The Baltic Course

Forum of digital dreams

By Alexander Ushakov

The Baltic Sea Region e-Business Forum held at the end of September in Riga will no doubt be included on the list of the most remarkable events of the outgoing year, assembling delegations representing some of the most distinguished corporations and banks, which shared their opinions and visions on the development of the e-business market over the world wide web. Some of the reports were noteworthy not only from an IT businessman's point of view, but also from the position of economists, financiers and even ordinary computer operators

«This was the first significant international event after the tragic September events in America that shook the global financial markets. The forum allowed to draw the following conclusions: firstly, the world is still turning; secondly, we have experienced only the first phase of the Internet revolution - the more specific second phase is still to come, as well as the third, fourth,. Thirdly, the Baltic states have demonstrated advancement and potential in the sphere of Internet technologies». These words were spoken by Carl Bildt, former Prime Minister of Sweden who now heads the Nordic Venture Network, stated at the forum's closing press conference, and we should admit that they were far from flattering. As it was later acknowledged by the initiator and organizer of the forum - Birojs 2000 -doubts have arisen as to whether it would be at all possible to arrange another international meeting of such high level in the near future.

After having listened to the speeches of various participants, The Baltic Course chose to sample the most interesting ones.

Miracles don't happen. Work has to be done.

Special attention was devoted to the opening remarks delivered by the Latvian, Lithuanian and Estonian government leaders. «Many analysts characterise the Baltic Sea Region as one of the most dynamic, not only in regard to information technologies, but also to overall economic development. There are people who call Latvia the Baltic tiger due to its huge economic progress lately - last year GPD growth was at 6.6%, while in the first six months of 2001 it has already increased by 8.8%», said Andris Berzins, Latvia's Prime Minister.

He also mentioned that by elaborating and adopting the law on electronic documentation, as well as the action plan for developing of the e-Latvia socio-economic program, the Latvian government has done much to improve the e-business environment of Latvia. The prime minister reported of a constant increase in the number of Internet users and said that all public schools and libraries will be connected to the global network before long. He just added that the development of the world wide web is for now still hampered by the Lattelekom monopoly status for fixed-line telecommunications sector, now set to last only until 2003.

The speech delivered by Lithuania's Prime Minister Algirdas Brazauskas was rather more laconic. He emphasized that countries investing in knowledge will prove to be the most successful in future.

Meanwhile, Estonia's Prime Minister Mart Laar, drew the largest audience attention. His story about the Estonian miracle that has now given over half of the population regular access to the Internet was carefully listened to by representatives of even the more developed European countries. The achievements are really impressive. Estonian e-government sessions have already been held in electronic regime for the past year, and the country is on the verge of transition to identification documents and electronic signatures. «We didn't have much money. We lacked experience and knowledge. We were just very eager to achieve all this, and as it turned out in practice, this was the main thing», Mart Laar explained the secret of Estonia's success.

The Estonian Prime Minister made no secret of the fact that the hardest thing upon introducing the e-government was to assure state officials of the importance and necessity of the particular reforms.

«Do you want me to tell you what the most frequently asked question was to me?» - smiled Laar. « - How many ministers said they wish to resign after having learned about the coming changes? And my answer was - not a single one. Our oldest minister is 55, but even he was capable of perceiving everything quickly.» According to Laar, it is of essential importance to have close co-operation with private businesses in order to successfully develop the e-sector: «Working side by side is the only key to success».

The real situation shows that the Internet is used in Latvia by approximately 13% of the entire population ( around 300,000 people), in Lithuania the figure is around 9%, while in Estonia the respective number is much higher - at 52%, with 35% of the population having a connection to the global information highway. What's more, regular Internet access is provided not only to all Estonian pupils and students, but also to soldiers serving in the armed forces. Just for comparison: estimates show that the average EU Internet penetration approaches 40 per cent - leading countries are Iceland, Sweden and Norway with more than 60 per cent of households being connected to the web.

Intel and the Internet economy

Tim Keating, Director of the European, Middle East and Africa divisions of Intel Capital, announced that the company has decided to pay serious attention to the Internet economy. The statement was supported by the following argument: in the year 2000 the total amount of investments into this sector accounted for 1.3 billion US dollars, whereas this year the figure has exceeded 2.7 billion US dollars by June alone.

According to Keating, the leading positions, are of course held by Intel, which has invested a lot of resources into the development of the Internet economy by now. If compared with year-on-year figures revealing the amount of capital investments during the first six months of 2001, Intel surpasses its closest rival GE Corporation one and a half times; Dell and Siemens are exceeded three times; while it stands up to five times more in regards to Compaq and Reuters.

