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Country Commercial Guides for FY 2000: Ukraine Report prepared by U.S. Embassy Kiev Released July 1999 Note*

Chapter IV: Marketing U.S. Products and Services

A. Distribution and Sales Channels

The Ukrainian commercial infrastructure, while still only partially developed, has matured rapidly since Ukraine gained independence in 1991. During the Soviet period, distribution networks (as they are known in the West) simply did not exist in Ukraine. Relationships between producers, suppliers, and end-users were disconnected; the command-administrative system simply directed goods and services with little rationale. The breakup of the Soviet Union resulted in the severe dislocation of supply and distribution networks, and many Ukrainian consumers found themselves with bare shelves and widespread shortages of basic goods. This created an important vacuum for upstart Ukrainian entrepreneurs and the birth of a more market-based supply and distribution system.

During the last several years, a network of chain stores, brand name stores and supermarkets has emerged in Ukraine. They are usually located in the downtown areas of cities and are owned by Ukrainian or foreign private entrepreneurs. These are the most expensive retail outlets, initially designed for the nouveau riche to shop. Although there is some competition among newly emerged distribution outlets and old-fashioned stores, each caters to the demands of a different group of consumers.

Univermahs (department stores), universams, hastronoms, specialty stores, and "rynky" (bazaars) still remain the main spots for low and middle class general end-users to shop. Department stores sell both locally produced and imported goods and rent space to several sellers of brand name cosmetics and personal care products. Universams, hastronoms, and specialty stores can be found in all municipal districts of Ukrainian cities. They sell mostly food items; however, some of them distribute generic brands of personal care and household items.

Today, all former state-owned shops and department stores have been privatized into joint stock companies and have an opportunity to deal directly with producers and wholesale traders who supply the major share of imported products to the local market. There is an advantage to dealing with wholesalers in that they provide certification and license procedures for the imported products. Generally, department stores add 25% to the cost of general consumer products and 5% to audio-video goods and home appliances. The share of domestically produced products available in Ukrainian stores varies anywhere from 40-60%.

Directly importing products from foreign producers and distributors by local department stores is complicated and costly. The annual credit rates necessary for purchasing products equal 65-70%. Also, a high value-added tax (VAT) for imported products, excise and customs duties will add an additional 40% to the cost of a product.

Establishment of joint ventures with foreign trading companies is an alternative to direct purchasing. A foreign partner is required to supply the equipment and products, and to provide appropriate training for the local staff. However, the current share of products sold through joint ventures between Ukrainian department stores and foreign suppliers is very small (only 2-3%).

The sheer geographic size of Ukraine and its relatively high level of population dispersion (only about 10% of Ukraine's population lives in the three largest cities) makes establishing a viable, reliable distribution network of great importance. Major U.S. companies such as Coca-Cola, Kraft-Jacobs-Suchard, Mars, PepsiCo, Procter & Gamble, and SC Johnson (Johnson Wax and Tambrands) have developed strong sales and service networks in Ukraine, which will ultimately strengthen their market-share potential. While some of the larger firms use their own internal customs clearance and distribution networks, several smaller companies use freight forwarders for distributing products. In addition, indigenous Ukrainian food manufacturers, such as Svitoch (confectionery), Obolon (brewery), Slavutych (brewery), and Chumak (a Ukrainian-Swedish vegetable cannery), are developing excellent widespread distribution networks.

Western Ukraine has become one of the most dynamic trading regions of Ukraine. In the last few months of 1997, three new border crossings to Ukraine's western neighbors were opened, which significantly increased the trading activity in the region. Roads are being modernized and upgraded to speed communications. Forty additional miles of railroad track is planned to be relayed between L'viv and the Polish border. The city of Chernivtsi occupies a very favorable location due to its close proximity (30 kilometers) to Romania, as does Uzhhorod, which is on the border with Slovakia and is not far from Hungary. Nearby, in the town of Chop, a modern road transport entry and customs facility has been constructed, reducing delays to about 20% of the original time. During the last few years, L'viv, one of the most important industrial, cultural, trading, and tourism centers of western Ukraine, has transformed into one of the most free market cities in Ukraine. Oblast retail and wholesale joint ventures are growing fast and are becoming of increasing economic importance to the western region.

In exporting directly from the United States to Ukraine, the least expensive and most reliable means of transport is by sea, through 18 marine ports in Ukraine, including Odesa, Illichevsk, and Mariupol. Well-known shippers such as SeaLand (U.S.) and Maersk (Denmark) have operations in Ukraine, with onward distribution throughout Ukraine.

