Despite suffering heavy losses in trade with Ukraine over the past three years, Swedish companies are making a comeback on Ukraine’s market.
Swedish exports increased by 20 percent to $267 million in 2015 compared to the previous year, and around 100 Swedish companies are now active in Ukraine. Although some of these are not profitable, they are planning their businesses for the long run, hoping that their investments will see a return as business in Ukraine starts to pick up.
“We’re starting to catch up again, and at a good speed,” Daniel Larsson, Swedish investment consultancy agency Business Sweden’s country manager for Poland, Ukraine and Romania, told the Kyiv Post. The numbers back him up: in the first quarter of the year Swedish exports increased to $87.4 million, or by 41 percent, on the same period last year.
Starting small
There’s still plenty more room for growth: Business Sweden says that 85 percent of the Swedish-owned companies in the country are small- or medium-sized.
“It has to be underlined that in comparison to the other countries that Sweden exports to, exports to Ukraine are still very small,” Larsson said. “So we’re starting from a low level.”
And low is the right word. Sweden’s trade with Ukraine accounted for not even one percent of its overall exports of $144 billion in 2015.
One reason for that is that Swedish companies are still wary of the Ukrainian market due to Russia’s war against Ukraine. Other factors are the country’s poor economic performance and lack of rule of law.
All the same, Larsson believes Swedish companies could gain a competitive advantage in years to come if they invest in Ukraine now.
Long road ahead
An example of that long-term approach can be seen at Swedish truck-maker Scania, which has been on the Ukrainian market for 23 years now – practically since Ukraine gained independence.
And Wojciech Rowinski, the firm’s managing director in Ukraine, says that it is typical of Swedish companies to invest over a long period.
He said his business is underdeveloped in Ukraine, where only 1,000 Scania trucks are registered. Rowinski estimates that Scania has the potential to sell 23,000-27,000 of its trucks for transporting various types of freight.
Although Scania now has a 15 percent market share of the heavy truck market in Ukraine, getting even that far has been difficult.
“You have to understand that in Ukraine more than half of the total market up until now has been monopolized by old Soviet-era brands like Kamaz, MAZ, Kraz and others,” Rowinski said. These still have 60 percent of the market, with the remainder taken by seven European brands.
No compromise!
One of the biggest factors restricting the growth of Swedish investment in Ukraine is corruption. But Swedish business people say they won’t compromise on their principles just to win more business here.
“Principles and values are very high on the agenda for all Swedish companies… and Swedish companies are not ready to compromise, that’s correct,” Rowinski said. “Because the transparency of business, honesty in business — those are values we’re not ready to compromise on.”
Rowinski said it is possible to achieve business transparency in Ukraine and, then the “Swedish attitude” will really start to pay off.
He gave Scania’s experience in Poland as an example. When Scania entered that country in 1992, the company managed to sell just 82 trucks over a year. Now the figure is 3,500 – an answer to the skeptics who said corruption in Poland couldn’t be overcome.
“I believe that Western companies, especially Scandinavian ones, and especially Swedish ones – we have to have a certain amount of patience, and understanding that this takes time,” Rowinski said.
Ukrainian problems
Meanwhile, the biggest challenges for Swedish companies in Ukraine are the same as those faced by all other foreign businesses – the customs and tax services, the legal system, efficiency and legislative stability.
“When we come as investors there is a deal between us and the country,” Rowinski said. “And when the promises from the country’s government are broken, we end up with a totally different business model, as we start to get additional costs.”
He said Swedish companies are less concerned about the rates of taxes and the introduction of new legislation than the consistent implementation of exisiting laws.
And while Swedish business people do see improvements in doing business in Ukraine, the speed and depth of change is still too slow, Rowinski said.
Positive changes
But Niclas Palmquist, the managing director of Oriflame Ukraine, a beauty products company, says he at least sees improvements in the business environment compared to when former Ukrainian President Viktor Yanukovych was in power.
“I remember how it was, and it’s clearly better,” he said.
In particular, the customs situation has improved since the time he started working in Ukraine in 2011, Palmquist said.
“I’m not saying it’s fantastic today, but at least it’s not as catastrophic as it used to be.”
Another positive change was the European Union-Ukraine free trade agreement, which canceled the import duty on Oriflame’s products, most of which it imports from Poland.
But the positive changes in doing business here might be even more important for Oriflame’s Ukrainian sales partners.
There are hundreds of thousands of sales consultants that operate as private entrepreneurs in Ukraine and that depend on Oriflame for a living. Some of the consultants work full-time, while others sell Oriflame products on the side, sometimes making up to $500 per month.
Taking the hits
Like Scania, Oriflame was one of the first Western companies to enter the Ukrainian market in 1992, shortly after independence.
“Ukraine is one of the most successful markets in the world for Oriflame out of the 65 ones it has entered,” said Palmquist. “Ukraine was a top 10 market since day one.”
But Oriflame was hit heavily when Russia annexed Crimea and attacked Ukraine in the east.
“We no longer sell to Crimea, and we’ve lost a lot of people in the Donbas,” Palmquist said. “Donbas used to be actually (one of) the most successful regions not only in Ukraine, but actually in the world.”
He said the region used to account for 25 percent of all of his company’s Ukrainian sales.
The economic collapse in the country and the devaluation of the hryvnia were two additional hits to the Swedish company, forcing it to increase prices “more than consumers can handle,” Palmquist said. The company had to downsize its fulltime staff by more than 30 percent, bringing it down to 400.
But despite these hard hits, the Swedish company is still making money, though Palmquist said he could not disclose Oriflame’s annual profit figures in Ukraine.
Perhaps this is why Oriflame has no plans to leave, and why, Palmquist says, even more Swedish companies are considering taking the plunge into the Ukrainian market.
“I see renewed interest among Swedish businessman in coming back to seize the opportunities that we have here,” Palmquist said. “And I feel this is stronger maybe among Swedes than other nationalities.”
Sweden at a glance
Total area: 450,295 square kilometers
Population: 9.6 million
Government type: Parliamentary constitutional monarchy
Head of state: King Carl XVI Gustaf (since Sept. 19, 1973); Heir Apparent Princess Victoria Ingrid Alice Desiree, daughter of the monarch
Head of government: Prime Minister Stefan Lofven (since Oct. 3, 2014); Deputy Prime Minister Isabella Lovin (since May 25)
GDP, PPP: $467.4 billion
GDP per capita, PPP: $48,000
Main sectors of the economy: motor vehicles, timber, hydropower, iron and steel, precision equipment (bearings, radio and telephone parts, armaments), wood pulp and paper products, processed foods.
Bilateral relations
Trade: $335 million (2015)
Exports from Sweden to Ukraine: automobiles, trucks, clothes, beauty products.
Exports from Ukraine to Sweden: ferrous metals, wood products, furniture, plastics, textiles, components of nuclear reactors
Swedish investment in Ukraine: $391.6 million (cumulative as of October 2014)
Main business partners: Oriflame, Scania, Volvo, Sigma Software, SEB Corporate Bank, Ericsson, SKF.
Sources: Central Intelligence Agency, Embassy of Ukraine in the Republic of Turkey, Business Sweden, Ukrainian State Statistics Service, Department for Trade and Policy Developments of Sweden.
