With its business-friendly ethos, young population and staggering skills base, the high-flying Baltic state is an entrepreneurial hotspot that offers UK firms a warm welcome
To say that Lithuania is on the up would be an understatement. The largest and most populous of the Baltic states, which joined the EU in 2004 and adopted the euro in January this year, celebrated the 25th anniversary of its independence from the Soviet Union last month, and morale is soaring among its three million-strong population. “It’s the longest period of continuous independence in more than 200 years,” deputy foreign minister Rolandas Krisciunas tells Director. “We now have a whole generation of adults who have no experience of the Soviet era.” It felt somewhat symbolic when, a day after the celebrations, a certain techno giant registered the name ‘Google Lithuania’.
As it marches forward with a fresh mindset, Lithuania is becoming one of the most exciting commercial hubs in Europe: a nation whose business-friendly credentials are drawing the attention of regulators throughout Europe. Thanks to its ultra-competitive corporate tax rate – which averaged 15.56 per cent from 2006 until 2014 and is now set at 15 per cent – the nation is effectively a remote, start-up-friendly ecosystem unto itself.
Lithuania has been the fastest-growing economy in the EU since 2008, having benefited from €180m (£130m) per year of EU assistance and development funds since joining four years previously, and is also blissfully devoid of bureaucratic hindrance – according to a World Economic Forum report last year, it takes an average of 6.5 days to start up a business in Lithuania, as compared with 12 days in the UK. “It’s actually possible to set up a business in three days,” says Mantas Katinas, managing director of Invest Lithuania, adding that thanks to the electronic signature system launched in 2011, you don’t even need to be in the country to do so.
Lithuania’s can-do spirit
The scheme is typical of a country where an intangible commercial derring-do prevails. “The Barclays vice president in Lithuania recently talked about this in terms of feelings and emotions rather than numbers – which is strange for a business leader,” says Katinas. “He said that he could see an entrepreneurial spirit here. Salaries are much smaller than the UK, and yet there’s such a strong, competitive atmosphere.”
Barclays Bank has good reason to toast this country’s business calibre. Since it first moved its internal IT support here in 2009, it has hired an average of one new member of staff every day, opening a customer call centre and eventually moving its payroll department to its domineering skyscraper next to Vilnius’s Neris river. “It’s been a great success story for us,” says Peter Josse, Barclays’ chief information officer. “The Lithuanian government’s provided great support along that journey. We developed a great partnership in making a number of reforms around our business and the value we deliver.”
Other success stories include Camira, a Huddersfield fabric manufacturer which, since moving some production operations to the small town of Ariogala in 2006, has increased its staff from 73 to 229, and Albright International, a Hampshire manufacturer of solenoid switches. Benefiting from its presence in one of Lithuania’s Free Economic Zones – which offer a six-year corporation tax break – Albright finds this location conducive to shipping products easily and cost-effectively (everything it makes is exported to the US and western Europe). The country’s low labour cost – the national average income is €676 a month – is, of course, another draw.
Another major factor in Lithuania’s newfound commercial energy comes down to that aforementioned younger generation, unshackled by memories of darker times and exceptionally skilled and educated. Lithuania boasts nearly 100 per cent proficiency in English language skills among younger professionals, 51 per cent of 24-34-year-olds have a university degree and the number of entrepreneurs who have been through higher education has doubled in the last two years. Thanks to its small size, companies are able to deal directly with universities and get what they need implemented into teaching programmes, and there are longer-term schemes in place when it comes to internships and hiring.
According to Katinas, this exemplary attitude to education – like so many things in Lithuania – is partly down to modern history. “Crises can be a great catalyst for change,” he says. “The first Russian economic crisis in 1998, and then the second global financial crisis about 10 years later, made us realise that Lithuania is just too small a market to work inside. We found ourselves asking, ‘We’re such a small market, but what are our strengths?’ We opened our eyes and took a look around, and realised that we had IT knowledge, good universities, and that all this had to be channelled into business. Lots of big European countries didn’t make any structural reforms [in the wake of the global financial crisis], but we did. And, after three or four years, our economy was growing fast.”
Lithuania also has the highest proportion of females in its labour force in the EU, and was ranked number one in central and eastern Europe for ‘technological readiness’ in the European Commission’s WEF Global Competitiveness Report 2014-15. Such is its talent pool, more than 100,000 Lithuanians are currently in the UK, with the nation offering particularly rich pickings when it comes to coders and mathematicians. Life sciences is another strong sector, as is technology – image editor Pixelmator, peer-to-peer marketplace Vinted and independent app store GetJar being among the country’s entrepreneurial success stories in the latter realm.
The extraordinary depth of its talent pool also makes Lithuania worth considering for UK companies outsourcing their production and services. “The main sectors for shared service centres and outsourcing that we’re focusing on for working with the UK are financial, legal, manufacturing, logistics and transport,” says Katinas. “Others might also benefit from our skills in business analytics, HR and IT.”
