One of the few European Union members that have resisted the temptation to the join the Eurozone, Czech Republic – the most vibrant and industrialised economy in central and eastern Europe – is trying to shrug off the recession it has found itself in on several occasions in the last few years. And this means, among other things, new opportunities for Indian exporters

Shakti Shankar Patra | @TheDollarBiz

Czech Republic is an epitome of all that is good and all that is not so good about Europe. While on one hand it is one of the most developed economies in the whole of central and eastern Europe, with a high GDP per capita and low Gini coefficient, on the other, it has been at the heart of all of Europe’s turmoil over the last two centuries – the last one being the split of the former Czechoslovakia into Slovakia and Czech Republic in 1993. Today, Czech Republic is a member of the European Union but not of the Eurozone. And while this has absorbed some of the shocks of the sovereign debt crisis that has engulfed the Eurozone in the last few years, it hasn’t kept the country totally immune from the chaos in its neighbourhood, particularly since all of its top three trading partners – Germany, Slovakia and Poland – are EU members.

On top gear The $200 billion Czech economy is highly industrialised and is dominated by the automotive industry, which is not only a major source of employment but also of exports. Just how critical the auto industry is to the Czech economy can be gauged from the fact that while the country continued in a recession for the most of 2013, its leading automaker – the Volkswagen Group owned Skoda Auto – notched up its 2nd highest ever sales in its over 100 years’ history during the year. In fact, according to Czech Republic’s Automotive Industry Association, the contribution of the auto industry to the country’s economy continues to rise and accounted for 20.1% of overall industrial production in 2013. The Czech auto industry is also the country’s leading foreign exchange earner, with exports topping $28 billion in CY2013. Czech Republic’s prowess in the auto sector can also be gauged from the fact that trucks manufactured by another of its leading auto companies – Tatra – are used by the armed forces of several countries, including India and Israel. One if its kind

While the industrial sector has historically been the pillar of the Czech economy, in the last couple of decades (particularly since the start of the new millennium) the services sector has emerged as the main contributor to its GDP. This, since Czech Republic offers Europe a closer-to-home, culturally similar, yet a substantially cheaper destination for outsourcing. On the back of such strengths, Czech Republic has consistently been ranked as one of the most attractive outsourcing destinations in the world, behind countries like India and China, and by far, the most attractive in Europe. That mega multinational corporations like DHL, SAP, Sun Microsystems and Monster Technologies etc. have already made a dash for Czech Republic, confirms this.

To or not to

Today, one of the most important issues that policymakers in Prague are grappling with is whether or not to join the Eurozone. Initially, Czech Republic was scheduled to join the Eurozone and adopt the common currency in 2010. But Europe’s sovereign debt crisis, which started with Greece and then engulfed most nations in the region, has not only given Czech Republic a strong excuse to delay the date of joining, but has also forced it to reconsider the pros and cons of a currency union. And while current President Milos Zeman expects the country to adopt the common currency by 2017, there’s a lot of opposition in Czech Republic to surrendering monetary autonomy to Brussels.  Made for trade

The Czech economy is highly dependent on merchandise trade, which is worth over 150% of the country’s GDP. Add to this trade in services, and combined international trade is almost double of Czech Republic’s GDP. And with all of the country’s top three and eight out of its top ten trading partners being members of the European Union, the benefits of joining the common currency are pretty obvious. However, eurosceptics argue that with one of the lowest debt-GDP ratios in the entire region, joining the unstable monetary union would simply mean bailing out other members, many of which have massive deficits.  

