Czech Republic
The Czech Republic has emerged as one of Europe's top locations for global sourcing of IT services. Many researchers have repeatedly confirmed the country's strong influx of the world's top IT companies, and it has developed into a powerhouse of innovative software programs that are known worldwide, such as the popular antivirus software AVG technologies and Alwil (Avast!).
Since 1991 information systems developed in the market sector and many companies created information systems for small and mid-size companies. This was not the case before, as information systems were mostly created for the big state companies. The Czech Republic’s Prosperity Program has launched an expansive network of facilities supplying high quality infrastructure for modern innovative companies in the areas of research and development. Among these include Science and Technology Parks located within the outskirts of the South Moravia region aimed at offering facilities to improve the region's commercial pursuits. Other parks, such as Technology Park and the Mstetice Science, provide transportation technologies facilities to scientists and start-up firms.
Backed up by the FDI and the European Union (EU), the Czech Republic is an ideal location for sourcing businesses, particularly for those connected to German customer service needs. Its highly qualified professionals, political stability, and low rates are key components for attracting European investment, including some of the biggest names in IT: SolarWinds, IBM, Microsoft, Sun Microsystems, Skype, Red Hat, Monster Technologies, Computer Associates, SAP, Hewlett-Packard, DHL, TietoEnator, and many others.
One problematic area however are the nation’s industrial regulations. Czech and Slovak markets are changing annually and the ES09 can be changeable according to the current legislation. The government should take steps to make the legislation improve stability and efficiency. Despite the effects of the recent global financial crisis, the Czech Republic is doing well in the financial and banking services sector. This allowed many of its IT vendors to invest in these areas during the crisis.
Country overview
The Czech Republic, situated between Austria, Slovakia, Poland, and Germany, is advantageously located within the center of Europe. It is often referred to as the "gateway" to both eastern and western markets, and can easily be reached in less than two hours from most European cities. The vast majority of its population are Czechs followed by Slovaks, Poles, Germans, Ukrainians, and Vietnamese.
The Czech Republic was formed following World War I, when Czechs and Slovaks of the former Austro-Hungarian Empire joined to create Czechoslovakia. The years leading up to WWII saw the nation preoccupied with meeting the demands of the Sudetan (Germans) and Ruthenians (Ukranians), and after World War II, it became a part of the Soviet sphere. The Soviet authority collapsed in 1989, and the country acquired its independence by means of a peaceful "Velvet Revolution." In 1993, it became two national components: Slovakia and the Czech Republic. The Czech Republic joined NATO in 1997 and the European Nation in 2004.
The Czech Republic is one of the most stable and prosperous nations among the post-Communist states of Eastern and Central Europe. After its transition from Communism it emerged as a functioning market economy, maintaining an open investment climate that was a key component for success. Its economy grew by more than six percent from 2005 to 2007, and even remained robust through the global economic crisis in 2009. The recession alternately caused its real economy to contract by 4.1% due to lessened external demands. Today, its current gross domestic product (GDP) is and estimated USD $195.2 billion and $262.8 billion when measured using the purchasing power parity.
Source: CIA Factbook, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Source: World Bank, 2009
Cost competitiveness
Employee compensation
The cost of Junior Software Engineers or Web developers are a primary factor in a nation’s cost competitiveness, especially for large development efforts that are dependent on a high ratio of junior to senior resources. Their salaries are around 29.9 percent of U.S. resources compared to Indonesia (8.29 percent), the Philippines (9.72 percent), Pakistan (11 percent), India (11.7 percent), and Egypt (12.43 percent), and their salaries usually fall between $19,700 to $30,000 USD.
Senior Software Engineers command an average of about 31.86 percent of U.S. resources. India, however, leads the Czech Republic with a relatively small margin of around 4 percent, with typical salaries ranging from around USD $26,300. Project Managers, on the other hand, usually command an average salary of USD $55,200, or 53% of their US counterparts.
Compensation in the BPO sector is varied. Junior voice and non-voice resources earn 31 percent of their U.S. counterparts, while non-voice resources command an average of 42.73 percent of their comparable U.S. sources
Real estate and taxes
Prague and Brno are the two cities in the country ranked as the top three safest cities in the world for outsourcing in 2010. The nation's capital, Prague, have rents that are around four to five times lower compared to urban centers like Paris and London. However, despite this, office occupancy costs in Prague’s central business district are not relatively cheap---averaging around USD $48.64 sf/yr compared to the Philippines ($24.62) and China ($47.5). The country fares relatively better with regards to corporate taxes, with a 19 percent rate compared to China (25 percent), the Philippines (30 percent), Canada (31 percent), India (34 percent), and the U.S. (40 percent). It currently ranks eighth among the top ten countries with the most competitive tax rates in the world.
