DOING BUSINESS IN UKRAINE: How a whim turned into a company (01/25/98)

DOING BUSINESS IN UKRAINE: How a whim turned into a company

by Zenon Zawada
Special to The Ukrainian Weekly

KYIV - Ty Jagerson came to Ukraine when he was 23, on a whim really. He knew little of Ukraine, and did not speak a word of either Ukrainian or Russian. The only thing he was sure of was his probable job. With a bachelor's degree in English from Wesleyan University in Connecticut, he was headed for an editing position at a mediocre English-language monthly newspaper in Kyiv, he said.

Four years later, Mr. Jagerson sits in his office overlooking the historic St. Sophia Cathedral as president of Project Consulting Group (PCG), his own year-and-a-half-old consulting business in Kyiv. The English major now conducts business in highly accented, but fluent Russian. Along with business partner Vladimir Ulyanov, a Fulbright scholar with a doctorate in economics from Lviv University, Jagerson has been assisting anyone from U.S. investors to the Ukrainian government in establishing businesses and investments in the jungle-like Ukrainian economy. His years of work in eight former Soviet republics has built a contact base filling several binders of business cards, which Mr. Jagerson strongly believes is what any foreigner investing in Ukraine needs.

"You can't walk into this country and just start a business because there are too many complexities," Mr. Jagerson said. "There needs to be local wisdom in your company."

Business consulting in Ukraine is handled mostly by large firms or companies, specifically the world-renowned Big Six consulting firms, said Mark Kalenak, executive director of the American Chamber of Commerce in Kyiv. Mr. Jagerson's venture into a business consuting firm is unique and unusual, Mr. Kalenak said. Mr. Jagerson himself acknowledged that his decision to start such a business within the Ukrainian economy's web of red tape was "fairly risky." In spite of this upstart status, Mr. Jagerson said he is confident his years of trailblazing have earned him enough experience to help investors safely navigate Ukraine's economic snafus.

"I have four years of business experience in Ukraine, five years in Eastern Europe and eight years in the former Soviet republics," he said. "[PCG] can get investors through the barriers to investment entry."

It was Mr. Jagerson's sister who advised him to come to Ukraine in the first place, after hearing about a newspaper job. She had already been here, working for the government-funded International Finance Corp., and Mr. Jagerson was across the border in a matter of days after hearing her advice. After editing for the Ukrainian Times, he saw different avenues of opportunity in the infant Ukrainian economy. So he made the leap to the U.S. government-funded Eurasia Foundation, where he evaluated grant programs assisting the development of private business throughout the former republics. It was during this government-funded job, witnessing and assisting the former Soviet Union's sluggish privatization process, that he said he got "kick-started" into planning his own business.

"It became very clear to me ... there is a great need for business support services, increased business consulting and market research," Mr. Jagerson said. "Ukrainians have very little knowledge of how to organize their business plans and partnership proposals for Westerners."

Mr. Jagerson first started a company in the United States called Spectrum UA, which focused on product utilization. The company set out to make use of the vast amount of optics technology in Ukraine, and with the help of a reliable Ukrainian technician, Mr. Jagerson capitalized on the "cheap, highly trained labor force." Optics products were developed in the former Soviet Union, and the firm marketed them in the U.S.

"There are a lot of technologies in this part of the world that have great commercial potential," Mr. Jagerson said. "Here, you have zillions of military technologies, but no one has the knowledge of capital."

In the early months of 1996, Mr. Jagerson and Mr. Ulyanov, whom he met on various business-development projects, then formed PCG. Mr. Jagerson said starting his particular business wasn't too difficult, because as many foreign investors do, he hired a local company to take care of registration and related legwork, which was completed in about 15 days. But this is unusual for a typical foreigner's small business, he warned. "We didn't need special licenses, so it wasn't a problem. "Customs, licenses and importing is what gets you," said Mr. Jagerson

It's been a year and a half now, and Mr. Jagerson said his largest difficulty has been the plagued Ukrainian economy. "The volume of investment hasn't taken off as much as we hoped it would," he explained.

He said that among the top hurdles for a small business investor in Ukraine is the bureaucracy. While at Spectrum UA, for example, he had to import glass from the United States to be molded into lenses in a Kyiv factory. The glass had to go through three different customs branches, with each inspector having to seek approval from the other, recounted Mr. Jagerson. His staff eventually had to rewrite the contracts 10 times.

"One time, our total was off by 2 cents, and we had to redo the contract. It was a nightmare," he said.

Other hurdles investors should expect include the cash-poor Ukrainian public, as well as the corruption. "The laws here are still crazy," Mr. Jagerson said. "Most corporations are forced into some form of tax evasion."

But he said he's quite optimisitic about the future in spite of the current situation. "I expect investment to pick up because there's been a lot more investment coming in the last year. There are more lawyers here, too, which is better."

The top condition investors can count on is "open markets, open markets, open markets," Mr. Jagerson said. "It's a European country of 52 million people that's underserviced and undersupplied." He said the other positives are low labor costs and lack of competition.

Mr. Jagerson's most recent clients include Kyiv Hospital, the city's first private medical service provider; the Ukrainian government, for which he and Mr. Ulyanov are planning a lecture series on agribusiness throughout Ukraine; as well as small investors. For any of their clients, Mr. Jagerson's staff provides industry research, finds potential partners, sets up meetings and provides all types of advice.

Mr. Jagerson's venture into what for him once was a meaningless foreign country has resulted in his life's investment in its economic future - one in which he is confident.

"The situation in Ukraine is 20 steps forward, and 15 steps back," Mr. Jagerson said. "But you still get the five steps."

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