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Speed Is the Most Valuable Currency
More than 30 investors from different countries in a single place, almost five and a half thousand employees and total yearly revenue of a billion euro. That is the best way to describe the biggest business community in western Lithuania, the Klaipeda Free Economic Zone (FEZ). Today, it is one of the most important business arteries in the region, circulating products, services, jobs, income, and unique experience, 15min.lt, a major Lithuanian news website, reports.
Klaipeda FEZ – the biggest in Lithuania
A free economic zone is a place where special, often advantageous, legal and tax rules apply. The CEO of the Klaipeda FEZ, Eimantas Kiudulas, says that the main tool of tax relief in Lithuanian Free Economic Zones for investors are the zero tariff for corporate tax for the first 10 years of operation (as well as a reduced tariff for six more years), and zero property tax. “Usually, in worldwide practice, Free Economic Zones are established to encourage economic activity in a certain city, a specific region or the entire country by attracting investors from abroad,” he says.
The Klaipeda FEZ is the oldest and biggest Free Economic Zone in Lithuania, established back in 2002. It is considered to be the most successful example of its kind in the Baltics. According to E. Kiudulas, factors like the fact that it was the first FEZ in Lithuania, quality infrastructure, proximity to the only seaport in Lithuania, rich history of manufacturing in Klaipeda as well as fortunate timing of Lithuania getting accepted into the European Union determined the strong start of this FEZ from the beginning. In the first few years of operation, worldwide plastics leaders Retal and Indorama, Japanese automobile industry supplying leader Yazaki, as well as companies like Mestilla, Espersen and others set up in the Klaipeda FEZ. “A strong and constantly growing community of leaders like this, as well as continuously improving infrastructure later attracted multiple other significant investors,” says the CEO of the Klaipeda FEZ.
Klaipeda FEZ was the first in the world to receive the Quick Launch Award. fDi Intelligence, an influential publication belonging to the Financial Times Group, recognized the Klaipeda FEZ in its Global Free Zones of the Year ratings for the Quick Launch package that it offers. This package involves the ability to rent an already built manufacturing space, offices, and warehouses, as well as opening the possibility of investing into plots of land with pre-approved building permits as well as access to the wide variety of building, technology, human resources, and other sector partners, available in Klaipeda, which are useful when making it quicker to start a business.
“The general Quick Launch package has been offered by the Klaipeda FEZ for several years,” says E. Kiudulas. “According to the needs of the specific investor, it could include a plot of land with a ready-made factory project, an offer of an already existing manufacturing plant available for rent, or help and consultations from our partners. All of this can save the investor a lot of time, from several months to almost two years.
With that said, E. Kiudulas admits that the biggest reason why the Klaipeda FEZ received the Quick Launch Award was its FlexStart project. It is a 7,500 square meter manufacturing building with rentable space that can be adapted to the individual needs of a specific client in a very short timeframe (1-3 months). “If building a factory on an empty field takes 1-3 years and renovating an old manufacturing space can take 6-12 months, FlexStart allows investors to adapt the space to their individual needs and start production in 2-3 months from the day a contract is signed.” says E. Kiudulas.” In our evaluation, it is a unique opportunity and a great solution for investors from the whole region of the Baltics.
According to E. Kiudulas, it is the speed of launch that is the most important to investors. “We live in a competitive world that changes very quickly. New technologies and opportunities appear and develop incredibly fast. In a world like this, speed becomes a valuable commodity: investors want to try out new business ideas as fast as possible,” says E. Kiudulas. “We can also see that even though there are more and more manufacturing projects enter the market, their scale becomes smaller. To a modern investor, saving half a year or even a year to the launch of the product is more important than tax relief measures or wages.”
According to E. Kiudulas, the Financial Times award makes them happy and lets investors know about the Klaipeda FEZ but the real opportunity for quick launch is much more important. “FlexStart results speak for themselves and convince that the project is successful: almost the entire space was rented out while the building was still in the process of being built. At the moment, we are strongly considering the possibility of starting a second FlexStart building,” he says.
