Ukraine Machine Building Business Business Essay

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This case study is about Ukraine 'machine building business'. Ukraine is a good country for a 'machine building business' to enter because Ukraine is a big European country, if not taking into account the European part of Russia it is the biggest country in Europe by territory, it is about twice bigger than Finland and Germany. This is one of remarkable facts; the other one is that Ukraine possesses 1/3 of world's black soil. This testifies that Ukraine has a huge potential in Agro-industrial complex, which in current time is far from being incarnated.

Ukraine is a good country for a 'machine building business' to enter because Ukraine is positioned in the heart of Europe which means great strategic connections both to the Western Europe and to Caucasian region countries. The biggest region is Kyiv and Kyiv city itself; however recent trends show development processes in such cities as Dnipropetrovsk, Donetsk, Odesa and Harkiv. Administrative division: 24 oblasts, 1 autonomous republic of Crimea, and the cities of Kyiv and Sevastopol. The biggest regions are: Kyiv, Donetsk, Dnipropetrovsk, Odessa and Kharkiv.

As it has been previously mentioned Kyiv city is the biggest and most developed city in Ukraine, it attracts 30% of FDI inflow, most of construction activities are taking only in Kyiv (27%) as well as retail turnover (19%).

It is very important for foreign investors to consider the regional segmentation of business activity. In many cases being successful in one region does not provide for success in another region.

Population Structure of Ukraine for a 'machine building business' to enter:

Ukraine is a good country for a 'machine building business' to enter that is why the ideal structure for operations, if they meant to cover several regions, is to have representatives residing in these regions. Most usual regional expansion passes of foreing companies. Kiev - Donetsk - Dnipropetrovsk - Odessa - Kharkiv -- Lviv


The main objective of this case is to solve the following research questions:

  1. Whether Ukraine is a good country for a 'machine building business' to enter
  2. What is the best way to enter (Modes of entry)
  3. How to build on internal skills of employees and how to create more knowledge of the new country
  4. Whatever strategy u decide, should the company chose that strategy every time it enters a new market?

Strategic Challenges

Foreign investors come to Ukraine mostly either through Russia or Poland. The countries are close in industry structure, market size and mentality. Ukraine is comparable with Russia in terms of risks. Ukraine has greater business possibilities but also bigger risks in comparison to Poland and Russia, however Ukraine is fairly comparable with Russia in terms of risks.

Mentioned opportunities are backed up with least active investors (which usually come either through Russia or Poland), least saturated markets and the highest profit margins as compared to other developing markets in many sectors. Another fact that should be considered is that Russia, Poland and Ukraine are close by industry structure, market size and mentality, so that fairly eases start doing business in Ukraine for those companies already operating in mentioned countries. On the other hand, one of the advantages of Ukrainian market, as compared to Russia, is that the market is highly geographically concentrated which gives better opportunity for penetrating the market.

Market Potential for selected market

In this part of the case I explain the research objective question about Ukraine is a good country for a 'machine building business' to enter. The answer is in Yes. 'Machine building business' and Macroeconomic data dynamics: GDP of Ukraine is as follows:

GDP growth dynamics rate has been the highest among European countries during recent years in recent years Ukraine is boosting its nominal GDP as well as real GDP growth, another remarkable fact is that real GDP growth dynamics in Ukraine has been the highest among European countries.

Moreover, experts predict fairly stable growth of Ukrainian economy even considering recent events in Ukraine (Parliament-President contradictions). Ukrainian economy is considered by independent experts as quite resistant to external shocks (dispute with Russia about energy vector (gas) in 2006) as well as internal shocks (current events).

Market Research

The administration of Ukraine plays an important role in making Ukraine as a good country for a 'machine building business' to enter. The President of Ukraine Viktor Yanukovych considers industrial and scientific potential of Ukraine the main pillar in its prospective modernization plans. The President stressed in his annual address to the Ukrainian parliament that the authorities would take all the effort to ensure favorable foreign investment climate and create appropriate legal, financial, technological and regulatory conditions to foster innovation and industries' modernization.

“The year of 2011 should be the period of building a new legal framework of protection of the rights and interests of investors, introducing modern mechanisms of industrial policy and providing state support to high-tech sectors of economy,” said the President of Ukraine.

Ukraine inherited its scientific and industrial potential from the Soviet Union's age. Though many industrial capacities of the country require drastic modernization, there are few sectors that put Ukraine in the lead.

First of all, Ukraine with its space industry potential occupies one of the world's leading positions among countries that produce rocket launchers and is one of the five countries, which have a complete rocket production cycle. Ukrainian companies that work in the space industry use most of the known space technologies and participate in 50 international space projects.