Source: PayScale, SourcingLine, February 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: PayScale, Sourcingline, March 2010
Source: KPMG, October 2009
Source: KPMG, October 2009
Source: Doing Business (World Bank), 2010
Real Estate : Office occupancy costs are for Prague.
Resources and skills
Outsourcing sector
Almost 23 percent of the Czech Republic's IT spending in the public sector is on software. Compared to Poland, where custom development is adapted in key vertical sectors, the Czech Republic is focused on production, particularly computer hardware. The Czech Republic however, has yet to increase its EU averages for computer ownership, which is expected to rise from 48 percent in 2008 to 71 percent by 2013.
Education and skills
Education in the Czech Republic is subsidized entirely by the government, making it free up to and including the university level. Students will not be protected by "student status" or qualify for free government-provided health insurance if they exceed the age of 26. The literacy rate of the population is high, nearing 99 percent and joining the U.S., Poland, Canada, and Russia in the top five countries with the highest literacy rates globally. It also spends around 5 percent of its GDP in education.
The country ranks seventh among the nations with the largest university-educated population in the world. However it only produces around 78,000 graduates annually compared with Poland (533,000), Mexico (422,000), the Philippines (410,000), and South Africa (125,000).
Language
Almost 70 percent of Czechs are able to speak a foreign language, and the most prevalent are German and English. The country has the eight largest English-speaking population with an estimated 24 percent.
Technological readiness
The Czech Republic has an estimated 58 users per 100 inhabitants that have Internet access, while 17 percent are subscribed to Internet via broadband providers. Alternative wireless technologies such as Wi-Fi and WiMax are going to be important components in the development of the nation’s broadband industry, and broadband and Internet services will also continue to serve as a major role in expanding development.
Source: CIA Factbook, 2009
Source: NASSCOM, SourcingLine, 2009
Source: IMF, 2008
Source: IMF, 2008
Source: UNESCO, 2009
Source: UNESCO, 2009
Source: OECD PISA, 2006
Source: OECD PISA, 2006
Source: OECD PISA, 2006
Source: UNESCO, 2009
Source: UNESCO, NASSCOM, SourcingLine, 2009
Source: UNESCO, 2009
Source: International Telecommunications Union, 2009
Source: International Telecommunications Union, 2009
Business and economic environment
The Czech Republic is comprised of "high income" earners, with one of the most stable economies among the post-Communist states. The nation has implemented the Schengen Agreement, opening its borders to neighboring countries particularly Slovakia, Poland, Austria, and Germany. Czech Republic is also a member of the Organization for Economic Cooperation and Development (OECD), North Atlantic Treaty Organization (NATO), and the European Union (EU). The presence of the EU has made the movement of services, people, goods, and capital free within the 27 EU member states.
Economic competitiveness
The Czech Republic’s economic competitiveness is high, placing seventh among the countries with the highest Global Competitiveness Index published by the World Economic Forum. It is also among the top ten nations ranked for macroeconomic stability. The Czech Republic has a stable currency, which can be seen in its banking system. During the 2008 and 2009 global crisis, the Czech banking system was able to protect domestic businesses from volatile swings, acting as a buffer that lessened the negative impact of the economic crisis.
Infrastructure
The quality of roads may not be an apparent consideration when evaluating outsourcing locations, but it is a vital component that affects employee productivity and costs in business. The Czech Republic has an average score in the quality of its roads. The U.S. tops the list, with a score of 5.5 compared to the Czech Republic's 3.3. Its electric supply fares well, ranking in third next to Canada and the U.S.
The Czech infrastructure fares well in the Central European region due to its associations with the European-wide transportation network. Its increase in air traffic has expanded services at the international airports, and its road networks have increased safety and convenience for drivers.
Labor market efficiency
Workforce management, such as hiring and firing employees, is a strong factor in measuring the competitiveness of a business. According to a survey that was co-published by the World Bank, IFC, and Palgrave MacMillan, the Czech Republic has one of the most flexible employment markets, averaging a score of 11 and ranking fifth among the most flexible workforces in the world. It takes on average 15 days to register a start-up, and it is currently leading the other dominant players in outsourcing, particularly India, China, and the Philippines.
Legal protection and intellectual property protection
The Czech Republic has the fewest procedures for contract enforcement with just four. It also has one of the best IPR protections in the world, ranking in seventh. Its software piracy rates are also low, averaging 38 percent compared to the United States (20 percent), Canada (32 percent), and Israel (32 percent).
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: The Global Competitiveness Report, 2009
Source: International Telecommunications Union, 2009
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Transparency International, 2009
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: Doing Business (World Bank), 2010
Source: The Global Competitiveness Report, 2009
Source: BSE-IDC Global Software Piracy Study, 2009