Favourable Times Coming for Wealthy Investors
2009/01/05, Interview with Jan Bobek, Chairman of the Steering Committee, Association for Foreign Investment
Published: PROFIT Magazine, Issue 51-52, 22 December 2008, pages 20-23
JAN BOBEK, CHAIRMAN OF THE STEERING COMMITTEE, ASSOCIATION FOR FOREIGN INVESTMENT:
Favourable Times Coming for Wealthy Investors
While some managers dread the impending crisis, Jan Bobek compares it to the transformative flood in Prague’s Karlín district and insists that investors who can rely on their own finances are in store for favourable times. As the new head of the Association for Foreign Investment (AFI), he additionally wants to help domestic enterprises that are deciding to expand abroad.
You came into the elections with a new vision that would steer the Association for Foreign Investment toward also assisting domestic firms that want to do business outside the Czech Republic. How far away are you with this plan?
We are currently discussing how we would focus support also on Czech investors that would like to do business in other countries. This idea originated with a range of AFI members and I hope that we will come to a common agreement so that we can embark on this plan in the next year. The association has hitherto supported investors coming into the Czech Republic. We bring together consulting firms in the fields of law, financial services, human resources, project management and construction engineering.
I believe that domestic companies would welcome the association’s desire to help them in foreign investments in future. If I’m not mistaken, you are mainly considering the East?
I think that Czech companies are actually lacking a group of specialist firms that is able to look after them abroad. We intend to focus on areas in which Czech investors will be interested. Most members of our association are Czech subsidiaries of multinational firms, or they are Czech entities that have experience abroad. And we could use this. If a domestic firm wants to expand to Germany, then we will be able to help. If such a firm is interested in Ukraine, India or China, we can cope with that. Our services will be very similar to those that we provide to foreign investors in the Czech Republic.
Czech subsidiaries of foreign entities very often go into Eastern Europe. It is logical that an American parent company would trust Czechs with such a move and they need help. I use that as an example of how interesting our experience is for Americans. But a purely domestic company will need and, I believe, will use our support.
One of the new approaches that you want to take is closer cooperation with CzechInvest.
To a significant extent, that depends on CzechInvest’s input. In any case, one of the association’s functions is to support this agency, which is part of the state administration and receives its tasks in that context. Or, rather, it is purely a matter of the Ministry of Industry and Trade and CzechInvest’s leadership. We can provide suggestions, such as support for domestic investors doing business in other countries. But we will not assist a firm that discontinues its existing operations in the Czech Republic and transfers them to somewhere else. That is in contravention of our statutes.
In your opinion, which foreign locations are attractive for Czech companies?
St. Petersburg and its surrounding area are definitely interesting for the future. Russia surprisingly does not have very many ports for large-scale freight handling. St. Petersburg is one of them, which is why there are so many carmakers around the city. The St. Petersburg area is generally experiencing an industrial boom and significant social changes; the city is expanding markedly with the establishment of new administrative and residential quarters, which are related to the infrastructure for industrial expansion. If we compare this city with Moscow, St. Petersburg is smaller and more comprehensible; Moscow is so big it even has its on weather.
And besides Russia?
India and China will surely be interesting in future.
Europeis wary of investments from China and India, whereas this does not apply to the Czech Republic. Can you say why that is?
That is an accurate perception, but there is still a huge cultural difference between Czechs and the Chinese. In Central Europe investors are always welcome; Western Europe can be more vague. We are probably “less afraid” of China that is Western Europe.
FOREIGN INVESTORS LOOK TO ELECTRICAL ENGINEERING AND CARS
I know that you cannot be too specific, but is your association currently in discussions with investors that are considering a bold entrance into the domestic market? And in which areas?
Investments are definitely on a larger scale, ordinarily in the range of many hundreds of millions of crowns and understandably with high added value. Thus the number of people who will find work will be lower than was the case in earlier investments. But demands for skills and education will be higher than was usual in the past. From the previous period, we have experience that investors do not consider only the Czech Republic, Hungary, Poland and Slovakia, but they are already comparing the Czech Republic with Belgium, the Netherlands and northern France, so we have strong competitors. We even had a project that was prepared for launch in the Czech Republic and was then transferred to France. One would have expected a transfer to Ukraine or Russia.
