USA, the Land of Opportunity

Everybody has heard that the US is the land of opportunity. Although it is a huge country geographically, with significant differences from state to state, fierce competition and legally complicated market, many Latvian companies are ready to face and overcome this challenge and prove that nothing is impossible.

Ivars Slokenbergs, member of the board of Latvian American Chamber of Commerce and a founder of the New York based law firm Slokenbergs PLLC, says that the US market has always been important to Latvian business, but for some reason, entrepreneurs have not fully used it and for many it has been inaccessible for various practical reasons. Why?

Firstly, the sheer distance is a challenge in itself. Secondly, running business in the US is expensive as you have to invest substantial amount to grow in that market. Thirdly, with its large geographical area, significant regional differences and fierce competition, the US is a very challenging market. On top of that, it has complex legal regulation.

“Historically, Latvian businesses have always done better investing money and effort in the Baltics, other neighbouring countries and Eastern Hemisphere markets not really looking to North America,” Slokenbergs says.

However, times change, and, according to his observations, in the last 10 years the belief that the US market is out of reach has changed. “Latvia came out of the global crisis relatively scot-free realigning its existing export market, improving efficiency and looking for new markets where Latvian goods and services would be competitive. We can count the US as one of these new markets as, despite the distance, high costs and complexity, the dynamic and huge US market rich in opportunities can no longer be ignored. Latvian manufacturers understand that conquering the European market is not enough, and America offers extensive opportunities for growth,” Slokenbergs believes.

Important foreign trade partner

In 2022, Latvia’s total goods and services trade volume with the US was 1.5 billion euros, which puts the US in the 11th place among Latvia’s foreign trade partners. Of this amount, exports of goods and services to the US was one billion euros, which was 3.6% of the total Latvian exports making the US Latvia’s 9th largest export partner.

Timber and timber products (34%), machines, mechanisms and electrical equipment (24%), optical devices and equipment (8%), chemical industry products (7%), food industry products (6%) and building materials (4%) made up most of the Latvian exports to the US.

“The range of Latvian products exported to the US is very broad, from timber and optical instruments to food,” Slokenbergs says.

Together, USA and Europe form the largest bilateral economic community and in 2021, the total US-Europe trade volume was 1.2 trillion euros. “Direct investments between Europe and the US are equally impressive with the US investments in European Union exceeding the US investments in the Asia-Pacific Region four times while the total European Union investments in the US exceeds the total investments of the EU members to India and China tenfold,” Slokenbergs notes. He is confident that there are also opportunities for Latvian businesses in this massive flow of trade and investments.

Start-ups affect export trends

In Latvia, the technology start-up sector has grown in the past ten years. These companies aim at the global market since their conception because local consumers are not enough for technological solutions they offer. “Moreover, the US is the largest start-up market in the world, both in terms of technology consumer numbers and possibilities of finding investors. That is why most start-ups are planning to enter the US market right from day one,” Slokenbergs explains.

He adds, however, that the US is an important market not just for start-ups, and any exporter can strike gold there. With the population of just under 340 million people and generally high purchasing power, the USA generates 24% of the gross global product. “They have a structured and predictable business environment with countless opportunities where everybody can find their niche. Of course, export should be planned carefully, analysing and identifying the best entry point to the market, investing funds and finding reliable partners and advisors, including lawyers, accounting and tax advisors and other professionals,” Slokenbergs recommends.

Large and diverse market

Slokenbergs explains that the US is a federation with 50 states, each with its own legislation, and is almost 10 million square kilometres in area.  Miks Opelts, a co-founder and CEO of the property technology start-up Giraffe360, believes that the size of America is what makes its market so appealing, because if you can gain a foothold in the market with 339 million people, the yield will be proportionally higher than in any single European country. “When I came there first, a friend told me that it is a free country, and I have that feeling too. America is very dynamic,” Opelts says. At the moment, the US make up 20% of the Giraffe360 sales, but it is the company’s fastest growing market. He expects that in 18 to 24 months, America will be generating the largest share of the company’s turnover. 

