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USAID Mission to Lithuania
Europe & Eurasia
>> E&E Home >> Lithuania >> Partnership with Small and Medium Enterprises
The USAID Partnership with Small and Medium Enterprises in LithuaniaBy Jonathan Sperling and John Morgan; USAID/Lithuania
May 2000
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.
II. ENTERPRISE SUPPORT ACIVITIES
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.
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.
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.
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.
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.
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.
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.
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.
III. SUCCESSFUL IMPLEMENTATION TECHNIQUES
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.
- 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.
- Repeat Visits
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.
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.
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.
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.
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.
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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Last Updated on: June 25, 2009 |
