Facoltà di Scienze della Comunicazione

Laurea Magistrale in
Management and Business Communication

Tesi in

Globalisation, International Development and New Markets

Doing Business in Ukraine

RELATORE CANDIDATA

Prof. Emilio Cocco Greta Spineti

Matr. 76082

Anno Accademico 2017/2018

 Я посвящаю эту работу
своей украинской компании.
 Table of Contents

Introduction……………………………………………………………………………………………….i

CHAPTER I: GLOBALISATION AND THE CULTURAL DIMENSION …………. 1

1.1 Globalization ………………...………………………………………………………………. 1

1.1.2 Drivers of Globalisation ..……………………………………………………… 5
1.1.3 Globalisation of Market ………………………………………………………… 6
1.1.4 Criticism about Globalisation ………………………………………………. 8
1.2 Cultural Dimension of Globalisation: Cross-Cultural
Management……………………………………………………………………………………… 10
1.2.2 Hofstede’s Classification of Cultures: the 6-D Model ………… 14
1.3 Ukrainian (Business) Culture ……………………………………………………….… 19
1.3.2 The Ukrainian Manager ……………………………………………………… 28

CHAPTER II: COPING WITH THE UKRAINIAN MARKET ………………………… 31

2.1 Corruption and Criminality ……………………………………………………………… 32

2.1.2 The Case of Odessa …………………………………………………………… 38
2.1.3 ProZorro ……………………………………………………………………………… 42
2.1.4 Further Attempts to Fight Corruption ………………………………… 45
2.2 Division of Labour …………………………………………………………………………… 47
2.3 Ukrainian Workforce ………………………………………………………………………. 56
2.4 National Economy and the Digital Divide ………………………………………. 61
2.4.2 State Agency for e-Governance of Ukraine ……………………… 69
2.5 Ukrainian-Russian Relationships ……………………………………………………. 70

CHAPTER III: FIELD RESEARCH AND CONCLUSIONS ………………………… 77

3.1 Case Study: Russian Social Networks’ Influence in Ukraine ………… 77

3.2 Doing Business (and Research) in Ukraine ……………………………………. 82
3.3 Common Talks About Ukraine ………………………………………………………… 86
3.4 Conclusions …………………………………………………………………………………….. 87

References ……………………………………………………………………………………………. 93

Web References ……………………………………………………………………………………. 97

List of Pictures …………………………………………………………………………………….. 101

List of Tables ……………………………………………………………………………………… 103

Introduction.

When I approached this topic, I was still a bachelor student. One day, in
the middle of some class, a professor was telling about a severe
marketing fail of one of the most famous American MNCs of the food and
beverage market: they adopted the strategies tailored for the domestic
market to another area, running up against a considerable drop in sales.
But why? The advertising campaign they were proposing underlined how
the use of their product could be a benefit for the individual, who could
stand out among the others. That’s the point: the American society was
totally attracted by the message of the campaign, due to its deeply
individualistic disposition; on the contrary, the Asian countries where the
campaign was also advertised are characterised by a strong holistic
nature, thus giving priority to the whole group, not a single individual. I
was so surprised by the fact that this situation could have such a negative
impact that I started developing a passion for the role of cultures in the
business environment.

The second factor that led me to this research is the strong curiosity I
have for what I don’t know, what is odd, different. That’s why when I got
to know about the possibility to spend a period of study abroad in Ukraine
I jumped at the chance to do research for my final dissertation. And my
expectations were met. I spent a period of about 4 months at the Odessa
National Maritime University in Odessa, ‘the Pearl of the Black Sea’, the
main port-city of today’s Ukraine and one of the most important hubs
during the previous Russian Empire and the Soviet period. Odessa was
probably the best city to experience life in Ukraine: it is situated on the
shores of the Black Sea, it is a relatively young city, characterised by a
strong Mittel-European style (most of the architects and engineers who
built historical buildings such as the Opera House were from Italy or
France) but still embedded in the Russian legacy and at the same time
Odessites reflect the typical Ukrainian aptitude traits. But personally, the

i
most relevant thing characterising this city, and as I later discovered, to
the whole country, is its inconsistency. It is a city, and a country, full of
contradictions: I used to live in a high-end neighbourhood and every day,
while I was waiting for a cab, it was normal to see many and many BMWs,
Lexus, Porches, Maserati, followed by old-fashioned Ladas, one of the few
accessible cars during the Soviet period. But probably, travelling around
the country was even more eye opening. Moving from Odessa to Kyiv and
from Kyiv to L’viv it is possible to get to know and assimilate the different
souls and attitudes of the Ukrainian society: in L’viv there’s a rather
famous folkloristic restaurant which can be accessed only by saying the
password Слава україні! And as soon as you get there it is easy to
understand why. The venue is set up as it was still a shelter for members
of the Ukrainian Insurgent army, folk songs are sung around, the make
fun of Putin and Russians in general and of course they only wait on
typical Ukrainian dishes. If you try to speak Russian in there, you
probably won’t get any answer; on the contrary, if you speak Ukrainian
in Odessa, it can easily happen that they won’t answer or that they do it
in Russian!

The Ukrainian identity and culture are easily perceivable if you come from
a Western country: it can be understood from the first approaches when
you go to a restaurant, or when asking for information to someone. If
you go to a restaurant and ask to a waiter whether he can speak English,
it wouldn’t be unusual for him to go away after an abrupt “нет”1 without
even informing those who can speak English among the staff of the
presence of foreign customers. To many of us, this approach would result
rather rude and unprofessional, actually it is simply a matter of cultural
distance: for Russian or Ukrainian people such a behaviour is totally
normal. Thus, my perception of how important it is to know a specific
culture when you need to deal with it, especially in a business context,
was confirmed and fostered. As regards this specific issue, I run into

1 “no” in Russian.
ii
Geert Hofstede’s researches and I found them enlightening: the Dutch
psychologist and anthropologist implemented a model to define and then
compare national/local cultures in order to understand them from a
business point of view. By the way, his model has been taken up by a
Ukrainian scholar from the Vasyl Stefanyk Precarpathian National
University for further detailed-studies which proved to be fundamental
for the understanding of the Ukrainian culture in relation to others. The
more I was living in Ukraine, the more I realised and I was able to fully
understand certain behaviours that were apparently unclear to me.
Unluckily, I experienced a series of ‘нет’, and the initial research design
was not totally successful. My exploratory research included the collection
of quantitative data from local private and public institutions, a set of
interviews concerning entrepreneurs’ expectations about the Ukrainian
market and the actual situation. Although it was not possible to get many
quantitative data, I took this chance to collect qualitative data which
could be an incentive for future investigations. I also decided not to rest
my study on purely statistical data provided by the State Statistics
Service of Ukraine, since many local professors, scholars and researchers
in general, suggested me that that data are not reliable at all. Hence, I
used much more bibliography than what I supposed at the beginning, and
a large part of it published by Ukrainian researchers, thus in Ukrainian or
Russian language. That has not come out by chance but it was a
conscious choice, as I believe that investigations about a given culture
could be better reported and explained by those who belong to it, or, at
least, it is interesting to compare whether what outsiders and insiders
say at the end matches or if they reach different conclusions.

Anyway, although at the beginning I was upset because I couldn’t

understand and accept certain manners, I started integrating and loving
this country and its multi-coloured culture. I hope that through this work,
I can make more people curious about Ukraine, its cities, people and
peculiarities and, at the same time, I hope I was able to provide a general

iii
understanding of the complexity of the Ukrainian business environment
and the amount of analysis it requires.

Figure 1 View of the commonly-known “Potëmkin stairs” from the port of

Odessa. Picture from the author.

iv
 CHAPTER I

GLOBALISATION AND THE CULTURAL DIMENSION

1.1 Globalisation.
It is a tough burden to define what globalisation actually is, and this
is not the objective of this work, but it is fundamental to provide a glimpse
of what this popular buzzword is and implies. The Eastern parable of the
elephant perfectly reflects the academic situation in defining what
globalisation is: the tale tells the story of several blind men touching an
elephant, each of which creates a different mental picture of it, based on
the knowledge/desires they have. One of them thinks it is a snake by
touching its trunk; another man supposes he was touching a large brush
as he hits its tail; the one approaching the empty space between the fore
and hind legs accuses the others of dreaming up about something that
doesn’t even exist. Due to its ‘multidimensionality’ (Steger, 2003),
scholars have been formulating multiple, different definitions of the
phenomenon, each of them circumscribing the concept in the direction of
their own subject. That’s the main problem: globalisation is a many-sided
flow of events including and influencing several aspects of our lives such
as economics, politics, society and finally, culture. It entails a process of
fragmentation and cross-fertilisation that scholars call ‘hybridisation’, a
deep, intense blend of different cultural features and styles which is
shifting the world to a greater interdependence and integration (Steger,
2003); that’s why it is an intricate and often contradictory phenomenon.
As Steger (2003) clarifies in his work, globalization is a set of social
processes, and not one only process, which is moving our present social
condition into ‘globality’, i.e.

1
 “A social condition characterised by the existence of global economic,
political, cultural, and environmental interconnections and flows that
make many of the current existing borders and boundaries
irrelevant”.2

Trying to catch the common features scholars agree on, it is possible to

detect four main peculiarities ascribable to globalization:
• The proliferation of social networks and practices that are defeating
traditional economic, political cultural and geographical
boundaries;
• The expansion and stretching of social relations, activities, and the
boost of interdependencies;
• The intensification and quickening of social exchanges, thus making
the border between ‘local’ and ‘global’ blurred;
• The subjective plane of human consciousness is totally embedded
in the globalisation processes, as people are more and more aware
they are turning into a global world, a global reality.

What other authors stress is that globalisation deeply affects the time-
space framework in which the global society is living, where the
perception and consideration of time and space changed considerably in
the last decades (Scheuerman, 2014). With the advent of technology and
the ongoing implementation of the means of transport, distances are
calculated depending on the time it takes to get from a point A to a point
B. Researchers agree that this transformation of the human experience
of space and time is reducing the importance of local boundaries, as we
said before. Time-space distances have never been as huge as they are
in this period and here we go again to the stretched social forms and
event we were talking about earlier. From this particular aspect, Giddens
(1991) derives his idea of globalisation:

2 Steger, 2003 p. 7
2
 “Globalisation can thus be defined as the intensification of worldwide
social relations which link distant localities in such a way that local
happenings are shaped by events occurring many miles away and
vice versa”.3

He identifies four dimensions which characterise globalisation. In the first

place Giddens brings up the world capitalist economy, a system ruled by
capitalist states in which transnational capitalist economic enterprises act
as major sources of production, to say that with his words: “If nation-
states are the principal “actors” within the global political order,
corporations are the dominant agents within the world economy” 4; we
are going to analyse it in depth in the next section. The second dimension
is represented by the nation-state system, hence the concept of
sovereignty. Despite of what it could look like, nation-states are not
merely operating as economic machines, but rather as guardians of
borders, as protectors of their own territorial rights; Giddens in fact
assumes, together with some other scholars, that typical features of the
late modernity are the ability of social actors, such as nation-states, to
be aware of their actions and the constant review their activities are
subjected to. And here you have the dialectical nature of globalisation:
on the one hand the tendency toward centralisation, on the other hand
the sovereignty of single states.
The world military order, third dimension of globalisation, is deeply linked
to the fourth one, the industrial development, and to the concept of
sovereignty. As a matter of fact, holding military power is not connected
at all to the economic wealth of a state. The availability of military
weapons is necessary to deter others from violating other states’ borders.
The World Wars of the past century are a clear example of how conflicts
can become global. The fourth dimension is about industrial development,
which involves a huge variety of aspects, from weaponry to workforce,

3 Giddens, 1991 p. 64
4 Giddens, 1991 p. 71
3
communications and many others. The high level of industrialisation
moved workforce to some clusters of the so-called ‘Third World’, ‘de-
industrialising’ developed countries and thus, reducing their hegemony.
This is the example of what is happening in BRIC5 countries, for instance.
The phenomenon supported the global interdependence in the division of
labour in the last decades. The impact of industrialism severely affected
the diffusion of technologies changing our everyday life, especially
altering our way of communicating. Today it is much easier to get
information from far regions, we take for granted how simple it is to get
in touch with people on the other side of the world, we can talk to them
and even see them. This kind of scenario gives us the perception we are
living in one, global world.
To the four dimensions drafted by Giddens, Gabriela Tejada (2007) added
a fifth one, which could be considered as a natural progression of the
preceding ones: culture. The cultural globalisation deriving from all the
dimensions we have analysed has sometimes been singled out as
Westernisation or even McDonaldization (Ritzer, 2004), namely “the
process by which the principles of the fast-food restaurant are coming to
dominate more and more sectors of American society as well as of the
rest of the world”6 shaping justice, family, religion and so on and so forth.

5 Acronym for Brazil, Russia, India, China.

6 Ritzer, 2004 p. 5
4
 Figure 2 Globalisation issues (©GLOPP, 2006)

1.1.2 Drivers of globalisation.

Undoubtedly, we are dealing with an extremely complex concept,

deeply embedded in our lives and influenced by an infinite variety of
factors. But scholars and researchers found out some major drivers to
consider as primary causes that boosted globalisation. According to Moak
(2017) the major factors driving globalisation are economic ones:
international trade, outsourcing, offshoring and international
investments. These phenomena have been changing people’s lives for a
long period, shaping economy, polity and society, they made the rise of
some developing countries possible, changing the global scenario. As
domestic demand was no longer enough to increase economic growth,
countries realised they needed to expand their business area, abandoning
protectionist policies to embrace liberal ones. Therefore, economic actors
gained greater profits by benefiting from countries where labour force is
much cheaper and where legislation about certain issues is more
indulgent, thus lowering the overall production costs.
Another important driver is the implementation of strategic
infrastructures: transportation, telecommunication and information
technology. These features are essential to make globalisation happen:
innovation in the field of transportation allowed the relocation of people
and goods at a higher speed, helping achieve proximity to the rest of the

5
world. The same result was reached by the enhancement of
communication systems, hence changing the way society interacts and
the way business is conducted; in this sense, the internet can be defined
as a revolution inside the evolution as it totally changed the human
interaction. This network of interactions and exchanges deeply shaped
the geopolitical dimension giving rise to supranational institutions to
manage relations between nations, such as the United Nations.

1.1.3 Globalisation of Markets.

Throughout the ‘90s, the British Labour Prime Minister Tony Blair
and the President of the United States of America Bill Clinton promoted,
on the heels of the deregulation policies run by Margaret Thatcher in the
UK and Ronald Regan in the USA, the so-called ‘Third Way’. This popular
new political and economic policy was designed considering states as part
of a global economy which required to adopt innovative models, i.e. a
‘democratic capitalism’. The focus is now on the promotion of
entrepreneurship and enterprise growth to create a competitive
economy, by lowering both individual and business taxes. The traditional
left or right-wing politics has become anachronistic and obsolete in the
era of globalisation. You probably won’t be surprised if I tell you that this
policy was influenced by prof. Anthony Giddens himself, who says about
it: “At its most basic, then, the Third Way is described as the path
between the old left and old right. Sounds simple, really – which is part
of the problem.”7 It is not the main focus of this work to analyse the
political meaning or whether it is a good political action or a bad one. It
just helps us to reflect about how the world, in particular the world of
economy, is changing over time. In a simple but clear way, economic

7
http://news.bbc.co.uk/2/hi/uk_news/politics/298465.stm. Retrieved on
July 2018
6
globalisation can be defined as “the intensification and stretching of
economic interrelations across the globe”.8 National economies are not
isolated anymore, there is a dense, complex linkage of imports, exports,
mergers and acquisitions across countries which makes them all
interconnected and necessary to one another. This system slowly
imposed after the United Nations Monetary and Financial Conference,
commonly known as the Bretton Woods Conference, held in 1944 to
restore the international monetary and financial order after World War II.
Nations agreed on setting binding rules on trade activities on an
international scope with the aim of lowering barriers across countries,
through the creation of a more stable monetary exchange rate system
pegged to a fixed gold value, and the foundation of international
organisations which regulated the new international trade experience,
such as: the International Monetary Fund (IMF), the International Bank
for Reconstruction and Development which then became the World Bank
(WB), the General Agreement on Tariffs and Trade (GATT) whose
successor is the World Trade Organization (WTO). Anyway, this system
collapsed: the gold-based fixed rate was abandoned in 1971 and
Thatcherism took hold, establishing neoliberal policies, “consciously
linking the notion of globalization to the ‘liberation’ of economies around
the world”9. Over the last century, free trade agreements increased
exponentially (NAFTA, EU, etc…) and, as a result, several economies
incremented their productivity, and usually profits, bringing to a wider
economic gap between rich and poor countries (Steger, 2003). From the
Eighties on, a financial deregulation took place allowing a greater financial
mobility through the liberalisation of financial transactions. Multinational
companies are no doubt the main characters of this revolution: suffice to
say that sales volumes of many MNC are greater than several countries’
GDP (Steger, 2003). But they are not the only actors on the scene: about
90 percent of companies which export goods and services are small, local

8 Steger, 2003 p. 37
9
Steger, 2003 p. 40
7
realities employing less than 100 people and they still facilitate and
benefit from globalisation (Hill, 2009). However, what needs to be
stressed is that the majority of global markets are not those for consumer
products but markets for industrial goods and raw materials which
provide supplies all over the world. Production is where you can find the
highest levels of globalisation: goods come from locations around the
world to benefit from national differences in the cost and quality of
production. The same happens for services and workforce: the huge gap
between rich and poor countries implies a clear division of labour.
Some scholars argue this is not a new phenomenon: some ascribe the
beginning of the ‘capitalist world system’ to the early modern period, a
time when European centres, e.g. Venice, experienced important
international trades which laid the groundwork for the global market we
have today. Fundamental to the development of such system was the
implementation of socio-political actions and the evolution of
technologies. It is interesting to notice that Karl Marx and Frederick
Engels blamed the colonisation of America and the trade with its colonies
as the accelerator of the rising of the bourgeoisie and the rapid
development of commerce, navigation and industry (Marx and Engels,
1848), hence globalisation.

