Czech RepublicIT Profile and Business

Opportunities

Team Members

Chris KowalskiEd TerranaRajani SinhaGyan PrasadChris Czar

AgendaCharacteristics of Czech Republic

GeographyHistoryDemographicsPoliticsCulture

Characteristics of the IT Industry in the Czech RepublicEconomic characteristics as related to IT in the Czech RepublicEconomic and IT comparison between Czech Republic & SlovakiaIT opportunities and Recommendation

Characteristics – Geography

Characteristics – Geography

Characteristics – GeographyArea: 78,866 sq km, roughly the size of South CarolinaLandlocked – no portsLocated astride some of oldest and most significant land routes in EuropeNeighbors economically sound nations Germany and Austria, as well as emerging nations Poland and SlovakiaRailways: 9,435 km; Roadways: 127,693 km (100% paved, 498 Highway); 114 Airports

South Carolina has 103,072 km Roadways and 68 Airports

What Does this mean?Czech Republic is highly accessible!

Characteristics - HistoryCommunist Nation from 1948 until after the fall of the Berlin Wall

Non-violent anti-communist coalition negotiated the governments resignation in 1989

1993 the “Velvet Divorce” separated Czech Republic and Slovakia into two nationsIn 2004 became a member of the European UnionCzech Republic financial experts do not believe the nation is emerging, but already “emerged”

Czech Republic has undergone recent and drastic changes!

Characteristic - DemographicsPopulation is 10,241,138

Labor Force 5.25 MillionGrowth rate is -.05%

The median age: males is 37.2 years oldfemales is 40.82 years old

90.4% of populous are of Czech ethnicity59% claim no religious affiliation

Catholic - 26.8%Literacy rate is very high at 99%

90.45% of populous has a secondary education (US – 88.35%)

What does this mean?

Czech Republic is educated but old!

Characteristics - Politics

Parliamentary GovernmentLegal modifications have occurred to:

bring Czech Republic in line with the obligations of the Organization on Security and Cooperation in Europe (OSCE)expunge Marxist-Leninist legal theory influences from former government regime

The Czech Republic is working toward a stable, legitimate government

Characteristics - Culture

Culture is heavily influence by neighbors

Prague 1-2 hours from GermanyAlso influenced by Western EuropeRapidly changing from Communist culture to Western culture.

Characteristics - Culture

Culture Model based on Hofstede:Environment – ConstraintTime – Multi-focus, fixed, future and pastAction – Doing and beingCommunication – High context, direct and indirect, instrumental, and formalSpace – Private and publicPower – Tend to be hierarchical

Characteristics - Culture

Culture Model based on Hofstede:Individualism – Collective and particularistic Competitiveness – CooperativeStructure – Mix of order and flexibleThinking – Tend to be inductive and deductive.

Characteristics - EconomicReal GDP Growth Rate

-2

-1

0

1

2

3

4

5

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

Year

%

EU (15 countries)

Czech Republic

Unemployment Rate

0

2

4

6

8

10

1998 1999 2000 2001 2002 2003 2004

Year

%

EU (15 countries)

Czech Republic

Inflation Comparision

0

2

4

6

8

10

12

1998 1999 2000 2001 2002 2003 2004

Year

Per

cen

t

Czech

Finland

Germany

Netherlands

IT Industry in the Czech Republic

Electricity Data71.75 bill kWh produced, 55.33 bill kWh consumed

Telephones3.6 Million land lines

Cellular Phones9.7 Million cellular unitsPrivatized industry (Eurotel, RadioMobil and Cesky Mobil)

• All provide wireless internet access and improved SMS

IT Industry in the Czech Republic, Cont.

86% Business Exchanges now digitalCopper subscriber systems now being enhanced with Asymmetrical Digital Subscriber Line (ADSL) equipment295,677 Internet Hosts2.7 Million Internet Users

Approximately 35% of population use internetDial-up, ISDN, Lease Line, Wireless, Cable all used as access methods

IT Industry in the Czech Republic, Cont.

Personal Computers in Czech Republic

500,000 PCs in use600,000 Networked PCsPCs in the home have the highest growth rates

IT Industry in the Czech Republic, Cont.

Government Initiatives Ministry of Information Technology

was established in 2003– Program to connect all Czech schools

to the Internet initiated in 2001 – 2003 – Launched National Computer

Literacy Program targeting middle-age and older people outside large cities

IT Industry in the Czech Republic, Cont.

