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Ceturtdiena 19.09.2019 | Name days: Verners, Muntis
LithuaniaLithuania

Bye bye, Barclays! What (if anything) went wrong?

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Baltic news, News from Latvia, BNN.LV, BNN-NEWS.COM, BNN-NEWS.RU

Linas Jegelevičius for the BNN

You know how it is: companies come and go, but the exiting of Britain’s Barclays from Vilnius is bitter both to the Lithuanian capital and the entire Lithuanian business community.

Barclays opened Vilnius centre in the midst of crisis

Opened in 2010, in the midst of 2008 economic downturn, with more than 1 100 employees on the payroll, Barclays’ Vilnius technology centre has seemingly successfully defied the slump and blazed a trail to what innovative banking is all about. For long, Barclays Bank’s operations centre in Lithuania has been considered a paragon of a highly successful foreign investment.

However, last weekend, the plaque of Barclays was removed from what once was a stand-out much-talked-about all-glass office, ending the British company’s Lithuanian journey.

Although Lithuanian leaders, including PM Saulius Skvernelis, were downplaying the bank’s departing throughout, some analysts and politicians alike warn that the farewell is an omen of both deeply entrenched and emerging new problems that Lithuanian economy is faced with.

Lithuania faced with a new economic reality

«Repeating that Lithuania is an attractive country for foreign investors due to its relatively cheap workforce and abundance of high-skilled workers is clearly a past day already. We have a new reality: quite expensive workforce, especially that in IT and banking sectors, not so many available high-skilled IT and banking service specialists and their big migration,» Simonas Gentvilas, a liberal MP, told Baltic News Network (BNN).

Officially, Barclays explained its decision to close its operations centre in Vilnius by moving to a new business model by developing instead a strategic cooperation with Barclays’ global IT partner, international company HCL Technologies.

As part of the deal between Barclays and HCL, some 460 Barclays employees are said to be transferred to HCL, which also runs a technology centre in Vilnius. Approximately 260 employees was reportedly made redundant and 80 positions were temporarily suspended, according to local media reports.

Nice words, little explanation

Unfazed by the leave, Lithuanian PM Skvernelis praised Barclays at the end of 2018 for its input in Lithuanian economy and gleefully assured those concerned about the departure that (quote) «an empty place does not last long…It is a smooth change.»

In a sign of courtesy, the-then executive director of Barclays operation centre in Vilnius, Mariano Andrade Gonzalez, reciprocated with a slew of praises to the Lithuanian government and Lithuania on the whole: «We are grateful to Lithuania for its hospitality, its talented specialists and a well-developed infrastructure. We have always been, and will continue to be, ambassadors of Lithuania worldwide and will recommend Lithuania to our partners and foreign investors,» Andrade Gonzalez said.

Shortly after Barclays announced its departing from Vilnius, Žygimantas Mauricas, a prominent Lithuanian economist and Luminor Bank’s chief economist, argued that the fact that Lithuania stopped being a country of cheap labour has not played a major role in Barclay’s decision on the exit. Both then and this week, speaking to BNN, Mauricas alerted of troublesome signs in Lithuanian economy.

Lithuania needs to catch up with robotization

«Should Barclays be looking only for cheaper countries to move its operations to, it would have not moved some of its businesses to the United States, which, labour cost-wise, is not cheap at all. What worries me in Lithuania is our lagging robotisation and automatisation of our industries. Namely robotisation and automatisation can steal many jobs from service centre employees. Thence the centres, like that of Barclays in Vilnius, need extra high-skilled specialists able to maintain such robotised and automatised systems. It seems to me this is where we in Lithuania are several strides behind,» Mauricas told BNN.

According to him, in that regard, Lithuania still ought to do a lot in converging with the best similar Western business practices despite its huge advancement in business environment over the last dozen years.

«I really do not believe that a domino effect can be expected following the Barclays leave. In fact, our foreign direct investments have lately been on rise. There are a whole lot more of here coming foreign companies than leaving. Yet the exit of Barclays, which was like a first swallow in spring, is bitter in any regard,» the analyst emphasised.

