BQ Baltic Issue 03 by We Are UMi

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ISSUE THREE: SUMMER 2014

AT THE HELM Steering a sea transport giant to success FREEDOM TO GROW How Free Economic Zones boost growth BEAUTY ON TAP Birch sap powers skincare magic WAR AND PEACE From spy station to science hub

AIMING HIGH ISSUE THREE: SUMMER 2014: BALTIC EDITION

Inspirational CEO helps Aviva scale new heights

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NEWS:

COMMERCE:

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EVENTS

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

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WELCOME

BUSINESS QUARTER: SUMMER 14: ISSUE THREE Welcome to the summer edition of BQ Baltic, which comes at a time when the Baltic states have been receiving more international coverage – or at least mentions in the foreign media – than at any point since the financial crisis of 2008. We hope you enjoy this edition which, like like its predecessors, is all about celebrating the best of Baltic business leadership, investment and entrepreneurialism, and not about international relations and politics in the light of the Ukraine situation (although we have a heartfelt piece on the subject by trade expert Kateryna Levkovksa on page 24). It would be naive to suggest that international tensions in other States bordering Russia do not affect the business and economic matters of the region. As in the anxious days of the financial meltdown, it’s fair to say there is a sense of crisis, albeit a slightly abstract one, given the unpredictability of the man in the Kremlin. Even self-styled Russia experts have by now probably given up second-guessing the next move on the chess board by the Baltic States’ neighbour. It is worth pointing out that unlike the financial crash, this time the Baltics are entirely innocent victims of threatened instability, which comes at a time of recovery and growing prosperity and ambition in Estonia, Latvia and Lithuania. The last time the Baltics were in the news, it was as part-authors of their own troubles. This time their cool but firm response to the Crimea and Ukraine crisis, and the depth of support and solidarity demonstrated by their many friends in Europe and beyond, will have left their mark. Unfortunately, in the eyes of potential investors, uncertainty is uncertainty whatever its cause, and the work of alerting the world to the many benefits of investment here has become a little more complex. This regional tension may have silver linings, but the quicker it recedes, the better. Things move fast in the Baltic states. With luck, by the time of our next edition in August, we will be able to look back on the spring of

BUSINESS QUARTER | SUMMER 14

2014 dispassionately. We will be able assess the impact that the NATO-Russia tension has had on the Baltics’ ability to play what has been one of their strongest cards: their unique qualification, due to geography, language, history and culture, to act as a bridge of opportunity between the rising Russian world and the West Finally, after all the macho sabre-rattling of recent weeks and months, BQ would like to draw readers’ attention to a new survey by consultants Grant Thornton that arguably has more long term impact and than the subject of the evening news bulletins. It is the report that reveals Latvia leads Europe in proportion of women in executive positions, with 41% of executives being female. Latvia’s neighbours are not far behind with 39% in Lithuania and 37% in Estonia. Naturally the content of BQ Baltic reflects the great range and talent of women bosses in the region, as exemplified by Kristi Tiivas of Enterprise Estonia (p12), Asta Grabinske of Aviva Lietuva (p26) and Lotte TisenkopfaIltnere of Latvia’s Mádara (p65). We hope you enjoy reading about them as much as we enjoyed hearing their stories. We hope all our readers make the most of their summer breaks, and that you put down your smartphones, PCs and iPads, head for the beach or the countryside, and enjoy the glories of the Baltic summer. 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 Vygintas Skaraitis e: skaraitis@gmail.com Birgit Püve e: birgitpyve@gmail.com Gatis Rozenfelds e: gatis@rozenfelds.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, May 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

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CONTE BUSINESS QUARTER: SUMMER 14 AT THE HELM IN A TOUGH MARKET

Features 26 AIMING HIGH How Aviva Lietuva’s inspirational CEO has helped the firm scale new heights

32 AT THE HELM The man steering the Baltics’ biggest sea transport firm through choppy waters

46 BUSINESS LUNCH An entrepreneurial firm has created a vibrant environment for tech start-ups

BUSINESS QUARTER | SUMMER 14

56 FREEDOM TO GROW How Free Economic Zones are pioneering regional growth

64 BEAUTY ON TAP Harvesting birch tree sap has given one beauty company a unique selling point

68 RELIC REVIVED A Soviet-era telescope has opened up a world of possibilities for a Latvian firm

A MELTING POT OF INSPIRATION

TENTS BALTIC EDITION

40 COMMERCIAL PROPERTY

The landmark deals and developments shaping the Baltic skyline

TAPPING INTO NATURAL BEAUTY

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

Regulars

50 TRAVEL A former ruin in Estonia has been transformed into a world-class hotel

72 FASHION Eighties power-dressing is given a makeover for 2014

10 ON THE RECORD Estonia’s new PM takes the reins as Lithuania invests in a gas project

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

24 AS I SEE IT How will the Russian-Ukrainian crisis impact on businesses in the region?

76 EQUIPMENT

64 COLD WAR RELIC IS HOT PROPERTY

The company that is making a ‘Naim’ for itself in the competitive audio market

80 REAR VIEW Charles Cormack reflects on the European Parliament poll

82 EVENTS Essential dates in the business calendar

68 BUSINESS QUARTER | SUMMER 14

ON THE RECORD

SUMMER 14

>> Getting to know the neighbours Leinonen is teaching Finnish companies to export to the Baltics. By Kate Kolbina This April Leinonen, the Finnish accounting and tax advisory company with offices in eight Eastern European countries and in Scandinavia, held a series of seminars for Finnish companies explaining to new exporters the nuances of local markets. Leinonen gathered small to medium-sized companies to share expertise on launching businesses in all of their markets: Norway, Sweden, Estonia, Latvia, Lithuania, Poland, Hungary, Bulgaria, Ukraine, and Russia. About 20 to 25 companies were expected to attend each seminar, but the interest level turned out to be the highest in the Baltics, according to Tomi Bosnjak, the director of Tallinn office. Three main topics were covered by the Baltic offices directors: How to start a company in the Baltics, what is the taxation system, and the labour law. “Estonia is one of the most logical places to start the business for a Finnish company without international experience”, says Tomi Bosnjak, “but there was quite a bit of interest in Latvia and Lithuania as well”. Each of the Baltic countries seems to have its own advantage, whereas Estonia might be the easiest place to register and start a company, Lithuania boasts the lowest labour tax (15%). But the bottom line was that there is no single point on which to judge which country is best. Entering a new market is not like entering a lottery and exporters won’t go somewhere simply because the taxes are low, since there is more than that to consider. The Baltics are truly interesting for Finnish entrepreneurs. Historically we have a similar understanding about how business is done. We also have safe environments, low levels of

BUSINESS QUARTER | SUMMER 14

bureaucracy, and lower taxation, labour costs and costs of living. But while the challenges of entering a new market are always similar, an approach used on one country won’t necessarily work in another. “We support companies by sharing our knowledge about general matters such as taxation, and specific information relevant to different industries where we already have experience, backed up by statistics and other relevant data” says Bosnjak. Leinonen warns that while the Baltic market is familiar to many companies, many details of taxation and other legal technicalities remain challenging, so it would be a mistake to relax and treat the Baltics as an extension of the Scandinavian market. “Outsiders tend to see the three Baltic countries as one, but it is not true, of course” says Julija Bajare, the director of Leinonen’s Latvian office. In taxation policy especially, Estonia stands completely separate to its near neighbours, especially its corporate income tax. Latvia and Lithuania are closer, but as each is trying to find its own way to attract investors, they are drifting apart more and more. Nevertheless they do Tomi Bosnjak share similarities, for instance with regards

to VAT. “Although it is early days, I feel that Latvia’s Eurozone entry in January 2014 has aroused the interest towards our countries. It seems that everyone is now waiting for Lithuania to trade its litas for euros”, says Julija. The seminar on the Baltic countries was inevitably influenced by the current tense geopolitical situation. “We were talking more about international relationships than about business. For instance, what do locals think about Finnish people?” Julia continues. “Suddenly people wanted to understand not only how economically beneficial it is to work here, but how comfortable it is emotionally.” The conclusion was not about whether Estonia, Latvia, or Lithuania is the best place to start. As Julia Bajare noticed, “After all, it doesn’t matter, whether it takes three or five days to establish a company. The main thing is that the level of development across the Baltics is similar, and quite high”. The next seminar in autumn will Julija Bajare be for Latvian companies, allowing them to get acquainted with Norwegian and Swedish markets. n

ON THE RECORD

SUMMER 14

>> The small country with big ideas By William Cook

If you had to pick a venue for an interview with the director of the Estonian Investment Agency, you could hardly choose a more fitting spot than Fahle. Right beside Tallinn’s bustling international airport, this former paper factory was founded by a German immigrant called Emil Fahle who arrived here in 1895, aged 20, with just five roubles in his pocket. Today the factory he built houses some of Tallinn’s smartest new offices and apartments. It’s a building that epitomises Estonia’s internationalism, its industrial history and its high tech future. Kristi Tiivas describes how her homeland can continue to grow and prosper. If Herr Fahle was still around, I’m sure he’d be all ears. “We’ve always been the darling of the new Europe,” says Kristi, 36, who returned here from London five years ago, after the birth of her first child. “Look at any indices – corruption, ease of doing business, competitiveness – we’ve always been top of the list.” Facts and figures bear her out: Estonia ranks above Finland, Sweden,

BUSINESS QUARTER | SUMMER 14

Germany or Britain for Economic Freedom; (1) Estonia is seen as less corrupt than Poland, Latvia or Lithuania; (2) unlike any of these countries Estonia charges no tax on reinvested profits, and today it’s reaping the rewards for its tough response to the Global Financial Crisis. “When Estonia chose the route of austerity, it picked the right route,” says Kristi. Estonia’s Nordic business culture gave the country a head start over Latvia and Lithuania after independence, but now its Baltic neighbours are catching up. “Being a local production hub for bigger companies – this is the phase we’ve been through now, and where we are losing our advantages,” says

Kristi. “We’re losing our competitiveness in the low cost area, so we’re looking for smaller investments. We’re looking to be higher up in the value chain.” From Skype to TransferWise, Estonia has developed a reputation for innovation. The next step is forging closer links between business and academia, helping them develop new ideas together. Like Germany, Estonia is heavily export-dependent. Unlike Germany, it has a small population, so focusing on manufacturing isn’t a viable long term solution. “We do have lots of land but we’re seriously short of people. Manufacturing requires lots of people who are willing to keep pay levels low, and it’s increasingly hard to play in this league.” Estonia is bigger than Denmark or Belgium by land mass, but its population is barely 1.3 million. The service sector now comprises about two thirds of the Estonian economy, but of all the new industries, Kristi believes Information Technology is uniquely important, even though it accounts for a relatively small slice of GDP. “This is where we are going and what we are growing,” she says. “Not just IT by itself, but as a booster for productivity. It’s not about making websites. It’s about using new IT solutions to make production more efficient.” A dynamic IT sector creates an environment in which traditional industries can prosper. Kuehne+Nagel, one of the world’s largest logistics companies, have their IT units here. “They liked the business environment,” says Kristi. You can see why. Even half a century of a planned economy couldn’t eradicate Estonia’s entrepreneurial spirit. “We were able to retain this way of thinking for 50 years,” says Kristi, with pride “Tallinn is a very Hanseatic city [a reference to the mediaeval north European trade network the Hanseatic League]. You feel the history and the mentality.”

Being one in a million – literally – every Estonian has a chance to create an image of Estonia to the people that he or she communicates with

SUMMER 14

Still a Hanseatic Port at heart, Estonia is home from home for lots of other multinationals, such as Ericsson and ABB. In a country with so few inhabitants, foreign investment is crucial, but Kristi is keen for Estonia to expand its business base beyond its immediate neighbours. The Estonian President’s recent visit to Japan, accompanied by a business delegation, was designed to bolster Estonia’s growing trading links with Japan. The Japanese are particularly interested in Estonia’s expertise in cybersecurity and e-government. Estonian citizens can vote, access government documents and even sign contracts online. No wonder Kristi’s homeland is often nicknamed e-stonia nowadays. The Japanese are also coming to Estonia in growing numbers – as tourists as well as business travellers – thanks in no small part to the efforts of Kristi’s colleagues in Enterprise Estonia, who’ve

ON THE RECORD

worked hard to shake off Tallinn’s reputation as a stag night destination, and introduce foreign visitors to the other attractions the country has to offer. “There are cheaper locations now in Europe that attract the bachelor parties,” says Kristi. Tallinn is the biggest passenger port in the Baltic, cruise tourism is growing, and independent travellers are venturing further afield. “In the past it was just two square kilometres in the Old Town of Tallinn where we had tourism,” says Kristi. Now Estonia’s islands and national parks are more accessible for foreigners, and spa tourism is stretching Estonia’s brief summer season. When it comes to selling Estonia abroad, brand recognition remains the biggest obstacle. Kristi wants foreigners to associate Estonia with other Nordic countries, rather than just the other Baltic States. Ultimately, Kristi believes Estonia’s modest

population can be an asset, not a liability. In such a compact country, access to legislators is much easier to arrange. If Estonia is to thrive, every Estonian has to do the same job as Kristi – spread the word about Estonia, and build bridges with the wider world. “Being one in a million – literally – every Estonian has a chance to create an image of Estonia to the people that he or she communicates with,” she says. Ultimately, Estonia’s greatest resource is its people. After all, Venice never had a massive population but that didn’t stop it becoming a major economic power of the Renaissance “We want our people to be smarter, we want them to live better, and we want them to stay here until retirement,” says Kristi. After independence, many of Estonia’s brightest citizens, like her, went west. Now, that first post-independence generation is coming home. n

BUSINESS QUARTER | SUMMER 14

ON THE RECORD

SUMMER 14

>> Wanted: A new transfusion of investment cash The Baltic region may be one of the great examples of recovery and growth, what it still lacks are fully functioning equity markets. A unique event in October sets out to find the missing parts of the jigsaw In the first of a planned series of high-level business summits, BQ Baltic Magazine and the Baltic Management Institute (BMI) of Vilnius will this autumn hold a high level summit devoted to the issues surrounding Public & Private Equity in the Baltic. Held on October 9, 2014 in Vilnius, the summit will invite leading academics, business leaders and officials to share their views on measures to develop Baltic equity markets, offering practical guidance for companies seeking to raise capital for expansion, and for investors seeking to tap into the Baltic economic growth story. The day-long session promises to provide the clearest and most comprehensive picture to date of the current state and – more importantly – future prospects for equity markets in the three Baltic states. Questions to be addressed include: Why do the Baltic stock markets remain underdeveloped? How could more companies be attracted to list? How to catch the eye of international institutional investors? And can the region compete with the Warsaw bourse? Toby Moore, managing partner of Riga-based Imprimatur Capital, a keynote speaker at the event, said: “The liquidity problem in the Baltics is a bit of a chicken and egg situation. Since many of the most successful companies went private in the early-mid 2000s, now companies often don’t want to list on Tallinn, Riga or Vilnius, because investors aren’t there to buy the stock. And investors won’t buy the stock, or won’t push the liquidity because there’s not much stock to push.” Participants will examine the Baltics’ new private equity initiatives and assess their success at raising and allocating cash to promising companies. They will also take a hard look at the evolution of governance culture in the Baltics, and how that impacts companies’ willingness and ability to raise capital on local stock exchanges.

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Toby Moore, managing partner of Imprimatur Capital Finally, the session will look at whether Baltic governments are willing and able to pay the political price of listing more state-owned companies, and if so, which ones, why, and how? Bryan Bradley, a director of BMI, said: “Better functioning equity markets would benefit all investors who believe in the Baltic growth story, and would have more opportunities to actually invest in the region’s potential.” “That means inflows of foreign capital to support further economic growth. The best Baltic companies would have access to more – and more diverse – financing to support expansion. Current stock market investors here would benefit from increased liquidity, and for private-equity investors, selling shares on the exchange would become a more viable exit option. The Baltic governments, by selling more shares of state enterprises to the public, could get sizable one-time cash inflows, reduce the need for state financing of large infrastructure projects and create incentives for these companies to operate more transparently and more effectively.” As Bradley puts it: “Political interest in capital market development seems weak in Baltic countries. Even politicians that understand the problem tend to give it low priority. some

members of Lithuania’s government are talking about the possibility of considering the matter. Meanwhile, the stock exchanges continue to lobby the governments for support.” BMI is seen as the ideal location for this far-ranging discussion as its professors, drawn from top European business schools, include several advisers to big players in the international capital markets, also authorities on corporate governance in the NordicBaltic region. A number of BMI alumni also play leading roles in the Baltic capital markets, from the stock exchange to asset management companies and pension funds to financial regulators. Bringing them together will ensure discussions that are locally relevant but placed in a global context. Said Bradley “It’s bound to spark fresh ideas, insights and initiatives, which is what business leaders who attend the event can expect to take home. Along with a larger and deeper professional network, of course.” Charles Cormack, chairman of CCG and BQ Baltic co-owner, and another participant in the Oct 9 seminar, said: “We are very excited to be announcing the first BQ Event, in association with the Baltic Management Institute. Our aim is to develop a series of thought leading events, bringing together leading local and international experts to discuss key business issues in the Baltic. We hope that all of these events will become the key events in the calendar of business people across the Baltic States.” A full report of the event will appear in the autumn issue of BQ Baltic (for subscription details see the inside back page of this issue.) For full details of the BQ-BMI Executive Summit on Public & Private Equity in the Baltics, please contact: Bryan Bradley, Communications Director at BMI Management Institute, T: (+370) 248 7248 E: bryan@bmi.lt

BUSINESS QUARTER | SUMMER 14

NEWS

SUMMER 14

Estonia’s bold and self-confident prime minister takes the reins, tourism chiefs woo Finnish spenders, new gas project will reduce Lithuania’s reliance on Russia, Senuku aims for international growth >> Storm will see out the year Russian aggression in Ukraine caused NATO to mobilise troops in the Baltics. Estonian President Toomas Hendrik Ilves greeted the 150-member company of the 173rd Airborne Brigade of the U.S. Army that arrived on 28 April at the Amari Airbase in Estonia. The soldiers will participate with other allied units in the large-scale combat exercise Spring Storm. They will remain in Estonia in their current number and formation until at least the end of the year, reported LETA. Similar troop assignments from the 173rd Airborne Brigade took place in Latvia, Lithuania and Poland. In Vilnius, Deputy Supreme Allied Commander Europe General Sir Adrian Bradshaw said that NATO had invoked all measures necessary to respond to the developing situation on its eastern borders. “I would like to reaffirm that the Alliance will review its plans to enhance collective defence and increase NATO’s capacity to respond,” the General said. In April, US Vice President Joe Biden, and US Senators John McCain, John Barrasso and John Hoeven travelled to the Baltics on a fact-finding mission and to show US and NATO support to allies.

>> New man in Tallinn Estonia elected a new prime minister who can also claim to be the EU’s youngest head of state. Taavi Rõivas took over the reins of Estonia’s government on 26 March after parliament swore in his new “bipartisan” cabinet. He replaces Andrus Ansip, who stepped down after a record nine years in office. Ansip’s popularity had been flagging, and his resignation was designed to bring in fresh blood ahead of the centre-right Estonian Reform Party’s run for re-election in 2015. Rõivas, 34, has brought together the Reform Party with the leftist Social Democrats, who crossed over from opposition. His coalition commands a wafer-thin majority of just 52 seats in the 101-member parliament. The new prime minister has pledged to make security a priority as tensions run high in Estonia and fellow Baltic States due to Russian assertiveness

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>> Latvia welcomes Swedish royals HM King Carl XVI Gustaf of Sweden and Queen Silvia visited Riga on 26 March, for a fourday state visit to Latvia, at the invitation of President Andris Berzins. Accompanying the Swedish royal couple were Minister for Foreign Affairs Carl Bildt, representatives of the Swedish government and a business delegation. The visit started with the King and Queen meeting the Latvian President Andris Berzins, and Speaker of the Saeima Solvita Abolti, before a flower laying ceremony at the Freedom Monument and a tour of the Museum of Occupation. The visit continued with HM the King opening the Swedish–Latvian Business Forum and meeting Latvian Prime Minister Laimdota Straujuma. There was also a 20th anniversary ceremony of the Stockholm School of Economics in Riga. The school was founded in 1994 by SSE with support from the Swedish government. King Gustaf was awarded the I Class Order of Viesturs, while Queen Silvia was given the Class I Cross of Recognition. This was the second visit by the Swedish royal couple to Latvia, following one in 1992. With trade turnover of €1.2 billion, Sweden ranks 6th among Latvia’s trade partners.

in Ukraine. Like his predecessor, Rõivas is seen as a self-confident, activist leader with a reputation for bold decisions. The Reform Party is the largest in parliament, holding 33 seats, but support dropped to around 21% of voters this year, down from a peak of 45% in May 2007.

>> €4bn rail plan on track The EU-backed high speed railway line Rail Baltica, which will link Western Europe with the Baltic states, will go ahead, participating countries have reasserted. Connecting Germany with Finland, the troubled project is due to pass through Poland, Lithuania, Latvia and Estonia. The tracks will be built

to the European “Standard Gauge,” as opposed to their current, wider, “Russian” track specifications. Lithuanian Prime Minister Algirdas Butkevicius, whose government has been seeking changes to the proposed route to pass through the Lithuanian capital Vilnius, said the entire line is due to be completed by 2024. Construction costs will be covered by the EU’s Structural and Cohesion Funds, as well as by the countries involved, and come to almost €4 billion. Overcoming objections about the new route from Baltic partners, who claimed the route change would jeopardise funding, final agreement was made by transport ministers during a meeting in Vilnius on 28 April.

SUMMER 14

COMPANY PROFILE

3D Technology in Baltic Dentistry State of the art 3D technology for dentistry is increasingly being used in dental clinics across the Baltic. One clinic using 3D technology is Odontika in the colourful Užupio district of Vilnius Old Town. An example of the new era of dental healthcare that has brought many innovative solutions in dental treatments is CEREC CAD/CAM. Odontika clinic owner, Implantologist Ieva Day-Stirrat says “We are now able to create a highly accurate ceramic tooth restoration in under 2 hrs and in one visit. The technology increases the durability of the tooth being restored and speeds up the production process. In fact many crowns and bridges can even be made the same day. Highly durable, precise fitting, and metal-free - CEREC 3D technology opens up more opportunities to meet the demanding aesthetic expectations of patients”.

For CEREC the first stage of modeling a dental restoration on the computer screen allows the dentist/ technician to interact with the patient, hear their opinions, observations and suggestions in relation to the colour and appearance of the tooth. Ieva Day-Stirrat, “We can test the appearance by milling a non-ceramic cheaper composite material. These temporary 3D produced restorations are placed on the patient’s teeth and are used as a template for the final shape, slope of the teeth, anatomy, colour analysis and correction. In fact sometimes patients even prefer to wear these temporary restorations for a few days to get used to them, to decide whether they like the new smile”. This encourages mutual communication between patient and doctor and allows achieve high

performance. What is more, there are direct health and time benefits to the patient, which include less visits to the dentist and less anaesthesia. Lithuania and the Baltic region is fast becoming the destination of choice for Scandinavians and Western Europeans looking to get high quality dentistry with good guarantees and affordably priced. Odontika is Lithuania’s leading clinic for dental patients from abroad with over 800 foreign patients visiting Odontika in 2013.

