Export: Setting Estonia’s Record Straight

Export: Setting Estonia’s Record Straight
Estonian Public Broadcasting
Published: 31.08.2010 09:05

Hillar Lauri

Talking about export is all well and good, argues businessman Hillar Lauri, but despite official statistics there are very few “real Estonian companies” exporting to Sweden, the biggest and most affluent export market within spitting distance of Estonia.

Economists write about countries and companies relying on export to lead them out of the recession. When domestic consumption is weak, the plan is for a country’s companies to expand production by selling to foreign markets. Estonia is no different, and economics minister Juhan Parts, has called for export, as have the country’s president and prime minister.
I’m a believer in export, even though I feel government calls for export are sometimes misinformed. When Germany recently suggested that all countries should export their way out of recession, the Financial Times rightly responded that this was an impossibility. All countries cannot be net exporters (like Germany and China). What is exported must be imported somewhere for a net balance of zero. Still, that’s not to say some countries can’t improve their exports. Like Estonia, for example.

A year ago I was hired by an industrial furniture company (fully owned by Estonian capital, a “real Estonian company”) to take its products to Sweden and build, from scratch, an export program. During a year-long program, I spent significant time in Sweden. I attended numerous trade fairs in Stockholm, worked with export-to-Sweden consultants,and took active part in chambers of commerce on both sides of the sea.

The 2010 Statistical Yearbook of Estonia states that over 69 percent of Estonia’s exports go to the EU, with Sweden in the number two position with 13 percent of Estonia’s exports (Finland is number one with 19 percent). Sweden is the biggest and most affluent market located close to Estonia and is a natural export market for Estonian companies.

Accordingly, I expected the several flights a day and one daily ferry between the two capitals to be filled with Estonian business people looking to do business in Sweden. At chamber meetings, I expected to meet people with assignments similar to mine with whom I could exchange experiences and contacts.

To my great surprise, this type of Estonian exporter did not exist. In the course of one year, I found only one single company owned by Estonian capital that was exporting to Sweden. This Estonian-owned office and hotel furniture company had hired a Swedish speaker, had a budget for three years and a plan to rent commercial space in expensive central Stockholm. But that was it. Just one real Estonian company doing business in the biggest, richest western market close to Estonia.

You don’t have to take my word for it. Kristiina Sikk, Ombudsman for the Swedish Chamber of Commerce in Estonia, said: “We are seeing Estonian owned companies making more and more efforts to go to the Swedish market. However, the situation today is that behind the impressive Estonian export numbers to Sweden are Swedish-owned companies in Estonia – ABB, Ericsson, Wendre, AQ Lasertool, to mention a few.”

If more evidence is needed, consider a visit I paid to the international purchasing department of one of Sweden’s biggest construction companies. The purchase department manager, who was Estonian but had worked for the industry in Sweden for the last 10 years, told me about the large number of construction service contracts they had signed with Estonian companies. This seemed like good news to me. I then asked her if very many Estonian construction and construction material companies were knocking on her door and asking to meet her.  She told me I was the first. Since we were in the boom times (this was 2007), she had travelled to Estonia and the other Baltic countries looking for local companies offering services and products cheaper than those in Sweden. But when the economy goes from boom to bust, one can’t sit behind a desk in Estonia and wait for foreign purchasers to arrive.

There are some issues to keep in mind here.

Government export statistics do not lie. Companies registered in Estonia export substantial amounts to Sweden, but it is Swedish subsidiaries that have become incorporated in Estonia and moved their manufacturing here. This is the majority of the “export” one sees from Estonia to Sweden. The commercial, marketing and sales expertise remains in Sweden (think of Skype: the engineering was done in Estonia, the commercial brains came from a Swede and a Dane).

Senior Estonian officials say we must move from a low value added sub-contracting role to higher value added IT products and services. Almost everyone will nod in agreement. But we should not look askance at foreign direct investment coming here to sub-contract. We have a limited window of time to take advantage of this sort of investment. With Estonia becoming ever more assimilated into the EU, our costs will continue to approach European levels. The low cost advantage we have today will continue to shrink.

The good news in this scenario is that while the export-by-sub-contracting numbers decline, it buys some time for “real Estonian companies” to learn how to improve their export abilities.

What has been holding back Estonian companies from exporting? The government, through institutions like Enterprise Estonia and Kredex, offers numerous types of export training and funding (473 million euros over a period of six years) for enterprise and export support. Yet the Estonian National Audit Office’s August 25 report notes: “State support has not had significant impact on finding new export markets.”

In 2010, the Estonian Chamber of Industry and Commerce created an entity called the Export Academy which holds regular seminars and training programs on how to export.

Yet something is still missing. Three items are required for success abroad: confidence, a budget, and time.

During the Soviet times, Estonians were, in general, not allowed to travel outside the Soviet Union. Confidence is still lacking in young men and women to go abroad and fall flat on their face in sales meetings. Failure is too awkward, embarrassing and painful. But it is necessary in order to eventually meet with success.

Export sales do not begin in a week or two. It takes a long term plan with money behind it. Marketing materials, advertisements, and travel are not cheap. But money for these expenses must be set aside for a year, maybe two. One does not try exporting for a month and see how it goes.

And it takes follow-up effort, week after week, month after month. By persistence, presence, and keeping promises, one builds up credibility to export. Perhaps it can be called sustainability.

And all of this must be done without any certainty of return.

Can “real” Estonian companies become exporters? They most certainly can, but there is no quick, easy and cheap solution. But let the charge overseas begin. The clock is ticking.

Hillar Lauri is president of SMIS International OÜ, a company whose software marries IT and radiology. From 1993 to 1995, he was the Manager of the World Bank’s office in Tallinn, followed by six years of working for a NYSE listed energy company. He recently finished his year long assignment establishing an export program to Sweden for Falkonet Metall OÜ.

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