The electronics sector is a historical sector in Estonia, with long traditions dating back to 1907, when the first telephone factory was established. In 2007 the electronics sector comprised 6% of all the enterprises operating in the manufacturing industry in Estonia. There were more than 15,000 people working in the sector, of which approximately 7,000 were engaged in the manufacturing of electrical machinery and apparatuses, nearly 5,500 in the manufacturing of radio, television and communication equipment, and approximately 2,000 in the manufacturing of medical and optical instruments and watches (2007).
The dominant sub-sector was the manufacturing of electrical machinery and apparatuses, forming 48% of the total sector net turnover in 2007. This was followed by telecommunication equipment, with a 33% market share in the electronics sector. Medical, precision and optical instruments accounted for 14% and assembly of computers and office equipment 5% of the electronics sector market net turnover.
Breakdown of the Estonian manufacturing sector in 2007 by number of companies
Source: Statistics Estonia
The sector is dominated by local small-scale companies; however, there are also a number of subsidiaries of international corporations, which are mostly oriented towards subcontracting for exports. Nearly ¾ from electronics production is exported (EUR 722 thousand in 2007). The export is largely driven by Elcoteq - the largest employer in the sector, employing around 1600 people and recently acquired by Ericsson Group.
Estonia's main export partners in electronics were Sweden, which accounted for nearly 36% of all the sector exports, followed by Finland with approximately 24%, Denmark with 6%, and the Russian Federation and Latvia with 5% and 4% respectively.
Main export destinations 2008, % of total electronics export
Source: Statistics Estonia
Imports for the electronics sector mostly come from Finland (20%), followed by Sweden (19%), Germany (14%), Latvia (6%), China and the UK (4%).
Examples of companies in the sector: Incap Electronics Estonia (assembly of PCB), ABB AS (power and automation products), Tarkon (mechanical engineering), ML Arvutid (assembling computers), Ordi (assembling computers). Harju Elekter (switchboards), Scanfil (cable assembly), Fabec Elektroonika (thermo-regulators, power supply units and remote control devices), Efore (power systems), Enics Eesti (engineering), Ensto (electrical systems and solutions) Tradex (custom-designed electronic products), Stoneridge Electronics (car industry electronic control units and sensors), Clifton (power electronics) and many more.
Main advantages and strengths of Estonia in the electronics sector
Well-developed infrastructure that supports the development of the electronics sector
- Favourable location. Estonia has a highly developed transportation and logistics infrastructure, with a favourable location due to its close integration with Scandinavian countries (with one-hour air transport to Stockholm, and a half hour to Helsinki), its proximity to Russia, and rapid and direct ferry connections with Germany. Estonia's numerous ports offer relatively cost-efficient sea transport.
- Lower transportation costs. In the overall trend of near shoring, the Estonian electronics sector is further favoured by relatively low transportation costs due to its proximity to Scandinavia, Russia and Western Europe.
Skilled labour force and low labour cost create a competitive advantage
- Low labour costs. Skilled low cost labour in comparison with Western Europe allows for lower manufacturing costs, which offers a direct competitive advantage; the monthly gross salary in the electronics sector was 765 EUR in 2008.
- Extensive know-how. The know-how of the Estonian electronics entities is at a world-class level and establishes an advantageous basis for innovation-related solutions.
- Comprehensive R&D. Estonian electronics entities have the ability to implement key technologies and to increase competitiveness in the international market by performing on-going comprehensive research & development projects (e.g. smart dust and chips) in co-operation with universities and development centres. R&D departments gain from a skilled workforce and lower labour costs.
- Constant productivity increase. There has been a notable productivity increase in the sector through the usage of new technological solutions and increased labour skills. Enterprises are encouraged to invest in new technological solutions, as the Estonian taxation system offers zero per cent corporate taxation on reinvested profits.
