bq baltic aut14 iss4

BOTTLING SUCCESSTrail-blazing brewer goes from strength to strength

THE MILDER SIDE OF LIFEMeelis Milder, of fashion retailers Baltika, talks business

ART OF INVESTMENTInternational connoisseurs shop in Riga’s galleries

HUNGRY FOR SUCCESSLunch with Lithuania’s youngest consultancy stars

PORT ABLE How Klaipeda’s new floating gas terminal will transform the Baltic energy marketISSU

E FOU

R: A

UTU

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2014: BALTIC

EDITIO

N BUSINESS NEWS: COMMERCE: FASHION: INTERVIEWS: TRAVEL: EVENTS

www.bq-magazine.co.uk ISSUE FOUR: AUTUMN 2014

BUSINESS QUARTER | AUTUMN 14 04

A very warm welcome to the latest edition of

BQ Baltic, to our regular subscribers and of

course to new readers. BQ is the magazine

that celebrates all that is best about business

and entrepreneurship in the Baltic States.

Circulation continues to grow along with

positive feedback, and advertisers are

increasingly attracted to the quality both

of the product itself and of its blue chip

readership. So please keep your feedback

coming – we welcome suggestions.

Summer is of course a glorious season in the

Baltic, and over the past few months our

reporters have been out and about, talking

to the leading movers and shakers in Estonia,

Latvia and Lithuania to keep you abreast of

the best that the region has to offer.

In our cover story this month we get down

to fundamentals: regional prosperity requires

year-round secure supplies of energy, which

is why Lithuania’s new liquefied natural gas

terminal in the beautiful (and increasingly

dynamic) old city of Klaipeda is such a

significant development. Finding a new source

of gas makes obvious sense given the

increasingly unpredictable behaviour of the

Baltic nations’ former occupying power, and

there has been some to-ing and fro-ing about

how exactly the complete dependency on

Russian gas should be rectified.

It is perhaps no surprise that this has not been

a simple process. Just as with the ponderous

and sometimes argumentative Rail Baltica

project, and an earlier disagreement

concerning the site of a proposed nuclear

power plant, negotiations between the three

countries are not always plain sailing, any

more than relations between even the

friendliest of other European countries are.

For all of the symbolism of August’s 25th

anniversary of the Baltic human chain – the

hand-holding line that in 1989 stretched

600km in peaceful protest against Soviet

occupation – the governments in Vilnius, Riga

and Tallinn don’t always put the region’s

supposed collective interest above what they

perceive as their own national priorities.

Incidentally, the liquefied natural gas terminal

is not the only source of energy in this coastal

city. In July, our correspondent enjoyed an

impromptu meeting with the city’s sax-playing

mayor Vytautas Grubliauskas, one of the

Baltic’s coolest and most approachable

politicians, who has already done a lot to raise

his city’s profile. While mayors as a whole tend

to be sticklers for protocol, he kindly received

BQ Baltic in his office dressed in a jazzy

bowling shirt and stockinged feet, persuasively

extolling how the port had big ideas in big

ideas in new port and energy infrastructure,

distribution and tourism along with exciting

developments in the educational sector. This

is a city we will be returning to soon, as it has

an exciting future.

What else do we have in store for you in this

edition? Now that the year-long Riga 2014

celebration has put us all in an arty frame of

mind, we have a fascinating piece by Florian

Maass on the revival of the Latvian art market.

We also have Kate Kolbina’s survey of the

medical tourism sector in the Baltics, where

the region benefits from having the best of

both worlds – proximity and attractiveness

to the giant Russian and CIS markets, and

access to the best of Western European

standards of science and technology, often

available far more competitively than

elsewhere in the EU.

Finally, given that BQ Baltic is keen to help

business readers spend the fruits of their

labours, we recommend travel writer

William Cook’s adventures in Courland,

the ancient Latvian heartland whose Kuksu

Manor House offers a masterclass in

hospitality. Enjoy!

Colin DonaldEditor, BQ Baltic

WELCOMEBUSINESS QUARTER: AUTUMN 14: ISSUE FOUR CONTACTS

CORMACK CONSULTANCY GROUPe: [email protected] t: +371 2607 6436

EDITORIALColin Donald Editor e: [email protected]

DESIGN & PRODUCTIONroom501 e: [email protected]

PHOTOGRAPHYVygintas Skaraitis e: [email protected] Birgit Püve e: [email protected] Gatis Rozenfelds e: [email protected]

ADVERTISING Estonia: Nordicom e: [email protected] t: +372 5666 7770 Latvia: Anna e: [email protected] t: +371 2991 8829 Lithuania: Kestutis e: [email protected] t: +370 618 66251

DISTRIBUTION AND SUBSCRIPTIONSKate Kolbina e: [email protected] t: +371 2607 6436

BALTIC EDITION

All contents copyright © 2014 Cormack Consultancy Group. All rights reserved. While every effort is made to ensure accuracy, no responsibility can be accepted for inaccuracies, howsoever caused. No liability can be accepted for illustrations, photographs, artwork or advertising materials while in transmission or with the publisher or their agents. All information is correct at time of going to print, September 2014.

BQ Magazine is also available in the UK. www.bq-magazine.co.uk

Published by CCG under licence to room501 Limited. Room501 Limited is part of the BE Group, the UK’s market leading business improvement specialists. www.be-group.co.uk

03

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SQA_CA_Leaf_Business_Quarter_205x260+3bleed_advtrl.indd 1 25/8/14 11:37:45

04

BUSINESS QUARTER: AUTUMN 14

14 BOTTLING SUCCESS

Trail-blazing craft beer makers Põhjala

are taking the brewing world by storm

30 INDEPENDENCE DAY

FRSU Independence, a floating energy

processing factory, has people talking

36 CAPITAL GAIN?

Has Capital of Culture status helped

Riga’s artists to sell their work?

CONTENTS44 ONE STEP AHEAD

Child prodigy turned entrepreneur

Deividas Tumas on being a leader

52 A HEALTHY NICHE

The Baltics are cashing in on the growth

of medical tourism

62 BEING THE BEST CEOs in Lithuania are striving to improve

by adopting ‘Best Practice’ models

68 MILDER SIDE OF LIFE

Meelis Milder, of fashion retailer Baltika,

gives a revealing interview

Features 14

THE MICROBREWER BOTTLING SUCCESS

44

FROM PRODIGY TO ENTREPRENEUR

BUSINESS QUARTER | AUTUMN 14

05

10 ON THE RECORD

A new service helps students identify the

right distance learning course for them

18 NEWS

Who’s doing what, where, when and

why in business in the Baltics

28 AS I SEE IT

Theis Klauberg looks at how Latvia is

embracing commercial arbitration

42 COMMERCIAL PROPERTY

The landmark deals and developments

shaping the Baltic skyline

58 TRAVEL

William Cook escapes the confines of

Riga to discover a gem in the country

72 FASHION

Josh Sims traces the roots of a look

that captivates jazz fans

76 EQUIPMENT

Car designer Martin Smith carved

a career out of his boyhood dream

80 REAR VIEW

Charles Cormack assesses the impact

of EU funding in the Baltics

82 EVENTS

Essential dates in the bussiness calendar

CONTENTSRegulars 62

PROGRESS LEADING TO ‘BEST PRACTICE’

68

TAKE A WALK ON THE MILDER SIDE


BALTIC EDITION


ON THE RECORD AUTUMN 14

A new Baltic-based venture, designed to make

it easier for international students to access

UK online higher education courses, is set to

be launched this autumn, and it is already

attracting support and interest from some of

Britain’s leading universities.

Called UCORS (University and College Online

Registration System) the new business is

a response to the worldwide explosion

in popularity and sophistication of online

teaching, a form of distance learning

increasingly seen as a cost-effective and flexible

route to career-enhancing qualifications.

UCORS backers draw on that company’s

decade of experience of working with higher

education institutions in the UK, the Baltics

and elsewhere.

It is the first company to seek to rationalise the

currently haphazard online offerings of various

types of higher education establishments.

Typically these can sometimes involve multiple

systems and facilities, sometimes offered by

a single university or college.

UCORS research has shown that the online

offering is often seen as the “poor relation”

amongst an institution’s portfolio of degree

options. The company cites instances even

of senior university administrative staff being

unaware of the existence of online courses

offered by their own institution.

When added to the existing language and

cultural impediments that prevent overseas

students from finding the right course,

confusion from providers over what online

courses an institution actually offers means

that overseas students are likely to face

difficulty in researching and accessing the

optimum online options. The problem occurs

even when potential students are strongly

motivated to seek the best higher degree

for themselves in a foreign country.

UCORS claims that it will be the

first organisation to present the range of

offerings in an easily accessible web format

to overseas students, initially focusing on the

Baltics, Russia and the CIS. UCORS.org allows

potential students to search by subject and

by university, and is intended to provide more

usefully calibrated match-making between

students and the higher education providers,

based on levels of attainment and annual

fee levels.

Charles Cormack, chief executive of trade

facilitation company CCG who helped found

UCORS told BQ Baltic: “It’s a fact that British

universities are investing substantially in online

education, but they are also failing to get the

student numbers they wanted and expected

for their online courses.”

“In addition, our research has found that

there is a very high failure or drop-out rate, in

some cases with up to 80% of students who

start an online course failing to complete it.

Discovering this statistic made us think that we

had to find a way to increase student numbers

and cut the failure rate, especially

as the pedagogy and technology deployed

in the delivery of online degrees is improving

every year.”

As well as highlighting the “growing,

unquenchable demand for UK education

around the world”, Cormack added that

increasingly restrictive visa conditions would

also feed demand for online teaching,

as some students were prevented from

attending courses in person. Increasingly

accessible online courses, he said, might

have a part to play in enabling universities to

sustain their economic models, despite physical

restrictions on high fee-paying students >>

A new online service will enable students to cut through the confusion and identify the distance learning course that is best for them, writes Colin Donald

>> Sources for courses

It’s a fact that British universities are investing substantially in online education, but they are also failing to get the student numbers they wanted and expected for their online courses

Mariia Shekhireva, UCORS project manager



from outside the EU. There was also

increasing awareness that online courses are

identical to those taught on-campus. And

that employers are starting to recognise that

graduates of online courses have a proven

ability to combine, successfully, work and

online study.

“They will have to make their numbers up”

Cormack said. “Market conditions are moving

in our direction, as was shown by a report last

year from the UK Higher Education Statistics

Agency that showed that there was a 5%

increase in people taking a British university

course, and a substantial amount of this

increase came from online.”

“There is no doubt that online education will

become more and more important, a fact

that has been well recognised by Government

ministers and university academics in the UK.”

Based in Riga, UCORS is being project

managed by Mariia Shekhireva, a graduate of

the Stockholm School of Economics in Riga

(SSER) with a background in web management

and market research. She told BQ Baltic

that UCORS.org was being soft-launched in

the Baltics as a pilot market, before being

launched on a larger scale across Russia and

the CIS in November. The company is now

in the process of finalising agreements with

participating universities and colleges, which

include Birmingham City University, Leicester

University, Edinburgh Napier University and

Bradford University.

UCORS has been seed-financed by the

Imprimatur Capital Seed Fund in Latvia.

Managing Partner Toby Moore said: “Online

education has global growth potential and

we are impressed by the UCORS team,

their relationships with UK universities and

their ambition to expand the business

model internationally.”

Shekhireva described the business model

as “good for everyone – the students, the

universities and ourselves. ”It involves the

student finding our free-to-use website via

our use of search engine optimisation, and

accessing the universities through us. If the

student then goes on to take the course,

we earn a fee, the scale of which varies from

institution to institution. The student gets

access to the course that is most appropriate

for them, the university gets a high-quality

student whom they otherwise would not have

recruited, and we are paid for helping the

university to recruit such a student.”

Currently stress-testing and de-bugging its

software in the relatively low-volume Baltic

markets, UCORS is reluctant to predict revenue

for its first year, but is already making plans

for further expansion beyond its projected

core market of Russia and the CIS. “We are

considering predictions based on what we

know about the volume of search traffic for

certain terms, but Russia is a hard market

to predict and a lot will come down to

the success of our marketing strategy”.

Shekhireva said.

She added: “It is a widely held view

in these countries that the UK offers

high quality education, which is why

we are starting by building on our

strong university relationships there. We have

to start somewhere, though as this is an online

venture, there is no reason that there aren’t

top-ranked universities in other countries who

we already have relations with, which we

might want to partner with in future.” n

It is a widely held view in these countries that the UK offers high quality education, which is why we are starting by

building on our strong university relationships there

Above, University of Leicester, Left, Edinburgh

Napier University, UCORS participants

BQ Magazine together with Baltic Management Institute, the leading executive educator in the Baltics, is organising a one-day session for high-profile participants to examine the Baltic equity markets. The event will focus on practical guidance for companies seeking to raise capital for expansion, and for investors seeking to tap into the Baltic economy growth story.

TOBY MOORE, MANAGING PARTNER OF RIGA-BASED IMPRIMATUR CAPITAL, VENTURE CAPITAL FUND; LARS OHNEMUS, DIRECTOR OF CENTRE FOR CORPORATE GOVERNANCE AT COPENHAGEN BUSINESS SCHOOL; AIVARAS ABROMAVICIUS, SENIOR ADVISER AT EAST CAPITAL; PAWEŁ TAMBORSKI, CEO OF WARSAW STOCK EXCHANGE; RICHARD

CORMACK, HEAD OF NEW MARKETS EQUITY CAPITAL MARKETS AT GOLDMAN SACHSSpace is limited, please book early by contacting Kate Kolbina, Project Manager

[email protected]+371 26076436

Place: BMI Executive Hall, Konstitucijos Ave. 7, Vilnius Date: February 2015

BQ Magazine together with Baltic Management Institute, the leading executive educator in the Baltics, is organising a one-day session for high-profile participants to examine the Baltic equity markets. The event will focus on practical guidance for companies seeking to raise capital for expansion, and for investors seeking to tap into the Baltic economy growth story.

TOBY MOORE, MANAGING PARTNER OF RIGA-BASED IMPRIMATUR CAPITAL, VENTURE CAPITAL FUND; LARS OHNEMUS, DIRECTOR OF CENTRE FOR CORPORATE GOVERNANCE AT COPENHAGEN BUSINESS SCHOOL; AIVARAS ABROMAVICIUS, SENIOR ADVISER AT EAST CAPITAL; PAWEŁ TAMBORSKI, CEO OF WARSAW STOCK EXCHANGE; RICHARD

CORMACK, HEAD OF NEW MARKETS EQUITY CAPITAL MARKETS AT GOLDMAN SACHSSpace is limited, please book early by contacting Kate Kolbina, Project Manager


Place: BMI Executive Hall, Konstitucijos Ave. 7, Vilnius Date: February 2015



Founded in 2011, Põhjala (pronounced

peugh-ala, meaning “northern realm”)

is a collaboration between four Estonian

entrepreneurs and beer enthusiasts, along

with a star young Scottish master brewer. The

firm opened its 12 hectolitre (12x100 litre)

brewhouse in Nõmme, Tallinn, in May.

Enn Parel, co-founder told BQ Baltic: “Demand

is exceeding capacity by at least two times.

We’re struggling to keep up with production,

which is why we are doubling capacity this

summer. We hope to break into export

markets starting with Finland. We have

three distributors competing for who gets to

distribute us there.”

“There are other markets waiting for our

product – Latvia, Lithuania, Spain, the UK,

Poland. There’s quite a bit of exporting ahead

but first we must expand production.”

“Right now we can’t produce enough,

which is a good problem to have.”

The most recent funding round of €75,000

enabled the new cooling tanks, bigger

premises and a new labelling line.

Equipped with nine 24 hec US-made

fermentation vats and a US-made “bright

beer” tank and bottling line, Põhjala produces

five beers in the new brewhouse: an IPA

(Indian pale ale) called Virmalised (Estonian

for Aurora Borealis), a rye ale Rukkirääk

(corncrake), a wheat ale Uus Maailm (New

World) and its black IPA Pesakond, which is

named after a popular Estonian comic strip.

Its newest brew, released in July, is a new

porter called Must Kuld (black gold).

In addition, the firm intends later this year

to reintroduce a previously developed Baltic

Porter Öö (night), this time as an Imperial

Stout rather than a Baltic porter. It also has a

sixth beer, a double IPA, in the pipeline called

Põhja Konn. This latest brew is named after

Trail-blazing Estonian microbrewer Põhjala has completed a two-phase €475,000 investment programme, doubling its production capacity in anticipation of a major export drive in 2015. Colin Donald reports

>> Beer minnows are bottling success

Great brewing is a combination of being a mathematician and an artist

a mythical Estonian frog-dragon. This 8.8%

alcohol, hop-rich IPA will be marketed as a

“monstrous double IPA”.

Põhjala first made its name prior to the

opening of the new facility through “gypsy

brewing”, the process whereby they

manufacture under contract in another

company’s production facilities. The model was

pioneered by the Danish brewer Mikkeller in

the late 2000s, which unlike Põhjala and many

other “gypsy” start-ups has never gone on

to establish a brewhouse of its own.

The gypsy model is seen as the best way for

start-up brewers to establish a brand without

major capital investment.

As well as Enn Parel, the company was

founded by Peeter Keek and Gren Noormets,

joined soon afterwards by Tiit Paananen,

the former CEO of Skype Estonia.

However, crucial to their success in

establishing the popular Põhjala taste was

the recruitment of international talent, in

the form of Christopher Pilkington (26) who

the founders met while working at BrewDog’s

brewery in Aberdeenshire, Scotland. After

a trial visit in 2012 the team persuaded him

to move to Estonia in 2013. He has since

become a partner, along with art director

Marke Saaremets.

Parel said: “All our commercial brews are

Chris’s recipes. Concepts are developed

either together or by someone in the team

who has a great idea, and Chris devises the

detailed calculations. He is the microbiologist

brains behind the group. Great brewing is a

combination of being a mathematician and

an artist.”

The company expects to produce up to 90,000

litres of beer during 2014, but following the

installation of the new equipment, plans are

to increase this to 220,000 litres in 2015.

With the beer wholesaling at about €4.5

per litre Põhjala projects sales next year of

about €1m.

“It’s a pretty small amount but craft brewing

is about being small. More important is

that we can keep a good margin on this >>

12


ON THE RECORD AUTUMN 14 AUTUMN 14 COMPANY PROFILE

A: Victoria Tower, J.Jainskio 16B, LT-03163, Vilnius, LithuaniaT: +370 5 239 2391F: +370 5 239 2390W: www.evershedssaladzius.lt, www.eversheds.com

At the end of June 2014 the Lithuanian

Parliament adopted amendments

to the Law on the Status of Aliens.

The amendments, which come into force from 1

November 2014, introduce new rules applicable

to foreigners from third (non-EU) countries who

apply for the temporary residency in Lithuania.

The new amendments mainly cover two areas:

improved procedures for obtaining work and

residency permits for highly-qualified employees

and large non-EU investors, plus new measures

to prevent abuses such as the establishment of

dormant companies to obtain residency permits.

SHORTER TIMELINE FOR EU BLUE CARD APPLICATIONS The new amendments introduce easier procedures

for obtaining work and residence permit for

highly-qualified, well-paid employees from

non-EU countries (the EU Blue Card). Currently,

the procedure for obtaining the Blue Card can

take up to four months. However, with the new

amendments it is expected that this could be

cut to two weeks. This shorter timeline applies

when the employee’s salary is equal to or more

than three times the average monthly salary in

Lithuania (average salary x3 currently is LTL7000

or €2030 gross).

In addition, when employing a highly-qualified

employee who meets this salary requirement, the

standard agreement from the Lithuanian Labour

Exchange (confirming that a foreign national

meets Lithuanian labour market needs) is not

required. The new amendments will also allow

the issuing of an EU Blue Card for up to three

years instead of one, saving the time needed

for annual renewals. Although the amendments

should speed up lengthy procedures for potential

Blue Card holders, it is still subject to criticism

as the established salary rate which would allow

employees to benefit from the fast-tracking

legislation is high and will be especially difficult to

meet in the regions.

Milda Jasaitiene, Senior Associate at Eversheds

Saladžius, specialises in corporate law, commercial

contracts and employment laws

Currently, the procedure for obtaining the Blue Card can take up to four months. However, with the new amendments it is expected that this could be cut to two weeks

LARGE INVESTORS AND EXECUTIVES Legislation currently in force allows non-EU

citizens to apply for residency permits on the

grounds of “engagement in business activities”.

This is defined as registering of an entity in

Lithuania as owner or co-owner of a business (that

is, having not less than an LTL50,000 portion of

the authorised capital of a company, and living in

Lithuania to pursue the ends of this business), or

being the head or an authorised representative of

this business.

The new amendments from 1 November 2014 will

set new, much stricter requirements. In order for

business activities to be recognized as sufficient

grounds for a residence permit for a shareholder,

business head or manager, the equity requirement

is doubled to LTL100,000 (approx €29,000), the

amount of foreign investment must be no less

than LTL50,000 (approx €14,500), the business

must be at least six months old; and the company

should employ at least three local people.

The amendments will also allow the issuing of

residency permits for up to three years and a

shorter application timeline for investors who

invest at least LTL900,000 (approx €260,700) in

a Lithuanian entity and employ at least five local

employees.

Migration authorities will also be obliged to

verify the company’s activities and monitor which

shareholders or company management members

are applying for residence permits, in order to

limit the establishment of dormant companies in

order to obtain permits.

It should be stressed that in Lithuania, unlike

in Latvia, the possession of real estate does not

grant a non-EU citizen right of residence. Grounds

for obtaining a residence permit in Lithuania are

principally related to what the foreign citizen

intends to do in Lithuania: their employment,

business activities, studies or other activities.

Lithuanian immigration: what’s new?

when we keep a close eye on costs, so it’s

quite profitable, something like a 15-20%

profit margin”.

Põhjala beers are currently available in Estonian

retail off-trade outlets Selver, Kaubamaja and

Stockmann, as well as more than 50 smaller

specialised beer shops and bars.

The capacity increase following the brewery’s

opening will also advance the firm’s immediate

plans to expand into Finland, where, Parel says

“the Finns are eagerly awaiting our beers.”

Põhala, which – due to laws on support for

alcohol producers – does not receive support

from Estonian government agencies, received

the investment from its four founding

partners, supplemented by a loan from LHV

Bank. Parel said that the company was content

that the firm’s business plan was entirely

market-dependent, although he conceded

that they would not turn down government

support in the shape of regional assistance in

future, in support of their longer term plans,

which include building a much larger brewery

outside the capital within the next three to

four years. n

Craft brewing is all about being small... and the Finns are eagerly awaiting our beers

“The main clients of LHV Bank are small and medium-sized businesses, with 99% of them belonging to local owners. LHV is best described by the

terms quick and flexible and it’s the same with our clients whose managers and owners often find themselves inextricably interlinked.

There are good managers behind every successful company. The main advantage of small and medium-sized companies is that the owners are well-

informed about the activities of their managers and in this case they can overlap. It allows for quick and prudent decisions in a very short time frame.

We were overwhelmed and impressed with the passion of Põhjala brewery when they started their activity. When people do things with all their heart

it is the best base for all successful enterprise.

We are a local bank but that is not our main competitive advantage. Our main advantages are our people and our communication. The same view is

shared by the Põhjala guys. You will always find good people at the root of good things.”

>> “Good people are at the root of good things,” explains Indrek Nuume, Head of Private and Corporate Banking at LHV and a member of the Management Board which supports Põhjala


AUTUMN 14 COMPANY PROFILE

A: Victoria Tower, J.Jainskio 16B, LT-03163, Vilnius, LithuaniaT: +370 5 239 2391F: +370 5 239 2390W: www.evershedssaladzius.lt, www.eversheds.com

At the end of June 2014 the Lithuanian

Parliament adopted amendments

to the Law on the Status of Aliens.

The amendments, which come into force from 1

November 2014, introduce new rules applicable

to foreigners from third (non-EU) countries who

apply for the temporary residency in Lithuania.

The new amendments mainly cover two areas:

improved procedures for obtaining work and

residency permits for highly-qualified employees

and large non-EU investors, plus new measures

to prevent abuses such as the establishment of

dormant companies to obtain residency permits.

