Business in Action

Anastasia Mazur

In another article dedicated to attracting investments to Sumy region, we want to share so-called success stories. We will talk about Ukrainian enterprises that attracted international capital and used it for development and expansion of their assets in Ukraine. In each of these examples, we tried to consider company stories from different angles: first, to find out what the business idea was, second, to characterize the source of investments, and third, the role played by the business owner or manager and their decisions. Examples from different sectors of the economy are presented here – both actively developing ones, such as the agricultural sector and programming, and those in stagnation, such as construction. It should be noted that we deliberately avoided companies whose investments come from offshore zones, as well as foreign firms that are regional representatives of international companies. Each of these stories has a key entrepreneurial idea and a great desire to develop and expand their business.

First IT Success

Computer programming in Ukraine is now coming to the forefront among other sectors of the economy, actively increasing exports: according to approximate estimates, in 2011, IT products worth $1 billion were sold abroad, and in 2012 – $1.5 billion. Along with India, Russia, China and the USA, Ukraine is among the top ten countries – the largest software developers. However, along with this, our IT industry always had one drawback: Ukrainian programmers acted as links in the project preparation chain, working through outsourcing for foreign customers, and almost never created finished products.

But last year, a breakthrough was made. A Ukrainian IT project, having received investments for development, was successfully presented and sold to Google, thus becoming the first completed product purchased by the Internet giant in Eastern and Central Europe. The deal amount, according to Bloomberg, was $45 million – a record for the Ukrainian IT industry.

The project called Viewdle deals with developing face and object recognition technologies for mobile devices. This technology has its roots in secret Soviet developments. As the site korrespondent.net writes, in the 1970s, the Soviet government ordered the Institute of Cybernetics named after Viktor Glushkov to develop a technology capable of identifying faces from satellite images. Theoretically, this program could be applied for various purposes: both to find out the location of enemies and to control employees’ passage to a factory.

Soviet developments did not make it to the mass production stage. However, years later, already in independent Ukraine, Mykhailo SCHLEZINGER, chief researcher at the International Scientific and Educational Center for Information Technologies and Systems, continued to work on improving the program. By 2000, he assembled the first working model. In 2001, Yehor ANCHYSHKIN, then still a student at Kyiv Polytechnic Institute, attended one of Schlezinger’s lectures. Here he got acquainted with the improved model of the Soviet development.

Later, when Anchyshkin took the position of investment director of the venture company “Tekhnomost,” he convinced his American bosses, in particular, former Odessa resident and now US citizen Yuriy FRAYMAN, to invest money in face recognition technology. The first big money for the startup (about $500,000) came in 2006. With the help of foreign capital, Kyiv programmers achieved notable results. Using Schlezinger’s patents and developments, they taught the program not only to find the sought object in a sea of video images but also to conduct contextual searches through video recordings. When Viewdle was ready to be presented to the public, it was demonstrated at various exhibitions in the USA. After lengthy negotiations with Motorola Mobility, a Google division, Frayman managed to convince the Americans of the need to buy their startup.

Project managers believe they succeeded thanks to the presence of an innovative idea, investments, as well as an international professional team. And Yuriy Frayman hopes that this example will make international investors look more closely at Ukrainian projects, and programmers will believe in realizing their ideas.

International Favorite

The largest grain exporter – the company “NIBULON” from Mykolaiv – owes its success to non-standard decisions of its manager, as well as to the trust of international financial institutions. At the end of 2012, the European Bank for Reconstruction and Development (EBRD) announced its intention to allocate $125 million to the company for a project aimed at reviving the Dnipro and Southern Bug as the main waterway transport arteries of Ukraine. The EBRD itself will allocate $30 million to the agricultural company, and the remaining funds will be invested by world banks such as UniCredit Bank, BNP Paribas, Societe Generale, ING Bank, Hambros Bank. EBRD Head in Ukraine Andre KUUSVEK noted that cooperation with “NIBULON” is strategically important for Ukraine as a whole. This deal became one of the largest syndicated deals in the country’s agricultural sector and shows that trust in Ukraine in general and its agricultural sector in particular is growing among world financial companies.

How did a Ukrainian enterprise manage to gain the favor of international investors? There is no easy solution here. The company’s history shows that “NIBULON’s” image was built systematically.

In 1991, the largest seed supplier to Mykolaiv region – Hungarian Kombiseed Kft. – offered Soviet officials to create a joint venture that would earn currency on the world market as opposed to the barter system that worked before. The Hungarians involved English trader Meridian Commodities Ltd. in implementing the plan. The chain was supposed to look like this: Hungarians supply corn and sunflower seeds, Ukrainian collective farmers grow the harvest, and the English sell it on the world market. Oleksiy VADATURSKY, who at that time worked in the Mykolaiv agricultural department, agreed to head the newly formed JV “NIBULON” (an abbreviation from the first syllables of the founder cities’ names: Mykolaiv, Budapest, London). Colleagues in the department helped him register the enterprise, select collective farms for demonstration plantings, prepare documents for trading operations.

It cannot be said that things went well immediately. The problem was the unreliability of farmers, as well as the fact that they simply had nothing to harvest with – Soviet equipment was not known for reliability, and there was no money to buy new. The World Bank came to the rescue, opening an export support program in Ukraine in 1996. Two years later, the bank issued $5 million to “Nibulon.” Vadatursky pledged his apartment, office and company car for this loan. Interestingly, experts advised spending the loan on purchasing and exporting sunflowers. Instead, the owner of “Nibulon” implemented his idea of reviving machine and tractor stations and purchased agricultural equipment from DAF, Case and MAN. The revived MTS cultivated land in farms working for “Nibulon,” and received part of the harvest as payment.

