Czech Republic, doing business, manufacturing

After World War I, Czechoslovakia had a tumultuous history, but with the Velvet Revolution of 1989, the country was able to return to democracy. In 1993, the country split into two components, the Czech Republic and Slovakia. By 2016, the country converted to the short name of Czechia, although it still uses the Czech Republic name in formal matters.

The Czech Republic is a land-locked country in central Europe between Germany, Poland, Slovakia and Austria. With a total area of 78,867 sq. km, the country is slightly smaller than the U.S. state of South Carolina.

Manufacturing in the Czech Republic

The Czech Republic’s single largest industry is automobile manufacturing, most of which is exported. In addition to automobiles, the Czech Republic manufactures glass, textiles, medicines, armaments, electronics, chemicals, food and beverages, mining and machinery and equipment. 

The industrial production growth rate was 7.5% in 2017. Manufacturing accounted for 24.3% of the GDP, while Industry accounted for 33.2% of the GDP in the same year.

Other Important Industries

Banking, finance, insurance, tourism, and business services are the most important drivers of the Czech service sector. Services make up 60.8% of the country’s GDP.

Agriculture uses only about 2.3% of the labor force. Agricultural specialties include wheat, potatoes, sugar beets, hops, fruit, pigs and poultry.

Supply Chain Infrastructure for Manufacturing

The Czech Republic has a central location that makes it an ideal hub for trade in Europe, and because of its size, it is easy to transport goods around the country if you have the proper credentials. It can take more than two weeks to move goods across the border and even longer if any of the seven required documents are missing or in error.

Shipping

The Czech Republic has 41 airports with paved runways, most of which can handle large freight planes.

The Czech Republic has abundant rail tracks, making it easy to move goods by rail. In addition, more than 55,000 km of paved road simplifies moving goods by truck. As a landlocked country, the only waterways are inland rivers such as the Elbe, Vltava and Oder. The largest riverport is Prague.

Workforce

The Czech labor force numbered 5.427 million as of 2017, and 38% of the workforce is engaged in manufacturing. Unemployment is down to 2.9%, although it had been higher in the recent past. An aging workforce and a shortage of skilled workers help to keep unemployment low. The Czech educational system has struggled to keep pace with the needs of the workforce, although many workers are well-educated and highly skilled. The government is looking for ways to encourage migration of qualified workers from nearby countries such as Slovakia and Ukraine.

Economy

The Czech Republic has a healthy export infrastructure at $144.8 billion. Its major export partners are Germany, Poland, Slovakia, France, the U.K., Austria and Italy. In addition to automobiles, prime export commodities include machinery and transportation equipment, raw materials, fuel and chemicals. 

Imports reached an estimated $134.7 billion in 2017, primarily consisting of machinery and transportation equipment, raw materials, fuels and chemicals. Import partners include Germany, Poland, China, Slovakia, Netherlands and Italy. 

The estimated GDP of the Czech Republic is $375.9 billion as of 2017. The GDP is growing at 4.3% and the Czech National Bank raised rates twice in 2017 to try to curb inflation brought on by growth and the tight labor market.

Despite joining NATO in 1999 and the European Union in 2004, the Czech Republic has not adopted the Euro and still uses the Czech koruna as its official currency. 

Political Landscape

The Czech Republic is a parliamentary republic. It consists of 13 regions. Prague is the capital city. The country came into existence on January 1, 1993 with the split between Czechoslovakia and Slovakia, but the people celebrate October 28 as Founding Day because it commemorates as the foundation of the first independent and democratic Czechoslovak state.

The latest iteration of the constitution was ratified in 1992. The government consists of a president, a prime minister, a first deputy prime minister and a deputy prime minister. The president appoints a cabinet on the recommendations of the prime minister. Elections are held every five years, and the term for each president is five years. Presidents may serve a maximum of two terms. The next election will be in January 2023.

Tax Rules

Taxes equal 40.5% of the GDP, putting the country at 37th in the world. The total tax and contribution rate is 46.1%. Of this amount, 5.2% is tax on profit, 38.4% is labor tax and contributions and other taxes taken as a percent of profit adds 2.6%. The Czech Republic also has VAT. Companies must make eight payments a year, and it can take up to 230 hours to complete all tax forms.

Starting a business in the Czech Republic is relatively easy, but dealing with construction permits and getting electricity may be more time-consuming and complicated than expected. The country has strong respect for minority investors and registered property, however, enforcing contracts can be expensive.

Getting Down to Business

Doing business in the Czech Republic can be challenging but rewarding. The current government is working hard to improve the business climate and ease economic issues. With its emphasis on imports and exports, QAD Internationalization can be invaluable for doing business in the Czech Republic. QAD Supply Chain ERP solutions can help improve visibility of partner activities, and global trade and transportation can help ensure smooth movement of goods across borders.

How would you describe the state of Manufacturing in the Czech Republic? Learn more about manufacturing and doing business in other great countries around the world.

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