For our latest business trip feature, where we look at the UK’s most interesting export markets, Business Leader gives you an in-depth look into everything you need to know about doing business in the country of Romania.
Since joining the European Union (EU) in 2007, Romania has steadily shrugged off its reputation as one of Europe’s poorest economies and export nations. In recent years especially, the country has seen impressive year-on-year growth in GDP value as well as an increased number of international trade deals.
The country’s economic growth has been one of the highest in Europe with an average of 3% each year between 2010 and 2018. The result of this has made Romania the world’s 40th largest economy, 41st largest export nation (valued at £53.8bn), and 39th import nation (valued at £62.1bn) – a far cry from its time in the early 1990s following the collapse of the USSR.
With a population just shy of 20 million (seventh most populous in the EU), and being positioned at a strategic crossroads between Eastern Europe and the Middle East, the county has seen an influx of more than 5,500 UK companies having an operation in the country. So, is now the time to expand your operations into this ever-growing European country?
What makes it an attractive location for British companies?
In recent years, Britain has become one of Romania’s leading business partners despite the fact that it is a relatively new market. Britain is now the 10th biggest direct investor in the country, up from 14th just six years ago.
This shows that there is a precedent and clear pathway for British companies to make a mark in Romania. Britain is also one of the top five countries with business activities in Romania, according to the Romanian National Statistics Institute.
So, what is behind this recent surge in British interest in Romania?
Her Majesty’s Trade Commissioner for Europe, Andrew Mitchell CMG explains: “The new government in Bucharest is committed to attracting foreign investment and to creating a more predictable and dependable business environment. The new Prime Minister and the Ministers of the Economy, Finance and Health have made it clear that a business-friendly environment is right at the top of their agenda.”
This new approach to international business has created several favourable benefits for British companies looking at expanding operations into Romania.
Gabriel Sincu, General Manager for Romania at TMF Group comments: “Romania has a very attractive tax system when it comes to the personal income of expatriates. In addition, if these people are expatriates from an EU country, no social charges are due in Romania, as according to EU rules, these are paid in the home country. In terms of legislation, the Romanian labour code is harmonised with EU law meaning its provisions are balanced between the employee and the employer. In addition, for entrepreneurs wanting to start a business in Romania, it is possible to set-up a freelancing structure, or a micro-enterprise, offering both a reduced administrative burden and low tax rate.”
Romania has clearly made itself open to entrepreneurial expansion from outside its borders. This, accompanied by the world’s fifth best broadband speed, has made the country an appealing location for businesses looking to expand.
What sectors are most prevalent in Romania?
Due to the incredible broadband capabilities, there has been a surge in tech and IT companies moving into Romania.
Sincu comments: “IT is seen as ‘the star’ of the Romanian business environment, due to several factors including a skilled labour force, tax, some state aid schemes implemented by the government and the large number of multinational IT companies investing in Romania. At the same time, more and more Romanian entrepreneurs are starting their own businesses – the most famous being UiPath which was a business process automation start-up which is now a unicorn, valued at $10bn (£7.7bn).”
UiPath is a global software company that develops a platform for robotic process automation. The company has more than 50 offices in 25 countries around the world.
Vargha Moayed, Chief Strategy Officer, said: “The IT sector has seen an extraordinary growth during the past 10-15 years. It has been for years the star sector of Romanian economy, contributing a large proportion to the national GDP. Witness to this growth are the large number of IT companies that have set a foothold here even since the 1990s, and, why not, our very own existence, as the first tech unicorn to emerge out of Romania.”
However, the success of British companies looking to move into Romania shouldn’t be limited to tech – as the country has seen a boom in many other sectors including, agriculture, aerospace, automotive, transport infrastructure, energy, professional services and manufacturing. Sectors that align with the success Britain has had on the international stage.
According to the Trade Commissioner, there are five main sectors that UK PLCs have had particular success with in Romania; infrastructure, energy, automotive, healthcare and life sciences, and defence.
Does Britain has a positive relationship with Romania businesses?
The respective nations have been building a strong commercial bond across a wide range of sectors in recent years, and this looks set to continue.
Mitchell said: “British expertise is highly regarded and valued in Romania, and the British Embassy in Bucharest is also on hand a ready to assist businesses across all sectors. Transport links to the country have also significantly improved with direct flights daily into Cluj, Iasi, Timisoara and Brasov. Strong transport ties are a significant facilitator of trade, and this is true in the case of Romania and the UK.”
This proves that the British-Romania relationship – despite being relatively new – has had a lot of attention from businesses and entrepreneurs who are looking at expanding their businesses.
Calin Huma, Head of the Romanian Honorary Consulate in Winchester, comments: “The business relationship between the UK and Romania is still in its infancy and can be greatly improved.
“There is a platform called BRIDGE that helps companies in Britain and Romania cooperate on trade or investments. It is a regional approach, county-to-county, with Hampshire having a number of offices in Romania through which it promote its interests. Romanian companies have the opportunity to use the Hampshire Chamber of Commerce as an entry point into Hampshire and also use the Winchester Business Centre to open up LTD companies here in the UK.
“With clarity on the process of delivering bilateral negotiations after Brexit, there will be a lot of interest from companies interested in each other’s markets. Romanian businesses are seeing the UK market as abundant, stable and accessible.”
Romanian view of British businesses
With major political and trade changes on the horizon in the UK, it could be argued that this consistent growth of business between the two countries could slow.
One Romanian company that has had success through partnerships with UK companies is Beez – a fintech firm which saves e-commerce shoppers money through its app.
Tamas Vasile, CEO of Beez, comments: “Looking at the UK market we see a more mature ecosystem, a big market with better access to capital, and well-developed business ecosystems, but with expensive resources. On the other hand, Romania is a much smaller market, with a growing economy, but still, an incipient business ecosystem which remains focused on a short economic cycle with less added value. Oriented to outsourcing raw materials and human resources to more advanced markets that incorporate resources in products which bring significantly more added value to the economy.
“The UK customer is faced with top-class services, so they have very high standards. We see this as a great opportunity to understand what it takes to develop a world class product.”
This proves that Romania provides opportunities to gain commercial success and take advantage of Romania’s highly skilled workforce as well as the tax benefits. It also shows that Romanian market is open to British influence and market knowledge.
What are the challenges?
However, despite the embracing nature of Romanians towards British businesses, there are certain issues any company looking to move into the country need to be aware of.
Fortunately, due to British success in the country, there is help available for new companies to the Romanian market. Mitchell comments: “In Romania, the big projects in infrastructure, energy, defence and security are managed by the state. As an EU member state, Romania applies EU rules on public procurement.
“Our advice is either to sign a partnership with a Romanian company as it can overcome language barriers, or to use local knowledge and consider opening an office. It is always advisable to consult and even hire one of the international law firms based in Romania. The Embassy team of course are more than happy not only to set the scene for Romania, both politically and economically for any British company considering the country, but also to give you advice on how to proceed.”
Moayed echoes this: “Foreign companies doing business in Romania need to be aware that the uncertainties in the political climate have an impact on legislation – laws change frequently, and you need to rely heavily on external counsel or on outsourcing parts of your activity to companies that know how to navigate this. Laws are fast to change, but slow to be implemented – that is another factor. And there is a certain level of bureaucracy and lack of digital transformation of the public sector that are very frustrating.”