INVESTMENT OPPORTUNITIES

Business Support Services in the Czech Republic

Contents Sector Overview

1

Education

2

Labour Pool

3

Czech Regions Ready for International Projects

4

Case Studies

6

Business Environment

7

Association of Business Service Leaders in the Czech Republic

8

Last update: April 2015 www.czechinvest.org

1

Sector Overview The Czech Republic is one of the leaders in the business support services sector in Central and Eastern Europe. The country is ranked as a top location for specialised business support services according to Dun & Bradstreet Global Reference Solution.

Specialisation in Business Services (Number of companies per 100,000 population) Czech Republic

The shared-services centres of DHL, Accenture, ExxonMobil, IBM and more than 200 other companies employ over 55,000 specialists in the Czech Republic. Nearly 80% of these centres are captive, while BPO companies represent about 20% of the market.

USA Sweden

The country’s current top BSS locations, Prague and Brno, are now facing competition from other regional centres such as Ostrava, Olomouc and Plzeň, which offer a high-quality, loyal and motivated workforce combined with lower costs.

Slovak Republic Switzerland Finland

The most frequently shared services are finance and accounting, IT services and customer support. Rapidly growing shared services include human resources, logistics and legal services.

UK Hungary Germany

Reasons to invest in the Czech republic

Poland Canada

-- More than 72% of Czechs are able to speak at least one foreign language and more than 50% of students can speak at least two foreign languages

Bulgaria Romania

-- In addition to Prague, the country has several strong hotspots ready for international projects in regional centres

South Korea Japan

-- Location in the centre of Europe, the six-hour time difference from New York and seven hours from Tokyo enables SSCs to provide services to the East and West in parallel

China India 0K

1k

2k

3k

4k

5k

6k

7k

Source: fDi Intelligence from the Financial Times based on Dun & Bradstreet (fDi Benchmark 2015)

-- Excellent office infrastructure -- Sophisticated telecommunications and data networks -- Creative and experienced professionals at lower costs -- Data protection respecting all EU rules -- Positive approach of the government, financial support for business support services projects -- The Czech Republic’s cosmopolitan society makes it an attractive place to live

ABSL estimates that there are

SSC 71%

150 +

BPO 20%

BPO/Captive SSC's present today in Czech Republic, the industry employs ca.

55,000 Staff

BPO+SSC 9%

Source: ABSL Modern Business Services Market in Czech Republic Survey 2014

2

Education Business Administration, Human Resources and Law Study Programmes Total Numbers of Students and Graduates at Czech Universities Academic Year 2014/15

The Czech Republic has a strong education system that is focused on meeting the needs of a competitive economy. The country’s 169 finance, economics, law and ICT faculties turn out more than 37,000 graduates every year. Currently, the Czech Republic can offer all types of education, including postgraduate and continuing lifelong education funded by the state. All university students are required to study at least one foreign language and at some universities the requirements are set to two languanges. English is the most popular foreign language, followed by German and French.

Prague South Moravia Moravia-Silesia

Sudents Graduates

South Bohemia Zlin

Cooperation between universities and shared-services centres has been expanding in recent years. Companies such as IBM, SAP, Accenture and many others have developed different types of cooperation and actively approach students during their studies at university.

Olomouc Plzen Usti nad Labem

Business Administration and HR Study Programmes at Czech Universities Number of Students and Graduates Selected Universities Academic Year 2014/2015

Pardubice Hradec Kralove Vysocina

University of Economics, Prague

University of Hradec Kralove

VSB – Technical University of Ostrava

Liberec

Students: 13,295 Graduates: 3,926

Students: 1,512 Graduates: 392

Students: 5,743 Graduates: 1,791

Czech University of Life Sciences Prague

Technical University of Liberec

Silesian University Opava

Students: 1,780 Graduates: 559

Students: 3,154 Graduates: 1,010

Central Bohemia Karlovy Vary 0

10,000

20,000

30,000

40,000

50,000

60,000

Students: 10,197 Graduates: 3,263

Source: Ministry of Education, Youth and Sport, 2015

Business Administration & HR Study Programmes Students: 84,260 Graduates: 28,395

Plzen

ICT 10.23 %

More than

Others 62.47 %

130,000 students are enrolled in ICT, business administration, HR or law programmes

