Investment Steps Up a Gear. Focus on British Investors in the Czech Republic
24.06.2008,
If you were asked to name the country where the propeller and gravure printing was originally invented, or where the first car was made in 1897, first aeroplane flew in 1910, or even the discovery of the contact lens, you probably wouldn’t immediately plump for the Czech Republic.
Unless, that is, you already knew that this central European nation of just 10 million people had a tradition of innovative and high quality engineering skills decades before the Second World War sealed its fate as part of the former eastern bloc.
It’s a heritage which has withstood the rigours of political history and which today, almost 20 years after the fall of communism, gives the country not only the leading edge over its neighbours but also among the nations of western Europe.
The Czech Republic can compete successfully with the best of them for prestigious manufacturing projects in sectors such as automotive and aerospace, capturing R & D investment in these as well as other newly-emerging sectors like software development.
Its impressive industrial history in engineering, electronics and life sciences is underpinned by a tradition of scientific research. The result? A large number of highly-motivated university-educated young people with a thirst for inquiry, meaning a world-class workforce.
High quality engineering is undoubtedly the Czech Republic’s trump card when it comes to large-scale investments. There can be very few countries – and certainly none of its size – which can attract four global car manufacturing companies that start production within just three years of each other. The Czech Republic currently boasts one of the world’s highest concentrations of automotive-related manufacture, design and development activity.
In 2007, Skoda-Volkswagen and Toyota-Peugeot-Citroen Automotive together produced 900,000 cars, with the automotive sector accounting for 20 per cent of the country’s manufacturing output and exports. That figure is set to increase by a further 300,000 in 2009, once Hyundai starts production at its new plant this autumn. The sector is additionally strengthened by the annual production of 6,000 buses and trucks.
The country therefore also provides excellent opportunities for supplier companies wishing to invest and is consolidating its position as a leading location for automotive-related design, research and development. It’s a situation which has attracted the UK’s Ricardo plc. At the forefront of diesel engine development for both Europe and the United States, the Shoreham-based company has set up its new R&D centre in Prague. “What convinced us was the quality of Czech engineers and the long automotive tradition in the Czech Republic,” says VicePresident Martin Hill. “For this reason, we can promise further improvements in our results and achieve competitive prices.” Ricardo is one of many investors for whom the Czech Republic’s winning combination of recent EU membership, a workforce of high technical quality and overall cost-effectiveness has proved irresistible. While companies investing in foreign countries are invariably attracted by a large domestic market, this is not the case with the Czech Republic, overshadowed by its more populous neighbours of Poland and Germany.
The UK is increasingly looking to the Czech Republic as an investment location – and especially for those higher end ‘value added’ activities which represent a positive new trend for the host. Based upon OCOmonitor’s statistics UK is now in fourth place after Germany, the US and Japan, with approximately eight per cent of foreign direct investment (FDI) – and the figure is growing. In 2007, UK companies invested 248 million Euro of the overall total of 6,674 million Euro – up 30 million on 2006 and over five times that for the previous year. (Source: Czech National Bank, 2008)
It appears that the UK is now taking note of the Czech Republic’s advantageous position as a small EU economy with unique technical competence and industrial tradition, backed by academic research, and thus a source of ‘new brains’ for new sectors. The UK’s position today as one of the country’s leading investors is a sea change from the 90s when it ranked just eighth among its peer nations in terms of levels of FDI. In those early days – mainly during the mass privatisation of old state-owned industries which was dominated by Germany – there were missed opportunities for British investors. Now, during this current ‘second wave’ of investment, it seems they are catching up.
Information Source - OCO MonitorTM, Financial Times
The time when the Czech Republic was viewed as a location for low cost manufacturing is long gone. The country has come of age, with many global companies – British among them - seeing it as a place for high value-added investment in research and development and sophisticated manufacturing processes.
Somewhat ironically, it was the successful UK development agencies of the late 1980s on which the Czechs based their model when first developing an approach to FDI. They recognised the need to have a clear, deliverable offer that was attractive to companies, focused on their needs and backed up with excellent after-care service. As a result, the country won significant foreign investment in the 1990s, making it the early success story among the newly-liberated economies of central Europe. Major ‘first wave’ investors included such giants as Panasonic, Honeywell, Procter & Gamble, Visteon and Volkswagen.
