More than half of Ukraine’s exports consist of raw materials and low value-added primary processing products. Of course, this is not the best environment for the development of the country's economy; there are also no favorable conditions for investing in the production of goods with high added value. Nevertheless, some of our compatriots are not afraid to take risks and open such enterprises, whose products are gradually gaining demand in the world market.
According to the State Statistics Committee, for the three quarters of 2018, the volume of Ukrainian exports has increased by 12.4%, compared to the same period last year. Its structure is still dominated by raw materials and primary processing products, and the share of high value-added products is falling: in 2013 it was 36.1%, and in 2017 - 28.2%. Experts explain this by Ukraine’s loss of its eastern regions, Russian sanctions and the difficulty of finding new markets. For example, in 2013 – 2017, the sale of railway locomotives, air navigation, and spacecraft fell 10 times. Machine-building enterprises inherited from the Soviet Union cannot sell their products to Western markets: unfortunately, their production processes do not always correspond to the established standards of the developed countries. However, the status of the “European raw materials appendage” does not bode well for the future of the Ukrainian economy. Adjusting raw materials production is easier, but the world markets prices are constantly fluctuating. At the same time, it is still more profitable for the domestic business to plan revenues for the short term and not to invest in the construction of new and modernization of old enterprises since the instability of the economic and political situation does not contribute to this.
At the same time, the production of finished goods with high added value, given a large number of processing stages and their energy consumption, ensures the creation of new jobs.
“Increasing the volumes of export and production of Ukrainian products with high added value requires a systematic approach. First, the judicial and fiscal systems must be reformed to provide a good investment climate that would contribute to the modernization of the production. Secondly, a credit and export agency to facilitate developing the business should be created, since the current lending rates of banks are too high. At the same time, a 10% increase in lending would ensure a 2% growth in GDP. For example, in Poland, 45% of investments are reimbursed at the expense of preferential taxation with income tax, and the government provides 23 thousand zlotys for each job created,” Vasyl Furman, member of the board of the National Bank of Ukraine (NBU), explains.
After launching the “window to Europe” within the framework of the FTA, Ukrainian producers had no other way out but to switch to the new markets. Although they are more demanding, the management of exporting companies gradually cultivating them: this year the share of exports to the EU countries was 43%. In addition, according to the Ministry of Economic Development and Trade, a year and a half after the introduction of the FTA, Ukraine began to supply 39 new groups of product to the EU.
Ukraine supplies spare parts for cars, electrical wires, and furniture to Poland and Germany, home appliances are gathered from the imported components, and 80% of light industry enterprises are tailoring clothes and footwear for the world's leading brands. Products manufactured in Ukraine go to the counters of stores under the brands of other countries.
“If Ukrainian manufacturer wants to create its own brand and enter the world market, it needs at least 50% of all the production costs of the product itself. It was estimated that (president’s Poroshenko’s, – ed.) Roshen would need 5 billion EUR to conquer the world market. Another vivid example is the well-known Coca-Cola. In its cost structure, 90% is spent on marketing expenses of the brand and only 10% go on the cost price of the product,” Olexandr Okhrimenko, President of the Ukrainian Analytical Center, assures.
But some Ukrainian entrepreneurs are not afraid of all these difficulties.
Almost all young Ukrainian enterprises received their first clients after participating in international exhibitions. Their competitive products attracted foreign partners, but, according to the entrepreneurs, difficulties in issuing certificates and taxation procedures slowed down or even disrupted the first deliveries. In addition, Ukrainian businessmen complain about high-interest rates on loans in state and commercial banks and generally try not to take them. However, even relying on their own strengths and capabilities, their companies are developing and increasing profits, setting an example to other emerging merchants.
Wooden mechanical models from Ugears
The Ugears company first came to prominence in 2015 as a startup. Its offspring is wooden constructors made of plywood, which can move with the help of gears, hinges, gearboxes, and even mechanical motors. Laser carving creates elegant patterned elements of toys that will become not only a tool for the development of the child’s thinking but also a nice home decoration.
Ugears was able to make the first large export shipments after participating in Kickstarter: this not only helped raise the necessary amount of money for the production of 3-D puzzles but also became a good advertising campaign. So from a small startup, Ugears has grown into a company with almost 200 jobs.
“At the end of 2015, we had the first trial export to Poland and China. Now, 92-93% of all manufactured products are exported to 42 countries, which is about 860 thousand packages. But we are striving for even higher sales volumes. If you look at the structure world trade, the share of Ukrainian goods in the world is about 0.2%. It would be ideal if such a quantity of our products accounted for the domestic market, and everything else was exported. But Ukraine exports little goods with high added value," Hennadiy Shestak, Ugears director, recalls.
