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 at last.

	Jean-Christophe Oioli	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 Čakovice, 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).

From the periphery to the centerAfter 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. Photo: René Jakl 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 Zličín and Letňany. 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 Tomáš 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.

Ill prepared
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 Komerční 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, Komerční 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.

Phillippe Delacarte	Photo: Jan Vágner

“There were several reasons for setting up this client center,” Delacarte says. “When Société Générale acquired Komerční 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 Komerční 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, “Komerční 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.
Komerční 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 Komerční banka instead of HypoVereinsbank proves that they really want to be here and that they are willing to invest more than others,” Jahn explains.

Good advertising 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 by TPCA. 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 Dvořák, 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 tide of investment 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. Karel Vacek 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 extended.”