Why Local Rivals Should Czech out the Opposition; Midland Manufacturers Are Increasingly Being Attracted to the Czech Republic. Business Editor John Duckers Went There to Find out Why

The Birmingham Post (England), October 22, 2002 | Go to article overview
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Why Local Rivals Should Czech out the Opposition; Midland Manufacturers Are Increasingly Being Attracted to the Czech Republic. Business Editor John Duckers Went There to Find out Why


Byline: John Duckers

The Czech Republic has become some sort of 'bogeyman' for West Midland manufacturing. It follows a spate of companies axing jobs and putting work out to the low cost country as they struggle to compete with cut-price imports.

For those not wanting the distance factor, language complications and cultural differences of simply moving their production to China, the Czech Republic has become the popular choice with firms seeking to stay nearer to home yet get much of the price benefit of going to the Far East.

A kind of half-way house for British business.

It is less than two hours flying time from Birmingham, most people speak English, historically it has always been proud of its education and skills, there is a traditional engineering background and it is much cheaper.

The average salary, for example, is just pounds 300 per month.

But perhaps not for long as it prepares for likely entry to the EU in 2004. Many people think that will transform the Czech Republic's economy for the better but probably signals the beginning of the end of its low cost reputation. For the moment, though, the West Midlands automotive component and engineering sectors are feeling the pain of being undercut, and more than 300 UK companies now have a presence in the country.

However, it is not all one way traffic. Our trade deficit with the Czech Republic is not massive. In 2001 we imported pounds 1.125 billion while we exported pounds 1.078 billion.

So the UK must be doing something right.

In fact much of the UK presence is in retailing through the likes of Tesco, Next, Tie Rack and Mothercare, albeit some are franchise deals. A large part of the rest is with big utilities investing in the country including International Power and water group AWG.

The downside is the likes of Wagon and IMI - major West Midlands companies - and a host of smaller ones shifting work there.

IMI is a typical example of a business putting jobs abroad as it restructures in a bid to get its profits moving again.

Now looking to concentrate on fluid controls and soft drinks, its interim profits to the end of June dipped from pounds 68.6 million to pounds 66 million.

It has been selling businesses, cutting overheads and shifting large amounts of manufacturing from high costs parts of the world to low cost areas like Mexico, China and the Czech Republic.

Chief executive Martin Lamb said its Czech Republic operations should be fully operational early next year when the company would have about 30 per cent of its manufacturing in low cost countries.

On a much smaller scale the Czech Republic had to share the blame when one of the Black Country's few remaining traditional iron foundries collapsed in the autumn.

Cradley Castings, owned by the Pegg family for 81 years, cited foreign competition for the liquidation of the business, with the loss of 35 jobs.

Rod Butcher, partner in Birmingham-based Moore Stephens, which handled the liquidation, said: 'The business had been suffering from a downturn due to competition from abroad, particularly Eastern Europe and the Far East, where overheads are so much lower.'

Cradley Castings director Bev Pegg added: 'We have always had a strong balance sheet but over the last few years most of our biggest customers have either closed down or moved their business to Eastern Europe - the Czech Republic, Poland, Romania or Hungary - or to China.'

Birmingham's small firms champion Russell Luckock, of AE Harris, would agree. He has been constantly warning of the exodus.

'I have been to the Czech Republic and you cannot possibly compete with their labour rates,' he said.

But, he warned the Czechs, they would only be a 'staging post' for factories en route for the Pacific Rim where wages were even lower.

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