BQ Baltic Issue 02

www.bq-magazine.co.uk

ISSUE TWO: SPRING 2014

FATHER FIGURE Leader returns to finish what he started BUSINESS CHAMPION Fighting the cause for Latvia’s private sector TIGER FEED Foreign investment hunt intensifies

meet smart groupdesk.baltics@rezidor.com

parkinn.com

ISSUE TWO: SPRING 2014: BALTIC EDITION

Colourful stays in Estonia, Lithuania, Russia, Ukraine and at more than 160 hotels in Europe, the Middle East and Africa.

SWEET SUCCESS Chocolate empire’s divine inspiration

MAKING WAVES Estonian hifi stars go global

BUSINESS

NEWS:

COMMERCE:

FASHION:

INTERVIEWS:

TRAVEL:

EVENTS

WELCOME

BUSINESS QUARTER: SPRING 2014: ISSUE TWO Do you call that good timing or bad timing? We like to think that featuring Valdis Dombrovskis as our launch edition cover star, just weeks before Latvia’s longestserving prime minister resigned, was an omen that BQ Baltic will always be topical.

The circumstances of Mr Dombrovskis’s resignation in the wake of the Maxima disaster were undoubtedly tragic, it was a privilege to feature the last in-depth interview with this extraordinary young statesman.

Research for the article suggested that Dombrovskis was more admired and respected than loved, but even those who found fault with his methods conceded, however grudgingly, that Latvia owed him a debt of thanks for steering a leaky economy through some of the roughest seas imaginable.

The combination of intelligence and mental toughness required is rare, although possibly less rare in the Baltic states than elsewhere.

Having weathered (a) the biggest economic crisis in modern Latvian history and (b) the pressures of Latvian coalition politics, it is revealing that the PM should be put out of office by his sense of remorse about the Maxima victims, although his personal responsibility was remote at best.

As well as reflecting on the Maxima supermarket tragedy, the second edition of BQ Baltic looks forward to the prospects for Rail Baltica, the project that promises to provide one of Europe’s last missing transport links. Major capital projects like this are usually extremely difficult and controversial (look at the High Speed 2 north-south rail project in Britain), but Rail Baltica comes with an obvious irony: that a scheme designed physically to unite the Baltic states is threatening to divide them politically.

BQ Baltic is all about presenting the best of the region’s business leadership and entrepreneurship and we have some

BUSINESS QUARTER | SPRING 14

outstanding examples in this edition. Our cover star Alissa Vassilkova, along with her father Alfred Vassilkov, explains how the best of Estonian audio technology is set to conquer the world.

Mantas Nocius, one of Lithuania’s best known economic planners defies conventional expectations of bureaucrats and gives a frank appraisal of his country’s strengths and weaknesses.

And for those who thought that the world of chocolate was nothing but sweetness and indulgence, Linas Jegelevicius’s interview with Algimantas Jablonskas the founder of AJ Šokoladas shows how much hard graft and perseverance are required to make a successful business.

In addition to our business stories, we hope you will find plenty to enjoy in these pages about the Baltics best leisure and lifestyle offerings, including Kate Kolbina’s excellent survey of the burgeoning Baltic spa scene.

Look out also for Guna Gleizde’s account of her visit at Annas Hotel, the restored Latvian manor house granary, a labour of love for the former banker and businessman Kristaps Štrauss, which is setting new standards for chic Latvian luxury.

In the manner of builders the world over, Kristaps’ construction team told him that his plans were impossible or impractical.

He ignored them, because he had a plan.

This ability to stick to your vision in the face of opposition – exemplified on a grand scale

by Mr Dombrovskis – is a Baltic quality that we are happy to celebrate.

Colin Donald Editor, BQ Baltic

CONTACTS CORMACK CONSULTANCY GROUP e: kate@bq-baltic.com t: + 371 2607 6436 EDITORIAL Colin Donald Editor e: colin@bq-baltic.com DESIGN & PRODUCTION room501 e: studio@room501.co.uk PHOTOGRAPHY Birgit Püve e: birgitpyve@gmail.com Gatis Rozenfelds e: gatis@rozenfelds.com Vygintas Skaraitis e: skaraitis@gmail.com ADVERTISING Estonia: Nordicom e: advertising@nordicom.ee t: +372 5666 7770 Latvia: Anna e: anna@bq-baltic.com t: +371 2991 8829 Lithuania: Kestutis e: kestutis@bq-baltic.com t: +370 618 66251 DISTRIBUTION AND SUBSCRIPTIONS Kate Kolbina e: kate@bq-baltic.com t: + 371 2607 6436

All contents copyright © 2014 Cormack Consultancy Group.

All rights reserved. While every effort is made to ensure accuracy, no responsibility can be accepted for inaccuracies, howsoever caused. No liability can be accepted for illustrations, photographs, artwork or advertising materials while in transmission or with the publisher or their agents. All information is correct at time of going to print, February 2014.

Published by CCG under licence to room501 Limited. Room501 Limited is part of the BE Group, the UK’s market leading business improvement specialists. www.be-group.co.uk

THE LIFE AND SOUL OF BUSINESS

04

BALTIC EDITION BQ Magazine is also available in the UK. www.bq-magazine.co.uk

CONTE BUSINESS QUARTER: SPRING 14 BACK WHERE HE BELONGS

Features

50 HEATING UP NICELY Temperatures rise in the region’s developing spa industry

24 MAKING WAVES The booming success story behind audio technology brand Estelon

30 FATHER FIGURE Lithuanian economy’s founding father returns to lend a helping hand

38 BUSINESS LUNCH Fighting the cause for business on Latvia’s top table of decision making

BUSINESS QUARTER | SPRING 14

54 ROOM FOR GROWTH The biggest global hotel brand in the Baltics sets out plans for expansion

58 BALTIC TIGER RISES Why the time for foreign direct investment in the Baltic is now

62 DIVINE INTERVENTION Help from on high drives Lithuanian entrepreneur to sweet success

06

30 FIGHTING THE CAUSE FOR BUSINESS

38

TENTS BALTIC EDITION

36 COMMERCIAL PROPERTY

The landmark deals and developments shaping the Baltic skyline

ROOM FOR GROWTH

44 RESTAURANT REVIEWS Food and drink hotspots for busy business leaders of the Baltics

Regulars

46 TRAVEL A beacon of individuality against the characterless five-star scene

68 FASHION Why the old ways are the best in the emerging world of artisan denim

08 ON THE RECORD Rail project risks funding miss, while supermarket disaster fallout continues

16 NEWS Who’s doing what, where, when and why in business in the Baltic

22 AS I SEE IT Euro vision comes into focus with key vote looming over Estonia

76 EQUIPMENT

56 DIVINE HELP DRIVES SWEET SUCCESS

Laboratory-grown diamonds - a real gem of an idea!

80 REAR VIEW With BQ’s backroom boy Charles Cormack

82 EVENTS Essential diary dates for you and your business

07

64 BUSINESS QUARTER | SPRING 14

ON THE RECORD

SPRING 14

>> Green light for post-disaster proceedings A legal landmark will see corporations face criminal prosecution in Latvia following the Maxima Zolitude disaster. Guna Gleizde reports Latvia’s police chief has confirmed likely criminal proceedings against companies and public agencies involved in the Maxima Zolitude disaster, following an investigation of the causes of the supermarket’s collapse on 21 November last year.

A criminal prosecution of the corporate bodies will be a landmark in the history of Latvian law relating to “legal entities”. Although corporate criminal liability has been on the statute books since 2005 it has yet to be tested in the courts.

In an interview with BQ Baltic, Latvia’s chief of State Police Criminal Office Andrejs Grišins said: “[The liability of legal entities] is a new concept that has also been introduced in criminal law in Latvia. We have discussed this with prosecutors, however in any case [corporate liability] depends on the actions or responsibility of specific people... First we need a suspect.”

He continued: “The principle is this: If a worker of the company has committed [an offence] in the interests of the company, then the company is prosecuted under criminal law as well.”

The effects of the collapse of the Lithuanian supermarket chain’s suburban Riga store continue to reverberate as recovery and investigation work goes on, more than three months after the roof collapsed on the busy shop.

Long-serving prime minister Valdis Dombrovskis resigned in the week following the disaster, taking responsibility for the worst loss of life in Latvia’s post-independence history. BQ Baltic has learned that a total

I understand that people are publicly calling it murder

BUSINESS QUARTER | SPRING 14

Disaster zone: The aftermath of the Maxima Zolitude supermarket collapse in suburban Riga of 48 investigators are now at work on behalf of a total of 169 victims of the disaster, 54 of whom lost their lives.

Previously 94 relatives of the deceased were classed as victims in the criminal investigation, along with the 42 people injured in the collapse. Lieutenant Colonel Grišins told BQ that a further 33 people have now been classed as suffering “material or moral damage” from the event.

These include those who were uninjured but whose cars were damaged, or who lost belongings while escaping the collapsing store.

So far official investigations have been limited to probing violations of building regulations.

Such offences carry a maximum sentence of four years in prison, a tariff considered inadequate by many Latvians.

Two days after the tragedy Latvian President Andris Berzinš was seen to reflect the public mood when he declared that the disaster amounted to “murder of unprotected people”.

The chief of police said: “The fact that the store collapsed alone means that there was neglect. But we cannot yet say if it

08

was intentionally, accidently or because of ignorance.”

Grišins has previously expressed regret at Latvia’s failure to convene a cross-disciplinary expert investigation committee to analyse the systemic failures that led to the tragedy.

He said: “The Police [investigation] will not solve all the problems. The subject of the investigation is what it is but we don’t analyse the construction industry.

“While investigating the reasons for this tragedy we see that there are problems and [negative] habits in the field.

“Of course I understand that people are publicly calling it murder, those are emotions and I understand completely. I am shocked myself and for the investigators [the tragedy] still continues.

“In my entire professional career I haven’t encountered anything like this. Many of the investigators consider it the case of their lives,” he added.

As well as individuals, several companies, mostly stores that shared a roof with Maxima, plus landlords, insurance companies and others – are also being classed as victims. >>

Accelerating ideas.

Transforming markets.

Career development with Edinburgh Napier University Edinburgh Napier University and the Institute for Product Design and Manufacture deliver highly employable graduates and business solutions through research and professionally accredited training. The University is honoured to work with Klaipeda region, partner universities and companies in Lithuania.

Through 2014, Edinburgh Napier University is anticipating offering short courses in engineering, manufacturing, materials, forestry, ICT and business to support career learning and growth. In addition, Edinburgh Napier University offers online and blended learning programmes at degree and masters levels. These include: • MBA for Business, Life Sciences, Manufacturing or Engineering professionals • Product Design and Manufacture • Forestry products • Automation & Control • Materials Engineering • Sustainable Construction • Energy and the Environment • Technology entrepreneurship We look forward to working with you in 2014.

For more details and to register your interest, send an email to: ipdm@napier.ac.uk www.napier.ac.uk/ipdm

ON THE RECORD Construction workers are still making sure the site is safe for the police and expert investigators.

The financial value of potential claims against the wrongdoers is still being calculated as police investigate and companies assess losses.

After sifting through thousands of tons of evidence, experts are expected to carry out a series of experiments – including stress tests on the remaining roof beams - in an attempt to determine the source of the failure which brought down the roof.

“The supermarket went from design to execution and now we are tracing it back from execution to design,” Mr Grišins said.

The disaster has led to a wave of building inspections across Latvia, and millions of euros have been donated to victims and their families.

Over the coming years and months, many more millions are expected to be paid out following court rulings, or in out-of-court settlements.

COMPLEX OWNERSHIP The legal and criminal repercussions of the supermarket collapse are likely to be lengthened by the complex international ownership structure of the building in the Latvian capital’s western Zolitude district.

The initial sole owner of the supermarket and an adjacent apartment block was Homburg Zolitude, owned by the Netherlands-based Homburg Eastern Europe Fund.

The supermarket was later sold to Tineo which shares the same Lithuanian owners as Maxima, the pan-Baltic supermarket chain.

The project’s developer however was the Lithuanian company Homburg Valda, a subsidiary of Canada’s Homburg International Group.

Interviewed by BQ Baltic, Jamie Torpey, a Canadian director of Homberg Valda called for greater transparency in the Latvian construction industry.

He risked stoking existing tensions between Latvian and Lithuanian governments over the tragedy, by hinting at shortcomings with Latvian building standards.

“You’re hoping that they’re building properly and that you have a whole team that is checking what has been done [by the builders]

BUSINESS QUARTER | SPRING 14

SPRING 14

Lieutenant Colonel Andrejs Grišins

It’s not about the building, it’s about the victims.

Money has no bearing in this, it’s about lives and that there are the city inspectors and government inspectors. There have been problems since we have come to Latvia and it hasn’t always been easy,” Torpey said.

“It makes you question a lot of things,” he added.“It’s not about the building, it’s about the victims. Money has no bearing in this, it’s about lives.

“The concern is that you had a brand new award-winning building. It was supposed to be the best. So how are the others? Has the industry really been run properly?”

So far the Latvian construction industry, including the Latvian builders of the Zolitude supermarket Re&Re, which, along with Maxima and Homburg, has donated small sums of money to the victims in the aftermath of the collapse, has

10

avoided the public spotlight.

Jos Fruytier of the Homburg’s Dutch investment fund parent company, which owns part of the collapsed building said: “Something terrible happened, but it is not a cause to question whether you can [invest in] this country, or whether you can trust the people. “[The disaster] has had a tremendous impact but it doesn’t mean that everybody involved is at fault or did not act like professionals.

Unfortunately it is too early to say what caused it.”

Fruytier stressed that Homburg’s other commercial property developments in Latvia have been checked since the November collapse.

As Latvian commentators have noted, the Baltic nation has some of the most stringent building regulations in Europe, leading lawmakers to seek to improve the country’s ranking in the World Bank’s “Ease of Doing Business” index.

Another background factor that might be considered is that the depth of the 20082009 financial crisis dramatically increased the appetite for foreign commercial investment in Latvia.

Homburg was among the most prominent companies lobbying lawmakers to relax rules surrounding planning and development, although there is no suggestion that the company tolerated poor building standards.

In discussions with BQ Baltic, Homburg’s Jamie Torpey revealed that the company was committed to Latvia although he claims it has never earned a profit in the country.

“Even though we have had many problems we’ve never thought of leaving. The Homburg Eastern European Fund which owns Zolitude has made no money here. It has lost money from day one.

“We bought before the crisis, then the crisis happened and we slowly invested money just to return it.”

He admitted that the firm was likely to face civil claims in court.

The last survivor of the Maxima disaster to leave hospital, a 19-year-old cashier called Martinš Plasis who spent nine hours trapped beneath the rubble, was discharged on 14 February. n

www.soilutions.co.uk

Same Day

blog.soilutions.co.uk

C

M

Y

CM

SPECIALISTS IN THE REMEDIATION OF CONTAMINATED SOILS AND GROUNDWATERS Do you have a contaminated soil or water problem...?

Whatever the size, from thousands of tonnes to a few litres, we’re only a call away from solving g your contamination issues.

MY

CY

CMY

K

Remediation design Soil remediaton n Groundwater remediation Oil spill response servicess Invasive weeds solutions Tel: +44 (0) 131 538 8456 Web: www.soilutions.co.uk Email: info@soilutions.co.uk

Twitter: @soilutions ons ons co uk Blog: blog.soilutions.co.uk

Crowns, Bridges, On-lays In-lays & Veneers

Our onsite milling technology now offers one visit dentistry

ON THE RECORD

SPRING 14

>> Search for answers amid the rubble Dr Ignas Staskevicius, former chief executive, spokesman and shareholder in Lithuania’s Maxima Group, talks to Dalius Simenas about the fallout from last November’s Riga supermarket tragedy What consequences – material and otherwise – has Maxima Group faced after the collapse of the building containing your Maxima store in Riga?

It was an unprecedented tragedy and a huge blow to the company. 54 persons died after the roof of the building with a “Maxima” logo on it collapsed. We lost five of our employees, and many of the people killed there were our customers. You can imagine the enormous damage to the company’s name. It was aggravated by several mistakes of the former management of a Latvian subsidiary. The direct financial losses depend on a final settlement with insurers, but we realise this disaster will cost us many millions.

How are you quantifying the extent of your liabilities at this stage?

We estimate that the building that collapsed, the assets destroyed, and the other costs directly incurred in the aftermath of the tragedy are over LTL10m (€2.9m). Our commitment to pay regular compensations for children who lost their parents until they are 18 years old would add at least another LTL 5m (€1.4m).

Losses to our reputation, the brand name, and lost clientele are much more difficult to estimate, but they are also considerable.

What lessons have you and your Maxima partners learned from this terrible incident?

We received a very tough lesson. The company was too ambitious to grow and too arrogant with respect to society.

Now we are changing this attitude at all levels. We will lift the organisation to the status where every Maxima worker feels safe, comfortable and confident in their workplace.

That will give more comfort to our customers and this way their trust will be regained and nurtured.

BUSINESS QUARTER | SPRING 14

Ignas Staskevicius Maxima, shareholder Dalia Grybauskaite, the Lithuanian President, who visited the site in January, stressed that Maxima should have shown more sensitivity immediately after the tragedy. Have you reviewed Maxima’s poor disaster PR, in which you were seen as offering self-interested excuses?

Of course, we were very disappointed not only with the capability of the communications team, but also with a lack of confidence from the whole management in the days after the tragedy. The people responsible proved confused and incompetent, despite having all necessary resources and support from the shareholders. As a result, the former managing director of our Latvian subsidiary Mr. G.Jasinskas was fired and a crisis’ committee was established. We are revising the structure of the group to achieve the

12

goals mentioned above and to avoid similar difficulties in future.

What advice would you give businesses to avoid PR mistakes in a crisis?

I would hesitate to give any advice of that sort.

It is still too early to sum up our experience.

The one clear statement I can make is that honest and brave decisions work best in any tough situation.

You said to the press that it may take another three to four months to find the cause of the collapse. However, you have also hired independent experts for that purpose. What have they reported so far?

We still know very little. Prosecutors and policemen do not like to disclose information too early. Our internal investigation provided

SPRING 14

We received a very tough lesson.

The company was too ambitious us with some clues as to why the fire alarm was sounding for an hour before the collapse and similar things. But we still do not know the answer to the main question – why did a new building collapse? Being a party to the tragedy, Maxima wants an answer to this most of all, but we understand it might take years to receive the official conclusions.

What happens when you have the results of the investigation? What are the

ON THE RECORD

scenarios in your mind? Is Maxima Group planning a change of branding? A sale?

Or maybe further consolidation of business in Latvia?

I do not see any fixed link between the results of the trial and Maxima’s strategy. We know already that there is no suspicion that we are responsible for the collapse itself. The questions about that are directed to the builders, architects and developers. I would like to see the Maxima chain as a long term player in the Latvian market.

You are now leading NDX, the international business development arm of Vilniaus Prekyba, owner of Maxima retail chain. What opportunities do you see in the Baltic States in the coming years?

To be precise, NDX does not own any retail

chains. This division produces different canned foods in Poland, Slovakia and Czech Republic.

I came to lead a crisis management group for Maxima just on a temporary basis. To answer your question, I fancy Poland a lot. That is a saturated, competitive market and that is why it is the Premier League for players like us.

The Baltics are small, divided and relatively cosy, but their [growth] potential is limited.

What is your next big ambition as an entrepreneur? What projects do you see ahead? Is VP, for example, considering getting back to energy projects?

Our group has gained a vast and deep experience in business dealing with consumer goods - retail and production. I guess, we prefer to remain a specialist in this field and grow our volumes consistently. n

Eversheds in the Baltics

Your partner for quality legal services Eversheds offers a quality legal service across the Baltics. Our lawyers are practical, commercial and focused on building long term relationships with their clients. Expertise is combined with sector knowledge and innovative thinking to generate legal solutions that help you to achieve your goals, wherever you want to achieve them.

In addition to local experts based in the region, we have hundreds of lawyers around the globe who regularly work together in order to deliver complex projects. At all times, we think about how we can add value and unlock the opportunities for your organisation.

For more information contact us: Eversheds Ots&Co t: +372 622 9990 e: info@eversheds.ee

Eversheds Bitans t: +371 6728 0102 e: birojs@eversheds.lv

Eversheds Saladžius t: +370 5239 2391 e: law.firm@eversheds.lt

www.eversheds.com

13

BUSINESS QUARTER | SPRING 14

ON THE RECORD

SPRING 14

>> Funding opportunity rolling out of view Estonian official warns that EU mega-project Rail Baltica risks missing the train for funding, as BQ Baltic’s Colin Donald reports Rail Baltica, the €3.7bn EU scheme to connect the Baltic States to Western Europe, already “on the edge” of standard value-for-money assessments, is now in danger of missing its funding opportunity altogether, a senior Estonian official has warned.

Indrek Sirp, counsellor of Estonia’s Ministry of Economic Affairs and Communications told BQ Baltic that the fragile economic case for the project required a speedy resolution of its remaining challenges. He singled out a decision on the route through Lithuania, where the government has proposed revising – and lengthening – the track to connect the capital Vilnius. Describing the project as “a strategic and political aim... not strictly an economic project” Mr Sirp, who was appointed in August 2013, pointed to a consultant’s report showing the project’s benefit to cost ratio (BCR) and [investment] return rate at only 1.75% and 9.3% respectively. The lower-thanusual figures suggest only marginal gains for Baltic economies.

Sirp said Rail Baltica was already “pretty much on the edge [of value for money criteria] which tells us that, every kilometre of additional track, or tunnel, each piece of construction [additional to the original plan] makes it less possible to achieve. We have to be very careful that we don’t make it too expensive.”

The project has been thrown into doubt by an apparent change of mind by the Lithuanian government, which is proposing changing the route agreed by the three Baltic States in 2011.

The change puts the onus on Vilnius to source evidence of the economic impact of the amended route. Sirp expressed concern that a delay in carrying out the work could lead to the pan-Baltic “common structure” being unable to meet EU deadlines for funding applications.

“If [the Lithuanians] now say they are going to connect Vilnius as well, then I think there is a justified question as to how much it would cost, what would the benefits be, what would

BUSINESS QUARTER | SPRING 14

Note of caution: Indrek Sirp, counsellor of Estonia’s Ministry of Economic affairs and Communications (above) and the route of the Rail Baltica scheme (below).

then be the cost to benefit ratio? We need to know it when we go to [Brussels] with our application, we need to set certain parameters of the project. We need to know it by the time we submit the first application which is the middle of this year or early autumn. So far there is no analysis of the Vilnius connection.”

The 950km standard-gauge railway project has already missed two significant project deadlines, for the formation of a Joint Venture (JV) partnership capable of accessing up to

14

€2bn of European funds. Sirp said that the establishment of a JV was urgently needed “by the summer”, or the project could miss its chance to access the EU’s €11.3bn fund for transport projects in “cohesion fund countries”. Under complex EU rules, member states must commit and apply for their own allocation or “national envelope” by a set date – in the case of the current EU financial period, the end of 2016 – or make their funds available to rival projects in other new accession countries. Sirp said Estonia’s application will be dependent on meeting a chain of previous deadlines, starting with the launch of a JV in mid-2014.

He said: “The first round of calls by the European Commission will be done some time this year. They are talking about the beginning of summer in May-June, which requires us to have our application available sometime in the summer, because you have some months once the [process] is opened to submit this application. We need to submit it in the middle of this year to be a competitor for this money, because you have a fund, called the Connecting Europe Facility, which was established to support projects, like Rail Baltica.”

“We need to have all three Baltic States getting their act together and agreeing the route, to make this joint venture. All of these things need to fall into place.”

