The rise of Lithuania as a force in IT: Why Google and Nasdaq are investing here

The tech sector thrives in this Baltic state, and education in the STEM field is at the core of its growth.

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A view of the Old Town in Vilnius, Lithuania's capital city. Image: iStock
Lithuania's ICT sector is evolving, full steam ahead. An increasing number of companies have arrived in the country, drawn by its infrastructure, people, and business-friendly mindset. With some of the fastest and most affordable internet connections in Europe and a tech-savvy population ranking 16th in the world for ICT skills, Lithuania has recently attracted giants such as Google, exchange group Nasdaq, and AIG to set up shop.

The country hosts 13 of the 20 largest IT companies in the Baltic States, while local estimates predict IT, laser technologies, biotechnology, nanotechnology, and materials science will account for 25 percent of the country's GDP this year, and 80 percent of the country's exports. Lithuania's economy grew by 2.9 percent in 2014 and is expected to experience a 3.6 percent increase in 2015, consultantcy EY estimates. What's more, in January this year, Lithuania became part of the Eurozone.

Expanding tech sector

"Foreign investment in the ICT sector has grown by 70 percent between 2008 and 2013. The number of businesses has grown by 10.5 percent over the same period," Mantas Katinas, general manager at Invest Lithuania, a government agency for attracting foreign investment, told ZDNet.

In recent years, the country has become more and more attractive to both technology companies and other businesses that need tech expertise. Google has recently established a sales office in Lithuanian capital Vilnius, while Nasdaq has opened a center of excellence in the same city. In addition, Devbridge, a Chicago-based software, web, and mobile development company, plans to expand its two offices in Lithuania to 150 employees.

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"For some, IT is not their main business, but due to the talent pool and cost-to-quality ratio, they choose Lithuania for IT development," Katinas says. He highlights one such example: healthcare and emergency response systems provider Intermedix, which last year selected the country's second largest city, Kaunas, for its first office. The company currently has more than 200 IT staff, he says.

Other companies expanding in Lithuania include Bentley Systems, which established its first office in Vilnius but opened an additional office in Kaunas, and AIG, which has chosen Vilnius for its service center for Eastern and Northern Europe. Another financial services name, Western Union, has long been operating in Lithuania.

Katinas cites the "business environment, talent pool, and highly developed ICT infrastructure" among the benefits the country offers for foreign companies. "We're seeking to improve our business conditions even further, with a focus on ICT and R&D," he says.

Talent pool and salaries

The abundance of IT professionals is part of the country's appeal. According to Invest Lithuania, there are currently 26,000 residents employed in the ICT industry, with an additional 1,600 future experts graduating every year. "46 percent of foreign investors choose Lithuania in particular for its talent pool," Katinas told ZDNet.

At the same time salaries are among the lowest in the European Union. An IT manager in the Vilnius area earned an average of €27,500 to €34,300 gross salary a year in 2013, not including bonuses, according to figures from Grafton Recruitment. Java and .Net specialists with three to five years of experience earned a pay packet of €23,000 to €29,000 while mid-level technical support personnel earned between €13,700 to €16,000 a year.

For the month of May this year, Payscale.com found that the median gross salary was $21,690 for a software dev in Vilnius, whereas a project manager makes about $36,000 a year, and a graphic designer $11,000. In Kaunas, Lithuania's second city, salaries are lower than in the capital.

The country of three million inhabitants ranks first in the European Union for mathematics, science, and technology graduates per capita. "Admissions to IT study programmes have already been expanded by 40 percent in 2015, and a further 30 percent increase is due for 2016. Moreover, we'll soon launch a talent attraction programme aimed at young Lithuanians who study abroad," Katinas says.

The country is among the most educated on the continent, having the highest proportion of university graduates among people aged 30 to 34, a recent Eurostat report shows. Online study in Lithuania is more popular than almost anywhere else in Europe and nearly all young professionals speak English.

Government support

The business-friendly mindset is another asset. "In Lithuania, you can start a company in as little as three days and enjoy one of the lowest corporate profit tax [levels] in the region," Invest Lithuania's general manager told ZDNet.

Companies "are able to use a variety of support that helps them get a smooth start," Katinas says. He lists several benefits: eight to 15 percent of salary costs for the first two years in service projects, corporate profit tax incentives for R&D, and corporate profit tax reduced by up to 50 percent. Authorities also cover up to 50 percent of employee training costs and even reimburse up to $820 per month for hiring unemployed workers. Youth employment expenses can also be reduced by up to 23.3 percent.

