Construction companies are looking for opportunities abroad due to the crisis

Jan Amos Comenius (1592-1670)

Prague - Czech construction companies are increasingly seeking escape from the crisis in the domestic market abroad. Rather than constant expansion, they are attempting to mitigate layoffs and save established capacities. This was stated to ČTK by the directors of the largest construction companies in the Czech Republic.
    Tunnels in Iceland, the road bypass of Warsaw, highways in Bosnia and Azerbaijan, and a railway corridor in Poland and Russia. This is just a small list of contracts that Czech construction companies have recently obtained abroad. Especially larger firms are trying to combat the crisis in the Czech construction market, which has been struggling for several years.
    "This is emigration in the style of Jan Amos Comenius. We are exiled abroad; we are already operating there," said Michal Štefl, CEO and Chairman of the Board of OHL ŽS, to ČTK. According to him, in the last five years, during which the crisis has fully manifested, the company has laid off about 29 percent of its employees. "I believe it would be even worse if we hadn't reached out to foreign markets. We are currently building highways in Bosnia and Azerbaijan and railways in Poland and Russia. And this is mainly because we have no contracts here," Štefl added.
    Metrostav has also recently secured several significant contracts abroad. However, its CEO, Pavel Pilát, asserts that this is a solution of necessity. "There is not enough demand in the domestic market, so companies, if they do not want to massively lay off their employees and discontinue their machine and technical capacities that they have built up, are looking for opportunities abroad," Pilát confirmed the trend.
    He pointed out, however, that the recession in construction is also present in neighboring countries. "No one there is waiting for foreign firms. Doing business in the construction market abroad is always riskier than doing so in the domestic market. But today, companies have no other choice if they do not want to dissolve themselves," believes the head of Metrostav.
    Chairman of the Board of Strabag, Jaroslav Katzer, thinks that opportunities for success abroad are mainly in transportation infrastructure. He adds that companies that already have some background in the country have an advantage. "If companies have their parent branches in the given country, they also have their support," Katzer noted. However, he does not see foreign expansion as a rescue but as a necessity.
    Partner responsible for services for real estate and construction companies at KPMG Czech Republic, Pavel Kliment, states that entering the foreign market is a good strategy. "It is still an existing option, but it requires experience from similar projects and knowledge of the given country," Kliment remarked, noting that this is one of the last options available to Czech companies.
    However, obtaining a contract abroad is not for everyone. The director of the analytical company CEEC Research, Jiří Vacek, alerts to the high entry costs. "If it is meant as a long-term strategy, then it is definitely good and can help companies survive. However, the initial entry is financially demanding, and therefore foreign expansion cannot be realized short-term. Moreover, it is a real option only for a few companies; it certainly cannot help the sector as a whole," Vacek does not hide his skepticism.
    Czech construction has been in crisis for five years. While in 2008, construction production was 547.5 billion crowns, last year it amounted to 424 billion crowns. Since 2009, Czech construction has cumulatively lost 277 billion crowns. A lack of funds has caused the first construction companies to go bankrupt. While in 2008, there were 767 firms with more than 50 employees operating in the Czech market, last year there were 603. The number of all people employed in construction has also significantly decreased. Before the downturn, in 2008, 416,142 people worked in the industry; by the end of last year, their number had dropped to 380,586, a decrease of 11.3 percent. Moreover, the directors of the largest companies in the field expect that another wave of bankruptcies is still to come.