Estonia, the northernmost Baltic state appears to be the furthest advanced in preparing the ground for the Rail Baltica project, which has been a dream of planners since at least 1994. Having decided on a route, which does not include Estonia’s second city of Tartu, the government has been pressing ahead with planning processes via public meetings and environmental studies, progress which, Sirp suggested, is not matched by its larger neighbours Latvia and, to a greater extent, Lithuania. Although careful to emphasise Lithuania’s right to propose changes to the

SPRING 14

route that formed the original proposal, Sirp echoed the Estonian Prime Minister Andrus Ansip in urging the Lithuanians to construct a revised economic case for connecting their capital. “[As well as] the feasibility study [about diverting the line to Vilnius from Kaunas], Lithuania has to talk to the European Commission, in order to make sure this Vilnius connection is do-able as part of the Rail Baltica project. This has been the message from our prime minister. We have a project that is more or less well-defined by now and if you want to change it to a considerable extent then Lithuania has to hurry up and start doing something about it”.

The Rail Baltica project was launched in earnest with a project feasibility study in 2009, which reported in May 2011. Despite political support for a passenger and freight

ON THE RECORD

railway using the ‘standard’ or ‘European’ 1435mm gauge rather than the Baltics’ existing 1524mm or ‘Russian’ gauge, critics of the project question Rail Baltica’s ability to create the intended ‘modal shift’ – persuading freight operators to switch from road to more environmentally-friendly rail.

Sceptics, some of whom advocate improving the Baltics’ road connections, also speculate whether a train with an average speed of only 176kph (top speed 240kph) would shorten journeys between the Baltic capitals and Warsaw and Berlin enough to persuade travellers to switch from short-haul flights between the Baltics and Europe’s capitals.

But Sirp said that he expected the project to be profitable and emphasised its significance to more general EU criteria, such as the promotion of green transportation, and East-West connectivity.

Sirp told BQ: “We belong to the European Union, the majority of our trade is with European member states so it would be quite logical to be connected by railway to this economic space or zone we belong to. It is one of the major missing link projects.”

In its May 2011 ‘final report’ on the feasibility of Rail Baltica UK-based consultants Aecom wrote: “In normal circumstances to attract EU funding for transportation projects the EIRR [economic internal rate of return] would normally have to be greater than 11.0% and the BCR higher [than 1.75]. Political factors will be a serious factor in the future of this project both in terms of the desire of the EU to link the Baltic States with the rest of the EU using a standard gauge railway and in terms of the individual Baltic States whose development could be stimulated by this project”. n Euro vote nears - As I See It, p24.

Port of Sunderland: immediate access to the open sea Sunderland’s coastal location has always played a huge part in its economy. The city’s port is ideally situated, with immediate access to open sea and three kilometres of river and Scotland dock berths. Add to that a track record for 24/7 delivery, dynamic, commercially minded England management and a ‘cando’ outlook, and you can see why the Port of Wales Sunderland is flourishing.

E info@makeitsunderland.com T +44(0)191 553 2100 W makeitsunderland.com

15

BUSINESS QUARTER | SPRING 14

NEWS

SPRING 14

Euro talks on the horizon, skills gap threat to regional economy, franchise giant steps in, rail project blockages, praise for Lithuania’s business climate and Estonia and Russia reach agreement

>> Power shift Latvia’s Prime Minister Valdis Dombrovskis stunned the nation on 27 November when he announced his resignation, saying that he was taking “political responsibility” for the disaster.

He turned over the reins to Latvia’s first female prime minister, former Agriculture Minister Laimdota Straujuma, whose new government started work on 22 January.

>> Euro talks near After seeing its two northern neighbours jump on the euro bandwagon, the Lithuanian Government, in its second attempt, will hold discussions on introducing the currency on 1 January 2015. Euro adoption is set to be discussed in the Seimas [parliament] in March. The Committee on European Affairs says that the debate will help inform Lithuanians of the consequences of

BUSINESS QUARTER | SPRING 14

joining. Commentators have speculated that Lithuanians may have “learned lessons from watching Latvian and Estonian authorities struggle with popular resistance to currency change. “The task of the authorities is to dispel the negative preconceptions in society about the euro. We have to persuade Lithuania’s citizens that the Euro will be beneficial for them and the country’s economy,” said deputy speaker of the Seimas and chair of the Committee on European Affairs Gediminas Kirkilas on February 3.

Opposition is already mounting. Member of the Reform Movement Zigmas Vaisvila said: “It is obvious that there is a need for a referendum on euro introduction... the government has to explain all the reasons, and outcomes.” According to Vaisvila, the date for euro introduction was not fixed in the Treaty of the Accession to the EU. “If the state meets the Maastricht criteria, it does not mean automatically that the state is charged with the duty to introduce the euro,” he said. Apart from Lithuania, seven remaining states are on the enlargement agenda: Romania, Bulgaria, Poland, Czech Republic, Hungary, Sweden and Croatia.

It is obvious that there is a need for a referendum on euro introduction >> Unskilled gap threat Estonia’s Ministry of Economic Affairs said on 3 February that though the shortage of skilled specialists is most often highlighted, a shortage of unskilled labourers is becoming a more critical problem for the Estonian

16

economy. “We’re talking about a qualified workforce, but we have to start thinking about where to get cheap labour. This accounts for the majority of our workforce demand,” said Ahti Kuningas, the secretary general of the ministry. Kuningas said future demand would be in low-wage professions such as cleaners, cashiers and construction crews. This is where most people will be retiring from.

Estonia estimates that in the next 10 years there will be three incoming workers for every four retirees. Currently, unskilled labour can be imported from non-EU countries for six months, paying the average wage. Kuningas said it was necessary to assess whether workers could be brought in for below average pay for seasonal work.

>> Franchise giant moves in Global leader in franchise development Francorp International has established a presence in the Baltics with the announcement in December that it has awarded the rights for the Francorp Baltic Region to Arturs Beiers in Latvia. Beiers role will be to assist in developing franchises of local companies as well as to introduce U.S. franchises into the Baltics. The initial focus will be on the food industry, he told BQ, with the goal on “helping local entrepreneurs who want to franchise but who don’t have a place to ask questions about it”. Acknowledging that franchising is still new in the Baltics, he said that there is a lot of “educational work to be done to inform entrepreneurs why franchising is a good business model to go with”.

Where is the market heading? Beiers says that with the small Baltic market size, new franchisors will have to sell their franchisees to bigger and richer markets, such as Russia. Francorp, with activities in 45 countries, has developed franchises for such companies as BP/Amoco, Century 21, Holiday Inns and Sharper Image.

NEWS

SPRING 14

Business Administration, all based in Latvia.

Representatives from Latvian universities said they decided to open the office in the city as most Indian students were from Chennai and Hyderabad.

Latvia is only the fifth European Union (EU) country to set up an office in India. The UK, Germany, France and Netherlands are the other EU states that have centres.

>> Cultural bonanza

>> Latvia’s eurozone journey begins Latvia joined the Eurozone on 1 January, with a ceremony marking the event during New Year’s celebrations in Riga’s Old Town. Former Prime Minister Valdis Dombrovskis (pictured), accompanied by Estonian Prime Minister Andrus Ansip, Latvian Finance Minister Andris Vilks and Latvian Central Bank Governor Ilmars Rimsevics, withdrew a symbolic €10 note from a cash machine. Olli Rehn, the European commissioner for economic and monetary affairs, sent congratulations, saying, “I want to very warmly welcome Latvia to the euro.”

He added. “Joining the euro marks the completion of Latvia’s journey back to the political and economic heart of our continent, and that is something for all of us to celebrate”. Latvia becomes the 18th member of the Eurozone.

>> IT foray for Storebrand Storebrand, which provides services and products for pension funds, insurance and asset management in the Nordic countries, reported on 11 November that it was adding an IT development branch to its service center in Vilnius. Starting with four developers the company aims to recruit a total of 70. “This is an initial step towards the establishment of a competence centre for the entire Storebrand group in Vilnius,” Siw E. Seland, CEO of Storebrand Baltic told BBN. The Vilnius branch boasts fast growth: employee numbers have doubled to 270 over the past year. Milda Darguzaite, Invest Lithuania general manager said: “This is one more example of a concrete business outcome in Lithuania that has exceeded plans. I hope that this developmental stage will be successful and I encourage Storebrand to implement even more projects in Lithuania,” Storebrand Group is a leader in the Nordic market. Its IT component consists of 310 people located in Oslo, Stockholm and Vilnius.

BUSINESS QUARTER | SPRING 14

>> Latvian universities look east A conglomerate of seven Latvian universities has launched a “Study in Latvia Centre (SLC)” in the Indian city of Chennai [formerly known as Madras] in an effort to attract Indian students to study in Latvia.

Speaking at the February launch, Professor Leonids Ribickis, rector of Riga Technical University, said Latvia offered “vast education opportunities and international exposure” if compared to any other university in Europe.

Imants Bergs, Vice-Rector in Turiba University said a cooperation agreement between the governments of Latvia and India enabled mutual recognition of issued qualifications, besides allowing Indian students to apply for Latvian government scholarships.

SLC was founded by Riga Technical University, Turiba University, Liepaja University, Latvia University, B A School of Business and Finance, Latvia University of Agriculture and Riga International School of Economics and

18

On the weekend of 17-19 January Riga officially took over from Marseilles in France as European Capital of Culture. The events were diverse and spectacular - the Chain of Booklovers helped to transfer about 2,000 books from the old National Library to the new one across the Dauguva River, masters from around the world impressed the crowd with fire sculptures, and an invited audience was able to enjoy the premiere of a new production of Wagner’s opera Rienzi. The opening events were attended by delegations from former and future European Capitals of Culture: Yerevan, Essen, Kaunas, Norrköping, Pécs (Hungary), Pskov, Pori, Rostock and the leaders of the city of Vilnius.

The European Capital of Culture launch was accomplished with the help of 260 volunteers. More than 15,000 people registered for the Path of Light – Chain of Booklovers, but the final number is thought to have been as much as double that amount, as many passers-by and city visitors joined in. According to the Chairman of the Riga City Council Nils Usakovs, the number of tourists in Riga could reach 2.1 million, a rise of 19% on last year’s 1.7 million visitors. The year long programme of events is budgeted at €24m, 40% from Riga City Council, 35% from the Ministry of Culture, 10% from sponsorship and the remainder from EU funds.

Daina Rudusa, a spokeswoman for Riga 2014 said that the organisers expect to raise around €1.2m in ticket sales from events which are managed directly by the trust running the year-long festival, but this

SPRING 14

figure excludes major cultural events which are being managed directly by host venues such as Latvia’s National Opera.

Inta Briede, head of PR and media relations for the Latvian tourism board told BQ Baltic: “We have no numbers about what the expected additional revenue of Riga 2014 to Latvia will be, but we see the benefits as being long term. This year is only the beginning, and most of the impact will be in future years.”

>> Praise for Lithuania’s business climate Lithuania has been ranked ninth in the Eastern European and Central Asian region

by Bloomberg‘s Best for Business rating.

Poland led the region’s ranking, while Lithuania overtook Latvia and

Estonia, which were ranked 12th and 13th, respectively. Bloomberg evaluates the business, commerce and trade climate of countries based on six weighted factors, including the degree of economic integration, the cost of setting-up a business, labour and materials, as well as of transporting goods and other criteria.

Lithuania scored best in terms of the ease of transporting goods. It scored worst in terms of the cost of labour and materials, based on the size of the labour market, the cost of recruiting and firing employees, and labour force productivity.

The Bloomberg rating underscores the need for changes in Lithuania’s labour market and employment regulation. It advises that Lithuania should reduce the start-up costs for business if it is to remain competitive in the region and further overtake its neighbours.

19

NEWS

>> Lithuania and Germany strengthen business and economic relations Lithuanian President Dalia Grybauskaite met German Chancellor Angela Merkel in February to discuss bilateral relations.

The two leaders discussed cooperation between Lithuania and Germany, the further development of business and economic relations, as well as energy security issues, according to the Lithuanian press service. President Grybauskaite said, “the economic well-being of the people of Lithuania and its financial stability are integral to the EU’s overall success.

Cooperation with Germany at bilateral and European levels helps to achieve the best solutions for their respective peoples.”

BUSINESS QUARTER | SPRING 14

NEWS

SPRING 14

>> EcoMin forecasts economic growth at 4.5% this year The Economy Ministry of Latvia has said that in 2014 Latvia’s export opportunities stand to improve, and economic growth percentage-wise could reach 4.5.

The EM notes that the Latvian economy in the post-crisis period continues to develop positively. In 2012, Latvia’s gross domestic product (GDP) grew 5.2% but in 2013, per EM estimates, GDP growth was over 4%.

“Latvia’s economy has looked at growth figures for three years now, making it tops in the European Union, and marked by heretofore unseen longevity and productivity.

The volume of goods and services exports has reached an all-time high, 20% in excess of the highest point in the pre-crisis period,” EM claims.

>> Lithuania moves up Index of Economic Freedom Lithuania has been ranked 21st out of 178 countries on the Index of Economic Freedom, calculated by the US Heritage Foundation. Compared with last year, Lithuania rose by one rank and scores considerably higher than neighbours Latvia and Poland, which scored 42nd and 50th respectively.

“These results show that Lithuania keeps improving and is consolidating its position as an attractive country for foreign investors,” said Milda Dargužaite, managing director of Invest Lithuania.

According to the index, Lithuania’s higher position is the result of notable improvements in business freedom and the management of public finances.

The only area where Lithuania’s position deteriorated was in the flexibility of labor relations, which indicates a need to improve the regulation of labor relations.

>> Agreement reached Russia signed a border treaty on 18 February with Estonia, the last Baltic country to formalize its land and sea boundaries with its giant neighbour. Russian Foreign Minister Sergey Lavrov met his

BUSINESS QUARTER | SPRING 14

>> New routes for Air Lituanica Lithuanian airline start-up Air Lituanica is launching a new route to the Estonian capital Tallinn, commencing 12 March. Flights to the capital of Estonia will operate morning and evening on business days. Planes will depart from Vilnius to Tallinn at 7.30am and from Tallinn to Vilnius at 9am. In the evening the plane will depart from Vilnius at 17.55pm and from Tallinn at 19.25pm.

The one-way trip will last 1 hour 5 mins.

Managing director of tourism agency network West Express Egidijus Vaisvilas said:“Such a dense flight schedule will facilitate business travel: after going to Tallinn, customers will have a chance to attend meetings and return to Lithuania on the same day.”

He continued: “We have observed a growing interest in this route; therefore, we are planning that with favourable pricing, clients will change their travelling habits and choose planes instead of buses or cars. I believe that this route will increase the scope of cooperation between West Express and Air Lituanica even more.”

Zydre Gaveliene, head of travel agency network Estravel Vilnius, added that more flexible schedules will save time and money: “A convenient flight schedule will enable companies to save business trip costs – additional overnight stays will not be required; costs for daily allowances will reduce.” Estravel is hoping that the meetings and conferences of companies based in the Baltic countries will make a comeback to Vilnius because the arrival to Vilnius will become more convenient. Flights will be operated by Air Lituanica aircraft Embraer 175 with 86 seats and a 50-seat aircraft CRJ 200 leased for several months.

Air Lituanica already offers regular flights to Brussels, Berlin, Munich and Prague, and Paris. From March Air Lituanica will increase the frequency of flights on regular routes. From the last Sunday of March, which marks the start of the aviation summer season, Air Lituanica will take off from Vilnius Airport 35 times a week.

Estonian counterpart Urmas Paet in Moscow to sign the deal, which must be ratified by the parliaments of both countries. A similar agreement in 2005 was shelved by Moscow because Estonian lawmakers added a preamble referring to the Baltic country’s independence from 1918-1940 and the Soviet occupations from 1940-1941 and from 1944-1991. Relations between Moscow and Tallinn have been lukewarm since the Soviet Union collapsed in 1991. Russia has accused Estonia of discriminating against its 25% ethnic Russian population in the fields of

20

education and citizenship. Lavrov emphasised those issues but hailed the agreement as an “important step, rather than a pure formality.”

Paet noted that Lavrov would visit Estonia later this year, the first-ever by a Russian foreign minister. “I don’t think that between neighbours we should have such long pauses (between meetings), because we must talk about difficult issues,” Paet said. Estonian Prime Minister Andrus Ansip, who is seen as softening his tone toward Russia in recent years, celebrated the move as a “strategic and far-reaching decision.”

SPRING 14

COMPANY PROFILE

Doing business in Lithuania: in this case, the statistics do not lie Last year was an exciting one for those who care about making Lithuania a better place for foreign direct investment (FDI). We were ranked 17th (out of 189 economies) by The World Bank in terms of ease of doing business (quite an achievement, I should say), which is higher than ever before. The Lithuanian economy was one of the fastest growing economies in the whole EU, our corporate income tax rate (15%) is one of the lowest in the EU and operating tax losses can be carried forward for an unlimited period of time. In 2013 Lithuania was the leader among all Central and Eastern European countries in terms of number of investment projects and working places per capita created. We are first in the EU in terms of the population having secondary or higher education. Lithuania has the highest internet upload speed in the EU, and so on.

This is a great list of statistics for a presentation.

But are we really progressing? Let’s take a quick look at developments in the legal environment.

When I started my legal career a dozen years ago, establishing a company in Lithuania took several weeks, required a personal visit by the managing director-designate (and others with signature rights) to a notary for approval of signature specimens and a mandatory visit to the commercial register to file the documents. Today it takes two days to start business in Lithuania (longer if tailored incorporation documents need to be prepared). Now all the chores surrounding business establishment can be fully delegated.

Earlier employment laws were entirely employeeoriented and adapted to the manufacturing sector,

Liudas Ramanauskas, Senior Associate at law firm SORAINEN

which caused significant difficulties in organising work under any other regime than normal working hours in service sector companies which are quite often established on the basis of foreign capital. Although much has still to be done in this field, today all companies can set summary working time rules, which allow cost savings when servicing clients 24/7. This is very important for shared services centres and companies engaged in business processing outsourcing. Meanwhile interpretation of employment laws by the courts has become ever more balanced between employees and employers.

Previously, it could take over a year to obtain a construction permit. As from 1 January 2014, a detailed planning process will no longer be needed in most cases (for urban and other built-up areas), which should result in shorter periods for obtaining a construction permit and a significant

reduction in the administrative burden.

These are only a few examples, but the picture is quite clear – Lithuania has progressed greatly over recent years.

In addition, the state is offering a number of incentives for those starting business in Lithuania, such as tax incentives in free economic zones (no corporate income tax during the first 6 years and only 50% payable over the next 10 years; no real estate tax), expenses incurred by companies carrying out R&D projects can be deducted three times, investment agreements establishing special investment and business conditions for investments of at least LTL 5 million (€1.45 million). There are also possible land lease reductions and land tax exemptions from municipalities, industrial parks, science, research and business valleys, EU structural funds for employee training, development of infrastructure, and so on (new budgets will be approved later this year). What about 2014? Statistics say that Lithuania will remain one of the fastest-growing economies in the EU. Politicians say that they will keep working on the legal environment to make it even more “friendly” to those starting business here. Lithuania is expected to join the euro area from 2015. It seems that Lithuania will remain a country to bear in mind when considering investment destinations. Hopefully, investors have already discovered this for themselves.

Liudas Ramanauskas, Senior Associate SORAINEN is the leading regional law firm with fully integrated offices in Lithuania, Estonia, Latvia and Belarus.

Lithuania stands out in the region as a dynamic economy with well-educated and multilingual talent, leading IT and hard infrastructure as well as business friendly environment. Foreign companies describe Lithuanian employees being self-starters, a raw talent with forward thinking mindset – states Milda Darguzaite, Managing Director of Invest Lithuania, a Lithuanian government agency that provides free advice and introductions to on the ground experts to global companies interested in doing business in Lithuania.

21

BUSINESS QUARTER | SPRING 14

AS I SEE IT

SPRING 14

The coming European Parliament poll gives Estonia an opportunity to rethink, and recover its continent-leading role writes James Oates

TIME FOR A VISION DECISION Like EU citizens everywhere Estonians go to the polls on 25 May with mixed levels of enthusiasm to elect candidates to the European Parliament. So far it looks like a wide open field of candidates, as you would expect in a nation where MEPs are not political has-beens or also-rans, but a constantly self-renewing set of engaged politicians, with much to contribute domestically. The current President, Toomas Hendrik Ilves, is a former MEP. Ever

BUSINESS QUARTER | SPRING 14

pragmatic, Estonians see “Brussels” as a flawed but benign system that has its uses. Events in the Ukraine have reminded them of the need for a strong counterbalance to Russia. Until this recent intervention the Kremlin was seen as preoccupied by domestic issues. In the 10th year since EU accession, ties of respect rather than passion seem understandable. The relationship was certainly tested in 2011 when more or less the first event of Estonia’s eurozone membership was

22

to be asked to contribute to the bail-out of Greece, a faraway land whose minimum wage is set at a higher level than the Estonian average salary. But counteracting potential resentment was an acknowledgement this was the deal the country had signed up to.

In different circumstances it might be Estonia that benefitted from a rescue programme.

The EU is helpful to Estonian development, security, relations with Russia and global trade.

On a more abstract level, Estonia takes it for granted that sovereignty is not absolute - the lesson of the failure to preserve independence in 1939-40 is not to pull up the drawbridge but to open up as much as possible to likeminded, democratic free market economies.

SPRING 14

Estonia does not see cooperation within the EU or of NATO as a threat to independence but a bolster to it. As long as political, economic and cultural freedom is preserved, the compromises of EU membership are seen as a relatively small price to pay. The EU has not limited Estonian freedom of action and significant infrastructure projects, which the country would struggle to execute alone, become much easier with EU support. But they do have to be the right projects. Speaking as a 35-year friend and five-year resident of Estonia I do wonder how the EU can help the country answer some fundamental questions about its own ambitions and its role in the world.

The question is becoming more urgent, as the perception grows that national momentum of the last 20 years is now slowing.

Even as Estonia has grown into a prosperous and successful economy, repeated political funding scandals have left the impression that the new multi-party political class, like the single-party class that preceded it, is more focussed on itself than on the people. If this is true, is the European Union helping? Estonia showed itself at its best when implementing the flat tax revolution and taking world-beating strides in e-government.

Yet as part of the EU, Estonia is often forced to make uncomfortable compromises.

Brussels’ current set of “country specific recommendations”, its prescriptions for Estonia’s economic health, seem slightly out of sync with what makes Estonia successful, for example offering advice on education, an area where the country already scores exceptionally high marks in international education rankings.

Tallinn has occasionally also come under pressure to align Estonia’s tax code with the “old Europe” model. Alongside other flat-tax countries, Estonia has successfully managed to resist the nominally progressive but actually regressive French-style tax codes. And while it may only be a petty irritation, the EU is also imposing money transmission regulations that will force Estonia to reduce the efficiency of its

financial plumbing. Currently Estonian banks poll for transfers 10 times a day, now they will poll only five times a day, requiring the full international bank account number (IBAN) rather than just the local account number.

It sends the wrong signals. The way Estonia has pooled her freedom in the EU has carried a different risk - the risk of mediocrity or even obsolescence. Sometimes obsolescence comes dressed as modernity. Much is being made of the multi-billion euro Rail Baltica project. Such multi-country infrastructure projects involve huge financial and political commitments. Yet few are asking the real question: Why is Estonia sponsoring essentially nineteenth century technology, when the proposed “high speed line” will barely be faster than a road. Meanwhile, we can all see that driverless car and truck technology is almost upon us. The Estonia of 15 years ago would be building highways in readiness for the technological leap to driverless vehicles, not investing billions in a clearly weaker technology.

