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Interview with Vladimír Dlouhý, President of the Czech Chamber of Commerce

I Don´t Like the Distorted Image of Entrepreneurs in Our Country

“Czech exporters with small and medium sized enterprises still rely greatly on a joint EU market,” says Vladimír Dlouhý. He adds that the Czech Chamber of Commerce makes special efforts to introduce them to markets outside of the EU, where higher, long-term margins and added value may be realized. What other challenges are awaiting the market, and how can we make the lives of entrepreneurs easier?

 Dear President, recently at the Czech Chamber of Commerce assembly, you talked about the most pressing problems of entrepreneurs. Can you name them? 

At the assembly I introduced ten such problems. The first one is the lack of technically educated graduates; this is what not only home companies complain about, but foreign investors as well. It is quite interesting that one of the guests of honor mentioned in his speech that Czech companies leave the country for Germany because the workforce there is more skilled. At the same time, I have pointed out the process of starting up a business, which is very lengthy and encumbered by many obstacles in the Czech Republic. And after finally establishing a business, entrepreneurs are met by a never ending battle on many frontiers, especially with continuously changing regulations and corresponding standards. Such instability imposes the greatest burden on small and medium sized enterprises, while it is they who should be prioritized in the Czech environment.

What other “appeals” have you made?

I tried to point out that we should use the present period of macroeconomic growth for consolidating public finances. The fifth appeal to our government was the necessity to create a motivational environment for connecting businesses with research, and removing the low connection of VVIs (Veřejná výzkumná instituce - Public Research Institutions) with practical use. Members of our Chamber also complain about the way of communication with tax administrators, and so we are calling for a visible and permanent effort to simplify the communication between financial authorities and entrepreneurs.

I also think that in the past the state was only supporting the exports of big companies, while small and medium sized enterprises were put aside. We should definitely also focus on drawing from the EU structural funds, which represent a chance for strategic and sustainable projects in the new programming period. What we worry about a lot is a total freeze of transport infrastructure development – it is a scandal that Prague’s orbital and highway to České Budějovice have not been completed yet. And finally, I don´t like the distorted image of entrepreneurs in our country, which I partly blame on government rhetoric.

Regarding the lack of technically educated graduates, you invited the government to present a concrete plan ensuring an increasing state support of technical education. What exactly would you recommend?

Generally, it is necessary to increase the interest of young people in apprenticeships and technical professions. It is necessary to begin to inspire and motivate children in kindergartens and basic schools. The re-introducing of school subjects such as handcraft, or tools such as polytechnic kits will help to prevent a decline of pupils´ manual skills, and create a positive feeling about engineering. It is necessary to change the way parents think too, who would rather send their children to grammar schools, while there are too many of these schools in our country. If the child is skillful, they should rather choose a professional school. Cooperation with regional and local authorities could be a solution too. For example, if the authorities start preparing short time job market predictions, they may flexibly adjust the type of education we offer. I am convinced that the government also has to change the system of financing for our regional education system. They must step back from financing “per pupil”, and on the contrary, evaluate schools based on the quality and competitiveness of their graduates. The Chamber of Commerce will also promote the employers´ participation in deciding which professions would be offered, and for how many pupils, for a specific school year.

At the assembly, you also mentioned that the government should increase support to small and medium sized enterprises in the area of export. Are the current activities of the Ministry of Industry and Trade so insufficient?

In the past, the state focused mainly on the big export companies, unfortunately with a catastrophic impact on the EGAP and ČEB portfolios. Small and medium sized enterprises were always viewed as a second priority, that would connect their supply with the big and supported players, and thus be in a position of dependent sub-suppliers. I think it is correct to maintain the export support of big businesses, but on top of that, it would be proper to help small and medium sized enterprises to develop as final suppliers in the world markets. At the same time, it is necessary to support Czech businesses in their export to regions based on profitability.

Where exactly do you see potential for small and medium sized enterprises and in which fields?

