Latvian companies that wish to start a business in China should be open for cooperation, be able to develop a clear offer for the Chinese market and focus on exclusive and niche products. To be able to attract Chinese investments, Latvia has to come up with integrated projects and logistical solutions that would be beneficial for the cargo flow between China and Europe, as concluded in a study conducted by KPMG and Investment and Development Agency of Latvia.
Edgars Volskis, director of KPMG consultancy service department in Baltics and Belarus, notes that «China is a very large market. This is why Latvian companies, which are mostly small or medium-sized, should not attempt to start a business across China. Instead, they should search for cooperation partners, find a niche and create an offer aimed specifically for the Chinese. Welfare of Chinese residents gradually increases, as does demand for exclusive and ecological products. Our businessmen have to learn to cooperate in the field of logistics and production output to be able to satisfy China’s smaller cities.»
Participants of the study mentioned securing regular product supplies when launching a business in China as the main challenge for Latvian companies. In addition, Latvian companies should be prepared for major investments in marketing and product distribution when entering a market as large as China. Businessmen should be patient and keep in mind that entry into the Chinese market may require up to two years. Because of that, it is highly important to find a reliable cooperation partner that can help settle the necessary formalities. One major challenge is Latvia’s low level of recognition in China – most people in China know very little about Latvia.
«Businessmen should keep in mind that Latvia primarily viewed as a platform for Chinese products in their way to nearby countries. Potential Chinese investors value Latvia’s geography and infrastructure – ports, railway and airport. This is why Latvia’s primary offer should be logistics – reception of goods, packaging and transportation to countries of Northern European member states and CIS. Logistical centres could be established in Rezekne, Daugavpils or Krustpils. There is great potential for a logistic centre to be established in Salaspils. This would assist with Rail Baltica project. The same applies to Riga as well. Participants of the study also admit that one major obstacle for more expansive cooperation is the lack of large-scale projects that would be interesting for Chinese investors,» – Volskis said.
Chinese businessmen working in Latvia mention beneficial geographical location and easy access to Scandinavia and Western Europe as the main advantages for starting a business in Latvia. Other advantages include compliance with EU legislation, stable social and economic environment and accessibility of local natural resources, support from Latvian government and traditions of the European culture. The biggest obstacles, on the other hand, include the complicated visa registration process, too short visa term, poorly developed industry and too high tax burden.
In addition to logistics and transport sector, participants of the study also mentioned education, tourism and dairy trade as potential field for cooperation, because China cannot satisfy internal demand on its own.
It is concluded in the study, Latvia can use China’s interest in investments in foreign countries. China views Europe as one of the more attractive business expansion and investment destinations with safe and stable and investment environments. Considering western European countries’ often negative attitude, China is in search of new roads to Europe for market exploration. This offers additional investment attraction opportunities in countries of Central and Eastern Europe, including Latvia. In the last decade, trade volumes between China and the EU have increased more than 2.6 times.
The influx of investments from China is currently low in Latvia. Nevertheless, the overall tendency is positive. In 2015, China was Latvia’s thirteenth largest trade partner – mutual trade volume reached EUR 520 million in 2015, which means an increase of 13.7%. But only 0.4% (EUR 5.8 million) of direct foreign investments came from China that year.