“Entrepreneurs” in Romania after 1989

1990- Romania.

Ceausescu is no longer in charge. There is a general state of happiness among the optimistic Romanian population. They are so distracted by the Kinder chocolate eggs and cable TV that they “accidentally” put someone from the same communist network to rule right after. Putting a ruler from the same branch in charge didn’t kill the communist “mafia” network, but on the contrary – it still allowed its adepts to have many open doors wherever they went, doors that proved to be vital in doing businesses, as you will later see.
This network collapsed eventually, but only after a decade from the revolution, thus allowing plenty of time for some to gather huge fortunes. Nowadays, some of these people are judged and questioned in court about their unjustified wealth, but a lot were smart enough to erase their tracks.
Small businesses boomed during those times. Remember that the market barely covered the basic needs, so there were plenty of opportunities for everybody. During communist times factories were classified by the amount of products they manufactured, quality being a lot of the times disregarded. We did not invest in any R&D in order to increase efficiency, since that would lead to reduction in the labor hours or even worse: downsizing. If you tried to do such a silly thing, it would mean that you have no respect for the communist leader and its visions! Ceausescu’s (unrealistic) goal was clear for everybody: full employment! So it would be plain stupid of you to announce that your factory could work with only 75% of its personnel, because that would mean that you could produce more, but don’t want to! We take as a status quo the idea that nobody heard about marginal returns to scale...
The result was that most factories were inefficient. The segment that did not suffer from this was the heavy industry of course, since excess capital labor in that specific domain was really a plus.

But after 1990, reasons like:
-the need to invest the country’s resources in other segments that were on a higher priority list
-replacements of good leaders with incompetent, inexperienced, but democratic ones
-the chaos that spurred due to the changes in the government and factory leaders
-boom of imports

All of these plus many others led towards a general disregard for the Romanian industry. Plus the market of domestic products collapsed rapidly since people were sick of autochthonous products that they were obliged to purchase during the regime and wanted to try the exotic, imported goods.
Many inefficient factories that in the past had to function in order to keep unemployment down were now closed and abandoned.

The group of people that I am going to exemplify in the following paragraphs are not all "entrepreneurs" in the true sense of the word, but more like the first "business men" of the new word, opportunists if you might say. Few are those that first came with the right vision that also worked in practice. Unfortunately most of these people just copied the leaders or acted as scavengers (as you will see later on).
But nevertheless, they are the pioneers that showed the rest of the country that private businesses are possible and that we are capable of making changes without state intervention. Most of these people also turned out to be extremely rich.

1. People who thought of opening small stores that imported cheap toys, clothing (like jeans for example), food products and so on. They searched for all the products that were never seen before on the domestic market. They made huge profits just by filling the collapsed and empty market with diversity. Customers were already used to low quality products, so they did not disliked the new merchandise at all. Some of these people expanded and started to have their own chains. Later on they started to focus on quality, putting a lot of brand name products onto their shelves. These people were the veterans of the liberal trade market.

2. People who looked at what was left behind this change. These people purchased old, abandoned factories from the state (which needed the money in order to build its infrastructure) almost for free (and if not, the rising inflation took care of that aspect) and made a profit just by selling the rusted steel. They stripped the factories, taking everything that was of value, after which they conveniently abandoned the sites. Some smart ones expanded the idea and decided to open a metal collection plant which picked up all the metal that was either brought by the new owners of the surrounding closed factories or just by ordinary people who stole the metal overnight in order to make a quick buck.

3. People who bought huge land portions around cities. They realized that towns will expand much faster in the near future, raising the price of land to a new level. They bought many hectares surrounding the cities, which later on were divided into smaller areas, big enough to build a house or an industrial hall. They invested in basic utilities like water, electricity and even gas in some cases in order to further raise the price of land. A big portion of them opened their own real estate agencies later on.

4. People who invested in urban real estate or started construction companies, following the same "development of the cities" idea as pointed above.

Most of these investments were extremely profitable until the market became saturated. These are just some of the well known examples that made many Romanians rich. But the criteria for playing this “Become rich game” was to bribe or have connections with the people working at the Town Halls or State Institutions, otherwise nobody will allow you to make not even the slightest movement or change, either if it is opening a business or buying some land.

JIB101 Intro to being a good entrepreneur

I thought today what would a good entrepreneur act like? What would be some of the golden rules that he/she would abide by? What am I telling you here is no Rocket Science, but it may be the foundations from which I build further on. I faced most of these obstacles while creating my own business. I wish that somebody would have told them to me earlier, so that I could avoid doing some of these mistakes on my own skin…

I wrote with these advices from the top of my head, suggestions that I believe constitute good tips for any new entrepreneur. I hope that when I finish my Master’s Degree, the list would be a lot bigger.

1. If you want to start your business from ground 0, it is ideal to have an idea that was never done before and it is hard to imitate. Also some experience in that field/industry would be a plus. Of course, in many cases this utopia will never happen.

2. Don’t imitate, unless you can do it better. Best to find a niche on which to expand. Take the more develop countries as a hallmark. See what they have and your region doesn’t. Then see if that idea could be feasible in your country.

