NATO summit: make profit, not war

Written by: Jasna Sýkorová

For the first time, a NATO summit will be hosted by a post-communist country. This is not only an honor with political and military significance, but also a chance for Prague’s business community to boost its global reputation.

LIKE ANY OTHER undertaking, the summit needs a budget. The Czech government approved CZK 800 million, an appropriate sum for such a mega-event. This money will be used to finance the convention, accompanying events, transport, and security. Other assets will flow from private subjects and embassies, because the two-day meeting will be accompanied by many social get-togethers. The delegates themselves pay for their transportation to the Czech Republic and their housing, which itself accounts for at least another CZK 100 million.
This “injection” and promotion for Prague makes Prague hoteliers happy. “I can see promotional spots on CNN for Vienna or Budapest, and our capital city has a handicap in these terms,” says Michal Chour, sales director for the Radisson SAS hotel. Furthermore, Prague hoteliers find themselves in a rather complicated situation this year. The first six months saw fewer tourists than last year visiting the Czech Republic, and then Prague was inundated by catastrophic floods. The Hilton, which was damaged by the waters, reopened in September, and the Inter.Continental should resume operation in the beginning of November. Some hotels, such as the Four Seasons, will unfortunately be unable to complete their repairs before the NATO summit opens.
According to Alexandr Vondra, the government’s commissioner for summit preparations, the summit provides great motivation for firms to restore their operations to normal. He says that global television networks will be steadily observing Prague for two days, this time in a context that is not catastrophic, which should help the travel industry here. In connection with the NATO summit, people frequently speak of positive indirect economic impacts – more tourists will come in the future, and Prague’s prestige as a convention-friendly city will rise. However, critics point out that there were similar expectations before the IMF meeting, which did not pan out.
References matter
One need not look for only indirect positive effects. The money that the state freed up for the convention budget will enter the economy directly. The amount that will be used for organization comes to CZK 340 million, and, according to Halka Kaiserová, spokeswoman for the NATO Summit Office (KSN), most of this figure will go to supplier firms. “There were forty tenders in all, and about 100 contracts have been signed,” Kaiserová says. Contracts were closed with firms with no competition in their fields (e.g., the Congress Center). Tenders were not required by law, because this is an event associated with state visits, Kaiserová adds.
Although KSN wants the entire process to be as transparent as possible, in two weeks it was unable to provide The Prague Tribune with a complete list of suppliers, or more detailed rules for tenders and controls. Although the names of the firms are not confidential, only a few names have been made public – the Congress Center will be equipped with Dell computers; Sanjiv Suri, owner of the catering firm Zátiší Group, will be in charge of catering, in cooperation with other restaurants and firms like Golem. Furniture for the convention will be provided by Alax, and VPU Deco, along with other firms, will be in charge of construction modifications. The Adecco agency is in charge of staffing, as it was for the IMF meeting.
Firms agree that references are more important to them than the job itself. The sheer number of firms restricts the budget, so suppliers often reduce their margins or provide their services free of charge in exchange for the prestige. One such example is the Import Volkswagen Group, the official summit partner that arranges for Škoda and Audi limousines, passenger cars, and minibuses. Not surprisingly, the convention also means unpleasant administrative tasks. “If we were to compare the enormous amount of work with the financial returns we will get for our services, we would not be involved in such an event,” says Jindřich Chytráček, sales director for the catering company Golem. His 250 employees will have to go through security screening, which means lots of extra administrative work. “For us, the biggest business lies in the references,” Chytráček explains.
Proof of fitness
The NATO summit has a final, but no less significant, business dimension – military. The security arranged will show whether the Czech Republic is an equal alliance partner. Additionally, there will be experts among the delegates who can appreciate the technologies used. Some of the hallway meetings will probably include military business. “There is some consideration being given to the Czech Republic becoming a part of a defensive nuclear umbrella. This would bring contracts for arms companies, as well as for the building of infrastructure – roads and missile silos,” notes a military technology expert who wishes to remain anonymous. “Additionally, the Czech army wants to reinforce its position as a trainer for armies of eastern countries that are NATO candidates. But western armies also like to rent our military facilities, such as Ralsko and Doupovské hory. So the NATO summit will be good advertising not only for the travel industry, but also for these ‘services’,” he adds.

NATO realityThe NATO summit, which will take place on November 20 and 21, will be the largest convention ever to be held in Prague. As such, it has racked up some impressive figures:
· 46 heads of state
· 2,500 delegates
· 3,000 journalists
· 12,000 people (KSN est.) will take part in extra-curricular events
· Czech budget: CZK 800 million
· CZK 340 million will be divided among about 100 suppliers
· 70 employees for summit preparations
· 500 cars and buses for transport (KSN est.)
· 3,000 NATO protesters (KSN est.)
· 12,000 police and military unit members for security (paid out of the budget’s remaining CZK 460 million)

Summit-based benefits


Alexandr Vondra	Photo: V. Weiss

Alexandr Vondra, the government commissioner for summit preparations, is known as a former dissident, the Charter 77 spokesman, and as the Czech ambassador to the US in the 1990s. Now he is in charge of coordinating the biggest convention in the history of the Czech Republic. He points out that the event’s success could have a positive influence on the entire country.

