Business in Ukraine

Kishor H. Sridhar is head of international business at the German IFAK Institute, which has been in Kyiv since 2007. The company evaluates cultural mentalities and their impact on consumer behavior. Before joining IFAK, Sridhar worked for the American Gallup Institute. Sridhar says Ukrainian businesses are slowly adopting modern market research techniques and still rely on old­fashioned approaches.

 

 Kishor H. Sridhar is head of international business at the German IFAK Institute, which has been in Kyiv since 2007.

KP: Please tell us briefly about the major trends currently driving Ukraine’s market research sector?

KS: The Ukrainian market is fast­moving and quickly adapts new approaches and technologies. We are overwhelmed on how well perceived innovative technologies are. Modern online shopping­shelf simulations are in demand as well as the new eye­tracking method that measures what people look at while they move along the street, at the shop or when reading a newspaper. This has definitely changed compared to a few years ago.

On the other hand, Ukrainian customer research still applies some rather old­fashioned approaches. We still do a lot of our work in classical ways, for example, person­to­person and telephone interviewing.

In Western European countries, the latter method holds a small share of the market research market but in Ukraine, it will remain a major source of data gathering for years to come.

 

KP: What are the major factors that are driving the market growth?

KS: The major factors are stronger competition in the consumer goods sector and a greater product diversification. It’s only natural that when competition increases and growth is harder to gain, companies turn to market research.

Knowledge and information are the keys to success and many Ukrainian companies know it. Companies without a detailed knowledge of their market or customers get left behind. This is a natural development. This also works for advertisement. With customers being flooded by advertisements, you need to make sure that yours stand out. We have seen a major growth in campaign testing in Ukraine over the past years.

 

KP: What are the main challenges that market researchers face today?

KS: The main challenge for all market research players is the lack of willingness of their potential client’s decision makers to hear the truth. It is difficult to hear straight facts about what your customers think of your product, and what your market chances are, if the findings are negative. When you are ill, you don’t treat yourself, you go to a doctor for an honest evaluation. The same should be true for market research, but it isn’t. Many corporate decision makers prefer to use their own people for market research, but most lack modern know­how. Naturally, many base their findings on their bosses’ views. This is called alibi research.

If executives want to be successful, they need independent market research and consulting on which they can base their decisions. Good market researchers are comfortable telling the truth, and the findings are highly confidential, like any good doctor’s medical opinions. But this open­mindedness among the country’s executives still needs to develop. That is why only 15 percent of market research in Ukraine is done by independent market research companies. We are very sure that this will change quickly but this is something we as independent market research companies actively need to work on.

 

KP: So the demand for market research in Ukraine is underdeveloped?

KS: No it is not sufficiently developed. There are many international market research companies expanding into the Ukrainian market but opening offices does not guarantee the real demand is met. The Ukrainian market is a very dynamic yet special market. Demands are different in Ukraine so the main challenge for international market research companies is to adapt their approach to the country’s unique market and clients.

 

KP: What are the main differences in the research you do in Ukraine and Western companies?

KS: There are three major differences. First, it is the clients: Ukrainians are very dynamic, fast thinking and move quickly. In the West, in Germany for example, market research clients will plan weeks ahead. Projects in Ukraine come on short notice and require a quick turn­around.

The other difference is the way participants are interviewed. Cell phone usage rates in the Ukraine are on a very high level and landline penetration in the major cities is too. That is why telephone interviewing works well here. In the regions it is better to conduct market research in person. This communication mix will last for the next years to come. Last but not least are the challenges Ukrainian clients face and thus the fields of research. For example real estate research is very big in Ukraine, meaning the detailed evaluation of a location where a retailer plans his store, the evaluation of the area, the demographics around the store, family structure, income, mobility, etc. In Germany their meta­surveys continuously monitor customer behavior. In Ukraine data is gathered more on an individual, case­driven basis.

 

KP: What is your forecast for the development of the market research sector in Ukraine?

KS: The annual 30 percent growth rate will continue for the next 3 years.

Among the most areas in demand of market research will be in real estate, mobile communication, banks and retail.

In terms of technology we first have to fully develop telephone interviewing and the transition to internet data gathering will take another three to five years. The internet offers possibilities still beyond anything we have seen so far in market research. I am quite sure that online market research will catch on even faster in Ukraine than it did in the UK, Germany or France.

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The growing sophistication of Ukrainian businesses is propelling demand for detailed market information and specialized studies. This means booming business for market research firms. With annual revenue growth of 25 to 30 percent, this segment of the economy is one of the fastest­growing in Europe, according to the Ukrainian Association of Marketing.

“Although, if we would consider 17 percent inflation, then the real growth would be 13 percent,” cautioned Dmitri Rodenko, director of International Marketing Group Ukraine.

 

“Now we are talking about many medium­sized market research businesses entering the market,” says Alexander Fedorishin, director of GfK Ukraine. “Today, 60 percent of the market is controlled by international outfits, the remainder by domestic firms.”

The structure of the market has evolved since the late 1990s when it was dominated by large international firms. “Now we are talking about many medium­sized market research businesses entering the market,” says Alexander Fedorishin, director of GfK Ukraine. “Today, 60 percent of the market is controlled by international outfits, the remainder by domestic firms.”

The industry restructured because Ukrainian companies are becoming market savvy and require specialized research. It’s the smaller companies that provide the tailored services. “Ukrainian research companies are filling the new narrowly defined niches,” says Rodenko. The examples of niches new in the Ukrainian market are automotive lubricants, construction materials, entertainment and leisure research. “The companies in these niches use sophisticated methods such as price elasticity studies and customer satisfaction indexes (CSI),” said Tatyana Zheltomyrska, managing partner at TouchPoll Research.

That doesn’t mean the firms focusing on traditional market sectors are suffering. Large market leaders are flourishing with the rising demand for research in traditional sectors such as fast­moving consumer goods and media, both of which are experiencing tremendous growth.

The market is still dominated by a handful of firms, which control nearly 75 percent of the market. “Today, 25 percent Ukraine’s market is controlled by GfK, 14 percent belongs to The Nelson Company retail research specialist, and UP and TNS control 13 and 12 percent respectively,” Fedorishin said.

The possible merger of international giants GfK and TNS will have little impact on the local market, said Fedorishin, although it will strengthen his company’s hold on the market here and make GfK “overall, the number one research company in the world.”

But the merger remains merely a possibility. WPP, one of the largest market research firms in the world, held up GfK’s TNS buyout by offering to purchase the company for almost $2.1 billion. Since then, TNS has been courting other potential buyers. At this point, Fedorishin says “we definitely will not merge with TNS, but someone will buy TNS,” adding, “whether it will be us or WPP will be determined through negotiations.”

Experts forecast that intensifying competition and the growing number of research firms will only benefit industry clients. Over time, companies will implement more modern techniques that allow yet more tailored research. “Of course, Ukraine will follow the international trend of using online surveys and internet panels,” said Olena Zhytnyk, marketing director at InMind market research agency.

Insiders see only more robust growth ahead. “In 2009, we can expect 30-­35 percent growth,” said Serhiy Golub, head of analytics department at Kanzas Research Company. Demand from real estate, pharmaceutical and automotive sectors “will be the leading trend for research companies in Ukraine over the next three to five years,” Rodenko said.

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