This document lists and explains the main conclusions stemming from the Report on the Lithuanian industrial landscape and its potential to integrate into the European value chains. This Report marks the first step in the project “Roadmap for the integration of the Lithuanian industry into European value chains”. It will provide the analytical foundation for the two subsequent policy-oriented deliverables.

1. 20 October 2020
Integration of the Lithuanian
industry into European and
global value chains: analysis of
situation

2. Overview of our tasks. Where are we?
Roadmap
End of Spring 2021
Suggesting policy
interventions
January 2021
Analysis of the
industrial and
economic landscape

3. Two main things we focus on
Upgrading of
industry and
economy
Global
(European)
value chains
Upgrading of the Lithuanian
industry in the European and
global value chains will take place
first and foremost as a result of
upgrading the Lithuanian
economy itself through
strengthening its innovation
capacities and infrastructure.

4. Object of
our
analysis

5. Six main analytical perspectives of the study
Technology
readiness of the
Lithuanian
economy:
comparison to peers
Current integration
of the Lithuanian
economic sectors
into value chains
Mapping
capabilities of the
major Lithuanian
economic sectors
Capacity to integrate
into key emerging
technological
value chains
Role of Digital
Innovation Hubs
Mapping
successful actions
of other European
governments

6. Comparing Lithuania to peers

7. EU context: new industrial strategy, focus on
technological sovereignty

8. Lithuanian context: changing the economic DNA?
Digital
economy and
business
1 382 m
Human capital
760 m
Innovation and
research
996 m
Economic
infrastructure
2 056 m
Climate change
and energy
927 m

9. Capacity of Lithuanian businesses to generate breakthrough
innovations is limited and needs to be strengthened

10. Investments in innovation
Business investment in innovation is not primarily about the acquisition of new knowledge but about the
acquisition of machinery and equipment, which increases productivity.

11. Public-private co-publications (per million population)

12. Not too many people in business, who could
publish with academia?

13. It is not easy for businesses to find top researchers
in academia. Quality of scientific publications:

14. Knowledge creation: patent, trademark and design
applications per billion GDP

15. Does part the problem hide in business-university
collaboration? Perhaps, but not necessarily in its intensity.
Survey of business leaders in Lithuania: businesses tend to collaborate with universities to
a quite similar extent as in other EU countries
The issue may not with the regularity of collaboration between industry and academia, but rather with the aim of such
collaboration.
While universities and businesses may be involved in strategic high-level discussions and consulting activities, there
seem to be a lack of common involvement in R&D activities generating product and process changes that could be
commercialised.

16. A few insights on the way forward
- It does not seem that this situation can be changed through higher public
funding alone, since, as shown above, the government and EU R&D spending
(as a share of GDP) in Lithuania is not much lower compared to other EU
countries.
- A viable policy action may be directly placing top-quality (international?)
researchers in businesses and co-funding their salaries / fellowships, as is
currently done under the EU programmes such as SME Innovation Associate
and the Marie Skłodowska-Curie actions.
- This would be a way of demonstrating to businesses the benefits that top-quality
R&D could bring to them.

17. Lithuania does not have national industrial champions, who
would help set the tone in developing breakthrough
innovations

18. The role of big (and innovative) businesses
- Quite often innovation is associated with new technology-based firms while the
role of big business is largely ignored. However, recent research on industrial policy
is close to a consensus that big businesses play crucial role in the economic
development.
- Lee et al (2013): big businesses, and not SMEs, exert an independent and robust effect
on economic growth. Wealthy countries tend to have larger numbers of big
businesses than predicted by their sizes while many middle-income or non-members
of the OECD tend to have negative residual numbers or a lesser number of big
businesses than predicted.

19. Big businesses: Lithuanian situation
- While manufacturing companies produce a relatively high share of the Lithuanian GDP and are strong exporters, the largest
Lithuanian companies operate in retail, wholesale and transport sectors.
- Lithuania does not have companies, which could be indicated as national industrial champions producing innovative
products. If we look for such a company of a Lithuanian origin, the search becomes even more difficult.
- Large Lithuanian manufacturers are considered small in global standards. Nevertheless, small size does not allow for
competition over price, but allows for manufacturers to stay flexible and quickly react to customers’ needs – this is the
competitive edge of exporting LT manufacturers.
- Lithuania has a very low outward FDI stock as a share of GDP, compared to the EU average, which shows that Lithuanian
companies are not capable to sustainably set-up in other countries. This further demonstrate the fact that Lithuania does not
have industrial players that could be leading actors at the EU or global level.

20. An alternative (or complementary) route towards an
economy with high technology capabilities is, therefore,
through attracting (targeted) more sophisticated foreign
direct investment

21. Inward FDI stock, % of GDP (2015-2018)

22. Trade in added value per capita, 2018
Lithuania also has very low presence of multinational enterprises or foreign affiliates in its gross value
added as well as in export and import. This indicates a low degree of internationalisation or internationalisation
which is primarily driven by local firms. This by itself would be unproblematic if local firms were strong globalisers
or companies that are able to build strong presence on foreign markets. However, this does not seem to be the
case.

