Interview with Štefan Rosina, president of Matador a.s.

He holds a PhD from the Economic University in Bratislava. He started out with the Matador tire and rubber company as a researcher in 1984, and after his father privatized the firm he rose to become its president and chairman of its board of directors in 2000. Štefan Rosina.
photo: TASR

The Slovak Spectator (TSS): Matador celebrates its 100th birthday on September 5, and remains one of the two or three major Slovak companies still in Slovak hands. How have you managed to do it without foreign capital?

Štefan Rosina (ŠR): When we look back at the privatization period of the 1990s, there was no strong capitalist class in Slovakia because of the lack of capital. Companies that were privatized to managerial groups fundamentally lacked capital. It had to be created, and the path we chose was to amass it through hard work, not just to accumulate money for its own sake, but to generate added value. We worked day and night, weekends, statutory holidays, and took no vacations. We had no time to spend money because we were working. Companies that had a different philosophy, that existed just to spin off money, and whose owners had time for holidays and buying yachts and other things, gradually folded.

So the basic reason Matador is still in Slovak hands is that we set out under Štefan Rosina Sr. to create value. A generational handover occurred in 2000, when we felt the old management methods no longer applied, and we brought in completely new methods and processes and thereby stabilized the company. I am the middle Rosina generation - it was my father who privatized Matador - and I have a son, Štefan, who is a motorsport circuit driver and will make up his own mind about whether he wants to join the company.

It wasn't easy changing the older generation, and there were serious conflicts, but we solved them, upgraded, got our second wind and kept going.

TSS: The privatization process in Slovakia, especially under the 1994 to 1998 Mečiar government, was very politicized and corrupt, although among the privatizers there were exceptions, such as your father and Slavomír Hatina at Slovnaft, who made something out of the companies they bought. Have you ever felt unfairly stuck with the "privatizer" label, that people prejudged you because you had managed to privatize a lucrative company?

ŠR: We signed our contract with the National Property Fund [FNM, the state privatization agency] while Mečiar was not in power, although that's not important. Whoever was in power, they took one of two approaches: either to give preference to domestic groups, which was our case, or to prefer foreign entities. Both extremes were bad. All along we should have been just choosing among those interested parties who could give a boost to our companies, whether they were foreign or Slovak.

But in contrast to some other groups who privatized from the FNM and then spent the money their companies generated on themselves, we focused on discharging all of our debts to the state and then reinvesting any other money in the company.

If you look at Slovak companies with foreign capital, they imported a lot of know-how along with the capital, but we had to buy all of our know-how in accounting, human resources, controlling, marketing and so on. It took us three or four years of hard work in concert with a consulting firm, and now we can compare ourselves with any company in the European Union.

TSS: How did you manage to expand beyond the Slovak market to operations in Russia and Ethiopia?

ŠR: In 1998 we decided to narrow our portfolio and spin off lines of production that were making a loss. We had to be fairly cold-blooded about it, and I think that was the mistake many firms made, being unable to cut their losses because their feelings were involved. They lost money hand over fist until their basic capital was eaten up. The management wasn't willing to follow strict economic rules and dismantle operations that lost money. That was essentially what was involved in our generational change, divesting ourselves of loss-makers and focusing on our core business in the short-term five-year plan, while in the longer term diversifying our risk.

From 1998 to 2003 we cleaned up our portfolio, while those parts of our core business in tires that weren't making money were moved abroad, something we were forced to do by sheer economics. Lines that couldn't make money given Slovakia's cost structure but that we simply had to have in our product basket as a tire manufacturer were moved to low-cost countries and the production imported to Slovakia. That also allowed us to have access to those markets, because exporting tires from Slovakia to Siberia would be so costly it wouldn't be possible. So we managed to kill two flies with one blow.

We also had to decide what to do with our profits in the current decade. After the reconstruction of our core tire business, we launched the H4B project, "hladanie stvrteho biznisu", and through this we got into automotive, because it has many synergies with tire manufacturing. We decided to buy an existing company that was already successful rather than developing something ourselves, and last year we acquired Inalfa. We agreed with my brother Miroslav to divide them up, with him taking on the tire business, conveyor belts and machinery, and me taking on the automotive division. We support each other and we're still together, but we also each have an added internal focus on our separate holding companies. Our goal is to have them at 50-50, whereas it's now more 70-30 in favour of tires over automotive.

What has also happened is that the stakes of the original shareholders have in many cases passed on to the next generation, which has increased the number of shareholders we have. Not all of them will want to keep working from dawn to dusk as we did. So we decided to make the change into a financial holding company, which will ensure a certain continuity in the firm, and to install an executive layer to implement the strategy of the shareholders. On the first of September a new director took over from me in charge of the automotive section, and thank God, because it had become unmanageable.

TSS: The Korean tire-maker Hankook is still considering whether to come to Slovakia after having been offered some very generous and rather non-transparent investment incentives. How do you feel about the government's courting competition for you by offering advantages you aren't eligible for?

