A Tour of Eastern Europe - Part 3

By Gregory Grischenko, Contributing Editor

Since the collapse of the Soviet Union in 1991, the pace of economic reform in each newly sovereign country has been defined in the main by the strength of its attachment to the old regime. The Baltic States (Estonia, Latvia and Lithuania) had been forced to join Joseph Stalin’s USSR in 1939. Despite 52 years of Communist rule, these nations rapidly developed a market economy after 1991’s dissolution of USSR and in May 2004 were officially admitted to the European Union.

The Baltic States’ Economic Recovery Gains EU Entry

Following inde­pendence in 1991, all three Baltic countries—Estonia, Latvia, and Lithuania—started privatizing state-owned companies and implementing a market economy model with an emphasis on Western style banking, tax laws and global trade. The results were positive from the beginning, despite the loss of some industrial capacity that had been formerly integrated into the Soviet Union. The region’s GDP growth exceeded 5% for the last four years and was accompanied by the rapid growth of foreign investment from the European Union countries as well as from the United States and Canada, according to The Repton Group, a New York City-based global economics consulting company, and statistics released by the Baltic governments,

Greol Engineering, an emerging markets consulting company based in Cliffside Park, NJ, estimates that the combined Baltic cosmetics and toiletries market reached over $125 million in 2003.

Latvia is the largest producer of cosmetics in the Baltic region. The manufacture of perfumes and cosmetics in the country is a significant part of its well-developed chemical and pharmaceutical industry, contributing almost 6% to the country’s industrial output and employing approximately 6,500 people, according to ExIm (Latvian Export & Import Directory).

Major pharmaceutical companies in Latvia such as Olainfarm and Spodriba are involved in cosmetics production. Prior to 1991, Olainfarm was the only supplier of 25 key cosmetics ingredients to the entire Soviet Union. Currently, the company offers over 70 products.
Spodriba, founded in 1921, specializes in quality body care and household cosmetic products. The company’s Vito and Zilgme lines utilize ecologically friendly ingredients.

The largest and most successful cosmetics company in the Baltic region is Dzintars with annual sales of approximately $15 million. Dzintars, which translates as “amber” in Latvian, employs 600 in Riga, Latvia. Established in 1849 in Riga by A. Brieger, a German entrepreneur, Dzintars began by manufacturing soap and candles and bottling French fragrances. State-owned during the Soviet era, the company was privatized in 1991 and now concentrates in three areas—fragrances, cosmetics and make-up. Dzintars now encompasses over 280,000 square feet of production facilities and has its own research and development center. Recognized as a leading producer of natural and ecologically safe products, it utilizes the latest technologies in compliance with international standards, including KOSMETIC-GMP and ISO 9001.

Part of Dzintars’ success is its long term partnerships with leading ingredient suppliers from France, Germany, Austria, Netherlands, Italy, Sweden, Switzerland, Finland and India.

“Our company slogan is ‘We only use natural ingredients,’”said Ludmila Urova, Dzintars’ new product development director. “In accordance with our basic principles—the highest quality plant-based ingredients—we produce over 350 different products, including the Art cosmetics line developed in 2003 with 26 fragrances, lipsticks with a water-wet effect, mascaras, powder, shadows and glow.”
Dzintars contributes the lion’s share to Latvia’s cosmetics exports that reached over $5 million in 2003, according to ExIm. The company runs its own package design group and makes quality plastic packaging for cosmetics, including bottles, jars, tubes and lipstick cases. Boxes and glass fragrance flacons are purchased from suppliers in Western Europe.

Lithuania and Estonia have virtually no domestic cosmetic manufacturing. Orto, a small Estonian company in Tallinn, established in 1932, makes bath products. Instead, Lithuania and Estonia concentrate mainly on distribution and retail. According to Lithuanian and Estonian trade directories, the list of international supplier companies with a regional presence in the Baltics includes Proctor & Gamble, Unilever, Beiersdorf, Henkel and L’Oreal.

Cosmetics and toiletries in the Baltic States are sold through department stores, specialized stores and supermarkets. In the past five years, the Finnish Stockmann and Norwegian Mols department stores have established Latvian and Estonian subsidiaries.
The major Baltic supermarket retail chain VP Market (269 stores) increased its revenue to $45 million in the first quarter of 2004, 19% over the previous year, according to China Daily, a business publication from Beijing.

Other chains such as Kesko Oyj (Finland), IKI (Belgium) and Rautakirja and Narvecen (Finland and Norway) are continually gaining a share in the cosmetics retail market. Direct sales of cosmetics and toiletries are also growing, with Avon taking the lead.

The Repton Group reports that, despite a few remaining administrative and political setbacks, the Baltic countries—Estonia, Latvia, and Lithuania— are decreasing the gap between their living standards and those of the rest of the European Union with average monthly salaries of around $440.