Sdružení pro zahraniční investice

10.09.2009, Nordic countries are not among the largest foreign investors in the Czech Republic, which is perhaps not surprising as they are not among the largest trading partners of the Czech Republic either. Nevertheless, Nordic investment is very important for the Czech Republic as it provides much welcome diversification.

Investments from Denmark, Finland, Iceland, Norway and Sweden complement and serve as an alternative to investments from countries from which one almost automatically expects major foreign investors to come, such as Germany, Japan and the United States. Perhaps everybody knows Nokia and Lego, but Northern Europe is home to other market leaders in many sectors. For example, the Swedish company Becker Acroma is the largest European producer of paints, varnishes and stains for surface treatment of wood, while Assa Abloy is the world's largest manufacturer of locks. Such companies enhance the diversification of the Czech economy both in terms of the nationalities of parent companies and in terms of the products and services they produce in the Czech Republic.

Building on tradition

Many Nordic companies came to the Czech Republic through the privatisation of formerly state-owned enterprises in the 1990s or through acquisition of already privatised companies a few years later.
We can take as an example the acquisition of the traditional Czech powdered-foods producer Vitana by Rieber & Sons of Norway in 1992. Vitana has a history dating back to the 1920s and is still one of the most widely recognised Czech brands. Nevertheless, at the time of its acquisition Vitana was adversely affected by its image of an old domestic producer with a limited portfolio of products as well as outdated equipment and production techniques. Rieber invested heavily in machinery and significantly changed Vitana's marketing approach. Thanks to foreign investment, Vitana has been able to maintain its position as a leading Czech brand in the face of competition from global and European brands such as Maggi and Knorr, as well as a significant number of jobs - it has around 800 employees.
Other examples of successful acquisitions of Czech companies are those carried out by SCA (Svenska Cellulosa Aktienbolaget), which established its presence in the Czech Republic by acquiring the Czech producer Obalex and expanded its activities to nine manufacturing facilities across the country, and Assa Abloy, which acquired the traditional lock manufacturer FAB, whose origins can be traced back to 1911. Assa Abloy has some 1,000 employees in the Czech Republic, of which more than 500 are employed by FAB, which has become the largest European producer of locks for buildings. Also the engineering giant ABB took part in privatisation in the Czech Republic and is now present in eight Czech cities (Brno, Prague, Ostrava, Jablonec nad Nisou, Trutnov, Plzen, Most and Teplice) and more than 2,500 employees in the country.
A EUR 28 million investment of Fibertex in the ailing medium-size textiles manufacturer Vigona in Svitavy saved the company, which had been facing problems with competition from Asian and southeast European companies. The Danish investor introduced not only state-of-the art machinery, but also the production of non-woven fabrics with a broad range of applications in sectors such as the automotive industry, filtration, furniture, bedding and the construction industry. The Czech plant now exports some 80% of its output.
DLF-TRIFOLIUM, the world's biggest clover and grass seed company, acquired the Czech seed company Slechtitelska stanice Hladke Zivotice, demonstrating that there are many areas for foreign investment in the Czech Republic, not just in the automotive industry, consumer electronics or the IT sector.
The most recent acquisition of a Czech company by a firm from Northern Europe is going ahead despite the global economic downturn. The Finnish company Metso, a supplier of equipment and auxiliary services to mining and construction companies, has recently acquired the Prerov-based firm PSP Slevarna. The Czech company, which employs nearly 400 people, produces finished manganese wear parts and has been a supplier of Metso for a number of years. "We acquired PSP Slevarna in order to improve our ability to supply wear parts to our customers in the mining and construction sector, in particular in Central and Eastern Europe. This unit was picked partly because of its location near our customers in the heart of Europe. We see good potential from the Czech Republic and the neighbouring countries and we want to develop our business there," said Heini Polamo, Metso's communication director, told Nordic News in the early summer of 2009, when the global financial crisis was yet to show signs of abating.