Address: Kriviu g. 5, Vilnius LT-01204, Lithuania T: +370 614 80991, E: alistair.day-stirrat@odontika.com

NEWS

SUMMER 14

>> IPO in the air for airBaltic

>> Milestone for new PM Prime Minister of Latvia Laimdota Straujuma marked 100 days in office on 25 April. Straujuma emphasised that her government has continued the work started by the previous administration, adding that the country remains the fastest growing economy in the European Union. “All of the ministries have been hard at work,” said the prime minister. She said that work at the Economy Ministry is significant as it turns its attention to improving Latvia’s energy independence, a priority for her administration. She said: “We are now in a different Latvia from the one I started work in, and our security has become the main priority”, an apparent reference to recent instability in Ukraine and Crimea. Straujuma’s government was confirmed on 22 January after her predecessor, Valdis Dombrovskis, resigned to take responsibility for the November tragedy when the roof collapsed at the Zolitude Maxima supermarket, killing 54 people.

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Latvian national airline AirBaltic AS has hinted at an imminent IPO after reporting improved earnings. After a period of turbulence the airline has returned to profit, a year earlier than expected. “We are looking carefully at how this would be done, but I would say it’s not impossible anymore,” chief executive Martin Gauss said in an interview with Bloomberg news agency. Any decision on a share sale or IPO will be made by the government, which holds the company’s shares, he added. AirBaltic reported a 1% increase in turnover for 2013, to €278.8 million and €2.02 million in profit, according to Firmas.lv data. In 2012, the company had posted €31.1 million in losses. The government invited expressions of interest in the airline in mid2012, and has yet to sell any stock, though Gauss said he has been meeting with potential investors. “The company estimates that net income will increase to €5 million for 2014,” Gauss said in Riga. “Revenue will remain around €325 million, with ticket prices increasing about 1% and the passenger count reaching about three million,” he added.

>> Lithuania’s tourism chiefs woo Finnish spenders Finnish tourists are among the biggest spenders of visitors to Lithuania, with only Belarusian and Norwegian tourists spending more, according to new research by the State Department of Tourism under the Ministry of Economy of Lithuania. Speaking on a trade mission to Helsinki, State Department marketing division chief specialist Ieva Druktene said that, despite ranking only sixth among the largest incoming tourism markets for Lithuania, Finland is exceptionally important to Lithuanian businesses. “On average, a Finnish tourist spends €108 per day. Total yearly spending by Finns in Lithuania constitutes approximately €21.3 million. We sincerely hope that this business mission will help us expand relations with Finnish tourism agencies that could bring more tourists to Lithuania,” Druktene said a recent tourism mission to Helsinki attracted an audience of over 30 tourism business and media representatives.

>> Gas plan progresses Development of a floating Liquefied Natural Gas (LNG) terminal in Klaipeda, designed for gas imports, is moving ahead and is likely to be launched by the end of the year. Upon completion, substantial leverage in negotiations with Russia gas giant Gazprom will be achieved, said Lithuanian President Dalia Grybauskaite. However, she declined comment on the progress of ongoing contract negotiations with Gazprom. Amid political upheaval in Ukraine, the Baltic region is speeding up new LNG import plans to minimise dependence on Russian gas imports. Currently, the Baltic States are 100% dependent on them. The Klaipeda terminal will be the first for the Baltic states and is seen as a first step towards diversifying the market for the fuel in the region.

>> Latvian Mego officially takes over Iki store chain The company which owns and operates Latvia’s Iki chain of grocery stores Lenoka (formerly Palink), is now officially owned and operated by Mego, the board member Inara Hupenija confirmed in April. ‘’This month we will be making changes, as well as replacing and making new advertisements,’’ Hupenija said. In February Latvia’s competition authority permitted the acquisition after concluding the merged company will not have a dominant position in Latvia’s retail trade market. The total market share of Mego and Palink in Latvia is under 10%, the Competition Council in Riga noted. Furthermore, in cities where the two companies have their stores (Riga, Jurmala, Ventspils, Liepaja) they compete with market players who have significantly larger market shares – Rimi Latvia and Maxima Latvija.

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NEWS

SUMMER 14

>> Firm’s new CEO aims for international expansion

>> Latvia port leads the way for cargo volumes Latvia leads in volumes of shipment cargo business amongst the three Baltic countries, statistics from the first quarter of 2014 have indicated. According to the Central Statistical Bureau of Latvia, 27.708 million tons of cargo have been received and dispatched in the ports of Estonia, Latvia and Lithuania in January and February this year. Though transshipment cargo volume remained unchanged in comparison with the same period last year, Latvian ports reloaded 48.8% of all cargo, Estonian ports 27.8% and Lithuanian 23.4%. Baltic News Services (BNS) reported that the Port of Riga is the leading port in cargo turnover among Baltic ports, with the traffic load 6.527 million tons, or 19.5% increase on last year. Ventspils with 5.911 million tons of reloaded cargo, or an 8.1% increase, ranked second. Lithuania’s Klaipeda remains in third place with 5.47 million tons, or a 10.8% decrease, and Estonia’s Tallinn port with cargo tonnage 5.378 million tons, or 0.1% decrease, is fourth. In 2013, the volume of reloaded cargo in the Baltic ports totaled 155.736 million tons, a 4% decrease in comparison with 2012. Latvian ports reloaded 45.3%, Estonian ports 27.5% and Lithuanian ports 27.2%.

BUSINESS QUARTER | SUMMER 14

Lithuanian building materials and household goods chain UAB Senuku prekybos centras has appointed Dr Nerijus Pacesa managing director, replacing former long-time director Saulius Raudys. Pacesa, former director of the ISM University of Management and Economics, vowed not only to strengthen the company’s leading position in Lithuania, but to seek the international development. “I accepted the proposal to lead the company for two reasons,” he said. “The possibility to contribute to this ambitious company’s international expansion plans, and the desire to implement the business strategist’s experience acquired at the ISM University of Management and Economics“ He emphasised that, in managing one of the Baltics’ largest companies with the strongest market positions, he will seek to strengthen the competencies of the team, and its orientation to the international objectives. “I am a team person, therefore, it is very important for me that managers around me do not lack independence and managerial competencies, and that each employee is encouraged to become involved in the processes in the company,” he added.

>> Hitachi strengthens collaboration with Kaunas University of Technology Japanese engineering and power giant Hitachi, in collaboration with the Tokyo Institute of Technology (TIT) has completed their second intensive course in nuclear engineering at Kaunas University of Technology (KTU), promoting human resource development for the Lithuanian nuclear industry. More than 260 people participated in the course, the result of continuing co-operation between the Lithuanian and Japanese universities and Hitachi, following the first part of the course in October 2013, participation in which “far exceeded the initial expectations of the organisers”. The main aim of the course was to provide active assistance for the development of skilled engineers required to help power the Baltic economy of the future. The three partners have also discussed another form of co-operation, in which KTU students will visit Japan for seminars by TIT professors, including briefings on the aftermath of the Fukushima nuclear disaster, and visits to other nuclear power stations.

>> Chamber bids to boost tourism in Estonia The British-Estonian Chamber of Commerce held a tourism and hospitality roundtable titled “Experience Estonia 2014–2020“ in April. It’s aim was to gather together diverse tourism stakeholders, to improve co-operation in Estonia in this field, to talk briefly about the national tourism development plan 2014–2020, to introduce new opportunities in business, conference and cultural tourism, and to discuss Estonia’s profile as a tourism destination. Other topics included the opportunities provided by social media, possible flight connections, and the challenges in employment. The keynote speaker Robin Hawksworth, hospitality and food and beverage expert, discussed how Estonian tourism could create a pleasant and memorable experience for all stakeholders. The panel included Tea Danilov (head of internal market department at the Ministry of Economic Affairs and Communications), Martin Hirvoja (board member of Enterprise Estonia), Jan Palmér (CEO and chairman of the board of Estonian Air), Verni Loodmaa (chairman of the board of the Estonian Hotel and Restaurant Association), Kadri Karu (managing director of the Estonian Convention Bureau), Helen Sildna (founder and main organiser of Tallinn Music Week) and Raili Mengel-Sünt (managing director of the not-for-profit organisation Estonian Rural Tourism). The British-Estonian Chamber of Commerce promotes interaction between Estonian and British companies, builds business contacts and organises seminars, charity events, visits of delegations and meetings.

SUMMER 14

BMI KNOWLEDGE

Management Control: Beyond Budgets Budgets have long been the core of management accounting in most companies. But how useful is a budget for decision-making? And is just a budget enough? Trond Bjørnenak, a distinguished professor at NHH Norwegian School of Economics and BMI, specialises in the evolution of management accounting. This text is based on ideas in his recent publications on the modern management-control toolbox Distinct from financial reporting for external stakeholders, management accounting provides internal reports on costs and performance to help managers monitor and make decisions. Over the past decade, a movement known as “Beyond Budgeting” emerged based on a critique of budgets and a search for better alternatives. Oil major Statoil is one proponent, as are several Nordic banks – including one Dr. Bjørnenak chaired that has worked successfully for years without any budgets. Criticism of the budgeting process centres on: the huge management resources it tends to demand; its reliance on forecasts that may quickly become outdated; its arbitrary 12-month rhythm for planning; and the incentives for manipulating results that budget-based performance targets tend to create. Thus budgets often don’t give managers the information they need to make effective decision in a rapidly changing world. In fact, the need for more dynamic control systems to improve competitive agility has been discussed for quite some time. Numerous tools have emerged, of which we present some more common. Activity-Based Costing (ABC) involves analysing the resources consumed by business activities, at a more sophisticated level than is required for external reporting, in order to assess the profitability of specific products, customer segments or distribution channels. The Balanced Scorecard is a logical map linking events that management can initiate and measure with the goals that management seeks to achieve. It helps to guide decision-making for non-financial aspects of a company’s work that ultimately impact its financial results, including intangible assets such as learning and growth, internal processes and customer perspective. Target Costing involves planning in advance

BMI Professor Trond Bjørnenak for the price points, costs, and margins that a company wants to achieve for a product. It allows management to monitor and control product performance right from the design phase. Rolling Forecasts get away from once-a-year budgeting by revising business-driver predictions on a monthly or quarterly basis. Benchmarking is the process of comparing a company’s performance measures with those of the best firms in the industry. Effective control systems require a healthy sense of the costs and benefits of your efforts and of what problems need to be solved and what the manager wants to stress. Note that a company’s controller, rather than just a reactive monitor, can be an active consultant to management, someone with the knowledge and competences to help improve performance who not only produces information but also communicates it and puts it to use.

When choosing control tools, consider the degree of uncertainty in your business environment and your ability to react to new information you get. Annual budgets may be fine when operating in a context of flexibility and low uncertainty. Under higher uncertainty, rolling forecasts may be better. When large locked-in costs limit flexibility, look to longer-term planning tools such as target costing. The various tools can be applied globally (throughout the organisation) or locally (in just one part of the company). They can also be used continuously or on an ad hoc basis. Finally, note some tools may send conflicting signals and create confusion if used together improperly. An example is using an annual budget, with its focus on financial measurements and the short-term, together with a balanced scorecard, which also considers non-financial measures and has a more long-term focus. In short, consideration must be given to how the different parts of your management control “package” fit together. By Bryan Bradley, based on chapter in The Routledge Companion to Cost Management (2013) and recent articles by T. Bjørnenak.

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)

BUSINESS QUARTER | SUMMER 14

NEWS

SUMMER 14

>> Kaunas welcomes US firm US health care technology and services company Intermedix has chosen Kaunas, Lithuania, as the location of its first overseas office. Doug Shamon, CEO of Intermedix said: “Over the past ten years we have expanded our reach to optimise health care delivery for clients around the world. This mission is dynamic, requiring critical thinking and an innovative workforce, and we found that in Kaunas.” Evaldas Gustas, Lithuania’s economy minister, praised the decision, calling it “a great accomplishment for the whole country.” “World renowned names add to the positive image of Lithuania abroad and promote Lithuania as a hotspot for higher added value service centres.” Moreover, this is good news to Kaunas, especially for young professionals and universities in the city as Intermedix will not only create new jobs but also invest in training and developing new competencies. Intermedix aims to work in close co-operation with universities on mutually-beneficial initiatives.

>> Lithuanian president celebrates Swedish ties Lithuanian President Dalia Grybauskaite opened a Lithuanian-Swedish business forum on an official visit to Stockholm in April. She stressed Lithuania and Sweden’s strong political ties, underlined their successful economic co-operation, and noted that more Lithuanian companies are exploring business opportunities in Sweden, Lithuania’s number one foreign investor and biggest foreign employer. She said: “Economic co-operation with Nordic countries, especially with Sweden, is today more important than ever. Risky Eastern markets compel Lithuanian businesses to focus on the West, exploiting its economic potential, looking for reliable and civilised business partners who respect international agreements. Sweden has always been a role model of responsible, transparent and fair business. I am happy that Lithuania’s economic relations with Sweden keep getting stronger.”

BUSINESS QUARTER | SUMMER 14

>> Bank of Lithuania: development of alternative sources would encourage business financing Vitas Vasiliauskas, chairman of the board of the Bank of Lithuania has stressed the importance of finding new sources of finance to alleviate the problems of SME financing exacerbated by the recent crisis. “Small and medium-sized enterprises experienced greater and smaller financing difficulties during the crisis; therefore for Lithuania the new European initiatives are particularly important, which encourage a variety of financing sources and create greater competitiveness for banks,” Vasiliauskas said. The European Commission in March published a document for discussion on long-term financing of the European economy. It stated that SMEs depend on bank financing, but alternative sources should be encouraged as well. According to Vasiliauskas, a larger role in financing businesses could be played by other long-term institutional investors, including insurance undertakings and pension funds. In addition, enterprises could attract more capital by issuing bonds. At a meeting in Athens, Greece, the chairman unveiled new information on Lithuania’s economy and gave an update on the country’s preparedness for Euro adoption, scheduled for January 2015. During the visit the Governor of the Bank of Lithuania also held bilateral meetings with the chairman of the Banco de Portugal, Carlos de Silva Costa, and the chairman of the Central Bank of Greece, George Provopoulos.

>> Lithuania leads the way in seeking foreign investors Lithuania is clearly more active than Latvia or Estonia in attracting foreign investors according to Kitty Kubo, former monitoring manager of the Estonian Development Fund. “When Skype released a press statement saying that they will set up a unit in the US and another in Sweden, the Lithuanian investment agency called Skype Eesti’s CEO Sten Tamkivi on the same day with an offer to set up in Lithuania instead,” said Kubo, adding that Lithuanians have always been quicker to react to changes in the external conditions. Kubo said Lithuania was the first in the Baltic

States to actively seek to attract foreign investors and has been the most successful in this field so far. “At the start of the 2008 financial crisis [Lithuania] made very specific offers to large banks and other mutlinational companies that were planning to change their business models and were considering moving operations elsewhere. This enabled them to attract some very large names such as Barclays that set up its IT centre in Lithuania,” she added. “Lithuania’s population is bigger and it has more workers available. The jobs they are offering multinationals are not high-tech, but decent first jobs,” Kubo added.

AS I SEE IT

SUMMER 14

Businesses are right to be concerned about the long-term consquences of Russia’s actions in Ukraine, argues Katerina Levkovska

WHAT WILL CRISIS COST? For five months now, the Russian-Ukrainian crisis has been a global hot topic in media, political and business circles, as well as amongst the general public. A lot has changed in a short time and it seems probable that things will never be the same again. It was well said by one Western journalist that Russia’s aggression towards Ukraine was a wake-up call for the world. As an international trade expert and a Ukrainian living in Estonia, I’ve been discussing developments in my home country with my clients and with business partners active in the region. The main question that worries them is how this situation will resolve itself and what impact it will have on their business in Central and Eastern Europe? Without a doubt, there will be damage to businesses in Ukraine and Russia. How much damage will depend on how far Russia will be allowed to go with its threats and plans to invade Eastern Ukraine – hopefully not far. It is already obvious that Russia’s own economy is weakening, as evidenced by the need for its central bank to intervene in foreign exchange markets and to increase interest rates. The country’s foreign investment outlook has been downgraded to “negative” and the S&P ratings agency estimates $60 billion in capital outflows from Russia in the first quarter. Even the Russian Ministry of Economics has acknowledged that “the impact on the Russian economy is bigger than expected”. Thus, there is hope that these signs of damage, and possible further sanctions, will scale back

BUSINESS QUARTER | SUMMER 14

Russia’s imperialistic ambitions. As for Ukraine, with its uncertain future, mounting prices and the decreasing value of the national currency, it need hardly be said that the country is undergoing difficult times. Obviously, the impact on foreign investors is negative. According to local FDI experts, the main concern of investors now is not where to invest but how to get their money back. However, if the situation stabilises and the country continues its integration efforts with the European Union, investors will come flocking back, which will revive the economy. In the case of Russia the situation is different – the country will have to win back investors’ trust which will not be easy while President Putin remains in power. Both Ukraine and Russia are major export markets to many Baltic businesses and it is becoming evident that the Ukrainian crisis will hit export activities in this region. Meanwhile, the “Don’t Buy Russian!” campaign is starting to gain popularity. The public boycott of Russian goods is in protest at the Russian military-led annexation of Crimea and invasion of Eastern Ukraine. Unfortunately it is very likely that many foreign-owned businesses based in Russia, who work with

Ukraine, will also suffer. Thus, a friend of mine, an Estonian who runs a Moscow-based construction company, also became a “victim” of the boycott. His Russian company requested a proposal from one of their Ukrainian partners and was told “Sorry, we do not co-operate with invaders”. A number of my own company’s clients have refrained from developing their market entry plans with regards to Russia and Ukraine until the situation normalises. However, there are a number of our European clients within the food and drinks sector who have supplied products to Ukrainian and Russian consumers. These companies continue working with the countries as usual. In the meantime, Russia is starting to stipulate limits for product imports from the EU, the US and other countries. Based on what we’ve been hearing from our clients for whom the Russian market is an important export destination, they are preparing for possible losses but are confident that they will survive as there are still other markets in Eastern Europe. Also, Russia is unable to refuse all imports from Europe, as across many of its economic sectors imported goods prevail. Last week I came across an interesting article in

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What worries me is that the majority of the Russian population supports Putin... and he will need to continue his plan of ‘building the Russian world’ an Estonian newspaper, where there was a discussion about how much it would cost for Estonia to refuse all Russian imports. The figure was around $1billion. Would Estonia be ready to pay this price? A similar question can be addressed to Europe and the US: are they willing to intervene to stop this conflict? If yes, how much are they willing to lose? On the question of whether Russia’s aggression can be considered as a real threat to Baltic development and growth, I do not believe that this threat is real. But it is possible that Russia will try to make a move in the Baltics. What worries me is the fact that the majority of the Russian population supports Putin and in order to retain this support and remain in charge of the country he will need to continue his plan of “building the Russian world”. NATO’s increased number of air patrols, the five warships that will be based in the Baltic Sea and the presence of added troops in each Baltic nation, just in case, are tangible confirmation that this is a real problem for collective security. Although I found Putin’s statements regarding his “concern about discrimination against the Russian-speaking population in Estonia” very disturbing I do not think his plan “to protect them” would have the same effect in Estonia as in Ukraine for a number of reasons. First of all, Russia is not as powerful as many Russians like to think. Also the Baltics are members of the EU and NATO and

Russian language issues are not of supreme importance to the Russian-speaking population here anymore. Besides, Estonia already has experience in handling Russian-backed riots, anti-Estonian propaganda and cyber attacks. I remember Russia’s 2007 campaign against Estonia very clearly. It was linked to a decision to relocate the Bronze Soldier, a Soviet monument to the victory over Nazi Germany. At that time my company had a long term project in Moscow and my Estonian partner and I were based there almost permanently. Staying there then was not very pleasant for an Estonian as many Russians seemed literally to hate Estonians. It is unbelievable what effects a propaganda war can have! I saw signs in some Moscow stores reading “Dogs and Estonians are not allowed” and other such nonsense. During that anti-Estonian hysteria the same “they are fascists” message, supported by fake news reports, were used by Russian media. Later there was Bronze Night – when Russia was accused of backing an outbreak of rioting and protests followed by looting. The Estonian Government seemed to me to handle this situation very well showing its maturity and capability to deal with such problems. Europe almost ignored these first warning signs. In the light of recent events, it now seems likely that Putin’s plans for invading

AS I SEE IT

neighbouring territories were hatched a long time ago and this small operation, along with other “projects” were a test of a bigger plan. Now that we have all seen the Kremlin’s true face, it is natural for the Baltic States (and other Eastern European countries) to be concerned about their national security. There is even talk of investors being worried about the implications for the Baltics, but these rumours have not translated into real actions. As for business sentiment in the Baltics, the three countries remain an attractive target market to foreign investors and companies who wish to enter the market with their products or services. My own firm, EMR, is currently involved in a number of projects for clients who are considering significant investments. Also, during one of our recent projects in the Baltic States, we investigated investment activity within the major industrial sectors. Based on our findings, it was evident that a number of large-scale projects are currently being implemented and more are at the planning stage. For example, Estonia’s energy company Eesti Energia is currently realising different investment projects valued at almost $1.7bn. Where will the Russian-Ukranian crisis end? There are many different views and scenarios. In my opinion, the impact of Russian aggression towards Ukraine on business sentiment in the Baltic States will depend on how the crisis is resolved, not only by Ukraine but also by the international community. In the meantime, let’s all stay calm and support Ukraine. n Kateryna Levkovska is a Managing Partner of EMR – an international market research and export promotion consultancy that operates in the Baltics, Ukraine, Russia and other countries of the CEE region.

