Growing Foreign Investment in SMEs in Romania Anul IMM-urilor - Editia I – Conferinta FinMedia 22 Martie 2005 JW Marriott Grand Hotel, Bucuresti, Romania Barry Kolodkin, Principal, Growth Strategy Consulting SRL

22 Martie 2004 Barry Kolodkin, Growth Strategy Consulting SRL, 2 What's Bothering SMEs? What's bothering SMEs? Bureaucracy and more bureaucracy - from building permits to salary statements to VAT calculations … … a lot of companies that have suffered because they don't have adequate equity coverage A lack of venture capital, oppressive taxes and duties, and the daily battle against bureaucracy: for years, this has been the refrain from SMEs all over …

22 Martie 2004 Barry Kolodkin, Growth Strategy Consulting SRL, 3 … Switzerland – Credit Suisse e-magazine We’re Not Alone!

22 Martie 2004 Barry Kolodkin, Growth Strategy Consulting SRL, 4 Agenda Role and Nature of Foreign Investment in SME Sector Inward investment emphasis National Measures to Increase Foreign Investment in SMEs Company Measures to Attract Foreign Investment

22 Martie 2004 Barry Kolodkin, Growth Strategy Consulting SRL, 5 Role and Nature of Foreign Investment in SME Sector

22 Martie 2004 Barry Kolodkin, Growth Strategy Consulting SRL, 6 Role of Foreign Investment in SME Sector in SE Europe UNDP Associate Administrator, Mark Malloch Brown, UNDP Investment Summit, Bucharest, October 2003 A new kind of firm is emerging in transition economies that is more market – and profit -oriented. These firms however often face financial constraints that impede their access to long-term financing and their ability to grow... Foreign investment has a critical role to play in boosting local SMEs in this region.

22 Martie 2004 Barry Kolodkin, Growth Strategy Consulting SRL, 7 Why Do Foreigners Invest in SMEs? Attraction of SMEs to Foreign Investors Faster growing Lower entry cost Often more highly leveraged Less complicated due diligence Easier to impact

22 Martie 2004 Barry Kolodkin, Growth Strategy Consulting SRL, 8 Internationally Active SME Profile Those SMEs which are internationally active tend to be larger than the average SME. The average SME employs less than 10 people, whereas the bulk of SME exports and international investment comes from SMEs which employ more than 50 or 100 employees. Source: OECD

22 Martie 2004 Barry Kolodkin, Growth Strategy Consulting SRL, 9 Barriers to FDI in SMEs A major factor said to continue to impede SMEs contribution to the global economy is the complexity and differences in the regulatory systems and business environment between countries. Source: OECD

22 Martie 2004 Barry Kolodkin, Growth Strategy Consulting SRL, 10 National Measures to Increase Foreign Investment in SMEs

22 Martie 2004 Barry Kolodkin, Growth Strategy Consulting SRL, 11 Continued Reform of the Business Environment Large investments/companies often less impacted by irregularities in the business climate Government invitation/cooperation External consultants hired or provided (privatization) Press/public opinion Better cash flow/funding; unable to manage risk like multinationals Often less ‘clout’ than larger firms Legal & regulatory reform in areas of taxes, VAT/Customs, labor, & bureaucracy

22 Martie 2004 Barry Kolodkin, Growth Strategy Consulting SRL, 12 Continued Attraction of Multinationals and Large Companies Need suppliers Services Consumables Aftermarket businesses develop Help improve business climate Improve infrastructure

22 Martie 2004 Barry Kolodkin, Growth Strategy Consulting SRL, 13 Maturation and Growth of Capital Markets/Financial Sector Increased opportunity for “exit strategy” will spur interest Venture capital/equity market Strong interest in existing businesses; limited in startups Greater availability of capital to SMEs Smaller investors taking stakes often need to locate capital for restructuring, payment of debts, etc. Opportunity to invest in niche markets Mortgages, insurance products, private pension plans

22 Martie 2004 Barry Kolodkin, Growth Strategy Consulting SRL, 14 Other National Measures Regional cooperation Free trade agreements Harmonization of regulations – standards, IPR, etc. Information sharing Improve infrastructure Promote FDI in SMEs Fiscal incentives (EU/WTO compliant)

22 Martie 2004 Barry Kolodkin, Growth Strategy Consulting SRL, 15 Company Measures to Attract FDI

22 Martie 2004 Barry Kolodkin, Growth Strategy Consulting SRL, 16 Making Your Business More Attractive Invest in technology Strong web presence Able to collaborate across borders Display “Western standard” Develop intellectual property/R&D Develop export capability/supply chain

22 Martie 2004 Barry Kolodkin, Growth Strategy Consulting SRL, 17 Management Needs Strong senior management English language capability Be able to sell Quality business plan Fully embrace international accounting & reporting standards Understand the “numbers” Be able to show growth potential – “upside” Understand that investment will bring oversight and management

22 Martie 2004 Barry Kolodkin, Growth Strategy Consulting SRL, 18 Be Where the Investors Are Join and strengthen industry associations Participate in international alliances & networks Build a strong relationship with your bank Take the time to know what resources are available to you Have a professional investor presentation and be ready!!!