SHORTER TIMELINE FOR EU BLUE CARD APPLICATIONS The new amendments introduce easier procedures

for obtaining work and residence permit for

highly-qualified, well-paid employees from

non-EU countries (the EU Blue Card). Currently,

the procedure for obtaining the Blue Card can

take up to four months. However, with the new

amendments it is expected that this could be

cut to two weeks. This shorter timeline applies

when the employee’s salary is equal to or more

than three times the average monthly salary in

Lithuania (average salary x3 currently is LTL7000

or €2030 gross).

In addition, when employing a highly-qualified

employee who meets this salary requirement, the

standard agreement from the Lithuanian Labour

Exchange (confirming that a foreign national

meets Lithuanian labour market needs) is not

required. The new amendments will also allow

the issuing of an EU Blue Card for up to three

years instead of one, saving the time needed

for annual renewals. Although the amendments

should speed up lengthy procedures for potential

Blue Card holders, it is still subject to criticism

as the established salary rate which would allow

employees to benefit from the fast-tracking

legislation is high and will be especially difficult to

meet in the regions.

Milda Jasaitiene, Senior Associate at Eversheds

Saladžius, specialises in corporate law, commercial

contracts and employment laws

Currently, the procedure for obtaining the Blue Card can take up to four months. However, with the new amendments it is expected that this could be cut to two weeks

LARGE INVESTORS AND EXECUTIVES Legislation currently in force allows non-EU

citizens to apply for residency permits on the

grounds of “engagement in business activities”.

This is defined as registering of an entity in

Lithuania as owner or co-owner of a business (that

is, having not less than an LTL50,000 portion of

the authorised capital of a company, and living in

Lithuania to pursue the ends of this business), or

being the head or an authorised representative of

this business.

The new amendments from 1 November 2014 will

set new, much stricter requirements. In order for

business activities to be recognized as sufficient

grounds for a residence permit for a shareholder,

business head or manager, the equity requirement

is doubled to LTL100,000 (approx €29,000), the

amount of foreign investment must be no less

than LTL50,000 (approx €14,500), the business

must be at least six months old; and the company

should employ at least three local people.

The amendments will also allow the issuing of

residency permits for up to three years and a

shorter application timeline for investors who

invest at least LTL900,000 (approx €260,700) in

a Lithuanian entity and employ at least five local

employees.

Migration authorities will also be obliged to

verify the company’s activities and monitor which

shareholders or company management members

are applying for residence permits, in order to

limit the establishment of dormant companies in

order to obtain permits.

It should be stressed that in Lithuania, unlike

in Latvia, the possession of real estate does not

grant a non-EU citizen right of residence. Grounds

for obtaining a residence permit in Lithuania are

principally related to what the foreign citizen

intends to do in Lithuania: their employment,

business activities, studies or other activities.

Lithuanian immigration: what’s new?


NEWS AUTUMN 14

Russia’s EU food ban hits Baltic states, US firms fly in to explore Latvian business opportunities, new tax calling app aims to emulate market leaders, Lithuanian president pledges to extend media freedom

The EU Council of Ministers on 23

July took the final decision required

for the adoption of the euro by Lithuania

on 1 January 2015, making the country

the 19th member of the euro area. The

Council also set the permanent conversion

rate at 3.45280 Lithuanian litas to the

euro. “Lithuania’s consistent efforts have

paid off: today the Eurozone has opened

the door for us”, said Algirdas Butkevicius,

Prime Minister of Lithuania. “The adoption

of the euro has been Lithuania’s strategic

step, well thought-out economically and

politically, to foster national economic

growth. Lithuania’s accession to the single

European currency will strengthen the EU’s

Economic and Monetary Union. Deeper

euro integration means greater security

as well.”

>> Green Light for Lithuania as Eurozone opens the doors to membership in 2015

>> Baltics hit by Russia’s food sanctions

On 7 August Russia announced a year-

long ban on imported beef, pork, fruit,

vegetables, poultry, fish and dairy products

from the European Union, the US, Australia,

Canada and Norway. It was seen as retaliation

against Western sanctions imposed on Russia

in a bid to force the Kremlin to end its support

of pro-Russia separatists fighting in Ukraine.

While food exports make up only a fraction

of total exports to Russia for all three Baltic

countries, they are significant for the dairy

and meat industries. According to the Central

Statistical Bureau, Latvia exported 26.54% of

its dairy produce to Russia in 2013.

However, analysts have noted that, as this is

not the first time Baltic food producers have

had to manage sudden changes and disruption

in demand for their exports to Russia, they

have put in place market diversification

strategies to mitigate the impact of such

contingencies. Previously Baltic food exporters

had to manage a slowdown in demand after

the 1997 Russian financial crisis; Lithuania

saw its food exports banned last year on the

grounds of alleged food hygiene concerns after

it supported Ukraine’s association with the EU

during its presidency of the EU Council.

The private sector has also shown itself ready

to support food producers: Swedbank and

Danske Bank in Estonia announced that they

would be ready to provide “payment holidays”

for loans for the affected producers, and offer

other various measures to ease the financial

difficulties. The Latvian Government also

announced that it would allow “tax holidays”

>> US firm gets an opportunity to buy bailed-out bank

The Latvian Government has offered

the US private equity giant Ripplewood

Holdings an exclusive opportunity to analyse

for a period of one month buying Citadele

for €113 million. This is the smallest amount

at which the Government can sell the

bank without incurring losses for the state.

Ripplewood Holdings was founded in 1995

and has invested into several dozen companies

whose total turnover exceeds $20 billion.

Citadele was founded in 2010 as a result of

the restructuring of Parex banka. Currently,

the Latvian Privatisation Agency owns 75% of

shares, while 25% belong to European Bank

for Reconstruction and Development. The

restructuring plan calls for the sale of Citadele

to be completed by the end of 2014.

for Latvian food producers and transportation

companies affected by Russian sanctions,

as well as a planned extra €5 million for

conquering new export markets.

The private sector has shown itself ready to support food producers

President Barack Obama visited Tallinn

on 3 September, giving a firm pledge

of support to the Baltic States against

potential Russian aggression en route to

a NATO summit in Wales.

In a speech following meetings with the

presidents of Estonia, Latvia and Lithuania,

Obama pledged that the Baltic states will

never lose their independence again.

“The defence of Tallinn, Riga and Vilnius

is just as important as the defence of

Berlin and Paris and London,” the US

President said.

“We will be here for Latvia. We will

be here for Lithuania. You lost your

independence once before. With NATO,

you will never lose it again,” he added.

Obama emphasized that NATO is not

targeted against other countries but

established for collective defence, and

the Baltic membership only made the

alliance stronger.

“Our NATO Alliance is not aimed against

any other nation. We’re an alliance

of democracies dedicated to our own

collective defence. Countries like Estonia

and Latvia and Lithuania are not post-

Soviet territory. You’re sovereign and

independent nations with a right to make

your own decisions,” he said.

>> Obama in Tallinn solidarity declaration

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NEWS AUTUMN 14

>> Bank’s virtual investmentEstonian bank LHV has hired a “virtual

currency expert” to develop bank services

for currencies such as Bitcoin, with the bank

saying the project is an international first.

LHV’s virtual currency expert Asse Sauga told

Eesti Päevaleht that his first task is to analyse

virtual currencies on the whole.

Besides the well-known Bitcoin, there are more

than 300 other similar currencies around.

“If you look at Bitcoin’s software then you will

find the root systems of a bank,” he said.

He added that financial services can be

constructed on Bitcoin’s protocol and in the

future financial service providers will be forced

to look into that technology.

Taxify – a mobile application which allows automated dispatching of the taxi with two

clicks of the buttons – has been used more than 300,000 times to call a taxi in Tallinn, the

company has announced. The Enterprise Estonia-supported company’s app also offers many

additional features: including drivers’ management system, CRM, and pre-designed mobile app

for customers. Managing director and the creator of the app, Markus Villig, estimates that in

the next four years dispatching the taxi via a real dispatcher will go from 95% of the cases to

only 15%. In a little more than a year since its existence, Taxify has benefitted from Enterprise

Estonia’s start up fund and was called the Best Smart Application in Estonia in 2014. At the

moment Taxify services are available in Tallinn and Riga. Abroad, the company also has its people

in Helsinki, Vilnius and Minsk, while it is targeting Stockholm and Amsterdam as part of a global

campaign to emulate the success of Estonian web-based communications giant Skype.

>> New taxi calling app in Estonia is aiming to repeat the success of communications giant Skype

Representatives of 17 American

companies visited Latvia to explore

investment and business opportunities.

Following a meeting with Prime Minister

Straujuma, a seminar on the US-Latvian

business co-operation opportunities was

held on 9 and 10 July, providing briefings

about the Latvian business environment.

The Members of American chamber of

commerce had the opportunity to meet

with the US Mission’s business participants

during several events.

The visit was organised by the Investment

and Development Agency of Latvia (LIAA)

in co-operation with the Ministry of

Economics, the Ministry of Foreign Affairs,

the US Embassy in Latvia and AmCham.

The delegation represented industries

including automotive, energy, life sciences,

IT, pharmaceuticals, packaging and labelling.

>> American companies on a mission to explore Latvian business opportunities

>> Media freedom expandedPresident Dalia Grybauskaite of Lithuania

signed amendments to the Law on

Provision of Information to the Public and

amendments to the Code of Criminal

Procedure. Amendments initiated by the

president are aimed to enhance freedom of

Lithuania’s media, democracy and respect for

human rights. According to the president,

media freedom is one of the main guarantees

of democracy.

Thus, journalists’ right and duty to inform the

public must be respected and safeguarded.

Based on the amendments, any prosecution

procedures which limit media freedom and

restrict human rights – searches, seizures,

phone tapping or secret surveillance – can

be carried out only under circumstances vital

to the public.

The amendment was motivated by the

incident where, following a leaked report by

the State Security Department, prosecutors

questioned several reporters of the BNS news

agency, seizing their computers and, as it

turned out, tapping their conversations.

>> Firm gets grant boostSIA Linas Agro, a subsidiary of the

agribusiness company AB Linas Agro

Group, has refinanced its existing

liabilities and attracted new capital to

develop its business in Latvia.

A €30 million credit line for working capital

has been granted by SEB and DNB banks

in Latvia within the scope of the club loan

with SEB bank being the leading bank of

the transaction.

The funding is secured in equal parts – €15

million by each bank. According to the

Director of Finance of AB Linas Agro Group,

Tomas Tumenas, SIA Linas Agro is one of the

biggest grain sourcing and agricultural inputs

supply companies in Latvia.

The company has been operating in Latvia

since 2003 and expanding activities to the

extent that the appropriate financing of

current assets is required for further

business development.

The €30 million loan provided by two banks

would allow the Latvian company to enlarge

its market share in the trade of grain and

oilseeds, mineral fertilisers, plant protection

products and crop seeds in Latvia.

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NEWS AUTUMN 14

>> Latvian companies go global for growth

The Latvian Chamber of Commerce and

Industry (LCCI) is creating a network of

representatives in order to support member’s

export initiatives worldwide. The new LCCI

network spans all continents and includes

over 35 countries. Local companies such as

Riga’s Railway Factory, Exigen Services Latvia,

Latvian IT cluster and Latvian Chamber of

Crafts are already using the network actively.

A significant amount of what are claimed to

be “promising” export ideas have already

been proposed: Nook LTD, a company which

produces tools for woodwork, has prepared

for a wood-production expo in Brasil and USA.

Exigen Services Latvia and RIX Technologies

have applied for a tender in Myanmar,

and national cosmetic brand Dzintars is

consulting Peruvian and Israeli companies

regarding ventures into South-American and

Israeli markets. Representatives in Argentina

announced that they were encouraging

Leading Norwegian conglomerate

Orkla Foods has reached an agreement

with Nordic Partners Foods Ltd on the

acquisition of NP Foods group, which

owns such companies and brands as

Laima, Staburadze, Gutta, Margiris

and Staburadzes Konditoreja. After

completing the deal the NKR33 billion

(€4.2bn) turnover Orkla becomes one of

the largest producers of foodstuffs in the

region: Laima occupies about 30% of

the chocolate market of Latvia, and other

brands will strengthen their presence in

segments such as cookies, baked goods,

juices, water, and ready-to-eat food. The

managing director of Orkla Confectionery

& Snacks Christer Åberg said that the new

investor has no plans to close any plants or

lay off workers. They are instead planning

significant investments in the company.

The consolidated turnover of

NP Foods amounted to €77.1m in 2013,

and normalised EBITDA to €7.5m.

>> Norwegian group makes a tasteful investment

Increasing number of non-EU citizens

are seeking employment in Latvia.

Last year in Latvia 2,784 EU citizens

were registered as taxpayers along

with 1,744 citizens of other countries.

Unlike EU citizens, who are not subject

to restrictions for living and working in

Latvia, non-EU inhabitants have to get the

visas and work permits for a short-time

employment, and residence permits for

long-time employment. As of 1 January,

2014, there were 2,309 people registered

in Latvia with valid work permits, from

such countries as Belarus, Ukraine, Russia,

the Philippines, India, the US, China and

Turkey. The number of non-EU citizens

applying for permanent residence in Latvia

has also grown dramatically. In order to

achieve this, one has to stay in the country

for at least five years and be able to speak

Latvian. In 2010, only five people from

non-EU countries applied for a permanent

residence, whereas in 2013 it was 48

people, and this year there have already

been 57.

>> Latvia’s appeal spreads

>> Anti-cancer drug invented in Latvia approved by U.S. Food and Drug Administration

In July, the United States Food and Drug

Administration authorised the use of a

new anti-cancer drug, the active ingredient

of which was invented and synthesised in

applications for a gigantic building project:

creating up to 2 million houses there. Despite

political and military tensions in Ukraine, there

is a mutual interest in Ukrainian markets as

well: the delegation from Ukrainian Chamber

of Commerce visited Riga on 2-9 September,

and included companies from the logistics,

agriculture, and food industries.

Lithuania and the United States will

fight the shadow economy together.

On 26 August, Lithuanian Finance

minister Rimantas Šadžius and US

Ambassador to Lithuania Deborah

McCarthy signed the inter-governmental

agreement (IGA). According to the

agreement, Lithuanian tax authorities

will inform the US tax authorities each

year about the income from US financial

institutions which was received and

declared by Lithuanian taxpayers.

>> Working together

Latvia, the head of the Latvian Institute of

Organic Synthesis, Ivars Kalvinš has said. The

development represents a historic moment

for Latvia, being the first time such permission

has been granted for a substance that was

invented and synthesised in the country. Its

efficiency has been proven in treating patients

with peripheral T-cell lymphoma (PTCL), a type

of blood cancer. The new drug is currently

tested in various clinics in the US and the EU

to treat 11 other forms of lymphomas. Work

on the new medication began 13 years ago,

said Kalvinš.

>>Former chief editor of Lenta.ru establishes an online news portal in Latvia

A previous head of one of the main Russian

news portals, now classed as a dissident,

Galina Timchenko has registered a company

in Latvia called Medusa Project, and started to

recruit journalists and editors to create a new

Russian-speaking online media. Timchenko

was fired from her previous post at Lenta.ru

where she served as as the chief editor for 10

years, following a complaint from the Russian

censor, which found a link to an interview

with a Ukrainian far right politician in one

of Lenta.ru’s broadcasts. About 50 other

journalists left the company at the same time

as Timchenko, forming the core of the new

media team which is due to be established in

Latvia. The project is seeking an investor, and

according to reports on the Gazeta.ru website

the oligarch and previously jailed Putin critic

Mikhail Khodorkovsky, is interested.


AUTUMN 14 NEWS>> Time to adjust your focus to Europe

As economic growth has been slow in

recent years, companies have had time

to cut costs and increase their efficiency.

Eurozone recovery has been driving the equity

market bounce in Europe since we saw first

positive macro signs from the region. Credit

spreads of the struggling members of the

Eurozone have been declining since the

summer of 2012 and we have seen promising

growth numbers from different countries

among the region.

Of course, this has resulted in lower risk

premiums and good performance in the

European stock market. However, there

has been more volatility in Europe recently,

which makes putting together a successful

investment strategy in Europe a bit more

challenging, demanding more selectiveness

in investment decisions.

Although we can already see positive growth

numbers from most of the member states

of the Eurozone, revenues and profits of the

companies have not increased as much as

the equity markets. Therefore the price

increase has been mostly carried by higher

valuation levels. This means, that for every

euro of profit, we have to pay more than

we did last autumn.

This makes investors more sensitive to

macro data. If growth is less than anticipated

or political risks rise, volatility will momentarily

peak. This happened this summer, when

worrying events in Middle-East and Ukraine

caused some turbulence and reaction in

equity markets, which was rather painful.

On the other hand it also creates buying

opportunities. European stock markets

have risen very nicely in August and

early September.

Nonetheless, as economic growth has been

slow in recent years, companies have had time

to cut the costs and increase their efficiency.

This has resulted in stronger balance sheets

and strong free cash flow. Especially small &

mid cap companies have been whipped into

good financial performance and have been

able to compete against the pressure of the

large ones. Thus their products have been

cultivated – including in cost-effectiveness.

As a consequence of monetary political actions

carried out by the ECB, financing costs

are low and we can probably see a weaker

euro, supporting regions export industry.

Taking into account the strong financial

Eurozone recovery has been driving the equity market bounce in Europe since we saw first positive macro signs from the region

position, current price levels might justify

itself in longer perspective, but investors

have to be prepared for more turbulent

price movements.

As the price levels are higher, choosing

the right companies to invest in gets more

important. We see potential especially in

small & mid cap companies where analyst

coverage is lower and it is possible for an

experienced investor to find investments

with good growth potential before others.

As macro signs are still showing the recovery

of European domestic market and ECB has

launched measures of its own quantitative

easing, carefully selected European companies

might justify themselves this autumn.

Written by Kristjan PetjärvHead of Estonian Investment Support and Wealth ManagerMandatum Life Insurance Baltic SE, a part of Sampo Group, is one of the most financially solid and respected life insurance companies in the Nordic region.

COMPANY PROFILE AUTUMN 14 AUTUMN 14 COMPANY PROFILE

A joint venture between a dynamic

Lithuanian municipality and two of

the UK’s most enterprising tertiary

educators is set to make history by establishing

the first ever British overseas branch campus in

mainland Europe.

In a boldly innovative international partnership,

Bradford College and Teesside University

will become the UK’s only higher and further

education establishments to collaborate with a

foreign local government in the transfer of further

and higher education know-how across the EU.

Based in the Baltic Sea port of Klaipeda, the new

establishment will provide the best of British

further and higher education to a prospective

extra 600 students a year in within five years,

transforming the Lithuanian city’s growth

potential. The present student population of

Klaipeda is around 15,000.

The collaboration, which was brokered by the

international trade consultancy CCG, will see the

creation of a Bradford-Teesside branch campus

on a 6300 square metre former school site in

the historic city, due to be formally opened in

September 2016.

A memorandum of understanding between the

three partners was signed on September 4 in

London’s House of Commons, in a ceremony

hosted by Bradford MP Gerry Sutcliffe, who called

the project “an exciting and ground-breaking

initiative that will bring enormous benefits.”

New campus to put UK’s brainpowerin easy reach of Baltic and beyond

(above) Gerry Sutcliffe MP and Klaipeda Mayor Vytautas Grubliauskas in the UK Parliament’s historic

Westminster Hall. (below) Gerry Sutcliffe MP and Klaipeda Mayor Vytautas Grubliauskas on the Terrace

of the House of Commons

Front Row L to R: Keith Brown, Teesside Uni, Professor Graham Henderson CBE DL Vice Chancellor Teesside Uni , Gerry Sutcliffe MP, Dr Aulay Mackenzie, Pro Vice Chancellor

Partnerships Teesside Uni, Mayor Vytautas Grubliauskas, Nijole Laužikiene, Lithuanian Government director of education and culture, Andy Welsh Chief Executive Bradford

College. Back Row L to R : Charles Cormack Chairman CCG, Giedre Merkelyte CCG Lithuania, Simonas Gentvilas Advisor to Mayor, Ricardas Zulcas, director of Klaipeda‘s

investment and economy department, Indre Buteniene, Head of strategic planning, Irena Skardziuviene, Lithuanian Embassy, London

Over the past decade many UK further and higher educators have set up various types of international partnerships, from satellite campuses to branded franchises, with the majority in the Middle East and East Asia

The new campus in Klaipeda’s central Mokyklos

street, will integrate the course offerings of the

two leading northern English institutions to

offer industry-focused education across a broad

range of educational levels, from basic skills

to Masters degrees, and from short courses to

full programmes.

Over the past decade many UK further and

higher educators have set up various types

of international partnerships, from satellite

campuses to branded franchises, with the majority

in the Middle East and East Asia. Collaborations

with European partner organisations have

usually been in the form of joint and exchange

programmes and double degree award schemes.

Until now no British institution has established

physical outposts within the borders of the

European Union, or accessed EU development

funds to help capitalise on the worldwide prestige

of high-quality UK education and qualifications,

in this case by targeting students from outside

the EU as well as from Lithuania and the other

Baltic states.

The fruit of 18 months of negotiation, the

new arrangement was conceived as part of

comprehensive development strategy by

Klaipeda municipality, under its mayor Vytautas

Grubliauskas, widely seen as one of the Baltic

states’ most dynamic and visionary civic leaders.

The plan, which is expected to draw around 85% of

its funding from the Baltic region’s portion of EU

development funds, is also strongly supported by

local Lithuanian stakeholders in local and national

government, and underpinned by demand from

Klaipeda’s industrial sector.

Under the terms of the recently signed MOU,

the new university outpost will support

local industries with assistance in training

delivery, business planning, research and

knowledge transfer.

The new British-Lithuanian partnership is likely

to be closely watched throughout the region

and beyond, as it opens up significant new front

the Baltic States’ long-term struggle against

net migration, largely seen as the flight of

young, educated people to perceived greater

opportunities in Western Europe.

A recent survey cited by Klaipeda’s mayor’s office

found that 55% of all local students would prefer

to study at a foreign university, an ingrained

tendency that continues to drive emigration. By

bringing British universities to the students rather

than the other way round, Klaipeda is estimating

that it can affect this dynamic, calculating that

the beneficial secondary effects of a foreign

university settling in the city exceed those of even

a high-profile foreign company. Klaipeda, also

known in previous centuries as Memel, is a former

Soviet naval base-turned busy commercial, ice-

free port, with highly developed industrial >>



A joint venture between a dynamic

Lithuanian municipality and two of

the UK’s most enterprising tertiary

educators is set to make history by establishing

the first ever British overseas branch campus in

mainland Europe.

In a boldly innovative international partnership,

Bradford College and Teesside University

will become the UK’s only higher and further

education establishments to collaborate with a

foreign local government in the transfer of further

and higher education know-how across the EU.

Based in the Baltic Sea port of Klaipeda, the new

establishment will provide the best of British

further and higher education to a prospective

extra 600 students a year in within five years,

transforming the Lithuanian city’s growth

potential. The present student population of

Klaipeda is around 15,000.

The collaboration, which was brokered by the

international trade consultancy CCG, will see the

creation of a Bradford-Teesside branch campus

on a 6300 square metre former school site in

the historic city, due to be formally opened in

September 2016.

A memorandum of understanding between the

three partners was signed on September 4 in

London’s House of Commons, in a ceremony

hosted by Bradford MP Gerry Sutcliffe, who called

the project “an exciting and ground-breaking

initiative that will bring enormous benefits.”

New campus to put UK’s brainpowerin easy reach of Baltic and beyond

(above) Gerry Sutcliffe MP and Klaipeda Mayor Vytautas Grubliauskas in the UK Parliament’s historic

Westminster Hall. (below) Gerry Sutcliffe MP and Klaipeda Mayor Vytautas Grubliauskas on the Terrace

of the House of Commons

Front Row L to R: Keith Brown, Teesside Uni, Professor Graham Henderson CBE DL Vice Chancellor Teesside Uni , Gerry Sutcliffe MP, Dr Aulay Mackenzie, Pro Vice Chancellor

Partnerships Teesside Uni, Mayor Vytautas Grubliauskas, Nijole Laužikiene, Lithuanian Government director of education and culture, Andy Welsh Chief Executive Bradford

College. Back Row L to R : Charles Cormack Chairman CCG, Giedre Merkelyte CCG Lithuania, Simonas Gentvilas Advisor to Mayor, Ricardas Zulcas, director of Klaipeda‘s

investment and economy department, Indre Buteniene, Head of strategic planning, Irena Skardziuviene, Lithuanian Embassy, London

Over the past decade many UK further and higher educators have set up various types of international partnerships, from satellite campuses to branded franchises, with the majority in the Middle East and East Asia

The new campus in Klaipeda’s central Mokyklos

street, will integrate the course offerings of the

two leading northern English institutions to

offer industry-focused education across a broad

range of educational levels, from basic skills

to Masters degrees, and from short courses to

full programmes.