Secondly, Ukraine holds the 4th position in the world in the number of IT specialists, following the USA, India and Russia. According to “Central and Eastern Europe IT Outsourcing Review 2010,” 14,000 IT specialists graduate from the Ukrainian universities every year. Ukraine's exports of computer software will reach one billion dollars in 2011, according to country's Vice Prime Minister Sergiy Tigipko.

Heavy industry, especially machine building, metallurgy and coal production, makes for an important part in general industrial structure of Ukraine. Fuel and energy complex, which includes energy, coal, nuclear, gas and oil industries is another large sector offering a significant pool of investment opportunities.

In 2010, the industrial production in Ukraine grew by 11% compared to 2009. The machine building industry grew 38.9% compared to 2009. The most important export industry of the country - metallurgy - reached a 12% production increase in 2010 according to the State Statistics Committee of Ukraine. The steel export of Ukraine totaled $2.8 billion, the export of agricultural products - $9.5 billion, and chemical products export reached $3.5 billion.

Another important data are inflation and currency exchange.Ukrainian businesses are very well adapted and a kind of self-protected to survive during political distress periods. We can see that inflation has been quite moderate in recent years. Despite number of contradictions in Ukrainian government which took place in 2004-2006 (e.g. 2 disseverments of government in 2004-2005 and disputes about forming anti-crisis coalition in 2006) Ukrainian economy managed to absorb the shock and keep inflation on stable basis. Independent experts predict future slow down to 9% and 7% in 2007 and 2008 accordingly

As to exchange rate: it has been lowering and in the moment it is pegged against USD

In 2006 few structural changes in Ukrainian economy sectors took place. The major changes were in construction and in trade and repair. At the moment mentioned sectors are ones of the most attractive in Ukrainian economy; we will come back to them in the next slide.

As to industrial sectors traditionally metallurgy, food processing and machine-building are the strongest ones.

Options in International Market

Ukraine's presidential elections put the country back into the spotlight of the international media, probably for the first time since the Orange Revolution in 2004. Back then, on a tide of optimism and immense hope for change and reform, Ukraine received generally positive opinions from analysts all over the world.

Now, having just passed the first severe economic crisis in its independent history, the country is uniformly condemned for being plagued with corruption, having no clear direction and economic policy, and lacking stability - in other words, for not living up to the high hopes of 2004.

In many ways this criticism is justified. The fact that the outgoing president, Viktor Yushchenko, received a humiliating 5.5% of total votes in the first round of presidential elections on January 17 and failed to advance to the runoff is a clear sign of the nation's disappointment with him and reflects a strong desire for change.

The country's policymaking has suffered from a long-lasting deadlock between the main branches of power; its obscure legislation has spurred corruption; the judicial system can hardly be relied upon; and growing a successful business in such conditions is a real challenge.

What cannot be justified, however, are the audacious claims we hear that Ukraine has no option but to choose from either slipping into national default or sacrificing its independence for the sake of a Russian bailout.

On the contrary, against the backdrop of difficult internal issues and challenges it faced during the global crisis, the country's economy has coped with the situation comparably well and is now putting itself back on a recovery path.

The banking sector has stabilized due to the joint efforts of the International Monetary Fund (IMF), the National Bank of Ukraine (NBU) and the government, as well as the active support lent to local foreign-owned banks by their parent institutions.

The revival of global commodity markets is supporting the recovery of Ukraine's steel giants, having kept exports and GDP on the rise for three successive quarters. Unemployment has stabilized at approximately 9%, which compares comfortably with other countries in the region.

Foreign investor interest in the domestic market is clearly reviving, with the local stock market index up 273% from its bottom in March 2009 and 14% since the beginning of 2010.

Debt/GDP level is manageable

Ukraine's level of gross public and private debt had stood at a reasonable 57% of GDP just before the crisis erupted in the autumn of 2008. On this measure, Ukraine had a considerably more secure position compared to many of its peers in emerging Europe and beyond.

Ukraine's debt ratio then surged due to the national currency's depreciation and the contraction of GDP, hitting 84% in the third quarter of 2009. This level is still considerably below the debt/GDP ratios of such regional peers as Hungary (177%), Bulgaria (116%) or Kazakhstan (100%).

Looking at the composition of gross debt brightens the picture further. Despite the influx of nearly $13bn of IMF financing - including a $2bn special drawing right allocation (SDR) - Ukraine's external public debt amounts to $24bn, or less than 21% of GDP and 23% of its total external liabilities.

The government needs to repay a mere $1bn out of this amount in 2010 - a fraction of the country's current international reserves totalling $26.5bn. Domestic public debt amounts to $12bn or 10% of GDP.

