Archive - 2010
Ketels: Government should stand for executing the vision!
Eesti Päevaleht/Jan Jõgis-Laats: The Estonian Development Fund is currently looking for new growth drivers. However, the global crisis is not completely over yet. Do we know where the world as such is going, so that we as Estonians can search for our own path?
I think there is an emerging picture of how the world economy is evolving. The bad news for Estonia is that Europe at large is not very well positioned – partly because of demographic factors, partly because of other factors. The real growth of the global economy is going to be in Asia, maybe in other parts of the world that are catching up.
Luckily for you, within Europe Estonia has been relatively well positioned for the last year or two because you are still a low-cost location, especially after the wage-moderation. That explains why you have seen such a tremendous growth in exports recently. Companies were actually more ready to change suppliers and look for low-cost solutions and having a low-cost supplier in Estonia is actually a good alternative to going to Asia.
You are in a lower growth part of the global economy and most of your exports go to neighboring regions but within that region you have a good starting position. The question for Estonia is how to move beyond that because you do not want to be a low-cost location for others. And there is South-Eastern Europe, Ukraine, Belarus and others breathing down your neck.
For a country as small as Estonia, is export-oriented economy the only way to go?
I think it is a bit misleading to only think about exporting sectors. When we look at regional and national economies, there is this part that of economy that is exposed to international competition and it is usually much more productive, with higher wages – that is really the engine that drives things. Now, it is bad news when that engine is broken because this is where the money is coming from. It is however also important to realize that the local economy gives usually the majority of jobs, the majority of the GDP and you cannot afford to have that part of economy unproductive.
The point that I try to make about IT – for local companies IT upgrading should be as much on the agenda as for export oriented companies. Let’s not make the mistake that the government should only focus on the export sector because that’s the engine. When the rest of the car is crappy, a good engine does not help you very much.
Three-quarters of Estonian exports come from traditional industries with low wages whereas in IT, energy or telecom wages are higher but these industries do not employ as many people and they are mostly specialized on domestic market. How can we change that?
It is very misleading to say which sector is better than others. We need to upgrade productivity in all our sectors. But the context in which that happens is very different for locally oriented and export-oriented industries.
Upgrading productivity is important everywhere but the context is different. There are no bad sectors that are low value added. The question is how to improve the value added or how can we use the knowledge that we have to move into other areas. That is what has happened in successful regions – they have managed gradually to migrate into areas where you can make more money, higher value-added jobs, more productivity and support higher levels of prosperity.
Could you provide some good examples?
If you look at Sweden – where did the automotive industry in Gothenburg come from? Initially there was textile industry because of the closeness to the port and low wages. There was a need for innovation because of the ground that was very unstable. They came up with roller bearings, gradually moved into manufacturing and then moved into engines and became a car industry. There are many stories like this. Others have moved from industrial textiles to air conditioning systems. It is very hard for a policy-maker to know how these dynamics will work out.
There needs to be a constant dialogue with companies: What else could we do here? How could we apply this? How can we then use our educational and science system to support transition to these types of activities?
When we are talking about public-private partnership (PPP), one thinks about building infrastructure. And when companies are talking about dialogue with the government, they are talking about the need for labor etc. You pointed out that there is a need for a shift in dialogue?
Both examples are excellent which you gave because they are very typical to many countries. The government comes and says: “Essentially, what I would like to have is some money from the private sector to pay for my infrastructure programs.” And maybe the government also hopes that the project gets done a little bit more efficiently when the private sector is involved.
PPP-projects are very complex, they can work but it is not easy to do it. In some sense it is a relatively narrow technical discussion.
Then, enterprises come and say: “We want lower taxes; we need some visas for these low-cost guys from Belarus so that they can work on my shipyard or whatever.” We have immediate grievances.
We need to change the dialogue on both sides. Companies, you have to realize that you depend on your environment to become more productive. There is an important difference between productivity and profitability. Of course companies are focused on profitability and higher productivity usually means more profitability. But government policy should be focused on productivity, not necessarily on profitability of companies.
Government on the other hand needs to understand that private sector is really a partner in these discussions. Every day companies hear about what the market needs – what do people want, what types of products and services. What are the opportunities and why are companies not able to serve them.
It is about working together on the design. Then government needs to make decisions in their area and then companies make decisions about how to invest, how to train employees. But this is a process; this does not happen on one day or another. And what the Development Fund here does – you should give it a little bit of time for people to get trust that this is not only because you are interested in your short term gain and I am interested in my short term gain but we both have understood that there is actually an area where we have a shared long-term interest.
You suggest there should be a group of wise men or women?
Yes, you need to be able to step beyond your shadow and say: “Yes, it is perfectly alright that I have my interests and I pursue those.” But I also have to be able to see my interests in the wider context and essentially see that if Estonia is doing better, it will be good for all of us and I can make a contribution to that.
The difference is that you need to make sure people are not always thinking in a very short-term way: how much do I give in this process and how much do I immediately get back but rather look at this more broadly.
I don’t know about your experience with other countries but at least in Estonia – I am sure it is similar elsewhere - when people come out with an action plan, nobody follows it. The parliament has ratified tons of those, but nothing happens afterwards. There is a danger that it could happen right now with the Growth Vision. Have you met any good examples where people have followed up with such action plans?
