1. Avoid spending time with politicians
This is one of the best tips I received ahead of my first visit to Romania 20 years ago, looking to establish the Pepsi business there. It was less than a year after the revolution that ended over 45 years of communism in Romania. Along with its neighboring countries, it was the emerging market in vogue at the time. I got this tip from the commercial attaché of the Romanian consulate in New York. He advised me to seek potential industry partners and put emphasis on building relationships bottom-up, not top-down. It proved to be most useful advice that allowed our team to make progress on setting up the business without wasting valuable time on gaining influence with the political ranks.
2. Be skeptical when receiving input on the market being explored
Before going on the first exploratory trip, we also spoke with an aide to a U.S. congressman to gain some insight on Romania. His most important comment was that Romania was a mostly illiterate country. This proved to be utter nonsense, as even under the communist regime education was held to a high standard. It showed us, though, the general perception of that market, especially in the U.S.: that of an undeveloped, backward society. If we listened to the general sentiment, we would have never pursued the Pepsi venture in Romania.
3. Take with you a team of relevant people on your exploratory trips
My first trip was scheduled for the end of January, 1991. As it turned out, it was the middle of the first Gulf war. Nobody in the U.S. wanted to travel anywhere, the least of places to Romania. I had a hard time convincing anyone to join me. I finally managed to persuade a young attorney with our affiliated law firm, Jeff Fromm, to come with me. Having a colleague, especially someone with legal expertise, was essential, and not only on this first trip. Jeff ended up accompanying me on every subsequent trip and was a key factor in our ability to execute the plan to establish a business there. Over time we added additional people to the team, both from within and outside the country, each making a valuable contribution to the process.
4. Find a reliable local person to represent your interests in between visits
We were lucky – we had such a person ready before ever setting foot in Romania. PepsiCo had employed Ioan Bucurescu, who had worked with the government office overseeing PepsiCo’s business under the old regime, and following the revolution he became a “free agent.” Ioan met us at the airport as we entered the country on the first visit, in the midst of a snow blizzard and temperatures of -21 C (-8 F). He accompanied our every step and guided us through the maze of setting up a foreign-owned business in that market. He did the same on every trip that followed, but more importantly, he was there continuously in-between visits, to make sure the process was moving forward and issues were being addressed even while we were away. 20 years later Ioan is not only a dear friend, but he is part of our management team handling the Bulgarian Pepsi venture, which we have taken on following the sale of the Romanian venture a few years ago.
5. Engage top-quality service providers in the market
After the first couple of visits, upon deciding to pursue the business proposition further, it was clear that we needed various service providers: a local attorney, an accounting firm, etc. Finding an accounting firm was easy – we only had to climb to the second floor of the hotel where we were staying to find the office of the only international firm that had local presence, Coopers & Lybrand. We quickly agreed to hire them to help us analyze the assets of some of the companies we were considering as joint venture partners. Finding a local, experienced attorney was a larger challenge. Until the revolution there were no private law firms, and therefore any lawyer we would be considering would have had business experience only through working for some government agency. We were given a few names by the commercial director of the U.S. embassy in Bucharest and started a selection process. Most people we met had very little relevant experience. The worst was one attorney who was first and foremost a professor at the local law school. In response to a question we asked him, he wanted to know whether we were interested in the “practical view or the theoretical view”…. Luckily we met one candidate that stood out: Ion Nestor had just opened his law firm, together with his wife, Manuela. We immediately knew we found the right person to be our local lawyer, and we became his first international client.