Business Administration 23.28 % HR 0.87 % Law 3.05 %

Source: Ministr of Education, Youth and Sport, 2015

University of West Bohemia, Plzen

Masaryk University, Brno

University of Pardubice

Students: 1,426 Graduates: 448

Students: 3,947 Graduates: 1,438

Students: 2,176 Graduates: 516

VSTE Ceske Budejovice

Mendel University of Brno

Tomas Bata University in Zlin

Students: 2,143 Graduates: 382

Students: 3,387 Graduates: 843

Students: 2,606 Graduates: 847

Source: Ministry of Education, Youth and Sport, 2015

3

Labour Pool

Number of Foreigners in the Czech Republic Selected Countries, According to the Languages as of 30 December 2014

The Czech Republic’s labour pool is estimated at 5.3 million, supplemented with over 100,000 secondary-school graduates and roughly 98,000 university and higher professional school graduates every year.

1,488 Japanese

1,517

-- More than 30% of the population is able to speak two foreign languages

Korean

1,661 Scandinavia

2,262 Spanish

2,946 Dutch

3,810 Italian

3,874 French

14,749 English

Chinese

23,711 German

5,587

Multilingual workforce suitable for international services projects -- More than 72% of Czechs are able to speak at least one foreign language -- Two-thirds of graduates are trained in economics, finance, law or ICT Currently over 55,000 full-time staff are employed in business support services. Czech employees are seen as flexible, service-oriented, highly motivated and very efficient. The Czech Republic has a substantial community of expats, who often seek job opportunities in shared-services centres.

Source: Ministry of Interior, January 2015 Note: English - Australia, Canada, Ireland, United Kingdom, United States, South Africa; German - Austria, Germany, Switzerland; French - France, Belgium; Spanish – Spain, Mexico, Colombia, Peru, Cuba, Chile

“

The Czech labour market offers a rich source of employees who, thanks to their loyalty and diligence, are a gaurantee of return on investment greater than that in other countries in Central and Eastern Europe.

”

Rita Cseke, Area Manager – Reed Europe

Agriculture 2,8%

Level of Knowledge of Foreign Languages in Population in the Czech Republic The Table Below Documents the Replies According to the Socio-demographic Characteristics of Respondents Which foreign languages can you speak and to what standard?

