Home Economy How one Ukrainian company survived and prospered during a year of war

How one Ukrainian company survived and prospered during a year of war

by SuperiorInvest

It was exactly one year ago, and Ukrainian pet food manufacturer Kormotech concluded its annual meeting. The mood was exuberant. Business was booming, the factory was running 24/7 and sales were projected to grow by double digits. “We had a beautiful budget,” recalled CEO and company founder Rostyslav Vovk almost dreamily.

The next morning the air sirens went off.

Russia invaded. Mr. Vovk called his top managers to meet in a nearby hotel, avoiding the company’s windowed seventh-floor headquarters in Lviv. They had a plan for what was considered a very unlikely risk—Russian aggression—but it soon proved to be completely inadequate.

“We weren’t ready,” Mr. Vovk said. He closed the race. Raw materials couldn’t get into the country and shipments bound for foreign countries couldn’t get out. Personnel from the besieged eastern part of the country had to be evacuated. Employees joined the army. And the company’s biggest export market, Belarus, has been a close ally of Vladimir V. Putin, Russia’s president.

“We would make a decision,” Mr. Vovk said of that first week after the invasion, “and the next morning we would change all the information.”

Like the leaders of tens of thousands of companies across Ukraine, Mr. Vovk and his team were suddenly confronted with a new and confusing responsibility: to keep the business going amid the chaos and danger of war.

For many, this task proved impossible. Before the war, Ukraine’s private sector, including its huge steel and agricultural industries, accounted for 70 percent of the country’s gross domestic product, said Elena Voloshina, head of the International Finance Corporation in Ukraine. 83 percent of businesses suffered war-related losses, she said. Forty percent suffered direct damage, such as a factory or shop decimated by a missile, while 25 percent were in what is now occupied territory.

Last year, the overall performance of Ukraine dropped by almost a thirdit destroys the country’s economy and limits its ability to fight Russian forces.

Kormotech, a family business with 1,300 employees worldwide, does not make weapons or drones. It is not involved in delivering critically needed electricity, transportation or fresh water to devastated cities. But it employs people, produces revenue, earns foreign currency from exports and contributes tax revenue that the government in Kiev desperately needs to pay soldiers, repair power lines and buy medical equipment.

A year later, Mr. Vovk and his management team found a reason for another celebration. Mr. Vovk was back in his offices preparing for a final annual meeting with his staff—and some of their dogs, who are regulars around the office and often serve as product taste testers. Despite accurate assumptions, business grew more than expected.

Kormotech had a few things going for it. The company’s plant was outside Lviv in the westernmost part of the country, near the Polish border, one of the safest parts of Ukraine. Two factories in Prylbych managed to reopen less than two weeks after the start of the war.

An earlier decision to start another factory in Lithuania, which opened in 2020 and operated around the clock, proved to be beneficial. It could smoothly continue to manufacture and supply tons of Kormotech’s Club 4 Paws, Optimeal, Miau and Gav brands.

After a short start, Mr. Vovk and his top managers reorganized. The company, which sells its products in 35 countries, including the United States and Europe, had little room to maneuver because it eschewed just-in-time practices that eliminated back-up inventory — a cost-cutting approach that had hampered so many companies during that time after whole world. pandemic. Kormotech routinely kept inventory in its warehouses—at least a month and a half in Ukraine, two months in other countries in Europe, and two and a half in the United States.

Nevertheless, Kormotech’s supply chain was interrupted. Before the war, roughly half of its raw materials, such as meat and chicken meal, came from abroad. Now, delays in crossing borders and rising import prices have prompted a search for domestic producers. He found two who had never made pet food before and taught them what to do.

Kateryna Kovaliuk, director of reputation at Kormotech, pointed out that pet food standards can often be stricter than food produced for humans. During a recent tour of the Lviv factory, she picked up several pellet-sized pieces chopped from long strings of fresh cat food from the production line.

“Try it,” she urged before popping a few pieces into her mouth and smiling. “It’s good. It tastes like meat without salt.”

As it turned out, the local manufacturers, less than 40 miles from the plant, were not only cheaper, but also did not have to be paid in precious foreign currency. Instead of buying 500 tons of flour from abroad, the company now buys 100 tons.

Kormotech also intensified the purchase of Ukrainian grain and corn. The war and the Russian blockade caused a drastic drop in grain exports, spiraling food prices and a global hunger crisis. But it also meant that domestic businesses like Kormotech could buy at a discount.

Manufacturing the product was one hurdle; another was delivery abroad. At a time when Ukraine banned men under 60 from leaving the country, the Commerce Department granted exemptions for delivery drivers.

But waiting at the border can stretch from a few days to several weeks. And with seaports mostly blockaded, exports remained an expensive and tricky problem.

“Nobody knew where to go or how,” Mr. Vovk said. The first truck sent to Azerbaijan, he said, cost more than $8,000 — about $2,000 before the war.

Domestic demand for its products remained steady, but finding new export markets was another challenge. Belarus, which has allowed Russia to launch attacks from within its border, accounted for 25 percent of Kormotech’s export market. The management team decided to withdraw but needed to replace these customers.

Supermarket chains, especially in the Baltic countries and Poland, were eager to intervene and replace Russian goods with Ukrainian ones.

“For the first time in my life, ‘Made in Ukraine’ was premium,” said Mr. Vovk. Previously, when the company appeared at international pet shows, he said with a laugh, people were so unfamiliar with the country’s products, they asked if the letters “u” and “k” referred to “Great Britain”, for the United States. Kingdom.

Even so, goodwill only spread so far. Buyers wanted assurance that Kormotech products would continue to flow. So the company provided guarantees, set up a warehouse in Poland with back-up stocks of its 650 different products, outsourced some production to facilities in Germany and Poland, and made last-resort plans to move production from Ukraine.

Tremendous growth in both the European and American markets means the company’s sales are expected to rise to $155 million this year from $124 million. The main obstacle to further expansion is capacity.

Kormotech scrapped plans for a new €92 million factory due to uncertainty and difficulties in obtaining financing. However, it invested €5 million ($5.34 million) in the Prylbychi plant and €7 million ($7.5 million) in Lithuania.

Of course, many businesses were not as successful as Kormotech, either because their equipment was damaged or demand for their products was gutted as people fled the country, as well as due to rampant inflation and reduced incomes. Mr Vovk said the exodus of millions of mothers and children had left his friend’s diaper business in ruins.

New message from the American Chamber of Commerce in Ukraine and McKinsey & Company found that only 15 percent of companies grew last year, while almost half reported a decline in sales.

Others adapted by moving to places like Lviv or changing their production to meet new wartime demands, such as lingerie seamstresses who switched to sewing cloth vests for fixing armor plates. Ukraine is large and mobile the information technology industry also stayed strong.

Businesses are still trying to adapt. Russian attacks on Ukraine’s power grids forced Kormotech to buy two generators for €150,000 each, super-sized versions of the small, colorful units that hum noisily outside almost every shop and cafe on Lviv’s streets.

Now the Russians are stepping up their missile attacks. On a recent workday, air raid alerts caused 200 plant workers to spend more than half of their 12-hour shift in a tunnel warehouse about three paces wide that serves as a bomb shelter.

Viza Protsyk, who would normally be packing boxes, sat on one of the wooden benches that lined the 30-foot wall. “It’s kind of boring,” she said of the forced breaks. This was the second alarm of the day. “I didn’t want to go to the shelter. I’d rather work.”

Yurii Shyvala contributed reporting.

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