Ukrainian firms venture abroad for growth as war hits home

[May 19, 2023]  By Olena Harmash

KYIV (Reuters) - Almost as soon as Russia invaded Ukraine last year, Ukrainian businessman Rostyslav Vovk realised he needed to look beyond the country's borders to keep his pet food company growing.

The ongoing conflict has prompted several Ukrainian firms to focus abroad to reduce their reliance on a shrinking home market and to tap into the millions of people who have left.

More than 5 million Ukrainians who fled the conflict were registered in Europe as of the start of May, U.N. refugee agency data showed, with Poland hosting over 1.5 million of them.

Ukraine, which had a pre-war population of about 40 million, has seen its domestic economy turned upside down, with corporate investments and growth now rare.

The country's economy shrank by about a third in 2022, its biggest annual fall since independence from the Soviet Union, and only modest growth is forecast for this year.

A resulting drop in consumer spending is being felt in particular in the consumer and services sectors, where senior executives at four firms said they had turned to new markets in neighbouring Poland and Eastern Europe to boost business.

"Regarding our big expansion, which started after the full-scale war, the first destination was Poland," said Vyacheslav Klymov, co-founder of Ukraine's largest private postal operator Nova Post, which was founded in 2001.

"Our choice was to go to Poland, mainly because Poland hosts now the highest number of Ukrainians who fled from the war."

Klymov said that most of Nova Post's clients there were Ukrainian, apart from 10-15% of customers who were Polish, many of them sending parcels to Ukraine.

Andriy Khudo, co-owner and head of the !FЕST restaurant group, who has years of experience working with partners on projects in Central Europe, agreed the diaspora had helped.

"Before the war we already were in Poland, Romania and Hungary. Then we started a lot of negotiations to attract new and expand existing partnerships," he said.

"We began to open actively in Poland because in this market our brand and our product were already known and popular and it was easiest to accelerate with existing partners there."

In Khudo's bars, including the 'Piana Vyshnia' which means 'Drunken Cherry' in English, Ukrainians are reminded of home.

"We come here because we know this, it's cool," said Tania Krasnik, on a visit from Cologne in Germany where she has lived since the war, to see her friend Hanna Derevianko, 34.

"Today is my birthday. She came from Ukraine and I came from Germany ... and we decided to meet in Warsaw," Krasnik said as the pair sat in high stools by the window, each sipping from a glass of the bar's signature cherry drink.

More than 24,000 companies with Ukrainian capital were registered in Poland, or 25% of all those with foreign capital, the Polish Economic Institute think-tank estimates.

In September, 8.5% of all companies opened in Poland had Ukrainian capital, compared with 0.8% in January 2022.

A man leaves a branch of the Nova Poshta (New Post) delivery service in downtown, amid Russia's attack on Ukraine, in Kyiv, Ukraine May 15, 2023. REUTERS/Valentyn Ogirenko

'NOT VERY EASY'

Some firms are looking further into Europe, and strategies differ.

Khudo and partners have also launched bars in Latvia and are ready to open in the Czech Republic, Lithuania and Estonia - all countries hosting large numbers of Ukrainian refugees.

Andriy Zdesenko, who over 26 years has built his Biosphere Corporation into Ukraine's largest manufacturer of household and personal care products, had been looking to expand already.

The opportunity arose during the war.

"We bought 'Alufix', the Austrian brand. It is known not only in Austria but also in Hungary, Slovakia, the Czech Republic, Romania and Slovenia," said Zdesenko, who has also bought a Romanian factory and other assets.

"To enter a new market with an unknown name and, moreover, for a Ukrainian company, is not very easy."

Before the invasion in February last year, Ukraine's corporate sector had a mixed reputation abroad, with corruption scandals and questions over transparency damaging its image.

As a result, most Ukrainian companies focused locally or catered for markets in Russia and other former Soviet states.

But war has changed the landscape dramatically.

Early in the conflict, Ukrainian entrepreneurs said they benefited from popular support across many countries.

Vovk, co-owner and CEO of Kormotekh, said Ukraine's leading pet food producer began by selling in the Baltics as retailers looked to replace Russian products.

"The main goal is to grow abroad much faster than we planned for ourselves in the pre-war period," Vovk said.

Kormotekh had expanded sales to 39 countries at the start of 2023, from 19 five years ago. Vovk expects exports to grow from 22% of total sales in 2022 to 30% this year and between 60% and 70% by 2028.

Zdesenko estimates Biosphere's revenues will reach $150 million this year, compared with $102 million in 2022 and expects his Ukrainian business to account for about 60% of total sales, with external operations some 100 million euros in sales within the next three years.

Nova Post's Klymov, meanwhile, plans to invest about 10 million euros to open up to 200 branches across Europe.

Kormotekh has invested in expanding production both in Ukraine and Lithuania.

As businesses in Ukraine battle curfews, Russian shelling, damaged infrastructure, disrupted logistics and stalled production, many are helping civilians and the armed forces by delivering necessities and making donations.

They are also looking to the future, hoping that 'Made in Ukraine' becomes a trusted brand globally.

(Additional reporting by Karol Badohal in Warsaw; Editing by Mike Collett-White and Alexander Smith)

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