Central European entrepreneurs reap the benefits of new markets

In the 1990S, when western investors were rushing to gain a foothold in the newly open markets of central and eastern Europe, it may have seemed that the troubled Balkan pair of Romania and Bulgaria were missing out on much of the action.

Retailers, manufacturers and property developers were pouring money into the Czech Republic and Hungary, bringing with it the promise of a swift catch-up to western standards of living. In the automotive sector alone, investors have included Daimler and Volkswagen from Germany, as well as South Korea’s Hankook, which opened a tyre factory in Hungary in 2007.

Countries further east, with their weaker infrastructure, reputation for corruption and poor public finances, attracted far less attention. Only those with a strong appetite for risk set up shop in Romania in the 1990s.

But what might have seemed a curse has proved to be a blessing. While west European and US multinationals swiftly moved to colonise markets in Hungary, entrepreneurs in neighbouring Romania were free to create new markets and make them their own.

“In Hungary or the Czech Republic there wouldn’t have been time to do what we did,” says Dan Sucu, founder and chief executive of MobExpert, a furniture retailing chain that has 1,800 employees and stores in three countries across the region. “Ikea gave us 12-15 years before opening up here.”

Mr Sucu set up MobExpert in 1993 after realising nobody was satisfying Romanian businesses’ hunger for stylish, modern office furniture. At the age of 38, he sold the family house for $50,000 (£34,500, €41,800) and spent the proceeds at a furniture fair in Paris.

“I worked out I needed to sell $20,000-worth of furniture a month to support my family. I never had anything pompous like a vision,” he says.

But Mr Sucu had the market for out-of-town furniture superstores to himself, and growth

came rapidly. The company now has revenues of €170m (£140m, $203m) and superstores in Romania and Bulgaria, with a nascent operation in Serbia. It sells furniture imported from all over the world as well as pieces produced by Mr Sucu’s four factories in Romania.

His market position is secure: when Ikea finally arrived, his nearest store experienced a 40 per cent increase in volumes.

“We chose Bulgaria simply because you need a certain minimum population for a superstore, and Sofia is the nearest 1m-strong city to Bucharest,” he says, although a “fairly similar” business climate was also an attraction.

Foreign investment, which boomed from 2000 onwards, has tailed off. The country experienced a 72 per cent decline in jobs resulting from foreign investment last year, according to fDi Markets, a foreign investment data service. Might the fall in interest once again create opportunities for domestic entrepreneurs?

Mr Sucu is sceptical: “I don’t see anybody having an easy time. It’s not about profits at the moment; it’s about survival.”

But one company in neighbouring Hungary has a model that thrives on economic headwinds. Fornetti, a manufacturer of frozen pastries sold to hungry commuters at metro stations across eastern Europe and Kuwait, got its start during a sharp economic contraction in 1996.

“With so many people out of work, it was easy to find franchisees,” says Jozsef Szabo, its managing director.

Today, the company’s pastries ride endless conveyor belts through three-storey-high industrial ovens in factories in Hungary, Romania, Slovakia and Ukraine, and are sold in 19 countries, primarily in the region, pulling in €86m in 2008. Jozsef Palasti, its owner, explains that knowledge of local tastes is crucial. “International businessmen might want a croissant, but our customers want local food,” he says.