Business climate survey. 2012 Lithuania. Swedish trade council

2012-08-23 SWEDISH TRADE COUNCIL

BUSINESS CLIMATE SURVEY 2012

LITHUANIA

Vilnius, August 23rd, 2012


This document is not complete without oral comments of the research team

from the Swedish Trade Council. Any copying or commenting is prohibited

without a written permission from the Swedish Trade Council.

Introduction

Executive summary

Respondents’ profile

Investment environment, regulations and profitability

Legislation, taxation and payments

Establishment, infrastructure and human capital

Quotes

2012-08-23 SWEDISH TRADE COUNCIL 3

TABLE OF CONTENTS


INTRODUCTION

The Business Climate Survey 2012 was initiated and financed by the Embassy of Sweden in

Vilnius and the Swedish Trade Council.

The study aims to present the perception of the business climate in Lithuania among companies

with Swedish capital, identify areas for improvement and outline future expectations.

The survey was conducted by using closed-ended questions, yet the majority of questions

allowed respondents to write comments and recommendations. The study was finalized by

carrying out in-depth interviews with selected respondents.

The results are based on answers of 44 respondents, who represent 34 percent of the possible

respondents’ pool – there are 130 Swedish companies currently active in the country.

In addition to this survey, identical questions were answered by 23 representatives of Nordic

capital companies, active in Lithuania, in order to crosscheck the sentiment of Nordic capital

companies.

The study was conducted by the Swedish Trade Council during April–June 2012.

Introduction


HOW TO READ THE DOCUMENT

Slide structure:

1 2

3

4

5 6

7

1. Conclusion

2. Question as asked in the questionnaire

3. Situation is expected to improve

4. Situation is expected to worsen

5. Situation is expected to remain unchanged

6. Areas of change or focus

7. Part of the document

Indi

cato

rs o

f exp

ecta

tions

Introduction

Executive summary





Quotes


TABLE OF CONTENTS


LITHUANIA IS A GOOD PLACE TO DO BUSINESS…

In general, Lithuania is a good place to do business. Swedish capital companies find the labor force,

relatively low cost levels and strategic location of the country as some of the most attractive aspects

for business in Lithuania. Their motivation to do business in this country is strengthened by positive

expectations for development of the economy at large.

Stable political environment, good quality of life, profitability of local market, easiness to start a company,

excellent ICT infrastructure – these are some of the other aspects which make Lithuania attractive for

business.

This attractiveness is confirmed by investments – respondents are investing over 230 million LTL this

year and investments are expected to slightly increase during upcoming years.

The study reveals that corruption is assumed to be a big issue, however very few companies have been

exposed to corruption directly. The survey also shows that major improvements in this area have

occurred in recent years.

Executive summary


… HOWEVER IMPROVEMENTS IN SOME AREAS ARE CRUCIAL

Nonetheless, there are important areas for improvement. Amongst them – payment moral, time

consuming procedures and accessibility by air are of the most concern and need to be addressed

without delay.

According to Swedish companies, simplifying and stabilizing tax regime, following payment terms,

liberalizing labor regulations and further strengthening transparency would positively affect the

business climate in Lithuania.

The study also revealed a low trust of representatives of the Swedish companies in Lithuania’s media and

dispute settling system, as well as a rather difficult access to capital.

