On Monday, Crodiaspora and the Centar za obnovu kulture(COK) held their first bi-monthly webinar with guest John Gašparac, Country Managing Partner at PwC Croatia. The webinar was about how Croatia can prepare for a post-corona business reality. John answered pressing questions about what the new business normal will be and the effects it will have on the Croatian economy. watch the interview, moderated by Stjepo Bartulica, above or read the synopsis below:
How has the business climate changed at PwC Croatia, and how is the global PwC company preparing itself for the new circumstances? What could the new normal look like?
John talked about contingency planning and previous investments that are seeing the light of day at PwC, “I think PwC in one way, because of our investments in technology and the nature of our business, has been preparing for this for a long time and we are seeing those investments pay off. Case in point, we do a lot of our work digitally. We have the audit business; we have the tax business; we have an advisory business… and we have the ability to work from home and we have everyone doing just that”
Next, John discussed what PwC has shifted in its global operations. “Globally we’ve got over 300,000 people… and I have been on calls with our global chairman from New York, talking from his kitchen at 6 in the morning there, and its 12 noon here; and talking to all the country managing partners around the world. Everyone is at home. My point to that is that we are all working, we are all productive… we did not think that that was possible.”
It was also interesting to note where PwC is focusing its finances during the Corona crisis. As DM did in Croatia during the 2008 crisis, PwC is also focusing on retaining their people. “One of our focuses at the firm is people over profits”. That might be surprising to hear but we have to keep our key capacities in place, so we are planning to keep our key talent who has the right behaviours and the right skill sets. We want to keep them engaged and happy. If it costs something, we are willing to do this.”
The Croatian business climate and the reality of returning to work
John also outlined what Croatian businesses are struggling with during the crisis. Like any crisis, the key to getting through tough times is being able to be financially liquid and to mitigate cash stress situations. PwC used their global advantage by having offices in early hit countries report their issues with their businesses so that other markets PwC operate in could prepare a more informed plan. “There were discussions with the Chinese firm and the Italian firm that did this ahead of everybody else. Because they had their peeks before the rest of us did in terms of the pandemic, and they were all working from home, they all said that they focused on cash first, liquidity.”
Interestingly, PwC Croatia’s HR department has conducted satisfaction surveys of their employees while they have been working from home. Apart from the distractions staying at home entails, over half of their employees are happy to stay at home and would like to work from home even after the crisis. John goes onto say that his prediction is that, in general, office space will be reduced and PwC Croatia has already begun to prepare for this. “before social distancing, we normally had 216 seating places in the office. We have now done the work and mapped out our spots and now we are down to 109. So now at full capacity, we will only have 109 people in the office.”
The PwC office in London reduced their office space after the 2008 financial crisis and they are now over double the size they have been in previous years. John thinks that PwC offices around the world will implement a model similar to the PwC office in London. If other businesses are considering this option, this could have a deep effect on the commercial real estate market.
Tourism and diversifying Croatia’s economy
Reset oriented and business agility. John believes these are the skills that Croatian companies need to have to survive. This is a time to have a reset mindset and companies have to come to the realization that no matter what one thinks about COVID, whether it is a real danger, the world has changed.
One of the sectors that have been underdeveloped is the Agriculture sector. “To put it simply, Croatia can be easily feeding itself without import. We have the ability to do that, for our basic needs, 100%. Exporting as well. “We have the ability to feed, I believe the estimates are 10-11 million people, and there are 4 million in Croatia.”
Many companies from this crisis have seen that a simple event such as a world pandemic has made them susceptible to economic hardship. “When you talk about logistics and transportation, these are things that are coming out of COVID, a lot of people have seen how fragile they are. Us individually as people but companies as well. How one small event, rather a simple event, has thrown us into a different world and a different way of thinking.”
John concluded that companies who do not change now and become more agile in their business processes could face detrimental consequences if there is a second wave. Also, not changing could affect their Brand and how consumers interact with them.
Public sector and private sector are alike
John says that the public sector should not be excluded from the changes that are needed in the post-corona era. “One last thing I will talk about is the public sector. Now more than ever, they see how fragile they are and there have been a couple of banks that we work with, that apart from being hit by COVID and having their staff being sick and contracting COVID, the earthquake killed their premises, they do not have anywhere to go to right now. We can’t forget the earthquake effect which has maybe also doubled up people’s ideas that ‘you know what, I need to change.’”
“Public sector and private sector are alike, and they are going to reconsider their investments, their big bets… one thing is to provide support to the economy, to companies in this time of crisis, and another thing is to rethink your strategy, revisit your growth model and look at what specific policies you need to implement to prevent a future shock… if you do not come out of this different and hopefully stronger and a little bit wiser, somethings wrong,” says John.
In recent years it has been debated if the Croatian government should digitize voting and government administration. John touched upon this point as well by saying, “The government themselves need to digitize, they need to go E-government. Digitizing is two-fold, you will be faster for the consumer, but you will also be getting rid of the jobs that we do not need.”
This goes hand in hand with the tax burden that Croatians have to face as well as other movements that have arisen in the past few weeks during the coronavirus such as the Glas Poduzetnika (the voice of entrepreneurs) movement. The government makes up over 50% of the economy, including owning shares and stocks in companies. The large government administration needs to be sustainable in the future. There is something that has to give, especially with the number of people the government currently employs. Big government equates to a high tax burden on not just the private sector but on the average Croatian citizen.
John added, “They are raising public debt again, they were at 73% of GDP last year and it is estimated that it can go up to 84%, so all that work bringing it down is now wiped out and it is going to go back up… apart from the tourism sector, I think we have talked about this before, they keep saying it’s growing it’s strong, but one terrorist event and you’ve lost the season. Well, this is like a terrorist event, it just happened. Everyone has been talking about it. have we been talking about a contingency plan? no, we haven’t.”
Croats returning and expats in the country during the COVID-19 crisis
John voluntarily works on the American School Board, and many expats in Croatia send their sons and daughters to the American school. As an example of how expats reacted to the COVID-19 outbreak in Croatia, American expats in the country were offered to come back to the states. Many of them actually felt safer in Croatia and refused the offer to return.
“Case in point, maybe it’s one of the benefits of the small country that we are and undoubtedly I think our Stožer Civilne Zaštite (the national civil protection authority) did a good job. like them or not, they did a good job in managing this.”
John did touch upon retaining people and possibly creating a domestic investment scheme.“lets really stimulate this segment [IT, Tech] you know, to get new ideas for technology and build up our own infrastructure like its never been done before. This is part of the country’s transformation, but it is keeping a skillset here. I am not going to say that it is going to keep young people here but the talent pool can be retained here for a little bit longer which is not a bad thing. This could make local investors look at them [retained talent in Croatia] and not look for opportunities elsewhere. There can be a synergy coming out of this that was not expected.”
This can be an opportunity for Croatia to reset. We have seen how fragile the world economy is and the strength and resilience Croatia has shown in spite of the crisis. The world is changing but Croatia has a massive opportunity. Working from home can also create opportunities for people abroad to work from anywhere and many Croats could possibly have the opportunity to move back to their homeland. Crodiaspora and COK will continue this webinar series as we address the opportunities for all Croatians to forge an economic future for our homeland. Our next Webinar will be on Monday, May 18th with Don Markušic and Monika Maretić as they answer your legal questions about Croatia.