Risks, rewards high when doing business in Ukraine

Ukraine is a dynamic, welcoming country with business opportunities, but in order to succeed here, an entrepreneur has to understand how to operate a company in an environment full of risks.

That was the conclusion reached by some of Ukraine’s acclaimed business people, who gathered at the Kyiv Post’s Tiger Conference on Dec. 11.

One of them, Kira Rudik, the COO of tech company Ring Ukraine, said she had become a “true lobbyist of Ukraine” in trying to convince foreign investors Ukraine isn’t all about Russia’s war and corruption, but that it’s indeed possible to create successful businesses here.

“People are scared of the words ‘war’ and ‘martial law,’” Rudik said, referring to what was imposed in Ukraine through Dec. 26, following Russia’s attack in the Black Sea on Nov. 25.

“(Foreign investors) are scared of what could happen in Ukraine in a couple of years. They need to be explained that Ukraine is different,” she added.

And Rudik is persuasive. She managed to convince promising U.S. startup Ring to open a 500-person branch in Ukraine in 2016. Since doing to, the startup’s gone from strength to strength until it was bought by tech giant Amazon for $1 billion in February 2018.

“Our Ukrainian team was a good part of this deal, as the biggest engineering team is in Ukraine… and they are not a cheap labor force — these are the professionals that would be difficult to hire anywhere in the world,” Rudik said, explaining that the local talent is why Ukraine might be a good place for one’s business.

Rudik thinks that a combination of good education and trust in the country will result in appearing of hundreds of startups as successful as Ring and consequently in more business stars.

Welcoming, dynamic

Andreas Flodstrom — who in 2012 came to Ukraine from Sweden with his business partner Gustav Henman to set up an IT firm celled Beetroot — agreed. He shared Rudik’s belief in the Ukrainian talent. He also likes Ukraine’s fast-moving business environment.

Now Flodstrom’s firm works with 20 countries from five Ukrainian cities and also operates a non-profit arm called Beetroot Academy, which teaches people to program.

Eager to start own business, Flodstrom and Henman were experimenting launching startups in Sweden, wanted to settle down somewhere in Russia, Belarus, or Ukraine. And as they “felt most welcome” in Ukraine, they stayed here and launched Beetroot.

Six years after, the tech businessman thinks starting a business in this country was “the best decision of my life.”

“Ukraine is a country of potential,” Flodstrom said. “The environment in Ukraine is much more dynamic than in Sweden. For Swedish businesses it is scary to work in such fast-moving conditions, but it suits me — I like Ukraine’s pace.”

While he sees that Ukraine still has economic problems and bad image on the global market, Flodstrom remains optimistic and is sure “as soon as Ukrainians get more confident, more business stars will be born.”

“Nobody should tell you what you can’t do,” he added.

IT stands out

Besides, Flodstrom has bet on Ukrainian IT, which according to him, has managed to become one of the industries that could give Ukrainian economy hope: bring up young tech people demanded abroad as well as disrupt traditional industries.

Ukraine’s IT sector develops fast, bringing up thousands of new specialists every year, paying good salaries, and securing over 3 percent of the country’s GDP. IT exported services on $3.6 billion in 2017. But the industry also helps on the personal level, he thinks.

“IT improves people’s living standards, because it pays good salaries,” he said. If with time tech people stay, there will be more tech firms in Ukraine, Flodstrom added.

On general, the Swede thinks this industry demonstrates how whole Ukraine would have developed if it had not been for the war and corruption.

Corruption & other risks

Dan Pasko, a managing partner at investment firm Diligent Capital Partners, however, was less optimistic than both Rudik and Flodstrom.

“IT is a rising star, yes,” he admitted. “And there’s a hope for it. But so far, I haven’t seen that many success stories. Not yet. Few successes, but it’s more of the outlier than a trend.”

Pasko’s company invests a lot in agriculture. And though he sees the potential of this as well as the tech industries, he’s sure Ukraine’s economy will never grow, and that new companies will stay an exception to the rule unless it gets rid of corruption.

“With 2 percent GDP growth — which is nothing; and what I call a ‘bog’ — Ukraine will stay stuck in its development,” Pasko said, adding that it weren’t for corruption Ukraine would have better chances.

“As a foreign investor, why would I want to build a business if a tax inspection is going to raid me and ask for a bribe,” he said.

“If I were running for president, I’d have one promise to make — to tackle corruption. But of course, with the previous president, it was much worse,” Pasko said, referring to exiled ex-President Viktor Yanukovych.

“Current leaders misunderstood what was the EuroMaidan Revolution about. They will be punished for not delivering what was expected from them,” he said.

Although Pasko emphasised on corruption, he said it is something at least surmountable. There’s one new and terrible risk in Ukraine, however, which investors and business people will have to learn to face — Russia’s war in eastern Ukraine.

“Foreign investors have more or less learned how to deal with corruption on the global scale… with currency risks,” Pasko said. “But the risk of the conflict with a nuclear superpower, which is by far stronger, and which is controlled by a single individual with no constraints — that’s a risk no investor had dealt in the past.”

The Kyiv Post’s technology coverage is sponsored by Ciklum and NIX Solutions. The content is independent of the donors.

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