When British company William Hughes decided 14 years ago to build a plant in eastern Europe, the choice was between Romania and Bulgaria. A specialist producer of springs and wires, the company planned to follow its customers, as carmakers opened new factories in Poland, the Czech Republic and Slovakia.
“We were trying to get the jump on the next trend in eastern Europe, so Romania and Bulgaria were obvious places to look at,” says Ben Cox, general manager of William Hughes Bulgaria. “Coming to Bulgaria has been a huge success for us.”
Its factory, the first in a new industrial park in Plovdiv, Bulgaria’s second city, has grown from one machine and 10 workers to 65 machines and 180 people in six times the space. Annual sales to carmakers in 19 countries have climbed to €8m-€9m, Mr Cox says.
Wages have risen steadily as more foreign companies have moved to Plovdiv and the region now faces a shortage of workers, so William Hughes tackled the problem by hiring young people from the large Roma community, where unemployment is rampant, according to local authorities.
In 2005, Maria Luisa Meroni, a second-generation Italian entrepreneur, set up a subsidiary of her family’s metalworking business in Bulgaria. She saw potential in the country for MBM Metalwork — a specialist manufacturer of products including elevator parts and some automotive items — because of low wages and tax rates, as well as cheap prices for land and electricity.
But MBM Metalwork ran into cultural difficulties, Ms Meroni says. The biggest challenge, she found, was to build relationships with the workforce.
“At the beginning the workers thought we wanted to exploit them, and there were real problems with productivity,” she says.
When a joint venture with a local partner collapsed, she decided to go it alone in Ruse, a city on the river Danube, which forms most of Bulgaria’s northern border.
“We held on because I believed we could be successful in Bulgaria,” she says. “I would do it again. Even though costs are rising, it’s still really competitive to set up a business here compared with Italy. And now that Bulgaria is in the EU, it is obliged to comply with regulatory standards.”
Car parts manufacturing has grown into one of the economy’s standout sectors in less than 15 years. One hundred and thirty foreign companies employ more than 40,000 workers in a dozen locations around the country. The automotive industry had sales of €2bn in 2016, more than 4 per cent of national output, according to Lubomir Stanislavov, chief executive of trade body Automotive Cluster Bulgaria.
Growth has been “explosive” since 2012, Mr Stanislavov adds, when the industry numbered fewer than 40 companies with 9,000 workers.
The outsourcing sector, which includes both Bulgarian and foreign operators, is showing similar rates of expansion, with more than 47,000 full-time employees, expected by those in the industry to rise to 62,000 by 2020. The sector contributed €1.5bn to the economy last year, 3.6 per cent of national output.
“Companies doing outsourcing in Bulgaria are searching western Europe for workers with specific language skills,” says Jeroen Hop, the Dutch co-founder of rememberbulgaria.com, a website which provides services for expatriate workers.
While Bulgaria lags behind Romania as an investment destination, a sizeable number of established foreign companies have expanded their operations to serve growing demand in central and eastern European markets.
But figures from the Bulgarian central bank on foreign direct investment showed a marked decline from €1.2bn in 2015 to €682.8m last year. Inflows reached €516.4m in the first eight months of 2017.
One reason for the decline is persistent concern over legal uncertainty and corruption, according to foreign investors and diplomats. Bulgaria fell 11 places in 2017 to 50th in the World Bank’s Ease of Doing Business rankings.
It was ranked 75th in Transparency International’s latest corruption perceptions index, remaining the lowest-placed among the 28 EU member states.
Investors cite problems with contract enforcement and property rights as concerns in a country where court procedures are drawn out and judicial decision-making is open to influence.
“These issues are improving,” says Stamen Yanev, executive director of Invest Bulgaria Agency. “There are several cases where we’ve been able to provide support [to investors facing challenges in administrative courts] and speed up court procedures.”
Get alerts on Foreign direct investment when a new story is published