Latvia has long been shunned by investors looking for sites to launch their outsourcing projects, in favour of other post-communist countries such as Poland, Hungary and the Czech Republic. Yet although its population totals just 2.2 million, what Latvia lacks in a labour market, it makes up for in business climate.
“We began looking for a place to set up our shared services operations at the end of 2010. In January 2012 our facility in Riga was opened,” says Morten Christensen, vice-president of Norwegian company Statoil Fuel & Retail. According to Mr Christensen, neither bureaucratic issues nor the real estate hunt turned out to be too problematic. Even the recruitment process, despite Latvia's relatively limited labour market, was smooth. “I am extremely satisfied with the level of skills of our employees in Latvia,” says Mr Christensen.
Investors tend to be equally happy with the costs of locating in Latvia. According to analysis by fDi Benchmark, a site assessment tool, the cost of labour at shared service and business process outsourcing centres in Latvia is the lowest in the Baltic region, 5% lower than in Poland and 56% lower than in the Czech Republic. And thanks to the country's job creation grant, new companies can receive up to $380 for each new employee every month for one year.
The cost of wages was one of the main reasons that Swedish telecommunications company Tele2 chose Latvia as the site for its shared services centre (SSC), according to chief information officer Anders Candell. Since 2004, Tele2 has been operating a billing centre out of Riga that serves the company’s subsidiaries in 23 countries, employing 250 IT and finance specialists. “Riga, as the site for the SSC, was chosen due to a combination of factors such as communications with Stockholm, cultural fit and salary costs,” says Mr Candell.
Both Mr Candell and Mr Christensen praise Latvia’s infrastructure. The country has one of the fastest internet connections in the world, according to internet content delivery network Akamai Technologies. The country is also in the middle of Baltic Optical Network, a data transmission system created and maintained jointly by telecommunications companies from Latvia, Lithuania and Estonia. Non-virtual connectivity also plays in Latvia’s favour, with Riga International Airport serving 79 destinations in 29 countries.
And although outsourcing opportunities attract mainly Scandinavian investors, Latvia is also conveniently located to serve its eastern neighbours as about one-third of the population speaks Russian. “Scandinavia is an obvious opportunity, but… global businesses with a large [Commonwealth of Independent States] client base could benefit from the Russian language skills of Latvia’s workforce,” says Rudolfs Engelis, partner at law firm Sorainen. Additionally, on average each year more than 8500 English-speaking graduates, 600 German speakers and 560 Spanish speakers join the labour market in Latvia.
Although the pace of developments in Latvia’s outsourcing sector is far from rapid, it is picking up speed. Mr Engelis says that he is aware of “several major corporations that consider locating their current SSC to Latvia a success and are considering expanding the scope of functions serviced in Latvia”. And fDi has also learned that Tele2 is planning to increase the number of employees in Latvia in 2014.