A town in eastern Lithuania beats the Chinese

Nosted Mechanika, a Norwegian capital company, has persuaded its shareholders to move production from the group’s company in Sweden to Utena rather than to China. The company, which previously purchased semi-finished products from China to produce tire chains, now produces them independently and consequently saves money and time and creates new jobs.

Dainius Tvarijonas, director general of Nosted Mechanika, said that the owners of the Norwegian group of companies had planned some time ago to move production equipment that was no longer being used from Sweden to China, but Utena had persuaded the Norwegians to implement the project in Utena.

The company, which employees 200 people, took over the Chinese project and created at least 100 new jobs in Utena.

Why Utena?

Lithuania was attractive for this investment because in recent years the price of labour in China has increased considerably, adding to the high logistics costs. Furthermore, the management of a business that is over 10,000 km away is significantly more complex than working in neighbouring countries. The company based in Utena can ensure higher quality and is able to offer shorter deadlines and ensure uninterrupted work. “In the past, when the Chinese New Year was celebrated, containers with semi-finished products couldn’t be expected to always arrive on time; the same could happen in the summer too. Today we purchase wire for the semi-finished products from Germany, their supply solutions are excellent, and we produce our products in our company and see that the cost price of our semi-finished products is even lower compared to the Chinese”, he said.

Mr Tvarijonas specified that this year the company invested approximately one million euro into advanced production installations. The improved productivity guaranteed a nearly 4% salary increase.

Since 2003, Nosted Mechanika has been producing Trygg tire chains intended to improve vehicle manoeuvrability on slippery, heavy roads. The company also produces Igland forestry and road maintenance machines and equipment and forklifts. In recent years, the company expanded the selection of its sling parts for the petroleum industry – these products are exported to Norway and Canada.  Slings are the metal chains attached to cranes used to lift cargo.

Time to count chickens

“In terms of sales, this year has been slightly worse for us than last year because as a result of decreasing petroleum prices we sold smaller quantities of some of our products to Canada and Norway”, Mr Tvarijonas said. According to his preliminary estimates, in 2015 the company’s income dropped by 8% to EUR 12.5 million. But, thanks to the transfer of production from Sweden to Utena and other investments, company costs have decreased. The director general intends to calculate the company’s profits at the end of the year, since the effect of the investments must also be considered.

One problem that is encountered in Lithuania is that tax deductions are only available for the acquisition of new equipment, and so the equipment that was moved to Utena from Sweden is not eligible.The currently enforced Law on Corporate Income Tax provides for income tax deductions connected with implementation of investment projects. A company implementing an investment project may reduce the taxable income of the respective tax period by the amount of the actually incurred costs for acquiring property by up to 50%. Such property acquired must be new and produced not earlier than two years prior to the acquisition.

The Nosted group, in addition to Nosted Mechanika, includes eight other companies in Scandinavia, China, Canada and the USA. The group is owned by the Norwegian company Nosted Kjetting AS. According to data from Creditsafe, in 2014 the turnover of Nosted Kjetting AS amounted to EUR 23.9 million and the profit before tax amounted to EUR 5.1 million.

Source: Verslo žinios