Support for human rights hurts Czech business in China, says manager of Czech firm in Kunming

One of the Czech companies which successfully launched an operation in China is the machine tool producer TOS Varnsdorf. In 2006, the firm invested some 2.5 million euro to form a joint venture company TOS Kunming. In this edition of Marketplace, the firm’s financial director Stanislav Linc talks about doing business in China, hiring Chinese employees, and how the Czech government supports Czech businesses in that country.

Stanislav Linc

“We approached one of the biggest industrial groups in China producing tools which is based in the north of the country, in Shenyang. This group recommended to us to work together with their daughter company which is based in Kunming. That’s why we started there.”

So why did your firm decide to go to China in the first place?

“Some ten years ago, we decided that we should go there because China was already a very strong production base for heavy industry. Our machines are used particularly in heavy industry – in the production of vessels, motors, big cranes and so on. So that’s the reason why we decided to go to China to be closer to our clients.”

How important is the Chinese part of your business for the mother company in the Czech Republic? In other words, has the investment paid off?

“It definitely has. It was a very good investment and it has paid off. I would say that the Chinese market is very important for us. We now produce some 25 or 30 machines a year in Kunming which is very interesting, and China has become our third biggest market after Europe and Russia.”

How difficult was the process of setting up the firm there?

“This Chinese group helped us a lot, and after we started production, they also helped us with selling our products on the Chinese market. For foreign investors, it’s very difficult to sell products directly there. The Chinese want to buy from the Chinese rather from us which means we must have a network of sales companies and we use the existing network of the mother company.”

TOS Kunming employees

In one interview, you said that a key factor for succeeding in China was the right choice of employees. Was it a big challenge to find the right staff for your firm?

“It’s very important. Employees are the pillar of the company. You have to take care of both sides – both the Czech and Chinese employees. It’s very difficult to find a Czech person who would meet all the requirements – having some commando of Chinese, some economic background, some knowledge of the trade, and at the same time being accepted by the Chinese, knowing something about the country and how to work in that environment. It’s more like diplomacy really.

“As far as Chinese employees are concerned, it’s also very difficult. You need reasonable people who understand what you are talking about, and who want to understand because some of them don’t want to understand.”

Do you leave this job to your Chinese partner or do you oversee the process?

“We have a 50-50 partnership which means that sometimes, we have succeeded in pushing out opinion through, and sometimes we have not.”

One of the reasons why western companies establish factories in China is the low labour costs. But that seems to be changing – is that becoming a problem for you?

TOS Kunming

“I don’t think so. You are right in that the situation is changing fast and is changing a lot. Salaries are fast growing and you must keep up, otherwise you could not compete on the market. But on the other hand, there is still room for manoeuvring in the salary segment, and there are still some things you can do that help you to make profit. Not everything depends on salaries but also on the organization of labour and things like this. It’s a game; it’s a matter of the right policy.”

How do you find dealing with the communist authorities? Czechoslovakia was a communist country, and I suppose that one of the reasons why you kept the abbreviation TOS in the name of the company was to highlight the tradition…

“The Chinese still remember Czechoslovakia because in the early 1950s, the communist government helped China and sent a lot of machinery there. They sent hundreds of machines to China and from that time, people know the brand TOS and some others like Šmeral, and we still use this as our calling card.”

Dealing with the state-own companies in China is hard but when you succeed, you win a lot. For example, we made a deal with one large company, the Chinese railways, four years ago, and began delivering machines to them. We now sell some 10 or 15 machines to them each year which is very good business.”

Is corruption a big issue in China? On the Transparency International’s corruption perception index, China is lower than the Czech Republic, so it is an issue?

Photo: Barbora Kmentová

“Good question, but I’m not sure how to answer. I would say that yes, corruption does exist there but it’s different from what we know here. Corruption there is shared by a lot of people which means no big deal is done with just one person.”

The Czech government emphasizes the need to direct exports to other destinations besides the EU, and officials often mention TOS Varnsdorf as one of the successful models. How do you find the government’s support for doing business in China?

“The Czech government does not support us at all. The Czech embassy in China is quite helpful and the people there help us a lot. But the government does not help us at all; if I look at what for example Germany does – now it’s early June and Chancellor Angela Merkel has been twice to China on official business trips along with representatives of German banks and companies. We don’t know if anyone from the Czech government has been to China, and I would say that in China, the Czech Republic now has the worst reputation of all the post-communist countries.”

Why do you think that is?

“We are very active in supporting Tibet and we bring up certain issues to Chinese officials. Compared with the US for example, a top government official is in China every month and they never mention anything like this. The Chinese are very sensitive about this, and on top of that, we are a small country and they don’t need us. We need them. And we play the role of a big player which we are not.”