IMPORTANT INFORMATION ABOUT THE BUSINESS ENVIRONMENT DISCLOSED BY TOP101 OF LATVIA'S MOST VALUABLE COMPANIES
Ir Nauda, December 2020
What are the business growth opportunities in Latvia? One way to answer is to look through the prism of companies’ value, as it largely reflects the business environment in the country. Therefore, for the fifteenth year, Prudentia and Nasdaq Riga have been providing insight into the top of the business environment by creating the TOP101 of the most valuable companies in Latvia.
This year, the total value of TOP101 companies is 16.4 billion euros. Is that a lot? For sure. Could it be more? Undoubtedly. This can be seen in Estonia's result – the value of the TOP101 companies of our neighbors is 20.7 billion euros, higher by 26%. Therefore, Latvian companies have room for improvement. Entrepreneurs need to think about development, but policymakers – about creating a comprehensible, predictable and effective business environment.
Why is value and increase in value important not just for the companies, but also for the society as a whole? The increase in value is linked with rising earnings and future potential; the more we’ll grow, the better we’ll live. As businesses evolve, they create new jobs, pay higher wages and taxes, thus contributing to a prosperous future.
One of the key issues is where to look for development opportunities? If we were to classify by industry, there would be four currently dominating the TOP101: consumer goods, trading, utilities, logistics, IT and the telecommunication industry.
The total value of these four industries is worth more than half of the TOP101 companies’ values, although only 42 of TOP101 companies are representing these sectors.
There are three large groups among them – state-owned companies with a historical monopoly position and strategically important infrastructure, then companies that have divided a certain Latvian consumer market among themselves, and finally - companies that connect different markets, territories and environments. These three groups are very important for the Latvian economy and its stability – the main function of these companies is to ensure security, satisfy the daily needs, and guarantee communication for the inhabitants.
Companies that export products, services or knowledge will undoubtedly have more opportunities for future development. There will be more and more new foreign and local capital companies in Latvia, which will create products and services with high added value, using the local workforce, focusing on foreign sales.
Is it possible to influence the arrival and development wishes of foreign investors in Latvia by publishing the TOP101? Probably not. But by joining our forces we have the opportunity to promote the local capital business development. Local capital private companies in Latvia create almost 20% of the TOP101 value. In Estonia, it creates 40%.
Therefore, we need to be able to do better. To do so, we need a predictable business environment and public support. It is tough to be an entrepreneur – it has been well said that the entrepreneur is a person who is ready to work up to 100 hours a week to establish a business, just to avoid working 40 hours a week for someone else. Entrepreneurship means investing time, taking risks and facing the possibility of failure, but it also provides great growth opportunities for oneself and society, such as new jobs, investments, creation of new products and services.
While creating TOP101 for already fifteen years, we have looked through hundreds of companies that have grown significantly in terms of employees, profitability and value. The limit which companies must overcome to enter the top of the most successful ones has grown significantly over a period of time – from 12.9 million euros in 2006 to 49.4 million euros now. This TOP101 entry threshold growth is certainly a motivating paradigm for both existing and future entrepreneurs.
While analyzing the factors that allowed these most valuable companies to become a backbone of the Latvian economy, we have come to some important insights – we see several important preconditions to create a future success story. The export capacity of companies must be increased. The impact and future potential of technologies has to be assessed. Industries are different, but it is important to take into account that it is easier to find the opportunities for faster development in fast-growing or emerging industries with future potential. It should also be noted that the reputation and competence of the companies and managers is very important – it can often be crucial for further development of the company. When the company has reached a certain stage of development, it is necessary to think about M&A (Mergers and acquisitions) to create growth opportunities in new markets, at a faster pace. Regarding the pursuit of ambitious development goals, the attraction of investors and funds shall be assessed, and one shouldn’t be afraid from strategic investors. By performing entrepreneurship in a smart, development-oriented way, it is indeed possible to rapidly increase the company’s value and to enter the apex of Latvian business.