As for areas of investment, these are electrical engineering, construction materials and the automotive industry. I really can’t be more specific, as that is a PR matter for each firm or CzechInvest when the given investors want to publicise their projects.
How do Czech companies become aware of interesting foreign investments that they could take advantage of?
For a range of companies this information can be timely when it appears in the newspaper. For other types of services, this is too late; it would be better to know about it a year in advance than to learn about it from the media, for example. Because foreign firms often conceal this, it is good to be a member of our association, which knows about such investments, though we cannot publicise them.
I SENSE A VERY PESSIMISTIC MOOD
Analysts insist that investments will decline in future. Do you also see this?
We have become caught up in the story and I don’t know how to describe what is happening. In the rest of the world several things happened with markets and investments, and in the Czech Republic something else happened, so more factors came together here. Mainly, our currency shifted, as in Poland, Slovakia and Hungary, and salaries grew markedly, which undoubtedly influenced investors in deciding whether to invest in the Czech Republic or not. Our typical competitors were previously Poland, Hungary and Slovakia.
In the case of simple, manual production, Romania started to be competitive. In terms of market attractiveness, it was Russia, though from the perspective of a foreign investor I don’t consider it a competitor. If a foreign investor speaks about Russia and the Czech Republic, this mostly concerns one investment in Russia and a second in Central Europe, where the competing countries that I mentioned are considered.
If an American investor wanted to build a new factory in the Czech Republic five years ago, a square metre would cost five hundred dollars; this summer a square metre cost a thousand dollars, while at the same time a Czech firm takes in crowns the same as it did five years ago. The investor then thinks again about whether or not to build here. But this was caused by speculative pressure on the Czech crown rather than by the impending financial crisis.
Even so, investments will decline because of the crisis…
The crisis is undoubtedly influencing investors’ thinking and this is perceptible in our business everywhere in Europe. A range of projects have been postponed or cancelled, or transferred to radically different destinations such as India, China or other countries. In the AFI, all firms feel this fully in the same way. At this time I sense a very pessimistic mood. At the end of September I would have said that nobody in the Czech Republic would allow the financial problems in America to affect us, but now I see the situation very darkly. Recently, at the announcement of the Business Property of the Year awards, I compared the crisis to the flood in Karlín. We knew that the water was coming, but we didn’t know how high it would get or how long it would paralyse life in the quarter. The flood washed unbelievable things out of basements and some building even collapsed. In spite of this, today Karlín is a nice neighbourhood where life is better than before.
Then you see the crisis as a restorative process for the economy?
Every crisis contains the seed of something positive, but I definitely would not say that it’s a great thing to have an economic crisis, even if it eventually revitalises the economy, particularly where the Czech economy is concerned, because I think that the domestic banking system is in good shape. We got through those problems ten years ago.
But everything bad is good for something. Even under the current conditions, something can be salvaged from this situation. Investors that can rely on their own financial resources and whose investment preparations take two or three years think that there is no better time than now. For example, they can benefit from lower construction costs and cheaper technology.
CONDITIONS IN THE CZECH REPUBLIC HAVE IMPROVED FOR FOREIGN INVESTORS
Do foreign investors give priority to subsidiaries of foreign firms or does it not matter to them?
It’s a combination. For example, the French want to work with the French; for other nationalities, it doesn’t matter. A number of firms rely on references; I encountered an investor that was emphatically interested in local firms because of the need for good knowledge of the region, while cost was a secondary interest.
Could owners of domestic firms make the criticism that you greatly promote the interests of foreign firms, clearing a path for them and making things easier for them in the Czech Republic?
I would understand such criticism, because domestic firms can ask who is helping them. At the beginning of an investment it is necessary to go through a certain bureaucratic process connected with construction, founding a firm, hiring people, and this seems to me still very complicated in a range of cases. For both groups – Czech and incoming firms – it will be good if the process can be simplified; not to make life easier for a particular group, but to simplify it for everyone. If the rules are set up correctly and simply, then it is more positive for everyone.
Is the entry of foreign investors still as complicated as it was ten or fifteen years ago, or is the Czech environment now more accommodating?
Conditions have improved. If nothing else, there are at least a greater number of people who are able to talk with investors in a foreign language. There is also an improved ability of Czech workers to communicate with foreign managers with respect to cultural background, because a range of nationalities have their own specifics, especially Asians.