With e-government meanwhile, it is Estonia that has much to teach the EU, not the other way around. Estonia is losing her vision of future excellence, and many of those that might have helped to shape that uniquely Estonian vision have decamped to Brussels where, having drained the country of talent, they are now learning the grubby system of EU compromises. The accession to the EU has removed hundreds, even thousands, of the best educated and most international minds of the country. These are not just political figures but a whole range of others, from translators to lawyers, from civil policy makers to technical specialists. Once in Brussels, many quickly become accustomed to the wider culture and often easier life in the European capital rather than more Spartan conditions of the Estonian capital. It is a brain drain that Estonia can ill afford. Closer to hand EU accession has meant that doctors, for example, find far more lucrative opportunities in Finland than in their homeland and it is the Finnish health care system that benefits from

23

AS I SEE IT

their skills, not the less well funded Estonian hospitals. That is not to say that Estonia should - or even could - turn her back on the European Union. The question is how to combine Estonian culture and - largely Englishspeaking - European culture in a harmonious way that protects Estonian identity, prosperity and democracy. As the vision of a European Estonia fades, the quest for a new one grows more urgent. Turnout in the May elections will be interesting. Will it decrease slightly, according to the continent wide tendency?

That will depend on whether the debate catches fire or not. The more interesting thing will be the e-turnout. This election may the first one where the majority of votes are cast online.

The transformative power of e-democracy, like e-commerce, is still severely underestimated. In the globalised e-society, the narrow, nineteenth century, definitions of national identity are blurring. Those who try to hide from this process are unlikely to survive, but cultures, societies and states that develop flexibility may yet thrive. Estonia has an opportunity to be among the success stories. The rapid growth of e-government services and especially e-voting offers Estonia the possibility of far greater democratic participation and therefore greater supervision of the political class. President Ilves has sometimes mused that Estonia might become like classical Greece - the Athenian forerunner to global e-democracy. It is an inspiring vision, especially when applied to Brussels which has long acknowledged its own democratic deficit. It is, however, not exactly popular with the political class which fears a huge loss of power, and quite possibly a threat to their entire existence. That of course might be the best reason to support it. n Tallinn based James Oates is chief executive of Cicero Capital, and chairman of BECC the British Estonian Chamber of Commerce

With e-government Estonia has much to teach the EU not the other way round BUSINESS QUARTER | SPRING 14

ENTREPRENEUR

BUSINESS QUARTER | SPRING 14

SPRING 14

24

SPRING 14

ENTREPRENEUR

Volume rising: Alissa Vassilkova of the Estelon brand, which is attracting increasing interest within the international audio technology market

Technological and marketing nous are helping a fast-growing Tallinn firm make waves in the international high-end speakers market.

Colin Donald meets the family team behind its booming success

NOISE MAKING ON A GLOBAL SCALE In Soviet times, the Silikaltsiidi industrial estate south of Tallinn would have been out of bounds to the prying eyes of visitors, in case the products of the tree-surrounded factory buildings let slip military secrets.

Today a visit with a photographer to Estelon HQ on the outskirts of the Estonian capital also involves a degree of pre-negotiation and deployment of cloths and curtains. This time however the caution is for non-sinister commercial reasons.

I am here to meet Alissa Vassilkova, the business and marketing brain behind the Baltic states’ pre-eminent audio technology manufacturer, along with her father Alfred Vassilkov, the technician whose genius made possible the runaway success of their company Alfred & Partners and their Estelon brand of speakers. Their “high end” [technically top notch] audio firm is putting the finishing touches on their most important product to date, a two-metre high Estelon X-series speaker, called the Extreme, due to launch in May at Munich’s High End Consumer Electronics Show.

These items retail at €150,000 a pair, and the Vassilkovs cannot risk any advance leaks that would alert competitors, or detract from

their unveiling. It seems typical of Alissa Vassilkova, Estelon’s founding partner and marketing supremo, that nothing should be left to chance. The company that aspires to manufacture the best hi-fi speakers in the world aims for purity and precision in everything it does. That includes a tight control of the information, imagery and marketing messages transmitted to the rarefied world of super high-end audio, where six figure prices are taken for granted.

“We are launching the Estelon Extreme at the High End show in Munich on 15 May, though we will have private launch events in some countries before then, probably China, Taiwan and the USA and we are working on the schedule now,“ Vassilkova says.

Costing the equivalent of a super-luxury car, the new Extreme model is the apex of a

series that has, in a few short years, seen the 10-employee family start-up celebrated for a perfect marriage of design and function, aesthetics and physics. The result is not just great sound, but an exciting global business proposition whose growth potential has attracted some of the Baltic region’s most savvy angel investors.

One of them is Sten Tamkivi, the partly California-based former general manager of Skype Estonia, a contributor to the initial €130,000 investment that helped to launch the company in 2011, along with the highprofile Finnish investor Jaakko Karo. Tamkivi is now planning a second tranche of funding to support Alfred & Partners’ growth plans, and is rallying support from other wealthy potential backers. Tamkivi tells BQ Baltic: “I’ve been interested in technology >>

No doubt we will see much more awe-inspiring global success in years to come

25

BUSINESS QUARTER | SPRING 14

ENTREPRENEUR and great product design and start-ups with global ambitions for my entire career and enjoyed high-end audio as a hobby.

Estelon sits uniquely in the intersection of all these areas.

“When I heard that Alfred was about to launch a new company, as a culmination of all his experience, it was an easy decision to support this.”

He adds that Estelon has made “amazing progress” and has “no doubt that we will see much more awe-inspiring global success in years to come”.

Meeting Alissa Vassilkova in person, it is easy to see how Estelon has made such a big noise in a short time. Those who know the world of high-end electronics, which gathers annually at Munich and the Las Vegas CES [consumer electronics show], will know that charismatic multilingual young women are relatively rare in a business that, to a casual observer, seems dominated by ageing bearded men with pens in their breast pockets, peddling what many see as the ultimate in (rich) boys toys.

Few can be as commercially focused as Vassilkova, who has a parallel career as head of the Centre for Executive Education at Tallinn University of Technology, a job that she says, fits well with her company role.

“We offer consultancy and training courses for managers. It’s all about learning about companies and what kind of problems they might face and then finding solutions.

“I should say a big thank you to that job, for all the knowledge I got from there, I apply it to Estelon. And everything I learn from Estelon I can apply at Tallinn University of Technology.

I really get a lot of practice in international business and marketing so those two jobs support each other”.

Understanding business strategy is a skill that perfectly complements knowledge of the technical field. Along with her sister Kristiina, Alissa Vassilkova has been steeped in the science of audio since childhood; as well as bedtime stories they got impromptu lectures on electrical circuitry. Their ears are as well-tuned as a wine-taster’s tongue, or a perfumier’s nose.

“We [children] were always aware of what was happening in the market and what Alfred was doing, and what he was working on.

BUSINESS QUARTER | SPRING 14

SPRING 14

It was because of this interest we made the decision to create Estelon.”

First and foremost, this multilingual (Estonian, Russian, English, Spanish) former ballroom dancing champion and keen cross-country skier is an astute and practical businesswoman and “sort of a workaholic... if I have a normal working day I feel it’s not enough, I need something more.”

She and Estelon owe a lot to Alfred Vassilikov’s 30-year experience, having been trained in the competitive tradition of Soviet science and engineering, where brilliant ingenuity and hard graft compensated for lack of resource.

The synthesis of this solid science with the best of contemporary north European design and manufacturing tradition, and projecting it via a skilled practitioner of modern marketing and strategising, has proved a killer combination.

After years of painstaking development, financed by family savings and grants for innovation, patents and export programmes from the agency Enterprise Estonia, the company is confident that it has come up with what it claims to be the perfect blend of form and function, form and material - the latter a crushed marble composite which is “a special recipe that took us five years to develop”. All the manufacturing is done in Estonia, though some specialised processes, like the application

Even the delivery process is minutely thought out. Estelon speakers come in custom-made, ingeniously-designed cases with detailed instructions on how to easily unpack and install these bulky and very heavy objects.

First unveiled to the world at the Rocky Mountain Audio Show in Denver in 2010, the speakers have been hailed as something new in the hi-fi world, allowing which music can be heard with crystalline clarity, without the extraneous sonic “colouration” added by highend systems of equivalent price deliberately or inadvertently.

The heavily-patented curvaceous design is at once functional, distinctive and unique, described by the British magazine Hi-Fi News as “deftly bridging the gap between radically bizarre and the domestically acceptable”, and as “having the curves of Sophia Loren”.

Alfred says with a smile that the tops are sloped to stop women putting flower vases on top of them.

The “feminine” shape of Estelon’s speakers, enhanced by the sleek coloured finishes might be described as iconic if that word didn’t imply mass-recognition that Estelon has no aspirations to achieve.

“We will never be a mass market product” Alissa says, a touch proudly.

Why not? Because it doesn’t need to be. With

It’s true that we are selling to the super rich, but they tend to be very intelligent people

of paint – “the same used in Formula 1 racing cars” is subcontracted elsewhere. The top of the range colour, a deep red that darkens at certain angles, “contains some kind of stone from Africa” and costs extra.

Vassilkova claims modestly that marketing Estelon takes no special skill: “A great product is half the battle, if you make that you don’t have to lie about it. The function is really good and the design is interesting, though as with art objects it’s a question of taste whether people are going to love them or hate them.”

26

prices ranging from €17,000 to €150,000 for a pair, this is a high product for the very wealthy, a niche market on a very high shelf.

“It’s true we are selling to the super rich, but they tend to be very intelligent people, we want to associate our product with these very intelligent people at the top of the market.”

So not the vulgar rich? After all there is always a demographic – a growing one – of customers who will buy expensive status symbols because they are expensive. Vassilkova prides herself on the discernment, and >>

SPRING 14

ENTREPRENEUR

Sound foundations: Estelon’s father and daughter team has proven a powerful combination in business

27

BUSINESS QUARTER | SPRING 14

ENTREPRENEUR

status, of her customers, and the dialogue that they enjoy with the company. If we look at the customers, the ones that know about sound, they are impressive people in very good positions.

“We have managed to attract two different markets,” Alissa explains.

“The high-end audio market, and the highend lifestyle market. This is the reason why we have got so much attention because it really was different from what was on the market before.“ Vassilkova leafs through some glossy magazines, one in Portuguese, one in Chinese, aimed at the international jet set, depicting Estelon speakers in their various alluring colours dotted around luxury interiors, amidst ads for luxurious yachts, Aston Martin cars, and Rolex watches.

Although these speakers will always make a strong statement due to their sheer size and weight (between 49kg for the XC and 86kg for the Model X Diamond), the fact that they

BUSINESS QUARTER | SPRING 14

SPRING 14

also look cool, and not like something that has escaped from a physics lab, gives these speakers a powerful appeal for those with trained ears and deep pockets.

“If you look at high-end speakers, mainly they are variations on a theme: boxes, boxes or boxes, often the design worked simply to emphasise the very high technological specifications. So we conceived our range more as sculpture or a piece of art.

This was our goal as well, do something different and enter the luxury market.“ “There are other people who don’t do boxes but their designs are still quite technically-led. We think this is more like art and people respond as they would do to a piece of sculpture.”

Judging by their sales, and the numerous industry awards, the gamble that connoisseurs

28

of sound would respond to these spaceage shapes and textures is paying off.

Estelon speakers now sell in 28 countries, via a network of 14 different distributors. Just as they are shy about showing the model designs, the Vassilkovs are super-cagey about their sales figures and profit margins, considering such information to be commercially advantageous to competitors: “We try not to share this very sensitive information, it could harm us,” Alissa says politely.

Under pressure they concede that their strongest markets at present are East Asia, but the US is also a hot market for them. The bottom line is that its growth trajectory is spectacular; the firm claims to be doubling its sales on an annual basis and is seeking more manufacturing space, and preparing to recruit

SPRING 14

additional staff. The sales reach is built up by tireless, jet lag-defying person-to-person contact at high-end trade fairs, where the combination of the speakers themselves and Alissa’s energetic presence has opened many doors.

“Most of our distribution deals are negotiated at trade shows, you get contacts there, and you learn who the distributors are. The audio equipment industry is a very big industry but on the other hand the high-end is a very small part of it. So you really have to work to find those high end distributors, but while it is important to make those contacts, what is more important is to make a good product.”

I ask Vassilkova about the Estonian national brand, and whether that yet has any meaning for overseas markets, as say, Sweden and Denmark have for the design of household furnishings. She says that, in the eyes of faraway markets, the Baltics are mixed up with the Nordic countries, though oddly, the Estonian brand is big in South Korea: “Estonia is really popular there, and seems to feature on TV shows, it’s surprising how much they know about us, and say ‘wow, you’re from Estonia!’. Interestingly, the Asian markets invariably prefer Estelon’s more expensive, glossy coloured finishes to the matt black and white ones that are preferred in European markets.

What is next for Alfred & Partners once May’s launch is out of the way? The attention they have received, and the growth they have achieved suggests that they might be ripe for a lucrative takeover and assimilation by one of the bigger US or European high-end hi-fi players. Are Alfred and Alissa committed to remaining a proud, independent Estonian company?

“For now yes, but in the future who knows? For us it’s a family business and we always want to be a part of that. For me it’s something special because it was my Dad’s dream that he wanted to create this, and I’m so happy to be a part of it. This is not the kind of start-up where you aim on making it big in five years and then sell up.”

The way she says this, and the warm family feeling that has made it possible, are enough to convince me that Alissa does not have a secret sell-out plan under wraps. n

ENTREPRENEUR

From state-owned firm to soaraway success Estelon, the trading name of Alfred & Partners, is very much a family affair, based on the decades of experience that Alfred Vassilkov (55), a graduate of the elite [then] Leningrad Electrotechnical University. After graduation he spent 30 years working in sound reproduction mainly for the state-owned Soviet company RET, founded in 1935, whose Tallinn-made “Estonia” radios were considered the best in the USSR and famous beyond its borders. Says Alfred: “They were quite expensive by Soviet standards, but of course that meant they were still quite cheap. Tallinn was the home of the Soviet Union’s highest quality technical engineering which included amplification.

“There was no advertising and no consumer choice, and demand was always greater than supply.

Within the parameters that the company was given, the sound quality was quite good, and they were built to last. Speakers built 30 years ago still work!

“After the collapse of the Soviet system, the writing was on the wall for RET: Everything collapsed, it was a crazy time, one of our factories was closed under orders from Moscow. We had been happy to be bankrolled by the state to produce something, but when they opened the door to the rest of the world, we saw the great difference in quality”.

Since he ceased to be a state-sponsored technician, Vassilkov has worked for various companies including RET’s post-Soviet successor company Audes, and others, dreaming of making the perfect speaker.

“You know crazy scientists,” says his daughter (27) “They always want to do something better than before, which is why he started testing components and playing around with cabinet shapes. Estelon was born without compromises. We didn’t set ourselves the usual price limitations, we just made the product as good as we could, with the best possible components, or we developed our own, without looking at the cost. Only when the speakers were ready did we make the financial calculations. Luckily the price point we needed fit perfectly into the market when we made comparisons with competitors. The decision to start the company was taken “around the breakfast table”, and after the prototypes were unveiled, the first models were shipped in February 2011.

As well as Alfred and Alissa, the company also consists of Alissa’s sister Kristiina who works on finance and investor relations, Alfred’s brother Valeri, a brilliant mechanical engineer, and his wife Marina who helps with the accounts and administration.

29

BUSINESS QUARTER | SPRING 14

INTERVIEW

SPRING 14

BACK WHERE HE BELONGS BUSINESS QUARTER | SPRING 14

30

SPRING 14

INTERVIEW

Having helped post-Soviet Lithuania to get on its feet, Mantas Nocius now wants to take it through the next crucial stage of economic development. Colin Donald meets the Enterprise Lithuania head

Aged 48, he seems a bit young to be a “founding father”, but Mantas Nocius was present at the creation of Lithuania’s modern economy. Two decades have passed since he, as a bright young economist in government service, helped shape the newly independent nation. Now he’s back, recently appointed as head of inward investment agency Enterprise Lithuania, with a brief to spur on the Baltic’s largest economy as it readies itself for euro accession in 2015.

Back in the day, fresh out of university, Nocius’s job was to help shape health policy and liaise with foreign governments eager to help the upstart ex-Soviet nation.

Since then Nocius has worked as head of the World Bank’s Lithuanian office and as an adviser to the Prime Minister, and head of inward investment agency Invest Lithuania, as well as in senior private sector roles.

Most recently he was as senior consultant for Deloitte.

He sees his new task as spreading the gains of Lithuania’s growing prosperity throughout the regions, dispersing it more evenly amongst the country’s three million-strong population.

“I was with Deloitte for just over three years. I would have liked to stay there a bit longer but then this job became free,“ he says ruefully.

“Life has its own ways of working out.”

Enterprise Lithuania has a budget of LTL 24 million (€7.24m) and a staff of 50 people, 10 of them in support roles. Its budget allows it to deploy a small army of expert private sector consultants to further its ends.

What are these ends exactly? Mantas defines success for the agency – and for Lithuania – as “establishing the country‘s image in its main markets, creating international brands,

Investment hunter: Mantas Nocius, head of Enterprise Lithuania

competing in niche markets with manufactured goods and services, improving the business environment, and [exploiting] the new opportunities opening in East Asia”.

Although the country’s problems have been much discussed since the Europewide financial crash, Nocius is clear about Lithuania’s strengths, and takes pride in its rapidly growing economy, at 3.4% one of the strongest in the EU. One of these strengths is a strong manufacturing sector – comprising 23% of GDP, well above the 20% seen as the continent-wide goal for 2020 set by the EU. Manufacturing (mainly food, chemicals,

of an organisation that, he says, is “doing pretty well”, and seems impressively focused on measurable results.

“When I looked at the Enterprise Lithuania budget figures I was really happy about it.

Most of the money is EU funds and I think with this amount of money we can get really good reviews. It’s less than US$10m, but you can do a lot with that.”

The agency, he says, is distinguished by the quality of its talent, many of which are young and confident, just as he was back in the heady days of the 1990s. Retention is generally good. Nocius sees the importance of

Easier said than done: The European Commission’s prescription for Lithuania.

1. Reduce spending, prioritise growth-enhancing projects, and raise taxes that don’t threaten jobs 2. Reform over-generous pensions, restrict access to early retirement and promote employability of older workers 3. Reduce unemployment by improving youth employability and making it easier to hire and fire 4. Reduce poverty and social exclusion 5. Complete reform of the State-Owned Enterprises, separate ownership and regulation 6. Improve the energy efficiency of buildings Source: European Commission Country Specific Recommendations 2013

furniture) and strong exports of these goods have been the main drivers of a rapid recovery after the real estate bust, a healthy sign, according to Nocius: “Lithuania can move further, creating more manufacturing jobs in its regions, resolving a number of social problems and reducing emigration.”

Brisk, articulate and formidably focused, Mantas Nocius is a man on a mission. His discourse is free of the latest economic development jargon which many practitioners deploy to deflect from their lack of actual impact. Nocius has taken over the leadership

31

retaining and developing the next generation of economic leaders, which starts with paying them well. The overall approach seems to be working, in tandem with the foreign direct investment body Invest Lithuania, sister to Enterprise Lithuania, which Nocius headed from 2009-2012. The former agency can take much of the credit for attracting big name foreign investors. Individually and collectively they have made a significant difference to the way the country sees itself in economic terms.

Companies choosing Lithuania over its many competitors include Barclays Bank, Ryanair >>

BUSINESS QUARTER | SPRING 14

INTERVIEW

SPRING 14

Retail revolution: Bringing Ikea to Vilnius has proven surprisingly successful for all concerned and the UK credit management company Call Credit, mainly to the main cities, Vilnius and Kaunas. Swedish home goods retailer Ikea is another big catch.

“We participated in getting Ikea to open a store in Vilnius which was a bit unusual, normally foreign direct investment agencies don’t work with retailers but here was a bit of a special case, because it’s a bit of a symbolic thing to have Ikea here. They were initially reluctant because they considered the market was too small.

“Perhaps it’s a rumour but now I am hearing they are selling out in Vilnius and are having to restock, because there are plenty of people coming from Belarus and Latvia. But this should not be a surprise as Lithuanians used to go to Warsaw Ikea which is 500 kilometres away!”

However Nocius’s vision amounts to more than chalking up names of blue-chip foreign firms encouraged to take advantage of Lithuania’s favourable business conditions, relatively cheap labour included. In a highly competitive world, outsourced international companies will come and go. Far more important, he suggests, is to increase business activity to confront the country’s enduring pockets of poverty and diminish the costs of provincial Lithuania’s endemic social problems. These

BUSINESS QUARTER | SPRING 14

exist, he says, not in any particular blighted region, but in small clusters of poverty often close to abandoned factories throughout the country’s 65,000 square kilometres.

“We have to admit that regional development is really very important. You can take a different approach from some other countries, where it is considered that we should just leave regions to sort their problems out as people will be able to move to the capital city or somewhere else if they want to grow.”

This option is tempting, he says, because “it’s really difficult to deal with small companies in small towns. The people are not as sophisticated or as dynamic [as in the cities] and indeed if you look at it from a purely business perspective it’s difficult to find an economic justification. It’s easier to build up companies in Vilnius and Klaipeda and they will generate exports and so on. But you

should factor in the social costs arising from the lack of opportunities outside of the cities.”

Nocius tallies up the main costs as a steady outlay of unemployment benefit, in the costs associated with poor health, much of it alcohol-related, and of course emigration.

Although the workplace presence of tens of thousands of bright and motivated young Lithuanians is a highly noticeable benefit to countries like the UK, this seepage of youth and talent he says is a “significant issue” from which Lithuania suffers even more so than the other Baltic States on a per capita basis.

Nocius wants to tackle the problem head on; first of all by understanding what it is that draws people away.

“In some respects emigration is just the natural outcome of EU accession, but there is also a psychological factor to it. Some people think that if they were living in the UK or Ireland or Finland that they will find a better life, and then somehow they are ready to work harder than they would work at home in Lithuania, for longer hours, in an apartment they are sharing with four other people. But if they were able to agree to the same conditions here, they could have a better life here as well.

Somehow we need to understand and address this psychological factor.“ Free movement and the draw of other EU countries – exacerbated during the 2008 economic crisis when unemployment hit 19% – is not just the cause of a Lithuanian brain-drain, it also serves, he says, to dilute Lithuania’s work ethic at the lower end of the social scale, which already suffers from what he calls “voluntary unemployment”; circumstances in which “some kids grow up in families where their parents are unemployed and they cannot imagine their life in a different way”. According to Nocius there are too many rural Lithuanians who can adopt >>

We should trial different things in different places, identify the problems and work out solutions...If you do everything at once the risks are too big

32

SPRING 14

33

INTERVIEW

BUSINESS QUARTER | SPRING 14

INTERVIEW

SPRING 14

a lifestyle of doing very little most of the time, who can get away with occasionally “earning enough to buy a 10-year old BMW” by taking months of work on the building sites of London or elsewhere.

“Enterprise Lithuania’s job is to help government find ways to deal with these situations. Not all of our recommendations will be implemented because there are of course elections to be won and so on, but if even a third of what we come up with was brought to life, that would be a great result.”

All of which makes the point, that to Mantas Nocius “regional development” means a fundamental rethinking of how Lithuanians relate to their society, and is not just a euphemism for handing out European money to subsidise continuing poverty and under-performance. His role model appears to be Finland – often cited as a pioneer in confronting tough social problems. And it’s

BUSINESS QUARTER | SPRING 14

not that he is against subsidies in themselves, it’s more that he thinks they have to be exceedingly well targeted to be effective.

“Look at Finland’s example and their efforts to deal with regional development. They support small businesses in small villages, and if you go to those villages you can see the results, people seem happy and business is booming.

About the worst thing you can do is just to pour money in. It could work in terms of the short-term political cycle, but in the longer term it’s not sustainable. We warn politicians against doing these things.

“I think plenty can be done to help people in the countryside without pouring in subsidies.

This may just be engaging with people directly, explaining to them how to deal with the banks, and perhaps even walking them to the bank personally. We help them to get their first loans and offer consultancy services that help remove barriers for businesses.”