According to the co-founder of the company, the annual turnover, is 7 million euros, and the profitability of the business is 30%. And recently, the world-famous Disney paid attention to the company, ordering the development of five models of wooden constructors for their branded stores. At the same time, Ugears even sacrificed part of the profits so that the Ukrainian brand logo remained on the packaging. “This is very important for the recognition of our products and our country,” Shestak stressed.
Refrigeration equipment from Iceberg
“Refrigeration equipment has become our family business, a dynasty. My father once was a director of a large engineering plant of refrigeration equipment, and now my daughter is helping me,” says the company's director general Oleh Antonenko.
Odesa enterprise "Iceberg" has been producing refrigeration equipment for almost 30 years. First, the company was engaged in distribution and assembly of imported refrigeration components for cooling water and technical lasers, as well as the assembly of refrigerated display cases. But 18 years ago, "Iceberg" began to produce goods for export itself, returning to full-cycle production and at the same time continuing to buy raw materials from foreign partners.
"Our metal is good for nothing, it has poor quality, and we have to return something. At the factory, we design future models of refrigerated display cases, design, cut sheet metal, make it flexible and paint, install refrigeration equipment. We produce the most customized refrigerated display cases, that is, we develop original design projects for each order individually to compete in its segment,” Antonenko underlines.
Now the company employs 139 employees. It sells its products to 20 countries of the world, 10 of which are the EU countries. There are also the countries of the Persian Gulf, Australia, and Iceland.
The managers assure that the biggest problem for export is the interest rates on loans. "These are 24% in hryvnia and 10-11% in foreign currency. When you work for export, you have to lend to your customers, replenish your working capital account. High-interest rates inhibit the modernization and expansion of production," Antonenko adds.
Hybrid Ceramic Heating Panels
In 2010, inventor Ilia Lapshev from Luhansk patented the world's first technology for heating rooms with ceramic plates, which combined convection and infrared heating methods. Household novelty saves up to 30% and is the safest among all electric heating devices. Since then, the activities of the company HYBRO Technologies begins; today, its current annual turnover of funds exceeds 7 million USD.
"Our first export took place in 2012 when we received the first order from Latvia. We received an application and decided to go through the whole procedure: customs clearance, opening currency accounts, passing certifications. In 2015, we began exporting the system to 14 countries of the European Union; including the UK. The main customers of our company are construction companies. It is profitable for them to buy the heating system from us and immediately install it. The cost of the heating system per 100 square meters and semi-insulated walls is 3,150 EUR. Now our ceramic panels are heated in the amount of 500,000 square meters worldwide, and the area of the largest object that we have implemented is 7,200 square meters," HYBRO Technologies director Vladyslav Sushko says.
According to him, due to the complexity of taxation in Ukraine, the company had to open another office in Poland. But all products come out under the Ukrainian brand and has the Made in Ukraine label.
Scout sports helicopters
Scientific and technical complex "Horizon" in the Kyiv region has been designing experimental helicopters for 11 years. In 2015, the company began to create its famous Scout, which is now sold around the world. According to the management of the company, profitability is 30%. More than 30 people work are involved in the production and the famous "Art. Lebedev Studio" was engaged in the design of the helicopter.
"Our helicopters are mainly bought for the personal use, just for fun. We are focused on the US market, since aviation transport, there is one of the most developed in the world. We sell helicopters both assembled and in kits, and the buyer gathers a helicopter like a furniture from Ikea. The price for this varies from 165 thousand to 195 thousand dollars. This year we have sold only 4 helicopters, and the next year we have got an order for the sale of 12 helicopters. The company has established a full-cycle production. Creating a helicopter is a very long process. At first, it is born on drawings, then a prototype is created, which passes technical tests, and then an advertising campaign starts," Horizon director Pavlo Tyslenko tells.
Smart home from LINK LINE
"LINK LINE is a smart device, application and cloud service," says the advertising slogan of the Dnipropetrovsk company, founded in 2017. It produces sockets, lamps, heaters, ventilation, and all sorts of sensors that can be controlled remotely from a smartphone and control the life of your home remotely. According to the managers of the company, LINK LINE has not made any deliveries abroad yet, but foreign partners have left orders for almost all categories of goods, and the first export is expected next year.
"Currently, our company has less than 50 people, we are actively engaged in the development of our first products. This is about gathering components and software created devices. In general, our company is focused more on the western than on the domestic market: Ukrainians have the wrong mentality to arrange a smart home. Nevertheless, we are still at the stage of searching for trading partners and launching a company,” LINK LINE managers explain.
The cost of goods from the entire range of the company varies from $ 30 to $ 360. The most expensive product (a smart heater) has a built-in learning thermostat with temperature and humidity sensors and can be controlled by voice and also via Wi-Fi or Bluetooth.