Over the past decade many UK further and

higher educators have set up various types

of international partnerships, from satellite

campuses to branded franchises, with the majority

in the Middle East and East Asia. Collaborations

with European partner organisations have

usually been in the form of joint and exchange

programmes and double degree award schemes.

Until now no British institution has established

physical outposts within the borders of the

European Union, or accessed EU development

funds to help capitalise on the worldwide prestige

of high-quality UK education and qualifications,

in this case by targeting students from outside

the EU as well as from Lithuania and the other

Baltic states.

The fruit of 18 months of negotiation, the

new arrangement was conceived as part of

comprehensive development strategy by

Klaipeda municipality, under its mayor Vytautas

Grubliauskas, widely seen as one of the Baltic

states’ most dynamic and visionary civic leaders.

The plan, which is expected to draw around 85% of

its funding from the Baltic region’s portion of EU

development funds, is also strongly supported by

local Lithuanian stakeholders in local and national

government, and underpinned by demand from

Klaipeda’s industrial sector.

Under the terms of the recently signed MOU,

the new university outpost will support

local industries with assistance in training

delivery, business planning, research and

knowledge transfer.

The new British-Lithuanian partnership is likely

to be closely watched throughout the region

and beyond, as it opens up significant new front

the Baltic States’ long-term struggle against

net migration, largely seen as the flight of

young, educated people to perceived greater

opportunities in Western Europe.

A recent survey cited by Klaipeda’s mayor’s office

found that 55% of all local students would prefer

to study at a foreign university, an ingrained

tendency that continues to drive emigration. By

bringing British universities to the students rather

than the other way round, Klaipeda is estimating

that it can affect this dynamic, calculating that

the beneficial secondary effects of a foreign

university settling in the city exceed those of even

a high-profile foreign company. Klaipeda, also

known in previous centuries as Memel, is a former

Soviet naval base-turned busy commercial, ice-

free port, with highly developed industrial >>



infrastructure and a skilled industrial workforce.

However it is being forced to address problems

with depopulation common to many parts of

Eastern Europe. After years of population flight,

the city has embarked on a comprehensive re-

development programme, drawing on its natural

attractions, as a centre of maritime leisure and

the arts, as well as its industrial potential.

Simonas Gentvilas, adviser to the mayor told BQ

Baltic: “Klaipeda is already developing into an

important energy, manufacturing and logistics

hub, but what the economy needs is more ‘white

collar’ or ‘intelligent’ jobs in sectors like finance,

insurance, legal services, IT and marketing.

Until now, people seeking such jobs tend to

move to Vilnius, Riga or Kaunas.”

“The city is a place of manufacturing and

assembly, and while that is positive, we don’t

get enough value added from this sector. There

are many service jobs that we could get back

into a city that has a beautiful setting and huge

recreational resources.”

Gentvilas added: “By bringing the Teesside and

Bradford institutions to the city, we are hoping

to have a qualified working age population

numbering in the thousands. Once you have this

you can attract companies that buy office space

rather than workshops.“

“We are proceeding step by step, but this is our

vision. Tourism and recreation cannot be the

mainstay of the local economy. We need to have

more people have to have more money to spend

on leisure activities”.

The official explained that the new Bradford-

Teesside campus will address the anomaly of a city

dominated by industry and logistics that lacks

a tertiary education establishing that provides

advanced training in these sectors.

While Klaipeda already has a reputable university,

its emphasis on the liberal arts is part of

Lithuania’s nationwide mismatch between the

skills base of the population and the skills needs

of the nation’s employers.

“Our local economy is desperately in need of

a steady supply of labour in engineering and

technical studies. By having foreign universities

which are of a higher standard than Lithuanian

universities we hope to advance the economy into

a new level.”

“The Baltic states are still dominated by private

companies that don’t compete with Western

companies. By having management and skills

lifted up to that level with the help of British

universities we can look towards the West instead

of competing with the East. The level of business

intelligence will be lifted up.”

City authorities see the creation of the new British

For further information, please contact Giedre Merkelyte at [email protected]: +370 662 53342

outpost as a crucial step towards the consolidation

of a “creative class”.

A key goal of the Bradford College/Teesside

University plan will be to attract not just locals

but thousands of students every year from Russia,

Belorussia and elsewhere in the CIS to help boost

the working age population.

As an example of the potential of the Klaipeda

project to transform the capabilities of Lithuanian

technical education, Gentvilas cited the example

of computer gaming and 3D animation, a

creative sector for which Teesside University

already provides one of Europe’s most reputed

specialist courses.

“We already have companies based in Moscow

waiting for them to move here and that will bring

several hundred jobs to Klaipeda from the Russian

game industry.”

Gentvilas summarised: “From the establishment

of this project we hope to get a more diversified

economy, and become an importer of students

rather than an exporter, which is very important

for the growth of our economy. Any investor

looking to come to a city or region wants to know

first about the labour pool, and how many people

are there and what skills do they have?”

The House of Commons MOU was signed by Mayor

Grubliauskas, Professor Graham Henderson CBE

DL Vice Chancellor Teesside University and Andy

Welsh, chief executive of Bradford College at

the climax of a busy three day official visit to

the UK by the 7-person Lithuanian delegation,

involving meetings and informal gatherings from

university and city officials in Bradford, Leeds

and Middlesbrough. Accompanying the mayor

were advisor Simonas Gentvilas, Ricardas Zulcas,

director of Klaipeda‘s investment and economy

department, Nijole Laužikiene, director of

education and culture, Indre Buteniene, Head

of strategic planning, Eimantas Kiudulas,

managing director of Klaipeda free economic

zone and Agne Selemonaite, Klaipeda‘s location

marketing advisor.

Dr Aulay Mackenzie, pro-vice chancellor for

partnerships at Teesside University said:

“Teesside University is looking forward to

developing this forward-thinking and exciting

initiative in collaboration with its partners,

Bradford College and the Klaipeda municipality,

to offer an industry-focused educational offering

in Klaipeda, Lithuania”.

Anthony Basham, group commercial director of

Bradford College said: “There is no other project

like this in the Baltics, and it differs from the

sort of projects that other countries have had

where they decide to have a collaboration with

a British university and then run a formal

procurement exercise”.

“We have the full commitment of all parties

which will leverage further discussions in the

Lithuanian ministry of education regarding

licensing and funding. We are looking to

By bringing the Teesside and Bradford institutions to the city, we are hoping to have a qualified working age population numbering in the thousands. Once you have this you can attract companies that buy office space rather than workshops

We have the full commitment of all parties which will leverage further discussions in the Lithuanian ministry of education regarding licensing and funding. We are looking to establish a full curriculum model, and the full business plan which will be considered by our executive and governors

establish a full curriculum model, and the full

business plan which will be considered by our

executive and governors.”

“Our intention is that along with our partners

in Teesside, we will run the college on our

curriculum, governance and quality assurance

model, because this is what lies behind the brand

we will be exporting, with the same approach

to pedagogy. It’s different from the provision of

services on a licensed basis and we will be making

sure that the figures stack up to allow us to deliver

what we plan.”

Gerry Sutcliffe MP for Bradford South constituency

said: “It was a real honour to be able to host the

signing of the Memorandum of Understanding

in the Houses of Parliament. This is an exciting

and ground-breaking initiative that will bring

enormous benefits to the city of Klaipeda,

Bradford College and Teesside University. It was

a pleasure to meet with Mayor Grubliauskas and

the delegation from Klaipeda, and I look forward

to working with them in the future to ensure that

this historic partnership produces really positive

results for all three parties.“

L to R: Mayoral adviser Simonas Gentvilas with Prof Graham Henderson and Keith Brown of Teesside University

Professor Graham Henderson CBE DL Vice Chancellor Teesside Uni, Vytautas Grubliauskas, Mayor of Klaipeda Municipality, Andy Welsh, Chief Executive Bradford College

Klaipeda City Municipality


AS I SEE IT AUTUMN 14

Over the past 20 years trade barriers have

come down and international commerce has

opened up new opportunities. Enterprises of

all sizes have recognised international

commercial arbitration as the most efficient

way to solve disagreements.

A 2013 study conducted by consultants PwC

found a marked increase in arbitration cases in

the Baltic states, with international companies

of all sorts confirming the benefits.

At the recent annual Baltic arbitration

conference at the Riga Graduate School of

Law, a record number of particpants from

over 20 countries attended, affirming the

relevance of arbitration in international

commercial legal practice. The development

of this alternative to litigation in state

courts has created considerable advantages

for businesses, not least because it saves

companies time and money.

An efficient system of dispute resolution

incentivises foreign investment, and improves

the reputation of the justice system in general.

The fact must be faced, however, that

companies doing business in Latvia currently

tend to avoid arbitration and litigation in the

country. Where they have the choice, they tend

to conduct high-profile commercial arbitration

proceedings in Stockholm, London or Vienna.

When it comes to arbitration proceedings,

however, the legal framework is only part of

the issue. Another is the level of knowledge

of commercial practices and languages, an

area in which Riga offers excellent conditions.

Many professionals here work in several

languages, in particular English and Russian,

making proceedings easy and quick to set up

and conduct. Being de facto commercial capital

of the Baltics provides Riga with access to a

vast network of international expertise across

industries. Excellent transport connections, a

wide choice of locations for meetings and the

city’s ancient traditions of trade and commerce

contribute to its attractiveness as a location for

legal proceedings. In fact, although London,

Stockholm and Vienna are preferred over other

locations due to “soft” cultural factors, this

advantage cannot really be justified in terms

of the actual advantages they possess from

a “hard” professional legal perspective.

There is clearly an opportunity here that Riga

is missing and must seize. As international

commerce in this region increases, international

investors and businesses need a more efficient

and reliable system to resolve their disputes.

We have seen this in the Baltics ever since

the first overseas investors arrived in the

1990s, assuming that the court systems of

Latvia, Lithuania and Estonia were not yet

up to international standards, they demanded

that their own domestic laws were applied

to contracts.

After accession to the European Union, the

The success of commercial arbitration – the resolution of disputes outside the courts – is changing the way companies view litigation in the Baltics, explains Theis Klauberg

LATVIA CAN TAKE A LEADING ROLE IN COMMERCIAL ARBITRATION IN THE BALTICS


Reliable commercial arbitration is now part of the legal framework that international investors take for granted... Latvia must overhaul its system to advance as an international hub

AUTUMN 14 AS I SEE IT

opportunities in international commerce for

companies based here have increased as

much as the competition for further trade

and foreign investment.

Reliable commercial arbitration is now part of

the legal framework that international investors

take for granted. Baltic companies do of

course already resort to this route themselves,

particular where small and medium sums are

in dispute. The efficiencies of strict timeframes,

the availability of expert arbitrators, and

decisions without the risk of appeal constitute

an advantage over State court procedures.

Recourse to arbitration allows companies

to better plan dispute resolution processes

in terms of time and costs. Time savings are

typically up to 75%, and cost advantages

can be equally high. Where disputes involve

sophisticated industry knowledge to solve

legal issues – for example in construction or

information technology – only the decision

of such an expert arbitrator will meet the

standard the parties expect.

Latvia must take the necessary steps to

overhaul its commercial arbitration system to

advance as an international commercial hub.

We need three things: a legal framework,

institutional control, and a network of experts.

Global standards should be implemented.

The model law on arbitration developed by

the UN Commission on International Trade

Law (1985) has been tabled by many countries

in Europe. Following suit would render

arbitration in Latvia more credible.

Arbitration practice requires institutional

control. Where it takes place in registered

courts, the respective State administration will

have to have the legal powers and proficiency

to avoid situations like the one we now have.

There are currently 213 registered courts

of arbitration, but their choice of names is

baffling and prone to misunderstandings

and errors. Where different courts have almost

identical names such as “Pirma tirdzniecibas

škirejtiesa”, “Pirma starptautiska škirejtiesa”,

“Pirma Latvijas neatkariga škirejtiesa”, or

simply “Pirma škirejtiesa”, not knowing what

court one is actually faced with confuses

everyone.Distinguishing between institutions

is impossible for foreigners. The arbitration

court named “Baltijas škirejtiesa” exists

alongside a (different) “Baltic škirejtiesa” (as

well as the “Baltijas Starptautiska škirejtiesa”,

“Baltijas komercškirejtiesa” – a staggering

22 arbitration courts utilise the prefix Baltic).

The institutions “Latvijas škirejtiesa” and

“Latvijas Republikas škirejtiesa” (based in

Valmiera) are no more state institutions than

the remaining 22 courts which feature Latvia

in its name.

Who can be be expected to differentiate

between “ES komercškirejtiesa” (ES being the

Latvian abbreviation of the European Union)

and “Eiropas Kopienas škirejtiesa” (referencing

the “European Community”)? Institutions

called the “Arbitration court of Livonia”

or “Arbitration court of Mitau” reference

historical maps suggesting a bogus historical

continuity. Such name choices are almost

comically, and perhaps intentionally, misleading

and should therefore be illegal.

More importantly some arbitration courts do

not appear to work properly, casting doubt

over their independence.

We need strict control by the relevant

professional and state institutions. The activities

of many legal practitioners are controlled

by the Bar Association and already subject

to conduct rules, with breaches resulting in

a ban from practice. However, arbitration

works best if parties choose their arbitrator

for their industry knowledge, experience, or

even nationality and language skills, rather

than status as a lawyer. It is international best

practice that flawed arbitration awards –

involving breach of rules, conflict of interest, or

violations of the law – cannot be enforced. As

a last resort, such illegally rendered arbitration

awards can be set aside by a State court judge.

Making state courts the final backstop of

arbitrations means that their actual caseload

will decrease, in that it will help improve

confidence in arbitration. The result will be

that more commercial cases are diverted,

resulting in more commercial cases being

diverted away from state courts.

Some countries have managed to divert

more than 90% of their commercial cases to

arbitration, meaning that valuable court time

is not wasted as much.

All of these reform measures require long-term

fixes to improve perceptions of commercial

arbitration and of Riga as one of the preferred

places of international arbitration in Central-

and Eastern Europe, with arbitration playing its

proper role in boosting trade and investment

in the region. n

• Theis Klauberg is a partner with bnt Klauberg

Krauklis ZAB (Riga), bnt attorneys-at-law

Advokaadibüroo OÜ (Tallinn) and bnt Heemann

Klauberg Krauklis APB (Vilnius)



Independence is coming to Lithuania later this

year, specifically to the Port of Klaipeda.

I refer to the vessel “FRSU Independence”, a

giant floating regasification and storage unit,

commissioned by the state-owned energy

terminal Klaipedos Nafta from the Norwegian

company Höegh LNG .

Construction of the 170,000 cubic metres-

capacity giant ship was completed in March in

the shipyards of Pusan, South Korea, and it is

ready to set sail sometime in the autumn.

This extraordinary vessel is aptly named.

Through its decision in 2012 to proceed with

the project, Lithuania has struck a bold blow

for energy diversification. With one stroke it

is freeing itself from the caprices of its “single

supplier”– the euphemism by which Russia is

known in Klaipedos Nafta’s corporate-speak.

The effect has been almost instantaneous.

Russia has offered to cut its gas prices by

around 20%, allowing backers of the project

to suggest it has already repaid its investment.

This is not just another infrastructure project.

The commissioning of the factory ship, the

construction of the jetty by which it will be

moored, and the pipeline that will connect it

to the gas grid are unlike anything previously

attempted by a northern European nation.

The monthly visits of the Lithuanian Prime

Minister Algirdas Butkevicius, and the stream of

international visitors coming to he deep water

port to inspect the work-in-progress attest

to the fact that Klaipeda’s €174m floating

liquefied natural gas (LNG) terminal is a project

of national significance.

Or should that be international? To start

with, the idea of a vast, “portable”

energy processing factory with a minimal

environmental footprint is an innovation which

is already attracting worldwide attention to

Lithuania. And that is separate from the all-

important implications for strategic energy

supply, in terms of energy policy and pricing,

which make the introduction of a new source

of gas for the Baltic States the single most

significant business infrastructure development

in the region.

No surprise then that the pressure to deliver

it, on time, on budget and with minimum

environmental disruption is intense.

For a man under so much pressure, Tadas

Matulionis, project director for Klaipedos Nafta

and the man responsible for ensuring that

timetabled promises are kept, exudes an air

of business-like calm.

Matulionis, highly qualified and experienced in

the complex science of managing overlapping

and interdependent “critical paths”, claims

that he can afford to be cool given the quality

of the teams managing the components of the

project. Perhaps the most extraordinary aspect

is that it has all happened so fast.

“We made our final investment decision in

spring 2012, and now, two years later, we are

approaching completion by the end of this

year.” Matulionis explains. “That’s two and

a half years approximately.“

This September marks the first anniversary

of work commencing on site, this being the

start of putting in the 134 giant piles for the

structure – now looking more like a row of

mini oil rigs than the piers of a jetty – work

completed by the early spring of this year. Not

bad progress, considering how recently that

the final investment decision was made.

“[This progress] has been possible for two

reasons, one is that we have made the right

choice of technology, and secondly, because

of the strategic importance of the project we

have very high level governmental support

enabling us to complete some of the planning

procedures within the shortest possible terms.

We have been fast-tracked through all the

processes,” Matulionis says.

Such special treatment is not that surprising.

The LTL124 million [€36m] turnover company

Klaipedos Nafta may be listed on the Vilnius >>

ENTREPRENEUR AUTUMN 14

A €174 million floating gas processing factory – coming soon to Lithuania – is attracting worldwide attention. Colin Donald reports

PORT GETS SET FOR INDEPENDENCE DAY

AUTUMN 14 ENTREPRENEUR



stock exchange but it is two thirds-owned by

the the Lithuanian government, which owns

the port. Along with the port authority and the

city government it has transformative plans for

what in Soviet times was a closed, military city,

and which has since suffered depopulation.

The security of Government involvement also

helped to win favourable terms from their

Norwegian ship-chartering partners Höegh,

who have been in the LNG market for 40 years.

“Basically that gives us a lot of confidence in

the operations of the terminal, and this is in

addition to the technology that we bring to

the project ourselves.”

Long before this new gas terminal was

conceived, indeed for almost half a century

before, the company which also runs state oil

and petroleum reserves deeper inside has been

operating as an oil and petroleum products

transhipment terminal. The port authority itself

is an arm of the Vilnius Government.

Says Matulionis: “We are not a Government

agency but we have been er... entitled with

the right to implement this project as the

company that is considered the best prepared

for the process.”

We are talking on the deck of the motorboat

that Klaipedos Nafta uses to show off work

in progress to curious visitors. It is a glorious

summer’s day, with the wooded banks of the

Curonian Spit in the background. This is the

bifurcated narrow finger of land that stretches

from Klaipeda (known as Memel in previous

centuries) all the way south to the Russian

province of Kaliningrad.

Close by the steel and concrete stumps of

the jetty, is an island formed from the spoil of

generations of earlier dredging of this former

Soviet naval base that is now a bird sanctuary.

Its proximity was the cause of restrictions on

the construction timetable, a factor which

complicated an already challenging schedule.

“It has been very tough I would say, the

schedule is as short as theoretically could be.

We have been working without any [time]

“buffers”. There has been huge pressure

on our team. To squeeze everything into

such a short time frame we had to do nearly

everything in parallel rather than sequentially.”

The Curonian Spit helps ensure that, uniquely

amongst other Baltic States ports, Klaipeda is

virtually ice free all year round, and sheltered

from the choppy waters of the Baltic Sea. In

Lithuanian eyes, these geographical advantages

were good enough reason to cut through

ponderous international discussions about the

prospect of a new EU-funded regional gas

terminal, and just start building.

From our boat, we are looking at a row of

platforms known as “dolphins”, resting

on angled giant steel piles, with Latvian

construction company BMG hard at work

pouring concrete and welding steel. These are

the basis of the 450m-long jetty that comprise

the only permanent, visible part of the project.

One of the platforms of the jetty already has a

giant, hinged yellow tentacle emerging from

it. This is the articulated “high pressure loading

arm” though which the gas will be transferred

into the port’s new 3km-long pipeline.

After its long voyage from the Sea of Japan,

the €400m’s worth of FRSU will enter the bay

of Klaipeda and perform a giant turn before

mooring on the landward side of the jetty.

The channel and the turning circle have been

dredged to a depth of 14.5m, more than

enough to accept the largest LNG carriers

available, or those likely to be built soon.

There it will stay for the foreseeable future,


There has been huge pressure on our team. To squeeze everything into such a short time frame we had to do nearly everything in parallel rather than sequentially



a securely-moored floating factory about 300

metres from bow to stern, equipped not only

with storage tanks of its own, but also with the

complex, state-of-the-art plant required to turn

super-cold (-163 C°) and super-compressed

(600 times density) cargoes of liquefied gas

back into gas.

At times the vessel may be sent off to collect

gas itself, and in due course may be replaced

and sent off to another part of the world. It is

extraordinary to think of what is essentially a

seaworthy factory moving across the oceans

to fetch its own raw material.

The giant LNG tankers will themselves berth

next to the vessel and disgorge their cargoes

into its processing parts, to be turned into

gas and fed into the region’s pipeline system,

much of which will have to be repurposed and

recalibrated, as the network of pipe branches

was designed solely with the intention of

piping Russian gas to the sea, not piping gas

from the sea towards the Russian border. The

old order is being overturned.

Matulionis explains that construction of the

pipeline itself is one of the most impressive

parts of the project in terms of engineering

complexity. It goes from the jetty into the water

underground all the way to a refinery junction,

3km from where the ships are berthed. This

makes it one of the longest underground

drillings of this type in Europe, accomplished

by HDD (horizontal direct drilling technology).

Its 30-40m depth was necessary in order to

future-proof this vital pipeline from whatever

Klaipeda’s state-owned port’s development

plans may be in the future, so that “in

whatever circumstances we are not affected

by further construction works”.

The speed and efficiency of the KN’s

construction process is all the more remarkable

for the fact that they are breaking new ground.

This kind of marine based facility has been

around for only about five years, pioneered by

the Brazilian company Petrobas. In European

terms, Klaipeda is only the second FSRU in

Europe, after Livorno in Italy whose LNG

terminal came online in 2011, although the

Dubai government-owned facility at Jebel Ali

port, also publicly-owned is a closer parallel.

The vessel Independence itself is a long term

charter for this vessel with Höegh LNG.

“Basically their four decades of experience

in this market gives us a lot of confidence in

the operations of the terminal, and this is in

addition to the technology that we bring to

the project,” Matulionis says.

“We have a lot of interest from other

countries, but in fact not as much as we might

have had as we have been building the project

so quickly that not everyone has had time to

notice that we have appeared on the map!”

“In the last year we have had quite a few visits

from abroad, not least because we are on time

and on budget and we are doing it in a short

time frame, so of course people are curious.”

While the LNG industry has been in existence

for half a century, the concept of floating

facilities materialised only about five years ago,

since then its significant cost advantages over

land-based terminals have become clear.

I ask about Lithuania’s decision to adopt the

new technology.

“From the very introduction of natural gas into

the area until now, there has been a single

supplier [Russia]. For some time it has been

unacceptable to depend on this source. This

is not only true for Lithuania but also for the

broader region. Latvia, Estonia and

Finland also get 100% of their natural gas

supplies from a single supplier and until

now there has been no physical possibility of

choosing an alternative supplier.”

“That situation became even less acceptable

when that dominant supplier gave a number

of signals starting in the winter of 2008 [the

start of the Russia-Ukraine gas dispute] that it

was not the most reliable supplier, and in other

periods since it has become obvious that gas

supplies are not only commercial or technical

matters but there is also quite a bit of political

interest involved in this issue.”

Russian threats over the security of the gas

supply contributed to moves by the European

Union to stipulate alternative sources of energy,

culminating in a requirement for member

states to plan for alternative sources of all

major energy areas such as gas or electricity.

