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issn 1822 – 8402 european integration studies. 2009. no 3

ENTREpRENEuRSHIp ENVIRoNMENT AND REGIoNAL poLICY

Rosita Zvirgzdiņa
Solvita Vītola

School of Business Administration Turiba
Elga Tilta

Institute of Economics of Latvian Academy of Science

Abstract

The paper analyses different aspects and problems characteristic to entrepreneurship environment in
Latvia after restoring of independence. The entrepreneurship in Latvia develops under conditions of market
economy in a rather complicated inner and outer environment influenced by different circumstances causing
rapid changes. At the beginning of transition period to market economy, the entrepreneurship environment
in Latvia was affected heavily by decrease of production after the 1990, when during the period 1990-1993 the
GDp decreased more than twice, but the formation of fixed assets six times. Such fall in production is to be
related in some respects to the general economic crisis characteristic to transition period to market economy
in all Central and East European countries. Common features of this crisis were the decline in production
and lowering of the standard of living. Internal resources of our country were limited and insufficient, and
Latvia was not attractive to foreign investors. The production level of 1990 remains unachieved up to now. The
recovering process of production is very slow in agriculture. The allocation of production factors in Latvian
regions has developed in an unbalanced way. Two thirds of non-financial investments obtain Riga and pierīga.
Lasting up to now, this unbalanced development leads to unequal production conditions, impeding negatively
the activities of entrepreneurship, especially in rural areas, where a certain part of agriculture area remains
still unused at all. The unused land grows over and its qualitative indicators of landscapes and biotopes become
worse, but the ameliorative systems decline. The yield of crops is changing and it is lower in comparison
with other countries. The decline in agriculture has led to diminishing of the role such characteristic and
historically developed sphere as milk industry. To help the entrepreneur to cope with conditions affecting his
activities, especially in rural areas, it is necessary to provide him with a certain support from the government,
regional and local institutions. presently, there is a growing need in such business support structures as business
consultation centres, business parks, industrial parks and others. However, most of the support institutions
are concentrated in Riga and it does not comply with the interests of today and future entrepreneurs. Lack
of support may be a cause of giving up of entrepreneurship by a number of entrepreneurs. As an important
problem in rural areas may turn out the choice of a most suitable form of a production enterprise, being in
capacity to provide a successful process, especially in the initial period. In this context, as favourable and
supporting to entrepreneurs may be recommended such forms of enterprise and institutions as franchise and
monitoring, providing together with financial support also the moral support. Development of entrepreneurship
environment in Latvia is a step-by-step process, using advantages and overcoming of disadvantages.

Keywords:

Entrepreneurship, entrepreneurship environment, entrepreneur.

Introduction

One of the main priorities of Latvia is a possibly
soon approach to social economic level of the EU, from
which our country falls behind significantly. In 2007,
the GDP per capita in our country was 1.7 times lower
than the average of it in the EU, 2.3 times lower than in
Netherlands and 2.5 times lower than in Ireland. After
this indicator, Latvia was in the fourth place from the
end among the member states of the EU, leaving behind

only Poland, Romania and Bulgaria [Central Statistical
Bureau, 2008.]. The precondition of accelerated
approaching process is intensive development of
production and entrepreneurship, which, in its turn,
depends on environment where it takes place. This
environment may be more or less favourable. In Latvia
after restoration of independence, this environment has
not been favourable, especially in remote from Riga
areas of regions. Notwithstanding the regional policy,

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238

the competitiveness of products is not high and the
capacity of entrepreneurs is comparatively low. It creates
a necessity to seek for ways how to activate and support
the entrepreneur in such environment.

The aim of the paper is to find out the opportunities how
to facilitate entrepreneurship according to environment
in regional context.

To achieve the aim the following tasks were carried
out:

characterisation of development features in 1)
transition period;
making out of unused possibilities of production 2)
enlargement;
foresight of the role and place of entrepreneur 3)
in production process in compliance with the
environment.

The research object was the production potential.
The research was based on monographic method,

synthesis and analysis, logical – constructive method and
analysis of statistical data.

