Written by: Jason Hovet
Photo by: Petr Poliak

After a hectic 2001 for French investment, the last few years have been relatively quiet. But with EU entry here and outsourcing catching on in France, these slow years look to have only been the eye of the storm.

ACCORDING TO Jean-Francois Salzmann, partner at the Prague office of French accounting firm Mazars, 2003 was a quiet year for investment – although French investment still accounted for one-fifth of total investment in the Czech Republic last year. He pins this quiet year on a wait-and-see situation as the Czech Republic prepared for EU entry. With that over, Salzmann assures that, “the number of contacts is increasing.” Many of these contacts are mid-sized auto suppliers coming in as the TPCA plant (a joint-venture of Toyota and the French PSA) is set to start working at capacity in 2005. Salzmann adds that he is currently advising a few French suppliers negotiating to buy some smaller Czech firms.
Christian Ramanoel, managing director of Calyon Bank Czech Republic (formerly Credit Lyonnais Bank Praha), has also been involved in negotiations. “[French suppliers] not present are certainly looking for acquisitions or to build their own production facilities to be in proximity to their clients in the Czech Republic, but also in Slovakia,” says Ramanoel. “Our bank has been involved in several such investments or acquisitions, the last one just [at the end of May].” TPCA could, of course, be a big draw for French auto investors, however, Jakub Mikulášek, director of CzechInvest’s French desk, doesn’t see this as suppliers’ primary motivation. Mikulášek claims that CzechInvest is currently talking with three new French investors. Yet, “Kolín is only partially responsible for the interest of the newcomers [to the market],” he says, adding that they plan to supply other customers in the chain.
Still, TPCA’s effect will be felt. The French-based auto component packaging company EPE recently set up shop in Kostenice (near Pardubice) with an initial investment of CZK 50 million. It plans to invest an additional CZK 15 million this year, pushing its employment to 50 people from 33. Asked what influence TPCA will have, plant manager Rodolphe Aubraye answers, “Multiply our business by two.”

Jean-Francois Salzmann           Photo: Petr Poliak

However, most big French component suppliers are already present in the country. The lineup isn’t long – with CzechInvest listing only six French auto investors – yet auto investment is one of the leading destinations for French money, with most companies having multiple production plants. “The Toyota-PSA project has contributed to a considerable expansion of some of these [current investors],” Mikulášek says.
In spite of all this, Slovakia – which will also have a new PSA plant in 2006 – also remains alluring for investors. According to Salzmann, some French investors have bypassed this country for Slovakia “for cost reasons.” Already many suppliers rely on Slovaks to fill staffing positions, so locating there is almost natural. “Instead of bringing the people to [the plant], just put it where the people are,” Salzmann points out. .

Other sectors
Away from the auto industry, the Czech Republic still has a leg up on its neighbors in other investment sectors. In the past few years, a lot of French investment has gone into business support services – as the Czech Republic continues to work for investment in non-manufacturing sectors. In March this year, Air France opened a call center in Prague which tracks lost luggage for its customers in Europe. Run by Team Trackers, a joint-venture between French companies Europ Assistance and Frequence Plus Services, the call center currently employs 70 people, which should rise to 300 within five years. “This is one of the largest projects in foreign-language customer support in the country,” says Mikulášek. “And its chief benefit is that it will create a significant number of high-quality jobs, even part-time jobs, which have been customarily lacking in this country.” Mikulášek points to students and parents with young children as examples of potential workers.

