Why there is no Ikea outlet in Ukraine?

Author : Mateusz Bialas

Source : 112 Ukraine

In Ukraine, local supermarket chains dominate, and foreign capital in this segment is missing due to lack of transparent rules, corruption, and instability of state institutions.
16:55, 20 June 2016

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The feeling of competition is the impetus for the development and continuous improvement in the economy and in government. "Threat" of a competitor forces the search for new and more effective ways of solving the old problems.

Transparently provided free and equal market access for all interested players underpin the functioning of developed economies.

Often business conditions are measured by international indicators such as Index of economic freedom or Corruption Perceptions Index.

But these are only indexes that give us an overall picture of the situation. International corporations look at the internal situation, stability and predictability of the market, and business conditions.

Indexes and competition

In all the above indexes, Ukraine is far behind Poland, and this is not a secret. Over the past several years, Poland has been gradually raising in these rankings, increasing the competitiveness of the economy, encouraging foreign investors to attract more capital.

During this time, Ukraine has consolidated its positions in the very end of the ratings, often taking the last places among European countries. Ukraine has not even reached the Poland’s level of mid-2000s.

Compared to 2008, Poland rose from 83 to 39 position in Index of Economic Freedom, while Ukraine fell from 133 to 162.

In the Ease of doing business index Poland compared to 2006 rose from 54 to 25 seats. Ukraine has risen from 124 seats to 83, but it has not reached the level of Poland in 2006.

At first glance, Ukraine’s conditions do not encourage foreign investors, and the country loses the competition for investment. We are talking not only about Poland, but also about Slovakia and the Czech Republic.

Moreover, neighboring countries always improve conditions and encourage domestic and foreign investors, while Ukraine’s situation is not significantly improved.

It results into low level of international capital and international brands in everyday life of the Ukrainians.

Accordingly, the market lacks capital for further development, expanding the network of suppliers of food products or large-scale development of food processing plants that could satisfy both domestic and the world demand.

Potential of Ukrainian market. Without any choice

Country’s investment climate reflects the presence of European and international brands or manufacturers. To parallel the investment climate of Poland and Ukraine we should analyze the presence of world automakers and compare the number of special economic zones.

The best-known chain stores appeared on the Polish market in the first half of the 1990s, when the results of reforms became visible. In Ukraine, these shops have appeared 10 years later.

Poland has seven times more Auchans than Ukraine, despite the enormous competition with Tesco, Lidl, Kaufland, and Byedronka. In Poland, there are about five thousand chain stores of various sizes of this type.

In Ukraine, national networks such as ATB or Silpo (Fozzy Group) dominate. Ukrainian citizens spend on food more than a half of the domestic budget.

The shops with footage for repair or house decoration (such as IKEA, Kastorama or Praktier) could be found in almost every average Polish city since the mid-1990s, and their products are known for reasonable prices.

Poland has nearly two hundred chain stores with a similar range of products. In Ukraine dominates the local chain – Epicenter (41 shops) with little competition on the part of Leroy Merlin, which has three stores only (in Kyiv).

A similar situation is in the market of home appliances products. On the Polish market for many years, there are several major players competing with each other.

In Ukraine, respectively, local Eldorado and Foxtrot dominate, and foreign capital in this segment is missing. Fortunately, online stores are quite rapidly developing, and they become true competitors of large hypermarkets.

A large number of players provides competition, and competition develops the market, providing better treatment of the client, increasing the level of the services. Ukrainian big chains have no competition within the domestic market.

Foreign investors, which are present in the Polish market since mid-1990, refuse to appear on the Ukrainian market due to lack of transparent rules, corruption, and instability of state institutions - from law enforcement and judicial system to fiscal and customs systems.

Consequently, the market should increase the number of players that can meet the needs of the population with low purchasing power. Ukraine must also ensure the transparent competition.

These steps should be made not only for the used cars, but also for cheaper furniture, cheese, and TV sets. And most importantly, Ukraine needs to raise capital, not only in Kyiv, Lviv, and Kharkiv, but also in smaller towns all over the country.

Related: Groysman: Ukraine’s government is ready to create favorable business climate for investment

Related: Groysman urges U.S. businessmen to invest in Ukraine

Related: This year EBRD will reduce its investments in Ukraine, - Chakrabarti

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