The ever-growing popularity of the Internet is the fundamental reason for Intel increasing the amount of its investments in the sector. In the first quarter of 2001, total Internet traffic made up one million terabytes per month - over a five-year period the respective number has increased five times. This increase has happened despite the fact that a connection to the web from the users' point of view is still quite expensive and slow - for Europe the average speed of information transmission on the Internet is 25-26 Kbits/sec, whereas 37% of Internet users in South Korea (a leader in terms of Internet speed) surf through websites at the speed of 256 Kbits/sec.

Compaq sounds the alarm

As for the development of information technologies, future prospects as perceived by Compaq seem rather interesting. Werner Kopf, Compaq's Executive Chairman for Europe, Middle East and Africa, declared that the gap of job vacancies in the IT sphere, currently accounting for approximately 20 per cent in Europe, will not be filled even by the year 2003. This means that approximately 1.6 million IT specialists will be required on the labor market.

He also thinks that IT professionals should be granted pan-European work permits. Furthermore, as only 23% of the whole European labor force has knowledge of how to use a computer, it is very essential in his opinion to promote activities in regard to teaching basic computer skills.

«Good computer specialists should not only be produced, they should also be kept occupied - this is the most important task for any company », said Kopf. Statistics show that IT specialists work only 25% of their office hours.

Oracle approves of the Baltics

Baltic State achievements were particularly highlighted in a report by Sergio Giacoletto, Executive Vice President of the Oracle Corporation. According to Giacoletto, the number of Internet users in the Baltic Sea Region is rapidly increasing and has even reached the critical amount, allowing for further active development of such a computerization level that is comparable to the level of the advanced northern neighbor - Finland.

«Thanks to the Internet, which even for small companies serves as a gateway to the global network, the Baltic states may strengthen their competitiveness and advance onto the next stage of development», stated Giacoletto.

TietoEnator: there is no new economy

A report by Matti Lehti, President of the TietoEnator Corporation, was of particular interest. «We should not talk about the new economy. There are only new technologies», these were his words describing the situation after the recent IT market crisis. Lehti thinks that the digital revolution has set in: «Billions of computers will be united. They will be able to communicate with each other. We see that the new economy with its hyper-growth does not exist anymore, but there are new technologies that simultaneously allow for both the efficient use of resources and an observation of traditional economic theories.»

Lehti raised another interesting question: when will mankind be able to call itself the information society? His vision is that this might happen only if the most part of all gods and services are distributed in digital form via various communication networks. When exactly, you may ask? After the year 2010. Banks, insurance companies and mass media - companies working with information, not with material resources - will be the first to approach the information society. The situation where e-businesses alone may constitute half of the world's GDP might be expected by around 2020 - such conclusions were made by Matti Lehti after drawing parallels to preceding technical revolutions.

Lattelekom: enough dreaming

«Digital dreams are only illusions which are not likely to transform into reality for many countries», said Gundars Strautmanis, President of Lattelekom. «These issues should be perceived realistically, as thoughtless introduction of serious technological innovations may leave a rather negative impact upon national economies. A developed business environment, initiative from entrepreneurs, an educated society and, of course, advanced information technologies are the four paramount preconditions for turning digital dreams into reality», announced the head of the Latvian fixed telecommunications monopoly.

«In order to provide an opportunity for more people to have access to the Internet, thus also promoting the development of e-businesses, it is essential to have competition in the telecommunications sector», said EU Commissioner for Enterprise and Information Society Erkki Liikanen. A similar opinion was voiced by Donald Johnston, Secretary General of the OECD: «Governments should prevent any kind of monopoly in this market. This will lead to cheaper Internet access, and only then we should expect any progress.

The SEB Internet experience

A report by Lars Thunell, President of Skandinaviska Enskilda Banken (SEB) was mainly concerned with the introduction of information technologies into the business environment. «After having re-orientated its strategy in 1997, SEB has changed from a universal Scandinavian bank to a Northern European bank with the services rendered by its branches and the Internet all complementing each other. Although reforms require a lot of investments, results have justified the expectations. Of course, the provision of additional options and the improvement of services, not the economy, was the main target upon implementing this IT project», said Thunell.

He also highlighted that rather than walking to their closest branch, customers more often prefer to visit their bank over the Internet - approximately 25% of its customers enter the bank`s website every day, whereas the majority of so-called branch customers communicate with the bank just once a month (or even once every two months). Naturally, the more often a bank can assist its customer, the bigger is the chance of getting a profit.

Besides, the bank is not inclined to forget about its branch employees - on the contrary, it sees the training of employees as one of its most important tasks. According to Thunell, as for the banking sector, there will be a demand for both branch employees and IT specialists. Nevertheless, the banks with knowledge embracing both these spheres - finance and IT - stand the best chances. Traditional companies capable of re-orientating and adjusting to the game of new technologies within the conventional business environment are expected to be the winners in the business sector.

