John Penman
Consultant Charles Cormack says Scottish firms should shift their focus from the US to Latvia, Lithuania and Estonia.
As the economic outlook at home continues to worsen, Scottish companies are increasingly looking for opportunities in new markets.
But to the frustration of the consultant Charles Cormack, too many eyes in this country remain focused on the West rather than the East.
Cormack is admittedly a little biased, as he has been helping firms do business in the Baltic states for the last six years, but he remains puzzled as to why many Scottish firms are ignoring the phenomenal growth stories in Latvia, Lithuania and Estonia.
“I am not sure exactly why this is, but I do know that while our business development agencies generally do a good job, there is a fascination with the United States, which means we do not always see opportunities closer to our own doorstep,” he said. “Maybe that will change as the US suffers from the slowdown, but the window of opportunity is short and if we don’t take advantage, others will.”
Cormack believes there are a number of factors that make the region attractive to Scottish business. “The Baltic states are small but fast-growing markets and are strategically placed for companies wanting to explore eastern and central Europe as well as Russia,” he said.
"These countries are full of companies who want and need foreign investments and have low corporation tax rates — but, for some reason, many in Scotland are not looking.”
Cormack wants to change all that. He set up Cormack Consultancy six years ago after seeing at first hand the possibilities in the Baltic states.
The company now has offices in Edinburgh, Riga in Latvia, and Kaunas in Lithuania and representation in Tallinn in Estonia. It has helped more than 40 firms do business in the states.
The outlook remains good, according to Cormack, not least because the Baltic states have access to significant EU structural funds for a number of years.
Growth in the region has been particularly strong since 2000, when the states began preparing for accession to the EU, which happened in 2004.
Between 2000 and 2007, the Baltic states had the highest growth rates in Europe, with Estonia and Latvia growing by more than 10% and Lithuania a little less than 8%. However, Lithuania is still seen as the most robust economy in the region.
Unemployment in the states has fallen below the EU average and they are all due to adopt the Euro in 2010, but as relative newcomers they are susceptible to the problems associated with the downturn. Cormack, however, feels they are well placed to ride out any problems that may arise.
"I think the outlook remains good because these countries still need to invest in infrastructure and skills and have access to rounds of EU funding for the next few years. We can provide many of the skills to help them achieve these changes.”
Before the slowdown really hit, their economies were predicted to continue growing at an annual rate of between 5% and 10% until at least 2010. Growth may be lower, but the input of EU financial support is set to continue until 2014.
“People will recall that it was Scotland who benefited from these structural funds at one time, but with the increase in the size of the EU, the focus has shifted to countries like the Baltic states. That must help insulate them to some extent from the downturn,” said Cormack.
According to the latest annual survey of Scottish exports by the Scottish Council for Development and Industry (SCDI), published last October, the EU accounts for 53% of manufactured exports from Scotland, with America in second place with 16%.
In terms of countries, however, the figure for the US is highest, with £2.25 billion. None of the Baltic states features in the top 20 markets for manufactured exports and Scotland’s trading with them is still relatively small. But Cormack believes that could change: the SCDI, for example, has mounted four trade missions to Estonia since 2005.
“People in Scotland have to see this as an incredible opportunity,” he said. “Of course the big markets like China, India and the US will continue to be important, but although the Baltic countries are small and each of them has a population less than Scotland’s, when you combine them they have a population of 7m and a strong business culture.
“Most of [the population] under 40 speak good English and, in the wake of the break-up of the Soviet Union, a real entrepreneurial spirit has flourished.”
It is estimated that about 50 Scottish companies currently operate in the Baltic region in various areas, but rivals such as Ireland are putting a lot of effort into promoting links, especially in bioscience and information technology.
Scotland faces serious competition: Ireland recently unveiled a strategy to increase global exports to ¤4 billion (£3 billion) by targeting high-growth economies such as the Baltic states.
“There are many similarities between Scotland and the Baltics, and not just in terms of size,” said Cormack.
“What has worked over here will work there — but if we ignore it, there are plenty of others waiting to pounce.”
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