The plan of export events until end of 2022 is presented on the Ukrainian Cluster Alliance (UCA) website and includes at least 10 international events. This schedule is not yet complete, as new offers from European partners as well as new needs arise almost every week. All this opens up new very good opportunities for internationalization of UCA clusters and our members. Already having experience and hard work of the first 6 months, we can move even faster. But, on the other hand, are clusters themselves, their members ready, or are our collective capabilities sufficient in general?
The main challenges
Conventionally, the main challenges in this field of UCA export-internationalization can be divided into 3 categories:
- Obstacles related to lack of centralized government export support programs and current
problems in this area. List of these problems is well known, ranging from travel ban on Ukrainian men to lack of targeted support programs for the most critical sectors, such as engineering.
- Difficulties of positioning a number of sectors on the international arena are the second and very big challenge. If export problems of agricultural and food products are reduced exclusively to solving logistical problems, everything is much more complicated with hi-tech industry products. This is not about returning to business as usual, but rather about changing positioning through targeted and powerful marketing campaigns. After all, today we need to convince international partners and customers that Ukrainian manufacturers are able to comply with their obligations in conditions of war, and when there are practically no safe places in the country. Due to a number of reasons, it is much more difficult for complex industrial sectors to do this, since risks for international partners are much higher here. And nobody wants to take them on today.
- The third category of obvious challenges is insufficient internal capacities of SMEs and UCA clusters themselves. Even before the war, there were many complaints about unpreparedness of domestic SMEs’ majority, especially in complex, medium technology and high-tech sectors. Now we are ready, and in fact it is very difficult for us to meet the challenges of point 2 and huge opportunities that the Euro-Atlantic bloc countries open up for us. It seems that most stakeholders, including the central government and international donors, do not fully understand this state of SMEs, otherwise their response to problems would be faster and more effective.
Now in more detail about all these challenges and their solutions, and in the context of already existing previous UCA developments.
Promotion of the Export-Internationalization program to the government
Fresh statistics on Ukraine’s exports for January-July vividly demonstrate the face of our raw material economy. That is, it is relatively easy for us to export raw materials, primarily agricultural, and here Ukraine’s position in the world remains strong. To do this, it is enough to restore logistics routes, which was partially done during July-August. And external environment is quite favorable for export of raw materials.
Instead, our proposals to the government from June were about something else – about how to avoid threats of complete degradation and destruction of medium and high-tech industry sectors, where difficulties of export-internationalization are many times higher. And which (these sectors), by the way, are the defense industry basis. Here, dependence on state support is also much greater than in the raw materials industries.
We remind you that our proposals relate to 3 categories of anti-crisis actions and include 9 practically ready project applications, with specific amounts and deadlines. We will single out among them the most critical in the same categories:
- The Buy Ukrainian program mostly concerns groups of food products and possible import substitution of Belarusian and Russian products in EU countries trade networks. The key proposal in this category concerns a unified and powerful program of organizing trade missions as the main tool for increasing Ukrainian presence in international events.
- The Program of Integration into European and Global Value Added Chains (VAC) primarily concerns medium and high-tech sectors of industry, we call them “industrial high-tech” for short. Here, our proposal is most focused on launch of special EU programs for integration of Ukrainian sectors into the EU’s VAC, and where expansion of the Industrial Dialogue format at the level of the European Commission is one of the first steps.
- The Innovation Space Integration Program applies to all innovative ecosystems that are the basis of industrial hi-tech, and where processes of degradation due to the war are also growing rapidly.
Measures to expand and better involve Ukrainian innovators in existing EU innovation support programs are action line #1.
Progress on integration of all these proposals to the level of government programs from June is currently very little. The main reason is that the UCA voice has not yet been conveyed to the highest echelons of the government, and only in September, thanks to partners from the Ministry of Economy, we started this communication of the entire program. On the other hand, there is some progress with the Entrepreneurship and Export Promotion Office, where there is regular coordination of actions on operational measures.