That directive has been transposed into

Lithuanian national legislation along with that

of other EU countries.

“It was understood that with all the European

gas networks being physically rather far away

from ourselves, the only way of introducing

an alternative source was to build an import

terminal. With natural gas there are only

two ways of transporting it, either through a

pipeline, which is how the majority of gas still

flows worldwide, or by liquefying it.”

“It is only in the last decade or so that the

global LNG market, has started not only

expanding but changing in a way that more

so-called spot trading appeared. This model is

based not so much on the long term 10-25-

year contract but on the supplier going to the

market and offering their LNG cargoes

to whoever wants to buy it at short notice.”

This spot market, where buyers are able to

go to the market for better terms, is >>

Computer

projection of

the completed

terminal


AUTUMN 14 BMI KNOWLEDGE

BMI Baltic Management Institute combines the strengths of six leading international business schools to offer premium education opportunities for experienced executives. Academic partners are HEC Paris, Copenhagen Business School, NHH Norwegian School of Economics, Louvain School of Management, Vytautas Magnus University and Shanghai Jiao Tong University. (www.bmi.lt)

Showing the place one has or would

like in society, to feel successful and

gain others’ respect, is the main driver

of surging demand for luxury goods among the

non-elite. In some circles, especially in Asia,

having the likes of a Cartier bag or Omega watch

is seen as a ‘necessity’.

For luxury providers, it’s hard to resist the chance

to grow. But increasing volume reduces a brand’s

exclusivity. You can lose pricing power and the

elite customers who underlie a luxury identity as

you start resembling the mass-produced prestige

brands. That’s what happened to Louis Vuitton in

Japan several years ago. Then there are threats

to the legitimacy of the industry. China in 2012

banned luxury ads in Beijing saying that high

visibility of luxury was an unhealthy reminder of

the gap between rich and poor that promoted

incorrect values.

Mere ‘premium’ brands ride the waves of fashion

and compete on comparable factors, such as

functional or technical superiority. Classical luxury

brands, by contrast, compete on intangibles,

legends, consumer beliefs that give them

undisputed symbolic authority. They claim to

offer enduring value, independent of current

fashions. They are on a pedestal that doesn’t

permit comparison.

To preserve their luxury differential, some brands

like Hermès and Rolls Royce limit volume and

access by non-elite buyers, foregoing much

potential growth. Others, like Armani and Ralph

Lauren, use multiple labels to offer more accessible

items separately from others that remain rare and

extremely expensive. Even so, some brand dilution

The art strategy of luxury brands

endorsement, non-commercial connotations,

legitimization of high prices and reduction of the

rarity constraint. No wonder luxury brands now

downplay social-status motives in favour of more

elevated, artistic ones: ‘We help you ennoble your

money,’ is the new message.

Welcome to post-materialistic luxury, where

products are developed and co-branded with

star artists, marketing events are held at

cultural venues with a focus on art, museums

get sponsorships to host works by Coco Chanel

or Giorgio Armani, boutiques are built by famous

architects and contain exhibits, and ads are

conceived as works of art in themselves.

To be credible and add value, luxury firms are

taking artification beyond mere public relations

to make every act creative. They seek to actually

transform non-art into art as they gain depth

and elevation of purpose, benefiting from cross-

fertilization with artists in a flow of inspiration

that nourishes their brands.

Jean-Noël Kapferer, distinguished brand

management professor at BMI partner school

HEC Paris

Luxury brands are profiting as desires for extraordinary trappings – once limited to the wealthiest – spread down the social pyramid and into large developing economies. The dilemma is that in growing to meet this huge new demand, luxury firms risk alienating their core elite clientele, who value exclusivity. They also risk provoking social rejection of their industry as a painful symbol of excess and inequality. Integration of art into the luxury value chain is proving a powerful solution, according to Jean-Noël Kapferer who taught Luxury Strategy at BMI partner school HEC Paris. We summarize his findings, recently published in the journal Business Horizons

is inevitable, and the dilemma of how to grow while

keeping a luxury strategy remains.

To address the challenge, many luxury brands are

engaging in a process of strategic ‘artification’.

That’s how Louis Vuitton rebuilt its image in Japan.

And more generally, associations of luxury brands

with the art world are multiplying.

Art and luxury have long been related. Both are

expensive creations supported by the cultural

elite. Both foster the ideal of timelessness, of

transcending what is merely functional and

fashionable. But while luxury associates negatively

with conspicuous consumption, art has universal

prestige as something that enriches humankind.

By positioning themselves as part of the art

world, and their products as works of art, luxury

houses can defuse social criticism and build up

new symbolic capital, as contributors to the

development of culture. Artification brings moral

expanding rapidly, and is expected to expand

even further with new capacities that

are expected to come online in Australia

and elsewhere, and new price-setting

mechanisms being pioneered in the US in

which liquefication fees and profit margin

are packaged in with prices set by the US gas

exchange prices.

For Lithuania of course, the purpose was not

so much to pioneer new energy supply

business models, but to assert more control

over its own energy prices.

The Klaipeda facility was conceived as a short

and medium term measure to ensure security

of supply for every winter, irrespective of what

happens to the pipeline coming from “the

East”. The by-product has been to create an

exciting new market for the wider region,

which previously did not exist.

“It is expected that as a consequence of

introducing competition, the prices here

will reflect what is happening on the global

market, which is significant because if you

look at the figures, Lithuania is constantly

number one or two in terms of the gas

price levels in Europe.

Despite being closer to the source we have

been paying significantly more than anyone

else in Europe.”

I ask, somewhat disingenuously why Russia’s

gas suppliers charged Lithuania so much?

Matulionis smiles.

“I think that it’s quite obvious in a situation

where there is no alternative, where there is

no choice, you basically charge as much as

you can.

“In a way it was not helpful [to Russia] either

because gas consumption has declined over

time with households and businesses turning

to alternative energy sources, probably as a

consequence of gas being so expensive that

an alternative became competitive.”

“[In parallel] we thought we would go ahead

and do this because the gas consumption is

the highest here.”

And natural gas constitutes the highest

proportion in the energy mix in Lithuania.”

“So basically the pain because of the high

prices and the vulnerability of supply was

the highest here.”

“And the government seemed to be the least

willing to continue with discussions that may

take years to complete and in 2010-2011

it decided that irrespective of the regional

discussions there should be a short term

measure implemented to cut this monopoly

as soon as we could.”

Indeed discussions are still ongoing between

Finland and Estonia, with Latvia having

withdrawn from consideration of the pan-Baltic

project. But Klaipedos Nafta are insisting

their new terminal will be accessible to all

who want to buy gas, although some who

invest in infrastructure insist on restricting

such access until they have recovered their

capital expenditure.

Says Matulionis: “It was considered that if we

were building yet another monopoly it would

not help towards creating an open market.”

“We are a completely open terminal. Everyone

gets to use our capacity on the same terms,

at the same price.”

Lithuania’s bold gambit appears to have

worked. In May, Russia’s Gazprom and its

Lithunanian equivalent Lietuvos Dujos agreed

a reduced the gas price for Lithuanian

consumers approximately 20% less than the

previous $480/1000 m3. The agreement will

stand until January, 2016.

Given that major infrastructure projects,

especially internationally important ones,

tend to get bogged down for years or

decades (Rail Baltica is just one example),

there is much to admire in this daring project

by Klaipedos Nafta and the Lithuanian state

whose implications are at once technical

(introducing potentially transformative new

technology to the region), political-strategic

and commercial.

When the gas starts to flow early next year,

Tadas Matulionis will not be the only Lithuanian

who will be celebrating. n


source: Klaipedos Nafta


AUTUMN 14 BMI KNOWLEDGE

BMI Baltic Management Institute combines the strengths of six leading international business schools to offer premium education opportunities for experienced executives. Academic partners are HEC Paris, Copenhagen Business School, NHH Norwegian School of Economics, Louvain School of Management, Vytautas Magnus University and Shanghai Jiao Tong University. (www.bmi.lt)

Showing the place one has or would

like in society, to feel successful and

gain others’ respect, is the main driver

of surging demand for luxury goods among the

non-elite. In some circles, especially in Asia,

having the likes of a Cartier bag or Omega watch

is seen as a ‘necessity’.

For luxury providers, it’s hard to resist the chance

to grow. But increasing volume reduces a brand’s

exclusivity. You can lose pricing power and the

elite customers who underlie a luxury identity as

you start resembling the mass-produced prestige

brands. That’s what happened to Louis Vuitton in

Japan several years ago. Then there are threats

to the legitimacy of the industry. China in 2012

banned luxury ads in Beijing saying that high

visibility of luxury was an unhealthy reminder of

the gap between rich and poor that promoted

incorrect values.

Mere ‘premium’ brands ride the waves of fashion

and compete on comparable factors, such as

functional or technical superiority. Classical luxury

brands, by contrast, compete on intangibles,

legends, consumer beliefs that give them

undisputed symbolic authority. They claim to

offer enduring value, independent of current

fashions. They are on a pedestal that doesn’t

permit comparison.

To preserve their luxury differential, some brands

like Hermès and Rolls Royce limit volume and

access by non-elite buyers, foregoing much

potential growth. Others, like Armani and Ralph

Lauren, use multiple labels to offer more accessible

items separately from others that remain rare and

extremely expensive. Even so, some brand dilution

The art strategy of luxury brands

endorsement, non-commercial connotations,

legitimization of high prices and reduction of the

rarity constraint. No wonder luxury brands now

downplay social-status motives in favour of more

elevated, artistic ones: ‘We help you ennoble your

money,’ is the new message.

Welcome to post-materialistic luxury, where

products are developed and co-branded with

star artists, marketing events are held at

cultural venues with a focus on art, museums

get sponsorships to host works by Coco Chanel

or Giorgio Armani, boutiques are built by famous

architects and contain exhibits, and ads are

conceived as works of art in themselves.

To be credible and add value, luxury firms are

taking artification beyond mere public relations

to make every act creative. They seek to actually

transform non-art into art as they gain depth

and elevation of purpose, benefiting from cross-

fertilization with artists in a flow of inspiration

that nourishes their brands.

Jean-Noël Kapferer, distinguished brand

management professor at BMI partner school

HEC Paris

Luxury brands are profiting as desires for extraordinary trappings – once limited to the wealthiest – spread down the social pyramid and into large developing economies. The dilemma is that in growing to meet this huge new demand, luxury firms risk alienating their core elite clientele, who value exclusivity. They also risk provoking social rejection of their industry as a painful symbol of excess and inequality. Integration of art into the luxury value chain is proving a powerful solution, according to Jean-Noël Kapferer who taught Luxury Strategy at BMI partner school HEC Paris. We summarize his findings, recently published in the journal Business Horizons

is inevitable, and the dilemma of how to grow while

keeping a luxury strategy remains.

To address the challenge, many luxury brands are

engaging in a process of strategic ‘artification’.

That’s how Louis Vuitton rebuilt its image in Japan.

And more generally, associations of luxury brands

with the art world are multiplying.

Art and luxury have long been related. Both are

expensive creations supported by the cultural

elite. Both foster the ideal of timelessness, of

transcending what is merely functional and

fashionable. But while luxury associates negatively

with conspicuous consumption, art has universal

prestige as something that enriches humankind.

By positioning themselves as part of the art

world, and their products as works of art, luxury

houses can defuse social criticism and build up

new symbolic capital, as contributors to the

development of culture. Artification brings moral


European Capital of Culture status has certainly raised the profile of Riga and boosted tourism in the city, but is the prestigious accolade enough to lift its art market to the European big league? Florian Maass reports

THE ART OF ECONOMICS

Riga has been basking in its high summer

as the 2014 European Capital of Culture.

With a daily menu of lively and colourful

events attracting record numbers of visitors,

it looks like the Latvian capital is all about

the arts now.

Of course all this cultural activity is good for

the city’s prestige as a visitor destination, but

is it doing anything more generally for local

business and the economy?

BQ Baltic has taken a close look at the local art

market, with a special focus on the visual arts.

We met with some of the big players in the

field: the corporate and private collectors, the

gallery owners, and the artists themselves.

Globally, the art market has been among the

fastest growing markets since the financial

crisis, but how well is Latvia placed to take

INTERVIEW AUTUMN 14

Artists Kaspars Podnieks and Krišs Salmanis who represented Latvia in the 2013 Venice Biennale


AUTUMN 14 INTERVIEW

advantage? One of the leading lights of

the city’s arts scene is Ilze Žeivate, owner of

Maksla XO gallery in Riga’s gracious, park-side

Elizabetes Street.

She won’t forget a particular quiet summer

Sunday in August last year.

Running a commercial gallery has never been

easy in Latvia, a country with a low average

income and a small middle class. Just when

it became fashionable to buy art, the financial

crisis hit.

These days the dozen or so galleries are happy

if sales cover their fixed costs in the course of

several months.

That day a friendly, elderly Italian gentleman

entered her gallery with his wife and friends.

They were intrigued by painter’s Kristaps Gelzis

show whose extravagant plastic paintings that

fascinated them. The gentleman was none

other than the fashion business mogul-turned

art collector Luciano Benetton. The great man

bought five paintings on the spot.

“In my travels in Latvia I have experienced

first-hand how the country’s dynamism

and optimism is reflected in its diverse and

vibrant art scene,” Signor Benetton told

BQ Baltic. He included Latvia in his Imago

Mundi international contemporary art

exhibition project.

According to the painter turned art professor

Kaspars Zarinš, Latvia suffers from “too many

artists and a too small a market.” He sees it

as a clear buyer’s market.

BQ estimates that about 300 artists in Riga

produce for a market of not many more

serious buyers.

Important paintings by established

contemporary artists can be bought for as little

as €3,000.

The highest prices, about €100,000, are

reserved for the turn-of-the-century pioneers

of Latvian modernism such as Janis Rozentals

(1866-1916), Vilhelms Purvitis (1874-1945)

and Johann Walther-Kurau (1869-1932)

THE COLLECTORSThe domestic market has been largely

dominated by four big collectors.

Guntis Belevics became a collector thanks

to the advice and inspiration of the painters

Kaspars Zarinš and Aija Zarina. His first

purchase, by classical modernist Janis Valters,

was a real steal. He paid LVL 135 ( €192) and

sold it later for LVL 50,000 ( €71,163). >>

Kristaps Gelzis at work in his Riga studio


Belevics made his money as the founder of

a leading pharmacy chain in Latvia. Now he

owns about 3,000 solely Latvian art works,

including some of the biggest names. The

Latvian National Museum of Art in Riga

recently showed his collection in the first

ever exhibition dedicated to a single private

collector. Belevics sold a lot in the crisis, but

is now buying again to improve rather than

to enlarge the collection. Some of the

paintings he bought 10 years ago he doesn’t

even like any more.

“A piece of art educates you. You just can’t

hang a poor painting beside a fabulous one,”

says Belevics. His dream is to open a museum

in his home town of Koknese southeast of

the capital.

Janis Zuzans is another big collector. He

exhibits selected pieces at his Mukusala Art

Salons. His father was already a collector.

He was inspired to collect by a painting of

Indulis Zariuš, Kaspar’s father. Now he shares

Benetton’s liking for Kristaps Gelzis’ art. He

buys only art that is instantly “speaking” to

him. Conceptual art isn’t his cup of tea.

In the past the main corporate collector was

Swedbank for a while, where Ilze Žeivate acts

as curator. But they have gone rather quiet.

It does not help the market that the country

still lacks the long-proposed Contemporary Art

Museum of Latvia. There have been advanced

plans to build it, with the Dutch architect

Rem Koolhaas enlisted to produce a suitably

iconic building.

The financial crisis put the project on ice, but

did not kill it. Ernests Bernis and Olegs Fils,

owners of the ABLV Bank, the largest private

bank in Latvia, have been collecting for the

emerging museum, as well as for themselves.

Donating a total sum of €1.5m, they hired art

experts to choose the pieces. Like everybody

interested in art in Latvia, the ABLV Charitable

Foundation, which curates the collection,

hopes that the museum will be opened

by at least 2018, the centenary of Latvia’s

“first independence”. In the meantime, the

Foundation is focusing on raising interest in

and understanding of contemporary art.

“We want to form the audience before we

form the museum,” says Zanda Zilgalve,

Chairman of the Board. “If you don’t know

about art, you don’t miss it and you won’t buy

it. Last year the Foundation invited thousands

of school kids to the first showing of the

collection. Together with art teachers, they

could experience and learn about the selected

pieces of art.”

By indoctrinating the young into the benefits

of exposure to art, her aim is to build a bigger

audience for contemporary work, as the

basis not only for the museum but for the

Latvian art market more generally. She and

assistant project manager Ksenia Pegasheva,

estimate the number of those interested in

contemporary art at only several thousand

people in Riga. But they agree that the city’s

artistic offer has already achieved a higher

level than it gets credit for internationally.

THE ARTISTSUnlike other countries, the Latvian capital’s

art scene is still fixated with figurative painting,

with clear influences from contemporary

Scandinavian, German and Belgian schools

of painting. Learning how to draw and paint

is still obligatory at the Art Academy, and the

market reflects this traditionalism by being

relatively conservative by the standards of

Western Europe.

Some contemporary artists are well-tuned

to the more avant-garde international scene

however. Zane Culkstena is founder of KIM

(standing for “Kas Ir Maksla?”, “what is

INTERVIEW AUTUMN 14

Opening of an exhibition at Maksla XO gallery. On the right: the artists Kristine Luize Avotina and Helena Heinrihsone together with Ilze Žeivate, the owner

of the gallery

We want to form the audience before we form the museum. If you don’t know about art, you don’t miss it and you won’t buy it – Zanda Zilgalve


art?”). This hotbed of innovation and ideas is

trendily housed in a renovated 19th century

industrial building in Riga Central Market,

hosting “exhibitions, lectures, discussions, a

library, publications and other events”.

Culkstena says that the best contemporary

work in Latvia is a mix of media and

techniques: video, installations “ready-mades”

(combinations of “found objects” or everyday

things), graphics and animations all feature in

shifting combinations.

She holds up Krišs Salmanis who helped

produce the Latvian Pavilion at the latest

Venice Biennale, as a good example,

applauding his ambition to put Riga on

the international art map. The installation

“North by Northeast” combined photos of

rural population by Kaspars Podnieks with

a swinging tree hanging upside down from

the ceiling, intended as a “comment on the

relocation of Latvia between East and West

but as well for the individual uncertainty and

the search for Europe’s new geographical

centre somewhere in the Baltics”.

For all his international reputation Krišs, like

many local artists, doesn’t expect to earn a

living from art. “Most artists here make art

because they are compelled to, not because

it’s good business,” he says.

Such motivations mean that they stick to

their own style rather than adapt to market

demand. Teaching at the art academy, jobs at

advertising agencies and magazine illustration

work are popular ways to supplement the

day jobs.

Kristaps Gelzis’ work can be found at private

and public collections worldwide. In 2009

he took part at the Venice Biennale. His

paintings using plastic bags and rubber bands

are an international success. Both ironic

and sophisticated, he tries to play with his

country’s sentiments. It’s about “personality

and humanity, despite aggressive change of

circumstances, both for individuals and the

state I live in.” To him contemporary means

“a reflection of the core of time

we live rather than high technology and

artistic, brainy formal innovations. “The

artist’s clear message” matters to him.

He likes his day job at the art academy

as it gives him a lot of inspiration.

Kaspars Zarins and his wife Vija Zarina are

also well-established names in contemporary

Latvian art. With the help of a Danish >>

Krišs Salmanis in Venice


agent they sold about 100 paintings alone in

the Scandinavian market between 1993 and

2003. They miss good art agents in Riga.

But even without them their works can be

found not only in the main Latvian collections,

but also abroad.

According to the book “Women in Art”

Vija is one of the most important female

painters worldwide.

LATVIAN ART ABROADBoth Kaspars and Vija are represented as

well in Berlin by the TVD Art Galerie. The

owner Valerij Tarasenko has lived in Riga and

appreciates the quality of Latvian painting,

especially since he prefers figurative painting.

His favourite is Vija Zarina, to him she is

simply “the best Latvian painter.” Tarasenko

represents 20 Latvian artists exclusively in the

German market, but says that the nationality

doesn’t matter in Berlin, only quality. The

painters Eriks Apalais and Janis Avotins,

both among the most promising Latvian

painters, are among the few that the

established gallery owner Vera Munro chose

to represent in her Hamburg gallery.

Norberts Sarmulis, director at the classic art

auction house and gallery Antonijas has set

an example in the local market by being

the first to publish all the prices realised. He

complains that parts of the Latvian art market

still lack proper cataloguing procedures

practiced by the main international auction

houses and salerooms. This is a problem, as it

means buyers will lack documentation about

the provenance of the artwork.

Sarmulis admits that the financial crisis had

an impact on his business. His steady clientele

shrank to a handful, but two new steady

Russian customers jumped in. Paintings and

porcelain of the modern era are good sellers.

But he also sells and puts to auction works

by young artists on the cutting edge.

Kristaps Gelzis decided to work exclusively

with one gallery, Maksla XO, for a

decade already and in the long term it

has paid off as he imagined.

Ilze Žeivate is Maksala XO’s curator has an

idealistic approach to promoting Latvian art.

She is sure, that if she displays good art in

a central location every day, passers by will

eventually start to be interested. someone with

as good an eye as Luciano Benetton is passing

by, they only need to pass by once.

Riga galleries would clearly appreciate more

artists following Gelzis’ route to making a

name for himself.

That would make it easier for the galleries

to invest in them. Given the limited domestic

market, both artists and galleries have to

get a name overseas, which means going

to international art fairs. This can be expensive,

and requires patience. Astrida Rinke has

just attended the Start fair at the famous

Saatchi Gallery London, representing

Salmani’s work. Previously she has attended

ArtBrussels and ViennArt. She has a higher

percentage of real contemporary art

than other galleries, but is happy now to

host the next one-man exhibition of

Kaspars Zarins.

To those contemporary artists, getting noticed

by the non-commercial art centres is even

more important, as they bring prestige that

translates into value. These include the Latvian

Centre for Contemporary Art (LCCA) a not-

for-profit organisation describing itself as

“an internationally active non-governmental

culture organisation” and which works to

promote and support contemporary art.

That other beacon of the Riga art scene,

KIM is preparing to participate in an exhibition

in New York.

The future of Latvian art, as a tradable asset

as well as a cultural adornment, depends

on the country filling in the missing links of

the art market chain: a critical mass of

professional art agents and those adept at

finding the right grants for artists. More

sophisticated marketing would also help.

According to one estimate, the number of

serious collectors (buying over a longer

period and for a serious amount of money)

of Latvian art do not exceed 50, only a

handful of them with very deep pockets.

For a young country, it’s not such a bad

basis from which further interest will grow,

and the streams of art-minded visitors

INTERVIEW AUTUMN 14

In the works of the Latvian artists I found the new – even critical – reading of tradition to be particularly interesting... and a new attitude that is both realistic and imaginative – Luciano Benetton

Agita Putane, the manager of Putti

gallery in Riga. Putti exhibits unique

artworks of contemporary Latvian

jewellery artists, such as Valdis

Brože, Janis Vilks, Zane Lavrinovica,

Maris Aunins, etc.

visiting Riga this year can only have helped.

For all its fascination and attraction for the

keen-eyed contemporary art cognoscenti,

overall the Latvian art scene is still underrated,

offering obvious advantages to those who

appreciate the importance of spotting the

hot markets of the future.

In this respect weak domestic demand is

a positive advantage to foreign collectors

interested in buying.

It’s worth concluding with what Luciano

Benetton told BQ about his impressions in

Riga: “In the works of the Latvian artists I

found the new – even critical – reading of

tradition to be particularly interesting.

And also the common thread of a new

attitude – with personalities, styles, themes,

different techniques – that is both realistic

and imaginative.”

High praise indeed from a man who

knows, better than almost anyone how

visual impact, and commercial appeal are

intricately intertwined. n

AUTUMN 14 INTERVIEW

SEPTEMBER ART EXHIBITIONS IN RIGA AND BEYOND: Artshok Biennale 2014 at Janis Zuzans Mukusala Art Salon. Five Estonian and five Latvian artists

– among them Krišs Salmanis – introduced by art critics. MMSalons.lv, Mukusalas 42.

The Survival Kit festival combines 25 Latvian and even more international artists.

