreign Investment Law, foreign However, if the company reduces its sub- any other services. The tax liability related investors registered before December 31, scribed capital to under USD 50 million to these services is payable by the company 1994, are granted the following profits tax within 14 years from the date of registration, that provides the services. More than 40 tax holidays calculated from the date operations the company is liable to pay all the taxes and treaties with other countries are available, are started: duties for the duration of the investment. including the U.S., Canada, Japan, and all EU member states. Industrial royalties are — five years for investments in industry, Constantin Sandu is Director of Tax and subject to 20% withholding tax, while cultur- exploration and production of natural Business Advisory Services with Deloitte & al royalties are taxed at a rate of 25%. resources, agriculture, and construction; Touche in Bucharest. Deloitte & Touche, Romania, Splaiul UNIRII nr. 6, Etaj 5, Sector VAT & Excise Taxes. VAT generally — three years for investments in communi- 4, 75101 Bucharest, Romania; tel: (40 1) 330- applies to the importation and domestic sup- cations and transports; and 5775, fax: (40 1) 330-5760. ■ ply of goods, the transfer of real estate, and 12 July 1996 • CENTRAL EUROPE AUTOMOTIVE REPORT © Central European Trade & Marketing, L.L.C. 1996 Romania ROMANIAN SUPPLIERS OF PARTS & COMPONENTS

The Romanian suppliers of automotive parts and components listed below are potential joint venture or direct investment candidates for Western companies. Company Product Contact Phone/Fax 1. Acumulatorul Bucuresti Accumulators Nicolae Viasu tel: (40 1) 627-5480 fax: (40 1) 312-8123 2. Alprom Slatina Aluminum Gheorghe Stroica tel: (40 49) 411-001 products fax: (40 49) 412-884 3. Altur Slatina Pistons, Gheorghe Rizea tel: (40 49) 416-834 aluminum fax: (40 49) 416-037 alloy castings 4. Arteca Jilava Technical George Colcea tel: (40 1) 685-7035 rubber items fax: (40 1) 386-7030 5. Asam Iasi Clutches, Viorel Stanescu tel: (40 32) 172-140 brake & steering fax: (40 32) 145-476 components 6. Autonova Satu Mare Brake equipment, Toma Feldmesser tel: (40 61) 743-212 trailers fax: (40 61) 746-278 7. Carfil Brasov Filters, Ciprian Lovin tel: (40 68) 310-401 carburetors fax: (40 68) 311-040 8. Elba Timisoara lighting Gheorghe Cocian tel: (40 56) 190-016 fax: (40 56) 190-058 9. Geamuri Buzau Window panes Gernut Ion tel: (40 38) 435-269 fax: (40 38) 432-098 10. Hidrojet Breaza Diesel Ion Matei tel: (40 44) 340-264 injectors fax: (40 44) 340-719 11. Iame Sfantul Gheorghe Electrical Beniamin Santha tel: (40 67) 325-762 equipment fax: (40 67) 323-251 12. Isama Sfantul Gheorghe Transmission Francisc Pazstor tel: (40 67) 323-082 equipment, fax: (40 67) 324-161 gear-boxes 13. Mefin Sinaia Diesel fuel Petre Dumitru tel: (40 44) 312-936 injection equipment fax: (40 44) 314-221 14. Metaloplast Brasov Rims, wheels Ionel Fierbinteanu tel: (40 68) 166-630 fax: (40 68) 151-058 15. Policolor Bucuresti Istratescu Paints Silviu Cristel tel: (40 1) 630-6739 fax: (40 1) 321-2272 16. Segmot Pitesti Piston rings Lucian Banu tel: (40 48) 634-800 fax: (40 48) 652-736 17. Sinterom Cluj Engine parts Gheorghe Muresan tel: (40 64) 415-080 fax: (40 64) 415-076 18. Silvania Zalau Tires Gheorghe Sas tel: (40 60) 620-988 fax: (40 60) 620-786 19. Spumotin Timisoara Thermo- Nicolae Petre tel: (40 56) 182-744 plastic foams fax: (40 56) 191-107 20. Subansamble Auto Pitesti Injected Gheorghe Badea tel: (40 48) 211-799 plastic parts fax: (40 48) 211-749 21. Victoria Floresti Tires Gheorghe Eltimie tel: (40 44) 146-241 fax: (40 44) 142-061 22. Raal Bistrita Aluminum Paul Ilies tel: (40 63) 250-505 heat exchangers fax: (40 63) 250-507 23. Romcarbon Buzau Air filters, Viorel Vasut tel: (40 38) 413-425 plastic items fax: (40 38) 413-425 24. Romradiatoare Brasov Heat exchangers, Panait Niculescu tel: (40 68) 118-722 radiators fax: (40 68) 150-297

