The USAID Partnership with Small and Medium Enterprises in Lithuania
By Jonathan Sperling and John Morgan; USAID/Lithuania
May 2000
I. INTRODUCTION
Prior to 1990, private small and medium enterprises did not exist in
Lithuania, but have been growing swiftly since independence. The overall
lack of a healthy small and medium enterprise sector and lack of experience
with these enterprises were major impediments to the transition of the
Lithuanian economy in the early 1990s. Initially, such enterprises were
limited to trade, services, textiles and flower growing. There was virtually
no available capital, and that which was available carried interest
rates approximating 20 percent per month. There was also no supporting
institutional infrastructure, either in the form of government organizations
or private resources such as associations or trade groups. To the extent
that any attention was paid to the development of private enterprise
it was focused on large enterprises which were viewed as more productive
for the national economy.
The U.S. involvement started in 1992 with the opening of an assistance
relationship with Lithuania. The early years of assistance were characterized
by a large number of loosely coordinated initiatives. The different
interventions were started in order to determine what would work best
within the transitional economies and political environments being nurtured
throughout Central and Eastern Europe. Project activities were developed
and implemented to improve the ability of entrepreneurs to run their
businesses and to improve the relationship between government and business.
Based on this approach, USAID/ Lithuania efforts in small and medium
enterprise development were concentrated in four areas, each with several
implementers, as follows:
Support for Development of Small and Medium Enterprises:
- MBA Enterprise Corps
- International Executive Service Corps (IESC)
- Peace Corps Programs
Support for Private Agricultural Development:
- Volunteers of Cooperative Agriculture
- Land O’ Lakes Dairy Strengthening Program
Training for Business Development:
- Management Training (Texas A&M)
- Entrepreneurial Management and Executive Development (World Learning)
Demonstration of Environmental Improvements in Private Enterprises:
- World Environmental Center
- Environmental Action Program Support Project
In addition to the above, the World Organization of Cooperatives and
Credit Unions project, which targeted the improvement of the financial
environment, had small and medium enterprises among its main customers.
Direct individual firm level assistance was the major focus of USAID
activities until the Mission's strategic revision of 1996. At that time
emphasis was shifted to strengthening the financial and fiscal underpinnings
of the economy, energy, and democracy/NGOs together with special initiatives
in the areas of environment and small and medium enterprises. The small
and medium enterprise special initiative targeted sector constraints
rather than on direct assistance to individual firms. The early projects
with emphases directed to individual firms were brought to an orderly
conclusion. A limited number of activities (specifically management
training at Kaunas Technical University/Panevezys, International Executive
Service Corps, World Environmental Center and Land O Lakes) were continued
within the sector constraint focus.
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II. ENTERPRISE SUPPORT ACIVITIES
- Baltic-American Enterprise Fund
The Baltic American Enterprise Fund (BalAEF) was established to promote
private sector business by providing assistance on behalf of the U.S.
Government. Through the infusion of new capital resources, BalAEF assists
in the development of the small and medium enterprise sector in Estonia,
Latvia, and Lithuania. The Fund was endowed by USAID with $50 million.
Since beginning operations in 1995, the Fund has been a financial partner
for growth-oriented companies, entrepreneurs, and new homeowner families
throughout the Baltic States. In total, BalAEF has disbursed $34.9 million.
Disbursements have generated $13.7 million in returns of principal and
interest. This new capital is used to finance market expansion, product
development, and state-of-the-art manufacturing capabilities. One successful
BalAEF client is Lietpak, a leading manufacturer of printed plastic
wrappings. Founded in 1989, Lietpak has quadrupled its earnings and
doubled its workforce over the last three years. This firm's current
success is tied to loans it received from the BalAEF in 1997 and 1998.
BalAEF has made equity investments and commercial loans to 40 separate
Lithuanian enterprises. Additionally, BalAEF set up a landmark program
that has introduced residential mortgage loans to nearly 400 individuals
and families in Lithuania. These loans indirectly support small and
medium enterprises that provide building materials and construction
services for these new residences.
Lessons Learned: Capital availability is one of the most damaging
limitations that small and medium enterprises face. Many banking operations
do not meet the needs of fledgling enterprises due to the conservative
nature of their loan portfolios. Creation of a separate credit facility
that can take such risks can greatly enhance private sector development.
