BusinessMagazin

Category: Bm english

  • Good managers are hard to come by

    ”No more than 3% of the top managers in Romania are really good,” Radu Furnica, president of executive search company Leadership Development Solutions (LDS), said in an interview to BUSINESS Magazin.
    ”The rest are all impostors, to some extent,” believes the head of LDS, who has, for over 13 years, been the Romanian partner of one of the world’s largest executive search companies, Korn/Ferry International.

    Coming from Furnica, one of the oldest and most expensive head hunters on the Romanian market, who has clients such as Lafarge, Nestlé, Renault, Unilever, Heineken, MasterCard and Millennium Bank in his portfolio, the conclusion is all the more shocking. ”In Romanian companies, the number of top managers able to add real value to the business they run is extremely small,” says the head of LDS, who has recently distinguished himself by handling one of the most widely media covered placement contracts on the Romanian market. In mid-January, Radu Furnica acted as an intermediary when Petru Vaduva replaced Anca Ioan at the helm of Tiriac Holdings, a group whose turnover is estimated to stand at around 2.2 billion euros. Top management abilities are all the more important in difficult economic times, like those we are going through now, says the head hunter, and some companies, whose management has been left in the hands of executives unable to cope in times of crisis, may never weather the crisis.

    The situation that Furnica describes is hard to explain, if we consider that, after several years of sustained growth, salary packages of top managers at the helm of large corporations have reached sixdigit sums, and, in some cases, even one million euros per year. On the other hand, the majority of multinationals that have entered the Romanian market over the last few years, entrusted the management of their local subsidiaries to foreign managers, whose experience on other markets should have served as solid proof of their skills. Over the last few years, there has been talk of a tendency to progressively replace foreign managers with Romanian ones, including in many companies that in the 1990s had to resort to foreign managers as there were no Romanians good enough for the job.

  • Thirsting for loans

    ”After a long time of significant growth, businesspeople are still feeling the urge to go directly to a bank when they want to develop or when they need money to fix a problem,” says Lucian Cojocaru, head of the network commercial department of BRD-Groupe Societe Generale. Bankers fought tooth and nail for years on end when the economy was growing at a fast pace and businesses were running almost unattended in any industry, to finance companies and individuals, in a fiercer and fiercer competition.

    Things radically changed last October, when it became clear to everybody that the Romanian economy would not be able to avoid the effects of the financial, and especially of the economic crisis, that has been shaking the entire world. ”Banks were the first to feel the effects of the crisis,” Cojocaru says, considering most of them are part of international financial groups that were affected on their home markets and their problems spread to the branches in Romania like a domino effect. When problems started in the Romanian economy last autumn, bankers abruptly revised their lending policies, moving from a very lax to a very strict attitude, BRDís manager explains. ”Companies, on the other hand, were hit in the second wave,” having grown out of inertia for a while and started to feel the problems more acutely towards the end of the year, when payments from the state budget were frozen, commercial and financial flows slowed down, consumer spending plummeted and entire industries collapsed.

    ”Businesspeople did what they knew how to do best from the past then: they came to the bank to compensate,” says Lucian Cojocaru – an entirely natural habit after so many years of fast-paced lending growth. At the bank, however, they found something they had not been accustomed with: bankers no longer wanted them as clients; on the contrary, they were reluctant to give them any more money (…), Cojocaru says. After the abrupt slowdown in the last few months of last year, the annualised growth pace of non-governmental lending went down from to 25% from 55% in January 2008.

    How the shift from the general exuberance to this almost completely frozen financing market occurred is quite obvious for everybody now, especially when looking back at the succession of events. The reasons that continue to keep the market locked, six months from the onset of the crisis, are less clear, though. As a paradox, the confusion is not generated by the lack of logical explanations, but on the contrary, by their sheer number, diversity and development from one day to another.

    Towards the end of last year, bankers seemed unanimously convinced that the Romanian banking system was faced with a general shortage of cash, as a result of the increase in the price of money on international markets. Fears that the parent banks would limit or even completely withdraw lines of credit they had used to keep their branches in Romania going (loans that total 10 billion euros, according to the NBR data), turned out to be unfounded, too, given that it was proven that over 90% of them would be renewed, according to NBR governor Mugur Isarescu.

    At the end of the day, the ”disease” cannot be treated in any other way than by starting from the causes, because, as already proven by other Western economies, throwing money at the economy does not do too much good eventually.

  • As far off shore as possible

    Gabriel Comanescu, owner of the Upetrom group, has few business ties left with the Romanian market. The most important of them are the eight contracts with Petrom to exploit offshore reserves. Otherwise, most of the output of the Upetrom 1 mai factory is exported, land-drilling operations were sold last year and the company’s biggest plans target foreign markets. The businessman can now afford to think about development: he ended 2008 with an 80 million-dollar profit, which surged from 2007 (when it stood at 4 million dollars).

