Tech
Investment climate, Tech, Foreign media

Lithuania and its ambitions to become the Silicon Valley of Europe

November 20, 2015

The post-Soviet period was difficult for the Baltic states. Large sections of the country’s labour force and many young people emigrated. Those who spoke foreign languages and had made contacts in advance went to Europe. Others chose Russia. Nowadays, it is quite common to find people from the Baltic States working in large Russian IT companies. However, there are fewer and fewer Russians in Estonia, Latvia and Lithuania. Frankly speaking, when I was invited to visit Lithuania in order to estimate its potential as a place to set up Russian businesses in Europe, I was surprised.  I could not imagine that a country that had closed almost all its plants and factories, and had become one of NATO’s outposts in the East, could attract foreign investment. I accepted the invitation and spent two days in the country. I managed to communicate with scores of start-ups and companies, giving me a chance to observe the pros and cons of moving a business to Lithuania. I will do my best to be objective, but at risk of jumping ahead I would like to mention the words of an unknown Internet warrior from a neighbouring country, which are that ‘everything is not so clear.’

Invest Lithuania, a non-profit Government agency that promotes foreign investment, organized a visit for some Moscow journalists including myself. Officially, Invest Lithuania started activities in 2010. However, the idea of transforming Lithuania into an attractive destination for foreign companies appeared long before. Adform, which has set up in Vilnius, was one of the first international companies outside financial services to move operations to Lithuania. It is currently one of the leading companies in advertising and digital technologies.

The ultimate objective of Invest Lithuania is to become the entry point for companies that would like to operate in the European market. If a start-up or an established company wants to move to Lithuania or set up a regional office there, they will definitely deal with Invest Lithuania in the beginning. The staff help these companies to understand some of the nuances of local legislation, to find partners, and to advise them on how to go through all the legal procedures as quickly as possible.

It is very easy to get on with business in Lithuania. Even though Vilnius occupies a vast territory, only 600,000 people live in the capital. This is quite a small number, and the first thing one notices in Lithuania is that there are no people outside in the evenings and that the traffic is not heavy even at rush hour.  Since the population is not large, people are well connected and it’s easy to get advice on who can assist with a particular issue, such as where a contractor can be found or who to hire. Incidentally, the legal doctrine known as “on three Lithuanians” may become one of the constraining factors for foreign companies. According to this rule, at least three employees must have Lithuanian citizenship. It is obvious then that Lithuania is not only there to provide opportunities, but also has pragmatic goals, namely creating new jobs for Lithuanians and increasing the fiscal base.

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Setting up a business in Lithuania is not difficult. Invest Lithuania helps individuals to obtain an EU Blue Card which gives the recipient visa-free access to the Schengen Zone. The amount of red tape in the country is minimal. Another attractive feature is how simple and easy it is to organise appointments with civil servants or even the mayor of Vilnius. In some cases, this streamlining represents the prime reason for choosing Lithuania as a business platform. “Dropbyke”, the on-demand bike rental service, is just one example of this phenomenon. Its creator, Alexander Shvetsov, took part in an educational project that allowed him to study in San Francisco and learn about local start-ups. Inspired, he set up his own business. “At the end, they gave us $100 and sent us to the city so that we could spend the money on food and services provided by start-ups”, said Alexander, explaining the peculiarities of the start-up approach in the USA. “The projects must be tangible, real and aimed at profit”. As Alexander was inspired by the American start-up culture, he established his own business, a bike rental service. Shvetsov has found a niche to exploit in this developed market. With traditional bike rental services it is necessary to return the rented bike to the rental company or to a bike station. But “Dropbyke” allows you to rent a bike and leave it anywhere in the city. The only condition is that you have to upload a photo and GPS details to the dropbyke app, so that the next renter can find the bike and use it.

Alexander launched his first pilot project in Miami. He did it not so much with a view to making profit, but as a way to experiment with his own thoughts and ideas. Theft control is the most difficult aspect in any bike hire service. Shvetsov recalls that the then mayor of Vilnius launched the bicycle rental service in the city with much fanfare. However, their security system was still being developed and the bicycle was stolen on the very first day. It was relatively easy to keep the bikes safe in the American pilot project; Alexander just stuck a warning label on each one which read “under police protection”. The bikes had nothing to do with the police and no agreement had been reached with them, but surprisingly, it all worked out. Shvetsov developed this idea in Vilnius and added some other ‘anti-theft’ features. “To prevent bike theft,” explained Alexander, “it is necessary to ensure that nobody needs it.” They chose out-dated models with rare parts and used some other tricks to decrease the bikes’ attractiveness to thieves. Shvetsov did not forget about his business model either: “Many sellers have warehouses crammed full of outdated bikes which nobody will purchase. We have agreed to mutually beneficial conditions and soon they will become available.”

Why Lithuania specifically? Alexander’s explanation is simple: “I was looking for the first open door.” The stark reality of being a migrant in the US made setting up a business there impossible. “The USA is said to be the country of possibilities,” Alexander continues, “but there are no possibilities for migrants. It is the most closed-off country in the world. In order to get a Green Card, one needs to invest about half a million dollars into a local business.” So Shvetsov tried Russia first, and attempted to meet officials in Sochi and Moscow. They refused to deal with Alexander in the capital. In Sochi, he met officials at the different levels of the municipality, but ultimately came across insurmountable problems.

And then Lithuania turned up. Alexander was surprised by the fact that in no time he was able to present his idea to various stakeholders, meet the mayor of Vilnius, and have his concept approved. Currently, there are only a few dozen dropbyke bicycles in Vilnius, but this is just the beginning. According to Alexander, taking into account low-demand periods, the time frame for a bike to pay back the investment is three months. The local government has approved the project. “We just need to develop the business.”

Invest Lithuania has four main focus industries, namely IT, shared services and business process outsourcing, life sciences and manufacturing. The organization has tried to follow the examples of other European countries, especially Nordic ones, to create a clear and results-oriented way of working. The results came quickly, with the attraction of global players like Western Union and NASDAQ a matter of pride for the agency. Of course, attracting New York’s premium stock market management company was difficult, but the American company has now established a headquarters and set up three specialist offices in Lithuania. NASDAQ chose Lithuania for many reasons, the chief among which were the highly-qualified staff available, and of course, competitive costs.

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Aistė Žebrauskienė
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    Aistė Žebrauskienė Press Officer
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