The second French wave
Written by: Jasna Sýkorová
Last year the French rivaled the Germans
in terms of investments in this country, ranking just behind the
number one foreign investor. The interest shown by the big players
also opened eyes at medium-sized firms, which decided to come here
Photo: J. Vágner
JEAN-CHRISTOPHE OIOLI, the operations director for French firm
Acésame, enthusiastically strolls through his kingdom in the newly
built office and production hall in Èakovice, not far from Prague.
He opened the brand new Czech branch this spring. There is still
an occasional lack of furniture in the offices, and the space seems
sparsely populated, but the main hall is already dominated by a
partly disassembled automobile. Acésame's main activity is benchmarking
for the automotive industry, which in practice means that it prepares
catalogues of all parts of any make or model for its customers.
This catalogue is in software form, and each part is accompanied
by a detailed verbal (manufacturer, material), numerical (dimensions,
weight), and pictorial (photographs from several angles) description.
Acésame specializes narrowly, and with annual sales in 2001 of around
EUR 1.98 million (about CZK 65 million), it is considered a medium
sized firm. The Czech Republic branch is currently its newest, following
France, Japan, the US, and Germany. Its clients include well known
automakers - Mercedes, Volkswagen, Honda, and Peugeot.
"We made our decision to enter the Czech Republic very quickly,"
says Oioli, adding that they wanted to be close to a customer -
VW Group. Last summer the company analyzed the business environments
in several countries, including the Czech Republic. Last winter
they reached their decision, and entered the Czech Republic through
an empty front company that was custom-made for it by a consulting
firm. (This process is common for mid-sized and small firms. This
way they need not spend time on administrative proceedings as entry
into the Commercial Register, and they can start doing business
immediately. This procedure is impractical for larger investors
with more administrative backup. It makes it more difficult to qualify
for investment incentives.) Acésame's decision was influenced by
several factors: a customer's recommendation, and an analysis elaborated
by CzechInvest, which indicated both potential costs and personnel
requirements. However, Oioli denies that his company was drawn here
by low costs. "If we considered costs only, we would probably
remain somewhere in the EU. Many processes, mainly logistics, are
more complicated for us now - for example, transporting cars for
analysis, or customs operations," he says.
Nevertheless, just as Acésame knows that the average car represents
25,000 various bits of information, and that it takes eight people
two months to process them, it also knows which goals the company
must achieve in the Czech Republic within one year: to increase
the number of staff to 25 (from today's 10) and to invest up to
EUR 610,000 (CZK 20 million). The company is also preparing a software
update and further growth, so that in four years the funds invested
should rise to EUR 4 million (CZK 130 million).
the periphery to the center
After a few years of
waiting and watching, French firms have decided to
catch up with their foreign competitors on the Czech
market. This is true of areas less closely monitored
than the large retail chains, factories, and banks
- for example, in specialized retail.
In March of this year, Sephora, a specialized French
chain concentrating on luxury perfumes and cosmetics,
following La Halle (footwear) and Yves Rocher (cosmetics),
appeared in shopping malls. After trial operation
in the Nový Smíchov center, it will open additional
shops in Zlièín and Letòany. Within one year it would
also like to open a shop in the center of Prague.
"We can move in right away, when the construction
will be completed," says Maciej Szymanski, Sephora's
manager for central and eastern Europe. "A location
in the city center is more complicated in terms of
choice and modifications as per our requirements."
According to him, the Czech Republic would be a logical
place to go after Poland, where Sephora is the strongest
player on the market, what with its 30 outlets. The
smaller Czech Republic should have ten shops eventually.
Unlike others, Sephora is betting on self-service
sales with consulting stations and its broad assortment,
from luxury cosmetics to more common, less expensive
drogerie goods. According to Szymanski, the elimination
of the counter barrier and the expanded offer will
draw customers into the shop who would normally never
stop by for fear of prohibitively high prices. "The
results exceeded our expectations," Szymanski
claims. "The Czech Republic has emerged from
recession, and you can see this reflected in purchasing
power. There are great opportunities for growth here."
Szymanski also refers to the value of the average
purchase in the brand name outlets, which is in the
40 euro range in EU countries and about eight euros
in the Czech Republic. Sephora is not worried about
competition for now. It's far from overwhelming, Szymanski
comments, as there are only two similar chains on
the market - Jasmine and Diva.
