Developing the technology sector

In this weeks Economics Report we look at the technology sector in the Czech Republic, and more importantly, the development of this sector. Although the technology sector in the Czech Republic is smaller than those in Western Europe and North America, the industry has been experiencing healthy growth in this country at a time when things have not been going so smoothly for many IT firms elsewhere.

Many factors have contributed to the growth of the technology sector in the Czech Republic. A high standard of technical education combined with a good telecommunications network has strengthened the presence on the 'new economy' over the last decade. The government also has a strong commitment to the development of the technology sector and has been instrumental in luring a number of international technology firms to the Czech Republic. Some examples of firms which have set-up shop in recent years include Sun Microsystems, IBM, Ericsson, Siemens, and Honeywell.

But what about small and medium-sized IT firms which form the foundation of any strong technology sector? Well First Tuesday Czech Republic is a consulting firm which concentrates on technology entrepreneurship in the new economy. I caught up with the CEO of First Tuesday Czech Republic, Ondrej Bartos, who was speaking at the 9th edition of the European Investment Forum which took place in Prague this week. The European Investment forum brought together a number of investors and corporate players active in the fields of IT security systems and solutions, multimedia and broadband, and mobile solutions.

I began by asking Mr Bartos how does First Tuesday contribute to the development of the technology sector here in the Czech Republic.

"We help entrepreneurs get more knowledge, contacts, capital, and we help them with their strategy and business development."

Overall, how would you say business in the technology sector has developed in the last 10 years?

"That is not as easy as a question as it sounds. I think that Czech people are generally very strong in technology. The technology education is very strong and very high in quality. The problem is the lack of management skills and a common business feeling so to say. What we see are companies who are very strong with technology, and they have very good products. But they don't know exactly how to sell themselves, how to market themselves or how to address an investor."

One of the major problems that small and medium-sized firms have, whether they do business in the technology sector or not, is that they have a hard time finding new capital. I asked Mr Bartos why this is the case in the Czech Republic.

"Again, not an easy answer. First of all, it's not easy to get early stage capital. Bank loans are hard to get and venture capital investors or generally private equity investors are not that interested in smaller deals or risky deals."

Also at the Prague conference was Lars-Olof Backman, who is the cofounder and a member of the board at Startupfactory, an early stage venture capital firms specialising in the IT sector. As an investor he has been doing business in the Czech Republic for over 10 years. I first asked him what are some of the major differences in doing business in the Czech Republic as compared to countries in Western Europe.

"Well compared to Scandinavia where I come from, as I mentioned here in the seminar, the transparency is not that easy for Western investors to understand. I mean the accounting principals, the balance sheets, asset evaluations, etc. So these are barriers I think."

Overall, have you had a positive experience in the Czech Republic?

"Ya, I would say so. I have been around here for more then 10 years and I have some positive and some frustrating experiences. Sometimes it doesn't turnout the way you expect when you go into the meetings. But, in general, I have had a quite positive experience and I like to work with Czech management and Czech investors."

Mr. Backman was a member of the discussion panel which dealt with investing in Central and Eastern Europe. He made an interesting point in the discussions, saying that entrepreneurs have somewhat of a negative image among the general population here in the Czech Republic. I asked him why people looked down on entrepreneurs.

"That's my feeling from being here, from meeting people and also from my Czech colleges. That, to be an entrepreneur in the Czech Republic, it's not so much of a positive thing in the eye's of the people. I think that may have a history in the privatisation day's with all these wise guys making a lot of money then leaving the country with the tax authorities after them. I think this has to change, we had the same problem in Sweden. Its much nicer to write about the faults than the successes in the newspapers."