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10 Questions

with Martin Samek
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August 6th, 2008 issue

MICHAEL HEITMANN/The Prague Post
Samek says globalization makes it hard to start small businesses today, with the "crazy bureaucracy" in this country being a big factor.
The Samek File



Job title: Director, Pacific Direct, s.r.o.
Age: 40
Nationality: Czech
Recent Awards: Ernst & Young "Entrepreneur of the Year," Pardubice region
Family: Married, two children
In the early 1990s, local entrepreneur Martin Samek began distributing hotel cosmetics bottles out of his family’s garage. Today, he is the co-owner of Pacific Direct, an 85 million Kč ($5.5 million) company with offices and distribution points worldwide. The development of Pacific Direct illustrates an imminent trend on the Czech business scene: After nearly two decades of growth, midsize companies are recording stable profits, making them ripe for the picking by foreign acquirers. Five months after selling Pacific Direct to UK venture capital company Primary Capital, Samek talks to The Prague Post about starting out small, the post-communist business scene and why he’ll never sell his semiautomatic bottle-filling machine.
? What led to the founding of Pacific Direct?
I started the company in 1993, with very little field experience. I was inspired by my past employment in the travel business and subsequently the import and distribution of consumer cosmetics — transforming a one-liter, 10 Kč shampoo from Belgium into a small bottled product bearing the logo of some hotel. These were the beginnings. It was the classic ordering, purchasing and distributing model. We became No. 1 on the Czech market within five years, but that market was fairly tiny. Manufacturers weren’t very reliable at the time. Some of them were still partly state-owned; others called themselves cooperatives. This unreliability pushed me into starting my own production. It wasn’t the result of some in-depth economic analysis. It was the fear of losing my clients.
? How were you able to cut production costs?
Unlike our competitors in Europe, we selected locations that were economically convenient for production — China and the Czech Republic. Of course, the Czech Republic is no longer a destination for cheap production, but 10 years ago, it undoubtedly was.
? When did you begin considering a merger with a foreign company?
In 1999, I began toying with the possibility of expanding westward. But in those years, it wasn’t possible to approach a company and say, “I am Samek from the middle of nowhere, and I can make the same product as a French cosmetics company for 30 percent less.” Nobody was interested in someone from this little country — what we needed was a partner that was already established in the West. Incidentally, I came across Pacific Direct, a company in the United Kingdom whose operations were very similar to ours. They bought a 51 percent share in the company, and I traded my share in the Czech company for an equal share in the newly formed holding.
? How big is Pacific Direct today?
The company has two factories — one in China, one in the Czech Republic. We also have business branches in the United States, the United Kingdom, Germany, Dubai, Singapore and Hong Kong. All together, there are around 600 employees.
? At what point did the company pique the interest of venture capitalists (VCs)?
VCs had been eyeing us for the past four or five years. They all knew about us and were waiting for the moment we were ready to sell. Of course, they’re very adept at monitoring the local market. They also have contacts at local banks, so, if your company starts to grow faster than the average rate, you’re immediately on their radar.
? Is there a recipe for this “above-average” growth?
Journalists have nicknamed it “the American Dream.” When I started, I had a 50,000 Kč loan from my father and a rented garage. My first “capital asset” was a semiautomatic bottle-filling machine. You take a bottle, fill it with lotion, hand it to another person who puts a cap on it, and so on. We have it on display at the factory, next to a production line capable of churning out 3,500 bottles per hour. But that factory was only built a year ago. It took 14 years of work, 12 hours a day, seven days a week, to get there. Unless it’s high technology, there is really no way to “get rich fast” in the consumer products business.
? Analysts predict an upswing in these types of investments in the next few years. Do you agree?
The age of venture capitals is upon us. Thanks to what happened in 1989, plenty of local businesses now have a 15- to 20-year history. Their stability makes them ideal candidates for VCs. Many of these companies’ founders are reaching retirement age, or they’re simply ready to do something else. So, when someone approaches you with a disgustingly high sum, you tell yourself: Why not?
? What enabled you to develop faster than your competitors?
Maybe it was because just two people, with incredible drive, owned the company. Our competitors were established, had a 20-year history, but they were missing the energy to find new gaps in the market. Unlike most companies, which typically catered to all hotels, we focused on the luxury segment.
? What potential did you see in this segment?
Ten years ago, luxury hotels realized that their cosmetics products were not effective as promotional material. A guest who shops at Hermes or Nina Ricci is not going to use shampoo labeled with the name of some random hotel. We were among the first to reach an agreement with luxury cosmetic brands such as Elemis, Penhaligon’s, The White Company, Yves St. Laurent. They provided us with their know-how and license to produce miniature products under their name. It was a good deal for both sides. We had something desirable for the five-star hotels, and the cosmetic companies were able to get 8 million samples distributed to their target consumers worldwide.
? How has the business environment developed here over the years?
As far as legislation goes, I haven’t seen any dramatic developments. It could be a lot easier — that crazy bureaucracy could use simplification. You always hear about how hard it was to start a business here in the early 1990s, but I can’t help but disagree. I never saw it as complicated. Of course, it was exponentially harder to obtain finances — at the time, startup business loans did not exist. Banks either gave unsecured, million-crown loans because the government wished it, or none at all. When I finally managed to get a loan, four years after starting operations, the interest rate was 18 percent. Still, if you had a good idea and enough drive, you always found a way to make it work. On the contrary, I think globalization makes it more difficult to start now than it was then. Eighty percent to 85 percent of hotels fall under some chain with centralized purchasing. If I approached them today as a start-up business owner, none of them would bother talking to me.
Want your manager to answer our 10 Questions? Contact Markéta Hulpachová at mhulpachova@praguepost.com


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