Executive summary


RESULTS

Quality of life

Good place to do business

Profitability of local market

Easiness of finding business partner

Political environment for business

Governmental influence to operations

Credibility of media

Corruption

Criteria

✓

✓

Expected to

improve

✓

✓

✓

✓

✓ Expected to

decrease

Expected to

improve

Expected to

increase

Expected to

improve

Executive summary

Expected to

improve

Expected to

be stable

✓

Expectations

unknown


RESULTS

Favourability of legislation

Following the law

Tax system

Dispute settling system

Following of payment terms

Easiness to start company

Salary and productivity ratio

Availability of competent staff

Criteria

✓

✓

✓

✓

✓

✓

✓

✓

Expected to

improve

Expected to

improve

Expected to

improve

Executive summary

Expectations

unknown

Expectations

unknown

Expectations

unknown

Expectations

unknown

Expectations

unknown


RESULTS

Mobile telephony and ICT

Roads

Sea routes

Railway

Accessibility by air

Access to capital

Perception about Nordic companies

Criteria

✓

✓

✓

✓

✓

✓

✓

Executive summary

Introduction

Executive summary





Quotes


TABLE OF CONTENTS


RESPONDENTS ARE EXPERIENCED TOP EXECUTIVES…

7 2

10

59

10

2

10

Owner

Member of board

Partner

Managing director

Sales manager

Marketing manager

Other

9

44

47

Before 1994

1994–2003

2004–2012

44 respondents:

Year of company’s establishment, % Respondents’ position, %


69

22

9

Lithuanian

Swedish

Other


…MAINLY LITHUANIAN NATIONALS AND WORKING IN PRIVATE

ENTERPRISES…

7

93

Public (AB)

Private (UAB)

Respondents’ nationality, % Company type, %



…WITH HIGH MONTHLY INCOME…


10

31

55

4

0

10

20

30

40

50

60

Up to 5 thousand 6–10 thousand 11–25 thousand 26–50 thousand

Average monthly income, %


…RELATIVELY YOUNG, PREDOMINANTLY MALE.

10

90

Female

Male

30

45

18

7

27–39

40–49

50–59

60–63

Respondents’ gender, % Respondents’ age, %



RESPONDENTS MANAGE COMPANIES WITH COMMON SERVICE

FOCUS IN VERSATILE INDUSTRIES.

10

10

5

20

5

50 Consulting

Finance

ITT

Production

Logistics

Other

42

32

19

7

Service company

Production company

Trade company

Other

Area of operations, % Industry, %



NEARLY HALF OF THE COMPANIES ARE MEDIUM AND LARGE

ENTERPRISES…

Annual turnover, %

33

22

33

12

Up to 3 MLTL

4–10 MLTL

11–100 MLTL

More than 101 MLTL



…FOCUSED ON THE LOCAL MARKET WHILE EXPECTING

GROWTH FROM EXPORTS. What is the focus of your Lithuanian business operations?

11

11

23

8

47

21

5

19

8

47

0 10 20 30 40 50

2012 2015

3

28

17

21

31

21

17

21

10

31

0 10 20 30 40 50 60

Transit / exports, % Sales to the Lithuanian market , %


Introduction

Executive summary





Quotes


TABLE OF CONTENTS


THE QUALITY OF LIFE IS GOOD AND FURTHER IMPROVING Please evaluate the quality of life in Lithuania

%


0

10

36

54

0 0

5

19

76

0 0

10

20

30

40

50

60

70

80

Very bad Poor Not good or bad Good The best

2012

2015

“Lithuania is going in the right direction.”

Undisclosed respondent


IT IS A GOOD PLACE TO DO BUSINESS Generally, is Lithuania a good place to do business?

%


0

8

23

67

2 0 0

21

74

5

0

10

20

30

40

50

60

70

80

Very bad Poor Not good or bad Good The best

2012

2015

Undisclosed respondents

“Lithuania is the easiest country to

get things done.”

“Business climate in Lithuania is good. It has

some limitations, but it works.”


LOCAL MARKET IS STILL LUCRATIVE. THE FUTURE

EXPECTATIONS LOOK EVEN BETTER Your company in Lithuania generates

%


0

5

21

54

20

0 0

10

57

33

0

10

20

30

40

50

60

Big loss Some loss Breaks even Some profit High profit

2012

2015

“Lithuania belongs to a larger region –

the Baltic Sea region – which is the

fastest growing region in Europe.”



IT IS BECOMING EASIER TO FIND RELIABLE BUSINESS

PARTNERS How easy or difficult is it to find a reliable business partner in this market?

