Estonia, one of the most successful economies of the former Soviet region, is reaching out to do business in the West. However, don't underestimate the advantages of understanding Estonian management culture before beginning business dealings.

Personal relationships are extremely important in business undertakings

A little background

Estonia, with around 1.37 million inhabitants is the smallest country of the three Baltic States, which together with seven other countries joined the European Union on the 1 May 2004.

From the beginning of the 13th century, when German crusaders invaded Estonia, the country has weathered seven centuries of foreign rule by Germans, Danes, Poles, Swedes and Russians.

Throughout these centuries the Estonians managed to preserve their language and cultural heritage. When the country gained independence from the Soviet Union in the early nineties, only half of its population had a phone line. Today, Estonia is ahead of 'old' EU countries such as Italy and France when it comes to internet usage.

Customers in need of businesses

Ever since the re-establishment of independence in 1991 the Estonian economy has been a developing economy as the country continues its transition from a collectivist towards a market economy.

Now Estonia is one of the fastest growing economies in Europe.

However, difficulties in the adaptation process towards a market economy do occasionally show. For instance, it is difficult for some Estonians to see that businesses need clients and not the other way around.

But as Richard Farkas, managing director of the Finnish-based firm Transdemica, who is involved in developing the cultural competence tool ArgonautOnline, observes, Estonian business people are eager to learn from Western organisations and to do business with them.

"Estonians aim to be culture-savvy and are quite likely to try and do things your way, at least at surface level (dress, titles and suchlike). They will be interested if you tell them about your culture and may already know a surprising amount about it. You are more likely to meet people with 'gaps' in their knowledge of your business culture than complete ignorance of it," says Farkas.

The state of affairs

Nowadays, over 96 percent of all the formerly state-owned businesses are privatised, but the effects of the communist period are still evident.

Many organisations are still not very market oriented; business-to-business activities are rarely observed.

In 1997 Estonia experienced a booming economy with an annual growth of 10.6 percent, but due to a financial crisis in the Asian and Russian market the economy experienced negative annual growth in 1999 for the first time since 1994. But during the second half of 1999 the economic growth resumed.

Although Estonia is still experiencing a fair annual economic growth, unemployment is still relatively high for Estonian standards.

During the Soviet time the country experienced full employment; as a citizen it was not only your right to work it was your constitutional obligation to work. Understandably there was a large share of hidden unemployment during these years.

In 2002 unemployment of the working population hit its peak: 13.5 percent. This has decreased to a current 10 percent. In the larger cities in the North- Eastern part of the country unemployment is considerably lower than in the South- East.

According to Anu Ind, an Estonian recruiter working for Perspectivest in Tallinn, there are four good reasons to start a business in Estonia:

• Low taxes (compared with other EU countries);
• Business culture similar to 'old' EU countries and strong business community (compared to Lithuania and Latvia);
• Labour legislation is rather favourable for employers;
• Location is logistically convenient (close to the Russian market and located near the sea).

"However, for the last 14 years an important argument for doing business in Estonia, were the low costs of labour, but today it is rapidly changing. For instance, our labour costs are currently higher than Lithuania, Latvia, Russia and Ukraine, as our labour costs have increased twice as much over the last four years as in Lithuania and three times as much as in Latvia," says Ind.

Doing business

To be successful in your business undertakings personal relationships are extremely important in Estonia. Informal networks, friendships and even romantic relationships form part of the informal networks essential to every day business life. The large Russian community within Estonia certainly has its influence in some of the characteristics described below.

Doing business in Estonia compared to the other two Baltic States differs in the sense that the labour costs are higher, but language skills are more proficient and business traditions and culture are more similar with the 'traditional' EU countries.

"Our people, especially at management level, have more practical experience. As we value experience above education, whereas compared with Lithuania for instance, education is much more important than practical experience. Compared to Latvians, Estonians are more 'calculating' in their choice for companies and future perspectives." says Anu Ind.

Hierarchy

The Estonian organisational structure is led by hierarchy and bureaucracy. There is a clear division of responsibilities. Decisions are made at the top of the organisation.  All communication goes through vertical lines. However, be prepared as this does not mean that Estonians at all times respect the authority of their superior!

"Do not conclude from Estonia’s remnant bureaucratic structures that Estonians love hierarchy. Be cautious about using status symbols. Although Estonians are happy for you to try to impress them with evidence of your success, you must not make them feel inferior. They are confident and ambitious, and expect recognition of their rapid development in recent years," says Richard Farkas.

Organisational structure is led by hierarchy and bureaucracy

The hierarchical structure is currently slowly changing. A superior has to prove that he or she is capable of doing the job and that he or she is better qualified for the job.

Nowadays authority is not determined by age but rather by education and experience. There are many young Estonian highly qualified and highly educated top managers.