Rail is another cheap, but less reliable method of shipping products throughout Ukraine. Rail traffic has fallen substantially since Ukrainian independence and minimal backups at crossing points make rail transport an interesting alternative to other forms of transport. Press reports claim that Maersk plans to open rail cargo service to all points in Ukraine in the near future. Nearly 23,000 kilometers of railway connect Ukraine with Poland, Slovakia, and Hungary, as well as to eastern and northern points of the NIS.

The most popular, efficient, and costly means of transporting goods within Ukraine is by overland truck. Ukrtrans (Ukrainian) and Corstjens (Netherlands) provide service to a number of commercial and diplomatic entities in Ukraine, although price is a factor that U.S. companies should consider. Due to poor road conditions and security issues throughout Ukraine, trucked cargo is priced by the kilometer rather than by weight. Ukraine, which is the size of Texas, therefore presents a fairly costly shipping scenario.

Without reliable credit histories and business background reports, common sense is key in developing a strong distribution and sales channel in Ukraine. U.S. companies can utilize regional distribution networks with contacts throughout the country and, more importantly, these on the-ground entities can troubleshoot the myriad of obstacles that characterize trade in this emerging and challenging market. The Commercial Service offers a very cost-effective Agent/Distributor Service, which screens and identifies up to six potential distributors of U.S.-made goods and services.

B. Use of Agents and Distributors; Finding a Partner

As in any foreign country, a local partner or representative can provide valuable insight and commercial intelligence that might otherwise be missed by the U.S. businessperson. A local representative can be especially helpful in newly emerging markets, where a strong business information network has yet to develop. However, before entering into a distributorship or agent agreement, U.S. companies are advised to keep in mind the following points:

* While the extent of information on Ukrainian companies has slightly improved, there is still a significant dearth of background data and credit histories on potential Ukrainian distributors. This presents the greatest obstacle to finding reliable, competent distributors. In order to obtain a due diligence report on a potential Ukrainian partner, a U.S. company is advised to contact either a law firm or Ukrainian security company. Unfortunately, international investigation agencies do not cover Ukraine. To find a potential partner, U.S. companies may also wish to use the U.S. Embassy's Commercial Service programs: the Agent/Distributor Service (ADS) and International Company Profile (ICP) (a "background check" on Ukrainian companies).

* The Embassy strongly advises that all U.S. companies consider legal counsel before and while doing business in Ukraine. Given the tenuous commercial environment and weak legal infrastructure, it is critical to obtain solid legal advice in structuring your company's investment. Furthermore, it is quite important to remain up-to-date regarding ever-changing laws and regulations. Legal counsel can provide general advice on fluctuations in the commercial environment in Ukraine and prevent emerging disputes between partners in the future. Ukrainian laws and regulations are vague and open to considerable leeway in interpretation, providing ample corruption opportunities for officials at every bureaucratic level. U.S. businessmen are advised that partnership with a Ukrainian company is a challenge that is beyond constant control of the U.S. partner and his legal advisors.

* When drafting a contract on partnership with a Ukrainian company, a U.S. investor has to consider including an anti-bribery provision. According to the OECD Convention, which came into force in February 1999, "foreign public officials", including all branches of government, international organizations, state enterprises, political parties and candidates, are subject to anti-bribery prohibition concern. In addition, paying unusually high commissions to a distributor, hiring a representative who is a relative of a local government official, other improper advantages and improper accounting practices are subject to criminal and civil liability under anti-bribery legislation of the United States.

* It is typical for Ukrainian companies to seek to establish long-term business relations on consignment or an equal investment sharing basis. U.S. exporters are advised to start with small sales and full pre-payment or letter of credit terms. U.S. exporters should be cautious about any balance payments, due to constantly changing rules on local banking procedures.

* Look for regional projection: Kyiv is not the only hub of trade in Ukraine. Look for distributors that have nationwide capabilities, including the cities of L'viv, Odesa, Zaporizhzhya, Dnipropetrovsk, Donetsk, and Kharkiv. These regions are considered important industrial centers of Ukraine and are densely populated. Due to significant distance from foreign borders, demand for various kinds of products in the remote oblasts is not satisfied. Local prices are higher then those in the central and western oblasts of Ukraine. When entering into a distribution contract, U.S. exporters are advised to consider the advantages of selling products to major industrial centers rather then focusing only on a relatively satisfied Kyiv market.

To boost investment, the government of Ukraine established the National Agency of Ukraine for Development and European Integration (NAUDEI), which joined together the State Credit and Investment Company and the Agency for Technical Assistance Coordination. NAUDEI is designed to promote Ukraine as an investment opportunity by providing potential Western investors with information on Ukrainian companies and legal environment. Foreign investors can use NAUDEI's database as one source of information when looking for a potential Ukrainian partner.