© Central European Trade & Marketing, L.L.C. 1996 CENTRAL EUROPE AUTOMOTIVE REPORT • July 1996 13 Profile Continued From Page 1 we think that the Rodae plant will naturally We also must change the payment system become an important part of our globaliza- here in Romania because it is quite differ- One million domestically and one million tion strategy. [for more on Rodae’s local ent from what you find in Korea or other overseas. This was required for our survival sourcing program, see Opportunity Spotlight countries in the West. Salary levels in since a certain scale of economy is needed on p. 8. ed.] Romania are fixed with the job assigned. A as the cost of producing cars increases. We worker’s career, capacity, capability, and looked at all of the advanced countries like CEAR: What are the biggest challenges educational background does not affect his the U.S. and those in Western Europe and you face in Romania? pay level. And there’s no concept of regular saw that they were already saturated with Park: Maintaining the highest level of promotions, so I don’t think they find any good car manufacturing companies. We production and efficiency. This is necessary good reason to work harder and strive for looked at Eastern Europe and thought there to survive and to rise to the position of personal development. I would like to was an opportunity in the less developed industry leader. So the challenge is how do change this system. I want to introduce a countries that were gaining independence. we make ourselves as internationally com- performance evaluation system in which sec- After analyzing the markets we concluded petitive as possible. A common trait in tion leaders or foremen would evaluate that our bases in this region should be ex-socialist countries is the lack of a sense of their own people and salary increases would Romania and Poland. They have large pop- competition. Productivity is less of a con- be based on these performance evaluations. ulations, good economic growth, low wage cern in such countries. And where does We want the workers to understand that if levels, skilled workers, and good facilities productivity come from? I think, first of all, they work harder and are more capable than and technology available. Romania’s geo- it comes from workers and staff who are other workers, they have the opportunity to graphical position gives us access to the diligent and positive. How do we make earn a higher salary. We also just started an Black Sea countries, Central Europe, them diligent and positive? Their way of incentive program for our employees. Western Europe, the Ukraine, the former thinking must be changed. We must teach Working standards are established and if a Yugoslavia, Bulgaria, and Greece. It’s a them to be efficiency oriented. To be profi- worker exceeds them, they receive a special central country in the sense of communica- ciency minded. To think cost effectively. bonus, allowance, or prize. Since this is a tion and trade. Their tendency in the past was to think that new program, we will have to wait to see no matter what task they performed, be it how successful it will be. We were also warmly welcomed by the simple or difficult, or how hard they Romanian government and have received worked, the return would be the same. We’re also trying to bridge the cultural favorable concessions such as customs Under the previous system, they were told gap that exists in our plant by educating a duties and corporate tax exemptions for a that if they worked harder they would be core group of Romanian staff members certain period of time. Of course, we have rewarded, but the promises were never kept. about our way of thinking. Through this obligations. We must localize 60% of our So today, such promises aren’t taken seri- core group, we extend the Rodae way of parts and components and at least 50% of ously. There’s a lack of trust. This is an doing business to everybody. our cars must be exported. But these oblig- obstacle that we must overcome. ations are necessary not only to satisfy the CEAR: What is your assessment of the government, but for our own survival. We CEAR: How will you overcome the obsta- automotive market in Romania for the next can’t import all of our parts from Korea cles you face? five years? and still maintain our competitive position. Park: One way is through on-the-job Park: As far as the domestic Romanian And when you consider the size of the training. We prefer to train our workers by market is concerned, it depends on the domestic market, we must export at least doing, instead of in classrooms or through growth of the economy. The purchasing 50% of our production. lectures. We brought a total of 850 power of Romanians must rise if they are Romanian workers to Korea for a three going to be able to purchase more expensive CEAR: What goals have you set for the month training course and they worked cars. Since almost 85% of the market is Rodae plant in Romania? together with Korean workers at Daewoo occupied by the domestic producer Dacia, it Park: Our goal is to become the most Motor Car Company. We hope that they looks like this will be a difficult market. We competitive car manufacturing company in learned the working attitude and mentality hope that economic growth in the future Europe, not so much in terms of volume or of the Korean workers. We also use bench- will increase the number of customers who technology, but in terms of productivity, marking as a way to train our workers. We can buy Daewoo cars. As far as the foreign quality, and price. This is our ambitious bring key staff members to Korea to com- market is concerned, we will have better goal. In terms of production, our goal is to pare the performance of individual to opportunities for export when Romania produce 200,000 vehicles annually by the individual, section to section, team to team, becomes a member of the EU, and by using year 2000. We will produce three different and department to department. We study other regional economic blocs such as the models, the light M-100, the small T-100, why the Korean company is using less bud- Black Sea Economic Cooperation, CEFTA, and the medium J-100. This year, we will get, less manpower, and why they produce and the Central Europe Initiative. produce 50,000 vehicles. We’re also plan- more. This is an ongoing program. We’re ning to establish an engine and transaxle also planning to establish certain education- Rodae Automobile S.A., Caracal Road, km shop that will produce 250,000 to 300,000 al and training programs here in Romania. 3, 1100 Craiova, Romania; tel: (40 51) 410- units a year. We plan to purchase 80% of 055, fax: (40 51) 419-235. ■ our parts locally by the year 2000. Overall,

