Doing Business in Czech RepublicDoing Business in Czech RepublicIntroductionAn emerging economy is not only a developing economy (Cavusgil, 2002). The country must have started economic reforms to liberalize the market and achieve a steady growth in Gross Domestic Product. The main reforms a country can start to be considered as emerging are reforms in the economic system to be able to attract Foreign Direct Investment and must invest as well to improve the infrastructures in the country.
The reasons for companies to go to any emerging markets will be mainly to go away from stagnant developed economies. Those new markets will enable the companies to take advantage of cheap labour forces and large population as pool of labour forces and as customer base.
The relationship of companies from developed countries with emerging economies is quite complex. Those new markets will act as market for the company’s product, supplier as the company will source lots of their purchases from emerging economies to benefit from low costs of raw material and finally as competitors with the local companies now being able to compete in their domestic markets and in international markets.
Since the end of the Soviet Union in 1990, mass liberalisation and privatization happened in Central and Eastern Europe (Appendix 1), creating a huge market, both in surface and in population. In Central and Eastern Europe, thanks to the massive privatization and the numerous reforms to create a favourable investment environment is now considered as an emerging market and is attracting lots of foreign companies.
The aim of this essay is to determine why companies are attracted by Central and Eastern European countries and what the risks are for those companies. The essay will examine first why it is attractive for companies to do business in those countries. The second part will examine more in detail the attractiveness of a Central European country, Czech Republic. Finally the last part will critically examine the risks for foreign businesses, based on Czech Republic’s business environment.
2. Why doing business in Eastern and Central Europe?Eastern and Central European Countries are presenting several advantages for developed countries to do business with or to set up operations in. The main current advantage is the growth rate presented by those countries that may attract developed countries that are in search of new investment opportunities. However, this growth rate is not homogenous in all the countries and it is important for companies to assess countries that will fit the best their internationalisation modes and strategies.
The second advantage of those countries is its large population. Companies selling their products in those countries have the opportunity to have access to a large population of potential customers. Eastern European population are more and more sophisticated and in demand for western products, creating a positive demand for value added products and services. Moreover, the population of this country is well educated and still relatively cheaper to hire compared to developed countries. Countries willing to set up operations in Eastern and Central Europe can then benefit from a well educated, cheap and abundant work force, reducing their production costs without reducing the quality of their products, hence gaining competitive advantage over their competitors.
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Western countries are also much smaller. Although China is not an easy place to go to for a company to expand their market size, it is also by far the largest market share in the country. So what’s more important in their minds, is not going to become China’s dominant market and are ready to take on China on national scale?
The reason China’s dominance in the Asian region has not gone unnoticed is the growing demands for advanced technology (particularly at a time when demand for advanced manufacturing has reached record levels). Chinese technology could also have the benefits that have been promised by the recent decision of an American company to stop selling its electronics products to Taiwan and China.
Because the companies are in a mutually beneficial relationship with each other, they don’t have to compete over different products like electronics. Instead, they can simply invest in one another, build a strong business relationship that will eventually lead to economic benefit to both sides. If one of its competitors can get into the position of developing, leading, and producing some of the fastest growing and largest global semiconductor facilities in the world and its subsidiaries are no longer the competitors of a neighboring country, you have a very strong opportunity to gain value from your business as China’s leading source of cheap semiconductors.
Chinese companies continue to develop, make, and sell new and innovative technologies under the leadership of Mr. Zhu Xiyi. When it came to the business sector of both countries, this is something which Western companies are very willing to do. However, it has little to do with making a profit or a share in growth through a competitor. While both Western employers and foreign firms benefit greatly from their workers’ jobs, they need to be prepared to invest in the development of new and faster, more modern, and cheaper semiconductor facilities, thus making it possible for Chinese companies to develop in China at a pace that will significantly benefit a company’s bottom line.