Since 1997, several regional Ukrainian Agencies of Economic Development (AED) were created to operate in the framework of the United Nations International Development Organization. The AED located in the city of Dnipropetrovsk created a comprehensive database of enterprises in the oblast and is very aggressive in promoting Dnipropetrovsk as an investment destination.

C. Franchising

As of July 1999, franchising is not widespread in Ukraine. Western investments in Ukraine with franchising potential (i.e., McDonald's, Coca-Cola) are currently corporately owned, and very few Ukrainian businesses have recognized the potential for franchising. McDonald's has dominated the fast-food sector in Ukraine. Although other successful examples of franchising projects can be found - such as Express Personnel Services, Xerox copy centers, Kodak photo developing centers in Kyiv, Baskin Robbins and Dunkin Donuts in Kharkiv. In October 1997, the USAID Mission in Ukraine initiated a franchise development project managed and provided by SIBLEY International. Several pilot projects were selected including medical services, home repair/renovation outlets, wholesale and retail food distribution, and consumer electronics. The assistance has resulted in the establishment of eight franchises.

The Ukrainian market offers many opportunities for international franchising. However, as an entrepreneurial activity, franchising encounters the same general barriers as does the establishment of small and medium businesses. These include the whole complex of taxes, high credit rates, crisis of nonpayment, unstable legislation, and very strict control under the subjects of entrepreneur activity by the state. The investment climate remains the major obstacle for franchises in Ukraine.

D. Direct Marketing

Direct marketing is a concept new to the Ukrainian market. One of the major issues that has impeded the development of direct marketing in Ukraine is the use of cash for nearly all transactions. Moreover, promotional materials should be detailed and in the Ukrainian language. Presently, there is a notable absence of vending machines, mail-order houses, specialty or chain stores, and direct retailing. The usual practice for marketing products is done through large, diverse department stores, kiosks, or marketplaces.

Marketing for industrial goods and commodities is done largely by distributor warehouses, exhibitions, trade shows, and mail catalogs sent (with price lists) to the end-user. The industrial goods market is, for the most part, dependent on foreign credits and can involve barter transactions. Leasing and/or the contribution of equipment to statutory funds of a joint venture can also be effective marketing techniques.

E. Joint Ventures / Licensing

Joint Ventures:

Joint ventures as a form of business, including those between Ukrainian and Western partners, were popular in Ukraine immediately after the start of the transformation to a market economy. They were viewed as a compromise between the customary form of business oriented towards national ownership and the necessity to attract foreign investors and learn foreign business practices. A number of privileges and benefits, including tax exemptions, were offered as incentives to establish joint ventures.

In Ukraine's legislation the term "joint venture" has two meanings:

1) Joint ventures are enterprises established primarily to pool assets of different owners and are of mixed-type ownership; 2) Joint ventures are based on the common capital of Ukrainian business activity entities and foreign business activity subjects, as well as on joint management and common distribution of results and risks.

In practice, however, the term is used to determine businesses set up by Ukrainian and foreign founders. A joint venture is established both by its immediate establishment and as a result of a foreign investor's interest in a Ukrainian enterprise (taking possession of stocks, part of authorized capital).

The availability of a foreign investor is a prerequisite for the founding and functioning of a joint venture. Definite peculiarities exist with the possible participation of state- owned enterprises in creating joint ventures. According to existing laws in Ukraine, the State Property Fund of Ukraine and agencies to which this fund delegates its authority are entitled to establish joint ventures on the behalf of state-owned enterprises.

As far as legal forms of joint ventures, the legislation of Ukraine establishes no limitations - they are free to be established as limited corporations, stock companies, and other associations, etc. State registration is mandatory when establishing a joint venture. When registered, an enterprise is put on the list of the State Register of enterprises of Ukraine.

A joint venture has all the rights of a legal entity as soon as it has its state registration. Joint ventures may perform business activities of any kind, except for those prohibited by law. Licensing is mandatory for certain kinds of activity (insurance, audit activities, lawyer, veterinary practice, and exploring and exploiting natural resources).

Another specific feature of the joint venture's legal status should be noted: the special regime of protecting founder rights and interests, which are to be determined at the legislative level. This legislation stipulates that foreign investments in Ukraine are not to be nationalized, and state administrations have no right to requisition foreign investments, except for undertaking rescue measures in the case of natural disasters, accidents, epidemics, or wide-spread animal diseases.

