The way to win!

In the opinion of our editorial office, Hans H. Luik is a businessman that works in a particularly competitive and often problematic Baltic media market, which a host of famous media concerns have left, and has been able to not only survive, but be a leader. We chose him for an interview about economic trends and prospects on business expansion in the region because the media branches he leads demonstrate a rare high-level professionalism and objectivism.

The first thing that I would like to ask you would be your understanding of what happened  in Latvia, Estonia and Lithuania after the crisis period.  Could you say that these countries started to act differently and that the Baltic countries became a better place for doing business?

I think that all the free countries were very happy to join the European Union, and those European funds were vital for the Baltic countries. I also think that we became better at bookkeeping, and at least the Estonian government is now much better at giving subsidies to economic sectors which are in real need of them. The governments became more electronically-based, and there is much more analysis, and I even think that the tax systems, especially the very hard bit which Mr. Kubilius’ government had to give the Lithuanians, were worthwhile. I think that otherwise, if we had heavier tax burdens, if we were taxing more profits, the shadow economy would be much higher, but we ended up not having a large shadow economy. Now governments are collecting taxes. It could be worse. At the same time, the hit that the private industries took was hard. Private industries had a heavy tax burden. And these industries still have a long way to go to clear off their balance sheets, including my company the Ekspress Grupp.

When talking about the future of these economies in the upcoming 5 years, what would your forecast be: will it be bright or will it be cloudy?

Well, if I am talking about the economic area which I am quite familiar with, the media and printing industry, I think that there are bad signs. For example, the most technologically advanced media company of Scandinavia, namely Schibsted from Norway, sold their assets in the Baltic countries. They took a loss, and this is a sign that they thought that they will not be able to do profitable business here. Secondly, some years ago Bonnier, which is a mighty publishing company from Sweden, sold their assets in Riga. The best and widest Latvian newspaper was sold to local oligarchs. The third thing is that the “Murdoch” TV station was sold in Latvia. It ceased to exist.

I feel that in terms of big business our Baltic states are not doing well, and the reason why we are not doing well is the demographic situation, with a steady decrease of the core population. Therefore those markets do not seem to be attractive anymore. And not only in media sector: international French giant Dalkia disinvested from Estonian monopoly “Tallin Heating”. At the same time Sanoma Group divested of Estonian chain of bookstores “Apollo”. I think the biggest Finnish group is going to leave the Baltic states altogether.

Our governments seem to ignore the fact that we have to encourage people to stay in Latvia, Estonia and Lithuania instead of playing a liberal market economy and letting them go. They should be doing much more. It is especially relevant to Lithuania because it is very hard to get its population to return. With Estonia it is slightly better, because most Estonians just go to Finland, which is 80km away. They might return if they choose to. I think the governments would have to take the initiative, take loans and invest in jobs for especially young people to get introduced to companies and perspective jobs. And I also think that the business section should help young people to get practice in the companies, factories, and offices which we have. I am ready to do this. I am giving young people insight to our company, particularly giving it to students.

Also, if these countries are going to be attractive to foreign capital, which you are asking about, they need to free up their immigration policies. Up to now the situation in these countries, even though there is a change in legislation in Estonia right now, is such that they are forcing foreign students who have completed their studies to leave within a couple of months, which is a silly thing to do. Those are people who have been satisfied with the environment that we have in the Baltics, with the levels of your institutes and universities. Why would we force them to leave the country instead of finding a partner, marrying and getting a job? So immigration and demographic policies would have to be altered in Baltic countries for them to become attractive.

We both understand that we are a small market, so it is very difficult to explain why somebody has to care about us, but when we are talking about the period before the crisis we can say that Scandinavian companies were investing much more than they are investing now. However, I am thinking that now we have more order, as you mentioned, in all areas of finances of government policies. We now also know that in the upcoming 3-5 years the Baltic countries will have one of quickest growth spurts in Europe. In my opinion, it is very strange why as we were bubbling someone was investing very quickly, but currently everybody is waiting for something.