BUSINESS QUARTER | SUMMER 14

ENTREPRENEUR

SUMMER 14

AIMING TO REACH NEW HEIGHTS

Having helped the Vilnius Government to raise money when times were hard, Asta Grabinske is steering the Lithuanian unit of a global life insurance business to the top of the market. Dalius Simenas meets the inspirational CEO of Aviva Lietuva She endured eleven years of hard slog leading a life insurer from the foothills of Lithuania’s market to its upper reaches. Now at last Asta Grabinske is ready for an assault on the summit. When she started her journey, Aviva Lietuva was in sixth position, with just 2-3% of the market. Today the company has a 20% share, the second largest. “But if we look at gross written market premiums from the first two months of this year, we have overtaken Swedbank, so basically we are breathing down their neck. We believe that we shall make it” Grabinske says. To her Aviva Lietuva is the equal of any in the market, giant Nordic banking groups included. Prior to joining Aviva Grabinske, 45, worked at the Ministry of Finance. Switching to the private sector business was a big decision, and not one that she or anyone else had expected. With the benefit of hindsight, however, it was a natural progression. Grabinske studied economics at Vilnius University, graduating it in 1991 just as the old communist system was collapsing and a market economy was struggling to be born. “When I started my career I noticed that I basically had no theoretical background, despite five years spent at university. I knew I needed completely different skills in the economy, business and finance” she says. At that time in Vilnius there were many advisors and consultants from Western countries. Initially, locals regarded them as gods from on high, who knew everything

BUSINESS QUARTER | SUMMER 14

about what to do and how. That perception helped prompt Asta Grabinske to go to the UK to study. In 1998 she was awarded an MBA in international banking and finance from Birmingham University. “I was 29 when I went there. I had a child and a family and a job, and that was really a very big decision”, Grabinske says. “It was a very big move out of my comfort zone, but I felt I could be as good as those western economists and financiers.” When Grabinske returned from the UK she felt capable of something extraordinary. She had offers from the private sector and even took one up at a leasing company but when she saw all the invoices and dispatch orders she knew it was not for her. “On my first day I suffered so much looking at paperwork for leased trucks that I just managed to stay until lunch break before walking out. And that is how I appeared at the Ministry of Finance” she recalls. Then followed what might be called her stateswoman years. At the Ministry of Finance, drawing on her studies in Britain, she realised

that she was capable of big things. “I started borrowing money on behalf of the government. These were big transactions with investment banks. Millions, even hundreds of millions of US dollars”, she says. This was 1998, in the aftermath of the Russian financial crisis when Lithuanian exports were hammered, and a recession-hit economy was virtually unable to borrow due to high yields. “I remember my first week there, when Finance Minister Algirdas Semeta (now European Commissioner for taxation and customs union) called me up and said ‘We urgently need $100 million and now you have to get it’” Grabinske recalls. She returned to her desk and thought what to do about it. She remembered a very good advisor at the ministry who then headed the Swedish debt office. Between them, they drew up a borrowing strategy while he introduced her to the right bankers and Lithuania got the money it needed. “Those were difficult times. Today we can admit that we were on the brink of default. Treasury activities are actually quite close to those >>

If a customer has money we are here to help them use it wisely to invest and save. If a customer has a problem, we are here to meet their claim.

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ENTREPERENEUR

BUSINESS QUARTER | SUMMER 14

ENTREPRENEUR in the private sector. Raising money is real life stuff. Sometimes maybe more demanding than the private sector, as you have to be a good diplomat, and navigate the political pressures” she adds. She counts herself lucky to have worked with with Dalia Grybauskaite, the Lithuanian president, a previous deputy minister and then minister of finance. Grabinske also had an opportunity to go to the World Bank in Washington DC and work there for a while as a country representative on its board. She describes this period as “a rewarding experience“, as it gave her the opportunity to look closely at how economic crises are managed. But she sees the World Bank as a political organisation and missed the more business-like environment of Lithuania. “When Ms Grybauskaite became minister of finance she asked me to return to her team and become deputy finance minister. She was a strong leader who formed a team not of politicians but specialists and technocrats, including Vitas Vasiliauskas, currently governor of the Bank of Lithuania.” “He was responsible for tax and I was responsible for raising money and for EU affairs. We were a good team of professionals. We were very much protected from politics and could focus on actual business of the ministry,“ Grabinske says. All was set for a promising civil service career, but then the head hunters came calling. She was offered the chance to apply to be the CEO of a new life insurance company and that‘s how she joined Aviva Lietuva. Aviva entered the Lithuanian life insurance market via Poland in 2001. At that time the London-headquartered firm already had successful business in Poland and saw Lithuania as fertile ground for for new life insurance and investment products. Unlike other life insurance companies which based their business model on brokers or in-house employees, Aviva had a network of independent business advisors who were building their own businesses linked to Aviva. Grabinske says that building this network demanded all her energy and experience. It helped the company focus on the long term care of its customers. The life insurance business is quite subtle

BUSINESS QUARTER | SUMMER 14

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Life Insurance Market of Lithuania MetLife 2.9 Bonum Publicum 2.9

%, share of gross written premiums Swedbank 21.9

PZU Lietuva 4.2

Aviva Lietuva 20.3

8.4

Compensa

9.3

Mandatum

9.8

20.3 SEB

Ergo Lietuva

Source: Bank of Lithuania

Aviva worldwide • 318 years Aviva has been in business • 31.4 million customers • 15 markets worldwide • £241 billion (€297.5bn) of assets under management • £2.2 billion (€2.7bn) of profits after tax Source: Aviva

and personalised, and good ties between the advisor and the customer are vital. Aviva advisors have annual review meetings with customers to reassess their circumstances. This customer care culture and the investment product range is based on worldwide experience of more than 300 years and have helped make Aviva a market leader. “I think that we have a really very good and balanced investment offer for our customers based on our experience of many crises. Our investment offer is neither too aggressive, nor too enthusiastic”, Grabinske says. She is satisfied to have surpassed the major retail banks from Nordic countries which dominate the Lithuanian financial scene. It is easier for a bank to cross-sell other financial services to visiting customers. For life insurance companies it is different. Aviva Lietuva advisors just have a few life insurance and pension fund products and they focus on customer needs. “If a customer has money we are here to help them use it wisely to invest and save. If a customer has a problem, we are here to

meet their claim. We provide a lifetime of personalised financial advice. It’s like being a personal tax advisor, investment advisor or even a doctor”, she smiles. In contrast, banks often have 40 or 50 products to sell, and guidelines on how many minutes to spend per customer. “For us it is completely different. We don’t count minutes or hours. We spend as much time as needed, every year. It sends the message that your aim is not to sell today because if you have to meet the customer again after a year you need to know you have made a good offer, relevant to the client. Otherwise the client is unhappy, and the whole business model does not work”. The Aviva team have already observed that young, energetic, enthusiastic companies encourage customers to invest in very risky and new areas. For some time or period it might be rewarding but there can be consequences. She knows of a locally administered pension fund that has lost some 70% of value due to an aggressive investment strategy. This is not what is meant to happen. For Grabinske, saving for retirement, like protecting yourself, is a serious business. She encourages everybody to think of retirement savings early, given constraints on government financing, budgetary problems and the unfavourable demographics which signal the growing inadequacy of state guaranteed pensions. “When do you spend more: at work or on holiday? Imagine retirement as one long holiday. You have to save for it“ When you are thirty, she says, you should be devoting 10% of income to retirement. “My daughter started work this year and is already in a pillar two pension fund [a funded system that recipients and employers pay into]. In a way it’s funny to be thinking about retirement at 23, but when you think of what your pension would be with or without extra savings, even a young person can picture life with the standard 1.000 Litas (€290) per month, compared to a pension that could potentially match your current income”. “I tested this on my daughter and it worked very well. This generation has not seen very difficult economic times. They are used to a good life and they want to be sure that >>

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ENTREPERENEUR

BUSINESS QUARTER | SUMMER 14

ENTREPRENEUR they have it when they grow older“. Aviva Lietuva has 242,000 life assurance and pension fund customers, served by over 500 financial advisors and 80 employees in the head office and regional bureaus. 2013 was a year of growth with 6% or 8,000 more life insurance customers (50,000 in total) and 11% or 25,000 more pension fund customers (189,000 in total). Life insurance gross written premiums rose 13% to LTL 127 million (€37m) with total assets under management rising 18% to LTL 1.1 billion (€319m). 2013 was special for second pillar (mandatory) pension fund participants in Lithuania. Until November 2013 they had to choose from three options: they could either save extra and get a matching subsidy from the government; stay with the old rules of saving in private pension funds (without extra payment and subsidy) or they could return to the state pay-as-you-go pension system. Most Lithuanians chose to save extra, as did more that 52% of Aviva Lietuva managed pension fund customers. Grabinske notes that with this low interest rate environment, with annual interest on bank deposits of about 0.5%, people started to think more of other investment opportunities at more profitable rates. Aviva provides a helping hand here with pension funds that for the last five years have generated an annual growth

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averaging about 8%. Grabinske says that the Lithuanian market, the biggest of the three Baltic States, remains promising. Levels of life insurance penetration are still much lower than in Western countries. It may have only three million inhabitants but the economy is growing, and the euro is coming in 2015. Lithuanians are known to be excellent workers, partners and suppliers, with a reputation for professionalism, honesty and diligence. “We have very good employees, we see more and more inward investment coming in.

Aviva Lietuva in numbers Customers, thousands 2014 Q1 242 2013 239 2012 218 2011 210 2010 201 2009 197 2008 189 2007 173 2006 150 2005 128 2004 104 2003 73 2002 7

Assets under, Profit, Management LTL million LTL million 1,152 - 1,111 26 934 27 763 17 708 19 583 15 408 12 288 8 165 2 79 -2 29 -3 6 -5 1 -12

Source: Aviva Lietuva

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Market Share, gross written premiums (market position) 21% (2) 20% (2) 20% (3) 17% (3) 18% (3) 17% (3) 16% (3) 10% (3) 11% (4) 11% (4) 9% (4) 7% (5) 3% (6)

We have more service centres opening so I believe that Lithuania is a good place to do business. The government wants more investment. Lithuania is a place for those with a regional strategy, or for those who want to be present in EU countries. The Lithuanian insurance market has recently witnessed a major M&A deal when in April 2014, Lietuvos draudimas, the biggest non-life insurer, was sold by RSA, the UK insurance group, to PZU of Poland. RSA also sold to the Poles its other Baltic non-insurance businesses (AAS Balta in Latvia and Codan Forsikring in Estonia). That consolidation trend may get into the Baltics‘ life insurance business, too. However, Grabinske claims that Aviva’s achievements in Lithuania have been made by organic, natural growth, that is, by persistently doing what the company is best at. She believes that the company will stick to that strategy, and not chase business in Latvia or Estonia, where Aviva has no presence. The group as a whole is very much focused on countries and areas that have created good, sustainable and profitable businesses. It now operates in only 17 countries, where previous it operated in as many as 30. Whereas Aviva recently sold businesses in the Czech Republic, Hungary, Romania, and Russia, Lithuania remains firmly part of the group. “It shows that Lithuania is a good place for business” says Grabinske, with the air of someone who has proved their point. n

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COMPANY PROFILE

Euro in Lithuania. Awaiting Challenges Lithuania remains the last Baltic state without the common currency of the European Union. The introduction of Euro is planned from 1st of January 2015, leaving only half a year for preparation The experience of the other two Baltic states has shown that due preparation is especially critical for large organisations with big customer bases. Delay in implementing Euro introduction projects can lead to problems such as: • Increased IT costs due to shortage of external IT specialists (Latvia suffered from a significant lack of IT professionals in March 2013.) • Damage to corporate reputation due to customer dissatisfaction. • Public blacklisting. SETTLEMENTS IN CASH Small companies also have to prepare for the introduction of the Euro, especially ones using cash to settle with customers. Companies will be required to accept the Lithuanian Litas as a lawful cash settlement measure for 15 days after the day Euro is introduced. Upon one-time transaction, companies (except for the Bank of Lithuania, other commercial banks, Lithuanian Post and credit unions) have the right not to accept more than 50 valid coins of Litas (irrespective of value). However, companies will be obliged to accept an unlimited amount of banknotes. A general rule is that, on the day following the introduction of Euro, companies being paid in Litas, shall give change in Euros. An exemption from giving change in Litas is granted only to taxi drivers and drivers of public transportation. A special settlement order has been established for automated trade/provision of services areas (parking lots, vending machines, etc.) where revenue is registered and goods are sold or services are provided without a cashier or other employee. In such trade areas settlement will only be available in Euro, if it is not separately indicated that settlement in both currencies is available. Assessment of Latvia‘s and Estonia‘s experience

has shown that many small enterprises chose temporarily to close shops, cafes and other minor units during the period of accepting payment in Litas and giving change in Euros. They did this in order to avoid becoming effective currency exchanges (where customers tried to change local currency into Euro upon buying goods of the low value with high denomination notes). LIABILITIES & POSSIBLE SANCTIONS Preparation for the introduction of Euro is not only the responsibility of organisations themselves. Private individuals and corporate executives alike are liable to fines if they fail to perform, or improperly perform, their obligations in relation to Euro adoption (e.g., by breaking rules on change-giving, rate calculation, and rounding policies, or by breaching requirements for the dual display of prices, etc.) For the first violation individuals will receive a warning, whereas corporate executives are liable to fines of up to LTL 1,000. For repeated violations, higher costs are likely – fines for individuals amounting to LTL 5,000, whereas fines to the company bosses will range from LTL 1,000 to LTL 10,000. To sum up, Lithuanian companies need strong project management teams to prepare for the introduction of Euro, as the deadline of the project cannot be postponed. All members of the organisation should take responsibility for carrying out the processes properly.

A general rule is that, on the day following the introduction of Euro, companies being paid in Litas, shall give change in Euros

Legal Manager at Law Firm Davidonis & partners associated with UAB “Deloitte Lietuva”

Contacts: Jogailos Str. 4, LT-01116, Vilnius, Lithuania. Email: lietuva@deloittece.com, phone: +370 5 255 3000, website: www.deloitte.lt

BUSINESS QUARTER | SUMMER 14

INTERVIEW

BUSINESS QUARTER | SUMMER 14

SUMMER 14

INTERVIEW

AT THE HELM IN A TOUGH MARKET BQ’s Kate Kolbina sat down with Andres Hunt of Tallink, one of the biggest Baltic companies and the market leader in sea transport, to talk about the company’s past, present and future challenges Located next to the port of Tallinn, the headquarters of Tallink keep a watchful eye over its fleet of giant cruise ferries as they come and go from the ancient Baltic harbour. The office itself is spacious and light, with a flotilla of large white models of Tallink vessels permanently at anchor in their glass cages. Closer examination shows that every detail is true to life. I go to the fourth floor where the management suite is located, akin to the bridge on a ship. Tallink’s vice chairman Andres Hunt, who speaks for the company in place of its media-shy chief executive Enn Pant (more on him later), is responsible for the vessels’ maintenance and security. He joined Tallink in 1998 as chief financial officer, so it’s no surprise that he starts our conversation by showing me the chart of the company’s revenue structure, including new data from 2013. It reveals that Tallink, by far the biggest ferry operator in the Baltic, with 18 vessels and a fleet capacity of 35,000 passengers, earns a staggering 54% of its €942m revenue from on-board shops and restaurant sales, with ticket sales bringing in less than half of that or 26%. “Our main product is overnight cruises”, says Hunt (47). “People are on board for about 40 hours on some routes, and it’s important to keep them entertained.” And keep them spending, he doesn’t add. Apart from overnight cruises, other aspects of Tallink’s business are roll-on and roll-off cargo transportation, city breaks, travel and hotel packages (Tallink owns four hotels in Tallinn and one in Riga). The company also has a business tourism offer, with floating conference

facilities. Tallink, which is Estonia’s second biggest company by revenue, listed on the Tallinn stock exchange since 2005, can thus present itself as a one-stop holiday shop. Given that in Tallinn it even runs its own taxi fleet, it offers the complete package, including transfer to the vessel, entertainment en route, and its

chief executive Enn Pant own hotels and guides at the destination. “We are a big retailer, tour operator, and everything else our client might need”, says Hunt. Tallink needs to exploit every cross-selling opportunity it can find, because the ferry transportation market in the Baltic Sea is intensely competitive. The pressure on the company is reflected in the share price: at time of going to press in mid-May, the firm

was trading 43% lower than the initial IPO price. Intensifying competition, as well as a weakening Finnish economy, are expected to keep sales almost flat for Tallink this year, according to analysts at SEB. As well as the twin leviathans of north European maritime leisure transport DFDS and Stena Line, both of which operate a few Baltic cruises, Tallink faces two main regional rivals, Eckerö line and Viking Line, serving around 10% and 33% of the passenger market respectively. Tallink’s own passenger market share was 47% in 2013. The market for Scandinavian routes between Stockholm, Helsinki, Tallinn, and Turku is already well-served – “even somewhat saturated” according to one industry specialist – and growth is slow, so all competing companies have to innovate to attract customers. Hunt spells out three main areas of innovation: more routes, more up-to-date ships, and better IT infrastructure. “All of our competitors have modern vessels, just like we do”, he says. “Ten years ago the situation was completely different”. As for the Internet infrastructure, Tallink has good claims to be at the cutting edge. Last year they upgraded their booking system and also developed a mobile “app” for potential customers. I ask him whether Tallink plans to expand into air transportation, a suggestion already raised in the Estonian business press. After all, the Finnish national air carrier Finnair is facing financial troubles and could be the target for a takeover. Why not by Tallink? Hunt laughs. “From the beginning of the company until 2010 we invested a lot in >>

BUSINESS QUARTER | SUMMER 14

INTERVIEW

SUMMER 14

new vessels, bought out our competitors [including major rival Silja Line in 2006] and developed new routes, so it’s time to focus on our core business and pay back our loans.” “But we do have great co-operation with Finnair, as 10% of our customers come from outside the Baltics, Finland or Sweden”. Finnair has strong links with Asian markets, and Tallink cashes in by selling ferry packages from Helsinki to Stockholm, Tallinn or Riga, thus capturing about 80,000 Asian tourists per year. “There will be no planes with Tallink livery in the near future,” smiles Hunt. That mention of “repaying loans” is an oblique

reference to the company’s well documented difficult patch. In 2009, when the Baltics confronted the financial crisis, Tallink had €1.1 billion debt on its balance sheet, accumulated after the series of acquisitions, including Silja Line for €470m (the biggest takeover in Estonian business history) and Superfast Europe for €310m. The company was under pressure from its bankers, who intervened to impose restrictions on dividends and new covenants. “Now it is good to look back”, says Hunt, “especially because now the debt is under €800 million.” The company had an operating loss for the

The Tallink story In 1989 one of the last economic ventures of the doomed Soviet Union was to form a Finnish-Soviet joint venture Tallink to promote shipping traffic in the Gulf of Finland. The founders of the venture were the Finnish company Palkkiyhtymä OY, the city of Tallinn, the Port of Tallinn and the state-owned Estonian shipping Company (ESCO). In 1993, the Finnish investor left the joint venture and the state-owned ESCO became the sole owner of Tallink. In 1994 AS Hansatee was founded and took over the operator company, on a date considered as the legal date of incorporation of the current company. Tallink remained the trademark of ESCO. By 1995, 1.8 million passengers were being carried on the Tallinn-Helsinki line. AS Hansatee was owned by ESCO, AS Eesti Ühispank and a second private investor, which sold its interest in 1996. In the same year, with the company not in the best shape, a new management team headed by the current Chairman of management board and chief executive Enn Pant, then only 32, was brought in to improve performance. Pant, a bright young graduate of Tartu University economics faculty, served as chancellor in the Ministry of Finance from 1992 to 1996. Under his leadership Tallink has become market leader and one of Estonia’s biggest companies, companies, although some market followers have hinted that more pro-active corporate communications might boost the firm’s underperforming share price. This sweeping management change was accompanied by a change in ownership and €13 million fundraising, whereby management and certain companies related to Eesti Ühispank became shareholders. The company’s principal shareholder Infortar, was formed as part of this management buy-out. In 1997, the Company changed its name to AS Hansatee Grupp, which was in use until 2002 when the Company changed its name to AS Tallink Grupp. Market speculation that Pant would leave Tallink in 2011, was refuted by the company.

BUSINESS QUARTER | SUMMER 14

year 2008/2009, so the management decided to renegotiate the debt payment terms for the future years. “However, now we can see that it wasn’t even needed, we would have managed with the old schedule as well.” Indeed, profit quickly climbed back, amounting to €22m in 2009/2010, and reaching €43m in 2013. The number of passengers was rising every year from 2009 up until 2012, which Hunt thinks was due to people choosing shorter and cheaper holidays in neighbouring countries rather than flying further afield. Now the busiest route is between Tallinn and Helsinki, a trip taken by 4.5 million passengers annually. It is also the fullest in terms of cargo. The Riga-Stockholm route, which currently brings in only 4% of Tallink’s passengers, is increasing faster than any other line: eight years after its inception in 2006, the amount of passengers tripled. Two of the main engines of Tallink’s business are the exemption from VAT on alcohol and cigarettes on routes involving the Finnishowned Aaland Islands, and the significant cost differential between the Nordics and the Baltics. As long as these remain, they will bring bargain-seekers on board. Not all of them, it seems, are happy passengers. A recent survey of Finnish customers by EPSI Rating, placed Tallink third after Viking Line and Eckerö, picking holes in Tallink’s entertainment quality and service levels. But by then the company had already instigated a €10 million upgrade of its Silja Serenade ferry, running between Helsinki and Stockholm, building more retail space, new restaurants and a spa. Another ferry on this line is awaiting the same treatment. “First of all, we upgraded them because these are the oldest ferries that we have, but of course it is also because this line captures the wealthiest clients with diverse spending patterns, so we try to offer them more,” explains Hunt. He mentions with pride that his management team is on board as frequently as possible to see the business running at first hand. They also have the tradition of mixing the crew on these trips to stay close to the operational nuts and bolts. These moves nothwithstanding, there is a general view of Tallink management as closed and uncommunicative, even in their home market, Estonia. This perception is

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influenced by the enigmatic silence of CEO Enn Pant who rarely gives interviews or comments, even in Tallink’s annual reports. Amongst Estonian business journalists the company’s corporate non-communication is notorious. Andres Hunt brushes off this alleged unsatisfied curiosity, with a sideswipe at the “negative news” values of the Estonian press. “We are a hard-working company; there is a big demand from journalists, but not much availability. Each month we publish all numbers and all information is constantly available on our web page”. These days, Tallink’s “hard work” is mainly about the search for increased revenues. Where to find them? Plotting new routes to increase revenue is harder than it looks, as points that look promising on the map, often don’t make sense in business terms.

explains: “Historically there were different types of vessels on this route, and with the bad weather some of them couldn’t run. In 2005 Tallink decided to upgrade its fleet and the competition followed. Now the departures run smoothly in any weather, and our TallinkHelsinki ferries depart 12 times per day”. The business and cargo share is also bigger on the Turku-Stockholm line [the closest link between Finland and Sweden], whereas Helsinki-Stockholm and Riga-Stockholm are dominated by leisure travellers. Which share of the travellers is Tallink most interested in? “We try to attract everyone, our ships are like small cities, you know”, says Hunt proudly. “Cabaret, spas, restaurants…Conference centres that transform into kids playgrounds for the summer period – Tallink does everything to ensure it captures the maximum possible

We are a big retailer, tour operator, and everything else our client might need. We try to attract everyone...our ships are like small cities

ESTONIAN EXPORT DIRECTORY 2014

H, LIS ND G A EN IN MAN H C R GE FREN

Welcome to e-Estonia and doing business with our companies! Stable economy, low public debt, openness to innovation, various liberties and e-services give an idea of the success Estonia has managed to achieve. ANDRUS ANSIP Former Prime Minister of the Republic of Estonia

For example, although Tallink has no service to Lithuania, it has no plans to start routes from the up-and-coming Lithuanian port of Klaipeda, the critical mass of Lithuanians live in the inland cities, closer to Latvia’s major port than their own. “There are already a lot of Lithuanians taking ferries from Riga, so for now we are focusing on our existing routes”. As for the division between leisure and business travellers, Tallink doesn’t tend to segment its customers into such groups: “Unfortunately nobody tells us their travel purposes when they buy tickets” [because, unlike some airlines, they don’t ask]. But we do have special classes for the business travellers, and they are popular among Finnish and Estonian businessmen travelling between Tallinn and Helsinki”. Tallink believes it has a big part to play in increasing trans-Baltic trade, and expects to play a sizeable role in increasing trade and commerce between the two countries, as Hunt

passengers and that service levels encourage repeat business.” Passengers from Russia constitute about 4% of Tallink’s customers, but Hunt is sure that the wider blowback from events in Ukraine won’t affect passenger volume. “All people are welcome on our vessels, but for some the decision to travel somewhere could be politically motivated. I don’t see any big difference in the number of passengers, at least for now”. We also discuss two recent ferry tragedies, the sinking of Italian cruise liner Costa Concordia in January 2012 and the MV Sewol off South Korea in April this year. “These accidents are not good for business at all”, he admits, “After Costa Concordia, insurance premiums were increased by a sizeable portion, so we felt the impact here in the Baltics as well”. Tallink naturally stresses that it takes safety very seriously: its employees have routine training every week, and more comprehensive training events 1-2 times per year, involving >>

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BUSINESS QUARTER | SUMMER 14

INTERVIEW

SUMMER 14

firefighters and police.“All companies in the Baltics are strictly following safety regulations. Behaviour here is much better than in the other seas,” he assures me. I raise one of Tallink’s areas of further expansion, Tallink City, a massive shopping centre which will be built in Lasnamäe, Tallinn, by Infortar, Tallink’s major shareholder [holding 36% of its shares]. The shopping centre will offer 144,000 m² of retail space, making it over a third larger than the existing biggest shopping centre in Tallinn, the Ülemiste Centre. “This is in the interest of our shareholders,” says Hunt. Will there be synergies with other parts of the business? “Of course!” he exclaims, “in every destination people need to have an attraction. We will invite passengers to Tallink City and will be marketing it as one of the attractions of Tallinn.” The Baltic Sea is ahead of many regions with its strict environmental regulations. “Here you can use only 1% sulphur in fuel, whereas in the Mediterranean you can have 3.5%,” he says. Hunt is cagey on other future projects, restricting himself to hopes to “remain the market leader in this region and have the better services, quality and range-wise.” On the corporate side, Tallink is set to pay back the loans and also starting from last year they are resolved to pay regular dividends. “Annual growth percentages are not so big anymore, we are mature company”, says Hunt “but of course there are a lot of things to do.” For instance, one big challenge is the new regulation of sulphur content in the fuel, coming into force in January 2015. Passed by the European Parliament in 2012, it followed calls from the International Maritime Organisation (the UN agency responsible for safety of shipping and prevention of pollution).