The private sector debt should also be analyzed more accurately. External liabilities in the private sector amounted to nearly $80bn in the third quarter of 2009. According to NBU estimates, approximately $18bn-20bn of this amount matures in 2010 (net of trade credits).

Refinancing the bulk of these liabilities does not seem a "miracle scenario" at all if one keeps in mind that out of $28bn that fell due in 2009, 75% was rolled over. The primary reason is related-party lending, which accounts for a majority of the above liabilities.

This type of lending is a commonly used form of direct equity investing in Ukraine. The rollover rate may be even higher this year, as the anticipated post-election political stabilization should open access to new external financing.

Not surprisingly, the state budget suffered from the economic downturn, as did budgets all over the world. We estimate that last year's budget gap reached 8-9% of GDP (including the consolidated budget deficit and the deficits of the Pension Fund and the state-owned Naftogaz), or approximately $10bn.

In the course of the year, the IMF provided $7bn for budget support (including $2bn of SDRs used for budget purposes), leaving little need for money printing. Unlike in many other economies, Ukraine's central bank has kept a firm grip on the money supply, which has created conditions necessary to stabilize the currency and reduce inflation to approximately 12.3% in 2009 from above 20% in 2008.

Market Entry Strategy and Analysis

In this part of the case I explain the research objective question about what is the best way to enter (Modes of entry).  Amode of entryinto an international market is the channel which your organization employs to gain entry to a new international market.

International Agents and International Distributors ---- (In this casethe best way to enter)

Agentsare often an early step into international marketing. Put simply, agents are individuals or organizations that are contracted to your business, and market on your behalf in a particular country. They rarely take ownership of products, and more commonly take a commission on goods sold. Agents usually represent more than one organization. Agents are a low-cost, but low-control option. If you intend to globalize, make sure that your contract allows you to regain direct control of product. Of course you need to set targets since you never know the level of commitment of your agent. Agents might also represent your competitors - so beware conflicts of interest. They tend to be expensive to recruit, retain and train.Distributorsare similar to agents, with the main difference that distributors take ownership of the goods. Therefore they have an incentive to market products and to make a profit from them. Otherwise pros and cons are similar to those of international agents.

Strategic Alliances (SA)

A strategic allianceis a term that describes a whole series of different relationships between companies that market internationally. Sometimes the relationships are between competitors. There are many examples including:

  • Shared manufacturing e.g. Toyota Ayago is also marketed as a Citroen and a Peugeot.
  • Research and Development (R&D) arrangements.
  • Distribution alliances e.g. iPhone was initially marketed by O2 in the United Kingdom.
  • Marketing agreements.

Essentially, Strategic Alliances are non-equity based agreements i.e. companies remain independent and separate.

Joint Ventures (JV)

Joint Venturestend to be equity-based i.e. a new company is set up with parties owning a proportion of the new business. There are many reasons why companies set up Joint Ventures to assist them to enter a new international market:

  • Access to technology, core competences or management skills. For example, Honda's relationship with Rover in the 1980's.
  • To gain entry to a foreign market. For example, any business wishing to enter China needs to source local Chinese partners.
  • Access to distribution channels, manufacturing and R&D are most common forms of Joint Venture.

Global Strategy and Consequences

In this part of the case I explain the research objective question about how to build on internal skills of employees and how to create more knowledge of the new country. There are very many different ways to build on internal skills of employees and to create more knowledge of the new country. Firstly design a mentoring programme, whether within an organization, or as a service or help that you provide personally to others.

Here are some questions that you should ask yourself. The answers will move you closer to what you seek to achieve:

What parameters and aims have you set for the mentoring activity?

What will your mentoring programme or service look and feel like?

What must it achieve and for whom?

What are your timescales?

How will the mentoring programme or activity be resourced and managed and measured?

What type of design and planning approach works best for you? (It makes sense to use a design and planning approach that works for you.)

What are your main skills and style and how might these influence the programme design?

What methods (phone, face-to-face, email, etc) of communication and feedback are available to you, and what communications methods do your 'customers' need and prefer?

What outputs and effects do you want the programme to produce for you, and for the people being mentored?

How might you build these core aims, and the implied values and principles, into your programme design?

How can you best measure and agree that these outputs - especially the agreed expectations of the people being mentored - are being met.

How can you best help people in matters for which you need to refer them elsewhere?

What skills, processes, tools, experience, knowledge, style do you think you will need that you do not currently have?

What do your 'customers' indicate that they want in terms of content, method and style or mentoring - in other words what does your 'target market' need?, and what parts of those requirements are you naturally best able to meet?

Mentoring is potentially an infinite demand upon the mentor so you need to have a clear idea of the extent of your mentoring 'offering'.

Establishing clear visible parameters enables proper agreement of mutual expectations.