Foreign investors have the right to reimbursement of losses due to illegal actions, stagnation of authoritative bodies or their officials, and inadequate execution of their duties imposed by laws with regard to a foreign investor. In case of terminating his/her activity, a foreign investor-founder has the right to be repaid for his/her investment in physical assets or in currency in the actual amount of a contribution as well as incomes obtained from investment in monetary or commodity form in accordance with the actual market value at the time of investment activity termination.

Foreign Investment Legislation:

Ukrainian foreign investment legislation has changed with disturbing frequency since Ukraine's independence in 1991 (usually not in favor of foreign investors). Taxation is a good example. On March 19, 1996, the Parliament adopted a new law on the foreign investment regime. This law put an end to the previous automatic five-year tax exemption. Under the old foreign investment law, any company with $50,000 in registered "qualified foreign investment" was guaranteed tax breaks and was ensured they would not change for 10 years. Article 27 of the new law voided previous investment laws, including:

- "Law on Foreign Investments," dated March 13, 1992; - Cabinet Resolution on a Foreign Investment Regime, dated May 20, 1993; - "Law on a State Program for Attracting Foreign Investments," dated December 17, 1993.

On October 23, 1997, the "Law on Company Profit Tax" canceled the five-year tax exemption for all companies registered after this date. Meanwhile, top Ukrainian government officials assured foreign investors that there were no more automatic tax exemptions and that Ukraine would sign special agreements providing large foreign investors with tax and other privileges on a case-by-case basis.

On September 19, 1997, Parliament adopted the "Law on Stimulating Auto Production," which grants various customs duties and VAT exemptions, favorable terms for land, and company tax payments to any company investing $150 million into Ukraine's auto production industry.

The new foreign investment law lowers the requirement for "enterprises with foreign investments" from 20% ownership in the statutory fund to at least 10%. This, combined with no minimum capitalization requirements, should encourage foreign investments.

There are several points to note in the new law:

1) Registration of foreign investment with local authorities is required;

2) Foreign investment includes:

- creating joint ventures;
- acquiring stock in existing enterprises;
- creating wholly-owned foreign subsidiaries;
- acquiring real estate such as apartments, houses, land use rights;
- acquiring property rights by purchasing securities and stock of enterprises with such property rights;

3) Previous legislation gave foreign investors special privileges in the market. The 1O-year investment guarantee was unilaterally revoked by Ukraine's Parliament on October 23, 1997, in direct violation of this law;

4) Foreign investors are guaranteed unhindered and immediate rights to repatriate their profits abroad, but only after the investor pays a 15% repatriation tax and other mandatory payments in Ukraine;

5) Any in-kind foreign contributions imported for a company's statutory fund are exempt from customs duties. All import duties must be paid if an enterprise sells, transfers or otherwise alienates the contributed property for any reason, including the termination of activities;

6) Foreign investors are granted general protection of Ukrainian intellectual property rights, and the right to decide whether to seek patent registrations in Ukraine or abroad.

It has become apparent to investors that the country's foreign investment legislation is sorely lacking in predictability. Recent amendments to legislation clearly demonstrate that guarantees to foreign investors can be retroactively revoked. The law extends rather minimal favorable treatment and guarantees to all types of foreign investors, including physical and legal entities.

Licensing:

Licensing of products, technology, technical data, and services is being widely introduced in Ukraine. Due to the long list of activities subject to licensing, the large number of government agencies involved in the licensing process, and obscure and contradictory instructions, licensing is viewed as one barrier in the way of foreign investment - the typical business has to secure roughly a dozen licenses. Efforts are being made to reduce the number of licenses required. The Law of Ukraine "On Changes in the Law of Ukraine On Entrepreneurship" establishes licensing provisions and restrictions.

F. Steps to Establishing an Office

Shares in a Ukrainian company can generally be issued or sold to non-Ukrainian residents without restriction. There is no limitation on the percentage of ownership of a foreign investor in most types of Ukrainian companies. Preferred forms of foreign investment operations in Ukraine are: a joint stock company, limited liability company, wholly-owned subsidiary, and representative office. For regulatory and taxation purposes, with some exceptions, representative offices are treated similarly to independent legal entities. Some industries, including banks and insurance companies, are more heavily regulated, and must be established in compliance with specific requirements.

It is possible for a foreign company to establish a representative office in Ukraine. A representative office can carry out marketing, promotional, and other auxiliary and preparatory functions on behalf of the company. The establishment of a wholly-owned company in Ukraine would be recommended if the company intends to carry out manufacturing or other significant local commercial activities. There is no prohibition for a foreign legal entity to have both a representative office and to establish a wholly-owned subsidiary at the same time.

