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-584835-97917000455003536315660006638290Hessa AlShaiba – ID: 140147360000Hessa AlShaiba – ID: 140147centercenter95000950004550035363152500251460Assignment 13700030000Assignment 144000341947525002514604000070000455003536315690006939915370000455003536315350003520440Estonia in Transition
MIM 714 – Microeconomics of Competitiveness
3600028000Estonia in Transition
MIM 714 – Microeconomics of Competitiveness

Table of Contents
TOC o “1-3” h z u Country and Cluster Profile PAGEREF _Toc527833601 h 2-General Country Profile PAGEREF _Toc527833602 h 2-Timeline of cluster PAGEREF _Toc527833603 h 3-Cluster map PAGEREF _Toc527833604 h 6Porter’s Diamond: PAGEREF _Toc527833605 h 14References PAGEREF _Toc527833606 h 15

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Country and Cluster Profile36302952984500General Country Profile36258502507615Figure 1 Estonia’s Map0Figure 1 Estonia’s Map-8204206644005Figure 2 Estonia’s GPD growth 1996 – 2017Figure 2 Estonia’s GPD growth 1996 – 2017-82042039604950029216356620510Figure 3 Comparison between Estonia and Central Europe and the Baltics GDP per capita, PPPFigure 3 Comparison between Estonia and Central Europe and the Baltics GDP per capita, PPP2921635394144500Estonia is located in Eastern Europe, bordering the Baltic Sea and Gulf of Finland, between Latvia and Russia as shown in Figure 1. The country’s area is equivalent to 45,227 km² where more than half (52.1%) of the total land is forest. Estonia has more than 2,000 islands along its coast. It has a population of more than 1.2 million with a median age of around 42.7 years as of 2017. Estonia reached an urban rate of 68.9% with a slightly negative population growth rate of -0.57% in 2017, according to the CIA Factbook (2018). The country’s gross domestic product (GDP) has been increasing in the past few years from 1.7% in 2015 to 4.9% in 2017 as shown in Figure 2 CITATION Age18 l 1033 (Agency, The Central Intelligence, n.d.). Figure 3 highlights Estonia’s GDP per capita (PPP) which was slightly higher in comparison to its neighbors in central Europe and the Baltics countries in 2017 CITATION The18 l 1033 (The World Bank Group, 2018).
Timeline of clusterThe country celebrated its 100th anniversary since its independence on the 24th of February 1918 from Russia. Through the years, Estonia has developed rapidly in many fields specially digitization, IT and telecommunication as shown in its timeline in Figure 4 and Table 1 CITATION The181 l 1033 (The government of Estonia, n.d.) CITATION SÖL06 l 1033 (SÖLVELL & PORTER, 2006) which facilitated the country to known as the most digitally advanced societies and an innovation hub in the world.

03392805Figure 4 Timeline Digitization cluster in Estonia (1993-2014)Figure 4 Timeline Digitization cluster in Estonia (1993-2014)0-762000
Year Project/Policies/ Initiatives Details
1993 Fixed line granted to the Estonian Telecom company
A monopoly fixed line given to the ETC for 7 years in exchange to modernize/update the Estonia’s infrastructure
1994 GSM mobile network was installed, and the market was opened to competition 1997 – 2005 The tiger leap plus project To install PCs in Estonian’s schools connected to the internet
1997 E- Governance To enable Estonians select e-solutions from public services.

