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A large number of investments have recently arrived in Estonia from Germany. The best known of these is Volkswagen's intra-group billion-euro investment in the software development business CARIAD. In 2020 Volkswagen chose Estonia as one of its locations for its new automotive software company CARIAD. CARIAD Estonia invested EUR 1,57 billion into internal software development services during the previous year.
Introducing CARIAD in Estonia was facilitated over the course of several years by Riina Leminsky, Estonian Investment Agency’s director of business development in Germany, Austria and Switzerland. Riina Leminsky's life has been divided between Estonia and Germany for years: Enterprise Estonia, of which Invest Estonia is a part, has a team of four women in Germany called the Wirtschaftsförderung Estlands, whose goal is to bring capital, technology and knowledge to Estonia and create high-paying new jobs by advising German entrepreneurs.
Estonia's favourable tax system, with its 0% rate of corporate income tax on reinvested and retained profit, is attractive to Germans. Leminsky says that what makes Estonia appealing is the opportunity it affords to further invest profits tax-free.
Leminsky ended up at Enterprise Estonia by chance: she went to work in Germany while simultaneously studying foreign economics and international business management, and wanted Estonia to be the focus of her dissertation. Because of a change in Enterprise Estonia whereby its foreign office moved from Berlin to Hamburg, it turned out that Leminsky got a job instead – and has been there now for 15 years.
Bringing in investments and building up partnerships is based on relationships. "There’s no doubt that there are better salesmen out there than me, but my goal is to create sustainable, long-term relationships with the management teams of companies that will benefit the Estonian business environment," Leminsky explains.
When she started working, all she had to go on was theory: she lacked a business network, so everything had to be built from scratch over the years. First, an Estonian brand had to be established in order to be noticed. Here, the fact that nothing was known about Estonia at the time proved to be of help to Leminsky. There were no preconceptions – being ‘exotic’ was a perk.
"It was in Germany that I became a true Estonian patriot!” Leminsky laughs. “I realised that there were so few of us that we were like some exotic species. Estonia was something different, something special."
She says that one thing must be taken into account by anyone who plans to do business in Germany: nothing moves quickly in the country, so you shouldn’t expect instant wealth and success. Starting out is the hardest part, because Germans want to take their time getting to know you. However, building up relationships and trust is a time-consuming process. For example, the Volkswagen investment was prepared for more than 10 years before sealing the deal. [KK(1] [RL2] [RL3] On the other hand, she says that German partners are generally loyal: once you are in with them, they do not switch partners or suppliers, even if they are not as good as the potential new partner.
In order for companies to talk to you at all in Germany, you first have to show that you are tough and a decision-maker. "Decision-makers always want to talk to other decision-makers," Leminsky says. "Personal relationships and recommendations are also important. The years I’ve spent consistently building up and maintaining my network have definitely helped. It pays off. Nowadays, companies are finding their way to us. You could say that Wirtschaftsförderung Estlands is the economic face of Estonia, and that I’m the face of Invest Estonia in Germany.”
Anywhere from 120-150 interested business contacts reach out to Leminsky each year. A third of them show a deeper interest and a personal value proposition is put together for them. Of those, perhaps four or five lead to real investment.
“It’s also quite common for a reliable partner to be found in the form of an Estonian entrepreneur, instead of an investment,” Leminsky explains. “That’s not reflected in my results, but what’s most important that the work has a positive impact on the Estonian economy and on the development and exports of our companies.”
Networking involves attending conferences and business community events and doing everything you can to talk to key people. You have to make sure others remember you and invite you to events. It is important to be proactive.
Leminsky also follows the news: if a company is set to restructure, she will investigate whether they might be interested in a better partner from Estonia. Psychology and being in the right place at the right time play a large part.
Although Estonia wants to attract highly paid, high-value jobs, entering the market generally starts at a lower level. For example, the first step could be a call centre, so as to gain market knowledge and employee qualifications; while the next step could then be smarter, higher value-added activities. Leminsky stresses that there are a number of examples where you start small but, ultimately, the business expands, bringing with it high-paying jobs.
A good example is Arvato, which is part of the Bertelsmann group: they started out with a classic call centre in Estonia, followed six or seven years later by an innovation and development centre (AFS IT Estonia). The same applies to manufacturing companies: they start out with simpler activities and later, once the location has proven itself viable, there is an opportunity to bring in product development. Leminsky gives the electronics company Oshino Lamps[RL4] as an example of this.
Leminsky says that speed and flexibility are particularly highly valued in Estonia. The coronavirus crisis has also taught Germans to appreciate the digital state. Whereas previously the need for a digital revolution had been paid little more than lip service, the crisis has shown how bad the situation is in schools and at the national level in Germany. According to Leminsky, officials simply disappeared in the eyes of ordinary people as the situation unfolded.
This is what the Germans consider a big plus in Estonia in addition to the local tax system and other benefits: civil servants are readily available to entrepreneurs. The management team with top 50 executives at Deutsche Telekom recently visited Estonia to draw inspiration and examine the reasons for our success.
Leminsky says the Germans were surprised by the Estonian practice of public-private cooperation: people move seamlessly from private companies to the public sector and back again, perhaps several times. This helps to apply so-called best practice and bring innovation into the public sector. Examples of this were showcased in the inspiring presentations given by Kaspar Korjus, former head of e-residency and co-founder and CPO of Pactum, and Taavi Kotka, ex-CEO of Nortal and advisor to the e-residency programme.
Leminsky considers engineering-mindedness to be a plus for Germans, which is to say that they want to create a good, powerful product, while the big advantage for Estonians is a startup state of mind: finding a solution to a problem immediately and then later improving the product. In terms of mentality, Leminsky feels that Estonians and Germans are quite similar.
"Estonia’s like a small sailing boat,” she suggests. “We start out quick, but when a storm hits, we have to fight hard. And once it passes, we get back up again really quickly. Germany’s like a container ship. They take a long time getting into first gear, but once they do, they’re off!" If we merge the strengths of both countries, big and interesting projects are possible.
In addition to Volkswagen, Leminsky has helped a number of German and Austrian IT, manufacturing and construction companies grow by investing in Estonia. Her list of accomplishments includes world-famous names like ABB, Heinzel Group, HHLA, Kuehne+Nagel, Messer, Siemens, but also typical “ Deutsche Mittelstand” like Axinom, birkle IT, Danpower, FiconTec, Leonhard Weiss, and so on. [RL5] Leminsky has also helped Bolt grow into a unicorn, which is to say a billion-dollar company, by getting Daimler to invest in the Estonian car-sharing startup.
Before e-residency, there were 400-500 companies of German origin in Estonia, with annual growth of around 20 companies. Since e-residency was introduced, a lot more German companies have registered here, because it is much easier to open a company, report on it and pay taxes in Estonia than it is in Germany.