Tuesday, May 29, 2007

Romania emerges from the dark

By Drew Wilson, Contributing Writer -- 5/29/2007

Though blessed with beaches, analog engineers, and oil reserves, Romania has long struggled to establish itself.

But now that is all changing. Since its January entry into the European Union (EU), the Southeastern European country, with a population of 21.5 million, has seen a wave of electronics investment that positions it to become Europe's next success story.

Chip-design activity has picked up. Microchip Technology in April launched a design center in the capital city of Bucharest. Engineers are doing core chip design and application support for analog PIC microcontrollers, says Rich Simoncic, vice president of Microchip's analog products division.

Infineon Technologies opened an R&D center in Bucharest in 2005 that currently employs 150. The center develops ICs for automotive, security and RF applications. The company says it plans to add 100 engineers in the next three years.

By 2010, the target is to become the largest IC design center in Infineon," says Thomas Simonis, head of Infineon's R&D center in Bucharest.

On the manufacturing side, Selectron and Celestica were running factories in Western Romania well before the country's EU entry. But Nokia became Romania's centerpiece in March when it announced an $81 million factory to make mobile devices for export in Cluj Napoca, Northwest Romania.

The total investment, however, is estimated to reach $270 million since Nokia plans to build an industrial village to host suppliers and support facilities. Nokia would then surpass Solectron as Romania's largest electronics sector investment, says Robert Donose, senior counselor at ArisInvest, Romania's agency for foreign investment in Bucharest.

Analog engineers attract chip design firms

Other recent new factories or expansions include Electrolux, Emerson and Siemens.

A low cost of entry is one draw for companies, since Romania's corporate tax rate is only16% and an average of all monthly wages is $470. "One element that has attracted manufacturers is that we have the lowest costs in the EU," Donose says.

Chip design companies were also wooed by something else--analog engineers.

"The cost issue is on the checklist, but not on the top," says Infineon's Simonis. "Analog and mixed-signal expertise are not available everywhere and Romania had a pretty good pool of them."

Communist-era Romania had a strong top-down engineering focus. But as the open world embraced the digital revolution and engineering students dropped analog for digital, closed Romania was forced to stay in the analog world. Universities emphasized analog expertise and that's paying some dividends today. "West Europe universities do not focus on analog," Simonis says.

As expanding companies fight to fill engineering slots, soft criteria is now carrying more weight beside cost in the search for talent. Sources cited Romanians' strong English and European language skills and the relief of dealing with a culture that shares European similarities.

"IC design can require close contact with the customer and it's much easier to deal with people who think in a similar way," says Infineon's Simonis, adding that the operation has worldwide responsibility for some projects. "This is not a support center or extended workbench."

Accessibility also influenced investment decisions. A key reason Nokia chose Cluj was logistics. Cluj has airport and railway connections and roads are getting an upgrade. It's also 300 miles from Nokia's Hungary plant. "We have a strong supplier base in Hungary and it's beneficial to have these two plants near each other," says Liisa Nyyssönen, spokeswoman for Nokia who worked on the Romania project.

In Bucharest, the wide range of international flights puts it three hours from Europe and nearly in the same time zone. "Ease of access for us was paramount," says Microchip's Simoncic.

While none of the companies interviewed for this story received significant investment incentives, incentives are expected this year and could include tax breaks, land and utility discounts and grants for R&D, Donose says.

Romania EU average
GDP annual growth:
2006 7.7% 3.2%
2007 forecast 6.5% 2.8%
2006 6.6% 2.3%
2007 forecast 4.5% 2.2%
2006 5.4% 7.8%
2007 forecast 5.1% 7.4%
Source: IMT
But Romania's engineering reserves are already tightening up. Microchip started recruiting an initial staff of 30 engineers in July 2006 and is still filling positions, according to Simoncic. Other companies expanding their sizeable IC and software operations include Freescale Semiconductor, Siemens VDO and Alcatel-Lucent.

"As more competition comes in, it's really getting tougher to find people," says Infineon's Simonis. He adds, however, that some expatriate Romanians who fled years ago are beginning to return.

Romania's tech investments underscore the speed of change in Eastern Europe as well as the role of the EU as business incubator for new member states. In communist times, Romania was effectively sealed off from the world under an ultra-restrictive regime that drew inspiration from North Korea's totalitarian system.

Romania opened to the world only after the country's dictator was executed in 1989. Years of struggle with pervasive corruption and old regime restraints followed until the country met EU entry criteria.

The country now seems to have righted itself. A recent International Monetary Fund mission to Romania praised the 7.7% GDP growth and inflation performance as "remarkable."

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