%


0

18

49

31

2 0

13

44 41

2

0

10

20

30

40

50

60

Very difficult Difficult Not easy ordifficult

Easy Very easy

2012

2015

“The situation in finding a reliable

business partner became drastically

better around 2005, but the risk of

being tricked still exists.”



MORE INVESTMENTS ARE PLANNED. Are you planning investments?

51

61

2012 2015

Yes

No

39

28

%


50 mil. EUR


INVESTMENTS ARE EXPECTED TO SLIGHTLY INCREASE.

2012

∑ 67 million EUR

2015

∑ 71 million EUR


Accumulated investments (breakdown in pie chart indicates investments by individual

companies, ranging from 1 thousand to 50 million EUR)

30 mil. EUR

30 mil. EUR

13

2

54

18

13

5

10

54

15 16

0

10

20

30

40

50

60

To very high extent To high extent To some extent To little extent Does not influence

2012

2015


POLITICAL INFLUENCE ON BUSINESS IS EXPECTED TO

WEAKEN… Political environment in Lithuania. Does it affect your business?

%



…ALTHOUGH GOVERNMENTAL IMPACT ON BUSINESS IS

EXPECTED TO REMAIN QUITE STRONG Do the actions of the Government influence your operations?

%


8

19

42

26

5 8

16

50

24

2

0

10

20

30

40

50

60

To very highextent

To high extent To some extent To little extent Does notinfluence

2012

2015

A recommendation for

the Government by an

undisclosed respondent

“Well prepared and communicated

changes to legislation with proper

transition periods – no surprises!”


TRADITIONAL MEDIA FUNCTION AS COMMUNICATION

PLATFORM… Do you perceive Lithuanian media to be a functioning platform for public communication

about your company?

3

19

39

33

6

0

10

20

30

40

50

Very well-functioning Functioning quite well Functioning to someextent

Nearly non-functioning Not functioning at all

%


“Media is a key channel for

marketing and PR.”



…HOWEVER LACKS CREDIBILITY Do you perceive Lithuanian media as a reliable source of information?

18

24

42

16

0

0

10

20

30

40

50

Not reliable at all To very little extent To some extent To high extent To very high extent

%



“I doubt regarding an independent media

in Lithuania. There are only a few

publications I can trust and many I can

not.”

“At times competitors use owned

media to gain competitive

advantages.”


AN OVERWHELMING MAJORITY OF RESPONDENTS HAVE NOT

BEEN DIRECTLY EXPOSED TO CORRUPTION…


15

85

Yes

No

Have you been offered to pay a bribe or to use other corruption mechanisms to win a

tender / a contract during the period of the last 3 years?

There was a big change. Now there’s not a

lot of corruption left.

At least 9 out of 10 tenders in Lithuania

are “clean”. If you bring the lowest

price, you get the tender. It might be

different in another sphere.



…BUT THEY ASSUME THAT CORRUPTION MECHANISMS ARE

WIDELY USED


46

54 Yes

No

Do you assume that your competitors won a tender / a contract because of corruption

mechanisms involved?


I have never encountered corruption directly, but I

know I lost tenders because of it.

The perception of corruption is bigger than the

corruption itself. When a company loses a tender,

it has to explain somehow, why it lost it and

corruption usually becomes the best explanation.

Corruption is also when my competitor wins a

tender because he knows the guy who holds the

tender. “La familia”?


LACK OF TRANSPARENCY IS EXPECTED TO DECREASE BUT

STILL REMAINS AN ISSUE Corruption in Lithuania influences your business:

3

8

28 28

33

0

5

21

34

40

0

10

20

30

40

50

To very highextent

To high extent To some extent To little extent Does notinfluence

2012

2015


%

Undisclosed

respondents

“Open up information in

public registers.”

“Transparency needs to

be reached in very small

steps.”

Introduction

Executive summary





Quotes


TABLE OF CONTENTS


REGULATORY FRAMEWORK IS QUITE FAVORABLE... Do you think that the country has a legislation that is favorable for your operations?

