Foreign markets Czech Republic: The Location scores with Quality

Czech industry has well-developed since the 90s and established in Europa. This also has consequences for companies, which now consider an expansion, whether with respect to the technical level of the location or with respect to the risks such as the costs and availability of qualified employees.

The brand Skoda is the most well-known example for the economic success of Czech companies. The country is established since long as production location not only in the automobile industry, but is also leading in mechanical engineering and plant engineering in Europa – customers from all world regions get everything from the individual specific screw up to the complete manufacturing facility of high-quality industrial products from the East European landlocked country.

Also in other industrial sectors, Czech Republic is growing in small yet significant steps: in metallurgy, chemical and pharmaceutical sector as well as in glass and ceramics production.

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Czech Republic is the cost leader for foundation of production locations

Czech Republic has already established as the cost leader for foundation of production locations with a steady growth in GDP and a decreasing unemployment rate of below 6 % (As on April 2015). This may also be due to the fact that the country is moving closer to the West only since joining the EU in the year 2004. After the fall of the Iron Curtain, initially the industrial corporations, then even larger medium-sized companies, manufacturing plants started establishing in Czech Republic. In the previous ten years, may suppliers followed in its wake to produce in close proximity of customers.

In the meantime, the industry in Czech Republic has intensively approximated to the essential standards, with respect to the skills of technical qualified employees. What is the significance of this for the medium-sized companies, which currently consider a first-time expansion towards East Europe? Is Czech Republic particulatly suitable based on the mentioned points – or is the risk very high to face a shortage of skilled professionals and increase in living costs in the coming years, which in turn shall increase the wages for skilled workers, engineers and managers? The survey "Qualified employees in East Europe. A survey from the perspective of German medium-sized companies" provides the references for the launch or development of Czech production location even in the upcoming years as a significant investment. The survey refers to the analysis of the management consultancies ROI Management Consulting AG and the magazine "Markt und Mittelstand". Czech Republic scores as compared to other EU-Nations in particular with the important criteria such as cooperation with government institutions, the infrastructure and level of qualification.

Medium-sized companies with their commitment in Czech Republic mostly satisfied

Czech Republic has strong representative with medium-sized companies, which are represented with minimum one location in the country since a few years. The decision makers questioned in the survey are not only satisfied with this selection – 77 % of them would even set up a Czech subsidiary today.

Moreover, the reality check of the analysis is particularly revealing. It compares the original motives for location selection with the actual impression, which the surveyed persons could collect from the land and the people in the course of years: In the selection of Czech Republic, primarily the low labour costs and qualification of employees were decisive, whereas less procurement costs or corporate tax played a minor role.

Labour cost benefits in Czech Republic no longer that important

The stimulating atmosphere in day-to-day business, with respect to the employees or the experiences with authorities, is complimented with other experience values. Thus, the labour costs benefits have become less important, since a noticeable cost increase, in particular in the wages and salaries, belongs to the daily routine. At the same time, many middle-sized companies are influenced very positively from the cooperativeness, work ethic and commitment of their employees. With respect to the infrastructure and collaboration with authorities, Czech Republic even acquired a leading position ahead of other investigated countries such as Poland or Slovakia – reliable information, fast turnaround time and less bureaucratic hurdles for proposals and approvals seem to be rather the rule than exception.

If anyone decides to establish a separate production in Czech Republic, then he must invest enough time in search of a suitable location. Multiple, personal on-site visits are helpful, since the impression of the local conditions creates an important counterweight to known facts, which e.g. the business development corporations provide. In general, it is recommended to proceed according to a catalogue of criteria and to clearly visualize the infrastructure, property costs, employee availability and accessibility. In addition, it is very much helpful to involve an employee of Czech business development in this project phase. Since their knowledge of place can be used to check alternatives for urban centres, which score in decentralized location with advantages such as better availability of manpower and lower labour and property costs.

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Companies should invest in trainings for Czech employees

In addition, it should be considered that further trainings of employees in practical field may be required. Since there is no dual training, connecting practice and theory in Czech Republic as against Germany. Furthermore investments in the qualifications of executives may be necessary: the decision makers questioned in the survey evaluate the qualification of the managers in East Europe overall negative; only a third party evaluates this as "good". Nevertheless, one in two middle-sized companies awards this rating for the skills of technicians and employees in administration and management. With respect to the situation in Czech Republic, it is apparent that the satisfaction with the offer for commercial or legal experts is just average.

Training programs with strong practical orientation are recommended for further qualification of skilled workers in the production. Besides exchange programs with German locations, training factories are primarily helpful here: The employees are given training in specific tasks from practice and this simulates new working practices for integration of applications from Internet of Things.

* Robert Benacka is the Managing Director of ROI Management Consulting a.s. in 25242 Jesenice u Prahy (Czech Republic). For further information (Germany): Tel. (0 89) 12 15 90-0, kontakt@roi.de

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