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  • Cheese puffs go well with crisis

    The two have known each other for over 31 years, and have managed to turn an apparently modest industry – production of cheese puffs, into a several million-euro business. Their company is the second largest producer in Romania, and the largest local supplier. With no very visible presence, the business grew over a period of more than 10 years, and owners still feel they have reason to be optimistic, even in a time of crisis, or maybe thanks to the crisis, if economic difficulties prompt consumers to turn to cheaper products. ”Cheese puffs could see significant sales in the next two years, which are expected to be under the shadow of the crisis,” believes Adrian Iordache.

    After several years of operating an ice cream business in their native city of Ploiesti, which started with the secondhand purchase of an ice cream cart, in 1996, they had a plant that produced 40 tonnes of ice cream a day. It was then that the two business partners decided to move on to a new product category – cheese puffs, because they wanted a product that, unlike ice cream, would not be seasonal. They bought an old cheese puff maker from an old bakery in Cluj and got down to work. Initially, the cheese puff plant functioned in the old location, in the centre of Ploiesti, but soon its production capacity, of 200,000 bags of puffs a day, proved to be insufficient, not to mention the fact that it was rather inefficient to have a plant in the middle of a city. The two then decided to relocate production from the city centre to the outskirts of Ploiesti. For a while, the two plants, the one in Ploiesti and the one in Baicoi, functioned in parallel, but as of 2006, only the second one has remained functional.

    Currently, the Baicoi plant employs 300 people, with the plant’s production capacity amounting to 1 million bags of puffs a day, according to the two partners. Although they set up the company 16 years ago, the idea of producing Gusto puffs has brought them more visibility, especially lately, when sales exceeded their expectations. ”When we started making puffs, we were using a rudimentary technology, like everyone else. We would put the puffs on the table, sprinkle them with oil and salt, and then package them. Now everything is computerised,” says Apostolescu.

  • Come dancing

    In the Pearl Harbour movie, Rafe (Ben Affleck) falls in love with Evelyn (Kate Beckinsale) at the club where they would go out dancing every night, while Gatsby, the main character of ”The Great Gatsby” by John F. Fitzgerald was famous for the dancing parties he threw, where the main conflicts of the novel were in fact set off. In almost every book or movie set in the interwar period or during the First World War, dance parties occupy a central position. A century later, the whole society, menaced by the spectre of the crisis, appears to have once again discovered the pleasure of dancing.

    TV shows centred around dancing, such as Strictly Come Dancing (UK) or Dancing with the Stars (US) have boosted turnovers of dance-oriented businesses, from Australia to the UK, Germany and Austria. And Romania is no exception. The opening night of the ”Femei” ballet (March 1st) at the National Opera House was sold out, the ”Un tango mas” (One more tango) show with Razvan Mazilu and Monica Petrica always draws a full house, and the ”Dansez pentru tine” show (the Romanian version of Dancing with the Stars) is watched by almost two million viewers every Friday.

    Lately, dancing has managed to grab the viewers’ attention, which created a market niche for the businesses that sell this kind of entertainment. From dance schools and private lessons for weddings, to travel agencies and hotels, each business has found their own rhythm in the world of dancing. ”The number of those who dream of dancing like Razvan Mazilu or like one of the competitors of ”Dansez pentru tine” is on the rise. The appetite for dancing has gone up, boosted by TV shows and dance shows promoted through billboards and posters,” says Sorin Radan, owner of the Let’s Dance school. According to Radan, a professional dancer, dance teachers at Let’s Dance are working ”at full capacity” all the time.

    ”Our dance groups are always complete. Around 300 people are currently taking dance lessons at Let’s Dance. Usually, in order to sign up with us, one needs to first be included on a waiting list.” Wilmark, owner of Academia de Baile Latino, and a member of the ”Dansez pentru tine” jury, has noticed the same upward trend. Over 10 years, the number of students has been rising from one month to another, and continues to do so. ”We started 2009 with over 350 students and requests are still coming in.”

  • Lessons in failure

    After many years of fighting to save his businesses, with numerous failures and a few successes that helped him get back on his feet, Zoltan Prosszer says, talking with BUSINESS Magazin, that he is now feeling like he did twenty years ago. Just like he did back then, when he was starting the business that would turn into a real automotive empire, he now has to decide where to go.

    In the almost twenty years since his start, Zoltan Prosszer has lived a slightly different history than most entrepreneurs – having learnt many years ago what insolvency, reorganisation, battle with banks and bankruptcy are. Few companies found themselves unable to repay their instalments to the bank or experienced a forced sale during the economic boom in the past. In times of growth, as Romania’s over the last eight years, businesses grew fast, in sync with the market, with few notable failures. There have been only a handful of high-profile bankruptcies: the failure of the electrical retail network Cosmo (founded by businessman Gyorgy Baba), of the Univers’all store chain (created by Razvan Petrovici) and, the latest one, which happened recently, of the IpoteciDirect (MortgageDirect) credit broker (established by seven experienced businessmen). Prosszer has been through such an experience more than once. His story gets a special meaning when put in the context of an economy that is no longer growing in full gear, of the shrinking markets, of banks closing, and of increasingly more common arrearage in the day-to-day operations.