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- Entrepreneurial Management And Executive
Development
Entrepreneurial Management and Executive Development (EMED) provided
entrepreneurs with U.S.-based training, which complemented the in-country
technical advisors from organizations like Land O' Lakes, IESC and
VOCA. This activity, was managed for USAID by World Learning.
A total of 107 entrepreneurs participated in these U.S. study tours.
They returned with newly established contacts; new ideas about products
that could be produced and sold; new ideas on how to improve their
production techniques and product qualities; and a new perspective
on how to operate their businesses. In many cases, these entrepreneurs
returned with U.S. equipment and technologies to infuse their enterprises
in new ideas and capabilities. In most cases, each visit was coordinated
with other USAID implementing partners (IESC, Land O' Lakes, VOCA,
etc) to enhance results. These coordinated efforts provided the total
package of technical assistance needed for success, a package far
better than either Land O' Lakes, IESC, or EMED could have done alone.
The visits lasted about a month and often took participants to several
cities or U.S. firms. Generally, the entrepreneurs would meet with
executives to discuss specific issues such as operations, personnel
planning, marketing, or the know-how to produce a new product. Some
of the U.S. executives were Lithuanian-Americans. A number of personal
relationships developed during these programs that have led to ongoing
business contacts between the training participants and their hosts.
Many of the EMED participants were able to join American trade organizations,
thus increasing the opportunity for on-going contacts. Invariably,
the entrepreneurs returned with unexpected observations and new ideas.
The visits fostered an enthusiasm for growth and achievement.
The entrepreneurs selected under EMED were highly qualified, and
a number of them transformed their industries when they returned.
For example, one participant is now the leading producer of wholesale
salads for the food industry, another has started a chain of pizza
shops, and a third owns the largest cosmetic manufacturer in Lithuania.
The measurable impact of the EMED training visits was the increased
profitability of participant companies. Within two years of the visits,
45 percent reported that their assets had increased, more than 63
percent increased their profits and sales, and over 50 percent reported
hiring new employees. In total, this training program had a significant
and observable impact on small and medium enterprises.
One productive outcome of the program has been the formation of several
interest groups. World Learning formed a common interest group of
returned participants, i.e., the Lithuanian American Business Initiative.
This group meets regularly and has become an important advocate for
the small and medium enterprise community, working to provide a forum
for participants to share experiences and advocate their positions
and interests. The group's success is due to the active work of the
former training participants and their willingness to share information.
In addition to this group, others representing the cosmetics industry
and representing small businesses in the northeastern part of Lithuania
have also developed from the group of returned participants.
Lessons Learned: Good participant selection and excellent
local leadership were the main contributing factors to the positive
results of this effort. Knowledge of the local economy and local practices
are also important in assuring success. Coordination of efforts between
various implementing entities can enhance results.
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- International Executive Service Corps (IESC)
Another early activity was implemented by IESC. IESC’s strengths
were in the area of policy change, technical change at the level of
the medium size and large firms firm, and training for small and medium
enterprises. Over 200 volunteers visited Lithuania and results reporting
estimate that the revenue increase to the firms assisted has been
conservatively estimated at $45 million. Many of the individual firm
assistance efforts stand as examples of cooperation among the USAID
implementers that enhanced results.
Creation of policy and improvement of institutions essential to the
development of small and medium enterprises was done very well by
IESC. For example, a sound financial environment is essential for
a healthy small and medium enterprise sector. In the earlier period
of the program IESC provided experts and bankers to commercial banks
and the government to assist in efforts to create a stable currency
and a dependable central banking system. A senior financial expert
was provided who guided the Bank of Lithuania during the Bank's work
to establish the new currency. Other volunteers assisted in creating
the brokerage industry, another important resource for the sector.
Both of these successes were the result of the utilization of high
level and well experienced U.S. executives.
IESC’s strength was in matching unusual expertise with local enterprises.
Since independence, Lithuania has developed a number of small and
medium high tech firms that are technically competent but not well
versed in market management practices. IESC identified volunteers
with high-tech experience to assist several firms in diagnosing their
management problems and propose solutions. In a number of cases several
repeat visits were made to individual firms, each time focusing on
new problems. As with the VOCA program, building of confidence of
the local businesses was important. In the case of IESC, a number
of the volunteers spoke Lithuanian, permitting them to work and build
rapport quickly.
