DOING BUSINESS IN UKRAINE.
- EXPERIENCES OF TWO FINNISH COMPANIES
Electronic Publications of
PanEuropean Institute, 10/2006
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Issues to consider when operating in Ukraine
Ukraine offers foreign companies possibilities for growth in many sectors. In this study the focus has been on construction and telecommunication markets, which have both been very attractive for foreign companies because of growing demand and strong potential for new customers. Although only these two sectors are represented in this study, the experiences of the companies can provide information about issues, which are important also more generally considering foreign and especially Finnish companies
operating in the market.
The case companies have used their ownership advantages: knowledge and techniques and at the same time been able to take advantage of favourable market conditions with growing demand for the products. The decision to establish local operations in Ukraine has been affected by the need to be close to the market and acquire local knowledge and inputs.
Being able to introduce relatively new products with better quality compared with the local producers is an important source of competitiveness for the company. Acquiring local knowledge and adapting to local conditions have also proved to create competitive advantage. The knowledge of local conditions and practices is enabled by local management of the operations and networks of local partners. Also relations with public authorities are better handled with local staff.
The importance of local knowledge and networks in the local community were found to be crucial for the success of the companies operations. The companies possess technical knowledge of products which are superior to the local counterparts, but in order to be able to use the asset the company found it important to have local managers and networks in order to gain success in the market. Especially, when more foreign companies are expected to enter the market in the future, companies need to develop their existing competitive advantages in order not to lose their position in the host market.
Considering the experience gained in Ukraine, the importance of the recruitment process of the management is emphasised. It is important to be able to retain good employees after they have been recruited. Ruukki representative also emphasised that rewarding the employees and offering bonuses should be considered even more than in other countries. Creating effective incentive systems can help keeping the good employees once they have been internalised in the company. Also operating locally and having a clear management structure have proven to be important factors in the success of the company.
You should never think that this is just Ukraine, because you also have to be able to keep a certain quality standards there as well. We want to achieve quality in everything we do and how we are seen in the country and what kind of work environment we offer for our employees and how we take care of them. Then you are not entirely controlled by the rising wages, since people might start to consider other aspects as well and want to work in a Western company.
Local presence also enables the company to be close to customers and the network of related companies. Especially for Ruukkis business operations in production and sales of steel roofs, the local presence is important, when most important parts of the company network are local and products are also manufactured locally. Most of all in Ukraine the situation is emphasised with a customer base spread in a large area and relatively small individual operators. Also in the case of Nokia, the local office has been considered to increase effectiveness and develop knowledge of local preferences and customer relationships.
The challenges in the business arise from different business environment including more problems such as bureaucracy. Neither of the companies under investigation reported significant problems with bureaucracy of corruption although the ranking of Nokia in international corruption index comparisons has been quite low. This might be partly due to the local employees the companies are using, since they might be more prepared for the challenges of the business environment. Also the long experience of the companies in the region and the size of the companies can create them benefits in the sense that it is easier for them to choose the right partners and avoid the problems in the market as they have more resources than many small companies.
Retail trade is also creating problems as it is less developed and organised than in Western Europe and this affects the distribution of companies operating in the consumer goods market. Marketing has to be adapted to local conditions. Finding suitable workforce and retaining good employees without high increase in the staff costs is also a challenge.
Although the results of this study concentrating in the experiences of two Finnish companies in Ukraine cannot directly be generalised in other contexts, the sources of competitiveness found in the operation of the company may be valuable also for other companies engaging in activities or considering entering the market. It is, however, important to understand that these companies are special cases and posses many
advantages which many other companies might lack. Both cases are part of large and strong corporations with long experience of operating in the region. The sectors represented by the companies have also been one of the most rapidly growing in the country. The position of the companies has in other words been maybe more favourable than for example smaller companies entering the country with less experience from similar circumstances.
Keeping in mind the limitations of this study and the beneficial features of the companies the experiences of these two examples can, however, be quite encouraging for other Finnish companies considering Ukraine as a business possibility. The business environment according to these findings is not described to be as difficult as many foreign companies fear. By means of knowledge of the market and good partners and connections it is possible to engage in profitable business in Ukraine. The size of the market combined with growth in most sectors enables the development of profitable business in the country. The markets in many sectors are also still less competitive than in Western Europe or in Russia for instance. Now is in other words an opportune time to consider entering the market and taking advantage of the possibilities of offered by this country.
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