|Answered by:||Jiří Moser|
|Publication:||Czech Business Weekly|
With advisory services on the rise, PwC Czech Republic (PwC), one of the Big Four audit, tax and business management consultancies in the Czech Republic, is set to increase operations and headcount by half over the next five years. Such are the ambitious plans of Jif i Moser, new managing partner of PwC in Prague starting April 1, 2010.
Moser is to take up the post of new managing partner ofPwCinthe Czech Republic at the beginning of the second quarter. The Czech branch of PwC has over 600 employees and 26 partners. Despite growth in strategic services such as restructuring, insolvency and bankruptcy advisory, the firm has felt the impact of the crisis-revenues in 2010 will probably be lower than in 2009, but at a single-digit level, Moser predicts. For the future, PwC plans to enhance its visibility among Czech firms and attract more local companies willing to pay for support with complex, often cross-border taxation and advisory matters. Moser says another goal is to recruit more industry-specific experts who can bring added-value in complex situations, such as those that occurred during the crisis. PwC will also continue to take on fresh graduates. As the list of growing advisory services on the Czech market also includes KPMG and Deloitte Touche Tohmatsu, two other major consultancies from the Big Four, PwC is bracing for tougher competition. Moser sees this as a natural development and an opportunity for PwC to stand out.
Q: How do you comment on your appointment?
A: For me, it's a great achievement. I still believe that this market has a lot of potential. PwC also has a lot of potential and I can only hope we'll become even stronger, better and bigger-the number one.
Q: Where does PwC rank now in the Czech Republic?
A: In terms of overall size, all big consultancies, except for Ernst & Young, are very similar. From this point of view, no one is miles ahead. In PwC we have a very balanced structure in terms of service offerings. We have very strong audit, tax and advisory practices. The challenge is to take advantage of this and lead ahead.
Q: Is there any connection between the fact that the economic crisis brought a higher demand for advisory services on the Czech market and your appointment, as a person with an advisory background?
A: It might be. I'm not sure whether it's 100 percent connected, but actually, having an advisor as the head of the firm can be beneficial. Typically, as advisors, we think about many various types of issues with our clients. The crisis tested a lot of advisors. There is less transaction work: this is clear for everybody. If you look at the rest of the advisory, which is more consulting-oriented, companies have slightly different issues than before. These issues are more complex-dealing with the crisis as such or with insolvency and bankruptcy. So, these services are indeed on the rise.
Q: What industries currently require more advisory services?
A: There is something very interesting about this crisis. Two years ago, before the crisis, more or less everyone was growing and the question was whether they should grow by 10 or 20 percent. Now, that's difficult to say. What this crisis really proved is two things; one, different industries are impacted at different times. If you look at the whole cycle, the first industry impacted was real estate, then automotive and automotive suppliers, while other industries were still doing relatively well. This year, we will probably have more companies in automotive, because that will again be under pressure. Yet, you may also have [troubles in] the construction industry; in retail, because unemployment is rising and people are getting more conservative-they are either buying less or moving towards cheaper products. There are different cycles and we are trying to react to different needs in these industries. Not long ago, we did quite a lot of work in the automotive industry because the situation was in some cases very difficult. There are still companies that are thinking strategically andtrying to use the crisis as an opportunity to transform themselves. They are optimizing their organization-their approach to customers and so on. From an advisory point of view, this is even more interesting because the coverage of issues and services is much richer than before the crisis.
Q: How is this higher demand reflected in your overall revenues?
A: There is a bit of an impact due to a couple of trends. One is the low number of transactions on the market, which impacts our transactions and, partially, our tax business. Then in audit there is an impact in terms of fee pressures. We see an impact and a slight decrease in revenues for trans-action-related business, but in terms of the rest of the business it's very much stable. We'd like to redefine our products and services. The structure of revenues is different, but it isn't as one might have expected before the crisis.
Q: So in 2010 you'll be flat compared to 2009 or rather below that level?
A: If I take the company overall, it'll be slightly down. I can't say how much at this point in time, but I don't expect it to be something like a double digit impact.
Q: What is your vision for the PwC development under your mandate?
A: If you look at our business in general, it's relatively simple. You have people who deliver services and then you have your clients. That's it. Actually, the crisis taught us that our people are the key; they need to understand what's happening; they need to feel the spirit of the group as a big family. One thing is that we try to create a high-performance culture, focus on our people and enhance what they can do already. With our clients, the crisis showed us that if you stay close to them, if you understand what's happening and their issues, then in fact you can have a very stable business. If you ask me about the future, we'll continue what we've been doing well. I think sometimes it's also more about perceptions. PwC is sometimes seen as a firm focused on large international clients. In fact, we're doing quite a lot of work for local Czech companies. This is something we need to communicate better. In terms of services, I don't think there will be any significant changes. It's actually more about making sure that the perception is right and our clients understand exactly what we're doing. I think the fact that I'm a local Czech national sends a strong message to the market as well.