6. Select your joint-venture partner based on the commitment of its management
As we were making progress in our efforts to establish a business, it was clear we needed to find a local company to be a joint venture partner. This was a way to get started quickly, rather than to start from “green field,” and was also important as means to reduce the required investment, given our limited financial resources. There were three factories that had been producing Pepsi under the old regime based on a barter deal between PepsiCo and the government of Romania, where concentrate was supplied in exchange for… wine. These factories were naturally all candidates to be our partners, and we were pointed to the largest of the three. This huge conglomerate was a showcase for the old regime and was producing everything from agricultural products to textiles. The problem was that it made the deal very complex and, among other constraints, under close supervision of the Romanian Agency for Development, who had to approve every deal between a foreign investor and a local company. After spending a few months trying to strike an agreement with that company, we started to look at the smallest of the three candidates – a factory that was producing beverages and some canned vegetables. The most important asset we found there, in addition to real estate right in the middle of Bucharest, was its general manager, Costica Gracianu. This middle-aged man quickly understood that we represented a rare opportunity for him and his company to hook up with an international entity coming to establish a well-known brand in their market. His personal commitment was key to sealing a joint venture agreement quickly and efficiently, and getting ourselves ready to start our operation.
7. Search for an expert expatriate team to head the business once formed
Following the creation of the partnership we needed a management team to lead our business in formation. It was clear that local talent was not sufficient at that point to take on the top position and a few other key management roles. I had engaged two search firms over a number of months to look for managers. It was not easy to find people with relevant expertise who were willing to go to Romania to head a start-up business. We finally found a few candidates in Israel, where there are many people who trace their roots to Romania. After interviewing them we decided to bring two to visit the Romanian market and also our headquarters in New York. At the end of the visits I had to make a choice and went with Eli Davidai, an up-and-coming manager who had never been in the top position before but was eager to take on this challenge. It was probably the best business decision I ever made. Eli brought with him a few expatriate managers and we were ready to start. Our close affiliation continues to-date, where he and I oversee our Pepsi operation in Bulgaria.
8. Evaluate your business functions and capabilities
Since we took over an existing business (the joint venture partner), we needed to understand the starting point in the various business functions of our value chain: production, sales and distribution, accounting, etc. Most local businesses at the time were heavily production focused, and ours was no exception. Certain business functions, such as sales and distribution, hardly existed. Others, such as marketing, had not even been considered. This meant that we had to start some aspects of the business from scratch. In sales, for instance, we had to establish the basic processes and activities, and educate people on what the job of a salesperson was about. In distribution we had to source trucks outside the country and develop a routing plan. In marketing, most everything we engaged in was new, and we really revolutionized this field in our market – for example, with advertising on buses and in movie theatres, and the sponsorship of the first-ever soccer match between the U.S. and Romanian national teams. Another critical activity was starting to computerize our information system, which allowed us to begin to produce various reports. That way we could actually analyze the results of our efforts.
9. Respect the local business culture while looking for ways to weave in elements of international business practices
Many companies attempting to establish themselves in a new market try to impose the practices of the market they represent. This is especially true with American businesses. It can easily generate resentment from the local managers and employees who rightfully feel that they are being patronized. Our approach was different. While we did have a number of expatriate people, we tried to develop local talent as quickly as we could to take on mid-level and ultimately top-level positions. We also attempted to educate our workforce in a way that allowed them to “stand tall” and feel respected. One key example was that we insisted that our top managers learn Romanian, so that business discussions would be held in the local language. This allowed all employees to feel comfortable and to actively participate in the decision-making process. Our ultimate prize was that over time we developed a most loyal group of employees, proud to be part of our venture and willing to go the extra mile to ensure its success.
10. View and manage your business as a long-term participant in the local market
When we got started in Romania we had no idea how long we would be involved in that market. One thing was clear – we took the view that it was going to be for the long term. We conducted ourselves as if this was the case in every respect, from making day-to-day decisions to annual plans to long-term capital investments. As a financial investor we knew that one day we would seek to exit the market, but we did not define the period and did not attempt to put a limit on that. As it turned out, we were involved with the Pepsi Romanian venture for over 15 years. It was a remarkable journey, filled with many exciting moments. It ended on the happy occasion of handing over the business to PepsiCo’s second largest bottler worldwide, PepsiAmericas. For our last year of ownership we also received the top honor from PepsiCo, winning the Worldwide Bottler of the Year award.
To find out more about this venture read my book: “An Unimaginable Journey”
For more tips and insights on entrepreneurship and business management, or to share your journey, visit me at www.AviadMeitar.com
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