Business enviroment in Lithuania

Verslo aplinka Lietuvoje

CONTENT 1

INTRODUCTION 2

BUSINESS ENVIROMENT 2

BUSINESS ENVIROMENT IN LITHUANIA 3

COSTS REDUCTION FOR INVESTORS 4

EU STATES INVESTMENTS PROMOTION AGENCY SIMILARITIES 4

ATTRACTION OF INVESTMENTS PRIORITIES 4

INDUSTRY 5

REGIME OF TRADE 6

CONCLUSIONS 7

INTRODUCTION

Lithuania now has a functioning market economy. State has main market institutions and the foundations for economic development: the rule of law, the conditions for competition and private property. The country has stable macroeconomic situation and economic, financial, social and employment policies. Lithuania is state of open economic, it is implementing an n export-oriented development model. High level of education for business guarantees quality workforce.

BUSINESS ENVIROMENT

Internal business environment – all factors directly linked to the entrepreneur opportunities, it is consumers, mediators, competitors, labor resources, and so on. Each user is different in their taste, character, desires and habits. Only after analyzing user you can give him what he wants, what he can evaluate and what he cam afford. It is important to understand what determines the user’s choice: the price, the quality, delivery da ates, service, personal contacts, political beliefs.

Another factor in the internal business environment – competitors. There are distinguished three types of competition:

1. Direct competitors – the competition between the same type of products. The main challenge is to offer better value to gain customers.

2. Inderect co

ompetition – the competition when competing different products fulfilling the same need. Goal is to release offers and promotions to attract customers.

3. Phantom competition – substitute products for same customers.

You need to assess the impact on the competitive environment for business. Often, competitors determine what products to produce and at what price to sell. Competition takes place not only for consumers but also for labor resources, materials, capital and the right to apply technical innovation. Since the level of competition depends businessman working conditions, relationships with subordinates, salary. Every businessman should be well aware of their competitors and has to learn from them, then he will be able to decide about the price of his production.

Another factor of the internal business is suppliers. Th heir choice is a risky operation, so before they have to be investigated.

Companies external environment – is an outside environment dependent on a natural environment, political – legal environment, economic, competitive environment, technological environment, social – cultural environment and so on. The most important external business environment is nature. Only nature can supply the raw materials, and its resources are limited.

Political – legal environment is also very important. The entrepreneur has to respond to the government’s decisions, legal acts, which are divided as follows:

1. Acts th

hat define the conditions of competition.

2. Acts regulating the actions of competitors.

3. Acts regulating individual entrepreneur types of actions.

The company’s economic and social environment affects the entrepreneur through the consumers, their purchasing power fluctuations. Purchasing power depends on the income level, the level of prices, the level of savings, credit receipt circumstances.

BUSINESS ENVIROMENT IN LITHUANIA

Lithuania is now sufficiently educated and skilled labor force, increased capacity to fit the market economy requirements, formed layer of businessmen and increased the entrepreneurial skills. Lithuania has the necessary rapid technological progress assumptions: applied science potential and ability to connect knowledge of different areas. In recent years, Lithuania has achieved significant progress in information and communication technology infrastructure. Lithuania is in a supportive geographical location for transit, favorable climate conditions for stable agriculture, well developed physical infrastructure and has strong construction sector. Arrangement of big and smaller towns provides conditions for balanced economic, social and cultural development.

Membership in the EU for Lithuania gives ability to implement the EU’s social market model. Properly using the processes of globalization, Lithuania might expand the cooperation of industrial and service production, adopt new technologies, gain experience in the successful development of e-business services and get high quality and affordable financial services. Li

ithuania getting stronger in continental European transport market. Request of global and organic food products and achievements in biotechnology opens new opportunities for agriculture and food industry.

The planning and the use of EU structural support, which is a large part of the country’s total investment, improves management of national resources. Fiscal discipline enables to finance borrowing needs at the lowest cost and risk.

Lithuania today has a stable business development and growth conditions. Membership in the EU has improved the business opportunities in the EU single market. Foreign investors through Lithuania can expand their business in both the European Union and Lithuania, joining the business bridges between Russia and Western Europe.

Lithuania applies identical investment and business environment for foreign and local investors. One of the major Lithuanian investment climate factors – a strong banking sector that can currently offer for investors a good borrowing conditions. Lithuania wins investment projects due to low labor costs and relatively low job creation costs.

Favourable for business are government policies in the fact that in Lithuania tax burden is one of the lowest among all the EU countries.