Riga2014.org, survivalkit.lv.

Kaspars Zarins new paintings at ALMA gallery. Galerija-alma.lv, Rupniecibas 1-2.

TVDart galerie Berlin shows works by Vija Zarina, among others such as Anna Afanasjeva.

TVDart-galerie.de, Schlüterstr. 54.

NordArt will exhibit works of six Latvian artists. Nordart.de, 24782 Büdelsdorf.

Putti has a one-man exhibition of Swedish designer Ted Noten. Putti.lv, Marstalu 16.

The ABLV Charitable Foundation has put a wonderful virtual tour of that exhibition online.

http://virtuala-ture.ablv.org/

A guide to forthcoming artistic highlights


COMMERCIAL PROPERTY AUTUMN 14

In December 2014, national development

agency Invest Lithuania together with BQ

Baltic Magazine is holding an event in London

to promote public-private partnership (PPP)

opportunities in Lithuania to UK bidders.

Tadas Jagminas, the director of project

management at Invest Lithuania, says: “The

UK has one of the biggest PPP markets in

the world with a remarkable experience in

multiple infrastructure sectors. We expect

that experienced bidders from the UK could

bring the best practices and know-how to

local players and lead some of the PPP projects

of relevant scale”. The event is supported

by an integrated project and programme

management consultancy Faithful and Gould

and renowned legal advisors Harper Macleod.

Public-private partnership (PPP) is a business

relationship between a private-sector company

and a government agency for the purpose

of completing a project that will benefit

society. Public-private partnerships can be

used to finance, build and operate projects

such as public transportation networks, parks

and convention centres. Financing a project

through a public-private partnership can allow

a project to be completed sooner or make

it a possibility in the first place. Lithuania,

like many countries in the region, faces a

growing demand for public infrastructure and

services. Hence, like many Central and Eastern

European governments, Lithuania is looking at

PPP arrangements to stimulate the economy

and deliver the investments needed to close

the infrastructure gap.

The European Bank for Reconstruction and

Development has recently conducted a survey

entitled Evaluating the Environment for Public-

Private Partnerships in Eastern Europe and the

Commonwealth of Independent States, the

study is the first of its kind. It places Lithuania

among the top five countries in Eastern

Europe by institutional framework, investment

climate, financial facilities and sub-national

adjustment, noting constant improvements in

PPP institutional design and the continuous

encouragement of private sector participation.

One of the pilot PPP projects, Palanga bypass,

reached its financial close last year. The

Lithuanian Road Administration selected

Kauno tiltai and Siauliu plentas to design,

build, operate, and finance the Palanga bypass

contract, worth €36 million over 25 years.

New PPP plans are already under way: the

new Detention Facility [prison] in Vilnius with

1,620 beds. This is one of the four PPP projects

described in Lithuania’s prison modernisation

strategy, which was recently approved by

the Government. The project includes

design, building, maintenance and financial

activities. After the approval in Parliament’s

autumn session, the tender documents will

be prepared, and hopefully the tender will

be launched in the second half of 2015.

The Ministry of Transport is also contemplating

the implementation of two projects via the

PPP route. The first is Vilnius-Utena highway

reconstruction project (reconstruction of 58.10

km of individual sections and maintenance of

72.15 km in total). The maximum value of the

project approved is almost €175 million. This

value covers initial investment, as well as all

maintenance and financing costs. The project

has already been approved by the Government

and awaits approval by the Parliament. The

second PPP project is a concession for the

Inland Cargo Port in Kaunas. The private

operator (concessionaire) will be responsible

for the development of superstructures and

operation of the port during a 25 years period.

The project has been approved and tender

documents are under preparation. A tender

announcement is foreseen in the first half

of 2015. n

>> Public-Private Partnerships are growing in popularity across Lithuania, reports Kate Kolbina

Financing a project through a public-private partnership can allow a project to be completed sooner or make it a possibility in the first place

The construction of Palanga bypass has already started: this is a stretch of A13 between Klaipeda

and Liepaja

BUSINESS LUNCH AUTUMN 14


BUSINESS QUARTER |AUTUMN 1443

How to Get Ahead in Business, Lesson one:

Choose your parents carefully.

When my lunch partner, star management

consultant Deividas Tumas was five years old,

his mum and dad decided that, as he was

a bright lad, it was high time he went off

to school, leaving them with more time to

develop their budding horticultural equipment

company. They then, er... “edited” his birth

certificate to show that he was six, not five

years old. It gave him a head start in life

and the INSEAD-trained globe-trotting

business advisor has been ahead of the

game ever since.

In fact, so prodigious was his school

performance that he ended up leaving his

home town of Kaunas on graduation and

going abroad, entering the Stockholm School

of Economics in Riga (SSE Riga) at the grand

old age of 17. Even then he completed his

degree under an “accelerated programme”

of two and a half years.

Thus it was at the age of 20, while his

contemporaries were playing student drinking

games, he was already a suit-and-tie company

man working for the oil refinery Mažeikių

Nafta (now Orlen Lietuva).

“It’s not something I would necessarily impose

on my own son” Deividas (now 33) says about

his own hot-housed head-start, as the waiter

brings our starter of herring rolls with wild

boletus mushrooms. “There are pros

and cons.”

Nevertheless the pattern of high achievement

seems to have been set in everything he has

done. He has been a McKinsey consultant

in Moscow, a hedge fund analyst in Zurich

and a financial IT advisor in London, to

become founder and now owner of boutique

management consultancy Strategy Labs in

Vilnius, specialising in private equity, telecoms

and retail, with a special expertise in links with

Lithuania’s eastern neighbour Belarus.

The subject of our celebratory lunch at one

of Kaunas’s best-known restaurants is the fact

that Deividas’s company which he launched

in 2012, has just been acquired by the Lewben

Group, a Lithuanian wealth management

firm with offices in London, Switzerland

and Cyprus.

The firm, which is low-profile to the point of

being secretive, already has tax, accounting,

outsourcing and legal services for high-net

worth individuals and corporate clients.

Through the acquisition of Strategy Labs,

meaning Tumas and his 17 colleagues,

it has bolted on consultancy services as well.

Deividas, steeped in the culture of discretion

that prevails in his line of business, declines

to divulge details of either sides’ turnover etc,

or the terms of what he describes as a

“swap deal”, but he now has a seat on

Lewben’s board, and seems quite happy

about the arrangement.

More on that later, but first: Where are we

and what are we eating?

I bumped into Deividas in Kaunas’s Vilniaus

gatve, one of the most attractive streets in

Lithuania’s a second city, a scenic old

trading hub on the confluence of the Neman

and Neris Rivers. We convene to the Senieji

Rusiai (Old Cellars) Restaurant, one of the

best-known eateries in the city, patronised

by presidents, diplomats and basketball stars.

Its subterranean 17th Century walls are >>

Colin Donald enjoys a nostalgic lunch with a Lithuanian high flier

AUTUMN 14 BUSINESS LUNCH

STAYING ONE STEP AHEAD OF THE PACK



bedecked with murals, including depictions

of one of the city’s historical highlights:

Napoleon’s Grand Army crossing the Neman

in 1812, en route to a minor setback

near Moscow.

It’s a dramatic backdrop to the Senieji Rusiai’s

highly creative (and delicious) Lithuanian-

European menu, and hints at the depth of

stories to be uncovered about the history of

Kaunas, which served as “temporary capital”

of Lithuania after the First World War.

A former Hanseatic city, with its brick-built

gothic architecture, it has witnessed many

of the partitions and occupations that make

Baltic history so daunting for non-natives.

How many people, I wonder, might have

hidden in these cellars to escape successive

invading armies over the decades?

Although he left the city at an early age,

Deividas Tumas is a Kaunas boy, and frequently

returns to his hometown to visit his parents,

pioneers of post-Soviet entrepreneurship with

a business selling growing equipment. Before

the Wall came down they worked in that

quintessential Soviet establishment, a radio

engineering factory.

Now Deividas often passes through his

hometown, with his girlfriend, the well-known

architect AndreųBaldišiute and their infant

son Kazys, en route to their holiday pad on

Lithuania’s Curonian Spit.

He is well-placed to have observed the

changes that have come over Kaunas – all of

them for the better as a busy, prosperous old-

town street like Vilniaus gatve attests – with

its upmarket bars, cafes and restaurants. Later

in our meal, while we are enjoying the Senieji

Rusiai’s outrageously rich desserts (caramelised

pear in port with blue cheese ice cream in

my case) on the terrace outside, he casts

his keen commercial eye up at some of the

undeveloped old flats and apartments above

the awnings. It’s only a matter of time, he

says, before these properties are gentrified

and sold off for fancy prices.

All of this is very different from the early-mid

1990s he says, the post-communist era time

between the death of the old system and the

establishment of the new democratic order.

Kaunas, he said, became the playpark of the

powerful Lithuanian mafia, who ran the city

as their fiefdom.

“When one system collapses, there is a

vacancy for criminal organisations to become

very powerful, from 1993-98 it was a crazy

time until the Government founded an

organised crime unit to crack down on

their activities.”

“It was very difficult to do business, every

business person was squeezed by racketeers –

I was attacked on the street when I was

still quite young. It was very dangerous. There

was nothing here, you couldn’t walk around.

It was a nasty time, and as a schoolboy you

were very much scared. I remember this as

a transitionary period.”


AUTUMN 14 BUSINESS LUNCHKaunas’s problems were quickly cleared up

in the mid-1990s, and anyway Deividas’s

career has largely been made abroad, starting

with his BSc in business administration and

economics at SSE Riga. This appears to have

provided him with a useful and enduring Baltic

network of contacts and colleagues.

Now he worries a bit that his old school is

“losing its edge” now that visa restrictions

and travel to the UK and elsewhere have

become so much easier than in his day, the

best and the brightest from the Baltic region

are more likely to head to Cambridge, London

or Birmingham for their business education

(other alumni strongly disagree).

Before starting Strategy Labs, Deividas took a

crash course in Russian before spending three

and a half years in Moscow as a McKinsey

“associate”. During this time he worked

crazy hours and travelled immense distances

advising Russian companies and would-be

investors in this vast and complex market.

Prior to that came an MBA at INSEAD

in Fontainebleau near Paris and Singapore.

These are normally undertaken by

30-something executives in mid-career but,

following the pattern set in childhood, taken

at an earlier stage by the then 24-year-old

Deividas, who describes it as “fun”, not a

word always used in this context.

Nowadays, when he talks to MBA students,

as he is sometimes invited to do, he tries to

steer them away from a purely material view

of these qualifications, which he thinks are

too often viewed solely as a means of

boosting earning power.

“Some people look at the MBA as an

investment. Another way is to look at it in

terms of what you want to get out of life, in

the same way that people study philosophy.

Education should be a broader concept, even

business education is a chance expand your

horizons. I tell students not to think of it in

utilitarian terms. It should not be about being

able to go buy a Porsche – though I wish I

had one – but about studying completely

new things in great schools and making new

friends in new geographies.”

“Personally I am driven by different intellectual

things, ideas, books, travel. I am more

interested in that, less in material things.

To me the year of the MBA was a fun year.

Let’s face it, you don’t have that many years

in your life.”

As we tuck into our meal, accompanied by

exceptional South African and Italian wines

skilfully selected by the sommelier from the

Old Cellars’ cellar, Deividas proves the best

kind of conversationalist, the kind who does

not take himself or his bluechip career (he

is also on the board of Rolvika, Charter Jets

and Enercom Capital) too seriously.

He also takes care to inform this foreigner

about the Lithuanian-ness of what we

are eating, starting with the black bread.

Discussion of the meaty boletus mushrooms

served with our herring starter leads to a talk

on the tradition of mushroom gathering as

a kind of annual marathon family bonding

session that in the pre-independence era

seems to have become a way of shoring

up Lithuania’s folkloric tradition and even

asserting national identity.

The tradition seems to have been strong

in Kaunas, seen by him as the country’s

heartland, an aspect reflected in the >>

Some people look at the MBA as an investment.Education should be a broader concept, even business education can expand your horizons

45



Senieji Rusiai’s locally-sourced ingredients.

His current home Vilnius has always been a

more a cosmopolitan “city of strangers” he

says, quoting the title of a book on the city by

Laimonas Briedis. While he does not idealise

his relatively sleepy birthplace, after lunch

he takes pride in pointing out the riverside

beauty spots he knew as a schoolboy.

We chat over our main courses about the

consultancy world, which particularly in its

elite upper reaches is notoriously opaque and

little-understood by those outside the charmed

circle of companies like McKinsey, BCG and

Booz & Co. But Deividas was used to working

in shadowy, well-remunerated ambiance.

Prior to his INSEAD sojourn, he worked for

a couple of years in Zurich, the world capital

of opacity, working on hedge funds for GFTA

Analytics, the “pocket company” of a super-

discreet, “super- rich” German investment

manager. “It became boring, as these things

do” he remembers. Apart from the question

what do they actually do, the question about

companies like McKinsey is how can they

charge so much? Deividas is characteristically

lucid on the question.

“You can get advice for $1000 or a $1

million. The latter advice won’t be 1000 times

better, it will be maybe 10% better. For some

businesses that 10% is the difference. It’s like

with a marathon runner, it takes a tremendous

effort to gain the extra few minutes in a

two and a half hour race, but they make

the difference.“

Deividas modestly plays down the risk he

took in leaving McKinsey and starting his own

consultancy Strategy Labs, renouncing any

claim to being a “true entrepreneur”.

“I never thought ‘I’m going to quit McKinsey

and do this’, it happened naturally. Some

friends asked me to sit on a board of a

company in Vilnius and once a month we had

/ I had a meeting with them. At some point

I started seeing the potential, so I hired a

couple of guys from SSE Riga, explaining that

this was a start-up and therefore it was a risk.

“We started off with no office, no company,

no website, no logo, just a vision of the future.

We didn’t actually have any signed clients

though there were two or three we were

talking to.”

“I knew there would be enough to keep me

and a few guys going, one or two projects a

year. To me this is not true entrepreneurship,

that’s when you take bigger risks. To me

it’s more like being a dentist or a lawyer.

Would you ask a doctor if they think they are

worried about going bankrupt? You can be

a successful or an unsuccessful doctor but

somehow you will always have patients.”

Strategy Labs found interesting “patients”

around the world. For example it was retained

to launch Smart Mobile, a new mobile

operator in Sierra Leone. The team, which

got out just before the recent Ebola outbreak,

were interim managers, responsible for entire

commercial operation of the operator (HR,

finance, marketing, sales and distribution).

Deividas seems guaranteed even more deep-

pocketed “clients” now he is with the Lewben

Group, given the cross-selling opportunities

that will occur. Business for him is about

more than servicing the wealthy clientele that

inhabit the plush-carpeted world of family

offices, where the talk – or rather discreet

whispering – is about “tailored wealth

preservation and growth solutions.”

He makes a convincing case that wealth is not

for him an end in itself. This explains the pro-

bono work he does on the supervisory board

of Kurk Lietuvai (Create for Lithuania).

This one-year work placement programme for

young professionals was launched by Invest

Lithuania in partnership with the Lithuanian

Government, enthusiastically backed by the

President Dalia Grybauskaite. It is aimed

at drawing on the expertise of Lithuanian

youth who have completed their studies

at universities abroad, and harnessing it

for the greater good of the homeland.

AUTUMN 14 BUSINESS LUNCH


Each year, a select team of 20 young

professionals is chosen to work on strategic

governmental projects and to participate in

high-level decision-making processes.

Three separate four-month rotations in

the public sector are tailor-made according

to experience and preferences of the

participants. At the end of each rotation, the

young professionals present their projects to

the Lithuanian Government as well as the

public. It’s a scheme which will, for example,

allow future leaders of Lithuania to work on

overseas aid projects.

As befits a young business leader with a

good grasp of strategy and wide economic

experience, Deividas thinks deeply about

the future of his country and how it should

position itself in a competitive world, and also

who it should position itself towards. Sitting

as we are on a restaurant terrace in a

picturesque old city, on a sunny day, watching

the world go by, surely if it was marketed

properly, there would be a future for Lithuania

as a European tourist destination?

Well not really, according to him.

“We are a beautiful country but there are

a lot of beautiful countries out there that

are equal or better in terms of attractiveness

to tourists.

“The problem is that the country tries to

focus itself towards the West, with advertising

campaigns in papers in Oslo or London, but

no one wants to go from there. If you can

go to Spain, which has better beaches, why

come here?”

“We always forget our best tourism strategy is

to make ourselves more attractive to Eastern

47

I’m very positive about the future of Lithuania, as we enter a new phase, though there is the question of when the next bubble will arise

countries. Our target clients are Russians

and Belarusians. OK, we don’t like them very

much, but we must learn to like them.

“I’m very positive about the future of

Lithuania, as we enter a new phase, though

there is the question of when the next bubble

will arise.”

“Real estate prices are surging. Officially

the growth rate is only a few percent but

the movement in the market is crazy. All my

friends are buying or selling, all the building

and restructuring going on, it seems like

the next phase of growth has really begun,

and the question is how short it is or how

long it will be?“

Knowing, as he puts it “how quickly the

milk turns sour [in Eastern Europe], Deividas

portrays his country, as being in a kind of race

against time to develop the strengths that

will eventually supersede the boom-bust cycle.

“I think we should at some point hopefully

succeed in succeed in developing our

strengths as a country like Estonia has,

creating edge, it has infrastructure, it is

marketing itself very well.

“we should focus on being a technology

and service-driven economy. And for a small

country that’s possible, you ain’t going to be

an industrial country, you ain’t going to have

cheaper prices than China.

We still are an industrial country, majority

of GDP is from manufacturing.”

“Hopefully we have more and more noise

created by start-ups like Vinted [a popular

online clothes exchange] or CGTrader, a 3D

model marketplace.

“We should be good at something, like

Switzerland is good at banking.”

We are good at services and we are still

hungry so we work harder. We should be

good at something, the answer is services.”

No doubt Deividas, who is good at quite a

lot of things, will make his influence felt. n

LUNCH FOR TWO IN KAUNAS’S TOP EATERYSenieji Rusiai (Old Cellars), Vilniaus gatve 34, Kaunas

Starter: Herring Rolls with Fried Boletus LTL16.50 x 2 (€4.78 x 2)

Main: Lamb fillet roast with soy beans, sun-dried tomatoes and potates and celery cream LTL45

(€13.03)

Duck Breast roasted in Thyme LTL38 (€11)

Dessert: Caramelised pear in Port and walnut sauce with blue cheese ice cream LTL16.50 (€4.79)

Hot cherries with vanilla ice cream and mint LTL9.50 (€2.75)

Wine: Van Loveren Neil’s Pick Colombar (white, South Africa) LTL12 (€3.48) (glass)

Piano del Cerro Aglianico del Vulture Reserva (red, Italy) LTL19 (€5.50) (glass)

Total L173 (€50.7)

What’s cooking in the cellars?



Today medical tourism – international

transit for the purpose of obtaining

medical services in that country – is

a rapidly growing industry due to increasing

mobility and regional cooperation. The most

common reason people seek treatment abroad is

because appropriate care is not available in their

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than in their home country.

WHY FOREIGN PATIENTS PREFER LITHUANIALithuania is one of the Baltic Sea states, and

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Europe. It is a member of European Union, NATO,

the Schengen customs zone, and from January

1, 2015, a member of the Eurozone. Health

tourism is ranked high on the agenda of tourism

development agencies in Lithuania. Although it

is far from being universally recognised for its

medical services, the number of foreigners coming

for treatment is increasing every year. Medical

tourists are attracted by both the favourable

geopolitical location of the country and a wide

range of medical service and qualified medical

professionals. The Lithuanian health care system

is in line with EU directives and international

quality standards. Most of the doctors are able to

speak foreign languages, and constantly improve

their skills abroad. Lithuanian medical staff are

known for high standards of patient care, which

makes Lithuanian medicine attractive to both

Western and Eastern markets.

WHY TO CHOOSE THE EYE CLINIC NAUJAS REGEJIMAS (THE NEW VISION)? Naujas Regejimas in Vilnius is a part of the well-

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At our eye clinic people with visual disorders from the other countries are consulted and treated by the medical staff with good English, German, and Russian language skills, so getting of the all the necessary services is simple

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For Naujas Regejimas each patient is treated as

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^


OVERVIEW AUTUMN 14

For Tamara Iudakhina, it was a long and hard

road from her native Moscow to the waiting

room of her son’s Latvian specialist.

Semjon,11, was suffering from suspected

Klippel–Trénaunay syndrome (KTS), a rare

condition that prevents blood and lymph

vessels from forming properly.

“I wasn’t able to obtain a full check-up for

him in Moscow, because everything was

getting stuck in Russia’s elaborate medical

bureaucracy and doctors seemed reluctant

to give us their full attention”, explains

Tamara. She decided to approach foreign

clinics, turning to TopMedClinic.com, which

aggregates information about world’s

medical destinations.

“German and Italian clinics left my queries

unanswered. In Israel and Finland we were

immediately offered an operation on the

blood vessels to remove the varicosity, which I

thought was both expensive and unnecessary.

The child is growing and changing! Wouldn’t

the same symptom just recur? I didn’t see an

urgent need for surgery”.

For Tamara it was vital that her son had a

thorough examination by a qualified expert

before conclusions were reached about his

final diagnosis and further treatment.

After all this research, Tamara liaised with

Baltic Health Tourism (BHT), a company which

specialises in bringing patients to Latvia’s

largest private clinic Veselibas Centrs 4 (VC4),

and organises their stay and treatment. VC4

was the only clinic which seemed willing to

look deeper into the problem and give the

patient himself a proper examination.

Kate Kolbina diagnoses how medical tourism is boosting the Baltic visitor economy

A HEALTHY NICHE

North Estonia Medical Centre

in Tallinn, Estonia


AUTUMN 14 OVERVIEWAlong with increasing numbers of people from

around the world, Tamara had discovered for

herself why Latvian medical tourism is proving

to have an edge in a competitive world.

How did this come about? Put it down to

the financial crisis, which had the virtue of

giving rise to initiatives that would not be

considered in times of plenty. The large Baltic

clinics began to think seriously about medical

tourism in 2008, just when they began to

realise that demand from local “customers”

was collapsing.

General check-ups are one of the most

popular services among medical tourists to

Latvia, undertaken by not less than 40% of

visitors. Tourists visiting for medical purposes

stay in the country at least four times longer

than other foreign travellers (five days

compared to 1.2 days) according to data

collected by Baltic Care, the Latvian alliance

of selected medical institutions.

During this time, patients need somewhere

to stay, something to eat, and things to do

to entertain themselves and their families.

These realities promote useful spill-over

benefits into other sectors of the economy,

so everyone wins: hotels, restaurants, and

shopping centres. Having realised the potential

of medical tourism as a “high value added”

industry, each of the Baltic countries has since

enshrined the economic role of the sector

with a plethora of agendas, directives, and

development plans.

But first of all, in order to attract the

significant number of medical tourists,

Baltic clinics had to fight unappealing

stereotypes of Soviet-era levels of equipment

and service culture.

While these prevailed, the Baltic States would

never be seen as a first choice destination

for medical interventions, at least not by

fellow EU members. Nevertheless, the market

was always there. According to a report by

Eurobarometer, which in 2007 surveyed more

than 27,000 residents of 27 EU member

states, 53% of respondents would be

willing to travel to another EU country to

seek medical treatment. However, only 4%

have actually ever done it. Little by little,

perceptions changed. Guests from the West

go for lower price and impeccable quality,

whereas visitors from the East see less value

for money, but come for the quality of medical

technologies and staff. In general, there

are more Eastern tourists than Western. For

Lithuania, this division is roughly 65% and

35%, whereas for Latvia it is 53% to 47%.

A lot of the modern Baltic clinics resemble

the hospitals of popular TV dramas: spacious

and chic waiting rooms, smiling young >>


F o r t h o s e w h o c h o o s e t h e b e s t


It is your health that is the true wealth, not pieces of gold or silver.

MAHATMA GANDHI

Make an appointment for one of our health check-up services and receivean exclusive welcome greeting from Dr. Vasaraudze – an exclusive facial care kit

in cooperation with Kanebo or Hugo Boss.

