Romania's EU goals could conflict with Timisoara's

Wall Street Journal Europe, the continental edition of the best known business newspaper in the world, last week published, in its Thursday edition, an article, on the first page, about the IT sector of Timisoara. Such articles are seldom published. In the second page of the same edition, the newspaper ran a column about the freedom of the press in Romania. Here is a summary of the article on the IT sector.

In Timisoara, where the 1989 revolution that overthrew Romania’s dictatorship began, dozens of young software engineers sit hunched over computers in a neighbourhood still covered with bullet holes inflicted by the communist army. The giant pig-processing plant that once dominated the local economy has been obscured by the high-technology factories of Alcatel SA, Siemens AG and Solectron Corp.

But Mircea Stoinescu, a 22-year-old software engineer in a Hugo Boss suit with the label left on the sleeve, says he would trade in Timisoara’s war-scarred offices for the real Silicon Valley in an instant. “Why would I want to wait around here 20 years for wages to rise when I can get what I want tomorrow,” he says. “I want my Opel Astra and I want it now”.

The outsourcing boom transformed this city, but now the changing map of Europe may help roll back some of the changes. Timisoara spent years successfully promoting itself as a business centre with a pool of talented engineers and the ideal location between East and West.

But Romania’s push to join the European Union in 2007 will likely force it to abandon many of the incentives that draw companies to invest here, including a zero percent income-tax rate for software engineers.

Already, wages here are slowly rising and some multinational warn they will mover further east to Ukraine, Russia or China if the city can’t retain its competitive advantage.

German engineering giant Siemens chose Timisoara over other locations, including India, as the site of its auto-part manufacturing unit. Today, project manager Thorsten Kupitz predicts it is only a matter of time before wages rise enough to prompt Siemens, which first arrived in 2000, to leave, “I give it five to ten years,” he says.

The challenges Timisoara faces are part of the global chase to the bottom of the wage scale that is pitting Mexican manufacturing plants, which took jobs from places like Detroit and Raleigh, North Caroline, against even-less-expensive producers in China.

Timisoara has attracted nearly 1 billion euros in foreign investment over the past eight years. That is about 10% of the country’s total during that period, according to Timisoara’s City Hall. Its unemployment rate is 3%, compared to a national average of 8%.

At Solectron’s factory, the size of 12 football fields in Timisoara’s outskirts, plan manager Walter Celglia says he has new concerns about competition from China. Solectron came to Timisoara in 1998 for the skilled workers needed for high-tech assembly work.