From 2024, national and foreign defence companies are allowed to set up in Lithuanian Free Economic Zones. 
On May 23, 2023, Lithuanian Parliament lifted a ban on those commercial activities in Free Economic Zones (FEZ) that are related to national security and defence, as well as to manufacture, storage and sale of weapons, ammunition, and explosives. The ban was in place since 1995.
The Heads of Lithuania’s major FEZ said, some foreign investors operating in the field of defence industry, have been expressing continuous interests, and the Parliament’s decision will open ways for technological innovations and progress. 

Source: https://lnkd.in/eEbFqUPh

The latest manufacturing sector report by Invest Lithuania states that even in the face of turbulent global markets in 2022, Lithuania continued to gather recognition for its performance in attracting FDI. Last year, Lithuania was rated 1st in the EU for FDI based on Greenfield FDI performance index, the country retained its 3rd place in Europe for FDI jobs per capita, and the Lithuanian manufacturing sector demonstrated overall resilience and adaptability. Also, almost 70% of companies operating in Lithuania plan to introduce new manufacturing functions or significantly expand existing ones.

Over the past several years, the manufacturing industry experienced multiple shocks, from the Covid-19 pandemic forcing manufacturing plants to suspend operations, to semiconductor shortages that led to certain industry disruptions, to lastly having to adapt to the sharply increased energy prices in continental Europe in the wake of the Russian invasion of Ukraine in February 2022. These shocks had a profound impact on FDI, the survey states.

Lithuania however has managed to maintain a steady third place across all EU members in terms of new jobs created per 1M inhabitants throughout both the pre-pandemic and postpandemic periods, only being surpassed by Slovakia and Hungary. Interestingly, in the midst of the Covid-19 pandemic in 2020, Lithuania created the most jobs per 1M inhabitants in the entire EU (600 FTEs).

Also, Lithuania was the 3rd in Europe in terms of CAPEX investments, experiencing an average 22% increase during pre-pandemic and post-pandemic periods. Lithuania’s CAPEX investments per project increased by 124%, much faster than both in the EU and the CEE. One potential explanation for the decreasing number of workers and increasing capital expenditure investments could be that in the post-pandemic period companies are keener to invest in automatization, resulting in more capital-intensive projects with lower employee requirements.

The Invest Lithuania report also surveyed 62 foreign manufacturing companies operating in Lithuania from a variety of sectors. The survey saw continued evidence of the positive trend of companies pursuing expansion projects. Almost 68% of the companies surveyed are planning to introduce new functions or significantly expand existing ones in 2023-2024, with 66% planning to expand production, 13% engineering, and another 10% R&D functions. Despite concerns over the global economic situation and geopolitics, 23% of the companies are planning to expand two or more of their functions in Lithuania in the following year.

To support this growth, respondents indicated that they are, on average, expecting to hire 46 FTEs within 2023. Again, it’s an increase on the previous year, when companies indicated plans to hire 32 FTEs, on average. During 2023, 77% of the companies are planning to hire new employees. More than a third of the respondents are planning to hire at least 30 FTEs, with eight companies planning to increase their workforce by more than 100 FTEs over the following year.

Lithuania’s talent pool has displayed remarkable adaptability and resilience against such a tumultuous backdrop. In 2022, Lithuania placed third in CEE for attracting and retaining talent. The survey findings also show that voluntary attrition rates at foreign companies remained rather stable at 19%, displaying only a 1% increase compared to the year before. Meanwhile, the overall attrition rate in Lithuania remained at around 30%. This is unsurprising as foreign companies operating in Lithuania have a successful track record of attracting and retaining great talent.

The survey results show that cooperation between foreign investors and local educational institutions remains high, with approximately half of the companies surveyed reporting that they worked together with universities/colleges and/or vocational schools on a regular basis. Not only that, the majority of these companies (67%) chose to cooperate with more than one institution. 

Although cooperation with educational institutions is common in Lithuania, not all foreign companies choose to go down this route. For the majority of those who do not cooperate (40%), the reasoning is quite simple – they do not require it. For others, the rationale is more complex – some companies lack the information needed to take advantage of such partnerships, or it may be that there are no suitable educational institutions to collaborate with.

Regardless of whether a company cooperates with an educational institution or not, the main method of upskilling people was found to be internal training. A staggering 82% of surveyed companies chose to educate people within the organization and are planning to continue doing so in 2023. In general, the survey findings show that 92% of manufacturing companies have some type of employee training. This is not surprising, especially considering that, with the rise of manufacturing 4.0, the workforce is facing an increasing need to strengthen their digital and technical skills.