Results and discussion

The entrepreneurship environment in Latvia has
developed under impact of changing conditions of
transition period to market economy. The beginning of
transition period was characterised by rapid decrease of
production after the 1990, and it turned out as such to be
more difficult to overcome than hoped initially. During
the period 1990-1993, the GDP in Latvia decreased
more than twice, but the formation of fixed assets six
times. As a result, the proportion of fixed assets in GDP
decreased 3 times and in 1993 made only 13.54% of
GDP. [Bojārs, Vilne 1996.] Such decrease of production

in Latvia is to be in some respects related to the general
economic crisis, which was characteristic to transition
period to market economy and from which no one of the
Central and East European countries, being involved in
transition period, was able to avoid. Common features
of this crisis were the decrease of production amount
and the lowering of level of living. Internal resources
were limited and insufficient. Certain hopes were set
on foreign investments; however, without fulfilment
to a great extent, because the traditional conditions of
attraction of foreign investments, i.e. high economic
growth, wide market and respective profitability of
investments, did not exist. Latvia was unattractive to
foreign investors what is shown by the amount of direct
foreign investments per capita, being in our country 14.3
times lower than, for example, in Hungary.

The transition period from planned economy to market
economy in Latvia turned out to be more complicated
than thought initially. The mistake made in the beginning
of the transition period, when our country hesitated to
turn itself to modern technologies and, therefore, did not
restructure the production accordingly, began to show
its negative impact. There remained disregarded the
idea that increasing of competitiveness of the country
required carrying out of a targeted innovative policy that
facilitates accelerated development of knowledge based
sectors and the increase of proportion of goods with high
added value in traditional production sectors.

The difficulties of transition period found their
reflection in economic growth. Notwithstanding the high
economic growth rate, characteristic to Latvia for some
years in succession, sometimes reaching a double figure,
it has not been possible to succeed in overcoming of
production decline, setting in after the 1990 (Table 1).

Table 1. Changes in production in Latvia 1990-2006 (%, in comparable prices, 1990=100%)

Branches 1995 2000 2001 2002 2003 2006
Industry 38.3 46.9 51.2 55.5 59.1 66.3
of which mining 38.8 58.8 68.6 84.8 89.3 107.7
food industry 37.8 42.8 45.7 48.0 50.9 59.2
Agriculture 46.8 37.3 39.4 41.0 42.1 45.1
of which crop production 65.4 60.2 58.8 64.7 60.4 74.8
livestock production 37.8 27.0 30.3 30.1 30.9 32.0

Source: Latvian Statistical Yearbook 1999., 2004., 2007. - Riga. CSB

In 2006, the production level in the industry made
only 66.3%, but in the agriculture 45.1% of the level
of 1990, inter alia in the crop production 74.6%, in the
livestock production – only 32%. The level of 1990 was
overcome only in mining.

To make up for lost time and to accelerate the increase
of production it is necessary to seek for ways and
opportunities how to use more rationally the production
resources – land, labour force and capital – and to
facilitate the entrepreneurship to focus on production of
competitive products.

In using of land, an essential role is played by the
agriculture area. Its rational use is the main support for
successful inclusion of rural territories in a balanced
social economic development. Of the total land area
of the country, making 6458.9 thousand ha, the used
agriculture area made 1839.1 thousand ha or 28.5%,
forests – 2929.0 thousand ha or 45.3%, but all other areas
– 1456.8 thousand ha or 22.5%. Of the used agriculture
area, the arable land was 1188.1 thousand ha or 64.6%,
the meadows and pastures – 641 thousand ha or 34.9%,
but the permanent crops – 10 thousand ha or 0.5%. During

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the period 2000-2007 the used agriculture area increased
from 1587.1 thousand ha to 1839.1 thousand ha or of
16%, inter alia the arable land – from 969.9 to 1188.1
thousand ha or of 22.5%. [Central Statistical Bureau,
2008]. Latgale region is the richest with agriculture area.
It concentrates 27% of all agriculture area given to usage
and is followed by Vidzeme region (21.3%) and Zemgale
region (20%). [LRZM, 2007.] The usage of land cannot be
called rational, because a certain part of agriculture area
remains still unused at all. In 2006, from 2470 thousand
ha agriculture area there were used only 1855 thousand
ha or 75%. Although the arable land area has increased
from 969.9 thousand ha in 2000 to 1205.1 thousand ha
in 2006 or of 12.4%, not all arable area is used under
crops. The unused land grows over, and, as a result, the
qualitative indicators of landscapes and biotopes become
worse. The land ameliorative systems decline. When
the land grows over, the woodland increases, and this
tendency is a rather stable one. According to forecasts, if
such tendency will continue, the forests will soon cover
one half of Latvia’s territory.