New greenfield investments

Other Nordic investors have built new production plants on greenfield sites in the Czech Republic. Perhaps the most notable example of these is the renowned consumer electronics producer Bang & Olufsen. In early 2004, the company visited 40 industrial sites in three countries to select the location of its first manufacturing facility outside of Denmark. The town of Koprivnice in the eastern part of the Czech Republic, famous for the production of Tatra heavy-duty trucks, was selected and production started in late 2004 in temporary rented premises. The company's new plant opened in February 2006 and an R&D centre was established a year later. In that region, in Ostrava, the Finnish company Ruukki is engaged in the production of roofing sheets, lightweight purlins and liner trays for customers in the construction and engineering industries. Ruukki currently employs about 150 people in the Czech Republic.
On the other side of the Czech Republic, Kone of Finland opened its Czech plant in 2004 to produce lift doors and lift cages. In late 2008, the company announced plans for a new plant expand production. Other examples of greenfield investments are those of Arla Plast and Faerch Plast, the former producing solid extruded thermoplastic sheets in Kadaň and the latter producing plastic packaging in Liberec for the food industry.
Some Nordic companies entering the Czech Republic first operated in older temporary premises and later built new facilities on greenfield sites when the increasing production volumes required more space. DISA Industries, a Danish producer of air-blasting machines and foundry equipment, started production in the Czech Republic in rented premises in Pribram in 1994. A new 9,000 m2 production hall was opened in 1998, followed by a 2,500 m2 office building and another 2,880 m2 production hall in 2000, and finally a 3,600 m2 warehouse completed in 2001. Similarly, ITAB Shop Concept, a Swedish producer of shop racks and other fittings built a new plant on a greenfield site in 2007 after it acquired a Czech producer of shelving systems and cash-register boxes in 2004.

Regional hub for Nordic companies

The Czech Republic's central location in Europe and well-developed transport connections to both west and east have encouraged many foreign companies to use the country as a hub from which they can serve their customers in multiple countries. Denmark's LEGO is a prime example of that. The company opened its first manufacturing plant outside of Denmark in Kladno, west of Prague, in 1999. In 2006 the company opened a 60,000 m2 logistics centre in Jirny, east of Prague. The logistics centre, LEGO's largest in Europe, handles two-thirds of LEGO's annual production and ships LEGO products to Europe, Asia, Africa and South America. This May the company started construction of a new 5,200 m2 warehouse in Kladno. The building will be connected to the existing manufacturing plant by a tunnel and will be used mainly to store products from LEGO's Hungarian factory, which will be either packed in Kladno or shipped to Denmark. As a result, it can be expected that the current number of employees will increase from the approximately 1,000 full-time and 200 part-time workers.
The aforementioned Becker Acroma, a Swedish manufacturer of paints and lacquers for the furniture industry, is also using the Czech Republic as a springboard to expand its presence to other countries. The company's subsidiary in Velke Mezirici was established in 1999 and serves as a laboratory for testing and preparing surface coatings of furniture. In addition, the Czech subsidiary is responsible for markets in the Czech Republic, Slovakia, Hungary, and Ukraine, as well as Slovenia and other countries of the former Yugoslavia. Similarly, the Danish firm Hempel manages its operations in the Czech Republic, Slovakia and Hungary from its office in Brno.

Investors promote the image of Scandinavia

For a Czech person, lush coniferous forests are a typical image of Scandinavia, with which many also associate paper manufacturing, wood-processing and furniture production. Nordic companies active in these sectors have been doing their best not to disappoint and have come to the Czech Republic in large numbers. Some of these companies, including such well-known names of the paper industry as AssiDomän and Norske Skog, are sadly no longer operating in the Czech Republic as a result of divestment or takeovers by other companies. However, other firms are doing well and expanding their operations here. SCA Packaging, which employs over 750 people in nine manufacturing plants in the Czech Republic, opened a new design centre in Jilové u Děčina in November 2008. The centre focuses on the development of new packaging and cooperates with the local university.
StoraEnso of Finland has two wood-processing plants in the Czech Republic, in Zdirec nad Doubravou and Plana u Marianskych Lazni. In addition, the company opened its Software Development Competence Centre in Ostrava and joined the IT Cluster there. The centre focuses on development and maintenance of software systems for the whole corporation and its products are used in the company's global marketing and sales network.
Healthcare is also associated with Scandinavia, and Nordic investors in this sector have come to the Czech Republic too. AstraZeneca has a large sales and customer support presence in the country, and is also active here in clinical research and testing. In 2002 the Swedish company Mölnlycke became one of the first foreign investors to open a greenfield facility in the Ostrava region. In the first phase the company focused on the production of surgical kits; after expansion the manufacture of surgical devices was added to its production programme.