Czech exporters with small and medium sized enterprises still rely greatly on a joint EU market, so their supplies go to already quite saturated, and highly competitive markets of EU member countries. This is the evidence of high quality and competitive Czech companies, however the Czech Chamber of Commerce makes special efforts to introduce them to markets outside of the EU, where in the long-term, higher margins and additional value may be realized. Besides China and India, this means the Near and Middle East countries, South America, and some African countries too. Many Czech companies deliver to these territories via re-export through Germany, which however suppresses development of the “Czech Republic” brand abroad, and distorts the statistics regarding the real share of Czech products in the world markets. We want to gradually change that. Regarding perspective fields, it is clear that Czech companies build on our national traditions, and engineering will always dominate. However, there are for example some smaller Czech IT companies which were able to successfully compete in the USA, Brazil, United Arab Emirates, etc. We are also strong in environmental technologies, renewable energy, the construction industry, and infrastructure will play an important role in profiling Czech export for the upcoming period.

You have criticized the general situation of small and medium enterprises. Were you specifically criticizing cash registers and the confusing tax changes?

Generally, when one enters the Czech business environment, they face a number of long-term obstacles. There are numerous ever-changing laws, regulations, and notices, accompanied with bureaucracy, contrasting interpretations of current standards, non-standardized inspections, and sometimes the helplessness of office workers. Laws and obligatory standards are being amended a few weeks after coming into force. This instability then mostly affects small and medium sized enterprises, which until 1948 used to be the backbone of the Czech economy.

What can we do now?

Let´s give these entrepreneurial entities priority. Let´s switch to an electronic agenda, and use common sense during inspections. We definitely need a central database for entrepreneurs – an information system that will clearly and under one roof integrate all duties required from entrepreneurs by the state.

A long-term problem for the Czech economy is the poor disbursement of EU funds. Why is that? Is that due to insufficient awareness?

The problem of ineffective and often strategically pointless drawing from EU structural funds is not easy to solve. The period 2007-2014 started with delay; on top of that, the use of funds was being slowed down by a really complicated bureaucratic system. The Law on Public Procurement, its amendment and especially erratic interpretation definitely was no help either. All of that leads to a deceleration of disbursement, or a full stop of tenders that had been years in the making. With the end of the period ahead of us, the irregularity of inspections is increasing, and so is the impact on already realized projects. It is unacceptable that one inspection authority evaluates the project as flawless, while another one comes to the very opposite opinion and orders a correction. For the Czech Chamber of Commerce and our members, the most important thing is for the managing authorities and mediating subjects to learn from their mistakes, and carry on their lessons to the upcoming period. We have identified their mistakes and we will voice them out for entrepreneurs, as recipients of EU funds, to help them better their position and realize their projects.

Your reproaches at the assembly were directed mainly towards the political representation. How do you communicate with the current representatives of resorts?

I wouldn´t call them reproaches, because after the new leadership of the Chamber of Commerce was elected in May 2014, communication with the government was great and we appreciate that. My presentation at the assembly was based on two facts. First, I had to reflect our members´ opinions, which sometimes are very critical. Second, I expressed a certain disappointment caused by the slow proceeding in discussing basically anything connected to the economic policy, and this disappointment I have also communicated to the government and opposition, ministers and deputies. Too many times the recent changes in legislation and regulations have worsened rather than improved the business environment in the country.

Are you optimistic that the areas you’ve marked as “problematic” will improve?

Optimism is probably not appropriate here; it will be a long-term solution. However, we consider the participation of the President of the CR and the Prime Minister very helpful, as well as some other government members, representatives of the opposition, important deputies, and other representatives. If nothing else, this is a good sign.

Recent research indicates a very positive outlook for the economy. Why are we doing so well in the first quarter of this year?

The estimated growth of the economy in the first quarter of this year, by 3.9 percentage points, is in my opinion very optimistic. This number was probably partly influenced by a discrepancy in consumer tax or the pre-stocking of tobacco products. If the GDP growth is also over 3 percent in the second and third quarter, I will be pleasantly surprised.

Petr Zahradník, advisor to the president of the Czech Chamber of Commerce, said that it would be difficult to maintain the level of first quarter growth in the forthcoming quarters. So, what should we do in order to maintain that level of growth?