- Long traditions. Estonia has long traditions in the electronics industry and skilled labour for the industry. Educational programs have been clearly designed to provide a highly qualified labour force for the electronics industry. The Tallinn Technical University (TTU) and Tartu University provide high-class electronic engineering studies (e.g. in 2008 157 bachelor's and 145 master's degree students graduated in information technology and electronics from TTU).
- Cooperation with university and technology centers. Estonian electronics companies maintain good co-operation with universities and technology development centers, which ensures a good scientific base for future developments.
Stable local environment forms a great basis for business development
- Rapid growth. The electronics sector has been one of the fastest growing industries in Estonia. Industry turnover has increased by 600% over the last ten years. Approximately 370 enterprises are operating in the electronics sector.
- R&D support. At the beginning of 2009, the Ministry of Economic Affairs and Communications, in cooperation with Enterprise Estonia, contributed 60 million EUR (7.7 million EUR for the technology sector) to be used over the coming six years for technology development centers.
- Entrepreneurship support. Companies registered in Estonia can apply for several support packages through Enterprise Estonia (www.eas.ee). Support areas include starting or developing a company, export and innovation, and product development. There are a total of 12 different support packages. Foreign investors are treated equally with local companies.
Most important investment location criteria for industry sectors and activities
Source: Ernst & Young European Attractiveness survey 2009
Close observation has made it clear that Estonia qualifies in terms of most of the important requirements for investments in the electronics sector:
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The transportation and logistics infrastructure is well developed due to Estonia's advantageous locationin Europe;
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Compared to Asia, transport and logistics times are shorter;
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The labour skills in Estonia's electronics sector are notable and Estonian electronics sector employees (3.6% of the total labour force) are highly qualified; also, the labour costs in Estonia are relatively low compared to the overall international level. In addition, continuous amendments to labour regulation lead to flexibility in labour legislature.
Most attractive sub-sectors/business functions and examples of successful foreign investors
Electronics is the fourth largest FDI sector in Europe, accounting for 6% of the foreign investments in Europe in the past five years. Electronics projects are mainly driven by manufacturing activities.
Considering the current situation in the Estonian electronics sector, the following sub-sectors/business functions can be seen as attractive for foreign and local investments. Some companies might be active in different categories simultaneously, in which case they have been presented only once, under their most dominant sector.
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Sub-sector / business function
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Description
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Example of foreign investors
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Activity description
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Manufacturing of computers and office equipment
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Computer and office equipment manufacturing is the smallest FDI sub-sector within the electronics sector. According to Statistics Estonia, the annual turnover in computer and office equipment production was 50 millionEUR in 2007.
The bigger computer manufacturing companies are owned by local shareholders (e.g. Ordi and ML Arvutid).
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Amphenol ConneXus (US)
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Global provider of interconnect solutions for designers and manufacturers of Internet enabling systems.
Amphenol's products include electrical and optical cable, connector products, servers, storage systems, optical and copper networking equipment, modems, hubs, routers, switches, and Internet appliances.
The group operates in 29 different countries, and in Estonia since 1996.
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Manufacturing of electronic devices
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The electronic devices industry is growing. The sub-sector turnover has increased by 400%in the past 7 years, reaching a market size of 480 million EUR. There are approximately 7,000 people active in the sector.
Investments in this sector have a long payback period. -approximately 10 years; therefore the government support for development centers is very important. In 2009 the government allotted 60 million EUR for all development centers (7.7 million EUR for the technology sector)
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ABB AS (SE)
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ABB manufactures power products, power systems, automation products, process automation, and robotics.
Active in Estonia since 1992.
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AS Draka Keila Cables (NL,EE)
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Manufactures different types of cables. Active since 1992.
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Fabec Elektroonika OÜ (SE)
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Produces thermo-regulators, power supply units, remote control devices, bus information panels, detectors and battery assemblies.
Operating in Estonia since 1993.
