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NEWS - 21. March 2019 11:50

Estonian small businesses are focusing on the local workforce

2019 is looking good for contractors, since Estonian small and medium-sized enterprises (SME) are intending to keep the number of workers unchanged. Nearly 80% of SMEs do not see hiring outside workers as relevant, but on the background of overall economic optimism and a stable labour market, enterprises` enthusiasm for innovations is taking a step backwards, according to the SEB research “Baltimaade majandusbaromeeter” (Baltic Business Outlook).

Estonian SMEs are forecasting stability for the labour market, since 78% of respondents believed that the number of workers won`t change and 17% are planning on hiring. The amount of enterprises thinking about reducing the numbers of workers, has stayed near five percent during recent years. Similarities can be seen in Latvia and Lithuania – in both countries only 8% of SMEs are intending to reduce the number of workers, and regarding hiring new workers, 16% and 19% respectively.

“Considering the tense situation on the labour market and increasing labour costs, keeping profitability and attracting new workers to an enterprise is a complicated task,” said Ainar Leppänen, Head of SEB Pank Retail Banking Area.

8% of Estonian enterprises have hired outside workers and 13% are planning to do so in the future - these are the highest indicators in the Baltic comparison. Nearly four fifths of SMEs do not include hiring outside workers in their future plans. In Latvia, outside workers are in 4% of SMEs and 12% are interested in hiring them in the future; the same indicators in Lithuania are 6% and 8%, which are the lowest in the Baltic states.

Interest in innovation in Estonia and Lithuania has declined

At the same time, a question arises about how the forecast stability will influence enterprise innovation activities. 46% of SMEs in Estonia are not planning innovation, which is a much higher number than the 30% of last year. Still, 35% of SMEs are planning to renew their products or services in 2019, 16% plan to invest in employee development and 13% are thinking about changing the business model. 52% of SMEs in Latvia and 56% in Lithuania, are not thinking about innovation, meanwhile in Lithuania the situation has become significantly worse.

“Little interest in innovation can be explained by overall economic optimism, which originates from the large domestic demand and relatively decent export year. Keeping in mind the cyclical nature of economy, situations can change and postponing innovations may hinder enterprise competitiveness, especially considering the pressure of wages and due to this, rising final product prices,” noted Leppänen. 

In 2018, economic growth in the Baltic states was among the fastest in Europe and the growth of wages and domestic demands have significantly increased the sense of security for Estonian, Latvian and Lithuanian small and medium-sized SMEs for the ongoing financial year.

The biggest optimists are Estonian SMEs, of whom 92% are expecting turnover growth, which is the highest number in five years. The relevant proportion in Latvia is 89% and 87% in Lithuania, so SMEs afraid of a decline in turnover have decreased to 10%, depending on the country.

It is the seventh consecutive year that SEB Group has organised the Baltic Business Outlook Survey, mapping the expectations of Baltic SMEs for the current financial year. Nearly 4,500 SMEs responded to the Baltic survey that was conducted last December.

Summary of the study

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