Klaipėda is listed in the Invest Lithuania study as a city with key competencies in port engineering, metals, plastics and the food industry. Last year, the port city employed almost 29,000 people in manufacturing – a larger proportion than in Kaunas or Vilnius. Unemployment in Klaipėda was 5.9% last year, slightly higher than in Kaunas or Vilnius, but lower than in the other main cities of the country. Also, almost 11,000 students started their studies in Klaipėda at the start of the school year in 2022.
The Invest Lithuania survey also explored areas such as supply chain disruptions and companies’ response, diversity and inclusion, hiring times, non-salary benefits, energy sustainability, CSR and real estate. 

Manufacturing Sector Report 2023

Norwegian company Plus Windows completes the construction of an extension in the Šiauliai Free Economic Zone. It will be an aluminium products department. 

This expansion will allow the company to increase its capacity, better manage inventories, create new jobs and meet growing consumer needs. This year’s turnover is targeted of €9.2 million, as sales in the aluminium sector are expected to increase.

The company has completed the first phase of the construction in 2021. That year, it moved from rented premises in Kuršėnai, Šiauliai District to a new factory of almost 5,000 sqm, which has already been built in the Šiauliai FEZ. Part of the production equipment has been transferred from Norway.

Albright Lietuva UAB, a British-owned manufacturer of electrical switches operating in the Klaipeda FEZ, has completed a EUR 1.5 million expansion project in the specialised production building FlexStart 2. The company has moved its entire soldering activities for electrical contacts to the new premises and established a new stamping department.

Albright Lietuva, which has been operating in its own building in the Klaipeda FEZ since 2007, had been exploring various expansion options for some time but finally decided to expand into the FlexStart 2 project being developed by the FEZ management company.

“We decided to move our contact soldering department to FlexStart 2 because we were very short of storage space in our own building. Soon we had the idea of not only soldering the contacts in the new premises but also producing the blanks for them ourselves. Before, we used to get them from external suppliers. Therefore, this move is both a relocation of activities and an expansion and new functions. All this will ensure a timely supply of contacts for the production of switches and reduce logistics costs,” comments Ramūnas Barcevičius, Managing Director of Albright Lietuva.

The company started the expansion project in the FlexStart 2 building in September and completed it earlier this year. According to the CEO of Albright Lietuva, the decision to move into this building was not only due to the neighbourhood but also the possibility of adapting the premises to individual needs. The new premises are already home to 25 colleagues, with the possibility of growing to 30 later.

The company has rented 1,000 sqm of space and operates under the same roof as Retal Baltic Films and other companies. FlexStart 2 has a total area of 8,500 sq m. The first flexible production building FlexStart, developed by the FEZ management company back in 2017-18, was immediately fully leased and was awarded the Financial Times group’s award for quick investor launch.

According to Eimantas Kiudulas, the CEO of Klaipeda FEZ, this is the second move by an existing FEZ investor into FlexStart buildings in a few months. Recently, UAB Retal Baltic Films, a PET packaging manufacturer, also announced its expansion in FlexStart 2.

According to preliminary data, Albright Lietuva’s turnover in 2022 was EUR 25 million, 19% higher than the previous year. The company expects a 14% growth this year, but the difficult global business environment is still complicating its forecasts and plans.

When we talk about businesses that move to free economic zones, we imagine large greenfield investments and spacious production or logistics buildings, but in reality, the advantages of the FEZ are increasingly appreciated by the companies that do not require a large space for their operations. As the example of Kaunas FEZ shows, the choice of such companies is greatly influenced by synergy with other businesses already operating in the area, extremely convenient transportation and, of course, the tax relief.

Drawn by the neighboring technology industry and the airport

UAB SKYCO AE, a design and production company focused on aeronautical products, became one of such settlers representing smaller businesses in the Kaunas FEZ.

The company specializes in design, prototyping and manufacturing services and has a wide range of production capabilities, including the production of metal, composite, plastic products in accordance with aviation quality standards. So, it is no coincidence that when talking about moving to the Kaunas FEZ, the company representatives mention the Kaunas airport – located right next to it – as the first thing that attracted them.

“When we were looking for a new location for our development and further growth, we turned to Kaunas FEZ for several reasons. First of all, it was about the opportunity to make use of such FEZ advantages as well-developed infrastructure and tax benefits. But equally important for us was the neighborhood of potential partners and the concentration of minds in one place. In our field, we often have to use the services of specialized companies for processes that would be uneconomical to develop in-house, so the neighborhood of the technology industry is extremely useful for saving time and other resources. The location of FEZ, which is strategic for our industry, had a great influence on our choice. We settled next to Kaunas airport, where the largest aircraft maintenance companies are concentrated. And this means that better opportunities for cooperation open up. Finally, Kaunas FEZ has a really good transport system, and this facilitates the commute of our employees, suppliers, and customers,” Gytis Leonavičius, director of SKYCO AE, names the reasons for choosing Kaunas FEZ.

