THE ELECTRONICS INDUSTRY IN ESTONIA
by
Rünno Lumiste
Head of Industrial Policy
Ministry of Economic Affairs, Tallin
- BACKGROUND
The electronics sector in Estonia is quite small. It comprises an estimated 100 to 150 companies, most of which are located in the five major cities and towns, principally in Tallin. Production of electronic, electromechanical and small engineering products accounts for 2 per cent of industrial output, and the challenge now is how to expand this sector's potential in the search for new markets and partners. This short paper outlines the industry's major characteristics.
The electronics sector is being rapidly transformed. There are a small number of very large, vertically integrated companies tailored to the industrial structure of the former Soviet Union, and many, mostly small, new companies which have developed in the last four or five years.
The electronics sector includes the following subsectors:
- electronic components;
- telecommunication equipment;
- process and security electronics;
- consumer electronics;
- computers and components;
- instruments.
- Brief history of the electronics sector
Before 1940 the industry was limited in size. The most important companies were two radio factories and the Tartu Telephone Factory. Electronics was taught at university level.
Following Estonia's annexation by the Soviet Union, the privately owned companies were nationalized. During the period 1945-1955 a factory for producing electronic components and whole systems for the aircraft industry was built.
Several electronics and electromechanical enterprises were established between 1955 and 1964, including a power semiconductor plant, a factory producing transistors and integrated circuits, and a company producing measurement equipment. Training in electronics at universities was reintroduced and the Electrotechnical Research Institute and the Institute of Cybernetics were established.
The period 1966-1984 was characterized by more intensive central control by the Soviet Government and extensive industrial growth.
The period 1985-1992 saw the establishment of the first private small enterprises and joint ventures. Markets were found in the rouble zone, but first attempts were made to penetrate Western markets as a result of the continuing devaluation of the rouble. The role of large enterprises started to diminish and funds for research and development (R & D) became increasingly scarce.
- COMPUTERS AND COMPONENTS
This section briefly outlines the main features of the present situation of the electronics industry in Estonia, the challenges faced and its relative strengths concerning business expansion opportunities, including partnerships.
- Products and production
Most companies involved in the production of computers and office equipment perform assembly-type operations. The development and the production of hardware are the exception rather than the rule. The production of parts and R & D are generally carried out on a limited scale except for custom-designed software development.
The majority of local companies in this subsector are very price-competitive in the Estonian market compared with international suppliers of branded products, even when a somewhat lower quality is taken into account (see figure As with the other companies in the field, a major advantage is market presence and thus the ability easily to provide sales support and after-sales service.
Business potential in Estonia is far from exhausted and at least two or three companies have the potential to expand into the markets of the other Baltic countries and Russia.
- Government support
There are no special policy instruments to support the electronics industry separately. Industrial policy instruments currently applied by the Estonian Government are:
- public funds for specific purposes and targeted groups of enterprises;
- business advisory services;
- investment promotion;
- education and training.
- Research and development
Product development is carried out mostly by companies themselves. Relationships with state R & D institutes could be better. The obstacles for cooperation are generation differences and limited interest on the part of government-financed institutions.
- Weaknesses and strengths of local firms
The relative weaknesses of Estonian firms could be considered to be:
- small size (need for future expansion);
- additional financing requirements;
- inadequate relationships with R & D institutes;
- limited access to Western markets.
On the other hand, local firms can be characterized as having a number of important elements in their favour:
- well-trained and generally highly skilled labour force;
- low labour costs;
- favourable price/quality ratio in the Estonian market and in the Baltic States in general;
- sales support and service easily provided because of proximity to market;
- companies' strategies developed with respect to products and marketing (local keyboard, language);
- proximity to Western Europe in geographical and cultural terms;
- links with customers in the former Soviet Union.