The yield of crops is changing and it is lower in
comparison with other countries. If in 1996 the average
yield of corn made 1.69 t/ha, then in 2005 it made
already 2.8 t/ha. However, this indicator also is low. For
example, in 2003 the yield of barley in Spain made 2.7
t/ha and it was the lowest average yield level in the EU.
The highest yield had the Luxemburg, where in made
6.8 t/ha. The highest yield level of oats was in Ireland,
where it made 7.28 t/ha (http://www.agra-net.com). The
highest and lowest yield indicators of certain crops in
Latvia were as follows:

rye: 2.63 t/ha 1986-1990; 1.77 t/ha in 2000; 
wheat: 2.86 t/ha in 2005; 1.77 t/ha 1995; 
barley: 2.26 t/ha 1986-1990; 1.38 t/ha in 2000; 
oats: 2.14 t/ha 1986-1990; 1.61 t/ha in 2000. 

In Ukraine and in Russia the average yield of crops
make 3.5 t/ha, but in Kazakhstan, at the average yield of
1.9 t/ha, in several regions it makes even 5 t/ha.

In Latvia, the yield of crops varies of 1.59 t/ha in
Latgale region to 2.78 t/ha in Zemgale region. The highest
yield of potatoes was in Zemgale region (13.39 t/ha), the
lowest – in Kurzeme region – (10.96 t/ha). The highest

yield of vegetables was in Kurzeme region (13.13 t/ha),
but the lowest – in Vidzeme region (8.66 t/ha).

Therefore it is understandable that despite the increase
of production in agriculture, making in 2007 37.4%, the
level of 1990 was not reached in both the crop production
and the livestock production. In 2007, the production in
agriculture made 50.8% of the level of 1990, inter alia
in crop production 87.9%, but in livestock production –
34.5%. In 2007, the sown area made 69.2% of the sown
area in 1990, inter alia the crops – 77.3%, potatoes –
50.2%. [Central Statistical Bureau, 2008.]

After the 1990, the livestock production has changed
remarkably. In 2007, the production of meat made only
27.4% of the level of 1990, the production of milk –
44.5%, production of eggs – 77%, production of wool –
18.7%. If in 1990 the production of meat in Latvia per
capita was 116 kg, than in 2007 – 37 kg. The production
of milk decreased respectively from 711 kg to 370 kg.
However, the milk production has a special place in
livestock production. It is one of the main income sources
of employed in the agriculture.

The crop production and livestock production form
the basis for such sectors as processing of crops, fruits
and vegetables, milk industry and meat industry. The
amount and quality of processing products depends on
the amount and quality of agriculture production.

The labour force depends on the number of economic
active population and the level of employment. In 2007,
the number of economic active population in Latvia was
1191 thousand, inter alia the employed 1119 thousand
or 94% and the unemployed 72 thousand or 6%. During
the period 2000-2007, the number of economic active
population has increased of 8.6%, inter alia the number
of employed – of 19.2%, but the unemployed – decreased
two times. In 2007, the number of economic inactive
population made 613 thousand and in comparison with
the 2000 had decreased of 15.8%. In 2007, the level of
employed males made 67.8%, unemployed males – 4.6%,
but 27.6% males were economic inactive; the respective
indicators of females made 57.0%, 3.4% and 39.6%.
[Central Statistical Bureau, 2008. p. 242] The proportion
of economic active population in regions differs (Table
2).