Early in the program, USAID recognized the need to create centers
of excellence so small business owners could gain expertise in the
areas of marketing, accounting and management. IESC was able to provide
volunteers to both the Business Management Center at Kaunas Technical
University in Kaunas and the Management Training Center in Panevezys
who assisted the institutions in developing visions, business plans
and overall management advice. Both IESC and the Mission recognized
that without training the sector would develop quite slowly and with
a considerable amount of failure among enterprises. IESC provided
a volunteer for the Business Management Center, who advised on developing
a vision and assisted in targeting the center's efforts. At Kaunas
Technical University/Panevezys a series of volunteers established
procedures which is assisted the institution achieve self-sufficiency.
Again, the success of these activities is the result of determining
what the target institution needs and the providing professional and
experienced expert advisors.
Lessons Learned: Success is directly proportionate to how
well the expertise is matched with and understands the needs of the
counterpart. Good leadership on the part of the implementing partner
is also a critical contributor to the success of a venture.
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- Kaliningrad and Belarus Business Training
In early 1998, USAID identified several opportunities for having
a positive impact on the development of small and medium enterprises
in Lithuania. A program was designed to teach the art of market economies
to entrepreneurs from Belarus and Kaliningrad region. The expected
outcomes of training were closer economic ties among Lithuanian, Belarus
and Kaliningrad businesses and profitable small entrepreneurs. This
is to be achieved through effective application of market practices
in Belarus and Kaliningrad based on enterprise experience in Lithuania.
This is the first attempt to use the experience of Lithuanian entrepreneurs
and training providers to facilitate non-Lithuanian (i.e., Belarus
and Kaliningrad) business development. To date, program participants
have found the training program to be more useful and applicable to
their business situations than similar training programs in West European
countries. Belarus, Kaliningrad and Lithuanian entrepreneurs are beneficiaries
of this comprehensive program. It is expected that many more valuable
contacts will be established.
Lessons Learned: As local capabilities are developed, cross-border
sharing of the results can achieve closer social, economic and political
ties between the countries in the region.
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- Kaunas Regional Association of Small and
Medium Enterprise (KRASME)
The Kaunas Regional Association of Small and Medium Enterprise (KRASME)
promotes citizen participation in the decision-making process, defending
the rights of small and medium enterprises, representing their interests
in the state institutions, fighting corruption, initiating amendments
to legislation, drafting laws, and maintaining relationships with
international institutions. There are over 250 members in the organization,
they have representatives in the Business Committee at the Ministry
of Economy, Council of NGO’s. The chairman of the board serves as
state consultant for Prime Minister's office and advisor for Business
Committee of the National Parliament. Using those channels they have
achieved excellent results in advocacy of new regulations producing
a better environment for small and medium business.
Lessons Learned: Effective support of advocacy positions for
political and regulatory changes are essential for long-term success
of the small and medium enterprises, especially in a social and economic
transition situation such as that faced by Lithuania. Traditional
support to enterprises must be closely coordinated with advocacy groups
to ensure the correct focus of policy positions.
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Land O' Lakes implemented a major part of USAID's early support of
small and medium enterprise development. Overall assistance was provided
to restructure agricultural enterprises, strengthen the production/distribution
chain, refine marketing practices, and enhance efficiency and quality
control. Land O' Lakes focused the dairy strengthening activities
on the two most northern districts of Lithuania, Panevezys and Telsiai.
Approximately 65 percent of the milk in Lithuania is processed within
these two districts. The activities began with improved pasturing
techniques to increase milk production rates and increased veterinarian
care to improve raw milk quality up to 50 percent. Improved techniques
introduced at district veterinary stations has reduced milk testing
times from five days to two and has substantially reduced test costs.
At dairy processing plants, USAID improved plant sanitation, utilized
new processing techniques, and introduced new product lines to increase
production rates, reduce operating costs, and improve milk quality.
Birzai Dairy, which as a result has become one of the best quality
milk processors in the country, reduced operating costs by $25,000
per day. For distribution and marketing, USAID assisted improvements
in sales techniques, distribution and order systems, and customer
support. USAID also supported development of trade associations, regulations
for the dairy industry, and dairy policies. By strengthening the capacity
of the industry as a whole, USAID set in motion a sustainable process
of modernization.
