Lithuanian industrial clusters support their businesses while facing a crisis

Submitted by Alina Danieles… on 01 April 2020

Businesses start counting huge losses due to the restrictions announced in the wake of the COVID-19 epidemic internationally. Large, medium-sized and small Lithuanian enterprises have already been hit by the crisis as well. If companies were hesitating to benefit from clustering so far, the situation caused by the quarantine illustrates the value of the network for the rapid flow of relevant information. The coordinators of the Lithuanian industry clusters share in this article their views on the current situation and the efforts made towards retaining professionals and the businesses themselves.

According to Giedrius Bagušinskas, the President of the Lithuanian clusters network and coordinator of SMART FOOD cluster, for companies, every industry cluster is now a window of opportunities to other sectors and state institutions. But it is as well a window of opportunities for clusters in a specific sector. Facing the crisis, industry cluster coordinators have become particularly important in the context of a wide range of contacts with authorities. They promptly obtain information, inform the public authorities of the situation and offer the solutions needed for the specific sector.

Dr. Česlovas Bobinas, the coordinator of the National Food Cluster (NaMŪK) says that communication efforts have already been leveraged through the involvement of the Lithuanian Cluster Network, aiming to respond in a coordinated and timely manner to current challenges and to develop and apply solutions already proven in other companies/sectors.

Romanas Matulis, the coordinator of the Vilnius Film Cluster, currently represents the interests of not only the cluster but also of the whole Lithuanian audiovisual industry. Representatives of the cluster participate in meetings of various ministries' working groups, collect and analyse information on the impact of the pandemic crisis on each cluster company. With the help of lawyers, the industry cluster advises its members on issues regarding employee retention, companies’ liquidity provision and performance of contracts due to extreme conditions. This week, members of the Lithuanian Automotive Export Association (LAuGEA) receive online consulting from financial specialists. "We have questions about paying value-added tax, working capital, and interest compensation. To sum up, we aim to properly manage the challenges ahead," says the cluster coordinator, Dr. Andrius Rakickas

Surprised by the unexpected speed of the crisis

When asked about how prepared were the cluster members for the crisis, all the cluster coordinators gave a similar answer: the surprise element - nobody could imagine the lightning speed of the crisis. "Lithuania has been tough on challenges encountered in the past. Our business executives have experienced more than their peers in Western or Scandinavian contries, but no situation before has changed that dramatically from one week to another.  The key issues remain the same in every company: retention and redundancy, issues in the logistics and supply chain, dealing with contagion. Moreover, some companies were also affected by the falling value of the Russian ruble or the UK pound due to the declining oil price," says G. Bagušinskas.

The coordinator of the Lithuanian Automotive Export Association estimates that the cluster companies were moderately prepared for the crisis. Although there have been some few signs of widespread economic damage since the beginning of the year, no one predicted it can develop and affect them so fast. "The smaller the company is, the more vulnerable it is. The key question is how to retain the employees? The least painful solutions are sought: leave is offered, some employees have sick leave certificates for childcare, but in some companies downtime is inevitable", says Dr. A. Rakickas.

Consumer goods producers affected the most in the food sector

"The first impression that the food sector has the least problems is inaccurate," says the coordinator of the SMART FOOD cluster. "The basic product basket remains the one most in-demand as usual during crises, but the demand for other products has fallen dramatically. The orders from foreign markets are being cancelled and online commerce stalled because suppliers were not ready for such a drastic change in the market."

Large enterprises in the food sector have suffered fewer losses as consumers are currently buying more of their products. According to dr. Č. Bobinas, large enterprises are less damaged than small or medium-sized manufacturers. The large companies are exposed to risks in the material supply chain, while small business have almost stalled at all. There is no demand for their production at the moment and the existing sales channels for non-essential food products have closed. The only alternative channel is e-commerce, but there is still a lack of experience in this area.