34

What sort of barriers exactly? “It sometimes happens that the local council in small towns is staffed by businessmen who don’t like competition and are not so keen on new companies coming into the area, and a little pressure from central government, for example if the Prime Minister says that the region should receive some new investment, that can work well.”

From the way he describes it, Nocius seems to be suggesting a change in the relationship between the agency and its clients, from the traditional vertical, topdown donor-beneficiary relationship to more of a peer-to-peer partnership, one in which Enterprise Lithuania helps secure training and bank guarantees, but which acts more as a facilitator of a process whereby businesses are encouraged to learn from each other. The agency’s experienced staff will, for example, organise inspirational presentations for clients from other businesses who have managed to flourish.

“We should trial different things in different places, identify the problems and try to work out solutions, and see how it works. If you try and do everything at once, the risks are too big. If something isn’t working, you try something else, but if you try and do everything at once, you are left with nothing.”

All of which has to bring results, on which he is prepared that the agency is judged.

Nocius claims to have credible evidence that companies who get advice from Enterprise Lithuania are already more than 10 times less likely to “go under” than those who don’t.

“Because we don’t have that many people we subcontract private sector consultants which can be a big challenge because you have to supervise them well. I’m not telling you they are lazy, but if you cannot formulate exactly what it is they are supposed to do, they will chose the easiest way. You can hire McKinsey, Bain or BCG, but it won’t change this situation.”

This all sounds like a departure from the more common public sector practice of splashing out taxpayers’ money on these fancy consultants in order to duck responsibility.

Economic development quangos (quasiautonomous-non-government-organisations) the world over tend to be defined by this

SPRING 14

kind of bureaucratic buck-passing. As the unspoken priority is the preservation of the quangocrats’ own well-paid jobs, they tend to avoid exposing themselves, keeping their key performance indicators and goals open to interpretation, while surrounding themselves in clouds of development mumbo-jumbo.

An hour or two spent in the company of Mantas Nocius demonstrates that this is not his style, which instead suggests a tendency to cut to the chase. He sets himself an admirably high bar. “We aim at measurable results in two or three year’s time.

“The crisis was tough, but even then it was not as bad, say as the one that Finland faced after the breakup of the Soviet Union where you could see all the empty shop windows and trash on the streets.

“After we regained our independence in 1991 everyone thought we could be like Sweden within 10 years, so there was some disillusionment. But people in Lithuania are still dynamic; they are still hungry and are ready to work really hard. They are not spoiled.

“It’s clear that Europe has to be more competitive. We cannot just sit back and have long holidays. Lithuanians in particular are able to bring in a bit more hunger as in order to be respected we have to work harder to be smarter.“ A high profile figure, not least because of his work as an adviser to the controversial prime minister Gediminas Kirkilas (20062008), Nocius agrees that he is “putting his reputation on the line” in his efforts to make a difference to Lithuania’s economy. He is prepared to risk being called a failure if he doesn’t.

“People are not stupid. If we fail, people will at least see that we made a real effort. I am not thinking about failure, as that means you will be predetermined for it, but at the same time, it’s not something you should be afraid of”.

Mantas Nocius could have opted for an easy – also better paid – life as a senior consultant for Deloitte, a back seat driver on Lithuania’s bumpy journey towards the prosperity that he and other young technocrats envisaged in the post-liberation years.

It’s better for all concerned that he now has the wheel in his hands. n

INTERVIEW

Independence days: (left) Mantas Nocious in 1992 in the year after independence.

Below shows German pilot Mathias Rust in Red Square

Looking back on the last days of the empire Like many young citizens of Soviet Lithuania, Mantas Nocius’s first “job” was in the Red Army, and “being conscripted into the enemy army ain’t much fun” he tells BQ Baltic. The best day, he remembers, was 27 May 1987 when solo teenage German pilot Mathias Rust penetrated five “impassable” rings of Soviet air defence to land his Cessna in Red Square. “That was the first sign that the Soviet Empire was starting to crumble and it might be the beginning of the end.”

He was right. Four years later, in the aftermath of liberation, the fluent English-speaking economics graduate from Vilnius University embarked on the “big adventure” of preparing Lithuania’s emergence as a EU member state. His focus was in public health.

He then spent 12 years with the World Bank, in energy and infrastructure, then for seven years as country manager. The World Bank was the biggest lender in Lithuania, lending more than half a billion dollars, “a large amount of money in those days”.

Nocius remembers fondly this first stage of Lithuania’s transition to the open market economy.

The financial markets were closed to this new player, and until 2002, the Bank was the largest single lender to the country. In the early stages its interest rates were often more than 700 basis points lower than of the other lenders.

As well as being lender of last resort, the World Bank was also a mentor for sweeping structural reforms. “It was a great time. Usually IMF and World Bank advice works well in small and open economies. It’s much trickier to advise bigger countries like Argentina where people have a cultural or traditional dislike of international advisors.

“It was convenient for the Government to say ‘we don’t want to do this but the IMF or the World Bank is pushing us to privatise the state owned banks’”. That example was one of his proudest achievements transforming the quality and transparency of loan decisions, and removing the risk of political interference. Countries that did not do this, like Slovenia, have lived to regret it.

35

BUSINESS QUARTER | SPRING 14

COMMERCIAL PROPERTY

SPRING 14

Hilton plan takes shape, retail landmark will hit new levels, Riga park extended into new pastures, smart homes to shape the Tallinn skyline, and Vilnius office market picks up

>> The first Hilton in the Baltics will be built in Tallinn A new upscale hotel operated by Hilton Worldwide replacing the current Reval Park Hotel & Casino in Tallinn, Kreutzwaldi St, is set to be completed by the end of 2015. The new hotel and entertainment complex costing around €36m will be constructed by local builders Merko Ehitus Eesti.

According to Armin Karu, chairman of the board of Olympic Entertainment Group, “this will be a unique and exclusive establishment for Estonia, which offers a combination of extraordinary entertainment and accommodation services for business and leisure tourists, and which can be successfully sold also to such foreign markets as Northern and Central Europe as well as Russia.”

In addition to the construction, Merko Ehitus will also manage the design process and lead as a main contractor for the decorating and furnishing of the building, said Tiit Roben, CEO of Merko Ehitus Eesti. The building project involves the radical conversion of the existing Hotel, an eight-storey, 121-room hotel dating from 1969. It will be replaced by a 13-storey outstanding hotel and entertainment complex designed by Tallinn architect Meelis Press. The new building will be structured as a low, 4-storey building topped by a 9-storey high section. The lower part will contain the lobby, a casino, a conference centre, spa and restaurant. The higher part will contain rooms and suites. The top three floors will be executive floors, where rooms have French

BUSINESS QUARTER | SPRING 14

>> Akropole in Riga will raise shopping on to a new level Riga citizens are used to an abundance of shopping options, but according to developer Akropolis Group, they will soon will be able to enjoy retail therapy to an unprecedentedly lavish scale. Riga is getting its own Akropole shopping centre, built by Lithuanian company Akropolis Group UAB in Kengarags suburb of Riga, 15 minutes drive from the city centre. The 14.8 ha of the former Kuznecov porcelain factory territory will be transformed into a shopping, leisure and business centre with ice-skating arena, cinema, bowling, food-court, and Maxima XXX. Total investment in the project will be about €100m. The complex will be ready to accommodate 200 tenants on 60,000 sq m of retail and 6,700 sq m of office space, which makes Akropole one of the biggest Riga shopping centres by gross leasable area (GLA). The developers have pledged to retain the historic heritage of the site. The building of the porcelain factory will be brought back to life on the first floor of the centre, which will be converted into a colonnade and where a full-size chimney will be reconstructed. There are already two centres, Mols and Azur, in the close proximity to future Akropole, but Arvydas Tyla, head of development at Akropolis Group, says “the concept of Akropole differs from other shopping centers and we are used to working in tight competition in the market. On the other hand, we always see competition as engine for perfection, as it moves the whole market forward and is good for consumers”. Following the tragic collapse of Maxima shopping centre in Riga in November 2013, tighter technical control will be introduced and the technical solutions for design are expected to be subject to expert scrutiny.

balconies. The top floor of the hotel will hold an executive lounge. There will be a parking lot under the building with a landing deck for helicopters still under consideration. Michael Collini, vice president development for Turkey, Russia & Eastern Europe at Hilton Worldwide, said the following about the project: “Hilton Tallinn is a superb example of our core Hilton

36

brand expanding in capital cities and popular destinations across the region. Due to the hotel’s extensive business and leisure amenities we expect it to appeal to both international and local guests. We feel there is a diverse demand mix for the hotel’s high quality accommodation, which includes 202 guest rooms and suites.”

SPRING 14

>> Baltic Industrial Park in Riga expands LNK Properties, the biggest real estate developer in Latvia (turnover €5m in 2013), is currently fulfilling the second stage of development in its Baltijas Industrialais Parks (Baltic Industrial Park, BIP). BIP is one of the major warehouse, production, trading and office building complexes in Riga, located within 10 minutes ride from the Old Town, on 7 Piedrujas St. The industrial park was put into commission in 2002 after the 1st construction stage, offering premises with a total area of 15,000 sq m, with tenants such as Anitra, Sika Baltic, BE Group, Besecke, Selecta, etc.

BIP is not the only industrial park in the Baltics, but it profits from one of the best, most central locations, as well as being in close proximity to all necessary infrastructure in Riga.

Since there is increasing demand for modern commercial premises, LNK started the second stage of development at BIP, broadening its territory to 5 hectares and expanding production, trading, warehouse and office premises by 3,500 sq m. Office, warehouse and trade premises will be offered in a metric area ranging from 100 sq m to 5,000 sq m. Taking into account the high interest of potential leaseholders, LNK Properties also plans the 3rd stage of Industrial Park’s expansion, increasing the area of warehouses, offices, trading and production premises by an additional 6,000-8,000 sq m.

>> First fully “smart” homes coming to Tallinn Merko Ehitus Eesti has begun construction of two apartment buildings in the affluent neighbourhood Kalamaja in Tallinn, Estonia, and is also finishing building work on Kentmanni 6, in the heart of Tallinn. Besides

COMMERCIAL PROPERTY

a good location, the flats feature smarthome technology, allowing utilities and the living environment to be controlled from a smartphone or tablet. The developers claim that they are the first homes with such complex “smart” technologies to be built in Estonia.

The project on Kentmanni 6 is almost ready and 82 apartments out of 94 are already sold out, with the price-per-square metre rating from €3500 to €5000. Award-winning architect Indrek Allmann has been working on this project. According to Simar Selezov, marketing manager of Merko Ehitus Eesti, “People value the best location in the heart

of Tallinn as well as Merko’s good quality, and new technologies”. Custom-made solutions developed by Estonian IT programmers offer unprecedented opportunities to make life easier, safer and cheaper. For instance, you can check whether the last person who left the flat has turned off the lights and water, or make sure you didn’t forget to turn on energy saving mode when leaving for a long vacation.

The system can also notify householders about water leakage, or whether a security alarm was activated in your absence. It is even possible to give access to guests if they arrive unexpectedly and find no one home.

>> Vilnius office market’s appeal broadens, with focus on sustainability increasing Strong economic growth and lower rates of unemployment are shifting Lithuanian develpers’ attention towards the expanding office market in Vilnius, according to the Newsec Baltic Property Market Report 2014. The supply of A-class business premises is set to increase and in total the Vilnius market will be expected to absorb about 90,000 sq m of office space. One of the large scale developments in Vilnius business district is Quadrum by Schage Real Estate, a part of Schage Group (turnover€€50m in 2013), whose total investment amounts to LTL350 million (€101 million). The complex will be situated in the centre of Vilnius, on Konstitucijos Ave. 21, spreading for 70,000 sq m in total. Interest in the premises is said to be high, and such tenants as the Danish bank DNB Nord and digital advertising company AdForm booking a total 14,500 sq m of space between them. BREEAM, the international environmental assessment method and rating system for buildings, assessed Quadrum as “very good”, meaning that the building stands out in terms of environmental and social responsibility. Schage plans to implement a smart ventilation system which turns itself off when the room is empty, “green roofs” saving rain water, geothermal heating, as well as numerous features that contribute to the well-being of employees and their work-life balance: green areas in the inner yard with pine trees, roof terraces, bicycle parking, and also showers. “As far as we know, there is only Pinus Proprius in Vilnius that also started a project with BREEAM certification. The trend is strong in the rest of Europe and will come to the Baltics as well”, says Kjetil T. Hanssen, general director at Schage. BREEAM is the world’s leading assessment method for sustainable buildings, with over a million buildings assessed across 50 countries.

37

BUSINESS QUARTER | SPRING 14

BUSINESS LUNCH

SPRING 14

FIGHTING THE CAUSE FOR BUSINESS

BUSINESS QUARTER | SPRING 14

38

SPRING 14

BUSINESS LUNCH

As the voice for business on Latvia’s top table of decision-making, Liga Mengelsone sees a bright future for the national economy.

Colin Donald talked trade unions and the future over lunch with the the Latvian Employers Federation chief >>

39

BUSINESS QUARTER | SPRING 14

BUSINESS LUNCH Liga Mengelsone is talking about “apple juice with cinnamon”, but it’s not on the menu she holds in her hand.

For the general director of the Latvian Employers Federation (LDDK) the recipe is a metaphor for Latvia’s special formula: “We are a very good mix. We have western thinking, but the eastern part gives it the spiciness”.

“As a nation our approach is quite ordnung [disciplined] as the Germans say, and we can work long hours. But we also have specific knowledge about our eastern partners. We are the bridge. Rather than going straight to Russia, which can be very challenging, let us be your translators, literally and culturally, your guardians.”

Most business visitors to Riga will have heard this already: Latvia as portal between the European and Russian spheres, lucky inheritor of a prime patch of global real estate. They won’t, I bet, have heard it put as persuasively as by Liga Mengelsone over lunch at the Biblioteka, one of the capital’s finest restaurants. The former newspaper publisher, who joined the LDDK in 2011, is a key player in the high-growth nation’s business scene, and a persuasive cheerleader for Latvia’s economic destiny.

Her table talk wanders over a vast canvas, switching effortlessly from the pre-Christian Baltic spice trade to the current National Development Plan.

Before we tuck into those meaty subjects, a minute to appreciate our surroundings: We are in the multi-award-winning Biblioteka No 1 Restorans, opened in 2011 and presided over by star chef Maris Jansons.

I had arrived early for our lunch date, but Ms Mengelsone was even earlier, pecking away at her smartphone in a quiet part of the 70-cover restaurant. It is the part that resembles the “library” the name suggests, albeit a library furnished by Ikea, the trendy Swedish furniture store.

It’s obviously a spot she knows well. Later, when she requests that “Maris” comes out to take a bow for his spectacular cooking, she greets him like an old friend.

This is not surprising, as the Biblioteka No 1, like Liga herself, is at the epicentre of Riga business life. Located in the Vermanes Darzs (Verman Garden), one of 19th century

BUSINESS QUARTER | SPRING 14

SPRING 14

Riga’s first public parks, the building that the Biblioteka’s terrace extends from has been a spa, a movie theatre and a pharmacy.

Now the restaurant shares this prime position with a casino and a nightclub, though its placid atmosphere and subtle service have nothing in common with such places.

For starters Liga and I talk about what it means to be Latvian to the accompaniment of dishes (lampreys in a soy marinade and red deer tartar) that are seasonal, fresh and locallysourced. An American survey designated Latvia as the second greenest country in the world, an implied stamp of authenticity on its natural larder. Enhanced by the magic of Janson’s cooking, these are flavours that advertise Latvia’s increasingly-celebrated food culture, presented with ingenuity and flair.

Liga tells me more about the LDDK’s work: essentially to represent business at the top table of national decision-making, particularly in a forum called the National Tripartite Council, where government intersects with business and trade unions.

The forum came into its own during Latvia’s crisis period, now thankfully fading into history, when the severity of the country’s problems and the radical “internal devaluation” [including wage-cuts of up to 40%] needed to counter them, could easily have led to Greek-style social unrest.

“It was a nerve-wracking period” Liga remembers. “The economy shrank by

18%. Only good co-operation and mutual understanding and attitude prevented Latvians from taking to the streets. It could have been very different. Of course it was dramatic, and there was lots of unemployment. But when I’ve asked my counterparts from other countries – especially the countries of “old Europe” – about whether they could have accepted this, they say ‘no way!’”

“I think the Latvian nation in general showed great heroism. Our organisation and of course our trade unions, allowed us to get through it patiently, step by step.”

I sense that Liga Mengelsone’s belief in social solidarity comes with a strong sense of the firm leadership, which she believes business must provide. Charming, frank, and often very funny as she is, I sense that if it were a boardroom table not a lunch table, it would be a different story. “I am quite a straight person” she says “maybe sometimes too straight. This position sometimes asks from me more diplomacy, more democracy so my style doesn’t work too well. I need to work on myself.”

She talks about her ongoing discussion with Latvia’s trade unions about the overtime pay provision, “the most difficult thing” in the new labour law currently going through the Saeima, Latvia’s parliament. The trade unions are holding out for 100% of normal hours pay, the LDDK says 50%. “That is our position and they haven’t agreed to that. It’s a very tough

It was a nerve-wracking period. The economy shrank by 18%... It could have been very different

40

SPRING 14

issue and we have already had a strike about it, but I hope we will find a compromise.”

Don’t get her wrong, Ms Mengelsone likes strong and professional trade unions, believing they should be integrated into companies enough to know balance sheet figures, productivity levels etc, but “they can’t just be in the position of demanding things.”

She believes they must face the realities of making recovering Latvia more competitive.

“It’s a big issue that employers can’t get rid of people, even if they are lazy or unprofessional.

The good thing is that the trade unions understand that these are not normal times and we are talking about it around the table, not in the streets.”

While waiters hover tactfully, we talk about former Prime Minister Valdis Dombrovskis, who left office in January, taking responsibility for the November 2013 Maxima supermarket disaster. She admired him, not least because of his readiness to take advice from the LDDK. She bridles when I repeat the accusation levelled by some intellectuals that the National Development Plan he led, informed by LDDK input, was an 87-page technocratic EU funding application, not an inspirational manifesto for the nation’s future growth.

BUSINESS LUNCH

“What! We spent hours, weeks and months last year working on this process over Easter while everyone else was away in the countryside. We insisted that the document should read like a business plan, not some fairy tale or wish list for Santa Claus. There was very wide involvement in this, and everyone had a chance to say what they wanted. Latvia needed a business plan, where it is clearly stated who is responsible for what, how much money we have in the state budget and from European funds, and also development money. I would be suspicious of anything you could put on three pages, you need tables, you need figures.

“Money for innovation, education, the roads, we know who the responsible ministries are and how many million Euros we have to spend. We [the LDDK] will be the watchdogs of this, we will ask if it has been done or not, we have decided that this is our role.

“The next plan will be better than the last plan, but this is better than the previous one, which really was a book of fairy tales. We can make this work, with a bit of adjustment to the left or the right where need be, but it hurts to hear criticisms of it.”

While we wait for our main courses – veal

41

cheeks with butternut squash, pot barley and cod with cauliflower puree and split peas – we talk about Latvia’s impressive workplace gender balance. She is not the first female director general of the LDDK and it was no big deal when the country’s first female prime minister Laimdota Straujuma, “Latvia’s Angela Merkel” as the press called her, took over in January. She is scathing about European equalities commissioner Vivian Reding, who wants to impose quotas on the continent’s boardrooms.

“I’m opposed” she says. “The joke in Latvia is that they need quotas for men. It should all be down to professional quality, not gender.”

Liga’s own high standards and the “values” she insists on, derive from her background.

Her mother was a lawyer, her father an engineer – “a brilliant brain” who imparted to her his ideas about business’s proper role in society and treated the sexes equally. “I also have some very interesting aunts who were professors.”

Her upbringing, she suggests, made her a “person of action”, one who prefers trying to change things to criticising from the sidelines.

“Everything starts from analysing something and then fighting for it. If you don’t take >>

BUSINESS QUARTER | SPRING 14

BUSINESS LUNCH

SPRING 14

Cooking the books: How Maris made Biblioteka No1 Like all the best chefs, Biblioteka No 1 Restorans’s globe-trotting Maris Jansons (33) prefers to let the food do the talking. Professional since 17, he has worked in Riga’s best restaurants, Vincents and La Boheme, before helping to launch Biblioteka in 2011. A board member of Latvia’s Chefs Club, he spends any spare time supervising the training of young professionals. BQ Baltic coaxed him from his kitchen to get his perspective on the state of Latvian fine dining.

Your menu suggests a desire to show off Latvia’s natural larder, am I right? High quality products are the basis of good food. Farmers who grow these wonderful products and fishermen are the real heroes. Basically I try to create dishes where these tastes are recognisable, but presented in a contemporary manner.

Is Baltic cuisine aligned with the Nordic trend for foraging and wild ingredients? There is definitely some influence from Scandinavia. We are a Northern nation and our climate is also rather rough so I think our eating habits are quite similar. However, income levels are different and Latvia is somewhat behind. But the philosophy about a self-contained environment, choice of local products and most importantly about the [national] identity will be developed further here.

Do you see Riga as a centre of fine dining? Culinary art in Riga has been developing very fast in the last five years thanks to my generation which, after training and working in this environment, is setting the pace. There are more and more new restaurants where chefs are the owners which makes a difference. We still lack the general level of national wealth to reach the level of the best Scandinavian cooking but we can feel that changing. After more than 20 years of independence during which we have tasted and tried different kinds of European and other cuisines, we are now developing the unique products and producers that will allow us to develop contemporary Latvian cuisine.

Are you aiming for Michelin stars for Biblioteka? Our goal is to grow into the marketleading restaurant, and to retain that status. I don’t think that Michelin stars will happen so soon.

It’s hard to gather five suitable restaurants in all three Baltic States, which makes it still too small to be interesting to [gastronomic] critics. What matters it that people come to our restaurant and they really like it. Just keeping it up at that level generates enough stress!

Two courses (appetizer and main course) for two people at Biblioteka No 1 Restorans costs around €68, with mid-priced wines at around €25.

BUSINESS QUARTER | SPRING 14

42

these steps yourself, nothing will happen.”

Under protest, Liga allows the waiter to pour her glass of Roseto del Volturno, a light rose from the Campania from Biblioteka’s heavily Italy-dominated wine list. Food as good as this demands an accompaniment. As we savour it, Liga talks a bit about the challenges of raising two boys (Karl, 6 and Gustav, 5) while maintaining a high-flying career, about the greatness of Latvia’s operatic singers, about the glories of Latvian black bread, and about her past career. An MBA from the University of Latvia, she worked for the Swedish newspaper publishing group Bonnier, where she learned about social and economic issues and the value of “high-speediness”. She helped a new science magazine that has help brightened up classroom life.

A genius for trading, she suggests, is engrained in the people of Riga. “It feels like the centre of the Baltic, because we are. It’s a multi-cultural city with good traditions, dating from the pre-Christian Balts who lived here before Bishop Albert founded the city.

“They had a very organised state, with a sophisticated trading system designed to promote the well being of every person in society, with strict rules about who could sell amber and spices to whom. Everyone had their job, and their income, that was the system until the Christians came along in 1201 and collapsed it! Everyone wanted to occupy Riga, its the place where trade naturally flows – it’s been our advantage and our problem throughout history, when we’ve been invaded by the Germans, the Poles, the Swedes and the Russians. Location is everything.

“Latvians are proud of their culture, and nowadays its best to think locally and act globally, which is why it’s encouraging that lots of young people who have experience of the world and have good management skills are marketing splendid new products based on Latvia’s natural provenance.”

As an example, she cites a company called Madara cosmetics, which she has been mentoring, that produces organic cosmetics and is also exploiting the commercial potential of the “juice” of Latvian birch. The company now exports to 100 countries.