Largest IKEA store in Europe

Of course, no mention of Finnish and Swedish investments in the wood-processing industry would be complete without IKEA. This Swedish company, an icon of the furniture sector, has a growing presence in the Czech Republic. It currently has two stores in Prague and one each in Brno and Ostrava, the Czech Republic's second and third biggest cities, respectively. The company announced in August 2009 that it plans to build a new store in Prague in 2010-2011 to replace one of the existing stores there. With 35,000 m2 of retail space, the store will be IKEA's largest in Europe. The company also plans to build a new store in Hradec Kralove in eastern Bohemia.
IKEA also has suppliers in the Czech Republic, one of which is DeskForm, a Czech company based in Teplice, which was established with co-investors from Sweden. The company produces kitchen countertops and exports them to ten countries, with IKEA being the main partner.
Another Swedish retailer with a strong presence in the Czech Republic is H&M (an abbreviation of Hennes & Mauritz). The company has stores in six Czech cities. Another Swedish fashion retailer, LINDEX, announced plans to expand to the Czech Republic in 2005-2006 and has since opened four shops in the country. The boom in the retail sector over the past decade has attracted many foreign property developers to the Czech Republic, including TK Development of Denmark, which company specialises in the development and management of retail parks and shopping centres. Its Czech portfolio currently includes twelve completed projects and another one is under preparation.

Icelandic icebergs

Investors from Iceland are not very visible in the Czech Republic, although their presence in the country is quite significant. The most significant example is Icelandair, owner of the second biggest airline in the Czech Republic, which at the time of this writing is the leading contender in the privatisation of the national carrier, Czech Airlines. Bakkavor Food, one of the world's largest producers of ready-to-eat meals, merged with the Czech market leader in frozen meals, Heli Food Fresh, in 2007. Heli Food Fresh specialises in the production of ready-to-eat meals, soups and sauces for the Central European market and does business with leading European retailers.
The reason for the low visibility of Icelandic investors may lie in the fact that they are usually investment funds or private investors rather than corporate investors, as is the case of other countries that are investing in the Czech Republic. For example, an Icelandic investment company, Nordic Partners, bought a majority stake in Hamé, the Czech Republic's largest producer of canned foods and a well-known brand name with a long history. To support further Icelandic investment in the Czech Republic, Straumur-Burdaras Investment Bank opened a subsidiary in Prague in September 2008.

Impressive growth

The current global economic downturn has obviously had an effect on Nordic investments in the Czech Republic. For example, the Finnish family-owned company Hartwall suspended plans to build a plant for manufacturing shopping carts and store containers in Bystrice nad Pernstejnem. The company announced plans to build the facility and create up to 300 new jobs in 2007, but this year asked for an extension of the option to purchase land in the municipal industrial park in Bystrice. Nevertheless, most Nordic investors seem to be doing well in the Czech Republic. The Trelleborg Group of Sweden has successfully built three manufacturing plants in the Czech Republic to produce components for the automotive industry, fluid solutions and elastomer compounds. Velux's Czech production unit, BKR, celebrated its ten-year anniversary in October 2008. Tieto (formerly TietoEnator) has more than 1,000 employees in Ostrava. The company develops and tests management systems and software for accounting and customer relations management.
The Czech Republic certainly appreciates the positive effects Nordic investments have had on the Czech economy. In the past few years, Nordic companies such as Bang & Olufsen and Tieto have been awarded the Investor of the Year Award presented by the Association for Foreign Investment in cooperation with CzechInvest and the Ministry of Industry and Trade, and in 2007 the Czech embassy in Denmark presented twelve selected Danish investors with a plaque honouring the top Danish investors in the Czech Republic.

Useful contacts:

Nordic Chamber of Commerce in the Czech Republic
www.nordicchamber.cz

Nordic News (Severske listy)
www.severskelisty.cz

Scandinavian House (culture, news)
www.skandinavskydum.cz

CzechTrade offices in Copenhagen and Stockholm
www.czechtradeoffices.com

Did you know that...

The famous Danish astronomer, alchemist and astrologist Tycho de Brahe (1546-1601) worked and died in Prague? He was invited to Prague by emperor Rudolf II to become the imperial astrologist. Legend has it that Tycho de Brahe died in Prague, eleven days after straining his bladder at an imperial banquet. It had been said that to leave the banquet before it concluded would be the height of bad manners, and so he remained and his bladder, stretched to its limit, developed an infection which later killed his. Modern research showed that he more likely died of mercury poisoning.

The largest hand-written manuscript in the world, the Codex Gigas, or Devil's Bible, originated in the Czech Republic? The book is almost one metre tall and a half metre wide. It weighs 75 kilograms and it was calculated that the hides of 160 donkeys were used to produce the vellum on which the book is written. The Codex Gigas was probably written in a now long-defunct monastery near the Czech town of Chrudim. In 1648, during the Thirty Years' War, the Codex was taken to Sweden and is now housed at the National Library of Sweden in Stockholm.

The famous Czech protestant philosopher and educator Jan Amos Komensky (Comenius, 1592-1670) spent six years in Sweden? Komensky was invited to come to Sweden by the Swedish Chancellor to oversee the reform of the country's educational system and write a new set of textbooks for schools. He was not very successful in this effort because of a lack of funds but wrote an influential book on language education while there.