Internationally we are still trying to find what the best model is. In some countries you have very efficient government that is able to do this – non-corrupt, non-partisan, like in Singapore. In the US you have more examples where university leaders or public-spirited entrepreneurs who have already made their money, want to contribute and run these types of processes.
But in all of these cases we have seen that you have to create some institutional structure - that’s why I mentioned the idea of the competitiveness council. In many countries there are competitiveness councils that do not work at all. So it is not just about setting up this council. It works mainly through moral power because they are powerful people, or you actually give them institutional clout.
You need to figure out what works best for Estonia. But there needs to be some kind of structure where the head of government is involved. It is crucial that the decision-makers are committing themselves.
For this process here at the Development Fund it is really critical to get the government leaders fully into this. If this just becomes something where some document is created and that is presented to government, then it is not “theirs”. Of course they say that: “This I like and endorse, this I don’t quite like and I am not going to do it”. And then you do not get an integrated agenda.
If you look at some of the neighboring countries, then Sweden had a globalization council, which I think was highly ineffective.
They developed their agenda, but nobody cares. Prime minister was not involved and they had no effect. Denmark had a globalization council, the prime minister chaired it and the key ministers were all there. There was not necessarily an agreement on everything but essentially this was used to have a dialogue with a broader group of people. And then the prime minister could just say “This is the decision that we are taking based on this input.
Not everybody has to like it but if you do not like it, it is OK, you can elect someone else next time.” But it was a very open discussion and people knew what the government was going to do. There was automatic follow-up and the ministers had to say what they were going to do in their areas. I think this is the model to use. And I would hope this is actually attractive for Estonia. Rather than have the government figuring it out, have an open dialogue!
Still you need to have clear accountability that only government is elected to do this kind of decisions and has to face the electorate afterwards. One has to look carefully what the council can actually decide as a council, or whether the prime minister goes out and makes the decision.
In Estonia, the government is in principle very liberal and the market is believed to take care of everything. But actually there is an ongoing discussion that there is too much of government. The government lets the market do everything but the bureaucracy keeps growing on its own. What should the government or politicians do in order to move away from bureaucracy building towards new type of policy?
First of all, we all have our ideological position. But the reality is that in economic policy, the answer has to depend on facts, not just ideological position.
Although the social democrats in Sweden always say higher taxes and larger government is a good idea no matter what the question is – that is wrong. It is also wrong to always say that lower taxes and less government is the right solution. And that has to be the first step. My senses tell that there is still a lot of ideology in the debate. We should rather just take a more careful look - there might be areas in which we have too much government and there might be others where there is too little government involvement. And what type of government involvement do we need?
We have good policies in some areas but we have a lot of indications that in exports Estonia is not doing that great. You are doing a lot of good things in terms of slim government, but apparently that is not enough or we are not able to use it appropriately. We have to create diagnostics first – what is the issue here?
I have heard too much in Estonia in the past that there is no problem – we are better than Latvia and Lithuania, we adopt the euro and we are great. The main task is to tell people in the outside world the good story.
That is understandable, but it is not the entire truth. The truth is also, that Estonia has issues that need to be addressed. And we need to discuss those and then we can see who has the best solution for this.
Is there a danger that by choosing some sectors, we discover later that we have missed the high tide?
You need to be pretty careful about this. But the reality is that if you do not specialize, you cannot be good. There is a sea of competitors out there and in some sense you have no choice but to specialize. It is also true that this exposes you to more risk. That might mean that if you happen to be in an area that for whatever explanation tanks, you are more affected than others.
One has to think how to create a robust system that can deal with that. I think the important part is that only the market process will tell us which sectors are going to succeed. We do not need a government or a conference like this to figure out that “these are the three sectors”. But we need to create a structure that whenever there is market signal that something interesting is happening in Estonia, we do provide the right kind of instruments and support, so that we can exploit this opportunity to its fullest. Some will die and some will succeed – but we do not know that in advance.
I spent half a year in Singapore and my impression there was not that that the government thought they knew better than the market what was going to succeed, but as soon as they saw an opportunity they were really relentless in asking: “What can we do to help this to succeed? How can we provide the right laws? How can we talk to our educational system so that the right people are there?” I think that Estonia is afraid of doing anything specific; you support neither the good nor the bad ideas. But then it gets really hard for good ideas to become successful. You should specialize and focus.
And also be ready to look at alternatives when things are not working out. There must be a very strong performance-driven policy: when things develop, we encourage that further, but when something is not succeeding after a while, we also pull the plug.
Do Estonia and the whole Baltic Sea region have a chance for growth at all?
I do not believe that China and India are growing because they are large. They grow because they were held back for many years by poor policies and they have now started to reform their policies. There is a catch-up growth happening. That is much more the case than their size per se.
There is no evidence in economic literature and empirics that shows that size per se is an advantage.
Are there opportunities for Estonia? Of course, you are still far behind the European average. There are opportunities, some of which just need the government to step away; others will require more active engagement.
Does our future growth potential lie in the region?
The reality is that you cannot change where you are. If there is high growth in Latin America, it might have some benefits for Estonia, but it would be less relevant than if Sweden and Finland were doing well.
