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Volkswagen’s arrival to Estonia signifies a major breakthrough

Business daily Ärileht writes that the arrival of Volkswagen's software business to Estonia may represent a major breakthrough.

Although Volkswagen, which started expanding to Estonia, is still keeping a low profile, the impact of the arrival of the car manufacturer’s software business on the economy, the IT sector and our reputation should not be underestimated, business daily Ärileht writes.

CEO of Car.Software Estonia Nicolas Derbin praised Estonia as one of the most developed digital societies with an excellent legal framework for digital products and competence for the protection of intellectual property to the paper. When asked about the staff to be recruited in Estonia, he said that the company will initially focus on lawyers specialising in the protection of intellectual property and procurement specialists.

In the short term, the number of employees in the Estonian unit of Volkswagen’s car software business may reach double figures. “We’re convinced that we’ll find the necessary people in Estonia,” said Derbin. In the long term, the company plans to offer jobs to local experienced software developers as well. The German car manufacturer had also registered a holding company called Volkswagen International Estonia AS in Estonia by the end of the July, but it doesn’t have any people on its payroll yet.

What does the car software company of Volkswagen Group do? It’s a relatively young unit that only started operating as a separate company at the beginning of this year and is responsible for the development of the group’s vehicle software, digital ecosystems, etc. The duty of the Tallinn-based subsidiary is to manage the software company’s product portfolio, look after its intellectual property and guarantee legal support for the processes. The company plans to expand its operations in the future to include software procurement, focusing mainly on data analytics.

Estonia is an attractive investment destination

Bringing Volkswagen to Estonia can be seen as the result of the long-term efforts of the Estonian Investment Agency and its Director of FDI and Business Development in Germany Riina Leminsky. “While this was a big surprise to the media, it certainly wasn’t for us,” said Leminsky, who had paved the way to Estonia for the German company for 15 years. “Enterprise Estonia had hosted the senior management of the subsidiaries of the Volkswagen Group many times in recent years and discussed the possibilities for cooperation.”

The representation in Hamburg has been communicating with the Volkswagen Group since 2011. Competition with other countries for the German manufacturer was tough and still ongoing in the first months of the year, and the German-Baltic Chamber of Commerce helped Estonia bring the unit here. “Two subsidiaries have been established in Estonia in 2020 and a small local team has been hired and is working with a manager from the parent company,” said Leminsky.

The biggest obstacle to cooperation so far has been the lack of automotive industry in Estonia. “When new solutions started appearing – all these self-driving means of transport developed by Starship, Cleveron and other Estonian companies – their interest in Estonia started growing again and Estonia’s image as an IT country became stronger,” said Leminsky.

Other German car manufacturers, Daimler and BMW, are also keeping an eye on developments in Estonia. Daimler injected over 100 million euros into Bolt in spring 2018, thereby acquiring ca 10% of the company.

Little is known about the further steps of Volkswagen’s software business in Estonia. Volkswagen has announced that the internal share of car software development and vehicle-related services should increase from the present 10% to 60% by 2025 and it will invest 73 billion euros in these activities over the next five years, creating 10,000 jobs.

However, it is not yet known how much of this money will be invested in Estonia and how many jobs will be created here. “It may have a lot of impact,” said Leminsky. “Although this [established] unit focuses on IT development, our goal is to look at logistics centres and other areas of business to bring more orders to Estonia.” According to her, they have identified 50 local companies that already belong to the supply chain of the automotive industry.

Companies of the Volkswagen Group are already cooperating with five or six Estonian technology companies. According to Leminsky, it’s possible that Volkswagen will decide to invest in an Estonian startup or technology company at some point. For example, Starship, to whom the arrival of the German company in Estonia is great news, is already cooperating with Volkswagen. “There is no doubt that this is another sign of the improvement of the reputation of Estonia,” noted the company. “We hope that we’ll be able to cooperate with Volkswagen in Estonia.”

The Estonian Association of Information Technology and Telecommunications (ITL) also welcomes the expansion of the German car manufacturer’s software business to Estonia. “This certainly shows recognition of the digital image of Estonia, our IT sector and a broader business environment,” said Andre Kull, President of the ITL and CEO of Nortal.

Government wishes to further promote arrival of major investments

“In many situations, it is possible to shape decisions in a direction that is favourable to Estonia if we discuss major projects separately at the level of the government and try to meet investor expectations and needs as much as possible,” Viljar Lubi, Deputy Secretary General for Economic Development of the Ministry of Economic Affairs and Communications said.

Acknowledging this need, the Economic Development Committee of the government commissioned Minister of Foreign Trade and Information Technology Raul Siem to prepare the policy for supporting major investments. The content of the policy has not yet been disclosed as it is still being developed in the ministry.

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