The most widely used forms of legal entities in Ukraine are the joint stock company (JSC) and the limited liability company (LLC), with Ukrainian and foreign participants. In choosing between a LLC or JSC, it is generally recommended that a LLC be used since it is easier to manage than a JSC.

A Joint Stock Company is a company in which the shareholders are only liable for the obligations of the entity to the extent of their capital contributions. There are two types of JSCs: public and closed. A public JSC is established via a public offering and subscription of shares; a closed JSC's shares are distributed privately among the founding shareholders. At least two founding shareholders are necessary to create a JSC. They are free to determine among themselves the share distribution that each will have in the legal entity. Shares issued by both closed and public JSCs must be registered with the State Commission of Securities and Stock Market. There are two levels of taxation: the JSC is taxed on its profits and the shareholders are then taxed when dividends are distributed.

In a Limited Liability Company, the stakeholders like with a JSC are only liable to the extent of their capital contributions; ownership interests are expressed in terms of contractual rights that arise out of the foundation documents. A transfer of ownership rights is accomplished through an assignment of contractual rights. Interests in a LLC are not deemed to be "securities" and, therefore, are not subject to registration with the State Commission of Securities and Stock Market. As with a JSC, there are two levels of taxation for a LLC.

Depending on the needs of your company and your long-term plans, any one of these three legal forms for creating a legal entity in Ukraine (a representative office, a 100-percent wholly-owned subsidiary, and a joint venture, either as a stock company or limited liability company) may be suitable. Generally, foreign investors engaged in business activity in Ukraine must register in Ukraine as either a resident company or a permanent representative office within one month of beginning any such activity.

Registration:

Registration of representative offices of foreign companies is handled by the Ministry for Foreign Economic Relations and Trade (MFERT) of Ukraine, and is done within 60 days of submission of all required documents and upon payment of a $2,500 fee.

For registration of a representative office, a foreign business must submit the following documents (translated into Ukrainian):

1) A company charter (joint ventures need a foundation agreement);
2) An application for the registration of a representative office containing:
1) An extract from the trade or banking register of the country in which a foreign entity of business activity has its office officially registered;
2) A proxy demonstrating the individual who will represent the company in Ukraine with references to the opening of bank accounts;
3) A power of attorney from the regional office where the company is officially registered confirming that the company is entitled to certain activities and operations.

The above-mentioned documents should be notarized in the country in which the company is registered, translated, and duly-certified at a Ukrainian consulate abroad, unless otherwise stipulated in the international agreements of Ukraine.

Within a month of obtaining a registration certificate, a representative office must register with the local tax inspectors.

All business entities with legal entity status (resident or foreign) shall be officially registered by the executive committee of city, city district, regional councils [of people's deputies], Kyiv and Sevastopol district state administrations (hereinafter referred to as official registration authorities) at the place of residence of a given business entity, unless otherwise provided by law.

The following documents should be produced for registration:

1) constituent agreement (when two or more owners);
2) the statue (company charter), if one is required by the form of organization;
3) registration card, serving as an application for official registration;
4) document attesting to the payments of the official registration fee;
5) document attesting to the contribution of the entity's statutory (authorized) fund in the amount provided by
law-certificate of the statute capital prepayment (50% - for a JSC, and 30% - for a LLC). In case an owner is a foreign legal entity, an extract form the trade, bank or court register must be produced to certify registration of the investor in the country of origin.

These documents must be duly approved according to legislation of the country of issue, translated into Ukrainian and legalized in a consulate of Ukraine. It should also be approved in the Embassy of the corresponding country in Ukraine and legalized in the Ministry of Foreign Affairs of Ukraine.

After registration, the company must be registered with the state tax and statistics authorities, and can appoint a board of directors who open the company's bank accounts

G. Selling Factors / Techniques

Prior to considering the Ukrainian market, any U.S. company should be aware of two contradictory beliefs deeply ingrained in the mind of Ukrainian customers. The first factor is the enthusiasm for Western products, and the second is the belief that local products are much more reliable.

This is in part due to the flood of imported goods of dubious origin and poor quality - many of which are falsely marketed under well-known brand names.

Launched in 1997, a "local producer protection" policy produced a media campaign whose underlying idea was "distrust imported products." During the past few years, locally produced food products and beverages have gained a strong position in the Ukrainian market. An inner conviction about reliability of local products and predilection to familiar goods plays a decisive role in consumer behavior.

