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Since 2000 there have been remarkable developments in the Estonian ICT sector, which have led Estonia to be one of the most advanced countries in ICT, both in CEE and Western Europe. The most recent developments in the ICT sector in Estonia are the following: 69% of the population uses the Internet and 86% Internet banking (spring 2008), the implementation of e-Elections (in 2007 Estonia held its and the world's first general Internet election), more than 800 public Internet access points and 1,200 free Wi-Fi Internet zones around the country, the popularity of several e-Services (e.g. e-School, e-Health and other electronic Public Services), and electronic ID-card and ID related services.
In the field of Internet and data communications, significant investments have been made in the infrastructure of telecommunications, with fibre optic cables covering the whole country, and direct undersea connections to Finland and Sweden and links to Russia and Latvia, guaranteeing high-standard communications.
At the beginning of 2009, 1,700 companies were active in the ICT sector, contributing 5% of total sales in business activities in Estonia. The sector sales in the first quarter were 358 million EUR and the value-added services 115 million EUR. The total value adding of the ICT sector formed 9% of the total added value of economic activities - therefore, on the basis of net value added, the efficiency of work of ICT entities is twice that of other sectors of business activities in Estonia. Over 16,500 employees are currently working in the ICT sector - 4% of total employment in Estonia.
Total turnover of the ICT sector has increased rapidly over the past five years. In 2007 the sales totalled 1.4 billion EUR, of which export made up 32%, totalling 0.45 billion EUR. The highest sales contribution in 2007 was 58% from telecommunication services, followed by ICT equipment manufacturing (28%), computer-related services (23%), computer manufacturing (3%) and R&D (1%).
Net turnover and export of ICT sector
Source: Statistics Estonia
The main activities in ICT manufacturing operations are producing computers and peripherals of computers, electronic components and printed circuit boards, communication devices, commodity devices, and magnetic and optic data carriers. The activities in the service line are mostly wholesale of information and communication technology, software publishing, telecommunications, programming, consultation, data processing, web-hosting, website operations, and restoring computers and communication devices.
Breakdown of ICT activities by turnover (million EUR), 2007
Source: Statistics Estonia
The telecom industry is led by Eesti Telekom (part of the Telia Sonera Group). The dominant service providers in the telecommunications market are: EMT (owned by Eesti Telekom), Elisa (owned by Elisa Communications), Tele2 (owned by Tele2 AB) and Bravocom (local).
Main advantages and strengths of the ICT sector in Estonia
Highly educated, skilled and low cost labour in ICT services offers profitable business opportunities
- Educated labour. High-standard development contributed by strong university and college education, with great efficiency and culture of work. The number of IT-field graduates in 2008 was 547 (5% of all graduates), indicating an ongoing interest in IT-based education and the accrual of an educated workforce in the ICT sector.
- Know-how. Due to remarkable research & development (R&D) projects, Estonian ICT entities have developed several solutions currently present only on the internal market, but ready to be exported internationally (incl. several e-Services, finance-telecom solutions and data center solutions). The know-how of Estonian ICT entities is world-class, establishing an advantageous basis for innovation solutions. Also, it is important to note that a critical number of specialists in some ICT fields are locating exclusively in Estonia (e.g. world-leading P2P based programs such as Kazaa and Skype have been developed in Estonia).
- Ongoing R&D. Estonian ICT entities have the ability to implement all key technologies in ICT and to increase competitiveness in the international market by performing ongoing comprehensive R&D projects. Estonia has supported local R&D extensively - recently a grant in the amount of over 15 millions EUR was given to support R&D in the ICT sector.
- Constantly high productivity. There has been constantly high productivity in the telecommunications sector and the productivity of the computer and related services sector increased almost 200% in the five-year period ending in 2007, through the usage of new technological solutions and improved labour skills. Constant technological improvements through innovation have caused a resilient expansion of the ICT sector with a notable increase in international competitiveness.
- Good language skills. The knowledge of English, Russian and Finnish meets the requirements of international companies.
