INVESTMENT OPPORTUNITIES

Business Support Services in the Contents

Sector Overview 1

Education 2

Labour Pool 3

Czech Regions Ready for International Projects 4

Case Studies 6

Business Environment 7

Association of Business Service Leaders 8 in the Czech Republic

Last update: April 2015 www.czechinvest.org 1

Sector Overview

The Czech Republic is one of the leaders in the business support services sector Specialisation in Business Services in Central and Eastern Europe. The country is ranked as a top location for specialised (Number of companies per 100,000 population) business support services according to Dun & Bradstreet Global Reference Solution. Czech Republic The shared-services centres of DHL, Accenture, ExxonMobil, IBM and more than 200 USA other companies employ over 55,000 specialists in the Czech Republic. Nearly 80% of these centres are captive, while BPO companies represent about 20% of the market. Slovak Republic The country’s current top BSS locations, and Brno, are now facing competition from other regional centres such as Ostrava, Olomouc and Plzeň, which offer a high-quality, Switzerland loyal and motivated workforce combined with lower costs. Finland The most frequently shared services are finance and accounting, IT services and customer UK support. Rapidly growing shared services include human resources, logistics and legal services. Reasons to invest in the Czech republic Canada -- More than 72% of Czechs are able to speak at least one foreign language and more than 50% of students can speak at least two foreign languages -- In addition to Prague, the country has several strong hotspots ready for international projects in regional centres -- Location in the centre of Europe, the six-hour time difference from New York China and seven hours from enables SSCs to provide services to the East India and West in parallel 0K 1k 2k 3k 4k 5k 6k 7k -- Excellent office infrastructure

Source: fDi Intelligence from the Financial Times based on Dun & Bradstreet -- Sophisticated telecommunications and data networks (fDi Benchmark 2015) -- Creative and experienced professionals at lower costs -- Data protection respecting all EU rules -- Positive approach of the government, financial support for business support services projects -- The Czech Republic’s cosmopolitan society makes it an attractive place to live

ABSL estimates that there are BPO 150 + 20% SSC BPO/Captive SSC's present today in Czech Republic, 71% the industry employs ca.

55,000 BPO+SSC Staff 9%

Source: ABSL Modern Business Services Market in Czech Republic Survey 2014 2

Education

The Czech Republic has a strong education system that is focused on meeting the needs Business Administration, Human Resources and Law Study Programmes of a competitive economy. The country’s 169 finance, economics, law and ICT faculties turn Total Numbers of Students and Graduates out more than 37,000 graduates every year. at Czech Universities Academic Year 2014/15 Currently, the Czech Republic can offer all types of education, including postgraduate and continuing lifelong education funded by the state. All university students are required to study at least one foreign language and at some Prague universities the requirements are set to two languanges. English is the most popular foreign South Moravia language, followed by German and French.

Moravia-Silesia Sudents Cooperation between universities and shared-services centres has been expanding in recent years. Companies such as IBM, SAP, Accenture and many others have developed South Bohemia Graduates different types of cooperation and actively approach students during their studies Zlin at university.

Olomouc

Plzen

Usti nad Labem Business Administration and HR Study Programmes at Czech Universities Pardubice Number of Students and Graduates Selected Universities Hradec Kralove Academic Year 2014/2015

Vysocina University of Economics, Prague University of Hradec Kralove VSB – Technical University of Ostrava Students: 1,512 Students: 5,743 Liberec Students: 13,295 Graduates: 3,926 Graduates: 392 Graduates: 1,791 Central Bohemia Czech University of Life Sciences Technical University of Liberec Silesian University Opava Karlovy Vary Prague Students: 1,780 Students: 3,154 0 10,000 20,000 30,000 40,000 50,000 60,000 Students: 10,197 Graduates: 559 Graduates: 1,010 Graduates: 3,263 Source: Ministry of Education, Youth and Sport, 2015 Business Administration & HR Study Programmes Students: 84,260 Graduates: 28,395