14 July 1996 • CENTRAL EUROPE AUTOMOTIVE REPORT © Central European Trade & Marketing, L.L.C. 1996 Distributors Continued From Page 3 ❑ REFERRAL readily available stock of vehicles for its cus- CENTRAL ❑ COMMENTS tomers. And in March of this year, a new ❑ ADDRESS CHANGE service center was opened in Bucharest with 14 bays, 42 technicians, and DM 1 million EUROPE SEND A FREE COPY TO worth of equipment. YOUR FRIENDS AND ASSOCIATES

FAX THIS PAGE TO 1-800-684-3393 “We’re concentrating on creating a nation- AUTOMOTIVE or from outside the US al network with dealerships in the major fax to [1] (510) 927-2630 Romanian cities,” says Niculescu. Such a net- REPORT work will allow Romcar to substantially boost sales when the Romanian market opens up Referral Name or New Address ______and realizes its full potential. Contact: Viorel Company ______Niculescu, Romcar S.R.L., Str. Maxim Gorki 26, RO-7000 Bucharest 1, Romania; tel: (40 Address ______1) 312-9109, fax: (40 1) 212-2732. City ______State______Zip/Post Code ______Country ______Despite the low purchasing power of Referred by or Old Address______Romania’s population, luxury car makers are Company ______not overlooking the market. Auto Rom SRL Address ______is a general representative in Romania for Mercedes Benz cars, trucks, and spare parts. City ______State______Says Director General Marius Pitigoi-Mihut, Zip/Post Code ______Country ______“we have our share of VIPs in Romania.” Comments & Suggestions: ______Auto Rom is building a distribution network ______throughout Romania and organizes the servicing of vehicles. In April 1994, the company opened in Bucharest the largest service center lished base of clients. Auto Rom’s sales of inability to obtain guarantees from Romanian in Eastern Europe. spare parts are increasing each year by 50%, banks is holding back the company’s plans to and this year they will sell approximately DM set up a leasing operation. “We hope the Auto Rom is selling 250-350 cars per year. 8 million worth of spare parts. Pitigoi-Mihut banks will stabilize and get involved in part- Past sales growth has been at the rate of 25%- expects that by the year 2000, spare part sales nerships with foreign banks to overcome this 30%, and Pitigoi expects 30%-35% yearly will reach the capacity of the market at DM problem,” says Pitigoi-Mihut. Contact: growth for the next five years. To date, Auto 15 million. Marius Pitigoi-Mihut, Auto Rom SRL, Str. Rom has sold 600 Mercedes trucks and Campia Turzii 85-87, 2/149, RO-71263 expects to sell 100 this year. The company’s Financing programs will be used by Auto Bucharest 1, Romania; tel: (40 1) 667-5747, goal is to sell 150 trucks per year to an estab- Rom to increase sales of vehicles, but the fax: (40 1) 222-8225. ■

To submit opportunities for publication write to Trade Leads, CEAR at: INVESTMENT 4800 Baseline Road, Suite E104-340 Boulder, Colorado 80303 USA OPPORTUNITIES or E-Mail to [email protected] Opportunity Investment Contact Fax

1. Producer of relays and switches seeks —— Adrian Spulber (40 51) 144-875 cooperation to enable it to meet Rodae S.A. Rodae supply requirements. Currently unable to make laser designation on switches and needs to invest in automatic assembly line for relays

2. Potential supplier to Rodae of D.C. —— Adrian Spulber (40 51) 144-875 motors, window lifters, door handles, Rodae S.A. wiper arms & blades, and car locks seeks cooperation with foreign company

4. Potential supplier to Rodae seeks partner —— Adrian Spulber (40 51) 144-875 to manufacture front & rear auto lamps. Rodae S.A. Company has available space & some injection machines but needs capital to purchase special equipment, raw materials, and tools

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