Transcript The slides - Centreeurope.org Portail est

THE CZECH BUSINESS
ENVIRONMENT
David Chelly
Msc. Business
and Management
in Europe
02/28/2003
Aims of the seminar
 This seminar is designed to acquaint students with the
Czech business environment. The topics range from
the political and cultural values to the end consumer,
with a special focus on how to do business and manage
people in the Czech republic.
 Students are introduced to research sources and
methods which may be useful to them in their career.
The documents of the seminar are fully available through
the internet, in French and in English, at the web
address http://www.centreurope.org
 Concerning grading, one exercise will be done
individually or in groups, all documents allowed.
Your instructor
 David CHELLY
 Head of a consultancy firm and a website
(http://www.centreurope.org) specialized
in business with Central & Eastern Europe
 Professor of management in various
business and engineering schools
 Ph.D in Management Sciences, [email protected]
graduate diploma in Finance, degrees in
Money and Banking, Law, Accounting and
Sociology.
The seminar’s outline
 The cultural and political environment of the Czech
Republic
 The Czech Economy and its industry
 Business opportunities and ways of
internationalization in the Czech Republic
I. The cultural and political
environment of the Czech Republic
BASIC INFORMATION








Population:
10.270 million
Population growth:
- 0.07 % (2001 est.)
Age structure:
15-64 years old: 69.99%
GDP / head (ppp)
USD 11 500 per year (2002)
Labor force :
Agriculture 5%, Industry 40%,
Services 55% (2003 est)
Transport:
Relatively good transport
infrastructure: 6,3 km of motorways and 120 km of
railways per 1,000 km2 of land area.
Primary religion:
Atheist 40%, Roman Catholic
39%
Ethnic groups:
Czech 88% (including Moravian,
15/20 %), Slovak 4 %, Polish 0.6%, German 0.5%, Roma
2%, Ukrainian 2% Others 3% (2003 est.)
A Central European country
« A kidnapped
West »
Prague is located
in Western
Europe (at least
more than
Vienna)
The Czech
Republic is not
Czechia
The Czech history and its current
consequences

History is essential to understand a national economy and the
functioning of its industry:

Philippe D'Iribarne, who wrote « The Logic of Honor : National Traditions and
Corporate Management », shows that the way of working and the corporate
processes in a given country originate in a main historical event.
The Czech history has long been accompanied by education,
art and modernism.
While in 1789 in France only a third of the citizens were able to
speak and read French (the rest spoke local dialects), school in
German had been compulsory for a century in the whole AustroHungarian Empire.
The Czech strong industrial tradition began in the 19th century,
when Bohemia and Moravia were the economic heartland of
the Austro-Hungarian Empire. The Czech GDP / head ranked
n°7 in the world in 1945.
The legacy of communism
After World War II, the political system in
Czechoslovakia has been transformed by the
introduction of a Soviet-style Communist regime, which
has affected people’s mentalities and the national
competitiveness.
Central planning biased the structure of employment by
placing a disproportionate emphasis on industry, to the
detriment of the services sector.
The November 1989’s Velvet Revolution brought about
the downfall of the Communist regime, and
reintroduced people’s rights.
A member of the EU as soon as
2004
 The fall of communism in 1989 and the break-up of
Czechoslovakia (12/31, 1992) opened the road to
economic reversal and reintroduction of a market
economy through a « shock therapy » economic
transformation.
 The young Czech democracy suffers from a lack of
political maturity.



The leading coalitions are not able to rule the country
due to a too large number of Parties.
Demagogue politicians are elected on the basis of their
unrealistic pledges
Political scandals and corruption affect all parties.
 In practice, local institutions (Administration,
Universities, Hospitals…) do not comply with EU
standards
Deficient legal environment and
justice sector



As in almost all EU candidates, the Czech Republic’s legal
framework complies with EU standards.
 As an example, the Czech accounting law is similar to the
French one.
But in practise, the Czech legal environment is:
 Incomplete, because the country lacks an extensive case
law and decrees.
 Inconsistent and volatile. Laws from communist and precommunist times cohabit with modern laws, and laws are
changing quite often.
Justice is a also characteristized by different drawbacks:
 Justice is inefficient and not enough enforced, especially for
commercial matters, which local specialists describe as a
« jungle ». As an example, the protection of industrial and
intellectual property is deficient.
 Justice is is slow because
 of low financial and computer means,
 it is opaque, as judges are not qualified for specific
matters
 part of them keep reflexes from the communist era.
II. The Czech Economy and its
industry
An achieved European economy
As a member of WTO, the Czech republic is
removing technical obstacles to trade
The Czech Republic benefits from a highly
qualified workforce and a strong advantage
of territorial location
The Czech Republic is a CEFTA member
(Central European Free Trade Agreement),
which is a market of 90 million people
The Czech Republic is following EU
directives for production, quality,
environmental regulation…
Main Strengths and Weaknesses
of Czech Republic’s Economy
 Strenghts



A strong currency;
The return of economic growth;
A relatively high level of FDI.
 Weaknesses



The level of economic activity depends on the main
trading partners (Germany with more than a 1/3 of
the total trade, then Slovakia, Austria and the USA);
The weak political base of the Government;
The public deficit
Main strengths and weaknesses
of the Czech industry
 The Czech republic has one of the most developed
industrialised economies in Central and Eastern
Europe, but the industrial restructuring is still
unsufficient.
 The country has a well-educated population and a
relatively well-developed infrastructure. But its
industrial plants and equipments are obsolete.
 In the Czech Republic, commitment and seriousness at
work are low, as shown in this two Czech proverbs:


« pretend to pay us and we will pretend to work »
« the one who does not steal, steals his family ».
TOP 10 CZECH COMPANIES (2002)
TOP 10 CZECH COMPANIES
MARKET CAPITALISATION
IN MILLIONS CZECH
KORUNA
SECTOR
1
CESKY TELECOM AS
101,716.0
telecommunications
2
KOMERCNI BANKA A.s
62,222.1
Commercial banks
3
CESKA SPORITELNA A.S
56,848.0
Commercial banks
4
CEZ-CES ENERGETICKE ZAV
47 ,657.2
Electric powers companies
5
PHILIP MORRIS CR A.S
20,741.3
Cigarettes manufacturers
6
12,662.8
Radio and TV broadcasts
7
CESKE RADIOKOMUNIKACE AKCIOVA
SPOLECNOS
CESKA POJISTOVNA A.S
11,660.4
Insurance companies
8
JIHOMORAVSKA ENERGETIKA A.S
7,769.5
Electric power companies
9
PRAZSKA ENERGETIKA A.S
7,255.2
Electric power companies
10
ALIACHEM A.S
6,647.3
Miscellaneous chemicals
III. Business opportunities and ways
of internationalization in the Czech
Republic
Why invest in the Czech
Republic ?

Foreign direct investment in all sectors and from all countries
is welcomed and little restricted. Investment incentives are
offered for Manufacturing investors.

The ´knowledge pipeline´ in the Czech Republic benefits
from a strong enrolment pattern at secondary level and is
revealed in high performances in mathematical tests at
secondary level and a high number of tertiary-level science
and technology graduates.

But the main reason for FDI is good access to domestic and
foreign markets (through CEFTA).
Unsaturated markets
Local consumers ask for western products.
They are fascinated by the consumption society and relatively
under-equipped. Each inauguration of an hypermarket is celebrated
by hours of queues of avid consumers.
Local companies urgently need comprehensive updating
of equipments/technologies (often 30 years of age)
and restructuring their organization.
The local supply is unable to provide these services. Thus local
companies must address western suppliers in order to stand the
competition and survive.
Local public authorities lack of everything
Services of public utility (environment, education, culture…)
constitute a huge market. Numerous expenses are financed by the
EU. Western companies such as Vivendi or Bouygues very
frequently win tenders.
Where and in which sector
to invest ?





The Czech Republic is geographically small, with 10 % of
the population and most decision makers concentrated
in the capital city of Prague.
The country is attractive in manufacturing and
assembly operations thanks to its territorial location.
Investment in hi-tech manufacturing sectors offers a
good potential due to the Czech Republic´s long and rich
industrial heritage and is supported through government
programmes.
The gas, electricity and water service sectors are
still in the process of privatisation. Liberalisation of the
telecom sector is underway, with high public spending.
Good opportunities are offered in the tertiary sector:
Financial services, real estate, tourism, strategic
services (customer contact centres, software
development, research & development centres, design
centres and hi-tech repair centres).
How to invest ?
Good personal relationships are crucial to succeed in
the Czech Republic. It is recommended to find and
support a Czech partner.

Franchising opportunities exist for consumer and
business services, hotels/travel/tourism, and real estate
agencies.
 However, the Czech Republic still lacks laws
regulating franchising. Few Czechs have the capital
or experience to invest in their own franchises, and
typical master franchise networks have yet to
develop.

A few companies are scheduled for privatisation and
others large Czech-owned industrial firms that are
undergoing restructuration programme are available for
sale via public tenders and public auction. Joint
ventures and licensing have become less popular in
this matter than Greenfield.

Marketing products in the Czech
Republic
 Little adaptation to the products is necessary. Czech
consumers tend to look like western Europeans by
adopting the same consumption patterns, being more
demanding and more solicited.
 Czech consumers and firms are price-sensitive and
much appreciate presents, prizes…

As an example, an invitation to Paris may be an significative
advantage in order to win a bid.
 The distribution sector is atomized.

Direct marketing has thus become a common way to distribute
products in the country, with Avon, Amway, Mary Kay cosmetics,
Herbalife leading the way. Direct marketers enable these firms to
reach clients in small towns and the Czech countryside, where
retail outlets are rare.
 Consumers are fascinated by the consumption
society.

They prefer buying Western products, mainly for psychological
reasons (imitation effects) and are very sensitive to media and offmedia campaigns.
How to manage Czechs ?

Two strategies coexist in International Human Resource
Management :

The transnational firm: think global, act local. The main activities
are centralized (strategy, organization, R&D…) in order to give an
homogenous image and structure, and their implementation
(management, recruitment…) is made locally.


Some European scholars recommend an intercultural management
model based on contingent strategies varying with the sector, level
of competition, size, origin of the firm, etc.


This model is culture-free and based on the global best practices.
Corporate cultures must be stronger than national cultures.
Different environments, cultures and attitudes towards work lead to
different practices : corporate communication, pay systems, levels of
education, types or recruitment/dismissing, training…
The 1st one is by far the most used by multinationals.
Sources
Radio Prague http://www.radio.cz
Governmental homepage http://www.czech.cz
Tourism information http://www.visitczechia.cz
Czech Statistical Office http://www.czso.cz
Bohemica http://www.bohemica.com
Czech National Bank http://www.cnb.cz
Czech Ministry of Foreign affairs
http://www.mzv.cz
 The Prague Tribune http://www.prague-tribune.cz
 Local Lingo http://www.locallingo.com