Yes, you need to be aware of where the growth poles of the global economy are but it is much more important to think about how we are positioned in this region. We are different from our Nordic neighbors and that creates us advantages. What is the next step that we could do to move into niches that are not that strong yet? In that sense, I believe that your regional environment is very important and that is one of the starting points to discuss how you position yourself.
Right now, China is the magic word. Our foreign representations are mostly in European countries but there have been suggestions that we should go by hundreds to China, establish our offices there. What would be your view on that - should we start teaching Chinese at school and put more resources in Asia?
Of course, China is getting more important and you need to have some ability to engage with them. But look at it from the other perspective: if there are 1,000 or 1,500 Estonians in China then from the Chinese perspective they are “so what?”
Just because it is a large market does not mean that it is a profitable market where you can succeed. The crucial question should be: what is the value that we offer? If you have something you need to offer – it could be in IT or other areas – then the Chinese could be interested and they do not care about your size. They are just looking for interesting knowledge.
If you are well positioned on the Chinese market, you can leverage. It is not so important to think whether we should be in China, rather - what do we have to offer? That should be our concern and then the rest is more technical – how we can leverage that potential. At the moment we do not have made our offer clear.
Modesat raised EUR 1,85M in second round funding
Additional funds were raised to finance the company’s market entry activities. The proceeds will be primarily used for covering costs related to sales negotiations with telecom equipment manufacturers and integration projects in which Modesat’s technology is integrated into the clients’ products. Modesat is targeting telecommunication, satellite communications and military communication system industries and is currently in negotiations with the worlds leading communication system equipment manufacturers that cover 98% of total wireless radio link market. After finalizing the core technology development the company started the first integration projects with customers in 2010.
Modesat Communications is a developer of new modem technologies for wireless and wired communication systems. The company is headquartered in Tallinn, Estonia with part of the R&D departments located in Gomel, Belarus.
Development Fund invests in biotechnology firm
Development Fund invests circa 5,5 million EEK in Estonian firm Cellin Technologies OÜ which develops stem cell cultivation technology.
Cellin Technologies OÜ has developed a quickened technology for cultivating tissue preparations suitable for medical treatment from human tissue or bone marrow. As the list of stem cells prodecures used in medicine is quite short, firm also sees as important market the cosmetic medicine (e.g. smoothing the facial skin) and regenerative medicine (e.g. restoration of joint cartilage).
Some possible partners have already shown interest in Cellin Technologies OÜ. Among other effeciencies they see good prespective in bringing into Estonia the validity clients from vicinal states and hence promoting so called health care tourism.
Cellin Technologies OÜ belongs to the campus of Tallinn University of Technology. The main stakeholeders have so far been through researh and development center Protobios OÜ Estonian scientists Dr. Kaia Palm and Prof. Toomas Neuman.
Through investment more than third of the firm will be owned by Development Fund and co-investor, an enterprise connected to business angel Sirli Sipp Kulli. Development Fund used the same co-investor in the deal with BiotaP OÜ.
Estonian Development Fund has been established by Riigikogu (Parliament) for orginising foresight projects and for investing in innovative ambitious Estonian technology enterprises. For livening the local venture capital market a private investor/s are always included under same conditions as Development Fund’s own investment. Also in Development Fund the international business incubator SeedBooster is acting for developing ambitious business models to increase their readyness for investments and market potential.
Indrek Kelder, Investments expert, Estonian Development Fund tel +372 6161 083
The export of health care services as one cure for Estonian economy
To build up a credible and able system for exporting health care and wellness services, Estonia should start with specializing and proceed to developing a high level medical hub of the region, advices the foresight report of Development Fund. The future and possibilities to form the export of health care and wellness services into new growth field for Estonia was the theme of the Development Fund's forum "Health Care Services 2018" ("Tervishoiuteenused 2018"), where the deciders and agents of the field participated.
The sector of exporting health care services has so far been marginal in Estonia, but could through skilful mixing of world trends and Estonian strengths become one of the fields of new growth of Estonian economy. By the words of Ain Aviksoo, the member of board of the centre of political research Praxis, who studied the state of and attitude towards health care services export, the income from this export is now scarce 350 million EEK, but in middle term perspective could rise to 1-2 billion EEK. "This is comparable to the flow in IT sector exports," placed Aaviksoo the expectations into broader context.
Critics bring out some problems springing from the pushing of the health service export topic, but the international experience shows that with skilled planning the export could bring additional assets to health care system and raise the quality of the whole health care services, both for local and foreign clients. 68% of head of Estonian hospitals and health care businesses questioned for the research believed in the positive effect.
Depending on the level of ambition to develop the health care service export Estonia can choose between different strategies or combine them together. The choices include specializing, health care travel and medical care, high-level medical hub and complex solutions in the demand fields. One of the authors of the report, Development Fund's expert on service industry Imre Mürk said that the growth possibilities to be achieved fastest are in the synergy of health care, wellness and tourist sector, while the more ambitious strategic choice would lead to creation of regional medical hub. Latter anticipates the prolong readiness to invest with goal orientation and in the sector of medical services and affiliated fields.
The forum debated deeper on the possibilities to give a boost to Estonian export through health care travelling. As the outer factors (e.g. aging of population in Europe) are favourable and the importance of creating a common strategy for health care has been recognised by some agents in the field, the main question raised was the leading of the changing attitude, especially from the public sector.