It is Liga Mengelsone’s job to talk up Latvian business but she comes across as a pragmatist

SPRING 14

and a realist. The crisis has had its positive side, she suggests, as the country now knows the difference between wealth based on consumption, banking and real estate (although she sees enduring value in building Russian-friendly “non-resident banking”), and what she calls “producing real stuff that is made here, by our resources, by our employers and our workers. That makes added value by getting euros, dollars or roubles.” Latvia, she proposes, is better-placed than much of “old Europe”, as it has fiscal discipline, both from its crisis retrenchment and the preparations that ensured the smooth joining of the Euro in January 2014. “Given Latvia’s history I would say we are quite German.. but in a good way”. She smiles.

Most memorable is her pride in Latvia’s achievements and anticipation about the future of a country that has accomplished

BUSINESS LUNCH so much since independence in good times and bad, and whose business ethos and work ethic can match the best in Europe. Right now the growth rates are better than the rest of the EU’s and continuing this will be the spur to the repatriation of Latvian talent.

“The majority would like to come back – not all, but the majority. They are economic refugees, and as soon as our business and entrepreneurs can afford higher salaries, they will be back. They need their own society, their family and their friends”. As we say our hurried goodbyes (the lunch has overrun), and leave the restaurant it occurs to me that the Latvian Government should send Liga Mengelsone abroad to chivvy the diaspora back to the motherland. If they do come back, and flourish in the new Latvia of Ms Mengelsone’s dreams, they can aspire to eat as well here as in any European capital. n

43

BUSINESS QUARTER | SPRING 14

RESTAURANT REVIEWS

SPRING 14

Corporate leaders and entrepreneurs based in the Baltic or visiting here for trade talks have an abundance of choice when it comes to food and drink spots for business or pleasure >> Restaurant Ambiente Kaleju 9/11, Riga, Latvia Riga has a rich architectural legacy and plenty of wonderful Art Nouveau buildings.

So what could be more appropriate for a restaurant than to allow guests to travel back in time and enjoy fine dining in an authentic environment? Located next to the Hotel Konventa Seta in a historic townhouse in the very heart of Old Riga, Restaurant Ambiente is the first restaurant in Latvia designed as a classical five-room art nouveau apartment. Apart from décor and ambiance the famous style can be also experienced in the exquisite menu, which contains a wide choice of Latvian and European cuisine that is enriched with taste delights and nuances characteristic to the art nouveau turn-ofthe-century era. Try Marinated herring with apple salad and raspberry marinated beets – at that time people valued simple food prepared in a sophisticated way. Each working day from 12pm till 4pm Restaurant Ambiente also offers business lunch. Further special offers include monthly changing meals created by chef Maris Pastars with seasonal local products, and suppers in the dark.

Reviewed by Alexander Welscher, Riga-based journalist Contact: T: +371 6708 7580 E: ambiente@kolonna.com W: www.ambiente.lv

>> Platz

Roseni 7, Tallinn, Estonia Simple sophistication characterises Platz, located in the trendy Rotermann Quarter in Tallinn’s city center. The décor is rustic, yet refined. During summer, Platz opens a large terrace on Rotermann Square where diners can enjoy a quiet meal right in the heart of a bustling city centre. Chef Silver Teeääre’s food matches the restaurant’s atmosphere. The menu does not reflect seasonality per se, as asparagus is certainly not at its peak in February; however, the menu does feature dishes which strike a balance of continental European flavours with subtle hints of Asian flair, all the while avoiding the risk of fusion confusion. Take, for example, the duck fillet, served with a slice of duck liver and complemented with cardamom-spiced pumpkin purée and caramelised chicory with an apple wine sauce. The richness of the duck is wonderfully paired with accompaniments both sweet and spicy. Service is professional and friendly, and the staff is knowledgeable about the extensive wine list. Many wines are available by the glass. Platz was rated number 38 among Estonia’s 50 Best Restaurants in 2013.

Reviewed by Kristina Lupp, Tallinn-based food writer and translator Contact: T: + 372 664 5086 E: info@platz.ee

BUSINESS QUARTER | SPRING 14

44

SPRING 14

RESTAURANT REVIEWS

>> Bistro 18

Stikliu g. 18, Vilnius, Lithuania The thick walls and curved roof of Bistro 18 in the heart of Vilnius’s fabulous glorious old city must have seen a lot over the centuries. In its time, this wine bottle-lined cavern in the Jewish ghetto has been a salt merchant, a milk bar and even a Chinese restaurant.

Nowadays under the proprietorship of Dubliner Ann Jennings and her Lithuanian chef husband, Saulius Taucius, with daughter Caoilfhinn helping out, Bistro 18 is simply a shrine to good food, which reminded this diner of the Warren Buffet quip: “It’s simple, but it’s not easy.”

The couple believes in interfering as little as possible with Lithuania’s natural larder, they source the best ingredients they can and manage the amounts to ensure maximum freshness. Taking them at their word, I went for the carpaccio of beef fillet with rocket salad and shaved parmesan for my lunchtime starter, balancing this carnivore choice with a risotto with forest mushrooms, both of which were zinging with taste, and beautifully presented. My partner’s French onion soup and grilled lamb cutlets with cumin roasted potatoes and aubergine were equally well-received. This is a youthful, busy, buzzing restaurant, whose young staff radiates enthusiasm and hard work, and whose wellmixed menu suggests freedom to roam Europe for favourite dishes. It’s brisk and efficient for the business luncher, but those who linger, enjoy a piece of Baileys cheesecake, a wicked touch of the Irish. Reviewed by Colin Donald, BQ Baltic editor in chief Contact: T: +370 677 72091 E: Bistro18@gmail.com

>> Ala Peldu 19, basement floor, Old Town Riga Filled with massive wooden tables, ancient ethnic symbols and a small stage for live performance, folk club Ala (‘cave’ in Latvian) doubles as a great eatery and a shrine to Latvian cultural heritage. Situated in Riga’s Old Town, Ala is the place to try national Latvian cuisine ranging from baked gray peas with bacon served in a carved out bread loaf to a formidable 1kg pork hock – a dish for the truly daring (or greedy), dishes which come with very reasonable price tags. Of course, all traditional local food is extremely well complemented by a wide assortment of Latvian beer – a liquid form national pride. You will struggle to find globalised generic tasting lager here, the vast majority of beer is delivered from small breweries across the country, and each carries the unique taste of its brewery’s own recipe. Ala has the largest selection of local beers - 22 types! As for entertainment while you eat, Ala boasts live music evenings from Wednesday to Saturday. While usually the stage is given to small-ish, mostly underground Latvian music collectives with folk/indie oriented repertoires, the restaurant welcomes an eclectic mix of visiting performers from Canada to Australia. Combine great food, beer and live music with a very friendly English-speaking staff dressed in folk clothing and you will enjoy one of the most authentic ethnic eating experiences Riga has to offer. It’s a Riga landmark that offers something for everyone: a music venue for beer drinkers, or a colourful spot to entertain clients for a business lunch.

Reviewed by Vladimirs Racejevs, Riga resident and gourmet Contact: T: +371 2779 6914 E: info@folkklubs.lv Social media and events: www.facebook.com/folkklubs, www.twitter.com/folkklubs

45

BUSINESS QUARTER | SPRING 14

TRAVEL

SPRING 14

HISTORY REDESIGNED

Guna Gleizde ventures deep into Latvia’s heartland to discover Annas Hotel, a boutique hostelry with a story to tell

Sick of waking up in slick but characterless luxury hotels? Finding it hard to remember which country you are in? There is a place deep in the Latvian countryside where the standards are as high as any five star urban chain offering, but where the essence of the Baltic goes bone-deep.

Don’t let Annas Hotel’s designation as a “design hotel” put you in mind of pure modernist décor in outrageous colours.

The atmospheric former manor house complex wears the marks of its two hundred year history proudly.

But the interior is clean, uncluttered and harmonious. The delicious food is locallysourced, not because of any self-righteous ‘eco’ labeling but because, well, it’s hard to find anything non-eco in these parts.

After a day spent walking the historical trails or hunting for game, the usual in-flight magazine version of pampered luxury will be long forgotten.

Named after a village, not a lady, Annas historical interest goes beyond mere age. The celebrated Baltic German writer Garlieb Merkel (1769-1850), champion of the downtrodden peasantry, lived here in his early years, tutoring the landowner’s children.

It’s unclear how much of his revolutionary work was influenced by his stay, but he might be pleased to know that the native Latvians, whose oppression and alcoholism he described, so movingly, can live like kings in the home of their former Baltic German masters.

Before you can savour such ironies, first you need to get here. We suggest you drive an SUV, and if you don’t: prepare for an adventurous journey. The good news is that the spa complex at the hotel is more than able to undo any stress the bumpy road has caused. As Merkel (said to be a distant relative of the German chancellor) revealed more

BUSINESS QUARTER | SPRING 14

This is far from the gilded splendour found in some of the other luxurious Baltic manor house and castle hotels Garlieb Merkel: wrote a revolutionary work at Annas

than two centuries ago, pomposity and glamour is not the Latvian style. Neither is it the style of Annas Hotel.

This is far from the gilded splendour found in some of the other luxurious Baltic manor house and castle hotels which exploit the region’s legacy of aristocratic seats.

“When people are tired from all that, they come here” laughs Annas owner Kristaps Štrauss.

We are sitting in the hotel lounge by a welcoming open fire. Like the rest of the hotel, this room is as Nordic in its use - or

46

rather non-use - of decoration and bright colours, and in its abundance of solid, quality materials and furniture. Kristaps, an entrepreneurial former banker and timber trader, bought the manor complex in 2002 when it was more or less derelict. In Soviet times it had been a peoples’ cultural centre, one of many across Latvia where locals practiced folk dancing, singing and other activities. Later a modest staging post for cross-country skiers found its place here.

The original manor house dates from around 1650, but all that is left of that building are

SPRING 14

the foundations. The modern hotel is situated in the former estate granary where, in Merkel’s day, the produce from the entire region was stored. The creative spirit behind this heroic reconstruction project is Vesma Kontere McQuillan – a celebrated Latvian architect, now living and working in Norway. She worked on this project from 2004 until 2008, a long time, says the owner, because “it took quite a while to figure out what was going to be here”.

The only way Kristaps saw any possibility of attracting guests was by creating a design

hotel. At the time there were not that many designers that could pull off creating an interior design space of 1,300 square metres of empty space, he says.

Vesma’s experience came in handy because a lot had to be changed after the original appointed architect had completed his drawings. The owner felt that this architect was just “flying too low”.

“He was trying to recreate the [overall] historic heritage of the building. We tried to persuade him that the history of the building has to be preserved in the details that can be salvaged,”

47

TRAVEL

Kristaps remembers. Imitating history imitating anything in fact - was not part of the concept.

He points to the simple but elegant façade of the building as an example. “Basically we haven’t changed anything in the façade except the central entrance where part of the wall was taken out and replaced by glass.”

And it wasn’t only finding the right next life for the building that slowed down the start of work on the project. Once the right look and design had been found it took more effort to find the right builders and to persuade >>

BUSINESS QUARTER | SPRING 14

TRAVEL

SPRING 14

them – despite their doubts – to implement his €2.2 million investment plans.

Although he now admits that the construction team did a superb job, Kristaps still vividly remembers the arguments between them and the designer.

It is hard to find plastic or synthetic materials anywhere here although there is plenty of wood, rock and metal. Most of the furniture, the building materials and decorations are made in Latvia, but when necessary he brought from Italy, says Kristaps pointing to a stylish sofa.

The goal of being a design hotel has clearly been achieved because last year Annas was asked to join the global Hotel Alliance Group’s marketing partnership of Best Design Hotels.

Initially Annas Hotel was Kristaps’ hobby project, but it became more than that when he closed his pre-fabricated wooden building factory during the economic crisis. Buildings and construction always mattered to him more than banking and business.

“I knew how to organise and supervise it all but I knew nothing about managing a hotel,” he says. But he found professionals to do just that. The chef that set up the kitchen and restaurant isĒEriks Dreibants, one of Latvia’s best known chefs, who made headlines by dumping Riga’s famous Kalku varti [“lime gateway”] restaurant for Annas (he has since returned to the capital).

The menu embraces the slow food traditions, including using produce from local farmers as much as possible. It’s hard to advise on what to try when you’re at Annas, as the menu changes every single day but if you see potato soup with truffles – go for it.

Even nearly all the hotel and restaurant workers are locals. Dreibants set the bar high and taught the local cooks and waiting staff all he knew. Even the spa follows slow food principles, majoring on products of the season.

For about a year and a half Kristaps has been in hands-on charge of the 12-person team running the hotel. “As the number of clients grows we need to come up with something new every day. I guess that is what I work on.”

BQ Baltic visited Annas on one of the coldest days of the year and the visitors come to try ice fishing – the Latvian pastime that strikes many foreigners as surreal, when they first see

BUSINESS QUARTER | SPRING 14

Kristaps Štrauss: determined to see through his hotel vision

It strikes many foreigners as surreal, when they first see frozen rivers - or even sea - studded with ice-holes and men waiting patiently for a bite frozen rivers – or even sea – studded with iceholes and men waiting patiently for a bite.

“Our goal is that everyone who leaves this place remembers something – whether it is a beautiful suite, the spa complex or fishing in the lake,” says the owner. Now that spring is in the air, the surrounding woodland floor is waking up into a blaze of colour. Annas is an all-season, year-round delight, and anyone

who visits will want to return in all weathers Which brings me to one last word of advice: Book early because Annas name has travelled far beyond the Baltics. You might find yourself blocked out by some exotic luminary like the Ecumenical Patriarch of Constantinople, a regular, who sometimes rents the entire hotel for a week. People who come here tend to come back. n

>> Rates Annas Hotel has nine rooms most of which are two-storey suites. They range from €100 to €220 in winter, €115 to €250 in summer months. The hotel offers spa services and a pool as well as bicycles, fishing and other equipment. For weekends, holidays or summer early booking is advised.

>> Getting there Annas Hotel is in Vidzeme - Latvia’s northeastern hill country, about an hour and a half drive from Riga. Head to Sigulda and continue on A2 until Augsligatne then take the turn to Nitaure.

GPS coordinates - 57.038033; 25.367064.

48

49

BUSINESS QUARTER | SPRING 14

SPA

SPRING 14

HEATING UP NICELY The Baltic spa scene is thriving as more and more locals and tourists seek out new oases of relaxation, meditation and therapy. BQ Baltic’s Kate Kolbina put on a towelling bathrobe to investigate a distinctive local industry that is healthy in every sense

Vladimir (30), director of an online IT store, has been coming to his local ESPA Riga for a while now. It’s a place he can relax, no matter how hard a day he has had. The abundance of water makes him feel good, so spa zones with swimming pool, all sorts of saunas and hot tubs seem like a perfect way to chill out.

For him, a spa is a place for relaxation, Vladimir rarely uses any of the many treatments on offer for both men and women, though he would happily opt for massages if his budget allowed it. He already spends up to €35 per month here, and likes to arrange spa weekend breaks at the Radisson Blu Hotel Latvija, where ESPA is located, a couple of times per season, because “spending a night in a completely different setting brings peace after stressful working weeks, especially when combined

BUSINESS QUARTER | SPRING 14

with an unwinding visit to a spa”.

Maria, a 20-something young lady from Tallinn in Estonia who works for an international audit firm, admitted that the Riga ESPA is her favourite amongst spas because of its peaceful atmosphere and elegant choice of treatments such as a tension-releasing Swedish massage or Botanical facial ritual (“very desirable during the cold season”). She is not that keen on getting steamed up in the various saunas, but she values the relaxing atmosphere created by the muted lights and well thought-out design that ESPA shares with the best spas around the Baltics. She prefers to have a couple of well-planned spa breaks during a year, perhaps spending about €200 of her hard-earned salary on pampering herself.

These two regulars stand for a new generation

50

of savvy, relatively affluent and healthconscious consumer, currently being targeted by a multi-million euro industry that has ambitious plans for the future.

While spa culture in the Baltics is at least 200 years old, the modern spa industry only started to emerge in the mid-1990s, when local sanatoriums and rehabilitation centres, part of the clinical infrastructure of the Soviet period, were discovered by Scandinavian health tourists. Ancient beliefs in the healing properties of water, shared alike by Baltic and Slavic nations, meant that few Baltic hot spring or prime seaside locations lacked a spa promising some kind of health-giving property.

The presence of such sites meant that, during the years of Soviet occupation, the Baltics became a desirable medical tourism destination for people from all over the Soviet Union. By the mid-1980s, the Estonian resort town Pärnu alone was welcoming about 25,000 patients a year.

After independence, Baltic havens offering sandy beaches, pine-covered dunes and restorative mineral waters proved particularly attractive to Scandinavian tourists, who seized the opportunity of professional medical services with a cheap price tag.

The distinction between spas that are part of the health system – where patients are referred by doctors – and lifestyle spas promoting more general “wellness”, is still preserved in the Baltics. In Estonia for instance, spa hotels have to get a license to be able to provide clinical

Baltic havens with pine-covered dunes and mineral waters proved attractive to Scandinavians

SPRING 14

and rehabilitation spa services if they want to advertise their medicinal virtues. Wellness spa hotels don’t need a licence, but must possess at least three stars awarded by the Estonian Hotel and Restaurant Association.

Traditionally, from Soviet times medical spas were satellites of hospitals, with patients being issued a “permit” from a doctor to spend a couple of weeks in sanatoria after a major operation or illness, costing almost nothing.

Since the demise of the socialist state however, the ability to visit a health spa will depend on budget.

“Medical direction [towards spas] is very strong since Soviet times, especially in Lithuania, where 95% of spa visitors have therapeutic

needs or come to prevent or treat illnesses,” says Melanie Kay Smith, a researcher for the Baltic Health Tourism Cluster, a new international marketing group for the industry.

In general, preventive measures are more and more cited as reasons for coming to medical spas, as people become aware of health issues.

Destinations geared to wellness meanwhile are becoming more popular to help people achieve physical and spiritual well-being, and advise on nutrition and lifestyle changes.

Kai Tomasberg, who oversees the Wellness and Spa Service Design and Management MA at Estonia’s Tartu University, thinks that the medical spa business is still far ahead of its wellness counterpart in the Baltics, due to

51

SPA

strong traditions, highly professional staff and also loyal clients.“Purely wellness spas are a new trend which requires a different kind of client who has enough money to pay for high level services. So the problem can be that locals don’t have enough resources to afford wellness services”, says Tomasberg.

Nowadays, after more than 20 years of Baltic industry development, Scandinavians are coming to the Baltics not for cheap medical consultations and treatments, but to enjoy the exceptional quality of local spas.

They still offer professional medical treatments, but now their impeccably-trained personnel, a wide range of additional wellness services, along with the promise of balanced nutrition, and top quality accommodation.

The Baltic spa phenomenon is no longer a cheap alternative, but a mature, sophisticated offer, capable of competing with the world’s best. In fact, the percentage of Scandinavian visitors has slowly decreased as tourists from elsewhere find their way to the Baltics, including the return of the Russians.

“In Estonia, 20 years ago Finns were the biggest share of spa customers, but the Russian clientele has increased every year”, says Aire Toffer, manager of the Estonian Spa Association.

“Interest from locals is growing as well. Since 2009-2010, the number of local customers in Estonian spas has nearly doubled.” This rising interest means 70-80% of large Estonian spas are fully booked all year round.

Since the 1990s the wellness component of many spas has grown significantly, and this is where the industry sees future growth.

New spas focused on wellness are opening in all three countries: Aqva in Estonia, ESPA in Latvia and Vanagupe in Lithuania, to name some of the most prominent. All of them are riding on global trends towards more healthy lifestyles, rising holiday budgets and increased willingness of people to spend money looking after themselves. People are choosing wellness spas more and more as fun weekend break destinations, rather than as austere sanatoria, or self-imposed penance for over-indulgence.

“More people are starting to understand that it’s better to go to a spa rather than a doctor, says Inga Klavina, director of spa centre ESPA Riga, the only globally-branded spa in Riga. >>

BUSINESS QUARTER | SPRING 14

SPA

SPRING 14

This means that tourists are seeking out a wellness component as part of their holiday package, causing hotels urgently to seek additional space and resources to bolt on facilities that allow them to add the three magic letters S-P-A to their signposts. But there is one big problem. Like the airline industry the modern spa sector may seem very sexy and seemingly prestigious, but it is not too profitable. Kai Tomasberg is doubtful that these small spas bring additional revenue to hotels. The costs of establishing them are high and guests tend to be reluctant to spend as freely in them as their business plan demands.

Large-scale specialised spas don’t regard these hotel bolt-ons as serious competition: they cannot compete, for example, against the choice of 20 wellness treatments offered in purpose-built establishments like the Grand

BUSINESS QUARTER | SPRING 14

Rose (Estonia) or the specialised equipment for Ayurvedic Indian massage boasted by the Vanagupe resort in Lithuania. There are examples of hotel spas which are not only big revenue-earners but which have a higher profile than historically specialised resorts.

Radisson Blu’s cooperation with the UKfounded ESPA brand seems to have worked well. Inga Klavina says the spa has boomed, with revenue growth at around 8% last year a feat she ascribes to the hard slog of marketing the product in a culture that has not always seen spas as luxury destinations.

“Spas are quite sophisticated businesses” says Aire Toffer “they are not easy to get right”.

This, she says, is also the reason why spa hotels, of which there are plenty around, are not able to provide customers with a real spa experience. First and foremost, water is

52

an essential part, not just a couple of steam saunas, but baths, pools, aromatic saunas and water treatments. Next, healing through water should be complemented by eating healthy food and access to a nutritionist. A great deal of proper relaxation also lies in exercising, so a real spa must offer a gym, seaside walks, Nordic walking and group exercise classes.

These components can be hard to achieve in the confines of a busy city.

“It is important to maintain a holistic approach: body, plus soul, plus mind, and offer something for each part” reflects Tartu University’s Kai Tomasberg. These concepts sound benignly abstract but they demand real hard cash. Although the rhetoric of spas is about higher spiritual and bodily well-being, competition between operators is fiercely materialistic. Nowhere more so than in Estonia, where there are 30 large spa hotels, making it the country with the highest number of spas per capita in Europe, and even despite this two new wellness spas are opening: one in the North East region close to the Russian border, another in the resort town Pärnu. On Saaremaa, the largest Estonian island, with a population of just 40,000 people, there are nine resorts.

“It is unlikely that more big spa resorts will appear in Estonia in the near future, the industry is at full capacity” says Mario Sau, sales and service manager at the Grand Rose spa on Saaremaa, the biggest Estonian island.

There is more space for growth in Latvia and Lithuania, where wellness spas have not yet reached the numbers of medical spas.

As in many other industries, the key to success is in constantly evolving to match the needs of the customers and finding a proper niche. Usma spa, a Latvian resort with just 10 rooms, on the road between Riga and the coastal town of Ventspils, is an example of a spa which has found a niche and a secure customer-base, based on Latvia’s increasingly celebrated green credentials. Its pampering rituals have attracted global attention, taking first place at the 2009 European Health & Spa awards.

“We are a countryside spa” says Inga Jansone, the director. “No fancy cosmetics brands, just natural components, essential oils and a lot of surrounding nature”.

