I.

Executive Summary
In order to maximize risk-adjusted return on investment in Lithuania, our firm should

target the wind energy industry and avoid the industry for military grade weapons. Exhibit 1
demonstrates how each of these segments were identified most viable within the larger categories
of energy and weapons. While these two industries are not exhaustive of all potential investment
opportunities, both represent strategic industries which are crucial for the future of Lithuania and
therefore critical for investors.
II.

Target Industry: Wind Energy

Industry Elements
There are multiple phases of the wind energy business in Lithuania at which US firms
could add value (Exhibit 2). The most profitable portion of the value chain would involve
maintenance of wind turbines due to the 20 year life cycle of the product. While the earlier
phases such as manufacturing, sales, and installation account for less cost, they also involve less
labor. Therefore a US firm could find success by integrating the latter four parts of the value
chain.
A US firm operating in Lithuanian wind energy industry would have several significant
advantages. First, establishing extensive operations would require a large amount of capital. US
firms would have more access to capital than domestic firms in Lithuania. Second, the wind
energy market in Lithuania is relatively fragmented with several small firms. (Exhibit 3). A large
US firm could establish a commanding market position. Finally, a US firm would be able to
centralize R&D thereby forgoing a significant cost that domestic firms have to bear. Whereas
technology companies benefit from establishing R&D operations close to the customer, the
slower speed of the energy business allows for separated R&D.

Country Specific Factors

Lithuanias human capital, geography, and institutions all suggest that a US firm has
potential to succeed. (Exhibit 7). First, Lithuanias highly educated labor force would be very
suitable for establishing wind energy operations. Second, the resources for wind energy are
relatively untapped. While wind energy in Lithuania only accounts for 1.3% of all energy
produced in the country, the government predicts that the percentage could be as high as 10%
within the next decade. In addition to traditional wind farms, a firm with a large amount of
capital would be able to exploit previously untapped opportunities like offshore wind farms.
While offshore wind farms exist on the West side of the Baltic see in Denmark, Lithuania and
Sweden, there are currently no wind farms in operation in any of the Baltic States.
Finally, Lithuania has a strong rule of law by regional standards whereby a US firm could
ensure fair treatment if it were to begin operations in the country. Additionally, membership in
the EU, WTO, and NATO all align the country with Western Trade and foreign policy which
would further favor a US company entering the market.
Values and Ideology
Domestic and international forces have created a national desire to invest in renewable
energy in Lithuania (Exhibit 7). At home, the country seeks to increase renewable energy
spending as a way of promoting national sovereignty in response to the geopolitical tensions with
Russia. Abroad, the global approval of the 2015 UN Climate Change Conference calls on
countries to reduce their reliance on fossil fuels. Companies able to offer innovative solutions in
this environment stand to earn tremendous profit.
Lithuanians are more risk averse, have a greater long term orientation, and are more
collectivist than Americans. Investment in wind energy could mitigate some of the uncertainty

caused by the conflict with Russia. Additionally, the investment offers a long term solution to the
problem of energy independence. Finally, the collectivist and hierarchical culture of Lithuanians
would be conducive for the wind energy industry which would require precision and
coordination.
III.

Industry to Avoid: Military Grade Firearms

Industry Elements
US firms would struggle to add value to any portion of the industry for military grade
weapons (Exhibit 4). Companies would find minimal benefit from establishing R&D facilities in
Lithuania because of a small population and lack of weapons production experience.
Manufacturing weapons in Lithuania would also be unprofitable because competition is severe
and there are many companies in other countries that would be able to produce weapons more
cheaply (Exhibit 5)
When attempting to sell weapons, a US firm operating in Lithuania would face
challenges finding governments with which to contract. The Lithuanian defense budget is
relatively small and already contracts with other large western companies. Fierce foreign
competition would likely be able to offer a superior product at a lower price.
Finally, a US firm operating in Lithuania would not be able to add value in the
distribution of weapons. Whereas wind turbines are virtually immobile once created, weapons
are relatively easy to transport. Lithuanias position as an EU country would allow other
companies to ship weapons into the country at a low cost which would undo any advantage of
producing domestically in Lithuania. Therefore, even the Lithuanian government would have
little incentive to buy weapons produced in Lithuania.
Country Specific Factors

