BQ Baltic Autumn 2014 by BQ Magazine Baltic edition

www.bq-magazine.co.uk

ISSUE FOUR: AUTUMN 2014

BOTTLING SUCCESS Trail-blazing brewer goes from strength to strength THE MILDER SIDE OF LIFE Meelis Milder, of fashion retailers Baltika, talks business ART OF INVESTMENT International connoisseurs shop in Riga’s galleries HUNGRY FOR SUCCESS Lunch with Lithuania’s youngest consultancy stars

PORT ABLE ISSUE FOUR: AUTUMN 2014: BALTIC EDITION

How Klaipeda’s new floating gas terminal will transform the Baltic energy market

BUSINESS

NEWS:

COMMERCE:

FASHION:

INTERVIEWS:

TRAVEL:

EVENTS

WELCOME

BUSINESS QUARTER: AUTUMN 14: ISSUE FOUR

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

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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 Donald Editor, BQ Baltic

CONTACTS CORMACK CONSULTANCY GROUP e: kate@bq-baltic.com t: +371 2607 6436 EDITORIAL Colin Donald Editor e: colin@bq-baltic.com DESIGN & PRODUCTION room501 e: studio@room501.co.uk PHOTOGRAPHY Vygintas Skaraitis e: skaraitis@gmail.com Birgit Püve e: birgitpyve@gmail.com Gatis Rozenfelds e: gatis@rozenfelds.com ADVERTISING Estonia: Nordicom e: advertising@nordicom.ee t: +372 5666 7770 Latvia: Anna e: anna@bq-baltic.com t: +371 2991 8829 Lithuania: Kestutis e: kestutis@bq-baltic.com t: +370 618 66251 DISTRIBUTION AND SUBSCRIPTIONS Kate Kolbina e: kate@bq-baltic.com t: +371 2607 6436

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. 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

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

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CONTE BUSINESS QUARTER: AUTUMN 14

THE MICROBREWER BOTTLING SUCCESS

Features

44 ONE STEP AHEAD Child prodigy turned entrepreneur Deividas Tumas on being a leader

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?

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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

14 FROM PRODIGY TO ENTREPRENEUR

TENTS BALTIC EDITION

PROGRESS LEADING TO ‘BEST PRACTICE’

42 COMMERCIAL PROPERTY The landmark deals and developments shaping the Baltic skyline

Regulars

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

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

76 EQUIPMENT

62 TAKE A WALK ON THE MILDER SIDE

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

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ON THE RECORD

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>> Sources for courses 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 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

Mariia Shekhireva, UCORS project manager 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 >>

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

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ON THE RECORD 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

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Above, University of Leicester, Left, Edinburgh Napier University, UCORS participants

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

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BQ Magazine together with Baltic Management Institute, the leading executive educator in the Baltics, is organising a one-day session for highprofile 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.

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

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; PAWEĹ TAMBORSKI, CEO OF WARSAW STOCK EXCHANGE; RICHARD CORMACK, HEAD OF NEW MARKETS EQUITY CAPITAL MARKETS AT GOLDMAN SACHS Space is limited, please book early by contacting Kate Kolbina, Project Manager +371 26076436

kate@bq-baltic.com

ON THE RECORD

AUTUMN 14

>> Beer minnows are bottling success 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 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

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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,

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

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ON THE RECORD

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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

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

>> “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 “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 wellinformed 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.”

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AUTUMN 14

COMPANY PROFILE

Lithuanian immigration: what’s new? 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.

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

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NEWS

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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 >> Baltics hit by Russia’s food sanctions On 7 August Russia announced a yearlong 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”

The private sector has shown itself ready to support food producers

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for Latvian food producers and transportation companies affected by Russian sanctions, as well as a planned extra €5 million for conquering new export markets.

for Reconstruction and Development. The restructuring plan calls for the sale of Citadele to be completed by the end of 2014.

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

>> 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

>> Obama in Tallinn solidarity declaration 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 postSoviet territory. You’re sovereign and independent nations with a right to make your own decisions,” he said.

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NEWS

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>> Bank’s virtual investment Estonian 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.

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

>> Media freedom expanded President 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,

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

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 boost SIA 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

>> Latvia’s appeal spreads 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.

>> 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

BUSINESS QUARTER | AUTUMN 14

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.

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.

>> Working together >> Norwegian group makes a tasteful investment 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.

>> 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

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.

>>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.

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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 â&#x20AC;&#x201C; 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 PetjĂ¤rv Head of Estonian Investment Support and Wealth Manager Mandatum 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.

BUSINESS QUARTER | AUTUMN 14

COMPANY PROFILE

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New campus to put UK’s brainpower in easy reach of Baltic and beyond 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.”

