International Business – Module 3

For: M.R. Strienstra (BA)

Capitool Building, Capitol 15, Enschede
Room E-309

Course: International Business (188080)

From: Michal Bacho

Batjanstraat 4
7512 EX Enschede
m.bacho@student.utwente.nl

Question 1

I the next question I will describe Romania and their environment from perspective of 7 forces,
which could or will influence the expanding of Nokia. The main reason of this step is cheaper
labour costs, which are higher in Germany, where the plant from Bochum will be close and the
production will Nokia move to Cluj in Romania. The competition in mobile communication
business is high and one of the ways how increase profits is to reduce production and input costs.
The position on global ma rket is still very strong and the net sales and profits increased in 1.
Quarter between 23-28% but competition never sleep, and the potential of the east Europe and
Asian countries is not immortal.

Since last 10 years Romania achieve one of the highest e conomic growths in post-communist
countries and in January 2007 entered the EU. The main reasons of this, was increasing export to
the strongest economies in EU, Germany and Italy. According to the International Business book
in next text I will analyse this forces of the Romania:

 Sociocultural forces
 Physical and environmental forces
 Economic and socioeconomic forces
 Political forces
 Legal forces
 Financial forces
 Labour forces

Sociocultural forces
The main factors of Sociocultrual forces are characterize d by the Geert Hofstede Cultural
Dimensions of Romani. In the chart 1.1 I will compare Romania with important and economically
strong nations which abutting to Romania. This are Hungary, Bulgaria and also below I will
compare it with Netherlands and Czech Republic and with the world averages which are PDI=55,
IDV=43, MAS=50, UAI=64, LTO=45 .

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Chart 1.1

Country PDI IDV MAS UAI LTO

Hungary 46 80 88 82 50

Romania 90 30 42 90

Bulgaria 70 30 40 85

Czech Republic 57 58 57 74 13

Netherlands 38 80 14 53 44

Source : http://www.urbanministry.org/book/export/html/4565

In the chart we can see that the lowest Hofstede Cultural dimension is Individualism /IDV/, also
the same value is in Bulgaria, but when we will compare it with the Netherlands or Hungary or
even with Czech Republic where the values are much higher, we can deduce that the Romanian
society is less individualistic oriented and more bonds with others. This means that business
people and managers from Nokia should be more carefully by negotiations and should put more
importance for social feeling s and also group feelings which are integrated in every days live of
Romanian peoples. In Netherlands for example is the situation completely different and privacy
have higher importance in the integrity in the society.

Next dimension which is Uncertainty Avoidance Index /UAI/ is very high in cooperating with
other countries but also with the world averages. The high value in this index means that
Romanian but also Bulgarian and Hungarian people are very uncertain by acceptin g of rules, laws
and regulations in everyday life. This could be good point by introducing and positioning new
products or new services into market. I think that this is close connected with the financial and
social situation in countries like Bulgaria and Romania where the people are st ill depressed from
the Russian communistic regime.

Second very high value dimension is Power Distance Index /PDI/ which handle with the
diversification of the institutional power and of the view of the decisions of the power holders.
When the index is high th e society is more comfortable with the larger differences’ in status and
see accepted the decisions of the governmence for example. In Netherlands and also the world
average is lower what means that the people do nor easy accept the institutional power and feel
challenged by strict and radical decisions. This means for the Nokia management that by radical
changes and decisions the society or people should be more comfortable with this and should it
accept without bigger problems.

The last dimension is Masculinity /MAS/, which handle with how gender expect the roles in a
culture. Nations with high masculinity index belief more in achievement and ambitions and the

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feminine cultures beliefs or prefer more in quality of life, helping others and equality between
man and woman.

In 2002 Romania was counting about 22 million citizens, which consist from 90% Romanians,
7% Hungarian and 2% of Gypsies. The rest are foreign nations and immigrants. The official
language is Romanian which speaks more than 95% of the populat ion. The dominant religion is
national religion because Romania is secular state; this is 87% of the believer population.

Physical and environmental forces

Romania is with 238 000 km2 largest country in southeast of Europe, with significant position on
Danube. The geographical position is favourable because of the access to the Black See. This
point plays positive function in distribution. But by the infrastructure, only 2% of the surfaces are
roads or railroads, what we understand as transport lines. Thanks projects and loans from
international institutions like WTO or IMF the transport infrastructure is increasing rapidl y and
the main goal was to build direct Trans-European transport networks .

Other important rivers are Siret connecting Romania with Moldavia and at least Olt and Mures. In
the chart you see the water resources of the main rivers in Romania. In the graph of the
classification the surface and land in Romania , we see that more than 60% is used for agriculture
use and only 2% is built area what could be maybe a problem by seeking for space for plant and
offices.

Water resources in reservoirs in 2000

Inner rivers million m3/year

Tisa 250
Somes 721
Crisuri 394
Mures 1205

Source: http://www.rec.hu/frame2/RO_socio.html

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From other view, we can see the amount of agriculture land as eventuality for globalization
forces, which could very fast gain the share of build area. The limits are The Carpathian
Mountains, which stretch along the middle of Romania. The climate of Romaine which is
transnational with four seasons and average annual temperature between 8 and 11˚C, is for Nokia
as mobile device producer not that much important.