But the most important issues today concern “simple things”, such as, for example, lifting ban on travel abroad for Ukrainian men. Criticality of this issue for all the specified categories is obvious, since any issues of international negotiations cannot be resolved online. And it is surprising that the government does not understand and cannot solve this problem in the seventh month of the war. Constant uncertainty regarding departure blocks most international events where our partners from the EU and other countries are ready to host and help Ukrainian businesses. We are talking about, de facto, weekly forums, conferences,
exhibitions, etc., and for dozens of sectors and countries. Today, Ukrainian presence in these events is close to zero. And, first of all, this applies to industrial hi-tech, where male dominance in company management reaches 70-90%. What integration, what agreements or what progress in exports can we talk abou in such conditions?
UCA and affiliated clusters’ management should significantly increase their consolidation with other business associations to convey this position to the government and quickly resolve this issue.
Repositioning for industrial hi-tech. Launching
the Save-Survive-Win campaign
As already mentioned, Buy Ukrainian can work “head-on” for agricultural products or low-tech types of products, since Ukrainian raw materials and food products are quite competitive on European and world markets, and there is a high demand for them in many segments. In these positions, we are already, de facto, a raw
material base and, to some extent, a primary processing base for EU (metals) On the other hand, situation is very different when it comes to production of various types of xxx-construction (aircraft, ship, machine, instrument, electrical equipment, etc.), metalworking, production of new materials, construction of turnkey lines and factories, industrial automation… Thus, we are talking about all those sectors that today in developed countries are called Advanced Manufacturing. We must be frank here that no one is particularly waiting for us in EU and US markets. Meanwhile, these types of industry are the basis of the domestic defense industry. Current maintenance operations of military equipment, such as basic repairs or preparation of mobile command posts, also depend on availability of professionals and production facilities in this area. Not to mention production of new equipment, where technological redistributions in production are practically the same as in mechanical engineering.
Our positions in these segments on European markets were frankly weak even before the war. Ukrainian products, with rare exceptions, were inferior in terms of competitiveness, and the only high-tech sector that made its way to global markets is IT. But it is necessary to take into account 2 differences of IT from the current state of industrial hi-tech. First, the IT industry consciously set course for global markets back in the mid-2000s. And, secondly, 90% of Ukrainian IT exports are about services, not finished products or
What to do in this situation? After all, industrial high-tech companies do not have 15 years to “smoothly promote” their manufacturers, and we do not have any obvious competitive advantages. On the contrary, we are in the zone of increased business risk and many international companies simply do not recommend doing business with Ukraine.
This proposal, which is submitted for discussion in UСA clusters, is to use the only possible catalyst – the very factor of the war. The key idea is to convert the huge wave of sympathy and desire to help, which really exists in all democratic developed countries, into real and effective help for our industrialists. Three main components or strategies in implementing this idea:
SAVE is about strategy of anti-crisis measures in preserving “roots” of industrial hi-tech, it is about innovative ecosystems. Today, personnel training system and overall personnel and talent system for needs of critical industries, including defense industry, are receiving the biggest blow. Due to rapid decline of domestic markets and parts of foreign markets, and if no measures are taken, these personnel and talents will quickly disperse to other sectors and countries, and it will be impossible to return them in a while. Therefore, our calls to international communities appeal to help innovation ecosystems, and more specific proposals are already in the Inno-Integration category of our Internationalization program. Addressees of this assistance are the system of technical universities and colleges, centers of innovation, such as research institutes, innovation clusters, centers of expertise, hubs, etc.
SURVIVE is about immediate assistance to SMEs, representatives of industrial hi-tech. They need to be integrated into the European VAC as soon as possible, and the best way for this is to place orders in any types of production of goods or services acceptable to the Euro-Atlantic bloc partners. Experience of APPAU in promotion of engineering outsourcing services in the first 6 months of the war proved existenc of demand in US and EU markets. But selling these services for APPAU is difficult because of the same problems of persuasion and proof that “it’s worth it and it’s safe with us” and, in the end, it’s just necessary to win together. A large-scale campaign supported by the state and a number of international partners can change this situation. But, once again, it should not go under the slogan “buy Ukrainian”, but under slogans of helping us survive during the war and maintaining our economic front, which is actually not only Ukrainian, but also European. If the high-tech industrial sectors die out, and now degradation is increasing rapidly, then there will simply be no one to raise or support the domestic defense industry. And export of grain will not help us in this challenge. These causal relationships must be obvious and undeniable to all stakeholders, including heads of the Cabinet of Ministers.
