The Bank of Tokyo-Mitsubishi (BTM) opened its first representative office in Prague in late August with an eye toward establishing a branch in the near future. The arrival of the first Japanese bank in the Czech market is a signal that Japanese companies consider the country a good location for doing business, experts say.

"More than 150 Japanese companies have invested in the Czech Republic," said Tetsuya Nakao, BTM's chief representative in the Czech Republic, explaining the reasons behind the move. However, he said, opening a branch is still an open issue for the bank's management. Right now, the office's main goal will be collecting information and providing support for Japanese companies, he said, adding that if and when an operating office is opened, it will mainly cater to Japanese firms.

BTM's decision comes after more than 10 years of CzechInvest's efforts to boost Japanese investment in the country.

"This is a positive signal for further Japanese investors," said Josef Lébl, an adviser to CzechInvest's general manager and an expert on Japanese investment. The move is not unusual, according to Lébl, because Japanese banks historically follow Japanese businesses into foreign countries when their numbers climb above 100. More than 150 Japanese companies that are currently active on the Czech market will invest a total of $2.5 billion over the coming two to three years. They will have also employed more than 32, 000 people, according to Japan External Trade Organization (JETRO).

Close ties

Japanese companies began coming here en mass after car manufacturer Toyota decided to build a plant near Kolín in December 2001.

"Japanese companies prefer to cooperate with Japanese companies," said Ondřej Votruba, assistant to JETRO's director general. "In Japan they have a strong network of supplier relationships that they don't like to change." Votruba said that nationality may well be a key criteria when a Japanese business is looking for partners.

Companies entering the Czech market now are smaller producers that cater to large firms already established here. The large companies are increasing their production and want to have high-quality subsuppliers on hand, so they ask their Japanese partners to open branches in Central Europe, Lébl said.

For example, plasma-screens producer Panasonic AVC Networks Czech came here in 1996. A short time later, it asked Muramoto, which manufactures compounds for AVC Network's products, to follow suit. Muramoto Manufactoring Europe is currently building a plant in Žebrák.

Other Japanese enterprises active here include production plants, including ones owned by Toyota and Panasonic; sales, trading and construction companies; and research and development operations.

Banking on confidentiality

Japanese businesses are looking forward to the arrival of a Japanese bank branch here.

"When [Japanese companies] move to a new country, they need some financial help and support, including money for initial investments," said Masanori Hamada, general manager of Kajima, a construction company that came to the Czech Republic in 2002 and counts among its projects help in construction of the Toyota plant. He said that all Japanese companies abroad have relationships with Japanese banks at home, and those contacts give them an edge in negotiating with other banks.

"We bank with BTM in the Netherlands because we know each other in Japan," Hamada said. "This relationship may help us get lower interest rates."

Hamada said that while he was in the process of opening a subsidiary here, Kajima was dealing exclusively with Japanese partners. Now, he said, it does business with Czech and foreign companies as well. "Since last year, Japanese investment [here] has been on the decline, so we also do business with local and foreign firms," he said.

According to CzechInvest's Lébl, there are still many Japanese companies that want to invest in Central and Eastern Europe, but new arrivals to the country will depend on improvements in the business climate. "Our goal now is to attract Japanese companies with higher added value, including microelectronics, chip producers, information services, aircraft and machinery producers," he said.

The reason for the high level of interest in the Czech Republic, according to JETRO's director-general, Mineo Hiyazaki, is that Japanese companies are attracted to areas with high-quality workers, well-developed infrastructure including highways, strategic locations in the middle of Europe and government incentives.