3,000,000 people work in services in the Czech Republic

Industry 38,1%

Russian

French

Spanish

Italian

in %

in %

in %

in %

in %

All levels

All levels

All levels

Active

Passive

Fluent

Active

Passive

Fluent

Active

Passive

Prague

17,1

33,8

17,4

6,0

12,3

22,8

3,0

13,8

23,4

8,7

5,7

5,7

11,3

19,5

19,5

4,4

10,8

22,4

2,6

9,9

24,4

3,8

4,1

1,5

South Bohemia

9,9

13,0

16,0

10,5

23,5

28,4

1,2

13,0

30,2

1,9

3,1

1,2

Plzen

9,3

23,3

12,0

3,3

19,3

26,7

0

8,7

29,3

2,0

4,0

1,3

Karlovy Vary

5,9

20,0

16,5

8,2

23,5

28,2

0

5,9

30,6

4,7

0

1,2

Usti nad Labem

7,7

19,0

17,9

6,7

15,4

21,5

0,5

12,3

24,6

3,6

6,2

3,1

Liberec

Nearly

German

in %

Central Bohemia

Hradec Kralove

Services 59,1%

Fluent

English

7,9

19,8

20,8

3,9

13,7

24,5

2,9

6,8

32,0

5,0

3,0

2,0

12,8

28,4

15,6

4,3

12,8

24,8

3,6

11,5

28,8

6,4

2,8

5,0

Pardubice

7,1

21,4

16,7

5,6

11,2

22,4

2,4

8,8

35,2

4,8

4,0

0,8

Vysocina

6,1

18,4

13,2

7,0

9,6

21,1

1,8

12,3

24,6

2,6

0,9

2,6

South Moravia Olomouc Zlin Moravia-Silesia

11,9

23,9

18,1

3,8

19,8

23,9

1,7

11,7

26,2

4,5

2,1

4,5

8,8

25,0

27,0

3,4

13,4

25,5

4,0

12,1

25,5

7,4

4,0

4,1

14,5

20,0

20,0

3,4

17,9

22,8

2,1

12,5

27,8

4,8

4,1

4,1

7,4

22,5

15,8

3,7

8,7

17,8

2,3

11,7

19,8

1,7

3,0

3,0

Note: This presentation details the results of a representative survey carried out by means of face-to-face interviews in three waves during the period from 20 May to 11 June 2014. A total of 2,641 respondents aged 18-59 years participated in the survey. The survey was conducted by experienced interviewers from STEM throughout the Czech Republic. Quota sampling method with criteria of sex, age, education, size of locality and region was used. Basic information on knowledge of foreign languages among the population in the 18-59 age group was measured by means of TWO questions. First the respondents had to state the number of foreign languages in which they are able to read and understand a simple text. This question gave the respondents space to name languages that came to mind as well as for self-evaluation of their knowledge. Source: Czech Statistical Office, 2015

Source: Sociological Survey, STEM, June 2014

4

Czech Regions Ready for International Projects

LIBEREC

PRAGUE + CENTRAL BOHEMIA

Unemployment rate: 7.7% Average gross monthly wage: EUR 840 University Education: 1,852 Business Administration and HR students 821 ICT students Expats: 17,119 Language skills: English 49%, German 42 %, Russian 42%, French 5%, Spanish 3% Modern ofce stock Rental price: EUR 8.50 – 11.00/m2/month

Political, educational, cultural and economic centre Unemployment rate: 5.3% (6.4% in Central Bohemia) Average gross monthly wage: EUR 1,198 University Education: 39,888 Business Administration and HR students 11,441 ICT students 4,450 Law students Expats: 227,362 Language skills: Prague – English 68%, German 41%, Russian 40%, French 9%, Spanish 6% Central Bohemia – English 50% Modern ofce stock: 3 million m2 Rental price: EUR 19.50 – 20.50/m2/month (City centre) Inner city: EUR 15.00 – 17.50/m2/month “Reasons for choosing Prague Outer city: EUR 13.00 – 14.50/m2/month as the home of our SSC included the area’s UNESCO World Heritage site available, strong, high-quality and multilingual workforce, the macroeconomic stability International Airport

Plzen

of the Czech Republic and the country’s well-developed infrastructure.”

David Mansfeld, Managing Director, Johnson & Johnson Global Business Services

PLZEN Unemployment rate: 5.6% Average gross monthly wage: EUR 854 University Education: 1,407 Business Administration students 2,303 ICT students 1,178 Law students Expats: 26,044 Language skills: English 45%, German 49%, Russian 38%, French 2%, Spanish 4% Modern ofce stock Rental price: EUR 10.00 – 11.50/m2/month

CESKE BUDEJOVICE Unemployment rate: 5.4% Average gross monthly wage: EUR 807 University Education: 5,368 Business Administration and HR students 1,403 ICT students Expats: 15,386 Language skills: English 39%, German 62%, Russian 44%, French 2%, Spanish 3% UNESCO World Heritage site

55

PARDUBICE + HRADEC KRALOVE

OSTRAVA

Unemployment rate: 5.3% Average gross monthly wage: EUR 794 University Education: 4,210 Business Administration students 3,129 ICT students Expats: 25,025 Language skills: Pardubice – English 45%, German 39%, Russian 46%, French 5%, Spanish 4% Hradec Králové – English 57%, German 42%, French 6%, Spanish 3% Modern ofce stock Rental price: EUR 9.00 – 11.50 EUR/m2/month International Airport

Unemployment rate: 11.3% Average gross monthly wage: EUR 821 University Education: 9,500 Business Administration and HR students 4,136 ICT students Expats: 24,042 Language skills: English 46%, German 30%, Russian 34%, French 2%, Spanish 3% Modern ofce stock: 195,000 m2 Rental price: EUR 10 – 12.50/ m2/month International Airport “The whole of the Czech Republic and especially the northeastern region have incredible potential and we have found really easy access to the people we have needed.”

