Bulgarian investments abroad - early signals of emerging Bulgarian multinationals

Long time the public consciousness shared beliefs that investments abroad are actually "delivering national capital", "hide ownership" through offshore companies or work of "organized crime" and "red pharaohs."As a result, senior government even refused last year to assist the Bulgarian companies in their expansion in foreign markets, except it comes to the export of goods produced in Bulgaria.Borislav Stefanov, chairman of the Bulgarian investment agency, believes that "the state should support only those companies that want to invest in Bulgaria, not to take their cash out of the country."Unlike Bulgaria, most states both to the West (USA, Germany) and to the East (China) have special programs to support investment of their companies in foreign markets because they realize that these measures actually support their national economies.It is true that, especially in the United States investments abroad (mainly China) led to the closure of factories in the United States and the loss of jobs, but so far as if there is not one example of a Bulgarian company that has reduced national operations (employment and turnover) because of investment abroad.There is no indication that this situation can become reality soon.Perhaps only Sanya failed to start its plant in Burgas and outsource production of yarn in Vietnam. Bulgaria had foreign investments before 1990, but mostly in Africa, some joint ventures in the former USSR and the "hidden" investment in Western Europe and the Middle East, through which embargoed technology were traded.

For many years (at least 10-12) neither the economists nor the specialists in Bulgarian National Bank (BNB) and National Institute of Statistics (NSI) paid special attention to the Bulgarian investments abroad and only the accession processes to the European Union resulted in an obligation to adoption of a methodology for the calculation of outward Foreign Direct Investments (FDI) comparable to other EU Member States. BNB made estimates for some indicators (public data are from 1997, and for some indicators - only until 2001), but they should be viewed with a great deal of conditionality.

Investment data of Bulgarian enterprises are negative, but when there is a return on investment (for example, now making the investment, sell it and pay the money back in Bulgaria) – the picture is different and the with a plus sign.The tendency is to constantly improve the international investment position of Bulgaria for last 16 years.For this period in three years there is a net "return" on investment - 1997, 2004 and 2009. In 1997 only 1.5 million euros are "returned".In 2004 the case is of a big deal in the sector "Transport, storage and communications" in the Netherlands, while in 2009 the destination from which there was investment return is Italy, sector "Manufacturing".In both cases, transactions are about 200 million euros.

Probably one Bulgarian company that can be considered as multinational is Sopharma. Both because it has international ownership (although controlled by Bulgarian owner) and is listed on the Warsaw and Sofia Stock Exchange, the fact that there is an external production in Ukraine, Serbia, and recently in Russia, there are investments in Belarus, USA, UK, Poland and other countries, and the companies’ products are sold worldwide.Sopharma has significant in-house research and development activities, collaboration with the Bulgarian Academy of Science, publications, patents and a number of innovations.However, it has a long history and was privatized already established itself on the international markets and would hardly reassure new entrepreneurs or representatives of small and medium-sized businesses that may follow its success.

Another example of a multinational company, also privatized, shows how an academic entrepreneur (Miroslav Hinkov), which at the same time a serial entrepreneur (see 1) can significantly reorient production company from the molds, plastic molding and ultrasonic cleaning equipment aimed at the domestic market, to the production of machines for laminated tubes and packaging machines and automatic filling these tubes and packaging in the international market.This is a multinational company Mechatronics - Gabrovo (see 2).The company has established itself as a key supplier of complete production lines for Unilever and is a leader at the Indian market.Recently, as the company's strategy for growth were sold 49% of its shares to a key competitor in Switzerland, with whom the company Mechatronics will have access to new markets.Whether the transaction is part of a long process of a merger between two companies or not, it is still hard to say, but certainly the case is neither portfolio investment nor a first step towards the purchase of the entire enterprise but can be labeled as strategic partnership.Activity of Mechatronics is closely related to the STS Cosmetics (supplying it with an original equipment manufacturing), which is also controlled by Miroslav Hinkov and has the major market in Russia, including outsourced manufacturing.STS has its own brands in almost all segments of cosmetics and produces private labels on demand of renown manufacturers (again following the model of other Bulgarian multinational company such as Datex).

Besides privatization (of whole enterprises like the case of Sopharma, which were sufficiently internationalized before, and companies such as Mechatronics, subsequently restructured and actually become major international players) the main source of entrepreneurship are academic entrepreneurship and new entrepreneurship of young people who directly target the global market (mostly through software solutions, mobile applications and services).Among the new companies that have managed to impose relatively quickly on the world market (holding significant market share in the world or having investments abroad than sales) are: Chaos Group (see3), and Telerik (software), Walltopia and Ava sports (sports products), Datex (see 4) (Electronics); in the Southeast Europe - K & K Electronics with brand Technopolis (trade of household appliances) and Prista oil (batteries, motor and industrial oils, distribution).Many other companies from almost all sectors have a single successful overseas investments - from finance (EuroHold and FIB - the Balkans), Tourism (Albena - Switzerland), fast food (Happy - Spain) to software (TechnoLogica - the Balkans) and chemistry (Ficosota Synthesis - Romania and Ukraine).Part of the investment and market leadership are too unexpected - for example Software Group has an investment in Kenya and has been selling software for comprehensive financial services (mobile and online banking) in Africa and the Pacific. Wizkom (later renamed Sayant and bought by VMWare) was the first Bulgarian IT company as a result of a typical youth technology entrepreneurship that outsource production in Vietnam.

