Business In Wartime: The Way Ukrainian Companies Transform and Recover

Julia Yatsenko, Head of the Research & Development team at the Ukrainian digital agency Promodo shares the results of her findings on how Ukrainian business operates under these circumstances. 

Russia started the war against Ukraine on February 24, proclaiming it a “special military operation.”The full-scale invasion was launched by land, air, and sea.

In two months, Ukrainian business has lost more than in two years of the pandemic.

The extent of damage and long-term effects are difficult to measure as the military actions are far from over. According to the Ukrainian National Bank estimates, the economy is slowly recovering. However, the real GDP is expected to fall by at least 35% for all its components.

 

“Private consumption will decline due to mass fleeing from the country. Unemployment is expected to rise, incomes will drop, and consumers will save on non-essential goods. Due to significant uncertainty and high risks, investment activity will be significantly reduced”, –  forecast in the Ukrainian National bank.

Dynamics of the Ukrainian GDP over the past 20 years

Over the past ten years, Ukrainians have suffered the consequences of a full-blown crisis several times. 2009 was a tough year due to the global financial crisis. The Ukrainian GDP fell by 15% that year. The Russian invasion resulted in a 6.6% economic decrease in 2014 and a 10% drop in 2015. The COVID-19 pandemic in 2020 led to a 5% decrease.

The current state of Ukrainian business

To answer this question the Gradus research company conducted a survey at the end of March 2022.

 

 

Difficulties of Ukrainian business during the war 2022: research

Today, most Central and West regions in Ukraine are in relative safety. This fact could contribute to the recovery of business in this area. The most active hostilities take place in the border regions: Kharkiv, Luhansk, Donetsk, Mariupol, Mykolaiv, and Kherson. However, small and medium-sized businesses continue to operate even in these territories.

Interactive map of Kharkiv with working infrastructural facilities. April 2022

 

In addition to pharmacies, gas stations, and shopping malls, Kharkiv opens its hardware stores, service stations, barbershops, dental clinics, pizza to go, coffee points, and even bakeries that are ready to provide citizens with Easter cakes.

What makes businesses work

Our faith in victory, but not only. To keep businesses safe and running, owners move employees and equipment to the western regions. Our government helps with location and transportation. Every company or private entrepreneur from combat zones can apply for the evacuation program by filling out the Google form.

 

Also, there are other government initiatives:

  • large-scale businesses whose annual revenue didn’t exceed 10 billion UAH can use the simplified taxation system and pay a 2% single tax;
  • private entrepreneurs with single tax registration without income are exempted from single social contribution for themselves and employees who were mobilized to the army;
  • VAT on fuel was reduced to 7% and excise duty was abolished;
  • issuance of loans up to UAH 60 million is allowed to any business at 0% during martial law plus one month after the war.  After that, there’ll be a minimal 5% rate.

According to European Business Association, only 1% of their members are planning to close their business. The rest:

  • 17% work in full
  • 16% continue to work in fewer regions
  • 19% were forced to close the part of their offices
  • 29% stopped their work
  • 27% paused their activities, but are ready to resume the work.

 

Popular Ukrainian online stores and retailers that are actively restoring their work:

Rozetka, Prom.ua, MAKEUP, Comfy, Foxtrot, EVA, Domki, Maritel, Trikomir. The list is expanding daily. Large logistics companies report a growing demand for their services. For instance,  Nova Poshta had 1 million deliveries per day before the war, 70% of these were online purchases.

In the first week of the war, there were 50,000 deliveries per day (5% of the pre-war amount). In the second week, the volume increased to 100,000 – 125,000. Starting March  21st, they have 350,000 deliveries, 60% of these are online purchases.

 

 

This demonstrates that Ukrainians daily order 200,000 goods online. It’s five times less than in the pre-war period, but the dynamic is still positive.

 

Ukrainians continue to order items not only from other cities but also abroad. As citizens have their savings and left most of their items at home, they have to buy new ones. Thus, the demand for essential goods is high.

 

 

Based on the experiences of other countries that actively restore during the war, we recommend that companies do not wait until the end of the war. They should act proactively and use this time effectively.

 

 

Our country should learn fast how to choose the economic development priorities independently. The new recovery plan should be adaptive and based on the current geopolitical realities. As most experts say, Ukraine’s restoration will be faster thanks to the conflict’s localization and the full support of other countries.

Economic recovery. Experience of other countries

The Marshall Plan, also known as the European Recovery Program, is the best example. It had two major parts: food aid and loans aimed at the recovery of industrial and agricultural sectors. In 4 years of active realization of this plan GDP of Western European countries increased by 15-25%. Production level exceeded the pre-war level by 40%. The long period of economic growth began.

Another example is South Korea’s economic recovery. The country was completely destroyed at the end of the war in 1953. The economy was stagnant, and the standard of living was on the same level as the poorest countries of Africa. 

The main difference compared to Europe was that there was nothing to restore. The economy had to be built from scratch. The country set a course of accelerated industrialization with planned annual growth of up to 5.4%.

 

Dynamics of GDP change in South Korea (billion, $)

Dynamics of GDP change in South Korea (billion, $)

As a result, the country’s economy grew rapidly and its structure changed radically. In 40 years South Korea has done what Western countries spent ages doing. Today it’s the tenth economy in the world, which is constantly strengthening its position.

What should a business do next?

To survive and recover soon, Ukrainian businesses should:

  • refocus on the needs of the market and potential customers within the country. Consumer demand has changed since February 24. The popularity of so-called ‘volunteers’’ categories increased as well as demand for items wartime necessities such as footwear, clothing, small appliances, pet supplies, and kids’ products. 
  • enter the international market;
  • shift within the country;
  • try something completely new.

Case studies of Rozetka and electro scooters sharing service Strum are notable examples here. Rozetka began to make compilations of useful goods in March. Strum moved from Kharkiv to Lviv to launch the business at the beginning of the season and continue working.

However, before implementing any changes, business owners should remember that in order to win this battle for customer attention a company should:

  • be easy to find online by clients;
  • have full warehouses;
  • ensure prompt delivery;
  • build brand trust (business shouldn’t stay aside current situation in Ukraine. Volunteer initiatives should be highlighted. Customers react and remember such cases);
  • be socially active;
  • be open in communication with customers.

Yes, we’re talking about online again, because we see how customer behavior is transforming. Ukrainians started to use online more actively for the following reasons:

  • lots of offline stores are ruined (their restoration will not be the priority);
  • lots of people lose their transport;
  • lots of people moved to another city or country;
  • the post-pandemic tendency towards online shopping intensifies during wartime, especially through social networks and messengers;
  • delivery works;
  • The fear of being in open, unprotected crowded areas will stay with most Ukrainian customers for a long time.

 

 

According to a United Nations report, more than 10 million people were forced to leave their homes due to the Russian invasion. 4.3 million moved abroad and the rest – within the country.

 

 

Mostly they are women. Thus, the demand map faced has undergone geographic and gender changes. Marketing managers should also keep eye on employment and wealth levels in different regions. That shows whether it’s better to relocate a business or reallocate the marketing budget.

 

for the region, compared to the indicator as a whole.

 

 

To make strategic business decisions, based on actual figures and reliable facts, contact us to explore the new market and evaluate your business perspectives together.

 

 

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