Czech Red Tape a Big Challenge for Entrepreneurs

New York Times

Christopher Robertson, the British owner of Robertson International Delicatessen, a food wholesaler and retailer with three shops in the Czech Republic, recalls the time that an American came into one of his shops to ask about its uzena zebra, which means smoked pork ribs in Czech.

“The customer started asking the shop assistants, in quite good Czech, whether we really imported zebras from Africa and smoked them,” Mr. Robertson said.

Language skills can be useful for foreigners doing business in the Czech Republic, along with patience and a sense of humor.

The sense of humor can be called upon in all sorts of situations, says Nathan Brown, a Canadian businessman who owns Czech Point 101, a property investment and management company that specializes in helping foreigners buy Czech real estate.

While assisting one client with a reconstruction project, Mr. Brown needed to keep nine doors and their old-style keys straight. He diligently labeled each door and key, then sent his assistant to make copies, with strict instructions to keep everything in order.

The assistant returned, with the useful information that all the keys could open all the locks.

Whether the keys could have unlocked the creaking Czech bureaucracy is another question. Red tape is probably a potential business owner’s biggest obstacle.

“The bureaucracy in Czech Republic has always been a challenge, but it has gotten progressively better,” Mr. Brown said.

Both Mr. Robertson and Mr. Brown started their companies in 2003, just before the Czech Republic joined the European Union in 2004.

“Many regulations were changing at the time, and this caused quite a lot of confusion and frustration,” Mr. Robertson recalled.

“Things have improved over the years, but each government official can interpret rules and regulations in a different manner,” he said. “It comes down to people as much as anything else.”

The Ministry of Industry and Trade, responding to the resulting frustrations, has set up a Web portal, in Czech and English, to guide potential business owners through the maze. BusinessInfo.cz offers information on how to start a business; on legal responsibilities, trade, investment and business support; and how to wind it up at the end of the day.

“A huge problem with bureaucracy in Czech Republic is that different offices each have a jurisdiction and don’t communicate with each other,” said Mr. Brown. Still, he said, “one big progress has been that most official documents — land registry, company excerpts, criminal records, etc. — can now be collected from a central point, and there are over 3,700 of these places in the country.”

These one-stop shops have greatly reduced the time a business owner must spend in traipsing from one government office to another in pursuit of necessary forms, signatures and official stamps.

The Czech Republic is not yet in the euro zone — current expectations are that it might join by 2015 — so the current wave of speculative pressure against the euro has not directly affected the country. Mr. Robertson, who imports his produce from Britain or uses local suppliers, says he is more concerned with the koruna’s exchange rate against the pound.

“The euro does not directly affect us, but the present nervousness with the euro has implications for the Czech crown and British pound, so we are watching the situation and will make decisions accordingly,” he said. “I think it is inevitable that the Czech Republic will join the euro, but with the current budget deficit and problems in the euro zone, I imagine this will not be for another five to 10 years.”

The koruna-to-pound exchange rate is also a consideration for Mr. Brown, since many of his real estate clients are British.

With the weakness of the pound, the credit market freeze and the subsequent recession, “we noticed a marked downturn in interest from new buyers and inquiries from late 2008 to mid-2009,” Mr. Brown said. “It was as if a tap was turned off. It wasn’t even dripping.”

Still, since the middle of 2009, interest in Czech property has started to return, he added: “Especially in 2010, we are seeing a marked improvement.”

Mr. Robertson originally came to the Czech Republic in the mid-1990s to farm in western Bohemia. From farming, he branched into making his own sausages and bacon, and rising demand inspired him to open a butcher’s shop in 2003; his third opened just this year. The business mix includes wholesale deals with hotels and restaurants and retailing to the public. With a niche in importing classic favorites from Britain, the Robertson shops have become a mecca for Prague’s expatriate population.

Doing business almost inevitably at some point means taking on employees, an area in which Mr. Robertson and Mr. Brown say they have had mixed experiences. A fairly young and educated workforce is a plus, but training in certain areas, like customer service, may be necessary. Mr. Robertson said that he had had difficulty finding and keeping employees a few years ago, when the economy was strong.

“Unemployment was minimal in Prague, finding new employees was a bit of a problem, and people had the feeling that they could leave one job and move into another with no real problem,” he said. “This has recently changed with unemployment on the increase. People seem to value their jobs more.”

Recent news reports have listed Czech employees as among the most likely to take sick days in the European Union — 48.43 days per year on average in 2009, up from 39.5 in 2008. Mr. Brown said that could become a matter of concern.

“We haven’t had anything to this extent in our company, but it is a worry of mine now,” he said. “How could a company make money with four weeks’ holidays and then these sick days on top?”

Both Mr. Brown and Mr. Robertson say they have also had to confront poor customer service attitudes, both among employees and suppliers.

“Good customer service does not come naturally for most Czechs, and employees must be trained for it,” Mr. Brown said. Mr. Robertson added that, again, the economic uncertainty had been positive for him, this time in his dealings with suppliers.

“I am often surprised by some local suppliers’ taking a short-term attitude toward a working business relationship and trying to make a quick buck as opposed to taking a more long-term view,” he said. “The present challenging economic climate has motivated suppliers to respect the needs of their clients.”

For Mr. Brown, this short-term mind-set is one of the cultural challenges of doing business here.

Many Czech businesses “appear not interested in having a satisfied repeat customer,” he said. “They’d rather make maximum profit on the first transaction.”

Mr. Robertson believes that learning the language and getting to know the whole country are hugely important.

“Making an effort with the language is a major step toward understanding the country and people,” he said. “Prague is only one region of the country. Time spent outside of Prague is invaluable in learning about the people, culture and country.

“The biggest issues for any start-up are finding good local partners or employees at the beginning,” he added. “As a foreigner, the language is always going to be the first barrier.”

Yet, for all the challenges, both entrepreneurs are enthusiastic about the overall climate. Once the bureaucratic hassles have been dealt with, this is a good place to build a business, they say.

“As a foreigner, it is a challenging environment to work in,” Mr. Robertson said. “At the same time, the general spirit is, or was, more entrepreneurial than in Western Europe; there were many more opportunities available here over the past few years than in the U.K., for example.”

Mr. Brown said: “A foreign owner needs a sense of humor, and to realize that operating a business in a country other than your own is full of challenges.

“There will be plenty of mistakes made. However, the rewards are there also.”