THE VOICE OF INTERNATIONAL LITHUANIA
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Palle Gravesen Jensen
A Danish expat to Lithuania, owner of two manufacturing companies, Electronic House and Metalco Baltic. Member of the board of the Danish Chamber of Commerce (DCC) in Lithuania. His family was one of the three families founding the Vilnius International School.
Text: Palle Gravesen Jensen
There are a number of issues to discuss with regards to Lithuania of today, the country I made my own 16 years ago, moving from my homeland Denmark.
One particular question, however, comes to my mind again and again: What is this country going to live on 20 years from now. It is a big question. My concern is there will not be much at all if nothing is done immediately.
Start with innovation
At DCC (Danish Chamber of Commerce) we recently took an initiative on innovation, by organizing an international conference, to try to understand whether there are creative products, ideas, businesses in Lithuania that could have potential export value. Because it is from innovation the real economic and income growth must come.
Let us not confuse the concepts of innovation and entrepreneurship. Entrepreneurship is about starting up businesses, not creating something. I myself am not an innovator, I am an entrepreneur.
Though from my earlier experience in Denmark I know that a lot of industries are driven by innovations. But there is a long pipeline: there has to be a favourable environment, starting from the education system. It also has to become socially acceptable to be an innovator – and to fail – because most innovators do fail, only a few pass through that little opening to success. When they do succeed, industries start building around them. This takes time, some 20 years, so if we in Lithuania want to be there in 20 years, we must kick off this innovation process today.
Why would innovators be socially unacceptable, one could ask? Well, I often hear people here saying: “I know this guy, he tried this and that, and he failed. What a fool! We could have told him that he would.'
Such an attitude kills innovation here. In the U.S., on the contrary, if you fail three times and succeed at the fourth attempt, nobody talks about those three attempts; they are simply seen as a maturing process leading to success in the end.
Today, Lithuanian biotech and laser firms are quite innovative, but I see no wide base for innovations to spread within these fields, not enough skilled engineers, plus a lot of barriers for foreign professional specialists to come here.
Politically I do not see a big wish to invite engineers from India, China or the U.S., there is no system to facilitate such exchanges, like the ones we have in Denmark.
I’ll leave Lithuania if progressive taxation is introduced
There are a lot of entrepreneurial start-up firms with staff of one to five persons here in Lithuania. I like that. What I do not like is that these entrepreneurs – and I know quite a few of them personally – are very proud when talking about how much taxes they avoid paying. A lot of their cash flow is black money.
That is my opinion like cancer to the entrepreneurship base. I find it very short-sighted that their main goal is to collect as much income as possible over the shortest time possible. Their business will never have any real value, and their growth potential will remain weak.
The fact is that taxation in Lithuania is fine. But the government should not push it harder, and not introduce progressive taxation.
If the progressive taxation system will be introduced, I would leave Lithuania instantly, and I know more businessmen would do the same.
I know of a specific case where a EUR 3m FDI investment project in IT services recently turned away from Lithuania and instead heading toward the other two Baltic States – only because the progressive taxation debate started here.
We have progressive taxes in Denmark. It is working but it is a mess, and there is no way back to a flat system. The biggest fault with progressive taxes is that one is being taxed so badly on the last part of the income that one is losing the motivation to do an extra effort. And innovation is a lot about that extra effort.
Barclay Bank’s ‘investment’ is a bad example of how to attract FDIs
I think the government’s support of the recent Barclay Bank’s investment here is a very bad example of how to attract FDIs to Lithuania.Their investmenthas nothing to do with innovation. They hire relatively inexpensive local IT staff, drain the local IT firms of talented young staff, and push salaries in the market up. It may be a flashy thing for the government to show to the world, but does Lithuania want to be a big back office, nothing more?
I know entrepreneurs from a few small IT firms here. They are crying their hearts out because their young software engineers, who had ideas and still being open-minded, opted for a higher salaries and safer jobs with companies like Barclays instead of staying with entrepreneur-innovator type of employers.
On the other hand, there is no support from the government to foster innovation in traditional manufacturing sectors, no effort to develop industrial parks suitable for innovative companies. There are a few so-called valleys in development for IT and biotech firms. But traditional industry is the base. Once innovations are developed, they will need support from traditional industry.