23. More complex
exports
Weak position in
terms of business
R&D intensity may
partially explain a
rather weak
(unsophisticated)
integration of
Lithuania into the
global economy.

24. Lithuania needs a strategy to ensure high-quality skills for
the future

25. Human capital
indicators

26. A grim situation, but a somewhat positive outlook
- Comparing Lithuania to the selected peer countries and the EU average in terms of (infra)structural
indicators, Lithuania has the weakest position in terms of human capital indicators:
mathematics and science results of school pupils and the skillset of graduates (as assessed by the
employers), also in terms of lifelong learning.
- A high level of tertiary education attainment among adults is misleading, as revealed by the
survey of employers, who say that it is difficult for them to find sufficiently skilled employees.
- According to the interviews, lack of highly skilled and creative employees is a problem in most of
the economic sectors.
- Lithuanian government, together with the OECD, is currently developing a Lithuanian Skills
Strategy. If taken seriously, it will be a perfect blueprint for the future education reform.
- Education is a top priority in many of the party programmes.

27. There is scope for a more integrated industrial
policymaking, governance and funding process

28. Views from the discussions with stakeholders and
interviews with businesses
- Governance and funding of the innovation and industrial policy in Lithuania is
rather fragmented and would benefit from further integration.
- Governance, implementation and funding competences are shared
among many actors such as Ministry of Economy and Innovation, Ministry of
Finance, Ministry of Education, Science and Sport, Invest Lithuania, Enterprise
Lithuania, Government Strategic Analysis Centre (STRATA), Agency for
Science, Innovation and Technology, INVEGA, VIPA and others.
- Solutions suggested: mergers of agencies, clearer strategic planning and
stronger leadership.

29. There seems to be an agreement that Lithuanian industrial
policy should not have a pronounced sectoral approach

30. Views from the discussions with stakeholders and
interviews with businesses
- A consensus seems to have emerged that Lithuanian industrial policy
should not have a clear sectoral approach but should horizontally
support development of high added value activities in any sector, be it
a complex or light industry, or services. The participating stakeholders
have agreed that high added value can be achieved in any sector.
- The key differentiation is not between sectors, but rather
between innovation creators vs. innovation purchasers.

31. To move Lithuanian businesses from the innovation
purchasers to innovation creators:
- Create joint research (open innovation) centres with foreign partners.
Such innovation clusters already exist. For example, Lithuanian companies
could better engage with the EU industrial alliances being built around the key
emerging technological value chains.
- The role of public relations measures may be important, as the government
could take further steps to “put Lithuania on the map”, e.g. as an economy
creating healthy / organic food, or as a green economy.
- The use of FDI should be more selective, focusing on those that clearly bring
valuable competencies, corporate culture and governance.

32. European strategic value chains
Low-carbon
industry
Smart
health
Connected,
clean and
autonomous
vehicles
Cyber-security
Hydrogen
technologies
and systems
Industrial
IoT
High-
performance
computing
Microelectronics
Batteries
How can Lithuanian companies
best integrate?
What other value chains are
relevant for Lithuania?

33. What is Lithuania’s situation?
- Lithuanian firms or other players are not yet participating in the EU’s industrial alliances: battery alliance, critical raw
materials alliance and clean hydrogen alliance.
- Lithuania’s ICT sector is best-placed to play its role in many of the strategic value chains: Cybersecurity; Industrial Internet
of Things; High-performance computing. To a lesser extent: Smart health; Clean, connected and autonomous vehicles.
- Have in mind that Lithuania is leading Cyber Rapid Response Teams under the Permanent Structured Cooperation on
defence (PESCO), which shows the EU-level trust in Lithuanian cybersecurity knowledge.
- This is also revealed by the fact that Lithuanian organisations participate in another EU’s key industrial undertaking: the high-
performance computing Joint Undertaking (EuroHPC).
- In 2018, Lithuania signed the EuroHPC Declaration, which permits Lithuanian researchers and business to participate in
European High-performance computing research and development programme invitations. However, Lithuanian involvement
in the programme is limited – there are four joint projects that Lithuanian organisations are involved in (in comparison,
the Czech Republic has 12 projects, Slovenia has 11).
- Lithuania is not yet participating in the Joint Undertaking for Electronic Components and Systems for European
Leadership.
- As shown by sectoral capability mapping, Lithuanian companies also have capabilities to work in microelectronics;
clean, connected and autonomous vehicles; and smart health value chains (to a lesser extent).

