Multinationals have struggled to adapt their Romanian strategies, but the local production sector appears to be flourishing. Much of this impetus relates directly to EU accession and the harmonization of manufacturing standards.
“Initially, it was difficult to enact the transition, because the authorities handed us strict deadlines to make ourselves compliant with EU legislation. You can describe it as a short, sharp shock, but once we found ourselves aligned with international norms, the business opportunities were phenomenal. Having GMP certification opened the door to a whole world of new possibilities hitherto unknown ,” recalls Radu Cazacincu, from the management board of the family-owned, Constanta-based local producer Magistra C&C.
“The switchover inevitably produced a certain shakeout across the industry with a number of the smaller and less secure players disappearing entirely from the scene. Those that managed to adapt to the new rules of the game, however, were soon rewarded with a whole new host of foreign partnerships and international contracts,” concurs Attila Santa, founder of the Brasov-based local manufacturer Sanosan.
“[Romania’s] local producers offer competitive and more affordable prices compared to the rest of the EU and yet our quality standards are equivalent to and, in some cases, even superior due to the modernity of our factories.”
Radu Cazacincu, Magistra C&C
Future trends would seem to favor Romania’s rise as a manufacturing outsourcing leader. Santa continues, “If ten years ago contract manufacturing agreements were finding their way over to India and China, these days, as EU regulations tighten, the logistical limitations of these arrangements have become increasingly apparent and the entire business model requires a rethink.”
“Countries like Romania are actually the primary beneficiaries,” agrees Cazacincu. “The nation’s local producers offer competitive and more affordable prices compared to the rest of the EU and yet our quality standards are equivalent to and, in some cases, even superior due to the modernity of our factories. This ties in very well with a willingness to withdraw contract manufacturing networks from Asia and re-situate them within Europe,” he adds.
“From an economic perspective there is also a strong case for leveraging countries located on the fringes of the EU like Romania for product conditioning and customization because of the attractive cost differentials. The EU comprises 27 states of very different sizes, each with their own market specificities and these needs require segmenting. Romania in many respects offers a platform for last-minute customization of the batches. The smaller the batches being prepared, the more the overheads become pronounced and it’s in instances like this when the cheaper, more flexible, but highly skilled Romanian labor pool really comes to the fore,” explains Santa.
“We certainly see a niche emerging for small and medium size local producers such as Magistra C&C,” admits Cazacincu. “Our size and geographical proximity means that we are flexible enough to respond to the evolving demands of our clients at pretty short notice. If, for example, a Western European client operational across 20 countries in the region wants to suddenly respond to sales fluctuations by redistributing batches from one EU market to another, then we have the capabilities to facilitate this without delay.”
Some multinationals are already starting to arrive at the same conclusions. “We realized that the educational profile of the workforce, low labor costs and flexible labor code all combine to make a compelling case for ramping up investment in local manufacturing and service support centers,” admits Pfizer Romania’s Nolan Townsend. “We are actually diverting product lines from elsewhere and placing them in Romania to make full use of what we see as a real competitive advantage not just vis-à-vis Western Europe, but Central Europe as well,” he reveals.
“Conceptually, Romania should definitely become a manufacturing hub for the EU and epicenter of European export-oriented production,” suggests Dr. Reddy Romania’s Vijay Palamadai. “I’m frankly surprised more players aren’t yet engaging in it…I suspect too many minds are still stuck in a narrow Romania-centric perspective where they’re fixated on the potential of the domestic market at the expense of the much larger potential the country possesses as a member state networked into European pharmaceutical supply, production and distribution flows,” he ventures.