Rodolphe Aubraye        Photo: Petr Poliak

Among the factors that attracted Team Trackers, cheap, qualified staffing was at the forefront. “Our company’s decision to locate in the center of Prague was based mainly on the qualified and cost-effective workforce, and especially their language skills,” says Jean-Luc Benjamin, executive director of Team Trackers. Operators here must speak at least two languages – not including Czech – as the call center offers English, French, German, Italian and Spanish. This project will be a test for Air France, which may consider moving other services here, such as ticketing and customer information. And, in a country where, according to Eurostat, 70% of the population speak a foreign language, this project will have other investors watching.
Mazars’ Salzmann says a lot of current investment is related to business support services, with Czech education providing a big draw. “It is more expensive [now],” he notes, “but it’s much easier to find skilled people.” However, he worries that the advantage of education may not always be reliable. Blaming weak salaries, Salzmann points out that “young people may not consider the teaching profession anymore, which will lead to a drop in the quality of Czech education.”
Indeed, another French investment in back-office work was slowed by a lack of qualified staffing. Rhodia, a French chemical company, signed a deal with Accenture in 2000 to consolidate its European accounting and finance network into one office in Prague. The project was impressive not only because outsourcing, at the time, was rare for a French company, but also in terms of the size – it streamlined an operation that had been spread through 60 locations in seven European countries. Some problems did arise in the second phase when activities in France, Switzerland and Slovakia were integrated. Paul Van Beveren, the man in charge of the changeover, said time was lost filling “knowledge gaps”, as there weren’t enough recruits to do the job. Still, Van Beveren says the project is progressing, and Rhodia expects to see cost savings of nearly 30% from the move.
The lower costs that are still an attraction for investors will eventually rise. In spite of this, most analysts expect French investment to strengthen. “The firms that are already on the Czech market aren’t afraid of a cost increase. They are not here only because of lower costs,” says Grégory Olsak of the French-Czech Chamber of Commerce, citing industrial tradition, qualified workers and strategic location as better reasons to invest here. He sees other sectors opening up to French investment in the coming years. “There are still some sectors left to privatize,” Olsak says. Ramanoel from Calyon believes these privatizations will open up more opportunities in services. “We might see investments in the service industries with privatizations still to be completed in ČEZ and Český Telecom, for example,” Ramanoel says. Which means the storm could pick up again.

Reliable dial-up assistance Dušan Recman            Photo: Dorothea Bylica Attracting investment is one thing, but of equal importance is holding on to foreign investors once they’re here. According to Jean-Luc Benjamin, CEO of Team Trackers, one of the factors that led to the creation of Air France’s new call center in Prague was “the long-term, positive experiences of Europ Assistance on the Czech market.” This new call center is not Europ Assistance’s first experience in the Czech Republic – the French firm has been operating another call center since 1995 that provides medical and roadside assistance. And if all goes well with Team Trackers, its joint venture with another French company, Frequence Plus Services, it surely won’t be the company’s last. Dušan Recman, general manager at Team Trackers, says Prague was chosen over frequent competitors Warsaw and Budapest. “The main criteria was the availability of people speaking foreign languages, the technical level and stability of the country’s telecom infrastructure, and, naturally, the labor costs,” Recman says. Because of the size of this operation, Team Trackers also qualified to receive state subsidies for training and each newly created job. This certainly helps. According to Benjamin, the “government investment incentives helped us to expand the center considerably.” These incentives also make it easier with the increased competition for staff. “Many new call centers have been created in Prague in the last few years,” Recman says. “As a consequence, we expect an increase in the labor costs.” But Recman doesn’t worry about finding enough qualified staff. “These positions are still today relatively new on the market,” he says. Besides jobs, though, this investment is helping to further the Czech Republic’s image as an investment spot for other non-manufacturing sectors. “Certainly, [this investment also helps the country’s] reputation as a country with a reliable and high-tech infrastructure,” Recman opines.

A market growing up Eric Rongé          Photo: Petr Poliak Attracting investment is one thing, but of equal importance is holding on to foreign investors once they’re here. Increased purchasing power seems to be just what the local luxury segment needs – at first glance. Luxury-brand, or selective-brand (as industry insiders call it) products are still flooding the Czech Republic, but growth in the market has slowed down considerably, even with larger Czech paychecks. “This means the market is maturing,” says Eric Rongé of Optimum Distribution, which distributes French brands such as Chanel and Christian Dior. Rongé explains it this way: five years ago, when most people had maybe an extra CZK 2,000 at the end of the month, a bottle of expensive perfume seemed to be a good purchase. But now, as CZK 10,000-20,000 is easier to save and as mortgages and loans become more available, houses and cars are now a priority, leaving less for the smaller, finer things in life. Bad news for Chanel or Dior? Not really. “The market is definitely growing,” Rongé claims. “In the last three or four years, we’ve almost doubled our imports,” he says, explaining that this is the best way to gauge the market. The difference now is that the average customer is buying less. Sales in this market are, of course, strongest in Prague, where almost 70% of Optimum’s distribution go. For Louis Vuitton’s single Czech shop, Prague is enough, and turnover is constantly rising. “[Prague] is where the demand for our goods is the largest,” says Jana Mariková, Vuitton’s store manager, who adds that Vuitton currently has no plans to expand outside the capital. “We haven’t really received a bigger interest from other cities,” she says, “although we are able to ship products to their homes, if interest was shown.” While Brno and Bratislava are populous cities, it’s the smaller markets of Plzeň, Karlovy Vary and Teplice, among others, that have the most potential. “There is definitely room for growth,” Rongé says. “Sometimes in these places, you have one – and only one – parfumerie.”