Regrettably, the technical and management successes did not lead
to the commercial successes as fast as anticipated because government
controlled pricing policies impeded sector growth. Recognizing the
potential of the counterproductive policies to block progress in the
transformation of the sector, Land O' Lakes and Lithuanian economists
developed an economic model to identify costs and benefits for various
options on milk pricing policy. These were presented to a group of
decision-makers from industry, parliament and the bureaucracy and
dairy policy dialogue was started. Although all needed changes have
not been achieved, the dairy industry has been revived.
Lessons Learned: Policies adopted to provide social welfare
when a nation was part of the Former Soviet Union often complicated
efforts to adjust to a high productivity oriented market economy.
The use of economic analysis to inform and advance a dialogue on policy
changes in such circumstances can be extremely valuable.
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- Management Training Center (MTC)
The MTC is located in Panevezys, the fifth largest city of Lithuania.
Operating from such a small town coupled with limited funding were
formidable problems for the Center. This project provides valuable
lessons about how to mobilize local support. The head of the cooperating
university became actively involved in local service clubs. The Center's
daily activities were integrated into the local Chamber of Commerce.
The Chamber was consulted on the Center's course offerings, and the
Center provided advisory services to the Chamber. School facilities
were available for meetings and seminars when required. Local decision-makers
(most being members of the Chamber of Commerce as well) were invited
to lecture at the Center on their areas of expertise.
Most importantly, the center publicized the successes of the local
entrepreneurs who participated in the courses, an action that built
local support. Courses for local youth were designed in the area of
entrepreneurship. Thus, the Center integrated itself into the everyday
life of the city. As a result, when the Center encountered funding
problems or needed political support, the city leaders have come to
the rescue of the Center. They have lobbied University officials and
central government bureaucrats for funding and support. The survival
of the Center is in large part due to their skills in building effective
local government support.
Several technical advisors were initially provided by USAID on a
short-term basis. The Center struggled during this time trying to
become self-sufficient. While potentially helpful, these short-term
advisors, who sometimes gave conflicting guidance and who sometimes
were available at the wrong time, were insufficiently familiar with
the structure and culture of the Center to give the highest quality
advice. A management change in implementing the USAID support provided
the opportunity to expand the advisory services to a long-term basis.
Following this change, the Center's achievements and sustainability
improved significantly.
Lessons Learned: It is important to have long-term expertise
in country when undertaking to establish a new institution. As well,
the selection of qualified, flexible and creative counterpart staff
to manage their responsibilities under the effort is critical to success.
When the institution is located in a secondary city, the probability
of success is improved by responsiveness to the needs of the local
community.
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- Volunteers of Cooperative America
Volunteers for Overseas Cooperative Assistance (VOCA) provided technical
assistance to leading agricultural processing companies and cooperative
farms. Between 1992 and 1997, a total of 139 agricultural organizations
received assistance. Initially, training was provided to farmers and
managers of cooperative farms. Through new veterinary techniques and
improved feed regimes introduced by USAID, hog and poultry producers
improved weight gains and dramatically increased revenues. USAID assisted
previously state-owned farms to more successfully organize into cooperatives
and private companies. Over 40 percent of the fastest growing cooperative
farms have participated in this training program. Within the meat
processing industry, USAID improved the operations of newly established
small-scale plants whose business was developing rapidly. Assistance
was provided to improve production techniques, enhance sanitation,
and establish new products. The VOCA program was coordinated with
the USAID U.S.-based training program, with an emphasis on the dairy
and meat processing industries. By carefully focusing on the problems
faced by agricultural producers and processors, and offering technical
assistance from volunteer experts that was carefully designed to meet
these problems, USAID helped import modern management systems, improve
productivity and product quality, introduce new technology, and reduce
production costs. The total economic impact of VOCA programs has been
estimated at $11 million; and over twenty thousand jobs were either
created or saved. In 1993, USAID used VOCA to help institutionalize
the Lithuanian Agricultural Advisory Service, to provide local training
and information programs for farmers and agricultural processing enterprises.
There were several reasons for the success of the VOCA effort. The
most important was the selection of volunteers. VOCA identified highly
experienced volunteers in each of the agricultural specialties. These
volunteers forged a close relationship with the firms they assisted
and made repeated trips to the firms. The use of repeat visits, which
was used in the IESC program as well, is viewed as one of the more
effective techniques which was employed in Lithuania.
