Doing business in Romania
This is my first post in the English section of my blog, as I promissed in a previous post (in Romanian). My decision to create this section comes in a time where the business environment Romania is expanding rapidly, creating new exciting opportunities for investors, both local and from abroad. But as many of you don't know me, here are some facts about me.
I am almost 28 years old, married, no children (but of course planning for some :)), working at Microsoft Romania as Windows Business Group Lead, in the BMO (Marketing) department. I've been working at Microsoft for five years now, in different roles, so I got my chance to know some of the tricks of the Romanian market, business environment, drivers and inhibitors, issues, and most importantly, how to tackle the bureaucracy, mentality and personality of a former comunist country.
Romania is a country of 21 million inhabitants, who freed itself from comunism in December 1989 (but I'm sure you all know that). However, the comunist habits, mentality and state-of-mind still exists in the hearts and minds of many. And, of course, this affects the business and profits of Romanian organizations - but not necesarilly in a negative way. Let me explain why. One of the characteristics of the Romanian market is uncertainty. Doing business here is risky - not many companies have three or five years plans (except the big ones or the multinationals), and one of the facts contributing to this situation is the political environment. Only in 2007 a president was suspended and then reconfirmed, a government was changed, new political alliances in Parlament were created and disbanded, etc. However, this uncertainty also sparked the interest of small-medium companies to invest in one or two years plans, driving rapid growth and profit, making this environment very interesting for antrepreneurs and investment funds. Summarizing, planning is difficult; making money on a short term is not.
So, the question is, where to invest? Related to the software industry, the answer is software development. Intellectual Property. The greatest margin is by far in this area, and can boost profits of a small ISV (Independent Software Vendor) beyond expectations. I can give you the example of East Tec (www.east-tec.com) , a small company ran by two friends of mine from Oradea, that is making serious profits from selling security products to US and European companies, while succesfully managing costs and investments. Horațiu Tănescu, one of the managers, refused to sell the company and move to US, believing that staying here is more productive.
Another area to invest in is trainings. The number of training centers in Romania cannot satisfy yet the demand for trainings. Don't think here only at deep IT trainings, like trainings for MCSE certification from Microsoft, but think at generic software trainings (similar to ECDL) that are needed for the personnel of all companies, ranging from SOHO's (small office - home office) to small-mid businesses and to enterprise organizations (including government structures). Employees need to know how to operate a computer, how to work with productivity software, ERPs and CRMs.
Many of you are considering consulting at this moment. Yes, consulting is also a market that has a great potential in Romania, potential that is still to be tapped. But... the margins for consulting in Romania are pretty low, and the competition is high. Many are calling themselves consultants, although they don't have the proper knowledge, and driving down the price-per-hour, thus forcing consulting companies to drive the price down, lower margins and profits. Another issue here is timing of the projects. Most projects are running late (look at the construction projects for example, most of them are running late with 6-8 months), costs are running out of the budget, thus payment for consultants are being delayed. In fact, many companies here don't respect the payment terms in the contracts, and the law is complicated enough to sustain this practice. If you don't get payed, you need to know some really good lawyers in order to get your money. But I will cover this in a later post. Coming back to consulting: remember what I said at the beginning related to the uncertainty of the Romanian market. The consulting business is based on mid and long-term projects, that are difficult to implement in the Romanian business environment. So, although the potential here is high, also the risks are high.
So, summarizing: in my opinion, the top investment areas in software market are software development (ISVs) and trainings.
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