Dainis Gaspuitis: Baltic States have an enormous potential for innovation

Dainis Gaspuitis, economist at SEB banka Latvia

According to the European Innovation Scoreboard 2015 report, the rating of Baltic States has not changed much since last year. However, this is not the same as a state of stagnation, as the adoption of innovations in all three countries is tied to many obstacles, overcoming which will definitely result in an economic breakthrough.

Latvia has climbed on spot on this list and is currently on the 26th spot. Lithuania, on the other hand, had dropped one spot – to 25th. Estonia remains 13th, which puts the country ways ahead of its neighbours.

In spite of Estonia’s favourable results among Baltic States, the country has lost its position on the European field because of the declining numbers of innovative small and medium-sized enterprises, as well as the decline of sales of innovative products. The decline in Lithuania was due to low sales of innovative products, low proportion of patents, low cooperation between the government and private sectors and insufficient investments of private businesses in research and development of new products.

As for Latvia, the slight improvement of its position on the list was largely due to the increase in the number of students with doctor degrees. Nevertheless, Latvia remains behind the average index across the EU because of its low number of innovative companies and the unwillingness of private businesses to invest in research and development.

Low activity of Baltic States, in terms of investments into research and development, is explained by experts with the lack of large international producer companies that are the ones who develop and implement innovations. Furthermore, the structure of export of Baltic Stats (wood, furniture, agricultural and food products, chemical industry) and explains why companies spend less money on the creation of innovations – the main export goods do not require an innovative approach.

According to results of Innobarometer 2015, three-quarters of EU companies had implemented innovations in their production lines over the course of 2012 and 2014. The proportion of companies that had implemented innovations in Estonia was 44%, in Latvia – 72% and in Lithuania – 64%. The numbers seem unexpected because for a long time Estonia was considered the technological leader in the Baltic States. However, Estonian residents were more conservative in their answers.

Most enterprises in Estonia and Latvia (66%) invested in the procurement of vehicles, software and licenses. Estonian companies also invested more actively in education. Latvian companies, on the other hand, invested more actively in to improvement of organization and business processes. As for the factors that prevent the implementation of innovations, in Estonia they are the lack of human resources and weak export channels. Latvian companies complain about steep competition and lack of finances for investments. Lithuanian companies also complain about the lack of human and financial resources. They also mention the lack of experience in the field of marketing.

In order to measure the overall mood of entrepreneurs in Baltic States, SEB Group also carried out a large-scale survey of representatives of small and medium-sized businesses. According to this survey, all businessmen in all three Baltic States plan to invest in innovations this year: 59% in Latvia, 68% in Estonia and 70% in Lithuania. Most plan to invest in new products and services and personnel training.

Less than 10% of businesses are considering changing their business model, which is rather unfortunate. Considering that Baltic States are in the process of steadily losing their advantage as countries with cheap labour force, only innovations can help companies retain their competitiveness. Innovations are vital for companies who want to develop their business in a long-term perspective and expand their activity on external markets.

BNN 

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