Who should give the initial signal to start join effort – this question needs answering in the future.
In the view of the experience of the successful states and also considering the Estonian start position, the development of health care service export needs long-term cooperation from private and public sector. Hence the report proposes for further discussions the concrete idea of establishing the agency of health care export. “The agency should not be a real institution, but a virtual cooperation agreement to draw together the interested sides for acting under a common, divisible strategy and for helping to achieve a breakthrough on the international market,” said Imre Mürk.
In addition to the presentations of Estonian experts the participants of the forum heard direct experiences from Keith Pollard, the author of several publications on the health care traveling in Europe; plastic surgeon Janis Zarzeckis, one of the leaders of Latvian health care service export alliance Baltic Care and Richard Petho, the founder of the most successful dental service exporter in Europe, Hungarian firm VitalEurope.
Both the report and the forum are part of Development Fund’s service industry foresight.
Imre Mürk, the expert of service industry, Development Fund
Estonian growth opportunities in healthcare services
Estonian Development Fund revealed in October 2010 a study “Healthcare services 2018” which is part of a wider foresight project on Estonia’s service economy initiated in 2008. The study analyses opportunities for Estonia’s export of health and wellness services in the next decade, outlines choices for strategy, and makes recommendations for action.
The study tested a hypothesis that Estonia has a potential for exporting healthcare services. The hypothesis was based on three assumptions:
After considering different modes of exports and Estonian capacities, it was concluded that the opportunities to increase Estonia’s export of health services may be primarily sought in health tourism, and therefore the report focuses mainly on this topic.
The quest for a better service quality, lower prices and shorter queues are driving healthcare tourism at the level of individuals as well as at the level of national health systems (insurers). It is important to mention that in spite of the risks that critics of health tourism point out, international experience allows to conclude that smartly planned it would bring additional resources into the system while simultaneously improving the quality of healthcare services in its entirety.
According to the survey conducted in the course of this study, 68% of managers of Estonian healthcare institutions and businesses reached the same conclusions. European countries protect their internal healthcare markets very diligently, but at the same time the pressure to open markets continues. The European Union directive on the free movement of patients, which will adjust rules and compel member states to abolish barriers to cross-border healthcare, mainly caused by the lack of information, will most probably be adopted in December 2010.
When European consumers become aware of it, preconditions will be created for the formation of a common market for healthcare service provision and more active movement of services between member states. The better market position will go to the countries that are ready for this new situation sooner.
More than half of all Europeans would be willing to consume healthcare services abroad according to the survey conducted in the European Union in 2007. But only 4% (c. 17 million adults!) have actually experienced cross-border health services within a year. For future oriented strategies, it is important to notice that younger and more educated people are more likely to use and already use services outside their home country more often.
The general set-up of Estonian healthcare system provides good conditions for exports of health services. A sufficient supply of state-of-art technological resources together with high-quality expertise and price advantages for some time to come, are the strengths of Estonia. The analysis of the current situation of Estonia’s exports of health services showed that Estonian healthcare providers are familiar with healthcare exports (primarily by serving foreign patients).
The survey conducted in the course of this study in 2009 revealed that 30% of all providers have dealt with it and there are businesses in Estonia whose lion’s share of turnover derives from such exports (medical SPA’s mainly).
It is very difficult to calculate total health services export turnover, but a rough estimate at the moment could be 16–23 million Euros. Most of the business managers believed that exports of healthcare services would increase in the near future, although the majority of them did not make any active efforts to achieve this kind of growth. In the short term, the shortage of staff and in some cases facilities that do not meet the standards needed for exports may become inhibiting factors.
The managers of institutions polled consider Estonian healthcare services very good, but missing the attractive, foreigner-oriented marketing and sale that would bring customers into Estonia. A relatively large flow of tourists to Estonia will provide an important starting point to create sound conditions for building the confidence of potential healthcare clients from abroad.
Health tourism appears to be a logical way to continue developing tourism, because it would be much easier to offer value-added healthcare services to people who have already been to Estonia as tourists. The tourism sector is seeking possibilities to highlight the safety and uniqueness of the destination country; tourists increasingly prefer trips based on specific interests.
To increase the potential of healthcare export, the study recommends starting with the fields of healthcare services that already have primary export capacity, including providers’ higher capabilities and desire to invest, and where potential target markets have experienced relatively high and fast-growing demand. Good results could also be achieved in other fields when choosing an appropriate strategy, but would take longer.
A possible model for Estonia to systematically develop healthcare export would be the use of a public-private partnership platform (e.g. the establishment of healthcare export agency) which would develop export capacities and cooperation between different actors; and among other things would through presenting early wins increase support from the wider healthcare community and within the wider society in general.
Besides developing export capabilities of health services, related fields such as ICT, biotechnology, medical education should be integrated into a common export strategy from the very beginning. Such an approach would generate a multiplier effect and have a greater impact on all the parties of a country’s economy. The creation of a successful regional medical centre would amplify export potentials in the related fields; and high-quality research and development would in its turn add reliability for Estonia as the possible destination for international patients.
