Lecturer in International Business
Around 3.6% of Romania’s GDP now comes from providing business services to major international companies. A new study suggests that this is the result of domestic and transnational elites collaborating to build on the country’s post-socialist education system and shape government policy. However, this has come at the cost of weaker labour laws.
“Romania, alongside countries like India and the Philippines, has been a massive success story in terms of the growth of its business service sector,” says Dr Ioana Jipa-Musat. “Romania has a historical strength in technical skills, especially mathematics and physics, but also business finance, which brings a massive competitive advantage in the sector.”
Business services include functions like IT support, call centres and financial services, and major international companies, including Microsoft, Nokia and IBM, now have business services based in Romania generating €9bn in revenue.
Dr Jipa-Musat is now a Lecturer in International Business at Royal Holloway University of London. She has studied Romania’s success in this sector as part of her PhD at Queen Mary University of London, working with Martha Prevezer, Professor of Governance and Economic History, and Liam Campling, Professor of International Business and Development. Professor Campling explains: “This supervisory relationship turned into a research collaboration. With Ioana in the lead, we worked closely to theorise the astronomical rise of business services in Romania.”
Their research included reviewing business literature as well as a series of interviews and observations at business service centres in Romania, and it resulted in a 2023 article published in Environment and Planning A: Economy and Space.
Dr Jipa-Musat explains: “Based upon my interviews, we figured out that the sector has been shaped through the collaborative alliance of influential people we describe as ‘elites’. These are domestic elites like state officials, domestic corporate executives and members of an industry association, and transnational elites such as multinational corporate executives working in Romania and international agencies such as the European Union and the World Bank.”
She continues: “We discovered that the alliance between domestic elites and transnational elites shaped the sector into what it is today, and we found four key reasons for this.
“The first is how these different types of elites interact to develop a package of incentives for businesses to operate in Romania. This might be free land or land for a very low price for a period of time. It could be cash incentives or subsidies for training. Romania has also been heralded as a very good case for stimulating the sector with an income tax break for people working in computer science or engineering.
“The second is education. Elites collaborate with universities to influence education policy to ensure graduates are equipped with practical skills to be immediately inserted within firms. Former socialist regimes such as Romania used to have very strong vocational schools geared towards manufacturing industries like steel and coal. The business service sector has successfully continued this tradition.
“Our third finding is that after the initial wave of investment, when ex-pats were being brought in to run the operations in Romania, they started training up local managers. This led to the rise of a domestic class of managers who are now more or less now running the show.”
Professor Prevezer adds: “Finally, we also found that elites have collaborated to liberalise the labour market in Romania and constrain unionisation. Something like ten per cent of these companies are unionised. That’s very low compared to car manufacturing in Romania where the levels of unionisation are 60 to 80 per cent. Instead, there are employees’ associations. At first glance they appear very similar to trade unions, but if you look more closely these employees’ associations have no powers. They cannot organise strikes or consult with employees’ associations from other companies. They cannot approach the state for anything as trade unions can.”
Dr Jipa-Musat’s interviews also highlighted the importance of one industry organisation – the Association of Business Service Leaders in Romania – in bringing elites together to optimise conditions for the service sector. She explains: “This was formed in the early 2000s by lead executives of some of the main companies – Microsoft, Wipro and HP – to speak directly with the state. Together they have the collective force to shape policymaking.
“This sort of tight collaboration between firms and representatives of state agencies is quite prevalent throughout other countries in Central Eastern Europe. That’s why we see them emerging as leaders in several sectors: Slovakia and the Czech Republic in car manufacturing, Poland and Romania in business services.”
Professor Prevezer adds: “These countries have only been capitalist and democratic for 30 or so years, and this hasn't happened by chance. It's because of concerted efforts to develop these sectors and the state has never really lost control on the process of development. But what this means for Romania is a success story in terms of upgrading and capturing some of that value locally.”