Institutional and economic factors would cause challenges for a US firm attempting
weapons production in Lithuania. Although the government has increased its level of spending, a
pro-western economic and foreign policy present few opportunities for a US firm to earn profits
by producing Lithuania. The liberalization of the economy due to membership in the EU has
dramatically reduced trade barriers so the cost of importing foreign weapons would be relatively
low.
In order to operate effectively, a US firm would have to consider both market and nonmarket strategies. While Lithuania seeks to align itself with the West, Russia still remains its
largest trading partner and largest supplier of oil. Russia has continually shown that it is willing
to disrupt economic activity over political disagreements. If a US firm were to being weapons
production so close to Russia, Lithuania would be concerned about retaliation or a deterioration
of relations leading to an inability to attain desired resources.
Values and Ideology
As a country with a high degree of uncertainty avoidance, Lithuania would be likely to
discourage any actions that may draw the country closer to war. In the same way that Russian
retaliation is possible in against resources, the country must also consider the possibility of
military retaliation. Lithuania recognizes that while defense spending is increasing, it would
require the entire support of NATO if they were required to defend the country. The government
of the country is unlikely to support actions that may be perceived as conflict escalation.
Disapproval from the government would make a venture for a US firm very difficult.
Additionally, the management style required for weapons production would likely not be
conducive in Lithuania. A country with a strong sense of collectivism and a long term orientation
would prefer to work for industries that are sustainable and predictable.

IV.

Exhibits

Exhibit 1: Industry Comparison

Industry
Type

Resource Viability

Cost (tax exemptions &

capital requirements)

Domestic Market

International Market

Total

Wind

(+)

(0)

(+)

(+)

Sustainable wind
conditions, high skilled
mechanical labor

No tax exemptions and

relatively complex
equipment

High demand and 1.3%,

projected 10% growth in
10 years

Surrounding countries
have similar conditions,
especially for offshore

(+)

(+)

(-)

(+)

Tax exemptions for

heating, less capital
intensive

7.5% of Energy Market

already penetrated

Biomass materials
available in region

(+)

(+)

(0)

(-)

Geothermal Aquifers in
West Lithuania

Tax exemptions for

heating purposes

Small market segment

(0.3%)

Access to geothermal
aquifers not available in
surrounding region

(0)

(0)

(+)

(0)

No extraordinary hydroresources, only small rivers

Expensive and complex

equipment

Established firms with

consistent demand

Access to water sources,

but not an abundance

(-)

(-)

(0)

(0)

Insufficient meteorological
conditions

Solar Panels Expensive

Low competition and

demand

Limited sunlight for

solar energy in the
region

(+)

(+)

(0)

(-)

Least expensive type of

weapon to produce

Existing contracts with

foreign companies

Strong International
competitors

(-)

(0)

(-)

(-)

Proprietary information
required

Capital intensive, no
exemptions

Existing contracts with

foreign companies

Strong International
competitors

(-)

(-)

(-)

(-)

Proprietary information
required

Labor and Capital

Intensive, no exemptions

Existing contracts with

foreign companies

Strong International
competitors

Biomass

Access to biomass
materials such as straw and
Energy
wood
Geo

Hydro

Solar

Military
Grade
Firearms

Missiles

Vehicles

Low trade barriers allow

for
Weapons

-2

-3

-4

Exhibit 2: Wind Energy Industry Value Chain

R&D

Manufacturing

Sales

Installation

Maintenance

Exhibit 3: Porters 5 forces: Wind Energy:

Threat of New EntryMODERATE

- Large capital requirements
- Governmental policy support for
foreign companies

Supplier Power- MODERATE

- Large number of firms
- EU regulations allow for low
trade barriers
- High tech and low tech
equipment required

Competitive RivalryMODERATE

Buyer Power- MODERATE

Threat of Substitutes
- HIGH is the customer
- Government

- Few firms

- Numerous other
sources oftypically last many
- Contracts
renewable
and
non-renewable
- High projected growth rate
years due to installation and
energy
maintenance
- Fragmented

Exhibit 4: Military Grade Weapons Value Chain

R&D

Manufacturing

Sales

Distribution

Exhibit 5: Porters 5 forces: Military Grade Weapons

Threat of New Entry- HIGH

- Low barriers to entry
- Governmental policy support
for foreign companies

Supplier Power- HIGH

Competitive Rivalry- HIGH

Buyer Power- MODERATE

- Low number of firms

- Few firms

- Government is the customer

- Economies of Scale

- High growth in industry

- High-tech, proprietary
information

- Technology constantly
changing

- Easy to switch supplier

contracts

Threat of Substitutes- LOW

- No physical substitutes for
firearms
Exhibit 7:
National

Ideology

Lithuania
Business Systems
Framework

Hofstedesdimension(largestUSdisparity)
HighLongTermOrientation
HighUncertaintyAvoidance
HighCollectivist
EthnicallyandCulturallyHomogenous
Values/Normshierarchical,conservative,modest,
consensus

External
Factors
Complex
geopoliticaland
economic
relationshipwith
Russia
EUdictates
monetarypolicyin
joiningeuro(Jan
2015)
RefugeeCrisis
Impetusfor
renewableenergy

Resources

Policies

Variousnatural
resourcesincluding
arablelandandamber
Highlymechanically
skilledHuman
Capital

StrivingforEnergy
Independenceand
greaterDefense
Openeconomy
ProWesternforeign
policy
Privatization

Institutions
Parliamentary
Democracy
SufficientRuleof
Law
Lowcorruptionby
regionalstandards
MembersofEU,
WTO,NATO

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