1997 49% share of Estonia Telecom company was sold to Telia & Sonera 1999 Private investors were invited 2000 New telecommunication law By opening fixed lines to competition which attracted nine operators to the market
2000 New IT college Estonian Information Technology College – Tallinn
2000 The digital signature Act Allow Estonians to perform their signatures as digital signature
2000 Look @ world initiative An initiative that collaborate private and public sectors to raise the internet penetration in Estonia to 74%
2001 E-Tax And E-service which allow Estonians to pay their taxes through the internet within 3-5 minutes they can pay all their taxes
2001 X-Road A software where data and information gathered from different sources and location (private and public) for information exchange
2002 Digital ID A digital ID card that allowed Estonians to explore and use all the e-services
2005 I-voting An e-service that enable all the Estonians to vote through the internet wherever they are in the world
2007 Public Safety An e-service that allow Estonians to contact multi authorities as Police and emergency center in case of any crises/ accidents etc. which helped the country to answer 93% of the emergency calls within 10 seconds
2008 Blockchain A cyber security technology that protect data and information from corruption and misuse
2008 E-health A digital record for each person in Estonia which used for a better treatments decision making
2014 E-Residency A service given from the Estonian’s government to anyone in the world for an easy access and manage global business
Table 1 Timeline details about Digitization cluster in Estonia (1993-2014)
Cluster map78105015621000
Many factors play major roles in the ICT (Information and Communication Technology) cluster in Estonia as mentioned in Figure 6.
Due to the high exports level which increased from 2016 to 2017 by 8% to 12.8 billion euros to many countries as Finland and Sweden CITATION Sta18 l 1033 (Statistics Estonia 2018, 2018). The international market approved that it had an important impact on ICT cluster in Estonia, as there are elements that been provided in Estonia because of the cluster’s supported polices and the fact that the number of employees in services are higher than the other sections (66.21) in 2017 CITATION Sta181 l 1033 (Statista, 2018) as mentioned in Figure 7.

In 3 hours you can establish your own company in Estonia CITATION Inv18 l 1033 (Invest in Estonia, n.d.) comparing with 20 days average around the world in 2017 CITATION The182 l 1033 (The World Bank Group, 2018). This is one of the reasons behind Foreign Investors attractive, beside that the facilities that the Estonians government provide to the investors as zero corporate income tax, banking transactions that could be made online, the availability of employees/ technicians with high standers and the remotely management for your company around the world through the digital ID-card that issued by the government-issued. By attracting foreign investors, a mixed capital based companies can be initiated or they can transfer their companies’ to Estonia as the Skype; a well-known telecommunications software that established in 2003 in Estonia by Priit Kasesalu and Jaan Tallinn. In 2005, eBay brought Skype for $2.6 billion CITATION The05 l 1033 ( The BBC, 2005). While in 2009 the Canada Pension Plan Investment Board brought a share of 65% of Skype for $1.9 billion from eBay CITATION Chr09 l 1033 (Sorensen, 2009). In 2011 Skype was owned by Microsoft for $8.5 billion CITATION The11 l 1033 (The BCC, 2011).

66675385508500Such investments associated with benefits for the country as the Figure.. shows that the foreign direct investments have increased in the past few years CITATION Exp18 l 1033 (Export Entreprises SA, 2018). Moreover, the Figure … shows the rate of employment’s in Estonia reached 68.2 in 2018 CITATION Tra18 l 1033 (Trading Economics, 2018).


In 2015 adjustments made on the Commercial Code, to ensure Equal rights between the Foreign and local companies and to increase the flexibly. table …. CITATION Est16 l 1033 (portal, 2016).

The figure … shows that the 5th pillar (Higher education and training) in the Global Competitiveness Index2017-2018 is slightly higher than the European and the north America CITATION Wor18 l 1033 (World Economic Forum, 2018). The 26 higher Education Institutions achieved high standers especially in ICT cluster as University of Tartu which ranked as #321 around the world and #5 among Europe and Central Asia. While Tallinn University of Technology ranked as #30 and Tallinn University ranked as #87 in the Europe and Central Asia CITATION Qua18 l 1033 (Quacquarelli Symonds Limited , 2018). Having a high standard education is a strong factor behind forming well-known companies (international or local) as skype and Creative Mobile (a game developer based in Estonia).
“European Union (EU) aims to balance and harmonies the growth of the member states to boost the European Union’s competitiveness as a common economic region in the global market” CITATION Min17 l 1033 (Ministry of Education and Research – Estonia, 2017). Between 2007–2013, 63.8 million euros was the development of Estonian information society, this is used in three main projects: Pursuant to investment plans, Open application rounds and the Raising public awareness about the information society program CITATION Inf18 l 1033 (Information System Authority – Estonia, 2018).

The Industry Cooperation Projects that related to the ICT cluster in Estonia are e-Goverance training program (provide a training about the effect of the digitization on the work and how to raise the effectives in governance. for African Union member participants). Digital Innovation Network’s objective (DIGINNO) focus on developing innovative in the digital public services). Internet of Business (develop a strong and sheltered network based on real-time economy). FinEst Smart Mobility (enhancing the flow of assets in Helsinki West and Tallinn Old City areas with smart transport solutions). ICT Meta Cluster (establishing a new business to the market in Estonia, Latvia and Sweden). Creation of the IoB platform (develop the Internet of Business (IoB) platform to guarantee the safety of communications between different parties and across borders). 5FOREXCELLENCE (to increase the professional level and to improve management of the cluster), Estonian ICT Cluster 2015-2018 (improve and enhance level of services and competitiveness as in e-Industry service) CITATION Inf17 l 1033 (Infotehnoloogia ja Telekommunikatsiooni Liit, 2017).