1.1.4 Criticisms about Globalisation.

The first main criticism to globalisation, as it was already argued,

is that scholars are still unable to agree on what sphere of influence
among economy, politics or cultural aspects is the leading factor of this
phenomenon. In fact, researchers make the mistake of being dogmatic
(Steger, 2003) trying to limit globalisation to only one area – usually their
area – whilst this process is too complex and multidimensional not to be
a consequence of several factors. The so-called ‘globalisation sceptics’
usually argue that globalisation is nothing but the ongoing process of
evolution of the human society, insisting that the boost of the last

8
decades is just a logical consequence of all these new features building
up. According to some of them this began with the emergence of
modernity and the capitalist system, some others say it started millennia
ago.
Another criticism regards the widening of the rich-poor gap or even of
the North-South gap. Globalisation is picked out as a geographically
limited and uneven process (Steger, 2003) since in the global North and,
to a lesser extent, also in the South of the world, huge amount of the
population, have access to the tools and means of globalisation while
some others don’t, usually because they cannot afford it. As wage costs
increased and labour policies made production in developed countries
unprofitable, many companies decided to relocate or outsource
manufacturing and assembling in emerging economies. By doing that,
developed countries are exporting well-paid jobs to emerging countries,
where of course they are not equally paid, replacing them with lower-
paying works in the service area. This situation increased the Gini
Coefficient of several developed economies from an average of 40% to
48% over a period of fifteen years, thus showing how inequality grew
(Moak, 2017). Speaking of production and manufacturing, globalisation
is held liable for the environmental degradation caused by pollution
produced by factories and the individualistic culture and/or the rising
economic availability which spread the habit of travelling with one’s own
car. Both are responsible for the emission of greenhouse gases (GHG)
into the atmosphere, hence provoking 400,000 deaths and costing almost
6% of GDP every year (Moak, 2017).
In the last years, globalisation faced some political opponents whose
actions deeply reflected on the economic sphere, and consequently on all
the others: first, Donald Trump, President of the United States of America
who adopted a protectionist approach, especially against China and the
EU. Besides, in Europe several right-wing parties are promoting a more
nationalist focus, a perfect example can be the BREXIT, the withdrawal
of United Kingdom from the EU voted in a referendum on June 2016.

9
Such a popular subject of discussions couldn’t stand up to any criticism
but, at the same time, the benefits of the ongoing process of globalisation
are undeniable.

1.2 Cultural Dimension of Globalisation: Cross-Cultural Management.

Globalisation changed the competitive landscape, as we discussed in

1.1.3. That’s why different types of commercial activities may decide to
expand or to relocate abroad. The main reasons they usually decide to
do so are the followings:

• To access new customers: it usually happens when the

organisations have the chance to extend the life-cycle of their
products, when the home market is saturate or when they want
to exploit their core competences as much as they can;
• To get economy of scale, thus lowering costs, increasing
purchasing power and spreading their business risks across a
larger market base;
• To have access to resources available in other markets: in the
specific case of emerging markets companies usually take
advantage of a relatively skilled, low-cost workforce, natural
resources such as oil, gas, minerals, and so on (Thompson et al.,
2013)

Enterprises and management guides and manuals usually focus on how

important it is to properly analyse the competitiveness of the market a
company is approaching, the demand condition, the economic and
political situation, sometimes underestimating the relevance of another
fundamental factor, i.e. the socio-cultural background of that specific
country. Whatever strategy a business chooses to enter a new market
from export strategies, licensing/franchising, acquisitions or joint
ventures, culture always has to be considered and deeply analysed in

10
order to understand whether the investment can be effective and not only
a waste of time, money or reputation.
“Verite en-deça des Pyrenees, erreur au-detà”: as the French philosopher
Blaise Pascal said about four centuries ago, what holds true in one
country, can be considered wrong in another one. Nowadays, even top
managers and executives are too often unprepared to approach culturally
different environments. Of course, it is impossible to master all the
cultural peculiarities from all over the world, but some generalisations
can be applied successfully to a cross-cultural context. Sociology and
cultural anthropology can positively influence and drive international
business, such that managers can develop a greater cultural awareness
which helps them operate more comfortably in a foreign business
environment in order to avoid several mistakes, from communication to
the internal organisation of the company. An increase in the flow of
information available about the country to approach is needed to develop
global actors in our global society. Many multinational companies are
already active in this field, such as Intel Corporation, for instance, which
hired a team of design ethnographers to study and understand the way
people use high-tech tools to improve Intel’s devices in the future. But
this is not only a prerogative of MNCs, entrepreneurs need to understand
that whenever someone decides to invest abroad, the cultural setting,
along with all the other fundamental factors for doing business, must be
properly analysed. International business assignments often fail due to
the wrong assumption that being successful in the home market means
that the same expertise, methods, tools will get the same success in a
different environment (Ferraro, 2002).This is also due to the fact that all
societies are ethnocentric to a certain degree, thus erroneously thinking
that ‘their way’ is the right one, without considering that others might act
and reason in a completely different way.
When outlining what culture really is, even anthropologists provide
different definitions. Ferraro (2002) proposes a short but complete one,
saying that “Culture is everything that people have, think and do as

11
members of their society”10. Hence, culture is made up of what people
materially have, and of all the thoughts, values and behaviours; since in
the sentence it is mentioned the society people live in, culture has to be
shared among several people not to confuse it with the idiosyncratic
behaviour of a single individual. Moreover, culture is learnt from the
interactions with the society and the environment where the individual
grows up, experiencing all the reactions and solutions to the basic daily
issues a person meets in his/her life; it is not inborn or instinctive.
“All cultures of the world ‒ despite many differences ‒ face a number of
common problems and share a number of common features, which we
call cultural universals”, Ferraro (2002) says. These universals are:

• Economic systems
• Marriage and family systems
• Educational systems
• Social control systems
• Supernatural beliefs systems

These macro-systems are in a perpetuum evolution, changing through a

cultural innovation which occurs from both external and internal drivers.
Discoveries and inventions have always been shared among the different
populations. Thanks to the intensification of the process of globalisation
we are experiencing borrowings of tools, devices, foods, thoughts, words
and phrases, habits etc… from other cultures on a daily basis, making the
cultural diffusion more and more intense. To succeed in international
business managers and entrepreneurs must acquire an intimate
knowledge of the cultures of foreign markets to determine if, how, and
to what extent their business is likely to be understood and assimilated.
For instance, in the case a firm decides to bring an innovative product or
service to a new market, managers need to know that it is likely to be
adopted if:

10 Ferraro, 2002 p. 19.

12
 • It is in line with the cultural patterns of that place
• It is considered superior to the already existing similar products or
services
• It is easily understandable
• It can be tested on a limited basis
• Its benefits are clearly measurable.

The following table provides a classification of priorities for three different

cultures: United States, Japan, Arab Countries.

Table 1.1

Priorities of Cultural Values11

U.S.A Japan Arab Countries

1. Freedom 1. Belonging 1. Family Security

2. Independence 2. Group harmony 2. Family Harmony
3. Self-reliance 3. Collectiveness 3. Parental Guidance
4. Equality 4. Seniority 4. Age
5. Individualism 5. Group consensus 5. Authority
6. Competition 6. Cooperation 6. Compromise
7. Efficiency 7. Quality 7. Devotion
8. Time 8. Patience 8. Patience
9. Directness 9. Indirectness 9. Indirectness
10.Openness 10.Go-between 10.Hospitality

As the table 1.1 shows, differences among cultures are sensitively

evident: what results to be the most important values for the North
American culture is not considered at all from the Japanese and the Arab
ones. Due to their holistic nature, Japanese and Arab cultures have
completely different values from the individualistic North American

11Where 1 represents the most important value, 10 the least important.

Adapted from information found in F. Elashmawi and Philip R. Harris,
Multicultural Management (Houston: Gulf Publishing, 1993), p. 63.
13
environment. All this reflects on language, attitude, behaviour and hence,
on the way of doing business and marketing.

1.2.2 Hofstede’s Classification of Cultures: the 6-D Model.

Culture can be studied at different levels of aggregation. At a

deeper level we find societal, national and gender culture which are not
inborn, as we said, but they are deep-seated in people’s conscience; they
lie in values, providing a certain behaviour to those who belong to that
specific culture. On a surface level there is the school or organisational
culture, they might change throughout a person’s life, moving from a job
to another, for instance; i.e. people may approach to different
organisational environments by adapting to that specific set of rules and
behaviours. This topic recurred constantly throughout the last century in
the literature of various subjects, from sociology to psychology. The effort
of Geert Hofstede, the founder of ethnometry, is of particular concern as
it is an ongoing analysis since the Seventies, when he started analysing
the origins of cultural factors in elementary social institutions such as
family and religion and observing their ramification in spinoff institutions
(economics, business and business organisations). He drew the
conclusion that these cultural dimensions shape the organisational chart
and the way organisations are managed (Wackowski, Blyznyuk, 2017).
At the beginning of his research path, he almost accidentally ran into a
survey database analysing values of people in local subsidiaries of IBM
Company in more than 50 different countries. The database was made of
more than 100,000 questionnaires, collected twice over a period of four
years. To get a confirmation that the result of this research could fit to
other contexts, he then administered the same set of questions to about
400 management trainees from 30 countries taking part to an

14
international program of a different multinational enterprise: these
trainees were perfect to detect differences in national value systems as
they were similar in every respect but nationality. Through a matrix of 32
value questions for 40 countries, common issues the employees had to
deal with in all societies emerged together with different, typical
solutions. Four basic dimensions of national cultures were identified from
this preliminary work. During the 2000s, after years of contributions to
the matter from other scholars and researchers, two other dimensions
completed the picture. The six dimensions are summarised in table 1.2.

Table 1.212

Hofestede’s Dimensions of Organisational Cultures

Power Distance This dimension deals with the fact that all individuals in
(PDI) societies are not equal – it expresses the attitude of the
culture towards these inequalities amongst us. Power
Distance is defined as the extent to which the less powerful
members of institutions and organizations within a country
expect and accept that power is distributed unequally.
Small Power Distance: Use of power should be legitimate
and is subject to criteria of good and evil; Parents treat
children as equals, Older people are neither respected nor
feared; Student-centered education; Hierarchy means
inequality of roles, established for convenience;
subordinates expect to be consulted; Pluralist governments
based on majority vote and changed peacefully; Corruption
rare; scandals end political careers; Income distribution in
society rather even; Religions stressing equality of
believers. Large Power Distance: Power is a basic fact of
society antedating good or evil: its legitimacy is irrelevant;
Parents teach children obedience; Older people are both
respected and feared; Teacher-centered education;
Hierarchy means existential inequality; Subordinates
expect to be told what to do; Autocratic governments based
on co-optation and changed by revolution; Corruption
frequent; scandals are covered up; Income distribution in
society very uneven; Religions with a hierarchy of priests.
Uncertainty The extent to which the members of a culture feel
Avoidance threatened by ambiguous or unknown situations and have
(UAI) created beliefs and institutions that try to avoid these is
reflected in the score on Uncertainty Avoidance. Weak
Uncertainty Avoidance: The uncertainty inherent in life is
accepted and each day is taken as it comes; Ease, lower

12 Adapted from Hofstede, 2011 p. 9-16

15
 stress, self-control, low anxiety; Higher scores on
subjective health and wellbeing; Tolerance of deviant
persons and ideas: what is
different is curious; Comfortable with ambiguity and chaos;
Teachers may say ‘I don’t know’; Changing jobs no
problem; Dislike of rules – written or unwritten; In politics,
citizens feel and are seen as competent towards authorities;
In religion, philosophy and science: relativism and
empiricism. Strong Uncertainty Avoidance: The
uncertainty inherent in life is felt as a continuous threat that
must be fought; Higher stress, emotionality, anxiety,
neuroticism; Lower scores on subjective health and well-
being; Intolerance of deviant people and ideas: what is
different is dangerous; Need for clarity and structure;
Teachers supposed to have all the answers; Staying in jobs
even if disliked; Emotional need for rules – even if not
obeyed; In politics, citizens feel and are seen as
incompetent towards authorities; In religion, philosophy
and science: belief in ultimate truths and grand theories.
Individualism – The fundamental issue addressed by this dimension is the
Collectivism degree of interdependence a society maintains among its
(IDV) members. It has to do with whether people´s self-image is
defined in terms of “I” or “We”. Individualism: Everyone
is supposed to take care of him- or herself and his or her
immediate family only; “I” – consciousness; Right of
privacy; Speaking one’s mind is healthy; Others classified
as individuals; Personal opinion expected: one person one
vote; Transgression of norms leads to guilt feelings;
Languages in which the word “I” is indispensable; Purpose
of education is learning how to learn; Task prevails over
relationship. Collectivism: People are born into extended
families or clans which protect them in exchange for loyalty;
“We” consciousness; Stress on belonging; Harmony should
always be maintained; Others classified as in-group or out-
group; Opinions and votes predetermined by in-group;
Transgression of norms leads to shame feelings; Languages
in which the word “I” is avoided; Purpose of education is
learning how to do; relationship prevails over tasks.
Masculinity – The fundamental issue here is what motivates people,
Femininity wanting to be the best (Masculine) or liking what you do
(Feminine). Femininity: Minimum emotional and social
(MAS) role differentiation between the genders; Men and women
should be modest and caring; Balance between family and
work; Sympathy for the weak; Both fathers and mothers
deal with facts and feelings; Both boys and girls may cry
but neither should fight; Mothers decide on number of
children; Many women in elected political positions;
Religion focuses on fellow human beings; Matter-of-fact
attitudes about sexuality; sex is a way of relating.
Masculinity: Maximum emotional and social role
differentiation between the genders; Men should be and
women may be assertive and ambitious; Work prevails over

16
 family; Admiration for the strong; Fathers deal with facts,
mothers with feelings; Girls cry, boys don’t; boys should
fight back, girls shouldn’t fight; Fathers decide on family
size; Few women in elected political positions; Religion
focuses on God or gods; Moralistic attitudes about
sexuality; sex is a way of performing.
Short-Term This dimension describes how people in the past as well as
and Long- today relate to the fact that so much that happens around
Term us cannot be explained. In societies with a normative
Orientation orientation, most people have a strong desire to explain as
(LTO) much as possible. In societies with a pragmatic orientation
most people don’t have a need to explain everything, as
they believe that it is impossible to understand fully the
complexity of life. Short-Term Orientation: Most
important events in life occurred in the past or take place
now; Personal steadiness and stability: a good person is
always the same; There are universal guidelines about what
is good and evil; Traditions are sacrosanct; Family life
guided by imperatives; Supposed to be proud of one’s
country; Service to others is an important goal; Social
spending and consumption; Students attribute success and
failure to luck; Slow or no economic growth of poor
countries. Long-Term Orientation: Most important
events in life will occur in the future; A good person adapts
to the circumstances; What is good and evil depends upon
the circumstances; Traditions are adaptable to changed
circumstances; Family life guided by shared tasks; Trying
to learn from other countries; Thrift and perseverance are
important goals; Large savings quote, funds available for
investment; Students attribute success to effort and failure
to lack of effort; Fast economic growth of countries up till a
level of prosperity.
Indulgence and One challenge that confronts humanity, now and in the
Restraint past, is the degree to which small children are socialized.
(IND) Without socialization we do not become “human”. This
dimension is defined as the extent to which people try to
control their desires and impulses, based on the way they
were raised. Relatively weak control is called “Indulgence”
and relatively strong control is called “Restraint”. Cultures
can, therefore, be described as Indulgent or Restrained.
Indulgence: Higher percentage of people declaring
themselves very happy; A perception of personal life
control; Freedom of speech seen as important; Higher
importance of leisure; More likely to remember positive
emotions; In countries with educated populations, higher
birth rates; More people actively involved in sports; In
countries with enough food, higher percentages of obese
people; In wealthy countries, lenient sexual norms;
Maintaining order in the nation is not given a high priority.
Restraint: Fewer very happy people; A perception of
helplessness: what happens to me is not my own doing;
Freedom of speech is not a primary concern; Lower

17
 importance of leisure; Less likely to remember positive
emotions; In countries with educated populations, lower
birth rates; Fewer people actively involved in sports; In
countries with enough food, fewer obese people; In wealthy
countries, stricter sexual norms; Higher number of police
officers per 100,000 population.

