State-of-the-art business services in Lithuania

Julia Lemagnen talks with Laisvis Makulis, Team Lead for Business Services at Invest Lithuania, about the development of the business process outsourcing (BPO) and shared service centre (SSC) industry in Lithuania.

Many people know the reputation of the three Baltic States (Lithuania, Latvia and Estonia) for low cost labour and information technology expertise, but what makes Lithuania specifically such an interesting proposition for business services companies right now?
A few basic stats to begin with…Lithuania is the largest of the three Baltic States with a population of 2.8 million. It is a member of the European Union (EU), the Eurozone and NATO and has been ranked amongst the top five fastest growing economies in the EU since 2008. The majority of Lithuania’s population is Lithuanian-speaking, however there is still a very significant Russian legacy so Russian is very widely spoken, either as a mother tongue or as a second language. FDI plays a vital role in the Lithuanian economy, and most investments to date have been made by Swedish, Dutch, German, Norwegian and Polish companies. Most FDI has been made in financial and business services activities, manufacturing and real estate activities.
Shared services and contact centres is one of the fastest growing sectors in Lithuania. Today there are around 60 shared service centres in Lithuania with about 13,000 employees. Lithuania focuses on finance and accounting operations, HR and IT services. Mr Makulis, says: “Over the last couple of years, the complexity of functions performed in SSC/BPO centres has increased significantly. A large majority of centres in Lithuania are multi-functional. Although traditional functions like F&A, HR and IT dominate the industry, a growing number of the centres here perform analytics, business transformation, anti-money laundering, R&D and other specialised complex functions.”
The business services sector is by no means saturated yet – there is room for growth – with more than 20,000 students graduating from finance, HR, IT or engineering related disciplines every year. All young professionals are fluent in English, and Nordic languages, German and Russian are also widely spoken, making this an ideal location for investors from nearby countries. Lithuania has a well-deserved reputation for its education system: 94% of the population has a higher or secondary education and over a third has tertiary level education.
Operating costs are attractive too: for example, labour costs are four times lower than the European Union average and six times lower than the average in the Nordic countries. There is also a low corporate income tax rate of 15% (zero for a certain period in Lithuania’s seven special economic zones).
Mr Makulis reports that investors from Nordic countries form the largest group for FDI, accounting for half of all centres operating there. 17% of these companies are Danish, and 10% are Norwegian. Nordic investors benefit from Lithuania’s geographic proximity and a multi-lingual workforce, combined with a similar work culture and can-do attitude. Lithuania is well connected by road and rail: the Via Baltica highway connects Lithuania with Czech Republic (Prague) in the south and Finland (Helsinki) in the north, and the new Rail Baltica project due to commence construction in 2020 will connect Kaunas to the international rail network bringing links to Tallinn, Riga, Warsaw, Berlin and eventually Venice.
American and UK companies are also investing in Lithuania; these countries currently account for almost a third of SSC/BPO companies there. Access by air is good: any European city is never more than a three-hour flight away. The capital city’s airport (Vilnius) serves 50 global destinations direct and Kaunas airport serves 13 destinations. Global companies have established centres in Lithuania, such as banking giant Barclays which employs around 1,300 professionals in Lithuania. Other investors to establish centres in Lithuania include CSC, Western Union, Citco, IBM, Nasdaq, AIG and Paroc Group. Most of these centres are located in Vilnius and Kaunas. In 2015 Kaunas, Lithuania’s second largest city, was named the best emerging city for shared service and outsourcing in Central and Eastern Europe.* “Kaunas has a low talent pool saturation, a progressive university community, and a developing office real estate market,” according to Mr Makulis.
Lithuania offers a first-class ICT infrastructure, with affordable internet connections and high speed broadband services. Lithuania was ranked number one in the world for fulfilling business needs for communication technology in 2016.** The ICT industry here is well-established and supported by research institutions and science and technology parks. Around 31,500 employees (2% of the total labour force) are active in the software, telecoms and IT services sector. IBM and Google have centres in Lithuania, and there are several global startups here, including Getjar (the world’s biggest Open App Store for Android OS), Exacaster (machine learning) rated by Forbes as one of the world’s hottest cloud-based start-ups in 2015, Pixelmator (graphic editor for Mac) and YPlan, an event discovery and booking app, headquartered in London, which has raised $38 million of equity funding and has its offices in the UK, New York and San Francisco.
Whilst some in Europe bemoan the lack of skilled IT staff and software developers, Lithuania is stepping in to fill the gap with a coordinated effort and investment from both government and academia. The team at Invest Lithuania has noticed an increase in demand for information technology talent and Mr Makulis notes “this year IT, along with medical sciences, was the most popular choice amongst university applicants. The growing popularity of IT studies comes together with a 50% increase in state funding. The majority of higher education institutions are increasing the number of places on their IT programmes as a result.”
These advantages are borne out in a recent MCJ Lemagnen Associates research study which demonstrated that, although corporate investors are less familiar with Lithuania than some countries in the Nordic and Baltic Sea Region, it is perceived as a “low cost location with a good market opportunity and talent base, particularly in the ICT and electronics sector. Universities and R&D rate well and the business culture is thought to be welcoming.”***
Mr Makulis sees a bright future on the five-year horizon for the business services sector in his region: “There are a couple of main tendencies that, I think, are likely to strongly shape Lithuania’s shared services and BPO market. Firstly, companies are increasingly skipping the single/few-function center approach and are moving towards a multi-functional centre model, not only to deliver services but shaping the company’s processes. Secondly, international companies are among the top employers in Lithuania, and so-called ‘western business culture’ is very attractive not only for Lithuanians, but more and more we see a trend of foreigners coming to live and work in Lithuania due to a good quality of life. If this trend continues, we will see major cities in Lithuania becoming more international and diverse.”
The heady cocktail of a lower cost skilled workforce, a modern ICT/telecoms infrastructure and an ambitious ‘open for business’ government attitude could prove an irresistible combination for business services investors in the future.

* Central and Eastern Europe Shared Services and Outsourcing Awards 2015
** World Competitiveness Yearbook, IMD, 2016
*** ‘Corporate Investment Opportunities in the Nordics and Baltic Sea Region’, MCJ Lemagnen Associates Ltd, 2016, www.locationessentials.com

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Julia Lemagnen has worked in international business for 25 years in both business-to-business and business-to-consumer market research. She previously worked as Market Intelligence Manager at Unipart Group, and as part of a UK-based brand research agency she handled marketing and research assignments for clients such as Microsoft and 3M. She is experienced in a wide range of industries and research methods and has been working in the field of economic development and foreign direct investment since 2002. Julia co-founded MCJ Lemagnen Associates in 2010.