Almost any company is an example of success
E. Kiudulas says that essentially all companies in the Klaipeda FEZ grew over the last year and showed good results. “The whole Klaipeda FEZ should be considered a success,” he says. “After all, more than half of all companies in the zone exceeded their initial investment plans and completed expansion projects.”
Some companies are exceptional, however. For example, Yazaki is an exemplary factory in the whole Japanese group, which attracts visits from representatives from other parts of the group, all to gain valuable experience. If that was not enough, the Klaipeda Yazaki factory not only makes wiring and its sets but also creates new product manufacturing concepts, which are later adapted in other countries.
The story of Indorama is also impressive. 15 years ago, it was the first greenfield investment from this worldwide plastics giant outside Asia. Today, Indorama is one of the biggest PET manufacturers in the world and the Klaipeda plant leads the pack in effectiveness solutions throughout the whole Indorama group.
Yet another company, Neo Group, has just become the biggest manufacturing plant of PET granules set in a single area in the whole of Europe, after carrying out a manufacturing extension project.
Remains attractive to investors
According to E. Kiudulas, each investor has individual needs. “International investors often look at the region first, then the country and finally evaluate specific cities and FEZs.
With that said, the Klaipeda FEZ is special in Lithuania and the whole region because of its close proximity to the northernmost ice-free seaport in the Baltics, which allows you to reach all the most import Western European markets in 1-2 days. It is also special because of its fastest quick launch program, varied and excellently developed transportation infrastructure, the biggest and the most active investor community, experienced and talented local specialists in the fields of engineering, plastics, electronics, and logistics, as well as its experienced FEZ management team,” says the leader of the biggest FEZ on the country.
Investors continue to be interested in opportunities to settle down at the Klaipeda FEZ. “We are the most attractive and involved with light manufacturing, electronic component, food processing companies, plastic manufacturers and, essentially, companies from all sectors, if they are interested in quick launch opportunities,” says E. Kiudulas. “We see that the companies interested in our FEZ are becoming more and more modern, lighter. 20 years ago, we started with plastics but now, we are talking to electric transportation or its parts manufacturers. Even “heavier” industries start establishing laboratories, research and improvement centers.
Added Value creation met by challenges
According to the CEO of the Klaipeda FEZ, the zone and its companies employ 1 in 20 Klaipedian of working age. “According to the number of people we employ alone, we are the biggest business community and creator of jobs in Western Lithuania,” he says. “The companies involved in the FEZ buy products and services worth 200 million EUR yearly and pay tens of millions in various taxes and VAT. So, we are a huge employer, taxpayer and client for other business in the Klaipeda region and Lithuania in its entirety.”
Kiudulas is convinced that another facet of the Klaipeda FEZ’s usefulness to the region is the experience that investors leave there. “Klaipeda FEZ attracts worldwide leaders. People of Klaipeda who work for them create the most complicated products, processes, and technologies, take part in worldwide negotiations and sales processes, create and take care of award-winning operation schemes and systems. The people who do all of this get to keep the experience. With knowledge and experience like this, people from our city are better and more valued specialists for companies. They can even use it all when establishing their own businesses and encouraging their friends to do the same.” says the leader of the FEZ.
Despite the huge added value it creates, the Klaipeda FEZ encounters challenges. One of its main hurdles – how to create an environment for high added value business development in Klaipeda. “Every year, Lithuania keeps losing its workforce cost advantage, meaning that investors, who are looking to save on salaries have been looking at other countries for a while. Trying to attract investors to a more expensive country and keeping them there requires creating greater added value. Usually, this value is created by qualified work, like creating new products, technologies, manufacturing processes, formulas, design.” says E. Kiudulas.
According to the CEO, the Klaipeda FEZ has some beautiful examples of “pure manufacturing” companies later established their research centers and laboratories there but it would be great if this phenomenon became more widespread. “We have to fight the complexity of the problem: highly qualified specialists need to be developed. After reaching the required level, they need to somehow desire to keep living in Klaipeda,” says E. Kiudulas.” We collaborate and constantly communicate with both the higher education institutions and the local government and think that it is necessary to strengthen both the education sector and the academic community as well as the infrastructure which determines the quality of life in the city.”