The Czech Republic – a trusted neighbour
The Czech Republic is undoubtedly one of the favourite destinations of Polish investors. At the end of 2022, the balance of Polish FDI invested in our southern neighbours amounted to PLN 18.7 billion, placing the country second among recipients of Polish direct investment. The market is characterised by a high level of technical and engineering maturity. The Czech Republic is also a leader in innovation in the CEE region. With good economic growth rates and a strong position in rankings of economic and political stability, the Czech Republic is seen as an attractive destination for foreign investors. For this reason, we could not omit this country from our ranking of the most attractive expansion destinations presented in the report “Destination: East. Current trends and attractive foreign expansion destinations in the face of geopolitical turbulence”.
Although the Czech Republic attracts around four times less foreign investment than Poland, the country has seen impressive growth in investment inflows over the past decade. In 2015, the value of foreign investments in the Czech Republic amounted to just EUR 465 million. At the same time, inward FDI for Poland was already exceeding EUR 15 billion. It is therefore worth taking a closer look at this market in terms of investing in it.
Strong industry is the key
When talking about the strengths of the Czech economy, it should first and foremost be emphasised that the Czech Republic is one of the most developed industrial economies in Europe. The share of industrial production in GDP exceeds 47 per cent, and the sector has a rich history in the country. For almost 100 years, the Czech Republic has been among the most developed economies with the highest share of industrial production in GDP.
As a historical fun fact, I would like to mention the figure of the inventor and constructor from Těšín Silesia, Josef Božek, who presented his three-seater steam vehicle in Prague in 1815. As the local press reported at the time, the constructor caused such a sensation that the Prague magistrate repeatedly banned the inventor from driving the vehicle on the streets. However, this did not discourage Božek and in the following years he constructed another invention – a steam boat. He then set about modernising rail transport. He is known as a pioneer of the automotive industry with Polish-Czech roots. Today, the automotive industry is the largest sector in the Czech Republic, accounting for almost 10% of GDP, 26% of industrial production and 24% of exports. Other important sectors for the country's economy include electrical machinery, electrical engineering, metallurgy and chemicals. It is also worth mentioning the role of the Czech economy in the global ITC and computer manufacturing chain, of which the country is the seventh largest exporter in the world. According to analysts, the country's well-established position in the above industries, as well as its focus on high-value-added activities, including extensive research and development initiatives, are the pillars that sustain the Czech Republic's economic growth and give it a competitive edge in international markets.
Investor-friendly climate
Various forms of support, including tax reliefs and R&D grants offered in the country, are expected to attract foreign companies. Other attractive factors include high levels of productivity, know-how, staff training, stable regulatory situation, but also flexibility in responding to changing market conditions. In the list of the largest foreign investors, the Czech National Bank mentions the Netherlands, Luxembourg, Germany, Austria, France, Cyprus, Switzerland and Slovakia. Poland ranks 12th. Looking at the individual sectors that are most popular with foreign investors, the financial and insurance, manufacturing and real estate sectors dominate.
A key and strategic development goal for the Czech Republic is to join the ranks of the most developed countries in the world. This seems possible provided that the country is able to make full use of its geographical location, economic and human potential in the coming years to become a true major crossroads of Europe. Certainly, attracting a larger pool of foreign investors can help achieve this goal.
Polish success stories in the Czech Republic
More and more Czechs are buying in Poland. In Polish border towns, Czech customers can be found in practically every shop. They are also keen to buy Polish-brand shoes, clothes, suitcases, train in Polish fitness clubs and fill up their cars at Polish petrol stations. They also use Polish e-commerce platforms. They fly with LOT and are increasingly willing to book holidays with Polish travel agencies.
A strong ‘made in Poland’ brand is undoubtedly our asset and a good starting point in the context of developing our capital presence on the Elbe and Vltava rivers. Due to the strategic importance of the engineering industry in the Czech Republic, a promising area for Polish companies may be to establish contacts in this segment within supplier, sub-supplier or co-operation chains. The Czech construction industry has been growing dynamically for several years, with annual growth exceeding 2.4%. Polish producers may also be persuaded by the strong demand for agri-food products in the Czech Republic, as Poland is the second (after Germany) supplier to that country. Last year alone, the value of our food exports to the Czech Republic amounted to EUR 2.4 billion (a 9 per cent year-on-year increase).
