Doing Business in (Insert Country Name Here)
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Doing Business in Ukraine: 2012 Country Commercial Guide for U.S. Companies INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2012. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES. • Chapter 1: Doing Business In Ukraine • Chapter 2: Political and Economic Environment • Chapter 3: Selling U.S. Products and Services • Chapter 4: Leading Sectors for U.S. Export and Investment • Chapter 5: Trade Regulations, Customs and Standards • Chapter 6: Investment Climate • Chapter 7: Trade and Project Financing • Chapter 8: Business Travel • Chapter 9: Contacts, Market Research and Trade Events • Chapter 10: Guide to Our Services Return to table of contents Chapter 1: Doing Business in Ukraine • Market Overview • Market Challenges • Market Opportunities • Market Entry Strategy Market Overview Return to top Ukraine is a country with a poor reputation for a variety of reasons. With regards to trade and commerce, internationally recognized reporting seems to reconfirm the accepted view that Ukraine is not a prime market for U.S. products, equipment and services. In fact, the World Bank’s annual Ease of Doing Business report shows that Ukraine’s ranking in 2012 declined over all. There were some areas that had improvement, but generally the end result was a decline of -3 to 152 out of 183 countries. Ukraine is now ranked between Burkina Faso, Liberia and Bolivia and Senegal. The 2011 Global Competitiveness Indicator report paints a similar dismal picture – phrased another way, but with similar results – a decline in ranking. So does Transparency International. However, statistics collected by the U.S. Department of Commerce, Census Bureau paint a completely different picture. Based on bills of lading for U.S. manufactured goods, these statistics show that U.S. exports to Ukraine are increasing significantly. In 2010 U.S. exports to Ukraine increased by 53.19%, and in 2011 by 57.33%. U.S. companies are doing great business in this very diverse market. Just about every business/industry needs some refurbishing of its facilities, new technology to improve production capacity or to add contemporary product lines, and all need to improve energy efficiency. Ukrainian businessmen are looking for partners and to represent U.S. products, technology and services. The private sector is growing despite the turmoil in the public sector. Ukraine’s international reputation may be poor, but business is good in the private sector! Market Challenges Return to top - Corruption - Bureaucratic company registration, product licensing and certification procedures - Unpredictable enforcement of the rule of law - Underdevelopment of commercial legislation - Unpredictability of government action - Lack of local financing - Language barrier Market Opportunities Return to top - Agricultural equipment and machinery - Aircraft/Parts - Automotive - Computer Software/Services and Computers Peripherals - Drugs and Pharmaceuticals - Electric Power Systems - Food Processing/Packaging Equipment - Medical Equipment - Oil and Gas Field Machinery - Renewable Energy - Safety and Security Equipment - Travel and Tourism Market Entry Strategy Return to top - Contact the U.S. Commercial Service to discuss your interest and learn about strategies for: o Getting prepared o How to avoid corruption o Tools of advantage o Resources to assist o Advantages of being a US company o Financing resources o Taboos Return to table of contents Return to table of contents Chapter 2: Political and Economic Environment For background information on the political and economic environment of the country, please click on the link below to the U.S. Department of State Background Notes. http://www.state.gov/r/pa/ei/bgn/3211.htm Return to table of contents Return to table of contents Chapter 3: Selling U.S. Products and Services • Using an Agent or Distributor • Establishing an Office • Franchising • Direct Marketing • Joint Ventures/Licensing • Selling to the Government • Distribution and Sales Channels • Selling Factors/Techniques • Electronic Commerce • Trade Promotion and Advertising • Pricing • Sales Service/Customer Support • Protecting Your Intellectual Property • Due Diligence • Local Professional Services • Web Resources Using an Agent or Distributor Return to top A successful Ukrainian company depends on personal relationships. In an economy where the rule of law cannot be relied upon, the quality and depth of key business relationships are often your best protection against loss, and the key to market access. The selection of a local partner (or partners) is one of the most important decisions your company will make in its market entry to Ukraine. Conducting due diligence is absolutely essential. There have been