SPRING 14

Vanagupe, the famous wellness resort in the Lithuanian coastal town of Palanga, is adding medical consultations and treatments to its services, as “we see that wellness alone is not enough for clients” says Zivile Knabikiene, Vanagupe’s manager. Constant striving for perfection and offering the most innovative spa treatments has helped Vanagupe increase income by 20% from 2012-2013. Inga Klavina says that some of the ESPA spas like ESPA Life at Corinthia in London add medical treatments to their repertoire of services, like osteopathy, whereas in Estonia medical SPAs are adding wellness treatments to attract clients looking for preventive measures, relaxation and staff with a more personal touch. Although the future direction of the industry is still in the balance, industry experts agree that the spa industry in general is of immense and growing importance to the visitor economy of all three Baltic countries. ”Health tourism is a major part of the Estonian and Latvian national Tourism Development Plans 2014-2020” says Smith. It also accounts for a sizeable share of revenue to each of the countries. Melanie Smith cites research figures from the Lithuanian Association of Hotels and Resorts which claim that no less than 26% of tourists in Lithuania stayed in a spa resort or sanatorium, and foreign guests made up about a quarter of all spa customers in 2011. The Latvian Health Tourism Cluster says the total number of visitors to its member institutions rose by 9.4% from 2011 to 2012, from 390,000 people to 427,000. There are 45 commercial institutions in the cluster. It helps the long term sustainability of this promising trend that the industry is also surprisingly wellregulated, with plenty of national associations and clusters. The Estonian Spa Association has existed since 1996 and the Estonian Health Tourism Cluster since 2011. Lithuania has had a National Spa Association since 2007, and also Medical Tourism Cluster. Latvia has a Health Tourism Cluster and Resorts Association. This degree of self-organisation suggests not so much a response to regulation and red tape but, a desire to protect and enhance the integrity and reputation of the Baltic spa phenomenon. It is an industry with a long and distinguished history, but its best days surely lie ahead. n

SPA

Healing touch: A selection of some of the Baltic’s top spa destinations Aqva Spa, Estonia: Located in Rakvere in the North East of the country, it opened its doors in 2008 and expanded in 2013. Approximately half of the clients are local and half are foreigners, mostly Finns and Russians. Aqva combines different styles: Greek interior design, and ancient Indian Ayurveda massages. Signature treatments include Rasulbad, an oriental steam sauna with Rasul clay mud, completed by luxurious moisturiser. Aqva also has special packages for kids and men, the latter can enjoy a male manicure in Aqva’s Alessandro SPA centre. The cheapest package in Aqva costs €62 and the top of the range ‘Luxurious Spa Journey’ is €350. Despite opening amid financial crisis in 2008, Aqva has proved successful, growing the number of overnight stays by 66.5% in the last year. www.aqvahotels.ee/en.

ESPA Riga, Latvia: It can’t have been easy launching a 5-star spa in Riga in the slump of 2009 but according to Inga Klavina, director of the ESPA Riga, pioneering an international concept was never going to be a walkover. Fully branded by the UK-based company launched by the British entrepreneur Susan Harmsworth 35 years ago, the brand is now attached to 350 spas in 52 countries. ESPA Riga offers well-equipped gym and saunas and relaxation zones, as well as treatment rooms where visitors can opt for “Amber Crystal Chakra Balancing treatment” among many other more conventional procedures. Being a member of the global ESPA family means that staff are well-trained in the latest treatments and therapies, and there is a full retail offer, where ESPA’s own natural cosmetics are on sale. Around 40% of customers are hotel guests, and 60% are members or outside visitors, the former paying around €310 per month on the three month membership deal. Of these visitors, 60% are women and 40% men. www.espariga.com Vanagupe, Lithuania: Vanagupe in the coastal Lithuanian resort of Palanga is a luxurious wellness spa hotel which enjoys 5-star rating. The most regular guests are Lithuanians, Russians, Belorussians and tourists from Scandinavia. The most simple package which offers accommodation, breakfast, entrance to the pool and saunas, costs €100. More sophisticated packages will range from €150 to€€300. Vanagupe boasts a variety of treatments, such as Ayurveda, hammam [Moroccan steam bath], and massages using essential oils. www.vanagupe.lt Grand Rose, Estonia: Grand Rose is a luxurious spa resort on the island of Saaremaa. Their main customers are Estonians, which make up about 70% of visitors. Last year they opened a new summer terrace and outdoor sauna, and it claims to be the only place in Estonia which offers the chance to participate in sauna yoga. With nine spa resorts on Saaremaa, competition is tough says Mario Sau, the Grand Rose’s sales and service manager, but they are nevertheless almost fully booked every week end and during high seasons as well. The cheapest spa package costs about €100 in high season, whereas the most expensive, tailored for mothers-to-be, will be €420. www.grandrose.ee/en Usma, Latvia: Usma, a Latvian lakeside spa between Riga and Ventspils, offers about 40 treatments and its 10 rooms are full all year round. Inga, the director eschews, fancy concepts, noting that guests comes here to have a rest, a good sleep, enjoy healthy food, and of course treatments. Guests are mainly escapees from Riga, but in high seasons some foreign tourists come. Usma is a fully wellness-oriented spa with natural cosmetics and essential oils. Their signature treatment is honey ritual which consists of several rounds of sauna, peeling and massage and finishes with relaxing herbal tea. The price for it is €54. The package prices range from modest €78 to luxurious package for€€280. www.usma.lv

53

BUSINESS QUARTER | SPRING 14

INTERVIEW

SPRING 14

HOTELIER SEES ROOM TO GROW After a slow start, competition in the international hotel market in the Baltic states is beginning to warm up. Liene Dambe talks to Radisson Blu regional boss Ronald Smithjes about how the biggest international brand in the Baltics intends to stay ahead How long has Radisson Blu been operating in the Baltic states?

The first Radisson Blu hotel in the Baltics was the Radisson Blu Daugava Hotel on the other [Western] side of the river. It has 356 rooms, and it is owned by a US investment company who came to Latvia to build a paper factory and ended up building a hotel.

Soon after we took that over in 1993, we signed a management agreement with investors in Vilnius and Tallinn for managing the Radisson Blu Astorija Hotel and Radisson Blu Tallinn Hotel. So 15 years ago we were present in all three Baltic states. Then in June 2010 we got the opportunity to partner with Linstow, a Norwegian company with a small Baltic hotel chain called Reval. They wanted to partner with an international brand and they could have chosen Hilton or Marriot or any other chain, but they chose us.

Why? More likely because we were already present in all three Baltic states so I think it was a logical step. The Carlson Rezidor Hotel Group, the mother company of Radisson Blu, was already strong in Eastern Europe and also in Russia. So I think it wasn’t just the lucky result of a ‘beauty contest’ but an educated choice.

BUSINESS QUARTER | SPRING 14

How many hotels does the Rezidor Group have in the Baltic states now?

Since June 2010 we have been managing 13 hotels in the Baltics, of which nine are Radisson Blu, and four are Park Inn Hotels, our mid-scale or three-star brand.

In terms of hotel chain presence, that puts us in a dominant position. There are local players and in Riga there are some with multiple hotels, but they are all, I would say, non-branded. We know that international chains will come to the Baltics. If you look at Vilnius and Tallinn, there are already more international operators compared to Riga.

In Tallinn you have Swisshotel, and they are building a Hilton Hotel which will open soon.

In Vilnius they have a Novotel, which is part

of the French group Accor, and they also have plans to open a Mercure hotel in Riga. So there will soon be more hotel chains on the market which I think is good, not bad, as it suggests expanded leisure and business tourism.

Do you have plans to expand the Rezidor brands in the Baltics?

We are a hotel management company, we don’t own hotels but we manage hotels on behalf of managers and owners. We are always looking into new opportunities. So if there would be an opportunity to expand with some possible investors and it makes sense for both the investor and for us, I think we will look into this. We do have some plans in >>

There will soon be more hotel chains on the market which I think is good, not bad, as it suggests expanded leisure and business tourism

54

SPRING 14

55

INTERVIEW

BUSINESS QUARTER | SPRING 14

INTERVIEW

SPRING 14

Riga but they’re not very concrete at this stage. The Rezidor group operates multiple brands [also including Hotel Missoni]. Our Park Inn brand is a mid-scale product, so I can imagine that if there would be a good opportunity to open a Park Inn Hotel in any of the Baltic states that would be an opportunity.

With the Radisson brand, I think we have come to a certain level where we have enough Radisson rooms for the market, but again if there would be an opportunity, and if the opportunities were viable for both parties, I don’t think we would say no.

Our most recent opening was the Radisson Blu Elizabete Hotel which was opened in mid - 2008, and we have been consolidating since then, not expanding. We became more present in the market just after the heavy bust, and since then we see a very positive trend upwards.

How important is business tourism to your hotels?

Leisure tourism for the Baltics is a great piece of our business. But we have to focus also on other segments, like business travellers, individuals and groups. When we talk about the business market we are particularly talking about these big international conferences, and I think it’s very important for all three of the capitals to attract more of these events.

Here in the Radisson Blu Hotel Latvija We have 571 rooms, our sister hotels are in walking distance, and we have a 900 sq m ballroom and 20 other meeting rooms. I think we have a good track record of organising large conferences. We also had our Rezidor annual business conference here in March in Riga, we had 500 of my fellow general managers and people from the six area support offices and corporate support office which is in Brussels.

They all travelled to Riga and we discussed our strategy for 2013-2014, in a conference for 400-500 Rezidorians. We have had all kinds of conferences coming here from all sorts of feeder markets, from Russia or the Nordic countries.

Our others hotels in Lithuania and Estonia don’t have the number of rooms we have but for example Radisson Blu Hotel Lietuva and Radisson Blu Hotel Olumpia also have big conference facilities.

BUSINESS QUARTER | SPRING 14

City of Culture and that will kick off for what I hope will be a prosperous period for us in terms of promoting the city a destination.

Career at a glance Dutchman Ronald Smithjes studied hotel management in Maastricht and worked for six years at Hotel de l’Europe in Amsterdam, a 5-star deluxe hotel owned by the Heineken family, ending up as financial controller. He then joined Radisson SAS as finance manager of the Radisson SAS Amsterdam in 2002, before moving onwards as regional financial controller for Radisson hotels Benelux.

After serving as general manager of Radisson Blu Amsterdam for three years, he was then asked to take responsibility for the Baltics, moving in May 2012 to become general manager of the Radisson Blu Hotel Latvija, and as district director for Radisson Blu hotels in the Baltics. In his spare time Ronald enjoys cooking, skiing in winter and bicycle riding in summer.

What more can you do to promote Riga as a destination for business and tourism?

We are talking to other main stakeholders regularly such as large destination management companies, airlines that have direct flight connections to Riga, the Latvian hotel and restaurant association as well as Riga Tourism Development Bureau, to see what we can do jointly to promote Riga as a destination, there is more that can be done jointly. This year, 2014 Riga is the European

56

How do you intend to promote occupancy and yield?

We have such a strong brand presence, and such a strong support structure behind us, in terms of marketing, in terms of yield management, in terms of reservation systems, boosting occupancy and yield is basically our day-to-day business. We constantly try to improve our performance and with the help of all these support functions, it comes very naturally to us.

There are publicly available statistics that bear this out. For our group in the Baltics, we see very stable growth of between 8-10% from 2010-11 to 2011-12.

It went down hard in the financial crash, revenues dropped between 35-40% in 2009, which gives some context for these growth figures.

How are you responding to the enormous changes to buying channels in your industry?

I think online booking really took off 1015 years ago. The hotel industry is rather conservative, and I don’t think any hotelier thought that online booking would be such a success. My personal conclusion was that the hotel chains were at that time a bit ignorant about the possibilities that the web provides and allowed other entrepreneurs to dig into that niche. Now channels like Booking.com have the power, the systems, the technology and the funds to provide us with a big share of our bookings.

Now the industry – not just Radisson but the other big chains – are fighting back and trying to redirect bookings from Booking.com and Expedia to their own websites, that is the focus of effort at the moment.

I concede that we could have done it better if we had been a bit more entrepreneurial 20 years ago when the internet was rising up.

We were a little bit negligent of that, and now we have to deal with it. On the other side if you look at the whole phenomenon of internet booking and the share we get from it, we should also be happy because a

SPRING 14

lot more travelling is happening, it’s easy for people to book online get a package with a hire car etc., the fact that those booking sites take the commission, this is just part of business I would say. In the past it was the local operators that took the commission and now it is the online travel agents (OTAs).

It’s just part of the changing business world.

Anyway I think that the market share of those third party websites have stabilised. We saw a huge increase over the past five years. It’s still growing a bit but not at the same pace as it was in the beginning.

So what can you do regain some of the margin that has been lost because of the OTAs? Our strategy is that our brand website will always offer the same prices like other big OTAs offer and in our communication with customers through different channels we always ask them to the book hotel via our website.

What do you think are the ingredients for managing a successful hotel?

The most important thing you have to keep in mind is that the hotel industry is a people business. We just recently introduced the new company strategy – 4D strategy containing four main pillars – develop talents, delight guests, drive revenue and deliver results. Each of the elements can be a benchmark itself in the business but combining four of them in one we get the maximum stability for our

INTERVIEW

business and satisfaction for our guests.

This is a 24-hour, seven days a week business, so there’s the need for good structure and good communication, and it’s definitely also the team that makes it successful.

A good general manager is a team leader and makes sure everybody heads in the right direction and follows the same strategy to reach the set goals!

You have to keep in mind that the hotel industry is a people business

Is it easy to recruit in the Baltic states?

I think we are very lucky as a company because when people tend to come and work for us, they tend to like it, and they tend to stay. We have a lot of people working for us who have been here for more than 10 years, quite a big proportion in fact. I had the same in Amsterdam, and it was the same here. It’s important that the staff feels at ease and at home. If you have constant turnover of staff, you can never get the guests feeling at ease.

What do you enjoy about managing the Hotel Latvija?

Markets like Netherlands are more mature and more established. Here there is still some room for being entrepreneurial and adding value to the business as a whole. That was what attracted me. I wanted to go to the Baltic states because I think there is still a lot we can do to improve the business. Radisson Blu Hotel Latvija is a fantastic property, and definitely you feel the buzz of the business here in the lobby bar area. On a typical Friday morning, we start to get the leisure tourists coming from Scandinavia and the UK, and the bar opens at 11am and people are partying. During the week it’s a meeting point, people meet for business talks. We have the casino, we have the skyline bar, we have the restaurants, we have the ESPA Riga, we have the shopping, altogether it makes it a great venue, a great hotel. I think I would have difficulty finding a similar place with so much going on for my next assignment... Not that I’m planning on moving on, I’m committed here for some time more. n

How do you divide your time between the various Baltic properties?

Going from single property to multi-property management, took a bit of adaption to my personal workload, but now I would say I’m 50% at the hotel and 50% in the other cities.

The travelling is OK and it keeps working life interesting. I try to fly as much as possible between the capitals for convenience, and I drive as well but I don’t find it efficient because the roads are not so fantastic, and its four hours when you are not productive. In a plane I can work, a bit.

57

BUSINESS QUARTER | SPRING 14

OVERVIEW

SPRING 14

A GOOD TIME TO FEED THE BALTIC TIGER

Post-boom-and-bust Baltic countries Latvia, Estonia, Lithuania are back on track and set for more foreign direct investment, writes Florian Maass

BUSINESS QUARTER | SPRING 14

58

SPRING 14

Open, business-friendly liberal economies, stable democratic systems, a flexible taxation policy and relatively cheap, but well-qualified workforces are the assets of the Baltic beauties that catch the eye of the investment world.

FDI played an important role in the rise of the Baltic Tiger. During the boom years period 1994-2008 FDI inflow equalled 8.6% of GDP in Estonia (3rd in the EU), 5.4% in Latvia (5th) and 3.6% in Lithuania. But the financial crisis in 2009 caused a backlash.

CURRENT STATUS Let’s look at the current status of inward investments. FDI is coming back, but still leaving space for more. Most FDI inflow came from Scandinavian countries, the US, Netherlands, Germany and Russia.

In 2013, Enterprise Estonia helped establish 26 FDI projects and those created about 500 jobs and we know of another 19 projects (without EE assistance), an FDI inflow of €663.2m. The accumulated FDI stock in Estonia reached €15.5bn by the end of 2013.

A total of €1.18bn of accumulated FDI in 2012 was a good sign, but still far from the €1.9bn it attracted in 2007. The biggest share of FDI came from Sweden, Finland and the Netherlands. Software, finance, insurance and manufacturing were the main fields of investment, followed by real estate and wholesale & retail. In 2013 Investment and Development Agency of Latvia (LIAA) endorsed 33 projects which are planning to create 1,601 jobs. Latvia’s FDI inflow is still behind that of its neighbours. The accumulated foreign direct investments to Latvia were about€€11.3bn to the end of the third quarter of 2013, with a 14% annual growth in 2011 followed by another 10% in 2012 and 14% in the first nine months 0f 2013 helping employ more than 48 000 people.

Sweden, the Netherlands and Cyprus were the biggest investors in Latvia, with the biggest investments being made in finance and insurance, service and real estate.

The largest registered singular foreign investor is Swedbank with €943m. The Greater Riga area drew more than 80% of foreign investments. 22 projects with 1,550 new

jobs in 2013 have been the best result for Invest Lithuania so far and know of another 16 projects (creating 1,450 jobs). A total of €12.2 bn in accumulated FDI stock was made in Lithuania at the end of quarter of 2013.

Sweden, Poland and Germany were the largest investors. Lithuanian FDI has created 48,300 jobs, and 47% of the investments were made in financial and manufacturing sectors and service.

EFFORTS TO ATTRACT FDI All three Baltic countries have introduced attractive incentives for foreign investors.

Latvia and Lithuania encourage inflows of investment with their Free Economic Zones (FEZs). The corporation tax rate of 15% – already the fourth lowest in the EU – is being reduced further.

In Latvia the FEZs are the ice-free Baltic ports of Liepaja, Ventspils (with a focus on High Technology), the free port of Riga, plus Rezekne, the centre of Latgalia.

The tax incentives are attractive: Up to 80% rebate on real estate tax (1.5% in Latvia), low corporate income tax, a rebate on withholding tax for dividends, management fees and payments for usage of intellectual property for non-residents. There is also no VAT to pay on most goods and services provided to or from free zones. Other attractions are workforce assistance and training, R&D programmes, including special green technology and microenterprise promotion funds, plus easy money in the form of loans and venture capital.

The POLARIS Process brings together all main stakeholders – public, private and academic sector – and helps them to profit as much as possible and ensuring an individual approach to each investor.

Latvia is the best gateway to business in the CIS and Russia. And for investors from outside of the EU (Russians for example) to bigger EU markets like Germany. Most Latvian people have Russian language knowledge that sets them apart from their Baltic neighbours.

Latvia invented an incentive-package for nonEU investors. Depending on the region, they get the Latvian (and by that the EU) residency permit for real estate investments of €71,000

59

OVERVIEW

or €142,000 and for investment of around €35,000 of shares in Latvian enterprises.

Non-EU-residents don’t have to pay taxes on dividends, interest payments and intellectual property. The scheme has drawn already more than 7,000 investors (most of them Russians), although it has been criticised by some Latvian politicians as being vulnerable to abuse by money-launderers.

“By setting up operations in Latvia, companies can benefit from a Northern European work ethic, and business experience with Russia and other CIS countries. The Latvian labour force is multi-lingual, well educated, and highly motivated, besides Latvia is a leader among other EU countries with regard to wageadjusted labour productivity,” summarizes Agnese Busa, head of the investment promotion division at LIAA. In Lithuania, the FEZs are Kaunas and Klaipeda, with more to come soon. The offer is as follows: a six-year exemption from corporate income tax and 50% discount for the following 10 years for long term investments of at least €1m. Very good infrastructure and good transportation opportunities on the crossroads between Scandinavia, the CIS and Western Europe.

Lithuania also provides several incentives for smaller and mid-sized companies and for investment in R&D. “Lithuania stands out in the region as a dynamic economy with welleducated and multilingual talent, a businessfriendly environment where companies can benefit from leading IT and hard infrastructure, competitive costs and tax-breaks. Foreign companies describe Lithuanian employees as being self-starters, a raw talent with forward-thinking mindset” advertises Justinas Pagirys, director of the investment promotion department at inward investment agency Invest Lithuania.

Estonia’s flat income tax is 21%, but reinvested corporate profit is tax free, unless dividends are paid out. Estonia has introduced four Free Zones at Muuga Harbour (part of the Port of Tallinn), Sillamäe Port, Paldiski and Valga. No VAT has to be paid there on goods designed to be re-exported. Enterprise Estonia offers several start-up and development >>

BUSINESS QUARTER | SPRING 14

OVERVIEW

SPRING 14

grants additional to the EU programmes.

Investors can profit from Estonia’s business and cultural links to Finland. A worldleading “e-government” infrastructure makes administrative procedures easy and fast. “You can register a business in 20-30 minutes online,” says Riina Leminsky, head of Enterprise Estonia in Germany, who also points to the clear and transparent tax system and no property tax. She adds “Estonia is an excellent gateway between Northern, Western and Eastern Europe and Russia. An impressive infrastructure includes five key international ports, block trains to Moscow and Beijing, and the shortest EU flight time to China. Estonia offers a dynamic, internationally focused mechanical engineering ecosystem, excellent accessibility, a sustainable, high-quality skills base and competitive, low-inflation costs. The country also has one of the highest non-native English proficiency levels in the world.”

SUCCESS STORIES Success stories in their own words: Estonia, Kuehne+Nagel. Bob Mihok (pictured above right), Eastern Europe president at Swiss Logistics giant Kuehne+Nagel, says: “We entered the Estonian market in 2006 and have since continuously expanded our business. We are represented in all three Baltic countries and via Estonia we can provide our customers transportation services in the Nordic countries such as Finland but also Russia. Due to the high qualification of IT sources and the economic environment we have additionally decided to also place one of our global IT Centres in Tallinn where the talented current workforce of 120 employees will contribute to our global IT leadership in the logistics sector.

Last year we won the Estonian Enterprise Award 2013 which is motivation for us to further strengthen our engagement in Estonia.”

Lithuania. Bernard Stitfall, group finance director at British Sofa Brands International Ltd, Vilnius, says: “We established a new company, UAB Sofa Brands in Lithuania in 2005, and invested in a complete refurbishment of a factory in Alytus, Lithuania.

We now employ almost 300 people who manufacture over 1,000 suites of cut and sewn covers for the G Plan and Parker Knoll

BUSINESS QUARTER | SPRING 14

again, our sustainable, long-term strategy pays off. The jurisdiction and mentality is similar to that in Germany, which helped us to orient ourselves. The workforce is extremely motivated. The level of professional skill couldn’t always meet our expectations, but further training helped. I’m quite confident, that finally we’ll consider our investment in Latvia a success.”

brand every week. We are continuing to invest in equipment and people in Lithuania and are in the process of transferring more work from the UK which requires specialist skills.

The workforce is very flexible and adaptable to changing requirements and is also receptive to new skills training. We’ve also been very fortunate in finding excellent management. The calibre of people and their attitude is impressive. The business is a key and integral part of our group of companies.

We have no regrets about our decision to invest in Lithuania.”

German Bauplan Nord came to Latvia in 2004.

BPN plans and implements real estate projects.

It became another FDI success story in Latvia.

BPN chairman Jan Brink says: “We chose to invest in Riga in 2004, because of its central location in the Baltics and because Riga is the biggest Baltic city. And Riga had a backlog of real estate development at that time. Basically, we only invested in the kind of projects that we would promote in Germany as well, even in the boom years, when it seemed easy to make fast money with lower quality standards.

Now, that the economy is slowly growing

The workforce is very flexible and adaptable to changing requirements

60

ECONOMIC, LEGAL CONSIDERATIONS All three countries have a liberal, businessfriendly economic system. The financial crisis struck them hard in 2009. Estonia first, Latvia the hardest and Lithuania later and less.

Latvia’s economy shrank by 25% over two years. The unhealthy growth rates between 2000 and 2008, an overheated real estate market and too easy access to cheap money offered by the banks intensified the problem.

Hard austerity measures with painful salary and social cuts, and an “internal devaluation” to secure the nominal value of the currencies, were ultimately effective. But it wouldn’t have succeeded without an export boost by between 40% (LV) and 80% (LT), between 2009 and 2013 and the compliance of the Baltic people. Only Latvia had to ask for a rescue package from IMF- which they repaid ahead of time. Maybe the most painful effect for all three countries was the large-scale emigration. Today, Latvia has the biggest growth rate in the EU with 5.2% in 2012 and approximately 4% in 2013. The national debt is clearly below the Eurozone’s 60% ceiling (at 40%), the budget deficit is a mere 1.2%. Estonia meanwhile is the only Eurozone country with a budget surplus. Only Lithuania’s budget deficit is still slightly over the 3% rule.

