"The reforms in the former Soviet Union have had great impact on us," says Jaroslav Vostatek, deputy minister of Czechoslovakia's Federal Ministry of Economics. Czechoslovakia, covering an area of 127,900 square kilometers and with a population of 15.6 million people, had tight economic relations with the former USSR for decades. In fact, the country was the USSR's main supplier of oil and raw materials, and was its largest export market. And like most other Eastern European countries, its international economic activities were confined mostly to the now defunct COMECON (Council for Mutual Economic Assistance). Vostatek frankly admits that the country's economic development over the past decade has been negative. Like most of the former communist nations, Czechoslovakia is strapped for cash. Therefore, one of its top priorities is to find new business partners.
"In spite of a long period of communist rule, Czechoslovakia is still fairly self-sufficient," says Lee Chia-hsien (李家宣), director of the Far East Trade Service, the CETRA office in Vienna responsible for gathering information and doing market research in Czechoslovakia and Poland. Lee says that the country can supply almost everything it needs from agricultural products to machinery, although the quality may not be up to Western standards. But Lee points out that after economic reform began, the country has made impressive progress.
Although trade between Taiwan and Czechoslovakia has never been significant, it is increasing rapidly. This sudden growth can be attributed primarily to the collapse of COMECON. Now, with a more liberal market, Czechoslovakia will likely become an even closer economic partner. Direct trade opened in 1979. In the first five years, bilateral trade ranged between US$4 million and US$7 million. In 1991, it jumped to US$70 million. According to 1991 figures, the value of Czech exports to Taiwan was about US$52 million, and consisted mainly of iron and steel, glass and crystal products, and machinery. Taiwan's exports to Czechoslovakia amounted to about US$19 million and consisted mainly of computers and computer components, office automation equipment, and electronic products. In the first five months of 1992, two-way trade had already reached US$63 million.
Brewing free-market enterprise—Czechoslovakia's heavy and light industries are potentially the biggest attractions for Taiwan investors.
Both sides have worked to enlarge the scope of relations. Since 1988, several Taiwan delegations have visited Czecho slovakia, and Czech representatives at tended the 1990 and 1992 Taipei International Fairs. But trade delegations usually stay for only a brief period; they never really get to know Taiwan and local business practices. Although the CETRA office in Vienna, has been collecting information since 1989, it is still not comprehensive enough. Unfortunately, there is no Czech counterpart.
In order to promote closer relations, the ROC government decided to set up the Taipei Economic and Cultural Office in Prague in September 1991. The office handles visas, official documents, and maintains contact with the Czech government. The office opened only after a long series of setbacks.
First of all, there was the language problem. Taiwan businessmen have no opportunity to learn the languages of Eastern Europe at home. To compound matters, few people in Czecho slovakia speak English or Japanese, the foreign languages most commonly used by Taiwan business people. Consequently, even renting a place to live or work can be difficult. When the two ROC government representatives arrived to set up the economic and cultural office in Prague, they spent three months in a hotel until they were able to hire a suitable English speaking Czech secretary. Renting the office was not nearly as difficult as getting it furnished. Office furniture is scarce in Czechoslovakia, and most of it is imported from other parts of Europe. The Taipei Economic and Cultural Office had to wait more than four months to have its furniture delivered from Italy. The same situation applies to most other items, such as cars.
Like many former COMECON countries, Czechoslovakia has started privatizing state enterprises. The privatization law, which was announced in January 1991, provides for a two-stage process. The first stage entails the privatization of small- and medium-sized enterprises, the service industry, and the restaurant industry. During this stage, only Czech citizens and legal companies are eligible buyers. During the second stage, in which foreign investors are allowed to take part, large enterprises will be privatized. By the end of 1991, some 14,000 small- and medium-sized enterprises, about 50 percent, had been privatized, according to Jaroslav Vostatek. "The more rapidly privatization is carried out, the better." The Orion Chocolate Works is one enterprise which has successfully made the transition.
Petr Dostál—"The change in the country's economic system has given young people such as myself many chances."
