Czech Republic IT Profile and Business Opportunities

1. Czech RepublicIT Profile and Business Opportunities

2. Team Members • Chris Kowalski • Ed Terrana • Rajani Sinha • Gyan Prasad • Chris Czar

3. Agenda • Characteristics of Czech Republic • Geography • History • Demographics • Politics • Culture • Characteristics of the IT Industry in the Czech Republic • Economic characteristics as related to IT in the Czech Republic • Economic and IT comparison between Czech Republic & Slovakia • IT opportunities and Recommendation

4. Characteristics – Geography

5. Characteristics – Geography

6. Characteristics – Geography • Area: 78,866 sq km, roughly the size of South Carolina • Landlocked – no ports • Located astride some of oldest and most significant land routes in Europe • Neighbors economically sound nations Germany and Austria, as well as emerging nations Poland and Slovakia • Railways: 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!

7. Characteristics - History • Communist 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 nations • In 2004 became a member of the European Union • Czech Republic financial experts do not believe the nation is emerging, but already “emerged” Czech Republic has undergone recent and drastic changes!

8. Characteristic - Demographics • Population is 10,241,138 • Labor Force 5.25 Million • Growth rate is -.05% • The median age: • males is 37.2 years old • females is 40.82 years old • 90.4% of populous are of Czech ethnicity • 59% 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!

9. Characteristics - Politics • Parliamentary Government • Legal 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

10. Characteristics - Culture • Culture is heavily influence by neighbors • Prague 1-2 hours from Germany • Also influenced by Western Europe • Rapidly changing from Communist culture to Western culture.

11. Characteristics - Culture • Culture Model based on Hofstede: • Environment – Constraint • Time – Multi-focus, fixed, future and past • Action – Doing and being • Communication – High context, direct and indirect, instrumental, and formal • Space – Private and public • Power – Tend to be hierarchical

12. Characteristics - Culture • Culture Model based on Hofstede: • Individualism – Collective and particularistic • Competitiveness – Cooperative • Structure – Mix of order and flexible • Thinking – Tend to be inductive and deductive.

13. Characteristics - Economic

14. IT Industry in the Czech Republic • Electricity Data • 71.75 bill kWh produced, 55.33 bill kWh consumed • Telephones • 3.6 Million land lines • Cellular Phones • 9.7 Million cellular units • Privatized industry (Eurotel, RadioMobil and Cesky Mobil) • All provide wireless internet access and improved SMS

15. IT Industry in the Czech Republic, Cont. • 86% Business Exchanges now digital • Copper subscriber systems now being enhanced with Asymmetrical Digital Subscriber Line (ADSL) equipment • 295,677 Internet Hosts • 2.7 Million Internet Users • Approximately 35% of population use internet • Dial-up, ISDN, Lease Line, Wireless, Cable all used as access methods

16. IT Industry in the Czech Republic, Cont. • Personal Computers in Czech Republic • 500,000 PCs in use • 600,000 Networked PCs • PCs in the home have the highest growth rates

17. 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

18. IT Industry in the Czech Republic, Cont. • Prague establishing itself as a center for financial and IT services • New Investors are attracted to Czech Republic due to: • quality of the city's infrastructure • the availability of modern office space • good telecommunications • improved services • SAP, Intel, DHL, ExxonMobil and Siemens all have Czech Republic Operations • Top Tier Czech Tech Firms include Auto-Cont on Line, ICZ, LogicaCMG, PVT

19. Economic Characteristics as related to IT • GDP $107 Billion • Unemployment rate is 8.5% • Work week mandated at a minimum of 40 hours a week • Double Digit growth in IT Industry • IT market value is $760 Million • $26 Million in IT services in 2003

20. Economic Characteristics as related to IT • 4 Modes of Software Development in CR • Localization – software imported from other countries and translated in Czech • Customized – software created from scratch for Czech users • Offshoring – developing software domestically to be sold to other countries • Development – developing software for domestic market as well as translating to other languages for foreign market

21. Economic Characteristics as related to IT • Czech Software Engineers • Lower 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% lower • Tend to be very skilled • Targeted for software development by foreign companies • 50,000 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

22. Slovak Republic • Member of European Union • Czech Republic is also a member of EU • Population is 5.4 Million • 10.2 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%

23. Slovak Republic • GDP is $41.1 Billion with 5.5% growth rate • GDP $107 Billion in Czech Republic • Services make up 53.6% of GDP • 58.8% in Czech Republic • Hi Tech Exports Made up 3.7% of exports in 2004 • Down from 4.1% in 2003

24. Slovak Republic • Hi 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 Hosts • 295,677 in Czech Republic • PC’s owned is 15% • Czech Republic is 27% (2001 est.)

25. 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 differences • 35% of Czech Republic speak German, higher proficiency than English • Advanced telecommunications • SAP European Call Center serves as model

26. IT Opportunities/Recommendations • Tourist IT Services • Tourism is increasing in Prague http://www.mikesbiketours.com/index_munich.html • “Mike’s Bike Tours” has leveraged IT to market itself • Relocation Assistance for Americans • Prague becoming biggest European Relocation destination for Americans • Assistance would include Czech language instruction, social and business cultural instruction as well as helping emigrés to set-up their basic needs

27. 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 company • High number of graduates with technical degree • 8.5% unemployment approximates to 1,400 unemployed high tech graduates each year • Opportunity for Czech’s to work in their own country and not be forced to emigrate

28. IT Opportunities/Recommendations • Advantages to establishing in Czech Republic • No foreign investment restrictions • High “Knowledge Pipeline” • Skilled and disciplined workforce • Expansive telecommunications network • IT is a national priority • Various domestic tools to facilitate investment • Stable, democratically elected government

29. IT Opportunities/Recommendations • Advantages, continued • Lower labor costs when compared to other European nations Czech Czech Czech

30. Opportunities/Recommendations • Disadvantages • Labor costs are rising with admittance into the EU • Real wage growth is 4% (US 1.2%) • Unemployed work force is primarily unskilled • Only 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

31. Summary While 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.