What is Lithuania going to live on?

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Chairman of the Danish Chamber of Commerce in Lithuania; Business Consultant, 1Q Consult

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Vilnius, 18 Jan 2011

With labor costs rising, Lithuanian companies will be challenged to compete in the future. Here, innovation and efficiency are the key words.

Lithuanian industry is first and foremost smaller and midsized traditional production companies within textile, furniture, metal processing, food processing, etc. – but of course also IT, logistics, construction and other more service-oriented companies. This is what brings the bread and butter in Lithuania.

Today, Lithuanian industry mainly consists of companies being strong in nearshore sourcing serving mainly Western Europe – based on a good strategic location, good labor and technical skills, and still having a lower production cost level than in Western Europe.

But companies in Lithuania are not as cheap as the ones in Ukraine, China, India, Turkey, North Africa, etc. – and will never be.

How then to compete in the future – when labor costs, etc., for sure will continue to grow over time?

Innovation and efficiency are the two key words.

Innovation can lead to higher efficiency by inventing new production and processing methods – making the companies use more sophisticated technologies and more motivated and competent human resources, who take part in finding new and more efficient methods. This is how companies can gain competitiveness on present markets and with present clients.

But companies have to find better clients, too, and move up in the value chain. In order to achieve this, they need to be more resourceful when serving the clients, when finding out what products to serve them – and which clients to serve in the first place (those that are willing to pay good margins).

Innovation is traditionally understood as development of own designs, products and brands and/or working within high-tech industries.

But even being sub-suppliers within traditional industries companies can innovate a lot, and this I believe is the main key to increased economic performance in Lithuania – developing best practices of innovation within the traditional industries.

It is first of all a matter of understanding the client and market needs much better. Traditional Lithuanian companies have very little knowledge about trends and market changes – they wait for the clients to come and tell them what components to produce.

If they knew their clients better and dared being proactive with new solutions which would make the clients more competitive, then Lithuanian companies would suddenly get a chance to start working for the clients who themselves need to be innovative on the market – and who do not depend solely on price to survive.

Lithuanian companies could focus on delivering innovative solutions themselves (new solutions, prototypes and first small series) and then sourcing cheap components from the cheapest countries available (not producing what can be produced cheaper elsewhere). Eventually, Lithuanian companies could become integrated partners – be the sourcing, production, technical and engineering department for their best clients in Europe.

This would for sure also bring up ideas for companies how to develop own products and build up own brands later on – it will be an extra long-term benefit.

The government would have to focus on:
   - Deeper integration between the traditional industries, education institutions and science world
   - Education of high skilled engineers
   - Building programs to promote best practices within innovation also in traditional industries
   - Use as much of the EU funds as possible for innovation and attracting international industries to Lithuania with attractive conditions for doing research and innovative development
   - Make public tenders with focus on delivering best and newest solutions
   - Focus on traditional industries when promoting Lithuania – letting it be a part of the official Lithuanian strategy

When such a strategy starts working, it will develop a demand for high qualified logistic services, IT skills, development of new technologies and methods – and be a natural background again for other sectors having to innovate and develop locally.

Forced to think innovative, entire industry would experience a boost, which will make Lithuania a more competitive destination and lead to developing higher living standards.

Thomas Solupajev-Ronlev has 12 years of experience in helping Lithuanian and Scandinavian businesses establish co-operation through 1Q Consult, a business consultancy in Vilnius where he is a founding partner. He also serves as chairman of the Danish Chamber of Commerce in Lithuania. He has been living permanently in Lithuania since 1998.