Four discoveries by Telia AB

Seeing as many participants of the forum delivered piles of flattering words addressing the development of the Baltic IT market, statements made by Marianne Nivert, President of Telia AB, who tried to persuade the participants to objectively look at the real situation, seemed a bit like a fly in the soup. «The shortage of capital, an awfully high level of red tape, little knowledge of foreign languages and the human factor are the four hindrances in the way of the fast progress for the Baltic States. In order to gain success it is necessary to clearly define the rules of the game and make the future working regulations for a company predictable. Investments in education and research are of equal importance. Only then will the Baltic states become one of the leading countries in Europe in terms of GDP growth», thinks Nivert.

Another momentous nuance was touched upon by Kopf from Compaq: future prospects of the e-economy are largely influenced by the amount of taxation - if a significant part of a company's profit, including profit from IT projects, is levied with an enormous tax burden, the company's further interest in the development of IT projects in the particular country is needless to say.

Conclusion by Posten, the Swedish Post Group

«E-commerce before and after the boom» - such was the topic chosen by Lennart Grabe, President of Posten AB, the Swedish Post Group, for his report. In point of fact it really happened in the sphere of B2C (business-to-consumer), reaching its heights in 1999. It was followed by the collapse of the saturated market, and the B2C turnover significantly decreased causing many Internet companies to go bust. Meanwhile, slow but continuous growth and expansion of e-commerce has been observed in the B2B (business-to-business) sphere. So the conclusion might be the following - there is still a bright future for e-business.



Riding the waves of franchising

Tatyana Andreyeva  (Chas-Delovoi)

Mid-October in Riga was marked by the first Franchising 2001 international conference. As was expected, more questions were left unanswered than not after the event - nevertheless, it was still the first such conference held, and the fact that it was arranged is praiseworthy alone. The overall assessment received from participants showed that they generally were pleased to attend the forum, since there are good future prospects in the Baltics for doing business along the line of franchising

The term «franchise» was first introduced in the Middle Ages in France. At the time, its meaning was more to do with rights and/or privileges.  If any dependant state received a franchise, it meant they were granted permission to sell goods, provide transportation services or hunt in the territory of feudal districts. Today the word franchise stands for the right to do business. Many researchers believe that the father of modern franchising was Isaac Singer, the founder of the world-famous company that produces sewing machines. In 1851, Singer concluded a written contract with the distributors of goods concerning the selling of franchise rights - the right to sell and repair sewing machines in certain areas of the United States.

In total, there are over 12,000 franchises around the globe. According to forecasts placed by international experts, franchising is to develop at an unprecedented pace through the current century. Nevertheless, this form of organizing business is not yet very common in the Baltic states.

Jump starting

For starters, let's imagine a typical situation. We take company A, a small or medium-sized company that intends to start up business, for example, in the foodstuffs market. What does the company encounter? The market is already saturated with companies of similar profile with no wish to change their plans at all. The company also faces other problems: money resources for further development are next to empty - a situation characteristic of many companies just starting up.

  • Franchising - a form of business development in which two parties are involved concerning the rights to market a company's goods or services in a specific territory.
  • Franchiser - an individual or company owning patents on goods and services, trademarks and technologies.
  • Franchisee - a company or group granted the right to use the trademarks and manufacturing techniques of a franchiser in accordance to agreed standards.
  • In this case it's high time to ask for advice from American colleagues, whose businesses have been successfully developing since the mid-1960s with the help of franchising. In recent years this example was already followed by some Latvian companies purchasing franchises from well-known companies like Baskin-Robbins, Avis, Best Western Hotel, Lufthansa City Center and McDonald's - the latter having become the talk of the town.

    All of these companies, after having paid a specific sum of money to the franchiser, acquired the rights to represent the company's name in the territory of Latvia: either to sell ice cream, provide car-rental services or flip burgers. Nevertheless, all the peculiarities of their business operations - 'be it the sale of baseball caps with the company logo, or the production of different interior components - must be in compliance to certain strict standards. The slightest disobedience to these standards can cause trouble. For instance, if ice cream produced by Latvia's Rujiena dairy plant is on sale in a Baskin-Robbins cafe, the unlucky entrepreneur might have to pay for his mistake by closing business altogether.

    Ott Moorlat, authorized patent bureau Moorlat & Ko Ltd. (Estonia)
    I am one of the co-authors of the Estonian law on patents, devised for the protection of trademarks. As both Latvia and Lithuania are our neighboring countries, it is always interesting to find out of the latest developments, for instance, on franchising. From this point of view, Latvia has made a big step forward, and what's most important, in very due time. The unemployment rates in our countries are very high - especially among young people (15-18%). These numbers seem terrible. I suppose the development of franchising in Estonia might improve the situation. When I get home, I will definitely tell my students about this event, and try to intensify our work in the sphere of franchising opportunities. But I should also mention that some Estonian companies have already become franchisers. Quite recently a local company producing soft drinks sold its trademark and manufacturing technique to the famous Coca-Cola company for 26 million dollars.