Orion was founded in 1891, and nationalized in 1945. Privatization of the company was completed last March. It is now a joint-stock enterprise with fifteen factories. "We successfully privatized earlier than many Czech enterprises," says Petr Dostál, director of the Prague factory. Dostál, thirty-three years old, became director about two years ago. "The change in the country's economic system has given young people such as myself many chances," he says. And for Dostál, the slogan of the chocolate factory seems to describe his attitude pretty well—"Work tastes sweet."
But the process has not been entirely successful in all cases. Many of the newly privatized enterprises lack sufficient working capital. Therefore, when doing business with Taiwan, they cannot obtain the necessary letters of credit. Deliveries from Taiwan also tend to be slow, taking several months. Consequently, Czech business people prefer to buy from Western European countries such as Austria and Germany.
The Czech market is not as liberal as Hungary's. According to Tsai Feng-ming (蔡豐名), president of Fame Mark Harrison Taiwan, a clothing company, Czech business people are more conservative than those in other Eastern European countries. "You actually have to go there if you want to do business with them," says Tsai. "Sending faxes and telegrams usually gets no response."
Czechoslovakia's investment environment is generally considered quite good because of its sound industrial infrastructure, low external debt, and the comparatively low cost for skilled labor. The inflation rate is also beginning to stabilize. According to Jaroslav Vostatek, inflation in the first six months of 1992 was about 30 percent, about half that of 1991. "Compared to many Western countries, 30 percent is very high," says Vostatek. "But compared to last year when economic reforms had just started, we have been making good progress."
Czechoslovakia is the home of superb glass blowers, one of the professions depicted above the entrance to the Ministry of Economics in Prague.
Some experts have expressed concern about the political stability of the country. Although Czechoslovakia's ultimate fate is still uncertain, it seems headed for a formal split. Thus far, differences have not erupted into civil war as in the former Yugoslavia. The process of dividing the country into separate Czech and Slovak republics has been peaceful.
For this reason, business people tend to consider it a relatively low-risk area. In fact, foreign investment has grown rapidly in the last two years. In 1990, there were only 1,400 companies with foreign capital investment. That number in creased to more than 8,000 by the end of 1991, with a total investment of more than US$700 million, mostly from Germany, Austria, and Holland.
However, economic relations between Taiwan and Czechoslovakia have not progressed beyond trade. No ROC company has set up a branch office, nor is there any direct investment from Taiwan. The two representatives of the Taipei Economic and Cultural Office seem to be the only ROC citizens currently working in Czechoslovakia. Most Taiwan business people make only periodic visits.
Stevenson C.T. Chen (陳秋德), who is in the steel and machinery industry, has visited Czechoslovakia many times. Chen now lives in Budapest, Hungary, which he considers a good base of operations because of its reliable telecommunications network. But as a trader in steel and machinery, Chen is deeply interested in Czechoslovakia.
"Based on what I have seen, Czechoslovakia will be a good Eastern European partner for Taiwan because of its solid industrial base and infrastructure," he says. Chen claims that he will move to Czechoslovakia once the telecommunications system is improved.
Many people, including Lee Chia-hsien of the CETRA office in Vienna, agree with Chen that heavy and light industry are potentially the biggest attractions for Taiwan businesses. Last year, for example, industrial production accounted for a healthy 72 percent of Czechoslovakia's GDP.
But the heavy industry sector seems to be the most promising. The country has a good deal of experience in arms manufacturing, including tanks and aircraft. Such production industries normally require high capitalization. But since the manufacturing facilities are already in place, equipment can be modified to produce consumer goods.
Besides being able to offer a solid industrial base and a good geographical location, Czechoslovakia will have even more to offer investors next year. Beginning in 1993, Czechoslovakia, Hungary, and Poland will all enter the European Community (EC) as associate members. It is estimated that Czecho slovakia will become a formal member of the EC in 2000.
"It not only means Czechoslovakia will be treated with the most favorable terms when doing business with other EC countries," says Lee Chia-hsien, "It also means that the EC will offer guidance for establishing a sounder legal framework which will reduce the risks of doing business there."—Staff writer Jim Hwang and staff photographer Chen Ping-hsun visited Czechoslovakia in July. •