If Tartu in south-east Estonia was a district in Berlin, it would be the smallest one. The same applies in London. In Moscow it would be the second to last. In Paris it would be regarded as a mid-sized arrondissement. But in Estonia, a country with population of 1.3 million, the city of 99,000 residents proudly holds the title of the second biggest after the capital, Tallinn. “We are a compact city located in a compact country,” says Asso Uibo, investment consultant at Tartu Business Services Advisory Foundation, an entity aiming to promote and facilitate investment in the city.

But in the world of FDI, being compact is hardly an asset. Small in size means small in market, and, even worse, small in labour pool, which is a red flag in any site-selection assessment.

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To overcome its size constraints, and unlike other countries in central and eastern Europe that have been luring investors through an abundance of educated yet relatively cheap labour, Estonia has been making efforts to brand itself as one of the most technologically advanced countries in the region. And it has good reason to do so: according to 2010 OECD estimates, 65 out of 100 households in Estonia had access to broadband internet. That positions the country between the US and Japan, and ahead of any other country from the former Eastern bloc. Estonians take the full advantage of this access. According to the Bank of Estonia's data, 99% of all bank transfers are performed online, and the country's tax authorities say taxes filed electronically accounted for 95% of all declarations in 2013.

City of the future

Benefiting from that nationwide push for e-governance and e-services, Tartu is aiming to position itself as a testing ground for R&D companies, especially those related to smart city solutions and mobile services. Here the city's lack of size comes in handy, says Mr Uibo. “Given our size, ideas can be implemented, tweaked if needed and results measured quicker than in a big city,” he says. The fact that students constitute more than one-fifth of all Tartu residents also does not harm the city's ability to be tech-savvy and open to new ideas.

Tartu has already earned bragging rights in the tech sphere as Jaan Tallinn, one of the founders of Skype, is a University of Tartu graduate. The city was also the first in the world where car parking could be paid for with a mobile phone, something that was brought in a decade ago.

Playtech, the biggest gaming software provider in the world, was founded in Tartu 15 years ago. The company has nearly 4000 employees in offices across 12 countries, but Tartu, with headcount of 500, remains the biggest. Playtech Estonia director Kaari Simson says Tartu has what it takes to see more tech success stories in the future. “We might be a small city, but our university and our tech community is big, so the IT sector is likely to grow,” she says. “You cannot find global success selling only in Estonia, but you can operating out of here.”