Discusses distribution network from how products enter to final destination, including reliability of distribution systems, distribution centers, ports, etc.
Distribution channels in the Czech Republic are similar to those in the European Union. U.S. products are typically shipped to a major European port (often Antwerp), and then transported to Prague by truck or rail. Smaller products often come by air to Prague Airport. The area around Prague has many warehouses and distribution centers, and is the distribution hub for the country.
Prague’s winding cobblestone streets are lined with tiny grocery stores, pharmacies, music stores, clothing boutiques, and bookstores. These small shops face strong competition from European ‘hypermarkets’ and shopping malls with a wider selection, lower prices, and extended weekend and evening hours. The larger stores have become increasingly important to the distribution mix over the last decade, attracting customers that used to purchase through traditional retailers. Swedish IKEA, British TESCO, and German OBI, Hornbach and Baumax, among others, operate in multiple locations in Prague and have expanded throughout the nation. At this time, no U.S. big box retailers are present in the market.
Specialized outlets are still important venues for reaching informed customers who seek quality products with specific attributes. Online shopping is gaining in popularity, with several Czech firms attracting clients with cost savings and home delivery. With the Covid pandemic, online shopping and online delivery-based services became increasingly popular. This trend is expected to continue post-Covid. Some global internet marketplaces are active with localized sites, but most major U.S. firms are still absent. While Amazon.com has a fulfillment center near Prague, they do not offer direct sales to Czech customers; instead, working through Amazon.de.
Logistics capabilities in the Czech Republic mainly serve foreign markets due to the country’s strategic and central location. The Czech Republic has excellent flight connections and warehouse space is readily available.
Using an Agent or Distributor to Sell U.S. Products and Services
The Czech Republic has a developed, European-style distribution system and a strong and growing cadre of professional sales agents and distributors in most market segments. A good market entry strategy would be to find and support a strong Czech partner, agent, or distributor. The Czech Republic is geographically small with over ten percent of the population, and most decision-makers, concentrated in the capital city of Prague. Good personal relationships are crucial. An agent or distributor based in Prague can offer good coverage for the entire country, although firms located outside the capital should not be discounted due to their location. Moreover, some industry sectors are concentrated in the regions outside of Prague and better suited partners may be found there. Some firms may offer to represent a U.S. company throughout Central Europe. It is often better to limit a distributor to the Czech Republic and possibly Slovakia since many distributors do not have the ability to cover multiple markets. Potential regional distributors should have experience and contacts in the countries where they will be representing a U.S. company.
Representative offices or industrial sales agents generally handle industrial sales. This cadre of agents has expanded rapidly over the last decade. While U.S. firms will find agents to be very strong technically, many need help with developing marketing and customer service strategies. Margins for distributors are similar to those prevalent in Western European countries. Using a local partner’s facilities and staff will bring costs down to competitive levels and the local partner’s contacts will be crucial to developing business. Meetings with potential distributors can also help with determining pricing, market obstacles, and opportunities.
In general, agents and distributors will expect exclusivity. We recommend negotiating an agreement that ties exclusivity to performance with either a sunset clause or a provision that allows termination for non-performance. Good support and management of the agent-distributor relationship is crucial. Many distributors are thinly capitalized and understaffed, yet represent a wide variety of foreign companies. They often focus efforts on the bestselling product of the day to the neglect of others. As with any legal agreement, we recommend that a lawyer experienced in Czech law review any contract before signing.
Many U.S. firms use the Commercial Service’s Gold Key Matchmaking Service or International Partner Search to meet and interview potential partners. For product launches and to gain visibility in the market, Single Company Promotions hosted by the Embassy can also position U.S. companies for success. For more information on these and other services, please visit the Commercial Service website.
For information on EU regulations pertaining to data privacy in business, please refer to Doing Business in the European Union: 2022 Country Commercial Guide for U.S. Companies report at https://www.trade.gov/ccg-landing-page.
Establishing an Office
For most small or mid-sized exporters, establishing an office in the Czech Republic is not worth the time and expense. If a company decides to set up an office, we recommend working with a local attorney or consulting firm that can take on the burden of corporate registration and other paperwork. According to the World Bank Group’s Doing Business 2021, the time required to fully register a firm in the Czech Republic is 24.5 days (rank 134/190).
The process to register a company is generally comparable for the four types of firms that can be formed under the country’s commercial code. Of these, the limited liability company (spolecnost s rucenim omezenym, or s.r.o.) and the joint-stock company (akciova spolecnost, or a.s.) are the most preferred as they give shareholders the advantage of having only limited liability for the company’s obligations. The other two types are the general partnership (verejna obchodni spolecnost) and limited partnership (komanditni spolecnost). The process for starting a company generally includes: creating a memorandum of association; obtaining appropriate trade authorizations/licenses; registering capital; registering the firm in the commercial register administered by the regional registration court; and, registering with the tax office, local social security, and the health insurance authorities. Legal advice is available to assist in choosing the type of firm best suited to a U.S. company’s legal and tax structure.
