Lviv’s Danish connection

  • Lviv’s Danish connection
  • Lviv’s Danish connection
Issue 35, May 2011.

One of the more curious quirks of the West Ukrainian investment landscape is the disproportionately large Danish presence throughout the regional economy. Predominantly focusing on manufacturing and outsourcing, this Danish business community is one of the key driving forces behind the development of West Ukraine’s investment climate and continues to be among its most vocal and high profile components. Indeed, such is the scale of the Danish presence that guests attending a gathering of Lviv’s international business community for the first time would be forgiven for thinking that they had walked in on a meeting of the local Scandinavian Chamber of Commerce. Such is the prominence of West Ukraine’s Danish business community that in 2010 the Danish Business Association (DBA) was established to help provide a coherent institutional platform for Danish business interests in the region. The DBA was founded and is headed up by Lars Vestbjerg, a long-term Danish expat and well-known member of Lviv’s international community who has previously served for five years as Chairman of the Board for the European Business Association’s West Ukrainian branch. DBA Chairman of the Board Vestbjerg has been the General Manager of Sika Footwear since 2003 and hopes to use his wealth of experience in West Ukraine to help build a more competitive investment climate and to entice even grater numbers of Danish investors to opt for West Ukraine as their location of choice in Eastern Europe.

Why has West Ukraine proved so attractive to Danish investors?
In the early nineties the first Danish company appeared in the West Ukraine and many others chose to follow suit within a relatively short space of time. Initially, many Danes chose West Ukraine because of the logistical advantages derived from its relatively close geographical proximity to Denmark. Later on, others were also tempted by the existence of a strong Danish business community. Danes tend to build up closely knitted business communities and the presence of Danish companies in Lviv and throughout West Ukraine has proved appealing to
other Danes looking for attractive locations for investment in the CEE region.

What advantages does having such a prominent Danish business community bring with it?
The advantage of building up Danish business communities like the one in West Ukraine is that it allows us to discuss common issues being faced by everyone in the business community and then to present a strong common message to the Ukrainian authorities. This is an effective way of communicating for all parties and allows the business community to develop productive and mutually beneficial relations with the local authorities. The Danes have been doing this with increase increasing success for years and we have found that as a community we are stronger when united under a single banner.

What is the size of the Danish business community in West Ukraine and how does it compare with the Danish community in the rest of Ukraine and Danish business communities in neighboring former Eastern Bloc countries?
Denmark has always been among the most competitive trading nations in the world and today the Danish presence is considerable in countries throughout the region. Denmark has proved a leading outsourcer nation and  this has led to rapid expansion of Danish business interests throughout the former socialist countries of Eastern Europe and the Soviet Union. At present there are a total of around 150 Danish companies operating in Ukraine. 49 of these Danish companies are based in West Ukraine itself — in other words, almost one-third of total Danish
investment into Ukraine in terms of individual companies is currently focused on the west of the country. 95% of the Danish companies active in West Ukraine are involved in production and manufacturing, while the remaining 5% are engaged in consultancy work, property investments and the provision of financial services.

What is the role of the DBA in shaping the investment climate of West Ukraine?
The role of the Danish Business Association is to lead Danish businesses through the Ukrainian system and create the kind of environment which will allow for the rapid acclimatization and integration of new comers to the region. This applies equally both in terms of business culture and on a private level — the DBA aims to provide a warm welcome and an introduction to what is for most Danes a totally different culture. In practical terms the DBA has already signed a series of memorandums with the local authorities and takes an active part in shaping the investment climate in West Ukraine with an emphasis on improving conditions and attracting more international investment into the region.

What message does the DBA send to potential Danish investors looking at the Lviv region?
The Danish Business Association is an umbrella for Danish Investments in West Ukraine and as an organization is committed to protecting Danish investments and Danish business interests throughout Ukraine. One simple service which we provide involves putting potential investors in touch with existing Danish companies operating in West Ukraine who can offer some practical insight into the region and the nuances of the local business climate. For example, potential new investors who are interested in entering West Ukraine’s growing outsourcing market are typically introduced via the offices of the DBA to existing Danish companies who are already active in the sector. It is vitally important that newcomers to the Ukrainian market are given the real picture of the investment climate before taking the final decision on where to invest. We also offer help in establishing relationships and signing memorandums with local state officials — allowing newcomers to benefit from the collective experience of the Danish business community and begin their Ukrainian business experience on the right foot.

What are the biggest complaints of the Danish business community in West Ukraine and what needs to be done to open up the region to its investment potential?

For many years some of the biggest barriers to attracting great investment to Ukraine have been the issue of VAT reimbursement and the practice of different state institutions making financial and administrative claims on foreign investor companies. In 2011 the VAT issue has improved somewhat thanks to the new system of automatic VAT return, but still some older VAT debts have not been paid back. It appears that the issue of sudden claims from various state bodies is now going the way of the country’s courts, but even so it will take several years before this practice is totally phased out as a threat. Even when it is obvious that the international investors in question have done nothing wrong, in many cases they will still have to go through the inconvenience of a courtroom hearing — hardly the kind of thing that most investors are looking for in today’s competitive global marketplace. Ukraine has to solve these problems as a matter of some urgency as they represent a direct barrier to attracting further international investment. Red tape also continues to play an obstructionist role. The bureaucratic and administrative burdens placed on all private sector companies are prohibitively high in today’s Ukraine and yet in our modern electronic world this would actually be easy to solve. Ukraine has to get out of the old way of approaching bureaucratic issues and create a modern system for the country which reflects 21st  century thinking.

What aspects of Danish culture and traditions does the Danish business community in West Ukraine try to honour?
When Danes find themselves living and working outside Denmark they generally try to take their Danish traditions with them. As a community in West Ukraine we try to mark days like Christmas, the Queen’s birthday, Easter and other Danish national holidays. The Danish Business Association serves as a focus for celebrations and we like to try and show the employees of Danish companies what Danish traditions are all about. The Danes are proud of
their traditions and strive to keep them alive when outside of Denmark.

Lviv’s Danish community is one of the oldest in post-Soviet Ukraine. Who is regarded as the elder statesmen of the Danish West Ukrainian business community?
Wood processing and timber companies were some the first to enter the West Ukrainian market. Sorensen and Haahr, owned by the Haahr family, was one of the first to enter the regional market in the 1990s and is still producing. Textile and footwear companies followed shortly after, with the influx beginning in mid-1990s. By the early years of the new millennium early Danish textile pioneers like LvivTex and Danish Textile were employing 200-650 people. The first footwear producer was Sika Footwear, which first entered the West Ukrainian market in 2001. Danish levels of involvement in the metals, IT, furniture and consulting businesses has since started to grow. The huge pig farms which are such an iconic aspect of Denmark’s Ukrainian investments date back to the beginning of the century. Today, we see a huge growth in interest from IT and development companies looking to promote green energy.