Q: Can local companies afford your services?
A: I think they can. Everything we do is based on added-value. We are trying to prove that we can add value. I don't want to be in a situation where I provide service that has a zero value and for which big money is charged. The truth is that now some local Czech companies are getting to the point that they are becoming complex: sometimes they want to expand and go abroad, so they want to optimize their complex tax structures. I think what they need is our service. They can get a service that is cheaper from small boutiques, but if they want or need to solve complex problems, it's much better to have someone who knows everything and can add value rather than experiment and put the company at risk of not meeting its strategic goals.
Q: What is the difference between serving a multinational and a growing Czech company?
A: What is very interesting between large international corporations and big Czech companies is that, for big corporations you have corporate strategies, structures and policies where everything is defined. Obviously, they also have their own issues, typically as a result of this. On the other hand, smaller or medium-sized Czech companies, especially if they are run by the owner, are a completely different environment. One is the overall spirit-the owner knows that everything is his or hers, so he has a completely different approach to costs and consulting. They want to understand everything. The services are more personal because you have to convince that person that PwC is a business partner that can actually help them develop and improve business. The rest is the project. It's different and it's a great experience because this is where personality comes in. Sometimes it can be very emotional and very personal.
Q: There are numerous sectors where Czech companies still have a lot of room to grow on this market or abroad-biotechnology, media etc. Are there any particular industries where you'll be looking to attract more Czech companies to your portfolio in the future?
A: There are certain sectors. One is indeed media or entertainment. This is a very interesting segment. It covers everything, from Internet to portals, Internet TV to publishing houses. It's a mixture, with some companies that are local and some that are international. This is an example of something we started to develop a little bit. Then, it can be services in hospitality. Yet, a lot of industries, construction for example, have a lot of big international players, but you'll also have the small local players which are regionally-focused. It very much depends on the type of approach to ownership because owners remain very much linked to their businesses.
Q: Czech companies are now learning that in order to survive possible future downturns they need to export more to emerging markets. Can your global structure help Czech exporters in any way?
A: We're already doing it to a certain extent. We're organized as one regional partnership: we are 26 countries connected together as one partnership, which is unique. No other [advisory] firm is organized like that. We are already working with clients, helping them identify opportunities or acquisition targets in other countries. Obviously, if a company is already operating in more territories than in the Czech Republic, then we coordinate at the level of international tax or transfer pricing issues. It's probably up to Czech companies to think more about how to grow and reach other countries, yet it's very positive that we have [Czech] companies operating abroad and not only focused on our market.
Q: Back to your pricing policy-are you planning to decrease prices or tailor your pricing offers in order to attract more Czech clients?
A: This is a complex question, as complex as the complexity of our portfolio of services. We have services where there are extreme price pressures, such as in statutory audits. Obviously, this is an area that people take as a commodity when they try to optimize costs, even when auditors try to add value by looking at their control systems. If you look at the services that are more of the advisory type then it very much depends because sometimes you can find flexible arrangements when we charge our clients a basic fee and then we charge the rest based on how much added-value we deliver. There is no one answer. Definitely, what is good as a general trend is that everyone is looking at costs. Everybody is trying to maximize added value. So, price negotiations are more difficult than two years ago. Yet, I can't generalize and say that this is valid for the whole company, because some services like restructuring are in a different situation.
Q: Your competitors among the Big Four are also planning to enlarge their advisory operations. Do you take that as a threat or as a competitive opportunity?
A: It's rather natural. All companies want to grow. If you look at areas where we can grow most, it's definitely in advisory. What is good is that PwC is very much a global firm, so growth isn't just a local strategy. For us now, advisory is the number one priority-globally. The firm decided to invest into advisory in a big way. Our competitors seem to be doing it as well and this only means that competition will increase.
Q: What do you mean by investing in a big way? Do you plan to invest more in the specialization of your existing staff, or to develop your advisory arm in other ways too?
A: It means everything. It means up-skilling the people we already have and it means acquisitions of teams or smaller specialized companies. We have a couple of priority areas in which we invest globally in a couple of specific industries where we want to enhance the quality of our people and services we provide. So, it's basically a combination of all these things.
Q: Is this acquisition strategy a global one?
A: The aim is to achieve a certain level of competencies. There might be different ways how to do that. You can either hire somebody or you can acquire somebody-it depends on a specific country. What is important is that there is an appetite to grow and invest, to create something that is a world class advisory.
Q: In the Czech Republic can you as a managing partner decide on individual acquisitions made by PwC Czech Republic?
Q: Have you already spotted some interesting acquisition targets in the Czech Republic?
