Ideal Standard VP East Region Vassil Kanev: Bulgaria Under-Appreciated as Investment, Business Location
Exclusive interview with Vassil Kanev, Commercial Vice President - East Europe Region at Ideal Standard International; Executive Director and Chairman of Board of Directors of Ideal Standard-Vidima AD for the "Investors of the Decade" Business Survey of Novinite.com (Sofia News Agency) and Novinite.bg.
At the end of last year Ideal Standard-Vidima became one of the export companies that increased their production. Can we take this as a sign of recovery?
We are in the business of (super) durable goods. When people are operating under the pressures of a crisis, the last products they think about are construction materials, bath & kitchen products. People just have other concerns. To dub the moderate increase in sales volume a recovery would be rather premature.
However, I would like to point out that the biggest slump for the sanitary business swept with a malicious force over Western Europe in 2008 and resulted in disastrously low sales levels in Eastern Europe by 2009. Ever since, we have put in tremendous efforts to counteract contraction with all managerial tools at our disposal: increasing the overall efficiency of our business, retaining the existing customer base, conquering additional market shares, etc.
Bottom line is, we are on the way to recovery but it will take a yet unidentifiable number of years to reach the sales volumes of 2007.
The realization that the recovery from the Great Recession 2008 will take many years ahead to materialize was voiced unequivocally by the Chairman of the US Federal Reserve Ben Bernanke last week.
In the sanitary business we hope for a strong year 2012 in the residential housing market and in the project business (non-residential): hotels, social institutions...
Slower economic growth in the construction sector has affected the production of bathroom equipment worldwide. What measures did the company in Bulgaria take adapt to dynamic environment?
Well, we are among the few companies in the sanitary business, which is a "total bathroom company". In other words, we offer not products but solutions for the bathroom by delivering sanitary fittings, sanitary ceramics, bathing and wellness products, furniture and accessories and also products for non-residential purposes.
We are focusing on the best CRM (Customer Relationship Management) practices.
We approach our customer base with honesty about pricing, quality, after-sales issues. It is a win-win approach. We want our customers to appreciate our products and services. We want the so-called "influencers"- architects, installers, and sales people to internalize our value proposition.
It may sound rather "scientific" but we really do not have much room for mistakes in this business. If a customer changes his loyalty, it is not really reversible. The ceramics manufacturers world-wide give you a between 15-and 25 years warranty on their products. That's why we address all aspects of the business accordingly: NPD (New Product development, PM (Product Management), Procurement, Quality, Pricing, Аfter-Sales Service on a 24/7 basis. No aspect of the business is left behind.
Ideal Standard is undoubtedly one of the best examples among foreign investors in Bulgaria. Which was the decisive factor for making the American dream come true in the town of Sevlievo?
Our willingness to learn a new way of doing business made us stand out among a multitude of candidates for the investment. We had the opportunity of a life-time to be offered the establishment of a joint-venture by a renowned multinational corporation 20 years ago (in April 1992). Of course we had had a sizable manufacturing background in the business of sanitary fittings; dating back to 1934 (We are looking forward to celebrating our 80th anniversary in 2014). However, it is our adaptability and flexibility during the tumultuous times of the late eighties and early nineties, which must have convinced the investor to come and invest in Sevlievo. Over the years we've proven our worthiness.
The investment in Sevlievo happened in several increments over a period between 1992 and 2000, always as a result of our performance and convincing results, manufacturing aptitude and managerial acumen.
I should not omit to stress the very, very positive attitude of the Sevlievo Municipality and the Government of Bulgaria over all those 20 years, which created a regulatory environment customs-tailored for Ideal Standard – Vidima ID and thus very conducive to the willingness of the mother company to continue with the investment in Sevlievo.
As a result we have created a company (IS-Vidima AD), which was dubbed the "crown pearl" of the corporation in 2007 by a former CEO of ours.
How do you assess the business climate in Bulgaria as a manager, who has been outside the country for years?
Bulgaria is gravely under-appreciated as an investment and business location by the international business community. We are lagging behind other locations, much less conducive to business endeavors, and often fall victims to our own pessimism.
Ideal Standard – Vidima advanced in only 5 years (1992-1997) from a location for outsourcing to a point at which we have been entrusted with a great deal of R&D work. We are employing a sizable pool of R&D engineers in Sevlievo who are on a par in their skills with any of their counterparts in Western Europe.
It is rather the unfavorable demographics of Bulgaria that sets us back in terms of business opportunities, the shrinking population, and the exodus of skilled people. However, the rest of Europe is in the same dire straits when it comes to demographics, so we should find a way to balance the opportunities for all Bulgarians so that they can find a meaningful future at home rather than seek (uncertain) fortunes abroad.
Yet I am looking positively at the experience, which Bulgarians are gathering abroad and would like to think that they (or some of them) will one day contribute to the advancement of their home country, one way or another.
How would you describe the dynamics of the investment flow to Bulgaria in the last decade?
FDIs flew primarily in tourism, energy and wine production as well as the low-tech industrial sectors, which is fine but does not create well-paid jobs. Mid-level and high-tech industrial jobs are the ones creating wealth. The flourishing of the IT sector is a good thing, but apart from the fact that it is leaning heavily towards back-offices and call-centers, it is creating a lope-sided picture of the business climate and opportunities here.
We need an industrial base and a modern agricultural sector and also a modern IT presence on a European level. They will create the well-paid jobs and ultimately will make life meaningful for the next generations, an incentive for them to stay in Bulgaria.