Like many others, you support the indirect effects of the NATO summit on the local economy. But after the IMF meeting there was no great increase in tourism or the convention industry. What makes the NATO summit different from that convention?
As far as tourism goes, Prague has prospered in the last ten years. But it has been grievously affected by the floods, and we believe that the NATO summit and the journalists that cover it will help bring the tourists back. Revenues from the travel industry are in the billions of crowns every year. Conventions are also very important to Prague. In October alone several big conventions were organized here – FORUM 2000, the Trilateral Commission, and others.

How did your office select the large number of suppliers?
We called tenders for most of the services, and we prepared the methodology in cooperation with the consulting firm Arthur D. Little. Overall there were about forty tenders for transport, catering, lodging, and Congress Center equipment, to name a few. The tenders, which were generally called by addressing multiple firms, were always won by firms that best met our requirements, and price was the main criterion for selection. We are trying to handle our assigned CZK 340 million economically.

Do you think that cooperation in the organization of the NATO will be a significant reference for firms in their future business activities?
I think it could be. Of course it depends on how the individual firms manage to make use of their participation in their marketing activities. For example, in the area of transport, we managed to arrange free insurance on delegates’ cars due to great interest on the part of insurers.

Can the organization of the summit have an impact on winning military orders – such as the Czech Republic joining the defensive anti-nuclear umbrella?
Anti-missile protection is currently under discussion as to the project’s feasibility. If NATO agrees that such a project is possible for the protection of Europe, it could be an interesting challenge for Czech firms.
Interview by Jasna Sýkorová

Hotels welcome prestige


T. Urbánková	Photo: Kurt Vinion

Prague hoteliers, who will have to provide lodging for 2,500 to 3,000 delegates and about as many media representatives, are understandably gearing up for this November’s NATO summit. According to Arnošt Kareš, the lodging coordinator at the Prague NATO Summit Office, hotels that will house the delegates must meet the following criteria: a high standard of services provided by five-star hotels (delegates will be housed in most of Prague’s twelve hotels of this category); ability to adapt to the security system ensured by the interior ministry; and they must be as centrally located as possible. The hotels that house journalists must offer a broader price range for the services they provide, and they must also be accessible in terms of transport.
Prague hotel representatives – who were rather sparing in their comments, due to security concerns – generally agree that housing participants (for which the delegations pay approximately EUR 200-300 per room/night) will result mainly in increased prestige for them. “The benefits of such an event can be long-term, resulting in positive references about Prague from highly-placed delegates around the world,” says Michal Chour, sales director for the Radisson SAS hotel. “The short-term impact will be financially significant, but on the other hand, hotel occupancy is generally poor shortly before and after events of this type, and this should balance out the advantages,” he adds.
According to public relations manager Tereza Urbánková, the financial benefit to the Hilton hotel of housing NATO delegates will be on the order of tens of millions of crowns. But the summit will mainly demonstrate to the world that Prague and the entire country are back in business following the floods. Urbánková says that this will be the greatest benefit. “We do not feel that the city or national government is making any great effort to alter the negative perception of the Czech Republic, which resulted from news reports by the foreign media. The NATO summit could serve as a great promotional event,” she opines.
Martin Zika

Betting on long-term valueFOR THE NEARLY 100 firms that will service the summit’s various needs, the chance to take part in an event of such great international significance is extremely attractive. Their principal gain will be the prestige that can be of substantial help to them in future business activities.
Catering services will be provided by several firms. Zátiší Group will arrange dinners for heads of state. The company will have to be able to set up a kitchen from scratch in a given location in order to prepare food for about 800 people. “Prices are usually depressed at such events, and we will also have to make sizable investments,” says Sanjiv Suri, president of Zátiší Group. “We can use what we invest in in the future, but any talk of profit is nearly impossible. It is primarily a question of prestige for us.”
ProMoPro, a company that specializes in rental and service of convention technology, will play a large role ensuring services for the Prague Congress Center – from sound systems and interpreting technology to studio preparation. According to ProMoPro director Jaroslav Veselý, NATO representatives requested his firm on the basis of references from the IMF meeting. “We will enjoy the references for a long time. For example, when we tell a potential client that we made arrangements for the IMF meeting, there is in fact nothing else we need to say,” Veselý remarks.
Local firm Alax will handle the rental of furniture for the Prague Congress Center and other buildings in the area. “It is certainly a very interesting, large order. Our profit will not be as great as usual, but it was very important for us to win this contract with respect to references,” notes the company’s sales manager Miroslav Havel.
Martin Zika