CROWDED SEA LANES: Main Baltic ferry routes and operators

All vessels in the Baltic Sea and the North Sea under all flags, of all ages and tonnage are required to have sulphur levels of not more than 0.1%. These seas fall under so called Sulphur Emission Control Areas, where the control for air pollution by ships is stricter than in other seas due to local and global air pollution and environmental problems.” “This is today’s biggest uncertainty,” admits Hunt. “All transport companies are in the same situation, and it touches around 10,000 vessels: we should either buy more expensive fuel or invest in so-called “sulphur scrubbers.” Tallink is running pilot projects, but it is still

The man on the bridge Andres Hunt is vice-chairman of the board of Tallink, focusing on the corporate side, vessels’ maintenance and security. He joined the company in 1998 as chief financial officer, and was appointed to the board in 2002, becoming the vice chairman in 2010. Hunt is a target shooting enthusiast participating in Estonian championships, and from time to time joining the team from his native town Põlva in southern Estonia. He spends his down time reading historical, crime or fantasy fiction, and being at his summer cottage in the beautiful region of Matsalu to the East of Tallinn, location of one of Estonia’s five national parks.

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unclear whether they will be compliant. In any case, from next year the company needs to invest additional cash in this problem, and some of these costs will have to be passed on to the customers. But he reminds me that “we are in a better position than competitors, because we have a modern fleet, which uses less fuel than older vessels.” So far none of the shipping companies have declared what they will do but Hunt thinks all will pay for more expensive, cleaner fuel. He believes that there are a lot of costs which could be optimised, so sometimes such changes are for the best in the long run.” We already invested in internet sales channels, we also have automatic check-in machines, and mobile application is another potential costcutting measure.” These and other measures save overheads by improving efficiency. “I’ve been with this company for 16 years, but every day there is something new, even now,” smiles Hunt, “this is the main thing that motivates me. Being the market leader, we need to be at the frontier of everything, so we are constantly developing together with the economy and the world.” n

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INTERVIEW

Our goal is to make products, that create balance between energy of light and environment. In order to achieve the best result, each of our product is being handmade from high quality materials.

info@suvalgus.ee | +372 5656 8426 | www.suvalgus.ee

BUSINESS QUARTER | SUMMER 14

COMPANY PROFILE

SUMMER 14

Teesside University leading the way to economic growth Universities should be working closely with business. It is, after all, a fundamental part of what universities are for: developing leading talent, ideas, knowledge and expertise for the benefit of the economy and society Good, sustained relationships are at the heart of all business success, which is why the best business-university interactions are about so much more than simple commercial transactions. In a world where business is global, and growth and competitiveness are dependent on new talent, new knowledge and skills, new thinking and new ideas, the need for strong links between universities and business is recognised at the highest government levels. Those links enable the critical exchange of knowledge, which is the engine of the knowledgebased economy. They are the reason why Teesside University places such importance on working closely with business. Business connections prepare students with the soft and professional skills needed for the world of work, keep academic programmes current and relevant, ensure that research and development deliver to industry needs, and foster the entrepreneurial, can-do attitudes that drive new developments and new growth. Based in the North East of England, Teesside University is founded on a rich past with over 80 years’ experience of innovation in education. We were the first modern university to win the Times Higher Education’s UK University of the Year award, secured the Best Employer Engagement award in the same year, and have twice been shortlisted as the UK’s Entrepreneurial University of the Year. We are the proud recipients of a Queen’s Anniversary Prize for outstanding work in enterprise and business engagement and the University has been described by Dr Vince Cable, UK Secretary of State for Business, Innovation and Skills as ‘Britain’s best university for working with business’. Together with our partners, we have identified some very exciting prospects for joint working, ranging from student and staff exchanges and research collaborations to academic programmes and entrepreneurship initiatives that will deliver real benefit on both sides.

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Mangesh Gharfalkar, Dr Graham Hillier, Dr Richard Court and Callum Campbell

New research centre will help manufacturers improve efficiency A specialist research centre dedicated to finding ways to help businesses improve manufacturing has been set up as a collaborative partnership between Teesside University, the Institute for Manufacturing at Cambridge University and the Centre for Process Innovation (CPI). The Centre for Resource Efficient Manufacturing Systems (REMS), is based at Teesside University and will research and investigate manufacturing processes and supply chains to help companies improve production processes by reducing emissions, saving time, reducing cost and minimising the resources they use. The centre has a unique approach that combines the business-facing expertise of Teesside

University, the research skills of the Institute for Manufacturing and the manufacturing innovation abilities of CPI at Wilton in Redcar, North East England. A number of companies have already expressed an interest in working with the centre to understand their supply chains and investigate ways in which they can improve their whole manufacturing system to increase efficiency and reduce resource consumption. Dr Graham Hillier, Director of Strategy and Futures at CPI, will work with recent appointments Dr Richard Court and Callum Campbell as well as PhD student Mangesh Gharfalkar. Dr Hillier said: ‘There is a finite amount of raw

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COMPANY PROFILE

We want to provide robust data to show industry what is happening in their processes and how they can be improved materials in the world and, at some point in the future, some of the most important could start to run out. The challenge is to use the resources we have as efficiently as possible. The REMS Centre will work with companies to help them to understand how to make better products with lower environmental impact while still making enough money to succeed economically – in short to become more resource efficient. ‘Many companies are aware of what needs changing but are afraid of making that change. At the Centre, we want to do the research that will give them the models to demonstrate the real improvements that can be made and convince them to make the change. ‘We want to link together a lot of different disciplines to demonstrate how whole manufacturing systems work. Even if a company is only a small part of a system, it can do things to make its operations run smoother and to make the whole supply chain run better.’ Dr Court added: ‘As well as using traditional engineering research methods we’ll also be utilising the University’s IT and digital expertise to build models and help us to explain what is happening in a manufacturing process.’ Callum Campbell said: ‘This is a very complicated area and in the past, much of the research has been very qualitative with a lot of people talking around the subject but with nothing solid or quantitative for evidence. ‘We want to provide robust data to show industry what is happening in their manufacturing processes and how they can be improved.’ The Centre for Resource Efficient Manufacturing builds upon Teesside’s strong reputation for supporting business.

HM The Queen and Prince Philip present the Queen’s Anniversary Prize to Teesside University Vice-Chancellor Professor Graham Henderson CBE DL and Director of Academic Enterprise Laura Woods

AWARD PRESENTED TO TEESSIDE UNIVERSITY BY THE QUEEN The Vice-Chancellor of Teesside University has visited Buckingham Palace to receive a prestigious royal honour on behalf of the University. Her Majesty The Queen presented the Queen’s Anniversary Prize to Professor Graham Henderson CBE DL at an honours ceremony at the palace. The prizes are part of the UK’s national honours and are the most prestigious form of national recognition for excellence in higher and further education. The awards are presented for work at a world-class level and are awarded biennially to only a handful of education institutions. Teesside University was given the award for its outstanding achievements in supporting enterprise and entrepreneurship in the economy, particularly through digital start-ups. The University has a strong track record of graduate entrepreneurship and has helped to facilitate a start-up economy and digital super-cluster in the Tees Valley. Over the past decade, 430 new businesses have been created through the University’s pioneering graduate enterprise and DigitalCity initiatives. Professor Henderson said: ‘It was an absolute honour to be able to accept this prestigious accolade on behalf of the University. Entrepreneurship and providing support for business are at the heart of everything Teesside University stands for and it is therefore fitting that we should win our award for this critical aspect of our work. The Royal Anniversary Trust describes these awards as the most prestigious form of National recognition open to a UK academic institution, recognising outstanding work at world class level, and the award is therefore a fantastic testament to the fact that the University’s academic expertise and business acumen are recognised as adding exceptional value to business and economic growth here in the North East and beyond. Achieving the award will not only give another huge boost to the confidence and motivation of our staff and students but will also be invaluable in helping to promote the work of the University to our friends, stakeholders and partners here in the UK and across the world.’ Prior to receiving the award, the Vice-Chancellor led a delegation from Teesside University to a national gala presentation banquet at the Guild Hall in London. Recipients of the Queen’s Anniversary Prize are entitled to display the prizes logo for a period of four years to signpost their excellence to current and future partners, staff and students. The prizes scheme is administered by the Royal Anniversary Trust and was established in 1990 with the approval of The Queen and all-party support in Parliament. The assessment process is overseen by the Trust which makes the final recommendations to the Prime Minister for advice to The Queen.

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COMMERCIAL PROPERTY

SUMMER 14

Now that Summer is here, BQ Baltic’s thoughts turn to the seaside. Here are some of the real estate developments which capitalise on the delights of the Baltic coast >> More sun in Jurmala Ordo agency (€273,288 revenue in 2013) have recently completed their Sun Terraces residential complex in Jurmala, Latvia. It is a four-storey residential building with 42 flats waiting for owners. The building’s construction allows the maximum of sunlight into to open terraces, playground and inner yard. In frontage finishing only natural materials were used, such as marble and cedar. Due to its solid structure cedar is a great insulator which is why it was used in frontage – it also creates a certain environment inside. Sun Terraces was developed by one of the leading architectural companies in Riga – Kubs, which has designed many buildings in Jurmala.

>> The revival of Narva-Jõesuu Narva-Jõesuu, the town in the North-East of Estonia on the Russian border, aims to return to its past fame as one of the most popular coastal resorts in Northern Europe. Being the top spa destination in the 19th and early 20th centuries for St Petersburg’s upper classes, and it remained highly popular in Soviet Times. Its glory faded during the first difficult years of independence, when many spas and hotels closed down. Now, the town with a permanent population of only 2,500 people will see the second brand new spa hotel completed to serve local and foreign guests (the first one, Meresuu spa hotel, opened its doors in 2008). Noorus Spa Hotel was built on the site of a former Soviet sports centre called Youth (noorus in Estonian). The contract was fulfilled by AS Merko Ehitus Eesti (part of AS Merko Ehitus Group, revenue in 2013 was €263 million) and OÜ Termak Real Estate (turnover €336,119 in 2011), the spa complex occupies 15,316 m² right near the seaside. The size of investment was €10.63 million. The hotel has 114 rooms, spa centre, fitness centre, 25m long pool, outdoor pool, as well as restaurant for 150 seats,

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bowling and billiards. Besides Noorus, there are another two bigger spa hotels in the town, but Noorus surpasses them in size and the variety of services on offer.

Noorus opens its doors officially 1 August this year and expects clients from Estonia, Russia, Finland, and to a lesser extent from Sweden and Norway.

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COMMERCIAL PROPERTY

>> Views on the changes in Latvian Immigration Law. By Kate Kolbina On 8 May the Latvian parliament, the Saeima, passed amendments to the Immigration Law in the final reading. The previous version of the law approved on 31 October, 2013, provided that a third-country citizen may apply for Latvia’s temporary residence permit, valid for a period of up to five years, if he or she makes a payment of €50,000 into the state budget and if the person has bought real estate worth over €150,000 in Latvia. The number of residence permits issued in this way was restricted to 700 annually, and was subject to a gradual reduction in the coming years. However, in November the law was returned to the Saeima by the Latvian President Andris Berzins. Currently, according to the new law, in order to get the temporary residence permission, one needs to buy property worth at least €250,000, in Riga or in other regions of Latvia. It is necessary to invest €250,000 in one purchase, several purchases of smaller amounts won’t be sufficient to qualify for residence permission. Moreover, 5% of the value of real estate has to be paid into the state budget. The system of residence permission quotas was abolished. According to Aldis Riekstiņš, head of Brokerage department at Latio, the amends are not economically viable: “nobody will invest into the regions, because €250,000 is too high a price for anything outside Riga and Jurmala.” The matter is complicated further, because those who do invest in the regions, cannot buy forest or agricultural land according to new rules. So, for instance, if someone is buying an old manor or another significant piece of land, any forest or agricultural territory has to be excluded. “These changes won’t touch the Riga or Jurmala market, as the properties there are in the category of €250,000 and higher,” he says. Overall, it seems that with the new law buying property in Latvia is comparable to Greece or Cyprus if the investor aims to get the residence permission, not just to invest capital. “Latvia is historically attractive to our Eastern neighbours”, say

Left, Mindaugas Kulbokas, head of research and analysis at Newsec Baltic. Right, Aldis Riekstins, head of Brokerage department at Latio Riekstiņš, “in some cases we are even better than Greece or Cyprus: it’s easier with Russian language, climate is more similar, and living conditions are also familiar.” However, it still remains unclear if the government anticipates the shortage of investment into real estate in Latvian regions under this new law and whether there is a plan in place to boost it using other means. BQ Baltic asked Mindaugas Kulbokas, head of research and analysis at Newsec Baltic, whether this puts Latvia into a less competitive position compared to its Baltic neighbours or other European countries. Mindaugas confirms the general view of the changes, “this law won’t have a significant impact on residence permit hunters, they will be ready to pay €250,000 for apartments in Riga and Jurmala.” However, he noted that it might be

different for developers, because the buyers will look for bigger apartments. According to Newsec, to buy a real estate property in Latvia was the fastest and cheapest way to obtain a temporary residence permit (which allows travelling in the Schengen area without a visa), but even now it still remains significantly more attractive than going to Spain, Portugal or the UK. The former two expect the purchase to be valued no less than €500 000, whereas in the UK it is even more expensive. New amends to Latvian Immigration Law come into force on September 1, 2014. Until then, old regulations are still in use: in order to get temporary residence permit, one has to spend not less than €142 300 for the property in Riga, Riga region, or other big cities; and €71,150 in other places in Latvia. n

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COMPANY PROFILE

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Renting corners in Riga’s prestigious shopping centre Sky&More, the upmarket shopping centre on the outskirts of central Riga, is an innovator with plans to shake up the fashion retail market It’s the first local shopping mall to offer “shop within a shop” concept to tenants, also known as “rent a corner”, an initiative that launched in March 2014. “We calculated that the cost of running a small branded store (approx. 60 m²), not even one in the centre of Riga, are approximately €3000 €4000 per month, including rent, utilities and wages”, says Evija Grinberga, Sky&More’s director. “What we offer here at Sky&More is a completely new concept for the Baltics, but one that is relatively well-known in Western Europe. We rent out open areas starting from 20 m², collecting a larger pool of brands into one improvised ‘high street’ inside our shopping centre, which we call F&More”. Given that filtting rooms, entrance zone, cash desk, warehouse are all shared, 20 m² of pure trade area correspond to 60 m² in case of a separated store. Thanks to the economies of scale created in this way, tenants can enjoy having shop assistants, warehouse facilities, complete product maintenance and even full-scale marketing campaigns. Everything is included in the rental price and managed by Sky&More. The price ranges from €1200 for 20 m² per month (the third line of shops) up until €2500 for 40 m² per month, for those in the front line. There are no windows and essentially no walls, so once the customer gets on the “High Street”, he or she just wanders through all the areas with different brands, enjoying free perks on the way like a small and stylish Lavazza espresso bar.

Sky&More takes care of marketing activities of the tenants: this fashion show is a part of it

The benefits of such open space are considerable: customer footfall in F&More is up to 20 times higher than in the traditional shopping centre with separated compartments, and SKy&More research shows that people make 1.3 purchases per person in the shopping centre, significantly more than 0.2-0.7 purchases, which is standard for Latvian retailers. Visitors to the shopping Meccas of Europe, such as Paris and Milan will be familiar with the

The benefits of such open space are considerable: customer footfall is up to 20 times higher than in the traditional shopping centre with separated compartments

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concept from the iconic Galeries Lafayette and la Rinascente. “The concept is lucrative for new brands on the market”, says Evija, “essentially, they don’t have to search for personnel, and storage space, and think about paying the utility bills or what have you – they just rent a corner, bring their products and we do the rest”. Badessarini, the upmarket men’s clothing brand, previously unknown to Baltic shoppers, entered the local market in this way. But it is not only newcomers who appreciate that they can forget about most of the hassle associated with running a store: Faconnable, Del Gardi, Mangano and Samsonite which are already familiar brands to Rigans, are also present in F&More.

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COMPANY PROFILE

F&More feature new retail space concept: plots not separated by any walls are rented to tenants to create an improvised High Street inside a store. Below, Evija Grinberga, the director of the shopping centre Sky&More

Sharing the same personnel, utility bills, cashier and even changing rooms brings down costs significantly for each individual tenant, who can worry only about paying the rent

Sharing the same personnel, utility bills, cashier and even fitting rooms brings down costs significantly for each individual tenant, who can worry only about paying the rent. But it is not just a good will offer. Sky&More management are planning to open the second lane of “rent a corner” shops next year, and 10 out of 20 are already booked by future tenants. There are also significant synergies between the brands in terms of look and feel of the place: the store manager is making sure that everyone has the neighbours of the same quality and value proposition, and that all collections on display are always up to date (the inventory checking is done once per month also by Sky&More). The benefits for customers are also very clear, as Edgars Adamaitis, the store manager at F&More, says “there are opportunities for middle to high-end fashion brands in Latvia; thanks to the development on “rent a corner” concept in Riga, many of these brands could easily enter our market and drive prices down, as higher-end fashion is significantly overpriced in the Baltics”. Sky&More is renting directly to the brand-owning companies or official brand representatives in Baltic countries (the list includes such brands as Just Cavalli, Versace Jeans, Hosio, Paolo Pecora, Paciotti 4US, Andrea Morelli, Kelton, as well as well-known Latvian brands Amoralle and Koshakova), but they don’t have any mark-up on the prices. On the contrary, the rent agreement at F&More specifies that the prices may differ by 5-10% from average European prices for that brand. The second condition for the tenant is that the collection in stock always has to be the latest one. “This is the advantage of working with the brand directly”, says Edgars, “we are sure that the customers get the latest collections and the prices without any additional mark-ups, which is not the case with usual resellers”. New stores attract customers from all over Riga, as well as many tourists who find their way to Sky&More at Duntes 19a, apparently preferring it to shopping in the Old Town.