In theory women are equal to men, but in practice this is not always the case. Although women occupy almost every profession, women are hardly ever spotted at the very top management of an organisation in any of the three Baltic States. The major exception are government functions, were some women have risen to the top.

Business meetings

Business meetings are often over a lunch or a dinner. Conversations in such business meetings are socially oriented rather than business oriented, since Estonians prefer doing business with personal friends and people they like.

"I think most North West Europeans behave in similar terms when doing business with strangers. However, this is very different from Latin, Arab or Asian culture as far as business relations are concerned," says Farkas.

At the start of a meeting the highest superior present will give a welcoming speech. Decisions are not made over a single meeting but rather over a number of meetings.

Although Estonians tend to mix business with pleasure, meetings should be kept formal, since Estonians easily distrust informal or casual attitudes from foreigners. "We advise you to ask very specific questions at meetings since Estonians prefer to exchange facts with minimal context," says Farkas.

Although honesty and forthrightness are respected characteristics, Estonians do take care that they do not offend those they are in discussion with.

It is not uncommon to bring small gifts. Please keep your gifts discreet, as Estonians do not like to be reminded of their position in the global economy. It is highly appreciated if you bring gifts, which are representative of your home country.

Negotiations

Although younger managers often speak English, it is wise to take an interpreter to negotiations if you do not manage the Estonian or Lithuanian language, since the older managers hardly ever speak any language other than Russian, Estonian and Lithuanian.

Estonians tend to strictly follow the rules and procedures, particularly in the implementation stage. Don't be surprised if this slows down the negotiating process.

Never rush the Estonians, since rushing them can easily destroy the negotiating process. The negotiating process is a very formal affair and conducting a business deal is a careful process.

"In general we clearly say what we want, but sometimes Estonians need a little extra time to analyse all the details," says According to Anu Ind.

"In other words - due to our history, we have been concurred for 700 years - I think that we are unconsciously afraid of being concurred again. This causes Estonians to behave careful in business dealings as we are a little afraid of being 'a loser' or closing a deal with conditions that in the end are not really profitable," he says.

Decisions

Decisions are usually made by the top of the organisation in all of the Baltic States and as a foreign business person you are often referred back down the chain of command.

Try to start as close to the top as possible. Richard Farkas advises. "The decision-making process takes long if your benchmark is the American decision-making speed. By European standards, Estonians decide pretty quickly. This is one of the things that has boosted their economic development. Get them the facts, and they will decide," he says.

However the older generations might take slightly longer before they reach a decision. Recently established companies reach decisions a lot quicker then companies that were established in the Soviet period.
 
In general Estonians do what they say they will do; a foreign business person can be assured that an Estonian keeps to his or her word.

Be aware that the three Baltic States are three different countries, with each their own culture and language. For instance in Lithuania 'keeping your word' is open to discussion. Due to the Lithuanian contract law, which still lacks the western standards, there is more room for interpretation than most western business people are used to.

A Lithuanian will only make a final decision after the details of an agreement have been extensively discussed and clearly written down. Lithuanians still have a fear of being taken advantage of by western companies, so it is important that a general sense of mutual trust with Lithuanian counterparts is established.

In Latvia you need to be aware of the fact that there are no decision-makers at lower levels in the organisation. Decisions are made rather slowly and a long process of many meetings usually precedes the actual final decision.

Meeting and greeting

Estonians are rather polite people. It is advised to use professional titles instead of addressing each other by the first name, however, when the personal relationship is firmly established, Estonians move to first names. Business greetings involve long, firm handshakes and extensive eye-contact. Close physical contact is considered inappropriate.

Dress code

The Estonian dress rather formally; men are expected to wear a suit, a necktie and most importantly quality shoes. Some Estonians may even see footwear as a barometer of success.

Estonian women dress in a formal but less conservative, sometimes even sexy way. Expensive garments and jewellery should be kept limited, as Estonians do not like to be reminded of their economical state.

Wining and dining

Eating and drinking is considered highly important in Estonia. Business dinners and lunches are an important aspect of the daily business life.

Estonians are proud of their local foods and specialties and they love to share their local cuisine with foreign visitors. Heavy food and alcohol consumption are not uncommon.
 
When invited to a restaurant it is common that the host pays the bill, but it is expected that guests do something in return of this hospitality of the host in the form of a dinner or lunch.

Use of business cards

Business cards are widely used in Estonia. Usually they are exchanged at the beginning of a business meeting. It is advisable to have your business cards printed in two languages; Estonian and English.

On a regular Estonian business card the academic title and position of a person within the company are mentioned.

February 2005

Expert in labour mobility issues Nannette Ripmeester is a consultant to the European Commission and the governments of Belgium, Finland, Ireland and the Netherlands. Ripmeester is founder and Managing Director of Labour Mobility (www.labourmobility.com).