«Notably, not only Vilnius, but Kaunas, Lithuania’s second-largest city, has been seeing a spunk in investments, so, in general, our investment prospects are good,» Mauricas predicted. «I really would like to prompt Lithuanian industries to expedite their transition to robotised and automatised manufactural processes. Barclays’ moving to the US is owing just to that.»

Spunk of investors was tangible in 2018

Year of 2018 has not seen many well-known foreign companies announce their decisions to invest in Lithuania – and the year was also marked by Barclays’ decision to exit the Lithuanian market – however, there was a handful noteworthy arrivals.

Services centres, like that of Danske Bank, expanded fast, and Intersurgical, which has been operating in Lithuania for several decades, was building a new production facility last year.

Moody’s Corporation has also chosen Vilnius at the end of 2018 as the location for its newest European office. financial markets.

There have been some other, however less high-profile arrivals last year too. Iceland’s Videntifier producing image recognition and identification software was to set up a company in Lithuania. Also, the Netherland’s Convious which is using artificial intelligence to produce digital marketing solutions set its foot in Lithuania. And then there was, for example, Norwegian fertilizer producer Yara which has opened the group’s first logistics centre in Vilnius.

The robust continuity of foreign companies’ activity in Lithuania was also reflected in the confidence index produced by the investor association Investors‘ Forum.

Public may never know true departure reasons

Another source for the story, Giedrius Murauskas, managing partner and attorney-at-law at SPC Legal, a commercial law firm, who has written an op-ed on the Barclays exit in the past, reasoned to BNN yesterday that the public may «never» know «true reasons» behind Barclay’s decision.

«Internal restructuring of the company could also be a factor…It is obvious that the same services could be provided cheaper in some other countries,» he stated.

To prevent other service centres from leaving Lithuania, the expert believes Lithuania needs not only to ensure stability of legal and tax systems, a predictable political situation and have well- trained human resources.

Rapid salary growth reduces competition possibilities

Some other things in the regard can be much harder to achieve, however.

«If our salary level continuous to grow, Lithuania will lose competition to other countries in Asia. Tax or other subsidies for created workplaces or direct investment could be temporary solutions. A better or more active international marketing of the county could also help,» Murauskas emphasised to BNN.

«This probably indicates that Lithuania is facing real competition and is no longer solely attractive for its low-costs and high-quality labour force…Such extensive redundancies (like those of Barclays) are rare at a country level and the planned job cuts sound remarkable, because even during the economic slowdown banks in Lithuania reduced staff gradually,» he has written in his op-ed published by delfi.lt at the end of 2018.

That many service centres for banks or financial institutions have appeared in Lithuania over the past five years – almost every large bank in Lithuania now has a division or a centre to service, may have played a role too in the Barclays decision, the lawyer believes.

«I believe that this decision may encourage other banks with service centres in Lithuania to rethink their operations – should they continue to develop or to phase down?» Murauskas asked rhetorically in his op-ed.

It seems the others are staying so far.

Image has been dampened

For Simonas Gentvilas, a liberal legislator, the exit of Barlclays highlights Lithuania’s «acute» economic issues.

«Yes, we need to expedite robotisation of our industries and I just can repeat myself that we need urgently to address our education reform issues. We badly need for more qualified IT specialists and we need somehow to stem their high migration – within Lithuania, from one company to another, too,» he underscored to BNN.

«And we definitely need to reprove financial market players that Lithuania is a place to be. That Barclays has left and that UK’s financial technology giant Revolut is now seeing so many sticks being shoved in the spokes does not strengthen our image as a financial services-friendly country,» the MP concluded.


Leave a reply to Justs

  1. Justs says:

    They set up shop in the Baltics assuming that the E.U. would make the massive investments necessary to bring Eastern Europe up to the standards of Western Europe, however, as everyone knows by now, this never happened. So there is no money to be made in the Baltics and all of the major corporations and banks that set up shop there will be abandoning the Baltics faster than the Baltic people themselves have abandoned their nations and ancestral homelands.

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