    In order to control the situation, the franchiser makes regular (usually annual) visits to the company. But according to Gita Puce, Director of hotel Mara in Riga, if an independent expert from say Holland, intended to make a visit to Riga, he would never appear out of the blue, just like the inspector from Gogol's play, he would have reported his arrival beforehand. During the audit the inspector would check everything - from service quality to tidiness in hotel rooms. Each parameter is then assessed according to a five-point system. The inspector also gives instructions on what should be improved and where extra work is needed. On the next visit, he would check up on how the instructions have been followed. As the Baltic Course was told, Latvian companies have so far been very compatible to discipline, thus excluding any need for strict measures.

    Financial ties

    Relations between the buyer and seller of a franchise might be in various forms - in one case the seller may receive an annual royalty, in another it may be money received on a quarterly basis. All of the profits earned by the franchisees - in this case the Latvian company- belongs exclusively to them.

    Marius Grinka, Kavinukas (Lithuania)
    «Our company has an annual turnover of 10 million dollars, and we sell exclusive teas, coffee and spices. Our future plans include opening a chain of shops. Initially, we would operate under our company's name, but afterwards we would expand according to the system of franchising. We have already devised and patented the name of our company, which will by the beginning of next year become known across Lithuania, an in two year's time - in all of the Baltic states. That's why I have come to this conference - to get acquainted with all the problems I might have to deal with when doing business. It is always better to learn from someone else's mistakes. The conference is also very interesting because of the fact that in Lithuania there is simply no place to get information on these issues - it is not supported by the state.»


    The amount of this peculiar duty that the local company pays to the franchiser depends on the sphere of business. Unfortunately, none of the parties involved discuss the issue in public, justifying it as a commercial secret that must stay behind closed doors. And yet, general opinion exists that the amount of money spent on the purchase of a franchise usually equals around 10% of the company's annual turnover.

    Where to look?

    Nowadays it can be quite complicated to find a franchise for sale. Such a database is possessed only by the Latvian Franchise Association; at least that's what its management claims. According to a representative of the association, Vladimir Petrazitsky, there are currently more than four offers at their disposal, coming from foreign franchisers through personal contacts. «The information is available for any person interested, and may be received via any appropriate form of connection: e-mail, telephone, fax, or meeting,» said Mr Petrazitsky. Seeing as the Internet is gradually becoming the main means of information in the present-day world, the association has posted a homepage at, and the information in it is updated regularly. The site is aimed at a wide audience - from students of economics to entrepreneurs doing business in the field.

    A hairdressing franchise
    Andrejs Silcenko, co-owner of the Maija hairdressing salon (Latvia)
    «Although the system of franchising has been known world-wide for a long time now, in Latvia it is still considered as something exotic. There-fore, the fact that our local enterprise act as a franchiser, not franchisee, is twice as pleasing. The Maija company was registered in 1989. We started business by opening only one salon and slowly worked on the development of our own technologies, advertising policy, manners and style of work. In order to embody these fundamental principles in all of our employees, we established a hairdressing studio. As time passed, we experienced gradual growth - two more salons were opened, followed by another three later on. Confidence in our strengths grew, and one day we decided that Maija is no worse than any foreign company and that we have something to offer to the global market. We were lucky to find companions among interested parties, and at the moment we are doing business with four partners, which successfully use our company's name and methods in six more salons.
    We also tried to penetrate the Lithuanian market by providing consultations to coiffeurs in Vilnius, but because of the distance we found it hard to control and train our «wards» - so, funny as it may seem, the co-operation lasted only as long as the first consultation provided by our specialists.»

    The management of the Latvian Franchise Association is in no hurry to elaborate on any concrete results of its activities. Nevertheless, it is pleasing enough that such an organization has emerged in the first place. Neither Lithuania nor Estonia has anything of the sorts yet.

    Practice makes perfect?

    One of the issues raised by the first conference on franchising was the necessity of creating an information center or association that would encompass all of Latvia. Franchisers, franchisees and state officials representing different ministries and institutions were invited to the forum by RMS Forum to cover the most pressing issues - licensing of trademarks, conclusion of franchising agreements and issues concerning taxation.

    Nevertheless, things turned out to match the saying that practice makes perfect. «This official from the ministry read his report as if he was not the one who wrote it», or «I've got an impression that we've been invited to a lecture on economics» - such comments were overheard from participants between working sessions. Rimma Ginburg, Vice President of the Elmi company, also indicated that the topics chosen for the reports were quite alienated from real life. «I would like to hear more practical things. Let us hope that the organizers of next year's conference will learn from their mistakes. Still, they've earned gratitude just for trying to deal with such a difficult and essential issue.»

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