    Zoltan Prosszer started his business in 1991, when he was 27, by investing 1,400 euros to open a shop that sold car parts, which he used to bring in his own car from Italy. He then opened a car repair shop with the money he got from mortgaging his apartment and after that the business took off. In 1996, the group he developed, Paneuro Group, became the market leader on the car part segment and continued to increase until 2002, when it comprised more than 20 companies and employed about 1,400 people. Each line of business was handled by a separate company, which worked with the others in such a way as to create markets for each other. The core was the retail company, Paneuro Trading, which had been established in 1994 and reached 20 million-euro turnover ten years later. Prosszer was one of the first Romanian entrepreneurs to create a group, which eventually turned out to be the Achilles’ heel for his business. Decline started after 2002, and his companies, which had guaranteed loans for each other, went bankrupt one by one between 2004-2005 (Paneuro Trading, Paneuro Leasing, Atu, Novator, Muss) or had to be sold (Aliat). Only of a few companies of the group remain today (Paneuro International, Romcab, Motoplus Paneuro).

    Romcab, the low voltage electrical wiring factory in Targu Mures, which Prosszer bought for one million dollars chiefly because of its warehouses and land ten years ago, was what saved him from complete bankruptcy and is now his main business. He owns about 72% in it, along with a Dutch investment fund – MEI, 5% and Morgan Stanley – 12.2%, with the rest of the shares traded on RASDAQ.

    Though still going through reorganisation, which started in 2004, when it took over 11.5 million dollars (9.5 million euros) in debt from the companies that had gone bankrupt, Romcab is a solid company, Prosszer says. Its market share stands at 10% and demand is higher than it can handle, he adds, even though it has lost a few contracts since the onset of the economic crisis.

  • One billion dollars for a new Rompetrol

    Firstly, he is much more open to discussions – this started after the businessman sold 75% of Rompetrol to the Kazakhs at KazMunaiGaz. Secondly, he talks more about macroeconomics than about business, another change that has occurred over the last few years. Thirdly, the business that he is talking about is not just Rompetrol, it includes another four businesses in which he invested, but in which he was not involved at executive level. What has not changed, as far as Dinu Patriciu is concerned, is that he has remained as secretive as ever.

    Out of the four businesses, in which he has so far invested over one billion dollars, he talks openly only about Adevarul Holding (the media company which has now reached 1,000 employees and turnover estimated at 120 million dollars for this year) and about the real estate investments. His main real estate investment has been the acquisition of Fabian. Dinu Patriciu is reluctant to give too many details on the other two businesses, which operate in completely unrelated sectors (energy and technology), but admits they account for the bulk of the billion-dollar investment he has made so far.

    The IT business, whose name Dinu Patriciu declines to reveal, is a telecom equipment producer in Germany, which ”has already started production, boasts hundreds of employees and has a turnover in the range of hundreds of millions of euros.” Patriciu has a partner by his side in the IT business (”I have a partner, I am the financial and majority investor,”) and has applied the same strategy to the energy business, which focuses on the research area: ”In this business, we focus on alternative energy – it is an international research project whose aim is to identify the technological means to make use of sea resources.”

  • Crisis shoping list

    There is already a crisis-related psychosis in many circles, fuelled by the pessimistic news about the soaring unemployment and salary declines, says Mircea Kivu, sociologist and general manager of the Marketing and Polls Institute (IMAS). Under the circumstances, he says, ”the consumer behaviour cannot but change, even though the individuals are not affected in any way by the crisis on a personal level.”

    Though analysts and various institutions are pessimistic about the Romanian economy, the overall state of mind among the average consumers seems closer to cautiousness rather than anything else. Two thirds of the respondents of a survey conducted by market research company 360insights between January 15-February 15, 2009 on a sample of 800 people living in cities say they have no concrete information and do not know exactly what the crisis is, while more than half of them believe even now that everything might be just a momentary exaggeration of the media, because they are not feeling its effects directly.

    A key element that makes people more cautious about their spending is the concern for their job.

    Retailers confirm the decline of traffic in stores. Ilan Laufer, general manager and principal shareholder of Retail Group (the rental broker of Cocor Luxury Store), says that the retailers with which he has discussed lately have noticed a change in the overall consumer spending trends – especially on the electrical and IT, clothing, footwear or accessories segments. ”Sales are much lower in the first two months of this year than in the same time of 2008, with declines ranging from 20 to 50%.”