A: Duntes 19a, Riga, Latvia W: www.skyandmore.lv

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RESTAURANT REVIEWS

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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 >> Star lounge 33 Dzirnavu Street, Riga, Latvia After a long day crammed with work and business meetings, or simply spent sightseeing, it is always pleasant to arrive at the Star Lounge at the Albert Hotel and have a drink or two, and perhaps a light dinner. The Albert Hotel is named after the great Albert Einstein, so no wonder time has a tendency to wander into a pleasant cosmic black hole in the Star Lounge. The space is wide, and a full length glass wall gives remarkable views over the spires, rooftops and roof terraces of central Riga. It is a great feeling to sit outside with a cool drink on a warm summer evening and watch as the sunset fades and city lights brighten. Inside the couches and low tables invite guests to tip back and relax. Star Lounge is famous for its coctail selection and skillful barmen, so on the weekend evenings the bar counter is always busy. The food menu is hearty: pasta, club sandwiches, Caesar salads. It’s perfect for many occasions: an informal chat with colleagues, a hot date, a birthday celebration, or even a full scale corporate event. If the celebration extends into Saturday or Sunday morning, there is an option to start the new day with the Star Lounge’s satisfying brunch. Reviewed by Kate Kolbina, Star Lounge frequent visitor Contact: T: +371 6714 2749 E: restaurant@alberthotel.lv. W: www.alberthotel.lv

>> Fazenda

Vidzemes šoseja 14, Sigulda, Latvia Starting from May, the well-known cafe Fazenda has opened a new place in Sigulda. The atmosphere of a small Mediterranean village that has somehow found itself in the beatiful Latvian countryside – an accurate enough description of Fazenda’s ambiance. Linen textiles, rustic lighting, wood and wild flowers in the pretty baskets give a cosy feeling of home. The new venue will please those who are looking for acceptable prices yet good quality food and a unique atmosphere. Fazenda invites guests to come for different occasions: big family celebrations; a simple dinner outside of the big city; or a casual glass of wine with a mouthwatering selection of antipasti. Fazenda is famous for its simple and yet intriguing cuisine. In Sigulda, traditional Latvian food is mixed with Italian, and with some hints of Asian flavours. The cafe collaborates with local farmers, so the chef uses only fresh and locally-sourced products. As in the other two Fazenda restaurants in Riga, you will find a selection of wines here capable of satisfying most tastes. The restaurant also serves freshly-baked bread and delicious cookies and pastries which can be taken away, or enjoyed in the premises with a cup of coffee. In the mood for country delicacies and a rural atmosphere? You know where to go. Reviewed by Anna Rozenfelde, Fazenda’s long-standing customer and friend Contact: T: +371 66900669 E: info@fazenda.lv

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RESTAURANT REVIEWS

>> Restaurant Kompass

Park Inn by Radisson Central Tallinn, Narva mnt 7C, Tallinn, Estonia This newly refurbished restaurant in the Park Inn by Radisson Central Tallinn just opened its doors back in May to offer a completely redesigned menu in a beautifully renovated dining room. Restaurant Kompass is open daily for breakfast, lunch, and dinner. You don’t have to be a hotel guest to enjoy their breakfast buffet either. At lunch, choose between the hot and cold buffet, or from their a la carte menu, also served at dinner. The lunch buffet boasts a terrific salad bar, as well as warm meals. Lunch comes in any number of combinations – soup and salad, salad and main, main and dessert, making it easy to please everyone. Lunch is served quickly and the large dining room has ample space to seat a group for a meeting. The a la carte menu at Kompass has been inspired by Estonian cuisine and uses local and seasonal ingredients. For vegetarians, the beetroot, potato and onion rösti with baby spinach and white beans was hearty, yet at the same time light. The intense earthy flavour of the beetroot complemented the spinach and white bean salad well. The ovenbaked pike with dill pesto had wonderfully crispy skin and was served with a creamy cauliflower puree. Do leave room for dessert, because the beer chocolate cake with sour cream foam exemplifies some of the best Estonian flavours in one dish. Reviewed by Kristina Lupp, Tallinn-based food writer and translator Contact: T: + 372 633 9811 E: central.kompass@rezidorparkinn.com W: www.cafekompass.ee

>> Restoran Gloria Müürivahe 2, Tallinn Old Town, Estonia Stepping into Gloria is like taking a step back in time. This beautifully restored restaurant holds many of its original features like the looking-glass ceiling over the dancing area beside the main dining hall. Private booths offer comfort and privacy, whereas the open tables allow the diner to look at all of the interesting and intricate details of the dining hall. Gloria’s history dates back to 1937 when it opened as a restaurant and nightclub under the name Dancing Paris. Dancing Paris was the grandest of grand spots in Tallinn at the time, and was frequented by important political and social figures. In the evenings, the nightclub was filled with people eager to dance to an orchestra, and food from a self-service bar was served until 6am. Gloria’s current menu reflects its history and serves classic continental European cuisine. Each menu item has been carefully chosen by head chef and owner Dimitri Demjanov to show how dining at Gloria in the thirties would have been. Underneath the restaurant is a fabulously stocked wine cellar where one can sit and enjoy a glass or a bottle. The staff are knowledgeable and can help you choose, as the list is very long. Both the restaurant and wine cellar are ideal for a quiet evening and a truly unique dining experience. Demjanov is a well-known chef in Estonia and founder of the Culinary Institute of Estonia. In 2000, Gloria was placed on the list of Condé Nast Traveller’s TOP 100 restaurants list. Reviewed by Kristina Lupp, Tallinn-based food writer and translator Contact: T: +372 640 6800 E: gloria@gloria.ee W: www.gloria.ee

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BUSINESS LUNCH

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A MELTING POT OF INSPIRATION

Viesturs Sosars has created a stimulating environment giving start-ups the tools to grow and thrive. Colin Donald joins him for lunch at Pinot Restaurant in Riga When BQ Baltic wants intelligence – in both senses of the word – on the Latvian tech entrepreneur scene, it saves time by going straight to Viesturs Sosars. Sosars’ view of the dynamic world of IT start-ups is informed by spells working abroad that have given him a poised perspective on his native country, and left slightly cockney traces [London accent] on his elegant English – at times oddly reminiscent of the British-born Hollywood star Cary Grant. Along with fellow entrepreneurs Andris Berzins, Gunis Grundstoks and Ernest Stals, Viesturs runs Techhub Riga, a pioneering “collocation” where, for a small per-person monthly membership fee (€80 for a fixed desk, €60 for moveable laptop space), fledgling tech start-ups can establish themselves in an informal but purposeful working atmosphere, and replace the insecurity of isolation, rub shoulders with other youthful businesses to discuss “scaling”, “A-rounds” and other start-up lore, and compare notes on common problems. More practically, in a reasonably expensive city, they get cheaper office space where the costs of services such as kitchen and toilet facilities are shared. The fact that some teams elect to stay on in Techhub when their growth in personnel numbers (and therefore fees) mean that it would be cheaper for them to rent their own space is testament to the value of the collocation model. If they want to, Techhub Riga members can tap into the combined experience of the wiser and more experienced heads that pervades

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the project, and also plug into the expertise of visiting entrepreneurs. In Viestur’s case that expert overview – which is sometimes accessed by the Latvian Government – was gained while starting up RealSoundLab, a successful audio measurement software company, which he has led for the past seven years. To catch up with Viesturs, and hear the news of Techhub’s progress, I invite him to Pinot, a restaurant adjacent to the famous House of the Blackheads, which has a reputation as one of the Old Town’s finest restaurants. It is owned and run by the father-and-son team of Aleksander and Dmitri Malahov, the former also a well-known magazine publisher and party organiser, invitations from whom are always a hot ticket in Riga. It turns out to be a wise and well-informed choice. The food, which is French and Italian in inspiration, is amazingly good and the service impeccable, as might be expected given that the owner’s flair as an imaginative host is legendary. His creativity is evident in the decor, and his responsiveness to customers’ whims, mean that Pinot, and its sister restaurant M Cafe in the seaside resort town of Jurmala are particularly popular with well-heeled Russian tourists. The food may be fancy, but

BUSINESS LUNCH

the prices surprisingly are not, or anyway not at lunchtime (see box). This is despite the fact that, Latvia’s President temporarily moved his office to this part of the city pending an office refurbishment, Pinot has also become a venue for high-level international politics. It’s not unusual for diners to find themselves “accidentally” eavesdropping on the high-level international discussions with visiting European statesman at the next table. Apparently the staff consider the occasional security sweeps with dogs in advance of VIP visits as a small price to pay for this additional kudos, though a more serious drawback is that the handy parking spaces have been fenced off without compensation to become part of the presidential car pool. This is one impediment to trade that Dmitri would like the Latvian state to address. Pinot’s atmosphere, and the assiduousness of the staff, encourage guests to take their time and indulge themselves. However on the day we lunched Viesturs – a busy man – had a seminar on the Chinese economy to go to afterwards at Riga’s Stockholm School of Economics (SSE) where he also lectures on entrepreneurialism. This was therefore no occasion for a full blow-out with wine and

pudding, though in the interests of proper research your correspondent felt duty-bound to sample both. Techhub Riga (slogan:“We help startups get better, faster”) was founded in February 2012. It illustrates the vision of Viesturs and the other founders – and the promise of Latvian entrepreneurship – that it was the first of a series of spin-offs of an original Techhub next to Old Street Station in East London also known as “silicon roundabout”. Since then further satellites have been launched including one in Manchester. But the fact that the first expansion of this glamorous and innovative brand was to Riga did the reputation of Latvian entrepreneurialism a lot of good amongst the globally-minded tech start-up community. Before we peruse the menus, the big news that Viesturs has to impart is that Techhub Riga is moving. The project has outgrown the atmospheric and attractive historical building not far from Riga Castle, that in its time has served as an arsenal, a prison, and what in the old days would have been called a “mad house.” Viesturs jokes that it should have been known as “silicon asylum.” Anyway, Techhub is now too big for it, and has also come to the end of a two-year >>

I am sceptical about the wellbeing of Europe. Latvia is part of a continent which is clearly stagnating. Compared to almost every other region in the world, we’re doing worse. This worries me more as a European than as a Latvian!

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BUSINESS LUNCH

preferential rent deal. The company has found new premises on another, bigger, converted old building on Kalku street, the main artery of Old Riga, and a short walk on cobbled streets from this restaurant. Although he is as positive as always, from reading his body language, I would guess that Viesturs has mixed feelings, and perhaps some trepidation about the move. It’s a sign of success, but in his business, surroundings can alter working atmosphere. The new space is over two floors and there is a lot more of it, putting at risk the intimate dynamic that worked so well in the original place. Also two of his bigger members, interactive and graphic software pioneers Froont and Infogram have announced that they are flying the nest, a mark of their success that he admits prompts a complicated reaction of pride and regret, perhaps like a parent seeing a grown-up child leave for college. Also, he jokes, “we now have to fill the space and it’s not THAT easy. We have about 50 working desks and right now only 25-30 company members.” Techhub Riga’s founders are thinking of ways of tweaking the business model, perhaps encouraging successful “graduate” companies to pay a tiny proportion of success back to the place that nurtured them so that “when you exit or raise a round you pay a little bit back. If you raise $2m then paying $5k is peanuts, but its huge amout for us.” “The ultimate goal of Techhub is to facilitate building companies, not just cool start-ups but financially successful companies. Initially

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we were very modest in our aims, which were basically to fill the premises and make ends meet, and we have already fulfilled this goal.” “Culturally Techhub had a good effect. The start-up culture has seen a real change over the past 2-3 years. Has Techhub somehow facilitated that? Or has Techhub been successful because of that? It’s a chicken or egg question.” Viesturs may be determinedly positive, but he is also quite frank and realistic about Latvia’s lack of international distinction in the IT start-up space, for all the progress of Techhub. Indeed it must be taxing for the country’s morale that it borders with Estonia, a country with little over half Latvia’s population that it is the birthplace of Skype, which is virtually a holy name, universally revered in the international brotherand-sisterhood of start-ups. On Latvia’s southern border, Lithuania, which perhaps has less of a technocratic tradition than either Latvia and Estonia, has more tech start-ups, perhaps a function of its size, which is twice that of Latvia’s population. “The general profile of start-ups in Latvia is quite low, at least lower than Estonia and also perhaps Lithuania. Estonia for a variety of reasons, perhaps the most significant being the existence of Skype, but it’s not just the start-up community themselves but its citizens in general who celebrate that they have this huge success story, that is clearly associated with Estonia.” “This means that anyone doing any sort of start-up is automatically more visible. The average person in Estonia is at least aware

that there is a tech start-up sector, whereas in Latvia...? I don’t know.” As we chew on the succulent snails in our spinach soup, I ask Viesturs if any company in Latvia comes anywhere close to demonstrating the potential of a Skype? He scoffs. “Nothing comes close. There are expectations around some nice start-ups that are doing well, but its really incomparable. But these are companies that have barely made their A round [a Series A round is the first round of venture funding in the Silicon Valley model of start-up company formation]. You can’t compare an elephant to a flea, the comparison doesn’t make much sense. Only when there is a tech company in Latvia which has a turnover getting into eight digit numbers can we start talking of having anything that gets close to Skype.” As he describes it, nurturing a successful start-up in an area as dynamic as IT, where predicting the market place of tomorrow is a wildly hit-or-miss affair, the secret of success is largely a numbers game, the more people encouraged to come forward, form a company and attempt to commercialise an idea, the more success you will have. Even if Latvia has yet to achieve critical mass as a nursery of start-up culture, the good news is that the ideas keep coming. A glance at Techhub’s website reveals a rich variation of ideas, Flatline, an online student accommodation finding site, GoCarShare (you can guess) Mailjet, an email management tool, Swiftkey, a new language technology invention. “We have between one and three applications

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every week, which shows you that that something is going on. There are other collocations in town, but if it’s in IT and doesn’t require specific [physical infrastructural] things, people tend to think of Techhub.” Do they ever turn applicants away? “We are not judging on their stage of development, we’re judging on the idea. We’re very open”. But surely there are some start-up ideas that are so wacky or ill-considered that it would be better not to encourage? “That’s the cool and the weird part about tech start-ups, you never know. No matter how weird the idea, you never know which one will fly.” “That’s why all the best seed investment and all the best policies are based on just getting them all in! Get the numbers. If there’s 100 [fledgling start-ups] there’s a chance you will get 20 [scalable companies]. If there’s ten, there may be one”. “In this field, cherry picking is impossible, and it’s only people who are inexperienced who believe that they are good at cherry picking technology.” Techhub’s admission procedures are very simple. To get through the door, all that is required is that the team should be working on a product, even software-as-a-service product, but a product. This means no consultancies, and no support services. “We don’t want to create an immediate market place with freelance designers trying to sell you stuff, that doesn’t help.” The conversation moves off start-ups into the more general area of Latvia’s technocratic strengths. The quintessentially Latvian companies that Viesturs kindly tips me off about in the meantime, are not ones with the hit-or-miss allure of IT, but extremely successful and highly advanced niche tech players, like MicroTik, a manufacturer of networking hardware and SAFtechnica, which designs, produces and distributes on digital Microwave Data transmission equipment. We talk about Latvia’s economic progress, which by some measurements is the highest in Europe. Although he disclaims any special knowledge of economic strategy, Viesturs has enough “common sense” not to be satisfied with the kind of predicted headline GDP growth rate of 3.5%. As the father of three children (aged, in a pleasing mathematical

BUSINESS LUNCH

Fine dining in the company of VIPs For Lunch, Colin and Viesturs had: Starter: Spinach - ramson [wild garlic] cream soup with roasted snails and toast Main Course: Chicken breasts on the bone, smoked potato puree with apple and ground mustard marmalade. Trout fillet with potato gnocchi and porcini mushroom sauce Dessert: Cottage cheese cream with rhubarb sauce and vanilla cookies Plus: Bread rolls baked fresh in the restaurant, a different selection almost every day, served with butter made with sun dried tomatoes, herbs or truffle oil Wine: Pinot has one of the largest cellars in Riga, with over 250 world wines to choose from. The restaurant is the sole importer of its “restaurant wine” Domaine Jessiaume from Santenay, in Burgundy. The price for the business lunch varies. Two courses €€14. Three courses €€18 Glass of wine €€3.50 (free glass on Thursdays)

series, 21, 14 and 7), he does admit worrying a bit about the country’s future. “I see things from an entrepreneur’s perspective rather than from that of a macro economist, but using common sense I think there are some very decisive and very tough times ahead of Latvia, which faces what economists call the mid-income trap. “This is what happens when you find that you aren’t able to grow any further, or not without

improving productivity, and you can’t really improve it in a small country like Latvia. You could perhaps if you import workforce, but given Latvian general attitudes to immigrants, I don’t think that will happen.” “The problem for the economy is that there is not much rise in productivity in any given industry, and the headroom is starting to get smaller. Trying to shift the entire economy into industries that allow for higher productivity is not easy, because the whole white collar market is saturated. What can we do differently? We have to figure it out.” “In a sense I am sceptical about the long term wellbeing of Europe. Latvia is part of a continent which is clearly stagnating. Compared to almost every other region in the world, we’re doing worse. This worries me more as a European than as a Latvian!” Viesturs jokes that he should be forcing his children to learn Chinese, but “they’re almost as lazy as I am so they’re not going to.” “Kids should be focused outside of Europe. The world is in transition, we are moving away from the state being a unit of measurement of everything to the region being the unit that counts. I’m afraid the four separate regions of Europe don’t have much chance in a global competition. The other guys are way bigger!” Viesturs tells me that one of the lessons he tries to impart to the companies he mentors is to think outside of Europe, though start-ups with any sense don’t need much encouragement in this direction, especially given the home market is far too small for meaningful testing and piloting of products and services. “You need to be global from day one.” What’s impressive about Viesturs is that he doesn’t sugar coat stuff, which makes his underlying optimism more persuasive. He is a tech-head whose interest is in solving problems and making things happen. In a business sector that is not immune to hype, he and his colleagues have helped to create a bridge between potential and reality, one that will help make Techhub Riga into a realistic description of the nature of the Latvian capital, rather than just a brand name. n Pinot, 26 Grecinieku street, Riga +371 6 722 5616 http://www.pinot.lv/en/restoraunt/

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TRAVEL

A HIDDEN GEM IN THE WILDERNESS The lovingly restored Pädaste Manor is widely regarded as Estonia’s best hotel and restaurant.William Cook checked in “I’m an islander,” says Anneli, as we board the ferry. “That’s very important in Estonia.” Behind us, mainland Europe melts into the distance. Ahead of us is Muhu, start of the great Estonian archipelago – more than a thousand islands, most of them uninhabited. During the Cold War this was a restricted zone, the USSR’s western border. Even Estonians needed an internal visa to travel here. Only a narrow stretch of open water separates Muhu from the mainland but this feels like another country, the way Estonia used to be. Preserved by Soviet isolation, Muhu is an unspoilt wilderness – empty roads, empty beaches, fewer than 2,000 inhabitants

scattered across 200 square kilometres. We drive through endless forest, past isolated cottages hidden in the trees. These woods are full of elk and wild boar, but Anneli hasn’t brought me all this way just to get back to nature. We’re on our way to Pädaste Manor, Estonia’s best restaurant, and probably its best hotel too, where Anneli works. Tucked away in a secluded bay on Muhu’s marshy southern shore, Pädaste is a marvellous surprise. The few surrounding houses are modest farmsteads, but this is an ornate Herrenhaus – one of the many Germanic manor houses that line the Baltic Coast, all the way from here to Lubeck. Many of them are now in ruins, but Pädaste Manor has >>

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been beautifully restored. Most of the building dates back to the 19th century but the foundations are far older, and its history doubles as a potted history of Estonia. The story of Pädaste dates back to 1227, when a Teutonic crusader called Bishop Albert von Buxhoeveden defeated the pagan inhabitants of Muhu and converted them to Christianity – at the point of a sword. His Germanic family farmed this land until 1919, when Albert’s descendant, Baron Alexander von Buxhoeveden, was killed by Bolsheviks. Alexander’s widow, Catherine von Siemens, returned to Germany the next day. Thereafter, Pädaste became an unsettled barometer of Estonia’s shifting fortunes: a Red Army HQ and then a Wehrmacht HQ during the Second World War, and finally a fish distribution centre after Estonia was swallowed up by the USSR. In 1992, after Estonia regained her

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independence, a young Estonian called Imre Sooäär brought his Dutch friend Martin Breuer here. Imre is a politician. Martin is a businessman. Imre grew up on Muhu. He’d always loved Pädaste. Martin had never been here before. He was enchanted by this peaceful place. The house was now a hollow ruin. It had been derelict for years. A year later, Imre phoned Martin with some thrilling news. “Do you remember that place where we had the picnic?” he asked Martin. “It’s for sale!” They decided to buy it there and then, and turn it into a hotel. They opened the old carriage house in 1995 and the manor house in 2008. In 2010, their hotel restaurant, named Alexander (after Pädaste’s last Teutonic owner) was named Best Restaurant in Estonia. Since then, it’s won the same prize every year. Eating at Alexander is sublime, but the best thing about it is its simplicity. Most of

the produce is local and much of it is wild. Pädaste’s horticulturalist, Anna-Liisa Piiroja, forages for herbs in the surrounding woods and meadows. The beef is from the Highland Cattle grazing in the fields outside. Last time I ate here, the chef was Peeter Pihel, the Estonian who won all those prizes. Last year Peeter moved on, to Jarpen, one of Sweden’s finest restaurants. He’s been replaced by a Franco-Danish chef called Yves Le Lay. Comparisons between great chefs are always invidious (you might as well try to compare great painters) but for me, Yves’ food feels more informal than Peeter’s – not quite so spectacular, but a bit more relaxed. Yves’ Nordic Islands cuisine celebrates the food that’s on his doorstep. As a border zone, Muhu escaped the worst effects of Collectivisation, and the climate is milder than it is on the mainland. Local farmers leave their

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fields fallow, giving the soil time to recover. They only use natural fertilizer. “There are a lot of limitations in this environment,” says Yves, but he’s risen to the challenge. He doesn’t drown his ingredients in rich sauces. He gives them room to breathe. His three course menu consists of just nine words: whitefish and cucumber; beef and beetroot; plum and milk. I can’t recall the last time I ate such a simple yet satisfying meal. This ethos of simple luxury is echoed throughout the hotel. The bedrooms are full of high-tech gadgets but the décor is discreet and understated. The stylish spa specialises in traditional local treatments, but beyond the kitchen Pädaste’s greatest treasure is its library. You could be holed up here for weeks on end. You can go fishing or hunting or hire boats or bikes or horses, but Pädaste is mainly a place for doing nothing: no light or noise pollution;

The best thing is its simplicity...most of the produce is local and much of it is wild empty horizons; clear skies… lounging on the wooden deck in the pale sunlight, looking out across the still water, the modern world seems a million miles away. Pädaste is also an ideal base for exploring Muhu and its bigger neighbour, Saaremaa. Maarika, another islander, takes me on a day tour. “This is a place where time rests,” she says as we set off, past Neolithic tombs, built

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from Arctic boulders left here by glaciers at the end of the last Ice Age. We drive to Koguva, a fishing village on the west coast. The best preserved settlement on these islands, its thatched houses are all 19th Century or older. We drive on, across the causeway that links Muhu to Saaremaa, Estonia’s biggest island – about ten times the size of Muhu. Our first stop is the medieval church at Karja. Standing in splendid isolation, surrounded by forest, it looks more like a fortress than a place of worship. A short drive south, at Kaali, is a huge crater concealed within a ring of trees, carved out by a meteor that landed 4,000 years ago, with the same force as Hiroshima. Did that cataclysm shape the pagan rituals which survived here until the 13th Century, when Bishop Albert and his fellow crusaders arrived? Today Kaali is a tourist attraction but even the coach parties can’t quite dispel >>

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the strange aura of this natural amphitheatre. There is evidence of human sacrifice here. We stop for lunch in Kuressaare, Saaremaa’s compact capital. Some 15,000 people live here – around half of Saaremaa’s population. The historic centre has the pleasant ambience of a Central European spa town. Its centrepiece is the Bishop’s Castle – built to control the locals rather than guard against invasion. We finish our tour in Loona, on Saaremaa’s wild west coast. Maarika lives here with her husband, in a basic but charming wooden cabin. However, her office is in an old manor house called Loona Manor. It’s like a smaller version of Pädaste. Here she runs a quaint and cosy guest house, and the Visitor Centre for the Vilsandi National Park – a rugged stretch of coast, with over a hundred uninhabited islands. It’s great for hiking, biking, bird watching, seal watching and fossil hunting. Back at Pädaste I eat a farewell dinner with Martin and Imre. “It has to be emotional,” says Yves, describing his degustation

Pädaste is mainly a place for doing nothing...the modern world seems a million miles away BUSINESS QUARTER | SUMMER 14

menu – and it is. There are some flamboyant flourishes, but the best dishes are the simplest: raspberries and beetroot; cod with potato, kale and whey. Towards the end of our meal, something wonderful happens. The man at the next table drops down on one knee and asks the woman he’s dining with to marry him. She says yes. They embrace. Everyone starts clapping. Imre goes over to the grand piano and begins to play. It’s like a scene from a movie. This is what fine hotels are for. “It still surprises me and energises me,” says Martin, as Yves brings out the final course. I’m not

sure if he’s talking about Pädaste or Estonian island life. A bit of both, I guess. n The first five star country hotel in the Baltic States, Pädaste Manor is open March to October. Doubles from €150 per night, including breakfast. The two bedroom, two bathroom farmhouse, with kitchen, sleeps up to five from €720 per night. Three courses at Alexander costs €67. The degustation menu costs €86 for five courses, €103 for seven or €119 for nine. www.padaste.ee