Security: in the state’s hands


Michal Kuník	Photo: P. Veselý

Alliance F-16 fighters in the sky, police snipers on rooftops, metal detectors at every turn, CIA and FBI agents checking rooms in five-star hotels and armored luxury limousines. This is no James Bond scenario, it is the reality for Prague this November.
Although the NATO summit will be an even greater security-clad event than the World Bank and IMF meeting in 2000, it will only marginally impact the private security services market, according to Michal Kuník, the president and manager of Securitas ČR. Out of the total CZK 800 million budget that the foreign affairs ministry has allocated for the event, CZK 460 million are earmarked for security. As organizer, the ministry is relying exclusively on the police, the army, and the secret services, so these funds will wind up in state hands. Private security services will enjoy heightened demand only through clients such as hotels housing foreign delegates and banks in the city center, where attacks by demonstrators can be expected. The lack of a law on security services prevents greater involvement by private entities in similar events, Kuník claims.
Libor Novák, the security manager for the Hilton hotel, estimates that security costs at the hotel during the summit will be three to four times greater than usual, reaching a maximum of CZK 500,000. “The American and Dutch delegations will occupy seven floors out of a total of eight, so you can imagine how tight security measures will be here. We will have metal and explosives detectors,” says Novák, describing the situation at the Hilton, where US President George W. Bush will stay. The police will ensure the protection of people, while police pyrotechnicians and American agents have reportedly already screened the hotel rooms for bombs and bugs. The hotel will enjoy considerable savings thanks to the police providing security.
Paradoxically, the private entity that will participate to the greatest degree in the security measures has nothing to do with security services. Audi CZ will rent a total of 55 Audi A8s, some of them armored, to prominent guests. A basically equipped, 2.5 TDI Audi A8 costs CZK 1.8 million without armor, bullet-proof glass, and special tires, with the six-liter limousine costing nearly CZK 4 million. “The price of the armored version is about four times that of the basic model,” says Jan Klíma, Audi CZ’s spokesperson. Audi’s sister firm in the Volkswagen group, Škoda Auto of Mladá Boleslav, has also gotten into the act, loaning 171 fully-equipped Superbs and 25 Octavias, worth a total of CZK 250,000,000, to the organizers for free. After the summit is over, Škoda will sell these cars through its dealership network. Because the prices of the most luxurious cars decline the most quickly on the used car market (according to experts, by at least 20% when the car is driven off the lot) the car maker will effectively donate at least CZK 45 million to the organizers. What’s in it for them? “The whole event should contribute to the brand’s visibility around the world, and raise Škoda’s reputation,” says Karel Pokorný of the Škoda Auto press department.
René Jakl

Out of the cityDURING THE SUMMIT, Prague residents should flock to the outskirts of the city for prime shopping. Within the framework of the so-called partnership project, the foreign affairs ministry has addressed hypermarkets in Zličín, Černý most, and others outside of Prague (in Liberec, České Budějovice, etc), asking them to offer substantial discounts and accompanying programs. Other firms, such as travel agencies, will probably come up with similar special promotions.
Some insurers (Allianz and Kooperativa) are also offering “NATO services”, as a supplement to property insurance (against civil damage). Contracts cannot be closed for only a short period of time.
Jasna Sýkorová

Attracting the conference crowd


Karel Procházka	Photo: P. Veselý

While experts forecast promising development for Prague’s convention tourism, the Prague Congress Center (KCP), where the main part of the NATO summit will be held, is considered by many experts to be the black hole of state investments in Prague. Two years ago the city borrowed nearly CZK 3 billion for refurbishing the KCP in the leadup to the World Bank and IMF meeting, and last November the Prague city council threw in another CZK 500 million. In March the council approved an additional subsidy of CZK 80-100 million per year for the next six years, since the KCP is unable to pay off the refurbishment loan from its own funds. Director František Dušek points out that the NATO summit will probably not save the KCP either, as the organizers will pay only CZK 38 million in rent.
Karel Procházka, general director of Guarant, a firm that organizes conventions, says that the KCP is a part of the city’s basic infrastructure, like mass transit, so it must be subsidized. He feels that funds thus spent will be returned many times over, because conventioneers are big spenders. Procházka says that the average convention participant spends USD 300-400 on participation fees alone. “The typical international convention attendee in Prague spends another USD 600-700 on a hotel room. Not to mention restaurants, transport, and gifts,” Procházka insists. According to Mag Consulting, last year Prague rose to 24th in the world in terms of international convention attendees. In central Europe, Prague trailed Berlin, Budapest, and Vienna. Mag Consulting works with statistics provided by the Union of International Associations, which tracks convention tourism in 180 countries.
Howard Klein, business development director for Reed Exhibitions Europe, the largest exhibition organizer in the world, says “Prague is an attractive city, and services and infrastructure are now generally okay there.” He believes that Prague is fairly strong in conferences, but lacks something to develop its potential for organizing exhibitions that are tied to conventions. “Many of the truly large exhibitions are held in Brno, which offers four times the exhibition space of Prague.” According to Klein, Výstaviště Praha could be improved with additional investment, and the new exhibition center in Letňany is also promising.
Klein believes that the NATO summit will help attract business conventions in the future, but only to a limited degree. “Conferences go to places where the market has an interest in organizing them,” he says. “The Czech Republic’s importance will increase as it joins the EU.”
René Jakl