Prague has a well-educated, multilingual population, many of whom have years of experience working for Western firms. Companies offering attractive salaries can normally secure talented local staff for a new office. In the past year, however, there have been some shortages of managerial and IT staff. Executive recruiting firms are active in Prague, although most executives use word-of-mouth to make hiring decisions. Unless a firm is investing in large-scale manufacturing, it is unlikely that labor unions will be a factor in the hiring process. Statistics on Czech salaries can be found at a variety of websites. Official information on wages and salaries is available at the Ministry of Labour and Social Affairs or the Average Earnings Information System (ISPV) and Czech Invest.
If a firm has non-Czech EU citizens as expatriate staff, these employees may apply for long-term residency permits, although they are not obliged to do so. U.S. citizens and other foreign nationals who intend to reside and work in the Czech Republic are required to apply for a residency visa, normally valid for a period of 90 days to one year. After this period, the visa may either be repeatedly extended or a long-term residency permit may be issued for an additional two years. An agent can be used to facilitate the application process. Check Information on visa requirements for the Czech Republic.
For the latest Investment Climate Statement (ICS) which includes information on investment and business environments in foreign economies pertinent to establishing and operating an office and to hiring employees, visit the U.S. Department of Department of State’s Investment Climate Statements website.
Franchising has become a well-known, successful, and popular concept in the Czech market and is poised for further growth. After a rather slow start in the 1990s, franchising grew rapidly, especially after the Czech Republic’s accession to the EU in 2004. According to the Czech Franchise Association, there are an estimated 300 franchise concepts active in the Czech Republic. There is a strong local franchise brands market. Foreign brands represent only one third of the total number of the franchise concepts present in the market. U.S. concepts in the Czech market are most often in the food/restaurant, real estate services, and education/training services segment. However, the market is open to new opportunities.
Direct marketing encompasses various methods of communication from the company to the consumer. Most of these advertising techniques include cell phone text messaging, emails, interactive consumer websites, online display ads, flyers, catalog distribution, promotional letters, and outdoor advertising. All of these techniques are used in the Czech Republic, although Czech consumers have an above-average affinity for mailings, making them an extremely attractive target group for direct marketing campaigns after print advertising. Voluminous mailings are also leading to the general impression that direct mail is overwhelming its intended target audience. Internet retailing is gaining market share. Telemarketing and call centers have not found the same level of acceptance as mailings and they are used less frequently than in the United States. The Czech Association of Direct Marketing and Mail Order organizes seminars and promotes international rules for direct marketing such as guarantee periods and the consumer’s right to return a product. The Czech Trade International s.r.o. website contains a list of members that can provide U.S. firms with potential partners in this area. Social media direct marketing is also becoming increasingly popular in the Czech Republic.
There is a wide range of EU legislation that affects the direct marketing sector. Compliance requirements are strongest for marketing and sales to private consumers. Companies need to focus on the clarity and completeness of the information they provide to consumers prior to purchase and on their approaches to collecting and using customer data. For additional information on EU regulations pertaining to direct marketing, please refer to the report Doing Business in the European Union: 2022 Country Commercial Guide for U.S. Companies at https://www.trade.gov/ccg-landing-page.
The Czech Republic has long been an attractive destination for foreign investors seeking manufacturing and assembly operations, most commonly through a green field investment. A smaller but growing group is foreign companies that seek to acquire existing Czech firms in order to obtain and further develop their innovative technologies. CzechInvest, the state investment agency, is trying to capitalize on this trend and has created the CzechLink program in order to facilitate the merger and acquisition of Czech firms in the manufacturing and IT sectors.
Joint ventures are less popular as a legal entity. There is no specific legislation regulating joint ventures in the Czech Republic and there is no such legal term in Czech corporate law, though the law allows for the setting up and operation of various joint venture schemes and structures such as contractual joint ventures and equity joint ventures. The legal framework between joint venture partners is usually defined in the joint venture contractual documents. The joint venture agreement usually describes the details of the partners’ agreement to establish and operate a joint venture, while the shareholders’ agreement regulates corporate governance and rules relating to the particular joint venture company. Additionally, there may be no joint venture agreement and the shareholders’ agreement will contain all the rights and obligations of the venture partners. Prague has a small, but skilled, local investment banking community, which can assist U.S. firms in structuring acquisitions or joint ventures.
The Czech Commercial Code allows for the licensing of technology, stipulating that “under an industrial property license, the ‘licensor’ authorizes the ‘licensee’ to exercise (intangible) industrial property rights (e.g. patents, trademarks) only to an agreed extent and within agreed territory, and the licensee undertakes to make determined payments or to provide other material values (payment in kind) in return.” The contract must be in writing and if the duration of the rights is dependent upon the exercise of the rights, the licensee is bound to exercise the rights.
DHL, FedEx and UPS operate in the Czech Republic.
DHL has been in the country since 1991 and has the largest network. Since 2014, DHL has operated international distribution centers in Prague and Ostrava (Northern Moravia).
UPS entered the Czech market in 1992 via a local partner. It has worked independently since 1999 with operations at Prague International Airport and inaugurated a new high tech distribution center focussed on lifesciences products in 2022. The company’s main office is in Prague. The company operates year-round direct daily flights between Prague and Germany and Hungary.
FedEx has been in the Czech market since 1993 and also has its main office in Prague. Express deliveries from major U.S. cities take approximately two days.
All three companies are members of the Czech Association of Express Delivery Companies.
FedEx Tel: +420 800 133 339
DHL Tel: +420 840 103 000
UPS Tel: +420 233 003 300