Short-term risk may appear with a sudden increase in wages, external effects, and possible political upheavals. Basically anything that may undermine people´s expectations, either in Czech households or in the management of companies, including small and medium sized enterprises and banks.

When the presidents of the chambers of commerce of the Visegrad Four countries gathered, you refused the German minimum wage. Why?

Regarding the German minimum wage, we don´t especially like what its effect would be on the shippers from other countries, not only on those who get orders and provide services directly in Germany, but also those who just pass through Germany in transit. Regarding shipping on German roads, the shippers would have had to pay their drivers the minimum wage, and at the same time would have had to report those drivers to German authorities, and be ready for possible inspections. With other presidents of the chambers of commerce of the Visegrad Four countries, we are convinced that such regulations would negatively affect the free transit of persons, goods, and services within EU, and we decided to draw attention to this situation. Our joint declaration was passed to the members of the European Commission as well as the chairmen of selected committees of the European Parliament. Our declaration will also be presented at the EUROCHAMBERS assembly, where other chambers will be invited to support the initiative. At the same time, we are getting feedback especially from small and medium sized enterprises which worry about the serious impacts of introducing the minimum wage, including dismissals of employees, reduction of performance, and threats of insolvency.

The European Commission appreciates your activities in this area. Moreover, the Chamber has recently approved some of their recommendations too. Can you be more specific?

The European Commission approaches the issue very seriously, and calls for a solution to the problem. Due to the application of German regulations on minimum wage in transport, the industry has initiated proceedings with Germany regarding the infringement of EU legislation. The result of the proceedings will decide if German regulations are in contradiction with EU legislation or not. Therefore we are expecting that the European Commission will reach a clear decision, and all international transport operations will be excluded from the application of the mentioned German law. In the opposite case we expect that similar regulations will be adopted by other member countries as well, and a joint transport market would, as a matter of fact, break apart. The inconsistency of the situation is perceived by Germany too, since the application of the minimum wage regulations in transport will not be enforced until the Commission comes to its decision.

What about the situation in our country – regarding the implementation of recommendations from Brussels?

In this area, the most important thing is to use common sense, and listen to entrepreneurs who work on their projects every day. They know best what is and is not acceptable if their investment project is to be realized, with or without the help of funds. The Commission´s recommendations are based on the feedback we give them, so our priority should be to organize things at home. The general rule for the use of funds is that we must meet the conditions of the programs, which are negotiated between the Commission and state authorities.

What are the Chamber´s plans for the second half of the year?

A lot of our plans are connected to my appeal to the Czech political representation, which I already described to you. Our plan of activities comprises several pages describing our targets for the upcoming period. Generally, we want to continue our efforts for the elimination of the legislative duties that harm the business environment. As a representative of the business public we want to be heard, we want to involve more of our members in the process of negotiating. We want to go on with our active participation in the consulting process, and commenting on European legislation under preparation. We will support the simplest stable tax environment with the lowest possible number of exceptions. In the long run, we want to strive for simplifying VAT rates, changes in professional (especially technical) education with a priority in professional qualifications, and we definitely want to continue our support of investments and measures for maintaining and increasing the employment rate. There are many plans; these are really just a few.

“Trust and economic attitude reflect real performance.” What exactly is that supposed to mean?

These are the words of one of my advisors – Mr. Petr Zahradník. He probably wanted to say that when monitoring the development of so-called “soft” indicators of people´s trust, and “hard” data of statistic indicators for individual macroeconomic indicators on a long-term basis, currently you will see a substantial similarity. In May, the trust of the people in our home economy increased by 0.4 percentage points compared to the previous month, and yearly it increased by almost 3 percentage points. Based on the current development of GDP, we anticipate that it is probably just a question of time as to when it reaches its maximum again, which we saw around the year 2006. So, the May economic and consumer trust data suggests a sober optimism with regard to our future economic development.

Mr. Dlouhý, who do you consider a leader?

A person with a vision, long term purpose, and no worry about the risks.

Author: Jaroslav Kramer in cooperation with Czech Leaders Magazine
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