Well-developed telecommunications and digital infrastructures offer a superior environment for business operation
- Telecommunications infrastructure. In 2008, 54% of all Estonian households leased high-speed broadband Internet services and almost 90% of entities had Internet access. Today every citizen has opportunities to employ e-Services and to participate in all aspects of the modern economy and society.
- High digital infrastructure level. Estonian ICT entities have experience in implementing new ICT-solutions and reforms of the transition society. Estonian companies have had impressive success in the application of new technologies in some fields (e.g. banking and government) and in the development of intelligent user-friendly interfaces (e.g. in the fields of mobile telecommunications and e-Health applications). Estonia has been one of the top countries in terms of the accessibility of public e-Services.
Easy start-up opportunities and low running costs
- Great opportunities for starting a business. Great opportunities for foreign investors to enter the market via merger or acquisition of a smaller ICT company in Estonia, which has established a knowledge and customer portfolio of e-Services solutions. The running costs of companies are far lower than in other EU member countries and starting a business is possible within only two or three hours by using the e-Trade Registry services.
- Competitive labour costs. Numerous foreign companies have found Estonia to be a highly attractive location due to its low labour and operation costs. The average monthly salary in 2007 in the telecommunications sector was 1,425 EUR, and in the computer and related services sector 1,325 EUR, which is three to four times lower than in Sweden and Finland, key investors in the Estonian ICT sector at present.
- Seamless business. The limited domestic market has stimulated the development of a highly export-oriented economy. The majority of Estonia's exports go to countries bordering the Baltic Sea, thus increasingly integrating the Estonian economy into the industrial clusters of the neighboring states.
- Accessibility and low transportation costs. Estonian ICT companies have the potential to grow in product markets and niches, mainly due to their flexibility and the necessity of being close to the client, as Estonia is the junction of a logistics corridor. This is extremely important, as the whole world is experiencing increasing transportation costs.
- Simple and low taxes. An advantage is Estonia's system of low, flat-rate taxes. The system is simple, with no "hidden extras", and designed to encourage enterprise and maximize profits. The corporate income tax of 21% (of gross amount) applies on the distribution of profit only. The system of VAT (set at 20%) is in line with EU requirements, and social and health insurance of 33% is applied.
Favourable legislation and stable environment
- Favourable legal system. Estonia has been a leader in creating a favourable legal framework for ICT development by adopting such information-related legislation as the Digital Signature Act (2000), Public Information Act (2001) and Telecommunications Act (2000).
- Openness to innovations. Estonia is open to all new information and telecommunications innovations. The government supports R&D extensively and is very flexible in adjusting legislation to fit new ICT innovations. Due to the broad accessibility and the widespread usage of the Internet in Estonia, implementing ICT innovations among Estonians has turned out to be very effective.
- Low level of bureaucracy. Estonia has a low level of bureaucracy, which increases the efficiency of operations in the ICT sector.
- Entrepreneurship support. Companies can apply for several support packages through Enterprise Estonia (www.eas.ee). Support areas include starting or developing a company, export and innovation, and product development. A total of 12 different support packages are offered.
Most important location criteria for companies operating in the high-tech & telecommunications infrastructure and equipment sector
Source: Ernst & Young European Attractiveness survey 2009
It is apparent that Estonia meets the most important requirements for investment in the ICT sector:
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the labour skills in the ICT sector are remarkable and Estonian ICT sector employees are highly qualified; additional labour costs are relatively low compared to major developed countries and continuous amendments to labour regulation are being implemented to ensure the flexibility of labour legislation;
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the telecommunications environment in Estonia is well-developed (full coverage of telecommunication services in the territory of Estonia), and due to the ongoing R&D activity remarkable and efficient innovative solutions will be implemented in the near future;
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the domestic market for ICT products/services is attractive as well, with relatively high demand for innovations;
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the corporate taxation policy in Estonia incorporates factors that support on-going investment decisions (e.g. the profit of an enterprise is not subject to corporate income tax before distribution; a simple declaration system is offered via the Internet);
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the transportation and logistics infrastructure is well developed due to Estonia's advantageous location in Europe.