PERSONAL ATTITUDE

Warm and modern atmospherewith highest levels

of privacy

EXPERIENCEExperienced specialists with excellent European medical education and reputation

LATEST GENERATION EQUIPMENT

Multi-profile medical equipment meeting the latest technical

standards

Get to know your own health just in 3 days

For more information please call + 371 67 291777

vasaraudze 175x240 new.indd 1 26/08/14 12:19

reception ladies and of course, handsome

doctors in impeccable white uniforms,

operating the latest hi-tech contraptions in

their consulting rooms. As Maris Revalds,

head of the largest private medical company

in Latvia, makes clear, it often comes

down to material resources as much as

expert personnel:

“Our phlebologist [vein specialist] has four

lasers and three radio frequency machines

at his disposal, whereas the usual practitioner

has only one of each”.

The Baltic medical sector contains

comprehensive clinical expertise: general

health monitoring, dental care, aesthetic

medicine [plastic surgery], ophthalmology,

reproductive medicine [including fertility

treatment], drug addiction, orthopaedics,

etc. There appears to be no specific emphasis

on a particular area of expertise, though

Latvia is particularly popular for overall

check-ups, dermatology and phlebology,

whereas to Estonia patients go for childbirth,

oncology, orthopaedics, neurology and

ophthalmology treatments.

As for prices, they tend to be 25-50%

lower than in Western Europe. Linda Balina,

from Wellslim medical centre, puts it this

way, “when we tell the customer that a

hydromassage costs €12, they usually ask

to specify, whether it is the price per minute

or the total”. Lithuania can boast significant

value for money: for example, breast

augmentation costs on average $3,225,

whereas the same procedure in Israel would

cost $4,040.

How did the Baltic States find their niche

in this competitive international industry?

“Actually, it started from a negative situation

– from the financial crisis,” says Revalds

from Veselibas Centrs 4 with a smile.

“This is when the medical clusters were

created by the Government, and when we

created our own association Baltic Care, the

alliance of 10 leading medical clinics in Latvia.”

In order to capitalise on the potential of the

industry, to make use of the designated EU

funds and to create a development agenda

for the years ahead, all three countries

followed similar paths – organising medical

“clusters”, aligning clinics with peripheral

services with the general aim of promoting

their members’ services to foreign markets,

raising their competitiveness and drawing

down EU money.

The clusters are taking care of members’

promotion through going to medical

exhibitions, fairs, organising study visits and

looking for co-operation partners. Since

medical tourism is still relatively new in the

Baltics, clinics themselves are not investing

much into their promotion, but rather trying

to co-operate and reach target audiences

through common efforts. As Latvian cluster

director Gunta Uspele presents it: “One of

the cluster aims is to make complex products

which include several cluster member services,

and sell these packages to medical tourists.

We also have representations of cluster

clinics in cluster spa hotels”. The Lithuanian

medical tourism cluster LitCare puts the

patient rather than clinic at the centre of >>

OVERVIEW AUTUMN 14

Egles spa in Lithuania



It is your health that is the true wealth, not pieces of gold or silver.

MAHATMA GANDHI

Make an appointment for one of our health check-up services and receivean exclusive welcome greeting from Dr. Vasaraudze – an exclusive facial care kit

in cooperation with Kanebo or Hugo Boss.

PERSONAL ATTITUDE

Warm and modern atmospherewith highest levels

of privacy

EXPERIENCEExperienced specialists with excellent European medical education and reputation

LATEST GENERATION EQUIPMENT

Multi-profile medical equipment meeting the latest technical

standards

Get to know your own health just in 3 days

For more information please call + 371 67 291777

vasaraudze 175x240 new.indd 1 26/08/14 12:19


OVERVIEW AUTUMN 14

Oftalmology clinic

in East-Tallinn

Central hospital,

Tallinn, Estonia

Baltic Care is the alliance of 10 leading Latvian

clinics which include such diverse services as

phlebology, dermatology, plastic surgery, eye

surgery and more. Their statistics for 2011-

2013 show that the number of overseas

patients in their clinics is growing rapidly:

Year Number of foreign patients2011 6502012 14702013 3005Medical tourists also tend to spend more

and more money:

Year Turnover of Baltic Care, €2011 382,6492012 406,3472013 891,997

A growing demand

2011 2012 2013

4000

3000

2000

1000

0

NUMBER OF FOREIGN PATIENTS

2011 2012 2013

1,000000

750,000

500,000

250,000

0

TURNOVER OF BALTIC CARE, €

Grant’s. This view is shared by another British

businessman in the Baltics, Alistair Day-Stirrat,

owner of the Odontika dental practice in

Vilnius, Lithuania: “The Government has

invested a lot in renovating and buying

new equipment, particularly through the

clusters mechanism, but not in generating

new business”.

Glen Grant adds: “We cannot look for clients

randomly, we have to target people who are

[in need of treatment], and working B2B is

not an option. Any partner organisation

would get a bigger [margin] if they sent

organised groups to Germany or Israel rather

than to Latvia”. In fact, according to Revalds

from VC4, many large Latvian clinics have

already appreciated that medical tourists

need a more tailored approach and are hiring

their own specialists, who address all the

needs of the overseas customers who turn

to them.

Medical tourists could be reimbursed for

receiving the treatment abroad, according

to the 2011 EU Directive on Patients’ Rights

in Cross-border Healthcare. As for local

patients, their relationship with the private

health establishments is complicated: in order

to schedule an appointment there, one has to

wait for several months. This is because the

government allows too little quotas for them,

and they are spread throughout the year.

Historically, public medicine is the >>

its business, as Laimutis Paškevicius, its

chairman, explains: “The cluster should cover

the entire value chain of medical tourism,

not only medical services, but accommodation,

visas and trip planning, this would create

more value for the patient.”

Glen Grant, the British-born owner of Baltic

Health Tourism, which represents VC4

internationally, sees a problem with the

clusters and indeed the Baltic Governments’

general attitude towards medical tourism. As

Grant puts it: “Clusters lack business process

thinking: their clinics don’t have client services.

The patient doesn’t just need medical help, he

or she needs advice on what to choose, where

to go, where to stay. The Latvian cluster isn’t

designed to provide all this.”

From a standing start five years ago, BHT’s

own turnover now comprises at least nine

clients per month, with each client relationship

lasting about 1-2 months. This shows that

there is a demand for companies like Glen

Baltic Vein Clinic of Veselibas Centrs 4, Riga, Latvia


K. Donelaicio Str. 14-1, Kaunas, LithuaniaM: +370 634 09687www.odontologas.lt [email protected] of Lithuanian medical tourism cluster LitCare

Darius Pocebutas, the owner and head

doctor of the dental clinic Pro-implant,

is pleased to provide western-standard

dental treatment. The clinic is equipped with a

wide range of high quality advanced technologies:

Waterlase IPLUS, CAD/CAM, A-PRF™, sedation

dentistry and others. However, as the standard of

medical equipment progresses, the importance

of the doctor’s competency increases. In bone

ring technique for example – an augmentation

technique which allows bone transplantation and

implantation to be performed in a single operation

– the most important “instruments” are the skilful

and experienced hands of a doctor.

“I believe that nothing happens without a reason”,

Pocebutas says. “When I met Dr. Bernhard

Giesenhagen, I was already a practicing dentist.

I’ve been interested in innovations, therefore I was

fascinated by his pioneering ideas in implantology.

Over time Dr. Bernhard became my friend, my

teacher and my partner in practice.”

Dr. Bernhard Giesenhagen is an inventor of bone

ring technique. The treatment time is reduced by

approximately five months compared with classical

bone block augmentation. The second surgical

procedure is no longer required.

The gist of method – the ring-shaped bone block

is harvested from patient’s jaw and is fixed in the

place of missing bone. Dental implant is screwed

through the ring into the rest of the jaw bone (the

implant fixes the ring).

“The idea is ingeniously simple. That’s why it

caused a revolution in implantology. Long-term

observations document a success rate of over

98%. The numbers are truly impressive, as 100% in

medicine is hardly possible”, says Pocebutas.

Nine years ago Darius Pocebutas was the first

in Lithuania to start using the method in daily

Lithuanian implantologist Darius Pocebutas is happy – his 14-year friendship with the famous German oral surgeon Dr. Bernhard Giesenhagen has grown into a business partnership. Twice a year the colleagues perform oral surgery together in Kaunas. Lithuanians are satisfied with the results of successful treatment, as are patients from Latvia, Estonia, Norway, Denmark, Russia, and France

Working in partnership for the good of patients

Dr. Bernhard Giesenhagen (left) and Dr. Darius Pocebutas (right). Simple steps of

bone ring technique: 1) the ring-shaped bone block is harvested from patient’s jaw 2)

it is fixed in the place of missing bone together with implant 3) soft tissues are sutured

practice. “It allows the restoration of the function

of teeth on large three-dimensional bone defects

and, because of the round shape of the ring, gums

look very natural. I was fortunate and honoured

to learn directly from the author. I appreciate

the opportunity to work together. Each surgery

performed together with Dr. Giesenhagen is

mutually beneficial – we both have insights

worth sharing.”

Patients and medical colleagues from other

countries come to Kaunas for surgery. The patients

seek high quality treatment, and the doctors come

to watch and learn from live surgeries.

Currently, the clinic has started to use allogenic

(donor) bone rings. The procedure became shorter

and simpler – removing the need to harvest bone.

Some patients have fear of harvesting bone from

the jaw and therefore refuse bone augmentation.

Now there is a solution for them too.

Dr. Giesenhagen says: “I do surgeries around the

world, but I don’t go everywhere I am invited. I can

only work if I trust the team, like in the case of Pro-

implant. I rely on Darius Pocebutas’ professionalism

for 100%. After all, he stays with the patients until

the treatment is completed, whereas I leave after the

operation. I know the patients are in good hands –

Darius is competent to deal with any of the problems

that can arise during treatment”



OVERVIEW AUTUMN 14

strongest in Estonia and the weakest in

Latvia. “This is another obstacle for medical

tourists here”, says Revalds, “if you check

the statistics, we have the smallest budget

for state medicine in the EU”. However, there

is a silver lining in that it has fostered the

development of the private sector medicine,

in some fields of which Latvia is amongst the

strongest in the world (for example the vein

clinic of Veselibas Centrs 4 is a proud employer

of the vascular surgeon Dr Ints Udris, who

is number four specialist in the world by the

number of operations performed with “bio-

glue”, one of the most innovative, painless

and efficient ways to fight varicosity).

For Lithuania, health tourism is among the

top four priorities in the development of

tourism (alongside cultural, eco- and business

tourism). Health tourism is seen by all Baltic

governments as a hedge against the curse of

seasonality, as demand is steady all year round.

Lithuania is focusing not only on its 40

large health and wellness centres, but also

Lithuania offers value. Breast augmentation costs on average $3,225 – the same procedure in Israel costs $4,040

promoting the region as a whole would be

easier in giant markets such as Germany,

Russia, or CIS countries. Paskevicius from

LitCare takes this idea further, suggesting

that by 2017 the Baltic cluster could evolve

into a Baltic-Nordic regional cluster. Private

players also see a bright future. Glen Grant

from Latvian Baltic Health Tourism is sure that

“the market has huge capacity, and there is

a chance for healthy cooperation between

public and private sectors”.

As for Tamara Iudakhina, all the worrying

questions about Semjon’s health were clarified.

“In Latvia we had the check-up extremely

fast, and all my questions were answered.

Fortunately, Klippel–Trénaunay syndrome

was not diagnosed. Instead, doctors said

that his shorter leg [local gigantism or

shrinking is also one of the symptoms of

KTS] was the result of genetic modification,

and that this could be fixed when the boy

grows older, hence no operation is needed

at this stage”.

For Tamara and other satisfied patients, it’s

not difficult to assess the strengths of the

Latvian treatment: The prices here are higher

than in Russia but the quality of medical

intervention is way better. With fundamentals

like that, it’s no wonder that this prosperous

niche of the tourism market is healthy in every

sense of the word. n

Anthony Nelson, London, United Kingdom:

After a check-up with my local London dentist they advised me that I needed a new crown to

replace an older ill-fitting one. I wasn’t satisfied with the option they presented to me for its

replacement. It would have taken at least a week to make, the quality was quite low and the

price high. I was also not too impressed with the general service and environment of my dentist.

I had heard of Odontika in Vilnius through friends who recommended it for its high standards of

dentistry, its affordability and personal level of service. I had also heard that Vilnius was a

beautiful and vibrant town with plenty to see and do. So I thought, why not combine the two?

During my visit I was really impressed by both. Odontika were attentive to my needs and they

could even make the crown on the spot with an advanced milling machine! The costs were

also very reasonable. I was also really impressed with Vilnius and its people. As a designer who

is well-travelled in Scandinavia, I could really see a comparison with its vibe, simplicity and

attention to detail within the bars, restaurants and museums. The only difference is the prices,

which are really very attractive. What’s exciting for me to know is that my relationship with

Vilnius and Odontika has only just started, and I know that for sure as I have a check-up booked

for next month!

Combining treatment with tourism

declared support for smaller public and private

health care providers. Anyone who wants

to introduce international healthcare quality

standard LST EN ISO 9001:2000 can apply for

governmental support. Quality standards are

essential for attracting foreign patients. Proof

of these is the first thing prospective patients

look for when assessing the trustworthiness

of a clinic.

The Latvian Government also directed its

ministries to develop high value-added

tourism, announcing that “Latvia has the

resources and the potential of not only the

traditional cultural and natural resource-based

tourism product development, but also the

development of products with higher added

value, such as MICE (the collective name

for a number of types of business tourism:

meetings, incentive, conferences, events)

and health tourism.”

The three Baltic health tourism clusters

as well as the Latvian and Lithuanian

Resort associations have already signed a

memorandum of understanding for the

creation of pan-Baltic medical cluster. The

objective of the planned new cluster is

to enhance “co-opetition” (co-operative

competition) among Baltic health and wellness

service providers, and to promote the medical

sector of the Baltic region in common.

The idea has been well-received, given that


State of the art 3D technology for

dentistry is increasingly being used

in dental clinics across the Baltic.

One clinic using 3D technology is Odontika in the

colourful Užupio district of Vilnius Old Town. An

example of the new era of dental healthcare that

has brought many innovative solutions in dental

treatments is CEREC CAD/CAM. Odontika clinic

owner, Implantologist Ieva Day-Stirrat says “We

are now able to create a highly accurate ceramic

tooth restoration in under 2 hrs and in one visit.

The technology increases the durability of the

tooth being restored and speeds up the production

process. In fact many crowns and bridges can even

be made the same day. Highly durable, precise

fitting, and metal-free - CEREC 3D technology

opens up more opportunities to meet the

demanding aesthetic expectations of patients”.

3D Technology in Baltic Dentistry

Address: Kriviu g. 5, Vilnius LT-01204, LithuaniaT: +370 614 80991, E: [email protected]

For CEREC the first stage of modeling a dental

restoration on the computer screen allows the

dentist/ technician to interact with the patient,

hear their opinions, observations and suggestions

in relation to the colour and appearance of

the tooth.

Ieva Day-Stirrat, “We can test the appearance by

milling a non-ceramic cheaper composite material.

These temporary 3D produced restorations are

placed on the patient’s teeth and are used as a

template for the final shape, slope of the teeth,

anatomy, colour analysis and correction. In fact

sometimes patients even prefer to wear these

temporary restorations for a few days to get used

to them, to decide whether they like the new

smile”.

This encourages mutual communication between

patient and doctor and allows achieve high

performance. What is more, there are direct health

and time benefits to the patient, which include

less visits to the dentist and less anaesthesia.

Lithuania and the Baltic region is fast becoming

the destination of choice for Scandinavians and

Western Europeans looking to get high quality

dentistry with good guarantees and affordably

priced. Odontika is Lithuania’s leading clinic for

dental patients from abroad with over 800 foreign

patients visiting Odontika in 2013.


TRAVEL

DISCOVERING THE LOST DUCHY“The countryside is where you find out what

Latvian culture is all about,” says my friend

Andris as we drive westward out of Riga.

“The city is a business centre, but real life

goes on in the country.”

Andris was born in Riga but his heart is in

these woods and meadows, and as we leave

the city behind us he seems to come alive. We

see a stork, and then another, then five cranes,

all in the same field. It’s the first time I’ve ever

seen these huge majestic birds in the wild.

“In autumn their voices are full of sorrow,”

Andris tells me. “In their song you can hear

the winter coming.” It feels like a fitting start

to our Latvian road trip.

Like a lot of Britons I’ve been to Riga several

times, but I’ve barely been beyond the city

limits. I want to see the country, and Andris

has arranged to show me round. The area

we’re going to drive around is the lost Duchy

of Courland, a quasi-independent statelet

for more than 200 years.

Ever since I first heard about it, I’ve been

fascinated by the idea of this vanished enclave.

Bridge across the river Venta in Kuldiga, Kurzeme province, built in 1874

Image courtesy of Latvian Tourism Development Agency

William Cook takes a road trip in search of Latvia’s ancient heartland


TRAVEL

Is there any trace of it in modern Latvia, after

all these years?

As we drive through endless forest, Andris tells

me a bit about Courland. It was founded in

1562 by Gottfried Kettler, last Grand Master

of the Livonian Order, the German crusaders

who’d ruled this lovely wilderness since the

13th Century. “Livonia is the very east of

western civilisation,” says Andris. “This is

the border. It always has been.” During the

17th and 18th Centuries, while the Swedes

and Russians fought over the rest of Latvia,

Courland was largely spared, thanks to

its alliance with Poland and Lithuania. Its

landlords were less repressive. Its peasants

were more prosperous. The Duchy grew rich

from mining iron ore, and building ships for

Britain and Holland. It even founded a couple

of colonies, in the Gambia and Tobago.

In 1795 it was swallowed up by Russia, but

it still feels like a place apart.

I spend the night at Kuksu, a historic manor

house that dates back to the birth of

Courland. The building is mainly 19th Century,

but the foundations are far older. A collective

farm under the Soviets, it was bought in

2000 by a jolly German hotelier called Daniel

Jahn. He restored it and reopened it in 2006.

However, this is no hard-headed business

venture. This is a labour of love. “You must

be an enthusiast or a bit crazy,” he tells me,

as he shows me round. Each room is like a

work of art. No two are alike.

Daniel has lived in Latvia since the early

90s. He’s poured his heart and soul into

this restoration. The attention to detail is

immaculate, right down to the ancient

frescoes on the walls. Until you see his

snapshots, you can’t believe it was a hollow

ruin when he bought it. He’s filled it with

antique furniture, but the greatest treasure

is his art collection – over 400 paintings,

mostly local landscapes, by some of Latvia’s

greatest painters.

With such a grand old house to call his own,

Daniel could be forgiven for allowing himself

a few airs and graces. Not a bit of it. He

lives here with his 91 year old mother, and

staying here you feel like his personal guest.

He carries my suitcase inside and then he

cooks me dinner. He’s a superb chef. I gobble

up his salmon and asparagus and apple

cake and custard. His homemade foie gras is

scrumptious (normally, I can’t stand the stuff).

Despite the fine furniture and artworks, my

bedroom feels homely and unpretentious.

I sleep like a baby. >>

Image courtesy of Latvian Tourism Development Agency

Restored to glory: Kuksu Manor in Tukuma

Hands on: Daniel Jahn in the kitchen at Kuksu


TRAVEL

In the morning I come downstairs to find a

bespoke breakfast spread out on the table.

Daniel has prepared it all himself. I don’t know

where to start. I feast on some tangy herrings,

washed down with fresh orange juice and

strong black coffee. Daniel is in the kitchen,

frying eggs and bacon. He doesn’t have to

do all this. He does it because he loves it. This

hotel is his life’s work. After breakfast, Daniel

shows me his garden. And what a garden! The

house is surrounded by 45 hectares, including

a small lake. You can see why people love

having weddings here. Daniel has planted

2,500 trees. He won’t live to see them reach

maturity. “They aren’t for me,” he says. “To

plan a garden for a historic building, you don’t

plan for 10 or 20 years – it’s 100 or 150.”

Andris is here. It’s time to go.

Our first stop is Pure, a chic chocolatier

in a small town of the same name, a few

kilometres from Kuksu. The company used to

make jams and juices – this part of Courland

is famous for its fruit. In 2007, the company

started making chocolate. Their fruity flavours

reflect their origins: plum, cherry, apple…

Now they export as far afield as America

and Australia, but this isn’t just a boring

factory. There’s a colourful museum in an

old warehouse, with a vivid display about

the history of chocolate. There’s a stylish

restaurant, and a shop where you can buy

chocolate to take home. You can even learn

to make your own chocolates here. No

wonder it’s such a popular day out.

Traditional sweetmaker Saldus also shares

its name with the town where it’s located.

This wonderfully old-fashioned confectioner

dates back to the Soviet era. Not a lot has

changed. They still make their sweets in the

same building and sell them in a little shop out

front. They make toffee, sherbet and candied

fruits, but their most celebrated brand is their

delicious milk candy, called Gotina. It’s an

epitome of old Latvia, just as Pure epitomises

the new.

We drive on to Sabile, where charismatic

young winemaker Martins Barkans runs

his own vineyard, called Abavas. What? A

vineyard, here in Latvia? That’s right. Strange

as it may sound, Latvian wine has a long

history. Duke Jakob of Courland founded

the first winery in Sabile, way back in the

17th Century. It’s still the most northerly place

in Europe where grapes are grown for wine,

and Martins is carrying on where the Duke

left off. “This is a huge experiment,” he says,

cheerfully, as he shows me round the fields

where he grows his hardy vines. “Every year

starts with new hope. Every autumn you’re

punished or rewarded. Nature doesn’t care

if you don’t have time!”

Martins founded Abavas in 2010 and picked

his first crop last year. “We harvested about

1500 kilos,” he tells me as we sit down to

sample a few bottles. “At the end, we had

about 300 litres which I considered drinkable.”

I try a red, and several whites. Subtle and

distinctive, they’ve very drinkable indeed.

Winemaking is never easy, especially in this

harsh climate. “There is a saying among

winemakers: winemaking is a great way to

make a million euros – out of 10 million!”

However, Martins’ optimism is unquenchable.

He’s dynamic and determined. I have no

doubt he’ll succeed. “Alcohol brings people

together – it starts the conversation,” he

says. “When you put the first label on

the first bottle, you feel you’re really

doing something.”

Daniel shows me his garden. And what a garden! The house is surrounded by 45 hectares, including a lake. You can see why people love having weddings here

Latvian Versailles: Rundale Palace


TRAVELWe stop for lunch in Kuldiga, where Duke

Jakob of Courland (1642-1682) was born. A

cluster of cobbled streets and half-timbered

houses, it’s one of the prettiest towns in Latvia.

The main attraction is its dramatic waterfall,

which cuts the River Venta in two. When we

arrive, as luck would have it, a folk festival

is in full swing. Boys and girls in traditional

costume dance on an outdoor stage beside

the ruined castle. As we sit and watch them,

past and present seem to merge. I can’t

remember feeling happier. In the river down

below, fishermen catch salmon in makeshift

nets as they leap the Venta Falls.

Duke Jakob was the man who put Courland

on the map: his merchant ships traded all

over Europe; his godfather, King Charles I of

England, gave him the colony of Tobago

(not a bad present). However, the Duchy

reached its zenith under Duke Ernst Johann

von Biron, an extraordinary character who

briefly became Tsar of Russia (for all of three

weeks) before being exiled to Siberia. During

his turbulent reign he built two spectacular

palaces. Despite the calamities of the last two

centuries, they’re still standing today. First,

Andris takes me to Rundale, a sort of Latvian

Versailles surrounded by beautiful formal

gardens. It’s a supremely peaceful spot, with

wild woods and fertile farmland all around.

We finish our tour in Jelgava, Courland’s

historic capital. Sadly, the city was flattened,

twice, in both World Wars, but, miraculously

the flamboyant palace that von Biron built

here has survived. It’s now a university

building, and the interior is functional, but

the burial vault is still there, with all the Dukes

of Courland entombed inside. It’s late. It’s

dark. I’m tired. Andris (who’s been doing

all the driving, several hundred kilometres)

must be shattered – though he’s far too polite

to show it. We drive through the darkness,

back to Kuksu. The moon is out. It’s very

bright. I’ve never seen such stars. When we

reach the hotel it’s very late, but Daniel is

waiting for me.

