Lithuania is becoming a European factory – job postings may be added next year

When the President of France, Emmanuel Macron, paid a visit to Lithuania, he also brought representatives from 37 companies. They were looking for partners to help replace Chinese manufacturers, says Vidmantas Janulevičius, president of the Lithuanian Confederation of Industrialists (LPK). Lithuanians may offer cheaper labor than the French or Germans, but they compete with their neighbors, as well as with Bulgaria and Romania.

Lithuanian manufacturers point out that the drop in sales is offset by future new customers and price is not the only argument.

“We assume that of all the new Utenos Trikotažas customers who have come in the last two years, at least 30 percent. Continued their production at some point in the Asian factories. You can say that we are giving back to our customers who transferred the production to Asia more than a decade ago, ”says Petras Jašinskas, CEO of Utenos Trikotažas.

Even when everything is bought less in Europe and the US, Lithuania’s factories have already outpaced last year’s production and furthermore, it is expected to be even better, says SME Finance economist Alexander Izgorodin. According to him, it is the orders that used to go to China that now serve Lithuania.

“We have the right economic structure, which will cause a big enough rebound in our entire region. Not only the industry needs to prepare, but everyone. I don’t think anyone is short of work,” says A. Izgorodin.

The world is falling and we are rising, as much as possible

Factories used 73.3 percent of available capacity in September. Although it is below pre-coronavirus pandemic levels at around 77%, this figure has recovered significantly since May, when it fell to 68%.

However, A. Izgorodin estimates that the industry in Lithuania has already recovered, since in 8 months of this year, Lithuanian producers already produced 0.2 percent. more than in the same period last year, mainly due to the relocation of production from Asia.

“It may sound illogical and strange, but for us, the decline in production in Europe is, in a sense, very beneficial. World consumption remains very weak, falling in China and recovering at a minimal rate in the US EU producers dependent on exports have to fight for the remaining orders and cut prices. Then they go back to Lithuania, where they look for contract manufacturing opportunities, ”explains the economist.

Despite rising wages, it is still much cheaper to produce the same product in Lithuania compared to Germany or France, where production costs are lower.

“It’s happening, contract orders are coming in, so European manufacturers are lowering the price of components and may lower the price of the final product.” They want to remain competitive in the declining global consumer market, “says A. Izgorodin.

New orders to relocate production, he said, could now account for more than 30 percent of total production.

“It just came to our notice then. Our industry is dominated by smaller companies that are very mobile and very flexible, which also helps with recovery. Also, productivity in Lithuania has increased because companies have invested a lot in efficiency after the financial crisis, ”says A. Izgorodin.

The economist is convinced that the effect can be lasting, since the relocation of production in Europe is also one of the bloc’s political priorities.

Macron also attracted clients

The president of LPK, V. Janulevičius, ensures that the relocation of production here to Lithuania and the “shortening of supply chains” are not empty words, but a real trend, which is illustrated by the visit of the president of France, E. Macron.

“The president came to us with a delegation of 37 companies. That is what they are really looking for, how to move part of the production from France and reduce the price, as well as move a large part of the subcontracted items from Asia, in this case we are talking about China ”, says V. Janulevičius.

He named three examples. The first company, manufacturer of fire protection systems, is choosing between Georgia, Bulgaria and Lithuania. The second company was looking for a place to relocate the production of automotive components to Romania or Lithuania, where tax exemptions and incentives are less. The third company produced medical equipment and looked for where to mount the devices: in Lithuania or Estonia.

He did not want to name specific clients who are interested in the possibility of relocating production, or are already doing so – he assured that it is one of the largest European companies.

“Future orders from the company are being redirected from other regions. (…) European companies are abandoning Asian products due to supply disruptions and are also partially choosing Lithuanian products,” says V. Janulevičius.

However, the downside of a coronavirus pandemic is that long-term customers place smaller and smaller orders.

“We see a decrease in orders from old customers in the next 6 months, and that decrease will be around 6 to 7 percent next year. On the other hand, new orders are emerging from companies that previously worked with an Asian country. Here is a kind of scissors: in one place it grows, in another it decreases. This is felt by my company, my colleagues and the producers on the Šiauliai side and the companies around Vilnius “, says the president of LPK.