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THE MALDIVES WITH TURKISH AIRLINES Anna Rozenfelde shares her experience of travelling from Riga to the Indian Ocean with her husband and two kids The journey began with the flight RigaIstanbul, taking approximately three hours. We were flying business class, which is of course immensely more comfortable especially if you are with small children. By the way, we didn’t need to worry about the luggage weight: for business class its 8+8 kg for hand baggage and 40 kg for checked-in luggage. For economy class its 8+30 kg. There was enough time before the connecting flight, so we decided to spend it in one of the World’s best Business Lounges “Lounge Istanbul” (available also for M&S Elite card members and Star Alliance Gold card members). It was comfortable and enjoyable for both parents and kids. When we needed to leave the lounge, the kids protested and wanted to stay there. The flight from Istanbul to Malé (Maldives) took 7 hours. This was a night flight and I must say in the morning after flying in the business class of airbus A330-200|300 I could have done with more than 7 hours, as it was

so comfortable. The service and food were excellent, and it’s no surprise that Turkish airlines has been awarded the World Best Business Class Catering 2013 with its Flying Chef on board. Flying Chef assists cabin crew in meal preparation to ensure everything is to the highest standard. The Maldives archipelago is located on top of the Chagos-MaldivesLaccadive Ridge, a vast submarine mountain range in the Indian Ocean. The Maldives also form a terrestrial eco-region together with other islands Chagos and Lakshadweep. The Maldives atolls encompass a territory spread over roughly 90,000 square kilometers, making the country one of the world’s most geographically dispersed archipelago. It has the population of 393 thousand people on 192 of its 1,192 islands. Getting off the plane in jeans and sweaters we immediately realised that we are somewhere next to Equator and its tropical climate. We took the private speed boat together with a few tourists and went to the island where we

TRAVEL

spent next 10 days. It was Maafushi, which is located approximately 30 km from the airport island. We spent the first day just walking around and feeling very special, because of all attention we had from local people, as they are not used to see tourists on this island. Maafushi is one of the largest islands - 1.5 km long and 500 m wide. All 2000 inhabitants of Maafushi know each other very well. Just to imagine that you’re in the middle of the Indian Ocean on the island sized 1.5 X 0.5 km (with the highest point of 2 m) was incredible. On the next day we went to one of the resorts in Male atoll - Fihalhohi island which was even smaller: the walk around took 20 minutes, walk through 7 minutes. I felt like Robinson Crusoe, although there are quite a few tourists on Maldives. In such places you can feel the power of the nature: the water is 90 meters deep already 3 meters from the shore! The kids could see the reefs with fishes, octopuses, and even dolphins in 10 meters distance. The last shark attack was registered in 1987, but these days, because of abundance of food elsewhere there is no problem with hungry sharks. Next days we spent discovering new islands, new reefs, fishing, and got sun burnt twice. Everything you expect from a tropical island in other words, accessed with ease and comfort thanks to one of the world’s fastest-growing and most enterprising airlines, via Istanbul, one of the up-and-coming great hubs of the world. Turkish Airlines flies to 248 destinations in 105 countries, easily reaching any destination in the world. Also it is the member of Star Alliance, the largest global airline alliance, which allows customers to collect miles flying with TA or other 26 member airlines. n

BUSINESS QUARTER | SUMMER 14

OVERVIEW

SUMMER 14

THE BALTIC’S BUSINESS BASTIONS

HOW FREE ECONOMIC ZONES ARE POWERING REGIONAL GROWTH

BUSINESS QUARTER | SUMMER 14

SUMMER 14

OVERVIEW

FEZs – Free Economic Zones – boost the drive for foreign investment and promote reindustrialisation in Latvia and Lithuania, finds Dalius Simenas The Baltic States are once again the EU’s fastest growing economies, a fact that is bolstering foreign investor sentiment in countries that this year celebrate 10 years of European Union and NATO membership. The European Commission forecasts 3-4% of real GDP growth in 201415 in Latvia and Lithuania, with Estonia to return to that rate in 2015. FEZs have played a significant part in keeping Baltic industry strong. Currently there are 11 FEZs in Lithuania and Latvia, but none in Estonia, whose equivalent zones are meant not for accelerating manufacturing but rather internal trade and logistics operations. 2015 is special – all three Baltic economies will be part of the eurozone, following the path of Estonia (2011) and Latvia (2014). Economists expect the euro to give an extra boost to Lithuania, already the biggest

economy and Baltic manufacturing hub. The EU wants manufacturing to reach 20% of GDP in 2020, from current levels of 15%. Lithuania is already above that trend with some 23% of GDP generated by manufacturing – on a par with Germany. HOW FEZs WORK FOR INVESTORS To attract businesses to regions outside the capital, the Lithuanian government has established seven free economic zones: in Kaunas, Klaipeda, Siauliai, Panevezys, Marijampole, Kedainiai and Akmene. Ruta Karpaviciute, associate at Vilnius law firm Linden, notes that investors in FEZs may benefit from no corporate profit tax of 15% in the first six years and only half of regular corporate tax rate over the next 10 years, no tax on dividends

for foreign investors and no real estate tax. This applies to companies investing more than €1million.“Regional aid is also provided for particular zones. The highest amount of regional aid was 50% of the general equivalent of the subsidy” Karpaviciute says. Such relief is applicable for FEZ companies if at least 75% of the income in the tax year is derived from production, manufacturing, processing or warehousing activities performed within a FEZ. It also applies to wholesale trade in goods stored within a FEZ, as well as services related to these activities. IT, aircraft and spacecraft maintenance services are also included in the list. Karpaviciute explains that trade, production, import and export are allowed in FEZs in Lithuania as long as they do not involve prohibited activities such as >>

BUSINESS QUARTER | SUMMER 14

OVERVIEW

SUMMER 14

alcohol manufacturing or gambling. KPMG’s latest Baltic investment guide shows that Lithuania has kept corporate income tax low at 15%, the fourth lowest in the EU and well below the EU average of 23.2%. Several other tax incentives are also established for companies. The country also has the fifth lowest total tax burden in the EU (30.3% of GDP compared to the EU average of 37%). Despite stagnating global trends, FDI jumped by 21% in 2012 according to crossborder investment monitor from the Financial Times FDImarkets.com, while global greenfield investments fell by more than 20%. Lithuania also ranked 5th globally in FDI growth in 2012, 3rd in Europe, and 1st among the Baltic States. LATVIA CREATED SEZs TO COMPETE Latvia’s recovery from the economic crisis of 2009 is now over, and by entering the eurozone in 2014 it consolidated its positive outlook. With GDP growth rates between 4-5% in the last three years, the economic achievement is due to a rapid rise in industrial output and diversification of export markets, as well as products and services, which now make up 60% of GDP. Solid inflows of foreign direct investments (FDI) amounted to €11.5 billion of FDI stock in 2013 compared to €12.4 billion and €€15.5 billion, respectively in Lithuania and Estonia.The Latvian Government acknowledges the importance of attracting FDI to sustain economic development. Latvia has consistently pursued liberal trade policies and has always welcomed FDI by creating an open and attractive business environment. There are four so called Special Economic Zones (SEZs) operating in Latvian cities of Rezekne, Liepaja, Ventspils and Riga. Latvian corporate income tax is charged at a rate of 15%, the same as Lithuania. However, a company registered and operating in a SEZ in Latvia enjoys higher rates of tax depreciation. Companies registered and operating in a special economic zone may qualify for both immovable property tax relief of up to 100% and corporate income tax relief of 80%. This relief is however subject to certain limits. It is compatible with EU state aid rules and is anticipated to be effective until 2017. Tax credits are also granted for long term investments above €10 million in state

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Klaipeda FEZ

The government acknowledges the importance of attracting FDI to sustain economic development. Latvia has consistently pursued liberal trade policies and has always welcomed FDI supported industries. Latvia has one of the lowest tax burdens in the EU at 27.3% of GDP. Corporate income tax is among the lowest in Europe at a flat 15%, and dividends to EU citizens are not taxable. As of 2014 a holding company regime became fully effective in Latvia, allowing non-residents to benefit from various tax exemptions. REZEKNE IS MOST LABOUR COST EFFECTIVE Rezekne SEZ has 250 ha available for industrial investors. There are 15 companies operating in Rezekne SEZ, altogether employing more than 750 people. In 2013 FDI in SEZ companies constituted about 80% of the total FDI made in the eastern Latvian village. Kristine Senkane, external relations manager for Rezekne SEZ, says the economic zone welcomes any company investing in country development and creating new jobs. “Rezekne SEZ is an especially advantageous place for companies operating in production, transport and logistics, warehousing,

metalworking and woodworking”, Senkane says. BQ Baltic found that Rezekne provides the most competitive labour costs throughout the Baltic FEZ network. Average gross salary per month in Rezekne in 2013 stood at €547 compared to well over €850 in Riga and Ventspils, €754 in Klaipeda and around €650 in Liepaja, Kedainiai, Kaunas, and Panevezys, to below €600 in Akmene, Siauliai or Marijampole. According to a managers’ opinion poll, bosses preferred Rezekne to other SEZs in the Baltics because of its good tax relief, readily available labour to employ and train, good rail and road connections to Latvian ports, the quality of professional help from Rezekne SEZ team and the supportive approach of local government. It is also located closest to the EU’s border with Russia therefore well-suited to companies facing markets in the east. “Rezekne is the first larger administrative area at the EU Eastern border where customs procedures (customs clearing) are performed”, Senkane adds. Those already operating there also note some

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advantages of Rezekne over other SEZs such as real estate which can be purchased and owned by the investor as 95% of the real estate in RSEZ is in private ownership. Like other FEZs in Lithuania and Latvia, Rezekne also offers the opportunity for final assembly of products, as opposed to importing finished items from non-EU countries, such as China. This route offers tax advantages, as EU import duties for parts are lower than for final products (for bikes it is 5% rather than 15%). That helps to cut the final product price for FEZ-assembled products from 5% to 7%. HISTORIC PORT OF KLAIPEDA The free economic zone of Klaipeda seaport is the oldest economic zone in Lithuania and probably in the Baltics. It was established in 1996. Over 20 manufacturing and logistics companies operating in Klaipeda FEZ have

invested €515 million and created over 1,800 jobs in the land area of 412 ha. In 2013, Klaipeda FEZ companies exported €726 million. Despite the recent economic downturn members of FEZ have managed to keep their heads above water and create new jobs, grow revenue and profits. Klaipeda FEZ now generates 2.8% of Lithuania’s GDP and 5% of its exports. In 2010, the Financial Times ranked Klaipeda FEZ as 5th best special economic zone in the world. Eimantas Kiudulas, CEO of Klaipeda FEZ management company, notes that one of the strongest arguments for businesses investing in Lithuania are the educated and skilled workforce, at all levels. “All companies of international corporations operating in Klaipeda FEZ or nearby, namely Indorama of Thailand, Yazaki of Japan, Philip Morris and Mars Incorporated of the US, are

OVERVIEW

among the top three most effective companies in these groups,“ Kiudulas says. According to him Klaipeda FEZ is now negotiating with over ten potential investors. “Flexibility and the ability of Lithuanians >> to learn fast and adapt to western work standards, loyalty to employers, fluent English and use of other foreign languages are the characteristics of Lithuanians that foreign investors value most”, Kiudulas adds. Kevin Holland, Operations Director of Albright International, the world’s leading electronic connections manufacturer, says that the company established itself in Klaipeda FEZ in 2008 when they were looking for a manufacturing base in Eastern Europe. “Lithuania was chosen because of the hard work and dedication of Invest Lithuania, the FDI promotion agency. Also, the tax advantages were clearly a strong incentive, and >>

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OVERVIEW

SUMMER 14

Liepaja SEZ: in the forefront – Lauma Fabrics production facilities, at the back front – port of Liepaja

Klaipeda FEZ was far more organised than other free economic zones”, Holland says. However, the landscape is changing and Klaipeda now faces more competition from Kaunas, and from brand new FEZs established in places such as Kedainiai in central Lithuania or Akmene in the north. EXPERTISE MATTERS Giedrius Valuckas, CEO of Kedainiai FEZ and business development manager of Progresyvus Verslo Sprendimai (Progressive Business Solutions, PBS), managing company of Kedainiai FEZ, says that in the territory of 130 ha he is planning to create about 400 working places and attract €20 million of investment in the coming five years. He explains that the strength of Kedainiai is in its ability to access a sizable pool of skilled workforce. Within 50 km of Kedainiai with its 54,000 inhabitants, there is a further population of 430,000 together with other cities: Kaunas, the second biggest in Lithuania, also Jonava and Ukmerge. Valuckas says that Kaunas has good managers and the smaller cities can provide engineers and other professionals. A healthy attitude to investors and easy access to local authorities help the FEZ operator to come up with the best solution for interested investors. Valuckas says that the idea to operate the zone was developed by two strong partners. One of them is EIKA, a leading company in real estate development led by Robertas Dargis (also president of the Lithuanian Confederation of Industrialists) and PBS, the business consultancy

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Tax incentives in Lithuanian FEZs: • No corporate profit tax during the first six years; 50% of corporate tax (or 7.5 percent) over the next 10 years • No tax on dividends for foreign investors • No real estate tax • Applied to investments of €1 million or more

Tax incentives in Latvian SEZs: • Immovable property tax relief of up to 100% • Corporate income tax relief of 80% from regular tariff of 15 percent • No tax on dividends • Corporate income tax rebate for largescale (€10 million) investment projects and export developing company. The CEO of PBS is Tomas Jaskelevicius, who also is a long-standing business development manager of Arginta Engineering, a leading Baltic engineering company. The Kedainiai FEZ that only stated operations in 2013 also partners with Alliance for Recruitment, which helps investors to collect their management team and skilled workforce within three to six months. AfR partner Andrius Francas, was one of the

managers in Lithuania who helped to establish a shared services operations in Lithuania, attracting Barclays Bank and Western Union. Dominating industries that Kedainiai FEZ people work with are engineering, steel, electronic, plastics, furniture and food. Kedainiai FEZ is also a member of Baltic Automotive Components Cluster, a consortium of automotive companies and education institutions. “Cluster activities are aimed at integrating whole industrial and manufacturing solutions, support and strengthening the competences for partners along the entire value added chain and building a bridge between the EU and CIS automotive industries”, Valuckas says. €15M INVESTMENT IN EDUCATION The Latvian seaport of Ventspils is the northernmost free economic zone in the Baltics. Today 32 companies in electronics, automotive, metalworking, plastics and ICT operate in Ventspils SEZ. Their investments amount to €530 millions and have created almost 2,800 jobs. In 2013 Freeport of Ventspils won 7th place in the top global free zones of the future, and was ranked as 2nd best port zone in the second global ranking of free economic zones by FDI Intelligence of the Financial Times. More local than foreign businesses operate in Ventspils. Amongst the foreigners are Bucher Schroeling, a Swiss producer of truck-mounted sweepers, STEMA Real, a Danish fishing industry plant and Heimdal Skonto, a Norwegian–Latvian joint venture producing modular homes.

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“Tax incentives are the same in all the Latvian special economic zones, but our clients evaluate Ventspils’ advantages, such as readyto-work territories, and special support in startup processes”, says Inga Ievina, PR manager for Ventspils SEZ. A project coordinator is designated for every industrial project to help investors solve practical questions during the start up process. Currently there are more than 600 hectares. for industrial development in Ventspils freeport territory. Different sites varying from 1 to 150 hectares available for projects and equipped with necessary connections to electricity and other public services. Also, it is possible to negotiate a specific client’s requirements. High-quality education is a priority in Ventspils, both in technical secondary education and higher education level in electronics, as well as for metalworking, auto mechanics, mechanical

engineering, and others. “Currently we are investing more than €15 million to upgrade our Ventspils Technical College, which will be the most modern professional competence centre in Latvia” Ievina adds. CRANES SIGNING IN KAUNAS FEZ Managers of Kaunas FEZ, which commenced operations in 2006, position the zone as the centre of logistics, investment and business development. The 534 ha territory is meant for economic, commercial and financial activities, currently there are 18 investors operating. There are five construction sites at work at the moment. “We had nothing like this in the past” Vytautas Petruzis, CEO of Kaunas FEZ management company, says. “During the years of crisis we sat in that same abyss as investors did. However, we witnessed

OVERVIEW

their exports rise and it was only the question of time when they went for expansion” Petruzis explains. Among the most recent investment projects is “DPD Lietuva”, a parcel delivery company which has been growing successfully for the last few years. DPD of France signed a contract with Kaunas FEZ to build the biggest state-of-the-art parcel sorting terminal in the Baltic States. Investments in construction and equipment will reach up to LTL 20 million (€5.8 million). The terminal is projected to reach full working power by the spring of next year. Swiss producer of LED systems “Almipex GmbH” has also launched a business in Kaunas free economic zone. This year the company is planning to invest LTL 5 million (€1.44 million) and employ 30 highly qualified specialists. Another prominent investor Fortum of Finland is poised to build a cogeneration [combined electricity and heat]

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OVERVIEW

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power plant. One of these was built last year in Klaipeda FEZ, covering the heating and electricity needs of Klaipeda city, and fostering green energy projects in Lithuania. ESTONIA PROMOTES REINVESTMENT As to Estonia, there are no FEZs. There are only free trade zones in the seaports of Paldiski, Muuga and Sillamae, also in the town of Valga which are not meant for manufacturing but for trade and logistics operations. Marju Mihkelsoo, information manager at Enterprise Estonia, explains that Estonia has never had a policy of offering numerous financial grants but instead offers a generally easy environment for businesses. “The biggest financial incentive we have for manufacturing companies is the 0% income tax for retained profits which means that when companies invest their profits into expansion then these profits are not taxed. And this incentive applies all over Estonia, no matter where the production is located” Mihkelsoo says. She says that this policy has delivered results. The share of reinvested profits is 75% of the total FDI that comes to Estonia each year. However, at the end all distributed profits get taxed at the rate of 21% or sometimes even more. Dainius Malinauskas, director of “Finreda” investment advisory firm, says that he had cases when investors residing in Lithuania got taxed twice for dividend payouts from holding companies registered in Estonia – one time in Estonia and the other in Lithuania. They had not only to pay 21% from distributed profits to Estonian authorities but also got taxed 15% on top of that by Lithuanian authorities. This is because the bilateral agreement on avoidance of double taxation between the two countries does not apply in this case. Tax authorities maintained that in Estonia investors paid corporate tax but not personal income tax therefore they are bound to taxation in both the countries. INFRASTRUCTURE VERSUS TAX CUTS Pekka Puolakka, managing partner at law firm Sorainen, summarising the pros and cons of FEZs in the Baltics says that FEZs were more a thing of the 90s, when they still offered significant tax breaks. “As taxation levels are [already] very low

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Average gross monthly wages in Baltic FEZs, 2013

€547 Latvian Lithuanian €547 €572 €580 €580 €651 €677 €678 €678 €754 €852 €895

Rezekne Rezone

*-data for Siauliai region as Akmene is part of it. **-data for Kaunas region as Kedainiai is part of it. Source: Statistics Lithuania, Rezekne SEZ (for Latvia)

Marijampole Akmene* Siauliai Panevezys Liepaja Kedainiai** Kaunas Klaipeda Ventspils Riga

Tax rates in the Baltic States, %

LITHUANIA

LATVIA

ESTONIA

Corporate income tax

15 (5% for small firms) 15

21**

Dividends

0 (15)*

VAT

21 20

Personal income tax

Social security (and health) contributions for employee

10.5

Social security contributions for employer

30.98

23.59

33.00

*- Dividends paid to a company in Lithuania holding not less than 10% of the shares granting the same percentage of votes for at least 12 months are tax exempt, except for dividends paid to tax haven countries. For Latvia: no dividend payments except for dividends payable to persons resident in black list jurisdictions, which are subject to 15 percent withholding tax. ** - subject to income tax only in respect of all distributed profits. As of 1 January 2009, dividends paid to non-residents are no longer subject to withholding tax at the general rate of 21%. Source: KPMG, Deloitte

especially in Estonia and Latvia, the FEZs are not a driving force in that regard. Unless the FEZs can offer significant reductions in salary taxes and related social security payments, they are not interesting from the taxation point of view. It is less signficant than the other types of benefits the FEZs can offer to the other types of benefits the FEZs can offer, like facilities, logistics arrangements, etc.”, Puolakka says. The Lithuanian Government is poised to cut labour tax in 2015 as a response to recommendations from investors and the International Monetary Fund to make the country’s labour market more competitive and create new well paid jobs.

“Having said all that I admit that the free ports are still very interesting and offer significant benefits, but that is mainly directed to logistics companies“ Puolakka explains. The FDI effect in terms of better-paid jobs and higher living standards in the Baltics is certainly significant. Investors’ Forum, an investor lobby and association of foreign capital companies in Lithuania (generating 25% of Lithuania’s €34 billion GDP) notes that the average net monthly salary at FDI companies is €1170 or more than double the size of the average net monthly salary in the country (€542). So as long as the FEZ model continues to thrive, everyone wins. n

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COMPANY PROFILE

Kedainiai FEZ â&#x20AC;&#x201C; enhanced industrial solution PERFECT LOCATION Kedainiai Free Economic Zone is perfectly located in the heart of Lithuania on the crossroads of main highways with a railway inside the territory. The total area of the free economic zone is 130.55 ha which are available for renting by businesses. Plot sizes can be varied according the needs of investors. Kedainiai is close to Lithuniaâ&#x20AC;&#x2122;s main points: 150 km to Klaipeda harbor, 50 km to Kaunas airport and 150 km to Vilnius airport. DEVELOPED INFRASTRUCTURE Kedainiai is a magnet for foreign investment in Lithuania. The district has the highest rate of FDI per capita in Kaunas County. The infrastructure in FEZ territory is fully developed and it already has water supply, sewage, surface wastewater, pipeline, road and lightning infrastructure. The main industries in Kedainiai are food, chemicals and engineering. The vision is to develop food and engineering industries like steel treatment, electronics, plastics, furniture. EXPERIENCE AND INDUSTRIAL KNOW-HOW OF SHAREHOLDERS The idea of developing the zone came from two partners. One of them is a leading company in real estate development UAB EIKA and the other is export developing and business consultancy UAB Progresyvus verslo sprendimai. Kedainiai FEZ works as full business solution center for investors. It participates in the activities of various industrial associations and is a member of Baltic Automotive Components Cluster. The FEZ integrates industrial know-how and offers variable plots in industrial park with value added services such as production relocation, building projects handling and support, production and supply chain optimisation, equipment selection and servicing, personnel recruitment and trainings, cluster and shared service development, EU funding support, logistics and other services which help our clients to become more cost effective and competent. Kedainiai Free Economy zone can offer green field, build to order, and build to rent options. SUPPORT OF LOCAL AUTHORITIES Effective utilisation of the infrastructure and the

Kedainiai FEZ has a perfect location in the heart of Lithuania

laws of FEZ creates more favorable conditions for foreign and domestic investment, adds new workplaces and develops trade and manufacturing. Kedainiai district municipality is always ready to offer the best solution for interested investors and does everything it can to make Kedainiai district the regional hub of central Lithuania with the great value adding industry and developed, knowledge-based economy. Operator together with Kedainiai district municipality offers special start-up support which leads to fast and smooth process flow for an investor. QUALIFIED LABOUR FORCE Kedainiai is the largest and most developed district in Kaunas County with population of 54,000 people. In the 50 km circle around Kedainiai, the population adds up to 430,000 people together with other cities: Kaunas, Jonava, Ukmerge. There is a huge talent pool and potential for manufacturing companies around Kedainiai. The FEZ cooperates with various education institutions and experienced recruitment consultants. Kedainiai Vocation Training Centre prepares various specialists according to the requirements of local companies, while the top management and engineers are educated in Kaunas. The large and culturally aware labour pool is ready to get to work to ensure the success of new investors. RAILROAD IN THE ZONE The delivery option is very attractive and flexible

in Kedainiai FEZ thanks to developed infrastructure and easy access to Via Baltica and main way MinskKlaipeda. There is also a railroad available around the zone, but in order to enhance the delivery options, the railroad to the FEZ territory will be integrated with the loading terminal. This project will be subsequently merged with the Rail Baltica, and also will strenghten the logistics between EU and CIS countries in Kedainiai FEZ.