In Lithuania corporate losses can be carried forward to the next fiscal year in 5-year period. This is especially important fo

or new investors.

Direct foreign investments in recent years has grown rapidly. According to that Lithuania has become a leader in the Baltic countries, they have attracted more than Latvia and Estonia put together. Therefore, it can be said that it is an important catalyst for our growth.

There is one particularly outstanding feature of Lithuania, which is still too little known and promoted abroad – is a high level of education of our people. High level of education determines a favorable business workforce quality-price ratio. Labor cost in Lithuania is one of the lowest among EU countries.

According to graduates of universities and colleges for 30-60 years of the population ages Lithuania almost twice ahead of the EU average, as well as Central and Eastern European countries. According to the number of high school students – 43 students per thousand inhabitants – in the world only behind the United States, Spain and Finland.

Looking to the EU member states tax policies, it can be noted that Lithuania stands out from all the countries with lowest profit tax, despite Czech Republic, and it is the main country of foreign investment attracted countries between EU member states, and throughout Central and Eastern Europe. In order to understand the factors influencing the decisions of foreign investors, it is necessary to look at the overall tax burden and provided incentives influence.

COSTS REDUCTION FOR INVESTORS

Another common fiscal measure is direct payments / subsidies to investors, covering job creation, worker training and retraining, infrastructure development costs. The investment incentive system is applied only in Poland and Slovenia. Other countries, however, next to the tax benefits, uses and subsidies (so-called “grants”) delivery models in order to direct investments in the priority spheres of economy, regions with high unemployment or low technological level. Such fiscal measures would be of mutual benefit: the investor reduces operating costs, and the party gets a tool to develop backward regions and perspective sectors of the economy. Lithuania also applies subsidies for vocational training and retraining in regions where the unemployment rate exceeds the national average. However, the support scheme so far has been applied only to Lithuanian Labour Exchange registered unemployed to retrain, and the total amount is below 600 000 Eur per year.

Tax incentives and subsidies for investors is based on the logic state benefits: more investment – more jobs – in general the higher contributions to the budget.

EU STATES INVESTMENTS PROMOTION AGENCY SIMILARITIES

Although to weigh the contribution of agencies in the direct foreign investments is difficult, but without such agencies as the Lithuanian Development Agency (LDA), an indispensible in many countries around the world. LDA has many similarities with Slovenia, Slovakia, Hungary operating agencies. Meanwhile, Latvia is the only among the Baltic countries has an agency that has acquired the “one-stop-shop” status. Estonian Investment Agency, part of “Estonian Enterprise“, is being reorganized to make better use of EU structural funds. More focus on the activities of the agencies encourages and the neighboring country Poland. Polish Ministry of Economy, in order to encourage foreign investment, whose growth rates have recently decreased, also intends to reorganize the Foreign Investment Agency, the consolidation of the functions currently performed by various state institutions and agencies. The strongest in the CEE region agency is considered to be the Czech Republic, CzechInvest agency, who also has a “one-stop-shop” status.

Agencies importance of attracting investment also supports the British consultancy group OCO / Consulting carried out the world’s foreign direct investment (FDI Intelligence Service) research, which finds that one of the major governments priority was the investment to the investment development agencies and the country’s representation abroad. World Bank’s MIGA conducted research mentioned that investment agency is one of the key factors encouraging foreign investment coming.

ATTRACTION OF INVESTMENTS PRIORITIES

Investments in Lithuania can be: the establishment of a company (there are no restrictions for foreigners); the acquisition of the operating company’s shares (there are no restrictions for foreigners); the acquisition of movable and immovable property; borrowing and so on.

Investments are attracting primarily in regions with high structural unemployment. Invest to “human capital.” Pay special attention to green field investments (promote these investments disused publicly and privately owned land). To encourage investment and to direct them to the free economic zones (FEZ), science and technology parks, and production based on high technology (biotechnology, lasers, information technology, etc.).

In order to promote domestic and foreign investment in the economy, it is written the Law on Investment, related Support of the Unemployed Act and the Concessions Law.

Investment Law provides that not less than 560 000 Eur throughout the territory of Lithuania, but in areas where the unemployment rate is higher than the national average for at least 145 000 Eur investments, the Government of Lithuania Republic or an institution authorized by the Government concludes contracts with investors, establishing a specific investment and business conditions.

In Concession Law formulated criteria for the success of the concession project realization, for investors and funders ensured legal certainty and stability, enshrined investors and states or local authorities right to regulate by contract the complex of relations, associated with private investment in the infrastructure object – the obligations of the parties under the project, financial settlements, obligations ensuring, relations with creditors.