“We have opted for the lower-cost Pardubice region and potential for further competitive advantages. The region denitely has great potential to attract foreign businesses.”

Dan Smith, Managing Director, OKIN BPS

Kevin Cejnar, Managing Director, NonStop Recruitment

“One of the most important factors in this area is the region’s highly skilled, motivated and available workforce possessing very good language skills.” Lenka Gondová, Director, Olomouc Regional Ofce, CzechInvest

OLOMOUC

“We needed the right people, a exible ofce and a proper IT network. Looking back, I can conrm that Brno was the right choice. In the area of nance we are proud to have become an employer of choice for economics graduates in the region.”

BRNO

Frank van Bommel, Training and Development Manager, DSG International SSC, part of Dixons Retail

R&D and BSS hub Unemployment rate: 8.8% Average gross monthly wage: EUR 873 University Education: 13,271 Business Administration and HR students 9,370 ICT students 3,076 Law students Expats: 38,917 Language skills: English 54%, German 48%, Russian 40%, French 5%, Spanish 2% Modern ofce stock: 430,000 m2 Rental price: EUR 10.00 – 13.50/m2/month UNESCO World Heritage site International Airport

Unemployment rate: 8.4% Average gross monthly wage: EUR 790 University Education: 1,143 Business Administration and HR students 547 ICT students 1,621 Law students Expats: 10,160 Language skills: English 61%, German 42%, Russian 42%, French 6%, Spanish 4% Modern ofce stock Rental price: EUR 9.00–10.50/m2/month

ZLIN Unemployment rate: 6.4% Average gross monthly wage: EUR 790 University Education: 2,932 Business Administration students 1,828 ICT students Expats: 8,140 Language skills: English 55%, German 44%, Russian 42%, French 5%, Spanish 4% Modern ofce stock Rental price: EUR 7.50 – 10.00/m2/month

6

Case Studies

“Prague as the main shared-services location for SAP was chosen during a serious decision-making process. Quality to cost criteria such as: the country’s political stability, international accessibility, availability of skilled workers with appropriate language skills, the business and labor law environment, IT infrastructure and the level of development of the real estate market were all thoroughly considered and evaluated. This decision has proven to be the right one and was reiterated in our location strategy at the beginning of 2014, execution of which will result in additional jobs in the Prague-based SAP BSCE.” Ing. Andrea Hepnerová, MBA Managing Director SAP BSCE

“We were searching for a location that would support our ambitious project, which was a pilot for the Panalpina Group. Looking back at the past 12 months of development, I believe we have chosen the right place to be, as we have found a capable and motivated team of people who are helping us to make the project a success. At the same time, we faced few technical obstacles thanks to the advanced state of the business property and the related IT and communication infrastructure.” Volker Böhringer Regional CEO Europe Panalpina

SAP SAP is the world leader in enterprise applications in terms of software and software-related service revenue. With respect to market capitalization, it is the world’s third-largest independent software manufacturer. The company has more than 253,500 customers in 188 countries. In 2004 SAP established its Business Service Center in Prague. Today the center employs 650 people providing services and support in the areas of finance, purchasing, human resources and marketing for affiliates worldwide.

Panalpina One of the world‘s leading providers of supply-chain solutions, the Panalpina Group operates a global network with some 500 offices in more than 70 countries and employs over 16,000 people worldwide. In July 2013 Panalpina opened a Business Service Center in Prague. The center provides documentation and administration services supporting the company’s core processes, particularly for its operations in European countries. The primary focus is on ocean freight export documentation, which was the scope of the pilot project, with the later addition of other processes. As of July 2014 the center employs around 60 people who support ocean export processes in the German and English languages. The existing office expansion plan is designed to accommodate up to 170 people as of 2015. Further roll-in projects with various European countries are planned for the next 2-3 years in order to continue expanding the center’s offer of services.

