Distribution and Sales Channels
An encouraging sign of transition in Romania has been the steady growth of
the private sector. Although generally small and medium-sized, the private
companies represent a good nucleus for U.S. firms seeking distribution
channels.
Private firms are typically limited liability companies with few partners
and low capitalization. Shortage of capital and limited collateral channeled
entrepreneurs towards activities where initial investments are low, and
returns can be made rapidly, like services and trade. The companies engaged
in foreign trade tend to focus on consumer goods. Importing has been in many
cases the first and only activity of new private businesses. State-owned
companies, too, are now free to make their own business decisions and engage
in foreign trade directly, with no need for intermediaries. Moreover, these
companies are entitled to retain 100 percent of their after-tax foreign
earnings for their own use.
Factors that have a restrictive influence on the functioning of
distribution channels include:
-- Obtaining information on the market is difficult due to the lack of
published information;
-- The wholesaling and retailing systems are still not completely
structured;
-- The general policy for the leasing of state-owned assets (shops, hotels,
and other facilities), though vastly improved, is not well defined;
-- Little improvement in the availability of local credit is seen in the
short term.
Use of Agents and Distributors; Finding a Partner
Agents and distributors can contribute importantly to an American company's
success in the Romanian market. Romania has many well-qualified candidates
for employment. The work force is typically well educated and well versed in
technical matters, and, with a minimal training, can rapidly master new
marketing techniques.
The U.S. Commercial Service, through its International Partner Search and
Gold Key Service, can help new-to-market U.S. companies find experienced
local companies willing to act as agents, distributors or representatives.
However, as a general rule, finding an agent/distributor in Romania's
complex economic situation requires U.S. companies to invest sufficient time
on their own to satisfy themselves that the selected partners are fully
capable and reliable.
Investigating a company's bona fides is not always easy in Romania. There
are no specialized institutions for providing survey services on a regular
basis. Currently, the only source of information about a company is the
Trade Registry, which, for a moderate fee, can release data from its
database. The Chamber of Commerce and Industry (CCIR) is the authorized
distributor for Dun & Bradstreet in Romania. CCIR provides information
on the reputation, reliability, and financial status of a company using the
Dun & Bradstreet format and rating. Banks can benefit from the services
provided by the National Bank of Romania regarding the indebtedness ratio
and payment history of their potential clients.
U.S. companies would be well advised to use the International Company
Profile (ICP) services provided by the U.S. Commercial Service. ICP's
provide information on the reputation, reliability, and financial status of
a prospective trading partner. For a fee of minimum $300, a company can
obtain the required information, in a confidential report, along with a
recommendation from the Senior Commercial Officer as to the suitability of
the potential business partner.
Franchising
Franchising has had a rather slow development in Romania, mainly because it
calls for large initial capital. In spite of this, such companies as
Coca-Cola, Pepsi Co., Pizza Hut, KFC, Shell, and AGIP have managed to find
Romanian franchisees. As the country's economy becomes stronger, franchising
is expected to become more prevalent on the Romanian market.
Direct Marketing
Under the current business environment in Romania, it is recommended that
direct marketing be done only after a thorough study of local conditions.
Potential problems that have to be considered are:
-- Legislation has changed frequently;
-- The relationship with the local municipal administration and other
authorities is not always easy. Much depends on the personality of public
officials;
-- Commercial and fiscal legislation is sometimes unclear, reflecting a
certain legal confusion existing in Romania;
-- International accounting standards and procedures are in early stage of
implementation;
-- The level of exposure to Western business practices has been generally
low. For this reason, providing solid training for employees is important.
It is recommended that the foreign manager should have experience in dealing
with Central European countries and be highly visible in the company's daily
activity.
Joint Ventures/Licensing
Most foreign companies involved in local manufacturing and practically all
associations with large companies are organized under joint-venture
agreements. The main advantages offered by joint ventures include quick
market access by the use of existing facilities and the knowledge of the
local business environment. Having the right partner may considerably speed
up and ease the process of creating and developing optimal local
business.
Steps for Establishing an Office
Foreign companies have numerous options available for organizing business
operations in Romania.
Representative offices: Foreign corporations are entitled to set up
representative offices in Romania. Representative offices are not entitled
to carry on economic activities on their own behalf or on behalf of the
parent. Therefore, a representative office can carry on activities of
advertising, provision of information, marketing research or similar
operations of a ''preparatory or auxiliary'' character.
