239050 12/10/2009 12:16 09BUCHAREST825 Embassy Bucharest UNCLASSIFIED//FOR OFFICIAL USE ONLY VZCZCXRO2543 RR RUEHIK DE RUEHBM #0825/01 3441216 ZNR UUUUU ZZH R 101216Z DEC 09 FM AMEMBASSY BUCHAREST TO RUEHC/SECSTATE WASHDC 0154 INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE RHMCSUU/DEPT OF ENERGY WASHDC RUCPDOC/DEPT OF COMMERCE WASHDC UNCLAS SECTION 01 OF 02 BUCHAREST 000825
DEPT FOR EUR/CE ASCHIEBE
E.O. 12958: N/A TAGS: EINV, ENRG, ECON, PGOV, RO SUBJECT: INVESTING IN ROMANIA: CAPITAL OR LABOR?
BUCHAREST 00000825 001.2 OF 002
Sensitive but Unclassified; not for Internet distribution.
1. (SBU) EconOff's recent visit to two American investors, oil drilling and pumping equipment manufacturer Cameron and fuel injection manufacturer Mefin Sinaia (owned by U.S.-based Walbridge Partners), revealed two very different manufacturing styles. Cameron's greenfield investment in a state-of-the art manufacturing facility in Ploiesti stood in jarring contrast to Walbridge's older Mefin Sinaia plant. While Walbridge invested only a few million dollars in a previously state-run factory that was being privatized, Cameron started fresh, pouring much larger sums into their plant. The juxtaposition of the two facilities offers a stark contrast between foreign investment designed to take advantage of cheap labor and investment aimed at a labor force with a high level of technical skill. As a general rule, Romania welcomes large capital investments. There is, however, more willingness to push harder for investments which will preserve jobs, than for those that focus on high technology production. 2. (SBU) Cameron chose Romania as its base for expanding business eastward because of the country's strategic location, available space in an industrial park, and skilled personnel. The company is export-oriented, sending 90 percent of production to the U.S., Europe, Africa, and countries of the former Soviet Union. The 80 million USD facility employs the most modern manufacturing techniques and a technology-savvy workforce. The factory itself was in pristine condition and the few workers that EconOff observed were either moving heavily machined parts between room-sized machines, or operating computer displays in front of the same machines. The entire factory is automated and Cameron proudly showed off a tool facility that, through the use of computer chips and readers, was able to ensure that the right tools were at the right machine at the very moment they were needed. Even the in-factory delivery system relies on wheeled robots run by remote control.
3. (SBU) Inside a newly-built industrial park some 40 km north of Bucharest, Cameron noted that while they were generally pleased with the location, the road and power upgrades promised by Romanian authorities had lagged behind, forcing Cameron to spend additional money to ensure the facility would be ready to open on time. Cameron's presence led at least three of their suppliers to open facilities in the same park, ensuring next-day delivery for essential inputs. Because Cameron offers a high-value-added product, the high cost of shipping products from Romania is less of a concern. In dealing with the labor union, Cameron Director General Marius Tripsa stated that other investors should be aware that the Romanian labor code is sometimes complicated, involving overlapping legislation at various levels, making a working relationship with the local union vital.
4. (SBU) In contrast to Cameron, Walbridge determined that it made more sense to take advantage of an existing facility, which maintained a workforce already skilled at making fuel injection equipment. While staffing at Mefin Sinaia has fallen significantly from the 4,000 employees when privatized in 2003, the factory's aging design makes production much more labor- intensive. Machining is still being done on Communist-era equipment, resulting in an energy- and water-intensive production process. The factory's continued success depends on both being able to adjust quickly to changing production demands and the ability to keep wages competitive. According to Plant Manager Valentin Barba, the company's in-house engineering staff is capable of quickly designing custom parts, while the abundance of existing manufacturing equipment means finding the right tool to do the work is relatively easy. At the same time, the old equipment base imposes costs on Mefin because they have to fabricate their own tools and perform their own maintenance in-house. To offset the disadvantage of obsolete technology, Walbridge has invested two million USD and implemented lean manufacturing techniques to increase worker productivity, with some success. The downturn in the automotive industry, and closure of the Romanian vehicle manufacturers Aro, Roman, and Tractorul, have all hurt Mefin. The company, however, hopes that the arrival of Ford and associated parts suppliers in Romania will create new opportunities that it will be able to exploit. Barba characterized the relationship with the factory union as generally acceptable, but he did say that particular shop stewards had proven difficult in the past.
5. (SBU) The two plants are textbook examples that size and financial might matter greatly when investing in Romania. Large, financially strong companies have the money to invest up front and to cover unexpected costs such as land decontamination or investment in power infrastructure, both of which were surprises for Cameron. They can hire consultancy companies and lobby more successfully with the local and central governments to navigate their way through the sometimes murky and overlapping Romanian rules and jurisdictions. Smaller foreign investors, while they can carve out profitable niches, have a harder time resolving bureaucracy and infrastructure
BUCHAREST 00000825 002.2 OF 002
problems, both of which impose additional costs. At the same time, investing in an existing plant means there are fewer zoning and infrastructure issues, making it easier to gear up manufacturing in a hurry. While Mefin Sinaia has found a business niche for itself, it has faced a number of headaches due to the labor force and old machinery it inherited from a state-owned company. Both manufacturers, however, remain bullish on Romania's future growth prospects. For other foreign investors, Romania's skilled yet low-cost labor force remains an ongoing draw.