The Baltics Information Technology and Electronics Industries
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ESPOO 2002 VTT RESEARCH NOTES 2169 This study examines the current state of the ICT and electronics industries VTT RESEARCH NOTES 2169 in the three Baltic States. In doing this, it implicitly highlights the opportunities for co-operation between Baltic and Finnish firms. The study consists of three parts: 1) a sector analysis of the industry, 2) a review of the education and research system in the field under consideration, and 3) an analysis of the business culture and the business environment. The first part is based on extensive surveys among ICT and electronics enterprises in Estonia, Latvia and Lithuania. The ICT and electronics industries in the Baltic States have differentiated profiles with their own specific strongholds. The countries offer technical competence, while cultural proximity paves the way for The Baltics as a Business Location for Information Technology and Electronics Industries contact-making. These and other advantages are assessed in the SWOT analysis which summarises the study. Despite their buoyant development, the Baltic States face a serious challenge as they are pressed to steer their industrial development into a more innovation-driven direction. Traditionally they possess a broad science base, but the current shortage of research funding is alarming. Marja Nissinen The Baltics as a Business Location for Information Technology and Electronics Industries Tätä julkaisua myy Denna publikation säljs av This publication is available from VTT TIETOPALVELU VTT INFORMATIONSTJÄNST VTT INFORMATION SERVICE PL 2000 PB 2000 P.O.Box 2000 02044 VTT 02044 VTT FIN–02044 VTT, Finland Puh. (09) 456 4404 Tel. (09) 456 4404 Phone internat. + 358 9 456 4404 Faksi (09) 456 4374 Fax (09) 456 4374 Fax + 358 9 456 4374 ISBN 951–38–6093–0 (soft back ed.) ISBN 951–38–6094–9 (URL: http://www.inf.vtt.fi/pdf/) ISSN 1235–0605 (soft back ed.) ISSN 1455–0865 (URL: http://www.inf.vtt.fi/pdf/) VTT TIEDOTTEITA – RESEARCH NOTES 2169 The Baltics as a Business Location for Information Technology and Electronics Industries Marja Nissinen VTT Technology Studies ISBN 951–38–6093–0 (soft back ed.) ISSN 1235–0605 (soft back ed.) ISBN 951–38–6094–9 (URL: http://www.inf.vtt.fi/pdf/) ISSN 1455–0865 (URL: http://www.inf.vtt.fi/pdf/) Copyright © VTT 2002 JULKAISIJA – UTGIVARE – PUBLISHER VTT, Vuorimiehentie 5, PL 2000, 02044 VTT puh. vaihde (09) 4561, faksi (09) 456 4374 VTT, Bergsmansvägen 5, PB 2000, 02044 VTT tel. växel (09) 4561, fax (09) 456 4374 VTT Technical Research Centre of Finland, Vuorimiehentie 5, P.O.Box 2000, FIN–02044 VTT, Finland phone internat. + 358 9 4561, fax + 358 9 456 4374 VTT Teknologian tutkimus, Tekniikantie 12, PL 1002, 02044 VTT puh. vaihde (09) 4561, faksi (09) 456 7007 VTT Teknologistudier, Teknikvägen 12, PB 1002, 02044 VTT tel. växel (09) 4561, fax (09) 456 7007 VTT Technology Studies, Tekniikantie 12, P.O.Box 1002, FIN–02044 VTT, Finland phone internat. + 358 9 4561, fax + 358 9 456 7007 Text preparing Tarja Haapalainen Edita Prima Oy, Helsinki 2002 Nisssinen, Marja. The Baltics as a Business Location for Information Technology and Electronics Industries. Espoo 2002. VTT Tiedotteita – Research Notes 2169. 234 p. + app. 8 p. Key words Estonia, Latvia, Lithuania; information technology, telecommunications, electronics, sector analysis of industry, market survey; higher education, research and innovation system; business culture, business environment Abstract This study examines the current state of the ICT and electronics industries in the three Baltic States. In doing this, it implicitly highlights the opportunities for co-operation between Baltic and Finnish firms. The study consists of three parts: 1 a sector analysis of the industry, 2 a review of the education and research system in the field under consideration, and 3 an analysis of the business culture and the business environment. The first section is based on extensive surveys among ICT and electronics enterprises in Estonia, Latvia and Lithuania. It sheds light on the following areas: the size and the growth prospects of the ICT and electronics industries, their focus of production and core competence, the significance of exports and subcontracting as well as the prevailing interest in Finland. Higher education is examined from the perspective of the availability of workforce; research from that of innovation capacity. Finally, the report discusses the qualities of Baltic employees, specialities of the local business culture and appropriate ways to approach a Baltic company. The ICT and electronics industries in the Baltic States have differentiated profiles with their own specific strongholds. To cite examples, mobile technologies and electronics subcontracting are advanced in Estonia, software