The 6-D Model is made up of dimensions, i.e. aspects of culture which

can be measured and compared relative to others. Definitions provided
above are extreme, reality usually finds itself in any point between those
described in Table 1.2. The labels of dimensions are merely arbitrary, we
are using the same nomenclature used by G. Hofstede in his works, but
several different names have been adopted.
Originally, in the researches done during the Eighties, Hofstede identified
the first four dimensions. At a later stage, after criticisms of being too
focused on Western (American) style of management and ownership, he
introduced the “short-term and long-term orientation” (Confucian
Dynamism), typical dimension which highlights differences between
Western and Eastern mentality. In recent times he added the “indulgence
versus restraint” factor, which deals with the joy of living.
It is interesting to highlight two correlations emerged thanks to
Hofstede’s research: one between culture and national wealth, which is
considerably correlated to individualism and small power distance, the
other one between Hofstede’s dimensions and personality dimensions in
conditions such as neuroticism and extraversion, the former being
explained by a mixture of Uncertainty Avoidance and Masculinity, the
latter by individualism (Hofstede, McCrae, 2004 cited in Hofstede, 2011).
According to Hofstede’s analysis, each country gets a score from 0 to 100
for each of the six dimensions, where 0 is the lowest score and 100 the
highest.
This classification helps us predict and understand what to expect from a
certain culture in disparate environments, included the business arena.
Thanks to the results of these analysis it is now easier for managers and

18
entrepreneurs to get the way people reason and thus how they might
react to certain issues. In doing so, they are able to properly evaluate
how to cope with an international business environment.

1.3 The Ukrainian (Business) Culture.

In this section, we are going to analyse in depth the Ukrainian

culture through the lens of the 6-D Model implemented by G. Hofstede,
in order to understand how people in that country act and react. As we
said before, the model provides a general tendency of people’s behaviour,
although individual attitude may differ from the general one. These
parameters are relative, so they represent the ratio of the manifestation
of two opposite phenomena.
The peculiar feature of the geopolitical position of Ukraine makes it a very
interesting country from many perspectives: its location in the zone
between East and West (between Western European and Eastern
European cultures), between the Catholic and Orthodox branches of
Christianity makes it attractive above all for business. With a population
of 45 million, it is among the biggest emerging consumer markets in
Central and Eastern Europe and the largest European country by territory
after Russia (Blyznyuk, Lepeyko, 2016). Indeed, it has a rather strong
economic potential (that we are going to analyse in depth later). Ukraine
grasped and assimilated values from different cultures, resulting in a
system characterised by a rather strong regionalism. Since it is pretty
easy for everyone to access material resources, nowadays people are
shifting the focus to the human capital, that is what might make the
difference. In international business there’s a growing awareness of the
rising importance that managing and dealing with people has today. For
a business to be successful cultural differences and peculiarities must be
considered in order to get suitable results and get a competitive edge
over rivals. For example, for a joint venture to work out it is necessary to
understand the culture of the local subsidiary to optimize relationships

19
with its representatives. That’s why we are going to analyse Ukrainians
cultural traits, according to the G. Hofstede’s 6-D model. This insight
provides a rather complete overview of the deep drivers of the Ukrainian
culture.

Figure 3 Ukraine, Country Comparison - Hofstede Insights13

• Power Distance: it is the dimension relative to the extent to which

uneven concentration of power in a given country is approved and
tolerated. Scoring 92, Ukraine turns out to have a large power
distance, thus a high level of internal inequality, a hierarchical
pyramid structure of the organisations (in schools, enterprises,
etc…) and a tendency to centralisation. This is also due to the fact
that Ukraine has been part of the Soviet Union for 74 years. The
gap between powerful and non-powerful people needs to be
displayed by appropriate behaviours which show off an individual’s
role within society. This attitude emerges in the business
environment through an authoritarian management style, where
subordinates do not take part to the decision-making process
(Blyznyuk, 2012), and executives are usually unattainable; it is
usually difficult to find out who’s the person responsible for a given

13 From “Country Comparison - Hofstede Insights”.

20
 decision and only structured problems are taken into account.
There’s a huge difference in wages, which may even reach a gap
of twenty times (Blyznyuk, 2012), rights and opportunities, such
that it is common that subordinates’ initiatives are not considered
or approved by senior managers (Wackowski, Blyznyuk, 2017).
They usually adopt a top-down approach and define clear orders
for any task.
• Individualism – collectivism: with an IDV=25, Ukraine ranks as a
country with a collective culture, i.e. a person is first member of a
group and only then an individual and personality. As the Hofstede
Insight points out “If Ukrainians plan to go out with their friends
they would literally say “We with friends” instead of “I and my
friends” proving how national culture is reflected in a specific,
peculiar wording in any language. In business, this reflects in a
focus on achieving collective goals, where the success of the group
is more important than the personal growth and self-realisation of
the individual. The company’s interests dominate the interests of
the individual and the group’s opinion is what matters. This
particular dimension is an example which reveals the duality of the
Ukrainian mentality: on the one hand we find the Eastern
Ukrainian collective mentality, embedded in the Eastern, Southern
and some Central areas of the country, strictly connected to the
post-Russian and post-Soviet bequest; these regions have strong
ties with Russia, hence usually adopting Russian language and
religion. On the other hand, there is the Western Ukrainian
individualist mentality, the legacy conveyed by the Zaporizhian
Cossacks, strongly influenced in culture and religion by the Polish
and Austro-Hungarian domination. This regionalism is also evident
in the linguistic fragmentation of the country (Wackowski,
Blyznyuk, 2017; Blyznyuk, Lepeyko, 2016).
• Masculinity – Femininity: with a score of 27, Ukrainian culture is
characterized by femininity and passive target behaviour. It means

21
 that quality of life is the sign of success and standing out from the
crowd is not admirable: the main prerogatives are caring for
others, harmony, hence inclination to compromise. Societies with
a high score of masculinity are more competitive and success-
minded where success is defined by “the winner”, the one who
performs best. In the Ukrainian feminine society, it is important to
assure a good, conflict-free atmosphere, a sense of security and
emotional support in the workplace. This also implies that both
men and women may take up a career in various fields, a mutual
dependence between the two genders and a less fixed division of
social roles (Szydło, 2016); dominant behaviour might be accepted
when it comes from a superior, but it is not appreciated among
peers. Femininity dominance in Ukraine has deep historical roots
since the archetype of the “Great Mother” (Wackowski, Blyznyuk,
2017), which spread after the Ukrainian independence, when
women started fighting in the name of Berehynia, a myth
symbolising the Ukrainian matriarchy (Szydło, 2016).
• Uncertainty avoidance: this dimension is associated with the
uncertainty of future happenings and situations and the way
people deal with this anxiety. Ukraine is a country with high
uncertainty avoidance UAI=95, meaning that people in this
country feel threatened by unknown or ambiguous situations,
therefore they implemented institutions in a way that reflects this
anxiety, building up a system of high formalisation and hierarchy.
Nonetheless, although the legal system bans whatever is not
allowed in society, legal nihilism is very common (Wackowski,
Blyznyuk, 2017) but, paradoxically, they would feel uncomfortable
without that kind of system (Barkema, Vermeulen, 1997). For
instance, with regard to the business environment, Ukrainians
usually inquire about the context and background of the situation
they are going to approach since they don’t want to run major
risks, they always behave formally and appear to be distant.

22
 Moreover, this inclination leads to a highly stratified organisational
structure, which confirms what we already said when dealing with
other dimensions.
• Short- term – long-term orientation: this is the dimension of
“Confucian Dynamism”, later analysed by Hofstede to include
dimensions which could stress the differences between East and
West. It studies the tendency to make long-term or short-term
plans about life, work and other important aspects, depending on
the belief that what happens in life can be explained and fully
understood, or not. Ukraine ranks in the middle with a score of 55,
proving a medium-term orientation. It means that Ukrainian
society doesn’t have a clear tendency towards one of the extremes
of the LTO dimension.
• Indulgence – restraint: as a result of how children are raised, they
develop a strong or, on the contrary, weak tendency to control
their instincts and desires. Scoring IND=18, Ukrainians show a
restrained behaviour (e.g. formality and distance in relationships
with others). People think that social norms strictly control them,
also due to the fact that restrained societies are rather cynical and
pessimistic. They naturally don’t put much emphasis on leisure.

Although the Ukrainian society has not a particular time orientation in

relation to Confucian Dynamism, it should be stressed that it is a society
with a polychronic tendency. In polychronic time systems, time is
perceived as cyclical and continuous, a sequence of large fluid sections;
polychronic societies are much more focused on relationships and
traditions rather than on tasks: for instance, it wouldn’t be unusual for a
Ukrainian to cancel a business meeting last minute to put a family
business ahead (Lepeyko, Blyznyuk, 2010). It is a system where several
things can be done simultaneously and the perception of time is much
less formal than in monochronic cultures. Table 1.3 shows the main traits
that make the various time systems different.

23
Table 1.3 Time Culture 14.

MONOCHRONIC POLYCHRONIC REACTIVE societies

societies societies
• Systematic • General planning • Adapting
planning of the of the future schedules to
future • Do many things situations
• Do one thing at at time • Reacts to
time • Work at any time situations
• Work in a fixed • Unpredictable • Consider all
time schedule possibilities
• Fixed, organised • Projects may • Need to think to
schedule overlap take decisions
• Projects are • Plans might • Plans might be
divided into change adjusted
several phases
• Strictly follow
established plans

Using the Culture Compass provided in the Hofstede Insights website it

is possible to compare the scores of each country with regard to the
Hofstede dimensions, thus having an overview of the main differences
and similarities among these cultures. It can be used to know which
aspects of a given culture managers should read up on to avoid
misunderstandings. In this case we are considering three countries:
Ukraine, United States and Italy. United States were chosen since they
are considered to be (one of) the major influencer of today’s culture (cf.
Americanization, McDonaldization) and above all the leading country in
business and managerial best practices; Italy is one of the the country
where this research took place, a western country with a strong,
distinctive culture.

14 Adapted from Lepeyko and Blyznyuk, 2010 p.154

24
Figure 4 Italy, Ukraine, USA - Country Comparison Hofstede Insights”.15

As shown in the graph, Ukrainian culture is rather different from the

Italian and the American one. The gap is particularly sizable when
compared to the United States: in each of the six dimensions, Ukraine
ranks at the opposite extreme, hence showing a completely different
culture. It means that misunderstandings and misjudgements could
easily occur. Since American and Ukrainian managers and employee
reason in a different way and have different priorities, procedures
working in an American company might not fit to the Ukrainian business
environment, e.g. an American manager supervising a department of a
Ukrainian subsidiary should understand that for a local employee it is
more important to achieve goals and objectives which reward the group
rather than himself; under these circumstances it is much more effective
to provide a set of benefits and incentives which reward the whole
working group and not only “the one who performs best”. The same
condition holds true for Italian managers and entrepreneurs who wants
to expand or set up a new business in Ukraine, they are different in each
dimension except for the time orientation which is rather similar. This

15 From “Country Comparison - Hofstede Insights”.

25
simple tool is very useful to take a step closer to the idea that cultural
differences exists and are crucial for the success of an international
experience. Ignoring them would mean to run into uncomfortable
situations and in worse cases, to the decline of the business relationship,
wasting a lot of time and money.

This country differs from many others by its “hybridity”, which is typical
of borderlands: Ukraine has been oppressed by fights over its territory
for the demarcation of borders, and it still is. These events dramatically
shaped the country and the culture and attitude of its inhabitants.
Whereas before the country experienced a redrawing of boundaries from
the Russian and Austrian-Hungarian Empire and then from the Soviet
Union, now that the European Union is expanding eastward, it is
undergoing a new transition period in which Ukraine as a whole should
decide whether to belong to the West (EU) or to the East (Russia and the
CIS). As A. Ivakhiv (2006) states in his article:

“Countries to the east of the EU boundary, including Ukraine, have

expressed a strong desire to be admitted into the ‘real Europe’, and
claims to being or containing Europe’s centre can be seen as part of
this effort to refigure the marginal status of this nations.”16

The desire of carving itself out from the Soviet legacy and joining the EU
is clear even to the most inattentive guest, as figure 5 and 6 shows. It is
ordinary in Ukraine and other eastern European countries such as
Moldova or Georgia, to see the EU flag close to the country’s one in front
of institutional buildings. The hybridity and flexibility which characterised
the history of this countries allows them to show off their desire for
change, even by raising flags that do not belong to them (yet).
Ukrainian’s hybridity is also reflected by its religious institutions: although
in Ukraine most of the population adheres to Christianity, this is not
sufficient to define the faith of the Ukrainians. In fact, the Orthodox set

16 From Ivakhiv A. 2006, p. 12.

26
of Christianity in Ukraine is divided in the Kiev Patriarchate, the Moscow
Patriarchate and the Ukrainian Autocephalous Orthodox Church, all
among the most followed religions; in the Catholic set, the most followed
one is the Ukrainian Greek Catholic Church. It is interesting to underline
that in the Odessa Oblast’, a region still embedded in the Russian legacy,
more than the 80% are Orthodox, while in L’viv’s Oblast’, which was part
of Poland until 1939, about the 60% are Greek Catholics and 30%
declares to be Orthodox. 17 These data substantiate the idea that the
Ukrainian culture is heterogenous, complex and needs to be fully
understood not to incur in misunderstandings. There are many souls
inside this country and each of them has to be acknowledged.

Figure 5 Maidan Nezalezhnosti (Майдан Незалежності) Square, Kyiv.

Picture taken by the author on November 2017.

17Data from the poll run by the Razumov Centre, SOCIS, Rating and KIIS
available here: http://infolight.org.ua/content/religiyni-vpodobannya-
naselennya-ukrayiny
27
 Figure 6 Odessa’s City Hall (detail). Picture taken by the author on
December 2017.

1.3.2 The Ukrainian Manager.

The Ukrainian researchers Blyznyuk and Lepeyko (2016) profiled in

their study an outline of the typical Ukrainian manager, a kind of
prototype. Their work is implemented through the theory of generations’
tools and a desk analysis consisting mainly in previous Ukrainian
researches on cross-cultural management. The study also takes into
account the main components of the Ukrainian mentality, its archetypes
and its dualism. As a result of this investigation, this is the profile of a
Ukrainian business manager: he (they are mainly men) is a Central-
Eastern Ukrainian in his thirties (thus belonging to Generation X), coming
from a family with a valuable social status; he has at least one academic
degree and trained in Ukraine, therefore his mentality and attitude are
rather similar to that of his colleagues. Due to the ‘femininity’ of Ukrainian
culture, he tends to establish a home atmosphere by caring for the
others, especially for subordinates. He tries to stimulate and motivate

28
employees through a personal system of motivation rather than with
money, which is perceived to be less important than approval and cheer
in this society, hence less effective as a catalyst for an improvement in
the workplace. He knows how to exploit Ukrainians capability to deal with
uncertainty and their inventive reasoning. He’s independent, accustomed
to changes and flexibility and he speaks fluently at least English and
Russian as foreign languages (if he is born in a Ukrainian-speaking
region). In reality, most of Ukrainian managers usually demonstrate
characteristics of both Western and Eastern Ukrainian mentality, but in
different proportions, due to their place of birth. The dimension which
varies the most is individualism – collectivism: as it was stated in 1.3,
Western Ukrainians are closer to the Polish, Catholic mentality, thus more
individualistic, whereas the Eastern and Central Ukrainians are more
comparable to the Russian and Soviet collectivistic mindset.

29
30
 CHAPTER II

COPING WITH THE UKRAINIAN MARKET

Since the liberalisation of the former Soviet area many companies and
entrepreneurs decided to move to these countries to exploit market and
production opportunities they could provide. Some have been successful,
while others couldn’t manage this experience profitably. The
Commonwealth of Independent States (CIS) experienced a wave of
foreign direct investments (FDI) in recent times only (Kudina, Jakubiak,
2008). The most common drivers for internationalisation according to
Dunning (1993) are the followings:

• Resource-seeking: usually FDI take place when the country

possessing the resources lacks or the technical skills to extract and
refine them.
• Labour-seeking: especially MNCs move some or all the stages of
production to countries where the real labour costs are much lower
than those of the home country of their business.
• Market-seeking: for firms it is important to cover as many markets
as possible to get a competitive edge over their rivals. This factor
considers market size, per capita income and market growth.
• Efficiency-seeking: when companies are trying to rationalise their
current resources and structures to be as effective as possible,
focusing their production and distribution hubs in strategic areas of
the specific region they are operating in.

Ukraine belongs to the leading mineral-raw countries of the world with a

wide range of minerals: it has about 5% of the world’s mineral resources;
e.g. it has 1.104 trillion cu m of natural gas proved reserves, ranking 26th
out of 212 countries. The 71.2% of its territory are agricultural land, the

31
56.1% is arable, 1.5% has permanent crops and the 13.6% permanent
pasture. It has a strategic position being at the crossroads between
European Union and Asia (CIA World Factbook).
Unfortunately, this come with a downside: many widespread practices
and phenomena make it difficult to run a business in a successful way.
Pointing out these barriers could be very helpful to be fully prepared for
a first experience in Ukraine.

2.1 Corruption and Criminality.

What make this country attractive for business, make it also

attractive for illegal practices of organised crime organisations and
corruption: its strategic position on the edge of Europe and Asia makes it
an important transit point for criminal activities. The concomitance of
these phenomena hinders FDI and domestic investments while
supporting the capital flight. As Image 2.1 shows, the problem is well
known and it concerns every layer of the Ukrainian society, from the
border patrol to the political sphere. Corruption in Ukraine can be divided
in three levels, from the highest to the lowest:
1. Political corruption: it allows the distortion of state decisions, poor
legislation to fight against criminality and corruption; hence, it
causes people’s distrust of the state. This implies that politicians
often manage the cash flows of state enterprises, that’s why there
are continuous delays in privatization programs. Indeed, it is a
standard practice for Rada members to be financed by rich
entrepreneurs, the so-called oligarchs, to influence the public
decision-making process in their favour;
2. Corruption in the interactions between businesses and the
authorities: this is the main reason why a free market mechanism
does not function properly in Ukraine. Competition is highly unfair
and there’s no consumer protection.