The biggest city is the capital city Bucharest with over 2 million citizens. Cluj the new place of
the plant count also to big cities of Romania with population over 300 000 people. Cluj is situated
in the west part of the country close to Hungarian border and is important node in the European
road network. The city offers all types of connections and transfer lines not only by road and rail,
but the international airport have positive function.

Economic and socioeconomic forces

In this section I will character the economy relate with demographical evolution of Romanian
population compared with macro economical and market indicators. Romania is since January
2007 member of the EU, and in the time period from 2000 – 2007 the radical growth of the
economy and help the country to achieve the upper-middle level of the EU nations. In the chart
below we can see the significant macro economical indicators for selected emerging European

Source: http://www.imf.org/external/pubs/ft/weo/2008/01/pdf/c2.pdf

Economies compared with Central Europe and Baltics countries. From the chart we can see that
Romania have the highest current account deficit of the BOP, which is because low industrial
production and low production in services and on other side very high share of agricultural
production, which is explicit also by Baltic post-communistic countries like Estonia and Latvia.
But this countries, thanks cooperation and international trade with Scandinavian countries
relocate significant part from sources to the industrial production and services.

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This fact should be notice by Nokia management because the potential of Romanian market for
services and industrial production is still high. Also the GDP growth in last years was because of
the movement from agricultural sector to services and industry of labour. The labour force in
Romania is more then 10 million what is really high number which also clearly mirror the low
unemployment only 3,8 % what is better then average in EU.

The inflation, which is about 3,4 % is positive for investments into country and lot of
international or global corpo rations are still more and more interested in investments because of
low wages. In 2007 the gross average wage was 500 euro, what is for example one of the main
problems of movement the plant from Germany to Romania and spreading of distribution and
production networks into developing countries.

In the next chart we can follow the age structure and according to negative population growth rate
in recent years where the population is decline. This could a bit influence the purchasing power,
but I thing that domestic governance will undertake some steps for restrict this phenomena.

Age structure
0-14 years 18% (male 2,111,320; female 2,015,347)
15-64 years 68% (male 7,597,958; female 7,707,498)
65 years and over 14% (male 1,237,368; female 1,741,630)
Source: http://en.wikipedia.org/wiki/Demographics_of_Romania#Age_structure

Political forces

In Romania is used parliamentary

representative democratic system, where the
Prime Minister is the head of government in a
multi-party system. This map shows how is the
power spread in the country, where the wining
party is Democratic Party. In the next chart
below you can see the overview of the heads of
Governmental offices.

The Romanian Revolution of 1989, was the

start of development of democratic country ,
and builds the democratic symbols. The most
important point in political integration and
stabilization was done in 2007 when Romania
joins the EU. This is seen by many investors
from Western Europe like a next step to
transparency and better conditions for trade
and manufacturing in Romania.
Source: http://wikidashboard.parc.com/wiki/Politics_of_Romania
The situation in the country is stabile

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but the governmental agents and officials are still from communistic regime and that’s why the
bureaucracy level is very high. This could discourage some investors because of long bureaucracy
process.

Office Name Party Since

President Traian Băsescu none 20 December 2004

Prime Minister Călin Popescu-Tăriceanu PNL 29 December 2004

Source: http://wikidashboard.parc.com/wiki/Politics_of_Romania

Financial forces
In this part I will introduce the Romanian currency Leu, which thanks positive long-term growth
of GDP still have good exchange ra te and is stronger and stronge r. The main change happens in 1.
July 2005 where they make a radical currency reform, when change from ROL to RON, in ration
1 RON = 10,000 ROL. The next big change is expected in 2014 by adopting European currency
EURO.

On Romanian bank system operate lot of main west European bank groups , which also see big
opportunity be the bank nr. One which will grant loans for enterprises or individuals by building
new companies and business . In November 2007 the foreign exchange reserves in National
Romanian bank in Euro announced 25,441 millions euro,

The base VAT is in Romania 19% and reduced VAT is 9% and personal income tax and bus iness
income tax are both 16%. This tax burden is not that high and this could by also reason for
Scandinavian companies, like for example Nokia, which design plants in post-communistic
countries or regions. The most known Romanian index is Bucharest Exchange Trading index
(BET).

Question 2.

I think that the decision invest in Romania and create a new plant there is very good idea and
Nokia will only profit from this step forward. The main reason, mostly mentioned and discussed
in masmedia is the labour cost and general input cost. This is the faster an efficiently way how to
keep the position on the market and the prices and profits on the top of the mobile device
producers.

Another view is strategic penetration of new markets in this regions where is big potential in the
future and it is also very good idea to be the first wh o will be on the market, or so called first
comer strategy, when this first producer or seller on the marked become advantage. By joining
new competitors on the market the first comer still keep more that 30% of the market because, he
was first on the market and the customers know his products or services longer and connect it
earlier with quality like with new competitors.

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Last and also very imponant reason I see in the taxes exemption in first years for big companies
or corporations. But in this fall is the problems that lot of corporations or enterpr ises just leave the
country after this taxes immunity and continue in other countries. The reason why the host
governments do this tax concession is to attract new big investors which should secure prosperity
of the domestic economic and decrease the unemployment index.

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