Global Economics

Bulgaria Lures Yankee Dollars


Even with the Cold War a receding memory, it was an incongruous sight: Russian MIG fighter planes flying wingtip to wingtip with U.S. F-15s from the Oregon National Guard in the skies above Bulgaria. "When I was a young diplomat working at our embassy in Sofia 20 years ago, this is something I would have never imagined," U.S. Ambassador John Beyrle told members of the American Chamber of Commerce in Bulgaria in June, as he recalled the U.S.-Bulgarian joint aerial exercise.

But the real U.S. firepower in Bulgaria may be economic. U.S. companies are pouring investment into this country of just 7.7 million people. In the capital, Sofia, Hewlett-Packard (HPQ) has opened a customer service center that will employ 1,000 locals by next year. And Arlington (Va.)-based energy supplier AES (AES) has begun work on a $1.4 billion coal-fired power plant in southeast Bulgaria that is the biggest foreign investment to date.

That project alone means the U.S. will probably end 2006 as Bulgaria's biggest foreign investor, according to InvestBulgaria, the government investment agency. "This year has seen something like the springtime of American investment in Bulgaria," Beyrle told the Chamber of Commerce. In 2005, by comparison, the U.S. ranked ninth among foreign investors in Bulgaria, far behind the $1.1 billion pumped in from top-ranked Austria.

CHEAP TECHIES. Why Bulgaria? For high-tech companies such as HP, Bulgaria provides a pool of well-trained workers at a great price. Bulgaria was one of the main suppliers of computer technology to the Soviet bloc and still has a good, if underfinanced, network of technical schools. In addition, wages for all workers average only $200 per month.

Bargain-basement techies already have lured companies such as software powerhouse SAP (SAP), specialized chip maker AMI Semiconductor (AMIS), and security software maker Tumbleweed Communications (TMWD), all of which have development centers in Sofia.

The combination of skilled and cheap labor also helped Bulgaria win the No. 15 spot on consultant A.T. Kearney's 2005 global services location index. Among Central and Eastern European countries, only the Czech Republic, at No. 7, scored higher. (India was No. 1, and the U.S. was No. 11.)

RECORD OF SUCCESS. "Bulgaria cannot be compared with India, but Bulgaria is very interesting because of being European and having multilingual support services and high quality specialists for a very interesting price," says Sasha Bezuhanova, HP's general manager for Bulgaria.

But Bulgaria's appeal is not just price. HP chose Bulgaria after a rigorous, nine-month selection process that included 14 countries, Bezuhanova says. One thing that tipped the decision: A smaller HP team in Sofia already had a record of successful projects, such as implementing a secure passport system.

The expanded HP presence in the city will concentrate on serving big corporate customers, for example maintaining computer servers for European banks. "It requires very deep technical knowledge," Bezuhanova says.

As in many developing countries, wages for skilled people are likely to rise quickly as a result of rising standards of living, partly canceling out the cost advantage. That has already happened in places such as Hungary and the Czech Republic. But for now, tech companies say there is still an ample supply of qualified workers—in contrast to some shortages now showing up in India (see BusinessWeek.com, 11/7/05, "India: Desperately Seeking Talent").

ENTRENCHED BUREAUCRACY. "I still don't face issues with finding new people," says Anelia Pergoot, design center manager for AMI in Sofia. HP is ensuring a future flow of qualified technicians by providing support to local technical universities, including training professors and equipping labs.

Bulgaria still has drawbacks as a business location. There is serious corruption and some government institutions are weak. Bureaucratic resistance has continued to prevent Los Angeles-based film producer Nu Image from taking possession of state-owned Boyana Film Studios, which the U.S. company agreed to buy last year (see BusinessWeek.com, 1/23/06, "Bulgarian Backlot, Hollywood Dreams").

Business people complain that lower-level officials don't seem to have taken into account that Bulgaria is trying to clean up its act in order to qualify for European Union membership next year.

Yet despite the hazards, U.S. companies have a record of success in Bulgaria. One of the first U.S. investors was American Standard (ASD), a Piscataway, N.J., maker of bathroom fittings and toilets, which bought a state-owned faucet maker in the central Bulgarian town of Sevlievo in 1992.

STABLE ENOUGH. Now American Standard employs 3,700 people in the Sevlievo area, which serves as the company's main manufacturing center for Europe and the former Soviet bloc states (see BusinessWeek.com, 12/12/05, "Based in New Jersey, Thriving in Bulgaria").

More recently, in 2004, Boston-based private equity firm Advent International bought 65% of state-owned Bulgarian Telecommunications for $350 million plus a promise to invest an additional $500 million.

Europeans have traditionally been the biggest investors in Bulgaria, led by adventurous Austrian companies such as energy producer OMV and financial institutions such as Raiffeisen Bank. Now, Bulgaria has reached a level of stability that U.S. companies can feel comfortable with, and the dollars are pouring in. Just ask the folks at HP.


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