“The reasons for choosing Prague as the home of our SSC included the area’s available, strong, high-quality and multilingual workforce, the macroeconomic stability of the Czech Republic and the country’s well-developed infrastructure. Prague’s Central European location makes it easily accessible from all corners of the continent and the city also offers good connections to the United States, the Middle East and Asia. Government support and investment, which Johnson & Johnson worked closely with CzechInvest to obtain, also had a positive impact on the decision-making process and helped bring the last pieces of the decisionmaking puzzle into place.” David Mansfeld Managing Director Johnson & Johnson Global Business Services

Johnson & Johnson JNJ Global Business Services is the EMEA regional financial services centre of Johnson & Johnson. Located in Prague, the centre opened its doors in March 2006 and has since expanded the range of services that it provides to the Johnson & Johnson family of companies. The centre thus now serves 28 European countries as well as the United States and Canada and operates with nearly 300 professionals with experience gained in over 30 different countries across the globe. The centre provides valuable support in the areas of supplier and customer invoice processing, selection of receivables including associated business risks, administration of both supplier and customer databases, assessment and processing of tax records, booking of accounting transactions and preparation of corporate reporting documentation. For the future, the company is actively planning to expand its operations into financial planning while effectively supporting budget preparation and furthering its geographic reach.

7

Business Environment Shared Services Centre/BPO Labour Cost Results Summary Czech Republic South Korea UK

6,341,665

7,164,058

Canada

7,290,510

Finland

7,355,935

Sweden Germany Switzerland

Besides the country’s strategic location and highly qualified workforce with excellent language abilities, competitive labour costs are another important factor drawing international companies to Czech cities. At 19%, the Czech Republic’s standard corporate income tax rate is one of the lowest in the EU. Labour costs in shared-services centres in the Czech Republic are, on average, half those in Germany, Switzerland, Sweden, the United States, Japan, the United Kingdom and South Korea. At the same time, the CEE region is regarded as a stable and reliable destination, attracting the attention of those who invested in riskier regions in the past. The growth in the Czech business services market is built on the expansion of the many mature centres that have been established here in the past ten years, especially in Prague, Brno and Ostrava. New centres have been established in other regional cities around the country as investors recognise the cost and quality benefits to be found in cities such as Pardubice, Hradec Králové, Olomouc, Plzeň and Liberec.

6,600,197

Japan

USA

3,360,417

Labour Costs

7,654,854 8,233,615 9,428,284 13,126,933

Source: fDi Benchmark, a service from the Financial Times Limited 2015. All Rights Reserved. All cost values shown in EUR – Euro per annum. Note: Labour costs for Shared Service/BPO centre with 130 employees.

A recent PWC survey reveals that CEE has the highest cost savings achieved globally and the Czech Republic leads the way with an average of 32% reported savings on operating costs delivered by Czech centres. At the same time, the service levels in Czech centres were rated as highly as those in Western Europe and significantly higher than the levels in other parts of the world.

Working Hours and Vacation The maximum weekly working time is 40 hours (38.75 hours for employees working in a two-shift operation). Each employee is entitled to a minimum of four weeks of vacation per calendar year. Vacation time may be increased by additional days through a collective agreement, internal regulations or in an individual contract (provided that the rules on equal treatment are respected). Additionally, the Czech Republic currently has 12 statutory public holidays.

Investment Incentives The Czech government recognizes the need to nurture an environment that will welcome new investment projects and support the establishment and growth of service centres in the Czech Republic. The Czech Republic offers financial support to invesment projects through several EU structural-fund programmes and investment incentives allowing investors to enjoy income tax abatement for up to ten years.

TAX

TAX RATE

Corporate income tax

19% standard corporate income tax rate; 5% corporate income tax rate applies to certain taxpayers (pension funds, investments funds).

Personal income tax

Flat tax rate of 15% for calendar year 2014; the solidarity contribution of 7% applies to high-earning individuals.

8

Association of Business Service Leaders in the Czech Republic

The Czech Republic is the second largest country for Business Services in CEE and there is strong competition from other countries in this area. The Association of Business Service Leaders in the Czech Republic (ABSL) was formed to give the business services industry a common voice to help shape its environment and destiny. ABSL Members include companies which conduct business in the area of Shared Services Centre (SSC), Business Process Outsourcing, Information Technology Outsourcing (ITO), Research and Development (R&D) as well as companies contributing to the sector‘s growth.

