US portfolio targets know-how
Written by: Jason Hovet
Photo by: Petr Poliak, Vojtěch Vlk
Knowledge-based investment is making
its presence felt in areas from research to business, and American
firms have been quick to capitalize on the trend.
IN THE WORDS of former CzechInvest head Martin Jahn, who was recently
appointed the vice-premier for economic issues, shifting the country's
foreign investment "from quantity to quality" has been
a priority for the government agency. Already, the office is seeing
success, with 40% of investment now going to research & development
and business support services. In the first half of 2004 alone,
23 such projects have been filed - compared with only seven at
the same time the year before. Ranking among the top investors
in research and business support are American companies, whose
total investment in all sectors totalled USD 138 million in 2003.
"The technology and strategic services sector in the Czech
Republic has been rapidly expanding over the past several years," says
Karolína Bočková of CzechInvest's US office, which is located in
California's famed Silicon Valley. "US companies, (of which
there are now some 300 operating in the Czech Republic), have significantly
contributed to this development," she adds.
Weston Stacey Photo:
Most recently, ExxonMobil, the world's largest publicly owned company,
opened its European center for strategic services in Prague. Consolidating
the oil giant's European IT, finance and accounting services, the
Prague center should employ 300 people, mainly university graduates,
by the end of the year. "If the [center's] operations achieve
the anticipated success, then further growth of the workforce is
expected," said Philip Cappuyns, ExxonMobil's spokesperson.
Among the reasons for investment is the educated and language-proficient
workforce here, a factor often cited by other investors. The investment
also falls under CzechInvest's program to support strategic services,
thus allowing the company to receive benefits for staff training.
Although the company wouldn't disclose the exact value of its investment,
CzechInvest officials have put it in the "hundreds of millions
of crowns." According to Cappuyns, "Our investment is
in state-of-the-art office facilities and computer systems, and
in the training of the people that work there." Joining a
team of other global support centers for ExxonMobil, the Prague
center is only one of three in Europe - the other two being in
Manchester and Budapest. "Just like with most other Business
Support Centers, it is expected that up to 95% of the services
provided by [the Prague office] shall support operations outside
the Czech Republic," Jahn, then at CzechInvest, stated at
Pulling strings from Prague
ExxonMobil is hardly alone in its move. Accenture, which has been
in the country since 1991 and is the world's largest outsourcing
provider, recognized the benefits of Prague's location, low cost,
and talented workforce three years ago when it opened a new Delivery
Center here, adding to a worldwide network of more than 20 similar
centers. Opened in October 2001, the center supports back-office
work in nine European countries and 11 languages. "The Prague
center is the latest move in Accenture's strategy to create a
global network of shared-service centers," said Martin I.
Cole, Accenture's lead partner for outsourcing operations, when
the project was unveiled. "While we will initially focus
on serving European clients, we will rapidly expand the site's
capabilities, offering a wide range of critical business processes
to multinational companies."
In two years, the project has been quite successful and further
expansion plans were announced last October. Although the company
can't comment on the size of the investment, by 2008 the center
should have 1,500 employees, a five-fold increase from its current
level. Hugh Kirby, another partner in outsourcing services, says, "The
Prague Center has been a huge success thanks to the skills of the
local staff and quality of the facility." Presently, the center
provides its clients with finance and accounting services, but
after expansion (which will take place in stages), human resources,
logistics, and customer relationship services will also be among
the center's offer.
According to Weston Stacey, executive director of the American
Chamber of Commerce, "Both [research centers and business-support
centers] are the future catalysts of Czech economic growth." But,
for Stacey, knowledge-based investment doesn't stop there. "We
are also trying to bring research-related investment in health
care because this country has the potential to be one of the leaders
in this industry," he explains. "Health care has great
potential to be one of the primary engines of this economy." Similarly,
Hana Lasslerová, with CzechInvest's Chicago office, says she has
seen a lot of interest in life sciences investment.
Based on experiences of most companies, expansion and fresh investment
don't seem unlikely. ExxonMobil's Cappuyns notes that the company
considered many criteria in selecting Prague: the quality of the
local infrastructure and telecom services, the availability of
skilled personnel with the required education level and language
skills, the cost of operating, and the legal framework. "We
considered candidate locations in a very wide geography," he
says. "I cannot speculate whether the Czech Republic will
succeed in attracting more [service] investment, but if other prospective
investors use the same criteria, they may make the same selection
[as we did]."
Laurie Spengler Photo:
Education level attracts research
One long-time investor is the American manufacturer Honeywell, which has been
present here since 1962. Moreover, it has been quite busy in the past few years.
In 2003, Honeywell took over the Flextronics building in Brno to expand its
production activities in automation control systems. (Flextronics had left
the building, and 1,000 people unemployed, the year before when it pulled out
of its investment deal.) A year later, most of the production lines are prepared
and Honeywell plans to employ as many as 300 workers in the next few years
- an investment totaling USD 12 million. Jaroslav Doležal, Honeywell's national
executive, says this project "is reconfirming [Honeywell's] faith in the
excellent education of Czech specialists." At the plant, 15% of staff
will have university educations. This deal adds to Honeywell's Global Design
Center in Brno, which opened in 2003 and employs 60 engineers (ten years earlier,
Prague was the site of Honeywell's first foreign research laboratory). Adding
to Honeywell's Czech operations in Prague and Brno, is the acquisition of Mora
Aerospace in Olomouc. The company, which specializes in sheet metal for the
aerospace industry, announced expansion plans in March and plans to add 400
employees to the current 520 in the coming years. In total, Honeywell currently
employs more than 1,000 people in the Czech Republic.