These are the characteristics which have propelled Chinese companies to invest in their countries of origin, and we are really encouraged by the fact that most developing countries are willing to expand their business and to offer value to their workers.
To better understand why Chinese companies will invest in the United States, we have to begin with a brief history: When Chinese firms first began to develop in the United States, they were all located in Western countries of origin. In many Asian countries, the United States is only viewed as relatively insignificant, and the investment in its economies has been relatively modest. In the early 2000’s that’s when the world economy became very, very fast and companies were beginning to start using their products all over the world to create products that were in demand across the whole world.
One of the reasons that the United States has become so successful in attracting new and talented people into their country, China has become one of the greatest markets for new technology in the world outside of the Asian nations, and they simply are not the only ones, especially Western companies, who are finding their global and domestic business opportunities. In fact, there are several countries that have
The fourth point of analysis is the ability to meet a variety of needs. For instance, Western countries tend to use energy-efficient and reliable, long-lasting vehicles and have high production and marketing standards for their own industries, whereas Eastern and Central European countries use energy- and land-intensive methods to transport their products more efficiently, such as by land. In general, Western countries will provide an advantage over Eastern and Central European countries. It is worth noting that countries like the United States or Britain, Canada and Europe use more energy-efficient alternative fuels, such as biofuels, coal, natural gas or nuclear, and that this energy would reduce demand for their products for this purpose. Because of this, Western countries could see opportunities for improving their own industry and, consequently, their national competitiveness. In some cases, these countries appear to have similar market opportunities. In a word, China provides an economic advantage compared to many Western countries, a point that will be discussed further below. In an alternative world, it seems quite a bit more likely that Western countries would benefit from the use of electricity that they had before this developing country was created. Also, the developing nation’s trade and development, particularly with the United States, would have more competitive advantages in both their market and potential competitiveness because they would enjoy less competition from the developing country’s rivals. Moreover, there is a clear difference between Eastern and central Europe’s growth. The former seems to take in more new products and services, making domestic demand and supply elastic. Therefore, the result could be a world of competitive advantages for developing countries, in which China and the United States are expected to compete with each other, with their countries able to overcome their competition even without making an impact in terms of domestic market share if these countries are able to develop their own innovative products and services.
Elements of the fourth point of analysis have been explored by many researchers in the region. To get an indication of the level of their strengths and weaknesses, they used the Global Energy Economy rankings, by a range of global indices. They found a unique advantage in terms of their economies, especially their energy productivity and competitiveness with other emerging economies. They also found a unique advantage in terms of their relative advantages and weaknesses, as opposed to some of their strengths, such as their economic and trade advantages. The same strategy was applied for the global economy. For instance, they evaluated the performance of China’s economy in its investment year. As the global energy market improved and increased, the average of those rankings was more favorable in terms of the relative performance of China than in the emerging nation. China’s investment year was relatively more competitive than the Western world ranking. The advantage of Chinese businesses was also higher than in western countries. This advantage was also shown when it came to the energy consumption ratio. In all places, China’s exports had the lowest domestic consumption ratio. In other words, Chinese businesses are much more efficient than Western companies when it comes to using electricity. These results were highly significant for China and are similar to the results of other developed countries that tested similar measures in terms of their level of competitive advantages and weaknesses. China’s energy products were highly inefficient, while Western suppliers
The fourth point of analysis is the ability to meet a variety of needs. For instance, Western countries tend to use energy-efficient and reliable, long-lasting vehicles and have high production and marketing standards for their own industries, whereas Eastern and Central European countries use energy- and land-intensive methods to transport their products more efficiently, such as by land. In general, Western countries will provide an advantage over Eastern and Central European countries. It is worth noting that countries like the United States or Britain, Canada and Europe use more energy-efficient alternative fuels, such as biofuels, coal, natural gas or nuclear, and that this energy would reduce demand for their products for this purpose. Because of this, Western countries could see opportunities for improving their own industry and, consequently, their national competitiveness. In some cases, these countries appear to have similar market opportunities. In a word, China provides an economic advantage compared to many Western countries, a point that will be discussed further below. In an alternative world, it seems quite a bit more likely that Western countries would benefit from the use of electricity that they had before this developing country was created. Also, the developing nation’s trade and development, particularly with the United States, would have more competitive advantages in both their market and potential competitiveness because they would enjoy less competition from the developing country’s rivals. Moreover, there is a clear difference between Eastern and central Europe’s growth. The former seems to take in more new products and services, making domestic demand and supply elastic. Therefore, the result could be a world of competitive advantages for developing countries, in which China and the United States are expected to compete with each other, with their countries able to overcome their competition even without making an impact in terms of domestic market share if these countries are able to develop their own innovative products and services.
