Latvia sees a rebirth of U.S. investment activity

  • 2004-07-01
  • By Elizabeth Celms
RIGA - With accession to the EU and NATO, Latvia is honing its reputation as a premier East European investment destination. And while riding the current wave of rapid growth - first-quarter growth was 8.8 percent year-on-year - and robust consumption, investors are hurrying to position themselves before the pie gets divided.

The United States is rated as the fifth largest foreign investor, with a total of 92.8 million lats (141 million euros) invested since September 2003, according to the American Chamber of Commerce. Yet U.S. businessmen admit that the stakes are high, success is not guaranteed, and the process of opening a company in Latvia is by no means easy. In addition, gaps in distance and geography make for formidable obstacles.
"Some companies have been productive, and some haven't," says J.C. Cole, vice chairman of the Foreign Investors Council. "But it hasn't been an easy day in the sun with any case."
According to Cole, who was president of the American Chamber of Commerce from 1993 to 2002, the two biggest complexities that Americans deal with in the local market are the local business culture and worker mentality.
"Americans are at a disadvantage because being the farthest removed from Europe, we have the biggest cultural difference from Europe - and better yet, Eastern Europe," he says. "We have double difficulty with both the European structure and the old Soviet structure."
Jerry Wirth, owner of SIA R.B. Management, a real estate development, investment and management company, believes that it's not necessarily being American that makes opening a business in Latvia difficult. Rather, it's being a foreigner.
"Being an American has not really made a large impact either way," says Wirth, who opened R.B. Management in 1996. "Being an outsider made the early years more difficult in many ways. But as the market has developed and attracted more interest from other foreign investors, being a locally experienced foreign-owned business has become an advantage."
But Gunars Rozentals, construction manager of American Construction Group, the oldest and most experienced project management group in the country, disagrees. He claims to having sensed a slight prejudice against his company just for its name.
"I really think that there's a prejudice against Americans because [Latvians] think you will come in with the wrong attitude. As soon as they know it's a foreign investment they jack up the prices, and this has been hard for our company," says Rozentals.
Despite this, the construction firm has seen an impressive amount of success in its 10 years. Rozentals credits this to the company's American business mentality and expertise.
"In the U.S. you experience a lot more than you do here. It's a more diverse world of construction," he explains. "The company has definitely gained from its American mentality. With Latvia joining the EU, other investing countries are expecting a Western attitude."
Along with most businessmen, Wirth feels that with Latvia's EU membership, the market will become increasingly hospitable to foreign investors.
"In many ways, EU accession has simply provided a stamp of approval for American investment," he says. "Accession has both provided exposure and reassurance to investors who otherwise might not have taken the time to investigate the markets themselves."
However, American businessmen shouldn't be too confident when taking the plunge into the Europeanized Baltic market.
According to Cole, although there exist a number of opportunities for foreigners to invest, Latvians are equally able to compete. If others come to invest, he warns, they must bring in value that's above the rest of the competition. He uses manufacturing expertise as an example of this competitive edge. A person with this Western market knowledge understands quality of control and economics of scale, while Latvians are quite poor at this, Cole says.
Rozentals has noticed this Latvian problem with business efficiency in his experience as well.
"Latvia is preset in its ways," the construction manager explains. "Here time is not money. Latvians don't understand the fact that they should finish a job and go after more work. They just know what their term is, and they take their time."
As the Western business ethic gradually infiltrates the Latvian system, this mentality should change. Wirth believes that one of the most important things all three Baltic states will gain from EU membership is an increase in liquidity. He says that there's a largely untapped potential for American companies who suffer high labor expenses to consider outsourcing.
"With a well-educated labor force, everything from research, assembly, manufacturing to back-office work and call centers can be considered. This is already happening on a small scale, but the opportunity for this is tremendous," Wirth explains.
In addition to promises from the West, the East holds business potential for American investors in Latvia as well. For companies interested in breaking into the Russian market, the location of the Baltic country provides an additionally interesting place for safe investment and cost effective production.
"For Americans, Latvia is absolutely a good investment," Rozentals concludes. "Businessmen who are progressive don't look at Americans as Americans but as investors. And we shouldn't be looked at as anything but."