    Explanations about the reason for the increase in profit are same as the explanations about the development plans. The company, which took over Petrom’s offshore rigs in a deal put at 100 million euros in 2006, dedicated 2007 to investments in the retooling of those rigs. Once the investments finished, 2008 showed exactly how much profit the five rigs can generate. Comanescu’s mediumterm plans are to secure as good a position as possible among drilling companies, which will be validated by the number of contracts won. Businessman Gabriel Comanescu got into the petroleum business in 1999 when he bought land drilling companies Foserco and Aquafor from the AVAS (State Assets Resolution Authority) as they had been put up for privatisation.

    The acquisition of the two companies was an advantage in the bid submitted for the acquisition of the 1 Mai drilling equipment factory in 2001, when Gabriel Comanescu won the tender against Uralmash Russia, part of the OMZ group. The three companies bought had already reached approximately 30 million-dollar turnover in 2004 when Gabriel Comanescu signed his first offshore contract. It happened right after Petrom’s privatisation, because OMV preferred to focus on the core business of the new company and sell the offshore operations.

  • Before the long vacation

    The day when he had the interview with BUSINESS Magazin, Ion Soloman was sad and quite tired. He had just decided to close one of the 26 stores of the chain and after the interview he was to tell ten more employees he had to let them go. The transformation of the business he has been running for more than sixteen years is now involving more and more ”dreadful moments”. The ”most dreadful” moment is when he remembers how he turned down the offers to sell last year when several buyers, especially investment funds, showed interest in buying the 16-store chain in Bucharest.

    ”Thinking about the amount of money I could have got last year, about my peace and my family’s, I deeply regret I did not sell,” Ion Soloman is now saying, exactly one year after the most important talks he held for the sale of the Ethos retail chain, from which he backed out at the last minute. Last year, his network had funds and strategic investors wooing it, but the businessman eventually did not strike a deal with any one of them, convinced he could boost its value and sell for a higher price this year. Meanwhile, the economic crisis struck and attractive offers are nowhere to be found.

    ”Not only that no offers have come at all, but there also haven’t been any signals of such intentions,” Soloman says regretfully, admitting he would like to see proposals, if only for his pride as an entrepreneur. Some offers did come, though, only that they were not as the businessman expected them to be. ”I got two offers for financing the expansion of the chain from two investment funds, an American and an Israeli one. Large amounts were discussed, but nothing has come out of it yet.” Soloman says talks have reached a stumbling block because he would like to work with an investment fund that has a local presence, because it has more experience on the Romanian market, although its demands would be higher.

    Whereas backing out of the deal was an unfortunate idea, Soloman admits that a sale last year would not have brought him that much peace: ”On the other hand, if I had sold then I would have certainly invested in real estate and would have lost now.”

  • Tourists in the country of the crisis

    On a daily basis, the press from around the world paints the situation in the United States in bleak colours. Consumption has gone steadily down over the last six months, the most famous shopping avenues (Fifth Avenue, Rodeo Drive) are empty, restaurant owners long for the times when Wall Street execs would spend impressive sums in their restaurants and – an utterly unconceivable fact in regular times – Wall Street wives have forgotten all about 500-dollar dinners, and have started to take… cooking lessons. On the other hand, the United States has turned into a destination coveted by tourists, who, stimulated by the still weak dollar, choose to spend their holiday there.

    Business Magazin has talked to Romanian managers who spent their holiday in the famous travel destinations in the USA, and were able to feel the pulse of the crisis in its very core. Alexandre Eram, general manager of SonyaMod, a company that distributes international brands such as Peggy Sue on the Romanian market, and owner of the Z stores, travelled to New York for Christmas. ”Surprisingly, I found a normal country, especially since I was expecting things to be much worse, given the way the press had reflected the crisis. But when I saw the huge queues in stores, I started to wonder where the crisis was,” recalls the manager. However, the manager does not rule out the possibility that things may have changed after the holidays.

    ”I have talked to several American friends, and they told me that one cannot really tell if there is a crisis or not at Christmas time.” Sorana Savu, managing partner at communication agency Premium PR, who spent a two-week holiday in Miami in January, says that the American response to the crisis depends a great deal on the city and the region. Savu has chosen Miami and Fort Lauderdale for her holiday this year, an area she says is favoured mainly by American senior citizens. ”I think it’s absurd that in a city where you see Lamborghinis, Bentleys and Ferraris on the streets, which are expensive by American standards, employees of luxury shops should be very surprised to be dealing with receipts worth several hundreds of dollars. They said the only ones still buying were Europeans and Brazilian tourists.”

  • Inactivity is bad for business

    Coming from Herwig Burgstaller, vicepresident of Volksbank Romania, the announcement according to which the bank ”will turn overdraft into its main product” can seem a little odd. Over the last two years, the Austrians have stood out due to their aggressive approach to the market of lending for individuals with real estate assets put up as collateral, and this product in fact saw the bank go from being a small player to the third largest bank in the Romanian banking system.

