Market Potential and the Current State of Machine Tool Applications in the Czech Republic

Central and Eastern Europe: A Vital Link in the European Supply Chain

According to a research report by the Polish consultancy Aventis Advisors, M&A transactions in Central and Eastern Europe (CEE) grew significantly from 178 deals in 2003 to 1,067 in 2022, representing a compound annual growth rate of 9.4%. Although transaction volume plummeted by 41% during the global financial crisis (2007–2009), it rebounded quickly as the global financial climate improved. By 2013, deal counts reached a then-record high of 712 and remained stable through 2021.

In 2021, increased risk appetite further stimulated M&A activity. Even with the surge in inflation caused by the Russia-Ukraine war in 2022, interest in CEE remained high, setting a new single-year record for transactions. Between 2003 and 2022, U.S. and German companies accounted for more than a quarter of all M&A deals in the region, focusing on software, industrials, finance, automotive, and retail.

The key attraction for foreign investment in CEE lies in its highly skilled labor force, which costs less than the EU average, along with excellent talent, high educational standards, strong domestic demand, and robust infrastructure. The report notes that the region’s average annual GDP growth over two decades reached 6%, far outpacing the EU as a whole. Additionally, government investment incentives have accelerated the entry of multinational corporations.

The global pandemic and the Russia-Ukraine war have reshaped international supply chains. European companies face challenges such as raw material price volatility, energy crises, and rising capital costs. In this context, CEE—with its geographical advantages, lower labor and land costs, political stability, and proximity to Western European markets—has become the preferred choice for supply chain restructuring. The region is evolving into a major EU hub for electronics, ICT, automotive, and machinery manufacturing. The Visegrád Group (V4), comprising Poland, the Czech Republic, Hungary, and Slovakia, joined the EU in 2004 and possesses solid industrial foundations and stable economic systems. Poland, the Czech Republic, and Hungary, in particular, boast large populations, active international trade, and high export volumes, showing significant potential for cooperation with Taiwanese enterprises.

CEE has become a vital springboard for Taiwanese companies entering the EU market. In recent years, the Czech Republic has engaged in frequent exchanges with Taiwan across trade, education, technology, and tourism. The late Czech President Václav Havel maintained a friendly stance toward Taiwan during and after his term, and frequent mutual visits by government officials and lawmakers continue today, making the Czech Republic an ideal location for Taiwanese industrial investment.

Economic Overview and Industrial Landscape of the Czech Republic

Since joining the EU in 2004, the Czech Republic has benefited from market openness, a strategic location, and a high industrial base. It is a major European manufacturer and exporter, with the automotive and machinery industries serving as its export pillars. The Czech government actively promotes Industry 4.0 and digital transformation, attracting tech giants like IBM to establish AI centers. Prague’s startup and tech outsourcing sectors are also developing rapidly, characterized by a young, international workforce.

According to a 2024 report by CzechInvest, major exports include machinery and transport equipment, with Germany being the largest market (accounting for nearly one-third of total exports). The Czech automotive industry is massive and accounts for a high percentage of GDP.

Due to its superior industrial talent, many multinationals choose to establish R&D centers in the Czech Republic rather than just manufacturing bases. Examples include Panasonic (Plzeň), GE Aerospace, Honeywell, Red Hat, Roper Technologies, Rockwell Automation, Veeam, Ricardo, STMicroelectronics, Siemens, and Valeo.

Taiwanese companies already positioned in the region generally adopt a "dual-axis strategy": setting up sales offices and agencies in Western Europe while establishing manufacturing bases in CEE. For instance, Advantech, Gordon Auto Body Parts, Shilin Electric, Chinv, and GW Instek have sales outlets in Western Europe. Meanwhile, Ideal Bike produces high-end and e-bikes in Poland; other Taiwanese firms in Poland include HIWIN, Ying Han (YLM), and Komaspec. In the Czech Republic, Inventec has expanded production for servers and automotive electronics, with Pegatron, Wistron, Sercomm, and Chicony also maintaining operations.

