DOING BUSINESS IN ROMANIA – Franchising
Why franchising in Romania?
Romania offers significant opportunities to businesses investors with products, services, or technologies that either meet growing private demand or contribute to the country’s development priorities. A marketplace of 22 million, 37 million acres of arable land, a vibrant oil and gas industry, breathtaking landscapes, an expanding economy, a well-educated workforce with more than 50,000 specialists in information technology, access to the Black Sea and Asia. These features of Romania have attracted investors in banking, energy, biotechnology, manufacturing, electronic components, cable operation, consumer products, telecommunications and film production, among others. The country’s entry into the European Union in January 2007 was preceded by a series of government reforms in order to satisfy the conditions of EU membership. Now the requirements of membership – including EU directives – make up one of the driving forces in Romania’s program of reform, modernization and investment in infrastructure. More significantly, these directives are accompanied by funding from the EU in the form of Structural Adjustment Funds and other programs to enable the new members to align their economies with the rest of the EU. At the same time, Romania’s membership in NATO has supported demand for defense and security products, and American vendors are well-regarded and active in this market. Romania’s defense and security relationship with the United States is strong and productive; the two countries’ militaries serve alongside each other in Iraq and Afghanistan. The effects of the slowing world economy arrived late to Romania, but are now beginning to announce themselves in the form of rising unemployment, a drop in demand from Romania’s export markets, and a growing budget deficit. Romania has not yet entered the “Eurozone,” but has set 2014 as the target year to adopt the euro. In the meantime, many Romanian companies with debts denominated in Euros but income in the local currency, the leu, are exposed to exchange rates losses as the value of the leu has fallen against both the dollar and euro. As a result, both consumer and corporate purchasing power have fallen, and investment plans are being reconsidered.
FRANCHISING REGULATIONS IN ROMANIA
Franchising regulations in Romania
are much the same as in other countries, basically granting the franchisee the right to operate or develop a business, product, technology or service. The contract, generally called a Franchising Agreement, reflects the interests of the members of the franchise network, and protects the franchiser’s industrial or intellectual property rights by maintaining the common identity and reputation of the franchise network. The franchising agreement
must define, free of any ambiguity, the obligations and liabilities of all of the parties, and must contain the following elements: object of the contract, rights and obligations of the parties involved, financial clauses, contract duration, clauses related to modification, extension, and cancellation of the agreement. The dramatic growth of franchises between 2000 and 2007 reflected the pent-up consumer demand, while the severe retrenchment between 2009 and 2010 in the face of a recession shows the importance of choosing the right franchise partner. In 2010, real estate franchises in Romania reported the most severe drop (70%). Fashion retailers were also heavily impacted by the economic downturn declining by 50%. Financial services franchises were not in demand either. The rest of the franchises reported an average decline of 20%. If In 2007 and 2008 major international franchises
included Romania among the Emerging Markets
of Central and Eastern Europe, since 2009 and especially 2010, Romania has been referred to as one the “Balkan transition economies.”The countries in the Balkan area have been gravely affected by the financial and economic crisis and their transition economies are still struggling to overcome the effects of the crisis, such as growing unemployment rates. Faced with tough austerity measures, the Romanian franchise market had a contraction of 20% in 2010. In 2011, the Romanian franchise market remained at the level of 1 to 1.2 billion euros and in 2012 is expected to remain steady. The experts from Romanian Franchise Association believe that Romanian investors have become more cautious in deciding how to spend money, in the context of a generalized lack of liquidity. On the other hand, franchisors themselves have become more conciliatory and more willing to negotiate certain clauses in franchise
Romania’s rate of economic growth in 2008 stood at an impressive 7.1%, but has decelerated and is now expected to remain at or below 1% in the year ahead. Against this backdrop, CS Romania advises U.S. businesses
to investigate and pursue opportunities – both public and private sector – in which the funding sources and prospects for payment are reliable. The public sector plays a major role as purchaser and procurer of products and services, and projects in areas such as ICT, infrastructure, water and wastewater treatment, energy, and agriculture are supported by funds from external sources such as the EU or development banks such as the European Bank for Reconstruction and Development (EBRD) or World Bank.
DOING BUSINESS IN ROMANIA – FRANCHISING