    In 2008, the assets managed by the Austrians outgrew the market four times, amid an around 95% exposure to real estate. However, since the beginning of 2009, the bank has not granted any new mortgagebacked loan, according to Gerald Schreiner, executive president of the bank, given that clients are no longer rushing to banks, and that developers are no longer launching any new projects. This explains the change in strategy that Burgstaller is suggesting, but players in the entire banking system are in fact changing course as they go along after it became clear that the lending market is blocked (or merely it slowed down very abruptly, as bankers prefer to say).

    Under the circumstances, it is obvious that the thousands of credit advisers hired in the past few years (around 20,000 out of the 72,000 employees in the banking system, according to estimates made by Paraschiv Constantin, president of the Banking and Insurance Trade Union Federation), have to sell other products, at least for the time being. Similarly, keeping the over 6,500 branches and agencies in the banking system (of which over 1,000 were opened last year) does not make sense if they do not fetch a profit, instead entailing only costs. Shutting down a branch is, however, not an easy decision to make, considering that the investments involved in its opening were by no means insignificant.

    ”There will not be large-scale closures,” says Santiago Pardo Jimenez, a partner with Deloitte’s auditing department, in a talk to BUSINESS Magazin, arguing that ”they still have good business to do here.” According to him, sales will concentrate more on simple, lower risk products (such as cards, current accounts, Internet banking services), combined with a sharp focus on efficiency.

  • The offensive of discounts

    Whereas retailers in the United States have been betting on significant discounts even for new collections, the answer of the European groups, which adamantly reject this policy, was to revive their secondary lines of business. Between American discounts and European’s stubbornness to keep the traditional sale periods, is the consumer that can be lost in the low price spiral. Raluca Banciu, general manager of Alliance International, which operates the Paul & Shark store on Calea Victoriei recalls that she has lately happened to see some clients, especially foreign ones, demand a discount for buying a product from the spring/summer collection of the brand.

    ”We only offer loyalty discounts for frequent shoppers or for those that buy high-value products, but we cannot offer discounts for one or two products of the new collection,” the manager says. The type of consumer the Paul & Shark manager is talking about has been educated lately on a market where repeated sales, outside the traditional periods, have been promoted as a way to overcome the crisis. Still, this can have a boomerang effect, because the discount policy has also changed the consumer’s behaviour, who, once accustomed with permanent discounts, will have a hard time accepting – if ever – the full price. Scott Malkin, chairman of Value Retail, who built a one billion-euro business by selling products of luxury brands in outlets, says that discounts in the US are example of panic and desperation that can drive consumers away.

    After a recession, consumers tend to revert to the practices of the past, but in the case of such a crisis, they simply reject them. Retail specialists in turn are now wondering whether shopping was changed forever by the policy embraced in the wake of the financing crisis – the strategy to drive sales has relied on discounted price tags even for new collections, an approach that has never been seen before.

  • Meat from head to tail

    The biggest problem that Tudor Neculoiu, owner of meat producer Sergiana, had with a representative of the Romanian authorities, occurred when a quality control officer wanted to fine him because the amount of soybean contained was not featured on the salami label. The incident took place in one of the three stores which Tudor Neculoiu had opened in Bucharest, in an attempt to develop in Bucharest the Sergiana butchery model tested in 27 stores in Brasov and the surrounding area.

    ”Eventually, the inspector understood that we weren’t using soybeans or other additives in our charcuterie, and left us alone,” Tudor Neculoiu recalls about his experience with Bucharest – a market he has not placed a lot of faith in, anyway, given that he has already closed two of the three stores here, and that the Capital is not on the list of future openings. ”In the provinces, the market is the preferred place for shopping, but we discovered that in Bucharest – which is a very difficult market, anyway, primarily as far as supply is concerned – things are quite different; everybody goes to the supermarket for shopping,” says Neculoiu, who thinks a lot of the charm of the traditional way of shopping is lost in this way.

    The word ”traditional” is echoed throughout the interview that BUSINESS Magazin did with Tudor Neculoiu. Tradition is in fact what inspired him to go into business in the first place, and his first plan took shape when Tudor Neculoiu was travelling across Europe with a traditional folk dance ensemble: ”When I saw the Bavaria and the Tirol area, I realised it was very similar to the place where I was born, Poiana Marului, and I realised that Romanians could also make money from rural tourism”. Neculoiu at the time was dreaming of building a tourism complex which would include a bakery, a milk plant and a charcuterie plant, in order to offer traditional products to foreigners coming to the Brasov area, like he had seen done in Western Europe.