The experience with the poultry sector is illustrative of how VOCA
worked and why it was successful. Two volunteers, who were successful
U.S. poultry processors, worked with several processors and identified
elements of the business that could be improved. Low cost solutions
were identified and presented to processor management. The volunteers
left, but returned after several months to review the results of the
previous consultations. Each visit involved increasingly complicated
problems as well as more expensive solutions. The fact that the volunteers
had gained the confidence of the managers and owners of the target
firms and had become intimately familiar with the firm’s goals and
practices was important in the acceptance of the recommendations.
For example, the volunteers recommended the adoption of a new feed
mix for poultry, the failure of which might have been costly. In fact,
the revised feed regime saved the producers approximately $800,000
per year. The intervention with the poultry sector was VOCA’s most
productive, with cost savings and revenues increased by a total of
$1.7 million per year.
Excellent local management also contributed to the success of the
VOCA project. The local VOCA project manager knew the sectors to be
assisted and developed a productive relationship with the local managers
with whom the volunteers were to work. The VOCA U.S. program manager
worked with these local managers to identify their expectations from
the assistance. This process allowed VOCA to eliminate visits with
lower potential for benefits, thus lower probability of success. The
volunteers were also well supported during their time in Lithuania
permitting them to concentrate on their work.
Lessons Learned: The main determinates of success were knowledgeable
people (both advisors and counterparts) who built a good rapport,
excellent project management by the implementers, and precise targeting
of efforts. In-country training was shown as an important tool in
promoting change at the firm level.
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- World Environmental Council (WEC)
At the time of independence, Lithuania had experienced years of negative
impacts of highly polluting state owned businesses. Seeking privatization
of these firms, it was essential to address the costly and destructive
pollution situation. Control of pollution was especially critical
as Lithuania was interested in EU accession, where a highly polluted
manufacturing environment could lead to denial of quality or environmental
certifications. Cleaning up every site under the USAID program was
not possible, so six carefully selected demonstration projects were
chosen to serve as examples for other industries. These demonstrations
worked quite well in cleaning up the specific firms in which they
functioned but did not achieve significant replication. Two factors
were working against wider replication were - lack of effective public
relations efforts promoting the demonstrations; and the desire of
firms to keep their details about their perceived competitive advantages
from competitors.
The WEC helped establish the Pollution Control Center at Kaunas Technical
University to promote cost saving pollution control technologies.
The Center effectively used the services of highly qualified technical
people from the Kaunas Technical University. Economic projections
of potential benefits of the pollution control measures were provided
to small businesses. Linking economic benefits to pollution control
gave many businesses a different perspective on the need to consider
environmental aspects of their operations.
Lessons Learned: While demonstration projects may be effective
in showing the advantages of a technique or methodology, success can
only be assured through the inclusion of a well thought out and targeted
public relations/marketing effort. As well, the ability to replicate
the successes of a demonstration project is influenced by the extent
to which the demonstration puts a firm at a competitive advantage
over others in the same field.
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III. SUCCESSFUL IMPLEMENTATION TECHNIQUES
- Short-term vs Long-term Advisors
The duration of term of the advisors has yielded varied success rates
in this program. Under differing conditions, both long-term and short-term
have provided successful and less than stellar results. Given the
significantly lower cost for short-term advisors, it is important
to quantify the situations where short-term vs long-term advisors
are most effective.
The use of short-term volunteers by VOCA and IESC was quite effective
in carrying out their efforts. The keys to these successes included
availability of a vast number of advisors with a wide range of expertise
that could be matched with individual situations with few compromises.
It can be concluded that as the need for the advisory services narrows
to specific technical issues, short-term advisors seem to provide
more direct and focused support for institutional change.
One advantage of short-term advisors is the relative ease of moving
to another advisor is simplier and less time consuming than dealing
with a long-term advisor. It is clear that when there are definable
problems a short-term technician who can focus on these problems is
a better alternative. VOCA’s experience with the chicken and hog industries
and IESC’s with several electronics firms confirm this observation.
In contrast to individual technical issues faced by small business
operators, institution building requires a vastly different approach;
long-term presence is often essential. In at least two cases, this
was clearly demonstrated - the Management Training Center and the
Pollution Prevention Center. Both organizations lacked a long-term
advisor initially and were slow to achieve the degree of self sufficiency
and proficiency envisioned at their establishment. In these two instances,
initial short-term advisors tended to give conflicting guidance, were
often available at the wrong time and were insufficiently familiar
with the structure and culture of the organizations to give the quality
advice.