Where companies are concerned, it would help them greatly to ease the entry of foreign workers into the Czech Republic. I’m referring to people who have high value, whether managers, programmers or skilled technicians. To come here and arrange the necessary work permits, find a place to live, go to the post office and make further arrangements…all of this is still very difficult for someone who doesn’t know the Czech language very well.
Do you have changes to certain laws in mind?
I would take the path of simplifying what we already have; I would not introduce anything new. If it is practical, I would only make improvements, for example, through bilingualism of certain documents and administrative processes that one must deal with. I’m aware of these issues based on what I’ve heard; I’m not speaking from my own experience.
You personally have the most intensive experience with Asian nationalities. How should representatives of domestic firms behave in meetings with foreign investors?
I would recommend that they hire an external consultant to rehearse a meeting with such a client and to gain understating of how the client’s team makes its decisions. In the case of certain nationalities, particularly Asians, you never meet with the decision-maker. This can confuse Europeans, who think that the important people must be present. For example, with the Japanese, decisions are often reached through a sort of joint decision-making, whereas the Koreans have a rather vertical decision-making structure.
Of course, for most Asian nationalities it’s true that when something is expressed in what for us is understandable English, it’s not interpreted as it one might think. To be more specific, you explain a complicated manner and they listen, nod their heads and quietly say “yes”. But this doesn’t mean that they agree. Translated into Czech, it means, “Yes, I hear you.” Therefore, it is a good idea not to let the meeting go further, but to ask, “Do you understand?” As a rule, they will reply, “No.”
With regard to nationalities, is there anyone you get along with particularly well?
I try to come to terms with everyone. The Ukrainians pleasantly surprised me with their diligence. The people I have met keep their word and stay focused on the goal so that they can add quality. Ukraine is a bit like Cinderella. We don’t talk much about it, but in the firm where I work, Ukrainians are among the best engineers.
At Tebodin, your home firm, do you lobby – in the good sense of the word – for the Czech Republic?
Paradoxically, I don’t have to lobby much. When we are faced with a project that is complicated and necessary to get done quickly, in most cases the board reaches the opinion: Give it to the Czech, because they can handle it. Within the firm we have a good reputation. One of the three members of the board is a Czech, which is interesting because he is the first non-Netherlander to sit on the board in the history of the company, which has been operating since 1945.
FOR SECURITY OF THE CURRENCY, IT IS ADVISABLE TO ADOPT THE EURO
Foreign investments in the Czech Republic bring orders to domestic firms. By what criteria do investors select a given region?
Each investor has numerous parameters according to which they choose an area; this involves specifics related to their corporate culture. Some investors want to be in an urban area, while others want to be outside of cities. You never know in advance; you have to ask. The proximity of their clients often plays a role. If they have customers in Western Europe, they will invest in the western part of the country, in the Plzeň, Ústí and Karlovy Vary regions. Infrastructure is another important factor. Places where there is a highway are interesting for investors.
Czech businesspeople are now saying that they envy their colleagues in Slovakia because the Slovaks no longer have to worry about exchange-rate fluctuations against the euro. What is your opinion on early adoption of the euro in the Czech Republic?
Honestly, right now I don’t have an answer. In the first half of the year, when the crown strengthened dangerously, everyone called for adoption of the euro. But now it again seems good that we don’t have it.
Some time ago, the British pound became a target of speculation and even it had problems ending that situation. And I decidedly would not compare our economy to Britain’s. But for reasons of security of the currency and the economy, adoption of the euro is definitely advisable. As for the timeframe, I can’t give a qualified opinion.
JAN BOBEK (36)
Following graduation from a secondary school of electrical engineering, Jan Bobek has worked for three firms, currently the Netherlands-based multinational consulting-engineering company Tebodin, where he has managed the business department since 2000. The company operates in twenty countries in Europe, the Middle East and Asia in the areas of industry, infrastructure, energy and state administration. Since Tebodin established a four-member multinational business department, to which Bobek was nominated, he also spends time in The Hague. In autumn this year, he was named chairman of the Association for Foreign Investment, which has 55 members. Jan Bobek is married, without children. He speaks English, German, Polish and Russian, and is learning Japanese. His main leisure interest is history, particularly military aviation.