32
3. Day-to-day corruption: bribes are common in any form. They are
usually used to boost everyday services, to get them faster and
easier. It is not rare to experience cases of extortion exercised by
local administrations on business or individual citizens. Bribes are
responsible for losses of public money, they contribute to foster the
malfunctioning of state institutions and public services, and result
in degradation of the quality of life of people. The Ukrainian Mafia
belongs to the third type of corruption. In a survey in 2010, 30–
50% of respondents admitted paying a bribe to a service provider
during the past year.

Figure 7 Picture taken by the author at the passport control, Kyiv

Boryspil’ International Airport, November 2017.

33
The Soviet legacy is one of the most important factors which implicated
the current criminal arena: organised crime in post-Soviet countries such
as Ukraine, stems from the complete absence of a legal system and
institutional capacity to address a period of profound property
redistribution. Former Soviet countries experienced a strong repression
of any legitimate economic activity during the Communist regime, which
used to implicitly allow illicit enterprises (Williams, Picarelli, 2002). A
bulky underground economy then arose, and it didn’t diminish after the
end of the Soviet Union: for members of the shadow economy it was
common to bribe government officials and other people of public
relevance to look the other way (Shelley, 1998). As a consequence, after
the downfall of the Soviet power, the successor states were not ready to
develop and manage a free market condition and, at the same time, they
were too weak to face the problem of the rising criminality, although it
followed the same pattern of the other former Soviet countries. According
to Williams and Picarelli (2002) the steps facilitating the development of
criminality during the state transition process are:

• collapse of state structures and resulting crisis of authority and law;

• economic dislocation resulting from a shift in the principles of
economic management and deep change in economic practices;
• re-orientation of relationships with the outside world (transition
from a command to a free-market economy).

Together with the legacy of the Soviet period, the policies carried out by
the Ukrainian government from the very first years deliberately
determined the current crime situation. In fact, the former Soviet
government officials have not been removed from their office, so that the
consolidated, Soviet-style mechanism could continue. Moreover, those
involved in economic crimes under the USSR, are now the key players in
international corruption (Shelley, 1998). The criminal world took
advantage of the traditional meeting places such as sports clubs, hot
springs, etc… to establish informal relationships with politicians. Crime

34
and sport have a very tight tie: for instance, the Ukrainian FC Metalist
Kharkiv, once one of the richest and strongest football clubs in the
country, experienced a lot of troubles after the Russian invasion in the
Donbass region; in fact, its owner Serhiy Kurchenko, founder of the Gas
Ukraine 2009 company, has been accused of supporting the pro-Russian
army, embezzlement and tax evasion. He’s on the run, probably in
Russia, since Yanukovych’s charge of impeachment (Cabrio, 2015) while
the club is currently under state property. Kurchenko, “the gas king of
Ukraine” is a typical example of a Ukrainian businessman who owes much
of its success to the relationship with high-ranking officials connected to
the former Prime Minister Viktor Yanukovych.
The political corruption inevitably implies that the electoral and legislative
process is deeply manipulated to serve the interests of those involved in
this criminal-political nexus: this phenomenon is particularly evident in
the process of privatisation and in the banking and financial market. The
former experienced a process of ‘spontaneous privatisation’, i.e.
managers of public firms magically became the owners of those
enterprises they once administered; the enrichment of the former
nomenklatura was particularly significant and ruinous in the old centres
of power such as Donetsk and Dnipropetrovsk, where there’s evidence of
several unpunished contract killings; the impunity contributed to feed the
anger and the sense of frustration of the population. In this way, at the
end of the Nineties, the government officials and crime groups gained
much of the state resources, especially in the gas and metallurgy sector
in the Eastern areas of the country, and in the residential real estate field
in cities such as Kyiv.
The financial market struggled to develop since it is deeply afflicted by
both the Russian and Ukrainian criminality: here again, the lack of proper
supervision and of a centralised information processing makes it
vulnerable and subject to criminal deceptions. Money laundering is a
widespread phenomenon but the most alarming aspect is that banks are
an important source of information about enterprises for criminals, so

35
that they can use it to extort money from businesses or in any other way
to their advantage. There’s a close partnership between criminal groups
and tax authorities: information gained from the bank can be both used
to extort business directly, or they are sometimes sold to the tax police;
conversely, tax authorities share information with criminals as well.
Research conducted by Ernst & Young showed that the practice of top
managers accepting the payment of bribes increased by 9 percent in 2011
and 15 percent in 2012. Another 4 percent were ready to pay bribes in
order to hide the details of their financial performance. These illegal
practices are particularly dangerous for the Ukrainian economy since they
aid the capital flight (both illicit and licit), institutions and entrepreneurs
don’t feel safe keeping their money in domestic banks and hence
undermining the possibility of domestic and foreign investments. For
instance, in 1997 Motorola decided to cancel an investment of $500
million due to the obvious involvement of corrupted entrepreneurs and
organised crime in the telephony market (Shelley, 1998). According to a
report of the Bleyzer Foundation (2016):

“[…] the highest corruption levels as perceived by the population

were found in government inspections (57.5%), the police (54.2%),
health care (54%), the courts (49%) and higher education (43.6%).
Some surveys around 2000 suggested that corruption costs the state
budget USD 3billion to USD 5 billion in revenues annually and that
through corrupt dealings in public procurement 10% to 15% (USD
7.4 billion) of the state budget "ends up in the pockets of officials".
A more recent estimate shows that in 2015 around USD 20 billion or
almost ¼ of the Ukrainian annual GDP were wasted through different
corruption schemes.”

Organised crime in Ukraine is a heterogeneous phenomenon: thanks to

links and partnerships with other international crime groups coming from
both Asia (Turkey and the Caucasus) and Europe, and above all from
former USSR countries, it is diversified and flexible. It is a natural link

36
among Europe and Asia and it is an important transit country for
smugglers.
Among the traditional factors contributing to the advancement of this
endemic issue there are strategic ports (cf. Odessa), the presence of
relevant ethnic minorities, unsolved conflicts and long-time trade routes
(Shelley, 1998).
Corruption and criminality are depriving Ukraine of the funds it needs to
meet the state responsibilities since the majority of the economic
activities are unreported. This leads to a high level of mistrust and a lack
of state support from the citizenry. Only in recent years, Ukraine showed
the will to address this problem by adopting the necessary actions, but
there is still much to do about it.
An investigation conducted by Denisova-Schmidt and Huber (2014)
analysed regional differences in perceived corruption and informal
practices among Ukrainian companies. The research, which takes into
account the size, industry and other features of the firms, shows how
perception of corruption varies considerably across regions: it is highest
in eastern and northern areas and lowest in western regions, although in
the west central region the results are rather similar to that of the east.
What emerges from this study is that bribes and non-monetary favours
by the control authorities are the most common forms of corruption. As
the authors stress, this heterogeneity in perceived corruption might be
due to different cultural, political and historical development and also to
other differences in recent social and societal phenomena between east
and west. People in the east is more likely to accept fraudulent behaviours
as they prioritize their concerns about the oppression of the Russian
language and economic motives over the necessity to punish political
misbehaviour, which hence spread illicit practices in business. Indeed,
even in regions where corruption is stated to be a relevant phenomenon,
it is not considered a major problem: probably, it is considered to be part
of the (business) system. This means that there’s still much to do about

37
since people are still not fully aware of the issue, and then they are not
ready to fight it.

2.1.2 The Case of Odessa.

Figure 8 Recreation of a Training Dummy for Young Smugglers. Picture

by the author.

38
 Historically, organized crime has flourished in port cities and
Odessa is not an exception. Odessa is one of the biggest and well-known
cities of Ukraine since its foundation in 1794. Odessa totally embodies
the maritime imperial legacy: it was a multicultural, multireligious,
cosmopolitan young city which had nothing to do with the other cities of
the Russian empire, ‘the least Russian of the Russian cities’, as Cocco
(2010) reports; it was considered ‘exotic’ also due to the large diaspora
community (Jews, Turks, Greeks, Italians, etc…) which, attracted by the
freedom and tolerance that a cosmopolitan reality usually offers, moved
towards this new shore, supported by the Empress Catherine the Great
herself, who wanted to benefit from their expertise in trade and banking
(Cocco, 2010). The history of Odessa is strictly linked to that of its port,
in fact the building of the port went hand in hand with that of the town.
By doing this, in 1795, 39 merchant vessels already traded in the port.
The biggest push to its activities (both legal and illegal) and trade in the
port of Odessa is the status of porto Franco obtained from 1819 to 1859,
thanks to the will of the Count Alexandre Andrault de Langéron: since
goods could be traded without the imposition of duties, the free trade
zone instantly made the city one of the world trade centres.
Odessa was the only choice for the importation and exportation of goods
from the South for the Russian Empire. During the first five years as a
porto Franco, the city of Odessa, which was even less than 30 years old,
took the 3rd position in cargo turnover in the whole Empire, and shortly
after it took the second place right after St. Petersburg. During the Soviet
period it was the most important port of trade in the USSR and a
Soviet naval base as well. Hence, in the 19th century Odessa was the
fourth city of the Imperial Russia, after Moscow, Saint
Petersburg and Warsaw. Odessa was a crossroad of several cultures, ‘the
melting pot of Russia’ (Cocco, 2010) and it is also thanks to the immigrant
communities that a dense criminal network swarmed into the city: many
goods coming from the port were moved and stored in the so-called
Odessa Catacombs, a sophisticated labyrinth-like network of

39
underground tunnels with more than one thousand known entrances from
all over the Odessa Oblast’. The catacombs are nearly three thousand
kilometres and are the result of the mining work which took place in the
19th century to obtain limestone to erect buildings in the surrounding
area. When the city couldn’t handle further digs, they were abandoned
and later used for criminal purposes. In fact, all goods smuggled in the
port were stored in there: sugar, gold, silver, drugs and even women and
children were carried to the Catacombs and then sold to the black market.
Catacombs were also the place where children were trained to become
professional smugglers: a lot of children, victims of the slave trade,
instead of being sold were kept in the Catacombs where criminals could
teach them how to be perfect smugglers; they used to educate them
about music, art and literature so children could pretend to be aristocrats
and go on unnoticed; then they were trained with specially-designed
dummies they had to rob without making the system of bells ring (cf.
Figure 8). Catacombs were also an escape route for criminals from
specific places to the port and other strategic areas. At a later time, they
had different uses, from an atomic shelter to a refuge for the resistance
members.
Odessa’s strategic location provides a particular competitive advantage
in the oil business. Odessa’s port was, and is, very important as a hub
for the transportation of oil from Siberia to Western Europe and also as a
channel for the importation of Russian oil in Ukraine, since the Druzhba
pipeline, the longest pipeline of the world, crosses the area (cf. Figure 9).
As Ukraine tried to reduce its dependence on Russian oil in the 1990s,
Odessa was the natural location for a new oil terminal for oil from
Azerbaijan and the Black Sea, from which local refineries would be
supplied. The new terminal was perceived as a threat by those groups
that wanted to maintain monopoly control while for others it was the
possibility to challenge the current situation. From 1994 until May 1998,
the major conflict in Odessa was that between the Mayor Eduard Hurvits
and the governor Ruslan Bodelan. There were mutual accusations of

40
wrong-doing and, unsurprisingly, they were both linked to organised
crime groups. Hurvits also had close ties with several criminal bosses and
his clan was involved in the city’s markets, and financial operations, but
wanted to get into the business of oil shipment into Ukraine. Since the
existing oil terminal was under the control of the Bodelan clan, so Hurvits
supported the construction of the Southern Oil Terminal. Ten percent of
the oil business in the Southern port has ended up in Hurvits’s pocket
and in that of his affiliate.

Figure 9 Oil Pipeline from Russia to Europe. Picture from the USA
Department of Energy.

Since criminal bosses were estimated to make $6-$7 on every metric ton
of the approximately 12 million metric tons of oil transported every year,
Bodelan wanted to stop the construction of the new oil terminal to
maintain the criminal monopoly. Together with Bodelan and his clan,
Leonid Minin was against the Southern terminal. Mr. Minin is one of the
most important members of the so-called “Neftemafija”, also known as
“oil mafia” operating mostly between Ukraine and Italy (Williams,
Picarelli, 2002) but also in other European countries and in Sierra Leone.

41
Minin’s activities also involved international arms and drugs trafficking,
money laundering, extortions and other offences. As Williams and
Picarelli (2002) report:
“The city continues to offer huge opportunities for earning ‘shadow’
profits-oil, trade, the transhipment of freight, the use of budget
funds for other than designated purposes. The traditions of Odessa’s
criminal world to rely on ‘their’ people in the structures of state
government remain very strong. And it appears that no one is
planning to curb the practice of using the levers of government
power in ‘shadow’ business”.

2.1.3 ProZorro.

Although the crime and corruption situation is still dramatic in Ukraine,

progress has been made in the latest years. A notable one is ProZorro
(prozorro.gov.ua), the official open data resources website which provide
free access to all public purchasing data all tenders announcement from
July 31st, 2016 on. The material is available in Ukrainian language but
some of it is also available in English. This public procurement system
was developed thanks to the cooperation of several realities such as
government agencies, international financial institutions, NGOs, the
business community and the Ukrainian society as a whole. The
institutional environment in this project is represented by key public
procurement institutions of the country: first of all, the Department of
Public Procurement Regulations within the Ministry of Economic
Development and Trade, which is responsible for the implementations to
the Public Procurement Law and the relative legislation. Second, ProZorro
is a state-owned enterprise which administers the central electronic
tender’s database and the auctions module and manages the official
website of the procurement system. Third, the State Anti-Monopoly
Committee, a government body which attempts to provide a fair
competition in entrepreneurial activities. The project started in Kyiv in

42
May 2014 by some anti-corruption activists who wanted to grant a system
which could reduce corruption in public procurement in Ukraine. Starting
from August 1st, 2016 all public procurements are conducted through the
ProZorro platform.
The ProZorro platform is made up of an API, a central database, a
business intelligence module, while the access to the public procurement
system is provided to the users (both bidders and procuring entities) by
commercial marketplaces.
A fundamental supporter of the ProZorro system is Transparency
International, a prominent international organisation fighting against
corruption around the world. It was Transparency International itself
which ranked Ukraine 130th among 180 countries in its Corruption
Perceptions Index 2017, with a score of 30 on a scale from 0 (highly
corrupted) to 100 (very clean). A strong boost to a reformation of the
Ukrainian system came from the so-called “Revolution of Dignity”, the
post-Maidan enthusiasm and the collapse of President’s Yanukovych’s
climate of impunity: during his mandate corruption reached highest levels
thus allowing many high-ranking officials and other people close to the
President to get very rich in unclear, suspicious ways. After Yanukovych’s
escape to Russia, many volunteers decided to give rise to a strong
movement with the aim of pushing politicians to rebuild the state systems
to make them more effective and transparent. Since the procurement
system was known to be subject to leaks, it was the starting point for
this process of change. The ProZorro public procurement system is also
in line with the implementations required by the EU-Ukraine Association
Agreement and the Global Procurement Agreement which Ukraine joined
in 2016 as part of its membership obligations with the WTO. As the
Transparency International report states, unlikely many other reform
attempts, ProZorro is bringing real changes in fighting corruption and, of
course, it is not circumscribed to the public procurement field but it is
part of a broader picture, as it is stated in the mission of the project.
During its first year of activity, the system gained the World Procurement

43
Award, it earned the recognition by the Open Government Partnership,
then in 2017 it was considered a successful example of e-procurement
system by the European Bank of Reconstruction and Development
(EBRD). These are ProZorro’s main goals:
• Maintaining transparency
• Increasing competition
• Being and going global
• Nurturing professionalism
• High organisational performance

Figure 10 ProZorro's Homepage

“Everyone can see everything”, this is the official motto and the greetings
everyone is expecting from the entire Ukrainian environment.
In accordance to the principles and goals of the ProZorro organisation, a
spin-off was created: it is ProZorro.sale. It was developed in collaboration
with the Deposit Guarantee Fund, the National Bank of Ukraine at it aims
at selling state and communal properties in a fast and effective way. It
won the Citi Tech for Integrity Award (T4I) in 2017 and the Shield in the
Cloud Awards in 2018.

44
 2.1.4 Further Attempts to Fight Corruption.

Due to the obligations imposed by both the WTO, the IMF and the
EU-Ukraine Association Agreement, Ukraine is implementing a series of
actions in order to match the international standards. After the reforms
of 2014, several institutions arose to stem the phenomenon of corruption.
Among these:

• National Anti-Corruption Bureau of Ukraine (NABU): as the official

websites reports “The National Anti-Corruption Bureau of Ukraine
is a new body in Ukrainian law enforcement, created after the
Revolution of Dignity with the purpose of cleansing government of
corruption in order to enable formation and development of
successful society and efficient state”. The NAB focuses on
corruption crimes committed by high-level officials and corruption
crimes involving bribes even if no high-level public official was
involved. NAB does not deal with administrative offences related to
corruption (Corruption in Ukraine and Recommendations. The
Bleyzer Foundation, 2016). It was implemented upon request of
the IMF and the European Commission for the visa liberalisation
between the European Union and Ukraine. The NABU is supported
by the Civil Oversight Council, composed by fifteen competent
social activists selected yearly through open online voting.
• National Agency on Corruption Prevention (NACP): the aim of this
agency is to prevent corruption by checking e-asset declarations
and monitoring the life-styles of public officials and analysing
financial reports of political parties to stem political corruption. It
also provides for a cooperation and protection program to work with
whistle-blowers on corruption cases and it is responsible for the
development and implementation of anti-corruption strategies and
policies.

