Estonia as a Business Environment

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Table of Contents

Introduction
Political Environment
Legal Environment
Economic Environment
Cultural Analysis
Challenges and opportunities of doing business in Estonia
Works Cited

Introduction

Estonia economy has continued to demonstrate success because of the government’s interests to growth and economic freedom. A small country with about 1.32 million people, Estonia competes with some of the best economies in the world. The Heritage Foundation (2016) has ranked the country 9^th globally in terms of Economic Freedom (The Heritage Foundation 1). The country has been recognized for simplified tax systems, free and dependable regulatory environment, property rights, and favorable support global business support. Consequently, Estonia has developed a resilient and highly reliable economy. Moreover, the business environment is extremely friendly for startups and foreign investors. It has been able to survive the Euro crisis better than other economies in the region.

The geographical position of Estonia makes it ideal for hotel investment and not many global hotel brands have discovered it. The country is relatively small, and it is located in the Northern Europe on the Baltic Sea. It is at the center of North and South and East and West, and many refers to it has a place where civilizations clashes. It is an ideal tourism destination in Europe.

Estonia enjoys positive trade relations with Finland, Germany, Russia, and Sweden among other European countries.

Political Environment

Political Risk

Political Stability

Estonia is relatively stable since it regained its independence from the Soviet Union in 1991 (Laar 1). It is a stable multi-party democracy, which has matured over the years to become a member of NATO and the European Union since 2004. Besides, Estonia joined the Organization for Economic Co-operation and Development in 2010 and became the first country from the former Soviet Union to adopt the euro as official currency in 2011.

Any possible turmoil in the future

With a stable democratic space, there is no anticipated possible political turmoil in the near future. Besides, the ruling party is extremely popular, having won majority seats in the March 2015 elections. Given its relatively stable, dynamic, and modern economic status, no possible protests, such as the ones currently being witnessed in Brazil, South Africa, Hong Kong and others, may emanate in the country. Estonia also has the lowest debt-to-GDP ratio among the EU member countries.

The judiciary is transparent and not subject to political influences.

Any terrorist attacks

Notably, there is a low threat from terrorism and no known attacks in the recent past. Nevertheless, terrorism is now a global risk with indiscriminate attacks targeting public places, government installations, and other soft targets. Estonia is always on alert for possible ISIS attacks.

Legal Environment

Legal system for hotel classification

Estonia has a mandatory national hotel classification system regulated by the Rescue Board, the Consumer Protection Board, and the Health Protection Inspectorate (The European Consumer Centre Network 14). Further, these facilities are categorized into motels; hotels, guest houses, hostels, holiday home, visitor’s apartment, and bed- and—breakfast

Classes are based on the stars systems, and it ranges from 1 to 5 while motels have 1 to 3 star ratings. Bigger hotels have 4 or 5 star classification based on various facilities, including sauna, gym, and spa, whereas other considerations include water, number of rooms, towels, and lighting among others.

Labor law

Estonia is focused on improving labor productivity using liberal laws. The most vital labor laws and regulations are Collective Agreements Act, Constitution of Estonia, Conventions of International Organization of Labor, Employment Contracts Act, and Trade Unions Act among other provisions of the various Government Ministries (Estonian Investment Agency 1).

Foreigners are advised to check for their employment status in Estonia (Police and Border Guard Board 1).

Accessibility/Infrastructure

Visa

National of the EU member states do not require visa to enter Estonia. It is however imperative to evaluate specific country and visa requirements because there multiple exceptions.

Investors are most likely to look for long-term visa, get temporary residence permit for business in Estonia, and/or temporary residence permit for employment, which have applicable application fees and specific periods, usually up to five years (Police and Border Guard Board 1).

It is imperative to note that an alien must obtain a consent from the Labor Market Board before employment. However, aliens making direct foreign investment or running a branch of a foreign firm do not need the consent.

Transportation

Estonia generally depends on railway and road networks for transportation. Intercity bus, tram, taxis, train, airport bus, pedicab, taxis, rental cars, and waterways are available in the country.

There are also 45 ports and harbor mainly on the Baltic Sea.

Airports, airlines

There are 13 airports serving Tallinn-Air, Nordica, Finnair, Air Baltic, Ryanair, Lufthansa, and Scandinavian Airlines

Economic Environment

Economic risk

Overall, Estonia does not currently face any critical economic risks. Economic growth is expected to improve after weak export, the labor market is highly competitive, and there is low inflation of about 0.1%. Estonia has strong fiscal policy, the banking sector is healthy, and house prices have increased but now moderating (SEB Merchant Banking 1-6).

Fitch, Moody, and S&P have all noted that Estonian economy is stable.

Type of currency and exchange rate

Estonia officially adopted the Euro in 2011 to ensure economic stability, enhance business confidence, investor confidence, facilitate trade relations with the EU member states, and reduce risks associated with kroon.

The current exchange rate is about (EUR/USD) 1.1. The rate is expected to decline or stay relative low against the US dollar as the dollar becomes stronger.

GDP and GDP per capita

The GDP has increased steadily from EUR 14.0 billion to EUR 19.2 billion between 2102 and 2016 respectively, and it is forecasted to reach EUR 22.8 billion by 2019.

The GDP per capita is now EUR 14,810 and is expected to rise to EUR 17,423 (SEB Merchant Banking 5).

Corporate tax rate, income tax, payroll tax, and any other taxes related to business

Estonia has implemented a flat tax regime. The tax is 20% for income tax, 20% VAT while reinvested corporate profit is not subjected to any tax. The EU members pay a flat rate of 1% on tariff. It also has excise tax, but the overall tax burden is low because of low government spending.