WIN – this strategy should focus on specific projects to maintain, improve efficiency and, in some cases, restore critical industries such as energy, infrastructure and logistics. Victory on the military front primarily depends on their functioning. Involvement of international aid in such projects is needed now, for example, in restoration of heat and energy supply to regions that were under occupation. A separate direction is about transfer of military equipment production to the neighboring countries of Eastern Europe. Such a program should be government-led, well-balanced, managed and centralized. A number of UCA clusters are ready to support it with their resources.
So, instead of the Buy Ukrainian campaign (it also supports Trade with Ukraine), industrial hi-tech sectors need a SAVE-SURVIVE-WIN campaign, with clear messages and proposals for cooperation for international partners. We will repeat again that such a program is very difficult to organize and implement without government support and interaction with all branches of state structures.
Task of internal coordination – changes in UCA
But first of all, we have to change ourselves. Accepting and responding to the above challenges is impossible without internal changes in UСA.
Here are the key areas where changes are needed:
- Creation of a full-fledged export committee. If we exclude several leading associations (UAFM, APPAU, U-Food and the ASTAR agency (2 clusters), then we do not see full-fledged marketing resources anywhere in the UCA that would regularly and at a high level promote their clusters and their participants at the international level. This is not only about prepared brochures or even videos (=beautiful packaging), not about websites in English, but rather about systematic regular communications both within clusters and to external stakeholders. And the reason for this on the surface is lack of professional resources, experience and competencies. The only way out of this situation for several dozen clusters is creation of a full-fledged export committee, which will represent the entire UCA, and where there will be a division according to functions of representation at international events, system communications and PR, coordination in interaction with international stakeholders, as well as with internal (EEPO, Council of Exporters at the Ministry of Foreign Affairs, etc.).
- Production of collective proposals from UCA clusters. This is one of the most difficult tasks assigned to the Rapid Response Centers (RRCs) of the Ukrainian Armed Forces and the strongest cluster organizations. It is RRCs that are responsible for creating project applications in intercluster cooperations, and we are already seeing the first results from RRCs of housing and communal services and IAM. These applications (projects) should be sufficiently large-scale and reflect industry and regional challenges and solutions of interest to international partners. APPAU’s attempts to initiate industry change initiatives, encouraging heads of SMEs and departments of large holdings 3 years ago to think on the scale of industry in the field of Advanced Manufacturing, were in vain. There, just as it was not possible to take collective leadership in the framework of the Asset Performance Management campaign last year. But without demonstrating similar leadership at the industry sectoral level and on topics that are relevant to them (4.0-5.0, not 2.0-3.0), what can we talk about with European clusters? This task of closing the maturity gap is also urgent in the context of our presentations in Prague and Brno, as well as at several large online events in September. That is, in a couple of weeks we have to announce our proposals for international cooperation in these locations at two large events.
Consolidation in understanding of critical export issues with other major BAs on export issues and further with the government and international donors. Consolidation is very necessary due to the few but still existing joint manifestations of Ukrainian associations, and also to strengthen voice of certain sectors before international partners. But at the beginning, we must act in unison in order to finally convince the government to react as quickly as possible to numerous restrictions, such as ban on traveling abroad, purchase of currency to pay for exhibitions, practical lack of effective support for international events, disparity in actions of various institutions, etc.
Clearly, the Export Committee must be the driver of these changes and will be charged with responsibility of making quick decisions on all three tasks by the end of 2022.
Counter-proposals for changes from heads of clusters, UCA members are welcome, discussions will
take place next week.
Oleksandr Yurchak, head of the UCA