The Significance of CSF Among Enterprises in Latvia: an In-Depth Analysis
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China-USA Business Review, ISSN 1537-1514 April 2014, Vol. 13, No. 4, 266-289 D DAVID PUBLISHING The Significance of CSF Among Enterprises in Latvia: An In-depth Analysis Aleksandrs Judins The Manchester Metropolitan University, Manchester, England SIA Esmeralda Immobilien, Riga, Latvia Irina Kuzmina-Merlino University of Latvia, Riga, Latvia Transport and Telecommunication Institute, Riga, Latvia The present research paper is dedicated to the in-depth analysis of the significance of critical-to-success factors (CSF) among enterprises in Latvia. The goal is to distinguish and find key success factors of Latvian companies who survived the economic crisis, which started in 2008, and executed the enabling objectives of the paper. Research methodology involves the analysis of the existing theoretical literature, in-depth interviews with the top management representatives of large Latvian business entities were interviewed by GFK (Custom Research Baltic agency) on behalf of the authors of the paper. It is found out that 10 largest industries for the big companies are: fuel retail and wholesale, energetics, food retail and wholesale, chemical products, logistics, metal processing, financial services, information technologies service and production, passenger transportation, and telecommunication services. For medium companies such industries are: food retail and wholesale, logistics, fuel retail and wholesale, wood processing, automotive industry, construction, financial services, pharmaceutical products, metal processing, and beverage wholesale and production. The authors also scrutinised 72 articles of 38 Forbes magazine archiving from the years 2010-2014. Thirty CSF were defined. The most significant CSF according to the Forbes interviews are specific market niche, export, technological innovations, and high quality of products and services. The in-depth interviews with the top management representatives prove the importance of the above mentioned factors. Relevant recommendations are provided in the end of the paper. Keywords: critical-to-success factors (CSF), key success factors, investing in Latvian economy, market niche preference, export, interviews Introduction Prior to starting a new business, entrepreneurs are performing market research and choosing a specific industry to operate in. Establishing a new company in a foreign country is especially complicated, as usually an Aleksandrs Judins, MBA, Business and Law Faculty, Master of Business Administration Programme, The Manchester Metropolitan University; Managing Director at SIA Esmeralda Immobilien. Irina Kuzmina-Merlino, Professor, Ph.D. in Economics, University of Latvia; Professor at Transport and Telecommunication Institute. Correspondence concerning this article should be addressed to Aleksandrs Judins, Kokneses prosp. 4/1-3, Riga, Latvia, LV-1014. E-mail: [email protected]. THE SIGNIFICANCE OF CSF AMONG ENTERPRISES IN LATVIA 267 entrepreneur is not acquainted with its economic situation and many other peculiarities. Detailed market research demands much time and effort. However, there are critical-to-success factors, which can significantly help a company to achieve great success and profit, as well as survive harsh economic situations or even deep crises. CSF vary depending on the company, economic environment, country, location, etc.. Knowing these factors for a specific industry may help an entrepreneur with conducting market research. The significance of the present research is that it may help potential investors who are planning to start businesses or invest in the Latvian economy, to choose the most profitable industry. Defined CSF (and confirmed by Latvian enterprises) may assist and benefit them in conducting business in the Republic of Latvia. The problem of the research is in defining and analysing CSF among enterprises in Latvia that survived the economic crisis in 2008, which already leads to a conclusion that these factors played a significant role during the fight against stagnation. Therefore, the compliance with CSF may also lead to success. The research covers and scrutinises such topics as the top industries according to turnover in Latvia, target sectors for potential investments in the country, historical background and specification of the CSF in terms of Latvian business enterprises, Latvian national economy, successful entrepreneurs in Latvia, and European Funds in Latvia, etc.. The subject of the paper is CSF applied by companies in Latvia and the data, acquired by performing the analysis of information, relevant to the current topic of the research. The object of the paper is the TOP-500 Latvian enterprises according to their turnover in 2012, the list of the