OREANDA-NEWS. March 14, 2011. In Latvia’s business environment around 50%1 of start-ups go out of business already in the first year of their operations, mainly due to poor profitability stemming from a lack of appropriate knowledge and guidance. In order to promote sustainability of Latvia’s business environment, a higher proportion of small and medium sized enterprises, as well as exchange of experience and competitiveness, Swedbank has set up the Entrepreneurship competence center, reported the press-centre of Swedbank.

“Latvia still has a great potential for growth in terms of improving the sustainability of business environment and therefore opening of the Swedbank Entrepreneurship competence center is our effort to share the knowledge and experience, thus encourage competitiveness of Latvian companies,” says Daniils Rulovs, Head of the Swedbank Entrepreneurship competence center (Head of Swedbank Corporate Banking and Member of the Board, Swedbank Latvia).

Although in the recent years Latvia’s position in the World Bank’s Ease of Doing Business index has improved, reaching 24th position among the 183 countries in 2011, we are still lagging behind Estonia (17th) and Lithuania (23rd). In comparison with the previous year improvements have been achieved in such areas as closing down of business and registration of title to property, likewise such areas as enforcing contracts and trading across borders have been recognised. According to the Swedbank Baltic Sea Region Index2, Latvia’s indicators are below the average in the region in such areas as entrepreneurship, labour market, tax policy, financial sector, external trade, logistics, education, innovations, governance and infrastructure.

Factors contributing to the competitiveness of the Latvian exporting companies
The results of the survey conducted by Swedbank on the competitiveness of Latvian exporting companies3 show that the managers of Latvian micro, small and medium sized enterprises have pointed out the following main contributing factors that leave a positive impact on their competitiveness: experience in business, the country’s geographic location, loyal, hard-working and knowledgeable employees, as well as the developed information technologies and innovations. Likewise, the managers pointed out such positive factors as the added value generated by the brand of the produced goods or rendered services, as well as the quality of education received by the specialists (above 30 years of age) in the area. It must be noted that entrepreneurs generally tend to have a more positive attitude towards factors that can be controlled by themselves.

While among the negative factors that hold back the companies in terms of their competitiveness, the exporting companies have pointed out the following main contributors: taxes on labour and business, red tape, the speed of decision-making in public institutions, as well as the low quality of Latvian roads. Likewise, such factors as the high level of corruption at the state and municipal levels, as well as in the private sector, the low level of purchasing power and availability of appropriately qualified labour have been pointed out by the respondents. 

Upon examining factors affecting the competitiveness of the Latvian exporting companies, Artis Kampars, Minister of Economics4, mentioned the following positive points: the availability of EU Structural Funds, the national exchange rate regime, the commercial law and other laws governing commercial activities, as well as the good command of foreign languages among the employees. Likewise, just like the surveyed entrepreneurs the minister believes there is room for further improvements in such competitiveness-related areas as the availability of appropriately qualified personnel, consumers’ purchasing power, as well as sufficient own resources for business development.

Among the factors that have no effect on the competitiveness of the Latvian exporting companies the surveyed entrepreneurs listed the prevalence of religious beliefs, the national values and heritage of art and culture, the election system, the bilingual community, as well as the company’s exposure in local media.

When answering to the open question about other factors that are beneficial for the exporting companies’ competitiveness, almost one fourth of the respondents (24%) mentioned the important role of low-cost labour force that is able to adjust swiftly, as well as the macroeconomic factors (19%) and the properties of the exported goods and after-sales services (17%). Unlike representatives of other sectors, companies working in the areas of art, entertainment and recreation claim that the most significant negative factors affecting their competitiveness are the following: the concentration of Latvia’s population in Riga and the low level of purchasing power among the local population. At the same time, micro enterprises point out that the concentration of population in Riga has no effect on their competitiveness, thus sending out a positive signal that more micro enterprises can be expected to emerge in the regions.

When asked to comment the results of the survey, Ivars Austers, Ph.D, Professor at the University of Latvia, explained the following: “It is extremely important to have the most significant success factors explained. We all think about these factors; entrepreneurs and managers are no exceptions. However, it is important to understand whether success stems from people and the company itself or the good results have been achieved due to the right situation, environment and the nation-wide development. Or quite the opposite – what have been the reasons behind failure? People tend to think good about themselves, they need a positive self-image. You can build your self-image by attributing all the success to yourself (your company) or in accordance with the results of the survey – to your experience, skills and loyalty of your employees. These all are the “internal” flattering factors. While the failures are mostly attributed to taxes and bureaucracy, something “external”. It’s only natural, yet such an approach exhibits a certain lack of logic  - there are still companies that are successful in overcoming the external barriers, for instance, the results of the survey show that successful companies claim that the tax burden or the poor quality of Latvian roads have had a smaller negative impact on their success stories.”

1 Global Entrepreneurship Monitor, Report on Latvia. 2009.

2 The index covers the Baltic Sea region and reflects data on 11 countries by comparing the competitiveness and structural indicators with the rest of the world.

3 The survey has been carried out in cooperation with the GFK CR Baltic in January and February 2011. It comprised 200 top managers of Latvian exporting companies.

4 The questionnaire on the factors contributing to the competitiveness of the Latvian exporting companies was also filled out by Artis Kampars, Minister of Economics of the Republic of Latvia.