Baltic manufacturers take the long view and begin educating next generation

  • 2005-10-26
  • By Ben Nimmo
RIGA - EU accession has brought strong growth to the Baltics' metalworking and tool-making sectors. In 2004, Estonian exports of base metal products grew by 10 percent, while machinery exports grew almost 30 percent. Latvian exports in these categories jumped by 46 percent, while in Lithuania, export volumes soared by over 47 percent.
As Ilana Ivanova, PR specialist at Latvia's leading metallurgical company, Liepajas Metalurgs, says, "Ninety-five percent of our products are now exported, and we recently won second place in the Latvian Development Agency's competition for the most exportable product in Latvia."


Andrius Vaitkevicius, industry specialist at the Lithuanian Development Agency, adds, "This sector is booming in Lithuania. It's now the second-biggest contributor to exports, after the oil-refining industry."

In 2004, Estonian machine exports soared through the billion-euro mark, the highest figure in the Baltics. Indeed, all three countries, in their own way, have cause for elation.

There are, of course, differences within the region. In Lithuania, for example, where large companies such as Vilniaus Vingis (TV components) and Snaige (refrigerators) have managed to capitalize on their Soviet-era brands and maintain strong market positions in the former U.S.S.R., exports of machinery outweigh exports of less-complex base-metal products by a ratio of roughly 3:1.

All three countries share a common concern: globalization. This is somewhat ironic given that the Baltics have begun to be seen as an attractive location for EU outsourcing. But in the words of Vaclovas Sleinota, president of the Lithuanian Machinery and Equipment Industries Association and chairman of Vilniaus Vingis, "Vingis can compete with any company in Europe, but we can't compete with China. All the major international companies are moving their R&D there, and there isn't enough investment here to guarantee future growth."

This sustainability of national industrial growth is rapidly becoming a major question for Baltic policymakers. As Vaitkevicius says, "Development inevitably means rising prices," and according to Paul Rogers, managing director of metalworking exporter Baltik Export, "In the U.K. market at least, price is the main consideration. Some European companies are even reducing the quality of their products to keep their costs down."

As the Baltic economies grow and shed their low-cost image, there is a danger that their current client base will look elsewhere for supplies.

Added to this are fears about education. An overwhelming majority of Baltic students choose to qualify in management rather than in technical skills. As Sleinota says, "The recent boom in the sector means we have a shortage of graduate specialists."

Individual companies are already taking steps to remedy this situation: According to Ivanova, Liepajas Metalurgs spends 50,000 lats (71,000 euro) on workforce education per year. "We cooperate with Riga Technical University and the Steel and Casting Institute in Moscow, providing scholarships for around 15 Liepaja students to study in Moscow every year," she says. "And during their studies we give them internships in the company so they can get to know the system. We also offer further education courses for current workers."

Trade representations are also becoming involved, with the Latvian Chamber of Commerce and Industry lobbying for a strengthening of technical education, and Sleinota's Association working closely with Lithuania's technical education institutions. Awareness of the issue has at least been raised; how the Baltics' school-dropouts will react remains to be seen.

Education apart, Baltic manufacturers are looking hard at solutions to the challenges of globalization. For Sleinota, the EU should take the lead: "Eighty percent of our laws come from Brussels, but we don't have enough information on their plans for the immediate future, and that makes our job harder," he explained.

"We're not against globalization, but we need a strong EU strategy and concrete, short-term practical steps, not glowing promises of paradise to come: we had enough of that in the communist era," he says.

However, given the Union's current state of disarray, this is unlikely to come any time soon.

A more likely recipe for success lies closer to home, because analysts have agreed that the Baltics still have a lot to offer. As Rogers says, "The Baltics can deliver products to Europe within 5 days door-to-door, and they can re-engineer products to suit changing requests, so they're far more flexible than most competitors. This also means that they make ideal partners for Western SMEs, rather than big corporations: they can produce small, high-quality runs for a price and in a time which nobody else can offer."

Sleinota agrees. "Our strengths are our skilled people and our European mentality," he said.

To which Vaitkevicius adds, "Lithuania can offer an advantageous geographical position, the best-educated labor force in Europe, a favorable price-quality ratio and the ease of access of the EU."

Marketing problems

Local companies are now beginning to invest in their own future. According to Ivanova, "We're investing in new production processes so that we can meet all possible international quality standards. Some of our processes are ground-breaking. For example, we're upgrading our steel-casting facilities, building a state-of-the-art furnace into our production pipeline without disturbing current production: this is unprecedented."

Vaitkevicius says, "Local companies are applying for EU funds and investing their own capital to upgrade their equipment." In short, Baltic producers are already moving to meet the challenges of globalization.

Their weakness, according to Rogers, is neither investment nor education. "The main weakness in the Baltics is the lack of aggressive marketing. For example, one Latvian company I know automatically offers services which would cost a significant extra charge anywhere else in Europe, but they didn't even think of pointing this out to their clients."

In an increasingly globalized world, modesty like this is an outdated virtue.

But this too is changing. As Vaitkevicius points out, "Lithuanian companies are also becoming more pro-active: we used to have to convince them to attend trade fairs and foreign visits, but now they're much more actively fighting for market share."

This trend is likely to continue: if there is one thing of which there is no shortage in the Baltics, it's PR specialists. Development departments and diplomatic missions are rapidly strengthening their presence in the former U.S.S.R. The Baltics may not yet have a strong international brand, but they are well on the way to creating one.

Marketing alone, of course, will not fend off the effects of globalization. As worldwide competition increases, the Baltics' metalworkers will have to focus on technological investment and concentrate on western SMEs who are not natural outsourcers but stand to gain the most from the Baltics' low-volume, high-quality business. Those who do so should find themselves resistant to global shocks. Those who do not face a very bumpy ride.

The positive numbers should keep on hitting the Baltics' producers for the next few years at least, but the companies had better use them wisely while they can.