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EDITIONS
Monday, 9 December, 2002, 09:21 GMT
Czech business gets into gear
Karosa bus
Karosa is steeped in Czech commercial tradition

The EU will soon formally invite 10 countries to join - a move that for many marks the climax of the transition from communism. BBC News Online is touring Eastern Europe to find out if its economies are up to speed.
For many East European companies, the shock of the end of communism was so great that it killed them.


Whatever you may say about business in the communist period, it left us with some of the most skilled workers in the world

Rudolf Cerny, Karosa
According to one estimate, less than 10% of the large firms around the region today were in existence before 1990.

Those that survived did so through a mixture of foresight and good luck and are well equipped to thrive now, reckons Rudolf Cerny, the boss of Karosa, the Czech Republic's biggest bus producer.

He should know.

Karosa has not just lived through communism: it prospered through Habsburg domination, Czech independence, two world wars and endless economic booms and busts.

On the buses

For almost three decades, ever since he left school, Mr Cerny has been at Karosa, working his way up from trainee engineer to chairman of the board.

Karosa production
"Cycles in this business come round every 30 years, and I've been lucky enough to live through two of them," he says.

"The last time the company was working this hard was in the early 1970s, when we were rebuilding the plant to prepare for a huge increase in production.

"Whatever you may say about business in the communist period, it left us with some of the most skilled workers in the world."

In the red

What communism really taught Karosa, however, was how to bend the law creatively.

Karosa bus
In communist times, quantity beat quality
In the late 1980s, for example, when Karosa sensed that change was in the air, it put in a bid to develop articulated buses.

Communist central planners forbade the move, insisting that only Ikarus - a much larger and more rickety Hungarian bus producer - was allowed to make that sort of model.

"But we went ahead regardless, and no one stopped us," Mr Cerny recalls.

"That's the way business worked in those days."

Crash

When communism was snuffed out in 1989, Karosa felt itself to be a bit ahead of the game.

Rudolf Cerny
Communism taught Mr Cerny a trick or two
But the transition was still traumatic: the collapse of the Czech koruna and the liberalisation of prices ruined the firm's finances.

Production, which had recently peaked at more than 3,400 buses a year, fell below 1,000, and Karosa laid off almost half its more than 3,000 workers.

With 500 buses sitting unsold in Karosa's yards, the company was close to capsizing.

But then the old Soviet spirit of improvisation kicked in: Mr Cerny offloaded the firm's entire surplus to Russia, bartering buses in return for rubber, oil and other raw materials.

Open in new window : At-a-glance
Europe's new economies

"It sounds hard to believe, but Russia saved us," says Mr Cerny.

Private lives

Karosa - unlike many other Czech firms - also escaped a mauling in the privatisation process.

It was not part of the rapid but misconceived "voucher privatisation" scheme, under which shares in large state firms were handed out free to Czech citizens, only to be hoovered up by unscrupulous investment funds.

Foreign direct investment
Instead, the firm went on the lookout for a Western strategic partner, and quickly alighted on Renault, the French car maker.

Renault had already sniffed at, and rejected, two big Czech sell-offs, and was reckoned ripe for a deal.

But unlike traditional privatisations, Mr Cerny insisted that the French firm did not pay the Czech Treasury for Karosa shares, but instead ploughed the money into the firm's working capital.

"If the government had got its hands on the money, it would just have spent it. We create jobs, increase exports, make profits and pay our taxes."

Parent power

Since 1993, when the two firms linked arms, Renault has kept a benevolent distance.

Far from flooding the place with Western experts, intent on imposing their own ideas, the French have been happy to set targets and let Mr Cerny get on with it.

Karosa paint shop
Two-thirds of Karosa's buses are exported
Over the past seven years, Karosa has invested more than 50m euros (32m; $50m) in its plant at Vysoke Myto, a small town 90 miles east of Prague.

The factory, Mr Cerny reckons, is now the most efficient of its kind in the world - a necessary competitive edge at a time when global demand for buses is sluggish.

A new production line, inaugurated in August, allows Karosa far greater flexibility in the models it produces; under the previous system, all its buses were variations on the same basic model.

From the trough of the mid-1990s, output has bounced by 60%, and more than two-thirds of its buses are now exported.

Political pressure

In many ways, Karosa is a model for how privatisation can preserve jobs and boost output.

Curious, then, that more than a decade after the end of communism, privatisation is once again becoming a controversial issue in Eastern Europe.

Private sector share of GDP
Most countries in the region came close to completing privatisation by the end of the 1990s; Hungary has gone the furthest, selling off everything that moved by 1998.

But shifting the last few big chunks of state property is proving worryingly difficult.

A deal to sell a majority stake in Cesky Telecom to a consortium led by Deutsche Bank collapsed in November, amid a dispute over price and conditions.

And Polish politicians have vetoed a plan to sell Stoen, Warsaw's power utility, to Germany's RWE.

Overall, opinion polls consistently show huge popular opposition to privatisation around Eastern Europe, with feelings running highest in Poland.

Enthusiasts like Mr Cerny, it seems, are in the minority.

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The BBC's Patrick Bartlett
"No company represents the Czech industrial renaissance better than Skoda"

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27 Nov 02 | Business
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