ŠR: We made our views known as soon as the news that Hankook was coming was published. I met Hankook management two years ago, and this past February met the company's president Cho in Seoul. Hankook already had plans to come, and it was to be expected that following KIA's decision to settle here, the Asian tigers in the tire industry would not be far behind. Slovakia is in central Europe and gives companies a base within the European Union. From our point of view, given the lack of borders, it is irrelevant whether they come here or to Hungary, Poland or the Czech Republic.

We offered Hankook cooperation in the form of machines and training, and even joint ventures in some areas, but unfortunately there was absolutely no response from their side. As for investment incentives, we believe domestic firms should get the same advantages, so that the starting line is the same for everyone. We believe in incentives to get quality investors here, because it's vital for our GDP growth and reducing unemployment, but we believe everyone should be treated equally.

TSS: It's still early days, and the current situation may not last long, but do you expect the departure of Economy Minister Pavol Rusko and the delegation of his authority to Finance Minister Ivan Mikloš will bring greater satisfaction in terms of clear and consistent investment incentives?

ŠR: Ivan Mikloš is an economist whose bread and butter is the creation of economic conditions. So I'm optimistic that things will improve, even though I know it will require analysis and a certain amount of time. I believe minister Mikloš will positively influence this process.

TSS: Your daughter company Matador-Inalfa will be supplying KIA. How difficult is it for Slovak companies to get supply contracts with strategic foreign investors like KIA, Peugeot or Volkswagen? Do they tend to prefer to bring in suppliers they already work with elsewhere?

ŠR: Every concern has its own philosophy. The Korean approach is to create firms that are related to each other through their capital structure, and take care of their supply needs in this way. If a Korean carmaker sets up abroad, it brings with it related companies that are used to how each other works. We've seen this to some extent with KIA as well, although in my talks with the firm's top management I've noticed that they are starting to change their views, and to take a more American or European approach like that of Ford or Volkswagen, where suppliers are chosen on the basis of price, quality and supply times, as in a meritocracy. This potential change in philosophy at KIA is creating an opportunity for us through Matador-Inalfa, and in the name of diversifying our risk we would like to supply Peugeot and Volkswagen as well.

TSS: Among the 25 countries of the European Union, Slovakia spends the lowest amount, as a percentage of its GDP, on research and development. Do you feel the impact of this neglect on your industry?

ŠR: We spend about 2.5% of our own revenues on R&D at Matador, and we have a few projects underway with the Ministry of Education, so we can't complain about a lack of interaction with the state. According to my information, the money is there, but there aren't enough quality projects to spend it on. We saw the same thing in the past, that the state had resources, but they weren't always used.

I've also seen those figures for Slovakia, and the country does spend a minute fraction of its GDP on development, but you have to distinguish between primary research and applied research. There is an ongoing debate between the SAV [Slovak Academy of Sciences] and corporate applied research units [as to how research money should be spent]. My own feeling is that if the SAV were to concentrate on fewer areas and narrow its focus, Slovakia could be successful in primary research and development. The SAV has a purpose, but when its budget is divided among so many different areas, it is less effective than it could be. When you look at the goal-driven competitive struggle in Europe, you get the impression that Slovakia needs to be more selective to be successful. We have bright people here, and we need to come up with new ideas and patent them.

As for corporate applied research, not much more is being spent, although some companies like Volkswagen are doing good things. But most firms are spending about 1% [of revenues] on R&D, and I think unless you are spending over 2% you don't have a chance to react to changes in the market with new or different or better products. These are the things you need to be able to compete, and if you can't produce them you have to drop your prices, which is the road to hell.

TSS: Most foreign investors who come to Slovakia do so because it has a reputation for low costs. You have expanded from Slovakia to Russia and Ethiopia for the same reason. As a result, do you find yourself sympathizing more with the concerns and motivations of foreign investors in Slovakia, or do your views of doing business in this country differ fundamentally from theirs?

ŠR: Slovakia has long since ceased to be a low-cost country. Slovakia also lacks a sufficient quantity of qualified workers. We need to internationalize and bring labour in from other places, such as Russia, the far East, Africa. We just don't have enough motivated and skilled people at the moment to meet the demand. Training labour is a long-term task, so we need people to immigrate who already have the skills we need, especially language skills.

As a country we need to improve and increase the technology in our factories to allow them to operate with fewer people, and thereby offset the inevitable rise in labour costs. People also have to retrain. Having 100,000 people earning the minimum wage is only the first step. It's better than their being unemployed, of course, but we need to take more steps after this, to upgrade people and give them more sophisticated skills.

TSS: So why do so many foreign investors still praise Slovakia for its cheap and qualified workforce?

ŠR: Because it's good marketing.

TSS: That may be the motive of the SARIO investment agency, but why would the heads of private companies be repeating it if it weren't true?

ŠR: Maybe because they have encountered greater problems in other countries. But I repeat, this country does not spend enough on research and education, and it doesn't have enough skilled workers. For several years we've been looking for about 20 skilled people in the midst of their careers, with language and computer skills and familiarity with the European Union, but we can't find them. We also regularly have to send away about half of the people who show up for job competitions. To me, that's a pretty clear sign that the supply of skilled people is inadequate.

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