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 BUSINESS QUARTER | AUTUMN 14

(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

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COMPANY PROFILE

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

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, icefree port, with highly developed industrial >>

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COMPANY PROFILE

AUTUMN 14

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

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 redevelopment 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

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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 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 BradfordTeesside 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

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COMPANY PROFILE 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

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

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

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.“

Klaipeda City Municipality

For further information, please contact Giedre Merkelyte at giedre@consultcormack.com Mobile: +370 662 53342

BUSINESS QUARTER | AUTUMN 14

AS I SEE IT

AUTUMN 14

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

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

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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

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AS I SEE IT

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

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 Centraland 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)

BUSINESS QUARTER | AUTUMN 14

ENTREPRENEUR

AUTUMN 14

PORT GETS SET FOR INDEPENDENCE DAY A €174 million floating gas processing factory – coming soon to Lithuania – is attracting worldwide attention. Colin Donald reports

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 metrescapacity 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

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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 allimportant 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 >>

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ENTREPRENEUR

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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

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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

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ENTREPRENEUR

Computer projection of the completed terminal

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 10-25year 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 >>

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ENTREPRENEUR 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

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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

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BMI KNOWLEDGE

The art strategy of luxury brands 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 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

Jean-Noël Kapferer, distinguished brand management professor at BMI partner school HEC Paris 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

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 crossfertilization with artists in a flow of inspiration that nourishes their brands.

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)

BUSINESS QUARTER | AUTUMN 14

INTERVIEW

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

THE ART OF ECONOMICS 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 BUSINESS QUARTER | AUTUMN 14

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 cityâ&#x20AC;&#x2122;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

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INTERVIEW

Kristaps Gelzis at work in his Riga studio

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 COLLECTORS The 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). >>

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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 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

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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 ARTISTS Unlike 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

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

BUSINESS QUARTER | AUTUMN 14

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.

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 ABROAD Both 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

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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 notfor-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

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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

INTERVIEW

A guide to forthcoming artistic highlights 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/

COMMERCIAL PROPERTY

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

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 BUSINESS QUARTER | AUTUMN 14

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

BUSINESS LUNCH

BUSINESS QUARTER | AUTUMN 14

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BUSINESS LUNCH

STAYING ONE STEP AHEAD OF THE PACK Colin Donald enjoys a nostalgic lunch with a Lithuanian high flier

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 >>

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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) LithuanianEuropean 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

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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 AndreėBaldišiute 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 oldtown 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.”

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Kaunas’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. Education should be a broader concept, even business education can expand your horizons

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“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 >>

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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-

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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 deeppocketed “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 probono 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.

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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

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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 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

What’s cooking in the cellars? LUNCH FOR TWO IN KAUNAS’S TOP EATERY Senieji 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)

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

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Treatment of eye diseases in Lithuania – European quality standards for Lithuanian price 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 home country. Foreign patients are also motivated by the better quality of medical services, more reputable medical professionals and the possibility of getting faster and cheaper treatment than in their home country. WHY FOREIGN PATIENTS PREFER LITHUANIA Lithuania is one of the Baltic Sea states, and formally recognised as the geographical center of 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 wellknown European eye clinic network. It provides up-to-date high-quality medical services for

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patients with a variety of vision problems, such as eye examinations and consultations, laser vision correction by Lasik, Superlasik, Lasek, REIKZ, PRK, iQ-Lasik, and iQ-Lasik-Oxygen methods, intraocular correction, and cataract surgery. Patients suffering from nearsightedness, farsightedness, astigmatism, glaucoma, cataracts and other sight problems come to Naujas Regejimas from many foreign countries, and they choose us for several key reasons:

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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Naujas Regejimas also boasts the highest quality standards, which allows us to compare it with the best Western clinics. The clinic uses modern medical equipment and the most up-to-date laser technologies, in particular the Allegretto Eye-Q Excimer Laser, which is recognised as an almost perfect device, ensuring that laser vision correction is performed quickly, safely and accurately even in case of very complex visual disorders. Allegretto Eye-Q Excimer Laser is also the only excimer laser device integrated with the most accurate diagnostic tools for in-depth optical analysis of the eye. For Naujas Regejimas each patient is treated as being of the greatest importance. If necessary, the clinic fully organises a patient’s stay, starting with journey planning and finishing with treatment (reservation of travel tickets, airport pick-up, and

LASER VISION CORRECTION

FRIENDLY PRICES AT NAUJAS REGEJIMAS: Full diagnostics Laser correction by means of any method with the premium class up-to-date equipment (price per eye) Surgery with a multifocal lens (price per eye) Surgery of cataract of any complexity with implantation IQ-IOL (price per eye)

accommodation in hotels). Naujas Regejimas can even take care of its patient’s leisure time and arrange various trips and excursions. With us, recovering good vision is simple. Patients are invited to take advantage of the opportunities offered by the highly-trained professionals of Naujas Regejimas (New Vision), which offers the state-of-the-art service and treatment in the sphere of modern ophthalmology.

• The substantial experience gained in the sphere of treatment of eye diseases ensures that patients of the clinic feel safe and secure. In 15 years we have performed over 300,000 operations in Naujas Regejimas. • Naujas Regejimas in Vilnius has highly qualified ophthalmologists who gained their professional skills in the Western European and American clinics. Medical technologies are constantly changing, but our professionals are always on top of things, ensuring that they deliver benefits for the patients and enhance their quality of life through improved vision. • 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 receiving the necessary treatments is easy.