Deciding to develop healthcare export, Estonia can choose between different strategies or mix them. The fastest growth in exports of healthcare services could be achieved by taking full advantage of the synergy of tourism, wellness and health services. Somewhat more ambitious strategy could involve specialising in the fields where Estonian healthcare providers already have experience in export and which is supported by a high and fast-growing market demand in adjacent countries. But the opportunity may also be hidden in focussing on the major health related challenges of neighbouring countries (e.g. alcoholism, obesity, elderly related care etc) and providing innovative service packages there. The goal of the most ambitious strategy option could be the establishment of a high-level international medical hub in Estonia. Despite strategy choice, all of them would require a willingness to make targeted and long-term investments in Estonian medical services and its related fields.
In order to stand out among other healthcare service exporters, it would be wise to make best use of related strength, for example to integrate ICT-based solutions into a value chain of export services. Considering Estonia’s capability in technology, promising areas of export in the future would probably involve the introduction of innovative ICT-based service and business models and also, through ICT, the incorporation of cross-border components as parts of services. At the same time, this would require additional strategic efforts and will be more difficult to reach, being like the apple at the top of the tree.
When selecting target markets, there are no countries where Estonia could export its healthcare services with little effort and fast profit. Also, international experience shows that usually it is more likely to be successful in neighbouring countries’ markets. For Estonia, the Finnish market might have the greatest potential, because it is easier to enter than other markets, but its size is not so large when compared to Sweden or Norway that both have higher barriers to entry. Northwest Russia, where poor healthcare outcomes leave great problems for the local population, certainly has growing potential. So have Latvia, Germany, United Kingdom, etc., but in these countries there are different negative factors to consider: limited market and purchasing power in the case of Latvia; and in Germany and Great Britain, Estonia is relatively unknown and the distances are greater.
Aging and the development of technology force societies to adapt to unknown conditions. In this context, healthcare systems everywhere face inevitable needs for changes. Estonia can take an active stand in this situation and exploit the opportunities that this transformation is creating. The export of healthcare services would not be easy to start, but if started could in mid to long term bring remarkable benefits for both - the Estonia’s healthcare system and economic development in general.
To sum up, the study showed that for Estonia it is possible to increase the export of healthcare services, but it will require serious efforts: clear strategy focus, cooperation between different parties and willingness to make longer-term commitment.
For further details:
Expert of Foresight Division, phone +372 616 1064, imre.myrk[A]arengufond.ee
Fits.me, Virtual Fitting Room Closes €1.3 Million Second Round Funding
|Fits.me, the innovative biorobotics and virtual fitting room company for e-commerce clothing retailers and shoppers, announced today that it has closed a second round of financing of €1.3 million Euros in an investment led by the Estonian Development Fund. The latest round of funding will be used to finance and build upon
current international market traction and expansion, and brings Fits.me's total funding to €2.6 million Euros.
"Online apparel sales to date has been exceptionally challenging due to the lack of a fitting room however, it is also the fastest growing e-commerce category and will produce an estimated annual revenue of $31 billion dollars in the US in 2010," stated Heikki Haldre, CEO and cofounder of Fits.me.
Additional independent research supports this and forecasts that one in four brick-and-mortar clothing
Fits.me aims to reduce apparel returns and increase sales by allowing online shoppers to see clothes on a robotic mannequin with the exact dimensions of the buyer's body via a Virtual Fitting Room. It accomplishes this by using robotic mannequins with artificial muscles that can
"We are excited to be involved with a dynamic, disruptive company like Fits.me," added Andrus Oks of Estonian Development Fund. "The company is extremely well positioned to capitalize on the evolving trend of broader retailer adoption and will allow online retailers to successfully
Fits.me is the virtual fitting room for online clothing retailers that addresses and solves the single biggest problem for the apparel e-commerce category: the lack of a fitting room. Accomplished through biorobotic and scientific algorithms, the company uses robotic mannequins that are capable of shape shifting into almost 100,000 different types of body shapes so a consumer can visualize how different sizes and styles of clothing might look on their body type before they purchase. The Fits.me Virtual Fitting Room makes buying clothing online
Founded in 2009 and based in Estonia and London, Fits.me is a privately held company backed by the Estonian Development Fund and Enterprise Estonia. Learn more at http://www.fits.me.
Lithuanian ‘czar of investments’ serving states competitiveness.
In a way Lithuanian Prime Minister Andrius Kubilius has a ‘shopping list' for bringing home one-by-one the global giants in technological and knowledge-capacious businesses of which we in this part of world have not even dreamed of.
The sight is set on carefully chosen enterprises which would help to accomplish the Lithuanian ambitious vision to become by 2020 the biggest regional centre of innovation with stress-point at finance and health services, IT etc.With a goal to obtain foreign capital the prime minister has in the last year visited all the main centres of innovation thrust and has not returned empty handed.
In the summer of 2009 the news was publicised that one of the biggest banks in the world - British Barclay Bank - will establish it's IT development centre in Lithuania hence making an investment of 780 million kroon (EEK). The investor chose Lithuania because of the high standard education and the availability of talented IT personnel.
A year later, in the May of 2010 first was the news of the establishment of Western Union's fourth peak centre of global operations in Lithuania. Western Union has flow of 5 billion EEK and 6000 employers.