Large size means that you have to deal with different business environments and cultures in the market. “New York, Silicon Valley, Texas, Middle America and the South are different both geographically and culturally. In addition, it is very different when you work with large global corporations based in the US, which tend be slow and bureaucratic, and smaller businesses with which everything happens faster and with fewer formalities. You cannot understand it by watching Hollywood TV shows which have little in common with reality. You have to experience the US business culture first hand”, Slokenbergs notes.

Cultural differences are not huge

“It may seem that the US and Latvia would be like day and night in terms of cultural differences. However, with our product, the differences aren’t that big. In America, they look at the time spent by employees and the productive hours rather than whether an employee is sitting at the computer clicking away at that particular moment,” explains Uģis Briedis, Head of Business Development for the desktop time tracking tool DeskTime.

Opelts also believes that, in comparison with Europe, there are fewer culture-specific restrictions in the US. For example, Sweden, France, UK and Germany all have their cultural specifics which have to be taken into account. However, America is a free and unchained market focused on commerce and speed. “America is less focused on the past, history and culture. They are more interested in how they can make money out of a product,” he notes.

USA is a costly market

Opelts believes that there are much fewer barriers in the US market than in Europe.  “One big barrier is money. America is a very costly market, from employee pay to office rent. European costs pale in comparison with the US, even if you talk about Switzerland,” he added. In his experience, any costs to which you are used in Latvia should be multiplied by four or even ten in the US. That is why he believes that you cannot start in that market carefree. To enter the US market, you have to have a strong investor support or do it on the back of success in other export markets. “With my experience in the UK and Germany, I feel much more comfortable in the US, and now also we have capital available to take root,” Opelts says.

Briedis also recommends accumulating experience and money in Europe and then invest in America: “The US market looks very tempting. However, if you can afford it, I recommend to build your export muscle in Europe first and only then go to America. Business in Europe is relatively less costly and when Europe starts generating steady profit, you can spend it in the US. It was a time when we also wanted to venture into America just like that, and got burned.”

Start with the US

Although experts warn against choosing the US as your first export market, the experience of the music technology company Gamechanger Audio is quite the opposite. “With one in twenty people having it in their home and one in thirty playing it pretty much regularly, the guitar is a national musical instrument in the US. There are even special rules allowing people to take a guitar on board airplanes and prohibiting airlines from checking guitars in as luggage if their owners object. That is why we started our business with America straight away, and in English,” Didzis Dubovskis, Gamechanger Audio co-founder says.

Company started is business with a presale. Gamechanger Audio announced its first product, guitar pedal Plus Pedal, offering to book it in advance and pay half the price. “It was like a crowdfunding campaign on our website. That’s how we got our first real customers,” Dubovskis explains.

Now Gamechanger Audio products are used by many global music stars. Among them are Aerosmith guitarist, Rolling Stones bassist and guitarists playing in Roger Waters, Nick Cave and other musicians' bands. Working together with the White Stripes founder Jack White, Gamechanger Audio has developed a product to suit his specific wishes.

No need for distributors

Dubovskis says that the world is changing: if before it would have been unthinkable to start in that market without an intermediary, now it is possible.  “In our niche, a distributor buys a product for half the end product price, but a store for a third or even a quarter. We could not offer large production capacity straight away as we were not sure how many people would buy our products, and we could not think of the best way to sell our products. That is why we distributed our products ourselves in the US and worked with the stores. Now, our products are available in more than 100 stores across America. About 80% of our products are sold in stores and 20% online on our website.

Online store helps build a customer base and website sales give an important figure which store owners want to see. If you can show a convincing number to your potential partner, you will have a better partnership. “Our strategy was to build a small customer base ourselves and to move on to larger customers, i.e. music stores, from that. It was a cautious low-budget strategy. If we were to start over now and had more money available, maybe we would do it differently, with more of a ‘bang’,” Dubovskis admits.

Exporting from day one

Giraffe360 does not think of the US as an export market. “We have customers in 30 countries and there are both Americans and Swiss among them. Most of our customers in Germany are of Turkish origin and of Latin American in the US. So thinking about the US as one market or customer is like shooting yourself in the foot. There is always a person on the other side, and they all have their own way of thinking and their own mind-set. That is why the approach should be very simple: what the customer wants and how we can do it,” Opelts believes.

