Some more talk about Germany and how much trust it has in Ukraine. Article states how important it is for Germany to have trusted Ukrainian partners.
Germany high on Ukraine’s economic upside despite the risks
Dr. Uwe Kumm is head of the Roland Berger Strategy Consultants Kyiv and Moscow offices. Currently, he is also the managing partner of Roland Berger Strategy Consultants for Russia, CIS and the Baltic States, and a member of the Management Committee Central and Eastern Europe. Dr. Kumm graduated from Kharkiv University and from the Technical University Bergakademie in Freiberg, Germany. Between 1983 and 1990, he held various management positions in Riesa, a German steel manufacturer. In 1990, he joined Roland Berger Strategy Consultants, where he was elected partner in 1996 and managing partner in 1998.
In an interview with the Kyiv Post, Kumm says that finding a trusted Ukrainian partner is extremely important for German companies.
KP: Generally speaking, is the investment climate favorable for German businesses operating in Ukraine? What about your company’s experience?
UK: The attractiveness of Ukraine as an investment destination is growing. We have been operating in the Ukrainian market since 1993. Development here has been akin to being on a rollercoaster; there have been peaks and valleys. Regardless, we are determined to serve our Kyiv office clients, of which Ukrainian companies now make up approximately 50 percent.
We are also hopeful Ukraine in the future will engage in further efforts to improve the overall investment climate, including introducing future measures and reforms to reduce bureaucracy and combat corruption. Giving foreign companies the right to own land and ensure that they always receive reimbursement for paying the valueadded tax would also help to improve the investment climate. While these questions are unsolved, the importance of finding a trusted partner is extremely high for German companies. About a half of the FDI (foreign direct investment) in Ukraine is divided among the three most dynamic industries: industrial production, financial services, and consumer goods and retail.
KP: Please outline some of the most important trends taking place in Ukraine today?
UK: Consolidation is a major trend today. Foreign players from Western Europe and from Russia are actively looking at market entry opportunities. They realize the need to occupy the most attractive niches before the market gets saturated. As a result, M&A activities are on the rise as a fast way to gain a market share. Ukrainian companies are actively looking for resources to finance their growth, which explains the recent trend of IPOs of Ukrainian companies in places such as London, Frankfurt, and Euromarkets. Foreign investment is courted much more assiduously than before. Ukraine is becoming a much more attractive investment market for international investors also in part because of its recently completed negotiations to join the WTO.
KP: What are the major problems your business faces today in Ukraine?
UK: Having a strong presence here is important – those without a firm grasp of the situation are bound to have problems in such a turbulent environment. As a partnership we decided that Eastern Europe is a strategic focus for us. We recognized the importance of the Ukrainian market early on. Our first projects here began in 1992, and in 1993 we opened our office in Kyiv. Having over 15 years of experience working in Ukraine has provided our Kyiv office with good country knowledge, strong insights, and networks, everything you need for good consulting.
We have noticed that Ukrainian businessmen are very intuitive. They are often ready to invest tens of millions of Euros in a project just based on their gut instincts and are not used to doing the proper preliminary research and market analysis, a process that is standard for Western European businessmen. Western investors and business partners are often surprised when they can not get a proper business plan, based on proper analysis – which is a common practice abroad. However business owners are generally openminded – we have often experienced that our clients start implementing our suggestions even before the project is finished and take advantage of the international expertise.
KP: Compared with other European countries, how would you describe demand on the Ukrainian market?
UK: With its dynamic growth and new players entering the market, strategy is currently the hottest topic. After a company has determined its strategy, their focus usually shifts to organization, motivation, and corporate management, all of which are gaining importance. Fast growing companies are quick to realize that they need new ways to manage themselves when they have a 100 million euro turnover as opposed to 10 million. Operational efficiency and costcutting are relevant for the industries with the fiercest competition, like with telecoms. We expect more assignments on these topics in the future, when more industries step from current rapid growth phase into a more mature phase.
KP: What business sector in Ukraine has the fiercest competition? Construction? Retail?
UK: Telecom. Two players compete in the first echelon and two in the second echelon. It can be explained by market saturation and with the fact that the market was traditionally divided between these two operators. Golden Telecom is also an old player, but its subscriber base is almost unchanged after eight years. Two new powerful players that entered the market in 2005 control about 15 percent of the market, and their share won’t change significantly, ranging from 15 to 25 percent at most in the coming years. The new wave of competition can be expected in 3G, where only Ukrtelecom has the license, but the serious fight now is about 2G. Otherwise, retail banking is hot.
Industries fueled by growth of consumption, like retail and construction, are booming, but the situation is far from saturated here. There is still room for many small (and even less efficient) players.
KP: How will Ukraine’s WTO membership alter the business environment?
UK: On the one hand, Ukraine has a free trade agreement with Russia and other CIS countries, who are Ukraine’s major trade partners. On the other hand, accession to WTO will surely affect Ukrainian companies and the national economy in a similar way that WTO accession affected other countries after they became full members. It is a milestone that opens new opportunities for the country in terms of transformation to a more competitive economy and further integration into the global marketplace, where only the fittest survive. With WTO accession Ukraine gets longterm advantages as it will enjoy access to new markets, growth of goods turnover, growth of state income, and 710 percent export growth. However, it may be painful for many in Ukraine in the short term as less protectionism will be there to shelter inefficient producers and companies.
Yulia Golub can be reached at Golub@kpmedia.ua or 4964563 ext. 1081.
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