SWOT analysis of transition countries in the Baltic Sea region

List of Contents

1. Introduction

2. Basic information
2.1 The Transition Countries in the Baltic Sea Region
2.2 The Method of the SWOT Analysis

3. Opportunities of Transforming Countries
3.1 Eastern Enlargement of European Union (EU)
3.1.1 Political opportunities
3.1.2 Economic Opportunities
3.2 Foreign Investments
3.2.1 Foreign Direct Investment (FDI)
3.2.2 Opportunities through the Stock Exchange
3.2.2.1 Going Public under Governmental Control
3.2.2.2 Opportunities of Private Companies to Go Public

4. Threats of the transforming countries
4.1 Problems with Russia
4.2 The EU-Enlargement as Threat
4.2.1 The EU as a Safe Harbour
4.2.2 Threat of Losing National Identity through EU Enlargement
4.2.3 Threat of a Split Region
4.2.4 Costs of a Membership as Threat

5. Strength of the Transforming Countries
5.1 Successful Introduction of Preconditions
5.1.1 Legal Base
5.1.2 State of Privatisation
5.1.3. Liberty of Markets
5.1.4 Macroeconomic Stabilisation
5.2 Regional Strength of the Region
5.2.1 Natural Strength
5.2.2 Intra Baltic Cooperation as Strength
5.3 Strength attractive to investors
5.3.1 Strength attracting FDI
5.3.2 Strengths of Stock-Markets

6. Weaknesses of Transforming Countries
6.1 General Problems
6.1.1 Infrastructure
6.1.2 Mentality of People
6.2 Instabilities in the Financial Sector
6.2.1 Banking Sector
6.2.2 Stock-Markets
6.3 Weak Legislation
6.3.1 General aspects
6.3.2 Special Problems with Poland

7. Conclusion

Eidesstattliche Erklärung / Plagiarism

Hiermit versichere ich an Eides Statt, dass ich die vorliegende Arbeit selbständig und ohne Benutzung anderer als im Literaturverzeichnis angegebenen Quellen angefertigt habe.

With my signature I guarantee, that the paper “SWOT Analysis of Transition Countries in the Baltic Sea Region” was written by myself. I have not used any other sources than those cited in my footnotes and list of consulted literature.

Kiel, October, 16th 2001

Manja Ledderhos

List of Charts / Map

Map 1: Map of The Baltic Sea Region

Chart 1: FDI from Baltic Region to Baltic States and Poland

Chart 2: FDI Inflows in the Baltic Countries and Poland

Chart 3: Recent Performance of the Baltic Stock exchanges

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.

Abbildung in dieser Leseprobe nicht enthalten

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 s trengths, w eaknesses, o pportunities and t hreats.

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.

3.1 Eastern Enlargement of European Union (EU)

Article zero of the unification treaty tells the European people to join the EU and explicitly asks them to apply for membership. In the process of reorganisation, Poland and the Baltic States have done so, and negotiations with the EU started in 1998 and 2000. The Eastern Baltic Rim countries will probably become member states until the year of 2004 which holds a large number of political and economic opportunities.

3.1.1 Political opportunities

The establishment of political freedom is crucial for changes in transitional countries and the EU grants stability. The Baltic States and Poland have historically been a play ball of Russian policy. Especially the smaller countries of the Eastern Baltic Rim therefore urged upon protection proclaiming their independence in the early 90s. Through the strong presence of the EU in the region, this protection is available. After “the withdrawal of the Soviet Union from East Germany and Poland … [and after] Swedish and Finnish EU membership, the Baltic Sea is referred to as a Community lake” (Archer 1999, 51). This gave the chance to the Baltic States to “bandwagon away from the Russian pole towards the Western one” (Mouritzen 1998, 285). In the last few years, the Baltic States were even able to start cooperation with Russia, its former enemy. This shows that they have enough political strength to face Russia without fear. The consequence of the EU enlargement for the Baltic States and Poland is “that never before have they lived in so positive a security situation” (Archer 1999, 48).

3.1.2 Economic Opportunities

Besides political stability, Poland and the Baltic States also gain economic advantages and opportunities from the EU and will profit from the planned enlargement.

The Baltic Rim countries depend on the EU market. Intra Baltic trade makes up for only three percent of the worlds trade (Schrader and Laaser 1999, 50). Latvian trade with other Baltic countries, for example, stayed at a constant low level of ten percent over the past few years. The trade with the EU, however, increased constantly and was above 60 Percent in 1999 (Krisjane 1999,43).One can say that the EU is the most important economic partner for all of the four states (Vilpisauskas 1999, 118).

Next to good trade relations, the EU asks the transforming countries to adopt to the “Errungenschaften der Gesellschaft [principals of the community]” (Vilpisauskas 1999, 119). This “pressure” help in the transformation process. The states have to alternate existing rights on companies, competition laws and equalize the situation of local companies to European standards. This make the region more attractive to the outside since “market integration … increase[s] the share of foreign trade in economic transactions and higher welfare levels … [for] all trading partners through trade creation effects” (Laaser 2000, 58).

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