Plzen ICT 10.23 %

More than

Business Others 130,000 Administration University of West Bohemia, Plzen Masaryk University, Brno University of Pardubice 62.47 % 23.28 % Students: 1,426 Students: 3,947 Students: 2,176 students are enrolled in ICT, Graduates: 516 business administration, Graduates: 448 Graduates: 1,438 HR or law programmes HR 0.87 % VSTE Ceske Budejovice Mendel University of Brno Tomas Bata University in Zlin Law Students: 2,143 Students: 3,387 Students: 2,606 3.05 % Graduates: 382 Graduates: 843 Graduates: 847

Source: Ministr of Education, Youth and Sport, 2015 Source: Ministry of Education, Youth and Sport, 2015 3

Labour Pool

The Czech Republic’s labour pool is estimated at 5.3 million, supplemented with over 100,000 Number of Foreigners in the Czech Republic secondary-school graduates and roughly 98,000 university and higher professional school Selected Countries, According to the Languages as of 30 December 2014 graduates every year.

Multilingual workforce suitable for international services projects -- More than 72% of Czechs are able to speak at least one foreign language -- More than 30% of the population is able to speak two foreign languages 5,587 1,661 Two-thirds of graduates are trained in economics, finance, law or ICT

3,874 -- 1,488 3,810 2,262 2,946 1,517 Currently over 55,000 full-time staff are employed in business support services. 23,711 14,749 Czech employees are seen as flexible, service-oriented, highly motivated and very efficient. Chinese French Italian

Dutch The Czech Republic has a substantial community of expats, who often seek job opportunities Spanish Scandinavia Korean Japanese

German English in shared-services centres.

Source: Ministry of Interior, January 2015 Note: English - Australia, Canada, Ireland, , United States, South Africa; German - , Germany, Switzerland; French - , ; Spanish – , Mexico, Colombia, Peru, Cuba, Chile

The Czech labour market offers a rich source of employees who, Level of Knowledge of Foreign Languages in Population in the Czech Republic thanks to their loyalty and diligence, The Table Below Documents the Replies According to the Socio-demographic Characteristics “ of Respondents are a gaurantee of return on

investment greater than that Which foreign English German Russian French Spanish Italian languages can in other countries in Central you speak in % in % in % in % in % in % and to what and Eastern Europe. standard? Fluent Active Passive Fluent Active Passive Fluent Active Passive All All All levels levels levels

Rita Cseke, Area Manager – Reed Europe Prague 17,1 33,8 17,4 6,0 12,3 22,8 3,0 13,8 23,4 8,7 5,7 5,7 Central 11,3 19,5 19,5 4,4 10,8 22,4 2,6 9,9 24,4 3,8 4,1 1,5 ” Bohemia South Bohemia 9,9 13,0 16,0 10,5 23,5 28,4 1,2 13,0 30,2 1,9 3,1 1,2

Plzen 9,3 23,3 12,0 3,3 19,3 26,7 0 8,7 29,3 2,0 4,0 1,3

Agriculture Karlovy Vary 5,9 20,0 16,5 8,2 23,5 28,2 0 5,9 30,6 4,7 0 1,2

2,8% Usti nad Labem 7,7 19,0 17,9 6,7 15,4 21,5 0,5 12,3 24,6 3,6 6,2 3,1

Liberec 7,9 19,8 20,8 3,9 13,7 24,5 2,9 6,8 32,0 5,0 3,0 2,0

Hradec Kralove 12,8 28,4 15,6 4,3 12,8 24,8 3,6 11,5 28,8 6,4 2,8 5,0

Nearly Pardubice 7,1 21,4 16,7 5,6 11,2 22,4 2,4 8,8 35,2 4,8 4,0 0,8 Services Industry Vysocina 6,1 18,4 13,2 7,0 9,6 21,1 1,8 12,3 24,6 2,6 0,9 2,6 59,1% 38,1% 3,000,000 South Moravia 11,9 23,9 18,1 3,8 19,8 23,9 1,7 11,7 26,2 4,5 2,1 4,5 8,8 25,0 27,0 3,4 13,4 25,5 4,0 12,1 25,5 7,4 4,0 4,1 people work in services Olomouc in the Czech Republic Zlin 14,5 20,0 20,0 3,4 17,9 22,8 2,1 12,5 27,8 4,8 4,1 4,1

