A Burgeoning e-Empire: Estonia’s Blue Ocean Strategy regarding Digitalisation

Estonia tech

By Michael E. Lambert

Estonia embraced a Blue Ocean Strategy[1] to avoid turning into a nation of cheap manpower after the collapse of the Soviet Union. Instead, the leadership in Tallinn decided to emphasise start-ups and high-tech to provide an added value to the organisations it wished to become a member of, namely the European Union and the North Atlantic Treaty Organisation (NATO). This has proven to be successful in the 1990s and 2000s, but is it still the case considering the recent cases of cronyism and difficulties to tackle Covid-19?

Estonia is a Nordic country[2] bordered to the north by the Gulf of Finland, to the west by the Baltic Sea facing Sweden, and to the east by Lake Peipus and Russia. The territory consists of the mainland and over 2,222 islands on the east coast, covering a total area of 45,227 km2 for barely 1.3 million citizens.

In the wake of the collapse of the Soviet Union, the leadership adopted a strategy to avoid becoming a country of cheap labour for prosperous Nordic nations facing it, and decided to focus on digital innovation to add value to the organisation of which it wanted to become a member, and create new job opportunities. 

This has proved to be an astute method until the recent Covid-19 crisis, when the country did not perform as well as Israel and the United Arab Emirates, digitalisation of the vaccination campaign lacking behind. Nevertheless, the high-tech approach in Estonia has proven to be efficient in the past, and has led to a rapid increase in nominal gross domestic product (GDP), which currently stands at $30 billion (per capital $22,986 – 35th worldwide[3]), an elevated Human Development Index (HDI) of 0.89 in 2019, and an extensive fight against corruption with increased transparency in the administration in the 2000s.

The recent election of two women heads of state, the President and the Prime Minister, has managed to attract the world’s attention and provide light on the social changes happening in the region[4], unfortunately due to the withdrawal of the previous government because of the return of corruption in political institutions.

Whereas the period between 1992 and 2019 (pre-Covid) was marked by increasing prosperity, Estonia is now facing new challenges such as a Gini coefficient remaining around 30.5, highlighting the challenges of the (re)distribution of wealth among the citizens, a low birth rate[5], difficulties in guaranteeing Covid-19 vaccination to its citizens[6], and the worrying return of corruption and cronyism[7].

Estonia has been among the first to promote e-Residence, which enables digital entrepreneurs to set up and run an EU-based business online[13].

These difficulties seem to go hand in hand with the discontinuation of the promising struggle to claim Nordic identity initiated by the former Estonian Minister of Foreign Affairs and then former President of Estonia, Toomas Hendrik Ilves. As it slowly accepts that it is not a Nordic country and at most “Nordic with a twist,” the Nordic way of life, which includes a greater use of renewable energy[8], improved equality between citizens[9], and innovation in emerging sectors is starting to fade away.

Estonia remains a nation that has managed to innovate in cutting-edge technologies, as the government’s website likes to display[10], it continues to be an innovative country with electronic voting (iVoting since 2005), e-Governance with public services accessible from anywhere (including e-Tax and e-Business Register). Another area in which Estonia is pioneering is health care with the e-Health Record, a national system that integrates the data of the different health care providers to create a common e-folder that each patient can access online[11], combined with the Estonian Education Information System (EHIS), a national database that gathers all information about education in Estonia[12].

In addition, the country has been among the first to promote e-Residence, which enables digital entrepreneurs to set up and run an EU-based business online[13]. This initiative, together with innovative ventures such as Skype[14] and Bolt[15], has succeeded in attracting talents from all around the world and helped to establish the NATO Cooperative Cyber Defence Centre of Excellence, currently based in the capital, Tallinn, a leading centre for experts working in the field of cyber threat[16].

Although on paper these achievements have proved to be Estonia’s recipe for success, the Blue Ocean strategy of concentrating on IT has its limits, and with increasing competition from abroad combined with internal political issues, Estonia is not as innovative as it was in the 1990s and 2000s. To begin with, the country seems to have missed the boom in cryptocurrencies while it was among the first to take an interest in this subject, and the ambitious plans to introduce its own cryptocurrency have fallen into disarray. Discussions on the day-to-day use of cryptocurrencies in the country remain, but few companies are allowing to pay with them.

Additionally, Tallinn did not appreciate the importance of the green revolution, and the Californian company Tesla preferred to choose Germany to build its Gigafactory in Berlin-Brandenburg, whereas it had previously prospected Estonia[17].

The development of unmanned aerial vehicles for private users and the military, which is on the rise in Bavaria[18], California[19], and Israel[20] to name just a few, is currently absent in Estonia. All this raises the question of how such missed business opportunities can occur when the Tallinn-based Bolt organisation is in the same segment as its direct competitor, Uber, which has been investing in this area for several years already.

In conclusion, while Estonia successfully developed a Blue Ocean Strategy in the first two decades after the collapse of the USSR in an attempt to be recognised as a Nordic country, it is now turning to a Red Ocean Strategy, competing with other nations instead of innovating. Estonia remains one of Europe’s leading centres of innovation and digitisation, and several EU members can learn from what it has achieved since regaining independence.

Nevertheless, innovation is a constant balance of missed opportunities, failures and successes, and other countries such as Singapore, Israel and Germany (especially Bavaria) have strengthened their capacities and are now challenging Estonia in the field of information technology. As such. Estonian leaders and citizens seem to be missing out on the most promising business venture and market of the 21st century: renewable energy[21].

About the Author

Michael E. Lambert

Michael E. Lambert, PhD is a political psychologist and social engineer working at the intersection of medicine (social psychology and psychopharmacology) and political science, expanding the topic of mathematical models of strategic interaction among decision-makers to ensure the effective implementation of Blue Ocean Strategy in international politics. To contact the author: [email protected]

References

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.