1992: A LOOK BACK: "Biznes" heads for Ukraine (12/27/92)

1992: A LOOK BACK

"Biznes" heads for Ukraine

The lines of communication opened between Ukraine and Western business interests, literally and in other ways in 1992, as companies began to capitalize on Ukraine's newly open markets.

Although the economy remains shaky at best and the political situation ever-changing, several large Western firms decided to invest money and time in this potential market of 52 million people - what some economists have called the largest new economic frontier in the West.

Communications giant AT&T, with its competitor, Sprint, running neck and neck, made the first major business investments of 1992 in Ukraine on January 14.

That day, AT&T announced the formation of a joint venture company to build, modernize and operate much of the communications network of Ukraine. AT&T, along with its partners PTT Telecom of the Netherlands and the State Committee of Communications in Ukraine (joined in August by the German firm Deutsche Bundespost Telekom), explained the two-fold purpose of the venture. First, it would develop a new international network, directly connecting Ukraine to the rest of the world and laying the foundation for business and industrial expansion in the country. Second, the venture would construct a long distance network connecting 13 of the country's 25 telephone districts.

As AT&T set to building the communication infrastructure of Ukraine, Sprint, a unit of United Telecommunications, Inc., announced direct-dial voice service from the United States to the newly independent states once part of the former Soviet Union, the first international telecommunications carrier to do so.

AT&T followed Sprint's lead on May 19, making available more than 400 circuits to over 2,000 cities in Ukraine and other countries of the former Soviet Union, by far the largest direct-dialing capacity of any long-distance carrier in the region.

While the two long-distance carriers cleared new paths in Ukraine, two others lost their way amidst confusion over terminology, history and arrogance.

AT&T phone calls to Ukraine that previously were billed as to the "Soviet Union" began to be billed about mid-year as calls to "Ukraine." However, Sprint and two other carriers, MCI and Allnet, changed their designations from the "Soviet Union" to "Russia."

Sprint, after some prodding from the UNA's Washington Office, said it would change the billing to "NIS," which stands for newly independent states. The firm explained that it could not bill naming the specific states until each country chose individual country codes.

The two other firms were inflexible. Allnet, in glaring arrogance, simply said using "Russia" as the billing term for calls to Ukraine was its "policy" - and that was that! MCI explained the issue constituted "nationalistic" and "ideological" topics, and that it had no plans to make any changes. Hopefully, diaspora Ukrainians did the changing - to AT&T or Sprint.

Other business competition also flared anew in the lands above the Black Sea this past year. Pepsi and Coca Cola renewed their "cola wars," when in early October Coke expanded its presence in the Ukrainian market and, concurrently, began selling its products from kiosks in various cities.

Pepsico, which was already outselling Coke about three to one, quickly reacted and announced on October 22 it had entered into a complex joint venture, whereby it would invest $150 million and build five additional bottling plants and 100 new Pizza Huts. In return the cola producer will receive $1 billion worth of shipping tankers built by Ukraine to be sold by another partner in the venture, Fram Shipping Co.

Coca Cola has just recently counter-attacked, and in late December formed a joint venture with the Rosinka (Dewdrop) soft drink association of Ukraine.

Another firm, Otis Elevator Co., which probably will deal with less competition because it is by far the largest such firm in the world, expressed a heightened interest for doing business in Ukraine this past year. It set up a joint venture with Ukrainian State Committee on Housing and Community Services to manufacture, sell, maintain and modernize elevators in Ukraine. The company said it will eventually employ 4,900 people and maintain elevators in Kiev, Donetske and Kharkiv. Plans also call for the construction of a 21,300-square-foot factory.

A tobacco giant also headed for Ukraine in 1992. R.J. Reynolds Tobacco International purchased two of Ukraine's four tobacco factories in mid-September in a joint venture that gave it 70 percent ownership, with the government retaining the balance. The two factories will supply a quarter of the republic's tobacco needs.

In one of the better quotes of the year, President Leonid Kravchuk, who attended the announcement ceremonies, explained he was not a smoker and added, "But my son is an enthusiastic smoker."

The efficiency with which the government and the firm concluded the contracts has also spurred a sister division, RJR Nabisco, to invest in the processed food business.

Food processing was the topic of business for a nine-day fact-finding mission that visited Ukraine at the start of September. The group, consisting of U.S. Commerce Department officials and representatives from private companies like All Grain and DowElanco, was there to determine the status of Ukraine's agricultural sector and the feasibility of doing business.

Ford Motor Co. must have decided business in Ukraine is feasible - and hopefully profitable. Winner of Ukraine Inc. became Ford's official representative in Ukraine when it opened offices in Kiev at the end of September. Additional offices are planned next year for Lviv and Odessa.

The increasing numbers of U.S. business representatives enterprising in Ukraine prompted the U.S. Chamber of Commerce to establish a presence in Kiev on September 10. The chamber's first president, the general manager of Johnson Wax in Ukraine, James Shepard, explained that "the primary purpose of the chamber will be to provide communications to American companies and assist in the development of their business."

Canadians were also not to be held back. The Canadian Bank Note Co. Ltd. was awarded a $27.8 million dollar (U.S.) contract to design and build printing plates for Ukraine's new currency, the hryvnia, and then to print 1.5 billion such notes. Canada's government agreed to finance the deal through its Export Development Corporation.

A whole slew of business aid and investment efforts by Canadians were in place already by the beginning of this year. The government had targeted $5 million dollars for technical assistance for Ukraine; the Ukrainian Resource and Development Center at Edmonton's Grant MacEwan College had begun an Agriculture Curriculum Development Program; the Aetos International Training Group was upgrading technology for the city of Kharkiv; and the Canadian Cooperatives Association had begun working with Ukraine to develop a national credit union system.

This latter development spurred the World Council of Ukrainian Cooperatives to spend almost a week in Ukraine at the tail end of February. Its nine-member delegation offered recommendations for the introduction of a credit union system at the grass-roots level. A second mission, held in June, saw the creation of the first credit unions - the Construction Workers Credit Union and one for medical professionals in Kryvyi Rih.

Lisa Donner, with the Canadian Cooperative Association, wrote in The Weekly's October 18 edition that credit unions in Ukraine have a difficult road ahead of them: "Existing state and commercial banks are not trusted by most people, many of whom save in socks and mattresses. In order to be successful, credit unions will have to clearly distinguish themselves from these institutions."

Finally, conferences in Canada and the United States became a big hit this year with Western and Ukrainian businessmen.

The Canada-Ukraine Business Council was organized as a result of the Canada-Ukraine Economic Conference, which first met on February 29.

In the United States, two major conferences were held. The first meeting dealing with trade and investment aimed at U.S. corporations convened in Chicago on May 18 and 19. The 114 participants, including representatives of large U.S. corporation such as Abbott Laboratories, Rockwell International and Bank of America, came to hear 22 speakers talk of business opportunities in Ukraine. It was sponsored by the America-Ukraine Business Council and a Chicago-based law firm, Hinshaw and Culbertson.

Almost seven months later, the America-Ukraine Expo '92, held in Las Vegas on December 2 to 4, signaled the end of a very busy year for business in and about Ukraine. Featuring three full days of exhibits, briefings and seminars that discussed investment opportunities in Ukraine as well as government regulations, the show attracted nearly 200 businesspersons. The AMUKE Group of San Francisco sponsored the program, which was organized by the U.S. Chamber of Commerce and the Ukrainian government.

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