%


5

19

51

22

3 5

8

51

33

3

0

10

20

30

40

50

60

Legislation isunfavorable for our

operations

To very little extent To some extent To high extent To very high extent

2012

2015

“The level of bureaucracy in

Lithuania is not bad […].”

“A lot of paper work and a

lot of stamping. But

bureaucracy is not on a

problematic level.”


0 2

66

24

8

0 0

50

39

11

0

10

20

30

40

50

60

70

Not followed at all To very little extent To some extent To high extent To very high extent

2012

2015


…BUT FOLLOWED ONLY TO SOME EXTENT. HOWEVER MAJOR

IMPROVEMENTS EXPECTED. To what extent the law is followed in Lithuania? %


[…], but then Lithuanian

companies should have to

follow the rules. And that’s

where the challenge comes.



TAXATION SYSTEM IS REASONABLE AND IMPROVING Taxation system in Lithuania is:

%


5

14

54

27

0 0

11

48

38

3

0

10

20

30

40

50

60

Bad Poor Not good or bad Good Best

2012

2015

“Tax level in Lithuania is

Christmas for me. It’s a

fantastic tax system, as I

see it.”

“I find it reasonable. But

simplification is needed

everywhere.”



DISPUTE SETTLING MECHANISMS ARE NOT TRUSTED TO FULL

EXTENT… Do you trust the dispute settling system in Lithuania?

TO LITTLE EXTENT or NO

TRUST AT ALL

25%

TO VERY HIGH or HIGH

EXTENT:

25% 50%


Anyone can sue anyone in

Lithuania with no consequences.



…AND THE PAYMENT TERMS ARE OFTEN NOT FOLLOWED How are payment terms followed in Lithuania?

6

17

48

20

9

Not followedat all

To littleextent

To someextent

To highextent

To very highextent

19

25

31

22

3

Not followedat all

To littleextent

To someextent

To highextent

To very highextent


By municipal and governmental bodies, % By private companies, %


The worst payment culture in the Baltics. Delayed payments became

some kind of tradition.

Many overdue invoices. In some cases invoices of private

companies overdue because municipality / Government does not

pay on time and the chain is closing…


Introduction

Executive summary and recommendations





Quotes


TABLE OF CONTENTS


IT IS EASY TO ESTABLISH A COMPANY Establishment of your company (e.g. forming of the company, registration, etc.) in

Lithuania was:

NOT EASY or DIFFICULT



GOOD SALARY AND PRODUCTIVITY RATIO In your opinion, how are salaries compared to the productivity in Lithuania?

3

41

49

8

0

Very low salary level Low salary level Well-balanced salary level High salary level Very high salary level


%


GOOD AVAILABILITY OF COMPETENT STAFF… In your opinion, how is the availability of competent local staff in regard to

management, sales, development, production, job positions:


-11 -14 -19 -15 -14

50

68

47

30

43

14

3

6

4

0

-30

-20

-10

0

10

20

30

40

50

60

70

Production Management Sales Other Businessdevelopment

Very good

Good

Not good or poor(excluded)Very Poor

Poor


45

LOTS OF HARD WORK BUT LACK OF INITIATIVE Local labor force is: hardworking, easy to train, loyal, creative and initiative

89 86

62

49

41

Hardworking Easy to train Loyal Creative Initiative


%


Creativeness and initiative are the most appreciated [but]

missing aspects in regards of local staff.


INTERNET AND MOBILE TELEPHONY INFRASTRUCTURE IS

EXCELLENT

In your opinion, how does the infrastructure work in Lithuania in regard to mobile telephony and

Internet? %


0 3

26 24

74 74

0

10

20

30

40

50

60

70

80

90

100

Mobile telephony Internet

Very well

Well

Not well not bad


WELL DEVELOPED ROAD INFRASTRUCTURE, POOR

ACCESSIBILITY BY AIR In your opinion, how does the infrastructure work in Lithuania in regard to aviation, railroads,

sea routs, roads?