The investor was satisfied with how Vadatursky managed the money. And for the director of “NIBULON,” good relations with the World Bank became a pass to the big league of business. The doors of the largest Ukrainian and foreign financial institutions opened before the company. “Lenders from Denmark and the Netherlands appeared. Representatives of Western banks, where our importers were served, came and offered to work with them directly,” says Vadatursky. Today “NIBULON” builds elevators, grain terminals, restores factories and develops river transport. Its own infrastructure significantly increases the company’s attractiveness.

German Precision in Ukraine

This story happened, in our opinion, thanks to the businessman’s ability to identify an unoccupied industry niche, but at the same time not reinvent the wheel, but use existing international experience.

Having moved to Germany after graduating from school and lived there for eight years, graduate of the Faculty of International Law Sergiy SHEVCHENKO became homesick and in 2008 decided to return to Ukraine. The answer to the question of what he should do here did not come immediately.

As the magazine “MSB” writes, after long discussions with a friend – the owner of the German biodiesel production plant EOP Biodiesel AG – an essentially empty niche was found: Ukraine lacked the technology of prefabricated houses of high factory readiness. There was also no factory where such structures would be produced.

The education received in Frankfurt allowed Sergiy to systematically approach business creation. The friend helped write a business plan in which the authors tried to forecast both the demand for the new product and the pace of development of the future company.

All that remained was to obtain startup capital. “When I returned from Germany, I had about 10,000 euros,” recalls Sergiy Shevchenko. “And at first I invested this money in supplying rapeseed to my friend’s biodiesel plant. In just six months we earned good money, but this business had to be stopped due to problems with VAT reimbursement.”

Sergiy learned the lesson from the rapeseed export and later used it to his advantage. At the same time, this business allowed increasing the startup capital to the required amount. And Shevchenko was finally able to start creating the WKS Fertighaus trademark.

The first two years, the business went through a formation stage. The situation deteriorated and improved. At the initial stage, it was easiest to sell prefabricated houses to individual builders who wanted to move into their own cottages as soon as possible. After all, after pouring the foundation, a house of 200 sq. m. is assembled in a maximum of three days.

Over time, private business also appeared among clients, investing money in construction of restaurants, hotels and recreation centers. Entrepreneurs figured out that the technology gives a good multiplier effect and quick turnover of funds. In addition, everyone knows that in the construction sector, estimates tend only to increase over time. But here the supplier company presented carefully prepared estimates with German precision, in which inflation and unforeseen expenses were already calculated. So no surprises awaited buyers.

Such technologies are exclusive. Such houses were previously brought to Ukraine in single copies from Germany and Scandinavian countries. There were no German prefabricated cottages of high factory readiness in our country, since their production had not been established. And creating it here is quite expensive. However, at a certain stage of business development, the owner and general director of “BR Ukraine” decided to build a factory.

The factory project was made from scratch. A workshop was built in Bila Tserkva, equipment was brought in and certified. It was installed by an assembly team of specially invited German specialists, who then also trained the staff. Today the factory operates successfully, and prefabricated houses produced in Ukraine are much cheaper than similar ones in Russia or Germany.

Collective Investor

Another Ukrainian business success story we want to tell does not fit into the standard framework of attracting investments: there was neither a large domestic enterprise nor a foreigner with a bag of money. And yet this example, despite the small size of the business, is interesting for its classic approach to finding an investor: there is the idea itself, there is a desire to present it to the international community and attract financing. We are talking about a startup by Sergiy KHVASHCHUK from Vinnytsia for producing protective titanium cases for flash drives. Sergiy raised money for his project on the American website KickStarter, one of the main platforms for crowdfunding, i.e. collective financing. This is a new phenomenon on the Internet, allowing creative people to raise money for their projects not by beating the doors of government agencies or banks, but by presenting it to a wide interested audience. It works like this. You need to post a description of your idea on the site with the amount, and those who find it worthwhile will invest some money in its implementation. As the site life.pravda.com.ua reports, publishing his project on titanium cases for flash drives, Sergiy Khvashchuk received $25,000 for its implementation, although he asked for only $5,000. In total, over the past year, KickStarter has helped inventors raise about $380 million.

Sergiy is satisfied with his success. In 3-4 months, he actually created a small international business, producing and selling a test batch of the product. Now his project is in the phase of completing production and preparing the first shipments. All work is performed by Ukrainian contractors: cases are produced near Kyiv, gaskets – in Dnipropetrovsk region. “Money on KickStarter is not given just like that, but in exchange for your product at a discount, i.e. it’s easiest to consider this a pre-order,” he adds.

Expert Opinion

Oleksiy KATASONOV, lawyer and attorney of the international consulting company PricewaterhouseCoopers, Kyiv: “As bright examples of successful attraction of foreign investments by Ukrainian enterprises, we can name the agroholding “Mriya,” the concern “Galnaftogaz,” LLC “Inkerman Winery.” The agroholding “Mriya” was able to modernize its technopark with attracted investments, increase business efficiency, which, in turn, significantly improved financial indicators. Foreign investments also allowed the concern “Galnaftogaz,” owner of the “OKKO” gas station network, to expand its geographical presence in the Ukrainian market and, accordingly, increase sales. And the Inkerman International group of companies, with the help of foreign investments, is completing construction of the first and second phases of one of the largest wineries in the CIS. The key to success of these companies, in our opinion, is not only the financial resources that appeared, but also those preliminary actions that allowed attracting foreign investors, namely, bringing their structure, management system in line with international legal and financial standards.”