Look past borders for growth, say Latvia’s business leaders

  • 2013-07-24
  • By Dorian Ziedonis

BRAINSTORMING: The audience listened closely to Valdis Dombrovskis at the start of the economic forum.

RIGA - Latvia’s business elite came together this month for the first World Latvian Economics and Innovations Forum in Riga, to discuss how to develop local companies into world-class enterprises as well as what is needed to lay the foundations for a sustainable national economy. The 2-day event, on July 3-4, covered ground from how to boost exports, to enhance creativity, to the need for a unified, national direction for the country.

In addition to representatives from the business community, speakers also included President Andris Berzins, Latvian Bank President Ilmars Rimsevics and Foreign Minister Edgars Rinkevics.
Discussing Latvia’s challenges today, Economy Minister Daniels Pavluts said that the central issue is how to ensure that the nation can reach the oft-stated goal of catching up with the richest countries of the world, in terms of standard of living. A mix of mid- and high-tech industry is what Latvia needs to do this, he pointed out, noting that it was these sectors that withstood the past six years of economic crisis in Latvia the best. However, he says that the task still is to improve the efficiency of both.

Pavluts observantly says that this will take time, and that Soviet era workers won’t be transformed into IT experts.
What are investors looking for? asked the moderator, journalist Eddie Bosch.
An improved environment for encouraging start-ups, for starters.
Latvia has big potential, said FICIL’s Zlata Elksnina-Zascirinska, but starting a business isn’t the easiest to do here. Latvia is in 59th place for this metric on the ‘Doing Business 2013’ list (out of 185 economies). “We need to improve,” says Elksnina-Zascirinska.

Invest in people
Human resources, and their development, were at the top of the agenda for some. It is a seemingly never-ending and difficult subject, as reform of the higher education system continually meets obstacles, with entrenched interest groups impeding needed change.

Pavluts spoke on the quality of education in the nation’s schools. Turiba University founder Aigars Rostovskis discussed the topic, along with the need to strengthen values, including that of integrity in society. He spoke of a nation with entrepreneurial spirit, filled with specialists, mentioning California’s Silicone Valley as an example of a successful risk-taking environment.

NCH Capital’s Senior Vice President Karlis Cerbulis sees another opportunity for education’s role in the economy. Seventeen percent of students in the UK are foreign; four percent in the U.S. In Latvia, this number has tripled over the past three years, but is still low. The country, he suggests, has free capacity, and should use it to bring in students. This would bring in $15,000 per student per year, on average, through tuition and other spending, or $250 million a year to Latvia.

Nordic Construction UK director Juris Lujans asserted that “Education is the weak point in Latvia.” He specifically focuses on a gap in business skills: “Latvians have no trading [selling] skills.” A company can build capacity, but then it needs to be able to sell the product.

Cerbulis highlighted that Latvia’s population, which is now in decline, has been on a “rollercoaster” over the past decades, and this matters. He warns that we are now “in World War III, one for people.” A small country needs to act smart, he says. A positive example of this is the resident permit scheme, where a minimum amount of investment into the country brings with it a 5-year residency visa. “We’ve issued 5,000 residential permits in the past 3 years. 500 million euros have been invested. The Russians [a large proportion of these investors] have saved a part of Latvia,” said Cerbulis.

Hatching ideas
When it comes to creating an innovative product, efforts need not be centered around R&D incubators.
Robbie Vitrano, co-founder of The Idea Village in New Orleans, on a recent visit to Latvia told Latvians to focus on building support networks that provide professional resources for entrepreneurs, going beyond opening physical incubator office space, which has already been done, reported www.nola.com in a recent article on Latvians looking to New Orleans as a business model. He urged building an entrepreneurship scene slowly.

Latvia needs small companies. Small and medium-size enterprises can serve the IBMs, says Rostovskis. Singapore, he says, uses catalysts to develop sectors: in the aerospace industry, it attracts large industry leaders, who then attract small companies around them as suppliers and partners. These are the ‘industrial clusters,’ as defined by leading business thinker Michael Porter, author of Competitive Advantage. Porter writes that vertical and horizontal relationships between successful companies and industries form the basis of clustering in a nation of competitive industries, and is a prominent feature of all advanced economies. Latvia needs to better understand its capacities and work with them towards effective economic development.

