CzechInvest Information Series No. 19
Serial No. INV/06/94-19
Date of Issue June 30, 1994
With outstanding political and economic stability, strategic hub status, a highly skilled workforce, and significant cost efficiencies, the Czech Republic (CR) is increasingly becoming the focus for foreign direct investment (FDI) in Central and Eastern Europe.
As the country's agency for attracting foreign investment, CzechInvest aims to attract foreign investments that increase capital formation and bring value-added benefits to ensure the momentum created by privatisation is sustained. CzechInvest liaises closely with other government departments and regions to provide decision-makers with quality data for accurate investment appraisal, and can refer customers whose needs are outside the scope of CzechInvest to relevant associations and organisations.
Annual FDI in the CR has increased more than 500% in the last three years to almost US$2.2 billion by March 1994. The most common forms of FDI in the CR are: greenfield investments, traditional joint ventures and participation in the privatisation process.
For those investors seeking greenfield investments, CzechInvest can facilitate enquiries, assist in the fulfilment of business ambitions, and guide investors through negotiations to close the deal as quickly as possible. The clearer project interests are defined at the enquiry stage, the more detailed and customised the CzechInvest response will be, focusing on the operational benefits the CR affords. To personalise responses, CzechInvest, ideally, requires the following data:-
1. Company name, address, telephone and fax numbers;
2. Principal contact/decision-maker(s);
3. Site requirement - (size in hectares or acres)
- Type and size of building
- Preference of occupation - lease or purchase
- Size of expansion zone
- Regional preference, if any;
4. Business sector - specific proposed activity at new location;
5. Skill provision - breakdown of workforce required over "ramp-up" period (i.e. three years);
6. Capital expenditure - breakdown of costs over three years: property; fit-out; plant and equipment;
7. Time frame to decision;
8. Any special infrastructural requirements;
9. Other key factors influencing outcome of site selection investment appraisal.
Many international companies consider market entry to new territories to be best achieved through collaborative deals with indigenous partners. Typically, these joint ventures embrace the following:
sales/distribution;
manufacture-under-licence;
participation with a local partner in a new facility; or
part acquisition of an existing company.
CzechInvest can support the implementation of such joint venture forms either directly or through a network of external public and private organisations.
As with greenfield investments, CzechInvest requires a standard registration form from each foreign company to facilitate and target the process. This form provides a company status report, defines its aspirations in the CR and determines the profile of suitable Czech partners. For CzechInvest, it is a valuable management tool which is used for the benefit of Czech and foreign companies alike.
While CzechInvest can provide direction, guidance and counselling throughout the search and negotiation process, it cannot fund extensive market research or feasibility studies which a foreign company may require. In some cases, companies may wish to contact the European Commission or their own government (e.g. the UK government's Know-How Fund).
Strategic Joint Ventures
Joint ventures are considered "strategic" when they satisfy at least one of the following: their impact in term of jobs created or protected is significant; they introduce new technology within a growth market sector; or their implementation will contribute to regional economic development.
In these cases, CzechInvest will remain close throughout each stage of the joint venture process, assisting the foreign company or its professional advisers in partner search, choice of location and negotiating procedures. In so doing, its role is to promote the best interests of the foreign company and its Czech partner in a mutually beneficial collaborative deal.
Mid-Smaller Scale Joint Ventures
Those investors interested in smaller scale joint venture agreements with Czech companies may also seek initial assistance through CzechInvest and its network of contacts in government, business and commerce.
As with strategic joint ventures, each foreign company able to be assisted will be required to complete and submit a standard registration form. This will enable CzechInvest to screen the enquiry and, where appropriate, direct it to other organisations (i.e. Ministries, banks, trade associations, Chambers of Commerce or consultants) within the CR who are better placed to assist.
With CzechInvest acting as a catalyst, this networking arrangement speeds the process of assistance for the foreign company. As examples, the following organisations are particularly interested attracting foreign partners for their members:
Confederation of Industry of the Association of Czech Entrepreneurs
CR Skretova 6
Mikulandska 7 120 00 Prague 2
113 61 Prague 1 tel: 2421 5373
tel: 2491 5679, 84 fax: 2423 0572
fax: 297 876 contact: Rudolf Baranek
contact: Mr. Pavel Dzida Chairman
Director of
Internal Affairs
American Chamber of Commerce Economic Chamber of the CR
Karlovo nam. 24 Argentinska 38
110 00 Prague 1 170 05 Prague 7
tel: 299 887, 296 778 tel: 6679 4111
fax: 291 481 fax: 771 544
contact: Alexander Safarik
contacts: Donna Evans, Executive General Secretary
Director
John Fay,
Executive Assistant
Strategic joint ventures are one of a number of routes to sustaining economic growth. Foreign companies should be aware, however, that the joint venture process demands a high level of commitment from both parties. In practice, only a small number of joint ventures emerge successfully from the process and a number of these fail within the first few years. The economic conditions in Central Europe generally make this activity even more difficult. Nevertheless, by its professional and pragmatic approach, CzechInvest is committed to providing a service which will promote as far as possible the mutual interests of local Czech and foreign companies in joint venture agreements.
The CR's privatisation process also offers many opportunities for foreign investors. The process of business privatisation was divided into small and large-scale privatisation, the latter of which was further divided into three waves.
Those businesses most prepared for privatisation and with little strategic importance were included in the first wave. By the end of 1992, the Ministry of Privatisation had finalised decisions on 2,170 state enterprises, most of which were transformed into joint-stock companies whose shares were then distributed.
The second wave, currently underway, deals with more complex and heavy industrial companies, such as telecommunications, utilities, and machinery manufacture. Almost 2,000 companies are being privatised in the second wave, with a combined value of nearly US$20 billion. Although the deadline for submitting projects for the second wave of large-scale privatisation has passed, many approved projects were designed to accommodate future foreign investors.
A third wave, scheduled for 1996, is expected to privatise almost $1.7 billion worth of remaining state assets, including hospitals and social institutions.
For those seeking entry into the privatisation process, the Ministry of Privatisation's staff and a team of foreign advisors have placed special emphasis on those projects involving foreign investment, and are available to advise and negotiate with foreign investors. (Contact: Tomas Polak, director of Large Privatisation; Ministry for Privatisation; Lazarska 7; 111 21 Prague 1; tel: 2419-1422, 1423.)
Another important source for foreign investors entering the privatisation process is the Czech National Property Fund, created in May 1991 to help implement privatisation projects. The Fund establishes joint-stock companies and other businesses, organises tenders and auctions, and administers shares and other securities. By the end of 1992, 1,872 privatisation proposals had been passed on to the Fund through the Ministry of Privatisation; the Fund, in turn, implemented 36% of these projects, with a combined value of over $14 billion. More than 200 projects with foreign partners were discussed in 1992; by the end of the year the Fund had sold almost 7,000 million crowns worth of shares and 4,000 million crowns of property to foreign investors. By the end of 1993, 7,533 privatisation proposals had been passed on to the Fund through the Ministry of Privatisation. (Contact: Dr. Petrasek, Director of Joint Ventures; Czech National Property Fund; Rasinovo nabrezi 42; 120 00 Prague 2.)
NOTE: This information is current as of June 1994. Although we have made every effort to ensure the reliability of our sources, CzechInvest does not assume responsibility for its accuracy.