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Attorney, Managing Partner,
Advantages of Ukrainian Market for Retailers
The retail market in Ukraine has its own characteristics, some of which are only revealed after a certain time. Therefore, national companies and international players operating in Ukraine for a long time gain significant advantages over newcomer networks and producers. We believe that every investor and major brand that plans to enter the unfamiliar territory of the Ukrainian retail market needs a partner who knows all the peculiarities and specifics of the Ukrainian system as a whole, but particularly our retail market.
Having the necessary experience in working with local leaders, a law firm can provide investors with more than just legal expertise, while developing partnerships it can facilitate communication and further easy and quick entry into a market.
Despite the current transformation political processes, we at ADER HABER have great hopes that the Ukrainian retail market is interesting and beneficial to foreign retail giants, so we’d like to describe the main positive changes and advantages in Ukraine, which are important for international investors.
Open Dialogue Between the Authorities and Business, Orientation to European Values
Every law firm focused on its development and improvement of the client’s business needs to be aware of global trends and changes inherent in certain industries. One of the most affordable and effective ways to achieve this is via active participation in the work of business associations.
It is no secret that the highest level of recognition and effectiveness vests in legislation developed with the support of the business community. On the one hand, great credit is due to lawyers that aim to provide expert opinion on the compatibility of adopted legislation with the national legal environment and their compliance with EU-oriented objectives and vectors. On the other hand, an important role belongs to responsible business representatives that make public comments and participate in public discussions and commissions for the development of legislative initiatives.
Fortunately, today, we have a great opportunity to attend meetings and forums with key state officials responsible for the legal and business policies held by, in particular, EBA, ACC, UCCI, UUE and others. Open dialogue between senior government officials and representatives of the real sector of the economy now facilitates mutual understanding on both sides: for business, it is awareness of the current vector of the development of key areas from the management view, while for officials it is receiving feedback on reforms meeting the expectations of the market.
Initiative groups within sectoral committees of industry-specific business associations, which actively develop communication between business and the public sector, serve as a direct mechanism of public influence on public policy.
Investment and Competition
After the signing of the Association Agreement and the opening of borders, Ukrainian business received two significant opportunities to attract investment. The first, for the brave and ambitious players, can be entering the international trade market, search for new foreign business partners and expanding into larger countries. On earning the reputation of a reliable partner, such companies invite investors to do joint business in Ukraine. Moreover, modern Ukrainian companies with ambitions of international competition desire to maintain the quality of the legal support of their business: they’re willing to invest funds and additional resources for competent conducting of business.
National retailers wishing to strengthen their position within the country, follow another way: they enhance their regional presence, opening up businesses in new cities, present new formats, invest in high-quality brand promotion and development of their own product lines. One of the key issues is the relationship between retailers and shopping malls. Those who wish to reserve a prime location of retail outlets and lease terms need to make efforts and convince property owners of their advantage over others while maintaining a mutually beneficial balance of financial lease issues. Other retailers are involved in the competition for the right to be anchor leaseholders at malls, which are being built.
Greater intensity of competition is brought by the long-awaited entry of leading international retail operators onto the market: H&M, IKEA, DECATHLON, KOTON, DeFacto and others. Their desire to act directly, without resorting to the support of local partners, clearly shows the confidence of investors in the level of retail development and the potential for their own business strategies. On the one hand, national leaders have developed their own values and practices in the years of competition with foreign brands existing in the country, enabling them to be very close on key indicators with the latter. In turn, understanding the specifics of doing business in Ukraine formed during the previous years of operation can be a significant advantage in the competition between the “newcomers” and “seasoned” international players.
New international operators, in response to such benefits, initially offer their own business models and approaches time-tested through a variety of attempts to break into other European markets.
Such vigorous competition, alongside a record fall in the vacancy rate of warehouse real estate (2.8% in January 2019), growth of retail trade turnover by 14% in 2018 (compared with 2017), and increase in rental rates by 20%, bursts a productive business environment and enhances interest from investors and international networks that are not yet familiar with Ukraine but are inspired by the courage and success of their colleagues.
Therefore, in order to gain a strong position on the national market, new brands need quality business advisers who can offer effective options for business development, taking into account the speed of change to legislation and the specifics of economic activity in Ukraine. At the same time, competition strategy with national and international companies can vary significantly.
Benefits of Corporate and Currency Reform
Ukraine has undertaken a number of enhanced commitments to bring national legislation into line with the norms and standards of European law, and corporate reform was one of them. Improvements to the corporate governance system, particularly the implementation of corporate agreements, modernization of the voting procedure, incorporation and organization of companies created a positive basis for attracting investors, as well as for local business that works and structures its assets in Ukraine and abroad.
Another important characteristic has become the ease of starting a business. Gone are the days of gathering piles of documents and waiting in multiple queues for weeks to open a company. Today, with a simple set of documents you can easily start your business in a single day, which responsively reflected on the annual growth of Ukraine’s position in the ranking of Doing Business.
One of the essential and expected changes in 2019 for the development of international business relations and foreign economic activity was currency reform. The liberalization of currency regulation greatly simplified exchange turnover both between legal entities and between individuals, as well as investment, including in real estate. As expected, with the opening of “currency gates” some experts have expressed skeptical views about the potential outflow of capital abroad. However, it is important to look at the situation from the other side: the presence of a rigid framework specifically stimulates the desire to break it down as fast as possible. On the contrary, openness and freedom in monetary relations generate a feeling of calm and confidence for national business, which is immediately transmitted to foreign partners.
First Results of Judicial Reform
Judicial reform today is increasingly becoming a cause for officials who are in the system at the time of its implementation, to boast about their role in it. One of the main theses is “we came and changed everything, now they are judged quite differently.” Indeed, the creation of a new Supreme Court helped to attract experienced practitioners who had never held the position of judge (based on qualification results, in March 2019, nearly 30% of such lawyers joined the Supreme Court), but who know what areas of business in particular and the system as a whole need to be improved.
Since upgrading the system, the Supreme Court has presented its opinion on the formation of unified judicial practice and the new vector of “judicial lawmaking”. After 1.5 years of reform, judging by some of the decisions that have put an end to perennial debates, we hope that the creation of the Supreme Court has become the most crucial point of the judicial system. It is noteworthy that inter alia, companies from the retail sector, real estate and development are the victorious parties of the results of such decisions.
Over the 2.5 years since the introduction of the institution of private enforcers (bailiffs) in Ukraine, there are 173 of them with 66 working in Kyiv (as of May 2019). Despite the much smaller number compared with more than 4,500 state enforcers (as of December 2018), private enforcers have the powers to enforce 95% of types of judgments for combating long-term negative practice when everyone, except for the creditor, are interested in judgments not being fulfilled. Now, private enforcers have received access to all registers, the right to seize property, search for assets and to place court restrictions on the debtor’s departure from Ukraine, managing to execute their powers in a day, while the SES could not cope with it for several years. This set of tools allows a business to receive effective enforcement of judgements.
Finally, I would like to convey a clear message to all players on the retail market: no matter whether you are a national leader or an international brand, the key to your success and prosperity is fair competition, the courage to introduce new business formats and willingness not only to develop your business, but also to effectively influence the improvement of the industry and business climate in Ukraine.