SWOT Analysis of Transition Countries in the Baltic Sea Region

by

Manja Ledderhos

Term Paper at the FH Kiel, University of Applied Science
School of Business Management

winter semester 2001/2002
seminar: Selected Topics in English

List of Contents

1. INTRODUCTION 7

2. BASIC INFORMATION 7
2.1 THE TRANSITION COUNTRIES IN THE BALTIC SEA REGION 7
2.2 THE METHOD OF THE SWOT ANALYSIS 9

3. OPPORTUNITIES OF TRANSFORMING COUNTRIES 9
3.1 EASTERN ENLARGEMENT OF EUROPEAN UNION (EU) 9
3.1.1 POLITICAL OPPORTUNITIES 10
3.1.2 ECONOMIC OPPORTUNITIES 10
3.2 FOREIGN INVESTMENTS 11
3.2.1 FOREIGN DIRECT INVESTMENT (FDI) 11
3.2.2 OPPORTUNITIES THROUGH THE STOCK EXCHANGE 13
3.2.2.1 Going Public under Governmental Control 14
3.2.2.2 Opportunities of Private Companies to Go Public 15

4. THREATS OF THE TRANSFORMING COUNTRIES 16
4.1 PROBLEMS WITH RUSSIA 16
4.2 THE EU-ENLARGEMENT AS THREAT 17
4.2.1 THE EU AS A SAFE HARBOUR 17
4.2.2 THREAT OF LOSING NATIONAL IDENTITY THROUGH EU ENLARGEMENT 17
4.2.3 THREAT OF A SPLIT REGION 18
4.2.4 COSTS OF A MEMBERSHIP AS THREAT 18

5. STRENGTH OF THE TRANSFORMING COUNTRIES 19
5.1 SUCCESSFUL INTRODUCTION OF PRECONDITIONS 20
5.1.1 LEGAL BASE 20
5.1.2 STATE OF PRIVATISATION 20
5.1.3. LIBERTY OF MARKETS 21
5.1.4 MACROECONOMIC STABILISATION 21
5.2 REGIONAL STRENGTH OF THE REGION 22
5.2.1 NATURAL STRENGTH 22
5.2.2 INTRA BALTIC COOPERATION AS STRENGTH 23
5.3 STRENGTH ATTRACTIVE TO INVESTORS 24
5.3.1 STRENGTH ATTRACTING FDI 24
5.3.2 STRENGTHS OF STOCK-MARKETS 25

6. WEAKNESSES OF TRANSFORMING COUNTRIES 28
6.1 GENERAL PROBLEMS 28
6.1.1 INFRASTRUCTURE 28
6.1.2 MENTALITY OF PEOPLE 29
6.2 INSTABILITIES IN THE FINANCIAL SECTOR 29
6.2.1 BANKING SECTOR 29
6.2.2 STOCK-MARKETS 30
6.3 WEAK LEGISLATION 31
6.3.1 GENERAL ASPECTS 31
6.3.2 SPECIAL PROBLEMS WITH POLAND 31

7. CONCLUSION 32

WORKS CONSULTED

List of Charts / Map

Map 1: Map of The Baltic Sea Region 07
Chart 1: FDI from Baltic Region to Baltic States and Poland 22
Chart 2: FDI Inflows in the Baltic Countries and Poland 23
Chart 3: Recent Performance of the Baltic Stock exchanges 26

1. Introduction

The Baltic Sea Region, including relatively poor countries such as Poland, Latvia, Estonia and Lithuania but also economic giants such as Denmark, Finland or Sweden, is discussed controversially in literature. The Financial Times calls the region an "economic tiger" or even "the Engine Room of Europe" (Burt 1999, 1). Others do not see such good prospective and rather warn that "positive trends should not lead to total optimism … [because, in their view,] economic integration comprising all states bordering the Baltic Sea is not easily to be visualized in the near future" (NEBI Yearbook 1998, 5). The decision of a company, whether to invest or to go public in a certain country, should be based (mainly) on the analysis of the region which is not always an easy task.
The main objective of this paper is thus to analyse the economic situation in the Eastern Baltic Rim countries by looking at the integration process into the EU, the successes in attracting foreign investors, and the success of the transforming process in general by the means of a SWOT analysis. Theoretical information will give the ability to understand Chapters three through seven on strengths, weaknesses, opportunities and threats of the region.

2. Basic information

2.1 The Transition Countries in the Baltic Sea Region

At the beginning of any analysis, it is necessary to define the area of the Baltic Sea region, its background and the importance of the sub-region of the Transition Countries. In map one the topography of all of the countries that are part of the Baltic Sea Region are shown.

[Map 1: Map of The Baltic Sea Region (Microsoft Encarta, Weltatlas)]

Whereas the west shore consists of rich, stable and democratic countries such as Denmark, Finland and Sweden, countries on the east shore have, with the exception of West-Germany, adopted to democratic patterns only recently and still have one of the lowest GDP per capita in Europe.
Despite differences between east- and west shore, countries around the Baltic Sea are often referred to as one "region" which means that there is "an administrative or industrial economic unit at the sub national and trans national level (NEBI Yearbook 1998, 4) where people are economically, mentally and politically united" (Microsoft Encarta 1998). The Baltic Sea has always connected the countries economically; first trade started hundreds of years ago. As will be seen later, people of the region also feel connected.
Crucial for the unity of the Baltic Sea Region is, however, the successful transforming process of the east shore countries into stable and democratic systems because it is the only chance for unity of the whole region. Therefore, the Baltic States and Poland are the subject of the upcoming analysis.

2.2 The Method of the SWOT Analysis

Next to gaining knowledge about the subject, it is also important to decide and take a closer look at the method of the analysis. The SWOT Analysis is a strategic way to overlook strengths, weaknesses, opportunities and threats.
Whereas opportunities and threats come from the outside, leaving relatively little room for intervention, strengths and weaknesses refer to the region itself. It is usually the goal to measure strengths and weaknesses on a scale of importance putting them into relation to opportunities and threats.
Especially the transition countries of the Baltic Sea Region, namely Estonia, Latvia, Lithuania and the maritime regions of Poland are interesting to analyse, because the region is faced with many opportunities and threats due to the changing process. The SWOT Analysis provides a broad overview about the situation of a country and should, therefore, be applied on the transforming countries.

3. Opportunities of Transforming Countries

The transforming Baltic Region countries are reorganising themselves from communistic systems to states with more democratic patterns. Thus opportunities lay in the orientation to the west, and the membership in the European Union as well as foreign investments which brings money into the region and can generally help with the transforming process.

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