There were also other inherent advantages which contributed to the country’s attraction. What better introduction to the nation for a potential investor than a night at the Prague opera or dinner overlooking a fairytale castle? Companies quickly discovered that the Czech Republic had much more to offer to investors than just a low cost location – and it is this which has created the foundations for the new wave of investments arriving today.
Once a country is seen capturing first level investment such as Toyota-Peugeot-Citroen Automotive, then component suppliers and support services, including R&D, quickly follow. Success breeds success, and a whole range of other market sectors have established operations, including financial services, pharmaceuticals and retail.
New investments in the pipeline from the UK include a pharmaceutical research centre for Chiltern International, a central European headquarters for LogicaCMG, giant high street retailers Tesco and Marks & Spencer and their suppliers, and banks such as HSBC and Barclays Capital. A whole raft of smaller companies is likely to follow their lead.
Other ‘new wave’ British investors in the Czech Republic include iPlato, a software applications development company specialising in mobile and wireless solutions for businesses. This London-based operation initially invested in Prague before moving to Pardubice in 2004. “The main decision for the move was that we felt that other Czech cities had similar access to the talented workforce,” says Tobias Alpsten, managing director. “Other advantages for us include a very nice, inexpensive office in the old city centre and a strong relationship with the city and regional government which we as a small business find so important. Our employees enjoy a balanced lifestyle away from the hectic city, but access to the world through our client base located in the UK, Australia, Germany and Saudi Arabia.”
Another new British investor is Invensys APV, one of the world’s leaders in delivering engineering technologies and equipment for the dairy, beverage, brewing, pharmaceutical and petro-chemical industries. The company provides tailor-made process systems, engineering, control and software products. Its new development centre in Brno, South Moravia, will employ 120 specialists, mostly local graduates. Invensys APV is also collaborating with the Mendel University of Agriculture and Forestry and the Brno University of Technology to strengthen its research capability.
Today, investors base their decisions on a wide and sophisticated range of options. The quality of lifestyle and a responsible approach to the environment are factors they consider as important as the cost of property or local taxes.
The Czech government has taken major strides in creating laws and tax changes to help businesses to be more competitive, many to harmonise with other EU member states. However, corporation tax is among the most advantageous in Europe. Currently at 21 per cent, it will further reduce to 19 per cent in 2010. The government’s support of new technologically-advanced activities is borne out by accelerated depreciation of new fixed assets and 100 per cent tax deductible R & D expenses.
Service sector investment is rising, placing the country in the vanguard of establishing new trends for global FDI. By attracting high value service-based investment and persuading early investors not only to stay and reinvest but also to invest in R&D, the Czech Republic has moved seamlessly and successfully from first to second generation investment. Those who doubted the nation could maintain its record breaking investment levels of the turn of the century have been proved wrong.
Continual reaction to change will remain a key component for success in the arena of foreign investment. International partnerships and co-operation between universities and research centres is regarded as critical for the next generation of investments. Here, the UK already features strongly, with British and Czech universities proposing joint projects to create a Central European industrial design & rapid prototyping centre or certified training programmes for specialists in aerospace companies capable of maintaining UK-operated aircraft from repair centres in the Czech Republic.
The quality and innovation of the workforce, especially in engineering, and a thirst for research are again giving the country the leading edge, reflecting the 1920s and 1930s when it was among the ten most developed economies in the world – a position it may yet regain in relative terms.
Hana Chlebná,
CzechInvest
Contact to CzechInvest’s office in London:
1 Harley Street
W1G 9QD London
United Kingdom
Phone: +44-20-7291 4610
Fax: +44-20-7291 4612
E-mail: london@czechinvest.org
Unless, that is, you already knew that this central European nation of just 10 million people had a tradition of innovative and high quality engineering skills decades before the Second World War sealed its fate as part of the former eastern bloc.
It’s a heritage which has withstood the rigours of political history and which today, almost 20 years after the fall of communism, gives the country not only the leading edge over its neighbours but also among the nations of western Europe.
The Czech Republic can compete successfully with the best of them for prestigious manufacturing projects in sectors such as automotive and aerospace, capturing R & D investment in these as well as other newly-emerging sectors like software development.