In addition to collaborating with the neighboring business, the company builds close partnerships with higher education institutions. This spring, it started cooperating with the Kaunas University of Technology (KTU). The company accepts interns, and it suggests topics for coursework and final theses, trying to ensure that the topics correspond to what is currently relevant in the industry and making sure that the projects are developed toward their practical application.

Since aircraft design/production is inseparable from scientific research and experiments, SKYCO AE joins the ranks of companies focusing on R&D activities in the Kaunas FEZ.

“If one direction of our activity – the design and production of commercial aircraft components – requires applied research, calculations, and tests in certified laboratories, then the other direction – experimental light aircraft projects – requires wider scientific and technical research and experimental work (in aerodynamics, strength of composites and technologies, electric and EDF-type power plants and other areas),” Gytis Leonavičius explains. The company that he leads is determined not only to expand Lithuania’s aircraft design and production capacities in accordance with European standards but also to raise the qualifications of aviation specialists and contribute to turning Lithuania into a North/Eastern European aviation center.

Inspired by foreign colleagues

Changes in another company operating in the Kaunas FEZ – UAB Timbela & Ko – were dictated by the pandemic period. Having worked for many years as a wholesaler of wood products for the garden, home, or homestead, the company faced a decrease in sales at the supermarkets during the pandemic, so it had to look for ways to reach the end user and sell products to them directly.

“That’s how we discovered the path to online commerce, and it proved very successful. In 2020 our sales grew by 73 percent and in 2021 by 93 percent,” Vilius Grigaitis, the CEO of the company, says.

Such a drastic increase in sales forced the company to look for new premises as the number of employees, whose comfortable working conditions had to be ensured, also grew.

“For many years, while driving past the Kaunas FEZ, I kept noticing its rapid growth. While visiting business partners in various countries, I noticed that many of them were also located in business zones that allow industry and warehouses to be effectively separated from residential areas. So, when we started looking for a place to expand, it is not surprising that our eyes turned to the Kaunas FEZ. When choosing the office, the focus was on good working conditions, convenient communication and road network, and sufficient parking space for employees’ vehicles. In 2020, we rented office premises in Kaunas FEZ and when the opportunity arose, we bought one of the offices with a warehouse,” V. Grigaitis says.

Currently, Timbela & Ko focuses on DIY-type assembled products that can be conveniently transported to any country and assembled by the user according to the manufacturer’s instructions.

They place a great emphasis on sustainability. The company uses the FSC® certified Scandinavian timber, which, during the production process, due to very effective engineering solutions, barely leaves any waste. This allows the company to operate sustainably and also to offer competitive prices to its customers.

The product range includes more than 200 different types and sizes of wooden garden or children’s playhouses, woodsheds, containers, storerooms, and other products. 92 percent of the Lithuanian company’s products are exported to Europe (mostly France, Germany and Austria, as well as Italy, Spain, etc.).

An attractive real estate investment

REES, the real estate development and consulting company implementing the FEZ business park project, provides such companies as Timbela & Ko with an opportunity to purchase a business facility, which was implemented as a Build-to-Suit real estate. The company had the idea to develop such business-oriented objects after observing the need that was stemming from the market. As the representatives of the company have said, it is easier for businesses to purchase or rent ~800 – 1,000 m2 premises than the smaller ones of ~300-600 m2. Therefore, it was decided to offer a rational solution – high-quality representative buildings built in a strategically convenient location with convenient transportation and a well-developed and reliably maintained infrastructure.

After the implementation of the first phase of the Kaunas FEZ, a total of five buildings of approximately 600 square meters were built, which can accommodate 8 companies. In the planned second phase of this project, the total area of the buildings that will be constructed will amount to 24 000 m2.

The buyers of REES’s first-stage properties consist of both businesses focused on development and companies that invest in and rent real estate. For example, Adampolis Group is one of the largest groups of companies in Lithuania that sells, rents, and services commercial and non-commercial transport and special technology. In addition to the main activities, one of the companies of the Adamopolis Group works in real estate development. The projects under development are fully customer-oriented, as new real estate is built according to the customer’s needs and then rented. In total, this company owns 3 buildings with a total area of 1,500 m2 in the territory of Kaunas FEZ and all of it is leased.

According to the representatives of Adampolis Group, one of the most important factors that encouraged investment in the Kaunas FEZ was the opportunity to quickly find tenants, and tax reliefs that are given only in the free economic zones. Since the buildings managed by the Adampolis Group are intended for rent, these advantages also attract the attention of future tenants.

Until today, Kaunas FEZ has attracted 53 foreign and local investors who apply advanced technological solutions and create innovative products. From the first investor in 2005, until today, more than 7,800 jobs have been created in the territory of Kaunas FEZ and more than 1.2 billion euros of direct investments have been attracted.