outsourcing and optical technologies in Latvia, television electronics and laser technologies in Lithuania. As for IT, the wages are lowest and the availability of qualified specialists is best in Lithuania. Latvia is the strongest exporter of software service in the Baltics. Estonia’s business environment is slightly better developed than that of its southern neighbours. Despite their buoyant development, the Baltics face a serious challenge as they are pressed to steer their industrial development in a more innovation-driven direction. The lack of funding for universities and research institutes is currently so alarming that it is starting to threaten the future of science. Due to low salaries, an academic career does not appeal to young, talented graduates, which has led to the ageing of the researcher pool. Corporate R&D and contract research are marginal, patenting activity is meagre, and the number of innovative enterprises is small. 3 Preface IT co-operation is recognised in various regional and EU initiatives as one of the priority areas to be promoted in the Baltic Sea area. The project, which gave an impetus to this report, was designed to contribute to preconditions for further intensifying business relations and productional co-operation between Baltic and Finnish ICT and electronics enterprises. Small and medium-sized enterprises that plan an international opening are expected to benefit especially from the study. The report is intended to serve as an information tool to prepare those who are entering the Baltic market. By reviewing the state of the Baltic ICT and electronics industries, the system of higher education in these fields and also the business culture and environment, it illuminates the opportunities and the constraints in these countries. It pays specific attention to factors that indicate indirectly local know-how and project capacity. The content rests on extensive fieldwork in the Baltic countries, combining different methods of collecting information: surveys, expert interviews and document materials. The underlying premises of the study can be derived from a more general frame: on the one hand, western companies are externalising their functions and searching for skilled specialists from Eastern Europe; on the other hand, the Baltic States are attempting to internationalise their ICT sector and attract foreign clients. At first hearing the situation sounds like a perfect match but the question is more complicated than it appears. First, what are the resources backing the Baltic ambitions? Second, what is the role that international companies reserve for their subcontractors? From the very beginning of the study, it was considered important to base the approach on the principle of mutual interest by looking for contacts with Baltic actors. The following organisations are reckoned among the project's supporters and partners in the Baltics: • Estonia: Estonian Investment Agency and Archimedes Foundation • Latvia: Latvian Development Agency, Business Innovation Centre of the Latvian Electronic Industry, and Latvian Information Technology and Telecommunications Association • Lithuania: Lithuanian Development Agency and Infobalt Association • Ministries of Economy in all the three Baltic States The study was financed by the funds of the Government of Finland for neighbouring area co-operation and the private sector: the Ministry for Foreign Affairs of Finland, the Ministry of Trade and Industry of Finland, Developing Organisation “PrizzTech Ltd” and the Federation of Finnish Electrical and Electronics Industry. The study was carried out at VTT Technology Studies during 2001–2002. To conduct the surveys in the Baltic countries, VTT Technology Studies contracted local marketing research companies. AC Nielsen was responsible for the Estonian survey, SKDS for the Latvian and Baltijos Tyrimai for the Lithuanian one. Marja Nissinen 4 Contents Abstract ............................................................................................................................3 Preface ..............................................................................................................................4 Abbreviations...................................................................................................................9 1 INTRODUCTION....................................................................................................11 1.1 Background.......................................................................................................11 1.1.1 The Baltics in the Midst of Global Trends...........................................11 1.1.2 Information Society Development in the Baltics .................................13 1.1.3 A Variety of Viewpoints ......................................................................18