Specifically for short-term advisors, a correlation between the frequency
and consistency of visits and observable results is clear. VOCA made
exceptional progress in the poultry industry due to two poultry experts
who came to Lithuania repeatedly and worked with the same group of
firms. They gained the confidence of the management of the firms so
that the lag between the giving of advice and its acceptance was minimal.
They also were able to give better advice as they had already become
familiar with the local environment.
Another example of the value of repeat visits occurred in the IESC
project. A large computer firm benefited from the advice of a volunteer
who assisted by recommending several management changes. The volunteer’s
services were again requested nine months later at which time the
firm engaged him to assist in solving some financial problems. The
local firm was in dire financial straits and had gained sufficient
confidence in the advisor that it felt free to share its problems
with him. The volunteer made a number of recommendations that were
accepted and the firm is now thriving, providing both employment and
export earnings to Lithuania.
Yet in another case, the IESC volunteer who assisted in the introduction
of the new currency made several trips to Lithuania. His major contributions
to the conversion were a direct result of the familiarity with Lithuania’s
objectives gained during his numerous visits. In summary, the confidence
and knowledge gained by repeated visits often makes a large difference
in the efficiency of a technical expert.
- Use of Lithuanian Americans
The use of individuals familiar with Lithuanian culture and language
was a significant factor in improving the performance of both the
IESC program and the Entrepreneurial Management and Executive Development
Project. In the case of IESC, Lithuanian-Americans performed 24 percent
of the work over the life of the program. They were able to communicate
better because of the language and cultural knowledge.
In the case of the Entrepreneurial Management and Executive Development
Project, a Lithuanian-American local manager for World Learning was
able to identify and select an unusually highly motivated group of
participants for the program because of her ties to the community
and language skills. The ability to work easily in Lithuanian society
was also an important factor in assisting her in the formation of
Lithuanian American Business Initiative, the alumni group from the
project. The creation of the group in Lithuania is unusual, and could
not have occurred without the Lithuanian-American ties of the Lithuanian-American
project manager.
- Coordinating Inputs from Various Interventions
While the initial USAID program in Lithuania was scattered with minimal
coordination, there was considerable coordination and cooperation
as it reached mid point. The synergies resulting from this coordination
had positive effects on the programs where they occurred and indicate
that such cooperation is useful.
IESC, Land O' Lakes and World Learning all collaborated in the development
of the Birzai Dairy Corp. Birzai was a run down money losing milk
plant. An IESC volunteer identified its promise and coordinated support
from Land O' Lakes to improve its product and operations, while World
Learning trained the marketing manager. All of these efforts have
taken the firm to the point where it became the leading dairy product
exporter to Japan and to the EU.
In another case, cooperation between IESC, World Learning, and the
MBA Corps benefited the Katra Company in Kaunas. An IESC volunteer
assisting the firm identified its founder as a person of vision and
industry. The founder was selected for visit to the U.S. where he
saw several manufacturing facilities. On his return, he requested
an MBA Corps volunteer who prepared both a business plan and a successful
application for ISO 9000 approval. The firm is now flourishing, due
in large part to this assistance.
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IV. TECHNIQUES OF EFFECTING POLICY
CHANGES
One of the project management issues that was discussed throughout
the program concerned the best way of bringing about change. Although
a variety of methods were used, those found most useful in Lithuania
included:
- Training: Training has long been a traditional USAID technique
for exposing policy makers to the alternatives. In the case of SMALL
AND MEDIUM ENTERPRISE sector efforts in Lithuania, short-term volunteers
provided the majority of the training under the IESC and VOCA projects.
It was concluded that the utility of this training and the extent
to which policy changes occurred as a result of it was directly relevant
to the number of times the trainer returned to Lithuania and the familiarity
of the trainer with the activity or process being assisted. Both of
these factors affected the credibility of the trainer and increases
in each factor increased the probability that the changes recommended
would be adopted.
- Economic Data: The use of economic data to bring about policy
change has not been a practice in Lithuania. In the Land O' Lakes
project, milk pricing policy was targeted as an objective to increase
incomes and an economic model was developed. Broad factors for the
analysis were developed and a group of Lithuanian economists were
taken to Iowa State University to work through a model developed for
Lithuania. Upon their return, they briefed both the Ministry of Agriculture
and the Seimas (the Lithuanian parliament) on their findings, which
included impacts of several varying policy changes. Prior to the development
of the model, all attempts to get the subject on the agenda failed.
