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invest in Bulgaria?

Tuesday 14 June, 2011

The International Trade Association of Greater Chicago invited us to learn about Bulgaria-your strategic gateway to southeastern Europe which featured speakers from Johnson Controls. Kraft, & McDonald’s.   Ambassador of the US to Bulgaria James Warlick kicked off the road-show’s 1st stop in the city with the most Bulgarians in the US to introduce Bulgaria to investors & exporters.  The US was the biggest investor in Bulgaria in 2010 & forecasts 3 1/2 % growth for 2011.  The remaining issues are the legal system & infrastructure.

Elena Poptodorova, Ambassador of Bulgaria to the US, let us know Bulgaria joined NATO in 2004, the EU in 2007, & contributed to defense cooperative agreements in 2006 in Afghanistan & Iraq, which creates bonds stronger than politics.  Big investors like McDonald’s & Starbucks are now part of daily life in Bulgaria, but SME’s are a focus, such as special programs for rural areas.

James Kramer, VP-Intl Franchising for McDonald’s, expounded on Mickey D’s experience in Bulgaria.  They entered the market in the mid-1990’s as owners & built 19 restaurants then transitioned to a franchise structure in 2006.  Since then, they’ve added 15 new stores, + 2 this June, & 8 McCafes to employ 1300 people.  On the Corporate Social Responsibility side, they’ve opened a Ronald McDonald House in 2002 & raised $300K & also sponsor McHappy Days.  McDonald’s has won a best employer award in Bulgaria & internal awards for the highest quality & employee experience in Europe.

According to Sherrie Esposito, Assoc. Dir. of Global Issues Management, Kraft entered Bulgaria in 1993 with the acquisition of a chocolate plant that employed 500 people.  In 2001 they expanded to Nova Brasilia with 100 employees & made a $30M expansion in 2009.  Kraft is #2 to Coke in recognized brands in Bulgaria.  The reasons Kraft went to Bulgaria are:

  • member of EU, including Schengen agreement
  • low costs & skilled workforce
  • low taxes (10%)
  • location

In the future, the Bulgarian government needs to:

  • streamline government
  • establish the rule of law
  • build infrastructure

Johnson Controls Director of Sofia Development Center (SDC) Roman Vasilev told us about their batteries & power solutions for autos & building efficiency.  At their SDC they made a long term commitment to do R&D on hardware, software, & mechanical design for 5-10 years there.  They’ve actually invited R&D competition because that is better for everybody.

Q&A

  • it takes a few months to incorporate in Bulgaria
  • there are no restrictions on foreign ownership
  • Johnson Controls bought an instrument company in 2001 with 50 engineers which has now grown to 500 engineers.  The cultural fit & mobility of Sofia’s engineers keeps Johnson Controls there.  McDonald’s expanded into a number of other similar countries @ the same time.  The size of each market determined if they entered as owners or franchisees.
  • Bulgaria is ready for €RM2 & it’s banknotes are simply tied to the €.
  • Because of it’s educational system, Bulgaria is a technology-driven economy.  There are no issues with intellectual property.  The # of FTE’s (full-time engineers) is comparable to Egypt, a much larger country.  Unlike other emerging technology centers, Bulgarians ask more questions up front so that there are fewer problems later on.  McDonald’s focuses it’s technology on consumers & reporting.  Internet penetration in Bulgaria is 48%-broadband penetration is higher than in Western Europe.
  • McDonald’s uses a single franchise model in Bulgaria because it’s the best model for McDonald’s, which allows them to manage risk better by engaging local business people with high profiles & financial resources to build the business & brand.  They take no real estate interest to minimize their risk.
  • McDonald’s employs only 1 American in all of Europe, which has 6K restaurants, because there are talented people everywhere “with ketchup in their blood.”  Johnson Controls was skeptical of Bulgaria before it hit bottom, but entered @ the right time as the people & government matured.
  • Inflation is predictable @ 3-7%.
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