I think that the cause might be that now the big Scandinavian countries as well as central European countries are having difficulties themselves. They don’t have excessive capital and the banks would not support investment. Nordic companies normally work hand in hand with their banks, and if they extend their activities the bank also extends the loan. Now I think that everybody is very conscious under these economic circumstances. Finland has negative growth. Sweden is announcing some problems. At the same time I see agriculture as being very interesting. We have a big Russian investor who is consolidating Latvian agriculture in arable land. We have big Austrian companies doing the same thing in Estonia. I don’t know about Lithuania, but there was a big Turkish green agriculture product company in Estonia, wishing to either buy or rent 1000 hectares. “Everybody wants to buy now”, they were told and they stepped back. So some particular areas have foreign investment.

Speaking of growth, we can see an example such as Ikea and their partners from Lithuania, which are now building factories in Belarus and producing furniture for Ikea. And when we talk about media business or other business that you are familiar with, can you see the same trend: investing in the Baltic countries and from there moving to the east – to Belarus, Ukraine, Kaliningrad, Russia. Does this kind of direction exist?

Yes. Estonia has been like this all the time. I think that ABB has been doing this and also the great brewery system which has Aldaris, Saku and Baltika - they were investing in the Baltic states and then they made a jump to Ukraine and so on. This has been happening the whole time. At the same time I think there is a tendency which I observed aside from the media.  We saw the big French international infrastructure company Dalkia leaving Estonia, leaving the provision of Tallinn’s central heating to their local Estonian partner, which is very exceptional. We saw the big cinema company Finkino leaving the Baltics and selling their operations to the local management. When times are bad and the foreign companies choose to leave, a huge potential appears for locals to gain shareholdings in their local companies.

You see many problems, including demographic problems, but you are still thinking of expanding your business by acquiring some extra facilities.

You have to be the largest in order to attract customers and advertisers, especially in media. This is our strategy and we have been sticking to it. Delfi is the largest information portal in the 3 Baltic countries. We have been acquiring companies all the time. While building our portal we as well as our competitors have been purchasing different advertising systems, different small niche portals, like Portal 4 for young mothers.

Again let me ask you: when talking about the business of investing in the Baltics and from the Baltics to other areas, what is your opinion about investing in Ukraine and Belarus? And secondly, what do you think about investing in Scandinavia itself?

We are doing a lot of export. Our printing operation is doing a lot of business with Scandinavian customers, so Scandinavia is a market which we know pretty well. I have done a lot of investing in Ukraine. Delfi is working in Ukraine. We set up advertising and media agencies with Agecom, which I started with my colleagues years ago, and we also set up a telephone information service in Warsaw. So I have been quite busy as you can see, but due to the rough current situation I don’t think that we accumulated enough capital now, but maybe if banks come to help and a good opportunity arises we could do it. We also have been looking recently into Polish investment opportunities in the internet. At the same time my companies and other Baltic investors are far from being satisfied with legal atmosphere in Ukraine: it happens that Ukrainian court looks like a business as any other.

When we talk about the differences in the markets what, could you say about the difference between Lithuania, Latvia and Ukraine?

Well, Ukraine is very specific. I think that in the Ukraine, the internet is not doing well and advertising systems have not fully formed yet. The advertising market is still full of opportunities, but there are too many middlemen. So it might be that instead of finding the right channel the advertiser goes to the direction that the middleman wants the advertiser to go. Middlemen have too much power in the Ukrainian advertising business.

You mentioned that currently your opinion is that Scandinavia is withdrawing some of their investments because they are having difficulties themselves. Do you think that such an attitude towards the investments will remain the same in the upcoming few years or will it change, if the data is going to show a steady 3-4% growth during the upcoming period?I am a little bit pessimistic about this. We might look forward to the end of international crisis, but the problem remains that the euro zone is lacking confidence and if the euro zone can’t realize its united banking inspection, then there will be no confidence in European Union. What is actually happening in Spanish and Greek balance sheets? Nobody knows. Therefore there has to be bank inspection, but the effects remain to be seen. If they can’t put their banks in order no one will trust Europe and the recession will be prolonged. Middle class is experiencing hard times everywhere in Europe, except Germany. We will see competing economies such as China and the USA rising, and now we must find our own way.