CANADA COURIER: In Ivano-Frankivsk, small is better (11/10/96)

CANADA COURIER

by Christopher Guly

In Ivano-Frankivsk, small is better

In some ways, Bohdan Domansky would like to change the way Ukrainians think of quantity: big vs. small.

"In Canada, we think of a small business having about 10 employees. In Ukraine, a small business employs about 300 people."

Differences in semantics is not the issue for Mr. Domansky. Size is.

As project director for the Small Business and Economic Development for Ivano-Frankivsk (SBEDIF) program, he believes Ukraine's fiscal future rests more with smaller entrepreneurial-run operations (by Canadian standards, with 10 employees of less) than with larger, public-sector organization.

In fact, recent and massive layoffs at some of Ukraine's largest public-sector enterprises has been largely responsible for the current 25 percent unemployment rate.

On June 24, the Canadian International Development Agency (CIDA) had officially announced a $5 million, five-year funding formula to help Mr. Domansky realize his goal.

In fact his project, based at Confederation College's Northwest Enterprise Center in Thunder Bay, Ontario (about 700 kilometers or 435 miles east of Winnipeg), will lead a consortium involving the University of Waterloo's School of Urban and Regional Planning, the University of Saskatchewan's Center for Second Language Instruction and Manitoba's Parkland Community Futures Cooperation that will support the development of small businesses in the Ivano-Frankivsk region.

Last June, Confederation College participated in a Canada-Ukraine Small Business Policy Forum sponsored by Industry Canada and held in Kyiv. The college has also forged partnerships in Poland, Hungary and Russia.

The CIDA project will include entrepreneurship training, a small business loan fund (to be matched by local credit unions), training in business English, the creation of a local chamber of commerce office and economic development office, and a business "incubator" - offering support services and advice from experts.

Two or three Canadian consultants will join a full-time team of 16 Ukrainians working on the project.

But despite having such an extensive infrastructure available, Mr. Domansky is going to need some help in changing some realities at the Ukrainian end.

Ninety percent of Ukrainian businesses are driven by huge factories or big government operations. It's the reverse situation in North America, where 60 and 70 percent of Canadian and American businesses respectively are run with 10 employees of less.

"We want them to understand a McDonald's franchise model, where you can have just a handful employees and still enjoy a successful and profitable business," says Mr. Domansky.

Then there's the issue of convincing the Ukrainian government to revisit its tax structure. Currently, Kyiv is hitting small businesses with monthly levies of $1,200 (U.S.) and tiny kiosks with $200. With average monthly wages hitting a $120 (U.S.) ceiling, the charges are hardly considered business-friendly.

Since many entrepreneurs refuse to pay the tax, police departments throughout Ukraine have been enlisted to help collect it. "Once a month there are raids, where the police come in and empty out cash registers," says Mr. Domansky. "But people tend to keep as little money as they can in the till, so they end up paying less than they would have if they paid the tax in the first place." This way, Ukraine's businesses - especially, and ironically, the smaller ones, survive.

Of course, survival is something neither Mr. Domansky nor the SBEDIF program needs to teach Ukrainians. They clearly demonstrate it through their political loyalties.

When President Leonid Kuchma was elected two years ago, almost 80 percent of western Ukrainians voted for incumbent Leonid Kravchuk. Today, says Mr. Domansky, it's almost the other way around. "People in the West now see President Kuchma as a market reformer, while those in the East resent him for moving away from more socialist-Communist social programs."

Still, the transformation of Ukraine's economy from a command approach to one more market-driven is far from complete. Corporate organization continues to be conducted in black-and-white terms. "You're either a charity or a profit-making business," explained Mr. Domansky. "There's no such thing as a non-profit organization in Ukraine which can earn revenues but still not sell shares."

Western-style advertising is even more foreign. "I remember visiting a dairy operation in Halych, where about 100 people were working," recalled Mr. Domansky. "I went in and had one of the best soft ice cream cones I've ever had. Well, after the third one, I asked the owner about his marketing plan. He said, 'What marketing plan?' I was told the business relied on word of mouth. The ice cream cone cost about 15,000 karbovantsi, or about a dime. Well, across the street there was a guy with a small kiosk selling soft ice cream from Poland, and he was charging 75,000 kbv - and doing quite well. This showed me the larger business didn't even have the marketing ability to meet the competition across the street!"