Smaller companies, usually owned by serial entrepreneurs are also trying to globalize not only in sales but also through their own investments, strategic partnerships (franchise) abroad or to attract venture capital.Such examples are The Cabin (see 5), MediaShare (see 6), Extreme Broadband Services (start-up in India's founded by the developers of Orbitel Victor Frances and Nicholas Gorchilov), and numerous companies of Bulgarian immigrant entrepreneurs like Imagine Computing in London who are in the business with structured cabling and are working all over Europe and Africa.

Turning a Bulgarian company into a global player is the result of many factors, the most important of which are:

  • selecting a niche that has potential for tremendous growth (e.g sport parachuting and sport climbing) and has anticipated structural changes for the business, including the imposition of new market demands;
  • developing a proprietary technology that provides a competitive advantage (the algorithms used for rendering).The low price of the resource is more important insofar for reducing the risk of project failure, rather than that it is a competitive advantage for a successful product;
  • linking with a partner who has a chance to be purchased from a leading technology company;entering the "successful" partner ecosystem that has the capacity to absorb excellent ideas;
  • There is a need for non- market motivation (hobbies, interests) and environment that lead to ambition exceeding the best currently on the market and a desire to move ahead even when difficulties arise.

It is natural that not every investment abroad recorded by the BNB should be seen as a signal for the emergence of a new multinational company.Some of the investments abroad actually are domestic investment because they are made only for tax reasons or some scheme to conceal ownership.About a quarter of Bulgarian investments are in typical offshore zones, and if you take into account investments in countries such as Switzerland, Luxembourg and the Netherlands and some states in the USA (Delaware, Vermont) with no real business at the respective territory but only investment and financial instruments or form to conceal property, about one third of all investments may be not quite "real". However, about 1 billion Euros would remain relatively real investments of Bulgarian business abroad.

In the regional distribution of investments naturally predominant because of geographical proximity is Southeast Europe (led by Serbia and Romania), 27% of all investments, with the first place to Italy with 12% of all investments.This is quite understandable since Bulgaria's exports to Italy for the period 1995 - 2012 was the highest and is 12% of the total exports for the period.Export to Southeast Europe is 34%. Relationship investments - trading is quite natural and is in support of the thesis that the Bulgarian investments abroad contribute to the growth of GDP and the country's overall development, not just raise of income from export.Of course, still the size of these investments and their contribution to the gross domestic product are modest compared with countries such as Hungary and the Czech Republic, but there is positive trend that should be supported by the state through comprehensive measures.

Most often the investment is for companies that are engaged in trading exported goods from Bulgaria on a certain territory.As a rule, even larger Bulgarian investors have a partner, a local resident (which could be a Bulgarian who permanently live in the country) or legal entity when it comes as well for affiliated production or service activities.The sector that has attracted most Bulgarian direct investment for the period 2001 - 2012, is "Real estate, renting and business activities" (385 million. Euros, then is "Manufacturing" (292 million Euros) followed by the "Transport, storage and communication" sector (175 million Euros), "Trade, repair of motor vehicles, motorcycles and personal and household goods" (157 million Euros) and "Financial intermediation" (133 million Euros).

Unfortunately BNB statistics have relatively high percentage unclassified investments - 16% of all (for the period 2001 - 2012), which seriously hampers the analysis.There has been a disturbing trend of increasing that percentage annually.For 2010 it was 26%, in 2011 climbs to 31%, while in 2012 more than half of all investments (56%) are not classified (see.7).

(1) There is investment in agriculture - crops and livestock (export snails), cosmetics (including a factory in Russia), aviation (airport, sports club), electronics, tourism and others.Investments in most cases with two joint academic entrepreneurs (they were part of the Technical University until 1989) within the STS Holding, in combination with them as individuals, separately or family.Innovation within the group are protected by patents including (two received in 2010).


(3) The winner of the Innovative Enterprise of the "ARC" for 2012

(4) The winner of the Innovative Enterprise of the "ARC" for 2011

(5) The cabin is positioned in the top 20 technology start-up companies from emerging markets in 2011, down from the "Information for Development" World Bank, and received funding for internationalization in Turkey with ambition for the entire post-Soviet market.

(6) spin-off company Bianor focused on their eponymous product, released in 2009 in the Apple App Store and received a prize in the Innovative Enterprise of the "ARC" in 2010 The new company was among the first recipients of venture funding from LAUNCHub at the end of 2012

(7) The methodology for reporting exists a long period for reporting and correcting the data, so probably by the end of 2012 will be classified at least some of the investments in 2012 and 2011, but in all cases, data 2010, which have passed all of the terms for revision, are fairly high unclassified investments.