Moravia-Silesia 7,4 22,5 15,8 3,7 8,7 17,8 2,3 11,7 19,8 1,7 3,0 3,0

Note: This presentation details the results of a representative survey carried out by means of face-to-face interviews in three waves during the period from 20 May to 11 June 2014. A total of 2,641 respondents aged 18-59 years participated in the survey. The survey was conducted by experienced interviewers from STEM throughout the Czech Republic. Quota sampling method with criteria of sex, age, education, size of locality and region was used. Basic information on knowledge of foreign languages among the population in the 18-59 age group was measured by means of TWO questions. First the respondents had to state the number of foreign languages in which they are able to read and understand a simple text. This question gave the respondents space to name languages that came to mind as well as for self-evaluation of their knowledge. Source: Czech Statistical Office, 2015 Source: Sociological Survey, STEM, June 2014 4 Czech Regions Ready for International LIBEREC Projects Unemployment rate: 7.7% Average gross monthly wage: EUR 840 University Education: 1,852 Business Administration and HR students 821 ICT students Expats: 17,119 Language skills: English 49%, German 42 %, Russian 42%, French 5%, Spanish 3% Modern of ce stock PRAGUE + CENTRAL BOHEMIA Rental price: EUR 8.50 – 11.00/m2/month Political, educational, cultural and economic centre Unemployment rate: 5.3% (6.4% in Central Bohemia) Average gross monthly wage: EUR 1,198 University Education: 39,888 Business Administration and HR students 11,441 ICT students 4,450 Law students Expats: 227,362 Language skills: Prague – English 68%, German 41%, Russian 40%, French 9%, Spanish 6% Central Bohemia – English 50% Modern of ce stock: 3 million m2 Rental price: EUR 19.50 – 20.50/m2/month (City centre) Inner city: EUR 15.00 – 17.50/m2/month Outer city: EUR 13.00 – 14.50/m2/month “Reasons for choosing Prague as the home of our SSC included the area’s UNESCO World Heritage site available, strong, high-quality and multilingual International Airport workforce, the macroeconomic stability Plzen of the Czech Republic and the country’s well-developed infrastructure.”

David Mansfeld, Managing Director, Johnson & Johnson Global Business Services

PLZEN Unemployment rate: 5.6% Average gross monthly wage: EUR 854 University Education: 1,407 Business Administration students 2,303 ICT students 1,178 Law students Expats: 26,044 Language skills: English 45%, German 49%, Russian 38%, French 2%, Spanish 4% Modern of ce stock Rental price: EUR 10.00 – 11.50/m2/month CESKE BUDEJOVICE Unemployment rate: 5.4% Average gross monthly wage: EUR 807 University Education: 5,368 Business Administration and HR students 1,403 ICT students Expats: 15,386 Language skills: English 39%, German 62%, Russian 44%, French 2%, Spanish 3% UNESCO World Heritage site 55

PARDUBICE + HRADEC KRALOVE OSTRAVA Unemployment rate: 5.3% Unemployment rate: 11.3% Average gross monthly wage: EUR 794 Average gross monthly wage: EUR 821 University Education: University Education: 4,210 Business Administration students 9,500 Business Administration and HR students 3,129 ICT students 4,136 ICT students Expats: 25,025 Expats: 24,042 Language skills: Language skills: Pardubice – English 45%, German 39%, Russian 46%, English 46%, German 30%, Russian 34%, French 2%, French 5%, Spanish 4% Spanish 3% Hradec Králové – English 57%, German 42%, French Modern of ce stock: 195,000 m2 6%, Spanish 3% Rental price: EUR 10 – 12.50/ m2/month Modern of ce stock International Airport Rental price: EUR 9.00 – 11.50 EUR/m2/month “The whole of the Czech Republic and especially the northeastern region International Airport have incredible potential “We have opted for the lower-cost and we have found really easy access Pardubice region and potential to the people we have needed.” for further competitive advantages. The region de nitely has great potential to attract foreign businesses.” Dan Smith, Managing Director, OKIN BPS

Kevin Cejnar, Managing Director, NonStop Recruitment

“One of the most important factors in this area is the region’s highly skilled, motivated and available workforce possessing very good language skills.”

