What is the importance of FDI in Latvia export growing?

What is the importance of FDI in Latvia export growing?

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As a result of its access to the Baltic Sea, Latvia has become in a focal point for business trades between important countries of Europe. Besides its advantageous position in the European continent, the Latvian lands have abundance of dense forests and wood materials. Therefore, wood and articles made of it have turned into one of the most essential export products for Latvian companies. Furthermore, Latvians also possess fertile fields which produce numerous substances used for food (including vegetables, animal products and live animals). Other exported products are basic metals and articles made from them, machinery and mechanical appliances, electrical equipment, mineral products, chemical products, transport vehicles and other goods. Latvia has a strong export partnership with countries of the European Union such as Lithuania and Estonia, followed by Russia, Germany, Poland, Sweden, Denmark and other countries.

Image courtesy of CAFNR at Flickr.com
Image courtesy of CAFNR at Flickr.com

However, all the last years’ good performance of Latvian exports is not only related to investment of its national companies. Since some years now, FDI – Foreign Direct Investment – has had a critical role in the exporting growth of the Baltic country. A foreign direct investment (FDI) is an investment made by a company or entity based in one country, into a company or entity based in another country.

Even though some FDI in Latvia is made by its main export partners in the European Union, there are companies from other countries, like The Netherlands or Finland,  that have invested in this way.

One of the most success cases of FDI in the Latvian vehicle components sector is Bucher Schörling Baltic Ltd which is a subsidiary of the Swiss Bucher Group. This is a global manufacturer of modern and advanced machineries/equipments that can be used for a great variety of purposes (hydraulic systems for high-performance machinery, harvesting, producing and packaging healthy foods, urban maintenance machinery). In 2004, Bucher Schörling Baltic Ltd. was established in Latvia to manufacture vehicle components and to manage Schörling’s Eastern sourcing network. The company also invested 5 million euros to establish an additional production plant in Ventspils, a port city in Western Latvia. Components and spare parts used for road sweepers are taken to Switzerland where final products are made. Other spare parts go directly to business owners in countries like Italy, France, Russia, Spain, Ukraine, Germany, etc. Due to the high efficiency of the factory based on Latvia, Bucher Schörlin has been studying further expansion in the Baltic country.

Image courtesy of Helmuts Guigo at Flickr.com
Image courtesy of Helmuts Guigo at Flickr.com

Originally founded in the Netherlands, Brabantia is another case of FDI export-oriented in Latvia. This company is a leader in the creation and innovation of household products, exporting to more than 80 countries. Opened in Latvia 8 years ago, this plant exports all its products to countries such as the United Kingdom, Belgium, and the Netherlands. Brabantia chose Latvia to establish its production plant for several reasons; its great metalworking tradition, its talented workforce, the European Union membership, its euro-pegged currency, and its business-friendly ambiance. In 2011, the company also took the production of laundry dryers and ironing boards to its production facility in Latvia, creating over 75 jobs.

The Latvian subsidiary of the AKG Group, AKG Thermotechnik Lettland, was based firstly in the Latvian city of Jelgava, in 2005, producing aluminum heat exchangers. This Latvian city was chosen due to its long tradition in automobile manufacturing, its fine infrastructure with low cost and its developed metalworking sector. Moreover, AKG group recognized the Latvian production plant as the one with the lowest production expenses of all AKG’s factories in the European countries. The totality of the outputs of the Latvian plant factory is exported to other countries, being Germany the receptor of more than a half of the products. Due to its low expenses in production, AKG Thermotechnik Lettland has also manufactured radiators for buyers in Asia.

A Finnish producer of conveyor solutions designed for handling piece good and bulk cargo, Ferroplan, has also established in Latvia a manufacturing unit called SIA Ferroplan in 2005. The Latvian city of Jelgava is again the convenient location of a foreign company that exports most its outputs. All started with the Ferroplan idea to expand its opportunities in the Baltic States, selecting Latvia as the focal point of its investments. Other reasons were the central location of Latvia, an available working class full of skills, and the huge advantages of long term cost. In 2011, the entity in Latvia started to develop an extensive program that could help in the production of more advanced commodities in this country. The managing director of Ferroplan, Mr. Pentti Patosalmi, has stated that the company is very satisfied with the Latvian state and European Union incentives for investment. This makes Ferroplan and the different authorities of the state to work together for developing in a greater way this type of factories in Latvia.

The cases of these four companies show the great influence of export-oriented FDI in diverse sectors of Latvian exporting economy, representing for these sectors a strong growth of competitiveness.  

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