DeskTime owner's Draugiem Group philosophy is to go straight to exports. DeskTime has been offered internationally from day one, and it’s in English. We are also actively working on search engine optimisation and public relations to promote our product in foreign markets. As a result, the product has seamlessly made its way to the US,” Briedis says.

Business is managed from Latvia

DeskTime has half a million users worldwide. “We work with the entire globe from our office in Torņkalns. It can be done from here, from Latvia, there’s nothing impossible about that,” Briedis notes. In its other export markets, DeskTime works with partners, but the US is an exception and business there is managed from Latvia. 

“Everybody is here and information exchange happens very quickly, which is a great advantage both for us and other companies of the group. If there are changes to make, we are not slowed down by time zones. Of course, as the company grows, we are thinking of moving some operations to the US, but for now we are good here in Latvia,” Briedis says. Considering the time difference between Latvia and the US, DeskTime tech support works in shifts.

Gamechanger Audio also runs its business from Latvia. “We benefit from the US taxation system where import duties and customs clearance requirements start from 800 US dollars. So we can send our 400-dollar product with a 29-euro courier service from Rīga to arrive in America in two days’ time,” Dubovskis reveals.

No shortage of competition

Speaking about challenges, Briedis admits that DeskTime is neither the first nor the only company offering employee time tracking software in the US market. “Since the Covid-19 pandemic, the time tracking market segment has become very saturated. Our competition has quadrupled. The entire world has started to develop time tracking solutions, some better, some worse, but we have kept our place in the top 10.

Another challenge is that DeskTime is not a venture capital funded start-up and invests its own, not some investors’ money in the development. “We are working with the money we earn ourselves, but we have to compete with the companies which have access to hundreds of millions of investors’ capital. It is harder to compete in such circumstances, but it’s not impossible. That is why we are very proud that our solution can compete with large companies worldwide. Yet again it proves that with their persistence and hard work Latvians can compete with global players on pretty much equal terms,” Briedis points out. The US market generates about 35% of DeskTime sales.

Not your typical sales team

DeskTime does not have a classic sales team which would make cold calls and send emails to potential customers. “It would be difficult to sell this product just by calling businesses which do not know the first thing about it”, Briedis says. 

The product has been designed in such a way so that potential customers would understand everything from information on our website. However, we have a team which advises new customer on how to use the product. “It is typical for the American market that they learn things themselves very well. They like reading, they like to dig deep. We have a very extensive FAQ section. We have video tutorials which people watch because they know that they will have to use the product themselves. Any only when they don’t understand something would they book a support call,” Briedis says. Mainly the team call large customers which have specific questions to ask, e.g. about security, before closing a deal.

For DeskTime, a word of mouth works very well with the customers who are satisfied with the product being their best promoters. “We are also focusing on review sites, e.g. G2 and Capterra, where we have a very good rating,” he says.

Internet is our home

“My home is the Internet,” Dubovskis says. The company uses Facebook and Instagram ads, which work well to get people interested, and influencer marketing. 

“We use digital advertising to make people curious about our brand and lead them to our website. However, we understand that they will not make a purchase straight away. People want to see a review and a demo first. So they will search our product on YouTube. That’s why it is important that they see popular device review channels straight away, and it generates trust,” Dubovskis explains.

The company takes a conservative approach to its potential customer segmentation on social media and looks at its competition and their followers, as well as people that follow their competitors’ brands.

Actively invest in digital advertising

DeskTime directs at least 20% of its annual sales to digital advertising. “As a digital company, we have no problem measuring investments. Investing in Google advertising and search engine optimisation, we can see the amount of investment straight away and calculate how many customers we need to recruit with these. We have hired a foreign agency specialising specifically in digital solution advertising to measure our achievements,” Briedis reveals.

Advertising in the US is expensive, so search engine optimisation and content generation are important. For DeskTime, quality blog content works well. However, Briedis points out that you cannot write one blog post and hope that it will work wonders. That is why there are five to six new posts on DeskTime blog every month. “Recently, a Canva board member who at some point worked for Apple joined us in one of our blog posts. We had a huge surge in visitors on our website then which brought us new customers,” Briedis says.

