One in five companies consider moving to countries with cheaper labour

A survey carried out in July 2009 by the Czech Chamber of Commerce showed that up to one fifth of domestic companies have considered leaving or moving their business from the Czech Republic. However, findings from a questionnaire conducted by the Confederation of Industry of the Czech Republic among Czech companies in September 2009 indicate a proportion of 7% in this regard. The manufacturing sector is worst affected by relocations due to labour costs.

Many companies already relocated

In August 2009, the daily economic newspaper Hospodářské Noviny published a long list of companies in the Czech Republic that have moved all or part of their production abroad, especially to Asia, because of lower labour costs. The listed names include traditional Czech brands such as: the pencils and art supplies manufacturer Koh-i-noor Hardtmuth a.s, the clothing manufacturer OP Prostějov Profashion a.s. (see European Restructuring Monitor (ERM) factsheet), the car parts manufacturer Brano Group, a.s. and the battery manufacturer AKUMA a.s.. The list also includes newer companies such as the outdoor clothing and equipment manufacturer Hannah Czech a.s., the outdoor and travel clothing manufacturer Direct Alpine s.r.o. and the telecommunications components manufacturer CommScope.

Moreover, some companies are relocating to western countries – for example, to the Netherlands or the United Kingdom (UK) – because of lower taxes and a generally more favourable business environment.

In fact, a survey carried out in July 2009 by the Czech Chamber of Commerce (Hospodářská komora ČR, HK ČR) showed that up to one fifth of domestic companies have considered leaving or moving their business from the Czech Republic. However, findings from a questionnaire among Czech companies conducted by the Confederation of Industry of the Czech Republic (Svaz průmyslu a dopravy ČR, SP ČR) in September 2009 indicate a smaller proportion of 7% in this regard.

Manufacturing worst hit by relocation

The President of HK ČR, Petr Kužel, stated: ‘Generally, the most affected area is production, so it is assumed that more companies from this sector will most frequently consider leaving in the forthcoming months.’ The Chair of the Czech Metalworkers’ Federation KOVO (Odborový svaz KOVO, OS KOVO), Josef Středula, acknowledged that ‘except for the automotive industry, problems in the industrial sphere are huge’, citing the examples of Siemens Kolejová vozidla (ERM factsheet), the electrotechnical manufacturer Kopp Kaplice, the car parts manufacturer AFL Stříbro and others.

Manufacturing operations requiring considerable labour have primarily relocated outside the Czech Republic. The situation is not a seasonal fluctuation but a trend growing stronger due to the current economic crisis, which can also be proven by the fact that companies moving away are often those with over 100 years of tradition. For example, the match factory SOLO Sušice finished its local production after 170 years; since the beginning of 2010, it has moved manufacturing to India. The company continues to exist as a joint stock company under the name SOLO Sirkárna a.s., being a trade enterprise. About 50 people lost their jobs due to the relocation. Another example is Intos, s.r.o., which ceased to manufacture cutting tools after almost 130 years and will continue as a sales and service company. About 180 people are to lose their jobs as a result of this restructuring.

Mr Kužel explains that ‘in recent months, companies that do not have a sufficient number of orders and are trying to find other ways of cutting their costs have also considered relocating’. In particular, this problem concerns companies in the textiles, clothing or glass-making industries, where a strong Czech currency and cheap competition from Asia cause substantial difficulties. Companies that already have an established branch in suitable countries are most likely to consider relocation.

Production being replaced by distribution and development

As shown in the case of SOLO Sušice or Intos in the central town of Žebrák, companies often only move their production, while the remainder of the company changes its activities from manufacturing to higher-level services – with a consequent reduction in staff.

Another example is the car parts manufacturer Alcoa Fujikura (ERM factsheet), located in the western town of Stříbro in the district of Tachov in Western Bohemia, which had already dismissed 660 people at the end of 2008. The entire liquidation of the factory was caused by the sale of Alcoa Fujikura’s electronics division to the American company Platinum Equity. The new owner decided to move the production of cable bundles for the car manufacturers Volkswagen and Škoda to Romania, where wages are lower. This led to the dismissal of 750 employees in Stříbro, resulting in an unemployment rate of almost 20% in the town. On the other hand, Alcoa Fujikura expanded its development centre in the western city of Plzeň, where 38 people are employed.

More companies arriving

Nevertheless, the Czech Republic has not disappeared from the map of foreign investors, whose interest in the country started to increase after the post-communist economic transformation in 1989. Mr Kužel notes that ‘despite these problems, there are more companies establishing in the Czech Republic than those that are leaving it’.

In addition, the economic recession has accelerated existing changes taking place within the Czech economy which involve the replacement of manual work with higher added value job positions. However, an increasing unemployment rate is the price of this trend.

Jaroslav Hála, Research Institute for Labour and Social Affairs (RILSA)