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Business Development: Latvia / USA
Presentation By:   Mark S. Deion
Deion Associates & Strategies, Inc.


(This is an excerpt from presentations made to Latvian businesses that visited Rhode Island, USA on a trade mission in 1994. It was presented to other Latvian businesses in Riga, Latvia later that year.)

There are many issues which need to be addressed in order to stimulate and insure business transactions between businesses in countries of the Former Soviet Union (FSU) and the United States of America (USA). These issues include: culture, politics, legal, finance, social, language, as well as a host of many other areas which need to be dealt with if business transactions are expected to be executed.

The differences in culture between two separate and distinct countries can create a myriad of problems when it comes to understanding the different attitudes and nuances which present themselves. However much some individuals may believe that culture plays no role in business transactions, the cultural backgrounds of two distinctly different business partners does play a major role in influencing their decisions.

The political organizations which exist in each country, and how they exert their influence on business transactions can also sometimes lead to great levels of confusion. With the recent events regarding the dissolution of the Soviet Union, it has been very difficult for many of the former Soviet Republics to re-establish new forms of independent governments, while also attempting to deal with serious economic problems on a domestic and international level.

Some FSU countries have been able to deal with these issues better than others. Some political infra-structures have attained a more viable semblance of stability, while others appear to be in a constant state of change. What may appear to be normal evolutionary changes to FSU citizens, may appear to be drastic instabilities to potential foreign investors/business partners. Distance, as well as inadequate information many times magnifies the possible misunderstandings regarding what is happening politically in a foreign nation. Only those who have adequate access to current and pertinent information regarding local political and governmental activities will be able to maintain some level of security regarding their business ventures in a foreign country. An "arms-distance" business transaction may be able to counter many of the problems identified here, but it sometimes indicates little if any actual involvement in the business activities of the foreign partner. Such a transaction would require that the foreign partner is able to operate independently, and requires no in-country assistance, no investment of foreign capital, etc.

As the political organizations change within countries of the FSU, so do the legal systems. The laws which exist regarding: taxation, foreign investment, private ownership, partnerships, joint ventures, strategic alliances, import/export duties and tariffs; are constantly changing. Just as it is difficult for an FSU business to identify all of the applicable laws regarding all of these issues, it is even more difficult for an American business to identify them. Access to the information regarding these laws and their short and long term implications play a major role in the potential success of any international business transaction. The barriers which can be created by not being able to access this information are great, and many times will lead to a potential investor/partner becoming discouraged in their attempts to discern viable ways to make a deal work. This very often results in a potential business partner "walking away" from the deal, not because the deal is not attractive, but because the legal requirements are too difficult to comprehend and comply with.

Financial issues raise an even greater concern for many American investors/business partners. Many factors play a role in this. The volatile economy in many of the FSU countries; inflation, devaluation of currency, non-convertibility of currency, non-standardization of currency through-out FSU regions, all add to the level of risk which American businesses are forced to deal with. Prices quoted one day may drastically change another due to the drastic fluctuation of local currencies. Products moving through multiple FSU countries may require various forms of currency as well as compliance with a variety of specific country laws and regulations.

A financial business transactions also requires some sort of standardized accounting practice. Due to the newness of a market economy and private enterprise in FSU countries, the normally accepted forms of private business financial statements are still being developed as a normal facet of the operational plan of FSU businesses. American companies have been required by law to submit financial statements to the government since this is one of the ways they are taxed. Financial disclosures to governmental and regulatory agencies has become a standard for American companies. This is not necessarily the case for FSU companies since they are still developing methods to deal with financial accounting and accountability to their respective governments.

Financial statements are also used to determine the profitability of a company's activities, and to determine the level of risk regarding making investments in a company. Many other issues are also determined based upon the information provided in standard financial statements. Since business is primarily designed to attain some level of profit, almost all decisions regarding a business are related one way or another to its' financial performance as indicated by its' financial statements.

No one likes to "reveal" their private financial information to another, especially if it results in increased tax obligations. (This IS something which FSU and USA companies have in common.) It is difficult to have to reveal financial information to a potential foreign partner when this process might result in increased tax obligations to a local government. But, if international business relationships are to be developed and fostered, this information must be made available to each respective partner and ultimately to each respective government. One could refer to this process as just another "cost of doing business".

The formats in which this information is provided is basic in nature, and standard through-out the international business community. There are variables which do exist from country to country, but the concept of "profit" appears to be universal. No one is interested in doing business in such a fashion that they lose their investment.

Social issues in a particular country also impact the potential success of any business transaction. A blatant disregard for the social conditions of a country one is looking to do business in may result in disaster. The particular habits and methods regarding how people of a particular culture communicate and live their lives is something which merits considerable attention. It is important to be aware of the social customs of the potential partners you intend to do business with. A mutual understanding of each other's social issues greatly enhances the ability to communicate. Ignoring the social implications of a specific culture may ultimately impede any level of progress in the areas of business transactions. This usually leads to heightened levels of frustration, and failed business transactions.

