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Running a Business in Bulgaria

For this entrepreneur, having his operations in another country makes perfect sense.
June 18, 2001
URL: http://www.entrepreneur.com/article/41548

When John Hazlewood told one of his advisors he was planning to hire a team of Bulgarians to build and operate his online travel company, the advisor thought he'd lost it, according to Hazlewood. Today, with TheStoreMaker.com up and running, Hazlewood is proving that basing his high-tech business in Bulgaria makes sense. The small country, located near Romania with access to the Black Sea, has a tradition of high-tech skills dating back to when it was a communist nation.

"During communist times, Bulgaria was producing computers," said Jonathan Kimball, desk officer for Southeast Europe at the Department of Commerce in Washington, DC. "Now, with access to Western technology, their engineers can be highly valuable to American companies. There are opportunities, especially in the high-tech field, because of their highly educated work force. This, combined with the low labor costs and close proximity to Europe, creates many opportunities for U.S. companies in Bulgaria."

Hazlewood didn't just wake up one day and decide to open a business in Bulgaria. Before becoming an entrepreneur, he was a sports agent, and he had met and worked with many Bulgarians and was impressed by their drive and competitive spirit. In 1994, he recruited the Bulgarian national soccer team to train in Austin, Texas. The team surprised everyone by ranking fourth at the World Cup competition that year.

The Bulgarians' technical expertise, coupled with low wages and an eagerness to work with Americans, convinced Hazlewood to base his company in Sofia, the capital, rather than San Francisco or Austin, where his accountant, attorney and advisors live. Because the company builds free Web-based travel stores, it could be based anywhere. Just about anyone with a Web site can apply to sell travel products.

"You can buy travel products for yourself and keep 30 percent of the commission or sell products and services to others," explained Hazlewood, who has signed up about 1,000 Web sites so far. The company has relationships with 455 airlines, 200 hotel companies and 44 car rental agencies, according to Hazlewood, who spends about two-thirds of his time in Sofia. He said his company keeps expenses low because his overhead is about one-tenth of what it would cost in the States.

Kimball, who has visited Sofia a few times, said Bulgaria is also politically and economically more stable than many of the other countries in the region, and it's very cheap to live there. Hazlewood says he pays $250 per month for a two-bedroom apartment in downtown Sofia. And Sofia is easy to get to: It's a two-and-a-half-hour flight from London.

Hazlewood began recruiting workers through help-wanted ads in Bulgarian newspapers. "All the people we interviewed had master's degrees and doctorates," recalled Hazlewood during an interview in New York City. "The average salary was $150 a month, and we were offering $500." Today, the company's 30 Bulgarian employees do everything from Web design and programming to providing customer service via e-mail. Hazlewood outsources some telemarketing in the United States but has no American employees.

Hazlewood credits much of his success to the financial and moral support of experienced investors like Bobby Inman, a retired U.S. admiral and former director of the National Security Agency. Inman also served as deputy director of the Central Intelligence Agency in the early 1980s. "Admiral Inman was the person who encouraged me to pursue it once it made sense," said Hazlewood.

Inman, who remains in close contact with Hazlewood, said he's happy with the company's progress so far. "I'm attracted to investing if I like the technology and the people are interesting and hardworking," he said. "John had friendships and contacts to rely on. It was also clear that there was a very significant pool of talented people, and if they didn't know the latest systems, they had the skills and the drive to learn them quickly."

Inman, who has invested in several high-tech companies, says he is comfortable backing an overseas venture. Because he sits on the board of directors of several multinational corporations, including the Fluor Corp., which has extensive operations in India and the Philippines, he knows the advantages and disadvantages of doing business abroad. "The English language competence in Bulgaria isn't as high as it is in India, but there are people who are fluent, and you aren't writing software code in English," said Inman, whose Austin-based Inman Ventures has provided seed capital for two of Hazlewood's ventures. (Inman declined to say how much money he has invested in Hazlewood's firms. The first company Hazlewood launched was sold to a German company).

Inman said the U.S. Embassy in Sofia has been helpful and "the Bulgarian government is friendly toward these [entrepreneurial] activities. You pay taxes, but they are not exorbitant."

Before the Soviet Union disbanded, its various states were known for producing different products. Inman said Czechoslovakia, for example, was the center of rifle-making, while Bulgarian engineers developed software for the government. "Many hackers are from Bulgaria," said a business expert familiar with the region. "Bulgarians also reverse-engineered Unix and other operating systems."

In 1996, the socialist government resigned after inflation hit 500 percent and the banking system collapsed. The current leadership, known as the Union of Democratic Forces, implemented financial reforms, and although times are still tough for many citizens, analysts predict the incumbents will be re-elected. To encourage more U.S. investment, especially in the high-tech arena, one analyst said Bulgarian officials apparently agreed to work with Microsoft to buy legitimate rather than bootlegged copies of Microsoft products.

Sofia, which has a downtown district paved with faux gold bricks, has a lively café society and many good restaurants serving wine of such high quality that it is banned for sale in the European Union, according to an analyst familiar with the country. "It's also a very safe place to work," said Hazlewood. "I'm out at 2 or 3 a.m., and I feel very safe."

Despite the demise of many e-commerce businesses, Hazlewood is optimistic that TheStoreMaker.com will continue to grow and remain based in Bulgaria. "Our chief operating officer is now planning to spend 50 percent of his time over there," said Hazlewood.

If you are interested in doing business overseas, contact the U.S. Department of Commerce's International Trade Administration. ITA desk officers are familiar with business operations in hundreds of countries and can offer insights, information and resources.

Jane Applegate is a syndicated columnist and the author of 201 Great Ideas for Your Small Business. For a free copy of her "Business Owner's Check Up," send your name and address to Check Up, P.O. Box 768, Pelham NY 10803 or e-mail it to info@sbtv.com. Sarah Prior contributed to this report.