SOFIA, Bulgaria — After more than ten years in transition, Bulgaria is seeing some electronics investment momentum. With Bulgaria and neighboring Romania due to enter the European Union in January 2007 companies are expanding

Bulgaria’s main attraction is an ample, low-cost and motivated work force. Chip designers here earn 20 percent to 40 percent less than in the Czech Republic, said Anelia Pergoot (left), a Bulgarian native who worked at AMI Belgium.

One of the companies that plans to grow is AMI Semiconductor Inc. (Pocatello, Idaho), whose operation in this capital city designs custom ASICs for automotive and industrial customers. Pergoot, who worked as the quality director of Europe for AMI Belgium now heads the Sofia design center, aims to increase her staff to 40 from the current 23 over the next two years.

AMI’s Sofia office collaborates with design and production centers in the United States and Europe. Currently, 10 products are being developed. “Our goal is to get products to production in one year,” Pergoot said.

Another example is Melexis NV (Ieper, Belgium), a fabless automotive IC company that announced a €30 million ($38 million) investment that includes a facility in Sofia to test ICs and sensors, said CEO Françoise Chombar. She hopes to double the staff of 200.

Other companies are also snapping up employees. Videoton Holding RT, a Hungary-based contract manufacturer, increased staff by 400 and expects to add 200 more this year, said Zoltán Horváth, managing director of Videoton in Stara Zagora, about 130 miles east of Sofia.

Hewlett-Packard Co. announced plans for a 1,000-employee IT center in Sofia by 2007 to provide IT support to customers. And Siemens, Johnson Controls and EPIQ, a Belgium-based contract manufacturer, are also currently expanding their Bulgarian presence.

Likewise, Melexis’ new testing plant adds a sharply lower cost option to the company’s other two test sites in Belgium and Germany, though Chombar declined to comment on savings in labor costs.

Bulgaria’s skilled labor force is a legacy from the country’s Cold War role as the hub for semiconductor and PC production in the East Bloc. In Botevgrad, near Sofia, an enormous state-run enterprise called Microelectronica once employed 15,000 people and turned out ASICs, microprocessors and discrete components.

After communism fell, efforts to privatize Microelectronica failed and skilled workers left the country in droves to seek work abroad. “This industry collapsed and now there is a step-by-step move up again,” Pergoot said.

Bulgaria, however, has been struggling to cleanse its institutions of corruption and align laws with EU norms. Sources said the main difficulties are regulations and practices that work against business. Tax laws are unclear and legal help with taxes is limited because the laws can be interpreted many ways.

Similarly, customs practices create obstacles. When AMI imports printed-circuit-board test samples, delays occur because Pergoot has to fill out a dozen forms and prove the boards will not be used for military purposes. Customs also charges AMI for moving test and measurement equipment from headquarters to the Sofia operation, even though it is not a purchase. “They don’t understand we are not buying and selling,” she says.

Melexis has goods held up by Bulgarian customs for days when they should be cleared on the day of arrival, Chombar said. “The concerns we have relate to customs and logistics,” she said. “Urgent shipments are not always possible.” However, EU membership has pushed Bulgaria’s government into revising outdated laws and regulations, raising expectations for improvement, sources said.

Officials are also considering lowering corporate tax to 12 percent from 15 percent, according to a spokeswoman for InvestBulgaria, the state investment promotion agency. However, state investment incentives are expected to remain limited.

EU entry will have no immediate impact on business but could spark an eventual return of some of the half-million Bulgarians who emigrated abroad during the 1990s, Pergoot believes. The engineering talent pool may also increase due to an arrangement that allows skilled workers from neighboring Serbia and Macedonia to work in the country.

Videoton’s Horvath expects EU membership to fund infrastructure upgrades. Videoton’s goods are moved by truck to and from the rest of Europe through Serbia, which has border delays measured in days. Trucking through Romania would be more efficient, but roads in that direction are undeveloped.

Sources expect Bulgaria to see more investment, though the technology direction hasn’t been clearly defined. Some see the region that includes Bulgaria as a European low-cost assembly site that could serve as an alternative to China.

Melexis’ Chombar sees a trend toward software rather than manufacturing. Microsoft, SAP and Oracle have a presence and many small Bulgarian software houses have sprung up in the last few years, she said.