The Fastest-Growing Segment of Latvia’s Foreign Trade—Services Exports

Latvia’s foreign trade volumes show positive growth every year, and export-market growth continued last year as companies became increasingly competitive and expanded their trade volumes. According to a study conducted by The Red Jackets movement on trends in Latvia’s export sector in 2018, the number of major exporters with turnover exceeding €1 million increased by 145 companies during this period compared with 2016, representing 9.4% growth. Moreover, more than half, or 51%, of these companies present themselves abroad under a brand created in Latvia.

The total value of Latvia’s exports of goods and services also increased by 18% in 2018—from €15,145 million to €17,871 million—indicating that an increasing number of Latvian companies are venturing into foreign markets, strengthening the country’s overall base of export experience and knowledge. Sectors specialising in the provision of services continue to develop particularly rapidly, making a significant contribution to Latvia’s total exports. The most widely represented sector among services exporters is IT, followed by logistics, financial services, education, and construction. Among product exporters, the most widely represented sector is the manufacture of chemicals, pharmaceuticals, and plastics, surpassing the food and beverage industry.

Over the past five years, the value of Latvia’s services exports has grown by 29%, while the value of product exports increased by 21% over the same period. The structure of services exports has also changed, with the role of logistics services declining while the role of high-value-added services has increased. Notably, the telecommunications and information services sector showed significant growth in the 2018 ranking, with the number of companies increasing by 57%. The construction sector’s market share also grew substantially, by 38%, whereas logistics companies recorded a decline last year, with their number decreasing by 21%. Moreover, the downward trend in services exports in this sector is expected to continue, as countries such as Russia and Belarus further reduce the volume of cargo routed through Latvia.

“Latvia’s image is shaped by companies and enterprising people. Discussions about exports often focus primarily on trade in goods, but it should be noted that Latvia’s services exports have shown steady growth over the past five years, increasing by an average of 6% annually and accounting for almost one-third of the country’s total export value last year. I would also like to draw attention to Latvia’s exporters of electronic products, who this year have been joined by several successful music-related companies, such as Gamechanger Audio, Sonarworks, and Erica Synths,” comments Inese Andersone, founder of The Red Jackets.

During the study, the marketing agency DDB Latvia conducted a brand audit, in which exporters from the finance, IT, and electronics sectors received the highest ratings. The sectors with the lowest scores were logistics, printing, and textiles. The average score for companies in the brand audit was 5.2 out of 10. After compiling the audit results, The Red Jackets movement has now recognised 120 outstanding exporters, accounting for 24% of Latvia’s total export value, generating €4.2 billion in turnover and creating 31,000 jobs. More than one-third—35—of all export leaders are service providers, while 65 are product manufacturers; together, they export an average of 72% of their companies’ turnover. The award-winning brands were selected using a five-stage selection filter: their country of origin, online presence, brand story and design aesthetics, financial indicators, and assessment by industry experts.

“When analysing companies’ financial data this year, BDO observed a very positive overall picture: exporting companies are characterised by rapid growth, profitability, and highly paid employees. The ten award-winning companies recorded average turnover growth of 73% and average profitability of 10.13%. In addition, the average remuneration of employees at these companies was approximately 20–30% above the national average. These figures are encouraging not only in terms of the specific companies or sector, but for the economy as a whole, because by conducting financial analyses of The Red Jackets companies for the sixth consecutive year, we can observe how these movement data correlate with the overall course of export development. Therefore, we are pleased to be part of the movement and to support exporting companies with our knowledge on their by no means easy path towards new markets and the acquisition of experience,” comments Vita Liberte, partner at BDO Law, on the results of this year’s study.