Ain Alvela, Editor of TööstusEST, interview with Kati Kusmin, Chairman of the Management Board of The Estonian Business and Innovation Agency (EIS).
Kati Kusmin, which was recently created with the merge of the former Enterprise Estonia (EAS) and KredEx, is of an opinion that besides digitalization, lack of qualified workforce is still an important current issue for the industrial sector and could potentially become a growth hindering factor in the future.
Kati Kusmin says that while the digitalization of industry is still in the focus and is helping to increase the competitiveness of companies, the lack of qualified specialists – the ongoing structural lack of labour in different sectors, not only in the information and communication sector, but in industry general, may become a growth limiting factor.
“More and more industrial companies feel the need to hire foreign specialists,“ she says. “But there is one big problem hindering recruitment – Estonia is known as a successful IT country, but the image of our industry is not as bright.“
One of her messages is that EIS is committed to introducing Estonia as an attractive life and work environment, offering support for everyone who needs it, but the effects of these activities take long time to become evident.
Questions are answered by Kati Kusmin.
What is the current state of the Estonian industry in terms of sustainability, competitiveness, orientation to export etc?
This should be viewed from a broader perspective. We have reached to a point with the development of the state and societal ambition where so far, we have advanced at a very brisk pace with implementing new technologies and offering high quality outsourcing, but now we need to put in the next gear to move up of the value chain. This means developing our own products and technologies and scaling them to global markets. Just as we have been a good example for the world with our digital government and public e-services and exported our own solutions to the world.
We must consider what kind of problems we could further solve in the world. These could be new solutions in healthcare, medicine, food, energy carriers, circular business models or technologies allowing the reuse of resources. Industry has an important role here. The more successfully our industry can gear up, the better it will be for our entire country.
To what extent are industrial companies aware of the need for development in terms, for example, digitalization and possibilities to get support for it?
Digitalization and automation are a natural part of industry. Companies are competing on markets and to stay in competition continuous improving and search for efficiency is inevitable. There are also issues with labour – we can no longer offer cheap labour, but when looking at our productivity then at a broader scale we are still producing things that are too cheap.
As far as using EIS as a support system, then companies are different. There are companies that are keeping a systematic track on our services and possibilities and use everything that supports their development and growth. But there are also those, who for some reason have not been able to reach us or to whom EIS has not been able to reach.
How have the development strategies of the industrial sector changed over the last, let’s say, twenty years, and with it the need for subsidies?
I can point out three trends.
If a company has questions concerning what, how, and in what order to digitalize, I recommend starting with digital road mapping. EIS has a special grant for this – an external expert helps the company to map the digitalization potential of the company and create an action plan with the timeframe for the return on investments. In addition, there is a grant for digital transformation, to help to make the first investments of the plan.
The second support area is the development program of the company. It is suitable for an operating production company that needs to find, for example, a new business direction in addition to the main business and get new opportunities for growth. This support measure covers product development, development of technology and digitalization, as well as starting export to international markets. The revenues of the companies that have participated in this development program have increased 21% compared to the average of the sector. This confirms that ambitious companies with a well-thought-out long-term strategic plan grow significantly faster compared to the rest of the market.
The third important area is knowledge intensive development activities. For this purpose, EIS has an applied research grant. Last year alone we advised over 200 companies wanting to develop technologies, products, and services, that do not yet exist in the world. During the last three years, the program has supported development projects in the amount of more than 120 million euros.
How actively are industrial companies ready to initiate research and development activities in their company?
This is a key moment in the development of a company in getting to the next level. We are working to increase companies’ research and development activities both in volume and quality. This does not mean cooperation with research institutions only but also with other companies in and outside of Estonia. In addition, there is now a new applied research centre in Estonia. The team of the applied research program have experience with various industrial companies, that are also cooperating with start-up companies and are ready to flexible prototyping. The motivation lies partially in the fact that when the start-up matures, the industrial company will have a new capable client.
However, if this article is read by some manager of an industrial company, who does not know who they should cooperate with, I recommend contacting the experts of the EIS applied research program – finding and bringing partners together is one area where we can help and where we have a top level competence both in our own organization as well as in form of external partners.
What sectors should start thinking on serious transformation because their activities do not match with climate goals?