US investment should continue now that EU accession has (almost) been completed. "Most
experts agree that EU accession will have a positive impact on U.S. investment," says
Laurie Spengler, director of Central European Advisory Group, which has more
than 10 years experience in advising foreign investors. "In the eyes of
many investors, joining the EU reduces the risk of unexpected changes in the
market conditions," she adds, while praising government incentives for attracting
Still, notes Stacey from the American Chamber, competition is stiff. "If
[the Czech Republic] can position itself correctly, which means taking a hard
look at how the country compares with Slovakia, Germany, Ireland or Portugal,
to name just a few competitors, it will continue to grow as a research-based,
high-end economy," he says. Lower costs definitely help eastern countries
in this respect. Just as well, education is an advantage over the country's eastern
European neighbors. "Having a well-educated workforce is one of the Czech
Republic's greatest advantages," Spengler points out. For this reason, CzechInvest's
Bočková remains confident. "In the next few years, I expect a continuous
inflow of high value-added investments," she says.
Francois Bornibus Photo:
Investing for the long
Franćois Bornibus, Hewlett-Packard's
vice-president for HP Enterprise Systems Group in Europe,
Middle East & Africa (EMEA), recently visited Prague
along with other top managers of the American IT giant,
including company head, Carly Fiorina. He sat down to talk
about HP's growing business after its completed integration
of Compaq in June 2003, as well as its activities in the
Why did you and company director Carly Fiorina decide to
visit the Czech Republic?
The reason we are here is because we see the importance of
the Czech Republic and the overall eastern European market.
42% of Hewlett-Packard's (HP) world revenue is done in Europe,
which is more than what we do in the U.S. [HP's business
in] the new EU accession countries is growing around 20%
a year, so it's by far, for HP, the fastest growing region
in the world.
The last couple of years have seen a global slowdown in
investment. Has this been the case with HP as well?
Often, when times are tougher, you see companies taking back
their investment. HP invests for the long term. We are here
for the long term with 600 people in the Czech Republic.
What types of investment does HP have in the Czech Republic?
There are three types of investment. First, there is investment
in manufacturing. HP, four years ago, started assembling
computers with Foxconn, [a subsidiary of Taiwanese IT manufacturer
Hon Hai Precision Industry]. At that time, Foxconn was
very small; now they have 1,000 employees and produce about
300,000 personal computers (PC) a month for HP. Second,
we invest in knowledge, for example, in our European Configuration
Center for large servers. This is centralized here in the
Czech Republic where we have 25 experts. Also, we are now
increasing knowledge of supply chain management because
our supply chain for Europe will soon be managed out of
the Czech Republic with around 50 people. Thirdly, something
not a lot of other companies talk about is public/private
partnerships. This is where the government works with private
companies. We are starting to work on projects like this
in the CR.
You, personally, in your career for Compaq and now HP, have
worked with all customer segments. Which one is most lucrative
for IT companies?
All of them. HP is covering all sectors and is very strong
in all of them: consumer; small- and medium-sized business;
and large businesses. The reason why it is so important for
us is the timing of investment in these three segments is
different. Having a strong presence in the three customer
segments helps you balance when one segment is not performing
You recently won a tender to help Visa consolidate its EU
headquarters, thanks in part to your new Adaptive Enterprise
Strategy. Can you briefly explain this new strategy?
What companies like Visa request from IT is stability, cost
performance, and reliability. But, for example, if you make
a company acquisition and your technology isn't able to adapt
very quickly to the other, you are dead. Adaptive Enterprise
means our strategy is to provide our customers with very
reliable, stable technology, but technology that will also
help you adapt very quickly when your business changes.
How does HP's future look in the Czech Republic?
HP is already the number one IT company in the Czech Republic.
It already has a very strong position. The future is bright
because the country's future is bright. EU accession will
enable future growth. But, one aspect here that is different
than other accession countries, is that growth in the Czech
Republic is very consistent. In other countries, it's like
a rollercoaster. The Czech Republic is a very strong-performing
country for HP.
The rewards of education
Jaroslav Doležal Photo:
has turned heads, and many investors are getting more involved
in schools in order to safeguard their money.
"US companies are cooperating increasingly with Czech
universities and research institutions," says CzechInvest's
Karolína Bočková, "which is contributing to successful
transformations of research results into production." Worldwide,
Hewlett-Packard (HP) spends about USD 60 million yearly on
educational initiatives, which range from basic schools to
universities. "We are fairly successful in projects
with basic schools in the Czech Republic," says Karel
Vavruška, spokesperson for HP, adding that the company funds
about four to five projects a year. A typical project, says
Vavruška, is a PC classroom, which is typically 12 to 16
computers, a server and printers, and costs up to CZK 1 million.
HP also provides equipment grants to universities. "In
total, we give several million crowns worth of equipment
in order to promote educational initiatives in the Czech
Republic," says Vavruška.
Besides its new Global Design Center and its Mora Aerospace
facility, Honeywell's new factory in Brno manufactures burglar
alarm panels and assemble combustion products. "We use
modern technology, which requires qualified workers," says
Jaroslav Doležal, Honeywell's national executive. "For
this reason, we count on to a greater extent technically
talented secondary school and university graduates." Honeywell,
for its part, works closely with technical universities,
both financially and otherwise: company representatives give
guest lectures, mentor students, assist in research projects,
and many students take part in internships at Honeywell.
In June, Honeywell donated USD 207,000 to Czech technical
universities. Honeywell's Global Design Center manager, Ladislav
Skapa, explains: "Modern production designed as a complex
interactive unit [for students] allows us to attain much
better quality than the mere combination of classical solutions."