Ministry looks to shift exports outside EU

In an attempt to move the Czech export-oriented economy away from its ball-and-chain dependence on the European Union, where more than 80 percent of outgoing products go, the Industry and Trade Ministry is hashing out a new export strategy it says will boost both the overall volume of exports as well as help enter markets outside the EU.

"Our economy is so extremely dependent on the economic cycle of the union, which at the time of growing demand created new business and investment opportunities. But at the time of stagnation and decline, this dependency limits the possibilities to respond to reduced demand," said Industry and Trade Minister Martin Kocourek.  

The strategy, which was unveiled in its draft version Oct. 31, looks to cut the share of Czech exports in the EU to 70 percent from the current 83 percent by 2020, while increasing exports out of the EU by 25 percent and those coming from small and midsize companies (SMEs) by 50 percent.

Locations for expansion potential range from South America to Central and Far Eastern Asia, Russia and its former satellite states, as well as the Middle East and even Mexico, business representatives said.  

Already, some major Czech companies, namely car manufacturer Škoda Auto, have worked diligently to expand to markets outside the EU with impressive results. Škoda doubled net profit on the year for the period between January and September, which company executives said was driven by sales in China, India and Russia, which increased 17 percent on the year.

However, moving outside of the EU is not just a matter of sending products to a different destination. Leaving the EU means dealing with different legislation and trade regulations, as well as potentially unstable environments, and of course, different business cultures and consumers.

"It's a question of risk management," said Karel Havlíček, chairman of the Association of Small and Medium-Sized Enterprises and Crafts of the Czech Republic. "The Chinese and Indian markets - that's a little dangerous. They are still emerging markets, which makes them challenging, but where the opportunities are interesting."

Currently, that risk is alleviated by services from the Czech Export Bank and the insurer EGAP, which help companies get the capital or insurance for investments outside of the EU. Because the export strategy is still in its draft stage, it is not yet clear exactly how the responsibilities of government-supported agencies might expand to support more exports or shift to encourage smaller companies with less cushioning.

"It depends on our shareholders, [the government]," said EGAP spokesman Vlastimil Nesrsta. EGAP is currently in talks with the Industry and Trade Ministry about increasing EGAP's insurance capacity as it nears its limit, he said. EGAP already has a program especially targeted to SMEs, but is reducing coverage across the board from the current 99 percent implemented during the economic crisis back down to 95 percent.

"We understand the situation of SMEs and try to do the best for them, but we are limited by international rules for state-supported exports, especially concerning OECD consensus," he added.

To help supplement state support, the ministry plans to alter legislation to increase the role of private banks in the system of state support for exporting companies.

Boosting exports in new markets also means finding niches in markets that are multiples larger.

"In this moment, many Czech firms export their products, for example, to German firms, which recreate it and then re-export it all over the world," said Czech Chamber of Commerce spokesman Petr Kopáček. "It means a major part of the benefits do not belong to the Czech economy. So one of our goals is to build up the Czech economy with high added-value sectors like … nanotechnology and biotechnology."

Building up these higher-value added sectors not only gives Czechs something special to send abroad, but also attracts incoming investment, which is the first step to increasing outgoing investment, Havlíček said.

The limited excursions of Czech companies outside the EU has made it so Czech products don't have much of a preceding reputation, said Petr Hýl, who heads the Chinese Investment Forum. Companies also have insufficient knowledge about how to penetrate new markets while also protecting their products.

In the past, he said, many companies decided to enter China by selling their products through a Chinese distributor that later moved on to other products for better margins, or even worse, started to manufacture the product themselves rather than buying the Czech goods.

"This is the problem with Czech companies: They want quick solutions. They will have to find a way to get their own presence in China and find their own ways to establish their own distribution chains and stores," Hýl said.

One way in which the strategy is "finally looking in the right direction," Hýl said, is it addresses the importance of marketing strategies for companies.

"All these things the government will have to find a way to execute," Hyl said. "We can't just say it in press releases and press conferences."

Cat Contiguglia can be reached at
ccontiguglia@praguepost.com