Finally, ... language. It is a well known fact that Americans do not possess the multi-lingual skills that many of their international neighbors do. Some of this may be directly related to the geographical location of the USA, the relative youth of the USA, national origin and demographics. In either case, it is much more common to find someone in an FSU country, or European country who speaks more than one language, than it is to find an American who is fluent in more than one language. The recent influx of immigrants to America has created a situation in the latter part of the 20'th century where there are many American citizens who are bi-lingual, and their native language is that of the country they came from, and English is their second(new) language. But, America still does not teach foreign languages to it's citizens as a primary function. Hence, many native-born Americans do not possess the multi-lingual skills that many of their European counterparts do.

The manner in which communication is to be established between American and foreign firms is complicated at best. The easiest solution is to recommend that both parties attempt to communicate in the other's native language. But, when it comes to American companies doing business with countries in the FSU, this could mean that they would have to learn a multitude of languages (due to the variety of native languages being re-introduced to many of the FSU countries). A simpler solution is to suggest that Russian and English be used as the two primary languages. If an American company only intends to do business in one of the FSU countries, and has no desire to do business in any other FSU countries, it might be advisable to learn their native language (or have translation services available) for the language of that country.

A logistical problem could easily be identified if an American business intended to do business in various countries in the western and mid-western region of the FSU. Use of native languages might require that a business to know: Latvian, Lithuanian, Estonian, Belarussian, Russian, and Ukrainian. There are many manners in which these language problems can be resolved, but it is important that both sides make an effort to meet the language needs of their foreign partners. The hiring of staff who are fluent in the required foreign language, obtaining translation services, becoming more familiar with the workings of a foreign language, are all appropriate and necessary steps towards enhancing the ability to communicate effectively.

Faxes, letters (and especially email messages) received in a foreign language by someone who has no knowledge of that language often times go unanswered. Handwritten letters in a similar format receive even less attention.

Ultimately, it is advisable for international business transactions to be performed with four primary concerns involved:
Government             Military             Education             Private Business

Linking up the goals, objectives and activities of these four separate sectors greatly enhances the ability to complete a successful business transaction. Sometimes, not all four sectors are capable of being coordinated to one common goal, but it is advisable to seek out their cooperation as much as possible.

It is difficult for two businesses from different countries to attempt to negotiate a business deal if their respective governments are not interested in (or even aware of) the deal being negotiated. This has an even greater impact when the private businesses attempt to meet governmental requirements regarding import and export laws, financial transactions, etc.

If a private business in Latvia negotiates a business deal with an American company which potentially does not comply with Latvian governmental regulations, the business transaction may be in serious jeopardy. The levels of assistance which may be available from the government in each country should not be ignored. More specifically, if the government is involved, they may be able to solve some of the major trade problems which present themselves.

With regards to education, much of the work which has been performed between America and FSU countries has been done on an educational level. Numerous colleges and universities have linked up with each other to share and exchange information necessary to facilitate business development. It is advisable to review the current status of the work which has been performed in these areas. Valuable information can be gathered in this manner, and many serious problems can be avoided. Sometimes, the long-term goals of educational linkups can only be successful if some sort of business transaction is initiated. Although many of these educational programs are not designed to create and establish businesses, the educational training and other programs which they work on are designed to assist businesses with attaining the level of knowledge necessary to perform business transactions both domestically and internationally.

In the world of private business, many business owners both in America and Latvia may feel as if the information about their business is private and should not be shared with anyone else. It is true that trade secrets, patents, designs, etc. might need to be kept secret. But the concept of business networking and business organizations/associations provide smaller companies with a forum where they can compare their activities to the activities of other businesses. Hopefully, an environment such as this will allows businesses to learn from each other, and to ultimately become better suited for international business in a much quicker fashion.

Additionally, if an American company were to initiate contact with a Latvian business, the amount of knowledge the Latvian business had about other similar businesses, related industries, etc., would tend to make them a more valuable contact to the American company. This is not to ignore the fact that each company should have adequate information available describing their business activities including: financial information, customers (market base), competitors, product information, and how business transactions could best be accomplished with regards to governmental regulations, etc. The ability to share information about one's business only adds to the level of security that each potential partner will be able to realize. Very few people like to do business with people they know very little about.

Finally, it is important to review the status of educational and governmental programs which may already be in place because these programs may be able to assist with financing the private business ventures which are being negotiated. There exist many programs which are sponsored by the American Government which might facilitate the execution of business deals. American government sponsored programs include but are not limited to: exchange programs for educators; exchange programs for business executives; business loans and financial arrangements via foreign aid programs, Ex-Im Bank, The World Bank, The US Information Agency, The US Agency for International Development, and countless others.

Many of these programs are designed to assist with training and financing of international business development. Of specific interest should be many of the programs which are in place that are sponsored by other similar US Government organizations like the US Department of Commerce which provides vast amounts of information about the potential business opportunities in foreign countries.

It is imperative that when attempting to do business with American companies, that Latvian companies avail themselves of all the established resources which have been put in place by both the American and Latvian governments. Avoiding or ignoring these programs may seriously increase the amount of work and research you may have to perform, and may jeopardize your chances for success. In order to ensure a good international business relationship, you must first reach some level of domestic business success, even if your business venture cannot attain fulfillment until you have reached some sort of arrangement with an international partner.



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Deion Associates & Strategies, Inc.
Mark S.Deion

15 Sackett Street
Warwick, RI 02886-2333 USA
Tel: (401) 732-0457 • Fax: (401) 732-8767
E-mail: marks@deionassociates.com
URL: http://www.deionassociates.com

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