Most attractive sub-sectors/business functions and examples of foreign investors
Market prospection operations are the main investment types originated by the ICT industry: sales and marketing accounted for 41% of FDI projects in the ICT sector in CEE over the past 5 years (2004 - 2008). The ICT sector is also R&D-intensive, with R&D activities attracting 29% of FDI projects within CEE. ICT support services in the CEE market comprise 24% of the market (incl. contact centers, engineering, support and shared services centers).
The Estonian ICT market is dominated by telecommunication network services, which account for 58% of the market (or 426 million EUR in 2003). The value of the IT market (excluding telecommunications) is estimated to be 216 million EUR (29% of the total market value of 740 million EUR). Per capita IT spending is 150 EUR, which is higher than the CEE average. Over the last decade, the Estonian economy has been modernized, with foreign direct investment mainly from Sweden and Finland.
Considering Estonia's strengths and development, the most attractive sub-sectors/business functions in ICT sector are the following:
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Sub-sector / business function
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Description
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Example of foreign investors
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Activity description
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R&D
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The main areas of Estonian R&D are: software development,
IT services, and telecom equipment. With these areas of R&D Estonia is providing excellent resource for not just its own ever-expanding commercial and industrial base but also to the wider audience looking for new technological innovations.
R&D expenditure of private sector is constantly increasing as both Estonian and foreign businesses have discovered the potential of Estonian scientists and engineers with great innovative solutions to offer and develop.
According to Statistics Estonia, during years 2001-2007 the average growth rate of the research and development intensity for Estonia was 8%, which places Estonia on the second position among the European Union countries.
In 2007, the expenditure on R&D reached 173 million EUR. Compared to 2006, the R&D expenditure increased by 15%. It is notable that enterprises had a more visible role: the increase of their expenditure equalled 22%, that for non-profit sectors (universities and other institutions) only 9%. In 2008 the expenditure of enterprise sector accounted for already 47% from the gross R&D expenditure. but the share of the working hours spent on R&D in that sector remained on the 34% level. This is the consequence of the fact that enterprises are involved mainly in the experimental development that is more expensive than the basic and applied research performed by scientific institutions. The differences in the labour cost are playing a certain role as well.
Empirical evidence (exports-imports, ownership, FDI, value-added, etc.) shows that the Estonian ICT manufacturing sector is actually part of the larger Nordic ICT manufacturing cluster. The main branches of the Estonian ICT manufacturing industry are exactly the same as those of Finland and Sweden. ICT manufacturing network flagships generally consist of Finnish and Swedish companies, which have subsidiaries, affiliates and joint ventures in Estonia. At the moment, existing ICT manufacturing companies are expanding and new ones are being established, as a result of Estonia's relatively low cost labour.
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Playtech Ltd (UK)
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Playtech Ltd. is a gaming software development company founded in 1999. The company provides software for online casinos, online poker rooms, online bingo games, and fixed-odds arcade games online.The enterprise has 5 R&D centres worldwide - Playtech Estonia located in Tartu is the largest. Playtech Estonia OÜ was established in 2000 and is considered to be a software house creating, developing and administering Playtech Group's complex solutions of on-line gambles.
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Tieto Corporation (FI)
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Tieto (registered name Tieto Corporation; until April 2009 TietoEnator) is an international software development company based in Finland. Active in more than 25 countries with close to 17000 employees, Tieto is one of the largest IT, R&D and consultation services providers in Europe.The company has principal focus areas in the fields of banking & insurance, telecom & media, healthcare & welfare, forest & energy as well as government (in Finland), manufacturing and retail.In Estonia, Tieto Corporation has been on the market since 1994 and operating via Tieto Eesti AS (R&D of banking software) and Tieto Estonia Services AS (IT-support services).
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Elcoteq (Ericsson) (SE)
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Elcoteq Tallinn is the Estonian subsidiary of Elcoteq SE. Elcoteq Tallinn started its business in 1992. It has been one of Elcoteq's largest units throughout the years. According to the Statistical Office, Elcoteq Tallinn has been Estonia's biggest exporter since 1994.
Recently, Elcoteq sold its Manufacturing Operations in Tallinn to Ericsson.
Ericsson is a world-leading provider of telecommunications equipment and related services to mobile and fixed network operators globally. Over 1 000 networks in more than 175 countries utilize Ericsson`s network equipment and 40 percent of all mobile calls are made through Ericsson systems.