Knowledge on topics like ESG (sustainable business), DNSH (climate reporting) and European Union’s taxonomy (a framework for a sustainable economy) is essential. In addition, businesses are influenced by our own climate law, which is currently being prepared. The most noticeable effect is that companies with a larger environmental footprint may have limited access to capital – both at the level of banks and state subsidies. Not complying with environmental requirements can lead to sales restrictions, where it is not possible to qualify in international procurements. For example, partners in Scandinavian and European Union do not include a company in their supply chain if it has not thought through its ESG strategy. Estonian companies also have difficulties in participating in international procurements if their products have no environmental declarations. In any case, it is certain that environmentally friendly and responsible business and the development of green technologies are directions that are currently trending.
The total production of the manufacturing industry has been in decline for quite a long time – how to turn it into growth and what role could EIS have in this?
If new customers and markets are sought, then EIS export department has experience and competence for finding new markets as well as understanding the market specifics. It is also possible to use the help of our export advisors, who advise on entering new markets and help to find trustworthy partners. We are also organizing trade missions, contact trips and joint stands in international trade fairs, offering market-based training programmes etc. If the question is about company choices in broader sense, then the three main things to think about were already mentioned – the digital roadmap, the development program of the company and the applied research program.
There has been a lot of criticism towards the Just Transition Mechanism (JTM). What to do for the support to reach entrepreneurs that could help to transition the oil shale-oriented industry to a more modern application inspired by the green transition?
The conditions for support were recently eased by the state after which there has been an increase in the interest from the entrepreneurs. Currently, there are projects worth nearly 400 million euros in various procedural stages, which will create more than 1,000 jobs. Companies are initiating very interesting developments with the help of JTM. For example, a subsidy of Ragn Sells is starting a piloting plant to produce calcium carbonate from oil shale ash. A greentech company Trisector is doing something similar focusing on valorisation of oil shale failings. Valorisation of local resources and in some extent also waste resources is a nationally important strategic direction with great potential both in business and broader societal and environmental sense. But it is also true that the rules for JTM are the same across EU and we have no way of changing them.
What could be some of the future areas in which the domestic manufacturing industry could achieve international success?
If you look at what these big global trends and future tasks are, then the world needs new energy carriers, more efficient transport systems, circular business models, environmentally friendly food, technologies promoting recycling of resources, etc.
The development of defence industry is very important currently. For example, our SmartCap has a stake in the NATO innovation fund that focuses on the investments of the development of dual-use technologies, which could be of use in defence industry as well as in other areas. Of national importance is the valorisation of bioresources, be it wood or grain. A great lot is also expected from the potential of artificial intelligence in increasing productivity.
How likely is that EIS would start supporting activities related to the extraction or manufacturing of natural resources in Estonia?
The Neo magnet factory associated with rare earth metals has received support from the Just Transition Mechanism. Phosphorite is a subject of social and political discussion. What is important in the broader sense, is that when Estonia decides to use its natural resources, it would be sensible to undertake the value-creating activities here as well. Certainly, it is not wise to export unvalorised natural resources and later import products made from them. It is worth questioning then whether we are valuing our wood or grain highly enough.
Which forms of energy production could be prioritized in receiving support in the future?
It is important not to hold all the eggs in one basket and to develop different technologies. For example, the last round of applied research program supported Energiasalv for developing the Zero Terrain pumped hydro energy storage technology in Paldiski. In addition, a successful investment round was recently completed in Estonia by Elcogen who is developing hydrogen technologies, we have our own wind turbine manufacturers etc. Similarly, the development of technologies to save energy is also important. For example, we see great potential in reconstruction of old apartment buildings with factory-made elements, an area where digitalisation meets industrial solutions and export potential to Europe.
So, what would be the message to forward to the industrial sector at this moment?
Taavi Madiberk has brough an example with Skeleton, where the labour cost is only about 5% of the price of his product. In such case, it is not important whether to produce in Vietnam or Germany. If we want to make the next developmental leap as a society, then it is exactly such complicated high added value products and services that we need to produce. And when dealing with product development, the work done with a lot of effort and money must certainly be protected with intellectual property, not given away to others for free.
“Industry has an important role. The more successfully our industry can gear up, the better it will be for our entire country,” Kati Kusmin.