TOP-100 wealthiest people in Latvia according to their assets, 38 Forbes magazine archives from 2010-2014 and six in-depth interviews with the top managers of large Latvian business entities conducted by GFK (Custom Research Baltic agency) on behalf of the authors. Prior research, the authors put forward seven hypotheses regarding the topic: (1) Export activity is the main success factor of enterprises in Latvia. (2) Government funding is one of the CSF of companies in Latvia. (3) There are several CSF that underlie performance of enterprises in Latvia. (4) Both large and medium companies have specific business sectors with the highest turnover levels that coincide. (5) Market niche is one of CSF especially important for SME. (6) EU funds are CSF of great significance for Latvian companies. (7) There are several CSF that both large and SME define as of great and vital importance. With a view to prove or disprove the above mentioned hypotheses, the goal of the paper is to distinguish and find key success factors of Latvian companies who survived the economic crisis, which started in 2008, and execute the enabling objectives of the paper. In order to achieve the aforementioned goals and prove the hypotheses of the research, the following enabling objectives have been put forward: (1) To study existing theoretical literature dedicated to CSF; (2) To study the scientific approach of CSF implemented by multiple researchers and interaction of these factors with the practical business environment; (3) To provide a brief look into the Latvian national economy since the beginning of the 20th century; (4) To scrutinise top industries, in which the TOP 500 enterprises in Latvia are operating; (5) To divide the above mentioned companies into large and medium companies; 268 THE SIGNIFICANCE OF CSF AMONG ENTERPRISES IN LATVIA (6) To summarise the acquired data on the TOP 500 enterprises in Latvia; (7) To analyse Forbes archives from 2010-2014 totalling 38 magazines; (8) To select articles relevant to the present topic of the paper; (9) To analyse all the interviews and define CSF; (10) To analyse six in-depth interviews with the top managers of Latvian enterprises; (11) To scrutinise information about high-net-worth individuals (HNWI) in order to demonstrate the industries in which the wealthiest people in Latvia are operating in; (12) To find and analyse information about EU funds in Latvia. (13) To draw relevant conclusions and provide recommendations to potential investors. The research methodology involves the analysis of existing theoretical literature, interviews with either proprietary or top management of the scrutinised enterprises, and comparative research method when working with the received data. The methodology also involves private interviews with the top managers of large Latvian enterprises, which were conducted in cooperation with the international research agency GFK. The results of the present paper may help potential investors, who are planning to start a business or invest in the Latvian economy, to choose the most profitable industry. Defined CSF may assist and benefit them in conducting business in Latvia. Brief Look Into Latvian National Economy Since the Beginning of the 20th Century From the 20th century until the present day, the Latvian economy can be divided into four major sections: Latvia in the time of the Russian Empire, the period following World War I; the independency period of the Republic of Latvia; World War II and the subsequent incorporation of Latvia into the USSR; and the restoration of independence of the Republic of Latvia and subsequent EU accession. The industrial production revolution that had begun in Latvia in the 1830s, continued through to the second half of the 19th century. Factories replaced manufacturing. By 1847, 14 companies in Riga were already using steam engines and boilers, although manual work was still applied. In the 1840s, two steam engines were operating in Strazdumuiza textile; and in 1848-1849, the first machine was set up in a paper-making company in Ligatne. At the same time, the concentration of labour and production at large companies was taking place (in 1894, in nine enterprises there were more than 200 employees; 41.3% of industrial output was produced). Riga was the main industrial centre in Latvia (in 1834, there were 33 factories (1,593 employees), in 1860, there were 1,889 factories (6,134 employees)). Textile was the leading industry, in which eight enterprises were operating. The largest were Pihlavas kokvilnas fabrika (782 employees), Sepera kokvilnas fabrika (500 employees), and Tilo fabrika (Zasulauka manufaktura, (420 employees)). Second place was held by the tobacco industry. Prior to the construction of the railway, the main market outlet was the Baltics, however, after its opening goods produced in Riga