45
 • Specialized Anti-Corruption Prosecutor’s Office (SAPO): it is an
independent unit of the General Prosecutor of Ukraine (GPU)
responsible for supporting investigations carried out by the NABU.
It was established in 2015 and, as the NABU, it is strictly linked to
the visa liberalisation between Ukraine and the EU.
• Ukrainian State Bureau of Investigation (SBI): SBI is specialized in
crimes committed by former presidents, senior government
officials, the National Bank governor and other high-level officials
regardless of the nature of the crime, thus also including cases of
corruption. The SBI is supposed to take on functions of the
investigators attached to the prosecutor’s office and, partly, of the
investigators of the Security Service.

Although these remarkable attempts to stem corruption in Ukraine,

there’s still much to work on. The Bleyzer Foundation (2016) provided
some useful suggestions to keep fighting this endemic plague in the
country:

• Eradicate the blanket immunity enjoyed by members of Rada and

magistrates so that they can be criminally liable for potential
crimes.
• Privatise state assets and state enterprises, which now are about
1,800. Indirect control of the cash flows of state enterprises and
assets stripping are the main source of wealth for Ukrainian
politicians and those around them. At the same time there should
be a sharper distinction between business, politics and
government.
• Implement anti-trust legislation to stop the accumulation of wealth
in the hands of the Ukrainian oligarchs, so that the market can
become fairer.
• Keep close ties with the EU and the US and other global institutions
in order to weaken corruption practices among politicians and to
learn best practices to apply in the country.

46
 • Minimize human interaction between government bureaucrats and
businesses, hence simplifying the current bureaucracy. Digitisation
process could help in this way.
• Enhance public awareness and support to the cause.
• Reform of the Judiciary.

These are only some of the major ventures that should be adopted to get
Ukraine rid of corruption but the events of the last month suggests that
the country is finally ready to fight this issue.

2.2 Division of Labour.

The territorial division of labour is an objective macroeconomic

process of industrial specialisation of certain economic regions or
countries and involves the strengthening of inter-regional or inter-state
cooperation, the exchange of specialised products and services. All
countries are more or less included in the international division of labour.
Spatial identification of the social division of labour is generally
determined by the economic, social, natural, national-historical
characteristics of various territories and their geographical location. The
increase in productivity of social labour depends on the level of social
division of labour in the country, and therefore can serve as an indirect
indicator of the level of development of its productive forces. These
factors shows the level of economic development of the territory, as well
as the integration of national economy. The territorial division of labour
is manifested in two forms: inter-district division of labour within one
country and the international division of labour between countries.
Thanks to the force of international market laws, countries specialise in
manufacturing where national product costs are lower than international
ones. So, under the international division of labour there’s an
interdependent specialisation of individual countries in the production of
certain goods to sell in the global market, which contributes to the

47
creation of a system of multilateral relations between countries. This is
predominant in the international trade of goods, so it regards mostly
material production, but it involves the service sector as well (tourism,
financial intermediation, transport sector, etc.).
In the international division of labour there are certain contradictions: the
excessive specialization of a country in the production of certain types of
products puts its economy in dependence on fluctuations in the global
market situation, and it also impoverishes the economic structure of that
country. Some industries that use cheap natural raw materials give the
country significant profits, although they are often based on heavy
physical labour and are weakly related to other sectors of the economy.
On the contrary, manufacturing and engineering are closely intertwined
with other sectors of a country's economy, since they are based on a
developed economy and are powerful drivers in the development of the
entire state (Tarasevich, 2006). The international division of labour is one
of the basis for the international exchange of goods, services, knowledge,
development of production, scientific and technical, commercial and other
kinds of cooperation among all countries of the world, regardless of their
economic development and character. The essence of the new
international division of labour is to reduce production costs and
maximize the satisfaction of the needs of consumers. It is one of the most
important prerequisite for the establishment of a fruitful economic
interaction of states on a global scale.
Ukraine is also involved in the international division of labour since
objective prerequisites for Ukraine's active participation in the
phenomenon occurred: a significant change in the system of economic
relations; adoption of a number of laws and decrees of the President of
Ukraine on foreign economic relations and foreign economic activity;
acceleration of world scientific and technical progress; despite this, for
the active integration of Ukraine into the international division of labour
it is necessary to radically rebuild the entire foreign economic

48
mechanism, to appreciate the role and place of foreign economic relations
in the development of the national economy.
In the international division of labour, Ukraine stands out primarily for
raw materials, capital and material-intensive industries (extractive
industry, agriculture and industries developing on these basis), and
therefore the structure of its exports is imperfect - more than 4/5 of it
consists of raw materials and primary products. The development of the
international division of labour is affected by geographical factors, the
unevenness of the division of natural resources on the globe, including
flora and fauna, as well as differences in climate and conditions for the
development of agriculture.
Ukraine produces more than 6 million tons of manganese (30% of the
world's output), over 3.8 million tons of sugar, 4-5 million tons of sulphur,
76 million tons of iron ore, 700,000 tons of oil and many other products.
Ukraine had close ties with developing countries but all this took place
under the aegis of the USSR, which firmly held all foreign exchange
earnings in Moscow.
The basis of exports is ferrous metals and derived products accounting
for more than 44% of foreign exchange earnings from exports, products
of chemical and related industries (nitrogen fertilizers, products of
inorganic chemistry), mineral products (iron and manganese ore, coal,
cement and building materials, salt, etc.), agricultural and food products
(sugar and derived products, grain, butter, meat, milk and dairy
products, etc.). Export of machinery, equipment and vehicles is less than
13% of its total volume. The basis of imports is mineral products (almost
47%) such as natural gas, coal, oil and related products, machinery,
equipment and transport funds. Chemical and pharmaceutical, food,
woodworking, pulp and paper materials are also imported. Ukraine has
about 190 foreign trade partners; the total volume of export-import
operations is gained thanks to countries of the former USSR, first Russia,
which is the main partner in foreign trade, as well as Belarus,

49
Turkmenistan, Moldova and Kazakhstan. Other trade partners are
Germany, the USA, Turkey, Italy, Poland, Slovakia, Hungary.
Trade in services occupies a significant place in the international trade of
Ukraine. The largest share of services provided by Ukraine to other
countries is transport services (freight of sea vessels, transit of oil, gas
and other goods, transport of passengers through its territory),
communication services, professional and technical services.
However, it should be emphasized that the current structure and scale of
Ukraine's non-economic activities do not correspond to its interests or
potential opportunities. Its main part is trade. At the same time, about
85% of all supplies going abroad are made up of raw materials. At the
same time, the level of industrial development of the country
significantly exceeds the world average, and it would be able to supply
the global market with a full amount of goods with a complete cycle of
technological production.
In the commodity structure of Ukrainian exports there are many types of
goods of the national economy. However, the main part of the currency
receipts is provided by nine products: non-precious metals and related
articles (36%), mineral raw materials and energy carriers (16%),
mechanical products, electrical equipment, devices and audio-video
equipment (11%), chemical products (8%), agricultural products (6%),
food industry (4%), etc. The complete data about volumes of exports and
imports of Ukraine is provided in table 2.1. Unfortunately, the world
market of ferrous metals and metal products is characterized by a strong
increasing competition. Under these conditions, Ukraine is unlikely to be
able to increase its share in the metal products markets in the foreseeable
future. According to experts' forecasts, at best it will manage to maintain
its position and improve it only slightly in the implementation of semi-
finished products. If we compare the structure of Ukraine's commodity
exports with those of the countries of Central and Eastern Europe, it
becomes obvious that such a comparison is not in its favour. The
commodity structure of imports by Ukraine is formed by mineral raw

50
materials and components (36%), mechanical equipment, machinery and
equipment, electrical equipment, instruments, audio (15%), chemical
products (13%), transport and road equipment (8%), metal products (5
%), ready-made foods (5%). The economic potential of Ukraine should
grow due to the production and marketing of the most important goods
and services. The main tasks of the state policy in this direction are:

1. Comprehensive provision of favourable conditions to enter the

global markets, support of domestic exporters;
2.Implementation of an effective banking and flexible credit systems,
guaranteeing the rights of currency holders and their free (within the
law) use;
3. Conducting a flexible import policy (tariff regulation, import
mechanism, volumes and list of commodity nomenclature of critical
imports, list of import-substituting products);
4. Improving the systems of state regulation of foreign trade (the
legal framework, harmonized with international rules and
standards, limited protectionism, a set of regulatory documents).

In Ukraine there’s a high educational level. It is worth saying that

scientists of the country made a third of the discoveries patented in the
former Soviet Union. Ukraine maintains close contacts with scientists of
the world, actively participates in various UN programs, in the training of
national personnel. There’s a direct link between enterprises and
associations, for example, in machine building, which determines the
qualitative transformation of the production and technical base of all
branches of the national economy based on the latest achievements of
science and technology.
Ukraine has significant production, natural and labour resources, and
moreover, an extremely advantageous economic, geographical and
geopolitical location in the centre of Europe with direct access to the main
land and sea routes.

51
Table 2.1 Ukrainian Exports-Imports in USD.18

(thsd. USD)

Exports Imports
country of trading country of country of trading
destination countries origin consignment countries

Total 36361711,2 36361513,3 39249797,2 39224507,1 39225132,9

of which

Australia 12831,4 6161,3 109239,1 104189,8 4939,8

Austria 361323,9 586609,9 465091,3 530531,8 965280,5
Azerbaijan 247979,6 170937,0 39736,9 27121,1 11603,8
Albania 25829,6 1733,6 3780,8 1654,6 120,6
Algeria 236798,7 13204,7 6810,8 6409,7 120,4
Angola 15429,6 257,8 299,9 2,0 -
Argentina 1863,3 565,1 66378,2 35991,0 21427,6
Aruba 452,3 163,6 - - -
Afghanistan 6706,5 4241,3 27,8 22,9 201,6
Bahamas 21,4 21,2 37,3 - 504,6
Bangladesh 327497,4 712,3 57987,4 8952,9 3887,3
Barbados 23,8 800,4 144,6 8,5 832,2
Bahrain 5216,6 2273,8 81,4 5,0 2,0
Belize 930,2 42777,2 710,2 529,1 14887,3
Belgium 251541,9 73155,8 450193,7 903284,7 398450,2
Benin 3760,4 315,9 7,6 - -
Belarus 903197,5 717458,2 2777793,6 2824709,9 1956718,0
Bulgaria 418193,3 219032,9 172873,8 170322,7 143120,4
Bolivia 37,0 26,6 606,4 411,1 469,2
Bosnia and Herzegovina
9235,4 5140,9 10776,0 5484,3 5762,2
Botswana 136,1 42,4 374,8 - -
Brazil 20511,0 14211,7 193057,6 102518,2 33144,9
Burkina Faso 3333,2 20,7 8,2 - -
Burundi 56,9 - 71,8 - -
United Kingdom 317792,1 3449604,6 709262,8 445018,7 3226654,0
Venezuela (Bolivarian
Republic of) 527,6 86,4 15,7 - -
Viet Nam 77778,5 25264,4 304247,8 166895,8 24069,5
Virgin Islands, British 8863,9 949765,6 0,7 922,9 66058,0
Virgin Islands, U.S. - - 174,9 - 1,9
Armenia 88924,5 99507,1 8216,1 5608,1 5663,9
Gabon 10046,7 66,1 11649,3 9897,4 -

18Data from the State Statistics Service of Ukraine

http://ukrstat.gov.ua
52
Gambia 663,7 119,0 - - 2785,4
Ghana 25636,7 456,1 87896,7 43462,5 17,7
Gaiti 82,2 - 18,0 - -
Guinea 17351,2 1153,6 95057,1 94903,7 -
Honduras 30,2 28,8 1408,3 899,6 -
Hong Kong 49013,4 418946,8 17629,9 253701,4 697822,6
Greece 159123,2 16224,3 233560,4 247963,4 47527,1
Georgia 390820,4 352656,7 65795,5 80489,5 62546,0
Guyana 93,3 - 40308,4 40166,2 -
Guatemala 353,3 339,1 76821,8 74360,6 12,5
Greenland 4,0 4,0 4076,6 - -
Denmark 155453,9 128819,5 184203,0 202589,4 322092,8
Djibouti 14893,5 700,9 - - -
Dominika 121,2 18030,1 20,7 183,2 1402,1
Dominican Republic 5817,5 483,0 2695,6 61,1 683,7
Ecuador 2912,5 978,0 117190,4 95731,5 36140,4
Equatorial Guinea 470,8 24,3 0,7 - -
Estonia 98048,2 558056,9 66632,2 207540,7 463306,9
Ethiopia 124398,9 26055,4 3125,2 1270,8 349,0
Egypt 2266493,2 106720,1 48716,6 33596,8 20619,7
Yemen 3398,1 904,3 0,3 - -
Zambia 117,3 27,7 1322,2 0,1 0,1
Zimbabwe 5316,7 23,4 8880,6 1841,5 -
Israel 488560,8 57200,1 184806,5 112695,7 113121,5
India 1903066,6 264827,5 486132,3 288666,8 181795,6
Indonesia 366379,6 12002,9 226706,5 69044,3 16882,6
Iraq 374409,2 83217,2 - 0,6 30,9
Iran, Islamic Republic
of 705165,5 18225,0 39952,2 21807,8 4403,5
Ireland 45483,9 40486,7 84712,5 46087,7 119561,5
Iceland 639,9 215,7 64253,9 33078,0 50911,9
Spain 1004547,4 92634,6 500939,5 306430,9 279845,1
Italy 1929575,6 260423,5 1358227,8 874089,4 911503,1
Jordan 144516,7 62497,8 9060,9 7132,8 9668,1
Cabo Verde 285,8 - - - -
Kazakhstan 400107,6 378900,1 434290,0 249119,6 137019,8
Cambodia 1009,5 190,9 14748,3 3235,7 26,4
Cameroon 11794,7 24,8 2120,6 843,5 7,2
Canada 28890,3 197859,2 217309,2 183406,7 164962,5
Qatar 12433,4 1031,9 26268,8 19256,5 243,2
Kenya 31958,0 197,3 6462,8 4767,7 225,2
Kyrgyzstan 40430,8 63588,3 1773,6 1496,6 3227,7
China 1832518,9 126753,5 4687697,2 2854092,3 1875149,9

53
Cyprus 53481,4 1260321,6 22081,6 8873,0 1151493,5
The former Yugoslav
Republic of Macedonia 25912,5 3445,1 11714,2 7456,0 5302,3
Colombia 40701,2 1741,2 10409,5 5429,6 482,6
Congo 1989,2 26,3 273,1 1,6 1,6
Congo, Democratic
Republic of the 22604,7 19132,1 7018,7 6983,4 6170,0
Korea, Democratic
People’s Republic 7561,4 3,3 3826,4 2031,7 71,5
Korea, Republic of 413703,8 46327,6 255279,3 173096,9 404662,1
Costa Rica 21142,3 2884,8 19619,3 10000,0 9518,0
Cote d'Ivoire 10168,7 759,6 36810,1 225,6 -
Cuba 7393,7 2142,2 959,7 359,0 138,7
Kuwait 17644,6 1773,1 36,5 150,1 569,2
Lao People's
Democratic Republic 2385,3 2351,6 744,2 9,6 -
Latvia 138155,3 202273,6 112462,2 212153,2 200996,8
Lesotho 167,7 - 44,2 - -
Lithuania 258222,5 312093,5 492528,0 749936,6 658874,8
Liberia 2982,6 457,3 3265,1 3329,9 3293,4
Lebanon 338523,6 418016,8 1077,6 1097,6 2408,9
Libya 247838,1 2571,3 - 32,6 -
Liechtenstein 109,6 357,2 510,1 5043,1 26269,0
Luxembourg 5087,0 364234,2 61475,9 16138,6 273480,0
Mauritania 13578,0 8,7 4188,8 4186,4 2351,5
Mauritius 767,8 19521,5 269,3 125,9 2386,8
Madagascar 1007,0 - 1476,7 22,7 22,7
Malawi 191,2 2,2 25849,9 907,4 -
Malaysia 126203,2 217168,8 167536,8 93004,2 176472,2
Mali 12016,0 2885,7 208,0 - -
Malta 7746,0 33880,3 11479,2 294,6 70437,2
Maldivi 1000,4 434,8 - - -
Morocco 247323,6 4727,0 33437,0 8738,1 5086,3
Marshall Islands 2536,6 15329,2 404,2 918,6 3113,5
Mexico 136495,6 2824,2 98729,6 14929,2 2579,2
Mozambique 2750,7 - 10502,6 4614,2 -
Moldova, Republic of 481145,4 472368,6 47623,2 52999,8 53757,4
Monaco 164,1 3515,5 82,8 - 879,1
Mongolia 24589,9 20073,6 1243,7 804,2 683,8
Myanmar 61981,9 44583,5 1235,4 215,1 52,3
Namibia 57,6 40,5 76,2 76,1 0,9
Nepаl 19034,1 149,5 78,4 10,9 62,9
Niger 937,0 - 7,7 - -
Nigeria 104222,2 3340,7 728,6 351,1 347,8
Netherlands 995322,6 484912,0 546847,8 920569,7 930432,4

