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RR RUEHAG RUEHAST RUEHDA RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA RUEHLN
RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHTL #0359/01 2951309
ZNR UUUUU ZZH
R 211309Z OCT 08
FM AMEMBASSY TALLINN
TO RUEHC/SECSTATE WASHDC 0861
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE
RUEHHE/AMEMBASSY HELSINKI 5296
RUCPDOC/DEPT OF COMMERCE WASHDC

UNCLAS SECTION 01 OF 03 TALLINN 000359 
 
DEPARTMENT FOR EEB/CBA, EEB/CIP AND EUR/NB 
COMMERCE FOR ITA LEAH MARKOWITZ 
HELSINKI FOR SCO BRIAN MCCLEARY 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: PGOV ECON EINV EN
SUBJECT: INNOVATION: THE SEARCH FOR ESTONIA'S NOKIA 
 
REF: 07 Tallinn 754 
 
¶1.  (U) SUMMARY: Estonia's government, science parks 
and private firms are searching for a global brand for 
Estonia to rival Finland's Nokia.  For years a booming 
economy allowed Estonian companies to coast along, 
with little incentive to innovate.  The recent 
economic downturn, however, may jolt some 
entrepreneurs out of complacency.  Current obstacles 
to increased productivity include finding the right 
mix of incentives to attract global talent, and 
keeping high-performing math and science students in 
Estonia.  Post has supported events such as the 2008 
Baltic Dynamics conference to bring together U.S. and 
Estonian companies, and help rising stars in the 
fields of telecomms and biomedical engineering reach a 
global market.  END SUMMARY. 
 
¶2.  (U) "Looking for Estonia's Nokia", a challenge 
issued by then President Meri in 1999, is still a 
common mantra when talking about the need for 
innovation.  In the past decade, there have been some 
notable success stories, but surprisingly enough, the 
forcasted lean economic times ahead may provide even 
more incentive for innovation. 
 
GOOD TIMES FOR ECONOMY = BAD TIMES FOR INNOVATION 
 
¶3. (U) Since 2000, Estonia has enjoyed annual GDP 
growth over 8 percent.  That fact, plus lower labor 
costs relative to the EU15 countries, has seemingly 
diminished the motivation for businesses and 
government to adopt innovative ideas and products. 
Projections of 1 percent growth for 2008 are forcing a 
change in strategy now.  Inflation is currently more 
than 10 percent and wage increases have averaged about 
17 percent a year since 2006.  This has made both the 
public and private sector think more about reducing 
wage-related costs and boosting productivity. (NOTE: 
Estonia has experienced a sharp labor shortage due 
primarily to negative population growth and some 
outward migration, which is not expected to abate in 
the near future.  END NOTE) 
 
¶4. (U) Minister of Economy Juhan Parts signed a 
measure in September to provide EUR 13.4 million to 
Estonian businesses over the next five years.  This 
money will help to recruit and hire highly skilled 
staff to research and development positions, thereby 
raising Estonia's competitiveness.  This will add 
financial backing to what was only a plan on paper in 
the Ministry's "Knowledge-based Estonia 2007-2013" 
released last year. (Reftel)  Companies can receive 
the funds for three years to cover up to 50 percent of 
the salary of newly hired development staff. (Money 
cannot be used to compensate existing employees.)  The 
European Union is supporting the project. 
 
WILL LOOMING RECESSION = A KICK IN THE PANTS? 
 
¶5. (U) President of the American Chamber of Commerce 
in Estonia (ACCE), Yrjo Ojassar, believes that lean 
economic times ahead could be good for Estonia's long- 
term competitiveness.  He estimates that the global 
financial crisis will hit Estonia hardest in summer 
2009, but notes it may turn out to be the best thing 
for spurring Estonian innovation.  Likening the 
sagging GDP figures in Estonia to Finland's slump in 
the early 1990s, Ojassar noted that Finland was forced 
to drive productivity through innovation and came out 
more competitive on the other end.  Referring to 
Tallinn's now-burst real estate bubble, Ojassar 
observed: "If anybody with capital to invest could put 
it in real estate and six months later flip it for a 
50 percent profit, why would they bother create a new 
product?"  "If a worker could make the same salary in 
construction as a cabinet minister in government, why 
get special training and education?" he added. 
 
