Kaunas, where almost a third of the entire student body is enrolled in STEM fields, might be one of those better prepared cities, where an attractive Free Economic Zone is soon to be complemented by new turnkey solutions. But is this enough for the city to stay competitive in the swiftly changing world?
Seals of approval: from Accel and Kitron to HELLA and Continental
Kaunas had a strong engineering base even before Lithuania regained independence, and this potential was spotted by major international investors early on.
The company that is now called Littelfuse LT has once been a production facility of Accel, a Swedish manufacturer of advanced electromechanical components. Developing products in Kaunas since 1994, Accel and its Lithuanian plant were well known in the market for sensors for the transport sector.
Since Accel was acquired by Littelfuse in 2012, the facility has grown twice – to almost 700 employees – and now performs functions supporting the company globally.
In addition to manufacturing advanced automotive sensors, Littelfuse LT is heavily involved in R&D activities, and the company’s Kaunas-based business services centre provides HR and marketing services.
“Next year will mark a decade since Littelfuse entered the Lithuanian market. Although the country, at that time, was widely considered a “lower-cost manufacturing location”, affordable operating expenses, albeit important, was not the main factor that really tipped the scales,“says Aidas Kučys, Managing Director and Plant Manager of Littelfuse LT.
“Back then, Littelfuse made a strategic decision to expand into the automotive sensor business, so it was looking to acquire not only the manufacturing infrastructure, but also the technical know-how. To this day, Littelfuse maintains a strong R&D function in Kaunas, which comes to show that the local engineering talent has maintained its solid reputation and continues to drive a significant portion of our global design activity in the automotive sensor business.”
Kitron, a leading Scandinavian Electronics Manufacturing Services (EMS) company, was another early investor. Kitron has been manufacturing highly complex electronic products in Kaunas for more than 15 years, with more than a third of the company’s 1,800 employees working at its Kaunas plant. Kitron’s Lithuanian team carries out prototyping, monitoring of product design, component engineering services, with customer service, supply chain, and other support functions performed alongside.
While Kitron and Littelfuse have laid the groundwork, the recent wave of new investments have significantly strengthened the position of Kaunas as an important centre of automotive electronics engineering.
Leading automotive supplier for lighting systems and electronics HELLA chose Kaunas Free Economic Zone (FEZ) for a new factory in 2018, and in less than a year after breaking ground started operating some 11,000 sq. m. of production space. HELLA recently announced plans to double the size of its facilities. The general area after the expansion will be 22,000 sq. m., 1,000 sq. m. of which will be designated as lab space.
“Lithuania, and particularly Kaunas, was chosen for the new HELLA factory due to the well-developed infrastructure for transportation of products, as well as convenient location for easy access to many markets, high quality of engineering education and English language knowledge. These are only some of the reasons why Kaunas is so attractive to investors,”says Tobias Pohlschmidt, Managing Director at HELLA Lithuania.
Continental, another well-known name in the automotive industry, also opened a manufacturing facility in Kaunas FEZ in 2019. Producing complex components such as intelligent glass control and radar sensors, Continental expects to employ 1,500 people by 2025.
While many foreign players in Kaunas develop products for the automotive sector, local companies focus on ICT products instead. The old-timers, like Terra and Selteka (together employing around 500 specialists), provide EMS and OEM services to clients in the telecommunications field. Meanwhile, the new-generation of ambitious, fast-growing local companies build their growth on the development of their own, unique products. Such companies include Teltonika Networks, which creates industrial network connectivity devices, and ultrasound metering devices manufacturer Axioma Metering.
Talent – the lifeblood of engineering innovation
Lithuania is fourth among members of the EU by the number of electronics and automation students per capita. And while the country is among the European leaders of tech talent, Kaunas is where Lithuanian electronics specialists are concentrated. Out of almost 45,000 students in Kaunas, 31% are studying technical sciences. Four higher education institutions in the city provide engineering degrees with as many as 5,000 students currently studying engineering sciences.
Kaunas University of Technology (KTU) is the largest provider of qualified engineers in the country and one of the biggest technical universities in the Baltics. With its strong ties to business and long experience in servicing the region’s largest companies, KTU is an essential player in providing talent as well as infrastructure and researchers for collaboration in R&D activities.
Universities in Kaunas continuously invest in new facilities and research spaces. A modern electronics engineering lab has recently been established at Kaunas University of Applied Engineering Sciences (KTK), while KTU is building M-Lab, an interdisciplinary prototyping laboratory set to open in 2022. The project aims to forge strong ties between science and business and answer the research needs of foreign and Lithuanian companies.
Quality infrastructure and tax incentives attract foreign companies to Kaunas
Lithuania invests heavily into the success of its R&D and innovation sector, with continued effort put into the development of the country’s R&D infrastructure and science valleys. Kaunas is the location of one of the biggest current projects. More than €5 million have been invested in turning a former aviation factory into the most modern innovation park in the Baltics. The site, called Aleksotas Industry Innovations Park, is currently in development in the 32-hectare territory in close proximity to the Kaunas city center. The new innovation center, already named Lithuania’s Silicon Valley, will provide incoming electronics companies state-of-the-art turnkey facilities for R&D activity in Kaunas.
“Investment in key areas of Lithuania’s economy, such as electronics manufacturing, is Lithuania’s top priority,”Tadas Stankevičius, Head of Kaunas IN, the city’s business and tourism promotion agency, says.
“This is reflected in new legal regulation that came into force in 2021 creating extremely favourable investment conditions for large-scale projects. To assist such investors with smooth acceleration of business operations and value creation, the Lithuanian government has prepared a new package of laws – the so-called ‘green corridor’ – that offers tax incentives and faster bureaucratic procedures.”
Large-scale investment projects that meet the requirements of investing at least €20 million CAPEX and creating at least 150 new full-time jobs in manufacturing will enjoy 0% corporate income tax for up to 20 years. The ‘green corridor’ offer also includes additional state support for territorial planning, fast decision-making, simplified procedures and all-round reduction of bureaucracy.
For smaller scale investment, Kaunas Free Economic Zone (FEZ) provides unbeatable conditions for developing business by offering ready to build industrial sites with physical and/or legal infrastructure, support services, and tax incentives. It is a hub of logistics, conveniently situated near the intersection of two roads of national and international significance and connected to the Kaunas airport.
In addition to excellent infrastructure, businesses investing in Kaunas FEZ enjoy tax privileges: they are exempt from real estate tax until 2045, have the possibility to enjoy corporate tax deduction for the first 10 years, and pay only half of the income tax for the next 6 years. Currently, 41 foreign and Lithuanian capital companies operate in the industrial zone, which has already created more than 5,700 jobs and generated 0.97% of the total Lithuanian domestic product. Kaunas FEZ has attracted €860 million of direct investment since the establishment of the first investor in 2005.