 Low hanging fruits

While trade between India and Czech Republic has almost always been in favour of the latter, a 54% jump in Indian exports to it in FY2014, led by $74.6 million worth of aircraft, has raised hopes about the emergence of a new market for Indian exporters. At the same time, a detailed The Dollar Business Intelligence Unit analysis reveals seven multi-billion dollar opportunities that are there for the taking for any Indian exporter eyeing the Czech market. To arrive at this list, we took into account only those products (at 4 digit HS code), where Czech imports were worth over $1 billion, Indian exports were worth over $1 billion, but still offered at least $1 billion of opportunities in CY2013. At the top of this list is automotive parts and accessories (HS Code 8708). Being a massive exporter of cars, thanks to companies like the homegrown Skoda Auto and multinats like Hyundai and Toyota that have setup manufacturing bases in the country, Czech Republic imports huge quantities of auto parts and accessories to feed its car factories. However, while Czech Republic has imported over $7 billion worth of auto parts and accessories in each of the last three years, India hasn’t catered to even 1% of this demand, despite being a big exporter in this category. Another prominent product in this list is electrical apparatus for line telephony (HS Code 8517). For, while Czech Republic imported $4.02 billion worth of these, mostly mobile phones, and India exported over $3.44 billion worth of these in CY2013, India’s exports of these to Czech Republic were worth just $26.9 million. Other items in this list include petroleum oils (HS Code 2710), medicament mixtures (HS Code 3004), flat rolled iron products (HS Code 7210), taps, cocks and valves (HS Code 8481) and of course, cars (HS Code 8703). One for the future

As India attempts to export its way out of a prolonged economic slump, there’s a need to not only increase exports to traditional markets but also tap markets that have long missed the radar of our exporters. One such market has to be Czech Republic, a former partner during the Soviet era and a modern, stable industrialised economy, with very low debt-to-GDP, which is bound to help growth, particularly in a region with totally out-of-whack deficit countries. Were last year’s aircraft exports a harbinger?

Next page: “Bilateral trade should hit $2 Billion by 2015” - Exclusive interview with Miloslav Stašek, Czech Republic’s Ambassador to India “Bilateral trade should hit $2 Billion by 2015”

Most foreign diplomats in India praise the spicy Indian cuisine, but not many buy an oven to learn Tandoori dishes! Maybe since not everyone is Miloslav Stašek, Czech Republic’s Ambassador to India. In an exclusive interaction with The Dollar Business, Stašek talks about his love for Indian food, Bollywood, tourism and, of course, India-Czech Republic trade. Excerpts: Interview by Vanita Peter D’souza | @TheDollarBiz

Milosav Stasek, Ambassador to India, Czech Republic

TDB: During the last financial year, Indian imports from Czech Republic declined by 19.6%. What do you think was the reason for this?

MS: Basically, we are facing this issue for the last couple of years. Not just our exports to India, but also investment in Czech Republic has slowed down significantly. The sovereign debt crisis in Europe, in the last couple of years, has been one of the main reasons for this. But we still believe mutual trade between India and Czech Republic will touch the $2 billion figure in 2015. Several Czech companies are bidding for various big projects in India and we hope by 2015, there is rapid growth in trade. Of course, in India, everything takes time and nothing happens overnight.

TDB: Can you tell us about any specific step that you are taking to deal with the decline in exports to India?

MS: In September, four business delegations from India visited Czech Republic. Similarly, three delegations from Czech Republic visited India. The traffic between both the sides is very intensive. Czech Republic, the former Czechoslovakia, is a traditional economical partner of India. In the 1960s and 1970s, Czechoslovakia participated in Indian industrialisation. This is something that we can bet on and I am sure will help trade flourish. Further, we plan to focus on sectors like heavy industry, automobile, engineering, technology, agriculture, chemical and defence. Moreover, as of now, trade between the two countries is balanced. For the time being, we are also preparing for some investment projects in India. Skoda is one of our major investments in India and the company is sourcing several auto components from India, which is a good sign. Finally, the launch of new campaign ‘Make in India’, in which Czech Republic is participating, will also help trade between India and Czech Republic grow further.

TDB: For the first time in FY2014, India exported $74 million worth of aircraft and aircraft parts to Czech Republic. What is the potential of trade between the two countries in the aviation sector?

MS: Recently, I visited several Indian states like Jharkhand, Odisha and West Bengal, where I met 16 aircraft parts manufacturing companies and I am sure they all have Czech Republic in their minds. On the other hand, our main product in this segment is the L410 Turbojet, a 19-seater aircraft, which we are trying to introduce in developing economies. We have recognised it has a lot of potential and can play a big role in promoting tourism in remote areas. The aircraft does not need a specific runway. It can land on a regular surface. We want to introduce it here in India, Nepal and Bangladesh.

TDB: You said you have been visiting various Indian states recently. Are you planning to focus on particular states or the whole of India?