Elements of the fourth point of analysis have been explored by many researchers in the region. To get an indication of the level of their strengths and weaknesses, they used the Global Energy Economy rankings, by a range of global indices. They found a unique advantage in terms of their economies, especially their energy productivity and competitiveness with other emerging economies. They also found a unique advantage in terms of their relative advantages and weaknesses, as opposed to some of their strengths, such as their economic and trade advantages. The same strategy was applied for the global economy. For instance, they evaluated the performance of China’s economy in its investment year. As the global energy market improved and increased, the average of those rankings was more favorable in terms of the relative performance of China than in the emerging nation. China’s investment year was relatively more competitive than the Western world ranking. The advantage of Chinese businesses was also higher than in western countries. This advantage was also shown when it came to the energy consumption ratio. In all places, China’s exports had the lowest domestic consumption ratio. In other words, Chinese businesses are much more efficient than Western companies when it comes to using electricity. These results were highly significant for China and are similar to the results of other developed countries that tested similar measures in terms of their level of competitive advantages and weaknesses. China’s energy products were highly inefficient, while Western suppliers
The fourth point of analysis is the ability to meet a variety of needs. For instance, Western countries tend to use energy-efficient and reliable, long-lasting vehicles and have high production and marketing standards for their own industries, whereas Eastern and Central European countries use energy- and land-intensive methods to transport their products more efficiently, such as by land. In general, Western countries will provide an advantage over Eastern and Central European countries. It is worth noting that countries like the United States or Britain, Canada and Europe use more energy-efficient alternative fuels, such as biofuels, coal, natural gas or nuclear, and that this energy would reduce demand for their products for this purpose. Because of this, Western countries could see opportunities for improving their own industry and, consequently, their national competitiveness. In some cases, these countries appear to have similar market opportunities. In a word, China provides an economic advantage compared to many Western countries, a point that will be discussed further below. In an alternative world, it seems quite a bit more likely that Western countries would benefit from the use of electricity that they had before this developing country was created. Also, the developing nation’s trade and development, particularly with the United States, would have more competitive advantages in both their market and potential competitiveness because they would enjoy less competition from the developing country’s rivals. Moreover, there is a clear difference between Eastern and central Europe’s growth. The former seems to take in more new products and services, making domestic demand and supply elastic. Therefore, the result could be a world of competitive advantages for developing countries, in which China and the United States are expected to compete with each other, with their countries able to overcome their competition even without making an impact in terms of domestic market share if these countries are able to develop their own innovative products and services.