He brings me a cold beer, and a hot stew,

which he’s cooked himself, just for me. I’ve

only spent one night here and I’m leaving

in the morning, but more than any hotel I’ve

ever stayed in, it feels like coming home. n

A double room at Kuksu Manor costs €150 per night, including breakfast. The three course dinner costs €30: www.kuksumuiza.lv. For foreign visitors, Baltic Holidays (0845 070 5711; www.balticholidays.com) can arrange bespoke trips to Kuksu, including flights and transfers.

INTERVIEW AUTUMN 14



Lithuania’s State Owned Enterprises (SoEs)

are leading the way when it comes to

transparency, accountability and good

governance standards.

So says Sonata Matuleviciene, chair of the

board of the Vilnius-based Baltic Institute of

Corporate Governance (BICG).

The reform of SOEs is just one of the priorities

of the BICG, which celebrates its fifth

anniversary this autumn. In its short lifespan,

it has become an internationally recognised

inspiration for best practice in corporate

governance in the Baltics.

The institute represents more than 100 Baltic

members. It is a non-profit, non-governmental

organisation with strong involvement from

Baltic business and political leaders.

“Through our many activities and

engagement with other parts of civil society

and governments we share a common

responsibility to develop our region,”

Matuleviciene says.

“This year we explored diverse topics such

as corruption, capital market development

and corporate governance in the EU”.

Within Lithuania, high quality corporate

governance is, as you would expect, already

followed by multinational investors such as

Barclays Bank, Western Union, Statoil and

Danske Bank. Amongst domestic players it

appears to be within the SOEs where the

most exciting advances are taking place.

Much of this is by necessity as well as

choice. Some SOEs are involved in highly

capital-intensive projects, and in order to

attract investment from bodies like the

Nordic Investment Bank, the European Bank

of Regional Development (EBRD) or other

international institutions, being able to

demonstrate good corporate housekeeping

is a must.

“Reform of state-owned enterprises in

Lithuania is a shining example of what can

and should be achieved in a very short time

period” Matuleviciene says:“ The fact is that

the Lithuanian Government now is at the

top of the class in Europe when it comes to

reporting the aggregated figures of the SOEs.

It is something we at the BICG are proud to

be involved in.”

She explains that improving competitiveness

in the Baltics will speed up the region’s >>

STRIVING TO REACH THEIR FULL POTENTIALThe Baltic States are making rapid progress towards instilling the best corporate practices in private businesses and state-owned enterprises (SOEs), but there are still challenges to be overcome. Dalius Simenas reports

INTERVIEW

63


INTERVIEW AUTUMN 14

alignment with the Nordic countries, formally

co-ordinated through the Nordic-Baltic Eight

(NB8), a regional forum which aims to create

one of the world’s most prosperous regions.

“To stay competitive we must improve even

further. Latvia and Estonia have recently joined

the Euro and Lithuania will soon follow. A

single currency across the Baltics that is in turn

part of a greater Europe will act as further

enhancement for regional growth,” she adds.

The BICG chair emphasises the importance

of encouraging shareholders from small

or large companies in the Baltics to show

real leadership in creating well-governed

companies. The goal is to create companies

that are truly transparent and which

demonstrate genuine accountability to

investors, employees, stakeholders and to

the public.

She believes that shareholders should put

more emphasis on building valuable companies

rather than ones that are seen primarily as

good dividend-payers.

Implementing proper governance standards

is the best way to do this.

“We need better leadership in the Baltic

companies,” Matuleviciene says.

“They must start to bridge the gap between

the way they operate and how their

international competitors operate.”

To her it seems that the days of small local

or regional markets are in the past. “The

competition for our companies will increase

from all sides and we must stand ready to

meet the challenge.”

BICG was launched in Vilnius in 2009 at a

time the Baltic economies were stuttering.

“One of the reasons why Baltic countries are

doing very well today is that very many people

including governments, private companies

and other stakeholders immediately decided

to change,” says Kristian Kaas Mortensen,

the Danish-born former president of BICG.

This meant that tough decisions on internal

devaluations which meant cutting salaries,

cutting budget expenses had to be made.

All this had dramatic consequences but it

also helped to improve things in a short time.

“Capital is portable asset. And for Baltic

countries to stay competitive we must have

access to capital. Being competitive also means

being well-governed which means companies

should be transparent, accountable, and

attractive to investors. It also means investors

should not look at separate economies of

Lithuania, Latvia or Estonia, but the Batic

region as a whole”.

Sonata Matuleviciene says:“Either the Baltic

region is attractive, or it isn’t. We needed to

bridge the gap between the governance in

the Nordic and other EU member states and

the Baltic countries.”

Adding to the challenge, the institute also

acknowledged that they had a perceptions gap

to deal with. It turned out that the reality of

governance in the Baltic countries was actually

better than many people thought, underneath

a layer of confusion over terminology.

Early on it was clear that, for example,

Lithuanian capital companies understood the

role of the CEO and the management. They

also understand the role of the shareholder.

However, when people in the Baltic countries

speak about “the board” they mean the

management board. When on their business

cards it says “the Chairman of the Board”

they mean the CEO.

In contrast, in Nordic countries when people

talk about the board they mean the board

of directors. And the chairman of the board

for Nordic people means chairman of that

board of directors.

“This is quite a gap on how people talk about

these things here and there. And of course

we need a common terminology of corporate

governance,” Matuleviciene adds.

In order to change things BICG created

an international board member education

programme to bridge this knowledge gap.

In over five years there have been 350

“graduates” from the programme, ranging

from shareholders of large companies, CEOs

The Baltic Institute of Corporate

Governance, which claims to “represent

the voice of Baltic Non-Executive

Directors” is an internationally recognised

driver of best practice Corporate

Governance development in the Baltic

region, with more than 100 Baltic

members. The Institute is a non-profit,

non-governmental organisation with

strong involvement from the Baltic business

and political leaders.

The BICG engages business and political

leaders in the region and “aims to be

the most transparent and accessible civil

society organisation in the Baltics.”

Activities include the creation of events,

programmes and policy publications, also

executive education programmes for Board

members and Chairmen, with international

business leaders invited to share their

experience with members.

In addition, the BICG also hosts

international business delegations for

members to learn best practice and

promote the Baltic region as a business

partner in destinations including New

York, Singapore, London, Copenhagen,

Stockholm and Oslo.

Driving best practice


AUTUMN 14 INTERVIEW

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of international companies in the Baltic

countries, to high level politicians and

public servants.

Compared with what they have managed to

achieve, the BICG’s initial goals were not that

ambitious. In its early days, it wanted to create

more awareness on corporate governance.

In fact, there has been a significant

transformation, for private companies, SOEs,

lenders and private equity funds.

BICG has been well-sustained by its

stakeholders from the start, dating from its

first annual meeting in March, 2011. On that

occasion, Hillary Clinton, then US Secretary

of State, made a video address, followed later

by Lithuanian president Dalia Grybauskaite,

and representatives of the European Bank

of Reconstruction and Development.

It amounted to endorsement at the highest

level of the BICG’s impact in changing views >>

Vilniaus Prekyba – Clear lack of proper Governance was evident in relation to how the main

shareholder reacted to a tragic accident (The collapse of Maxima shopping center in Riga in

November, 2013).

AirBaltic – under the former management, lack of governance structures nearly bankrupted the

company – implementation of new governance standards by the new management under chief

executive Martin Gauss has had clear benefits in recent strongly positive financial results.

Tallink – In 2006 the Estonian ferry and cruise operator was dogged by newspaper reports of

scandalous on-board happenings, resulting in an embarrassing stock exchange release about

“improprieties that may have occurred during a private dinner and cruise of its management

board and key advisors” these, the release said “should not be seen as an evaluation or

criticism of the staff’s integrity or professionalism”. Perception problems were compounded by

unfortunate media appearances, but nothwithstanding, the chairman and one more supervisory

council member remain unchanged since 1997, raising questions about corporate governance

in a high-profile listed company.

Achema Group – Infighting between the largest shareholder, owner of over 50% of the

Lithuanian industrial giant, Lidija Lubiene and smaller shareholders led in July this year to the

resignation of the Chairman. A new board of directors was elected on 6 August.

Recent Baltic governance failures


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on corporate governance in the Baltic States.

But it is not content to rest on its laurels.

Sonata Matuleviciene says: “Our most exciting

project for 2014 is the opportunity to help

Ukraine. I believe that it is time for Baltic

countries, which received so much support and

encouragement from the Nordics in the early

1990s, to give the same support for Ukraine”.

Quite apart from its wider geopolitical

sensitivities – somewhat acute at present –

Ukraine’s future success is extremely important

for business success in the Baltic countries.

“So we have taken upon ourselves to support

the new Ukrainian Government and have

started to share our experiences in the reforms

of SOEs. And the first step is to publish a

report on the Ukrainian SOEs by November

2014,” she says.

However, this willingness to expand its field

of operation does not imply that BICG believes

that everything is as it should be in the Baltics.

BICG figures reveal that the Latvian State

Forest, LVM, has, between 2009 to 2012,

paid more than €240 million in dividends

to its shareholder, the Latvian Government.

For its part the Lithuanian State Forest

has paid €74.9 million in assigned profit

contribution, property tax and raw

material tax for the same period to the

Lithuanian Government – almost three times

less.According to the Institute, the main

reason is lack of reform in the Lithuanian

forest SOEs due to their adherence to old-

school management.

“We don’t claim to be forestry experts at

the BICG, but even a cursory look at the

comparable sectors seems to indicate that

in Latvia the company has reformed and

improved more than in Lithuania where

they still operate as more than 40 individual

companies,” Matuleviciene suggests.

She also says most private businesses are

family-run in the Baltics. However, unlike

family businesses such as those in the Nordics

or other Western countries, most do not

care as much about transferring the business

down to younger generations.

In contrast, Scandinavian business owners

plan ahead as they know that if they transfer

their business, their offspring may require

a well-governed corporate framework to

sustain them. n

One example of the influence of improving corporate governance in the Baltic region is the

Lietuvos Energija Group, a Lithuanian group of energy SOEs, which at the end of July announced

the establishment of a shared services centre to provide unified public procurement, accounting

and labour relations administration services – practices second nature elsewhere in Europe.

Five separate companies make up the state-owned group, encompassing electricity generation

and trading, energy distribution and ICT services companies. Their spin-off, UAB Verslo

aptarnavimo centras (Business services centre) will handle public procurement in October 2014.

In December, the company will start providing centralised accounting services, and next spring

it will start administrating labour relations across the group.

“We expect this decision to centralise these processes to help cut the costs by up to 15%”,

Dalius Misiunas, chairman and CEO of the Group’s holding company Lietuvos Energija, told BQ

Baltic. He adds that the new centralised entity could provide services not just to the Group but

also to third parties later on.

Misiunas believes that the establishment of a company providing specialised services, is a key step

in the implementation of the group’s improved corporate governance model.

Kristian Kaas Mortensen, formerly of BICG admits that there are probably not many companies

in the Baltic countries of sufficient scale to warrant a shared services centre.

“The Lithuanian energy group probably is on this size where certain functions such as IT or

accounting could be pulled into one. It makes no sense that for each group or company has its

own head of IT or a director of finance,” he says.

The streamlined energy group, which recently bought back the assets of the national gas

company Lietuvos Dujos and gas pipeline firm Amber Grid from Russia’s Gazprom and Germany’s

E.ON, has ambitious plans for the future. These include the construction of combined heat

and energy plants that will help to cut costs for energy users in Vilnius and Kaunas, the two

biggest cities of Lithuania. They also plan to explore the complex byways of the liberalised Baltic-

Nordic electricity market. This April Energijos Tiekimas, which forms part of Lietuvos Energija

Group, announced that it will operate in Latvia and Estonia under the new name Geton Energy.

The company first entered those markets in 2013 but the corporate restructuring promises

new momentum.

“Last year we were rather passive in foreign markets but this year we will seek to compete more

strongly in the Latvian market by being more flexible and dynamic than others and by focusing

on the individual needs of our clients,” says Algirdas Juozaponis, CEO of Energijos Tiekimas.

Energy group pools its resources

INTERVIEW AUTUMN 14

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When you think of the fashion industry,

Estonia may not be the the first country which

comes to mind as being at the forefront of

style and design. Meelis Milder, the CEO of

fashion group Baltika, might challenge this.

“Not all good fashion comes from Italy,” he

says. “People believe Baltika has something

unique to offer. There are customers who

value a local brand and want to help it expand

across borders.”

Founded in 1928 as a raincoat manufacturer,

Baltika has grown to become the largest

fashion retail group in the Baltic states. The

group comprises five brands across 125 stores,

with key markets in the Baltic states, Russia,

Poland, Belarus and Ukraine. It sells products

from its online store to over 30 countries. In

September, it branched into Western Europe,

launching a franchise store in Tenerife, Spain.

So what sets Baltika apart from its

competition, and what is the key to its

success? Many of its triumphs can be

attributed to its management under Milder.

After graduating in economics from the

University of Tartu in Economics, Milder

worked briefly as a management consultant.

Aged 26, he joined Baltika in 1984 as manager

of its Valga production unit in southern

Estonia. He became director general three

years later, a promotion which brought with it

responsibility for Baltika’s overall progress.

After the collapse of the Soviet Union in 1991,

Milder was promoted to CEO of the group.

Milder is widely lauded as an exceptional

business leader. A testament to this is the

multiple awards of recognition he and

Baltika have received. These include winning

Meelis Milder, chief executive of upmarket fashion retailer Baltika, talks to Lidija Liegis about its growing success, the challenges he has faced and the importance of giving something back to his homeland

PUTTING ESTONIAN STYLE ON THE MAP


Businessman of the Year, Estonian Leader

Example, Best Domestic Clothing Brand and

Most Innovative Brand. Most notably, Milder

was awarded the Order of the White Star

of the Republic of Estonia in recognition of

his services rendered to the country. One of

the things he cites as being most proud of is

that Baltika is one of the biggest white label

(manufacturing for own-brand lines) exporters

in Estonia and the largest employer for

industrial designers in the Baltic states.

Milder’s wife Maire joined the company in

1999. Milder explains that this came about

at a colleague’s suggestion. Despite the

occasional disagreement, Milder believes that

as a team, they have been a benefit to the

company. Maire is currently the brand and

retail development director and together

with her husband is the majority shareholder

of the business.

Baltika operates a vertically integrated business

model which handles everything from a

brand’s conception and development, to

design, outsourcing, retail and multichannel

marketing and sales. Despite his own >>





modest disavowal of the title of entrepreneur,

Milder clearly excels in innovation and is in

close touch with consumer needs. The most

significant recent change is adapting to new

consumer shopping habits – notably an

increase in online shopping. As a result, Baltika

expanded and is re-launching its online store,

AndMore Fashion, in September 2014. “An

area that has changed greatly is how people

discover, choose and purchase products. More

than 80% of our clients go online before

going into a store. We are at the beginning

of a new era that is going to demand much

greater flexibility from the fashion industry to

keep up with customers’ changing habits,”

says Milder.

This autumn Baltika will launch a new bonus

scheme, AndMore, in Estonia and Lithuania.

Customers increasingly expect a unified

experience, says Milder. Consumers no

longer distinguish between online shopping

and going into a store. “They expect all the

details and different channels to work like a

well-fitting jacket, seamlessly sewn together.”

Milder also notes the effects of globalisation

on the fashion industry in recent years: “The

competition has increased tremendously, as

well as the general pace and tempo of the

industry. People expect a larger selection of

products, faster, and at more competitive

prices. Trends and styles have become more

global and uniform.” What sets Baltika ahead

of its competitors from outside the region is its

profound knowledge of its regional markets in

terms of consumers’ tastes, habits and needs,

as well as factors such as climate and sizing.

Milder attributes Baltika’s success to the fact it

has kept the cornerstones of the way it does

business: “The quality of the products remains;

we have a deep understanding of regional

customers’ needs, a well-balanced brand

portfolio, and a belief in local talented people

working for us.”

Baltika’s 125 outlets include two franchise

stores in Belarus and 17 franchise stores in

Ukraine. It recently changed its operating

model in Ukraine, now choosing to have a

franchise agreement with a trusted long-term

partner. It is possible that the current political

situation in Ukraine influenced this change,

but Milder does not speak openly about the

reasons behind the decision. He says only that

the key factor was to “eliminate some direct

financial risks for the group,” emphasising the

fact that “for the client nothing has changed –

our brand has 17 shops there and we plan to

stay there for our customers.”

Of its 1,254 employees, Baltika inevitably

attracts staff from outside the Baltic states.

Nevertheless it retains an ethos of using

solely local Estonian designers and honing

local talent. It works closely with the Estonian

Academy of Arts, offering traineeships for

fashion, interior design and textile students.

This includes providing marketing and brand-

related training courses. Many graduates who

have worked in the fashion industry abroad

come back to work for Baltika because “they

can do more exciting things and grow faster.

Finding, growing and offering a platform

for local talent, skills and vision to shine is

important to us,” explains Milder.

As well as using local designers, many of the

clothes are produced in Estonia. In particular

the tailored products such as outerwear, suits,

jackets and trousers tend to be made locally.

Baltika comprises five brands; their mission is

to create “quality fashion that allows people

to express themselves and feel great.” This

includes womenswear brands Ivo Nikkolo and

Bastion; quality menswear brand Baltman,

which also offers tailor-made suits; and mens

The competition has increased tremendously, as well as the general pace and tempo of the industry. People expect a larger selection of products, faster, and at more competitive prices

2014 4,521 414 20 4,961 125

2013 3,997 257 15 4,272 124

SALES IN JULY (€ thousand)

RETAIL SALES

ONLINE SALES

TOTAL SALES

WHOLESALE (inc. franchise)

BALTIKA IN NUMBERSSTORES


AUTUMN 14 ENTREPRENEURand womenswear lines Monton and Mosaic,

which offer upmarket leisure and workwear.

One of the most challenging aspects of

Milder’s role has been adapting to changing

political and economic environments. Milder

oversaw Baltika’s transformation from a

nationalised production company in the Soviet

Union market, to its privatisation in 1991 and

the launch of its first brand, Baltman.

Baltman is based on Baltika’s long-time

experience in menswear production.

“Everything around us changed – we needed

to re-design the whole business model,

establish our own retailers, develop new

brands and create complete collections,”

says Milder. “Now the challenge is to develop

and manage different brands. It has been an

interesting and sometimes bumpy ride.” As a

result, one of the key aspects of his role has

been learning to be flexible.

In Milder’s 23 years of working as CEO he has

weathered his share of difficulties. The global

economic crisis hit the Baltic states particularly

hard and Milder says he had to learn to be

more adaptable and to react more quickly.

“Customers are more demanding, competition

is higher. Businesses have to be more focussed

on their core strengths. In the last 12 months

we have focussed heavily on creating full

brand strategies for our five brands.” This

meant taking a multichannel approach

emphasising franchises, shop-in-shop and

concession partnerships, wholesale operations

and online sales. When asked about current

growth rates and sales turnover, Milder claims

to be content with both. Baltika’s consolidated

sales revenue from July totalled €4.961

million, a 16% increase compared to the same

period last year. Wholesale revenues increased

by 61% compared to July of the last year, and

online sales increased by 33%. Across the

Baltic states, retail sales went up by 34% in

Latvia, 14% in Lithuania and 8% in Estonia.

Milder explains that he is more interested in

improving the business rather than enjoying

its winnings: “As a manager I often find it

a challenge to properly acknowledge and

celebrate our achievements.” A further test,

he explains, is keeping the local knowledge

and skills of the industry as well as competing

with large international brands. “You have

to be at the frontline and evolve to stay in

the game. We are constantly adjusting to the

changing consumer trends and expectations.”

In terms of competition, Baltika contends with

international brands as well as local designers.

When asked about future directions, Milder

hints that he wants to maintain his company

ethos of using local designers and producers,

whilst continuing to expand in Europe and

beyond. “Our strategy is to build up our

brands to make them internationally strong.

We have talented designers, a vision, and a

unique cultural, historical and geographical

background that allows us to add a new

voice to the mix. We believe in our people

and the product that we make. We have

investors and partners who believe in our

ability to do so. Our next big challenge

is to transfer this belief into customers

across Europe and further,” says Milder.

His quiet determination and demonstrable

resourcefulness leave me in no doubt that

he will be able to do so. n

BALTMAN: Created in 1991, this brand sells high-quality men’s business wear. It is reputed for its

use of luxurious fabrics. It also offers a bespoke suit making service. Its designers have received

three Golden Needle design awards. Stores are located in the Baltic states.

MONTON: Baltika’s largest brand was launched in 2002. It has stores in the Baltic states, Russia,

Ukraine and Belarus. It opens a franchise store in Tenerife in September.

MOSAIC: Renowned for its durable and high-quality clothes for men and women. It is one of

Baltika’s biggest wholesale brands, with shops in the Baltic states, Ukraine and Russia.

IVO NIKKOLO: A premium womenswear designer brand established in 1994 by Estonian Ivo

Nikkolo and acquired by Baltika

in 2006. Known for its original designs and use of premium fabrics. Shops are in the

Baltic states.

BASTION: The oldest of the five brands, womenswear producer Bastion was established in 1987

and acquired by Baltika in 2012. It is especially well known for its formalwear. Bastion has stores

in Latvia and Estonia, and will open its first franchise store in Tenerife, Spain in September.

Baltika Brands


FASHIONHe is adjusting the collar on a shirt – navy or maybe black,

with white buttons. More unexpectedly, he is wearing an

Alpine-style hat, high, narrow-brimmed, with badges. What

would look comical on anyone else looks effortlessly right

on him. But then this 1956 black and white photo is of

saxophonist Gerry Mulligan, looking into a dressing-room

mirror. He’s a cool dude in a cool era. What is perhaps

stranger is where that dressing room is: not in one of the high

fashion hubs of London or Paris, not Milan or even New York

– but in a small, side-street store in Cambridge. And that’s

Cambridge, Massachusetts.

Here was found Charlie Davidson’s The Andover Shop.

It was here where Ivy League style took hold, where the

WASPish under-graduates of Harvard, Princeton or Columbia

developed a none too formal, nor too casual style of dress

that would arguably become the lynchpin for western male

sartorial standards for the next half century and more: crisp

white button-down Oxford shirts and army surplus khakis,

saddle shoes and penny loafers, hopsack blazers and flannel

trousers, knit and rep ties and shawl-collar cardigans. It was,

defiantly, the look of good grooming, privilege and money. It

was defiantly white. That worked for Mulligan. But then what

would fellow jazz maestro Miles Davis also be doing there, in

everything – background, race, culture – an outsider? Or John

Coltrane? They were, in the words of Roy Haynes, also

a visitor, just picking up the “slickest shit out”.

Jazz has long been associated with ideas of cool, and a cool

that is not just this week’s fashion, but which comes from

the core, that grows out of living apart from the mainstream,

from going one’s own way – it’s the cool of a James Dean,

Steve McQueen or Cary Grant, sometimes imagined,

sometimes projected (“Everybody wants to be Cary Grant,”

noted Cary Grant. “Even I want to be Cary Grant”) but often

innate. Certainly, the great players of jazz from the 1950s to

1960s – chiming with post-war prosperity, the birth of the

teenager, the civil rights movement and the spread of TV as

a mass media – effectively invented the modern idea of cool

that would later inform the performances and personae of

Dean, McQueen et al.

It was Capitol Records that, in the year before Mulligan’s

snap, helped popularise the term with its album ‘Classics

in Jazz: Cool and Quiet’, Davis underscoring the ineffable

definition of this ever-so-desirable state of being with his

seminal ‘Birth of the Cool’ compilation in 1957. By association

with its performers, and their performances – in smoky,

ill-lit, intimate late night venues, immortalised in evocative

monochrome photography – ‘cool’ came to be associated

with the idea of a nonchalant manner and effortless style,

as much in playing as in posing. More than any record label

before or since, the visual style >>

The laid-back and effortlessly stylish look pioneered by the

jazz greats began life in a side-street store, writes

Josh Sims

BIRTH OF THE

COOL

Chet Baker


FASHIONMiles Davis

Duke

Ellington

Ger

ry M

ullig

an

Wynton

Marsalis


FASHION of Blue Note in particular – boldly typographic, modernistic,

unexpected and unmistakable, and perhaps the first to

match the artfulness of sleeve design to that of the music

– drove this home. Its most striking aspect, its colour-wash,

stained glass effect appropriately gave its subjects the power

of saint-like iconography.