Second and overtrumping the previous, was the news of the protocol of good intentions made by the Lithuanian Government and global technology giant IBM. The protocol expresses the mutual intent to establish IBM research centre in Lithuania. The project, if successful, would be the biggest of technology sector in Lithuanian history. The research field of the centre would be strategic, including nanotechnology, life world science, innovation in health care and management of intellectual property.
The lattest deal was announced in the summer and Lithuanian media named it the fifth biggest business of Baltic states and the biggest of ‘after-privatisation' Lithuania: the US giant of science development products and services Thermo Fisher Scientific acquired a Lithuanian biotechnology firm Fermentas International for the price of 3,2 billion EEK. New owner proclaimed the intent of broadening the research and production area in Lithuania.
With foreign investments the trend of ‘gathering crowds' is noticeable. Especially if the first arrivals are as important as in Lithuania's case. So one after another the announcements are coming from new firms - the US technology firms Moog and Computer Science Corporation; to Kaunas University the innovation centre of Microsoft; the Central-European base of Ryanair. Next on the list of seduction are Lloyds, Barclays Capital, HSBC and many more.
Which will be news in the future? Lithuanian Prime Minister has been in US twice this year. Among other places he and heads of Lithuanian higher education also visited the world-famous university MIT (Massachusetts Institute of Technology). Does this mean we could soon expect the news of the alliance of University of Vilnius and MIT? It is not unrealistic as such border-crossing alliances are becoming more usual in globalising field of high education.
The trump cards played by Lithuania with the investors are closeness to Scandinavia, dense integration of Baltic states and endless markets and partnership in the East.
In their interviews the new investors praise next to favourable macro-economic factors also the high quantity of educated and multilingual talented people, the quality of technological infrastructure and the clear-aimed state policy on the foreign investment field.
If the newcomer is a multinational firm owning a world-famous trademark with high added value who makes commitment to invest in Lithuania at least 90,6 million EEK, it will get from the Lithuanian programme Invest LT+ (total output 906 million EEK) endorsements up to 11 million EEK in 3 years. Taking in account the need to be investor-friendly in one programme the financing of all investors needs is drawn together: by one package application the endorsement can be used from research development to training employers, from capital investments to visiting fairs.
Lithuania's purposeful activity in restructuring the economy has been impressive. FDImarkets.com ranks Lithuania as the winner of the Baltic states in the race for the technology capacious investments: by their data in in 2009. 28 foreign investments were recorded in Lithuania, promising to bring in new capital valuing up to 15,6 billion EEK and create 5300 new jobs.
Such aggressive investment acquirement polity is in many ways similar to Ireland, Singapore and some other innovative small states. When Development Fund in the spring of 2009 in the White Paper for Parliament (Riigikogu) pointed out that the crisis is the right time to take policy of bringing in the foreign investments under a magnifier, the only attention paid to it was from media which had fun with the idea of ‘czar of investments'. Seems as if Lithuania took the advice seriously.
How does the activity of Lithuania impact Estonia? In the global view we are the same region as Lithuania and this has it ups and downs. We are rivals for investments, work force and markets. Lithuania's market strategy has been built up on the same argumentation which Estonia considers it's assets: the bond with Nordic states and closeness with the East. Lithuania's advantage is considerable market, both in talents and in consumers. If continuing with success Lithuania has serious possibility to catch the best investments of the region and with it also draw in the best talented people, hence to get far ahead in competitiveness race of Baltic states. The speed of Lithuania's ascent in the fresh World Economic Forum's Global Competitiveness Report endorses this.
kitty.kubo[A]arengufond.ee, Head of Foresight Division
Ott Pärna in Postimees: Of Future Goals Without Stress
The article published in online version of the daily Postimees.
Estonian President Ilves raised in front of all of us a clear aim: "Estonian state has to bring forth new goals for the time after joining euro and in the up-coming election campaign debate them through." As the leader of parliament's think-tank I see it as my duty to jump-start the debate. Development Fund has over the last couple of years dealt with this topic in depth, so we can enter in the debate with prior knowledge.
We have analysed the export possibilities of various sectors, including manufacturing, finance brokerage, health care services, ways of using better the ICT solutions in different areas, internationalisation of higher education, etc. In all foresight projects the best experts from whole world, entrepreneurs, investors, scientists and politicians of Estonia have been included.
As we promised to our parliament a year ago, we opened in January the broad-based process of creating the Estonian Growth Vision, which would link together separate dreams and goals and would answer the question: "What will make Estonia globally competitive, locally attractive by 2018?" This is the year of hundredth anniversary of Estonian Republic and we have the chair of European Union. By that time our goals must be forming and we have to have a vision what meaningful things we can say and teach to Europe. As a full state we should not only take care of ourselves, but also give input to the regions and organisations where we belong.
The vision teams have identified 7 groups of broader topics or ‘levers' which affect our development the most. Even now Estonian brightest brains are at work in these teams to determine the best ways forward. In the end of November we are organising in 15 counties the debates on Estonian future and the Vision Day for Youth. The united view of future and the vision will be stitched together on the Estonian Forum of Future in December.
To make the leap, we need less simple and uniform governance, but vigilant and elaborated choices making governance. The criterion of any action may not be spending but rising to the new level. If our priority is education, the new quality is not achieved by raising the sum of money. We need clear and specific tasks in educational spheres. For instance task to bring the business education in Tallinn University of Technology up to international level (necessary is certain percentage of foreign students and lecturers) and world level (necessary is the high rating and solid international partnership). This with concrete plans, dates and guarantors will respond with our need of new growth.