With the quantitative output of the model available, a dialogue began
that is having tangible positive effects.
When economic analysis is used to support policy change, it must be
promptly presented and be relevant. An attempt to model activities
of small agricultural cooperatives (bendroves), with the intention
of encouraging them to change outmoded practices, failed when the
U.S. contractor constructing the model insisted on creating an elegant
construct which was overly elaborate, late in delivery and incomprehensible
to the customer. No change occurred.
- Parliamentary Seminars: The use of seminars based on economic
modeling to discuss a policy issue with parliamentary committees has
proven to be quite effective. In this technique, associations testified
before the Seimas committees on behalf of policy changes to advance
their causes. In the case of taxation of small entrepreneurs, it sensitized
legislators to the effects of their actions. Over time, it has become
easier to engage lawmakers in these activities. While notable results
can be discerned to date, it is clear from anecdotal information that
this technique is both influential and potentially productive in influencing
policy change.
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V. IMPLEMENTATION DIFFICULTIES
Even with well analyzed plans, some projects simply fail to achieve
the results envisioned. That has been the case in Lithuania as well.
While USAID did not have any activity considered a total failure, some
results have not met expectations. Within this context, three modalities
appear to result in less than expected results. These include a weak
management team for implementation at the local level, failure to provide
appropriate or qualified advisors for short-term work, and utilization
of the incorrect implementation strategy (i.e., use of short-term advisors
when long-term would have been a better approach.
Weak local management teams has been a problem for several projects.
Most typically, the weakness has been the lack of vision, as evidenced
by no or poor strategic planning. Another aspect has been a general
failure to aggressively implement activities. Quite often these weaknesses
are further exacerbated by a limited willingness to respond to USAID
or counterpart guidance and support.
Failure to provide qualified or appropriate advisors is another potential
implementation problem. The most effective remedy for this problem is
to work from as large a database of advisors as possible. Several USAID
implementing partners have very large resources to draw from, thus providing
the greatest opportunity to identify the most exact match between the
recipient's need and the advisor's experience. A large database takes
more effort to manage, but pays off in the long run as a project is
implemented.
Incorrect implementation strategy is one of the more difficult obstacles
to overcome. Many times, either the implementing partner or the counterpart
will be reluctant to admit that a particular strategy is not effective
until substantial time and financial resources are expended attempting
to achieve any degree of success. The primary strategy flaw experienced
in this sector was the use of short-term advisors when long-term would
have been more effective. The change was make in several cases, and
the implementation improved dramatically.
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VI. SUSTAINABLE PARTNERS
Three USAID efforts have evolved into institutions that have potential
for becoming sustainable partners. These are the Baltic-American Enterprise
Fund, the International Business Network (a consulting firm formed by
the staff of the IESC), and the Management Training Center at Panevezys.
- Baltic-American Enterprise Fund: The Fund was created to
foster growth by small and medium enterprises by making equity investments
and loans within that sector. Since beginning operations in 1995,
the Fund has disbursed approximately $34.9 million of its $50 million
endowment from USAID. The fund has generated revenues from principal
and interest payments that clearly demonstrate its sustainability.
- International Business Network: The IESC project was one
of the first small business oriented USAID programs started in Lithuania.
Over the years the local office developed an excellent staff with
outstanding knowledge of both the Lithuanian economy and the U.S.
way of doing business. It also maintained an extensive contact list
in both countries. These resources provided the basis for a unique
consulting firm. The local IESC director and staff developed based
on contact with U.S. consulting firms and the IESC home office. The
group incorporated in Lithuania as International Business Network
(IBN). The employees of the local office capitalized their firm from
personal resources. They also negotiated an agreement with IESC to
be their representative in Lithuania to provide volunteers for Lithuania
consultations. IBN created a network of former IESC volunteers, who
identified potential investors for Lithuania and prepared a list of
sectors where foreign investment would be most welcome. The process
has received significant support from IESC. IBN is viewed as an important
step in the effort to create linkages between the US and Lithuania
which is supportive of Lithuanian development, while making maximum
use of Lithuanian skills and resources.