This government’s inactivity
Due to this government’s inactivity, we at DCC recently started developing clusters for various sectors, such as energy efficiency and innovation. These are not internal DCC initiatives – we only provide a launch pad for such ideas that we believe will develop on their own. But it is surprising that such initiatives do come not from Lithuanian organisations.
In general, Lithuania needs to make a real strategy for the next 10-20 years that would cover such fundamentals as education, infrastructure and social welfare.
Lithuania’s role as sub-supplier is coming to an end
Lithuania industry is today to a high degree a sub-supplier to Western industries, but this is a trend that soon will come to an end. My two companies are sub-suppliers, and every day I am doing my best to add value in all possible aspects – engineering, logistic solutions, warehouse management; taking over greater responsibility financially from our partners. Because if I am not able to adapt to the new times and challenges, then the only next step, at least in my industry, is to leave and find another country for my production activities.
I know for sure that exactly this will happen if we do not promote innovation. I myself do business with export markets, my clients are global innovative companies. I am very focused on getting my hook out on globally listed companies, such as 3M and ABB that are among my clients.
Sometimes such clients come themselves. We are, for instance, now starting to work with a new such company that has learned about us from the company Bombardier which we already are a supplier to.
90% of new business leads for my companies are generated by word-of-mouth advertising. For the first time in ten years we will now soon participate in an exhibition in Denmark.
EU funding systems do not work properly
Right now I am applying for EU aid to support our participation, but during the last couple of months I was very close to giving up. Because the system is not working. The aid agency is bureaucratic. The aid programmes are in constant change. Aid seekers have to spend big resources to adapt to the programmes instead of having programmes that are adapted to industry needs.
At the end of the day, this aid turns out to be twisting papers, moving money around, while the effect is minor.
In comparison, in Denmark a lot of aid money was injected into disadvantaged regions where we had structural problems like high unemployment rates and lack of jobs.
A good example is Vestas, the world's biggest wind mill turbine manufacturer. The company was established in one of those disadvantaged regions, and the EU money was invested in the development of local infrastructure, helping Vestas to attract skilled engineers and build a whole industry.
Increasingly complicated to find skilled labour
Internal training used to be enough to get skilled enough labour in this country. But now, as we would like to employ engineers with specific skills, I feel that this becomes rather complicated. I have talked to professors at the VGTU technical university in Vilnius and was told that engineers with such skills are not to be found here. So I am even considering filling these positions with Danish staff. I did employ welding engineers from Denmark before the crisis because the local market was drained. One reason was labour emigration, another one was that a lot of skilled employees went into the construction business to make quick money. So for a slightly higher salary I actually hired employees from Denmark with exactly those specifications that I needed. They would fly in, work for a week, then fly back home, then fly in again, and so on for some months.
In general, the government in Lithuania should put more focus on re-educating unemployed people. Another thing that could be done is to give a different status for those who simply are not fit to work – I have had such people sent to my companies by the local labour exchange. They should not be listed as available workforce.
I support the government’s plans to raise the minimum wage. When we hire blue-collar staff to do work that requires no specific skills, we start with a minimum wage of LTL 800 gross for the test period. If the wage is raised to LTL 1,000 as is debated today, it would put pressure on wages of all employees because skilled employees would then earn relatively less and demand more for their skills.
Therefore, the government should consider raising the tax-exempt minimum in order to raise the living standards. If the government is worried about budget revenue, means of collecting it are many but taxing labour too much is the worst path to follow.
I voted for Arturas Zuokas as Mayor of Vilnius
In the recent municipal elections here in Lithuania, I myself voted for the man who has now been re-elected Mayor of Vilnius, Arturas Zuokas. I know his background, I know all the negative stories about him but I think you could hear similar stories about most of the people in power here in this country.
As background for my choice I decided to focus on how the latest Vilnius Councils have been performing. The former council was simply sitting there waiting for the crisis to end, during a period when I believe there should have been made a lot of dynamic moves.
Vilnius was falling apart, and now needs the energetic guy back. Some of Zuokas' decisions will be wrong, some may be questionable, but there will be other decisions that will again push Vilnius forwards to a better future. Such as a metro system and a new airline for Lithuania.
I also hope that our government will take initiatives similar to those I believe Zuokas now will be taking, and that there finally will be serious focus on innovation as a basis for further development of Lithuania.
I would love to see a Lithuania that prospers today as well as in 20 years!
(This blog is based on an interview I gave to the business publication ‘news2biz’ in June 2011.)
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