As Estonia known as one of the most digitization countries around the world. E-services that are provided play a huge role in making the business and daily lives much easier and quicker. Some of the E-services that helped build up the ICT cluster in Estonia are: E-commerce, E-healthcare, E-education, E-government and X-road (Timeline of cluster, page 3). This highlight the role of the Estonia government and Governmental Agencies as the ICT cluster is connected and in line with other clusters as well as Health, Logistic, Education, Maritime and Tourism. Moreover, the Enterprise Estonia (one of the main government agencies that promotes business and regional policy) set a plan for 2019–2023 which emphasize in the table below (Objective for 2023) CITATION Ent18 l 1033 (Enterprise Estonia (EAS), n.d.). Along with opening new markets for Estonian technologically entrepreneurs in 2024 to establish 100 new services and products and to have at least 20 new services and products which are new to the world with a budget of 73,000,000 euros CITATION Ent181 l 1033 (Enterprise Estonia (EAS), n.d.).

Number of exporters with high added value during the final year 600 enterprises
Added value created by clients of Enterprise Estonia during the final year 2.1 billion euros
Number of internationally known brands during the final year 20 brands
Foreign investments brought to Estonia with the help of Enterprise Estonia and new jobs created during 2019–2023 cumulatively 1.5 billion euros and 5,000 new jobs
Added value per employee of investments brought to Estonia with the help of Enterprise Estonia during the final year 75,000 euros
Export sales revenue of tourism services during the final year 2.6 billion euros
Added value of tourism companies’ services by Enterprise Estonia during the final year 138 million euros
Number of overnight stays by Asian tourists during the final year 540,000 overnight stays
Number of international conferences during the final year 100 conferences
0191853900The relation and the trade between Estonia and the Scandinavia countries (Denmark, Norway, Sweden, Finland, Iceland) is another factor behind Estonian’s success. As the Figure shows that the main target / market for the country’s export trade ($3.74B, contribute from Sweden and Finland) and among the 303 products that Estonian’s export, ICT cluster achieved the highest percentage of those products in 2016 as showing in Figure . CITATION The16 l 1033 (The Observatory of Economic Complexity, 2016).

Porter’s Diamond:Porter’s diamond known as a system that contain from four elements/ attributes where each element effects the other and depends on it which is used for analyzing and evaluating the national competitiveness CITATION Mic08 l 1033 (Porter, 2008). Figure 5 below shows the four porter’s elements to respect of the ICT cluster of Estonia.
Factor condition:
Although there are a huge Skilled Estonians Working (labors/workforces) in ICT cluster, the country still has unbalance ration between the demand and the supply. As stated by Dario Cavegn “79 percent of companies say that they are suffering from a lack of qualified specialists” CITATION Dar17 l 1033 (Cavegn, 2017). One of the causes of this condition is the disagreements between the market need and the skills/education that provided to the student by the higher education institutions.
Although there are some programs and collaboration between the universities and the ICT market. As Technical University of Tallinn which offers a supervisory experience for the students by the companies but this is not enough to enable the students for the market as showing in the Global Competitiveness Index 2017-2018 12th pillar: Innovation, University-industry collaboration in R&D is decreased to 3.9 in 2017 (40 out of 137) CITATION Wor18 l 1033 (World Economic Forum, 2018).