Prague establishing itself as a center for financial and IT servicesNew Investors are attracted to Czech Republic due to:

quality of the city's infrastructurethe availability of modern office spacegood telecommunicationsimproved services

SAP, Intel, DHL, ExxonMobil and Siemens all have Czech Republic OperationsTop Tier Czech Tech Firms include Auto-Cont on Line, ICZ, LogicaCMG, PVT

Economic Characteristics as related to IT

GDP $107 BillionUnemployment rate is 8.5%Work week mandated at a minimum of 40 hours a weekDouble Digit growth in IT IndustryIT market value is $760 Million$26 Million in IT services in 2003

Economic Characteristics as related to IT

4 Modes of Software Development in CRLocalization – software imported from other countries and translated in CzechCustomized – software created from scratch for Czech usersOffshoring – developing software domestically to be sold to other countriesDevelopment – developing software for domestic market as well as translating to other languages for foreign market

Economic Characteristics as related to IT

Czech Software EngineersLower salaried that Western European Counter parts (60% of salary)

• $18,000/year for programmer in Prague with 2-3 years experience

• Smaller cities, salary is 15-20% lowerTend to be very skilledTargeted for software development by foreign companies50,000 Czech university students are enrolled in software engineering course

• 33% of degrees are technical in nature (US – 18%)• Czech Technical Institute compares favorably to MIT

Slovak Republic

Member of European UnionCzech Republic is also a member of EU

Population is 5.4 Million10.2 Million in the Czech Republic

Originally behind economic growth of other Eastern European nations

Has since caught up economically

Very High Unemployment rate 15%Czech Republic is 8.5%

Slovak Republic

GDP is $41.1 Billion with 5.5% growth rate

GDP $107 Billion in Czech Republic

Services make up 53.6% of GDP58.8% in Czech Republic

Hi Tech Exports Made up 3.7% of exports in 2004

Down from 4.1% in 2003

Slovak RepublicHi level of phone usage

Fixed Line/Mobile Phones combined at .925 phones per person

• Czech Republic is over 1 per person

Internet usage is 53%35% of Czech Republic

89,592 Internet Hosts295,677 in Czech Republic

PC’s owned is 15% Czech Republic is 27% (2001 est.)

IT Opportunities/Recommendations

Call Center servicing Europe and/or USA and Canada

Call center for Germany is likely the best possibility due to labor cost differences35% of Czech Republic speak German, higher proficiency than EnglishAdvanced telecommunicationsSAP European Call Center serves as model

IT Opportunities/Recommendations

Tourist IT ServicesTourism is increasing in Prague http://www.mikesbiketours.com/index_munich.html“Mike’s Bike Tours” has leveraged IT to market itself

Relocation Assistance for AmericansPrague becoming biggest European Relocation destination for AmericansAssistance would include Czech language instruction, social and business cultural instruction as well as helping emigrés to set-up their basic needs

IT Opportunities/Recommendations

Outsource engineering and/or computer science projects

Leverage IT in order to have a satellite center that tackles engineering and computer science projects for a companyHigh number of graduates with technical degree8.5% unemployment approximates to 1,400 unemployed high tech graduates each yearOpportunity for Czech’s to work in their own country and not be forced to emigrate

IT Opportunities/Recommendations

Advantages to establishing in Czech Republic

No foreign investment restrictionsHigh “Knowledge Pipeline”Skilled and disciplined workforceExpansive telecommunications networkIT is a national priorityVarious domestic tools to facilitate investmentStable, democratically elected government

IT Opportunities/Recommendations

Advantages, continuedLower labor costs when compared to other European nations

Czech

Czech

Czech

Opportunities/RecommendationsDisadvantages

Labor costs are rising with admittance into the EU• Real wage growth is 4% (US 1.2%)

Unemployed work force is primarily unskilledOnly 4.38% of 530,297 unemployed workers have a university degree

Czech Republic government’s weak enforcement of Intellectual Property Laws

Czech Republic added to U.S. government’s Special 301 priority watch list that identifies nations that have failed to establish fair and effective legal protections outlined under international obligations for intellectual property rights

SummaryWhile labor costs are still low, and IT skills

are high, the Czech Republic represents an excellent opportunity for IT investors. Call centers, software development, and IT services are a few possible investment areas. However, as the Czech Republic

continues to thrive economically and remains an attractive destination for other

investors and immigrants, the odds of a successful venture will continue to

decrease in the near future.