INDUSTRY

Lithuanian industrial policy is in line with the EU’s industrial policy principles. After adoption of EU compliant legislation commercial activity has been significantly simplified: implemented a simpler corporate bankruptcy procedures, allowing bankrupt companies to more easily pay employees and creditors, simplified corporate restructuring procedures. After adoption of the medium-term industrial policy strategy has been clearly defined priority directions of development of the Lithuanian economy, defined the state measures and steps how to promote industrial development. According to that, manufacturers and investors can better choose how to create and develop their business. State aid law unified competitive position of the producers, create a more transparent business environment, complying with the requirements of the Single Market.

Positive taken in conformity with the requirements of the EU legislation influence is reflected in the statistics. Every year, not only maintained the previous years in terms of industrial production volume, but also noticeable their further increase.

The largest part of the industry consists of food products and beverages, petroleum products, wood and wood products, light industrial products, machinery and appliances. The sector influence for domestic industry will continue to be significant, because of having a long tradition of manufacturing sectors. However, in the future more attention have to be paid for developing of high-tech, as well as a industry of highly skilled labor force. This – biotechnology, mechatronics, lasers and information technology and so on.

Lithuanian companies export about 60 percent. all of their production, while sectors such as light industry, radio, television and communication equipment industry, chemicals, furniture industry – about 80-90 percent. It tells about achieved some of our industrial production level of competitiveness and individual producer position on foreign markets trend.

This trend should continue in the future. As the realization of production on the domestic market growth is constrained, industrial development is possible mainly at the expense of foreign markets.

In order to ensure the maintenance of the existing foreign markets and to enter new markets only at the expense of cheap labor is not viable. There is a need for new investments in cutting-edge technologies, focusing on the more complex products.

In recent years increased productivity rates in the industry. While productivity growth rate is fast enough, but according to the EU countries are lagging behind on several times (eg., in mechatronics sector per employee per year an added value in Lithuania is 3.5 – 7 thousand dollars, the average of developed countries – 50 thousands dollars). Increasing productivity is possible through technological upgrading, innovation, staff training and so on.

True, the EU has no direct support for industry applications, industrial policy is coordinated in minimum. Therefore, Lithuania independently develops and carries out its own industrial policy. Outcome of negotiations to adopt legislation only creates a more favorable and transparent environment for the development of industry and investment. Therefore, as the main benefit of the membership for Lithuanian industry should be seen already and continue to create a more transparent business environment, completely opened market for export.

Risks must be remembered as well. They have to be properly evaluated. Positive effect includes pulses for development, coming of new technologies, number of industries moving into the new country for a relatively cheap and well-qualified local workforce. Thereby it is feared that the new EU member states will move only labor intensive production which does not require very high-tech. This would create a serious technological backwardness of the old EU members.

An effective way to achieve economic progress and technological advanced products – the knowledge of economy development.

REGIME OF TRADE

Lithuania on accession to the European Union adopted the European Union applicable trade regime. This means that external tariff, anti-dumping, countervailing, protective market protection measures are uniform for all European Union member states. It is therefore very important to find out what changes have occurred since Lithuania joined the European Union, to say the influence of trade regime and what was changed in imports of goods to Lithuania and exports from Lithuania.

Foreign trade analysis shows that most trade regimes have changed with such third countries as the Russian Federation, the United States of America, China, Japan.

Prices went up in export to the United States because the United States for European Union goods apply higher import duties than those was applying to goods from Lithuania.

Before accession to the EU, in trade with the European Union for certain agricultural and food products existed duties, quotas and for lithuanian ammonium fertilizer and wood fiber board, the European Union applied dumping duties. All of these and other trade restrictions now is eliminated, and this compensates the loss of trade with third countries.

CONCLUSIONS

1. The business environment is determined by a number of factors: the specific situation of companies and products on the market, the neighbors, infrastructure, business traditions and more. A huge influence made by government (at all levels – local, regional, central, European Union).

2. The government influences the business environment in these key ways: by setting the (institutionalized) “rules of the game”, a restricted manner (licensing, certification, etc.), collecting taxes, influencing international trade, carrying out monetary policy, itself part of a business, “encouraging” business.

3. Joining the EU has a strong influence on international trade. Relations with the EU countries is much freer, but in relations with other countries – duties increased.

4. Lithuania is creating a favorable business environment, which is further reinforced by the European Union funds allocated to infrastructure, the environment, small and medium-sized projects.

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