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

North Estonia Medical Centre in Tallinn, Estonia

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

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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.

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Along 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

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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 >>

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Egles spa in Lithuania

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

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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 >>

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Oftalmology clinic in East-Tallinn Central hospital, Tallinn, Estonia

Baltic Vein Clinic of Veselibas Centrs 4, Riga, Latvia

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

A growing demand Baltic Care is the alliance of 10 leading Latvian clinics which include such diverse services as 4000 phlebology, dermatology, plastic surgery, eye 3000 surgery and more. Their statistics for 20112000 2013 show that the number of overseas 1000 patients in their clinics is growing rapidly: 0 Year Number of foreign patients 2011 650 2012 1470 2013 3005 1,000000 Medical tourists also tend to spend more 750,000 and more money: 500,000 Year Turnover of Baltic Care, € 250,000 2011 382,649 0 2012 406,347 2013 891,997

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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 >>

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Working in partnership for the good of patients 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 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

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 Proimplant. 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”

K. Donelaicio Str. 14-1, Kaunas, Lithuania M: +370 634 09687 www.odontologas.lt info@odontologas.lt Member of Lithuanian medical tourism cluster LitCare

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OVERVIEW

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

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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

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

Combining treatment with tourism 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!

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COMPANY PROFILE

3D Technology in Baltic Dentistry 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”.

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.

Address: Kriviu g. 5, Vilnius LT-01204, Lithuania T: +370 614 80991, E: alistair.day-stirrat@odontika.com

TRAVEL Bridge across the river Venta in Kuldiga, Kurzeme province, built in 1874 Image courtesy of Latvian Tourism Development Agency

DISCOVERING THE LOST DUCHY William Cook takes a road trip in search of Latvia’s ancient heartland “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

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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.

TRAVEL

Restored to glory: Kuksu Manor in Tukuma Image courtesy of Latvian Tourism Development Agency

Hands on: Daniel Jahn in the kitchen at Kuksu

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. >>

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TRAVEL Latvian Versailles: Rundale Palace

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

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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

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

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 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,

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.”

TRAVEL We 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.

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INTERVIEW

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INTERVIEW

STRIVING TO REACH THEIR FULL POTENTIAL The 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

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 >>

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INTERVIEW

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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

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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

Driving best practice 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.

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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 >>

INTERVIEW

Recent Baltic governance failures 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.

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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 oldschool 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

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Energy group pools its resources 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 BalticNordic 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.

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AUTUMN 14

PUTTING ESTONIAN STYLE ON THE MAP

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

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

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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

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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

ENTREPRENEUR

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 >>

BUSINESS QUARTER | AUTUMN 14

ENTREPRENEUR

AUTUMN 14

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 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

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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 brandrelated 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

BALTIKA IN NUMBERS SALES IN JULY (€ thousand)

RETAIL SALES

WHOLESALE (inc. franchise)

ONLINE SALES

TOTAL SALES

STORES

2014 4,521 414 20 4,961 125 2013 3,997 257 15 4,272 124

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and 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

ENTREPRENEUR

Baltika Brands 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.

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

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FASHION

BIRTH OF THE COOL

Chet Baker

The laid-back and effortlessly stylish look pioneered by the jazz greats began life in a side-street store, writes Josh Sims

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He 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 >>

FASHION Gerry Mulligan

Miles Davis

Wynton Marsalis

Duke Ellington

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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

Miles Davis

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

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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 hothoused 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 Windsorknot. 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 porkpie 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

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 straightfrom-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

Address: Didžioji str. 39 / Etmonų str. 1, Vilnius Zip code LT-01128. Tel. +370 64691617 info@emties.lt, www.emties.lt

BUSINESS QUARTER | AUTUMN 14

EQUIPMENT GRAND DESIGNS

Car manufacturer Ford’s executive design director Martin Smith talks about the challenges and rewards of turning his boyhood dream into a lifelong career

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Martin 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 handguns (“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 Sheffieldborn 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 >>

EQUIPMENT

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EQUIPMENT 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

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-itskind 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,

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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

REAR VIEW

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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

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NEW EU FUNDING ROUND EQUALS NEW OPPORTUNITIES FOR INTERNATIONAL COMPANIES of 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 funding offers an extraordinary opportunity for international companies 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?

>> Everyone’s a winner 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

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COMPANY PROFILE

Turkish delight for high fliers 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 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 awardwinning 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 costeffective 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

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.

Demet Doganay, Riga station manager at Turkish Airlines

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

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.

www.turkishairlines.com

BUSINESS QUARTER | AUTUMN 14

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 colin@bq-baltic.com and please put ‘BQ events page’ in the subject heading

SEPTEMBER 11 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

OCTOBER 11-12 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

BUSINESS QUARTER | AUTUMN 14

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

NOVEMBER 6-8 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 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.

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

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