German company looking to Lviv for regional growth
Klingspor Ukraine’s General Director Roland Kaschny discusses why his company chose to set up a new production facility in Lviv Oblast and explains why despite a challenging global climate and local obstacles to investment, he remains optimistic about the economic future of the region.
What first attracted you to West Ukraine as a focus for your company’s activities?
Mrs. Karin Rau, Head of the Germany Economic Delegation in Ukraine has been focusing on West Ukraine for several years and has managed to initiate investment from major global players such as LEONI. During an investment workshop held by the German Chamber of Commerce in Cologne which addressed investment opportunities in Ukraine, the CEO of Klingspor AG in Germany came into contact with Karin Rau, and within just a few weeks the delegation office in Kyiv had organised a trip to Lviv Oblast for Klingspor’s senior executives. This allowed us to take a look at pre-selected sites that were available from the Oblast Administration for green field development. One of these sites, a 7.5 hectare plot in Velykiy Most (Sokal region), was selected and finally acquired in April 2009 followin 13 months of tough negotiations. We now expect to begin production
of abrasives in the beginning of 2010.
What was your personal reaction to the news that you would be working in Lviv?
This is not my first professional assignment in the former Soviet region. From 1998 until 2006 I lived and worked in Kyiv as the director of a multinational company which newly opened Ukrainian branch I had founded myself. In parallel to this I also initiated company and production start-ups in both Minsk and Moscow, serving on the board of all three companies at the same time. I then followed this experience by working for one year as a general manager in Central Asia in Almaty, before joining Klingspor TOV as General Director in February 2008 to begin work on a new start-up in Lviv. In my opinion Lviv is a very cosy and welcoming place which boasts even higher living standards than Kyiv and a far better lifestyle than either Moscow or Almaty. This is not only because it is cheaper and there are fewer traffic jams – the city also has a uniquely romantic spirit and is full of fantastic places to enjoy including small, secluded courtyards and hidden summer terraces.
When did you first visit Lviv? What was your initial impression?
I first came to Lviv in the autumn of 1998 to screen candidates for the position of regional manager in the company I was then running. Arriving on a Sunday evening at the Grand Hotel, I remember being deeply impressed by the large crowd of people singing traditional Ukrainian songs on the square in front of the hotel. At the time Lviv was certainly not as bright as it is today – the National Opera House and many other buildings have since been renovated.
Are you concerned that your new Lviv region production facility is going to be coming into operation at a time when the global economy is still struggling to overcome the impact of the credit crunch?
We as Klingspor assume that a recovery in the world economy will not begin any earlier than the second quarter of 2011, but each crisis also presents opportunities for entrepreneurs. Even though our Ukrainian investment was planned before this economic turmoil hit home, our shareholders decided to continue with this strategic investment despite the challenging economic climate. We have benefited from the crisis conditions in a number of ways including more favourable prices for land and construction, while we have also been able to engage institutes and contractors who have become available due to the downturn. We now plan to begin production in early 2010, focusing primarily on the domestic Ukrainian and neighbouring post-Soviet markets, but also looking to our 35 sister companies worldwide. As we develop will be looking initially to build up our distribution network in Ukraine, which is based on a structure of 4 regional sales managers and a Lviv-based warehouse. This should enable us to generate the cash-flow required to develop our investment. In 2010 we expect to start out with 100 employees but are planning to expand our workforce to over 500 employees within 3 years.
How important are events like the annual International Economic Forum, held every October in Lviv, for the development of the city’s investment climate?
This forum is a great help and we are looking forward to participating in this year’s event. However, the business climate in Lviv has not improved significantly during the past decade. I still face the same challenges which I was confronted with in 1998, namely a lack of transparency and legislation that is vastly inadequate. It pains me to see how little progress Ukraine has made in attracting foreign investors. The problem is particularly acute West Ukraine, where many foreign companies have been forced to close down their operations due to the unresolved issue of VAT refunds. Every individual investor must do their own homework before they decide whether to invest in Ukraine or not. The land issue remains a problematic topic, with much of the legislation failing to conform to WTO standards. Securing work permits for foreigners is now becoming a big obstacle, as the relevant state bodies often choose to interpret existing laws in different ways. So while I welcome dialogue with the authorities and think that conferences and forums are a positive step, I believe that we need to address the facts and not engage in nice speeches.
Which areas on the Lviv region economy would you identify as the most attractive for long-term investment?
I can personally recommend Lviv Oblast’s Sokal region, where we have received considerable support from the local administration. It is also worth pointing out that the Oblast Administration itself is very investor-oriented and has always supported us. This is a major contrast to my experiences in other Ukrainian regions including Kyiv.
What do you regard as the biggest obstacles to investing into the Lviv region?
There is no specific Lviv obstacle. On the contrary, we have been able to create our own company and register it as a legal entity, acquire a land plot and start our business without having to pay any bribes. We have no petty cash in our company and settle all payments including salaries by bank transfer only.
What would your advice be for the Lviv city authorities as they work to attract more international investment into the region?
I would advise them to carry on their good work and to make sure that the international community gets to hear about it. The City’s Department for Foreign Investment, the City and Oblast Architecture Office and, last but not least, the Oblast Governor are all doing a great job on behalf of the Oblast Administration within what is a difficult political and economical situation. Despite having a limited budget, Lviv’s mayor has succeeded in making this a wonderful city to be in, especially in summer when it is extremely clean and full of flowers.Renovation works on the city’s roads has also finally begun, and the new junction close to the Opera House is a good example of this progress. Right now everything should be done to secure the right to be a host city at Euro 2012. This is a unique opportunity to promote Lviv. As well as events like Euro 2012, international airlines like Lufthansa and hotel chains like Sheraton will also promote the city as a destination and bring their own clientele. The biggest single asset the city possesses is its wealth of culture, including the National Opera House (which lacks a good quality bar) and the Philharmonic Hall, which is badly in need of renovation and the addition of some stylish catering options. These venues could be appealing to a wide range of foreign visitors who will contribute to the cultural image of Lviv. These visitors will not only spend money on accommodation and restaurants, but will also spread the word about Lviv’s charms among their friends and colleagues once they return home. By emphasizing the cultural wealth of the city, Lviv can avoid becoming a destination popular primarily among sex tourists, which is
unfortunately what has happened to Kyiv.
Which Ukrainian dishes do you enjoy most?
I like Shuba, Olivier, Deruny (which is also a famous dish in my home town Cologne), Vareniky and Ukraine’s traditional and tasty dark bread.
What is your favourite place to relax and unwind in Lviv?
I love the hidden away summer terraces of Kupol and Golden Rose.
How would you describe Lviv to friends and relatives back home in Germany?
I would tell that it is one of the undiscovered beauties of Europe and explain that it is known as ‘Lemberg’ in German but that nobody, including airline staff in Cologne and Munich, seems to know where it is located. Ultimately I would advise anyone to come here and see for themselves. Every single visitor I have had, whether they were friends coming on a private trip or business partners coming for professional reasons, has been extremely impressed by this jewel of a city.