Its impressive industrial history in engineering, electronics and life sciences is underpinned by a tradition of scientific research. The result? A large number of highly-motivated university-educated young people with a thirst for inquiry, meaning a world-class workforce.
High-tech engineering: Czech trump card
High quality engineering is undoubtedly the Czech Republic’s trump card when it comes to large-scale investments. There can be very few countries – and certainly none of its size – which can attract four global car manufacturing companies that start production within just three years of each other. The Czech Republic currently boasts one of the world’s highest concentrations of automotive-related manufacture, design and development activity.
In 2007, Skoda-Volkswagen and Toyota-Peugeot-Citroen Automotive together produced 900,000 cars, with the automotive sector accounting for 20 per cent of the country’s manufacturing output and exports. That figure is set to increase by a further 300,000 in 2009, once Hyundai starts production at its new plant this autumn. The sector is additionally strengthened by the annual production of 6,000 buses and trucks.
The country therefore also provides excellent opportunities for supplier companies wishing to invest and is consolidating its position as a leading location for automotive-related design, research and development. It’s a situation which has attracted the UK’s Ricardo plc. At the forefront of diesel engine development for both Europe and the United States, the Shoreham-based company has set up its new R&D centre in Prague. “What convinced us was the quality of Czech engineers and the long automotive tradition in the Czech Republic,” says VicePresident Martin Hill. “For this reason, we can promise further improvements in our results and achieve competitive prices.” Ricardo is one of many investors for whom the Czech Republic’s winning combination of recent EU membership, a workforce of high technical quality and overall cost-effectiveness has proved irresistible. While companies investing in foreign countries are invariably attracted by a large domestic market, this is not the case with the Czech Republic, overshadowed by its more populous neighbours of Poland and Germany.
Growing interest of British investors
The UK is increasingly looking to the Czech Republic as an investment location – and especially for those higher end ‘value added’ activities which represent a positive new trend for the host. Based upon OCOmonitor’s statistics UK is now in fourth place after Germany, the US and Japan, with approximately eight per cent of foreign direct investment (FDI) – and the figure is growing. In 2007, UK companies invested 248 million Euro of the overall total of 6,674 million Euro – up 30 million on 2006 and over five times that for the previous year. (Source: Czech National Bank, 2008)
It appears that the UK is now taking note of the Czech Republic’s advantageous position as a small EU economy with unique technical competence and industrial tradition, backed by academic research, and thus a source of ‘new brains’ for new sectors. The UK’s position today as one of the country’s leading investors is a sea change from the 90s when it ranked just eighth among its peer nations in terms of levels of FDI. In those early days – mainly during the mass privatisation of old state-owned industries which was dominated by Germany – there were missed opportunities for British investors. Now, during this current ‘second wave’ of investment, it seems they are catching up.
| Business Activity | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | Total |
| Germany | 26 | 33 | 36 | 33 | 32 | 3 | 163 |
| USA | 21 | 19 | 29 | 34 | 22 | 6 | 131 |
| Japan | 19 | 18 | 11 | 15 | 14 | 4 | 81 |
| United Kingdom | 10 | 13 | 20 | 14 | 10 | 2 | 69 |
| Austria | 7 | 16 | 9 | 15 | 9 | 2 | 58 |
| France | 9 | 2 | 7 | 6 | 4 | 3 | 31 |
| Sweden | 6 | 4 | 1 | 3 | 9 | 1 | 24 |
| Netherlands | 5 | 7 | 2 | 5 | 3 | 22 | |
| Taiwan | 4 | 2 | 3 | 5 | 3 | 1 | 18 |
| Italy | 6 | 3 | 2 | 1 | 3 | 2 | 17 |
| Other | 30 | 31 | 29 | 46 | 40 | 10 | 186 |
| Overall Total | 143 | 148 | 149 | 177 | 149 | 34 | 800 |
Information Source - OCO MonitorTM, Financial Times
‘New wave’ investments
The time when the Czech Republic was viewed as a location for low cost manufacturing is long gone. The country has come of age, with many global companies – British among them - seeing it as a place for high value-added investment in research and development and sophisticated manufacturing processes.
