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HEI 7(16): It is not the dream of our own Nokia that provides the most plausible development path for Estonian industry - this is provided by the process of integrating into Scandinavian chains.

When Richard Lester, a professor of the Massachusetts Institute of Technology, started introducing the example of Apple's iPod in the context of global industry trends in his presentation which was delivered at the Industrial Forum organised by the Estonian Development Fund at the beginning of December (with lecture slides read for the Institute's students flashing by in the background), a smile of recognition appeared on the faces of experienced conference-goers. Oh yes, the evergreen Apple, the favourite example of thousands of conferences. Just like Skype in the Estonian context.

The idea of the forum was to analyse global and local trends and look slightly ahead in time to see where Estonian industry could be in the year 2018. In addition, by February 2009 more definite suggestions for both political decision makers as well as entrepreneurs should be formulated on the basis of the monitoring study, "Tööstusvedurid 2018" (Industrial engines 2018).

In essence, for those people who regularly keep up with foreign media publications, there was not much that was new at the forum. Brand development, globalisation, India, China, Brazil, tightening competition, innovation and education. Been there, done that.

The fact that in ten years the industry will be led by environmental and health care products was also raised. In reality, this issue has already been written about more and more frequently for the past five years. We could argue, of course, whether the next big stock market bubble will be created by businesses which are linked to the environmental industry or, for instance, by bio technology (which, in fact, also forms at last a part of the health care industry). Focusing on the environment and health is a logical step. Global warming, fossil fuels that are getting more expensive by the minute, and the aging of the population are those global factors that shift investment capital towards these two branches of industry. Quite another issue is the question of how useful such a piece of information could be for a local furniture maker or metal industry owner.

Theorists versus practicians

I must admit that the viewpoint of lecturers, experts and even journalists is slightly different from that of the person in charge of a particular company. While the first three are mainly occupied with the collecting, processing and interpreting of information, the entrepreneur is forced to deal with the everyday matters. How to enter into negotiations with Eesti Energia on the subject of the new electricity prices? What to do when a supplier says that the Baltic States form a suspicious region and demands advance payments from the company for future supply services? Or what to do when the bank abruptly decides to alter the company's overdraft terms and conditions? These are the specific issues that need to be solved as soon as they arise. It is inevitable that the sphere of thought of the manager of a company also includes a major proportion of the next quarter, the next six months or the next year. Therefore, the educational handling of the aforementioned issues at the industrial forum is useful even if it fails to offer new information to the experts.

The difference between the mindset of a theorist and a practician was very skilfully described by Arvo Kivikas, the manager of Ilves Extra. When Siim Sikkut, the economy expert for the Development Fund, talked about the three paths to increasing the value of Estonian industry (brand development, product development, moving up the value chain), he gave the example of Kivikas and his company, Ilves Extra. Ilves Extra has truly chosen the path of brand development and Kivikas said himself that the company has spent one hundred million Estonian kroons during a ten year span on the developing of its brand.

The brand issue has been discussed in Estonia for at least the past decade, and it sounds almost like a cliché. All of its positive aspects have been repeated hundreds of times and, of course, brand development is a natural choice for many companies.

It is one thing if you have a million loyal (or at least brand-conscious) customers. But the level of risk is quite different when you supply your products to three customers and losing even one of them would destroy your business. Not to mention how much control over the value chain you could have if you had your own brand. Elementary really, isn't it?

But after hearing these words no other than Kivikas himself suddenly jumped up and pointed out an opposing argument against brand development. "Brand development is a very dangerous path. It has a devastating effect on the company's economic figures," Kivikas said. "Had an Estonian company developed the Coca-Cola trademark, its economic figures would be in a very sad position because the value of a brand as given on the balance sheet is zero and the banks are not happy about it at all." This is exactly what happened to Baltika a few years back when the company changed its business model.

When it comes to the subjects that most (or at least many) of the speakers and listeners at the forum jointly agreed upon, the following could be pointed out: the rehabilitation of outsourcing, integration into Scandinavia and the recognition that, in reality, there are no such things as fading branches of industry, there are only fading business models. Just as there is no single and correct direction for the future but, instead, a wide spectrum of options to choose from.

As we all remember, outsourcing as such was, at one point, labelled a taboo subject, a shameful thing, a type of bootlicking, and something which should be avoided at all costs. It is clear, though, that this is a very foolish belief. It may have been caused by the insufficient explaining of the term "outsourcing". In reality, 99% of the world's industry is a type of outsourcing, partnership and working for one another. Even most Finnish and Swedish companies provide outsourcing services for other businesses, the latter often being global corporations with their roots in Scandinavia. Thousands of local subcontractors, co-operation partners and suppliers are behind such companies as Nokia, Wärtsilä, Ericsson, IKEA or any other major company from our neighbouring countries.

At the forum, investment banker Joakim Helenius voiced the thought that we should not expect Estonian industrial companies to conquer the world; such development should happen via integration into the value chains that have a Scandinavian background. For instance, dozens of Finnish and Swedish small and medium-sized industrial companies could relocate their production units to Estonia. We could call such a development path one of the choices towards intelligent outsourcing.

We could also add Ireland to this list of examples - at present, Ireland is the richest country in the European Union (let us forget about the small but luxurious country of Luxembourg for one moment), but Ireland has practically no local industry at all. Industry plays a substantial role in the economy of the country but most of it is owned by foreigners. Joe Harford who is connected to the pharmaceutical industry of Ireland pointed out that almost a hundred per cent of the pharmaceutical sector of Ireland is controlled by foreigners but this does not stop hundreds of companies based on Irish national capital from being established. Behind one successful industrial business there could be a number of companies from the service sector including accountants, consultants, trainers, recruiters, providers of the logistics service, information technology experts and designers.