Swedbank survey: Estonian industry expands its reach in Europe

TALLINN - While Finland continues to be the largest export market for Estonian industrial companies, new growth potential is seen primarily in Germany, Norway, and Sweden, according to the 15th Swedbank industrial survey.

This year, 58 percent of companies in the sector plan to enter new markets, which is a four percent increase compared to last year.

According to Raul Kirsimäe, Head of Swedbank's Industrial Department, the export model of Estonian industry has been largely focused on Scandinavia and the Baltics in recent years, with less activity in other parts of Europe. However, ambitions are broader, and there is a growing desire to offer products in more distant major markets.

"Exporting to neighboring countries is stable and, to some extent, convenient. Practices are established, logistics are simpler, and it is culturally easier to do business with neighbors. At the same time, the survey results clearly show that while neighbors remain important to our companies, sights are also being set elsewhere. Among more distant countries, the biggest expansion plans for this year are for the German, Norwegian, Danish, British, French, and US markets," Kirsimäe said.

According to the survey, Finland remains the most important export market for Estonian industrial companies. It was named as the main target market by 29 percent of respondents (22 percent last year). Sweden is in second place with 14 percent (12 percent last year), followed by Germany and Norway, both at seven percent this year and last. Compared to last year, the importance of Latvia and Lithuania has decreased by almost half, falling to a level of five to six percent.

According to Kirsimäe, this does not mean that the Baltic markets are losing importance, but rather that the proportions have changed and growth potential is seen elsewhere. "The nearby markets will remain important for Estonian companies, but many industrial enterprises understand that for sustainable development, they need to look further," Kirsimäe noted.

He added that the ambitious expansion plans show that companies have not set aside their growth ambitions despite economic and geopolitical uncertainty.

Among new target markets, Germany has clearly emerged, with nearly half of the companies heading to new markets planning to expand there. Norway is in second place (20 percent of companies), and Sweden is considered an equally important new target country (18 percent). "Germany is a very attractive but also a very demanding market for industrial companies. It has high purchasing power, a diverse customer base, and many potential partners, but competition is fierce and sales cycles are longer. It is not a market one can enter quickly," Kirsimäe said.

While Estonian companies largely see the same countries as attractive target markets, there are differences in the rankings based on company size. Among industrial companies with turnovers of less than 10 million euros and more than 20 million euros, Germany is clearly in first place: 43 percent of smaller and 31 percent of larger companies named it as a new target market. For companies with a turnover of 10-20 million euros, the United Kingdom rose alongside Germany to the top of new target markets with 26 percent, and the top six also included the USA and South Korea with 11 percent.

"It is interesting that even smaller industrial companies see Germany as a very clear growth market. This may indicate that not all Estonian companies are necessarily looking for a mass market, but rather for niches where their flexibility and quality can stand out," he explained.

In Kirsimäe's view, looking at the expansion plans of Estonian companies, it is clear that expanding to new markets is increasingly a part of risk management, not just a matter of sales growth. "If a company's exports depend too heavily on one or two markets, it becomes vulnerable to their economic cycles, price pressures, or political changes. The wider the market distribution, the lower the dependence on the demand and potential crises of a single region."

The 15th Swedbank industrial survey is the most comprehensive study of the sector in Estonia. The survey involved 228 Estonian industrial companies, of which 23 percent are in the machinery and metal industry, 20 percent in the wood industry, 12 percent in the food industry, nine percent in the building materials industry, and 36 percent in other manufacturing industries. The total sales revenue of the companies in the sample is six billion euros, and they employ 24,600 people.