ESTONIA IN THE GLOBAL WAR FOR TALENT 
 
¶6. (U) A key question for Estonian policymakers is how 
big a role the state should play to promote innovation 
- especially when the economically liberal GOE has 
traditionally been reluctant to intervene in the free 
market.  Providing money for highly skilled employees 
will certainly help, but is that enough?  In remarks 
 
TALLINN 00000359  002 OF 003 
 
 
to the 2008 Baltic Dynamics Conference in Tartu last 
month, President Ilves noted that three necessities to 
innovation are labor mobility, high level of education 
and an attractive quality of life.  For years, 
Estonian entrepreneurs have criticized immigration 
regulations which make it difficult to employ highly- 
skilled workers from outside the EU.  Ilves 
highlighted U.S. openness to talent from abroad as one 
of the reasons the U.S. maintains a lead over Europe 
on innovation.  On education, Ilves pointed to the 
high level of foreign- born math and science PhDs 
working in the U.S. as an indicator of the importance 
of maintaining strong primary and secondary education 
in those fields.  Estonia ranked second in Europe and 
fifth in the world on the OECD test (Pisa) in 
quantitative and logical reasoning, he added.  The 
challenge policymakers face is how to get students to 
stay in Estonia.  While the GOE can address labor 
mobility and education, quality of life is trickier. 
President Ilves acknowledged: "If you were a bright 
young software developers from say, India, Pakistan or 
Turkey and could choose between Tartu and Boston - 
assuming comparable job offers, salary and equally 
dismal weather - where would you go?"  This is the 
real challenge Estonia faces in the global war for 
talent. 
 
FINDING THE NEXT SKYPE, AND PROMOTING U.S.- ESTONIAN 
HI TECH COOPERATION 
 
¶7. (SBU) In a sense, Estonia has already found one 
answer to Nokia - the global voice over internet 
protocol (VOIP) leader, Skype.  The four Estonian 
software engineers who developed Skype proved Estonia 
can compete in the world market.  To cultivate the 
next Skype, Enterprise Estonia (EAS), (a GOE-funded 
organization which allocates EU structural funds for 
the Ministry of Economy, and promotes Estonian 
exports) opened an office in Silicon Valley in March 
¶2007.  However, some Estonian companies are finding it 
difficult to compete.  EAS Director of the San Jose 
office, Andrus Viirg, told us that Estonian companies 
have unrealistic expectations about opportunities in 
Silicon Valley, and their employees have few marketing 
skills.  For example, "Yoga Intelligence", an Estonian 
developer of innovative office solutions, went 
bankrupt after failing to find investors in Silicon 
Valley, and having no alternate business plan. 
 
¶8. (U) Two candidates for the next Estonian success 
story are "Myoton" and "Now! Innovations".  Myoton 
produces a medical diagnostic device that provides 
numeric values of muscle tone, elasticity and 
stiffness.  Developed at Tartu University, Myoton has 
patents in the United States, Japan, and is patented 
and licensed for use in the European Union.  The 
company's non-invasive muscle injury detection system 
laboratory was set up prior to the 2008 Olympics at 
Beijing Sport University, the first laboratory to use 
the technology in China.  The Chinese National 
Kickboxing, Diving and Gymnastics teams, as well as 
Estonia's gold-medal discus thrower Gert Kanter have 
used Myoton's technology. 
 
¶9. (U) Now! Innovations is one of Europe's leading 
digital permit and mobile payment providers, and 
responsible in part for Tallinn's role leading 'e- 
Stonia' in mobile-phone parking payments.  The firm's 
expansion has been rapid.  In July, the Belgian 
telecom company Belgacom bought Mobile-for, which is 
28 percent owned by Now! Innovations, and will 
introduce mobile parking in eight Belgian cities.  The 
company is actively working with private and public 
partners in Europe, the United States, Latin America 
and Africa.  Their efforts are paying off with U.S. 
contracts as well.  The company recently announced 
that on October 20, they should start offering their 
mobile parking service together with the U.S. company 
Streetsmart Technology in Decatur, GA, outside of 
Atlanta.  They will start in roughly 100 parking lots 
in Decatur.  (NOTE:  rather than using mobile-phone 
SMS for payment, the system will use voice commands. 
The parking lot management can then monitor payments 
online. END NOTE) 
 
¶10. (U) COMMENT: A key goal of Embassy Tallinn's MSP 
is the promotion of economic growth and prosperity - 
 
TALLINN 00000359  003 OF 003 
 
 
with particular emphasis on the high tech sector.  We 
have good contacts with the Enterprise Estonia office 
in Silicon Valley, and Estonia's major science parks. 
With 2008 Business Facilitation Investment Funds 
(BFIF), we brought the CEO of Research Triangle, NC 
and two experts from the San Jose, CA Market Access 
Center to give local start-ups insight into how they 
can move beyond the Baltic region and onto the world 
stage.  They also addressed the 2008 Baltic Dynamics 
Conference which also had attendees from Russia, 
Latvia, Lithuania, and Finland.  Post will continue to 
strengthen contacts with government, science and 
industry groups and employ exchanges with Estonian 
institutions to encourage innovation and promote 
bilateral trade and investment.  END COMMENT. 
 
PHILLIPS