Amy Storrow, the public affairs officer for the U.S. Embassy in Riga, supports this view, having “found that [innovative] communities rise around major research universities and sources of venture capital, such as in Silicon Valley and Boston, wrote www.nola.com. In some places, such as North Carolina’s Research Triangle, major companies and their employees spawn new ventures.

Recipe: vision and planning
Many Latvian companies are doing the right thing, are innovating, and can be found around the globe successfully selling their products and services, gaining market share.
Construction firm UPB’s director Uldis Pilens told the Forum guests that his group now includes 40 companies, with 1,300 employees, 300 of which are involved in exports. Export growth “depends on risks, the ability to handle risks,” he says. But success has to be gradual.

Another company with strong exports is alcohol producer Latvija’s Balzams General director Guntis Aboltins-Abolins acknowledged that his company is not a large producer, in the global context. But he says that his company “makes a good product. Then we create a story, then sell it.”
Aboltins-Abolins says: Companies need to do their homework when entering export markets; they need to be proactive. But efforts need to be focused on the most important markets. In their case, new brands and products needed to be created for the U.S. and Chinese markets.

One needs to “start with an idea,” said concrete producer Sakret’s director, Andris Vanags. “The Latvian market is not enough; we understood that we need to export, to markets that are close,” he added.
And short-term thinking in business usually doesn’t work in building a solid brand. Vanags worries that “Latvians have too much of a short term outlook… to get that nice TV set.”
Michelin North America service development director Roberts Kukainis says his company, a global leader in the automotive and culinary industries, doesn’t look to just the next quarter’s results, but to the next 40 years of innovation.

Know your customer
Vanags says to look at the needs of customers, what they have, need, and what they are missing, as the key to developing new products. One needs to take the best experience out of each market, which can be combined with one’s own comparative advantage. This also has to do with identity. “We are the West, the EU. We’re not German, Swedish, but Latvian,” he says. He urges Latvians to dare, and to be competitive, to learn about the local markets.
But a low price “is not always a priority,” he claims. Customers will pay more if there is higher perceived value.
Kukainis said that Michelin’s higher prices are “a strategic decision: customers get the feeling of safety” through the higher priced products.

Cosmetics firm Stenders founder Ieva Eglite says their focus is on support for their local franchisees, who “know the local market the best.” Challenges in foreign markets include cultural, national differences, language, and human resource shortages. She adds that it’s important to stick to the company’s concept.
Kukainis urges businesspeople to adopt a marketing driven approach, one in which market needs (the customer) drives business activities. One needs to “Be the most innovative, but don’t just be the inventor. Also get out and sell the product, and make the profits,” he says.

Business is not rocket science. What matters is focus, and execution of basic principles. Kukainis mentioned a few of these: Know your main competence in the business; don’t damage your brand; learn from competitors.
Other ideas were presented at the Forum to help guide Latvian companies to grow. Aboltins-Abolins emphasized that it’s important to have the right people on board. Vanags mentioned that assistance abounds, in the form of Latvian embassies around the world that can help in various ways to build exports. Kukainis added that local Latvian communities abroad, such as the Latvian church community, are a good place to start with contacts and introductions. Eglite noted the importance of finding and working with like-minded, trustworthy people.

Skipping over the dark aspects of reality won’t make them disappear. What was missing at the Forum was discussion on issues such as corruption, in politics and business, and how to clean it up. After all, one of the cleanest economies in the world is just a short drive north is Finland - where Latvia could probably learn a few things. Serious discussion for reform in the judicial system, its processes, was also not on the agenda. These are real issues that investors - both domestic and foreign - look at when deciding where to invest. Substantial improvements in both areas are needed, and will go a long way to improving the business climate in Latvia.

This first Forum brought together some of Latvia’s brightest business minds in a feel-good atmosphere, one intended to share ideas, as well as to strengthen ties between Latvians everywhere in the world. It’s now up to the attendees to go out and put into action what they heard. Hopefully participants will reconvene at the next Forum, to listen to how this year’s best ideas have generated more success stories.