He recommends investing in search engine optimisation. “Of course, your product must be good to begin with, otherwise no search engine optimisation can help,” he noted. It is also important to think about keywords to make them different from the ones used by competition.

Prepare carefully

Slokenbergs emphasises the importance of preparation: you have to be informed about your sector, US regional markets, prices and costs, industry players, organisations, events, etc.  “The Internet and digital tools enable any Latvian company explore their export options and potential customers and buyers even before making the first step,” he points out. 

He also recommends exploring and getting to know specific industry associations and exhibitions, which is also a good way to prepare for a journey to the US market. After completing research and getting your business plan ready, begin investing; go to the US regularly to meet with partners and potential customers, to attend events and to network. “Looking to establish long-term relationship is crucial. In order to build trust and relationships, you have to meet people, have lunches, attend events and participate in conferences, seminars and exhibitions regularly, every year. It is necessary because from all the sellers in the market, the US buyer will prefer the one they have a personal and trusted relationship with,” he points out.

Slokenbergs recommends using support instruments offered by the government and various organisations, such as Investment and Development Agency of Latvia, which has a representative office in San Francisco and Boston, Latvian Exporters Association The Red Jackets, Latvian Chamber of Commerce and Industry, American Chamber of Commerce in Latvia and Honorary Consul of Latvia network in the US.  “Each of these organisations is its own source of information about the US market and each has its own specifics,” he says. 

American Chamber of Commerce in Latvia will hold the Spotlight Latvia conference which will take place on 22 September in Boston and gather many high-profile entrepreneurs and professionals from Latvia and the US.

Think about legal matters from day one

Slokenbergs believes that it is crucial to think about legal matters from day one, i.e. how to navigate the complex US legal system and to protect your interests.  “One thing is to export something from a Latvian company, and a completely different thing is to establish a separate company in the US to do business there. Having a US company has many advantages and often is a necessity, for example if you want to open a US bank account or employ people there,” he explains. 

Latvian entrepreneurs tend to open companies in the US only because Americans find it more convenient to work with a business with a local address and a US bank account rather than a Latvia-based company.

Gamechanger Audio experience is the same. “US businesses are used to the fact that everything is happening inside the country, and they don’t have to deal with any import formalities,” Dubovskis says. The company has a sister company in the US which represents Gamechanger Audio on Amazon and is the official importer for the customers who would only buy from inside the country.

“If you decide to open a US company, you must understand that the corporate environment, governance and company property structure there is very different from what we are used to in Latvia. These matters require careful consideration, best with the help of a US lawyer, especially if the company will have multiple owners, including a local partner. Moreover, there are major differences in labour laws, contract conditions, etc. You cannot go to the US thinking that you will deal with legal matters same way as in Latvia. And I definitely would not recommend trying to save money and sort everything out yourself without local lawyers and tax consultants, because it can go very, very wrong,” Slokenbergs says.

Preparations for the US market will also involve protection of intellectual property, i.e. patents, commercial secrets, copyrights, trade marks, etc. It is also important to comply with the US federal and state tax regimens to avoid unnecessary risks, especially in terms of cross-border taxation.

Opportunities of economy champions

Slokenbergs recommends being patient and not to expect quick results in that market.  He recommends finding a suitable niche in the US market and to build long-term, trusted relationships with the American partners. “Latvia will always be small in comparison with the US, but it does not mean that Latvia cannot create global economy champions”, Slokenbergs believes. 

As one example he mentions Printful, which is the first Latvian unicorn, a start-up whose value after finding investors has reached one billion US dollars. In 2021, the US investor Bregal Sagemount invested 130 million US dollars in the Latvian company. “Every such case will strengthen our ties with the US market and bring about new opportunities for Latvian businesses and closer economic partnership will further boost our strategic security ties with the US. Such growing cooperation is a precondition for ensuring future opportunities for Latvian people and will give Latvians confidence to keep living, working and creating in Latvia rather than anywhere else,” Slokenbergs believes.

Article prepared in cooperation with Latvian Exporters Association "The Red Jackets". www.eksportabarometrs.lv.