But Sephora should not serve as an example, as this
could lead to unreserved optimism. Some geographical
areas of the Czech market are becoming saturated with
offers. For example, in the Ústí nad Labem and Ostrava
regions, explains Tomá Drtina, the director of the
Incoma research agency. During its research the company
has also noted some firms that have failed to succeed
and given up on expansion in this country, because,
even though there is still room to fight over market
share, even international specialty chains cannot
last long without turning a profit.
Acésame is not alone in its interest in the Czech Republic, but
it is one of the few to see its ideas through completely. "Successful
French mid-sized firms are looking for market space to expand into,
and they feel drawn by central Europe," confirms Jaroslav Hubata-Vacek,
the director of the French-Czech Chamber of Commerce. The chamber
serves as an entry point for French investors in the Czech Republic.
It arranges consulting activities and contacts and accompanies potential
investors around domestic firms. Despite their interest and assistance,
there are not very many mid-sized firms that can see their investment
plans through to the end. According to Hubata, there is still a
lack of information about our market. "Unfortunately, some
French businessmen distinguish very little between Poland, Romania,
and the Czech Republic," he says. "They come very poorly
informed, they don't have any strategies or budgets prepared. Or
they have prepared for different price levels, and offer products
that several times over exceed local purchasing power."
Nevertheless, he feels that the situation is improving. "The
arrival of large investments such as Société Générale's in Komerèní
banka (last year) and the Toyota Peugeot Citroe¨n Automobile (TPCA)
joint-venture on an auto plant (this year) serves as a good reference
for other mid-sized firms, raising their interest in our country,"
Hubata adds. Thanks to these references they are coming to the Czech
Republic in a second wave.
The French Desk
The large players are getting in on the action, too. It is often
in their interest to help second-wave firms. For example, Komerèní
banka decided to support French firms' interest in doing business
in the Czech Republic and to set up a service called the French
Desk, which should become fully operational this summer. According
to Philippe Delacarte, vice-president, mid-sized and large enterprises,
this service focuses on firms with CZK 20-500 million in annual
sales, and it should enable them to orient themselves more easily
in the Czech environment. French (and other foreign) firms will
be able to take their problems and needs to a single place. The
linguistically talented people serving at the French Desk will help
them open accounts and fill in forms, but also to find experts for
other specialized services - from obtaining credit to currency trades.
Photo: Jan Vágner
"There were several reasons for setting up this client center,"
Delacarte says. "When Société Générale acquired Komerèní banka,
there arose a need to take care of clients from the former Société
Générale branch here in Prague. When we started solving clients'
problems individually with them, we discovered that it is very complicated
for businessmen to feel at home with operations like opening bank
accounts. We looked at Komerèní banka with the eyes of foreigners,
and we prepared this point of entry for them, to guide them through
the obstacles," he adds. Société Générale is not breaking any
ground in offering this service, as it already has made similar
changes in Germany and the US. Nonetheless, as Delacarte explains,
"Komerèní banka is our largest foreign investment, and we are
paying extraordinary attention to such operations." He also
expects the French Desk to support Czech-French business contacts.
"Besides being able to help firms become comfortable in this
environment, our analysts can better acquaint them as to investment
opportunities here in the Czech Republic," he says. The other
side of the coin applies for Czech firms looking to penetrate France.
Komerèní banka intends to present this service in a broader context
during Czech Season in France, which will be held in the largest
French industrial cities this autumn. Czech Season, whose purpose
is to raise awareness of the Czech Republic, is prepared by the
French embassy in cooperation with CzechInvest and CzechTrade. "We
expect that French firms will be interested in other projects in
the Czech Republic," says Martin Jahn from CzechInvest. "Unlike
Germans the French fell behind at the beginning, but now they try
to catch up. The fact that TPCA came to Czechia and not BMW or that
Société Générale won Komerèní banka instead of HypoVereinsbank proves
that they really want to be here and that they are willing to invest
more than others," Jahn explains.
for the Czech Republic
The new TPCA Kolín production
facility of the Toyota Peugeot Citroe¨n Automobile consortium
should bring work to many firms and attract more Japanese
and French investors. The question remains whether any slices
will go to Czech suppliers from the "pie" offered
Jacques de Raismes
Photo: Vojta Vlk
"If we succeed in working together with this automaker,
it will mean a lot to us," says Miroslav Pech, the sales
director for Tanex plasty. With sales of about CZK 500 million,
Tanex is a purely Czech firm that produces plastic car parts
- head rests, gear shifts, etc., for automakers throughout
Europe. Nevertheless, Pech believes that the chances of working
directly for this automaker are not good: "The consortium
already has business ties with about twenty multinational
suppliers. It would be more realistic for us to get into the
second line, and to apply for sub-deliveries."