Thanks to its business-friendly ethos – the corporation tax is the second lowest in the EU, and €6.82bn in EU Cohesion Policy funding for 2014-20 has recently been allocated to business support – inward investment is rising rapidly. Sweden is a huge investor in value-added IT services and technology, and the country boasted 138 British investors at the last count, in 2012, mostly in the finance and insurance sectors. British foreign direct investment (FDI) into Lithuania almost doubled from £95m to £175m between 2010 and 2013). EY (formerly Ernst & Young) analysts believe that mechanical engineering, the nation’s most developed manufacturing sector, offers the best prospects for FDI in Lithuania. It’s also worth noting that the country is expected to be the last new member of the eurozone for at least a decade, meaning that an investment opportunity like this won’t come around again for a while.
“Lithuania is number one in central and eastern Europe when it comes to investment projects per capita,” adds Katinas. “What we’re saying [to foreign companies] is we can help you grow your business – not just inside Lithuania, but in terms of supporting you as a worldwide enterprise. That’s why one of our strongest points is our talent pool. And we’ll gain more momentum. We’re in the middle of Europe, and you can trade north, south, east and west. It’s a very good place to be if you’re trying to reach certain special markets. You’re safe here, and have great opportunities to do business in Russia and elsewhere.”
The great bear
The ‘R’ word, of course, raises troubling questions. Lithuania’s proximity to, and fragile relationship with, Russia is one of the main reservations many have about all the Baltic states, especially in light of the recent annexation of Crimea and backing of separatist groups in eastern Ukraine. Lithuania looks set to reintroduce conscription, and deteriorating relations with Moscow can be blamed for the fact that Lithuania’s GDP growth halved from six per cent in 2011 to 2.9 per cent in 2014.
And yet, curiously, its growth is projected to bounce back – to 3.8 per cent as soon as 2016. Zygimantas Mauricas, chief economist at Nordea Bank Lithuania, has no doubts about the whys and wherefores of the nation’s rollercoaster growth graph. “Reasons for the slowdown in economic growth were manifold,” he says. “Firstly, the Russian economic recession coupled with an export ban of food products, which became effective from August 2014; secondly, a drop in consumer confidence caused by fears of ‘euro-driven’ inflation, which to a large extent proved to be unjustified; and thirdly, ongoing political uncertainty in the eurozone and threat of the ‘Grexit’ [Greek withdrawal]. We expect economic growth to recover in 2015 due to accelerating growth in the eurozone, the fading of the Russian effect and released pent-up demand and investments – Lithuania has the lowest private credit to GDP ratio in the EU.”
The country’s sundry benefits are seemingly endless. It has the fastest internet speeds in the EU, and is among the top 10 countries in the world for cloud readiness. It’s politically stable: the president, Dalia Grybauskaite – a karate black-belt who speaks five languages – is extremely popular (she was re-elected last year with 58 per cent of the vote in the run-off), and her robust stance against Vladimir Putin’s exploits in Ukraine and overseeing of the installation of a giant floating gas terminal to reduce energy dependence on Russia have won enthusiastic backing.
So cosmopolitan is its ethnic make-up (Lithuanian, 80.6 per cent; Russian, 8.7 per cent; Polish, 7 per cent; Belarusian, 1.6 per cent; other, 2.1 per cent), some compare it to Singapore. The Mercer Cost of Living Index 2014 placed Vilnius among the five least expensive EU capitals to live for expatriates. It has very low office rental costs and impressive transport infrastructure.
Add to all that Vilnius’s low crime rate, considerable aesthetic appeal and general sense of wellbeing (a study by Eurostat showed 93 per cent of inhabitants were satisfied with their life there) and functionality (the New York Times recently ranked it among the best-managed cities, alongside Copenhagen, Barcelona and Cape Town), and this thriving nation’s burgeoning potential is unlikely to be the Baltic’s best-kept secret much longer.
London-based market intelligence firm Euromonitor International, which provides intelligence reports and forecasts to companies all over the world, has 13 international offices, with branches in Chicago, Singapore, Shanghai, Dubai, Cape Town and Tokyo among them.
Its Vilnius office was opened 10 years ago, in part to service Scandinavia, but also with an eye on emerging opportunities in eastern Europe. “On the one side you have Russia, the largest market in eastern Europe, and on the other Poland, the second largest,” explains national manager Marius Dundulis. “We wanted to be closer to the markets we analyse, and also clients in those places.”
In the decade it’s been operating here, Dundulis’s team has grown from 10 people to 170 – growth he puts down in part to the depth of the country’s talent. “[When setting up], we noted that the technical skills and education, especially in [relevant] areas, are at a really high level,” he says. “When we interview candidates, we don’t even do numeracy tests here.”
Another major factor, for Dundulis, is the diversity. “Lithuania being the largest of the three Baltic nations makes the labour market more favourable,” he says. “We have a great cultural mix – there are people here who speak Russian and Polish. Also, so many Lithuanians work or study abroad, and those people come back, bringing with them an understanding of other cultures.”
FACT Lithuania’s native tongue, derived from Sanskrit as well as Greek and Slavic, is thought to be one of the oldest on the planet
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FACT Lithuanians were the last pagans in Europe – hence the sun and moon symbols interspersed with Christian iconography in the city’s churches