Through Sony Ericsson Mobile Communications joint venture, Ericsson offers a range of mobile devices, including those supporting multimedia applications and other services allowing better communication.
Ericsson invests heavily in R&D and actively promotes open standards and systems. Ericsson has one of the industry's most comprehensive intellectual property portfolios containing over 23 000 patents.
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Shared Services
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Shared services are fundamental for global organisations.
Centralising support and infrastructure services creates more
efficient use of knowledge, resources and technology, and
avoids duplication of effort across operating units. Businesses with multi-site operations in the world are increasingly consolidating common activities to shared service centres (SSC).
Most likely there will be increase in the shared services sector, as the consolidation of know-how and resources enables to offer higher quality service, higher efficiency and therefore operate more cost-efficiently. Hence, more processes will be incorporated into SSCs. As IT systems evolve further, an even higher level of automation and usability will move data entry to the front office, where employees are in the best place to evaluate its necessity and correctness, and let the SSC handle the lengthy exceptions.
The main reasons to invest in SSC in Estonia are the geographical location, with good communications and transport infrastructure, good availability of skilled labour, high degree of multilingualism, advanced and cost-efficient IT and telecommunications services, and economical stability with low corporate taxes.
The IT and telecommunications infrastructure has evolved to accommodate the needs of global business operators. Estonia is also one of the most "e-Business ready" countries in Europe.
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Playtech Ltd (UK)
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Playtech Ltd. is a gaming software development company founded in 1999. The company provides software for online casinos, online poker rooms, online bingo games, and fixed-odds arcade games online. The enterprise has 5 R&D centres worldwide - Playtech Estonia located in Tartu is the largest. Playtech Estonia OÜ was established in 2000 and is considered to be a software house creating, developing and administering Playtech Group`s complex solutions of on-line gambles.
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Nordic Gaming Ltd (MT)
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Nordic Gaming Ltd operates with TrioBet - the online-environment for sports forecasts, online poker and other web-based gambling. The TrioBet`s LiveScore provides a large number of statistics regarding sports matches that have taken place and also matches in real-time.
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Swedbank Eesti (SE)
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Swedbank is one of the leading financial institutions in the market.
Swedbank has 9,4 million retail customers and
540 000 corporate customers, with 419 branches in Sweden, 272 branches in the Baltic countries and 216 branches in Ukraine. As of March 2009 the Group had total assets of 200 million EUR and approximately 21 000 employees.
Swedbank IT Development Division in Estonia creates software for all Swedbank Group business units in Estonia, Latvia and Lithuania.
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E-Services
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Business organizations and governments are nowadays developing and providing Internet based electronic services (e-Services) like e-Banking, e-Health, e-Learning, e-Government etc.
E-Services enable businesses to sell products more profitability, dispose of excess inventory or capture more leads from the market place.
In the sector of e-Services in Estonia there has developed a remarkable capability to expand ICT systems including the ICT systems of larger commercial banks and Public Services (e-Tax Board), which have gained popularity also internationally. The financial sector is one of the most dependent sectors on e-Services. Almost all Estonian bank transactions are conducted via electronic channels and 62% of the Estonian population uses Internet banking.
In whole-sale industry, e-Services are being used for administering supply channels between the sellers and suppliers. Almost 50% of whole-sale enterprises use e-Services in web-based sale.
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Danske Bank (DK)
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Danske Bank Group is the largest financial enterprise in Denmark and one of the largest in the Nordic region. The Group comprises business and resource areas. Danske Bank provides customers with banking products, insurance, mortgage finance, real-estate brokerage, asset management and leasing services. All of the Danske Bank Group's bank brands were founded as independent enterprises in the 1800s. In total, the Group serves 5 million retail customers and a significant number of public sector and institutional organisations. Some 2 million customers use the Bank's online services.
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Quelle (DE)
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Quelle is a leading Germany's family mail-order company, having 18 subsidiaries over Europe, in most cases the market leader or strong number 2 offering over 700 000 products.