Broad promotional advertising is necessary to acquaint the average Ukrainian with unfamiliar brand names. Consumer confidence in a particular product is boosted by a description, list of ingredients, warranty or maintenance guarantee. Ukrainian consumers are turned off by products with Western brand names that are manufactured in Asia or other former Socialist countries (other than Ukraine).

One of the key factors influencing the marketing of U.S. products in Ukraine is the right choice of an agent or distributor. If a U.S. company intends to have a long-term relationship with its Ukrainian partner, it is wise to get to know the business partner and his/her business as much as possible from the onset.

Coordination and agreement regarding sales policies and pricing is absolutely necessary. Local businesses are oriented towards high profitability, which can seriously impact the marketability of U.S. products. U.S. exporters should be aware that their Ukrainian partner(s) have to deal with a number of indirect duties and commercial risks which will influence their pricing policy.

Generally speaking, the sales policies of U.S. companies interested in the Ukrainian market should take into account the unique features and challenges of this developing market. Rather than try and apply sales policies used in Western and Central Europe (or even Russia), a flexible and cooperative policy, oriented towards a long-term presence in the market, is much more likely to bring expected results.

Problems have arisen for U.S. companies that operate through their European subsidiaries. In many instances, higher European prices decrease the price competitiveness of U.S. products. Additionally, working through European subsidiaries may be perceived by Ukrainian businesses as an additional layer of bureaucracy. Ideally, a U.S. company interested in conducting a successful business operation in Ukraine should have an in-country representative and an established network of distributors and sellers.

Offering a flexible credit policy is important for small-scale Ukrainian companies, which do not have access to large amounts of money for the promotion of a new product and the training of personnel. A local company's access to loans and credit is limited by high interest rates and short repayment terms demanded by local banks.

H. Advertising and Trade Promotion

In the days of the former Soviet Union, foreign visitors were amused by the direct simplicity of Soviet "advertising"; shops were distinguished by unlit signs stating "milk," "bread," "meat," "ice cream," etc. As there was no formal product competition or market system to create incentives for quality production and purchase, there was no need to advertise one item versus the other. This presents both opportunities and potential pitfalls for U.S. companies seeking to advertise in the Ukrainian market.

Today, there are reportedly some 500 advertising agencies in Ukraine, many of which provide a wide range of services that Western companies are accustomed to. Ukrainian television and radio advertising is on the rise; together they account for some 58 percent of total advertising in Ukraine.

Newspaper advertising, accounting for 23 percent, remains popular with half of the space in journals and publications consisting of advertisements. Outdoor advertising, comprising 19 percent of the advertising market in Ukraine, is also proving to be very effective and popular. Outdoor advertising companies must obtain licenses from local authorities that are issued for a period of six months to five years.

The major Ukrainian papers/journals which may be used for advertising include:

- Den (daily);
- Fakty (daily);
- Holos Ukrayiny (daily);
- Kiyevskiye Vedomosti (daily);
- Vseukrainiskiye Vedomosti (semi-weekly);
- Silski Visti (daily);
- Uryadovyy Kuryer (daily);
- Vechirnyy Kyiv (daily);
- Delovaya Ukraina (semi-weekly);
- Biznes (weekly);
- Chas/Times (weekly);
- Dilo (weekly);
- Halytski Kontrakty (weekly);
- Posrednyk (weekly);
- Kapital (semi-monthly);
- Zakon i Biznes (weekly);
- Zerkalo Nedeli (weekly).
- RIO (weekly);
- Telenedelia (weekly);
- Express-Obyava (semi-weekly);
- Aviso (semi-weekly);
- Natali (semi-monthly).

The major English-language papers/journals are:

- Eastern Economist (daily/weekly);
- Intelnews (daily/weekly);
- Kyiv Post (weekly).

Initial consumer education, an effective foundation for Western advertising approaches, is key in transmitting an effective message to the consumer. Many Ukrainians, cautious and cynical by nature, are skeptical of flashy advertisements. "Word of mouth" advertising and establishing a strong reputation for one's product or service is particularly critical in this developing market, where many consumers are painfully unaware of competitive pricing and quality certification.

The demand for public relations services in Ukraine is growing. PR-agencies provide their clients with the following non-direct advertising services: organizing media-relations such as press-conferences, press-tours, mass media advertising; developing positive contacts with journalists and editors; forming strategies; organizing special events such as presentations, social events, VIP-parties, shows; lobbying; crisis management (rumors management); speechwriting, etc.

On July 3, 1996, the Rada approved a new law on advertising. It establishes the parameters for copyrights and trademark identification, and sets guidelines for all types of advertisements in print and electronic media.