Market analysis

Natural tourism resources

The major natural tourism resources include Soomaa signature event (traversing the flooded areas using modern boat and by haabjas), all large carnivores, including the wolf, lynx and bear, massive bird migration, largest pristine wilderness, botanical attractions, and mammal watching. In addition, there are long coastal beaches, natural rivers, and historical sites.

Estonian culture has been influenced by the Germanic, Baltic, Finnic, and Slavic cultures. In addition, Russian and Swedish cultures have also played their roles because of the unique geographical position of the country. Today, however, Estonian culture has evolved to resemble cultures of other European nations, but the people have retained their identities associated with rhythmic music and traditional folk songs.

Demand and supply

Number and brands of hotels, number of rooms, types of hotels (business and resorts)

There are hundreds of classified hotels, restaurants, and cafés in Estonia. As mentioned above, the classification is based on star rating. The best hotels have 5 stars rating.

Today, luxurious brands such as Hilton, Savoy Boutique Hotel, Swissotel Tallinn, and Rezidor Hotel Group are found in the country. However, with the exception of Hilton, there are no major international hotel brands in Estonia.

Some of these hotels have more than 400 rooms for guests. Rooms vary based on the facilities provided, as observed in the Estonian hotel classification system.

Occupancy rate and ADR

The demand for hotel accommodation has continued to rise in Estonia. Available data collected in the year 2013 showed that demand for accommodation grew by 6.1% because of influx of foreign tourists.

The average daily rate (ADR) increased by 5.3% to €39 in 2013, reflecting a significant growth in Revenue per Available Room. In addition, the room occupancy rate was about 56% for the last five years, and these figures were projected to rise because of foreign tourist influx.

Number of tourists (inbound and outbound)

Data obtained from the OECD 2016 report showed that there were about 6.193 million inbound tourists in the year 2014 while the number of outbound tourists was 3.84 million for the same period. Notably, these figures have been rising consistently for the past five years.

Major events

While no major global sporting events were held in the country in the recent past, Estonia has some remarkable events with regional and global appeal, including Estonia song and dance festivals, Estonia’s Friends International Meeting, and the International Prima Vista Literary Festival.

Population, income level

There are about 1.3 million people in Estonia. A marginal growth has been reported since the last censor. Statistics Estonia has shown that the average monthly gross income per employee was 954 euros in the year 2014. Relative to the year 2013, the average gross income rose by 6%.

Trend in the hotel/tourism industry: growth/decline

Since the year 2010 to 2014, the both number of inbound and outbound tourists have increased steadily in Estonia. Between the year 2013 and 2014, Estonia recorded a growth rate of 1.6%. This rate is expected to rise as other regions in Europe continue to face terrorism threats.

Should present anything related to the hotel industry in terms of hotel investment

The average revenues from hotel accommodation have continued to rise in Estonia (HVS). Visitations have increased from both domestic and international tourists to all major locations. Besides, guest apartments, bed and breakfast, and guesthouses are in great demand.

Cultural Analysis

Cultural dimensions

As previously mentioned, Estonia has borrowed most its cultural aspects from various surrounding countries. For foreigners, however, it is imperative to understand cultural taboos. Business practices are formal just like in other European counties.

The cultural dimensions of Estonia are described as tightness–looseness because of significant differences noted in the country (Realo, Linnamägi and Gelfand 1-12).

Demographic profiles

The country has about 1.3 million people. Specifically, Estonian makes 65.3%, Russian consists of 28.1%, Ukrainian is about 2.5%, and Belarusian makes 1.5% and Finn accounts for 1% while other is 1.6%.

The age structure consists of children to senior citizens. Majorities live in urban centers with better amenities. The population is highly educated with literacy rate of about 99.8%. That is, most people above the age of 15 years old can read and write.

Doing business in a country – Business tips for an international hotel firm

Foreigners interested in hotel firm business have major advantages because Estonia has few global hotel brands. Besides, setting up the business is simple and straightforward. Given the stable political environments and low risks, Estonia offers rare opportunities relative to other UE member states.

Challenges and opportunities of doing business in Estonia

From the analysis, there are relatively low economic, political, and legal risks for businesses in Estonia. As such, possible investors will not face major drawbacks associated with these factors. The only notable challenge to investors is the rising cost of labor.

The Estonian hospitality sector is dominated by restaurants and hotels, which have classifications based on the star rating system. As the number of inbound and outbound tourists continues to increase, Estonia has experienced an increased demand in hotel services. The impressive performance of the sector reflects stronger growth. The association of Estonia with more than five countries has increased its trade ties while the adoption of the euro has eliminated many risks associated with currency depreciation and exchange rates.

From the research, few international hotel brands are found in Estonia. It is therefore recommended that international hotel brands should invest in Estonia to drive their brands as demands for hotel services continue to rise.

Works Cited

Estonian Investment Agency. Labour Market. 2016. Web.

HVS. Market Pulse: Tallinn, Estonia. Athens: HVS Athens, 2014. Print.

Laar, Mart. The Estonian Economic Miracle. 2007. Web.

Police and Border Guard Board. Residence and Work Permits for Foreign Nationals. 2015. Web.

Realo, Anu, Karmen Linnamägi, and Michele J. Gelfand. “The Cultural Dimension of Tightness – Looseness: An Analysis of Situational Constraint in Estonia and Greece.” International Journal of Psychology (2014): 1-12. Print.

SEB Merchant Banking. Estonia: Country Risk Analysis. 2016. Web.

The European Consumer Centre Network. Classification of Hotel Establishments Within The EU. n.d. Web.

The Heritage Foundation. Estonia: 2016 Index of Economic Freedom. 2016. Web.

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