Table 2. proportion of Economic Activity of population in Latvian Regions (%)
[Central Statistical Bureau, 2008., p. 244]

Regions Level of economic activity Level of employment proportion of unemployed
2002 2007 2002 2007 2002 2007

Riga 65.6 70.8 58.3 66.7 11.1 5.8
pierīga 63.6 67.1 56.7 63.9 10.8 4.9
Vidzeme 62.1 61.0 55.6 57.0 10.5 6.6
Kurzeme 60.5 65.0 52.9 61.6 12.6 5.2
Zemgale 58.9 63.6 52.8 59.5 10.4 6.5
Latgale 55.5 61.2 46.0 56.3 17.1 8.0

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The level of economic activity has increased more
rapidly in Latgale region (10.5%), then follow Riga and
Kurzeme (7.9%), but in Vidzeme it has decreased of
1.8%. The employment level has increased more rapidly
in Kurzeme (16.4%) and in Riga (.4%), but more slowly
in Vidzeme (2.5%). In 2007, the lowest proportion of
employed was in Pierīga, the highest – in Latgale.

Investments are characterised by changing amount,
branch structure and territorial allocation. The non-
financial investments in Latvia have increased from 511.1
million LVL in 1995 to 3441.2 million LVL in 2006 or

6.7 times, but in comparison with the 2000 – 2.2 times.
In agriculture, forestry and fishing, the non-financial
investments have increased from 24.4 million LVL in
2000 to 138.3 million in 2006 or 5.7 times by changing
of their proportion in the total amount from 1.6% in 2000
to 4% in 2006. In processing industry, during the same
period the non-financial investments increased from
211.7 million LVL to 558.6 million LVL by changing
of their proportion from 13.8 to 16.2%. The territorial
location of investments is characterised by high level of
imbalance (Table 3).

Table 3. Non-financial Investments in Latvian regions [Central Statistical Bureau, 2008., p.195]

Regions
2000 2006

Million LVL in % of the total
amount

Riga 829.5 53.9 1695.8 49.3
pierīga 218.4 14.2 617.4 17.9
Vidzeme 78.6 5.1 247.1 7.2
Kurzeme 227.4 14.8 382.2 11.1
Zemgale 82.8 5.4 289.9 8.4
Latgale 101.4 6.6 208.8 6.1
Total 1538.1 100.0 3441.2 100.0

In 2006, the proportion of investments had been
diminished in Riga, Kurzeme and Latgale, but increased
in Pierīga, Vidzeme and Zemgale in comparison with the
2000. High proportion is characteristic to Rīga together
with Pierīga, making more than 2/3 of the non-financial
investment proportion in Latvia.

During the period 2000-2007, the GDP in Latvia
has increased from 4750,756 million LVL to 8717,327
million LVL or of 83%, having increased per capita
from 2002LVL in 2000 to 3830LVL in 2007. The role of
different regions in increase of the GDP is characterised
by the added value (Table 4).

Table 4. The Added Value in Latvian Regions (in actual prices) [Central Statistical Bureau, 2008, p.63]

Regions
2000 2005

Thousand LVL in % to the total Thousand LVL in % to the total
Riga 2357755 55.4 4600844 57.3
pierīga 433009 10.2 893890 11.1
Vidzeme 258120 6.1 499810 6.2
Kurzeme 556662 13.1 855483 10.7
Zemgale 308920 7.3 558108 7.0
Latgale 334892 7.9 612863 7.7
Total 4252568 100.0 8029351 100.0

In creation of the added value, the role of Riga and
Pierīga has increased from 65.6% in 2000 to 68.4% in
2005 that underlines the growing imbalance. A certain
picture of the social economic territorial development
may be obtained from a comparison of the proportion
of population, economic active population, agriculture
area, investments and GDP in regions. So, for example,
the proportion of agriculture area exceeds the proportion
of inhabitants in Vidzeme and Latgale regions, but the
proportion of investments and GDP – in Kurzeme region.
In Vidzeme, Zemgale un Latgale regions, the proportion
of GDP exceeds the proportion of investments, but in
Kurzeme it is lower of 27%. The proportion of investments
in Kurzeme exceeds the proportion of agriculture area 2.2

times, but in Vidzeme makes 65%, in Zemgale – 73.2%
and in Latgale – 69%.