54
Nicaragua 29,1 29,1 622,9 215,2 12,9
Germany 1423735,2 1491914,9 4318445,9 4105413,7 3971523,0
New Zealand 2555,8 15534,4 10873,8 7245,6 14368,6
New Caledonia 184,6 - 11,3 - -
Norway 15337,8 25774,5 163003,2 92142,7 135635,4
United Arab Emirates 277604,1 2218104,2 63287,5 85091,2 295952,2
Oman 51870,5 3393,4 1725,4 866,9 414,3
Pakistan 114288,6 48408,5 47648,0 34219,4 28145,8
State of Palestine 14576,7 9876,6 30,4 30,3 -
Panama 13904,7 348203,9 2414,3 9827,7 392378,9
Papua New Guinea - - 54,0 - -
Paraguay 119,6 105,7 81,8 72,5 -
Peru 9545,4 262,0 4609,1 960,3 1992,0
South Africa 59984,7 13339,2 117744,2 91489,1 24267,7
South Sudan 4008,5 28,4 1028,5 1021,2 -
Poland 2200010,1 1337854,7 2693326,6 3839344,5 2804415,3
Portugal 228126,0 20398,4 50561,6 22268,4 21740,3
Puerto Rico 945,6 874,7 3978,5 23,5 23,5
Rèunion 4232,5 31,5 2,4 - -
Russian Federation 3592917,9 3014846,1 5149313,5 5191661,9 3377923,8
Rwanda 1812,3 21,7 21,9 4,2 -
Romania 716981,4 376917,1 380744,6 415742,1 295842,5
El Salvador 7,8 - 305,9 118,7 0,9
San Marino 3347,9 1986,8 704,8 735,4 713,3
Saudi Arabia 592885,6 10021,7 139417,3 28100,9 3286,0
Swaziland - - 116,7 38,0 -
Seychelles 498,4 243427,3 402,8 371,2 13910,7
Senegal 64519,4 156,7 655,9 320,2 56,5
Saint Kitts and Nevis 1800,9 210120,0 18,1 - 157,2
Serbia 156132,5 43834,6 106506,9 74909,9 60688,0
Syrian Arab Republic 43175,8 167,4 583,9 556,6 532,5
Singapore 21571,0 187102,7 21573,1 30999,2 278425,1
Slovakia 471362,6 284488,8 434865,6 414086,5 359986,9
Slovenia 16758,2 6739,3 137288,0 167874,0 161862,7
Somalia 13127,2 927,7 193,2 193,1 -
Sudan 34361,1 860,9 1037,3 1068,5 49,7
Suriname 540,1 - 14,0 4,5 -
United States 426555,0 218367,2 1687886,6 790268,9 868283,9
Sierra Leone 1321,7 265,9 5331,1 5143,4 1,1
Tajikistan 25427,9 21637,7 1245,9 1241,9 1234,3
Thailand 413500,7 82662,2 172525,6 56339,6 21350,4
Taiwan, Province of
China 54303,8 1431,9 189903,0 101593,4 78704,2

55
Tanzania, United
Republic of 2086,5 85,8 11623,6 2393,7 50,4
Togo 1324,4 812,9 5,2 - -
Trinidad and Tobago 261,9 232,9 141,3 - 73,7
Tunisia 235815,3 1980,7 13897,2 4148,5 1232,7
Turkey 2049064,9 234467,1 1098551,6 966074,9 820704,7
Turkmenistan 108981,9 31588,2 34336,1 20425,6 3609,9
Uganda 2859,0 829,8 4748,8 1654,2 334,7
Hungary 1053084,2 781770,2 801992,9 1581668,4 1078234,2
Uzbekistan 142392,7 103317,6 71060,2 51296,3 26256,7
Uruguay 82,9 9540,5 6164,6 7422,7 5139,2
Faroe Islands - - 3536,7 - 2300,5
Fiji 111,1 1,8 1,0 - -
Philippines 143355,0 443,1 26543,8 2272,0 878,9
Finland 62355,7 30722,6 216840,6 199604,1 254268,7
Falkland Islands
(Malvinas) - - 748,9 64,6 -
France 453674,3 171185,8 1530515,3 718685,7 1329453,9
Croatia 39065,9 9380,4 29660,9 29806,9 33555,6

Central African Republic

1539,8 2,2 20,2 20,2 -
Czech Republic 560756,1 331457,8 654830,9 738300,7 680867,9
Chile 3930,9 1687,3 33858,0 7342,4 8021,8
Montenegro 4670,2 3399,1 2710,9 2586,4 6458,8
Switzerland 105916,3 10524821,6 983811,7 322677,4 4142842,0
Sweden 71275,4 83184,0 419000,6 325504,5 430186,3
Sri Lanka 80275,6 3107,9 32555,6 22687,6 16310,1
Jamaica 34,7 - 2961,0 2814,6 -
Japan 185239,2 10938,3 551848,4 90630,3 387137,9

Data do not take into account the temporarily occupied territories of the
Autonomous Republic of Crimea, the city of Sevastopol and part of the
anti–terrorist operation zone.

2.3 Ukrainian Workforce.

The present international economy, as we said, is characterized by

an increasing free movement of goods and services and, among them,
labour force. Therefore, one of the aspects of Ukraine's integration as an
open economic system in the globalised economic processes is the
integration into the international labour market. Hence, the need to

56
understand what the determinants of labour force’s competitiveness in
the Ukrainian economy are, and the consequences of a possible
imbalance between the competitiveness of jobs and that of the workforce.
Competitiveness in the labour force, on the one hand, stimulates the
inflow of investments, provides the maximum level of employment rate
and, accordingly, the minimum level of unemployment; in the opposite
case, it implies large-scale labour migration towards other countries.
Given the adequate competitiveness of jobs, one can expect the
maximum level of their employment both from economically active
citizens of Ukraine and immigrants from other countries. The main factors
affecting the competitiveness of the workforce are education,
qualifications, ability and readiness for intensive work. According to the
analysis of the Director of the Institute of Demography and Social
Research of the National Academy of Sciences of Ukraine, prof. E. M.
Libanova (2007), with regard to the quantitative parameters of vocational
training, Ukraine is not inferior to most developed economies, but this
rather high level is provided by persons of middle and senior age. As for
youth between 25-34, despite a significant increase in the training of
specialists with higher education, their share in professional training has
decreased considerably. The growth in the volume of training over 34
years was mainly focused on the education of economists and lawyers.
At the same time, the volume of training of engineers and technologists
remained almost at the level of 1990/1991 (data gathered from the State
Statistics Service of Ukraine). Such structural changes are a natural
reaction of the educational system to the population's shift in
employment expectations, who are striving for a high level of
remuneration. This structure of training would be justified for a different
structure of the labour market, but in Ukraine the manufacturing industry
still dominates.
It is unreasonable to expect that the change in the supply of workforce
will be a catalyst for adequate changes in the structure of jobs. To a large
extent, due to this discrepancy, a significant part of specialists with higher

57
education are not working in their area of expertise, and young
professionals after graduation from the educational institution cannot find
a job, so they apply to the Job Centres, which redirect them to retraining.
Due to the outflow of skilled labour force outside Ukraine, its supply is
considerably reduced, and the supply of unskilled labour remains still low.
In the corporate sector of the Ukrainian economy, both employers and
employees need to understand the importance to improve their skills,
both hard and soft ones. Business demonstrates its interest in training
skilled labour and the willingness to partially finance this process, but the
lack of long-term forecasts of the needs of the labour market does not
allow for the introduction of an effective, modern training system.
Moreover, during the transition period and the collapse of a sizable
number of enterprises, forced long administrative vacations, a part of the
workforce has been downgraded, while many others lost not only
qualifications but also the passion for their job. And usually, even a
remarkable wage is not a sufficient incentive for them.
The labour force in the Ukrainian economy is characterized by low
productivity. According to the McKinsey & Company consulting firm, in
the five sectors studied (the steel industry, retail trade, banks, electricity
and housing construction), Ukrainian labour productivity averages the
26% of that of the US. Ukrainian producers are in no hurry to carry out
technical re-equipment of production. Nowadays, gaining a competitive
edge over rivals includes betting on human capital: providing advanced
technologies through R&D, high wages for specialised workers,
remarkable career opportunities, the so-called social investment
package. The attractiveness of jobs varies according to those who can
take them. This also applies to the ratio of individual criteria of
competitiveness, and the absolute level of requirements. For example,
the main advantage of the Ukrainian workforce is the low salary level. In
general, jobs in the domestic labour market are not sufficiently
competitive. Competitiveness of the workforce is higher than the
competitiveness of jobs. And it is because of the competitiveness of

58
vacant jobs and the lack of employment opportunities for well-paid jobs
that many Ukrainians opt for emigration. True statistics on external
labour migration in Ukraine do not exist. According to various estimates,
the number of Ukrainian labour migrants is up to 5 million people a year
(Panchyshyn, Sakharskaya, 2009). According to ILO (International
Labour Organization) statistics based on 2013 data, indicate there are
about 150.3 million migrant workers, accounting for two thirds of the
international migrants (232 million) in that year. Hence, migrant workers
account for more than 70 per cent of the working population (207
millions). Consequently, considering that Ukrainian migrants in 2017
were 5.9 million, we can suppose that the share of Ukrainian migrant
workers in the global flow is about 3%. According to a report of the
Razumov Centre, a significant part of young people (22-38 years old)
with higher and vocational education, such as scientists, physicians and
high-skilled workers, usually leave Ukraine in search of work; this trend
is inevitably increasing due to the accession of Ukraine to the Bologna
Process/European Higher Education Area in 2005, and the consequent
recognition by developed countries of Ukrainian educational certificates
and the simplification of the temporary employment of Ukrainians
abroad. These phenomenon could grow faster after the satisfaction by
Ukraine of the standards required by the European Commission and the
IMF to obtain the visa liberalisation between the European Union and
Ukraine. Anyway, large-scale labour migration is a widespread
phenomenon in poor countries and an important part of the process of
their integration into the global economy. In this way, the pressure on
the domestic labour market decreases, and the return, if any, of migrant
workers with acquired knowledge, experience and skills, might involve
the domestic investment of money earned abroad to set up their own
competitive business. On the other hand, migrants from Ukraine,
especially those working in the EU, have an inherent desire to remain in
the host countries for good. The non-return of young, educated, active
people inflicts a great damage to the demographic, educational, and

59
labour potential of Ukraine. Therefore, it can be argued that the benefits
of external labour migration are more likely to have a short-term effect.
In the medium and long term, the negative consequences will prevail:
Ukraine is deprived of a stratum of its population with a high level of
social and economic activity, usually subject to innovative consumer
behaviour, which could be a driving force in strengthening the innovative
component of the domestic economy (Panchyshyn, Sakharskaya, 2009).
Reducing pressure on the domestic labour market and giving hope to
migrant workers to have the real chance to open their own business,
hence turning them from the category of employees to that of employers,
then the vast majority of migrants returning to Ukraine could be hired
(Panchyshyn, Sakharskaya, 2009). Initially, the main countries that
hosted migrant workers from Ukraine were the neighbouring countries of
Poland and Russia, which had common borders with Ukraine, similar
languages and a close mindset. Later, migration flows from Ukraine
spread to almost all European countries and even the Middle East.
The vast majority of migrants from Ukraine carry out jobs for which they
need a much lower qualification than what they have. Very often,
Ukrainian women with a teacher’s diploma educate children, and
Ukrainian nurses or doctors take care for older people of Italian or French
families. Somewhat high qualification and low wages rates (compared to
those of the European or other developed countries) are responsible for
the relatively high competitiveness of the Ukrainian workforce in foreign
labour markets. Ukrainian immigrants often agree to work without proper
registration and without an appropriate social package, if any, which
significantly reduces the costs for the employers (Libanova, 2007). The
aging population of the European Union and the low birth-rate requires
the involvement of labour from outside the EU. Today, in Europe, there
are countries, such as Great Britain, Germany, France, which are mainly
destinations for migration flows, countries in which the uneven balance
of migration is gradually changing for better (Portugal, Italy, Spain,
Greece, Czech Republic, Hungary) and countries characterised by a high

60
rate of emigration (mainly the Central and Eastern European ones).
Ukraine not only belongs to the third group, it is believed that the largest
outflow of labour is from Ukraine (Libanova, 2007).
Consequently, the competitiveness of the Ukrainian workforce is
insufficient to ensure sustainable development of the domestic economy
and an increase in national welfare. Its attractiveness is mainly due to
the low level of requirements for employment conditions and salary. At
the same time, the major problem of the Ukrainian labour market is the
low competitiveness of jobs needed, compared to the that of the
workforce. This entails a large-scale outflow of skilled labour force outside
the economy of Ukraine.

2.4 National Economy and the Digital Divide.

The post-industrial era is characterized by the development of the

digital world and the transition to the so-called ‘information society’,
namely a society characterised by an intensive creation, sharing and
manipulation of information from an economic, political and cultural
perspective. In this regard, the developed countries of the world pay
considerable attention to the development of the digital economy. The
basic reference point for the EU countries in building a proper digital
economy is the ‘Digital Agenda for Europe’, a document issued by the
European Commission in May 2010, which defines measures to achieve
specific goals as regards ICT use for economics within 2020. An important
component of the European Digital Agenda is the creation of a ‘Digital
Single Market’, as stated in the introduction of the official document: “The
overall aim of the Digital Agenda is to deliver sustainable economic and
social benefits from a digital single market based on fast and ultra-fast

61
internet and interoperable applications”19, and later on in the second
chapter:

“It is time for a new single market to deliver the benefits of the digital
era. The internet is borderless, but online markets, both globally and
in the EU, are still separated by multiple barriers affecting not only
access to pan-European telecom services but also to what should be
global internet services and content. This is untenable”20.

In Ukraine, the main problem of the digital economy is the lack of

systematic state policies in this field. Ukraine is the only country in Europe
without its own digital vision; almost all EU countries have already
adopted and are implementing their own digital strategy, Ukraine has
only the project of ‘Digital agenda of Ukraine – 2020’; this programme
was implemented by the “High-Tech Office Ukraine” Public Association
(HTO) and a group of experts composed by domestic and international
market leaders, representatives of government institution, with the
support of the Ministry of Economic Development and Trade of Ukraine,
the Verkhovna Rada Committee on Informatization and Communication
and the Administration of the President of Ukraine. The paper has the
strategic objective of eliminating the digital divide between Ukraine and
other developed countries. Ukraine still has a long way to go before it
meets the requirements set for the membership of the EU in several
areas, and the digitalisation of the country may help in the integration of
the country with the EU Digital Single Market. It will contribute to the
growth and innovation of the domestic economy, opening the doors to
new business opportunities (Karcheva, Ogorodnia, Openko, 2017), as has
been the case in many other developed countries. Ukrainian corruption is

19 Communication from The Commission to The European Parliament,

The Council, The European Economic and Social Committee and The
Committee of The Regions. A Digital Agenda for Europe, 2010, p. 1.
20 Communication from The Commission to The European Parliament,

The Council, The European Economic and Social Committee and The
Committee of The Regions. A Digital Agenda for Europe, 2010, p. 5.
62
suffering due to the transparency of electronic systems such as ProZorro,
as discussed in 2.1.3 and that should be an inventive to the
implementation of digital systems at a State level. Nevertheless, the
issues of the impact of digital technologies on socio-economic and
political development remains insufficiently investigated and
underestimated. In the context of the third wave of globalization, the
digital economy plays an important role in the development of countries,
the most important factor being information and knowledge, as well as
the ways to access them. The digital economy is not a separate industry,
but a virtual environment which integrates our reality. Thus, the digital
economy is interwoven with the traditional economy: the main products
of the digital economy are the same goods and services of the traditional
economy, provided by computers and digital systems like the worldwide
web. It has its advantages, the main of which is the decrease of
intermediaries to get some good or services reducing transaction costs,
improving efficiency and competitiveness (Karcheva, Smovzhenko,
Mishchenko, 2016). At the same time, it should be noted that there is no
single approach to the definition of the digital economy among scholars.
The digital economy is usually defined as an activity in which the key
means of production are digital data and their use, which can significantly
increase both efficiency and productivity in various economic activities.
Moreover, the digital economy is the economy that takes advantage of
digital technologies and services. The terms "data economy", "Internet
economy", "new economy", or "web economy" are often used as well
(Karcheva, Ogorodnia, Openko, 2017). Some others interpret it as the
production, sales and resale of products through computer networks and
e-commerce. Thus, the digital economy is an innovative, dynamic
economy based on the active introduction of innovation and ICT in most
of the economic activities and spheres of society, in order to improve the
efficiency and competitiveness of individuals, companies, the economy in
general and the living standards. This phenomenon is the basis of the
Fourth Industrial Revolution and the so-called third wave of globalization

63
(Schwab, 2016). A characteristic feature of the digital economy is its
connection with the on-demand economy, whose main objective is not
the traditional trade of goods and services but accessing them when
consumers need them. Orders are received online and fulfilled offline.
The advantages of the on-demand economy are:

• high speed in obtaining the necessary services or goods;

• cost reductions for the end user by limiting the number of
intermediaries;
• simplification of the supply of goods and services to the final users
(Karcheva, Ogorodnia, Openko, 2017).