The law regulates advertising for firearms, pharmaceuticals, medical equipment, financial services, alcohol and tobacco products. Advertising for alcohol and tobacco products is prohibited from being shown on television and cannot be placed on the first or last pages of newspapers and magazines; advertisements also cannot feature the actual use of alcohol or tobacco products.

On request, CS Kyiv can provide an extensive list of advertising agencies, as well as print and television media operating in Ukraine.

I. Product Pricing

High import tariffs, VAT taxes, and the small number of suppliers of Western-made products in the Ukrainian market keep prices at a high level. To date, the Ukrainian market has been flooded by low-quality, cheap goods from Turkey, China, the Middle East, and former Socialist-bloc countries. However, despite the higher prices, there is a growing tendency for Ukrainians to buy quality, Western-made products.

The majority of suppliers of Western-made products are able to keep prices high because they are oriented towards the "elite" consumers - foreign residents and the recently emerged nouveau riche. This quest for high profitability can seriously impact the marketability of U.S. products.

When establishing prices, exporters should consider the purchasing power of the average Ukrainian consumer. According to the Ministry of Economics, in the beginning of 1999, the overall volume of sales of general consumer products decreased 8.6 percent. In February 1999, per capita product consumption was 28.4 hryvnia (approximately $ 7) per month. Meanwhile, the average Ukrainian per capita monthly wage has decreased significantly, from $ 62.7 in 1998 to $ 43 in April 1999. However, there is a fast-growing segment of the population whose disposable income is rising due to the increase in entrepreneurial activities.

When developing pricing policies, U.S. suppliers should also note the regional and age differences among end-users. The demand for Western-made products is far greater among the younger generation, with the sharpest contrasts seen between the under-45 and over-45 age groups. The widest differences are in the purchase of vehicles, personal care products, candy, jewelry, household goods, and electronics. The correlation between education level and product demand is not as evident as in Western economies, as unfortunately, many educated consumers are part of the low income population.

It is important to note the regional variations in demand and price of Western-made consumer goods, although these differences are becoming less pronounced. While the Kyiv area is typically well-supplied with various products, remote areas are not. Kharkiv, Dnipropetrovsk, Donetsk, L'viv, and Zaporizhzhya offer good potential for foreign exporters interested in expanding their operations in Ukraine.

The Cabinet of Ministers of Ukraine has price-setting authority, and determines lists of products, goods, and services whose costs are subject to approval by specific divisions of the government. Changes in government-fixed and regulated prices and tariffs may be put into effect due to a change in production and sale conditions, regardless of the manufacturer's performance.

When conducting export and import transactions directly or via foreign economic intermediaries, contractual (foreign trade) prices formed in accordance with world market costs and conditions are used in settlements with foreign partners. Enterprises, organizations, and individuals have the right to turn to arbitration to contest price violations on the part of bodies of the state, enterprises, organizations, cooperatives, and other legal and physical persons, and claim damages when sold goods and rendered services are contrary to current laws.

Prices in Ukraine typically include a 20% VAT and other taxes. Retail prices include a 20% VAT, while wholesale trade prices usually do not include a VAT, which is cited separately.

J. Sales Service / Customer Support

To succeed in the Ukrainian market, companies should pay attention to sales service and customer support. For one, the Ukrainian market is far from saturated; it is still getting started, thus presenting a unique opportunity for U.S. companies. With some 50 million people, Ukraine has the potential to become one of Europe's most important markets in the future. Because of Ukraine's size, there is plenty of room for competing companies with competing strategies. The demand for quality products and customer support is becoming stronger, which has driven companies to emphasize quality, after-sale service, installment payments, and other sales service practices.

A key element to succeeding on the Ukrainian market is the establishment of a network of after-sale support centers for goods and equipment. Maintenance centers are especially important for a variety of industries, including household appliances, telecommunications equipment, consumer goods, and vehicles. In February 1999, the Cabinet of Ministers adopted a decree on after-sale service and maintenance of household appliances. According to this legislation, documents that testify origin, price, after-sale obligations of the manufacturer, rules of use, manufacturer's address, and information on certification in Ukraine are to be included with all products.

In February 1999, the Cabinet of Ministers made amendments to rules on installment payments in order to increase consumer demand for products of long-term use.

Ukraine has passed a law on the protection of consumer rights, and plans to create a national customer information system on poor-quality goods, move towards membership in the European information system, create an independent quality control laboratory, and introduce EU standards for consumer goods. In June 1999, an international conference on "Modern policies for the protection of consumer rights in Ukraine and other European countries" was held in Kyiv under the aegis of TACIS. The participants, which including representatives of over 40 countries, leading consumer goods producers, and donor organizations, agreed on establishing an intergovernmental commission on consumer rights protection.