According to various estimates, between 40,000 and 50,000 Poles work in the Czech Republic, mainly in Czech companies. But that is not all. Polish Orlen owns, through its subsidiary Unipetrol, two Czech oil refineries in Litvinov and Kralupy. The Polish giant also has over 430 stations, giving it the highest local market share of almost 25 per cent.
The LPP group has also been operating here for more than 20 years, with the Czech Republic as its second largest market in terms of sales volume outside Poland. In turn, Grupa Kęty is one of the local market leaders in aluminium profiles and components for the automotive industry, aluminium systems for the production of windows, doors, facades and sunscreens for the construction industry. KGHM sells copper cathodes, copper wire rod, oxygen-free copper wire, sulphuric acid, lead and copper sulphate in the Czech Republic.
The Polish company Budimex is also doing well on the Czech market. Its bid was selected in November last year as the most favourable in a tender for the construction of a section of the D11 motorway near the Polish border. Meanwhile, in December, Bydgoszcz-based Pesa signed a contract with private carrier RegioJet for the supply of up to 60 electric multiple units. A few weeks ago, Maspex Group, a food tycoon with annual revenues of PLN 15 billion, also finalised a major transaction in the Czech market. The Polish company acquired a Czech company with a production plant and warehouse based in Karlovy Vary. The investment will strengthen the position of the group, which has been present on the Czech and Slovak markets since 1998.
Companies operating in the service sector are also interested in the Czech market. One example is the Unilink Group, which acquired the leading insurance distributor in the Czech Republic and Slovakia, INSIA, at the end of 2022, thus strengthening its position on the insurance market in the CEE region
In 2022, the total value of Polish capital invested in the Czech Republic was EUR 2.6 billion. In addition to the aforementioned companies, it is worth adding Ferro, an important player on the local market of faucets and bathroom accessories, Mokate, a producer of coffee and tea, and Ecol, a maintenance company in the energy and chemical industries.
Other significant Polish investors in the Czech Republic include Synthos (owner of the chemical concern Synthos Kralupy), PKP Cargo (which acquired AWT, formerly OKD Doprava, in 2014) and Maspex (which acquired beverage plants from Walmark in 2014).
At the end of March this year, another major Polish investment was announced. 7R Group has launched its first industrial project in the Czech Republic. The company will build a new warehouse facility, 7R Park Lavičky, on the strategically located connection between Prague and Brno, near the D1 motorway. The total value of the investment will exceed 750 million koruna.
These examples show that investors and producers from Poland are doing well in the market of our southern neighbour. In our latest report “Destination: East. Current trends and attractive foreign expansion destinations in the face of geopolitical turbulence” we have named the Czech Republic as an attractive destination for investors for the second time in a row. Factors that determined the high position of the Czech Republic in the ranking (1st place among the 1st circle countries recognised by Polish investors) include its relatively high scores in terms of the rule of law or political stability. The country also ranks high on the Index of Economic Freedom and has few restrictions on foreign direct investment. The potential of the Czech Republic as an expansion destination for Polish companies is also influenced by strong trade and investment relations, which foster network effects, according to which existing economic ties with a country can significantly facilitate foreign expansion by building a pool of knowledge about the operation of a particular market. The proximity and cultural similarities between the two countries facilitate business communication and logistics.
More similarities than differences
Poland is close to the Czech Republic not only geographically, but also culturally. To ensure successful business cooperation with the Czechs, it is crucial to understand their mentality and operating model.
Importantly for building local business relationships, the salient features of business culture in the Czech Republic are largely identical to those in Poland. For example, in the initial phase of establishing contacts, Czechs prefer formal meetings. However, it is important to bear in mind that there are significant differences in business culture that can affect mutual relationships. The Czechs, for example, attach more importance to formalities and business protocol, especially at the initial stage of cooperation. Companies should recognise the differences in business culture and adapt their communication and negotiation strategies accordingly.
What also differs between our business cultures is the trust in business partners, which is higher in the Czech Republic. In addition, the work culture there is less intense, with a slower pace of life and an emphasis on lasting relationships, professionalism and punctuality. Understanding these subtle cultural differences is crucial for successful communication and negotiations with Czech business partners. This is worth bearing in mind, as differences in mentality and business culture can affect the quality of cooperation with Czech partners.
Data sources:
- Rodl&Partner, Erfolgreich investieren in der Tschechischen Republik,
- MZV.GOV.CZ, Investment Climate in Czech Republik,
- PAIH, Rynki zagraniczne: Czechy,
- Obserwator Finansowy, Eksport żywności z Polski w ‘23 wzrósł do 51,8 mld euro.