This year, Lithuania ranked third in Europe and Central Asia, and 24th globally in World Bank Group's Doing Business Index, which ranks the ease of doing business in economies across the globe. In addition, it came 15th in the world on the Index of Economic Freedom, an annual report created by The Heritage Foundation.

The 2014 AT Kearney Global Services Location Index also puts Lithuania at 15th place, right below the US. The chart takes into account financial attractiveness, people skills and availability, and the business environment. In Europe, only Bulgaria (9th) and Poland (11th) score higher.

Some local companies have used these benefits to boost their business. Last year, three Lithuanian companies were included in the Deloitte Technology Fast 50, a report bringing together the fastest growing tech companies in Central Europe. Ruptela UAB, which manages property using the latest ICT, experienced a whopping 1,211 percent growth in revenue over the past five years. Data House UAB marked a 861 percent increase while nSoft UAB reported a 337 percent gain.

Google and Nasdaq

Nasdaq has been present for quite a while in Lithuania, through its merger with OMX in 2008, and has witnessed the rise of the IT sector.

Arminta Saladziene, CEO of Nasdaq Vilnius Services, says the company takes into consideration a range of factors when investing in a country. Among those are technology and communications infrastructure, a well-educated pool of talent, and the quality of life. "Lithuania scores well in all of these," she says.

Nasdaq will have 90 people in its new Vilnius office, but plans to expand the team further. Some of them are part of the company's Global Technology Solutions group, which has hubs in the US, Sweden, India, the Philippines, and Australia. "We believe that there are good growth opportunities in all of our Baltic businesses, and we are investing," Saladziene told ZDNet.

Google also opened an office in Vilnius to be closer to the Baltic area. "We're starting with a small team, but we hope to grow the office further, depending on the dynamics of the local digital ecosystem," Vytautas Kubilius, Google country business development manager for Baltic States, told ZDNet.

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Early investment in digital infrastructure, an economy focused on export, and favorable governmental policies are among the Baltic region's greatest assets in terms of IT business, he says.

"Seeing how digitally savvy people in these countries are, we believe this region is well positioned to take full advantage of the single digital market initiative in the European Union. We've seen Lithuania, Latvia, and Estonia steadily climbing ranks in various innovation and ease of doing business rankings."

"We're here for the long run," the Google exec says.

A place for innovative companies

Uber, WIX, and Revel Systems also enjoy the country's lower costs compared to Western Europe, and the skilled developers. "The tech sector in Lithuania has a unique combination of talent, creativity, and a willingness to push the boundaries," Nir Zohar, Wix.com's president and COO, told ZDNet.

His company has 30 employees in an office in Vilnius. It's a core branch of their R&D department, made up of engineers, QA specialists, and UX designers. "When we decided to open a Lithuanian branch, we were motivated by the vibrant business culture, and wealth of technology professionals - it seemed like a perfect fit for us and the past two years have proved that."

WIX benefited from assistance from government bodies when it opened the office two years ago. "[We] were impressed by their commitment to helping the tech ecosystem in Lithuania grow," Zohar says.

The company plans to expand its Lithuanian team further, provided that the IT sector continues to get support from local authorities. Investments to increase the workforce are needed as well as initiatives to make the country even friendlier for international companies.

"The opportunities are immense and they will continue to grow," Zohar says. "We have no doubt that it will quickly become known as a global tech hub."

Enthusiastic startups

Lithuanians are working hard to develop their startups, a trend that could further bolster the country's tech credentials. The ecosystem attracted €46m in 2014, a 35 percent increase on the year before. "There is plenty of technical talent, funding, and support from all kinds of stakeholders in the community," Edmundas Balcikonis, CEO of TrackDuck, told ZDNet.

Most of the startups are located in Vilnius, yet Kaunas and several other cities are developing an appeal for entrepreneurs as well. Balcikonis says accelerators and events such as LOGIN and Silicon Valley Comes to the Baltics offer a helping hand for those trying to start a business on their own.

Some have already succeeded. Vinted, a platform for second hand clothes, was given €20m last year, while YPlan, "tonight's going out app", has raised €21m in total last year from several investors.

Around three-quarters of Lithuania's successful startups eventually set up headquarters in London or San Francisco to have easier access to funds, Balcikonis says. "However, 99 percent of them leave most of the development and operations in Lithuania."

The startup environment is no longer a playground for students and those fresh out of college either: the average age of founders has reached 31 in 2014, while the number of entrepreneurs with bachelor's, master's, or doctor's degree has doubled, according to a survey carried out by Enterprise Lithuania.

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