Somewhat ironically, it was the successful UK development agencies of the late 1980s on which the Czechs based their model when first developing an approach to FDI. They recognised the need to have a clear, deliverable offer that was attractive to companies, focused on their needs and backed up with excellent after-care service. As a result, the country won significant foreign investment in the 1990s, making it the early success story among the newly-liberated economies of central Europe. Major ‘first wave’ investors included such giants as Panasonic, Honeywell, Procter & Gamble, Visteon and Volkswagen.
There were also other inherent advantages which contributed to the country’s attraction. What better introduction to the nation for a potential investor than a night at the Prague opera or dinner overlooking a fairytale castle? Companies quickly discovered that the Czech Republic had much more to offer to investors than just a low cost location – and it is this which has created the foundations for the new wave of investments arriving today.
Success breeds succes
Once a country is seen capturing first level investment such as Toyota-Peugeot-Citroen Automotive, then component suppliers and support services, including R&D, quickly follow. Success breeds success, and a whole range of other market sectors have established operations, including financial services, pharmaceuticals and retail.
New investments in the pipeline from the UK include a pharmaceutical research centre for Chiltern International, a central European headquarters for LogicaCMG, giant high street retailers Tesco and Marks & Spencer and their suppliers, and banks such as HSBC and Barclays Capital. A whole raft of smaller companies is likely to follow their lead.
Other ‘new wave’ British investors in the Czech Republic include iPlato, a software applications development company specialising in mobile and wireless solutions for businesses. This London-based operation initially invested in Prague before moving to Pardubice in 2004. “The main decision for the move was that we felt that other Czech cities had similar access to the talented workforce,” says Tobias Alpsten, managing director. “Other advantages for us include a very nice, inexpensive office in the old city centre and a strong relationship with the city and regional government which we as a small business find so important. Our employees enjoy a balanced lifestyle away from the hectic city, but access to the world through our client base located in the UK, Australia, Germany and Saudi Arabia.”
Another new British investor is Invensys APV, one of the world’s leaders in delivering engineering technologies and equipment for the dairy, beverage, brewing, pharmaceutical and petro-chemical industries. The company provides tailor-made process systems, engineering, control and software products. Its new development centre in Brno, South Moravia, will employ 120 specialists, mostly local graduates. Invensys APV is also collaborating with the Mendel University of Agriculture and Forestry and the Brno University of Technology to strengthen its research capability.
Meeting needs for top quality investments
Today, investors base their decisions on a wide and sophisticated range of options. The quality of lifestyle and a responsible approach to the environment are factors they consider as important as the cost of property or local taxes.
The Czech government has taken major strides in creating laws and tax changes to help businesses to be more competitive, many to harmonise with other EU member states. However, corporation tax is among the most advantageous in Europe. Currently at 21 per cent, it will further reduce to 19 per cent in 2010. The government’s support of new technologically-advanced activities is borne out by accelerated depreciation of new fixed assets and 100 per cent tax deductible R & D expenses.
Service sector investment is rising, placing the country in the vanguard of establishing new trends for global FDI. By attracting high value service-based investment and persuading early investors not only to stay and reinvest but also to invest in R&D, the Czech Republic has moved seamlessly and successfully from first to second generation investment. Those who doubted the nation could maintain its record breaking investment levels of the turn of the century have been proved wrong.
Continual reaction to change will remain a key component for success in the arena of foreign investment. International partnerships and co-operation between universities and research centres is regarded as critical for the next generation of investments. Here, the UK already features strongly, with British and Czech universities proposing joint projects to create a Central European industrial design & rapid prototyping centre or certified training programmes for specialists in aerospace companies capable of maintaining UK-operated aircraft from repair centres in the Czech Republic.
The quality and innovation of the workforce, especially in engineering, and a thirst for research are again giving the country the leading edge, reflecting the 1920s and 1930s when it was among the ten most developed economies in the world – a position it may yet regain in relative terms.
Hana Chlebná,
CzechInvest
Contact to CzechInvest’s office in London:
1 Harley Street
W1G 9QD London
United Kingdom
Phone: +44-20-7291 4610
Fax: +44-20-7291 4612
E-mail: london@czechinvest.org