numerous cases in which foreign companies have found themselves defrauded, or their assets taken over by dishonest local partners. Exercising due diligence can help you avoid, and mitigate a great deal of potential risk. In order to find a qualified potential partner, we recommend using the U.S. Commercial Services –International Partner Search, or Gold Key programs to conduct initial screening of potential partners, agents or representatives. Interested companies may also want to participate in a Product Literature Center at major Ukrainian exhibitions to first gauge market interest. For more details please refer to http://export.gov/ukraine/tradeevents/tradeeventsinukraine/index.asp. Should you wish to do due diligence on a local company, the U.S. Commercial Service also offers the International Company Profile service. For detailed information about these services see: http://export.gov/ukraine/servicesforu.s.companies/index.asp. Look for distributors that have nationwide capabilities, including those located in the major cities and regions of Kyiv, Dnipropetrovsk, Donetsk, Lviv, Odessa, Zaporizhzhya, and Kharkiv. These regions are considered important industrial centers in Ukraine and are densely populated. We strongly advise against covering the Ukrainian market from regional offices in Europe. Ukrainian’s prefer to deal directly with local agents or representatives. On-the-ground presence is crucial to successful business development in Ukraine. Establishing an Office Return to top A foreign company interested in starting a business in Ukraine has the option of forming a joint stock company, a limited liability company, a wholly-owned subsidiary, or a representative office. For regulatory and taxation purposes, representative offices are treated as independent legal entities, with some exceptions. A representative office can carry out marketing, promotional, and other auxiliary functions. It cannot sell goods, or services. The establishment of a wholly-owned company in Ukraine is recommended if the company intends to carry out manufacturing, or other significant local commercial activities. A foreign legal entity may have both a representative office and a wholly- owned subsidiary. The registration of local offices of foreign companies is handled by the Department of Bilateral Trade and Economic Cooperation within the Ministry of Economic Development and Trade (8, Lvivska square, Kyiv, Phone: +380 044 272-55-79). The process can take up to 60 days following submission of all the required documents and upon payment of the $2,500 fee. For more information go to: http://www.me.gov.ua/control/en/publish/article/info_boxes?art_id=154153&cat_id=1541 51 To register a representative office of a foreign business entity, you must submit the following documentation: • An application for registration of a representative office in free form; • An extract from the trade (banking) register of the country, where the foreign business entity is officially registered; • A reference from the banking institution, where the applicant’s account is officially kept; • A power of attorney to carry out representative functions issued in accordance with the law of the country where the Head office of the foreign business entity is officially registered. A full listing of the documents necessary for registration of a representative office can be found at: http://www.mfa.gov.ua/usa/en/publication/content/16886.htm. All documents should be certified by a notary at the place of issue and legalized in a consular institution of Ukraine in the United States. See contact information for the Embassy and Consulate’s of Ukraine in the U.S. in Chapter 9. Upon acceptance of the documents for registration by an official from the Ministry of Economic Development and Trade, the applicant is given the number of an account for payment of the registration fee of $2,500. We recommend that U.S. companies work with local law firms or business advisory services to ensure a smooth registration process. The Commercial Service can provide you with a list of local law firms and companies specializing in assisting to register to do business in Ukraine. U.S. companies can find professional personnel for their Ukrainian operations through a number of experienced recruitment agencies operating in Ukraine, local as well as international. See the following link for the Association of Regional Recruiting Agencies of Ukraine (ARKA): http://www.arka.com.ua/en/ Franchising Return to top Franchising is a relatively new business model in Ukraine; therefore its share in the national retail turnover is still low (below 5%). However, it is one of the fastest growing segments. The number of companies operating in the Ukrainian franchising sector has grown dramatically from just 55 in early 2008 to over 2,800