The irregular development of production has led to
unbalanced welfare of inhabitants. So, for example, in
2007, the average of net wages in Riga region made
322LVL per month and was of 58% higher than in Latgale
region. In the public sector of Riga region the average of
net wages was of 55.6% higher than in Latgale region.
In the private sector, the difference between the higher
level and the lower level made 78%. [Central Statistical
Bureau, 2008., p.258]

The big differences between the central part of the
country formed by Riga and Pierīga and the territories of
the periphery compel to seek for possibilities, enabling

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241

to level these differences, simultaneously increasing the
production in both the extensive and the intensive way
with the orientation on production of competitive products
for exports. Additionally, the situation is complicated by
widening of globalisation and imminent to it impact on all
economic spheres from the highest to the lowest level. It
requires implementing of respective regional policy that
must provide a balanced and long-term development in
Latvian regions and different territorial areas. Therefore,
the implementation of regional policy must be oriented
to diminishing of unfavourable differences between
regions and the areas in the framework of regions. It
means that there should be provided equal living, labour
and environment conditions to inhabitants of Latvia and
equal preconditions to entrepreneurship all over our
country.

The creation of preconditions to entrepreneurship
will relate, first of all, to the entrepreneur involved in
production process – to this economic agent called also
the fourth production factor. His success will depend
on his skills of perceiving of market opportunities and
of combining of production factors in such way that
allows to obtain a possibly big gain, and how, acting in a

dynamic and real environment where the profit is return
to uncertainty, he will trace free niches in the market that
others have not yet found, and find resources necessary
to his enterprise with the aim to use them for ensuring
of a place in the market. His activities will be affected
by such conditions as financing, labour force, sale,
initiative, knowledge, information, scientific research
results, consultations, road net, raw materials, state and
self-government support and different business support
forms such as business parks, industrial parks, business
innovation centres, accounting service bureaus and
others.

Presently, the territorial allocation of above-mentioned
conditions in Latvia is a rather unbalanced one, as it is
evidenced, for example, by allocation of the business
support structures (Table 5), which have to provide
entrepreneurs with necessary services simultaneously
all over the country. In addition, there exists a growing
necessity of these services, especially under nowadays
globalisation conditions, when the information has to
provide the necessary connections between all economic
spheres. In Latvia, the local information is not always
adequate to the information on the level of the EU.

Table 5. Business support structures in Latvian regions

Support forms Riga Kurzeme Latgale Vidzeme Zemgale
Business parks 11 - - - 1
Industrial parks 6 1 1 - -
Business innovation centres 3 - - 1 -
Virtual bureaus 3 - - - -
Accounting service bureaus 6 - - - -
Business consultation centres 553 25 27 15 15

Source: data of Central Statistical Bureau of Republic of Latvia

Different business support forms are necessary to
future entrepreneurs desiring to act independently.
Presently, their number is not small. For example, the
results of an inquiry carried out by R. Zvirgzdina shows
that more than one half of respondents have expressed the
desire to work fully independently and single-handed that
means to be free in choice of the kind of entrepreneurship,
elaboration of production programme, choice of financial
sources, seeking for production resources and markets,
calculating prices, using profits, simultaneously taking
into consideration that he will be dependent on dynamic
changes in demand and supply, taste and purchasing
power of consumers, price level, the laws regulating the
entrepreneurship, and the political and economic situation
in the country. It is significant that a great number of
respondents think that the starting of entrepreneurship
requires a consultant that may be a professional or
experienced entrepreneur, being able to recommend
how to act and to make use of scientific researches and
practical skills in the case of both starting and continuing
of entrepreneurship. Lack of necessary consultations has

led often to situations that the entrepreneurs give up the
continuation of entrepreneurship.

In solution of problems related to initiative of
entrepreneurs and to government and self-government
support, as well as to different business support forms
there emerges the question what kind of enterprises
and institution may be able to combine best of all the
initiatives of future entrepreneurs with the possible
support, taking into consideration also the appreciation
and moral support. To such forms maybe long franchise
and mentoring.