Technological changes have a significant impact on a country's economic

development. According to the World Bank, digital dividends (or results
from digital transformations) are responsible for the dynamic growth of
the economy, business activities, and hence tax revenues, inflow of new
investments, etc. At the same time, the introduction of digital
technologies is accompanied by certain challenges that society and the
state must face to support and succeed in the implementation of the
digital economy in life:

• short-term decline in labour productivity from the introduction of

new technologies;
• reducing the number of workers, in particular high paid and low-
skilled workers;
• growth of technological unemployment;
• temporary increase in the inequality in the distribution of income
for the period of advanced training of workers to the desired level
of qualification;
• significant changes in the local organisation of productive forces,
training institutions, infrastructure;
• the transformation and upgrade of norms and rules (strengthening
the protection of intellectual property rights, improving
antimonopoly legislation, privacy policies, etc...);

64
 • the transformation of the way of thinking and acting in everyday
life (Lipsey, 2007).

As regards the second point, the World Bank (2016) shows how, as
opposed to the main tendency of many developing countries, in Ukraine
and Brazil the share of national income that has gone to labour, especially
routine labour, has not fallen.
For the successful implementation of a digital economy it takes three
significant factors to coexist:

• an effective regulatory framework promoting fair competition

among companies and the entrance into the Ukrainian market,
allowing firms to fully benefit from digital technologies for
competition and innovation;
• skilled workers, businessmen and government officials who are
able to take advantage of the digital opportunities;
• effective and accountable institutions that use the Internet to
empower people.

The implementation of such circumstances not only promotes the digital

development of financial and banking services, digital identification,
social networks and open data, the use of blockchain technology, it also
extends its benefits to the entire society.

Figure 11 summarizes the results of the World Bank research on share of

working-age individuals in urban areas who report that lack of ICT skills
is a barrier to employment and higher earnings.

65
Figure 11 Individuals perceiving lack of ICT skills as a barrier. From the
World Development Report 2016: Digital Dividends, p. 126

These data could be an evidence of the scarce level of digitalisation in

Ukraine: if more than 90 per cent of the population perceives that they
don’t actually need ICT skills to find a job or to achieve a higher salary,
it is probably because the level of digital skills required in the Ukrainian
labour market is low, if any at all. In fact, going to a governmental or any
other public office in Ukraine and meet no computer is pretty common.
The problem of ensuring digital dividends for every citizen remains
relevant, taking into account that digital technologies change the
business model, the nature of labour and the ways of providing services.
An illustrative example is the innovative taxi services provided by Uber,
which uses cars, smartphones, cloud computing, infrastructure of other
companies and customers, removes inefficient intermediaries and, as a
result, has a breakthrough business model that greatly reduces costs and
provides efficiency. Nevertheless Ukrainians, especially the new
generations, are not so reluctant to this new approach: it is not unusual
to see people catching an Uber car in the streets of Odesa, Kyiv or L’viv;

66
at the same time, together with young students who are trying to earn
something during night, there’s plenty of middle-aged drivers who take
this new kind of opportunity. This is a positive sign meaning that the
Ukrainian population, after a proper and progressive access to the digital
economy, might be ready and favourable to this transformation. A
primary target on the global scale is to increase the availability of the
internet at a reasonable price. Today, for each user of high-speed
broadband internet connection in the world, there are five people who do
not have any access to the web. On a global scale, almost 4 billion people
do not have access to the Internet at all. About 2 billion people do not
use mobile phones, and nearly half a billion people live in areas not having
mobile communications. Figure 12 shows an infographic issued by the
World Bank with the necessary steps to improve the digital system
worldwide in order to reduce the digital divide.

Figure 12 Why digital dividends are not spreading rapidly—and what can
be done. From The World Development Report 2016: Digital Dividends,
p.4

According to the American website Speedtest.net, which provides

Internet speed analyses and insights, Ukraine has a well-developed fast
broadband internet, ranking 47th out of 133 countries with a download
speed of 36.42 Mbps, but its mobile Internet is slow: domestic network
providers launched the 4G connection only in March 2018 and just in

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about 20 cities (KyivPost, March 30th 2018); in fact, Ukrainian mobile
connection ranks 72nd out of 124 with a download speed of 18.84 Mbps
against a global average of 22.81 Mbps.

“Investments in infrastructure – transport, irrigation, energy and

information and communication technology – are crucial to achieving
sustainable development and empowering communities in many
countries.” (Sustainable Development Goals n.9, UN) and “[…]
Significantly increase access to information and communications
technology and strive to provide universal and affordable access to the
Internet in least developed countries by 2020”. The Sustainable
Development Goals (SDGs) implemented by the United Nations include
17 global goals and 169 related tasks; the point stated above regards
goal n.9 and one of its related task. This document stipulates that each
country must develop mechanisms to achieve the identified 17 global
goals. The Information and Communication Technologies (ICT) sector is
an important driver in the development of the digital economy and
society. Scientists believe that information technology can provide from
¼ to 1/3 of the total volume of economic growth (Karcheva, Ogorodnia,
Openko, 2017).

Today the digital economy is an effective support for the development of

the government, economy, business, social sphere and the society as a
whole. The formation of the digital economy is also a matter of national
security and independence for Ukraine, which could boost competition
among domestic companies, thus improving the country's position on the
world stage for the long-term perspective. For the favourable success of
the digital economy in Ukraine, effective state policies are needed to
stimulate its development and overcome the digital divide. The key
strategy for Ukraine's digitalisation should be the active role of the state
in the implementation of the new digital strategies, the digitalisation of
bureaucracy, the active implementation of the industry 4.0, the training
of a skilled workforce. It is disconcerting that a digital system for students

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of many Universities in Ukraine is not available yet. In 2018 the websites
of many Universities only provide some information about the courses
but they don’t have a telematic system through which students can enrol
in the university course, pay fees, etc… A country cannot succeed in
developing such a complex system in the absence of the necessary
regulatory framework and a proper strategy. At the same time, it is
equally important to train professionals skilled in basic ICT literacy,
provide means to develop a skilled workforce in this field and the
promotion of lifelong learning programmes.

2.4.2 State Agency for e-Governance of Ukraine.

A big step forward has been made in 2014 with the establishment
of the State Agency for e-Governance of Ukraine, a branch of the
Ukrainian executive, set up with the aim of supporting the national effort
towards the digitalisation of the public administration, namely e-
Governance. This agency is characterized by a high level of openness,
transparency and efficiency of its activities, a renewed quality of its
services for citizens and business. The main goals of this computerisation
project is the fight against corruption (cf. 2.1.3), the realisation of the e-
democracy, the free access of the citizenry to governmental data, the
implementation of electronic identification systems and an electronic
Healthcare system. In 2016, in fact, eHealth is a specific system through
which doctors and patients can interact via web; after a registration
process, both for physicians and patients, people are registered in a
digital database through which they can access information about drugs’
availability in the pharmacies, get a medical prescription, consult medical
reports, etc… (Katerina Kunitskaya, 2016). New digital implementations
have been made also in the business community, which consideres them
as a “positive step forward”, as Andy Hunder, president of the American
Chamber of Commerce in Kyiv said. Among these, a portal
(https://online.minjust.gov.ua/) which gives entrepreneurs the

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possibility to register and close a business online and in a few minutes,
thanks to a e-service available since 2017, promoted by the Ministry of
Justice and the State Agency for E-Governance. The new tool proved to
be successful since it was accessed 4,000 times in its first six months of
life (Liakh, Zelivyanskyi, 2017).

This is a sign of profound change in the Ukrainian government approach

to bureaucracy and administration which proves the will to hinder
corruption and bad practices in the country. And that’s not nothing.

2.5 Ukrainian-Russian Relationships.

Since the 18th century, Ukraine has been strictly subject to the
Russian hegemony, first in the form of the Russian Empire and then as
the Soviet Union. This pressure became even stronger when feelings of
Pan-Slavism took hold and spread in the mid-19th century: this
movement sought to gather all Slavic speaking people in one political
organisation. Ukraine was part of this plan which gave rise to the USSR,
whose power was centralised in the hands of Russia. Although a strong
sentiment of nationalism and Ukrainophilia, Ukraine was not able to
achieve its own independence until the collapse of the former Soviet
Union in the Nineties. Since then, the relationship between Ukraine and
Russia has always been fragile and often strained. The approaches taken
from the Russian Federation in relation to Ukraine can be divided in
several stages that coincide with the periods of the Ukrainian presidents
(Kuchma, Yushchenko, Yanukovych and Poroshenko):
• 1994-2004
• 2005-2010
• 2010-2013
• 2014 — to this day.

As Batsa (2017) reports in his study, the idea of reintegration of the two
countries, which characterised the first stage of the relationship between

70
the newly independent Russia and Ukraine, was supported by Russia, but
not shared in Ukraine. In fact, from the very first moment of
independence, the Ukrainian leadership did not share the idea of
reintegration with the CIS countries, and the Commonwealth itself was
considered just a tool to get a peaceful split, as in its foreign policy the
country sought to move away from the former Soviet republics as much
as possible. This first stage was characterized by crises in bilateral
relations, caused by a number of controversial issues and unresolved
problems. One of such issues was the territorial affiliation of the Crimean
Peninsula, which was part of Ukraine since 1954. It was highlighted that
the transfer of the peninsula wanted by the Soviet leader Chruščёv,
violated the norms of the legislation then in force in the USSR. The two
parties managed to regulate the Crimean issue by granting its
autonomous status. An important factor that influenced the crisis of
bilateral relations was the issue concerning Sevastopol, more precisely,
regarding its status. In Soviet times, the city was not administratively
part of Crimea, which gave rise to criticisms about its belonging to
Ukraine. The Crimean issue was closely connected with the division of the
former Black Sea Fleet of the USSR. After the negotiations in 1997, they
decided to divide the Black Sea Fleet between the two countries. It was
agreed that the Black Sea Fleet of Russia will be based in Sevastopol until
2017.
An acute concern was also the matter of Europe's energy supply, as many
oil and gas pipelines from Russia to Europe during the USSR were laid
across the territory of Ukraine, as shown before in Figure 9. Gas conflicts
between Ukraine and Russia are recurring. The issue arose almost
immediately after the collapse of the USSR: the destruction of the
common economic space of the former USSR gave rise to an economic
crisis in the newly created states, in particularly in the oil and gas sector.
The orientation of the Ukrainian industry increased its dependence on the
Russian Federation. At the same time Ukraine’s strategic location
determined the inverse situation. The passage of most export gas

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pipelines through the Ukrainian territory (Figure 9) and the uncertainty
about alternative prospects to Ukrainian gas pipelines allowed Kyiv to
defend its own positions. On the other hand, Kyiv pulled gas for export
out to its own gas storage facilities without any authorisation and then
exported it to Europe. In the late 1990s, this became a common practice
for Ukrainian companies, and over time this phenomenon became very
hard to fight. Ukraine's policy towards Russia has been cohesive since all
leaders of the independent State have sought integration with Euro-
Atlantic organisations. The pace of this process did not depend on the
aspirations of Ukraine, but above all on NATO and EU’s position, who did
not hurry to accept Ukraine as their member. In the presidential elections
of 2004, the pro-Western Viktor Yushchenko and the pro-Russian Viktor
Yanukovych were the frontrunners. In his public speeches, Yanukovych
used to declare the need to integrate with Russia, e.g. by giving the
Russian language the status of second national language, only because
he was trying to gain consensus among those voters from the southern
and eastern regions of the country. Ukrainian-Russian relations became
more severe as soon as Yushchenko came to power during the "Orange
revolution" of 2004, which was labelled as anti-constitutional and incited
by the West by the Russian political elite. The new Ukrainian authorities
did not take steps toward better relations with Russia. After almost a
century, Ukraine accused Russia of being responsible for the "Holodomor"
(Голодомор) in 1929-1933, the systematic appropriation of food from the
Ukrainian rural areas which caused the death of about 3-5 million people
(the debate about the number of victims is still open); moreover, the
government started discouraging the use of the Russian language. The
main issues were the demarcation of the border, Ukraine's NATO
membership, the problem of the Russian Black Sea Fleet in Sevastopol,
and the gas conflict. In 2006 and 2009, there were two severe gas crisis,
which led first to the cessation of Russia's gas supplies to Ukraine, and
then to the opposition of Ukraine to resume the transit of Russian gas to
Europe. Due to the unreliability of Ukraine as a transit country, Russia

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decided to implement new routes for gas supplies to Europe. The
introduction of new pipelines, such as the Yamal-Europe and Nord
Stream, has led to a gradual reduction in the flow of gas through
Ukraine's transmission network. In turn, Ukraine has proclaimed new
priorities in energy policies, in order to reduce its dependence on Russia
in gas supply. As a consequence, Caucasian and Central Asian countries
- Kazakhstan, Azerbaijan, and Turkmenistan - which have significant
energy resources, were considered.
When Yanukovych became president in 2010, his main prerogative was
to join the EU, pushing aside the NATO membership. In addition, Kyiv did
not support the idea of a union of the states of Russia, Ukraine and
Belarus. The European choice of Ukraine, according to Yanukovych, is
connected to the increase of economic efficiency of the country, the
observance of the rights of all national minorities living in Ukraine, as well
as the affirmation of Ukraine as a reliable business partner. Despite the
pro-European course of the new leadership of the country, in October
2011 most CIS countries, including Russia and Ukraine, signed the Free
Trade Area Agreement. At the end of 2012 Russia included Ukraine in the
draft of the Eurasian Customs Union (EACU), underlining the benefits for
the Ukrainian economy from participating in this organization. First of all,
the opportunity to buy Russian energy at preferential rates. However,
Ukraine, emphasizing its policy of European integration, agreed to
participate in the Eurasian Customs Union only as an observer; Russia,
in turn, considered such format as unacceptable. In 2013 the Cabinet of
Ministers of Ukraine approved the draft of the Association Agreement with
the European Union, which caused a negative reaction in Russia:
President Putin said that if an association with the EU was established,
Ukraine would not be able to join the Customs Union. As a result, the
Ukrainian government suspended the procedures for the Association
Agreement with the EU, triggering angry protests in the Western
Ukrainian regions and in Kyiv. Accordingly, Moscow announced the

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reduction of gas prices for Ukraine and the provision of a significant
financial support of 15 billion US dollars.
In February 2014, a new phase of Russian-Ukrainian relationship began,
which related to the seizure of power by the opposition: after the
Euromaidan revolution, a new government was formed and, by May
2014, early presidential elections were scheduled in Ukraine. The actions
of the new authorities were supported by the West, which relied on
nationalist forces whose ideology denied any rapprochement with Russia.
Simultaneously, Ukraine renounced the policy of "non-alignment", and
accession to NATO became once again a priority in foreign policy. In the
meantime, Crimea and the Donbass area fall into the hands of the pro-
Russian separatists. Donbas is Ukraine’s most industrialised region
producing a 16% share of country’s GDP in 2013 and 25% of the total
amount of Ukrainian exports. This event led Ukrainian industry under fire
causing considerable losses, especially in Donetsk Oblast’: the sector that
suffered the most is the light industry which lost 50%, right after the
chemical industry lost 45%, while machine-building and the metallurgic
industry lost, respectively, 37% and 19%. Production issues in Donbas
had an effect on the whole Ukrainian industry, in fact the interruption of
coke production at the Avdiivka coke plant, which accounts for one third
of the total domestic production, caused several problems to all those
production plants using coke as primary raw material. As a consequences,
many factories were forced to stop production. In addition, the clashes
between rival factions provoked extensive damages to infrastructures
resulting in severe logistic issues, such that the operations of distribution
of both raw materials and final products and sales were paralysed. The
agricultural sector was involved as well; the lack of fertilisers and
workforce pushed farmers to move to other regions. Moreover, landmines
have been planted in some areas and they need special permits are
required to cultivate other fields in the region (Iwański, 2014).

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Summing up, among the internal political factors influencing Ukraine’s
foreign policy, the instability of its political system should be pointed out,
together with the resulting power struggle between the elites. The
political reforms conducted by the state leadership showed again that the
Ukrainian government is not actually driven by national interests but by
the principle of political convenience. An important internal political factor
in the formation of Ukraine's foreign policy is the sharp difference
between the interests of the elites and those of society. So, a significant
part of the representatives of mass groups, especially in the south-east
of the country, did not like the course of the unilateral pro-Western
orientation of Ukraine's foreign policy. As a result, Ukrainian foreign
policy has led to the separation from Russia, without resulting in a closer
integration with the EU. The current president P. Poroshenko is oriented
towards the United States and the European Union, while at the same
time destroying all ties with Russia. Such one-sided orientation is unlikely
to yield tangible results in the period of economic and political upheavals.
At one time, the formation of the EAEC and the Customs Union of Russia,
Belarus and Kazakhstan became an important foreign economic and
foreign policy factor that influenced the Ukrainian integration policy.

