Czech Focus 2/2005 - AFI

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BUSINESSCLIMATE14First grade report cardThe Czech Republic’s first year in the European UnionOur first year’s experience of EU membership was altogether positiveand soberly hopeful. There were no fundamental shocks in the economythat could be directly or indirectly related to EU accession. Before EUaccession some “arguments” appeared, most often from the ranks ofEU sceptics, showing how prices would rise without an adequate rise inincome, how external competition would “crush” our weak and inexperiencedmanufacturers and retailers, etc. It can be completely responsiblystated that hardly any of this has come true. No direct or induced shocksdue to membership have occurred; to be sure the opposite is the case.There was no destructive impact on prices, except perhaps a cosmetic increasein prices due to a one-time need for tax harmonization (VAT, excise tax). Withcustoms duty it’s a different story. The permanent cancellation of duty and tradebarriers within the EU and the transition to a common customs tariff made manycommodities cheaper; but the overall impact on price levels has been negligible.The Czech Republic has been ranked among the low inflation European economiesfor a long time.On the whole it can be said that EU accession rather met positive expectations,one of which was even that our economy has become a considerably growingmember and has shown a very positive mid-term outlook. It’s a question as tohow much EU accession influenced such respectable economic growth (4%).Nonetheless, a positive mid-term outlook can also be the reason for favourableevaluation and the impact of accession on this result is evident.The following factors are characteristic for the first year inthe Union:• an acceleration of economic growth• keeping inflation of the values that fulfil the Convergence criteriaunder control• a slight reduction in unemployment• an improvement in the current account due to the increasedannual inflow of Foreign Direct Investment (FDI)The most positively influenced indicator is without a doubt foreign trade. The dynamicsof growth of exports and imports is demonstrably enormous and unequivocallyconfirms the marked renewal of trade and business transactions involvingCzech entities within an enlarged EU.The strengthening of foreign trade transactions was furthermore accompanied bya corresponding rise in output of international goods and passenger traffic. Theeffect of expansion is clear in the continuing influx of foreign direct investment.The relocation of companies and their production and development activitiesfrom traditional member countries to the countries of new members, includingthe Czech Republic, is now easier since as of May 1, 2004 there are much simpleradministrative procedures. The change in foreign investors’ behaviour and view ofCzech reality has not been very noticeable as of yet; it will likely make itself knownafter a longer period. The fact that we are EU members nonetheless improvesour country’s references and is anotherpositive argument for our improvingreputation.Our first year’s membership confirmedthat EU funds are no chimera, but a fact.Some 5,000 project applicants now havethe support of these funds as a certainty.In summary over 30 billion crowns havefound their recipients despite the largeexcess of enquiries of some operationalprogrammes beyond their possibilitieswhile others have not yet made useof their potential. From the date ofaccession to the end of this year onecan realistically expect approximately 50billion crowns.One year is still too short a period tomeet the expectations in structuralreforms or to reduce unemployment. The new business opportunities will likelylead to the creation of new jobs; however, this effect should be more visible after alonger period. From this standpoint it seems at first sight “as if nothing happened”,but the labour market’s demands have increased and structural reforms under thepressure of EU policy will also occur. If we highlight and tally up it’s clear that theoverall tone and impression is definitely positive.One key challenge is choosing the path to the euro. It’s certainly still true thata common government and central banking plan counts on the transition to acommon European currency in the period 2009 – 2010, but with respect to thedevelopment of inflation, interest rates and exchange rate stability we needn’t inany way hesitate much in joining the eurozone. The question is, however, meetingConvergence criteria, especially in the area of public finance (i.e. ability to reducethe deficit and considerably decelerate public debt). At present the fulfilment ofthe Convergence criteria is viewed as quite satisfactory. Last year, according tothe Czech Statistical Bureau’s macroeconomic development analysis, the CzechRepublic was the only new EU member state from Central Europe to fulfil threeof the four Maastricht conditions for the implementation of the euro.It can be presumed that the Czech Republic’s accession to the EU definitelyhelped. It opened up new business opportunities; students are pursuing educationin other countries in large numbers; EU funds have become a reality. We havebecome members of a club in which the rules applied help us provided we abideby them. Some other effects will nonetheless become apparent in several years ordecades, and so one year is too short for a thorough evaluation.Sources:• www.euractiv.cz, 30.5.2005• www.europa.eu.int • Czech Ministry of FinanceMain Macroeconomic Indicators2001 2002 2003 2004 2005 2006Forecast ForecastGross domestic product increase in %. const.pr. 2.6 1.5 3.7 4.0 4.0 4.1Consumption of households increase in %. const.pr. 2.6 2.8 4.9 2.5 3.5 3.5Consumption of government increase in %. const.pr. 3.8 4.5 4.2 -3.2 1.0 -1.4Gross fixed capital formation increase in %. const.pr. 5.4 3.4 4.8 9.1 7.1 7.1GDP deflator increase in % 4.9 2.8 1.9 3.7 2.7 3.1Average inflation rate % 4.7 1.8 0.1 2.8 1.8 2.2Employment (LFS) increase in % 0.4 0.8 -0.7 -0.6 0.2 0.2Reg. unemployment rate (MoL) average in % 8.5 9.2 9.9 10.2 10.0 9.7Wage bill increase in %. curr.pr. 6.9 8.5 5.6 5.0 6.3 6.3Current account / GDP % -5.4 -5.6 -6.3 -5.2 -5.0 -3.9Source: Macroeconomic Forecast, Czech Ministry of Finance (MoF), April 2005
