Estonia’s e-services have garnered high regard, with the country’s government placing services in the cloud. The country’s flourishing economy, abetted by a highly educated workforce and startup mindset, has facilitated an exceptional level of economic prosperity that surpasses many other nations. As a result, Estonia now finds itself poised to extend its reach and make investments in foreign lands, which could have far-reaching implications not only for itself but also for the wider world.
The robustness and growth of Estonia’s economy, paired with a stable political system and an exceptionally skilled workforce, have endowed the nation with an unparalleled ability to invest in foreign countries. The recent paper by the University of Tartu gives a good overview of those efforts, positioning Estonia as an emerging investment powerhouse.
No bankrupts during the lockdown
Estonia’s startup movement, which has already cooked 1,400+ startups and 10 unicorns, still needed a crisis to solidify the positions nationwide. Prior to the COVID-19 pandemic, technology startups from Estonia were often seen as bubbles that didn’t create real value and would soon burst. The pandemic changed that thinking. No Estonian tech company was bankrupted during the lockdown, University of Tartu economist Urmas Varblane said. The tech companies were more resilient.
Naturally, Estonian companies started looking abroad, beyond the neighbouring Baltics, and as a result, are now the leaders and trendsetters in the region.
Estonia leads the region in investments
Estonian companies have made more foreign direct investments – in relative terms – than their counterparts in Eastern and Central European countries, with over 11 billion euros invested from 2004 to June 2022, the University of Tartu study showed. The leading players were the finance and insurance firms.
“Typically, the richer the country, the more outward foreign investments there are,” Urmas Varblane, the study’s lead researcher, explained. So, what is the key to Estonia’s success?
“The lesson to learn from Estonia is that it’s important to take the leap head-on and not wait too long,” Varblane explained. “Our changes were based on radical privatisation in the 1990s and a very liberal foreign trade policy. Companies have grown up with internal capabilities supporting their foreign direct investments.”
Varblane predicts that tech companies will soon hold an essential part of Estonia’s economy on their shoulders. Nearly ten per cent of Estonia’s GDP is already generated by tech companies.
Outward investments and adopting cultural differences
The one-year University of Tartu study, led by Varblane, was to determine which companies invest abroad, their motives, and how their ability to manage their foreign subsidiaries develops over time. Their particular focus was to figure out how Estonian managers take into account cultural differences when merging subdivisions into their organisation.
The study showed that Latvia and Lithuania are no longer the most crucial targeting countries for Estonian companies. Other countries such as Finland, the US, the UK, and Poland are now increasingly coming to the fore.
The interviews with over 20 entrepreneurs revealed their reasons for investing. According to Varblane, access to qualified labour and strategic assets was the most typical. “However, we noticed many new motives for foreign investments appeared,” Varblane said.
Opening offices abroad is helping Estonian companies to become more international, changing their perspective from domestic to global markets, and providing access to public procurement in the destination country. Some respondents brought out the synergy created by including more locations and people with various backgrounds in their teams. It was also important, Varblane explains, to consider the country’s external perception in some cases. “The colour of the flag counts,” he noted.
One of the interviewees from the LHV shared how the companies had to adapt to the UK’s working culture, where working over the weekends is unthinkable, and therefore had no other choice but to comply.
Technology company Nortal vigorously fought against buying fax machines that their new head of the Düsseldorf office had insisted on. In Germany, fax machines still play an essential role in business bureaucracy.
Estonia’s economic success and commitment to innovation make it an attractive candidate for international investment. As investments are more and more the mediation of knowledge, technology and innovation and not just the movement of money, Estonia has great added value to offer here.
To compare Estonia to other business environments across Europe, have a look at ComparEST tool here.
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