A strong distribution system and a viable intermediary service industry are only developing in Ukraine. Western companies are better off dealing with large wholesale Ukrainian companies, and avoiding middlemen and intermediaries.

K. Selling to the Government

Large government procurements represent export opportunities for U.S. companies. However, U.S. firms should keep two things in mind. First, the Ukrainian government lacks internal resources for large purchases and companies are advised to track the tender announcements of the World Bank and the European Bank for Reconstruction and Development (EBRD), which have initiated numerous programs to assist Ukraine in its transition to a market economy. Second, reaching the "point of decision" in the Ukrainian bureaucracy can be a daunting task.

Major international financial institutions, such as the World Bank and the EBRD, have organized tenders for the procurement of goods and services to be used by Ukrainian government agencies. The presence of a Western tender organizer often makes selling to the government a more transparent practice, providing for published deadlines, proposal criteria, and more importantly, Western oversight in making final procurement decisions.

Government procurements are conducted on the basis of the Cabinet of Ministers of Ukraine Resolution #694 "On the Organization and Holding of International Tenders for National Procurement of Foreign Goods," dated June 28, 1997. Under this resolution, all government procurements above $100,000 are conducted through one of the following tender procedures: open tenders, open tenders with prequalification, or competitive negotiations. Procurements from UAH 70,000 (about $17,000) to $100,000 are offered through the following competition procedures: competitive negotiations or limited competition (when invitations for bids are sent to at least three potential suppliers). Procurements under UAH 70,000 are done on a limited competition basis. Open international tenders must be conducted when the procurement is financed by an entity that is not a resident of Ukraine.

L. Need for a Local Attorney

The U.S. Embassy strongly advises that all U.S. companies consider legal counsel before and during business practice in Ukraine. Given the tenuous commercial environment and the weak legal infrastructure, it is critical to obtain solid legal advice in structuring your company's investment. Furthermore, it is of utmost importance to remain up-to-date regarding ever-changing laws and regulations. Legal counsel can effectively provide general advice on the fluid commercial environment in Ukraine.

The Commercial Service, in its popular "Directory of Business Contacts," maintains a list of American and Ukrainian lawyers that are involved in international practice. The American Bar Association's Central and East European Law Initiative; Tel/Fax: (380-44) 212-1998, is also a useful source for finding lawyers and concerns regarding legal proceedings in Ukraine.

M. Performing Due Diligence / Checking Bona Fides of Banks / Agents / Customers

Given the difficulties of doing business in Ukraine, it is advisable for a U.S. company to perform its own feasibility study before starting a project in Ukraine. Numerous opportunities in Ukraine are commensurate with a significant level of risk.

The first step in undertaking a project in Ukraine is knowledge -- knowledge of costs, risks, and returns. Two principal risk factors are involved: commercial and legal. Most of the risks are legal, permission related, and practical. What constitutes conforming to code in the U.S. does not necessarily mean the same in Ukraine.

The nuances and various possible interpretations of Ukrainian laws, rules, and regulations make it almost impossible for one person to understand all the possible ramifications. In order for a contract to be truly enforceable in Ukraine one should have a lawyer, an accountant, and an interpreter even if you are fluent in Ukrainian or Russian.

Available state statistics are often unreliable, and market dynamics in Ukraine are more or less a question of an informed opinion. On a practical side, it would be wise to treat local surveys and "experts" with some caution, as there is a tendency for them to be too close to the subject matter to have an unbiased opinion.

There is no viable system for checking the financial status of a Ukrainian partner, and information on bona fides of potential Ukrainian partners should be treated with care. It is not a practice in Ukraine for banks to provide information on the financial status of their clients, and there is no nationwide service for registering enterprises of doubtful solvency.

The due diligence process performed by teams headed by Western accounting/law firms and investment advisors with a permanent local presence will give investors a better understanding of the target company and will help in the design of an appropriate exit strategy.

Never put your fate in the hands of the unpredictable Ukrainian courts. Recent court decisions, rulings, and regulations have shown that unless contracts in Ukraine are very specifically written they may be totally unenforceable. However, this is much more true in Ukraine since the "intent" of the contract has almost no bearing when compared to the "letter" of the contract. Intent, like "industry standards" or other such concepts, is not readily recognized in Ukraine. Only the written word and the specific subject, as defined by law, have meaning.

In entering into a business partnership with the state, it is highly recommended that you ensure the state has put all of its decision-making powers in the hands of an independent manager.