Growth fields - where to be successful in the world?
Having dealt in Development Fund with various topics in depth, I can say that yes, we have to make choices and place our resources with focus. There are definitely more growth fields than one or two, rather there is a whole portfolio of spheres which need to be developed in connection and interrelated with other fields (entrepreneurship, education, foreign investments, foreign politics etc..
For example there is not possible to make sectorial choices in Estonian manufacturing industry as due to the smallness of Estonia we should then focus only on one or two enterprises (e.g. chemical industry). The foresight of manufacturing industry showed the necessity to focus on the problems of whole world, using them as business opportunities. Midst them is due to the ageing of wealthy states population and their budget restraint the health care technologies and products - medical equipment, health capsules, ergonomic and health preserving furniture, smart clothe, green food etc. Another field is due to the climate change and shortage of clean air and water the environmental products and technologies. These challenges of the world present opportunity to all sectors of industry starting with engineering, furnishing industry, electronics industry to the chemical and food industry and biotechnology.
From the service economy our niche could be financial intermediary (proposed co-operation foundation idea FinanceEstonia) and health care services, not to speak of logistics and global trade. Developing all of these demands courage to set big goals and believe in success, leadership and strong partnership of private and public sector. The systematic development of growth fields presumes coherent field-ascendant actions also from state (which is hard to achieve with current management vertical) and set a great challenge to the policies dealing with talent.
Capital - how to finance the goals and new growth?
A visitor from Monaco on the previously mentioned meeting of Estonia's friends asserted that bringing in foreign investments is crucial for a small state - in his state the whole state machinery and also the head of state works in the name of this one goal. Of engaging more seriously with the foreign investments, of bringing the resources (including representative offices abroad) underneath one leadership and responsibility did Development Fund talk also in the White Paper presented to the Parliament in spring 2009.
Lithuanians have followed the idea and in few years brought home impressive victories: the IT-development centre of Barclay Bank, the peak centre of global transmissions of Western Union, the developer and producer of US aircraft and rocket devices Moog, the service centre for foreign clients of Computer Scientific Corporation, airbase of Central-Europe of Ryanair, the US giant of science and development Thermo Fisher Scientific. Last and even more trumping news is of negotiations between Lithuanian Government and IBM concerning the establishing of the research centre of technology giant in Lithuania. Colleague Kitty Kubo wrote of this in more detail in Äripäev.
Separate type of capital is venture capital, which produces ambitious rapidly growing enterprises. If development benefits help to work out new products-services, then venture capital takes them to market. Compared to Silicon Valley whole Europe has a problem - the development is there and supported, but as there is very little venture capital on the market, the projects fail to ‘fly'. Even the short experience Estonia has proves, that of starting enterprises the ones with more success have next to development subsidiaries from Enterprise Estonia (EAS) received venture capital boost - Fits.me, SmartPost, BiotaP, GoliathWind, GrabCad ja Sportlyzer, to bring examples from the Development Fund's portfolio.
From my own experience I can say that Estonia has potential to become the Start-Up State in Baltic Sea Region as Israel, where the number of firms quoted at Nastaq exceeds whole Europe. It will 10-15 years, needs an endorser and concentrating of activities to one goal. Development Fund's line of investment is ready to perform the task.
Education - with whom fulfil the dreams?
Another topic is the challenges in general education - how to increase the interest of learning in young people, to interconnect subjects, to make teaching more attached to real life and to lessen the differences in the availability of education due to schools, regions and economic status of families. Modern technologies have many solutions to this problem, as I wrote already on the 1st of September herein.
Internationally successful economy presumes higher education on global level and open to the world. The decisive internationalization of higher education should start from economic and business education and IT field. The last is if key importance as it is present everywhere as ‘nervous system' - it enables to rise productivity and results in almost every field.
Information technology is one of
For rising the quality of IT education and increasing the number of specialists Development Fund with universities and Association of Information Technology and Telecommunications initiated the pilot project of international and interdisciplinary IT-Academy, a business plan of which should be finished shortly. The vision is to create an international school reaching the global level - a modern learning opportunity recognised by world's leading universities, envied by all neighbours in Baltic region and prefered by famous professors and students all over the world who want to learn IT-subjects. We use the pilot project also to play through the reforming models for whole higher education.
Also important is to sense the trends or strategic sensitivity, the ability to see topics in context for acting rapidly in right direction. We need a mechanism for constant and meaningful comparison with competition and will to improve it as we go. These are complicated tasks, hence presume preparations on new level from leaders of public sector - politicians, officials, leaders of education. Or educational task again - who, where and how is preparing our future leaders?
In conclusion: „Successful states are strategically alert", said long-time leader of Nokia and current president of Finnish Innovation fund Sitra Mikko Kosonen on the Development Forum in spring. If just alertness equals with quick response and adaption, then strategic alertness is state's ability to influence it's own future - to be the master of own future.
Our new cycle of parliament has key importance as the activity of it shows weather we can carry out the positive image accompanying euro also in content and get to higher league or we will be mediocre member of prime league. Level in both leagues is rising, weather you look in north or in south.