A fiber optic cables are covered the whole Estonian which shape a high digital infrastructure. There are also direct undersea connections with other near countries as Latvia, Finland, and Russia. Which ranked Estonian’s digital infrastructure as the Estonia has the “15th fastest internet speeds in the world, coming ahead of the US and the UK” with a mean download speed of 27.91Mbps CITATION Ste18 l 1033 (Hankewitz, 2018).
The country’s strategic location as a link between East and West, ranked Estonia as the 25th country around the world as per A.T. Kearney Global Services Location Index 2017 with a score of 5.30 (2.39 Financial attractiveness, 0.95 People skills and availability,1.95 Business environment) CITATION ATK17 l 1033 (Kearney, 2017). Moreover, the Transportation Structure (ports, airports, rails and roads) has a positive impact on the ICT cluster. 3% is the increase of in the number of international traffic passengers served by Estonian ports (10.9 million passengers) and the cargo capacity of ports (1.2 million tonnes more) in 2017 CITATION Sta182 l 1033 (Statistics Estonia , 2018). This lead to an overall increase in the Quality of overall infrastructure to 20 out of 137 countries around the world in 2017. CITATION Wor18 l 1033 (World Economic Forum, 2018)Estonian’s government heed the ICT cluster in many ways as they were working on building a digitization country since it’s independency. Many Regulations, projects and visions has made up to support the cluster as the equal rights between the local and the foreign investors (see page 9).
Firm Strategy, Structure, and Rivalry
Estonia in country’s demand considered as a limit due to the limitation of the country’s size and the population therefore Export Is Needed as Global Competitiveness Index 2017-2018 shows that there is no major change in the State of cluster development CITATION Wor18 l 1033 (World Economic Forum, 2018).
The ICT cluster contain from giant and small companies, the giant/ big companies owns 80% of the overall cluster which means that there is a narrow space left for the small companies to compete. Even if these small companies could manage to stay in the market. A new strategy must be made to enhance the low and to observe the opportunity of new elaborate solutions.

References BIBLIOGRAPHY The BBC, 2005. EBay to buy Skype in $2.6bn deal. Online Available at: 12 October 2018.

Agency, The Central Intelligence, n.d. The World Factbook. Online Available at: 5 October 2018.

Cavegn, D., 2017. Survey: Estonian industry suffers from lack of specialists. Online Available at: 19 October 2018.

Enterprise Estonia (EAS), n.d. Enterprise Development Programme. Online Available at: 15 October 2018.

Enterprise Estonia (EAS), n.d. Enterprise Estonia. Online Available at: 15 October 2018.

Export Entreprises SA, 2018. Estonia: Foreign investment. Online Available at: 12 October 2018.

Hankewitz, S., 2018. Estonia has the 15th fastest internet speeds in the world. Online Available at: 20 October 2018.

Information System Authority – Estonia, 2018. Implementation of the 2014–2020 period. Online Available at: 13 October 2018.

Infotehnoloogia ja Telekommunikatsiooni Liit, 2017. Projects. Online Available at: 15 October 2018.

Invest in Estonia, n.d. Establishing a company. Online Available at: 14 October 2018.

Kearney, A., 2017. A.T. Kearney Global Services Location Index 2017. Online Available at: 19 October 2018.

Ministry of Education and Research – Estonia, 2017. Structural funds. Online Available at: 13 October 2018.

portal, E. s., 2016. Comparison of each form of business. Online Available at: 15 October 2018.

Porter, M. E., 2008. The Competitive Advantage Of Nations. In: On Competition, Updated and Expanded Edition. Boston: Harvard Business Press Books, pp. 171-211.

Quacquarelli Symonds Limited , 2018. QS University Rankings: EECA 2016. Online Available at: 15 October 2018.

SÖLVELL, Ö. & PORTER, M. E., 2006. Estonia in Transition. Online Available at: 10 October 2018.

Sorensen, C., 2009. Canada Pension plan buys Skype stake. Online Available at: 12 October 2018.

Statista, 2018. Employment by economic sector in Estonia 2017. Online Available at: 11 October 2018.

Statistics Estonia 2018, 2018. Trade reached record level last year. Online Available at: 10 October 2018.

Statistics Estonia , 2018. Passenger traffic and shipment of goods through ports increased last year. Online Available at: 19 October 2018.

The BCC, 2011. Microsoft confirms takeover of Skype. Online Available at: 11 October 2018.

The government of Estonia, n.d. Success stories. Online Available at: https://e-estonia.comAccessed 9 October 2018.

The Observatory of Economic Complexity, 2016. Estonia. Online Available at: 16 October 2018.

The World Bank Group, 2018. GDP per capita, PPP (current international $). Online Available at: 5 October 2018.

The World Bank Group, 2018. Time required to start a business (days). Online Available at: 12 October 2018.

Trading Economics, 2018. Estonia Employment Rate. Online Available at: 14 October 2018.

World Economic Forum, 2018. Global Competitiveness Index2017-2018, Geneva: World Economic Forum.

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