Establishing a representative office with the Ministry of Industry and
Resources is a straightforward matter. A nominal annual fee is levied and
general information must be provided on the name and address of the office,
its intended activities, and the name and address of the
representative(s).
Branches and subsidiaries of foreign companies: A foreign corporation can
carry out business in Romania through a branch or a subsidiary (Romanian
legal person). Branches may only operate in the same field of activity as
their parent company. Branches are not specifically defined in the Romanian
legislation and therefore Romanian authorities are not very familiar with
branch operations.
In Romania, the branch of a foreign company is subject to the national law
of the parent company and Romanian public order rules (i.e. tax law,
currency regulations etc.). Legally, the branch has no separate status from
the foreign company itself; it is merely carrying on business in Romania.
The foreign company will be liable to the employees and creditors of the
branch for the actions of, and debts contracted by, its managers and agents
on behalf of the branch.
Branches must be registered with the Commercial Register of the Romanian
Chamber of Commerce and with the local tax authorities.
Subsidiaries established in Romania are Romanian legal persons subject to
Romanian law. The subsidiary of a foreign company in Romania is a Romanian
legal entity and, consequently, it is subject to Romanian law. It is liable
on its own behalf for the actions taken by its management.
Company Law No. 31/90 (subsequently revised in 1997, 1999) provides for the
following main forms of business organization in Romania:
-- general partnership, which must have a paid-in capital, and in which the
partners have unlimited and joint liability;
-- limited partnership, which must have a paid capital, and in which the
general partners have unlimited and joint liability. The limited partners
are liable only up to the value of their equity;
-- limited partnership by shares, whose capital is divided into shares and
whose obligations are guaranteed by the capital and by the unlimited and
joint liability of the general partners. The limited partners are liable
only for the payment of their shares;
-- limited liability company ("SRL"), whose obligations are guaranteed by
its net assets (''patrimoniu"). The shareholders are liable only for the
payment of their contribution to the registered capital;
-- joint stock company ("SA"), whose obligations are guaranteed by the
capital. The responsibility of the shareholders is limited to their
individual contributions to the capital;
All commercial enterprises must be registered with the Commercial Register
of the Romanian Chamber of Commerce; they take on separate legal status
beginning with the date of this registration. The Commercial Register is an
organization mandated to maintain statistical information on business
activity in Romania. It also ensures that trade names, for example, are not
duplicated.
The forms of subsidiary most commonly used by foreign investors are the
limited liability company (SRL) and the joint stock company (SA).
A limited liability company (SRL) can be set up by one or more shareholders
(but not more than 50) and must have a minimum capital of RL 2 million
(about $100.00). At present, capital contributed by a foreign investor is
converted to lei at the prevailing market exchange rate in effect at the
time the capital is contributed for accounting purposes only. Companies may
maintain bank accounts in foreign currency. The registered capital is
divided into equal shares whose value cannot be less than RL 100,000 (about
$5.00) each.
A joint stock company (SA) requires a minimum of five shareholders (no
maximum) and a minimum prescribed capital of RL 25 million (about
$1,250.00). A joint stock company may be set up privately or by public
subscription. The registered capital is divided into equal shares whose
value cannot be less than RL 1,000 (about $0.05) each.
There is no limit on foreign ownership and participation in the share
capital of a Romanian company. A foreign investor is allowed 100% ownership
in a Romanian company.
Setting up a legal entity in Romania generally takes 3 to 6 weeks to
complete. The registration procedure for a limited liability company or a
joint stock company includes the following main steps:
- The constitutive documents (company memorandum and/or articles of
association) must be prepared, approved by the shareholders and
notarized;
- The subscribed capital must be paid upon registration of the company. In
case of a joint stock company (SA) each shareholder must pay at least 30% of
the subscribed capital. For an SRL-type company there is no term by which
capital contributions (referred to as social capital) should be paid
up;
- The company must be registered with the Trade Register, which issues a
Certificate of Registration. The company legally exists from the date of its
registration with the Trade Register.
- Once it is registered as a business entity, the company must register
with the local tax authorities and be issued with a fiscal code.
As of July 1, 2001, one-stop offices are to be operational within each
territorial Chamber of Commerce, handling all permits and authorizations
previously obtained from various administrative authorities. Within 20 days,
a Certificate of Registration, including a single registration code will be
issued. The appendix of the registration certificate will contain the
sanitation-veterinary and environmental permits as well as the approvals
from the Labor Protection and Fire Fighting Divisions. While this is a
positive step, the number of approvals needed and related paperwork remain
the same.