- Management Training Center - Panevezys: One of the greatest
remaining needs in the small and medium enterprise area is that for
training in the skills of entrepreneurship. The Management Training
Center (MTC) is a U.S.-oriented center of excellence intended to address
this need. The Center is located in Panevezys, the fifth largest city
in Lithuania. As Panevezys is an industrial center, it has a significant
demand for entrepreneurial training. When the center was first created
it attempted to become a center of excellence that would do sophisticated
management training similar to that delivered by a U.S. business school.
After two years it became apparent that this level of sophistication
was not appropriate to the region; i.e., far more basic training was
needed. USAID and the Center adjusted their goals and vision to take
this reality into account and the effort is consequently more focused.
Another early change was to provide longer-term advisors rather than
a series of short-term ones. This change improved the effectiveness
of the technical assistance and contributed to the institutional development
of the Center. Since 1995 the MTC served over 7,000 people. The Center
is also credited with saving or creating several hundred jobs in the
Panevezys.
The BalAEF is sustainable from the loan repayments it receives from
clients. Both of other two entities have achieved a reasonable level
of non-USAID funding to be able to maintain operations. With regard
to the MTC, its legal organizational charter has been revised to comply
with Lithuanian law, so that its revenues can be retained for future
growth and to sustain the organization during times of low cash flow.
At present, it is not possible to state definitively that they will
be sustainable, but the fundamental bases are present. It is clear that
more than one calendar year is needed to establish a profitable consulting
firm. Based on the number of consulting contracts signed, an increase
in the number of volunteer executives placed, and an increase in the
level of activity of previous IESC/IBN volunteers; project managers
are guardedly optimistic that this innovative effort will succeed to
the benefit of both the U.S. and Lithuania.
With the recasting of its objectives and an improved management team,
MTC is anticipated that it will become self-sustaining by mid-2000.
Much will depend on the ability of the Center to provide the type of
training desired by the business community in the area and their ability
to be responsive to the community in other ways which will add to their
cash flow.
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VII. CONCLUSIONS
Establishment and growth within an efficient enterprise sector is an
essential element for a full economic transition to a market-oriented
economy. From the very beginning of the USAID bilateral assistance program
in Lithuania, support to small and medium enterprises has been a successful
and significant part of the program. Even with the re-focus of the USAID
strategy for Lithuania in 1996, small and medium enterprise support
remained within the bilateral program as a special initiative.
Effective accomplishments has been the result of the initial broad-based
program that provided support to individual firms, government policy
development, and expanded credit availability to enterprises. Initial
efforts focused more heavily on direct technical assistance to firms
and entrepreneurs as they founded and evolved their business initiatives.
Some of the more successful elements of this program were implemented
by IESC, Land O' Lakes, VOCA, World Environmental Center, and World
Learning. During the transition to supporting government policy development,
USAID shifted the primary implementation role to a number of NGOs, including
Kaunas Regional Association of Small and Medium Enterprise and Management
Training Center (Kaunas Technical University Panevezys). Expanded credit
efforts were supported by widespread support within the banking sector
and by a grant to the Baltic American Enterprise Fund.
Successes in assistance to individual firms was greatly attributed
to selecting advisors from a wide range of highly qualified technical
experts tailored to individual recipient needs, effective local management
staffs during the assistance, use of Lithuanian-American advisors, and
repeat visits of the most effective advisors. All the more successful
project activities shared one or more of these attributes.
The most recent work has been through local NGOs who have specific
interests in achieving successful development of enterprises within
Lithuania. Their advocacy work has successfully focused the Government
(most especially the Siemas) on the needs of the small and medium enterprises
within the private sector. This work has complemented the support to
individual firms and the availability of business development and expansion
capital under the Baltic American Enterprise Fund.
As a result of USAID assistance, the private sector has been strengthened,
and the foundation for a market-oriented economy has been established.
Indeed, the private sector now accounts for over 70 percent of all employment
in Lithuania. USAID has helped make this a reality because of the projects
outlined.
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GLOSSARY
BAEF Baltic-American Enterprise Fund
IBN International Business Network
IESC International Executive Service Corps
KRASME Kaunas Regional Association of Small and Medium Enterprise
MTC Management Training Center
NGO Non-Governmental Organization
USAID United States Agency for International Development
VOCA Volunteers of Cooperative America
WEC World Environmental Council
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