Building on a shared Habsburg inheritance

  • Building on  a shared  Habsburg  inheritance
  • Building on  a shared  Habsburg  inheritance
Issue 32, February 2011.

Austria has always been a key player in the affairs of Central and Eastern Europe, and so it was only natural that after the fall of the Iron Curtain Austrian businesses should be among those at the forefront as Europe’s market economies ventured into the formerly socialist lands of the Eastern Bloc. The forefathers of these 1990s economic pioneers had once ruled much of Eastern Europe as part of the Austro-Hungarian Habsburg Empire, and it is no accident that even today there is a strong accent on former Habsburg domains within Austria’s international investment portfolio. This is equally true inside Ukraine itself, where Austrian activity has been both nationwide and with a regional bias in favour of the former Habsburg lands of West Ukraine, centring on Lviv itself – a city which many Austrian investors say reminds them of home.

Overachieving Austria: Ukraine’s fifth largest international investor
Austrian investment into Ukraine began in the early 1990s but it did not really take off as a regional trend until the turn of the millennium and in particular the 2004 Orange Revolution and the improving investment climate which developed in its wake. Today Austria ranks as the fifth largest international investor into Ukraine with a total of more than USD 2.6 billion so far invested. Defying the recent global credit crunch induced recession, combined trade between Austria and Ukraine amounted to around EUR 1.5 billion last year alone.

Raiffeisen leads the way
A key event in the development of Austria’s investment presence in Ukraine was the 2005 acquisition of Bank Aval by Raiffeisen – a major event in the history of the Ukrainian banking sector and one which triggered a wave of foreign takeovers throughout the industry as international brands looked to gain a stake in what was being billed as Europe’s final frontier market. The excitement lasted until 2007 and has now subsided considerably, but the international presence on the financial services sector remains high profile and can be traced in part to Raiffeisen’s move into the market. Today Raiffeisen remains Ukraine’s largest internationally owned bank and has also a strong position in Western Ukraine. But not only Austria’s banking giants play a role in Ukraine. Smaller and more personalized customer service orientated institutions have also made their way to Ukraine from Austria’s sophisticated financial services sector. Volksbank, one of Austria’s major banks, acquired a controlling stake in Electron Bank in 2006 and has since become a strong regional bank in Western Ukraine. Its headquarters are located at the best possible spot for a bank - the iconic and ultra-secure Lviv Citadel.

The Lemberg connection: Lviv’s imperial inheritance
Although Kyiv, as the nation’s capital, is the natural focus for the majority of Austrian business activity in Ukraine, several leading Austrian companies have chosen to enter the Ukrainian market through its western gateway and have set up their headquarters in or around the Western Ukrainian capital Lviv. The reasons for the popularity of Lviv are diverse but centre on the relative proximity of West Ukrainian attitudes to contemporary Viennese business culture, a fact which is largely due to the common history the region shares with Austria. For over a hundred years until 1918 Lviv served as an important regional capital within the patchwork sprawl of the multi-nationalHabsburg Empire. The current main university campus building in central Lviv was actually once the regional seat of government, while many of modern Lviv’s most celebrated architectural gems also date from this period – not least the city’s National Opera House and its elegant city centre townhouses. Many Austrian businessmen say that of all Ukraine’s cities they feel particularly comfortable doing business in Lviv. The region, they like to comment, is not only geographically close to home but also sometimes feels just like home. As well as welcomingly familiar architecture and a shared heritage, Austrian investors are also enthusiastic about the HR potential of the region and enthuse over the European work ethic and entrepreneurial abilities of today’s West Ukrainians. Close proximity to EU markets is also a huge advantage – but with infrastructure improvements still in the pipeline this advantageous geographic location would not be enough to persuade Austrian investors to opt for Lviv unless they enjoyed more intangible but important attachments to the city.
One sector that does not get much public attention but which is nonetheless crucial for the development of every modern city is waste management. The question of how to dispose of waste is one which is looming ever larger for Ukraine’s often overcrowded and under-resourced cities, creating an environmental threat that could impact on public health issues and long-term ecological stability. One Austrian company has been particularly successful in changing the way Western Ukrainian’s waste is collected. AVE entered Ukraine in 2005 having established an enterprise based on the PPP model in the Vynohradiv district, Zakarpattya. In 2008 similar enterprises were set up in Kolomyia and Snyatyn. Since January 2010, the company has been working in Mukachevo and has also become the leading enterprise in Lviv. Today, AVE provides services for 500,000 people in three Western Ukrainian regions and the company’s eye-catching, modern refuge collection trucks have become one of Lviv’s most innovative municipal services symbols.

Smarter waste management ideas from Austria
Another Austrian company that has chosen Lviv as its Ukrainian base is the international fittings group Blum. Although Blum is not a household name, tens of millions of people worldwide use its products every day. There is a fair chance that you do, too, every time you open a drawer, wardrobe or cupboard - especially in your kitchen. Blum is the world’s leading manufacturer of furniture fittings especially for kitchen cabinets. Its customers include most of the leading furniture producers, notably the global furnishing giant IKEA. Blum has been active in Ukraine since 1996 and the company is at present building a modern storage and distribution centre in Lviv which is scheduled to open for business in summer 2011. The new flagship complex will also house the firm’s Ukrainian headquarters – another indication that Lviv’s regional appeal is growing stronger for Austrian companies looking to do business in Ukraine.
In the air travel sector Austrian Airlines has been one of the leading international carriers in Ukraine for the past twenty years and currently offers direct daily flight connections between Lviv and Vienna, making it an important tool in the internationalization of the region. Austrian Airlines has also operated its Ukrainian call centre in Lviv since 2008, thereby creating 30 service sector jobs and boosting the region’s image as an international standard outsourcing centre.

From Euro 2008 to Euro 2012: the Austrian experience
The historically strong relationship between Austria and the Lviv region has intensified noticeably during the region’s preparations ahead of hosting Euro 2012 next summer. Austria hosted the last Euro championships in 2008 together with Switzerland, providing Austrian companies with a proven track record of organizing and handling large events of this nature. Naturally, this is a highly marketable skill in today’s Ukraine and there are ample possibilities to cooperate and share knowledge and experience between the two countries in the run up to the championships. As well as a bilateral working group dedicated to infrastructure issues, there are also numerous inter-administrative cooperative projects between Ukrainian host cities and their Austrian counterparts who experienced Euro 2008. Austrian service providers are also understandably keen to share their knowledge in event management, communal services, traffic solutions and other infrastructural preparations.