34. Chemicals
- Manufacturers of primary plastics’ products
are the leaders of the sector:
❑By definition these products are
intermediate goods. 67% of them are
exported
❑Generate the largest revenue in the sector
❑Spend the most on R&D
- Plastics and rubber are also doing well:
❑64% of revenue – from exports
❑Largest expenditure on patents, licenses and
software
❑The EU has only 7 PET companies, one of
which is in Lithuania (NEO Group claim to be
one of the leading companies – compete not
on price but quality, also use green sources
of energy, follows zero-waste procedures)

35. Biopharmaceuticals
- Highlighted in the DNA of the Future
Economy plan / and many of elections’
programmes
- Dominated by wholesale, distribution, and
retail companies
- Manufacturers are small (in global
standards), mostly create less sophisticated
products and cosmetics (e.g. herb-based
substances, food supplements, basic
pharmaceuticals such as paracetamol)
- Over 70% of total capital stock in a sector
are owned by foreign entities

36. Automotive
- Relatively large capacity to support the
automotive manufacturing at the backward
integration stage of the value chain
- Manufacturing of automotive parts is the
key sub-sector: largest revenue, largest
trade flows (relatively to other
manufacturers in the sector), almost all
companies owned by foreign entities
- Patents and licenses acquisition data
indicate that foreign investors tend not to
spend on it in Lithuania. The results of R&D
activities then either stays unpatented or
settle down and gets further developed in
the parent companies

37. Electrical and
electronic
engineering
- Rather small manufacturing sub-sector
- In optics manufacturing – almost everything
is sold abroad
- Important sector to implement smart
specialisation strategy. Relevant for:
❑Additive manufacturing (e.g. 3D Printing,
Rapid Prototyping, Direct Digital
Manufacturing)
❑Robotics
❑Mechatronics
❑Photonics (sub-field of optics)
- Around a half of the companies in this
sector were lately involved in R&D activities

38. Light industry: food, wood, textile
- Lithuanian forest-based sector mostly focuses on paper and furniture manufacturing
- Furniture and food and drinks manufacturing – the largest sub-sectors in Lithuanian economy
- Textile manufacturing – a small sector, but export most of its production abroad
- Textile manufacturers supply well known global brands, but also slowly creating innovative
solutions themselves: materials made of coffee grounds, peppermint or antibacterial textile material
that prevents multiplication of the bacteria or fungi
- Furniture manufacturers invest (relative to other sub-sectors in light industry) the most in
R&D. R&D is often directed towards greener manufacturing
- Companies should further build on cleaner resources such as wind and solar energy as well as
groundwater. In light of global trend of consumers switching towards ecological and wasteless
production, Lithuanian firms, especially in food industry, can gain a competitive edge.

39. Lithuania should build on its strengths and tackle
weaknesses in the area of green economy

40. Green economy
/ environment
- This is a good time to take a
further step towards greener
and more circular economy
- Dealing with large and
important companies, which
produce high CO2 emissions
(such as Orlen and Achema)

41. The role of Digital Innovation Hubs in the Lithuanian
innovation ecosystem still needs to be discovered
and clarified; their number should better reflect the
actual need for their services

42. Conclusions on Digital Innovation Hubs
- The place of DIHs still needs to be discovered, discussed and formalized. Unclear position and role of DIHs within the
innovation ecosystem would obstruct further development efforts and investments, given that there will be competition for the
resources among DIHs and other types of institutions.
“It’s hard to tell the difference between the established organization offering digital services and a DIH”.
“there were valleys, clusters, now we have DIHs and it’s confusing”.
- Lithuania has a (too?) large number of established DIHs, compared to neighbouring countries and countries of similar size
or industry.
“It seems that some DIHs are better administrators with good networks, but not with a deep knowledge of content, while others –
vice versa”.
“One stop shop has a meaning only with specialization”
- Challenges mentioned by DIHs: DIHs mostly mentioned the need to expand local and international relations, increase the
trust of foreign entities, lack of financial and human resources, competencies and the need to expand the range of services.
“While there is no image of a DIH in Lithuania, companies have to be persuaded to pay for the services”.
“Lack of success stories”.

43. Perspectives from businesses (from the workshop)
- Businesses point of view was focused on an expectation that DIHs could have a
deeper understanding of business problems, not just technologies.
- A professional consultation element is currently missing. According to businesses, DIHs
should not be asking – what technologies you would like to know better? They should
come with some kind of solution, act as a transfer of technologies.
- DIHs should help to overcome businesses prejudices like “it requires huge
investments and exceptional talent” or “it is only for really advanced companies”.
- DIHs should be a support in searching for international partners and promoting
potential of Lithuanian industry internationally.
- Aiming to serve the market needs, DIHs could possibly end up working with low
innovation performance SMEs, but cutting-edge innovations should not be forgotten,
even if the absorption capacity is within a few businesses.

44. Thank You
PPMI Group UAB Gedimino ave. 50, LT-
01110 Vilnius, Lithuania
www.ppmi.lt

45. Speaker
Mantas Pupinis
Research Manager
PPMI
mantas.pupinis@ppmi.lt