In the field of e-commerce, Quelle and quelle.de are the number 3 in Germany (after Ebay and Amazon) - being thus number 1 partner among the classic universal mail-order companies.
Quelle Estonia was founded in 2003 and is based in Estonia, Tallinn. Like the German parent company, Quelle Estonia also successfully relies on sales requests via Internet. Although the online shop has only been online since the beginning of 2007, it can boast with a demand percentage of an average 40% today.
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Security and Fraud Detection
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The reliance among Estonian residents on web-based transactions is substantial compared to other regions. It can be presumed that it is a result of secure and high-standard technical solutions, positive experiences with e-Banking and the exceedingly positive image of web-banking. Single frauds related to using web-based services have been handled professionally in the meaning of technical and public relationships.
Preventing cyber-frauds has been under notable attention in information society. Therefore the ID-card and e-Services infrastructure architecture has been created; also banks have actively raised the awareness of the potential cyber-frauds.
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Skype Technologies S.A. (LU)
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The expertise of Estonian software engineers and Scandinavian commercialization created Skype that has changed the world of telecommunications. Skype is the software enabling worldwide conversations and is being used by millions of people for making free video and voice calls, sending instant messages and sharing files with other Skype users. Every day people also use Skype to make low-cost calls to landlines and mobiles. Skype Estonia has formed an anti-fraud team, creating solutions to intensify the security of Skype technologies and prevent fraud via Skype.
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North Atlantic Treaty Organization (NATO)
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NATO is a military alliance established by the signing of the North Atlantic Treaty on 4 April 1949. The NATO headquarters are in Brussels, Belgium, and the organization constitutes a system of collective defence whereby its member states agree to mutual defence in response to an attack by any external party.
Seven NATO countries have backed the establishment of a new cyber warfare defence centre in Estonia. The Cooperative Cyber Defence Centre of Excellence (COE) swung into operation in August 2008.
The centre runs research and training on cyber-warfare. Half of its 30 people staff will be specialists from the sponsoring countries, Estonia, Germany, Italy, Latvia, Lithuania, Slovakia, and Spain.
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Sources of additional information
Tallinn Technical University (Faculty for Information Technology)
An opportunity to gain information about R&D projects developed in the university. Further information about education, the services offered and contact details for the faculty.
http://www.ttu.ee/?id=1880
Institute of Cybernetics
Areas of research: applied mathematics, mechanics, computer science, control systems and language technology.
http://www.ioc.ee/index.php.en
TTU Innovation Center Foundation
Tallinn Technical University Innovation Center Foundation is active in the following fields:
- linking R&D and business activities by communicating the needs of industry to research institutions and facilitating the transfer of technology and know-how to companies;
- initiating and supporting small enterprises (e.g. spin-off companies from universities) that are developing research and/or technology-based products and services;
- creating an outstanding physical and cultural environment for innovative enterprises to participate in international R&D, technology, investment, marketing and other networks and events
http://www.tuic.ee/?lang=1
The Association of Estonian Information Technology and Telecommunications Companies
The Estonian Association of Information Technology and Telecommunications (officially abbreviated as ITL) is a voluntary organisation, whose primary objective is to unite Estonian information technology and telecommunications companies, to promote their co-operation in Estonia's development towards an information society, to represent and protect the interests of its member companies and to express their common positions.
http://www.itl.ee
Estonian Innovation Relay Center (ESTRIC)
IRC is a project co-ordinated by the Foundation of Tartu Science Park. The project's aims are to promote and facilitate technology inflow, support the exploitation of research results, increase productivity etc.
http://www.irc.ee/Eng/Projects/estirc_en.htm
Connect Estonia
The activities of Connect Estonia are focused on the development of growth businesses, combining the required domestic and foreign capabilities. The main emphasis of developing growth businesses lies in the expertise that Connect Estonia offers, with the help of private and public organisations belonging to the network. The main goal of the activities is to encourage the accumulation of such expertise and the application of the expertise in the context of companies with development ambitions.
http://www.connectestonia.net
Doing Business in Estonia 2010
Overview of The World Bank's report on the Estonian business environment, compared to 181 world economies. http://www.doingbusiness.org/ExploreEconomies/?economyid=65
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Business environment 