Trends in the Czech Automotive and Machinery Industries

The development of the automotive and machinery sectors directly drives the demand for machine tools. A 2024 report by the European Automobile Manufacturers' Association (ACEA) indicates that nearly one-fifth of the world’s vehicles are made in Europe, and the industry’s center of gravity is shifting eastward to countries like Poland, the Czech Republic, Hungary, and Slovakia.

A McKinsey report highlights that the shift to CEE is driven by a talent pool comparable to Germany’s, R&D labor costs that are 60% lower, mature manufacturing systems, and government incentives. Furthermore, the EU's mandate to ban the sale of new petrol and diesel cars by 2035 is accelerating the transition to electric vehicles (EVs). The International Energy Agency (IEA) predicts that nearly one in five cars sold globally will soon be electric.

The rise of EVs is impacting traditional internal combustion engine (ICE) supply chains while driving demand for batteries and charging infrastructure. Most new battery production capacity is being established in CEE to balance geographical and cost advantages. South Korean giants like Samsung SDI and LG Chem entered the region as early as 2018 to secure their positions in the global EV supply chain.

In the machinery sector, OECD data shows that "Machinery and Electricals" accounted for the highest share of both imports and exports in the Czech Republic in 2023 (Table 1).

Regarding machine tools, the distributor Abplanalp notes that while the transition to EVs affects demand for traditional 3-axis machines, the demand for 5-axis precision machinery continues to grow. In the CEE market, Taiwanese and South Korean machines are close competitors in quality and price, while Japanese tools remain the primary source for high-end, customized equipment.

Machine Tool Import Status

According to Global Trade Atlas, the Czech Republic imported $470 million worth of machine tools in 2024, a 17.4% decrease from 2023. Germany remains the largest source (44.2% share), followed by Italy (10.0%) and Belgium (7.4%). In terms of machine types, the largest import category was forming/stamping machines ($110 million), followed by machining centers ($107 million, which grew by 11.7%) and lathes ($85 million).

The Rise of EVs: The Best Entry Point for Taiwan’s Machine Tool Industry

The rise of EVs offers a prime opportunity for Taiwan’s industrial strengths. While EVs have 30-40% fewer parts than ICE vehicles, the core shift involves motors replacing engines and batteries replacing fuel tanks. Foxconn Chairman Young Liu famously stated that while the ICE era was won by those who mastered engines and transmissions, the EV era belongs to those who master the "three-power systems": battery, motor, and electric control.

Taiwanese companies possess a complete supply chain and competitive advantages in these systems. CEE's urgent demand for battery storage, AC/DC conversion, and charging infrastructure makes it a welcoming market for Taiwanese firms, especially in high-future-potential areas like solid-state battery R&D.

Conclusion and Recommendations

For Taiwanese enterprises, the Czech Republic and the broader CEE region offer excellent investment conditions, including high-end R&D facilities and competitive operating costs. TSMC’s 2024 plant establishment in Dresden, Germany—coupled with active recruitment in Poland—underscores the region's potential.

To succeed, Taiwanese firms should:

1. Integrate Hardware and Software: Collaborate with local software companies to offer smart manufacturing solutions.

2. Focus on Green Technology: Align with EU carbon neutrality policies by incorporating energy-efficient designs and recyclable materials.

3. Leverage Geographical Clusters: Use CEE as a "short-chain" supply base to serve the wider EMEA market (Europe, Middle East, and Africa), reducing transport costs and response times.

4. Build Long-term Trust: European clients value stability. Providing innovative technology and remote monitoring services can help avoid price wars.

5. Adapt Culturally: Localized management is crucial. Companies like Wistron have seen success by adjusting communication strategies to fit the local culture, ensuring talent stability.

By integrating supply chain strategies, green technology, and cultural adaptation, Taiwanese enterprises can effectively expand their footprint in the Czech market and secure a vital position in the global industrial transformation.