The mentality of Estonian state and Estonians should not be conservative conformer and every-day busybody - dominating should be will to win and to be the best in the field.
My brother Priit is designer in Skype. He wouldn't work a day on his post, if he didn't want to or could to do his job on world level. Let's bring back to whole Estonia the action pattern so usual in 90s and let's take Estonia in few election cycles into the range of really successful states!
Nice brain racking!
ott.parna[A]arengufond.ee, CEO of Development Fund
BiotaP opens the Lab for environment monitoring unique in Europe
A portfolio enterprise od Development Fund, BiotaP opened in Tallinn an experimental lab for metagenomic analysis, which in Europe is an unique research centre of environment monitoring. The development of the lab is co-financed by the European Regional Development Fund.
The metagenomical analyses educed by BiotaP OÜ permit to make quick and simple evaluation of the 'health' of and the change in the environment. The basis of the analysis is the multiplicity of micro organisms and multidtude´of the micro biomic species in the soil. clean water , air, food etc. Member of BiotaP OÜ board, Sirli Sipp Kull said, that the work will be done with new type of DNA seqvenator, which is first such in North and East Europe and purveyd by Roche branch office in Lithuania, .
„The equipment makes it easy and handy to determine for instance whole genome of one bacteria in just on day, making the modern molecular biology into 'everyone's science'," Sipp Kulli explaines.
„BiotaP OÜ is on of the few companies in the whole world that develops metagenomic test systems. The opening of the new lab creates for the enterprise working under the trademakr of BiotaLaboratories possibilities to offer new acredited seqvenring services. "The cost of the lab is 8 million kroons (EEK), from which around 3,7 million was recieved as subsidy from EASt. In December 2009 Estonian Development Fund in cooperattion with private investor invested in BiotaP OÜ 4,7 million kroons. The head of Innovation Division of EAS Ilmar Pralla said, that trough the Support programme for Labs more than 36 million kroons were given for establishing seven new experimental and halfindustrial labs in Estonia.
„The goal of the subsidies is to support Estonian experimental servicies for entreprises," Pralla explained.
„The better ties the enterpreneurs have with experimental labs, the easier Estonian firms can work out internationally successful products or services." The aim of BiotaP OÜ is to create new, metagenomics based metholodgy for environmental monitoring and analysis of antropogenic factors. BiotaP does differnt studies on basic and development level, combining first time in Estonia the classical ecology and modern molecular biology to solve environmental problems. The primary goal of the enterprise is to describe the metagenomic 'fingerprint' of the soli of our own and our immediate neighbourhood's ecosystems to create the quantitative and certificated system of environmental monitoring. .
WEF: Estonia is the leader of new EU memberstates by the competitevenes ability
Estonia rose two places in the Global Competitiveness Report of World Economic Forum (WEF). In the newly published report Estonia ranks 33.
The TOP10 states are the same as last year. The most competitive state in the world is still Switzerland, while US has fallen even more and ranks fourth now. The only Asian state in the TOP10, Singapore has preserved the third ranking they achieved last year. Last years fourth Sweden has jumped to the second place.
In the class of new members of European Union Estonia has regained the leader position lost last year. "Our rising is foremost based on the improvement of macroeconomic stability and on the cost of losing our position among the innovation-based economies,“ commented the head of Foresight Division of Development Fund Kitty Kubo. The biggest assets in regard of the position changed were the government’s efforts to improve the budgetary stance and the change in the labour market act. ´The fall from the class of rich innovation-based economies back to the class of developing economies lifted the importance of basic criteria and lessened the importance of additional value criteria as innovation and business sophistication in general result.
„Estonian result shows that the decisions made by the Government have brought success and in some parts we have regained the competitiveness lost. But no more. In the more sophisticated criteria needed for the new economic growth we have given ground compared to other states. In other words, we have not been able to use the crisis to create important structural change and to bring our economic competitiveness to the new, stable and beneficial grounds" she added.
Estonia has lost more ground in the business sophistication, which has been a problem also before, especially in the criteria of the control of international purveyance links, the development of clusters, the existence of local supplier, quality etc. In the criteria of technological readiness, usage of technologies by the enterprises and in general access to the technology which all used to be Estonia’s stronger sides, the ground has also been given in. As a primary result of the financial crisis are the fall in the criteria of the financial market development (accessibility of loans, liquidity of stock market, state of banks) and the market size.
„If this trend continues, it will be difficult for Estonia to compete for the substantial knoweleddgeable foreign investments essential for restructuring the economy. We compete for the investments, market and workforce mainly wwith the Central and East European states and thus Poland, who has been preforming well for several year, and Lithuania, who has well amended their position, catching up with us,“ commented Estonian expectations the economy expert of Development Fund Heido Vitsur.
WEF presented the Global Competitteveness Report for the 31st time. The report is on of the most representatives of the world. It is based on the disqusition of competitevness abilites of famous scientists Jeffrey Sachs and Michael Porter (USA). Current report covers 139 states and gives an overview of a time when global economy continues to be characterized by sigbificant uncertainty, although growth has resumed.
Estonian Development Fund is official partner of WEF in Estonia and supports the gathering of data from enterprises and organises the presentation of results.
Kitty Kubo, head of Foresight Division
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