Thanks to smart economical and financial reforms, the new growth became more sustainable, helping it to fulfil its plans finally to enter the eurozone. A perception still exists that Lithuania and Latvia have to get a grip on corruption. In the World Bank’s Ease of Doing Business Report 2014, Lithuania reached 17th place, up eight places from 2013. Estonia is 22nd, Latvia follows only two places behind on 24th position. The World Economic Forum’s GCR rates burden of government regulations in Estonia is among the 11 lowest in the world and the burden of customs procedures is the

SPRING 14

14th lowest. Estonia is second in the internet freedom in the world according to Freedom House and its labour market efficiency is ranked very high. Latvia is leading the Legal Rights Index in the section Financial Market Development of the World Economic Forum GCR and has the world’s highest Degree of legal protection of borrowers’ and lenders’ rights. Attorney Theis Klauberg of bnt Plauberg Krauklis ZAB praises Latvia’s “very consistant tax law“. “After a broad reform of the economy and tax law, Latvia offers a very liberal and investor-friendly law system,“ he says. Toomas Pikamäe, partner at the leading international law firm Eversheds Tallinn branch says: “Estonia has created different funds and organisations to help bring great ideas to life. Many student start-ups have grown to international enterprises. Most of the start-ups are established in the IT sector. In addition Estonia’s tax rate favours enterprise.

Nevertheless Estonia has been criticised of forcing companies to bear many tax obligations, especially in the labour market.“ Rimtis Puisys of Eversheds Saladžius, the legal giant’s Lithuanian branch says: “Lithuania

has improved regulations related to the commencement of business and creditor protection systems and is just about to improve the labour and migration law.

Migration policies and practices are equally important to both – local and foreign businesses. Both the recently declared vision of bringing back Lithuanian emigrants and reduction of the procedures for hiring highly skilled employees from third countries would be welcome. Territorial planning laws have been modified to ease the implementation of real estate development projects. Certain areas, that foreign investors have to deal with, such as obtaining a licence for specific activities, obtaining construction permits, dealing with data protection regulations or intellectual property rights require specialist knowledge and individual approach.”

HUMAN RESOURCES The workforce is very investor-friendly in the Baltic countries. Labour unions work closely with management and are not excessively influential. Wages are flexible and salaries are still relatively low. The average income

Jan Brink, chairman of BPN

Now that the economy is slowly growing again, our sustainable, long-term strategy pays off

61

OVERVIEW

in Lithuania, is €615 a month, the fourth lowest in the EU. Estonia is about to lose its status as a “cheap labour” country with an expected average gross income of €937 a month for 2014. Salaries are rising as well in Latvia, expected to be at €751 in 2014. The education system is good. According to the UNDP, Estonia is second only to Finland in the EU in terms of the science mean score.

Lithuania has twice as many people with higher education than the EU-15. The quality of maths and science education is the 16th best worldwide. The majority of people in all the three countries speak at least two languages, many three or four. The workers are highly motivated. But there is a challenge to find skilled workers. The unemployment rate is (at the end of 2013) still between 11.4% (Lithuania) and 9.3% (in Estonia), but the available workforce isn’t always the best qualified. Many qualified workers have left the countries over the past five years.

The population shrank in Estonia at 3.5%, Latvia at 5.5 % (some sources say 10%) and Lithuania at 6.5%. But still, all three countries are among the 20 best in the world in the ratio between pay and productivity, according to the World Economy Forum (Estonia eighth, Latvia 14th, Lithuania 20th).

Vytenis Šidlauskas, Partner in the Alliance for Recruitment, Vilnius sees a lot of potential for Lithuania besides the IT sector “in the finance/ multilingual/ administrative jobs market.” Of the Baltic HR market he says: “The radar that has previously been targeting Poland, Slovakia and the Czech Republic for a less expensive and highly educated labour pool now has shifted towards the Baltics. Recent successful investment examples of Danske Bank, Western Union, Barclays Bank and many other wellknown employers have fostered the growing interest in this market.” It appears that the Baltic Tiger has done most of its homework.

What it needs now is more food - in the form of FDI. The domestic markets are limited, while the three countries strongly rely on investments from abroad. The opportunities are better than ever. Estonia and Lithuania are the most attractive European countries for foreign investments, according to the Baseline Profitability Index 2013, with Latvia at a strong sixth place. n

BUSINESS QUARTER | SPRING 14

BUSINESS QUARTER | SPRING 14

62

SPRING 14

ENTREPRENEUR

SWEET SUCCESS MADE IN CHOCOLATE HEAVEN After a series of ‘miracles’ shaped the early progress of his chocolate empire, Algimantas Jablonskas now has faith in his plan for globalisation. Linas Jegelevicius met Lithuania’s answer to Willy Wonka If a God of chocolate exists, then Algimantas Jablonskas is his servant on earth.

Only heavenly influence explains the lucky accidents that led the Lithuanian businessman behind the award-winning AJ Šokoladas chain to dominate the Baltic ‘craft’ or handmade chocolate market. Now, after a career proving that there is no such thing as failure to the true entrepreneur, this late-blooming Willy Wonka is laying the foundations of an international chocolate empire.

Founded in 2003, Jablonskas’s company AJ Šokoladas employs 60 people and now has six gourmet ‘chocolate restaurants’ – essentially up-market cafes – five in the Lithuanian capital Vilnius and one in the historical beauty spot of Trakai. He also oversees six Lithuanian franchises - two in Kaunas, one each in Klaipeda, Šiauliai, Anykšcai and Mažeikiai, and has supply deals with four others abroad, in the UK, Belarus, Russia and Poland. All his business planning is now focused on London, the springboard to intended globalisation of the brand.

The twice married Jablonskas (48), who shares

the devout Catholic upbringing of many Lithuanians, certainly feels he has been looked after, during a roller-coaster commercial career.

“There have been many miracles in my life.

Without them, I wouldn’t be where I am today,” he says.

Although no longer attending Mass, every year he squeezes in a week’s stay at a monastery, as a gesture of gratitude for his entrepreneurial survival. It has not been an easy ride, he laughs, but he has “managed to keep my head above water.”

It has been a colourful CV. Jablonskas has been a fish merchant and trawlerman off the African coast, traded in Chinese raccoon dog

fur and helped construct a bank in the Russian exclave of Kaliningrad. But he left all that behind, he says, when he found salvation in the seeds of the cacao tree.

“Chocolate has given me inner solace, it has been my steady breadwinner and furthermore, chocolate has completed the cycle of lucky chances in my life,” he says modestly. “It’s not an especially high-margin business, but it’s a decent living.”

Over the past decade, AJ Šokoladas’ turnover has grown ten-fold to €1.2m, with expectations of 10-15% annual growth for the next five years.

As well pioneering a new kind of high-end >>

Chocolate has given me inner solace, it has been my steady breadwinner and furthermore, has completed the cycle of lucky chances in my life

63

The chocolate master: Algimantas Jablonskas, founder of Lithuanian empire AJ Šokoladas

BUSINESS QUARTER | SPRING 14

ENTREPRENEUR cafe experience, Jablonskas has skilfully managed the seasonality of the retail market, with constant innovation, introducing chocolate cocktails, chocolate teas and other novelties.

“Taking advantage of my sensitive taste buds, as well as a background in food technology, I created unique home-made chocolate icecream recipes, flavoured with natural berries, which have been hot sellers here,” he says.

Even the crash of 2008 which left many Lithunian entrepreneurs in dire straits, has played out well for AJ Šokoladas.

“The crisis was a blessing for us,” he says.

“Even I didn’t expect that with many tightwalleted people, reeling from a downturn that knocked 14.7% of GDP we would survive. I thought they would pass by other stores in Vilnius’s Old City, but instead they would stop by for a chocolate truffle or a slice of our signature cherry chocolate cake.

“Stressed out people needed stimulating luxuries – and aphrodisiacs! We offered them top quality at a reasonable price,” he says.

Just as significantly, with many up-market businesses unable to pay the high rents in the most exclusive and picturesque parts of Vilnius, AJ Šokoladas was able to take over the premises by signing long-term contracts on what now seem crazily favourable terms.

“If somebody had told me five years ago that I’d be running spacious, interior-designed chocolate restaurants in the most expensive locations in Vilnius, I would have laughed it off.”

Sitting amid the mouth-watering scents in one of these genteel cafes, Jablonskas reflects on a career whose surroundings haven’t always been so fragrant.

“My first job at 19 was as a cleaner and watchman in Kaunas back in the mid 1980s.

As I needed to support my family [he married at 20 and now has five children], I was working flat out to earn as much as possible.

For the hours I worked I was paid nearly 300 roubles [the equivalent of about €1000], I earned twice as much as some of the staff I was cleaning up after. I really couldn’t keep up that pace now.” Even as a cleaner he was determined to be more than average,

BUSINESS QUARTER | SPRING 14

SPRING 14

inventing a new kind of broom with twig extensions to improve efficiency.

Naturally gregarious and hardy, he caught the eye of management at the local factory café and was offered the chance to manage it.

“Ability to innovate has always been my strongest quality,” he says.

“I saw how badly the coffee-maker worked, and took it to pieces until it churned quicker and made tastier coffee,” When the cafe job ended, Jablonskas saw a world of opportunities. But which to take?

This is when the God of chocolate first tapped him on the shoulder.

“As I’d always been fond of chocolate, it occurred to me on the threshold of Lithuania’s breakaway from the Soviet Union that we had very few varieties and brands of chocolate in our shops.”

Armed with an introduction to a Russian chocolate factory czar, he headed to Moscow.

Unfortunately – or fortunately as it turned out – he got lost in the city’s sprawling suburbs, and found himself at a smaller scale operation.

“I asked a passerby for directions, instead of being directed to the left, where the factory I was looking for was, I was wrongly guided to the right, where there was a small manufactory of chocolate-coated zephyrs [traditional flavoured marshmallows],” he recalls.

This misdirection proved auspicious. Having met the zephyr maker, he correctly gauged the explosive demand back in Lithuania for these sweet mouthfuls, and became a main supplier to Lithuanian supermarkets and grocery stores.

Zephyrs hit the big time in Lithuania and his

canny construction of a distribution network earned him “piles of money”.

Or at least it did until the early 1990s, when the knock-on effects of the Russian economic crisis caused the business to crash. Jablonskas had to find a new line, and thought he might have found one when some Chinese businessmen in Moscow persuaded him, bizarrely enough, to buy up raccoon dog furs low in China and sell them high in Russia.

It seemed a good idea at the time, he grins, but it appeared the Chinese had been less than honest about the expected margins. The business made a loss.

Another venture involved hauling cooking oil to Lithuania from Kaliningrad. That didn’t last long either, nor did one that involved buying up herring and hake in the Russian exclave and hauling it back to Lithuania. And while he was doing that, a local banker asked him to construct a new bank building, which of course he did.

“The money he offered was insane, and I could not decline the proposal. From today’s standpoint, it sounds very adventurous, but it reflects how crazy things were at that time.” This led Jablonskas into a booming construction business in Kaliningrad but that too ran into the ground during the next [20022004] Russian financial crisis.

Next came a restaurant business in Lithuaniain which he invested nearly €300,000 in a prime property in in the old part of Kaunas, Lithuania’s second sity, followed by a couple of restaurants in Vilnius. It didn’t last.

Jablonskas now admits he got the high-end concept wrong. >>

The money he offered was insane, and I could not decline the proposal...It sounds very adventurous, but it reflects how crazy things were at that time

64

65

BUSINESS QUARTER | SPRING 14

BUSINESS QUARTER | SPRING 14

66

SPRING 14

ENTREPRENEUR

Ready for adventure: Algimantas Jablonskas relishes the twists, turns and unforeseen circumstances that come on the entrepreneur’s path

“Any business is kind of an adventure, and being adventurous is what makes a good businessman. But the best are those who having ended up on the brink of collapse and misery, rise up just to meet a new challenge.

That’s me really. But I am blessed to have always had my guardian angel looking out for me.” Chocolate came back into his life via a chance TV viewing of the 2000 art-house film romance Chocolat, starring Audrey Tatou and Johnny Depp, about a woman who causes a stir by opening a chocolate shop in a small French village.

“It had left a huge impression on me. When soon thereafter I went to Brussels, to get ideas for my planned new bakery business, the movie kept popping up in my head.

Somebody suggested me visiting Belcolade, a leading chocolate factory nearby,” Jablonskas remembers. “I really felt mesmerised, and completely at home, I surprised the Belgian bosses by asking if I could make something myself with the ingredients they had. They let me mix up some chocolate mixture right on the spot.

I remember I made a candy that made the factory staff drool. It was my first effort, but I guess God was directing me.”

Belcolade, part of the giant multinational Puratos Group (turnover around €1.3bn) is now the company’s wholesale supplier of ingredients.

“I consulted friends whether they thought a chocolate shop in Vilnius could succeed. Only a few of them thought it stood a chance.”

His small chocolate factory opened in Trakai, a picturesque town 20km from Vilnius. It was there he started producing hand-made elaborately-designed gourmet chocolate chips, truffles and other confectionary, originally supplying a new chocolate shop in Vilnius Old City. The business took off, and the Belgians even allowed me to launch their branded line there.

“I managed to grab some new moderatepriced sites in great Vilnius locations. I bought state-of-the-art production line equipment at a good price. Then I stumbled upon a leading

interior designer who worked their magic on the premises. For the first time in my career as an entrepreneur I started feeling that things were falling into place,” Jablonskas said.

After a lifetime of ducking and diving, Jablonskas has amassed a network of contacts, and he still receives many business proposals.

“I decline all of them, no matter how promising. I’m keeping my hands in the chocolate mixing bowl until the end of my days.”

What’s next? He plans to head up the quality scale, by enriching AJ Šokoladas chocolate with 71% cacao. This would allow it to compete with the best quality chocolate around. Interestingly, he has not jumped onto the ‘fair trade’ bandwagon, and does not seem to use ethical provenance of the beans to enhance the AJS brand. In fact the

provenance question – increasingly fashionable in the chocolate world – doesn’t seem to engage him, short of his saying he “fully trusts” his “reputable” multinational supplier to do the right thing. As for the business expansion, Jablonskas has set his sights on London. “I really want to open a chocolate restaurant in the UK’s capital - in one of its most bustling streets where millions of passers by stroll past. I can feel it would be a success.”

How soon he can launch this venture depends on the progress of a finance package, his previous agreement fell through in 2011 when the Lithuanian bank Snoras went bankrupt.

After an entrepreneurial life that has seen more than its fair share of success and failure, we can trust Aligimantas Jablonskas not to be deterred by such accidents. We can also trust him to know a winner by now. n

Carrying the torch for an age-old industry Industrial production of chocolate in Lithuania goes back to 1886, when a local Jewish entrepreneur, M. Abramson, founded the first-ever chocolate and confectionary factory in Vilnius. The history of the oldest candy factory still in operation dates back to 1913 when a 36-year-old Lithuanian entrepreneur Antanas Gricevicius installed a caramel-boiling boiler in a wooden hut on the outskirts of Šiauliai city in the north of the country.

Contrary to the-then prevailing fashion for affixing foreign names to local goods, Gricevicius wanted to underscore the Lithuanian provenance of his products by calling the shop Ruta which means [the medicinal herb] rue. In 1940, the factory was nationalised by the Soviets, but Gricevicius’ heirs managed to reclaime it after Lithuania broke away from the USSR in 1990.

The other big name in Lithuanian chocolate Pergale was founded in 1952 and was famous during the Soviet-era for its chocolate sweets Raudonoji Aguona, (red poppy). Pergale is still in operation introducing 10-20 new chocolate lines every year.

At the other end of the spectrum to AJ Šokoladas, the largest contemporary chocolate maker in Lithuania is AB Kraft Foods Lietuva. It was established in 1993 by the global food giant which has owned the famous UK brand Cadbury since 2010, along with many other household names.

The investment was one of the first significant foreign ventures in post-Soviet Lithuania.

Kraft’s Kaunas-based factory employs nearly 700 workers and exports approximately 70% of the chocolate. The most famous chocolate brands include Milka, Karuna, Manija, Princas. Besides, the factory makes popular Jacobs coffee.

In 2012, in an undisclosed acquisition deal, Mondelez International acquired a major stake in Kraft Foods Lietuva.

67

BUSINESS QUARTER | SPRING 14

FASHION

BUSINESS QUARTER | SPRING 14

68

FASHION

THE OLD WAYS ARE THE BEST

In pockets of craftsmanship across the globe, one man bands are leading a new wave of interest in jeans made the way they used to be. Josh Sims reports on the rise of elite, artisan denim

69

BUSINESS QUARTER | SPRING 14

FASHION To most people Kurabo, Nisshinbo, Kuroki and Kaihara are exotic-sounding but largely meaningless words. To these same people, a pair of jeans is likely to be a non-descript, commodity product, something to do the gardening in, or to wear down the pub ordinary even in this, the 140th anniversary of the creation of the granddaddy of all jeans, Levi’s 501. But then there are other people those who might recognise the names of the four main mills producing denim in Japan, arguably home to the world’s best denim.

And these mills certainly are busy - as unlikely as the idea would have sounded just 15 years ago, denim is now an artisan fabric, with top-spec jeans hand-made by lone makers at their work-bench. And that is no romantic exaggeration. Among the new wave of elite denim are literal one-man-band makers the likes of those behind American labels Roy and White Horse Trading Co, and British label Tender, using homegrown denim from Cone Mills, the last of the US’s pioneering mills, or, more likely, one of the many varieties of Japanese denim - woven on old-fashioned shuttle looms, repeatedly hand-dyed using laborious loop-dyeing techniques, all to create the subtle irregularities of texture and certain properties of fading in the colour that denim-heads so love. The result? Jeans that will set you back anywhere between €370 and €610 a pair.

That Japan should be the source of the best take on a quintessentially American fabric may seem unlikely. But here comes a strange tale of American occupation after World War Two giving rise not to some desire to embrace a more homegrown style, but that of the occupying forces, which saw a youth cult for all things Americana and, a few decades later, a fledgling Japanese fashion industry seeking to recreate American raw blue jeans better than the Americans.

“And the trouble they go through to make jeans now as then is insane,” says Nick Coe, founder of the Rawrdenim.com webzine. “Of course, there is a romance to denim out of Japan. But it’s really in the manufacture that it’s unparalleled, at least until recently.

Japanese denim might not be re-inventing the wheel, but by bringing back in every detail what the makers thought was perfect in jeans

BUSINESS QUARTER | SPRING 14

many decades ago, but which hadn’t been available for many years, they created a connoisseur market.”

It was a company called Big John, which had been a textiles and uniform manufacturer, that became the first domestic denim brand in 1965. Edwin has a similarly long history. And they have since been joined by a growing plethora of ever more esoteric makers, the likes of Sugar Cane and Real McCoys, Full Count, 45RPM and Samurai, Iron Heart, Flat Head, Studio D’Artisan, Momotaro, the list goes on, including many yet to sell outside of Japan (which, of course, adds to their cachet).

Each claims their own specialism, be that the precision with which they re-make Levi’s classic styles of the 1930s to 1950s, or the use of natural indigo dyes, or the emphasis on heavy and super-heavyweight denims - perhaps 21 or 25oz as opposed to a more typical 12 or 14oz, this itself being sturdy stuff against the positively flimsy 8 or 9oz mass-market denim.

“You discover Japanese denim and its

70

Back to basics: The Nudie Jeans repair shop in Soho

whole world sucks you in,” suggests Daniel Cizmek, managing director of the Berlin-based DC4, one of the leading retailers of Japanese denim outside of Japan. “The quality is amazing and not just because of the effects possible by using old looms and tailoring machines - it’s because the makers tend to have this deep fascination with American culture and typically have huge, and hugely valuable, vintage denim collections. They know their subject and that shows in the product.

Believe me, it’s addictive.”

But while the Japanese mills and makers may dominate the artisan denim market, they are not alone. There are the aforementioned American makers - joined by the likes of 3x1, 3Sixteen, Stronghold, Imogene & Willie and others. And then, perhaps more >>

FASHION Photo credit: Cory Piehowicz (Bandit Photographer)

Material wealth: White Horse Trading Co

71

BUSINESS QUARTER | SPRING 14

FASHION

unexpectedly still, there are the Swedes. ”What we do well here is dark, clean denim, because that suits the dark winter climate - it’s less expressive of itself and more about your relationship with a pair of jeans and how they age. It’s fashion, but a slower kind of fashion,” argues Maria Erixon, ex of Lee jeans and co-founder/owner of Nudie Jeans, one of the biggest of the new premium denim brands out of Sweden in the last ten years.

“I’m not all that surprised by the development of Swedish denim now - we’re a very denim-oriented people.”

Indeed, recent years have seen a spate of new Swedish denim companies launch perhaps because of the strength of demand here for denim with a difference: it was Nudie, for example, who might well lay claim to having introduced the skinny fit that cut against the straight fit classic to became a staple fashion denim choice; which last year became the industry’s first fully organic denim brand and this year its first fully transparent one,

BUSINESS QUARTER | SPRING 14

conducting published audits of its suppliers’ working conditions and environmental standards. Nor is Nudie alone in this spate of new names. There are the likes of Denim Demon, Dr. Denim, Neuw and Pace. But a fact little known outside of the country is that Sweden has a denim culture dating back half a century. It was then, in 1966, that the pioneering brand Gul & Bla was formed by Lars and Maria Knutsson, sparking a jeans explosion for a youth market unable to buy Levi’s or Lee, then still a rarity outside of the US. Their first Stockholm shop not only sometimes sold 1,000 pairs a day - notably of their signature wide-legged ‘v-jeans’ - while the company was at the forefront of development of the techniques to allow aged washes and other treatments. The company is bouncing back too: dormant for some 15 years, last season saw the relaunch of Gul & Bla, complete with jeans production in Sweden.

“Sweden actually has a very early denim

72

culture, relative to other European countries, which most people outside of Sweden don’t know about,” explains Mattias Hallencreutz, who works on design for Gul & Bla. “It comes from the fact that Sweden has always looked to the US for inspiration - in fashion, cars, music - perhaps because we have this long story of emigration to the US, so feel this strong link. And the Vikings discovered the US, after all.”

Indeed, according to Peter Lindt, design director of jeans brand Crocker, the national attachment to denim is a reflection of the Swedish democratic approach too.

“Swedes have never looked down on jeans they were something you could wear anywhere,” says Lindt. “Perhaps that is because jeans have never been considered workers’ clothing here either - jeans have always been a fashion item for us. And with artisan denim undergoing something of a reappraisal now, they look set to be entering a whole new phase of appreciation.” n

RIGA

KAUNAS

MOSCOW

BUCHAREST

MUMBAI

MILAN

EDINBURGH

Helping international businesses work in the Baltic since 2000 CCG are a leading international business development consultancy specialising in helping companies, of all sizes, understand the correct approach to working or expanding their business internationally.

We started our business in 2000, and now have offices in Latvia, Lithuania, Romania, Russia, Italy, India and the UK. During that time we have helped over 800 international companies work in the Baltic markets, and over 100 Baltic companies develop their international activities.

Our clients range from some of the largest companies in the world, to high growth start-ups, and we offer assistance in: • • • • •

International Strategy Development Market Access Exporting Outsourcing Joint Venturing

• • • •

Acquisition Direct Investment Investment Supply Chain Development

If you are interested in entering the Baltic markets we would be delighted to see if we can help, to arrange an initial call with one of our directors please contact lily@consultcormack.com.

www.consultcormack.com

FASHION CALCULATING CREATIVITY Advanced mathmetician turned artist Anna Fanigina is turning heads in the jewellery world through her burgeoning brand Verba When Anna Fanigina, a student of Riga school of design and art, peeked into a Latin dictionary to find out the root of the word pectoral for her thesis, she didn’t close the reference book at once. Other, peculiar, funny, or even historical words and phrases attracted her attention.

