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10 Questions

with Jaromír Černík
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By Paul Voosen
Staff Writer, The Prague Post
October 17th, 2007 issue

COURTESY PHOTO
Černík says the time for standard investment incentives is over.
THE ČERNÍK FILE

Job title: Director, Southeast Asia Operations, CzechInvest
Nationality: Czech
Previous position: Head, Strategic Project Department, CzechInvest
Education: M.A. in Economics, University of Economics, Prague

Ahead of this November’s Global Entropolis conference in Singapore, which brings a stew of industry executives together to make deals and contacts, Jaromír Černík, director of Southeast Asia operations at CzechInvest, the state’s inward-investment agency, talks to The Prague Post about the remaining need for financial incentives, cultural challenges facing Asian investors and the coming workforce shortage.
➊ What will you be highlighting to potential investors at the conference?
Soon there will be a chance for foreign investors to get subsidies from European Union funds, including programs for companies that have no history in the country. Most EU funds are designed for small and midsize businesses with two years of local history, but there are a few programs designed for larger companies. Most of these operational programs have not yet been approved by the EU and we’re still waiting for it. From next year we’ll have additional subsidies for larger investors.
➋ While the recent public-finance reforms will lower the corporate income tax rate, it still will not be as low as some competing countries, like Estonia or Slovakia. How can the country lure investors despite this?
If you compare effective taxation by looking at deductible items — for example, companies can deduct 100 percent of their research and development (R&D) costs — then the effective tax is comparable to Estonia or Slovakia. And the reforms, effective January 2008, should lower our effective tax rate to the same as or lower than neighboring countries.
➌ How do you expect the amendment to the investment incentives law, which places increased emphasis on high-tech facilities and lowers the minimum investment required for incentives, will change the market?
The most important change we made was lowering the minimum required investment. I want to emphasize these incentives are available to local companies as well. We’d like to encourage Czech suppliers who serve the multinational companies to invest and expand their operations. Particularly, we encourage companies to go into business-support services.
➍ What industries do you expect will further invest in the country from Asia?
When we’re luring investors from abroad, most are in manufacturing. From Asia, most are in the consumer electronics and IT industry. For example, we have 17 companies from Taiwan that have invested in consumer electronics, and they mostly have assembly projects here. But they’re also adding new projects like maintenance and repair centers and even design centers.
There is a shift in projects from manufacturing to services. But we must use our relationship with manufacturers to build up our service projects. You cannot build applied R&D projects on a green field. It’s faster to deal with existing industry, and here we’re strong in the automotive, consumer electronics, medical devices and life sciences industries.
I’ve also had inquiries from developers from Asia. There is a real interest from Asian companies in property development in the Czech Republic. I have one Singapore firm that wants to build an IT park here. That kind of project can then attract more companies from Singapore.
➎ Do any cultural or language issues make it difficult for Asian investors?
Of course we have some obstacles when, for example, mainland Chinese companies want to approach the Czech Republic with a completely different management culture. I encourage them to cooperate with locals and to hire local managers. You should have a mixed team and the project leaders should be Czech nationals. Sometimes companies want to bring the same business concepts from China to the Czech Republic, and that’s impossible. Investors have to comply with local regulations.
Through our office in Hong Kong, we encourage cooperation between universities to have more exchange students — from Taiwan, for example. We’re getting more Taiwanese, Singaporeans and Chinese to study in the Czech Republic, and then there’s a chance those students will become managers for future projects here.
➏ Has the Industry and Trade Ministry’s plan to merge the operations of some of the CzechInvest and CzechTrade offices changed your work in Asia?
The ministry is planning to save costs by putting the operations of CzechInvest and CzechTrade under one roof in countries where both have offices. It’s mostly applied to European countries, such as Belgium. It makes sense to save costs like this. In Asia we have a different situation because our Hong Kong office covers multiple countries and CzechTrade only has a presence in India, China and soon Vietnam. I don’t see our office moving to mainland China because there aren’t many investors heading to the Czech Republic from there. It’s rather from small countries like Singapore or South Korea.
➐ How are the EU’s two newest members, Romania and Bulgaria, changing the competition for foreign investment?
In the case of investments, I don’t think there’s a lot of competition. The Czech Republic has an excellent logistics and infrastructure position within the EU market, and for many companies unit cost is most important. Despite salaries increasing and the crown’s appreciation, logistics are too important, and I don’t see the situation where companies will move further east. Companies are clustering here. Take the example of Acer from Taiwan. They are assembling LCDs in Brno, and a cluster of companies have followed them there.
In my opinion we should encourage more nationals from Romania and Bulgaria to come to the Czech Republic. We should offer green cards or improve how we attract foreigners. We must open up the country to foreigners, because all these companies require thousands of people for their industrial parks. So where will these people come from?
➑ The government has proposed a green-card program for bringing in skilled foreign workers. Where does the proposal stand?
There’s mostly just been discussion about it and there’s not much the government has done. We have to do better at highlighting the problems of local manufacturers. This is definitely one of our priorities, opening up the labor market for foreigners. Sooner or later it will happen, but I can’t see any current timetable for introducing green cards.
➒ Any recent Asian investment you’ve completed that you’d want to highlight?
We’ve had great success getting South Korean and Taiwanese companies here. Slovakia and others are doing everything they can to attract even one Taiwanese project, while we’re already working with Foxconn, ASUS and BenQ. Initially no one wanted the BenQ project because they considered it a lowly assembly project. But it was just one piece of the puzzle: BenQ is part of the former Acer Group, which has many companies that can come here. So it was crucial to bring this first investment, because now we are competing with other countries for related investments.
Now we’re in a bit of a different stage. Standard incentives are over and we should emphasize cooperation with companies that are already here. We should encourage them to invest in technical schools to train their own people. We’ve attracted a lot of companies in the automotive industry and electronics, and now the task is to take care of them, to make them happy so they reinvest in the country.
Incentives can still help, though the time for using incentives for large companies is over. Most countries worldwide are fighting for foreign direct investment, and they try to provide incentives. We have to be competitive in this market because investments are still the biggest driver for Czech exports.
➓ Is there much of a Czech community in Hong Kong?
Not so many Czechs live in Hong Kong. There’s a consulate with a few people and some private companies — the biggest one is Preciosa, a Czech glass company. There are also some Czechs working for banks, since Hong Kong is a financial center. But the total number there is something like 50 people.
Want your manager to answer our 10 Questions? Send a message to Paul Voosen at pvoosen@praguepost.com

Paul Voosen can be reached at pvoosen@praguepost.com


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