For more information contact Giedrius Valuckas, Managing director of Kedainiai FEZ A.Gostauto st. 40a, LT-03163 Vilnius, phone: +37065508374, website: www.kedfez.com, e-mail: giedrius.valuckas@kedfez.com

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ENTREPRENEUR

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TAPPING INTO NATURAL BEAUTY 64

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ENTREPRENEUR

When former PM Valdis Dombrovskis wanted to show fellow European leaders the purest essence of Latvian entrepreneurship, he naturally called up Lotte Tisenkopfa-Iltnere, founder and chief executive of Mádara Ecocosmetics, one of Latvia’s best-known quality brands. BQ Baltic editor Colin Donald visited Mádara’s factory in Riga’s leafy suburbs to hear of progress in its mission to sell the beauty-power of Latvia’s meadows and forests to the world Thank you for sparing the time to meet BQ Baltic, Lotte. What’s keeping you busy at the moment? We’ve just launched a new skincare selling in the Drogas drugstore chain in Latvia. We did this because organic products, including organic food, are growing consistently, including those in lower price positions. We thought it was the right time to offer organic skincare in this lower price sector, and Mossa products cost 30-40% less than Mádara’s, which is classed in the “semi-selective” or mid-priced range. The Mossa range has only been on the market since mid-April and we are satisfied with the first results. We plan to take Mossa to other markets as well after a short time. New Mossa products are in the pipeline. We’ll see how it goes and then think of taking it abroad. How do you go about new product development, and what is your attitude to innovation? There are 45 products in the Mádara range and we’re working on expanding that. Since 2006 when we launched our first four body lotion products [moisturising, nourishing, firming and relaxing] we have exploited the strong properties of hardy Nordic plants, which are a better source of active and vital ingredients than many southern plants. Our unique advantage in Mádara compared to other organic producers is that we invest a lot in making up for the lack of applicable data about Nordic flora. We have had to find that data ourselves and to innovate with our active ingredients – not just take the usual rose water or lavender or ginko.

research, with the aim of creating new technologies to improve EU competitivity.

We discovered that birch juice or sap can be very successfully used in anti-aging Together with two very large Latvian pharmaceutical companies Grindeks and Olainfarm, Mádara founded and fund 30% of the Chemical Industry Competence Centre in Riga that has attracted EU financing for innovative research into new ingredients. Using this organisation we have in the last few years invested over €250,000 into products

How did you end up sitting around the table with a group of national leaders from northern Europe last year? I was invited to the Northern Future Forum by [former Latvian PM] Valdis Dombrovskis to present an example of young women who started companies, but I ended up talking about the economic benefit of employing older people, something I know about from my own entrepreneurial grandmother, who retired from her job selling agricultural clothing when she was 79! I was impressed by the British Prime Minister David Cameron. His rosy cheeks and radiation of energy reminded me of my husband [Mádara director Uldis Iltners]. Mr Cameron has the same kind of drive, strategic overview and inspiration in his personality. With Latvian “birch juice” have you discovered your magic ingredient? There are plenty of others we are working on, but this is our most magic! We discovered that birch juice or sap can be very successfully used in anti-ageing applications, and we are researching more that will result in new product ranges, beyond the four that we have at present: anti aging day cream, night cream, eye cream and serum, which contains the highest concentration of birch juice How complex is it to turn a natural ingredient into a market-ready product? Four years ago we realised that consumers wanted effective anti-aging products and >>

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ENTREPRENEUR

we knew we had to come up with really innovative formulations. Around 50% of what people are paying for when they buy anti-aging products is water, the inactive, ingredient needed to make an emulsion that penetrates the layer of dead skin to the living epidermis cells. We thought it would be cool to find an ingredient that could perform the function of water, but which would be more active. Birch sap, was the first thing we thought of. It sounds kind of sticky… When its fresh from the tree – and it can only be harvested for a few weeks a year – it’s clear like water, it’s not sticky at all. But it’s only clear if it is from the Nordic region where you have these freezing winters where the temperature sinks to about minus 20 or 30 degrees otherwise the sap is milky and poor quality. It wasn’t easy to figure out how to preserve it as it contains so many enzymes and sugars that it ferments really easily, and starts bubbling after a few days. It took us two years together with the biology

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faculty of the University of Latvia testing architecture to determine its benefits for skin care applications, conducting cellular trials on the dermis and epidermis cells. We found it had really great anti-oxidant activity, meaning that if skin cells are put in the environment they become younger and aging markers are reduced. Cellular trials by microbiologists have confirmed that it makes skin cells grow quicker. It’s a fantastic ingredient and makes up 60-80% of our antiaging formulations. At the moment we have a day cream, a night cream, an eye cream and the more concentrated serum, and we have some new ones coming as well, launched next year but I can’t say what they are yet. Are you happy with Mádara’s current growth rate? We are still a very small company. Our turnover last year was €2.5m, but we are expecting to maintain this 25% annual growth. The first quarter of 2014 has been really good, there’s been big growth. As usual the second quarter

is not so good, but maybe we can achieve slightly more than €3m over the year. We have never borrowed to develop export markets. If we borrow it means there are investors so we [dilute] our shares, and there’s always something to pay back. Money is really important but knowing the right way to spend it in particular markets is much more important. There might be a time when we need a really big market expansion and we might need to either go public but for now we have done it with our own resources. What is your export strategy? When we want to grow we really have to focus country by country, we cannot expand everywhere at once. Our experience tells us that if we want to develop a market, we need to be directly involved, and that takes resource. Focusing on a country involves frequent travel there, or perhaps sending people out there. If we don’t have a great local partner we need to hire an employee and have a local representative. This is something we understood after some

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ENTREPRENEUR

If I sold it I would be super-bored! Of course I could look after my flowers, but not for long time – the need to be present, and to invest in each of the countries, it takes a lot of attention and analysis. Where are you concentrating your forces at the moment? We are still very focused on Nordic Europe, we still see at least one more year of work here, and then we will pick our next target. Our main markets are the closest to us. In Finland our brand recognition is perhaps the third highest in the category, surpassing within three years companies that have been in the market for 60 years. Now the challenge is to become a known brand for all consumers, not just for niche consumers of organic brands. We need to educate regular consumers who aren’t already interested in “natural” brands. Denmark is also a important market and there are many others where we are well-placed: Switzerland, the Netherlands and the UK where we have a bit of an online market. Further afield in Asia, it’s Japan, Hong Kong and South Korea. Do you have an ultimate goal for the business; are flotation and/or an exit at the back of your mind? We haven’t yet decided whether we would like to go public or not. We might consider that in two years, no sooner. As for an offer of being bought out, I can’t really answer, it would depend on whether I saw there was no way to go any further with a particular goal. Say for example if I needed help to bring Mádara to New York... But I’m an entrepreneur If I sold it I would be super-bored! Of course I have a nice garden and I could look after my flowers, but not for long. My real goal is for Mádara to be a global niche brand, and we have all the [potential] to become one. We can’t be Estee Lauder, but we can join the other desirable niche brands.

Lotte Tisinkopfa Iltniere (right) sitting next to former Latvian PM Valdis Dombrovskis. Danish PM Helle Thorning-Schmidt is on his other side Are there models of global brand building in this sector that you admire? How about Anita Roddick [founder of Bodyshop, the natural cosmetics and skincare chain, now owned by L’Oreal]? Anita Roddick is not my idol. Maybe I could relate to the beginnings of the company, but it went away from that. My idea is to offer the best quality products in terms of packaging and ingredients. Body Shop products now are not so natural and not such good quality. There are strong social aspects, with fair trade and so on, which is very popular but at some point they made a lot of compromises, which in my eyes downgraded the brand. I am a bit sceptical about companies that are mostly defined by copywriters and brand strategists. This is why I don’t want to lose control. We are

the house of Mádara and we create everything ourselves. Everything comes from our heart, that’s super-important. Are you joining with other natural Latvian companies and tourism bodies to help market the country’s green and organic brand across the world? Not really yet, but this is something we could do more of in future. Not only does Latvian science have a lot of special knowledge about the chemistry and pharmacology of local plants and herbs, but the closeness to nature of Latvian people is genuine. If you come to Latvia on 21-22 June, you will see women wearing crowns of flowers, following the tradition that they get energy from these. It’s a tradition that survived partly to help preserve our identity. n

How Lotte’s hobby became a passion Lotte Tisinkopfa-Iltnere, 31, graduated in languages and business from the University Latvia, and studied business and Japanese culture in Kyoto as part of a pioneering international exchange programme. She started Mádara, which now employs 40 people, in 2006 as a development of her “personal hobby” and a quest for organic treatments to counter her own skin allergies. Her blog about her discoveries quickly built up a cult following in the early years of social media; “it was just ladies chatting, and giving feedback”. With her sister, two friends, a shoestring budget, and “soft support” in services like packaging from family members, they launched a skincare product range, based on traceable and sustainable products. An EU fund for women entrepreneurs helped, but as Lotte explains “the time was right, people realised the need to use green products, and four young women starting their own factory was super-appealing to the media, there weren’t any magazines who didn’t write about us!”. In 2008 they set up their factory, and started exporting, and in 2009 the company opened their first of three branded boutiques in Riga shopping centres.

BUSINESS QUARTER | SUMMER 14

INTERVIEW

SUMMER 14

COLD WAR RELIC IS HOT PROPERTY

A Latvia-UK project uses abandoned Soviet-era spy technology as the core of a new commercial hub of space science, as Colin Donald discovered

BUSINESS QUARTER | SUMMER 14

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After a 30-minute drive through the forest from the Latvian coastal city of Ventspils, past the ghostly living quarters, nothing prepares the visitor for Irbene, site of Latvia’s mighty Soviet-era radio telescope. This relic of Soviet military intelligence, sabotaged but not destroyed in the Red Army exodus in 1994, has a stunning scale and space-age grandeur. Equally impressive is the Latvian ingenuity devoted to restoring it from sinister uses to peaceful scientific purposes, swapping its bulky ancient instrumentation with the neat blinking racks and boxes of modern high-powered computing. For award-winning British astrophysicist Steve Lee, this 32m-diameter icon of VIRAC (Ventspils International Radio Astronomy Centre), excites more than scientific interest. Lee calls it “this fantastic, underutilised scruffy, beautiful dish” and in collaboration with the commercially-minded Latvian scientists at VIRAC and the “space cluster” at Ventspils High Technology Park (VHTP) led by Dr Valdis Avotins, is helping to turn it into a commercial asset, transforming the former spy station into the main hub for processing satellite data in Latvia and beyond “I remember visiting for the first time in the very last months of winter.” Lee says. “I was shown around this beautiful thing, climbed up to the very top of it, and from then till now I have never stopped thinking about it. I love it.” Exuding enthusiasm, Lee is a rare kind of astronomer-entrepreneur, who financed the early stages of his company by playing the guitar in pubs. His ability to dream big dreams in Latvia – whose space sector is seen as behind the pace set by bigger-investing neighbours Estonia and Lithuania despite not having a resource like those in Ventspils – is partly based on the partnership he has formed with European Space Agency (ESA) and other commercial operators. Specialising in astronautics and earth observation Astrosat is a multiple winner of the ESA’s Copernicus and Gallileo prizes for heat tracking and arctic route-finding technologies, a track record which helps to open doors. He is also a passionate advocate of Latvia’s

I was shown around this beautiful thing... and I have never stopped thinking about it. I love it. strengths as a joint venture partner, but by no means starry-eyed about the frustrations, and a perceived lack of ambition in some official quarters – but not in Ventspils. Before I get him properly started on Irbene and his vision for the future of the big dishes, I ask about his other main concern, the 10-person international company he has been running between Latvia and the UK for over over two years. Called ThermCERT, it uses satellite imagery to show up heat emissions in urban areas, exactly the kind of practical application, via GPS, of space-based science that most excites European Space Agency and municipal partners. As Lee describes it: “The technology behind ThermCERT was invented for space, and space is key to it, but it’s really like a technology transfer from the space sector to stop human beings destroying our planet. “ Since being introduced to Latvia by the trade facilitation company CCG, he has found commercial kindred spirits at VIRAC and the “space cluster” based at Ventspils High Technology Park. He is more than a little excited about Latvia’s intellectual capital, and its potential to “rock the world” via this infant space-based technology. After a year of preparation, and what he hints is a sometimes frustrating quest to get civic officialdom here to take a lead on supporting and applying the technology, the company soon be addressing a clear market need. “The problem is that there’s too many leaky buildings out there. City administrations are going to get forced by European regulation to

INTERVIEW

upgrade 1.5-3% of them every year. And they don’t know which ones to start with, and they don’t know what the return on investment would be to make them thermally efficient”. “These buildings are spewing out heat, and it’s very hard to plan or do an analysis on paper about what’s the return, how will this impact on their targets, how can they maximise the amount of money I put in to get the biggest thermal efficiency?” “Our technology does that, it tells them the best return, where to go, and it tells them where to track the impact, of those investments, so we can prove to the world that we can do what we promised to do.” ThermCERT supported by ESA and by the UK’s devolved Scottish Government, was established over a year ago, funded with €200,000 from Riga-based VC Imprimatur Capital under Toby Moore. After a successful pilot, the technology is still at prototype, pre-production stage, and is seeking municipal partners capable of seeing the benefits of cutting edge “smart cities” technology (in which Scotland’s biggest city Glasgow is a pioneer) that will allow them to target their efforts at carbon reduction. As he says, cities – especially Latvian cities – don’t tend to be “cutting edge early adaptors” so all of the vision, determination and creativity of Lee and his local team will be required. “The municipalities don’t even know they have a problem right now, and we are already building the solution. So the trial is about making sure they start solving these problems before they hit them in the face. We will market it by demonstrating that they have a problem and that they will be required by EU law, they have to plan retrofits [of energy saving technologies].” Given that Latvia’s officials are at least as reluctant as other town halls to “jump off the precipice” by committing funds to worldleading technology why, I ask, did he decide to seek funding and establish ThermCERT here? “I went into Latvia because of the skill sets, and it was one way to do non-space tech projects within Latvia. Also Ventspils is beautiful place to go to, especially in >>

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INTERVIEW

SUMMER 14

summer. It’s got a great beach! “It turned out to be a great decision even if their municipalities don’t tend to take leadership. They find it hard to get money to do stuff, which is frustrating, but that’s where you form partnerships between Scotland and Latvia, the bigger brother looks after the younger one in some senses.” “I think as much as Riga City Council are interested in what we are doing they struggle to see the economic benefit before it’s proven. So they won’t necessarily pay for it all. But that’s fine, there is a quid pro quo of investing in a smaller country. You are going to get great staff who are very hungry to do things, who are untapped resources, but you are maybe going to have to hold their hand occasionally when it comes to the funding. “There is an element of underdog mentality in Latvia, which is good, you get a huge drive to do things. The downside is that it can also create a culture of following rather than leading. So you need strong leadership as well, but we are fortunate being Scottish that we are famed for providing that, so it’s a nice collaboration, it’s working really well. “It wouldn’t be what it is without my Latvian team, and the work that Toby Moore at Imprimatur and Charles Cormack at CCG did to help us get the seed money and form this bridge between Scotland and Latvia. Key to all such collaborations is personal chemistry, and Steve Lee considers himself lucky to have met Valdis Avotins, director of the VHTP, and an embodiment of the scientificcommercial mentality that excites him. “Valdis is a Chemistry PhD, and one of the most commercially capable academics I’ve ever met. He runs VIRAC phenomenally well, he’s great at looking after the students but also has a forward-looking commercial attitude. There’s various universities that could have great commercial [satellite] ground stations, but if you mention commercialisation to many professors, they’ll just run a mile. “Valdis manages never to do this, and also not to let the academic part slip either. He does this under quite a harsh environment, and does it with grace. He’s my favourite Latvian! “The skillset of Latvia is strong. For example Sabine Lazuhina, who is running the project as general manager of our group sin-out

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To infinity, and beyond: Businessmen in space Created in 2009 and located in Ventspils High Technology Park, the Latvian space cluster currently involves around 44 organisations. It exists to promote collaboration and networking with a view to developing new products and projects, and to promote research. The cluster also contributes to Latvia’s national space policy, and promotes co-operation with the European Space Agency. Under the management of Maija Cebere, as well as space and high technology enterprises, it involves research institutions, higher education institutions, and NGOs, all with the purpose of facilitating national competitively and boosting exports. In Latvia, as in most other countries, space technology is less about launching rockets and satellites than about seeking new ways to exploit data from space to use to improve daily life – and business – on earth. There are three main sectors: production of rocket components and other hardware; services such as satellite navigation (including GPS), satellite communications for TV and phone, and Earth observation services for such purposes as weather forecasting. Participants in the cluster receive up to €200,000 for three years to develop new technologies, products and services, to promote marketing and commercial collaboration, and to raise efficiency and productivity within the value chain, and comes with strict conditions to prevent the distortion of competitiveness.

ThermCERT LV, is just this phenomenal European-class superwoman.” When human capital is mixed with unique hardware, the potential, says Lee, is off the scale exciting, which brings us onto VIRAC, based on the two fully turnable parabolic radio telescope antennas (32 and 16 meters). Initially a special department of Latvian Academy of Sciences, and a not-for-profit state attachment to Ventspils University College, in 2010 the site became a special research institute ‘Ventspils International Radio Astronomy centre’. “VIRAC is a perfect Latvia-fighting-back-afterrepression story.” Lee says. “Everyone will know you have these old Soviet spy satellites that were elaborately sabotaged when the Soviets left, and how some phenomenal Latvian physicists and astronomers decided to rebuild them under their own steam and probably their own cash and turned them into

working radio astronomy telescopes. Everyone probably told them they were crazy.” “That was an incredible feat and they have done some great science with them, including in times of recession when science budgets usually get pulled down.” An introduction by Charles Cormack of CCG led to the formation of another spin-out satellite communications division to plug into the Ventspils space cluster, called Astrosat R&D. “We are incredibly lucky to have the ability to work with the team at VIRAC, to work with the radio telescope and ground station. We are hoping that one of the two telescopes, maybe the 32m one, can be shared between astronomy and satellite communications and the 16m one has great potential for satellite communications. “We would like to commercialise it, to do further development for other SMEs,

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commercialising this new technology we installed that allowed us to use the dish as a satellite communications ground station.” “In the UK we are already speaking to various CubeSat [miniaturised satellites for space research] operators, and trying to speak to the ESA about turning it into the main satellite communications terminal within Latvia.” “We are already getting a hell of a lot of interest. I think within the next six months we are going to be making big technological changes to that dish.” “We are hoping to form a very strong commercial joint venture between VIRAC and Astrosat, and are going to start using the dish to downlink and fast-process satellite data”. The organisations are working on the business model to underpin VIRAC as a ground station. “What makes me very proud about that is that we will be able to do good work in the space sector. It’s going to employ a lot of high class engineers in VIRAC, but the profits from the joint venture will go into the VIRAC institute and into Ventspils College, allowing them to do cutting edge earth observation work”. While Lee pays tribute to renovation work that VIRAC has accomplished and paid for, his own contribution has been to attract the attention of ESA, where Latvia’s involvement lags behind its Baltic neighbours, and complete the transformation of this place of pure science into a place where commercially applicable ideas can be conceived, hatched, and sent out into the world, to the benefit of customers, and of Latvia Inc. “There are some very clever people involved and no doubt they did have plans to commercialise it, but sometimes you need the vibrancy of an SME to come on board and get it going, and also you need to have someone with the right contacts. “It’s a case of ‘hands across the water’ because we can help them up, and of course they’re helping us, as without the fantastic dish we wouldn’t have this ground station.” Until early summer 2015 Astrosat R&D will be spending European research grants into its commercialisation research, with a view to opening for business in six month’s time. He has been talking to potential clients, such as the San Francisco-based Planet Labs, a major launcher of CubeSats, and another UK Space

We won’t stop investing and doing research in Latvia...we want to keep this going Agency partner so there’s a bottleneck of data stuck up in space, and there’s a commercial opportunity in getting it down and processing it. Lee is working hard to source EC funds, but thinks that he can raise the €60,000 needed to get the ground station into good enough working condition to start charging companies to use it. “We don’t need that much, largely because so many of the upgrades are being done already under EC funds, but I’m hoping to raise €250,000. The vision is to use the smaller 16m telescope to download satellite data, and add in tertiary services like a high performance computer lab in Ventspils. “Maybe some of the earth observation companies can take that data and use it. The joy of the space cluster is that you

INTERVIEW

can walk across Ventspils and have access to an entire space supply chain. If you go another 50km up the road you have VIRAC and a beautiful fibre link between the two. Lee is already looking beyond the existing infrastructure, to creating further dishes, and other hardware like low frequency pick-ups and smaller arrays of dishes. “The land is there, the desire’s there, we’re going to get the cash and the customers.” Lee admits that progress is slow, and that he sometimes gets frustrated – but never disheartened. The only place he encounters scepticism about Latvia’s potential as a space nation is in Latvia itself, and he continues to be astonished by the calibre of the engineers. “They want to change the world, you don’t get that in many places. Their talented people put their energy into their work, not into going out and partying at weekends. I have to stop them working at weekends!” I ask Lee what he thinks the world need to know about Latvians in space? “They need to know that there will soon be a brand new ground station, ideally placed to link with others that are aligned in the UK and Ireland– in places like Oxford, Dundee and Cork very competitively priced with worldwide coverage and supporting a local university, we will be doing phenomenal stuff because it sits on the back of infrastructure, including a big investment in fibre network, that allows us to do work of NASA quality.” “They need to know that there will soon be a brand new ground station, ideally placed to link with others that are aligned in the UK and Ireland – in places like Oxford, Dundee and Cork. It will be competitively priced, have worldwide coverage and will supporting a local university. We will be doing phenomenal stuff on the back of this infrastructure, which includes a big investment in fibre network, that allows work of NASA quality. “We won’t stop investing and doing research in Latvia, we want to keep this collaboration going.” It’s hard not to share Lee’s enthusiasm for the concept: the Cold War ill-will behind the creation of VIRAC has given Latvia the keys to the universe. The possibilities are almost as infinite the cosmos made accessible through this portal amid the pine trees. n

BUSINESS QUARTER | SUMMER 14

FASHION

Certainly, society has long held deeply-cultural prohibitions against women dressing as men, sometimes, as in the late 18th and early 19th centuries, even proscribing it in law

BUSINESS QUARTER | SUMMER 14

FASHION LOOK WHO’S WEARING THE TROUSERS “Power”, Giorgio Armani recently announced, “can be feminine.” Look to the catwalks, and power is certainly in play. If the 1980s saw women embracing the sober tailoring of their male counterparts – all the better to play them at their own corporate game – then so-called power dressing is back: the middle line of soft mixed separates, as espoused by Michelle Obama – not an unpowerful woman after all – has given way to a revival of the office style that some women working the greasy pole in big business once felt compelled to wear in order to be treated as equals to the pin-striped men. Now the likes of Gucci, Yves Saint Laurent, Christian Dior and, of course, Armani are back with those trouser suits for women – but this time with a softer, slender, more feminised silhouette than the broad shouldered kind of 30 years ago. The power shades are still there – the black, navy and charcoal that look right around the boardroom table – but now too are more gentle, pastel shades of metallic neutrals, which can carry the look away from the office and into eveningwear. The style is not so rigid either – jacket and trousers may well now be co-ordinated separates rather than stiffly matched. That the new power suit is a softer affair is just as well – figures suggest that the first women to buy into this more formal style are young enough not to have remembered power dressing the first time around, and are perhaps excited by the crisp air of authority and grown-upness