After the EU accession we are moving strongly in the direction of creating a favorable business climate. Of course we need working and trustworthy institutions; judiciary, infrastructure but I am optimistic that we are getting there.
Predictability, macroeconomic stability and low labor cost are advantages that Bulgaria has, but certainly should be more actively promoted abroad. Is this however enough to attract investments?
The "glamour", the stability and attraction of the low labor cost location have expired already. A competitive business has never been created and successfully maintained on "get-by" compensation. This would mean specialists on a low level. It is rather the balanced approach and modern reading of a moderate labor cost together with high level technical and management skill that will attract the FDI into Bulgaria.
Investors have to see a wide horizon in front of them to come and invest in Bulgaria.
Ideal Standard –Vidima AD has been really successful not only in convincing our business owners to invest in Sevlievo, but attracted also nine strategic suppliers for our business to come and invest in manufacturing in Sevlievo, no small feat having in mind that we are a small municipality with less than 40,000 people. It is an amazing achievement because those nine suppliers from Western Europe are here in Sevlievo solely because of us and rely for their business fortunes on the long-term business health of Ideal Standard International in Sevlievo. Of course, their businesses have created another 1000 well-paid industrial jobs.
As a result, a modern cluster came into life under the auspices, thanks to the good business acumen about the strong positioning of the company in the region. There used to be such a government policy about the development of industrial clusters and special zones, which, however, did not render the expected results. In order to make such a policy successful, it needs to be raised to the level of a government priority over the next years, i.e. a policy for attracting FDI.
The Bulgarian subsidiary of Ideal Standard International manages the company supply of products and marketing activities in Eastern Europe. How do you think can Bulgaria beat its neighbors in the race for investors?
We can accomplish that by excelling at the best business practices, by constantly improving the quality, the cost and the long-term outlook for prospective investors. We have to apply in real life the policy towards the attraction of FDI. Ultimately, it is about "outdoing" ourselves, as the saying goes "Don't try to beat your brother, but rather to surpass yourself".
We have to utilize our geographical location, our skills and experience to offer a viable alternative to other locations and countries. A modern strategic management approach is not about "beating" the competition but rather about outperforming it in the long run.
Strategic investors do have a "sixth sense" for which company can provide the best conditions. We just have to learn to live up to their expectations. If we do the right thing, our efforts will yield results.
What is the main advantage of Bulgaria as an investment destination?
A skillful workforce, which we should value, appreciate and develop. We tend to rather denigrate our excellent specialists out of a historically ingrained inferiority complex and this is big mistake. We are not inferior to our Western counterparts; on the contrary, given the right circumstances, we can easily outperform them.
It's about time to teach ourselves the self-confidence, which is so much needed. We have great people. They need a proper guidance, the managerial skills. We need to find also the right management to channel their energies in the right direction.
But why are we always talking about FDI? It is about time that the Bulgarian business steps forward and creates a national investment policy, which will then become an integral part of the global investment policy for our country.
Why is Bulgaria outside the map of major international industrial investors?
Many analysts have tried to answer this question. It is the predicament of all Central and Eastern European countries that they have been caught up in the quagmire of the disastrous demographics paired with a grave recession environment following two decades of an undeniably booming economy.
After all, we are treading in the footsteps of the economies of the USA and Western Europe. Moreover, in Bulgaria we are witnessing the lingering impact of the unaccomplished transition, the political clashes and the delay of the harmonization of some internal processes with the processes of the West European countries.
The dynamics of the 21st century is a shift towards Asia, where the median age is in some cases 1/3 of the median age in Europe. However, I would venture an exemplary and optimistic story regarding the chances of Bulgaria. In February "The Great Wall Corporation" will launch mass production in Lovech. If this automotive factory turns out to be success it would create a precedent for Chinese businesses to invest in a country like ours, which is a full-fledged EU member. The Chinese are sitting on many trillion dollars of cash and looking for ways to quickly invest it. Capital flows are going to flow in different directions in the future.
We have to shed our prejudices and join forces with the winners of the global economy. It takes an open mind to do that. I think we, Bulgarians have, the intellectual fortitude to pull it through.
As an investment destination Sevlievo managed to achieve what Bulgaria has always aspired to – a small but attractive place. What is the key to success?
By inspiring the necessary confidence and by offering long-term strategic advantages to prospective investors. We need a maximum transparency and integrity on the part of the people who will be dealing with the investments; the creation of European standards about labor and environmental conditions; the creation of a modern European development strategy; the training of a management pool of a European level. We need a policy of participation of the investors in the municipal and regional developments. We must also involve the business partners of our prospective investors in the process.
But there is no exact recipe for that. There are too many contingencies, that's why I see the necessity for such a policy.
We must do our homework, research the market and its long term outlook; invest in technical and science skills. We must create a base for a diversified economy and become part of a world-wide industrial base topped by a knowledge-based economy.
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Some years ago I was the purchasing manager for the UK division of the worlds largest supplier of building materials and, as such, was Ideal Standards largest customer in the UK and Europe so it is interesting to hear this man's view of things. I do believe that Bulgaria is poised to capture some good investment and the government should be pleased with the way the economy is shaping up against many western European countries. The main stumbling bloc to investment in Bulgaria is OC and corruption and a transparency in the bureaucracy in setting up a business. Some departments and officials give themselves too much power and government allows it and it becomes frustrating for a foreign national to start up a business that, after all, would benefit the country and its people by paying taxes and employing locally .