General training tips

These tips apply essentially to traditional work-related training - for the transfer of necessary job- or work-related skills or knowledge.

These tips do not apply automatically to other forms of enabling personal development and facilitating learning, which by their nature involve much wider and various development methods and experiences.

When planning training think about:

  • your objectives - keep them in mind all the time
  • how many people you are training
  • the methods and format you will use
  • when and how long the training lasts
  • where it happens
  • how you will measure its effectiveness
  • how you will measure the trainees' reaction to it

When you you give skills training to someone use this simple five-step approach:

  1. prepare the trainee - take care to relax them as lots of people find learning new things stressful
  2. explain the job/task, skill, project, etc - discuss the method and why; explain standards and why; explain necessary tools, equipment or systems
  3. provide a demonstration - step-by-step - the more complex, the more steps - people cannot absorb a whole complicated task all in one go - break it down - always show the correct way - accentuate the positive - seek feedback and check understanding
  4. have the trainee practice the job - we all learn best by actually doing it - ('I hear and I forget, I see and I remember, I do and I understand' - Confucius)
  5. monitor progress - give positive feedback - encourage, coach and adapt according to the pace of development

Creating and using progress charts are helpful, and are essential for anything complex - if you can't measure it you can't manage it. It's essential to use other training tools too for planning, measuring, assessing, recording and following up on the person's training.

Breaking skills down into easily digestible elements enables you to plan and manage the training activities much more effectively. Training people in stages, when you can build up each skill, and then an entire role, from a series of elements, keeps things controlled, relaxed and always achievable in the mind of the trainee.

Establishing a relevant 'skill set' is essential for assessing and prioritising training for any role. It is not sufficient simply to assess against a job description, as this does not reflect skills, only responsibilities, which are different. Establishing a 'behavior set' is also very useful, but is a more difficult area to assess and develop.

This will not however go beyond the basic work-related job skills and attributes development areas. These tools deal merely with basic work training, and not with more important whole person development, for which more sophisticated questioning, mentoring and learning facilitation methods need to be used.

Psychometric tests (and even graphology - handwriting analysis) are also extremely useful for training and developing people, as well as recruitment, which is the more common use. Psychometric testing produces reliable assessments which are by their nature objective, rather than subjective, as tends to be with your own personal judgment..

Some tips to make training (and learning, coaching, mentoring) more enjoyable and effective:

  • keep instructions positive ('do this' rather than 'don't do this')
  • avoid jargon - or if you can't then explain them and better still provide a written glossary
  • you must tailor training to the individual, so you need to be prepared to adapt the pace according to the performance once training has begun
  • encourage, and be kind and thoughtful - be accepting of mistakes, and treat them as an opportunity for you both to learn from them
  • focus on accomplishment and progress - recognition is the fuel of development
  • offer praise generously
  • be enthusiastic - if you show you care you can expect your trainee to care too
  • check progress regularly and give feedback
  • invite questions and discussion
  • be patient and keep a sense of humor

Induction training tips:

  • assess skill and knowledge level before you start
  • teach the really easy stuff first
  • break it down into small steps and pieces of information
  • encourage pride
  • cover health and safety issues fully and carefully
  • try to identify a mentor or helper for the trainee

As a manager, supervisor, or an organization, helping your people to develop is the greatest contribution you can make to their well-being. Do it to your utmost and you will be rewarded many times over through greater productivity, efficiency, environment and all-round job-satisfaction.

Remember also to strive for your own personal self-development at all times - these days we have more opportunity and resource available than ever to increase our skills, knowledge and self-awareness. Make use of it all.


In the conclusion I would like to say that foreign investors reconsider the market. IMF lending remains key to unlocking access to non-inflationary sources of budget deficit financing for Ukraine. IMF representatives have indicated that they are likely to restart lending following the presidential elections, and president-elect Viktor Yanukovych has confirmed his intention to continue cooperating with the Fund.

Despite the bitter aftertaste left by the recent crisis, foreign investors' appetite for Ukrainian risk is growing. Following the buyout of ISD, one of Ukraine's biggest industrial groups, at the beginning of January, the local stock market surged by 14% in 21 trading days, with some blue-chips gaining as much as 50%

Braving the looming elections, prices on Ukrainian sovereign bonds rose by 2-3%, while yields declined to 8.5-10.8%, moving closer to their pre-crisis levels. Average daily liquidity went up by more than 100% in January compared with December 2009, driven by both local and foreign money.

Ukraine is not straightforward, true, but it is a large, well-educated and aspiring European nation restarting its growth from a very low base. To say the least, this place merits an in-depth and careful analysis, and on any account is worth a short visit to form one's own judgment.