March 20, 2014
First of all, for talking about the internationalization of domestic capital we should speak about it, about its existence and its degree of development. Even more, about the culture of domestic capital. We must speak about all these in order to have something to internationalize.
The weak capitalization, the acute lack of funding and the atomization of Romanian business is already an axiom and all these generates poor management, outdated technology, lack of money needed for innovation process, rudimentary distribution and supply channels, nonexistent or inefficient promoting, high flow of personnel etc. The Romanian business environment doesn’t have a coherent and vigorous voice to represent its interests in relation to official institutions and large corporations.
Each of these vulnerabilities deserves and requires an analysis for itself, but their existence is a reality and together they characterize the domestic capital at this moment.
Further, as an exponent of domestic capital, we will refer to SMEs because the large enterprises are in almost all cases a) branches or subsidiaries of multinational companies, they pursue their own development policies imposed by the mother-company, or b) companies owned by the Romanian State where the discussion about internationalization becomes superfluous.
So, we will stick to the much-discussed, both blamed and praised SMEs. I wanted to write eternal, but thinking how quickly they disappear, I changed my mind.
What SMEs are those who actually generate value? According to indicators, the SMEs that generate the greatest added value are the medium-sized enterprises. This easily reveals a future strategy dedicated to increasing the SMEs segment as a whole: supporting the medium-sized enterprises in order to help them enter into the large segment, meanwhile the smaller ones will be helped to enter into the middle segment. Thus we’ll grow the entire segment.
Obviously, we have not brought into discussion the big ones, but the reason is quite simple. They do not exist.
Thus, if we want to internationalize the domestic capital, which one do we mean? The only option remains the medium-sized enterprises.
What does the “internationalization of capital” really mean?
The internationalization of a company capital represents its will to engage in foreign market battles, assuming both the major benefits and risks resulting from this decision.
True, if this trend becomes present in the broader framework of the economy, the “act of courage” won’t be only theirs. It becomes the one of the overall economy. Then we could talk about the internationalization of domestic capital or of the Romanian economy – a holistic approach.
Of all six forms of internationalization presented in theory and practice (export, turnkey projects, licensing, franchising, joint ventures and wholly owned subsidiaries) the export is the favourite one, especially at this stage of development of the Romanian economy.
A second candidate, with a good chance of success especially on the East and the former Soviet republics market, is the joint ventures. The capital structure of the host countries, the legal and political constraints and the economic culture of the respective countries enhance this solution as one with great chances of success.
Turning to exports, it’s important to note that most companies have started or are beginning their global expansion through exports. Subsequently, if they find that the customer market is sufficiently promising, they develop wholly owned subsidiaries, thus making direct investment (Greenfield or Brownfield investment) or portfolio investment. Obviously, with the profit obtained through export.
What is the framework that should gain the interest of Romanian midsized companies to internationalize, even starting from exports?
There are several major coordinates: the development level, the stability or risk exposure, the capitalization through financing, information and the institutional support.
The internationalization of capital or the company is a development stage in its existence. It represents the moment when the company had a fruitful domestic experience and feels it has to stretch its wings, feels a need for oxygen. Its domestic market segment is no longer enough. It sees, understands and pursues the benefits of internationalization. It’s thriving.
Clearly this is not the state of various Romanian companies that these years are struggling to survive, not to thrive.
Therefore it is necessary to bring them in the state they wish this internationalization.
When a company decides to start the battle on other markets, it assumes a variety of risks: commercial, industrial, political ones etc. All these risks will be hovering over the company like an uncertainty cloud. This is actually one of this process’ major challenges.
In order to be able to take them, it is necessary that the company’s national economic environment (in this case the Romanian one) should not to be marked by major risks and uncertainties.
It is almost impossible for a company to accept simultaneously a risky investment environment both internally and externally.
Any internationalization process involves significant costs: for additional qualified personnel, market research, analyzing, making contacts, stocks additional purchases, distribution, storage, communications, and the cost of commercial loans.
All these costs have to be financed in decent conditions for companies; otherwise they become an insurmountable barrier and the internationalization remains just intent.
A domestic capital, like the frail Romanian one, has no chance to reach the international stage if it doesn’t receive relevant and timely institutional support and quality information.
This is one of the reasons I plead for the establishment of a Ministry of Foreign Trade, which includes within it a Research Institute for foreign trade, a strong and well financed one.
A fan-type system of Romanian Bilateral Chambers closely connected with the Ministry of Foreign Trade and the Romanian embassies, which will provide flexibility and better penetration of the external economic environment.
The Ministry should have operational structures in every Romanian embassy in the world, with extremely well defined, tracked, measured and monitored objectives and tasks.
Clearly this external system must be perfectly synchronized with internal systems: producers, importers or exporters associations, SME associations, other bilateral chambers of commerce, business organizations, Romanian business forums, regional chambers of commerce, etc.
This plan may seem very broad and too ambitious, but is the only who will ever work.
The system that will help the Romanian capital to get out , at open stage will be one with a holistic and integrative approach, but with customized solutions for each company. It will also be the most efficient in terms of costs and results optimization.
There are no miracles in economics. There is only vision and continuous action. An action that relates to the infinity of little things to be made and continuously improved, things that will change the life of the economic and social body and the entire vision.
In conclusion, in order to talk about the internationalization of Romanian capital we first must create a culture of this capital, of entrepreneurship. Then we must support the SMEs to become prosperous and “thirsty” for large horizons. We must provide them a stable environment, to create the conditions to be funded and to offer them an integrated system for support.
A system that will help them to get out in the world, to become prosperous, to repatriate their profits, to have access to modern management, to invest in innovation and to be able to pay the salaries of highly skilled employees, to increase the number of jobs, to buy technology to create Romanian brands etc.
The internationalization of domestic capital becomes a way of getting out of underdevelopment and poverty.
Author : Adrian Marius Dobre