3. I do not advise you to start copying, unless you have an Ace card up your sleeve. I advise you this because the players that are on the local market already have their know-how, their clientele and their market share. If you want to enter the existing market, bring something new. If you think that money will solve absolutely everything, you are wrong. In many industries huge investments in technology or capital won’t return the desired market share.

4. If you cannot come with anything new, spy on the competition. This is not the most Christian thing to do, but imitating the winners sure is less expensive than investing in your own R&D. Have your loyal friends pose as “customers” and make them pay some visits to the neighbors across the road. Try to observe as much as possible how does the competitors cut losses, attract customers and what marketing strategies do they apply. It will cost you less and the results are pretty fast. But considering the most optimistic scenario, this strategy will only bring you up to the same level as the competitors and not more. In order to be No.1, you need something extra. Remember that the competition can and will do the same to you.

5. If the market is saturated by same type businesses, it is vital to differentiate yourself. Have a core competence that makes you different from the rest. Low price is not always the sure thing. Some customers look not only for the cheapest price! Plus, this strategy will surely not make you rich, unless you manage to attract a huge market share, big enough to counterbalance the losses in profit. But if customers do not look explicitly for low prices, you just lost a bit of consumer surplus with every customer - extra money that could have easily been yours.

6. Treat your employees fair. Reward hard work but also punish absenteeism or low productivity. I can give an example from my Work and Travel experience in the States: one of my employers offered bonuses consisting of one additional dollar above regular wage for every hour worked in a week IF the person was punctual during those 7 days. As a result, from the 14 weeks which I worked at that establishment, the bonus was lost only twice, for being late 3 days during two weeks. On the other jobs, where this rule was not properly enforced, I used to be late al least once per week

7. Motivate your staff. Offer them contests like “Best worker award”, organize collective meetings (collective dinners, picnics, make reservations for a big table in a fancy disco for your young employees). Part of these costs can be put under business protocols and deducted from gross profits, so bare that in mind also. Ease the atmosphere at your workplace. Put a quiet background music that will make time pass faster, and decrease the level of employee tension. People are not productive under stress and will dislike the work they are doing short time after. Take care of your team! Remember that an old employee is more valuable than a new one due to all the money and time you have invested in him/her (e.g. know-how of the business’ secrets, agenda, plans, training expenses, etc)

8. Look a good accountant and a good manager. They can save your skin in many unpredicted events. Reward them accordingly

9. Leave an open door everywhere you go, even if this will take part of your time and money. You never know who you will bump into in your future plans.

10. Treat every customer with respect, even those who will not bring you any income. Many of the businesses in Romania classify customers by the size of their wallets. Do not make that mistake! All are equal and all should deserve the same amount of time and attention from you. A huge, short run, boost in sales made by a rich customer is not as valuable for you as a loyal, long run, regular client that returns for new purchases because he/she knows he/she is be treated fair and amiable.

11. Always try to improve your business. Work with the manager, accountant and employees in order to increase efficiency. Encourage feedback. Don’t ever have the impression that you are the smartest person in that firm and that you know it all. Be open to change, but think twice about every new transformation you make. Even if some might appear good in the short run, they might harm the company in the long run.

12. Find as many suppliers and customers as possible. Expand in these two segments as much as possible in order to reduce the bargaining power of these two parties. Find new market segments, develop your product or service to cover as many segments as possible, but continue this as long as you can control these tasks. Allocate sufficient time to every activity. Don’t haste. Bare with what you started at least till the project becomes stable. Then leave it to other people, like your manager for example.




…To be continued

Coase's article about the role of the entrepreneur

A couple of months ago I had the chance to read a short fragment from “The nature of the firm” (R. H. Coase, Economica, New Series, Vol. 4, No. 16. (Nov., 1937), pp. 386-405.), which I found on JStor. He talks more about the interactions between firms within the market mechanism, but overall, I believe that his article justifies the need for an entrepreneur in every firm. In my opinion, the article uses the words entrepreneur and manager with the same connotation, which might not be true in some cases.

The reading linked the entrepreneur with the firm and then focused on a firm’s boundaries. Coase sees the entrepreneur as a coordinator who directs production and who manages to reduce certain costs that would have been encountered otherwise, and namely if using the market’s price mechanism (like for example the cost of information that adds up for every new good procured, or the bargaining cost that might arise whenever an exchange is likely to happen).

I also believe that the entrepreneur’s role is to reduce transaction costs within the company (an example that Coase gives is the reduction in the number of short time contracts that otherwise would need to be taken care of under the market system; e.g. a one time contract for somebody to prepare a presentation) and increase the firm’s efficiency by reducing losses, bottlenecks and idle or useless waste of time. Thus, by reducing the transaction costs that otherwise would have been encountered and efficiently directing and coordinating the resources within a firm, the role of an entrepreneur is vital in the creation and function of a business.

My first impression

What do I think an entrepreneur is??

In my opinion an entrepreneur is the person behind starting, organizing and maintaining some sort of stable, long run exchanges (either services, goods or both) in order to obtain some future reward (doesn’t need to be strictly financial). A good entrepreneur is that person who manages to reduce the risk and increase the rewards when attempting this exchange.