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Cablegate: Investing in Romania: Capital or Labor?

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

SENSITIVE

DEPT FOR EUR/CE ASCHIEBE

SIPDIS

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.

GITENSTEIN

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