The branch registration procedure is technically quite similar to the
above, but in practice it is often more cumbersome.
Selling Factors/Techniques
Quality, price and payment conditions are the most important factors in
determining who will succeed in concluding business in Romania. The Romanian
market, like all former East-European markets, is still cash poor. A
company's willingness to entertain long-term credit arrangements, possibly
barter transactions, and concepts like processing contracts will put it in a
better competitive situation vis-a-vis others interested in doing business
in Romania.
Product distribution is another important factor. Local partners are
crucial in order to get highest market coverage, large volumes and
reasonably good cash positions. Understanding the type of distribution
required by a product and adapting it to the Romanian market's specifics is
mandatory for any company. While distribution of industrial goods in Romania
is quite similar to the one existing in most European countries, in the case
of Fast Moving Consumer Goods (FMCG) the situation looks completely
different. Retail trade is very fragmented, with many small independent
outlets and few emerging retail chains. There are very few professional
distributors and in most cases they lack the financial sources, the
logistics and the know-how required by a profitable distribution activity.
Moreover, Romanian distributors' business ethic is often substantially
different as compared to their Western peers.
Special note should be made of the fact that US companies face strong
competition from EU countries on the Romanian market. Goods from the
European Union often enjoy lower duty rate compared to similar goods from
the United States. Again, price, payment conditions and service can offset
such effects.
Advertising and Trade Promotion
Accompanying Romania's change to a market economy has been a notable growth
in the variety and quality of advertising. Total advertising rose from USD
27 million in 1993 to over 306 in 1999, with multinational companies active
in the FMCG sector and mobile operators being the top advertisers.
Television, which attracted over 60 percent of the total ad spending, is
the predominant media, followed by press, outdoor advertising, radio and
movie advertising. Television includes two state-owned national networks, a
large number of state-owned local networks, and several privately-owned
networks which tend to cover the whole country (Pro TV, Tele 7 ABC, Antena
1, Prima TV, Acasa, Atomic TV).
Radio is also important. There are three national state-owned AM radio
networks which can be characterized by their target audience segment
(popular, cultural and youth). In addition, there is a national FM network
(Europe FM) and a large number of FM stations in Bucharest and other major
cities, which have a broad audience appeal, of which the most popular are:
Contact, Pro FM, Radio 21, RadioTotal.
The press includes both newspapers (daily and weekly) and magazines. Only
20 percent of the population is reported to read one or more newspapers a
day. There are about 10 national dailies, of which the most important are:
"Adevarul", "Evenimentul Zilei", and "Romania Libera". Several of them have
established their readership based on political philosophy (such as "Romania
Libera", the government oriented newspaper); others are mass-market
newspapers (such as "Evenimentul Zilei", the most read periodical), or
sport-oriented newspapers. There are also daily and weekly newspapers
published in the major cities. Specialty publications (i.e. sports,
business, entertainment and family) are a major aspect of the weekly
newspaper and magazine segment. About 50 percent of the population listen to
the radio and over 60 percent watch television daily.
Movie advertising is a rapidly growing form of advertising as it allows a
high quality message to be delivered.
Additionally, outdoor billboard advertising is growing rapidly and becoming
more sophisticated. Billboard locations are multiplying and backlit models
are replacing simple painted billboards. Advertising on public
transportation vehicles is also common.
The advertising agency industry is experiencing rapid growth of both
branches/local representatives and domestic agencies. Major agencies with
international affiliation include: Ogilvy&Mather Advertising,
McCann-Erickson Romania, Ammirati Puris Lintas Bucharest, Tempo Advertising,
Graffiti/BBDO, Saatchi and Saatchi, and Young and Rubicam.
Specialized services, such as market research and market testing are
available from independent suppliers (IRSOP and IMAS) as well as established
institutes (Institute of World Economy and Romanian Chamber of Commerce and
Industry). However, experienced companies and individuals carrying out
marketing studies are rare.
The best-known business newspapers and journals in English are the
following:
-- Quarterly Bulletin (economic, financing, monetary and credit trend
information together with statistics of the National Bank). Publisher:
National Bank
-- Romanian Insights. Publisher: Romanian Chamber of Commerce and
Industry
-- Bucharest Business Week. Publisher: Americelt Publishing SRL,
Bucharest
-- In Review, Romania's Magazine for Business (monthly), and
-- The Business Review (weekly). Publisher: Business Media Group SRL,
Bucharest
-- Romanian Economic Daily. Publisher: Nine O'clock Publications
Other publications in English are: Romanian Economic Newsletter (published
quarterly in the USA to report on and analyze Romanian economic
developments); Business Central Europe (published monthly by the Economist
Newspaper Group, London); and Balkan News (a weekly newspaper published by
Balkan News in Athens).