Lenka Gondová, Director, Olomouc Regional Of ce, CzechInvest

OLOMOUC Unemployment rate: 8.4% Average gross monthly wage: EUR 790 University Education: 1,143 Business Administration and HR students 547 ICT students 1,621 Law students Expats: 10,160 Language skills: English 61%, German 42%, Russian 42%, French 6%, Spanish 4% “We needed the right people, a  exible Modern of ce stock of ce and a proper IT network. 2 Looking back, I can con rm that Brno Rental price: EUR 9.00–10.50/m /month was the right choice. In the area of  nance we are proud to have become an employer of choice for economics graduates in the region.”

Frank van Bommel, Training BRNO and Development Manager, DSG International SSC, part of Dixons Retail R&D and BSS hub ZLIN Unemployment rate: 8.8% Unemployment rate: 6.4% Average gross monthly wage: EUR 873 Average gross monthly wage: EUR 790 University Education: University Education: 13,271 Business Administration and HR students 2,932 Business Administration students 1,828 ICT students 9,370 ICT students Expats: 8,140 3,076 Law students Language skills: English 55%, German 44%, Russian Expats: 38,917 42%, French 5%, Spanish 4% Language skills: English 54%, German 48%, Russian Modern of ce stock 40%, French 5%, Spanish 2% Rental price: EUR 7.50 – 10.00/m2/month Modern of ce stock: 430,000 m2 Rental price: EUR 10.00 – 13.50/m2/month UNESCO World Heritage site International Airport 6

Case Studies

SAP “Prague as the main shared-services location for SAP was chosen during a serious decision-making process. Quality to cost criteria such as: the country’s political stability, international accessibility, availability of skilled SAP is the world leader in enterprise applications in terms of software and software-related workers with appropriate language skills, the business service revenue. With respect to market capitalization, it is the world’s third-largest and labor law environment, IT infrastructure and the level of development of the real estate market were all independent software manufacturer. The company has more than 253,500 customers thoroughly considered and evaluated. This decision in 188 countries. has proven to be the right one and was reiterated in our location strategy at the beginning of 2014, execution of In 2004 SAP established its Business Service Center in Prague. Today the center employs which will result in additional jobs in the Prague-based SAP BSCE.” 650 people providing services and support in the areas of finance, purchasing, human Ing. Andrea Hepnerová, MBA resources and marketing for affiliates worldwide. Managing Director SAP BSCE

Panalpina “We were searching for a location that would support our ambitious project, which was a pilot for the Panalpina Group. Looking back at the past 12 months of development, I believe we have chosen the right place to be, as we have One of the world‘s leading providers of supply-chain solutions, the Panalpina Group operates found a capable and motivated team of people who are a global network with some 500 offices in more than 70 countries and employs over 16,000 helping us to make the project a success. At the same time, we faced few technical obstacles thanks to the advanced people worldwide. state of the business property and the related IT and communication infrastructure.” In July 2013 Panalpina opened a Business Service Center in Prague. The center provides Volker Böhringer documentation and administration services supporting the company’s core processes, Regional CEO Europe particularly for its operations in European countries. The primary focus is on ocean freight Panalpina export documentation, which was the scope of the pilot project, with the later addition of other processes. As of July 2014 the center employs around 60 people who support ocean export processes in the German and English languages. The existing office expansion plan is designed to accommodate up to 170 people as of 2015. Further roll-in projects with various European countries are planned for the next 2-3 years in order to continue expanding the center’s offer of services.

