The Czech Republic is better known for its castles but now is equally establishing its name as a prolific manufacturing destination, especially in Eastern Europe. The automotive industry is the most dominant sector in the Czech Republic and alone contributes 59.7% to the country’s GDP. Experts claim that the presence of availability of skilled and educated laborers is one of the significant factors flourishing the growth of the overall manufacturing sector.
Along with potent human resources, the abundance availability of natural resources as well as the well-structured geography of the Czech Republic also bestows its manufacturing industry with significant Foreign Direct Investment (FDI). The Czech Republic shares its borders with Germany, Austria, Slovakia, and Poland, which are among the leading automotive markets in the world.
With expanding production foothold of domestic manufacturers such as SKODA AUTO a.s., in the international market and international players such as Hyundai Motors taking interest in the Czech Republic as a manufacturing destination, the manufacturing industry is bound to proliferate in the upcoming years. Based on the data released by the International Trade Administration, More than 90% of Czech automotive companies are foreign-owned, and the market features more than half of the world's top 50 suppliers.
Also Read: Indian Automotive Industry Trends
Leading Automotive Industry in the Country
As one of the main industries in the Czech Republic, the growth of electromobility or electric vehicles in the country will offer significant growth avenues. By 2025, the country plans to install more than 3,000 charging points for electric cars. However, electric vehicle accounts for only 2% market share in the overall automotive sales. Slow growth is mainly attributed to limited government initiatives and a high price tag. The country’s automotive sector is global in nature and more than 90% of the Czech Republic’s automotive companies are foreign-owned. The three major car manufacturers are Volkswagen/Skoda Auto, PSA Peugeot Citroen/Toyota Motor Corporation, and Hyundai.
The automotive industry in the Czech Republic has faced unprecedented challenges due to the COVID-19 crisis. According to the Automotive Industry Association of the Czech Republic (AIA), revenues of the automotive industries dropped 10.3% to US$ 50 billion and exports dropped 9.8% to US$ 42 billion in 2020. In 2021-22, RationalStat estimates that the production to witness stagnation and register a drop of another 4-6%.
Impact of Manufacturing Industry on Czech Republic’s Economy
The manufacturing industry is one of the biggest contributors and employers in the Czech Republic’s economy, with the automotive sector alone employing more than 150,000 people, which makes up 40% of all working citizens in the country, according to the data by WorldAtlas. Along with automotive and its sub-sectors, other industries including electronics, chemicals, food and beverage, mining, and machinery equipment have also accorded to the subsequent growth in the manufacturing industry in the Czech Republic.
Expansion of Czech Footprint
On May 16th, 2022, Czech Republic-based Prusa Research, a leading filament extrusion 3D printer manufacturer, announced the acquisition of its US-based reseller Printed Solid Inc., to secure its grip in the market and boost its direct sales and support.
In another instance, Omnipol Group, a Czech Republic-based defense and aerospace equipment trader has also purchased Let Aircraft Industries (Let) from Russia, posting the increasing number of western sanctions on Russia after its invasion of Ukraine or “special operations” as it likes to call.
With an increasing number of sanctions on Russia and export bans in other parts of the world, the cost of production and transportation is inflating at a concerning level. This may prompt the European Union to domesticate its manufacturing operations, providing significant scope for expansion for the manufacturing industry in the Czech Republic.
The Scope of Exports in the Czech Republic
Being a land-locked country in central Europe, the Czech Republic has profound relations in exports with its neighboring countries, including Poland, Slovakia, France, the UK, Austria, Germany, and Italy. With an export contribution of US$ 144.8 billion to the GDP, the country is known for not only automotive manufacturing but also other commodities such as machinery and transportation equipment, fuels and chemicals, etc.
The Czech Republic is also a partner and crucial member of the Organization for Economic Co-Operation and Development (OECD) which stimulates economic progress and world trade. These factors make the country an attractive destination for establishing manufacturing plants for foreign seekers.
Challenges to Manufacturing Industry in the Czech Republic
Despite holding so much growth potential, the manufacturing industry in the Czech Republic is still faced with certain barriers, as stated by the International Trade Association:
- Competition with Chinese Manufacturers: China dominates the manufacturing industry, accounting for 28.7 percent of global manufacturing output in 2019, according to data published by the United Nations Statistics Division. Not only dominating but also the most competitive manufacturing industry in the world with the availability of a wide range of products at reasonable and lucrative prices. This is where the Czech Republic faces its challenge. China is able to moderate its commodity prices by regulating the minimum wage for its employees. However, in the case of European countries such as the Czech Republic, the employees’ remuneration is regulated, and underpaying can be a criminal offense.
- Uncompromising Carbon Footprint Norms: With increasing carbon levels in the atmosphere, people and countries are significantly focusing on limiting their carbon footprints. The countries are announcing to achieve net-zero emissions by 2050, as suggested by environmental scientists. European countries are at the forefront of sustainable practices. Unfortunately, the manufacturing industry across the globe carries the burden of being the leading emitter, with an annual total of 800 million tons of carbon dioxide equivalents. As countries and unions impose stringent regulations to mitigate carbon emissions, the manufacturing industry is anticipated to face its direct consequences.
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Co-founder and Director at RationalStat
Divyanshu is an experienced market research consultant. He helps growth-driven organizations and entrepreneurs understand market entry prospects, industry assessment, and grow their revenue strategically.