    The higher the price, the faster the sales decline, which explains the order in which retailers are affected.

    Real estate consultants say such changes occur especially outside the capital. Razvan Gheorghe, general manager of Cushman & Wakefield Romania said a little while ago that those who had opened stores outside Bucharest were the hardest hit, which is especially true for the fashion, restaurant and coffee shop businesses. ”Consumers are no longer going out as often as they used to; everything more expensive than the massmarket isn’t selling any more.”

    Durable goods, electronics and home appliances started to show signs of a slowdown in sales as early as the end of last year, says Ciprian Moga, managing director of iQuest Consulting, a retail advisory firm. Once among top sellers, home appliances are not doing any better on hypermarkets’ shelves, either. Tjieerd Jegen, chief executive of the Real Romania network says that when it comes to non-food products and especially home appliances and IT products, customers focus on promotional offers mostly.

    The fast moving consumer goods market is the least affected by the crisis psychosis and is not experiencing dramatic changes. 360insights’ research director Mihaela Alexandru says that the products consumers are unwilling to give up, for which they plan the lowest expense cuts, are food (11% of the respondents), utilities (24%) and personal care products (28%).

    Shachar Shaine, chief executive of United Romanian Breweries Bereprod, the bottler of Tuborg and Carlsberg brands, is one of the few happy managers, because he can boast a 3% increase so far this year compared with the same time last year. The growth, however, comes from the retail segment, because the on-premise segment is seeing stagnation, as people prefer to drink at home rather than go out to do it.

  • Programmers can no longer dictate employment terms

    „The balance of power between IT employers and employees is starting to change,’ says Alexandru Costin, the general manager of Adobe Systems Romania, who has grown accustomed, like many managers in the field, with a great negotiating power of employees in terms of employment conditions and salary package over the last few years. ”Now both the employer and the future employee have a say in the employment contract.

    The dictatorship of the demanding candidate seems set to end,” Costin continues. Adobe Romania’s boss wants to suggest that the market will normalise this year, given the difficult economic situation. Until now, many companies have had to accept inexperienced people and pay to train them or attract specialists by putting sizeable salary packages and a wide range of benefits on the table. On the other hand, the lack of sufficient human resources allowed IT specialists to become some kind of ”mercenaries” willing to frequently change their job in exchange for greater and greater rewards, as Radu Georgescu, Gecad chairman said not so long ago.

    ”Salaries in the IT industry have had the highest growth of recent years, and Romania is seeing one of the widest gaps between the average salary in the IT sector and the average salary in the economy,” says Liviu Dan Dragan, general manager of TotalSoft and chairman of the Association of Software Industry Business Owners (ANIS) – although compared with the salaries in most European countries, the income level in the IT industry is lower in Romania. A programmer with a three to five years of experience, who works for a software company in Bucharest earns an average of 1,100 euros per month, while programmers in the rest of the country earn around 850 euros, reveals a survey conducted by GhidulSalariilor.ro about salaries in the IT industry last year.

  • Discount hunters

    Buying the most expensive handbag or the most expensive TV set used to be a reason to be proud of oneself, but the market (or life) has changed, and shopping buffs are no longer keen to find the most expensive product, but a product whose price has been cut drastically – a luxury item at a discount. ”Welcome to the club! Ooh la la!” is the greeting that members of the RueLaLa club get when they are finally accepted into the online world of discounted luxury brands. RueLaLa is one of the online clubs where members have access to designer products at a discount.

    A customer used to exclusive products finds it hard to let go of such habits, but if their shopping budgets have somewhat diminished, and if peer pressure also comes into play for some people, who are too embarrassed to be seen leaving a store laden with carrier bags, the luxury show moves onto the Internet. Net-a-porter.com, a website which sells luxury products, is launching TheOutnet. com in April, the discounted product option. Standing by her principle, that ”quality fashion is never outdated”, the owner of Net-a-Porter, Natalie Massenet, a former fashion journalist, has thought up a virtual outlet, which features products from older collections of luxury brands.

    Massenet says the brand selection will be made according to the same criteria as in the case of the website, with Diane von Furstenberg dresses, Chloé jeans and Louboutin shoes to be available at a percentage of their original price. After nine years in business, Net-a- Porter has become one of the websites that have changed the way in which luxury fashion is sold, bringing catwalk collections directly into its virtual shop window, so that potential buyers will no longer have to wait six months before the products hit the stores. With two million users per month and an over 200-strong brand portfolio, Net-aporter. com ended 2008 with a 55.2 millionpound (almost 70 million-euro) turnover, 67% more than in 2007. TheOutnet.com will be one of the few luxury online stores with discounted products where access is free; up until now, such websites provided access only based on invitations.

  • 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.