Trouser suits – much maligned during the Thatcherite era – are making a comeback, but not at the expense of femininity, writes Josh Sims that it brings; but of course the big fashion brands also need it to appeal to the wealthier, older customers for whom the power suit – as the makers of 1980s satirical puppet show ‘Spitting Image’ hyped in their Churchillian portrayal of Margaret Thatcher – often suggested a more overt masculinisation that was not always that appealing. Today the power suit may be right for a more serious, post-crash working world, but women are, all the same, not quick to dress with androgyny in mind. That was not always the case. If the sight of a woman in a trouser suit is unlikely to upset the horses these days, recall that it was enough to see women barred from entry into certain private establishments within the last three decades. The first power suits, indeed, very much had in mind the agency of the provocateur. It was bold for any woman to play with gender stereotypes through their clothing during the 1920s and 30s. The exceptions perhaps were Hollywood stars the likes of Marlene Dietrich, who wore trouser suits by Elsa Schiaparelli, or Josephine Baker – a regular at the Parisian men’s bespoke tailors Cifonelli – or later artists the likes of Frida Kahlo or Lee Miller. Their celebrity and/or avant garde lifestyle somewhat permitted it. Certainly, society has long held deeply-cultural prohibitions against women dressing as men, sometimes, as in the late 18th and early 19th centuries, even proscribing it in law. It was only from the early 1890s >>

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FASHION

through to late in the first decade of the 1900s that women were permitted to wear trousers in public for, by turns, horse-riding and bicycle-riding. This was not, however, an issue for most women. And fewer still would even have considered wearing what was strongly defined as a man’s two-piece suit – the choice of some early women’s rights campaigners during the 1920s precisely because of its scandalousness and bohemianism. This was dressing as politics. In contrast, up until World War Two, most women who did wear trousers did so purely for acceptable reasons of practicality – for ranch or factory work, or because one happened to be an adventurer-aviator the likes of Amelia Earhart. But this was a trend that the War made much more commonplace, such that throughout the 1940s trouser-wearing by women became fashionable – again ably assisted by the endorsement of ‘slacks’ given by Hollywood stars the likes of Katharine Hepburn (whose characters often played on her supposed ‘mannishness’). Trousers were worn for sport and leisure. For most the tailored suit, however, remained an outsider proposition – the stuff of theatre and androgynous play, and perceived as such. It was a perception that would last, as with Julie Andrews in ‘Victor/Victoria’ (1982), The Eurythmics’ Annie Lennox or ‘Vogue’-era Madonna. Certainly the new, more flattering power suit appears to be conscious of one lesson fashion history has offered: what suiting would become accepted by society and fashion alike was a much softer, feminised version popularised

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through Anton Courreges’ and Yves Saint Laurent’s women’s tailoring of the mid-1960s – most notably the latter’s ‘Le Smoking’ of 1966, a velvet and wool dinner suit reinterpreted for the female physique which both helped revolutionise attitudes to women in trousers, and scandalised society in the process. When singer Francoise Hardy wore it to the Paris Opera, “people screamed and hollered,” she recalled. New York socialite Nan Kempner was refused entry to upscale restaurant La Côte Basque in 1968 wearing hers – so she removed the trousers and wore the jacket alone as a kind of impromptu mini-dress. She was then admitted. Through the 1970s the trouser suit was taken on by American designers the likes of Ralph Lauren, Bill Blass and Calvin Klein. The fabrics used may have been traditionally masculine – flannel, tweed – but the cut was more fitted in the body, looser in the leg and altogether less manly. By the end of the decade – and in no small part thanks to the wardrobe of Diane Keaton in Woody Allen’s ‘Annie Hall’ (1977) – the wearing by women of what a few decades perviously would have been considered masculine clothing had entered the mainstream. Power dressing, in its harder edged 1980s incarnation, was just around the corner. What, in 30 years, will women make of this latest round of sharply tailored style? Perhaps, in another three decades, the notion of a woman’s attire seeking to evoke anything perceived to be a masculine trait will have been consigned to history too. A trouser suit on a woman will be no more cause for discussion than one on a man. n

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EQUIPMENT

A NAIM WORTH INVESTING IN

Attention to detail and a willingness to embrace the digital future of audio delivery has enabled an established, yet little-known, brand to flourish in an increasingly competitive market

Paul Stephenson remembers his first encounter with a company that has gone on to become one of the greats of the largely unsung British audio equipment industry. He ran a hi-fi retail business and was looking for new brands to fill his store. “I came across Naim and it seemed as though it had no real sales or any marketing in place – they were all engineers, beards and weird guys. It was just totally product-oriented, which is fine, but it doesn’t get you much business,” he recalls. So he joined as sales manager and, by 2000, was managing director. Now, he is proud to say, the company has 1000-plus accounts, even if it remains what Stephenson calls a “fairly unknown brand”. Indeed, its reach is good going given that Naim is, Stephenson suggests, one of a small band of companies operating in their own small sphere of audio experience. “In fact, I think we’re part of a market of audio

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specialists that is only just emerging, offering something that is very different to, say, the more commercial take of Japanese makers. Theirs is a commodity approach – it’s not about using your ears to decide if something sounds good. The way people listen to music at home is different to what engineers think they’re making out of electronics at a workbench. It’s about sensitivities and emotional values, not what you see on an oscilloscope.” The Salisbury-based company has just celebrated its 40th birthday so, beards aside, it must be doing something right. Founded by the late entrepreneur Julian Vereker – who, frustrated by his own experiences of listening to recordings of live performances decided to experiment building his own amplifiers and loud-speakers – Naim can count itself a twotime Queens Award for Enterprise winner, and has the contract to supply stereo systems for Bentley, the “technically challenging,

noisy environment that is the inside of a car,” as Stephenson notes. In 2011 Naim grew considerably when it merged with French loudspeaker manufacturer Focal. But it has also grown, Stephenson argues, because of people’s increased attentiveness to the audio experience – a surprise perhaps given these so very visual times. “The internet has provided a platform for people to find out about us, and also to be better informed about audio generally,” says Stephenson. “But, more than that, we’re seeing a big change. Typically when people buy their computers and X-Boxes, hi-fi is about no.282 on their list of priorities – but audio is becoming fashionable again. People care about sound.” Indeed, remarkably – given the oft-discussed demise of the CD – it’s not even MP3 where audio is at: already some 35% of Naim’s business is in products to stream music direct from the internet.

EQUIPMENT

Every man and his dog has tried to out-Zeppelin Zeppelin in the way some systems look...we’re shifting back from such extreme styling “The changing landscape of audio is challenging. Five years ago we would have been afraid of the idea of streaming, and would have regarded streamed music as the lowest common denominator way to listen,” says Stephenson. “But coming out of that you realise that millions of people are listening that way, millions more are going to, and what they are out there looking for is a way to do that with quality. Thankfully Apple has done a great job. Without their efforts what we do would come across as pure geeksville. But consumers now are much more advanced than their parents in terms of understanding tech

and their willingness to invest in it.” Most of Naim’s products are now connectivityenabled although, Stephenson notes, “you still need speakers and amplifiers – streaming technology has been the carrot to pull people in to buy other products.” That might include CD players, but not often. They now account for just 17% of sales, with much of those going to China, where there is still a preference for what Stephenson calls “the physical manifestation of music. Vinyl has the tendency to sound better than CD and offers a different, mechanical experience. But a CD is this little plastic box with a bit of silver metal in

it – it’s just not very sexy.” Streaming, on the other hand, may be unnervingly intangible to anyone over 30, but it is, Stephenson assures, the future operating with a higher fidelity than CD, with a solid state back-up solution and software upgradable – and a future Naim wants to be a leader in (even, that is, while operating a service department busy looking after machines now older than the first home computers). For anyone under 30, there is another factor that the company must prove itself a leader in. “Style is becoming extremely important,” says Stephenson, “though maybe not for the audio aficionado. The fact is that most people don’t want audio equipment that looks out of fashion in a year, or, for that matter, dominates a room. We’ve always tried to take a form-follows-function approach which doesn’t work for some markets – they want machines that light up like Las Vegas, and every man and his dog has tried to outZeppelin Zeppelin in the way some systems look. But I think we’re shifting back from such extreme styling now.” There is, in this, also a kind of green thinking, moving away from the consumerist habit of frequent upgrading (and consequent dumping of the perfectly serviceable but now seemingly outmoded kit) with audio equipment that lasts, both in use and looks, for perhaps a lifetime. Stephenson concedes that this is probably to cost the company revenue – a quick modification to a stock product remains an easy way for more mass-market manufacturers to make a quick sale. But that is not what he, or Naim, are about. Suffice it to say that the company’s last big launch was in 2008 and the next is due this year, but still under wraps. Its most recent launch was certainly big in scale and sound: this spring it released its Statement speaker, with all of its 746 watts of power – or one horsepower – and projected $200,000 price. “Well,” says Stephenson, “we’re a British company and we make everything in Britain. To be able to make here taps into long traditions of engineering and design and craftsmanship and puts your products in a higher league, even if it doesn’t always put them at the higher price point too.” Not always at least. n

BUSINESS QUARTER | SUMMER 14

COMPANY PROFILE

SUMMER 14

Making Cognac You aren’t properly qualified to talk Cognac unless you have taken a stroll through the vineyards. Jean-Paul Camus’ vineyards are best of course, but others too. A few miles inland from the Atlantic coast, in the Charente region, the grapes have a unique destiny Having been pressed, their golden juices will turn into wine. The wine will first be transformed into a clear liquid called eau-de-vie before taking on the rich amber hues of a cognac. It will be savoured “with art,” by people eager to pinpoint the sensual particulars of each of the eaux-de-vie that have gone into its composition. Since 1909, these identities can be plotted on a map, thanks to the official classification of the various crus (vineyard in French) authorized in a cognac’s composition. This delimitation has been itself protected since 1936 by an AOC (Appellation d’Origine Contrôlée). Each cru has unique characteristics, both in its grapevine’s growth and the taste of its products. The vineyards of Cognac include the Grande Champagne and the Petite Champagne, the former famous for the delicacy and lingering character of its eaux-de-vie, the latter often selected for the robustness of its eaux-de-vie. As for the Fins Bois, Bons Bois, and Bois à Terroirs, they give body to the eaux-de-vine derived from their grapes. The House of Camus uses eaux-de-vie from all these different crus, but is generally acknowledged to have an unconditional preference for the Borderies, the small cru in the Cognac region, which is tucked away in the north. The family explains this commitment by referring to their wish to contribute to the preservation of diversity in the terroirs devoted to cultivation for cognac. Moreover, founder Jean-Baptiste Camus once tended 30 hectares of grapevines on this same minuscule plot of land. These smooth eaux-de-vie are particularly appreciated in the family for their stunning floral strength and unique bouquet, often compared to the fragrance of violets. They are usually behind the velvet mouthfeel and the dessert notes of the finest, most delicate cognacs. Some peoples have even nicknamed the Borderies “the flower of cognac”. Since the quality of a cru is, in part, determined

BUSINESS QUARTER | SUMMER 14

Camus XO Elegance - A cognac aged in cool, damp cellars, known for its bright amber appearance

by the intrinsic quality of its soil, it is interesting to delve deeper into these inherently “Camusian” plots. What we find there is red, generous earth composed of clay and limestone. “These are not easy soils to work, but that’s the price to pay for a great taste!,” says Jean-Paul Camus lightheartedly, walking the hummocky vineyards on his Borderies grounds. THE OFFICIAL CLASSIFICATIONS OF COGNACS The Charente merchants agreed to establish a quality chart for cognac, a set of rules that could be applied to its production right across the board. At the heart of these rules, the age of the eaux-de-vie is afforded particular importance. Cognacs labeled “VS” (Very Special) must be composed of eaux-de-vie aged minimum two years. Cognacs labeled “VSOP” (Very Superior Old Pale) are composed of older eaux-de-vie that have spent at least four years in barrels. Beyond this, they are aged for so long that it’s

almost not worth counting: Napoléon, XO and Extra must all consist of six-year-old eaux-de-vie, but in reality, their age would be better measured in dozen of years. The Napoléon cognac, of which there exists no equivalent by other producers, uses eaux-de-vie averaging between fifteen and twenty years in barrels. Cognacs “XO” (Extra Old) - use eaux-de-vie aged twenty to thirty-five years, while those used in “Extra” cognacs have waited between thirty and fifty years for their moment to arrive. Camus VS Elegance - A cognac blended from eauxde-vie distilled without the lees to ensure that all the primary aromas of the wine and its fruit are preserved. Camus VSOP Elegance - After the careful selection and blending of aromatic, fruity eaux-de-vie partially distilled on the lees, this cognac ages in oak barrels specially selected to ensure a great mellowness of character and richness of flavor, accented with delicate woody notes. Camus XO Elegance - A cognac aged in cool, damp cellars, known for its bright amber appearance. Camus Extra elegance - An exceptional blend of eaux-de-vie primarily from the Borderies, Grande Champagne, and Petite Champagne crus, all selected for their superb ageing potential, richness, and complementarity. A long ageing in cool, damp cellars allows this cognac to impart its exceptional roundness, intense flavours, and great finesse.

www.eirovins.lv Scan this code to learn where in Riga you can find Eirovins wines and spirits shops.

Official distributor in Latvia. www.eirovins.lv

ALCOHOL BEVERAGES CONSUMPTION HAS A NEGATIVE IMPACT. ALCOHOL BEVERAGES PROHIBITED FROM SELLING TO MINORS.

REAR VIEW

SUMMER 14

MORE EUROPE NOT LESS EUROPE WILL BE SAVIOUR OF BALTICS with Charles Cormack By the time you read this, the results of the European Parliament elections will be known. I hope that you feel that your vote has made a positive difference, and commiserations if the result is not to your liking! Being British, and proudly pro-European, the last few months have been somewhat disturbing for me. I have been witnessing the rise of the UK Independence Party, and though I can’t accurately foresee what what the final result will be, as I write this, it is looking likely that they will have topped the poll. UKIP’s anti-EU stance seems to have struck a chord with the British (predominantly English) people, in tune with the rise of right wing populist parties across the EU. However, whilst the campaign has been unfolding we have also been witnessing Russian aggression in Ukraine. Ukraine’s “crime” in the Kremlin’s eyes seems to have been its people’s desire to belong to the institution which a section of the British and other electorates seem hell-bent on leaving. Baltic fears were forcibly brought home to me a few weeks ago when I was in Lithuania, and discovered that the staff of my company were carrying passports with them. The feeling of unease or even fear is completely understandable. The memories of Soviet occupation are still painfully fresh, with almost every family across the Baltic states having experienced an element of Soviet oppression. However, there is a big difference between Ukraine and the Baltic States, and

BUSINESS QUARTER | SUMMER 14

Internatiional tensions have only emphasised how much the continent needs to strengthen solidarity that difference is their membership of the EU and NATO. Mr Putin will understand that a foray across the border into the Baltic must inevitably lead to a major European war. I have to say that I have been pleased and proud to see EU member states rally behind the Baltic, sending soldiers, planes and highprofile figures from US Vice President Joe Biden to Britain’s Prince Harry of Wales, to underline their commitment to the Baltic States sovereignty and security. Energy has to be key to this. Whilst the Baltic states rely on Russia for their power there is

People have been feeling increasingly insecure always a danger that the latter will pull the levers affecting supply to achieve political ends. The new LG terminal in Klaipeda is a start in countering this threat, and I think it is very important that more effort is put in place to develop nuclear power in the region. I understand that Lithuanians are concerned about the economic viability and the potential risk of a nuclear disaster, but as nuclear fallout observes no boundaries, with Belarus

developing plants just across the border, that argument does not make much sense. We also need to think about the possible harm that will be caused to the Baltic economies through sanctions and the deterioration of the Russian economy. Latvia has already brought down its economic growth forecasts as a result of the crisis, and the EU needs to support the Baltic States more to develop access to other markets. However, it seems to this observer that the Baltic states also need to act on certain issues with regard to Russia, in order to improve their own moral bargaining position. The citizenship issue also needs to be addressed. The fact that there is still a significant number of ethnic Russians in Latvia and Estonia who are in effect stateless gives Putin ammunition for fermenting dissent. There also needs to be an effort to further integrate the local Russian minority into Baltic society, with more support for some regions with high ethnic Russian populations who have undoubtedly been overlooked in the past few years. To me the Ukrainian crisis has underlined the importance of the European Union. For all its faults it proves the importance of solidarity and an ever-closer union in Europe. If our continent is to continue to play a role in an ever globalising world we need to work together and not tear ourselves apart. Look at what the Baltic States have achieved through their membership, and compare that with the tragedy of Ukraine. I think the attractions are self evident.

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EVENTS

SUMMER 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

JUNE

finance with focus on business. Attended by business people, academics and government representatives. Contact: http://www.ttu.ee/projects/

3-4 16th Baltic Development Forum Summit, and 5th Annual Forum of the EUSBSR [EU Strategy for the Baltic Sea Region], in Turku, Finland. Themed “Growing together” the event will explore cooperation to strengthen economic growth and contribute to sustainable development. Brings together decisionmakers from business, politics, international organisations and academia. Contact: www.bsr2014.eu. 5-6 TransBaltica 2014, at the Radisson Blu Daugava, Riga, Latvia. A forum for shipping managers seeking to move products more efficiently and costeffectively and learn about new developments in transport, technology and logistics. Focused on development trends and international prospects for transport and transit services, the event includes forecasts for the Baltic and European transit sector. Topics include: Progress of regional transport policy in the EU, possibilities for new inter-modal transport corridors to Eurasia. Contact: Contact: www.rmsforum.lv. 5-9 Estonia’s Harley-Davidson Club hosts its 40th SuperRally in Tallinn, Estonia. The largest annual get-together for Harley-Davidson and motorcycle enthusiasts in Europe, which takes place in a different European country each year. At least 10,000 – 12,000 Harley-Davidson fans from all over Europe are expected to attend. Special guest Bill Davidson, fourth-generation representative of founders and vice president of Harley-Davidson Motor Museum, will attend. Contact: www.superrally2014estonia.eu. 6-8 Hanseatic Days in Viljandi are underway in Viljandi, Estonia. Though Viljandi has been a member of the Hanseatic League since the 14th century, there is always something new to celebrate. This year the streets will be full of the buzz of trading and commerce as the long-forgotten past re-emerges from the ruins of the ancient heraldic castle. Visitors will be treated with theatre and art while the stages will be filled with dance and music. In short, Viljandi gives itself over to medieval customs for one weekend each June, with something for everyone, with a fair, a variety of concerts, fascinating workshops and competitions. Contact: http://hansa.viljandi.ee/ 7-8 Summer Garden Festival at Kipsala International Exhibition Centre, Riga, Latvia. For new planting ideas and garden products. Local and international suppliers display flower collections, seeds and plants, landscape architecture, greenery arrangement and improvement techniques. 7-8 Cruft’s Riga Cup 2014, at the Kipsala Exhibition Centre in Riga, Latvia. This event gathers international professional dog breeders, trainers, enthusiasts for an extensive two days of show performances and industry discussion. More than 2,300 dogs of different varieties, representing the best breeds from both Latvia and abroad will be on show, together with 27 kennel club experts bringing advice on dog breeds and care issues. Additional attractions include an exposition of canine-related goods and services, food, veterinary services and care products. Contact: www.bt1.lv/crufts 15 Kaunas Marathon, Kaunas, Lithuania. Participants choose between marathon distance (42 km 195m), the half-marathon, 10 km or 5 km. Nordic Walking enthusiasts also welcome. Festival of sport also includes various events, concerts, lectures and physical training courses offered. Contact: www.kaunasmarathon.lt/EN/ 15-17 Conference on Economic Challenges in an Enlarged Europe, at Hotel Euroopa, Tallinn, Estonia, organised by Tallinn University of Technology. Discussions on recent findings by economic researchers, issues around

BUSINESS QUARTER | SUMMER 14

18-19 Conference on Drivers for Progress in a Global Society, Vilnius, Lithuania, gathering academics and professionals to discuss developments in interdisciplinary research fields in commerce, management, and tourism. The main theme is ‘New Technologies and Social Media for Business, Public governance, and NGOs.’ Also sessions on ‘Challenges in a Networked Society: Using Big data for big impact’ and ‘Economic Competitiveness and Global Sustainability.’ Hosted by European Interdisciplinary Forum 2014 at Europa City Hotel, Vilnius. Contact: http://www.forum.avada.lt/ 26 Baltic Business Aviation conference, Tallinn. Looking at current developments in the upmarket airlines sector. Attendees include industry leaders, investors, representatives of Baltic governments and market researchers. Discussion covers new technological developments such as light aircraft, conditions in the regional jet industry, the political and social situation, effects of the global economy on the industry and other topics. Contact: http://www.aeropodium.com/bba.html 29 – 2 July, the ISSWOV 2014 conference will be held at the main building of the University of Latvia, in Riga, Latvia. Latvia, in the heart of the Baltics, is one of the most dynamic and rapidly developing regions in the European Union. Its strategic location has made it an international crossroad for trade, commerce and cultural exchange since ancient times. The host of the conference, the University of Latvia, is a leading research university in the Baltic States. The theme of the conference is “Values in Shock: The Role of Contrasting Management, Economic, and Religious Paradigms in the Workplace.” This title aims to capture the wide challenges and questions which relate to value changes in these turbulent times, creating a stimulating environment for social scientists to conduct research in this area. Professor Geert Hofstede, author of the classic book: ‘Cultures and Organizations: Software of the Mind,’ will be the keynote speaker. Contact: http://www.isswov.org/

AUGUST 4-9 Tartu Love Film Festival tARTuFF 2104, at Town Hall Square (Raekoja plats) in Tartu, Estonia. Films shown run the full spectrum of genre, from artistic avantgarde, to romance, classic and documentary. The film programme is supported by lectures and discussion during the daytime. This event is organised by the NGO Black Nights Film Festival. Contact: http://tartuff.ee Until 29 International Tallinn Flower Festival will be held at Tornide väljaku park in Tallinn, Estonia. The festival is designed to give participants the chance to see the latest in garden design, as well as to design their own eye-catching gardens and to promote themselves in doing so – an interactive endeavor. Visitors can marvel at their flights of fancy, discover the latest trends in garden art and follow the growth of their gardens from spring to autumn. Contact: http://lillefestival.tallinn.ee/

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ISSUE THREE: SUMMER 2014

AT THE HELM Steering a sea transport giant to success FREEDOM TO GROW How Free Economic Zones boost growth BEAUTY ON TAP Birch sap powers skincare magic WAR AND PEACE From spy station to science hub

AIMING HIGH ISSUE THREE: SUMMER 2014: BALTIC EDITION

Inspirational CEO helps Aviva scale new heights

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