Kaunas, Lithuania’s second city, is using its reputation for technological excellence and its highly educated workforce to attract foreign companies more accustomed to locating in the world’s tier-one cities. Natasha Turak looks at how this small Baltic destination is starting to make global waves.
The history of Kaunas is coloured by the myriad political changes that Lithuania has undergone in modern times. The Baltic country’s second largest city, located at the intersection of Lithuania’s two largest rivers, the Nemunas and the Neris, was its foremost source of resistance against the Soviet Union, which occupied the country from 1940 to 1990.
Following the Second World War, Kaunas became Lithuania’s main industrial city, producing about one-quarter of the country’s industrial output. Since then, the city of 377,000 has capitalised on its industry expertise to serve as an economic pillar of not only the country but the Baltic region as a whole.
Today, the greater Kaunas region – with a population of 600,000 – generates one-fifth of Lithuania’s GDP. “The Kaunas region is in a strategic location, connecting roads between western, northern and eastern Europe,” says Kaunas district municipality mayor Valerijus Makunas. “The region stands out with well-developed transportation and logistics systems. It is crossed by the Via Baltica international highway and the European Rail Baltica. Increasing cargo volumes are also being transported by the intermodal terminal and Kaunas International Airport, and the capital, Vilnius, is only 100 kilometres away.”
Lithuania’s economy is among the top 10 fastest growing in Europe, demonstrating a strong comeback after suffering deep setbacks and a 15% decrease in GDP during the 2008 financial crisis. The country ranks 21st in the World Bank’s Ease of Doing Business index, attributable to a dedicated investment ecosystem that offers competitive labour and land costs, a skilled workforce, efficient company registration procedures, low tax rates and reliable infrastructure.
Ninety-two per cent of Lithuanians are bilingual and 52% are trilingual, with English the dominant foreign language. Excellent ICT infrastructure offers some of the fastest and most affordable internet in the EU. Fifty-three per cent of the population has a university degree, putting Lithuania third by this measure in the EU. And with a population of 3 million, the country offers a larger domestic market than neighbouring Latvia and Estonia.
Lithuania aims to become a hub for innovation by 2020, and is pursuing investment in IT services, consulting, finance, logistics, and software development. Kaunas is vital to this pursuit, seeing its highest turnover in the electronics, mechanical engineering and logistics sectors. Employment in shared service centres has steadily grown with international companies such as UK-based CallCredit establishing large offices in the city. Land and rent costs in Kaunas are also roughly 15% to 17% lower than in Vilnius.
Kaunas is home to eight universities, eight colleges and more than 40,000 students annually, over one-quarter of whom attend Kaunas University of Technology (KTU). Founded in 1922, KTU is home to nearly 11,000 undergraduate and postgraduate students, 330 PhD students and 1130 academic and research staff.
Lithuania’s leading international research university, KTU ranks among the top 4% of world universities and offers nine faculties, 10 research institutes, 55 laboratories and 62 programmes in English. It also hosts a technology business incubator and ‘open study programmes’, where business representatives and students work together to commercialise innovative ideas and ensure studies address market needs.
“We have this open technology centre where we can use the equipment, work together with scientists and get the answers we want,” says Edvardas Satkauskas, founder of KTU spin-off company Vittamed, which develops medical technology devices. “It’s extremely convenient, and we specifically aimed to be here in this science park because of those benefits.”
Show of confidence
In a show of confidence, in 2014 US software and media company Bloomberg established the Baltics’ first Bloomberg Financial Markets Lab at KTU to provide practical financial markets experience to students and faculty. The work done by KTU is responsible for 70% of all R&D provided by Lithuanian universities for national business and industry, leading Bloomberg to label it “the Baltic Silicon Valley”.
“We connect private companies with relevant science institutions to establish joint programmes, which helps them prepare their employees much faster,” says Dalius Morkvenas, head of marketing at Invest Lithuania. “Every client should have their local partner from the educational system.”
KTU’s efforts to foster synergy between research and business are “an illustration of Kaunas as a city,” adds Mr Morkvenas, “because we have a strong technology university, a strong medical university, and this couldn’t happen in Vilnius”.
Built for business
Kaunas’s 534-hectare free economic zone (FEZ), awarded an honourable mention in fDi Magazine’s Global Free Zones of the Year 2016 awards, is a driver for regional FDI. Strategically located next to Kaunas airport, the site houses 24 companies employing 1900 people. Only 20% of the zone is currently occupied.
“Foreign investment provides about 70% of all capital expenditure in the FEZ,” says manager Vytas Petruzis. “About €550m has been invested so far, excluding five projects under construction. We are currently expanding into our airpark next to Kaunas Airport, with 50 hectares of installed infrastructure ready for investors.”
Most FEZ clients specialise in electronics, manufacturing, IT and logistics, which is why French international delivery company DPD set up a 5000-square-metre operations facility there, its largest in the Baltics. “We chose Kaunas because of its location and connectivity,” says Robertas Vilkaitis, CEO of DPD Baltics. “The infrastructure and land was ready for us. We completed our building and started operations within nine months. The process was really smooth, and we implemented our plans with no delays.”
Kaunas FEZ also offers special benefits to SMEs, including up to 75% compensation on facilities investments, bespoke construction services, large office buildings and prototype labs.
UK-based CallCredit Information Group employs 1200 people across seven countries, and recently chose Kaunas to join its selection of sites, which includes Shanghai, Tokyo and Dubai. The shared services company manages consumer data across a variety of sectors for clients including Barclays Bank, Marriott and Volkswagen, among others, and has an annual turnover of £150m ($186.5m).
“CallCredit chose Kaunas for a few reasons: budget, quality professionals, excellent ICT infrastructure and cultural and linguistic similarities. Communication is much easier here than in many other offshore locations,” says Marija Vaiciulyte-Balce, head of human resources at CallCredit. “Barclays and Western Union were already in Lithuania, which attracted the company’s attention, but Kaunas has the advantage of good technical universities and less competition for talent.” The Kaunas office employs 180 locals – the vast majority of whom are under the age of 35 – and has plans to expand to 200 this year.
Kaunas has numerous new projects in the pipeline, from stadiums and a national concert hall to more than 20 planned science and business centres by 2018. Well-preserved cultural heritage, 35 annual festivals and cultural events, a vibrant old town and easy access to nature gives Kaunas residents a high quality of life.
Rytis Krusinkas, head of KTU’s finance department and university senate chairman, is optimistic about the country’s future. “There is now a shift in business management from the Soviet mindset,” he says. “We struggle with many things, but we are not used to safe and quiet living. Being a country of 3 million people, we need to make a huge effort to compete with larger countries and develop our new generation of businesspeople, who are ready to face global challenges. I think that makes us stronger and more flexible in the long run.”
fdiintelligence – Natasha Turak