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 CHAPTER III

FIELD RESEARCH AND CONCLUSIONS

3.1 Case Study: Influence of Russian Social Networks in Ukraine.

Russian hegemony over former Soviet Republics is no doubt still

strong. It is significant that, whilst more than a half of the entire world is
using Facebook as their favourite social network to interact on the web,
in former Soviet countries, and Russia as well, the most used social media
is VKontakte.com. What’s the point? VKontakte, also known as VK, is a
social platform developed by Russian programmers which spread and
became popular among Russian-speaking countries, hence Ukraine as
well. Figure 13 shows the prevalent use of social networks in the world.

Figure 13 World Use of Social Networks in 2018. From

http://vincos.it/world-map-of-social-networks/

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From a cold-war perspective we could ironically say that Vk is the Russian
follow-up to Facebook: the brown area seems to perfectly retrace USSR’s
borders. This fact did not go unnoticed and neither did the current
President of Ukraine Petro Poroshenko. In 2017 VKontakte used to be the
most popular social network in Ukraine with an attendance record of
about the 60 per cent of the Ukrainian internet users. Last year the
President of Ukraine, thus decided to ban the website as an economic
sanction against Russia for its annexation of Crimea and the Donbass
conflict in the eastern area of the country along the border of the two
countries. Social media companies generate a large amount of profit
through advertising, therefore, due to the ban Russian dotcoms are losing
revenues coming from Ukrainian companies. In the decree, signed on
May 2017, VKontakte is not alone: together with the most popular social
network of Ukraine, several relevant Russian websites were banned,
including the social network Odnoklassniki, whose audience accounted
for the 50 per cent of the Ukrainian internet surfers, Yandex, Google’s
Russian competitor, a search engine also providing translation services,
maps and much more, the Russian antivirus Kaspersky Lab and DrWeb
and the popular e-mail service Mail.ru. Moreover, in the decree were also
included some Russian TV broadcasters such as TV Tsentr, RBK, VGTRK,
NTV-Plus, Zvezda, TNT, REN and ORT. The Ukrainian Government stated
that the ban is not only an economic sanctions against Russia but it also
represents a sort of security measure towards the Ukrainian citizenry
after the Russian involvement in cyber-attacks in France, for instance,
regarded as a “hybrid war” by Poroshenko and the Ukrainian government.
These sites will be blocked until 2020, barring accidents.
Anyway, many things wouldn’t be allowed on the web, but they exist and
Ukrainians wasted no time to find a way to work around the blacklist: by
using a VPN everyone can access any website of the world, allowed or
not. They just need to set up some settings on their devices and the deed

78
is done. The event generated a vibrant debate about internet freedom as
well, but this is not the place for discussion.
According to Alexa, the Amazon company providing commercial web
traffic data and analytics, Vk.com is still the 4th most popular website in
Ukraine against Facebook which ranks 7th; Yandex.ru, Mail.ru and Ok.ru
are respectively 13th, 15th and 16th.

The following research, conducted in Ukraine in the last quarter of 2017,

analyses the use of social networks and other communication channels in
Ukraine. The research is based on a digital questionnaire developed by
the author, spread through several digital channels including: social
network, instant messaging systems and e-mails. The sample consists of
52 people, males (34.6%) and females (65.4%), Ukrainians (75%) or
foreigners living in Ukraine for different reasons, everyone owning a
smartphone; most of the respondents (94.2%) have been abroad at least
once in their lives. Figure 14 reports the results of their social media
presence:

Figure 14 Respondents' Social Media Presence.

All the people interviewed declared they are on Facebook, while a lower
percentage reported to be on Instagram (71.2%), LinkedIn (50%),

79
VKontakte (46.2%), Twitter (28.8%) and Tinder (1.9%). But a most
significant datum is that of the use of these social networks:

Figure 15 Social Media Use.

33 respondents answered they mainly use Facebook, followed by

Instagram (23.1%), VKontakte and Twitter (5.8%) and LinkedIn (1.9%).
It is interesting to remember that the survey was issued and data
collected after the ban of Russian websites from the Ukrainian
government. When asking them about their reaction to the Executive’s
measure, a 40.4% admitted they were using a VPN to access the
blacklisted website while only a 9.5% stated to have totally stopped using
VK.

As regards instant messaging systems for smartphones, the most used

are Viber (82.7%), an app developed by Israeli programmers then sold
to the Japanese company Rakuten. This app, in fact, results to be very
popular in Ukraine and Croatia (Cosenza, 2018). Being probably the most
widespread messaging app in the world, WhatsApp ranks right after with
the 69.2% followed by Telegram (36.5%). A sizable 23.1% reported to
be using the old-fashioned SMS. Figure 16 points out all the answered
options.

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 Figure 16 Use of Instant Messaging Systems.

Ranking 2nd and 3rd in Alexa’s top Ukrainian websites (respectively with
google.com.ua and google.com), Google results to be the prevailing
search engine, used by the total of the sample. Other common websites
are Yahoo and the Russian Yandex, scoring a 5.9%.
A notable datum concerns the different use of social platforms depending
on whether they want to get in touch with local people or foreigners.

Figure 17 Use of Social Platforms Depending on Contacts.

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About the 80% declared they use different means to contact people living
abroad. This is qualitative relevant and further investigations about the
topic could be very interesting.

Anyway, the quantitative data collected through this study do not match
with those estimations reported on the web. Although the survey was
conducted right after VK and Yandex were banned, the results show a
scarce use of these websites, or better, from the answers it is possible to
infer that their use is less intensive than that of their overseas
competitors. It would be necessary to repeat this kind of investigation
after about a year and a half after their block and just before the planned
end of the ban.

3.2 Doing Business (and Research) in Ukraine.

If undertaking a business in Ukraine can be demanding and

sometimes hard, running a research could be even harder. The initial
research project expected a series of actions, many of which resulted
impossible to be implemented: probably due to the high degree of power
distance which characterizes the Ukrainian culture, hierarchies are clearly
stratified and embedded so that it is hard for a young foreign student to
be taken into account. Several attempts to get information and
quantitative data about the local business environment ended in a series
of failures: the many e-mails to get in touch with any responsible person
within the Chamber of Commerce of Odessa (ORCCI) have been ignored
as well as the phone calls to the contacts specified on their website. It is
probably due to the fact that, at least in Odessa, people who can speak
English fluently are not very common and those who can, sometimes try
to avoid it unless it is strictly necessary. The results obtained by
attempting to contact the Italian Chamber of Commerce for Ukraine are
pretty much the same, no response to the e-mails although it was
specified that it was a matter of academic research.

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A barely better outcome was reached when trying to ask for some support
to local scholars: among several contacts, only one young researcher was
available to share her knowledge about the Ukrainian culture and its
business environment. Unlikely, even though this professor from the
Vasyl Stefanyk Precarpathian National University was willing to share her
papers, most of them are in Ukrainian or Russian language. And here
emerges one of the main problems when dealing with the Ukrainian
reality: it is very hard to get in touch with people or to get documents,
papers, books, etc… in English. Although English is widespread all over
the world as a vehicular language to make as many people as possible
access one’s own works, in the Ukrainian academia is still common to
publish academic articles in Ukrainian and Russian, usually providing only
a translation of the title and abstract. Despite the language barrier, some
papers about the Ukrainian culture related to the Hofstede’s 6-D Model
turned out to be a significant contribution to this research.

After this series of fails, the idea of getting information from Institutions
and scholars was abandoned to shift to personal experiences of those
who were active in the Ukrainian business environment or to those who
were considering to do so. The first try consisted in a semi structured
interview written in English, in order to be accessible to as many
respondents as possible. The interview, in the form of an electronic form,
was delivered through business groups for foreigners on social networks,
namely Facebook and LinkedIn. This survey aimed to investigate the
origin of the respondents, the nature of their business and the motives
that pushed them to do business in Ukraine. Unfortunately, this study
was not successful and no answer was provided to the interview, which
has been active for several months. Hence, a new interview was
prepared, this time in Italian language. Therefore, it was shared among
Facebook and LinkedIn groups joined by an Italian community of
entrepreneurs and businessmen dealing with the Ukrainian market.
Although the sample cannot be considered to be representative, as it

83
obtained only three respondents, it may still be taken into account to
draw some conclusions. The Italian survey examined whether the persons
being interview were already carrying out business activities in Ukraine
or whether they were about to. The main focus was about the business
expectations they had and whether they had met them. Two of the
respondents are already operating in the Ukrainian market, while one of
them is not active in Ukraine, but in the past she undertook business
activities in another developing market with conditions similar to those of
Ukraine, she reports. Figure 18 points out the factors that initially spurred
entrepreneurs to move there.

Figure 18 Drivers for Business in Ukraine.

The answers confirmed that a relatively skilled but cheap workforce, the
strategic position of the country and the market size are rather attractive
for international investors. Being a semi structured interview,
respondents had the possibility to answer freely and add further
considerations: thus, someone mentioned the “Ukrainian potentiality
towards foreign markets”21. It is not very clear what it means and further
research about this aspect could be implemented in the future. Two over

21 Translation from Italian by the author.

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three declared that their expectations have not been met and when
describing their experience in Ukraine, that’s what came up (figure 19):

Figure 19 Respondents’ Experience in Ukraine.

22

Although this study cannot be considered reliable and suitable to get

quantitative data, it can still be useful to infer some qualitative
considerations. Together with the several attempts done to find reliable,
quantitative data from local institutions, this framework proves to be
hardly accessible and closed, thus making it difficult to penetrate its
environment. In this kind of context, it is advisable to be introduced by a
mediator who is already integrated and esteemed as a person of
relevance in that specific environment. It must be stressed that it is not
taken for granted that everyone in the place of business is able to speak
English fluently, thus it is better to know some Ukrainian, or Russian
according to the region where you are, or to be accompanied by a
Ukrainian/Russian-speaker; in Ukraine, there’s plenty of consultant
companies, both multinational or local ones, offering translation and
interpreting services for those who want to test the waters.

22 Translation:
• I advise against investing in Ukraine since I have a previous
experience of investment in a country in constant economic crisis
and I had to close my business and look elsewhere.
• Economic stability issues and lack of the necessary foresight.
• It has the same potentiality of Italy in the 70s.

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3.3 Common Talks About Ukraine.

‘Common Talk about Ukraine’ is a further attempt to collect some

data about how things work in Ukraine. The website was developed and
published on the web on June 2018 in the form of a blog. Two posts were
written with the aim of starting a conversation where people could feel
free to share their experience, expectations, thoughts and advice about
the Ukrainian business environment and any other useful considerations.

Figure 20 Common Talk about Ukraine’s Home Page.

The project was promoted on Facebook and LinkedIn but no one

interacted in the discussion created. The website also provided a contact
form for those who might prefer to share their opinions privately, without
engaging in the discussion but no request was received so far.

3.4 Conclusions.

In the era of globalisation, it is inconceivable no to be embedded in

a dynamic, multicultural reality: you live in Italy, your smartphone is
designed in the Silicon Valley and made in China, you can have a quick
lunch with a sandwich filled with avocados from Peru and Norwegian
salmon; you go back to work in your American-based multinational
86
company and you have a quick chat with your French colleague. Our
reality, although some efforts by populist politicians to come back to
protectionism and a kind of autarky, is deeply, inevitably interconnected
and new frontiers for business are discovered every day. The globalisation
of markets brought Western commercial activities to far, distant places
both in terms of space and culture. That is why I strongly believe that
numbers are not enough: economic and financial data are not enough to
determine whether it could be profitable to run a certain business in
another country. Negative economic indicators could be due to a wrong
approach to that market by companies which did not take into account
the radically different culture of that country. Even mammoth industrial
groups ended up in such mistakes, but past experiences should be a
lesson to the entire business arena. First of all, to avoid this kind of events
it is recommended to approach different markets through joint ventures,
which offer the advantage to rely on a local reality able to guide the new
comer in the new adventure, and to train it about the highlights it might
not be prepared to. Trying to find out a managerial and business approach
suitable for every country is totally insane: each market needs a specific
and in-depth study of its strength, weaknesses, opportunities and threats
and overall a complete study of its (business) culture. The tools and
insights Hofstede provides on his website are a valuable starting point to
develop further detailed studies and his effort should be an example of
how subjects such as sociology and anthropology can make the
difference, especially when dealing with foreign markets.

I hope this work can be a point of departure for further researches and
it can help managers and entrepreneurs to become more aware of the
growing importance that human capital has nowadays. By investing in
the training and education of its workforce, a company can get a
competitive advantage over its competitors, even those with greater
financial capitals. This is why more and more realities are investing large

87
amounts in Human Resources Management to train global managers,
they understood that human capitals can overcome financial capitals.

As regards Ukraine, we saw how tricky it could be and how much work
still needs to be done. Nevertheless, we analysed some positive efforts
made in the last three, four years which give hope for change. The
implementation of the e-Governance and state services such as ProZorro,
eHealth, the search for transparency and consequent fight against crime
are all together a strong sign of awareness and need for a positive
change. At this point, we must remember the hybridity which
characterises this beautiful country and the different souls that make it
up. It is important to keep always an eye on the socio-political situation.
I would like to end this study with one last inspiring example of a
successful reality in Ukraine, more precisely in Kharkov, reported in
Zhernokleeva (2017). Through the stimulation and support of small
innovative business activities, the reallocation as business incubators and
co-working offices of old, abandoned Soviet buildings, the
implementation of social support for the population and effective public-
private partnerships, the city of Kharkov was able to increase the number
of start-up companies which consequently became the most dynamic part
of the business environment, as they attract investments, improve the
reputation of the city, contributing to its development. As Zhernokleeva
states, the presence of a developing dynamic start-up culture reflects the
development of the entrepreneurial environment in Kharkov, its local
finance, the exit from the crisis and the perception of the European
culture of doing business. In order to provide an opportunity for the
concrete development of small, innovative business, it is necessary to
create an environment in which first-time entrepreneurs can get all-round
support. Such a place can become a business incubator. In the
development of Kharkov as an urban-conglomerate, co-working zones
and business incubators began to spread all over the city. Every year the
number of co-working spaces in Kharkov increases, due to the popularity

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of these spaces for work. In the period 2012-2016, Kharkov was the
second city in Ukraine with the highest number of freelancers (14,993
people), while in Kyiv they were 32,332; but Kharkov awarded the first
spot by amount of money earned, i.e. 54.0 million dollars, and in Kyiv
only 39.4 million. Moreover, the average income of Kharkov freelancers
is almost three times higher than that of Kyivan freelancers. For each
city, business development is of great importance and Kharkov is not an
exception. By creating favourable conditions for young entrepreneurs,
investments are attracted, the attractiveness of the city increases, and a
special urban business environment is formed. In each city of Ukraine
there are buildings of the Soviet period of construction, these are the
remains of buildings of old enterprises or institutions that can be used as
co-working or creative centres. Now, a lot of young people with great
ideas are looking for what to do in life and how to help the development
of the city, but they do not have a cheap place to work. For the success
of this idea, two components are needed: the desire of the city authorities
and the investors who agree to bring the building into a good condition
(Zhernokleeva, 2017).

The same could happen in Odessa, a vibrant city full of history, beautiful
places, attractive tourist destinations, full of potential. I invite
entrepreneurs and young investors from all over the world to keep an eye
on this potential market and develop further researches about the
possibilities to exploit in Ukraine.

89
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91
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 LIST OF PICTURES

Figure 1 View of the commonly-known “Potëmkin stairs” from the port

of Odessa. Picture from the author. ................................................ iv

Figure 2 Globalisation issues (©GLOPP, 2006) .................................. 5

Figure 3 Ukraine, Country Comparison - Hofstede Insights ............... 20

Figure 4 Italy, Ukraine, USA - Country Comparison Hofstede Insights”.

................................................................................................. 25

Figure 5 Maidan Nezalezhnosti (Майдан Незалежності) Square, Kyiv.

Picture taken by the author on November 2017. .............................. 27

Figure 6 Odessa’s City Hall (detail). Picture taken by the author on

December 2017........................................................................... 28

Figure 7 Picture taken by the author at the passport control, Kyiv

Boryspil’ International Airport, November 2017. .............................. 33

Figure 8 Recreation of a Training Dummy for Young Smugglers. Picture

by the author .............................................................................. 38

Figure 9 Oil Pipeline from Russia to Europe. Picture from the USA
Department of Energy. ................................................................. 41

Figure 10 ProZorro's Homepage .................................................... 44

Figure 11 Individuals perceiving lack of ICT skills as a barrier. From The

World Development Report 2016: Digital Dividends, p. 126 .............. 66

Figure 12 Why digital dividends are not spreading rapidly—and what can
be done. From The World Development Report 2016: Digital Dividends,
p.4 ............................................................................................ 67

Figure 13 World Use of Social Networks in 2018. From

http://vincos.it/world-map-of-social-networks/ ............................... 77

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Figure 14 Respondents' Social Media Presence. ............................... 79

Figure 15 Social Media Use. .......................................................... 80

Figure 16 Use of Instant Messaging Systems. ................................. 81

Figure 17 Use of Social Platforms Depending on Contacts. ................ 81

Figure 18 Drivers for Business in Ukraine. ...................................... 84

Figure 19 Respondents’ Experience in Ukraine................................. 85

Figure 20 Common Talk about Ukraine’s Home Page. ....................... 86

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 LIST OF TABLES

Table 1.1 Priorities of Cultural Values …………………………………………………… 13

Table 1.2 Hofestede’s Dimensions of Organisational Cultures …………… 15

Table 1.3 Time Culture …………………………………………………………………………. 24

Table 2.1 Ukrainian Exports-Imports in USD ……………………………………….. 52

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