-27 -21

-9 -19

-14

-3

-6 -3

19

45 43 41 0

9 3

27

-60

-40

-20

0

20

40

60

80

Aviation Railroads Sea rout Roads

Very well

Well

Not well not bad(excluded)Very badly

Badly


“Aviation is the biggest problem.

Vilnius is off the airport charts these

days.”


ACCESS TO CAPITAL IS RATHER DIFFICULT Access to the capital / funds in Lithuania is:

NOT EASY or DIFFICULT


Keep positive dialogue with banks to

improve private business financing.



COMPETITION IS STRONG In your opinion, the competition in the Lithuanian market is:

NOT LOW or FIERCE


We permanently face war on price.



NORDIC COMPANIES ARE VERY WELL PERCEIVED How are you perceived in Lithuania as a representative of Nordic company?

NOT WELL or BADLY


There is a trust in Nordic companies,

business and competences they carry

out and implement.


Introduction

Executive summary





Quotes


TABLE OF CONTENTS


QUOTES

The following slides include a number of verbal and written comments, received from

respondents of the survey.

We have removed:

− repeated comments;

− offensive messages;

− most of names of countries, cities or companies, unless it is needed to understand the context.

Please note:

− original language / formulations are used;

− comments do not necessarily correspond with the results of this study as more often negative experiences are expressed with comments.


QUOTES Advice for the Government

“Publicity in decisions taken,

personal responsibility of the staff in

the state institutions.”

“Decide what the long term

Lithuania’s competitive advantage

is.”

“Transparency, clarity, stability.”

“Reorganize all the monopoly

companies in municipalities and

owned by a municipality, and impose

more transparency.”

“Changes are taking place all the time.

Stability would be good.”

Undisclosed

respondents


QUOTES Tax system

“The lower the taxes, the smaller

the “black market”. But in general

tax system is better than 10 years

ago.”

“Lithuania is only 21 years old. It’s

natural, that the taxes are

changing.”

“It is too complicated and has huge

administrative burden.”

“Complicated income tax

calculations.”

“Tax system needs more stability –

fluctuations should not be so frequent.”

Undisclosed

respondents


QUOTES Corruption

“We make it very expensive to win

a tender for those who try to “go

around”. We do that by offering a

price as low as possible. That’s how

we fight with corruption.”

“10 years ago the scale of corruption

was way bigger.” “The quality of tendering has to be

better. You need to strengthen the

skills on the administrative level.”

“EU supported projects are often

rigged, from what I hear.”

Undisclosed

respondents

“As compared to […], in regards of

tenders, Lithuania is the best country.”


QUOTES Bureaucracy, Infrastructure and Competition

“Competition in Lithuania: low price

and low quality beats quality, but

more expensive products.”

“Market share targets prevail against

reasonable financial targets – volume

dominates against income.”

“Taxis outside Vilnius International

Airport rob customers with rates

exactly twice what it costs in Tallinn!”

“No direct flights to Stockholm, no

boats.”

“We encounter bureaucracy in two

spheres: immigration and customs. But in

general it’s getting better and better.”

Undisclosed

respondents


QUOTES General comments

“You have to learn to live with your

neighbors. That is where the money

is.”

“Lithuania is a very tolerant country,

multi-linguistic. It’s really fantastic

when you look at it.”

“The business climate in Lithuania is

not based on a win-win model yet.

It’s either I you win-you lose, or vice

versa.”

“Too many people are not doing

what they have promised to do. If

you promised, do it. Else, don’t do

it.” Undisclosed

respondents

“If you know how to play according to the local

rules, you can have quite secure business in

Lithuania.”

BUSINESS CLIMATE SURVEY 2012

LITHUANIA

Swedish Trade Council

Office in Lithuania, The Baltic States Unit

A. Gostauto str. 40B (floor 12), LT-01112 Vilnius, Lithuania

Tel: +370 5 212 61 55 | Fax: +370 5 212 66 97

[email protected] | www.swedishtrade.se

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