This is how Verba was born – a jewellry brand with a motto ‘adbibere verba puro pectore’, which means “take these words in a pure heart”.

Anna doesn’t try to teach her customers ancient wisdom; she chooses the words she feels are right and which could help the wearer to express their feelings and beliefs. “This is purely the willingness to share, to show things which I believe are interesting,” she says.

Verba means “words” in Latin, but Russianspeakers immediately think of pussy-willow (the word verba’s meaning in Russian), with its silvery, soft, and oval flowers, seen in spring.

Anna is very proud of this word-play in her brand name: her works indeed give the impression of tenderness and softness associated with this plant.

A student of advanced mathematics, Anna soon realised that her chosen profession of teaching was not for her. “Although I respect clear and logical structure of maths and I apply these principles in my artistic career,” laughs Anna. “I am using my mathematical sense to

Tuned in: Anna Fanigina says her work is aligned to her concept of the world feel whether the piece is aligned with my concept of the world. There should be nothing unnecessary, everything should have its own place.”

Her jewellery works indeed have nothing extraneous, not too much in the way of fancy decoration, yet they are perfectly finished in their artful simplicity. The artist herself is very much in tune with her creations: minimalistic, reserved in her style and with pleasant, regular

I am using my mathematical sense to feel whether the piece is aligned with my concept of the world. There should be nothing unnecessary, everything should have its own place BUSINESS QUARTER | SPRING 14

74

features. But at the same time she has a completely finished image, of which her own jewellery is an intrinsic part. Verba offers several collections. The first one is Verba, the beginning of Anna’s career as a jeweller and artist, featuring items made from silver with inscriptions in Latin. Although Anna extensively uses silver for these items, her signature material is electrum – an alloy of gold and silver mixed about equally. “It was used by ancient Greeks, since they couldn’t extract pure gold in nature,” explains Anna.

The next collection is Teres – rings and earrings made with semiprecious stones. Teres means ‘oval’ or ‘round’, and these stones are indeed very curvacious and tender, especially rose quartz, one of the master’s favourites. She also

FASHION Anna’s exhibition in Saint Petersburg Mikhailovsky theatre was called L’amour de l’impossible. Here she traded somewhat academic Latin for elegant French in order to show the fragility yet absolute strength of ballet dancers. The exhibition was organised for a premiere of ballet Romeo and Juliet

The rooms that Anna is using for her workshop belonged to Riga film production studio in the 1920-1930s

likes amethyst and aquamarine.

The third collection, Ursis, has its origins in a successful exhibition; customers liked the adorable and slightly melancholic stuffed bear featured on the range of rings and brooches – a bear who shares his thoughts in Latin. The items are available in local galleries and shops with designer jewellery in Riga, Vilnius, and in Russia. Verba is currently looking to start partnerships with galleries in Tallinn as well.

We talked about Verba in Anna’s workshop, a light, not excessively big room with three working tables, full of tools and works in process. Besides Anna, there are three more people working on Verba products. A small oval table invites visitors for a cup of tea close to a neat black wood-burning stove, otherwise the room is quite chilly. “These rooms belonged to Riga film production studio

in the 1920-1930s”, says Anna.

I noticed an interesting, clearly Verba-style piece on Anna’s finger, which turned out to be her latest creation. The ensemble of three small rings with three stones and a sentence in Latin under them “but the greatest of these is love”, a reference to the famous passage from Corinthians 13. The stone which symbolises love is also a bit bigger than the others – an elegant ring containing a profound idea. ”I did it for myself. This idea is close to my heart, that is why I created this,” says Anna.

Verba pieces and their creator leave a comforting feeling that I have talked to an artist who has a strong connection to her work, an artist whose brand image comes naturally but declares itself firmly and clearly through each and every small piece and idea that comes along. n

75

Verba in the Baltics: RIGA, LATVIA: - Riija, Terbatas 6/8, http://riija.lv/ - Paviljons, Terbatas 55, http://paviljons.lv - Galerija ISTABA, K.Barona 31a - Look at Riga, Old Riga, Strelnieku laukums 1, facebook.com/LookAtRiga - Martas Krastas galerija, Old Riga, Kaleju 21, www.martaskrastasgalerija.lv VILNIUS, LITHUANIA: - Le muse, Saviciaus g. 12, Vilnius, www.lemuse.eu - Mažoji galerija, Latviu str. 19a, Žverynas - Užupio koliažai, Užupio g. 2 (“Galera”) PALANGA, LITHUANIA: - Ramybe, Vila Ramybe, Vytauto g. 54

BUSINESS QUARTER | SPRING 14

EQUIPMENT

BUSINESS QUARTER | SPRING 14

76

EQUIPMENT WHAT A GEM OF AN IDEA

Diamonds may be forever, but they’re not so rare now that that scientists have discovered how to ‘grow’ them in a laboratory >>

77

BUSINESS QUARTER | SPRING 14

EQUIPMENT

This isn’t fiction. A retired American army officer visits Moscow to buy a security device, but while he’s there a scientist, Dr. Boris Feigelson, takes him aside to show him blueprints for something else, something developed for the Soviet space programme: a tumble-dryer-sized device that makes diamonds. General Carter Clarke cannot believe his eyes, and buys three, ships them to America and founds Gemesis Cultured Diamonds.

The process was deceptively simple: take a seed, a slither of carbon material and put it into a chamber; add varying amounts of gases, including a carbon source, into the chamber; heat to a very high temperature to produce a plasma, in which the gases break down and carbon molecules attach themselves to the seed, causing it to grow; let your CVD, or Chemical Vapour

Deposition, simmer for a few days to a few weeks; remove gases; remove the now larger seed from the chamber and crack it open. There lies a diamond, chemically identical to diamonds out of the ground, as court cases have had to underline.

That initial process had a problem though: as a consequence of the nitrogen content of the gases used, it could only produce Coloured diamonds - canary yellows, sometimes lavenders and pinks. If that could be called a problem - after all, in nature coloured diamonds are rarer than the white variety.

But now that has been overcome. Last year Gemesis made a leap forward, by producing the largest, whitest, lab-created emerald-cut diamond to date. Washington Diamonds, another leading ‘diamond grower’, has recently produced a white,

Every lab-made diamond has one characteristic lauded in mined diamonds - each is flawless.

Unsurprisingly, the powerful companies that make their money from mined diamonds have been less than supportive of the idea

BUSINESS QUARTER | SPRING 14

78

EQUIPMENT EQUIPMENT carat-sized stone too and claims to be months away from two carat stones.

“And that makes it a milestone,” says Clive Hill, Washington Diamonds’ CEO. “A lot of people in the diamond industry have been keen to view such lab-grown diamonds as marginal. But this stone cannot be ignored.”

More than that, every lab-made diamond has one characteristic lauded in mined diamonds: each is flawless. Furthermore, each is around 25% the cost of mined equivalents. Lab-made diamonds have none of the environmental impact of mined diamonds, nor are associated with devastating African wars, and, unsurprisingly, the powerful companies that make their money from mined diamonds have been less than supportive of the idea.

Indeed, might that be it for the aura with which we have imbued a substance which, bar a small twist of chemistry - carbon atoms connecting in super-strong, ultra-hard 3d bonds rather than in layers - is little different from the soft graphite in your pencil? Neil Duttson, of ethical diamond dealers Duttson Rocks, says: “Despite some fear in the industry that lab-made diamonds will somehow take over, they are just different - a different product for a different customer,” says Duttson.

Over time, there is likely to be increased acceptance of the labmade variety: there was similar resistance to cultured pearls when they were first created, and now they, not deep-dive pearls, account for the vast majority of all pearls sold. Coloured gemstones have long been lab-made by similar processes as those now being turned on diamonds; in fact, so extremely rare are large emeralds, for example, that they would be too expensive to sell - most sold have come out of the lab.

In the short term, the diamond market is expected to divide:

between shoppers for whom increasingly influential greenthinking or price is a leading consideration, and those for whom the emotional content of a mined diamond - the fact that it has been created by awe-inspiring natural forces over countless eons - remains important.

“The whole market is touchy about lab-made diamonds,” says Tom Chatham, of diamond makers Chatham. “Stores don’t buy lab-made ones because they don’t have to - yet. There is good supply of diamonds - for the moment. But [unless some yetto-be-devised technology makes the finding of and access to undiscovered diamond pipes feasible] we could be out of mined diamonds within 40 years.

But the debate over lab-made diamonds may be missing the point. What may prove of greater significance could be the application of diamonds in technology. According to Chatham, some billions of carats of softer, lower grade diamonds are already made each year for industrial purposes, their special properties making them ideal for cutting in particular. But, upgraded to the quality now feasible, white diamonds could also be used more readily in semi-conductors, optical devices, water purification systems, high-powered lasers and other electronics of tomorrow. Never mind the radical change to the world wrought by the silicon chip. The diamond chip could be key to making quantum computing a reality, with machines operating at speeds exponentially faster than currently.

Clive Hill says: “The potential for lab-made diamonds in applications are extremely exciting. I’d say that within a decade diamond products will be part of many of the technologies we use everyday. In fact, the very idea of what lab-grown diamonds’ use in technology could do gives me goose bumps. They could really change the world.” n

The whole market is touchy about lab-made diamonds. Stores don’t buy them because they don’t have to - yet. There is a good supply, for the moment, but we could be out of mined diamonds within 40 years

79

BUSINESS QUARTER | SPRING 14

REAR VIEW

SPRING 14

I have to say the dental service and staff were amazing, and light years ahead of those available in the UK with Charles Cormack >> Crowning glory of Baltic dentistry Over the past few years I have moved more and more of my “medical maintenance” from Britain to the Baltics. The quality of the doctors and specialists here, their cost and their access to modern equipment makes it easier for me to schedule visits to the back specialist etc when I am here, than wait for ages for an appointment with the UK’s creaking National Health Service (NHS).

Up until a few months ago, however, I never quite had the courage to have dental work done here. I generally lack bravery when it comes to dentistry, so it had always seemed easier to have my teeth done at home.

However a broken crown, and the potential cost of its replacement in the UK, was enough incentive to persuade me to book myself into a clinic in Vilnius for a replacement.

I have to say the service and staff were amazing, and light years ahead of those available through my local dentist back in Scotland. They used machines I had never heard of to scan my mouth and I watched as they computer-modeled my crown. Then they milled it then and there and fitted it. Thus a job that takes about four weeks in the UK took only a few hours, and the cost was about a quarter of what I would have paid at home.

So thanks to DR M and the staff at Odontika.

I can’t exactly say I am looking forward to coming back, but I will be!

BUSINESS QUARTER | SPRING 14

>> Getting ready for the funding to start again

>> Farewell PM, but I hope not for long

At the moment EU funding to the Baltics has slowed to a trickle as one planning period comes to an end and the new one gets ready to start.

This hiatus offers a great chance for local companies to take stock and get ready for the next round. All conversations I have had with government agencies in both Latvia and Lithuania lead me to believe the main programmes will be broadly similar to the ones from the last period, promising plenty of money for training, commercialisation and innovation.

There is always a willingness from local companies to partner with international companies for the development and delivery of these types of projects, so roll on the autumn when the money is expected to start flowing again.

The past few months have seen the departure of office of two of the most effective politicians in Latvia. Valdis Dombrovskis is a hero of mine. I know he is not conventionally charismatic in the approved style of modern TV-age politicians, but the way he guided Latvia through the crisis is nothing short of remarkable, and his decision to stand down following the Maxima tragedy showed characteristic dignity and a sense of honour.

Daniels Palvuts the young and hyper-intelligent Minister of Economy has also gone as a result of the change of Prime Minister. I think this is a real shame for the country, as he always seemed to have a firm grasp of the key issues, and presented the face Latvia needs to have on the European and world stage. Here’s hoping that these two considerable talents won’t be gone for too long from the political scene.

>> Lithuania’s coastal gem I had visited Klaipeda, Lithuania’s third city by population (second in growth terms) a few times in the past. Now that my company CCG has been doing an increasing amount of work there, I have spent proper quality time in the coastal city. I have to say I love it.

It is an exciting, but very easy place to do business. It has the main Ice Free port in the Baltics, which sits at the heart of the city. There are ambitious plans to develop a new deep water port, almost doubling its size and capacity. The Free Economic Zone is one of the most successful in the world, with a growing number of major international companies setting up production. The city is also home to the “Marine Valley” which is part of the government’s ambitious plans to push Lithuania as a hub for international research and development.

But for me the key thing is that it is just a nice place to be. The people are friendly and have a good understanding of foreigners (as it’s a port they see a lot of them). If you are looking for a place to do business in the Baltics I would urge you to make the trip to the West of Lithuania and have a look for yourself.

80

SPRING 14

BMI KNOWLEDGE

Young Firm Internationalization: Five Survival Secrets Any firm that has tried to expand abroad knows that the promise of booming sales in new markets can also bring critical new risks. What characterises companies that survive the adventure of expanding beyond their home? This is the focus of original research recently published by R. Coeurderoy of BMI founding partner Louvain School of Management in Belgium with colleagues from the UK and Germany Internationalisation is a double-edged sword. The benefits of exploiting new markets come with additional risks and costs that are hard to plan for. It’s not just about figuring out how to transfer your homebased competitive advantage to foreign markets.

You also have to quickly acquire new knowledge and skills to manage logistics, labour, etc. in unfamiliar territory, to assess exposure to economic conditions in a broader context and to defuse potential threats such as intellectual property theft. In general, being ‘foreign’ sharply increases the challenge of being ‘new’ to a market.

Coeurderoy and his co-authors examine some 600 young firms (5-11 years old) from the UK and Germany in new technology fields. Surveys explore the firms‘ international experiences, focusing on how survival rates during foreign expansion relate to the (a) knowledge-intensity of operations, (b) relationships with customers and others, and (c) commitment to foreign markets in terms of revenue share, number of markets and entry model. Controlling for factors such as company size and managers’ international experience, they obtain statistically significant results with practical managerial implications. We summarise some of their most interesting findings: 1. ALL OR NOTHING – CHOOSE ONE. Young firms that centre their strategy on international expansion and, conversely, firms that clearly choose to prioritise the home market, are more likely to survive than firms internationalising on a limited scale. It seems trying to balance attention between home and foreign markets means splitting management and other resources, with the risk that neither will get enough.

a ‘learning-by-doing’ process, where entry into successive markets is easier and less costly than entering previous ones. Results also showed lower survival for firms whose first foreign market was the USA, suggesting it is more risky to begin internationalisation from especially tough markets, even if they offer big opportunities.

Where are you headed?

2. DON’T RUSH TO PUT BOOTS ON THE GROUND. Companies that enter foreign markets by direct exporting, using a foreign distributor or using a foreign agent are significantly more likely to survive those that set up foreign subsidiaries or rely on licensing. Young firms probably shouldn’t initially burden themselves with big sunk costs when agents or distributors with local market knowledge and incentives can usually sell more there and channel the most useful information back from customers to the producer.

3. BUILD A SAFETY NET OF RELATIONSHIPS. Having interdependent relationships, with customers especially, increased survival chances for these companies. Mutual obligations and complementary resources create common interests that motivate partners to help you.

4. DON’T PUT ALL YOUR FOREIGN EGGS IN ONE BASKET. Survival probabilities increased as firms were able to extend operations across additional countries, with the most significant beneficial effect linked to each of the first four countries entered. This is consistent with the logic of risk diversification. It also may reflect

81

5. KEEP UP R&D TO KEEP YOUR ADVANTAGE. Firms which constantly engage in research and development are much more likely to survive than those who do R&D only occasionally. This is consistent with theories that investments in knowledge help newly internationalising firms develop and adapt. Exploiting knowledge resources to create and maintain competitive advantage is of great importance for international success.

See the article by Regis Coeurderoy, Marc Cowling, Georg Licht and Gordon Murray in the International Small Business Journal, Vol. 30, No. 5.

BMI Baltic Management Institute combines the strengths of six leading international business schools to offer premium education opportunities for experienced executives.

Academic partners are HEC Paris, Copenhagen Business School, NHH Norwegian School of Economics, Louvain School of Management, Vytautas Magnus University and Shanghai Jiao Tong University. (www.bmi.lt) For further information please contact Tel. +370 5 248 7248, E-mail: info@bmi.lt

BUSINESS QUARTER | SPRING 14

EVENTS

SPRING 14

BQ’s business events diary gives you lots of time to forward plan. If you wish to add your event to the list send it to colin@bq-baltic.com and please put ‘BQ events page’ in the subject heading

MARCH 12-15 Baltic Jewellery Show “Amber Trip”, Riga, Radisson Blu Hotel Lietuva. The XI International Baltic Jewellery Show 2014 is the ‘supreme event’ in the Baltic region when it comes to the jewellery industry. The show’s aims this year are to ensure that amber becomes even more popular worldwide, and to unite those in the jewellery industry in the Baltics with those throughout Europe. Participants will be from the Baltics, Poland, Turkey, Russia, Ukraine, Greece, Italy, Belgium, Czech Republic, Germany, India and elsewhere. The exhibition is well-known worldwide and is marked in all jewellery calendars, say the organizers. Though amber is the central theme, also at the event is a focus on gold, silver, diamonds, rubies, pearls and other precious stones. ‘Amber Trip’ offers an educational program with specialists giving lectures about the business of everything seen at the show.

13-16, Building Construction Material Show, Riga, Kipsala International Exhibition Centre. House I is a comprehensive trade fair for those connected to the building construction industry. It is also the ideal destination for homeowners in finding the latest products and services for every aspect of home improvement, from home building, to repair, renovation and remodeling.

It will bring together manufacturers of building and renovation materials and home furnishing equipment with professional builders, contractors, architects and interior designers. House I is an opportunity for exhibitors to network with potential business partners and consumers. It will showcase a range of building materials and accessories, door and window supplies, ceramics, kitchen and bathroom hardware, home furnishings, furniture, electrical appliances and much more. It will also explore latest technologies for making homes more comfortable and energy efficient.

14-16 Marine and Leisure Boat Show, Tallinn, Estonian Fairs Centre. The Estonian International Boat Show is back for another season. For water-sports-lovers, last year’s decision to move up the date and to move the show indoors has been vindicated. Summarizing last year’s event, the organizers say that over 70 companies participated with over 100 boats on display, with a record number of people attending the event. This year, exhibitors include manufacturers of yachts, smaller boats, marine supplies, safety equipment and marine electronics.

Providers of outdoor equipment including for extreme sports, diving, fishing and hiking will attend.

20-23 Furniture and furniture supplies trade show, Vilnius, Lithuanian Exhibition Centre. Furniture Vilnius is one of the most important shows for craftsmen, architects, interior decorators and other professionals related to the furniture and furniture-making industries. The show exhibits a wide range of trendy and reliable furniture which are designed for the housing, commercial and industrial sectors. Study classes are arranged for attendees and are conducted by experts. Furniture and materials on display will include a comprehensive range available on international markets. This exhibition is organized

by Litexpo.

APRIL 4-6 Fashion and Textile Riga, Kipsala International Exhibition Centre. It is only right that Riga, as a center of fashion, plays host to trade show Fashion and Textile Riga again this year. This international event brings together manufacturers and suppliers of clothing, home textiles, lingerie and more to share with attendees. Materials required for the manufacture of lingerie, all kinds of work and protective clothing, clothing for leisure and sports, thermal underwear and seamless lingerie will be on display at this expo. Fashion and Textile Riga is a must attend event for the marketers, designers, purchasers, agents, consultants, distributors, retailers and experts related to the textile industry. They are ready to share their expertise at the show.

BUSINESS QUARTER | SPRING 14

11-13 Riga Auto Show, Kipsala International Exhibition Centre, Riga. The Riga Auto Show will this year gather automotive industry professionals and key decision-makers from around the region to mix with global executives and discuss what’s new on the road. Attendees will learn the latest in industry news, gossip and new products. The exhibitors - manufacturers and dealers - are in Riga to show off new car and SUV models, announce pricing schemes, and extol what’s new in financial services, car leasing and insurance. In addition, Eco friendly and electric/hybrid vehicles will be on display, along with material from car rental firms, driver training instructors and road safety product suppliers.

25-27 Gardening Estonia trade show, Tallinn, Estonian Fairs Centre. Gardening & Landscaping Expo is again bringing together buyer and suppliers in the gardening and greenery business, to discover both standard and innovative new products for the growing season ahead. The event will showcase all the latest products for gardening and landscaping under one roof at the Estonian Fairs Centre. The exhibitor profile includes furnishing and maintenance, landscape architecture, garden design and planning, fruit and vegetable cultivation and landscape gardening. Also on display will be flowers and decorative plants, seeds, and hardware including gardening tools and machinery, garden pavilions and houses, barbecue setups and equipment, outdoor fireplaces, garden furniture, ponds, fountains and more.

30 (until Oct), Former KGB building, Riga, Corner of Brivibas and Stabu Streets.

The former KGB building will be opened to the public, showing the cells in which countless people were imprisoned, the chilling basement, and ‘exercise’ area, the different stairs used for prisoners and staff, and the offices of the investigators.

The venue is expected to provide new historical insight for the younger generation and guests of the city, as well as become a memorial to those who have suffered directly or indirectly from activities within the walls of this building.

The notorious basements of KGB will hold an installation of materials from the Latvian National Guard, and the cells and kitchen will be open for viewing.

The sixth floor of the building will reveal the narrow spaces where those under investigation were kept for shorter stretches of time.

MAY 10-11 Magic Dance Expo 2014, Riga, Kipsala International Exhibition Centre.

International dance festival ‘Magic Dance Expo 2014’ will gather a great diversity of dance groups, individual artists and pedagogues, to present a remarkable experience of this art form. In two halls of Kipsala Expo Centre, several stages and dance floors will be given to parallel dance shows, show case demonstrations and concerts as well as championships in several dance genres.

The programme also includes quizzes and masterclasses for the participants.

25 London Symphony Orchesta, Riga, Latvian National Opera. An unique event at the Latvian National Opera – the London Symphony Orchestra, which for over half a century has been known as one of the world’s most famous orchestras, will perform a special concert in Riga.

18 Nordea Marathon, Riga. Last year, more than 20,000 people took part in Nordea marathon, which is probably the most favourite marathon in Latvia.

The best time for a full marathon in 2013 was 02:15:34, achieved by a Kenyan athlete Duncan Koech. If you want to beat that – sign up for the 42 km run!

Please check with contacts beforehand that arrangements have not changed. Events organisers are also asked to notify us at the above email address of any changes or cancellations as soon as they are known.

82

Each quarter BQ brings its readership a wealth of business intelligence and information, whilst looking ahead to forthcoming events and reporting on recent developments that will have a significant impact on the Baltic business landscapes

SUBSCRIBE NOW BQ is no ordinary business publication. With unique content and a style determinedly its own, its aim is to inspire, enlighten and empower, embracing and reporting business success wherever it is found.

Receive BQ Magazine each quarter: Annual subscription rates In Estonia, Latvia, Lithuania: a25 (including postage costs) Outside the Baltics, rest of the EU: a30 (including postage costs) Outside of EU: a35 (including postage costs) (Prices do not include VAT)

To subscribe to an annual subscription to BQ Magazine please contact Kate Kolbina, Project Manager +371 26076436

kate@bq-baltic.com

ENTREPRENEURS•SUCCESS STORIES•INTERVIEWS•INSIGHT•OVERVIEW NEWS•EVENTS•FASHION•EQUIPMENT•TRAVEL•RESTAURANTS

meet smart Colourful stays in Estonia, Lithuania, Russia, Ukraine and at more than 160 hotels in Europe, the Middle East and Africa.

groupdesk.baltics@rezidor.com

parkinn.com