Pricing Product
The product pricing structure is not basically different from that used in
developed countries: ex-works prices are increased by wholesale and retail
markups as well as with government and, sometimes, local taxes.
All prices have been liberalized, with the only exception of the price of
electricity and gas supplied for domestic consumption, which continues to be
controlled by the government. With the anticipated restructuring and
privatization of the electricity and gas authorities, price liberalization
will become complete.
Sales Service/Customer Support
As already mentioned, finding good local partners is a matter of careful
effort. The lack of good local service companies is also a problem. However,
with suitable training this problem can be satisfactorily solved. The lack
of exposure to Western practices in the past has left a legacy of
indifference to after sales service. U.S. companies should pay attention to
ameliorating these attitudes in their operations.
Selling to the Government
In some segments of the Romanian market, state-owned firms continue to be
the only possible business partner for foreign companies. Although
bureaucracy and corruption can be quite a challenge for Western business
executives, it is apparent that local authorities are, as a whole, anxious
to work with foreign companies and that changes in the legal framework
generally are headed in the right direction. In those industries considered
as "strategic" by the Romanian government, such as natural resource
exploitation and essential basic industries and infrastructure, major
purchases are made by international tender, sole sources being generally
avoided. A new law on public procurement was passed in 2001, providing
private SMEs with preferential access to public procurement tenders below a
certain threshold. The law gives the procuring agencies the option to grant
national preference, unless by doing so they would be in breach of Romania's
international agreements, or the project financing is secured by
international donors. To make it more transparent, all procurement tenders
above a certain threshold must be published in "Monitorul Oficial".
Need for a Local Attorney
Company incorporation, daily activity and payment of fiscal liabilities, as
well as conflicts resulting from possible late payments, debt recovery, and
bankruptcy may generate the need for local legal and business
assistance.
Romania's civil law for contracts is set out in the Civil Code, which
follows closely the French civil code, and the Commercial Code, which is
modeled on the Italian commercial code. Generally, the specialized body of
law, the Commercial Code, would have precedence over the general body of
law, the Civil Code. The existing body of law covers the areas of title and
pledging title, protective creditor remedies, and debt recovery.
Romanian law recognizes the existence of mortgages for immovable property
and pledges for movable property. Thus, assets can be pledged as collateral
for loans and as guarantees. Also, the law provides that the guarantee
agreement has the value of a writ of execution.
To protect the interests of creditors, the Romanian law provides for:
-- the right to request forced execution against debtors' s assets
-- the right to request cancellation of legal acts that breach the
creditors' rights ("action paulienne")
-- the right to request the taking of various measures for the purpose of
preserving the debtor's patrimony (e.g., seizure by court order of assets to
satisfy a due amount)
-- the right to intervene in trials related to the debtor's assets,
etc.)
-- the right to start court actions in relation to certain rights of an
inactive or negligent debtor ("action oblique").
Romanian bankruptcy legislation provides for creditors the possibility to
impose on the insolvent companies to go either into reorganization or
liquidation. Therefore, if a company succeeds to overcome the incapability
to pay its debts, by way of reorganization, it might not go into
liquidation. Nevertheless, if the reorganization is not successful, the
judge will order the starting of the liquidation procedure. Unfortunately,
the lack of specialization of judges and lawyers in the bankruptcy field
makes it difficult to bring these kind of cases to court and to obtain
consistent outcomes.
Romanian justice continues to be slow and bureaucratic. Therefore, avoiding
conflicts of any type is the best policy. It is strongly recommended that
sales be based on confirmed irrevocable letters of credit opened with banks
that are correspondents of American banks or are confirmed by such banks. In
case of conflicts, competent legal assistance is available. The Foreign
Commercial Service maintains a list of law and business advisory firms with
expertise in both Romanian and U.S. law. It is available on request.
Source: US Dept. of Commerce
source
ANRC Will Defend Competition on the
Romanian Fixed Telephony Market in Court
In Romania, the Number of Mobile Calls Increased by
45% in the First Half of 2005 as Compared to the Same Period of 2004 