Franchise means conclusion of a contract, according
to which the owner of intellectual property rights
transfers to other part the rights against a payment on
a settled or unsettled term to use his trademark, patent,
business secret and knowledge. From other systems of
contracts the franchise differs in the way that it is based
on a unique product, service, business method, brand,
reputation or patent. Therefore, the franchise is a good
way how to develop the entrepreneurship, because there
are lots of things that are ready and must not be created

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242

anew. The funds may be invested in the product and the
trademark that have already conquered its place. The
entrepreneur is protected from mistakes, because he will
have someone who teaches and consults him. [Gavare,
2005.].

Taking into consideration the fact that one fifth of
respondents surveyed by R, Zvirgzdina have expressed
desire to carry out the entrepreneurship under monitoring
of a bigger enterprise allows to recognise this form of
entrepreneurship as a suitable for areas removed from
the centre.

Up to now, one of the more successful examples of
using of franchise and evaluation of its positive impact
in Latvia, is the formation of the shop net ELVI that was

created in 2000. It emerged on the basis of the tendency
of decrease of the number of retail shops, being caused
by intensive competitiveness in trade. To protect the
small traders from ruination there emerged the idea to
unite the local food traders. As a result, the ELVI concept
was created. In 2000, the decision was made to develop a
shop net based on franchise principles and with attraction
of successful local retail traders. In 2003, the ELVI
group started consultations and training of employees
as additional service to the partners. The rearrangements
and introduction of new cooperation forms allowed to
ELVI group’s shops to increase essentially their turnover.
The ELVI group and the shop owners plan jointly the
turnover of every shop, the profit, equipment of the shop
and allocation of good groups.

100

150

200

250

300

2000 2001 2002 2003 2004 2005 2006

ik
ga

d
ja

is
n

et
o

ap
gr

oz
ju

m
a

au
gš

an
as

te
m

ps
%

Latvija
Elvi

fig. 1. Growth rate of retail turnover in Latvia and ELVI group, 2000–2006
Source: on the basis of published information of Central Statistical Bureau of Latvia

Process of
mentoring

Application

Advantages and
disadvantages

Management
of action
process

Education and
consultations

Methods and
means

Aims and
ideas

Evalution of
risks

fig. 2. Activities of mentoring process
Source: concept of authors

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243

The experience of ELVI evidences obviously and
demonstrates the advantages of franchise, because the
ELVI group has become the third biggest participant
in Latvian food market, The experience of ELVI group
and other franchisors in the field of cooperation may be
used preferably in Latvian rural regions to facilitate and
support the activities of small entrepreneurs.

In activation of entrepreneurship, the mentoring
may play a significant role. Mentoring is a transfer of
knowledge, carried out by experienced mentors and
successors of experience. [Tuliki, 2005.] Mentoring
is based on mentor’s knowledge and experience that
allows to successor to evaluate the possibilities and
resources, being at his disposal, and facilitate their
using in solution of a concrete problem or achieving
of a goal.

Mentoring may play a significant role in facilitating
of innovations that develops presently in Latvia at a
rather slow pace. In Latvia, only one fifth of enterprises
is involved in innovative activities. The innovative
activities are more related to big enterprises.

Conclusions

The entrepreneurship environment in Latvia has 
developed in accordance with social economic
processes.
The Latvian economy has not succeeded in 
overcoming the decrease in production setting in
after the 1990.
The location of production resources is territorially 
unbalanced.
The use of agricultural land is insufficiently 
economic: the yield of crops is comparatively low;
a part of agricultural land remains unused.
More than two thirds of investments are 
concentrated in Riga and Pierīga.
The preconditions of development of 
entrepreneurship are allocated unevenly all over
the territory.
A certain part of future entrepreneurs express the 
desire to work independently.
Acceptable development forms of entrepreneurship 
in the future may be franchise and mentoring.
The regional policy should be oriented to possibly 
soon extermination of imbalance taking place in
allocation of production factors.
The principles of regionalisation should be 
taken into consideration, when implementing the
elements of regional policy.

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The article has been reviewed.

Received in March, 2009; accepted in April, 2009.