Issue 3, 2012. June-July

   

FOREIGN OWNED: EXPAT BUSINESSES IN GEORGIA

Reports of large investments are common in the Georgian media, from franchise deals like the Trump buildings to hydro dams. While smaller businesses created by expats are often overlooked, foreign entrepreneurs are ready to make a splash in the market.

Maia Edilashvili

Carol Ann Gvineria, the owner of Gvineria Luxury Handmade Chocolates


There are always reasons not to start a business: the market is too small, the financing too expensive, the legislation too complicated.

But a seemingly growing number of expats in Georgia are taking the risk, with foreigners taking advantage of cheaper operational costs, and unexplored niche markets to flex their entrepreneurial spirit.

For Carol Ann Gvineria, the owner of Gvineria Luxury Handmade Chocolates, a hobby making truffles slowly became a business.

Gvineria, a native of Scotland, came to Tbilisi in 2008. The move proved to be a good opportunity to realize her dreams of owning her own business: last year, after experimenting with recipes, she launched her business creating fine truffles for gifts and special occasions.

Today, she is running a small but growing business out of her apartment, splitting her time between developing new products and raising her two year old son.

Gvineria runs all aspects of the business herself- from sourcing the ingredients to the sales. The main challenge, she says, is language and understanding official processes. "It helped that several of the staff working (at the Revenue Service) have a good command of English and the patience of saints," she says and adds that "there are really clear procedures in place on how to set up a business."

While there are no publicly available official statistics on how many foreign-owned businesses exist in Georgia, the number of small businesses appears to be growing. In 2011, small businesses registered in Georgia increased to 31,292- approximately 72 percent of the total number of enterprises, according to the state statistics office GeoStat.

Long-time resident and entrepreneur Mark Mullen said the government's efforts to streamline business regulations play a role in attracting investors like Gvineria.

A new survey from the International Finance Organization (IFC), which studied the impact of the recent reforms on the business community, found that 75 percent of enterprises, out of 1000 questioned, believe that the business environment is quite or fairly attractive.

Paul Clark, who started TBSC Consulting in Tbilisi nine years ago, agreed that the government's reforms have helped businesses feel at ease.

"The government has done all the right things in this regard, as much as any government can do, and has made Georgia a desired place to do business to a great extent," he said.

But he noted that there are other "considerations" - including the market size.

"The market in Georgia is not as big as in other countries so competitiveness is an issue," Clark said. "So while starting a business is easy, it's not easy to do business here.,though, this is beyond the government's ability to solve."

Enterpreuners like Viktoriia Svystun appear ready to take the risk.

Svystun, a Ukrainian decorator, was attracted to Georgia's reforms two years ago. Today she is slowly creating a new business in Tbilisi selling handmade soaps and crafts under the brand ‘Victoria's Boutique.'

The government's never-ending efforts to improve the business climate does, however, create some negative consequences. In particular, it can lead to a lack of predictability, and this is particularly problematic for non-Georgian speakers. For instance, Gvineria says that one challenge is how to stay updated as "the tax code in Georgia is ever a work in progress and improvements are being implemented on a regular basis."

Mullen noted this is "a big" challenge. "The government- very often with the best of intentions -will try to improve something related to the business climate. Or they will do something in another sector which has consequences for businesses without very much public consultation... this frequent change is a barrier for people who do not know the place very well and do not have good connections."

Lene Skov Mackintoch, a Danish nurse and doula, started Expat Entrepreneurs Tbilisi to help expats who want to go into business.

"By meeting up, we inspire each other," she said. "[This way] we get a second opinion on what is on our minds. It could be: Setting up a home office or renting a space? Recommendations from accountants and attorneys [as well as answering questions about] how to promote my business."

Amanda New Wright, a US native who recently started Sun Yoga Tbilisi, a USA Yoga Alliance-registered yoga school in Georgia, said the network has been useful for new business owners.

"Once we had a visit from an attorney Marina Guledani who briefed us on the registration process; we also had another useful meeting - a coaching session on pricing our services and products," Amanda recalled. She finds it very useful that members of this informal group meet twice a month to share experiences and recommendations.

With loan cost high at private banks, financing for small businesses in Georgia can also be an issue: Clark noted that, on average, loans cost around 13 percent, when it is approximately 7 percent in other places - and that reduces the number of businesses that are profitable.

Mullen attempted to create a Georgian-version of the Angel Network but it didn't take. He and his partners, then went on to create GeoCapital, a micro-financing company, to help small businesses receive loans and learn the basics of business finance.

Svystun and others, however, are simply keeping their businesses small.

"I started with a minimum amount and want to keep it, without taking further loans," she said. "Currently, I am in talks with potential wholesale partners - some beauty salons -so they will be purchasing my products, and Brand Mall Georgia, a store located at the airport, already sells my product."

Since they are small in scale and have no capital for marketing, these businesses mostly rely on word of mouth and social networks like Facebook to promote themselves.

"The challenge is going to be reaching the Georgian market, and helping people realize what our product is, because it is a little bit new there," said New Wright, who is working with two other partners - Jacqueline Koay, founder of Sun Yoga globally and Nino Tsitsishvili, their Georgian partner - to develop the studio.

Gvineria has also been slow to market her truffles, so far selling by word of mouth and through expat networks.

"Like many good ideas, my chocolaterie business started as a hobby, however it is now growing to become a full time concern," she said. "I have had a great response to the products and expect to be even busier in the coming year."