ABSL was founded in 2013 by the following firms: -- ACCA

--

Monster Worldwide CZ s.r.o.

--

Accenture Services, s.r.o.

--

Motorola Solutions CZ s.r.o.

--

DHL Express (Czech Republic) s.r.o.

--

PPG INDUSTRIES CZECH REPUBLIC, s.r.o.

--

Edwards Services, s.r.o.

--

Plzeňský Prazdroj, a.s.

--

Gardner Denver CZ + SK, s.r.o.

--

PricewaterhouseCoopers Česká republika, s.r.o.

--

Infosys BPO s.r.o.

--

Process Solutions, s.r.o.

--

JNJ Global Business Services s.r.o.

--

Siemens, s.r.o.

--

MANN + HUMMEL Service s.r.o.

Mission ABSL is a platform for enhanced dialogue and collaboration within the Business Services Community. The association advocates Business Services to create a better business environment for its members and ensure the sustainability and long-term development of the industry.

Vision The association’s vision is to promote Business Services to become one of the key local industries and to help the Czech Republic to be one of the most attractive locations for Business Services in Europe.

Goals ABSL is a source of knowledge, expertise and best practices in the Business Services sector. ABSL has initiated a number of activities aimed at stimulating growth of the Business Services sector as well as increasing the investment attractiveness of the Czech Republic internationally. For more information, please visit www.absl.cz

CzechInvest’s Services

Headquartered in Prague, CzechInvest is the Investment and Business Development Agency of the Ministry of Industry and Trade. Since its establishment in 1992, the agency has been tasked with attracting foreign investments and developing domestic companies through its services and development programmes.

Our Objectives -- To advise and support existing and new companies to grow and prosper in the Czech Republic -- To facilitate communication between the public and private sectors -- To actively influence the positive development of the business environment -- To support the competitiveness of the Czech economy CzechInvest is exclusively authorised to file applications for investment incentives at the relevant governing bodies and prepares draft offers to grant investment incentives. Its task is also to provide potential investors with current data and information on the business climate, investment environment and investment opportunities in the Czech Republic.

Our Services -- -- -- -- -- --

Detailed, sector-specific market intelligence and value propositions Customised business cases Identification of business properties and sites suitable for investment Tailored visits to the Czech Republic Access to investment incentives and EU funds Information and advice on doing business in the Czech Republic, regulations and taxation -- Identification of potential business partners, suppliers and acquisition targets -- Referrals to professional associations (lawyers, bankers, accountants, etc.) -- Aftercare service

Our services are fully funded by the Ministry of Industry and Trade as a part of the business support measures so they are free of charge to businesses.

Selected Shared Services Centres in the Czech Republic

Czechinvest headquarters

CZECHINVEST WORLDWIDE

Czech Republic Stepanska 15 120 00 Prague 2

GERMANY – Düsseldorf PHONE: +49 211 250 56 190 E-MAIL: [email protected]

+420 296 342 514 [email protected] WEB: www.czechinvest.org

Mobile:

China – Shanghai +86 13817792614 E-MAIL: [email protected]

Mobile: +1

USA – WEST (415) 794 0665 E-MAIL: [email protected]

JAPAN – Tokyo 3-5485-8266 E-MAIL: [email protected]

Mobile:

PHONE: E-MAIL:

UK – London 20 8748 3695 Mobile: +44 77 8523 1520 E-MAIL: [email protected] PHONE: +44

SCANDINAVIA 296 342 540 +358 415 787 432 E-MAIL: [email protected] PHONE: +420

www.czechinvest.org

PHONE: +81

USA – EAST +1 (347) 789 0570 E-MAIL: [email protected]

Korea – Seoul 10 2987 5632 E-MAIL: [email protected] PHONE: +82

in This material is distributed free of charge. Date of issue: April 2015 CzechInvest Investment and Business Development Agency is a government organization under the Czech Ministry of Industry and Trade.