The difficult situation of the audiovisual industry

When the cinemas closed down, the organizers of the annual Vilnius film festival "Kino pavasaris" had four days time to change and adapt their concept to the new situation and became the first online cinema festival in Lithuania. Festival movies are currently being streamed online, but the festival organisers will still lose several hundred thousand euros. After Lithuania was placed under quarantine restrictions, all events, film and advertising production orders were cancelled, the filming of both international and local projects stopped. This had a profound effect on the Vilnius Film Cluster. Most members lost 80-100% of their income. "The situation across the sector is catastrophic. The cluster members are currently estimating the direct loss of 6 million euros. By the end of the year, we predict a 50% overall revenue decline in the sector, compared to 2019. We will not be able to survive without state aid," says Romanas Matulis, the coordinator of the Vilnius Film Cluster.

Business model changes have not succeeded everywhere

Renata Giliene, the coordinator of the Dental Innovation Cluster, says that the restrictions have put an end to everything: manufacturing, marketing and treatment. All the members of the cluster are more or less involved in treatment services, so in the face of the crisis, the business model has not changed, except for the cluster-owned training company that has started lecturing online.

Meanwhile, some life science companies, immediately after becoming aware of the COVID 19 outbreak in China, adjusted their business model to the upcoming challenges. For example, the activities of JSC "Satimed" are related to introducing biotechnology and life sciences in the field of public health, therefore the demand for their products has increased and their involvement in R&D activities is essentially important for science.

Some companies still have outstanding orders

Dr. A. Rakickas, the coordinator of the Lithuanian Automotive Export Association, points out that the majority of employees in their cluster businesses are healthy for now. Larger companies have work shifts, so in need, quarantine would not apply to everyone, but only to those who had contact with an infected individual. The situation would be completely different for small and medium-sized enterprises working one shift. Quarantining would stop them at all.

When asked about the pending orders, the cluster coordinator notes that the situation within companies varies. Although most of the cluster businesses are exporting companies, the production logistics does not meet any additional difficulties at present. A rising problem however is the lack of new orders. Part of orders made by members of the association with production deadlines of more than a few weeks were placed before the crisis. If employees do not quarantine, orders will be delivered. However, there is a question about the profitability of existing orders as commodity prices have soared lately. If the warehouses are out of raw materials, the cost of producing new orders will be significantly higher. "The cluster companies that produce chemical products have additional opportunities to supply disinfectant fluids to the market. However, the risk of demand management has also increased: the future demand is still unclear, the price of raw materials can change, as, for example, the price of alcohol has increased 6 times," says dr. A. Rakickas.

"Most of the companies in the Lithuanian plastics cluster are busy at the moment, but things are changing at such a pace that it is difficult to predict what will happen in the next few weeks or months. We predict a decrease of orders, so companies will have to reduce not only production but working hours as well or post downtime at all," says Darius Lasionis, the coordinator of the Lithuanian Plastics Cluster and director of the Lithuanian Engineering Industry Association LINPRA. Most people in the administration work remotely, other staff work at a distance of at least 1-2 meters, but the risk remains high despite disinfecting spaces and surfaces in the factory.

Although in trouble themselves, businesses support the healthcare staff

In response to this situation, the industry clusters not only look for solutions to help their members save their businesses, but also take social initiatives. The confectionery factory Rūta delivers its products to large hospitals. The Daumantai LT company granted financial support to the local hospital and primary health care center. Members of the Dental Innovation Cluster donated 10,000 EUR to the Health Care Fund and TV3 Assistance Fund each. The Lithuanian Automotive Export Association supports the hospital and sends its produced disinfectant. The companies of the Vilnius Film Cluster, together with the Visoriai Information Technology Park, are developing an initiative for the short films producers providing essential material related to behavior under quarantine. JSC Dansu, which is part of the same film cluster, bought a lung ventilator for a medical institution. Several initiatives are taken by individual cluster companies without any advertising.

The value of cluster community

"Currently most of the industry clusters operating in Lithuania are actively communicating in their sector and with state institutions. Besides, the Lithuanian cluster network participates in the European Cluster Alliance and exchanges information with counterparts in other countries and representatives of the European Commission," states Gintas Kimtys, the temporary Director of the Agency for Science, Innovation and Technology (MITA).

All the industry clusters, represented by the coordinators in this article are involved in the InoLink project. It is a project of the EU instrument Inogeb LT, implemented by the Science, Innovation and Technology Agency (MITA) in cooperation with the Lithuanian Innovation Center. The project aims to promote the clustering of companies, increase cluster maturity, promote growth and international cooperation. The project and its activities are funded by the European Regional Development Fund.

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