Business risks in Latvia

The main business risks entrepreneurs face in Latvia are related to resource centralization, demographic problems and corruption. Neither of these are of major concern, but can possess a significant degree of risk if combined with other disadvantageous circumstances, potentially even ending with insolvency. A for minor risks, there are some concerns about logistics-related crime and petty crime in certain areas.

Major risks

There are three major business risks in Latvia, that can affect companies in any part of the country:

• resource centralization
• demographic problems
• corruption

Individually, they do not possess much threat, especially to well-established foreign companies. These risks are minimal to foreign businesses incorporated in Riga (the capital of Latvia), save for some instances of corruption. However, the farther away from the capital, the more apparent the risks become, which is somewhat compensated if the geography of the business includes cities of regional importance.

Resource centralization

Almost one third of businesses registered in Latvia are headquartered and mainly operate in Riga. Although this makes competition in farther areas somewhat less, this also means that most of the resources, finances, workforce and customers, are also concentrated in Riga. Additionally, most of the higher education institutions are also located in the capital, which means that the majority of students - skilled young specialists - are not available in other regions, or must be encouraged by additional benefits to move to these other regions.

Even if a foreign business itself is also registered, has its headquarters and mainly operates in Riga, the centralisation may provide challenges for expansion. Sometimes it will not be viable to open branch offices in other regions of Latvia due to the aforementioned limitations. In this case, the only way to expand is to provide services and products remotely/digitally or specialize in services that do not require physical interaction. One more possibility is to establish a country-wide logistics network that would deliver products and services. Thanks to Latvia's small size, it is not the most difficult task, but still requires time, investments, workforce, planning and other resources, which can limit other business development aspects.

Demographic problems

As of now (2016) the demographic problems of Latvia are not that significant, but still noticeable. According to the Central Statistical Bureau of Latvia (Latvijas Centrālā statistikas pārvalde), the population of Latvia started shrinking in 1991, and as years went by the decrease rate became smaller up until the financial crisis of 2008, when, for a brief moment, the rate increased again. Now, the rate is decreasing yet again: each year starting from 2010, when the country began revitalizing its economy, Latvia loses by about 5% - 10% less than each previous year.

Despite that, the decrease is still there and it most noticeable among young people, specialists with higher education prefer seeking a job overseas. At this rate, the decrease will balance itself out in approximately 10 years. Until then, the outflow of potential workforce and customer will hinder the operations of any company, especially in the long term.

Corruption

Corruption in Latvia is mainly related to the need to maintain good personal contacts with business partners and participate in extra-business activities, without which reaching an agreement may be problematic in some cases. This is especially vital in the initial stages of market entry. It is very important to establish a good relationship with the first contact amongst the local businessmen and organize meetings with local suppliers. Otherwise establishing oneself in Latvia may become problematic.

Minor risks

Latvia is a contact point with many countries that are not member-states of the EU, that is - a gateway to the European Union. This encourages smuggling, as some people see it as an opportunity to bring cheaper prices from Russia and Belarus to then sell them in the rest of the EU at prices higher than in the country of origin but lower than in Latvia or other member-states. This, however, is a minor risk to competition, as border control in Latvia is quite strict, and such a smuggling is not a serious threat to any kind of business, a nuisance at best.

Petty crime such as thievery and bar frauds are common towards foreigners, whom some locals deem to be easily-fooled. This however, should not affect any business, if only a businessman is not carrying important documents and company's valuables. This why such a petty crime can be considered potentially dangerous if a businessman is negligent, but in practice such a turning of events is very rare.