Johnson & Johnson “The reasons for choosing Prague as the home of our SSC included the area’s available, strong, high-quality and multilingual workforce, the macroeconomic stability of the Czech Republic and the country’s well-developed JNJ Global Business Services is the EMEA regional financial services centre of Johnson infrastructure. Prague’s Central European location makes it & Johnson. Located in Prague, the centre opened its doors in March 2006 and has easily accessible from all corners of the continent and the city also offers good connections to the United States, the since expanded the range of services that it provides to the Johnson & Johnson family Middle East and Asia. Government support and investment, of companies. The centre thus now serves 28 European countries as well as the United States which Johnson & Johnson worked closely with CzechInvest to obtain, also had a positive impact on the decision-making and Canada and operates with nearly 300 professionals with experience gained in over 30 process and helped bring the last pieces of the decision- different countries across the globe. making puzzle into place.” David Mansfeld The centre provides valuable support in the areas of supplier and customer invoice processing, Managing Director selection of receivables including associated business risks, administration of both supplier Johnson & Johnson Global Business Services and customer databases, assessment and processing of tax records, booking of accounting transactions and preparation of corporate reporting documentation. For the future, the company is actively planning to expand its operations into financial planning while effectively supporting budget preparation and furthering its geographic reach. 7

Business Environment

Shared Services Centre/BPO Labour Cost Labour Costs Results Summary Besides the country’s strategic location and highly qualified workforce with excellent Czech Republic 3,360,417 language abilities, competitive labour costs are another important factor drawing international companies to Czech cities. South Korea 6,341,665 At 19%, the Czech Republic’s standard corporate income tax rate is one of the lowest UK 6,600,197 in the EU. Labour costs in shared-services centres in the Czech Republic are, on average, half those in Germany, Switzerland, Sweden, the United States, Japan, the United Kingdom Japan 7,164,058 and South Korea. At the same time, the CEE region is regarded as a stable and reliable Canada 7,290,510 destination, attracting the attention of those who invested in riskier regions in the past. The growth in the Czech business services market is built on the expansion of the many Finland 7,355,935 mature centres that have been established here in the past ten years, especially in Prague, USA 7,654,854 Brno and Ostrava. New centres have been established in other regional cities around the country as investors recognise the cost and quality benefits to be found in cities such Sweden 8,233,615 as Pardubice, Hradec Králové, Olomouc, Plzeň and Liberec. Germany 9,428,284 A recent PWC survey reveals that CEE has the highest cost savings achieved globally and the Czech Republic leads the way with an average of 32% reported savings Switzerland 13,126,933 on operating costs delivered by Czech centres. At the same time, the service levels

Source: fDi Benchmark, a service from the Financial Times Limited 2015. in Czech centres were rated as highly as those in Western Europe and significantly higher All Rights Reserved. All cost values shown in EUR – Euro per annum. than the levels in other parts of the world. Note: Labour costs for Shared Service/BPO centre with 130 employees.

Working Hours and Vacation

The maximum weekly working time is 40 hours (38.75 hours for employees working in a two-shift operation). Each employee is entitled to a minimum of four weeks of vacation per calendar year. Vacation time may be increased by additional days through a collective agreement, internal regulations or in an individual contract (provided that the rules on equal treatment are respected). Additionally, the Czech Republic currently has 12 statutory public holidays.

Investment Incentives

The Czech government recognizes the need to nurture an environment that will welcome new investment projects and support the establishment and growth of service centres in the Czech Republic. The Czech Republic offers financial support to invesment projects through several EU structural-fund programmes and investment incentives allowing investors to enjoy income tax abatement for up to ten years.

TAX TAX RATE

Corporate income tax 19% standard corporate income tax rate; 5% corporate income tax rate applies to certain taxpayers (pension funds, investments funds).

