How a company broke through the Soviet era by applying free market ideas to cut it in the cable business
guided it through the rough patches in Ukraine’s struggling economy. Their business has survived the Soviet perestroika of the late 1980s, and then the slow market reforms and confusing tax legislation of independent Ukraine.
Thirteen years of cable manufacturing, and Catec Cable is still turning a profit every year.
And it’s not all because of luck. Catec’s management says that the business’s success is due to a solid business philosophy.
“We believe that you can’t rely on chance, because then you will always have a pessimistic attitude,” says Catec Deputy General Director Albert Tkach.
Instead, Catec’s directors have remained firmly optimistic, adhering to an aggressive marketing strategy with one simple goal – to make and sell top?quality cable products.
According to Tkach, Catec reinvests more than $1 million a year into new equipment and is expecting 8 percent growth this year. This, after the 1998 financial crisis, is impressive to people who visit the business.
“When people come to Catec, they can’t believe that this is possible,” Tkach says from the company’s newly built headquarters outside of Kyiv. “Because today, not everyone is willing to take long?term business risks.”
Mykola Tkachenko was working for a state?owned cable manufacturing company in Lithuania in the late 1980s when market reforms were introduced in the Soviet Union. Possibilities for private enterprises began to surface, and Tkachenko began reading books and articles – anything he could get his hands on – about free?market economies. A cable technology specialist, Tkachenko wanted to start his own private company and make quality products for profit.
Both brothers graduated from Kyiv Polytechnical Institute 15 years before, and Oleksandr had remained there, working for a state?run cable firm. His work had taught him the ins and outs of the cable market.
By combining their two areas of expertise, Catec was born and started to operate, despite the fact that the company owned just one clapped?out piece of equipment to start manufacturing cables.
The company quickly found that getting raw materials for production would not be easy. The distributors of essentials, such as sheet metal, had already allotted their supplies to state?run businesses. There were no extras for new enterprises, such as Catec, that weren’t in the government’s plan.
To get what they needed, Catec watched Moscow’s Stock Exchange. When materials appeared on the market, they bought them. When they needed info on spare parts, they asked former colleagues.
“We cable workers share information with each other on how to fix things, where to get parts,” Tkach says.
Because many cable producers were beginning to crumble in the late 1980s, Catec was able to trade parts to get their operation running.
They started making telecom wires, their first and only product in the late 1980s, which were bought by Utel, Ukraine’s long?distance phone provider, for telephone lines.
And there were more challenges ahead for Catec. Though there was talk about creating a more open market in the Soviet Union, the reality was that the old communist mentality was difficult to break through.
“I would be wrong to say that there wasn’t any oppression when we started,” says Tkachenko.
In Lithuania, private enterprise growth was encouraged by the state eliminating revenue taxes. This model of reform, Tkachenko says, helped companies without start?up capital reinvest what they did make, and in turn, allowed them to keep their businesses growing.
These successful reform policies in the Baltic states had yet to make it to Ukraine. So the Tkachenko brothers continued to learn from Western literature about free markets and continued to struggle and wait for reform.
“There was a sense of possible freedom in the air, and clever people were waiting to take advantage of the situation,” Tkachenko says.
In the early 1990s, Ukraine began to introduce tax privileges to businesses in areas affected by the 1986 Chernobyl disaster. Catec, located in this area, began to see some relief.
But Tkach says that many of the old state attitudes toward private companies didn’t let up until 1994, when new legislation and regulations were introduced.
“It was difficult to change the mentality here,” Tkach says. “Difficult to overcome the psychology of the Soviet mindset.”
Catec currently produces 600 different cable products, including magnetic cables, enamel?covered cables, and components for television sets. Some products are ISO?9002 certified, meaning that they are made according to Western standards of production and testing.
Even when the Russian economy imploded in 1998, causing investors to pull out of the former Soviet republics, Catec managed to make the list of top 100 Ukrainian companies in the profit and export sector.
But challenges still remain for them and other Ukrainian businesses. The country’s tax system continues to impose high import duties, as well as a high value?added tax.
“A regressive tax system doesn’t support private businesses” Tkachenko says.