But the clothes had to match, in part to sell the complexity

of the music. And what better way for a sound that

was radical than duds that also cut against the grain

– by appropriating the uniform of the conservative, by

undercutting the US national power-broking tribe much as

Teddy Boys were doing in the UK, taking the style of one’s

betters and, well, making it better? The result was more

than a gravitational pull for pioneering jazzmen to the east

coast caucasian enclave, and this one little shop of collars,

cuffs and clubhouse rules. It was, appropriately enough,

the meeting of dissonant notes, of the establishment and

the experimental, the square and the hip, to create as

much a new aesthetic of style as of sound.

Yes, the style-seeking jazzmen were building on the

shoulders of swing and bebop giants – Louis Armstrong and

Duke Ellington were none too sloppy with their wardrobes

either. Billy Eckstine - whose big band extraordinarily hot-

housed the talents of Dizzy Gillespie, Art Blakey, Charlie

Parker and Miles Davis among others – even designed and

wore his own collar shape, the ‘Mr. B’, a high-roll collar that

(with some imagination) formed a ‘B’ shape over a Windsor-

knot. But the simplicity of the newly-adopted and twisted

Ivy style perhaps only made the post-trad music feel all the

more avant-garde.

And the music came first. Far from being unpracticed,

unnatural wonders with their instruments, the likes of Davis

and Coltrane, Mulligan and Haynes, as well as Bill Evans,

Charles Mingus, J.J. Johnson, Paul Desmond and other

dedicated musicians of the period, had given recitals since

childhood – and for these they were expected to dress

presentably, which back then meant like their parents, as

adults-before-their-time, in scaled down takes on the era’s

wide-shouldered, peak-collared suiting. It was a habit that

stuck, as visits to The Andover Shop – or the likes of J.Press,

as favoured by Ahmet Ertegun, the co-founder of Atlantic

Records – would refine. What these jazz masters wore, often

as signatures, consequently attained an unexpected hispster

credibility: Dizzy Gillespie’s double-breasted pinstripes,

goatee, black horn-rimmed glasses and beret; Stan Getz’s

dark Italian suits and skinny ties; Lester Young’s tilted pork-

pie hat; Thelonius Monk, with his outsized specs and beret

too... Oh how they loved a hat, belonging to a period

when any self-respecting man about town would risk social

opprobrium to go about without one, even if in not so

studiedly unstudied a way.

Then there was Miles Davis. It was Davis – searching for a

look to announce his cleaned-up comeback – who made the

clarion call to this definitive, artsy, neo-con jazz dress when,

in 1954, the aptly-named jazz promoter Charles Bourgeois

took him to the Cambridge haberdasher to find what he

would call Davis’ “costume”. The trumpet player left having

put the I back into Ivy, with his own distinctive blend of

soft-shouldered, narrow-lapeled tweeds and madras jackets,

blindingly-white button-downs, flannels and Bass Weejuns.

The following year, playing the Newport Jazz Festival, he

took to the stage in a custom-made, side-vented seersucker

sack coat, club-collared shirt and a bow-tie. Described thus,

he could have looked like a pre-war door-to-door salesman,

stiff and falsely smiling. He looked anything but. He looked

like a man of tomorrow. Six years later, in fact, he was being

hailed by ‘Esquire’ as a model of style for his bespoke suits,

made by Emsley in New York and costing him a whopping

Jazz has long been associated with ideas of cool – a cool that is not just this week’s fashion

Miles Davis


Address: Didžioji str. 39 / Etmonų str. 1, Vilnius

Zip code LT-01128. Tel. +370 64691617 [email protected], www.emties.lt

FASHION$185 a pop. Bourgeois similarly overhauled Chet Baker -

who, as the promoter would put it, “arrived from California

dressed like a ragamuffin”, also in 1954 - and again at the

same store. In 1958 the cover of ‘Chet Baker in New York’

– note the title, pointedly east coast, against the bohemian

and badly-dressed west coast – had him in rep tie, white

button-down and navy blazer, his hair slicked back. We’re

decidedly not in Baker’s hometown of Yale, Oklahoma

anymore – more Yale, Connecticut, home of the elite

training ground of American blue-bloods. Later Baker would

adopt a trademark minimalistic dark suit and white t-shirt –

at a time when tailoring played only to the accompaniment

of shirt and tie.

Like all moments in style this great era of jazz cool was, of

course, set to pass – not least because the jazzmen’s way

with a button-hole, tie-pin or pleat, just so, would enter the

dress vernacular. It would become, superficially at least, the

norm. They moved with fashion too, so that by the 1960s

Davis, for one – how the great had fallen - preferred kick

flares and fey neck-scarves. And, naturally enough, they got

older and their outlook changed. Maybe, as the world grew

ever more obsessed with image, at the expense of content,

these maestros felt less and less like dressing the part.

The legacy lingered, with the likes of Wynton Marsalis,

who in the 1980s rocked 40s elegance when everyone else

was rolling their jacket sleeves and forgetting to put on

socks. And, as the fashion business has acknowledged, it

lingers in jazzland even today: among the notables, David

Sanchez – who’s modelled for Banana Republic, Joshua

Redman – who’s modelled for Donna Karan, and Greg

Osby - who chiefly just models his own vintage fedora but,

like Mulligan with that Bavarian number, just looks straight-

from-the-fridge dad. But, the music aside, the greatest

legacy goes beyond jazz. Jazz’s lifting and re-energising of

Ivy style gave men a model of cool that is timeless. It is for

less well-dressed men to, as Charles Mingus had it, look to

its golden era of style and “sing their praises while stealing

their phrases”. n


EQUIPMENTMartin Smith counts many objects in his repertoire of things that

inspire him: his vintage Omega watches, an original Bertone car

model which he keeps on his desk, a couple of massive hand-

guns (“it often raises eyebrows when I say that, but where I live

in Germany sport shooting is quite common”) and his bespoke

loafers, which he designed himself. “But they only took 10

minutes to design, even though it’s nice to have anything to your

own specification,” he notes.

Of the objects, it is the Bertone model that is perhaps most

revealing – because Smith himself is a car designer, more

specifically the executive design director of Ford, for Europe and

Asia Pacific, where this year he celebrates his tenth year at the

car giant. Indeed, not just any car designer, Smith can claim to be

the designer of the world’s best-selling car – the Focus. That also

happens to be the best-selling car in the world’s fastest-growing

new car market – China.

“Some boys are into planes or trains. For me it was always cars.

I always wanted to be a car designer,” says the man who, still in

short trousers, wrote to the Mini maestro Alec Issigonis requesting

some tips on how to get into the job. “But it’s certainly gratifying

when you can work at your hobby, especially when someone else

is prepared to put up $1bn to put your design into production

and you can then actually drive it around.”

Not that Smith’s success comes through simply doing what he

wants – and this despite his greatest hits including the likes of

the Audi Quattro and Audi TT. One thing he has learned over his

career – which began with Porsche just over 40 years ago, before

heading both the external and then the interior design studios for

Audi, and then overseeing design for Opel and Vauxhall before

being lured away by Ford – is exactly what his job is.

“And that isn’t necessarily to design something I like but

something that is right for the company,” says the Sheffield-

born Briton, who is credited with giving Ford its so-called ‘kinetic

design’ philosophy – one that helped, through introducing a more

complex surface architecture, transform a maker of often rather

dull cars into one of much more dynamic, energised ones.

“I think cars just happen to be the most complex piece of

industrial design there is – as well as the necessities to be safe

and functional, it has to look good too,” he adds. “The fact is

that people subconsciously expect aspects of a car design, like

safety, to be there. What they really respond to is the sense of

the driving experience being reflected in the way it looks. You

have to express to them the car’s capabilities in those looks.

Today any car has to exude that it is a quality piece of work. The

customer wants gorgeousness. Well, at least some people do.

Of course some people buy a car like they buy a refrigerator. I buy

a refrigerator as I would a car – I assume it will keep things cold,

but I want it to look good.”

Smith says, smiling, that he just happens to like all the cars he has

designed. But getting that balancing of style and functionality >>

Car manufacturer Ford’s executive design director

Martin Smith talks about the challenges and rewards of

turning his boyhood dream into a lifelong career

GRAND DESIGNS

EQUIPMENT


EQUIPMENT

is, he admits, no easy trick. Car design has become an ever more

complex business too. While, when he began his career, cars

were developed using sketchpads and clay modelling, now to

these have been added the tools of computer-aided design and

illustration – “not that this doesn’t mean car design cannot still be

artistic,” he adds. “People often tend to think you press a button

and a car design is produced, which definitely isn’t the case.”

Technology has also changed what cars actually are: and, Smith

says, the advent of new technologies, from the voice control

systems already on the market to the retina controls to come,

from changes in power plants and materials that will allow

vehicles to be lighter, tougher, more efficient, “will radically

change the way the typical car looks, both for its interior and the

exterior. But I’ve no idea what exactly that look will be. Not yet.”

Presumably two of Smith’s latest designs – the Edge concept,

an upscale, more sleek take on the SUV, and the first-of-its-

kind C-Max Solar Energi concept, with a solar panel roof with a

concentrator lens that provides 30km of sun-powered driving a

day – at least hint at the future. If, that is, customers buy into the

ideas. Certainly customer higher expectations have transformed

the market during Smith’s time in the business too, whether that

be for the way super-cars are built and sold, or volume producers

like Ford. Customers, in fact, are what drive the market. And the

customer is ever more vocal, with an opinion that needs to be

taken into consideration with each new iteration of a model.

“The latest Focus, for example, responded to a lot of points raised

by consumers about the design - that the front end was too busy,

or the lights too large,” Smith says. “People get very emotional

about car design, which is good because we’re always trying to

add more emotion into a car design. People actually write in to

tell us what they want. Of course, we don’t just listen to one guy

in the street who tells you he thinks your car is ugly. But we do

have to listen to a groundswell of opinion over several years.”

Indeed, those changing demands have affected the way the

industry operates at all levels: witness Ford pushing on with

its Vignale concept, essentially an upgrading of the materials,

presentation and sales environment of its cars that aims to put

it more on a par with much more expensive vehicles.

“The difference is that in my work we still have to work within

a budget that allows us to produce cars in major plants, that sell

all over the world and do so at a good price,” says Smith. “They

don’t have quite the same problems at Rolls Royce. But I don’t

mind. In fact, I love the challenge of designing mass production

cars. In my job even a commercial vehicle gets a lot of attention -

even that has to look good.” n

78

Some people buy a car like they buy a refrigerator. I buy a refrigerator as I would a car. I assume it will keep things cold – but I want it to look good


CCG_print-ad_0.2.pdf 1 26.5.2014 13:22:48


REAR VIEW AUTUMN 14

with Charles Cormack

As we come towards the end of the year all

Baltic governments are preparing to launch

programmes funded through devolved EU

funding. UK Prime Minister David Cameron

led a campaign within the EU to curb the

EU budget, and that campaign included

restricting the cash which Brussels gives to

EU governments to help them develop their

economies. The aim of this funding is to allow

the newer member states to develop and grow

their economies, and improve the standards

of living for their populations.

The last round in the Baltic funded a huge

range of projects from the development

and modernisation of the education system,

through to the development of infrastructure.

It also helped local companies to train

their workforce, purchase new equipment,

improve efficiency and market their products

internationally. Though David Cameron was

able to claim a victory in curbing the rise of

the budget – and thus boost his position in

the UK’s endless domestic political war about

Britain’s role in Europe – I am delighted to

see that the Baltic governments were able

successfully to argue the case for substantial

funding to allow them to continue investing

in the development of their economies.

This time the priorities for the governments

include programmes to support the

competitiveness of SMEs, the further

development of the workforce, the

development of Energy Efficiency programmes,

and a big focus on the further development

NEW EU FUNDING ROUND EQUALS NEW OPPORTUNITIES FOR INTERNATIONAL COMPANIESof innovation and the commercialisation of

university research.

This new funding round offers an extraordinary

opportunity for international companies with

the relevant experience to come into the

market to work on projects funded through

this money. The money is designed to support

knowledge transfer from “old Europe” to

“new Europe”, and as a result many strong

local companies are actively seeking partners to

help them bid for the projects when they start.

During the previous funding round, which

finished in 2014, my own company CCG

worked with a range of UK companies helping

them to access the market and win work,

either directly or as part of a consortium. The

projects were many and varied, spanning the

development and delivery of export training

programmes, the establishment of joint

faculties between UK and local universities,

the development of cluster initiatives, specialist

legal and financial consultancy in areas like

PPP/PFI, energy auditing and the management

of business incubators. My own company

CCG also bid and won projects directly and

in partnerships.

With Latvia receiving €4 billion (almost €3,000

per head of population) and Lithuania getting

€6.7 billion it is clear that the next four

years will hold significant opportunities for

international companies, and we hope to be

helping as many as possible get involved.

So here’s a a special appeal to any British

readers, who on the whole tend to complain

about the money the EU spends. Instead

of complaining, why not focus business

development efforts on the region and earn

some of it back?

This funding offers an extraordinary opportunity for international companies

A word about the historic signing of

the MOU between the City of Klaipeda,

Teesside University and Bradford College.

This underlines the intention to set up a

full branch campus delivering university

and vocational qualifications. This is one

of those rare projects where everybody

is a winner. Klaipeda becomes the home

to the first campus of its type, which

complements existing provision and

promotes economic development – and

the University and College can profitably

expand their reach. It has been a pleasure

being involved in the project

>> Everyone’s a winner


www.turkishairlines.com

HOW LONG TURKISH AIRLINES HAVE BEEN WORKING IN THE BALTICS?Turkish Airlines started servicing Riga in 2006 and

this year we celebrated our 8th anniversary. We

started with a few flights per week, and now we are

having daily flights and also opened offices in all

three Baltic States.

WHAT IS YOUR MAIN TARGET MARKET IN THE BALTICS?Our market includes all type of passengers; we are

not limiting ourselves to just one group. We try

to offer convenience for all types of passengers,

for instance we segment our classes into three

as Business, Comfort, and Economy. Through our

main hub in Istanbul we connect passengers from

the Baltics with the rest of the World, while giving

them an unmatched travel experience that makes

them feel special both on board and in our award-

winning lounges. In addition, we offer a wide

range of loyalty programs which provide various

benefits. Whilst our general loyalty program

Miles&Smiles continues to offer new advantages

to its members, our specific corporate programme

Turkish Corporate Club offers a variety of cost-

effective advantages for corporations looking to

meet their needs quickly and easily.

WHAT ARE YOUR FUTURE STRATEGIC DEVELOPMENT PLANS FOR THE BALTICS AND FOR THE GROUP IN GENERAL?Our top priority is same in all our markets:

constantly to improve ourselves to satisfy our

passengers in every phase of their flights. Our

universal aim is to continue working as hard as we

can to preserve our current position as one of the

leading airlines in the world, and also to become a

five star airline.

HOW DO YOU DIFFERENTIATE YOURSELF FROM THE COMPETITORS?Turkish Airlines is the leader on many fronts,

especially in areas relating to the passenger

Turkish delight for high fliers

class passengers and Elite Plus card holders, who

can stay there in maximum comfort during their

transfer in Istanbul Atatürk International Airport.

For maximum privacy there are even individual

rooms in the Lounge.

OTHER INTERESTING FACTS ABOUT TURKISH AIRLINES:• Our passengers from the Baltics should be aware

that, apart from affordable ticket prices, all

passengers will always be offered a complimentary

onboard hot meal, and also have increased

checked-in baggage allowance of 30 kg for

economy and 40kg for Business when travelling

from Riga.

• Our service affiliate Turkish Technic is also worth

mentioning. Its new site HABOM (Hot Air Balloon

Over Michigan) facility has now become the largest

and most advanced aircraft maintenance facility in

the world. When the next stage will be completed,

HABOM facilities will be able to accommodate any

type of the aircraft and provide it with the best

service.

• This year, Turkish Airlines began to manufacture

aircraft seats and galleys. That is an important

indicator of company development, as there is only

a few companies who can produce aircraft parts

worldwide.

• Turkish Airlines flies to more countries and also

international destinations than any other airline

in the world.

• Turkish Airlines is the 4th largest airline in terms

of network size.

• It also has 4.5 million Facebook followers, and

260 million YouTube views.

One of the world’s fastest-growing and most exciting carriers, Turkish Airlines is successfully wooing Baltic business and leisure travellers with great connections and superlative customer service

experience. We are trying to merge the traditional

hospitality and warmth of Turkish culture with a

more modern approach. Some of the examples of

our exceptional client service are:

• If a connection time for a passenger exceeds 3

hours, he/she is eligible for a meal voucher to have

a snack in our airport’s Food Court, depending on

the time of day.

• Complimentary hotel accommodation (maximum

2 nights) will be provided to our valued passengers

when there is a period of more than 10 hours (for

economy cabin passengers) and 7 or more hours

(for business cabin passengers) waiting during

their international connecting flights due to

Turkish Airlines’ schedule structure. Alternatively,

passengers may also choose a free city tour around

Istanbul.

• Our famous Business Transit Lounge. Unlike CIP

(Commercially Important Person) Lounge Istanbul,

the Transit Lounge is available only for business

Demet Doganay, Riga station manager at Turkish

Airlines



SUBSCRIBE NOW

Each quarter BQ brings its readership a wealth of business intelligence and information, whilst looking ahead to

forthcoming events and reporting on recent developments that will have a significant impact on the Baltic business landscapes

ENTREPRENEURS•SUCCESS STORIES•INTERVIEWS•INSIGHT•OVERVIEW NEWS•EVENTS•FASHION•EQUIPMENT•TRAVEL•RESTAURANTS

To subscribe to an annual subscription to BQ Magazine please contact Kate Kolbina, Project Manager


BQ is no ordinary business publication. With unique content and a style determinedly its own, its aim is to inspire, enlighten and empower,

embracing and reporting business success wherever it is found.

Receive BQ Magazine each quarter:Annual subscription rates

In Estonia, Latvia, Lithuania: a25 (including postage costs)

Outside the Baltics, rest of the EU: a30 (including postage costs)

Outside of EU:

a35 (including postage costs)

(Prices do not include VAT)

EVENTS AUTUMN 14

BQ’s business events diary gives you lots of time to forward plan. If you wish to add your event to the list send it to [email protected] and please put ‘BQ events page’ in the subject heading

Please check with contacts beforehand that arrangements have not changed. Events organisers are also asked to notify us at the above email address of any changes or cancellations as soon as they are known.

SEPTEMBER11 Joint Chamber Saeima Pre-Election Debate. How will Latvia’s political landscape change after its Parliamentary election? American, British, German, Irish, Norwegian and Swedish Chambers of Commerce in Latvia are organising the pre-election debate with politicians running in the upcoming parliamentary election. Attendees will meet candidates from major parties currently leading the polls. This is an excellent opportunity for foreign investors and voters to get informed and ask questions directly to the candidates prior to the poll. The event will provide a unique networking platform and an opportunity to discuss the main issues affecting the economic and social development of Latvia in the coming four years. Sign up for the event at www.amcham.lv.

16 A seminar on the leadership in the new economy, organised by AmCham Latvia in Riga Business School. Experts from Eiropersonals, Accenture, and Nyenrode Business University will address future trends in leadership; what makes an effective leader and how to sustain the right talent; case study from the biggest IT company in Latvia. Sign up for the event at www.amcham.lv

11-12 The first Estonian advertising and design fair AdvEst 2014 will be held in the Estonian Expo Center at Tallinn airport. The goal is to gather together the best producers of advertising and design. W: http://advest.ee/en

OCTOBER11-12 Live Mobile Congress. One of the largest and most anticipated events of the European mobile industry, the third Live Mobile Congress will be held on 11-12 October, , in Vilnius, Lithuania. Hundreds of developers, investors and representatives of the key platforms, advertising networks and services will meet at Litexpo exhibition centre to discuss the latest mobile trends and create new ones. Attendees can gain experience at workshops featuring representatives of Microsoft, Facebook and Amazon, and participate in panel discussions with leading specialists from all over the world. There will be opportunities to test knowledge and skills in one of the five hackathons and the start-up challenge, as well as attend a series of informal social events while enjoying the hospitality of Vilnius and its citizens. W: http://livemobilecongress.com

21 Competitiveness Dialogue Series from AmCham Latvia: Competitiveness and Business Transformation, at Riga Business School. Sign up for the event at www.amcham.lv.

29 Joint Bowling Tournament of the American and British Chambers of Commerce at Zelta Bowling. Sign up for the event at www.amcham.lv

24-5 International Theatre Festival “Sirenos” takes place in various Vilnius Theatres. “Sirenos” is the largest international theatre festival in Lithuania. It presents contemporary European and world theatre novelties, the most interesting Lithuanian theatre phenomena, and offers a versatile educational programme. The festival represents a contemporary theatre which is known for challenging and accepting challenges, promoting the

partnership between different cultural institutions, and combining culture and business values. W: www.sirenos.lt.

30-1 November The Tallinn Foodfest will be held in Tallinn. TFF continues the tradition of organising food fairs in Tallinn since 1993 as the main industry event for professionals from all food-related sectors. TFF 2014 presents over one hundred exhibitors as well as a wide-ranging and varied programme of seminars and presentations. A full portfolio of professional titles will be contested to select the best chefs, waiters, apprentices, etc. for 2014. W: http://www.profexpo.ee/foodfest

NOVEMBER6-8 The Baltic Food & Beverage Fair takes place in Vilnius, the annual showcase for suppliers of food and beverage to the hospitality industry. The cross-sectoral event brings together all aspects of production technology, packaging and distribution, for the food and beverage industry. Exhibits are divided into Food Processing Machinery & Equipment, Food & Beverages, Seafood and Seafood Processing, and Food Ingredients. W: http://litexpo.lt/en/events

14-18 Festival of light Staro Riga 2014. The sixth edition of the festival of light Staro Riga will be held this year. Staro Riga is an exhibition of outdoor installations, which transform Riga’s panorama using modern light and video technology. The festival will present around one hundred outdoor installations – building lights, multimedia projections in parks, on high-rise buildings and monuments. The play of light makes the autumn drabness disappear, and opens up a completely different view of the city. W: http://www.staroriga.lv

14-30 Exciting Black Nights Film Festival (PÖFF in Estonian) is held in Tallinn. PÖFF is one of the largest and most distinctive film events in Northern Europe and belongs to the 50 leading film festivals of the world. The festival embraces a cluster of events, accommodating three full-blown sub-festivals (Animated Dreams, Just Film, Sleepwalkers) as well as international industry events bringing together filmmakers from Americas and EurAsia. The festival includes three international competition programmes (EurAsia, Tridens Herring, and North-American indie films), a traditional film festival programme with documentaries and feature films as well as programmes for short films, retrospectives and film related special events (concerts, exhibitions, talks and more). W: http://2014.poff.ee

19-21 Instrutec 2014 is held in Tallinn, Estonia. Instrutec has an international reputation for promoting innovation and international co-operation and works in close partnership with the Federation of Estonian Engineering Industry. Exposition and information and the training and advice events of Instrutec offer an overview of the current state and future potential of the Estonian metal, mechanical engineering, instrument-making and timber and sawmilling industries, allowing specialists to appreciate the latest scientific, technical and technological advances from foreign countries. W: http://www.fair.ee/instrutec

SUBSCRIBE NOW

Each quarter BQ brings its readership a wealth of business intelligence and information, whilst looking ahead to

forthcoming events and reporting on recent developments that will have a significant impact on the Baltic business landscapes

ENTREPRENEURS•SUCCESS STORIES•INTERVIEWS•INSIGHT•OVERVIEW NEWS•EVENTS•FASHION•EQUIPMENT•TRAVEL•RESTAURANTS

To subscribe to an annual subscription to BQ Magazine please contact Kate Kolbina, Project Manager


BQ is no ordinary business publication. With unique content and a style determinedly its own, its aim is to inspire, enlighten and empower,

embracing and reporting business success wherever it is found.

Receive BQ Magazine each quarter:Annual subscription rates

In Estonia, Latvia, Lithuania: a25 (including postage costs)

Outside the Baltics, rest of the EU: a30 (including postage costs)

Outside of EU:

a35 (including postage costs)

(Prices do not include VAT)

BQBusinessQuater_205x260_250814.indd 1 25.08.14 14:23

bq baltic aut14 iss4

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