Personal income tax Flat tax rate of 15% for calendar year 2014; the solidarity contribution of 7% applies to high-earning individuals. 8

Association of Business Service Leaders in the Czech Republic

The Czech Republic is the second largest country for Business Services in CEE and there is strong competition from other countries in this area. The Association of Business Service Leaders in the Czech Republic (ABSL) was formed to give the business services industry a common voice to help shape its environment and destiny. ABSL Members include companies which conduct business in the area of Shared Services Centre (SSC), Business Process Outsourcing, Information Technology Outsourcing (ITO), Research and Development (R&D) as well as companies contributing to the sector‘s growth.

ABSL was founded in 2013 by the following firms:

-- ACCA -- Monster Worldwide CZ s.r.o. -- Accenture Services, s.r.o. -- Motorola Solutions CZ s.r.o. -- DHL Express (Czech Republic) s.r.o. -- PPG INDUSTRIES CZECH REPUBLIC, s.r.o. -- Edwards Services, s.r.o. -- Plzeňský Prazdroj, a.s. -- Gardner Denver CZ + SK, s.r.o. -- PricewaterhouseCoopers Česká republika, s.r.o. -- Infosys BPO s.r.o. -- Process Solutions, s.r.o. -- JNJ Global Business Services s.r.o. -- Siemens, s.r.o. -- MANN + HUMMEL Service s.r.o.

Mission

ABSL is a platform for enhanced dialogue and collaboration within the Business Services Community. The association advocates Business Services to create a better business environment for its members and ensure the sustainability and long-term development of the industry.

Vision

The association’s vision is to promote Business Services to become one of the key local industries and to help the Czech Republic to be one of the most attractive locations for Business Services in Europe.

Goals

ABSL is a source of knowledge, expertise and best practices in the Business Services sector. ABSL has initiated a number of activities aimed at stimulating growth of the Business Services sector as well as increasing the investment attractiveness of the Czech Republic internationally. For more information, please visit www.absl.cz CzechInvest’s Services

Headquartered in Prague, CzechInvest is the Investment and Business Development Agency of the Ministry of Industry and Trade. Since its establishment in 1992, the agency has been tasked with attracting foreign investments and developing domestic companies through its services and development programmes.

Our Objectives

-- To advise and support existing and new companies to grow and prosper in the Czech Republic -- To facilitate communication between the public and private sectors -- To actively influence the positive development of the business environment -- To support the competitiveness of the Czech economy

CzechInvest is exclusively authorised to file applications for investment incentives at the relevant governing bodies and prepares draft offers to grant investment incentives.

Its task is also to provide potential investors with current data and information on the business climate, investment environment and investment opportunities in the Czech Republic.

Our Services

-- Detailed, sector-specific market intelligence and value propositions -- Customised business cases -- Identification of business properties and sites suitable for investment -- Tailored visits to the Czech Republic -- Access to investment incentives and EU funds -- Information and advice on doing business in the Czech Republic, regulations and taxation -- Identification of potential business partners, suppliers and acquisition targets -- Referrals to professional associations (lawyers, bankers, accountants, etc.) -- Aftercare service

Our services are fully funded by the Ministry of Industry and Trade as a part of the business support measures so they are free of charge to businesses. Selected Shared Services Centres in the Czech Republic

Czechinvest headquarters CZECHINVEST WORLDWIDE

Czech Republic GERMANY – Düsseldorf China – USA – WEST Stepanska 15 PHONE: +49 211 250 56 190 Mobile: +86 13817792614 Mobile: +1 (415) 794 0665 120 00 Prague 2 E-MAIL: [email protected] E-MAIL: [email protected] E-MAIL: [email protected]

PHONE: +420 296 342 514 E-MAIL: [email protected] UK – JAPAN – Tokyo USA – EAST WEB: www.czechinvest.org PHONE: +44 20 8748 3695 PHONE: +81 3-5485-8266 Mobile: +1 (347) 789 0570 Mobile: +44 77 8523 1520 E-MAIL: [email protected] E-MAIL: [email protected] E-MAIL: [email protected]

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This material is distributed free of charge. Date of issue: April 2015

CzechInvest Investment and Business Development Agency is a government organization under the Czech Ministry of Industry and Trade.