ITALY IN UKRAINE

Italian manufacturing in Ukraine

Gianluca Sardelli says Ukraine enjoys competitive advantages but investors must take personal lead

Italian manufacturing in Ukraine
Business Ukraine magazine
Sunday, 25 October 2015 19:22

What is the role of the Confederation of Italian Investors in Ukraine?

The Confederation seeks to unite Italian investors active in Ukraine, while also working with Italian business owners whose companies have interests in Ukraine. We aim to represent and protect their investments and their interests in Ukraine.

 

Which sectors of the Ukrainian economy are Confederation member companies primarily involved in?

As everybody knows, Italy is a country of style and beauty, so naturally many of our companies and investors are involved in the fashion industry and the manufacture of clothing and shoes. A number of our members are active in this sector, having relocated their production operations to Ukraine since 1991, either directly from Italy itself or from other East European countries. As Italian businesses grew more familiar with the opportunities presented by Ukraine, a new wave of Italian investors and entrepreneurs arrived in the country. This second wave included many entering the financial, real estate and professional consulting sectors. Today, Italian companies in Ukraine employ many thousands of Ukrainians and have a significant impact on the national economy and on the development of Ukrainian society.

 

How did the Italian business community first emerge in Ukraine?

Italian entrepreneurs began to enter the Ukrainian market in the early years of independence. These initial pioneers where often drawn by the search for skilled labour at competitive rates and the opportunities presented by relatively cheap production facilities. Some came direct from Italy, while others arrived in Ukraine via intermediate countries such as Romania, Slovakia and Hungary. Once these former Warsaw Pact satellites entered the EU zone, they became less competitive and experienced significant increases in production costs.

 

Are low costs the single most important factor driving the expansion of Italian investment in Ukraine?

I think the process is more rational and long-term than simple economic colonialism. Italian companies are committed to sustainable growth in Ukraine and many are involved in the technological development of the Ukrainian economy. They have overseen the transfer of technologies and have helped their Ukrainian colleagues to develop their professional skills, while also providing the kind of stable employment that helps foster greater growth. It is also important to note the significant contribution to Ukraine’s development made by Ukrainian employees who have spent time working in Italy before returning to their homeland. These Ukrainian professionals have been able to apply the skills they developed in Italy directly to the Ukrainian environment, often playing key roles in Italian companies operating in Ukraine. The combination of state-of-the-art Italian knowhow and local knowledge has proved a real asset. 

 

As well as your role with the Confederation, what are your business interests in Ukraine?

I have been living in Ukraine and doing business here for 20 years. I currently head a legal practice and an international business consultancy that provides services to Italian investors and helps them to implement their projects in Ukraine. My consulting work draws on a large network of professional contacts throughout the country that helps me to offer local expertize across Ukraine.

 

What are the key challenges facing Italian investors in today’s Ukraine?

I think it is important to recognize the basic obstacles such as the language barrier and the local mentality, which naturally differs in many ways from the typical Italian approach to business. I would also point to the often contradictory an incomprehensible rules and regulations that continue to hamper the Ukrainian business climate. In order to achieve success, it is vital for any investor to build a strong and cohesive team, and to manage the team-building process personally. Other factors that play a role in determining the success of an international investor entering the Ukrainian market include having a thorough technical knowledge of all aspects of the business they are entering, and excellent financial skills. I would stress that in order to be a success, you need to be ready to invest your time and be physically present in Ukraine. There is no substitute for this personal involvement.   

 

Which sectors of the Ukrainian economy do you regard as the most promising for potential Italian investment?

Frankly speaking, Italian industrial relocation to Ukraine has suffered as a direct result of the ongoing downturn in global consumption. The fact that Ukraine is not part of the European customs zone is also a factor. However, the advent of the European Union-Ukraine Association Agreement, with its extensive free trade provisions, will go a long way to making Ukraine more relevant, bringing a range of significant competitive advantages. I see great potential for relocation of production facilities, particularly in the engineering industry. In particular, I would identify electrical engineering and the production of electronic components. For some reason, this sector has so far been inexplicably overlooked by Italian entrepreneurs. There is also enormous untapped potential in the food-processing sector at all stages of the supply chain. In broad terms, any technologically advanced production process has good prospects given the abundance of excellent local resources in Ukraine.

 

What aspects of the Ukrainian reform process offer the best prospects for increasing Ukraine’s attractiveness as a destination for Italian investment?

There is clearly widespread popular support in the new Ukraine for deep and wide-ranging reforms aimed at eradicating malpractices and addressing the problems of the country’s post-Soviet bureaucracy. I see steps being taken towards better governance and the introduction of European values in the country. This is expressed in the appointment of foreign experts to delicate administrative roles, and in the growing cooperation with international institutions. As the reform process develops, Italian investors will be paying particular attention for signs of greater transparency and efficiency among Ukraine’s financial regulators and in the spheres of interior affairs, justice and the state fiscal service. Much more is also expected from the reform of land rights, especially in relation to the revision or removal of the current moratorium on the sale of agricultural land.

 

How has awareness of the investment opportunities in Ukraine evolved among the Italian business community since 1991?

Since Ukraine gained independence, the Italian business community has entered the Ukrainian market in dribs and drabs. Initially the key attractions were cheap raw materials and low labour costs. Those who settled here soon discovered good professional skills and a high level of education among the local population, as well as abundant infrastructure opportunities. Italian entrepreneurs who have had the chance to put down roots in Ukraine have often been able to integrate into the broader economic, political, and social communities. This has brought a wide range of interesting business opportunities that might otherwise have been impossible. In practice, many of the best investment opportunities in today’s Ukraine are not sufficiently well advertised or widely known in the public domain. They often only become apparent to those entrepreneurs who have already become well integrated.   

 

What is your personal message to potential Italian investors considering entering the Ukrainian market?

Ukraine is undoubtedly an interesting market but it remains complex in many ways. Based on my professional experience, the key factors for building successful business ventures in Ukraine are patience, consistency, sufficient capitalization and a readiness to invest your time in your Ukrainian business and become part of the local community. All potential Italian investors should assess whether they are in a position to meet these criteria before choosing to enter the market.

 

About the interviewee: Gianluca Sardelli (This email address is being protected from spambots. You need JavaScript enabled to view it.) is the head of the Confederation of Italian Investors (www.kii-ukraine.com)

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