It’s not just the coronavirus that is bringing production back to Europe

The second quarter of this year was the most difficult for the textile industry and this challenge was overcome by taking appropriate, but not difficult decisions in time, says P. Jašinskas, Managing Director of Utenos Trikotažas. The company had to declare full downtime in the spring, some of the employees left, and now the company’s headcount has decreased by 8%. Sales also decreased.

However, the manager sees optimistic trends: the brands developed by the company grew at a record rate, which was determined by the sales of masks, e-commerce in Lithuania after the closure of stores.

Mr Jašinskas confirms the trend of customers turning to the company for something to change Asian manufacturers. Outsourced production currently accounts for about 70 percent. Income from sales of Utenos Trikotažas.

However, the relocation of production from Asia to Europe is not only driven by disruptions or savings in the supply chain from the coronavirus.

“Buyers are beginning to seriously worry not only about what their clothes are made of, but also where, how it is made, whether factory workers receive fair wages, what footprint the product leaves on the planet, etc.” says P. Jašinskas.

In the fierce competition due to the lower price of Lithuanian products, it would be difficult to compete with mass production in Asia.

“Competition from European and Asian producers has been and continues to be quite active. Especially if the price is competitive. For almost a decade, Utenos Trikotažas has focused on customers working in the mid and high price segment. By avoiding competition on the basis of price alone, there are opportunities to focus on more expensive, ecological, cleaner and sustainable production – this is an accelerating global trend, bringing production back from Asia to Europe, ”explains P. Jašinskas.

The “Made in Europe” label, he said, provides consumers with an additional guarantee that the product will be of good quality, produced in a socially responsible and sustainable way, with fair responsibility for employees, and buyers now want even raw materials or all accessories come from Europe. The global pandemic has given further impetus to this trend.

“In an ecological sense, the manufacturer closer to the customer also means lower logistics costs, less pollution,” says P. Jašinskas.

What products can Lithuania offer to Europe?

Components of the engineering, metal processing, plastics, textiles, wood and furniture production industry – these products are named after economist A. Izgorodin, who was asked which areas could benefit the most from the current situation.

“I think we have to look at this crisis a bit rhetorically. Next year, I think we will have a very big economic recovery, at least within the EU. And because this year’s statistics are very tragic and there will be no where But also on other aspects. EU consumer expectations are gradually recovering and huge stimulus programs will be launched next year. And Central Europe, Northern Europe and the Baltic States will benefit the most. The whole region it has less dependence on services and more dependence on industry “, is convinced A. Izgorodin.

LPK President V. Janulevičius adds that already this year we are seeing growth in the components and plastics segments. Manufacturers of finished products can also benefit from the changes.

“We see that there is growth in those who produce and assemble the final product in Lithuania. There was a time when there was a big pot of losses, but lately we are seeing growth. Maybe those products are segmented. For example, there was a very high demand for bicycles in spring and summer. In the fall, it falls. Now there is a demand for everything related to heating systems, “says V. Janulevičius.

He is convinced that the process should be irreversible and what the Lithuanians recover from Asia can stay here.

“The same conclusions from the EC are: let’s strengthen and shorten supply chains, let’s strengthen segments: health, food industry, energy, everything related to IT. (…) Everything depends on us. If we do not implement it, we will not live up to the expectations of our customers, of course we will lose them. If we are good partners, suppliers, processors or developers of services for customers in Europe, our future will depend on it ”, summarized V. Janulevičius.

The biggest challenge to overcome is the lack of capital. Companies bleeding from coronavirus may find it difficult to benefit from a variety of incentive programs, as they often need to contribute their own funds.

“The second problem is the bureaucratic obstacles, which still exist in Lithuania, and there are many of them. They need to be further reduced so that companies can breathe better and create added value, pay more taxes and equal salaries to employees,” said the head of LPK, who regretted that the public sector has not been as dynamic in adapting to change as companies.