MS: Firstly, I have visited all 29 Indian states. We are seeking business opportunities for Czech companies and hence are visiting all states – from Jammu and Kashmir to Tamil Nadu, from Gujarat to the North East. We are negotiating with individual states on various projects such as building airports etc. I have visited the East, which is the mining heart of India, to explore business opportunities and have a footprint there. We are ensuring the visit of various delegations from our country to India so that they can meet local businessmen and various state governments. India is a huge country. It is a subcontinent. We cannot cover the whole territory but we are trying our best. TDB: Last year Indian exports to Czech Republic rose by around 54%. Do you think this is the start of something big?

MS: We hope so. The economic recovery in Czech Republic and the change in the business environment in India will be favourable for business and investment. The change is also making India a very attractive market for Czech Republic. I will go back to Czech Republic to share this change with the local media, along with the Indian ambassador to Czech Republic. I am going to intimate them about the movement of Czech companies towards India. Similarly, even local companies are, today, coming to us. Moreover, in last two years, India has be-come the ninth biggest investor in Czech Republic, while China is at the fifteenth position.

TDB: Bollywood is exploring Czech Republic as a shooting location. Do you see more opportunities to promote Czech Republic as a travel destination via the Hindi film industry?

MS: We have segregated our focus in the film industry. After the movie ‘Rockstar’, ‘Bang Bang’, which released on October 2, was also shot in Czech Republic. We have very much participated in the launch of this movie. During its release, we had prepared some PR campaigns to advertise Czech Republic as an ideal destination for honeymooners. The Indian movie industry is an area through which we are trying to promote Czech Republic, especially Prague, which is one the most beautiful cities in Europe.

TDB: How much money has Czech Republic invested in this space?

MS: We have invested some funds via Czech Tourism. There are some direct collaborations with film producers too. It is very difficult to say what the exact amount is. We have targeted three Bollywood movies, along with some other upcoming projects, to promote Czech Republic. This is the best promotion that we can have as Bollywood and Cricket are the major religions in India. Besides the film industry, I would also like to mention about sports collaborations, which have begun with the start of the Indian Super League. Football is the No.1 sport in Czech Republic. In the Indian Super League, seven players from Czech Republic are participating. They are very good brands to promote our country.

TDB: Apart from business, movies and sports, do you think Czech Republic can emerge as a destination of choice for Indian students?

MS: Yes, we do. In fact, we are helping our universities conduct exams in India, so that students are not forced to travel to Czech Republic. Instead of asking students to go to Czech Republic, we are getting our professors to visit India.

TDB: When do you think the European Union-India free trade agreement (FTA) will see the light of day?

MS: We would like to see it come true as soon as possible. Talks are going on for several years and we need to open up to each other to boost trade. It was very unfortunate that talks did not conclude during the previous Indian government’s reign, but the issue is very much on and we hope the new government would soon take a stand on it.  

  TDB: If FTA becomes a reality, what do you think is the potential of India-Czech Republic trade?

MS: As I said, in 2015, we want trade between the two countries to reach $2 billion. I think the true potential of trade relations between the two countries is yet to be discovered. In the early 1990s, Czech used to look at the West, and India at the East, for trade. We were looking at different directions. Now, we have recognised that there is great potential on both the sides. We want to bring Czech Republic brand to India and also want to promote India in Czech Republic.

TDB: In Asia, which countries hold the top priority for Czech Republic?

MS: There are two major priorities – India and China. We also have very good relations with countries like Japan, Indonesia and Vietnam. Many young Vietnamese students have studied in Czech Republic and are one of the biggest communities in our country. We also support Burma (Myanmar) on human rights is-sues. But yes, India and China are our top priorities.

TDB: As Czech Republic’s ambassador to India, which key areas do you want India to focus on in order to help improve trade relations?

MS: We have many companies, with excellent technologies, which will be successful in India. The challenge is that to win a tender here one needs to quote the lowest price. Usually, the cheapest is not the best! We have approached the Indian government and requested for a change in the tendering process. We want the Indian government to consider the quality and durability of a product as well. In the 1960s, we had delivered pressing machines in Ranchi, which are working effectively to full potential even today. This is the quality of our industry and the Indian government and companies should think about it.