German-based global chemical company BASF finds successful Ukraine formula with emphasis on light industries and agricultural innovation
German-based BASF is the world’s largest chemical company and has been present on the Ukrainian market since 1992. Since arriving in Ukraine in the early days of independence, BASF has expanded from a small representative office into a well-developed mid-sized business with 130 employees and representatives in almost every Ukrainian region. BASF currently serves a range of Ukrainian industries with a primary emphasis on agriculture and significant presences in the automotive industry, construction, consumer goods, home care, nutrition, packaging, paints, personal hygiene, pharmaceuticals, and plastics and paper. Business Ukraine magazine spoke to BASF Ukraine Managing Director Andreas Lier about the challenges of past few turbulent years and discussed why his company continues to see the Ukrainian market as the ideal environment for innovation.
The BASF brand has always been associated with innovative approaches. How is this commitment to innovation shaping the BASF presence in Ukraine?
The modern world is a place of rapid social changes driven by technological development. BASF believes that chemical expertise and ideas can help to shape these changes in a responsible and sustainable way. With EUR 1.95 billion committed to research expenses in 2015 and around 10,000 employees involved in research and development worldwide, BASF does its best to boost competitiveness and strengthen the industrial base of the countries where it operates. I am happy to be able to say that Ukraine is at the center of this process. Why? Because we are committed to the country, and because our Ukrainian partners are highly professional and ready to implement innovations. For example, this year BASF has identified Ukraine as one of two countries (together with the Czech Republic) for the projected 2017 European launch of the new Maglis online platform to help farmers improve crop management. Via this platform, farmers will be able to gather, interpret, and monitor a range of crop-related data that will help them to make better decisions on how to grow and market their crops.
The Ukrainian agricultural sector is currently undergoing a period of intensive modernization. What is BASF strategy in this sphere?
For BASF Ukraine is a significant East European market and prime example of a rapidly developing country. More than a half of the total land area of Ukraine is arable, which alongside other favourable conditions like weather, logistics and approximately 30% of world’s black soil, makes the country the largest agricultural land in Europe. Agriculture is one of the main industries for Ukraine, and it is a key focus for BASF’s business activities here. Despite all the recent challenges facing the Ukrainian economy, our agro business is developing well due to our professional and committed team and reliable partners. The basis for BASF strategy here is to understand the needs and requirements of the farmers themselves. All decisions related to strategic products take the specifics of the Ukrainian market in mind. We therefore expect to see our portfolio enhanced in the mid-term with new solutions for Ukrainian agribusiness.
The past three years have been particularly challenging for Ukraine and its industrial sectors. What were the main lessons for BASF during this period?
The past three years have definitely not been the easiest for all Ukrainian marker players. The main lesson that we have learnt is that challenges mastered are opportunities won. If you have a good team and loyal partners, if you make reasonable business decisions and plan in advance, you will be able to manage your way through difficult times. We are proud that BASF products, solutions and continuous technical support has helped Ukrainian companies remain competitive and develop successfully throughout this challenging time.
The hyrvnia currency devaluation of the past two-and-a-half years has affected both businesses and ordinary Ukrainians. How did BASF cope with the negative consequences of this process?
Here I would repeat the old adage that there is no gain without pain. The main gain of currency devaluation for Ukraine has been a change of consumer behaviour towards UA-made products. One of the results of this import substitution process is the recovery of Ukrainian light industries. More and more people are now buying Ukrainian food and beverages, clothes and footwear, furniture, cosmetics and home care products. Our Ukrainian customers operating in these sectors say that BASF innovations and solutions enable them to produce high-quality products, win the trust of Ukrainian consumers, and enter new markets. For example, Ukrainian food companies used to buy ready blends and mixes in Belgium, Netherlands, Germany and France, which was rather expensive and sometimes did not actually correspond to the needs and requirements of the local market. Today they can produce blends and mixes in Ukraine using BASF ingredients, which makes business more economically viable and gives them a certain market flexibility.
Many analysts see the free trade element of the Ukraine–EU Association Agreement as an opportunity for Ukraine to develop as a major manufacturing base for European markets. Are you witnessing signs of growth in this aspect of your business?
I am strongly convinced that the EU Association Agreement is a long-term roadmap for Ukraine to modernize and become globally competitive. On the one hand, it is a great chance for all international companies operating in Ukraine to mentor and support local businesses. On the other hand, this is an opportunity for Ukrainian market players to develop and win new markets by implementing new business processes while changing product ranges and marketing policies to better meet EU requirements. BASF has a role to play in this process. One example is the food fortification project we are currently developing in Ukraine in partnership with a leading local producer of sunflower oil. As you may know, in some countries food fortification is mandatory, with food products enriched with micronutriens (vitamins). In line with these market requirements, vitamin A produced by BASF makes it possible for Ukrainian sunflower oil producers to enrich their products before bringing them to Asian and African markets. We also support the process of securing the necessary certificates and documentation to make new market entry easier and more successful.
For the sixteenth consecutive year, BASF features in the Dow Jones Sustainability Index as one of the best sustainability performers. Is there any sustainability programme in Ukraine?
Sustainability is integral to BASF’s global “We create chemistry” strategy and a main growth driver. In Ukraine, we strictly adhere to our corporate sustainability principles. We believe it is not only chemistry that makes people’s life better, but also knowledge. BASF solutions help to develop agriculture in the country, but we appreciate that farmers also need knowledge in areas including finance, marketing, business planning, risk management, and innovations in agriculture in order to develop the industry better. This is why earlier this year, in partnership with the IFC, we initiated a unique educational project for Ukrainian farmers called The Growth Point. The main idea of the project was to provide participants with knowledge of how to manage an agribusiness while increasing its profitability and effectiveness. The feedback we received from participants was positive and we are confident that our initiative was timely and useful.
What would be your advice to German companies considering Ukrainian market entry?
Ukraine is an exciting emerging market that can provide international companies with very good business experience. For companies entering the Ukrainian market my advice is to prepare this move thoroughly. The main factors to analyze are customer landscape and development potential, local legislation and compliance regulations, together with Ukrainian finance and accounting systems. It is also useful to network with other international companies operating in Ukraine. Participating in the activities of business associations such as AHK, EBA, and the American Chamber of Commerce will give you a good overview of the business climate and will serve as a useful platform to help establish business contacts and further develop relations with Ukrainian customers and partners.
About the interviewee: Andreas Lier is the Managing Director of BASF Ukraine and Head of the Country Cluster East Europe (Ukraine, Moldova, Georgia, Armenia)