Strategy consultant, Board Vice-Chairman of American Chamber of Commerce in Lithuania, Board member at ISM University of Management and Economics
Having long been deprived of operational and financial freedom, the restoration of Lithuanian independence spawned an entrepreneurial boom.Nerijus Pačėsa
AN INSIGHT INTO BUSINESS
Some businesses in Lithuania are approaching their twenty-sixth anniversaries. While 26 is still quite a young age for an enterprise in terms of management maturity, such accomplishments delight us with their achievements and influence on Lithuania’s economy and its people’s well-being.
During the first three years of independence, Lithuanians established over 100,000 new companies; no subsequent years yielded as high a concentration of new businesses. Approximately 40,000 new companies were established in 1990, compared to approximately 10,000 in 2000. No doubt many of these businesses failed to survive, but the boom showed how the entrepreneurial potential, long suppressed by Soviet prohibitions, was able to persevere.
The first era of this evolution was very controversial. New businesses quickly cornered the market for necessary products and services, but crime flourished, infiltrating the corporate world and compromising the image of the modern businessman. Lithuanians formed a negative opinion of business people as individuals seeking only selfish interests, dodging taxes and crushing employee dreams. This chaotic and aggressive commercial era lasted until 1998.
The second stage of business development in Lithuania was marked by the Russian economic crisis of the late 1990s, which was like a cold shower for Lithuanian companies. By this time, Lithuanian businesses had experienced an excellent period of growth without serious crises or challenges, but it had not always been easy. After the reinstatement of Lithuanian independence in 1991, the Soviet Union imposed a drastic economic blockade on the country; all trade routes, especially exports to the Soviet Union, were cut off. Businesses worked patiently and diligently, taking numerous risks, to regain Russia as a major business partner and product market.
Beginning in the late 90s, the Russian economic crisis hit hard, but due to its brief duration, it did not have serious or long-term repercussions for Lithuanian enterprises. Because the country’s businesses were young, flexible, and determined, the companies quickly moved into other markets. Labor costs remained low, which was especially useful in facilitating competition in the West. This became a very successful period, as increasing Lithuanian product quality and business professionalism provided new opportunities to gain business acumen from Western European countries. Lithuania’s crowning achievement during this phase was its accession into the European Union in 2004.
The third phase of business development involved increasing profits and competitiveness. Before the global financial crisis, Lithuania’s economy experienced very rapid growth, which led to a real estate market bubble. Luckily, this period was also inordinately successful for businesses, which allowed companies to build solid financial foundations. Therefore, when the 2008 economic crisis began, many companies found themselves efficiently maintaining financial and operational resource control, capable of preventing up to 80 percent of the debts that would have been incurred by lost circulation. Undoubtedly, a number of companies, not only ones in the construction sector, fell into the economic bubble’s trap, irresponsibly borrowing and investing in excess, and did not survive. However, the remaining companies learned an important lesson in business management; they reviewed their operating systems, restructured to maximize flexibility and effectiveness, and reorganized processes to focus on value creation. In this way, businesses significantly increased their competitiveness, not only in terms of effectiveness, but also markedly increasing quality control and value-creation capabilities. Maybe it is rude to simplify the effects of the financial crisis in this way, but it cleansed the market of inefficient and low-quality players and greatly increased the competitiveness and stability of the remaining businesses.
In my opinion, the fourth stage of Lithuanian business evolution began in 2012: the international business development stage. This does not mean Lithuanian businesses had not worked in the international markets previously, but the majority of these businesses had operated as sub-contractors without direct access to international markets, and they had generally acted through agents and not via their own brands. The first three development stages formed businesses capable of competing independently in the global arena. They fostered managerial skills that could create successful returns. Therefore, I believe Lithuanians will create more and more companies that will actively and independently conquer foreign markets, bringing them Lithuanian products and services using their own brands. Now is the time to incorporate our businesses into the sphere of international markets and global competition, which will one day create the next breakthrough in Lithuania’s business evolution.