A: I can't go far with this, but yes. We've done some pretty detailed research and analysis. We are talking to some companies and individuals. We're on strategy from this point of view, but it's not at the stage to be made public yet.
Q: What are you looking for? What acquisition would help you make a difference?
A: It's a depth of knowledge. As we discussed before, this crisis showed that different industries are impacted differently. This means you need to understand what the drivers are in each industry and how they work. You still need generalists, but what you need more is people who understand the specifics. That's the way we want to go. Put simply, 10 years ago you had to implement some financial processes in the consultancy business and that was it. Now, the fragmentation on the market requires more and more specialists. The Czech Republic is maturing. Ten years ago, if you told someone you know what project management was, they would be very excited. Now, everyone expects you to manage that as an advisor.
Q: What new things are coming to your market, together with this maturity?
A: It's fairly difficult to name one big thing. There are always some consulting buzzwords ... but now, I don't know if there is one huge topic on the horizon. The big issue right now is how the overall economy is going to develop and when the growth is coming back. We're now in the middle of a CEO survey among Czech companies. The deadline for this is the end of March, so I can't speak of the final results, but an initial feeling points at uncertainty and preoccupation with what's going to happen and what type of growth we'll have in the future.
Q: What is the biggest risk for PwC right now?
A: We're very much linked to our clients. Our risk is the general risk our clients face. This is again about the economy. Is the global economy going to recover? How is it going to look? What will happen in Europe, in countries like Germany? In the Czech Republic specifically, another risk for the economy is what's going to happen after elections. The political uncertainty has been going on so long that it has obviously had an impact. These are probably the most critical risks for us. If our clients are doing fine, we're doing fine as well.
Q: Has the political uncertainty in the Czech Republic affected foreign investors and companies' trust in the Czech economy?
A: It definitely has had an impact. Generally, any uncertainty has an impact. Now there are discussions about increases in tax rates and in social security, so maybe decisions may be delayed until after the elections. Any increase of this kind raises operational costs for companies, so if they have the opportunity to operate in an environment which is similarly stable but with lower costs than the Czech Republic, they might choose that environment.
Q: What at this point are these lower-cost, stable environments in the CEE?
A: One of them emerging right now is Romania. If I look at shared service centers, a while back the Czech Republic was relatively popular, but then many companies realized that the Czech Republic is quite expensive. Then there were many shared service centers in Poland. Yet, now Romania is a country really used as a favorite shared service destination. Things are moving in that direction.
Q: What is the future of the Czech business environment, then? Everyone speaks about becoming a knowledge economy, but few really spend time to draw a long-term strategy for this country and invest into education, research and development. What is your view of this situation?
A: First, we need to wake up. I think this has to come relatively soon because we had a lot of foreign investments in the past. We've just finished our research into foreign direct investments (FDI) and for one, it's falling and secondly, the structure of these investments has changed as well. Rather than manufacturing facilities, it has moved towards more sophisticated areas. These signals are probably more and more obvious. The rising cost of employment in the Czech Republic is forcing politicians to think about people and creating a flexible workforce.
Q: Will this be possible with a Social Democrat government?
A: I don't know. It depends on how it develops. Now, we're still far from elections and it depends on how the final party programs will look like and, more importantly, how the final political arrangement will look like after the elections. So, it's very difficult to predict. My feeling is that, overall, these are general trends and issues that need to be solved at a certain point in time by any political representation.
Q: What is the biggest opportunity you perceive for PwC on the Czech market?
A: I probably won't be able to give you a single idea. It's definitely around some broader advisory services and how to effectively react to our clients' needs. This is the biggest opportunity for us. At PwC, I feel we have a very unique culture: we try to operate as one firm and not be divided into separate lines of service. This approach is our opportunity in this market. This isn't about developing one area in particular. It's more about leveraging our strengths.
Q: Where do you see PwC in the Czech Republic five years from now in terms of headcount and scope of services?
A: Five years from now, we should be around 50 percent bigger than we are now.
Q: That sounds like an ambitious plan...
A: It has to be. We're a great firm and we have a good starting point. If we want to be better than now, I think it's doable. Plus, if the economy starts growing this year and if we grow by 1-2 percent this year, next year we'll have another good basis. The economy is growing-if our clients are doing well, then we should be doing well too.
Q: How are you planning to staff this expansion? Are you going to recruit senior experts already on the market or rather look to attract fresh graduates?
A: It is a combination of both. We try to attract the best graduates. For a number of years, we were on the top of lists of global employers. We also have experienced hires-people who have been working in the industry for a number of years and have experience. What is important is to educate our people, not just to bring them in.
Q: If you manage to achieve all these goals, where would this place you on the Czech market?
A: We have the clear ambition to be the number one.