Elements of the fourth point of analysis have been explored by many researchers in the region. To get an indication of the level of their strengths and weaknesses, they used the Global Energy Economy rankings, by a range of global indices. They found a unique advantage in terms of their economies, especially their energy productivity and competitiveness with other emerging economies. They also found a unique advantage in terms of their relative advantages and weaknesses, as opposed to some of their strengths, such as their economic and trade advantages. The same strategy was applied for the global economy. For instance, they evaluated the performance of China’s economy in its investment year. As the global energy market improved and increased, the average of those rankings was more favorable in terms of the relative performance of China than in the emerging nation. China’s investment year was relatively more competitive than the Western world ranking. The advantage of Chinese businesses was also higher than in western countries. This advantage was also shown when it came to the energy consumption ratio. In all places, China’s exports had the lowest domestic consumption ratio. In other words, Chinese businesses are much more efficient than Western companies when it comes to using electricity. These results were highly significant for China and are similar to the results of other developed countries that tested similar measures in terms of their level of competitive advantages and weaknesses. China’s energy products were highly inefficient, while Western suppliers
The fourth point of analysis is the ability to meet a variety of needs. For instance, Western countries tend to use energy-efficient and reliable, long-lasting vehicles and have high production and marketing standards for their own industries, whereas Eastern and Central European countries use energy- and land-intensive methods to transport their products more efficiently, such as by land. In general, Western countries will provide an advantage over Eastern and Central European countries. It is worth noting that countries like the United States or Britain, Canada and Europe use more energy-efficient alternative fuels, such as biofuels, coal, natural gas or nuclear, and that this energy would reduce demand for their products for this purpose. Because of this, Western countries could see opportunities for improving their own industry and, consequently, their national competitiveness. In some cases, these countries appear to have similar market opportunities. In a word, China provides an economic advantage compared to many Western countries, a point that will be discussed further below. In an alternative world, it seems quite a bit more likely that Western countries would benefit from the use of electricity that they had before this developing country was created. Also, the developing nation’s trade and development, particularly with the United States, would have more competitive advantages in both their market and potential competitiveness because they would enjoy less competition from the developing country’s rivals. Moreover, there is a clear difference between Eastern and central Europe’s growth. The former seems to take in more new products and services, making domestic demand and supply elastic. Therefore, the result could be a world of competitive advantages for developing countries, in which China and the United States are expected to compete with each other, with their countries able to overcome their competition even without making an impact in terms of domestic market share if these countries are able to develop their own innovative products and services.
Elements of the fourth point of analysis have been explored by many researchers in the region. To get an indication of the level of their strengths and weaknesses, they used the Global Energy Economy rankings, by a range of global indices. They found a unique advantage in terms of their economies, especially their energy productivity and competitiveness with other emerging economies. They also found a unique advantage in terms of their relative advantages and weaknesses, as opposed to some of their strengths, such as their economic and trade advantages. The same strategy was applied for the global economy. For instance, they evaluated the performance of China’s economy in its investment year. As the global energy market improved and increased, the average of those rankings was more favorable in terms of the relative performance of China than in the emerging nation. China’s investment year was relatively more competitive than the Western world ranking. The advantage of Chinese businesses was also higher than in western countries. This advantage was also shown when it came to the energy consumption ratio. In all places, China’s exports had the lowest domestic consumption ratio. In other words, Chinese businesses are much more efficient than Western companies when it comes to using electricity. These results were highly significant for China and are similar to the results of other developed countries that tested similar measures in terms of their level of competitive advantages and weaknesses. China’s energy products were highly inefficient, while Western suppliers
On top of the advantage of its large population, the geographical territory of Eastern and Central Europe is very large (it is the eastern part of Europe, limited eastwards by Ural Mountains) and comprises lots of natural resources. After the collapse of the Soviet Union, the infrastructures have been greatly developed, nearly reaching the European Standards (CIA 2008). Businesses willing to set up operations would then have accessed to resources and will be able to take advantage of the infrastructure to transport their production.
One of the advantages of doing business in Eastern and Central Europe is the proximity of those countries to Europe. It is very easy to use those countries as hub of production and then to ship the manufactured goods to Europe and to Russia, creating a shorter, cheaper and more controlled supply chain. Some countries are even members of European Union, which means that it is possible to have free trade of goods, due to the elimination of tariff and non tariffs barriers. Moreover, some of those countries even adopted the Euro which is reducing the translation risk due to the fluctuation of exchange rates. For lots of companies starting only their internationalisation phase, Eastern and Central European countries are representing a