Association for Foreign Investment

2009/04/21, The American economy is still not in the best shape. Unemployment increased to 8.1% in February, the highest rate since 1983and higher than in some European countries that used to have generally always higher unemployment than the United States. The recovery is still not here and we will see how long it will take. This situation can influence global investment overall, either positively or negatively for different economies.

Some big, diversified multinational American companies are not in such bad shape as the overall economy and some sectors. Companies continue to invest at home and abroad and CzechInvest is still busy with new American projects. We are still receiving some manufacturing inquiries, though we would increasingly prefer to concentrate on projects in sectors such as IT, software development, shared services, business support services, life sciences, biotechnology, aerospace, and other interesting areas, including various research and innovation activities, cooperation among business, government and academic entities, joint ventures and higher-value-added sourcing of products from the Czech Republic, mainly to the strong EU market by American multi-European operations. The United States is still one of the most important players in the world in terms of foreign direct investment. Overall, the country is both one of the biggest recipients and one of the biggest providers of capital and projects. The US also historically ranks at the top in innovation and R&D activities in almost all sectors, together with Germany, Japan and some other countries. This fact is also reflected in CzechInvest's marketing and project strategy in the territory (US and Canada). As mentioned above, in 2008 and 2009 we are focusing mainly on the following high-value-added sectors to attract new investment:

• IT and software development
• Shared services and business services
• Life sciences and biotechnology
• Aerospace

American corporations made their way to the top through global investment, products and services, and globally recognised brands. In the early 1990s, some American companies entered the Czech and other Eastern European markets mainly through product penetration, acquisitions and modernisation of Czech companies. One of the best examples of these early projects is that of the company Procter & Gamble and its growth in Rakovnik. Even when some companies followed, such as Honeywell and Ingersoll Rand, foreign direct investment in the Czech Republic was not so significant in the beginning. Countries like Poland and Hungary received many more projects from the United States, Japan and Germany. In the late 1990s, the Czech government decided to implement various kinds of investment incentives to help boost foreign direct investment in the country, and we could see some positive results of this effort later, especially from 2000 to 2006. Incentives were first approved for the manufacturing industry and later applied to business support services and technology centres. These measures also helped to increase the number of American projects for which CzechInvest provides assistance. Although incentives are usually not the most decisive factor in new investment location (these are usually labour availability, infrastructure, the product and market), the welcoming approach of the Czech government could have a significant positive influence on investors.
American companies in the Czech Republic are now leaders in new projects in sectors like information technology, software development, shared services and business services centres, as well as in expansion of existing operations and business activities.
Honeywell and Ingersoll Rand provide some of the best examples of the continuing expansions of multi-investment American projects in the Czech Republic. These corporations have all kinds of business activities in our country, from several manufacturing plants to several innovation and services centres in various Czech cities. Another outstanding recent example is Microsoft's growing number of innovation centres and business activities in the Czech Republic. All of these companies and many others continue to enjoy access to skilled Czech labour and the stable and favourable business environment of the Czech Republic, where from they can serve the powerful EU market.
As for projects involving business services and development centres, until relatively recently Prague was the most popular location, with investments from, among others, Computer Associates, Microsoft, Exxon Mobil, Sun Microsystems and ADP (see our updated maps of American companies in the Czech Republic). But lately, however, many companies have discovered the advantages of university cities like Brno, Ostrava, Plzen and Olomouc and a growing number of new projects are being directed to these new locations, which is very important for the overall development of the Czech economy. Honeywell, IBM, Red Hat, Schneider Logistics, Roper, Solectron and SRA are only a few of the companies that have set up operations outside the capital. Brno in particular, with its talented and skilled university-educated workforce is now being viewed in the United States as the new star in Central Europe.In the North American market this year, CzechInvest is focusing almost exclusively on sophisticated investments and projects with higher added value. In the first half of the 1990s the agency worked mainly on manufacturing projects and following 2002 the number of production-oriented projects was equalled by services and technology centres. American projects substantially transformed the nature of FDI in the Czech Republic, helping to push non-manufacturing projects to the fore. Of course, this is due to the high degree of development of American investments on a global scale. GE Aviation's acquisition of Walter, an aircraft-engine manufacturer, and its preparations to build a large technology unit in new and modernised spaces based on the existing production operations provide a good example of such an investment implemented in the Czech Republic in past year. The same can be said for Concur's project to open a software centre in Prague. IT projects comprise a big part of new activities originating in the United States. Perhaps even more important than new projects are those involving the continuing expansion of American firms that are further developing their existing operations in the Czech Republic (e.g. Honeywell, Ingersoll Rand, IBM, Visteon, Microsoft, Meopta, Computer Associates, etc.). Projects related to healthcare and medical research and development are also of great importance. For example, in Brno the International Clinical Research Centre, in which the renowned Mayo Clinic is participating, is one of the best representations of advanced medical investments in the Czech Republic. Thanks to this, other giants in the healthcare industry, such as GE Healthcare and Cleveland Clinic, and pharmaceuticals and biotechnology firms like Wyeth, Abbott, Amgen, and Genentech Genzyme have shown interest in establishing a presence here.
Successful expansions provide a guarantee of long-term operation in the territory, though of course in the competitive environment and constantly changing global economy it is necessary to be prepared for all possible contingencies. In the United States, for example, it is not unusual for a previously successful firm to restrict or even discontinue operations in a given region due to changing market conditions. Conversely, a region, city or country that possesses quality infrastructure and an educated, flexible workforce could expect to retain such operations, though perhaps under a different owner. As always, the most important factor is a helpful approach to investors and business activities, which provides a clear signal that they are welcome in the Czech Republic. An important part of this approach is to point out that the extent of incentives, whether in the form of subsidies, tax relief or other benefits, can - but may not necessarily - change on a case-by-case basis. In the United States, governors of individual states and mayors of cities compete intensely for investors, and the fight for investments is probably even more intense than that between European nations.
CzechInvest and CzechTrade currently operate a joint office in Chicago, synergistically covering priority activities by attracting high-quality investors to the Czech Republic and supporting small and medium-sized enterprises' exports to the American market. The agencies' joint events help to enhance the Czech Republic's image among all concerned business entities. In addition, the office collaborates with the economic section of the Czech embassy in Washington and consulates in New York, Chicago and Los Angeles. CzechInvest has decided to reopen its office on the west coast of the United States this year in order to better serve this important and expansive territory. CzechInvest is now in the process of selecting the location of the new office and exploring ways to best exploit synergies between both of its American offices and for the whole region, including some projects, seminars and business exhibitions in Canada. CzechInvest will continue to concentrate on the higher-value-added projects and bringing new, high-quality American investments to the Czech Republic. Even during the economic crisis, or perhaps because of it, American companies are still very actively searching for new markets and investment locations in order to diversify their global business portfolios.

Bohuslav Frelich,
Chicago Office, CzechInvest

Contact:
222 Merchandise Mart Plaza
Suite 938
Chicago, IL 60654
U.S.A.
Phone: +1-312-245 0180
E-mail: chicago@czechinvest.org
Web: www.czechinvest.org