15SPOTLIGHTON PEOPLEGlobal leader started outin an atomic shelterThey started in a nuclear bomb shelter with tank doors and no windows. Now they are one of the two bestcompanies in the world in their field. The small Czech company called PSI (Photon Systems Instruments)with 9 employees and which is celebrating its 10th anniversary this year attained its position by narrowlyspecialising on fluorescent devices and by cooperating with Czech scientists.The founder, general director, head of research, sales manager and even travellingsalesman, in short the man behind it all, is Martin Trtilek. He started businessback in his final year at the Brno University of Technology. It was of course a farcry from how he makes his living today.His big break came shortly after graduation when he met Dr. Nedbal from theMicrobiological Institute in Trebon. Dr. Nedbal had just returned from a lengthystay in the U.S. where he established numerous contacts in the scientific communityincluding many in university circles. He wanted to measure somethingfor his research, which he did with the Americans, and realized that he didn’t havethe right instrument to do the measurements. A chance encounter with a recentelectronics graduate lead to cooperation that continues to this day.Nedbal understood the scientists’ needs and had the contacts, while Trtilek knewhow to build the device. Moreover, they understood each other very well sinceDr. Nedbal, although a researcher in biology, has a degree in Mathematics andPhysics from Charles University and has no trouble with technical ideas. Togetherthey succeeded in making the first fluorometre to measure the fluorescence ofcells, algae, bacteria, leaves and lower plants.Images from PSI´s FluorCampost harvest lemon damageFluorCam of PSI meaures Fluorescence of leaves, small plants, and algal or cyanobacterialcoloniesThe device was a hitThe Americans were excited about it and immediately proposed to commercialise itin the U.S. An arrangement was reached and Photon Systems Instruments was born.It was agreed that the company would have an American part and a Czech part andthat in time it would become a joint venture. Here fortune shined down upon MartinTrtilek a second time: within two years the American part went bankrupt. With theirhigh costs the Americans couldn’t withstand the period when it was necessary toinvest into development without commercialisation of already developed instrumentsbringing in sufficient cash flow.The Czech part held tight. On the one hand costs were lower and on the other handTrtilek’s family was supported by an activity that was already up and running since hewas a student, and so they did not depend on income from PSI.If it had been a joint venture right from the start the entire company would have goneunder. The situation in Brno continued this way until the end of the second year whenthe company finally started to get itself slowly out of the red. An excellent productionand sales strategy helped. Scientists, especially those who investigate the naturalworld, don’t have it easy. Nature manifests itself in thousands of forms; thousands ofvarious processes take place in it; it has thousands of bonds. Among microbiologistsand biologists who measure and gauge nature, each one measures things differently.This requires custom-made instruments to match their needs.For this reason PSI from the outset focused exclusively on piece production. They doquality, not quantity. Each instrument is optimised according to the individual needsof each scientist. For eight years now they have been developing and commercialisingscientific instruments that are highly specialised and at a high level.PSI is now so far along in efficiency that it can even afford to produce certain instrumentsin small series “blindly” because it knows for sure that it will be able to sell them.A satisfied customer is the best advertisingA small company from the Czech Republic cannot afford financially to pay foradvertising in global scientific magazines. Nonetheless its name has made it into themost prestigious and influential magazines such as Nature. All scientists who performmeasurements are always aware of which instrument and under what conditionsthe measurements were taken. Having one’s company appear in such a magazineis worth dozens of television spots and conference appearances. PSI of course alsotakes part in congresses and conferences, mainly to be seen and not to lose thespotlight of the scientific community. At present they don’t encounter many majorcompetitors at such events. The only one remaining is their biggest rival, the Germancompany Waltz, which already has a thirty-year tradition and thanks to this and adeveloped distribution network has for the time being a greater market share thanPSI. Other small firms, mainly American, usually rent one booth together and do notpose a threat to the positions of those two companies.It´s not all about price......although price is important, because scientists have deeper pockets than theyhad, say, five years ago. Of course, when PSI first started to try to break into globalmarkets, things were different. At that time price was key, since quality amongscientific instruments is a given. The difference was severe. They were offering for16 thousand dollars what the competition offered for 50 thousand. PSI thus soldtwenty instruments while their competitors didn’t sell a single one.At one time the company even tried to push the price down to below 10,000 USD,which is the limit up to which American scientists who receive a grant can freelydecide on what instruments to purchase. Currently, however, it is abandoning thispolicy and prices are now approaching those of its competitors. It already has theimage of a company producing world-class instruments and so can afford to do it.The company has two distributors in America and two in Asia (Japan and Korea).Europe and the rest of the world are handled directly from Brno.Micro FluorCam produced by PSISource: weekly Ekonom (3.3.2005)
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Czech Focus 2/2005 - AFI

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