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Speed as Klaipeda’s New Competitive Advantage
With Lithuania quickly approaching the Western level of pay, the Klaipeda Free Economic Zone (FEZ) team created a unique competitive advantage for the city: the ability to start manufacturing operations faster than anywhere else in the region. FlexStart, the flexible factory built in Klaipeda FEZ allows investors to save months of valuable time and earned international recognition already. Its all available space is expected to be rented out soon and so the FEZ is planning a new building project.
Lithuania has been earning its name as a country where starting and developing a business is easy for a while now. In the World Bank’ Doing Business rankings Lithuania earned itself a high 14th spot out of 190 countries and is ahead of notable economies like Finland and Australia, while also maintaining a higher ranking than its regional neighbours. Good geographic location, membership in Euro-Atlantic structures, a qualified workforce, modern infrastructure, and broad incentives for investors have earned Lithuania more than €15 billion in foreign direct investments over the last 20 years; however, the country has to compete with neighbours that are just as ambitious or countries and entire regions globally. With a small domestic market and growing wages, Lithuania has to search for new ways to attract investment, especially when the state of the previously flourishing world economy is starting to become undefined.
Challenges bring opportunity
Eimantas Kiudulas, the CEO of the Klaipeda FEZ, says that the world economy is going through a unique period, where the money in the market is available but, at the same time, there’s a tangible sense of worry and confusion concerning international trade relations, Brexit and other tensions. Additionally, technology improves and changes faster than ever, primarily in the fields of transport, energy, and automatization.
“In an environment like this, speed becomes a valuable currency,” comments E. Kiudulas. “You want to test and realize new business or its development ideas as fast as possible. We also see that even though the quantity of manufacturing projects grows, their scale and size shrinks. After all, you don’t need a gigantic factory with thousands of employees to test out a new idea. All of this presents the open, flexible and unbureaucratic economy of Lithuania with an unbelievable opportunity: to compete in the business speed department, in other words, to have the best environment for the quick realization of manufacturing projects. Saving half a year or even an entire year in the process of setting up for manufacturing is often more important than wage-related costs or tax relief to a modern investor.”
After an extensive market analysis and talks with multiple present and future investors, the Klaipeda FEZ team discovered this trend and decided to develop a project that has no analogue in the Baltics: building a universal 7,500 square meters manufacturing building called FlexStart. The feature that makes this building exceptional is that it allows starting manufacturing extremely quickly. Building a new factory in an empty field can take 1-3 years, renovating an old factory takes 6 months to a year, while FlexStart investors can adjust their space in the building according to their individual needs and start manufacturing 2-3 months after signing the contract.
The CEO of Klaipeda LEZ points out that the Klaipeda FEZ management invested in the FlexStart project without having clients and Letters of Intent lined up.
“It was a risk in some sense,” says E.Kiudulas. “With that said, we saw the development in Kaunas and Vilnius, considered global and local trends. After all, Barclays might not have set up in Vilnius if the city didn’t have the modern Green Hall office building. We were not afraid to be the first and we can only be happy about the fact that our determination paid off so quickly.”
Planning the second building
FlexStart was started in 2017 and the building works concluded last summer. Klaipeda FEZ invested €3.3 million into this project. Just after the building was complete, three projects, Baltijos Eukutecas, a German-owned manufacturer of wiring sets for electric bikes, a Norwegian electric appliance manufacturer Etman, and one more unnamed manufacturing startup.
“We didn’t have any room to grow but received more and more orders while hiring more people, so we have been looking for opportunities to buy or rent a bigger space,” says Ina Vaicekauskiene, the Director of Baltikos Eukutecas. “Finally, we contacted the Klaipeda FEZ team. We barely had to do anything in the FlexStart building because the whole FEZ team had already done everything to our specifications. That’s why we’re satisfied, we realized the project very quickly. We are planning further growth, creating even more jobs.”
If that was not enough, FlexStart created a new opportunity in the real estate business, namely, renting temporary manufacturing space. For example, Klaipeda-based electric bus manufacturer Dancer plans to build a factory from scratch in an open field but it can still gain speed while temporarily renting manufacturing space in the FlexStart building.
According to E. Kiudulas, with only less than a thousand of square meters of space left in the FlexStart building, the FEZ is seriously considering the development of a second, flexible manufacturing plant on a bigger, 8,500 square meter scale.
“We have a strong case for starting a second FlexStart building. We are also inspired by the fact that the Klaipeda FEZ and FlexStart attract more and more attention from Lithuanian companies as well,” says E. Kiudulas. “After all, they qualify for the same measures of tax relief as foreign investors: a waived corporate tax for the first 10 years of operations, followed by the reduced tariff for 6 following years, as well as waived real estate tax until at least 2045. We are also fully convinced that business set up speed is also one of the most important factors for both foreign and Lithuanian manufacturers.”
In 2017, FlexStart received the first ever special award for investor set up speed from fDi Intelligence, a specialist division of the Financial Times.
Found relevant trends
Real estate experts agree that manufacturing needs and the whole manufacturing process is changing as well.
Mindaugas Kulbokas, the manager of the research and analysis team at Newsec, a real estate consulting firm, comments that technological rearmament and innovations in the manufacturing segment have reached small and medium-sized companies as well.
“Resources in manufacturing companies are directed in two essential directions – technological innovation and specialists,” says M. Kulbokas. “But that begs the question, where do you install these technologies and innovations? Doing it in old manufacturing spaces is often ineffective and irrational. Another way is to build your own factories, growing your balance-sheet obligations in the process. The third way, which is quickly becoming more and more popular in the industrial and manufacturing segments is renting manufacturing space long-term while including rent costs into direct operating expenses.”
According to the expert, demand in the flexible manufacturing space segment is growing, suitable objects of this kind should be attractive to light industry companies as well.
Additionally, Mindaugas Statulevicius, the Director of the Lithuanian Real Estate Development Association, notices on more relevant trend, the opportunity for manufacturing space to be turned into a service.
“The Space as a Service trend in the real estate market began with coworking spaces, transitioned into living spaces, the hospitality industry and is now moving to the manufacturing spaces,” says M. Statulevicius. “It is especially important when speed is one of the primary concerns: while trying new products, new production lines, reacting quickly to changing circumstances in the market. In the industrial sector, the supply of services like the ones offered by FlexStart is in its infancy and not sufficient because the majority of available manufacturing space is taken up by renters with long-term contracts. With that said, more spaces like this should become available, especially with production deadlines becoming shorter and the need for the manufacturer to be closer to his client to compete in the global market becoming more pronounced. Speed and convenience are becoming the most important currency in the real estate rental market.”