Business Environment in Lithuania

In the early and mid 1990’s all of us heard of many horror stories about the conditions and difficulties American entrepreneurs experience in attempting to establish business enterprises in Eastern Europe.  Although most of these stories came from Russia, the situation in Lithuania, though to a much lesser extent, was the same.  Lack of commercial legal codes, combined with bureaucratic red tape, rampant corruption and emergence of organized crime made it difficult, if not impossible, to do business in Lithuania.

 During those early years of independence and re-emergence of free market economic structure, commerce in foreign goods exploded, especially after the national currency, litas, based on a fixed dollar exchange rate ($1.00 = 4.00 litas) was introduced in 1994.  However it was a free-for-all marketplace.  The entrepreneurs of that era were not businessmen, they were speculators.  Their objective was to maximize profits in the short term and not necessarily to build business for the long term.  These entrepreneurs were interested in opportunities to make a quick profit and not in establishment of long-term relationships with Western companies.  The fledging and poorly monitored banking industry readily joined in by providing funds, through ultra-high interest often unsecured loans, for these schemes.  So, the period from 1993 though 1996 was the era of unlimited capitalism.  Fortunes were made and in most instances subsequently lost.  In 1996 number of banks were closed due to insolvency caused by preponderance of bad debts held in their portfolios.

However, even in this environment a number of Western companies successfully managed to establish themselves and prosper in Lithuania.  Of the American companies Philip Morris and Mars Candies are noteworthy examples,

In the past four years the situation seems to have changed.  The Lithuanian business community is rapidly maturing and becoming focused on long-term viability and growth.  The banking sector is now strictly controlled.  Commercial and other laws, with few exceptions, have been modified to comply with European Union requirements and standards.  So, in theory, in attempting to do business in Lithuania an entrepreneur should expect the same problems as in the European Union countries.  However, this would be true if not for the still lingering effects of the communist era on the national psyche and moral standards.  Although the effects, are not as pronounced in Lithuania as what is seen in Russia and its core ex-Soviet republics, the fact remains that Lithuania and Lithuanians have been affected by 50 years of communism.  Bureaucratic barriers are as large as ever.  Corruption is still rampant within all sectors of society.  Sanctity of private and especially business property is not respected, so theft, pilferage, embezzlement and fraud are facts of life.  This is not expected to change for a long time.  It will take not years, but several generations. 

So, entrepreneurs seeking to do business in or with Lithuania should be aware but not afraid of this.  With few precautions most of the problems can be overcome.  Following are several recommendations:

Check out and get to know persons you are dealing with real well.

Keep full management and financial control

Put everything in detail and in writing

Utilize locals to make business, security and other arrangements

Develop friendships (Lithuanians are extremely helpful and do not take advantage of a friend)

Have lots of patience (Things do not move at the pace we are used in the U.S.)

Expect long negotiations

Do not expect quick decisions or approvals

Be prepared to do a lot of wining and dining