    In the early 1990s, he opened a bakery in Poiana Marului, whose profit he invested in a meat plant. The projects grew, but tourists failed to rush in. Because his dream of having a business in tourism did not come true, the businessman thought about turning it into something else, so, over a 20-year period, he built a group of companies which includes a pig farm, a slaughter house, a charcuterie plant, a 27-store chain and 5 restaurants.

  • Come get the money

    ”If I knew where to find 200 million euros now, I would have no trouble investing them tomorrow,” says Dragos Cabat, managing partner of consultancy and financial brokerage firm Financial View Consulting, referring to the requests for funding that he gets from his clients. It is true that some of the applicant companies are ”hard to finance”, because they pose a greater risk to investors, Cabat admits, ”but many of them are good companies, with solid business plans.

    ”The increasing need for cash of the companies the consultant is talking about can be easily explained in the current economic context. On the one hand, the entrepreneurs are faced with an economy affected by increasingly more constraints: flows of cash among partners are choked, payments are delayed, orders and sales are going down, due loans are harder to repay. On the other hand, most bankers are no longer willing to grant them new loans and even reduce the lines of credit they approved in the past. Under the circumstances, the offer of the private equity firms, investors that buy into a company, help it develop with funds and know-how for a while and then sell their stakes for profit, is becoming more and more interesting. For many years, entrepreneurs had been reluctant in accepting the offers of portfolio investors, partly because they were doing well and prospects were good, while a partnership with an investment fund would have meant losing independence in the running of one’s business.

    Things have changed now. Even though the economy is going through a rough period, private equity firms are not doing bad at all: whereas in the past years they could miss a lot of deals because entrepreneurs could get loans from banks, today, a series of old talks could be resumed, says Cornel Marian, chief executive of Oresa Ventures, a Swedish private equity fund and one of the biggest in Europe that has been present in Romania for over ten years. Now that bank loans are either frozen or too expensive to get, and the stock market is no longer a solution to raise capital, investment fund managers can afford to be more selective than ever. Beyond the abundance of companies in need of financing, good deals are hard to find and conditions imposed by investors are not easy. The basic criterion is not the price of a company, but the profit that can be made from it in the future.

    ”No company is cheap enough if it’s a bad company,” says Mihai Sfintescu, manager of 3TS Capital, which operates two funds in Romania, 3TS Central European Fund II (100 million euros in capital) and 3TSCisco Growth Fund III (30 million euros). Although selling their business for a competitive price is very difficult for entrepreneurs now, the funds cannot be sure they will able to sell their stakes for profit in two or three years, either. However, if entrepreneurs (or some of them) are not willing to take a lower price, the investment funds are in no rush, expecting the number of opportunities for cheap deals to increase as the problems of companies worsen. The investment funds that sit and wait for opportunities might find out that they missed out on good deals, especially if the bank financing option becomes available again to entrepreneurs. Or maybe the deals are already happening ”silently”, after all, as Marius Stancescu, chairman of consultant and M&A broker Riff Holding, says: ”The sale is a difficult moment, which can affect the commercial relations with clients or suppliers, with business partners, therefore it is only natural that most such deals should be made behind closed doors.”.

  • Life with no bonuses

    ”Every year I learn only one word in Romanian. When I got bonuses, I learnt two,” says with a smile Rand Sherif, the man who has been running the biggest business on the distribution market, Interbrands, for almost ten years now. The company, which was tenth in the ranking of the biggest private companies put together by BUSINESS Magazin in mid last year, is the only business in this field that exceeded one billion-euro sales, far ahead of the second leading distributor on the market, Top Brands Distribution, a 230 millioneuro business.

    The Interbrands boss will surely not learn more than one word in Romanian in 2009, given that his company did not manage to break even last year, after having posted 0.7 million euros in losses in 2007. After all, regardless of the size of the company and of the volume of sales, most distributors posted losses in 2008, as well, after having seen their profits decrease in 2007 below 2006 levels. Rand Sherif, however, is cautiously optimistic, as he likes to say, and points out that 2008 was a good year for Interbrands, though, in which the company grew by 23% in RON (Interbrands posted 12% higher sales last year than in 2007, reaching 1.17 billion euros, but also saw its operating income halve, to around four million euros).

    Although he says he anticipated the effects of the crisis, Rand Sherif admits that their extent was greater than he had expected. ”I anticipated an increase in the cost of capital but not the extent it has eventually reached. I also anticipated the depreciation of the RON, but not this low.” At the end of last year, prompted by the changes on the market, Sherif attempted to remodel the strategy, focusing on reducing the financial risk and costs. Interbrands has loans both in RON and in euros, ”a form of hedging that has both advantages and disadvantages,” Sherif says. Interbrand’s boss is now considering an increase in the loans in RON, even though their costs are higher. He says that this way the company will not feel a too powerful impact of the depreciation. The loans would not go towards investments, however, because Rand Sherif feels this is bad time for such a thing.