UKRAINE at a Crossroads
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Business tips on entering the Ukrainian market
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By Harold Byers
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re you contemplating doing business in Ukraine? Those who’ve trod that path before, and observed those making a success of it, offer some factors to consider in assessing a role in the nation’s future.

First, the cautions. Some, like Jorge Zukoski at the American Chamber of Commerce (AmCham), say that at this stage of development, the better odds go to large players; the odds for small and medium players are tougher. He believes that for success, companies require deep pockets with capital they can afford to lose and still hang in the game while learning to navigate the country.

“You have to have clout that allows you to say ‘no’ to individuals who might press for inappropriate arrangements,” says Zukoski. “Clout is having good financial backing, and having your embassy behind you to provide support.” Zukoski acknowledges that a lot of midlevel entrepreneurs have hit it big, and that the risk-return ratios can be huge, but he stresses the importance of being able to endure throughout the business gamble, and not betting the farm on one play.

However, one entrepreneur who started with very little and now heads the most successful marketing company in the country, Pulse, is more optimistic about the chances for smaller-scale entrepreneurs. Stuart McKenzie knows many entrepreneurs who’ve started small and yet made a success of their ventures, despite the financial crisis.

“It’s true that if you jump in without knowing the scene, you’ll have a tough time of it,” says McKenzie. “But if you adhere to certain practices and find reliable people with the experience to guide you along, if you do your homework and are prepared to take the time required to build relationships – real friendships, including throughout the totem pole of government – then your odds go up markedly.”

Both McKenzie and Zukoski see the beauty of Ukraine’s potential being its economic “wild west” nature, that it is new to the market economy. “You don’t have to reinvent the wheel,” says McKenzie, “just grab a wheel and ride it.”

Zukoski puts it thus, “Instead of laboring to figure out a better mousetrap, as you must to compete in more developed markets, you just have to get your mousetrap into the marketplace. All the niches are open.”

“When the Soviet Union collapsed, the movement to a market economy from a command and control economy was a painful process,” says Zukoski. “But at the time, 52 million consumers had a great pent-up demand for jeans, Snickers, everything you could imagine. They wanted a choice. Eventually the goods desired moved up the economic food chain, to white goods, electronics, automobiles, etc... Foreign companies now dominate the financial sector, telecommunications and data transmission, IT at the higher levels, pharmaceuticals and value- added food processing. You’ve still got 47 million Ukrainians here, with much higher disposable income, with more sophisticated purchasing patterns and habits than in the past.”

McKenzie cautions clients not to divide their energies and overextend. For some, their initial focus might best be placed in the larger cities.

While markets and necessary infrastructure develop, depending on the goods and services they’re considering, many entrepreneurs should not look at the entire population as their target. Instead, build business plans around a smaller segment of the population, perhaps regarding their target as a nation of 10 million. Then, as things go forth, entrepreneurs may be better positioned to access larger markets as they become more familiar and viable, and as infrastructure improves.

While the economy is very open, says McKenzie, there are areas, including those that demand big players that will likely remain elusive for the near future. It is important to sort that out, although some of the old-line, Soviet mainstays may be ripe for companies that can offer relevant expertise as consultants.

Know the language(s) fluently, or at least have key decision-makers in your company who do.

Understand the culture and the trials the nation went through over the past century. Know where you can best network within the private sector, and the scope of organizations like the AmCham and the European Business Association. These groups work with macro, systemic issues. They will not advocate for particular companies with a problem specific to that company.

Much of Ukraine’s potential lies in its proximity to the rest of Europe. Various companies have already set up manufacturing operations in the Ukraine in order to supply other post-Soviet nations as well as the rest of Europe, says McKenzie, but the potential is still wide-open, particularly in the border regions.

Ukraine has a highly educated and talented labor force, and costs such as labor and power are low enough to provide a significant edge. The country will continue to tempt companies to establish beachheads or to relocate their main operations.

Zukoski notes that the big IT companies are in Ukraine with “lots of kids banging away on keyboards,” developing the latest technology infrastructures. “One of our members maintains the entire train infrastructure for Europe from here; others develop and maintain some of the biggest sales websites for some of the biggest retailers in America. Ukrainians are fast learners and early adopters of technologies; they are very plugged in and turned on.”

While Ukrainians have a very European outlook, Zukoski thinks they may enjoy the advantage of a potential free trade agreement with the EU, which “will stimulate a massive amount of investment into the border regions.” But, while enjoying visa-free travel, they may not join the EU, and hence avoid a somewhat cumbersome and sometimes dysfunctional decision-making process, and the expensive maintenance of the regulatory framework that comes with membership.

“There are cool opportunities,” says Zukoski. “Travel and tourism have huge potential. Infrastructure projects like roads and airports, especially with private and public partnerships that facilitate concessions, eminent domain and other needs – projects are already underway, including stadiums for the 2012 soccer play.”

Weigh the advantages, and the cautions, and come prepared for the long haul. McKenzie says the oldest advice remains the best: You’ve got to know the territory.

 

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