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Enerpoint Saare OÜ (FI)
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Manufactures high quality technically advanced temperature controllers for the control units and stoves of saunas, water-based floor heating systems and electrical room heating, ventilation and heat recovery units. Also, lamps using LED technology.
Production is located in Estonia, employing about 160 people, and in China.
Active in Estonia since 1999.
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Stoneridge Electronics AS (SE, US)
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Manufactures electronic control units, sensors and electronic devices for the car industry (e.g. Volvo, Scania, MAN, Daimler and Ford).
The Stoneridge group is quoted on the New York Stock Exchange.
Established in Estonia in 1998.
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Manufacturing of radio, TV and communication devices
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Manufacturing of radio, TV and communication devices has grown in the past 7 years by 350%, reaching a market size of approximately 270 million EUR and employing around 5,500 people.
This sub-sector is the biggest inby size, mainly due to the Elcoteq, which is the biggest electronics manufacturing service (EMS) company and one of the biggest exporters in the country.
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Elcoteq Tallinn AS (FI)
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A leading European EMS company. The plant in Tallinn started its business in 1992. It has been one of Elcoteq's largest units throughout the years.
Elcoteq has been Estonia's biggest exporter since 1994.
In summer 2009 Ericsson initiated acquisition of all manufacturing operations from Elcoteq SE to assure stable supply. The engineering center has been retained by Elcoteq SE.
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Dicro Eesti OÜ (FI)
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Manufactures a wide range of standard connector cables and wires for complex cable harnesses in e.g. telecommunication, medical and industrial applications.
In addition, it manufactures automation components and
RFI filters for phone base stations and components for elevator electrical systems.
Operating in Estonia since 2001, employing around 170 people.
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Manufacturing of medical electronics
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In 2007 the market size of medical, precision and optical instruments reached 130 million EUR; this is expected to grow significantly in coming years.
Around 2,000 people are actively involved in the sector.
Medical electronics has a great potential for growth in Estonia. There have been several important developments, for example in the rehabilitation (doc@home) and pacemakers market, where Estonian scientists have made major contributions.
In the future, different embedded systems (special-purpose computer system designed to perform one or a few dedicated functions) will play an important role in the market.
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Enics Eesti AS (CH/FI)
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Electronics manufacturing
services for industrial
and medical electronics
customers. In June 2004
Enics set up a production plant in Elva (southern Estonia). Altogether, the company has nine plants in Europe.
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Neweks AS (CA)
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Production of small lasers for industrial, medical and scientific applications.
Its most well-known customers are NASA, the US NAVY, the Los Alamos National Labouratory, the Ames Labouratory, and the Lawrence Livermore National Labouratory.
Started its operations in Estonia in 1998.
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OÜ Karl Storz Video Endoscopy Estonia (DE)
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Production of endoscopic equipment.
Its production units are in Estonia, Germany, the UK and Switzerland.
Operating in Estonia since 2004.
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Sources of additional information
Tigerprises - Technology and Innovation blog in the Baltic States
Tigerprises is a blog oriented to technology and innovation in the Baltic states. Tigerprises is edited by Toivo Tänavsuu, a long time journalist for the Eesti Ekspress Group. Tigerprises offers overviews of recent trends in the market, updates on news and much more.
http://www.tigerprises.com/
Doing Business in Estonia 2010
Overview of The World Bank's report on the Estonian business environment, compared to 181 world economies.
http://www.doingbusiness.org/ExploreEconomies/?economyid=65
Tehnopol - Science Park
Tehnopol is a science and business environment for knowledge-based companies. Today 140 companies, Tallinn University of Technology and IT College are located in Tehnopol. Tehnopol provides a set of value adding business development services, infrastructure and international cooperation opportunities for companies.
http://www.tehnopol.ee/en
Baltic States Electronics News
Constantly updated news and information about electronics in the Baltic states.
http://www.einnews.com/baltics/newsfeed-baltic-electronics |
Business environment 