The investment incentives that the Toyota Peugeot Citroe¨n
consortium will receive from the Czech Republic are not tied
to using Czech contractors. According to Jacques de Raismes,
a PSA Peugeot-Citroe¨n representative and vice president of
TPCA, the consortium has no commitments to firms in France.
"The joint TPCA project is focused on the production
of small-size vehicles, a brand new segment for us. No French
governmental authorities or unions take part in the location
selection process, and no compensation fees are foreseen for
the French companies," he explains.
According to automotive industry experts, it is most probable
that TPCA will initially contact already verified suppliers.
"The time prior to commencement of production is short,
and there will be no time for training, and Japanese firms
are the most demanding in the world in terms of quality,"
opines Stanislav Dvoøák, the sales director for Splintex Czech,
which manufactures safety glass.
Since the nineties Splintex has been owned by the Japanese
firm Asahi, which traditionally cooperates with Toyota, and
its Belgian branch cooperates with Peugeot. However, TPCA
is only beginning to select suppliers in the Czech Republic,
and this firm works together with it in designing glass products,
and it hopes to close a contract for its Czech plant.
But even if TPCA were to work mainly with multinational firms,
Martin Jahn of CzechInvest estimates that beyond the 3,000
jobs right at TPCA, another 10,000 jobs will be created at
Czech suppliers and sub-suppliers. "Obviously, the start
of our project here has led to very good publicity for the
Czech Republic. It will no doubt attract other foreign investors,
including French and Japanese automotive equipment manufacturers,"
says de Raismes.
The entry of an investment partner
brings expectations of better tomorrows. And if a foreign
partner is involved, it can also lead to culture shock.
Photo: Vladimír Weiss
When Karel Vacek established the first mobile phone shop
in 1996, he had no idea that such an overwhelming tide of
events would follow. His shop developed into the well known
firm GSM Partner, which in 1999 began wholesale distribution
to dozens of shops throughout the country, with annual sales
of CZK 310 million. However, continued expansion required
additional capital, so Vacek, as sole owner, sold his firm
to Avenir Telecom, a French distribution group.
This was a timely step. Because of the recession in mobile
telephones, which was caused by market saturation and handsets
with longer lives, being a member of a strong group might
have saved GSM Partner's existence. The Avenir Telecom chain
also brought know-how to the firm - sales techniques and marketing
creativity; it brought a new perspective to the market - from
a Czech viewpoint to a European one; it made the organizational
structure and management more efficient. Additionally, Avenir's
size, with its branches in ten countries and sales of EUR
700 million, makes it possible to arrange special conditions
with manufacturers and suppliers.
Nevertheless, Vacek admits that he had to come to terms with
the way his partners think in some areas as compared to Czech
business customs. "First I was surprised by their management
style of solving problems reactively," Vacek recalls.
"You have to push the French. When there is no pressure,
it has no priority for them." It also happened that his
Czech colleagues sent requests and questions to France by
e-mail without getting any answers. According to Vacek, the
best system is to send an e-mail, then several e-mails, then
to make a few calls, and only then to expect an answer. "But
the best way is to solve problems face-to-face," he adds.
He thinks that mutual understanding is very important in negotiating
with a French firm (mid-sized). "In large firms, what
is written applies. In mid-sized French firms, a gentlemen's
agreement and a given word override all, but even then there
must be papers and contracts," notes Vacek, who is comfortably
conversant in French.
Another characteristic trait for contact with the other party
was the custom of centralizing communications. In France one
person takes responsibility and solves most matters. The Avenir
Telecom partners applied a similar system here in the Czech
Republic. "In the first six months I was the only person
everyone knew. I received piles of correspondence and had
to distribute it all around. It took about a year to set up
direct links to the mid-management, like the financial and
sales directors," Vacek recalls, adding that he was also
surprised to find that although the transaction contract between
Avenir Telecom and GSM Partner was signed back in July 2001,
it took another six months for the French to actually take
control over the firm's operations.
Pavel Holomek, the sales manager for the French-Czech Chamber
of Commerce, has had similar experiences: "French firms
that come to discuss possible cooperation are often surprised
by the Czechs' preparedness. While the French side is planning
more and more meetings to get down to the point, the Czech
partners have well prepared offers, and it is very hard for
them to understand why the decision-making period should be