Q&A with the Managing partner of Emergex Business Solutions, a consultancy specializing in mid-range projects.
Emergex Business Solutions is a Ukrainian business consultancy established in 1998 by a Canadian chartered accountant, Lena Koszarny, two Canadian engineers and a Ukrainian finance specialist. The company has experienced rapid growth in line with growing demand for a broad range of business consulting services that it offers. Today, the company advises an impressive range of businesses in Ukraine including WIZZ Air, Nokia, IBM, PepsiCo Ukraine and AES Kyivoblenergo, owned by Virginia-based AES Corporation. Helen Volska, the managing partner of EBS, is a certified chartered accountant with more than 11 years of experience in Ukrainian and international accounting. Volska spoke with the Kyiv Post about business consulting services in Ukraine.
KP: How has demand in Ukraine for business consulting services changed in the past several years?
HV: The benefits offered by business consulting services were largely unknown for many Ukrainian companies until 2003. Since then, it started to develop actively, in part as big world names arrived to the Ukrainian market. Until last year, consultants were busy either helping to plan a rapid-growth strategy for companies or to manage problems that arose. Demand was pretty big and mostly for these services, particularly connected with strategy, enlargement, entering financial markets and becoming more transparent. Efficiency was not a major priority until 2008. Before the crisis, consultants were often hired for projects connected with strategy, finances, implementation of international accounting standards and introduction of various managerial systems and models. So it was not only about transparency. It was also about efforts to introduce best business practices. But the biggest concern for businesses now is surviving the crisis.
KP: Can you provide a few examples to indicate who will be in need for business consulting services now and how they can benefit?
HV: It may be too late to cure problems if they have progressed too far. Everyone now understands they have to pay a lot of attention to operational efficiency. You just can’t survive without it. Often, companies hire consultants in a panic. They know where to move, but often have big questions on how to get there. It is always good to hear a consultant’s opinion, to get a second opinion for such strategic choices. Companies that need consultants the most now are those in sectors that are in bad shape. The banking sector has already taken some urgent steps, but they have overlooked many things. The operational efficiency reserves for banks is still large, and they have to work on this. As for real estate, they need to outsource some functions, to optimize spending, because the sector has come to a halt. The retail sector is facing quite serious danger.
KP: Could you give some examples on how consulting services helped companies to solve their problems?
HV: Recently we finished a project with a furniture plant in Cherkasy Oblast. Even though it is not a very big business, they had a big commitment to continue their development and keep all their people on board despite the crisis. We worked on developing a more effective compensation policy which could stimulate sales. They weren’t on the verge of bankruptcy, but their sales dropped sharply. They decided the way to proceed was to stimulate sales and distribution channels. There is no result so far, because this project finished just recently. But our client is satisfied. The effect is more long-term and should show results within 6 to 12 months. We are now working with another company that is experiencing a sharp fall after a period of rapid growth. In earlier years, the company was very busy and simply did not have time to work on improving their internal operations. Now they’ve decided that instead of firing people, they will keep them on board to implement a number of internal optimization projects. A soft drink company we have consulted experienced a sharp downturn in sales years ago. After our advice was introduced into concrete steps, the fall stopped and sales began to grow again. How did we do it? We analyzed the company’s structure. We deleted what was unnecessary and added what was needed. The company always has to be ready for change, otherwise consultants are useless.
KP: In general, how would you grade Ukrainian companies and foreign investors operating in Ukraine from the standpoint of running effective businesses?
HV: Traditionally, foreign companies tend to be more efficient, internally first and foremost, especially German companies. When big international companies come to Ukraine, they bring with them an already existing operational structure. They hire staff in Ukraine, train the staff and repeat what they have done in other countries. Naturally, they make fewer mistakes. The risk that they are willing to take is much less than what Ukrainian companies accept. Ukrainian companies are ready to risk more, making them particularly prone to troubles in times of economic crisis. It’s in times like these that their vulnerabilities and failures are revealed.
Some 5-8 years ago, Ukrainian companies started looking at their finances more carefully. They started carefully gathering information by introducing more complete, internationally-recognized accounting standards to get a complete picture of their situation and, in turn, gain a better view of what to do next. But many ultimately failed as they were not doing their accounting properly, not getting the complete and honest picture. Ukrainian accounting practices often contradict the core of finance. Therefore it leads companies to mistakes. Everybody was planning growth. Nobody was looking at global economic cycles and income levels. When they had negative income, they would look at [Earnings Before Interest, Taxes, Depreciation and Amortization]. It was positive, but this was misleading.
KP: How is the economic recession affecting the consulting business in Ukraine? Could you provide some figures and perspective on how the market has been developing in past years? What was the total annual turnover or sales of the business? And what are you expecting this year?
HV: The market is very much unstructured and there is little information available like this. I don’t even have the numbers to estimate. And there is a lot of misunderstanding of what to consider consulting services, because training services also get grouped into this category sometimes. From our experience the market was growing by 40 percent and more annually from 2003 through 2008. Some years it even doubled. Last year, the market grew until the middle of the year. It tumbled in the second half of the year. Many consulting companies had to eliminate massive redundancies, cutting their workforce and salaries. Everything seems to be slowing down. We expect that the downturn for the consulting services business will be about 30 percent this year.
KP: Who are the leaders on the business consulting market? What market share do they control?
HV: There are many companies that call themselves leaders. It is impossible to evaluate this because the market is very immature and companies do not open up their financial results.
The Ukrainian market is, nonetheless, promising. This is demonstrated by the recent arrival of global business consulting giants such as Bain, McKinsey & Company and Boston Consulting Group. Such companies are trendsetters. For example, their fees are viewed as a benchmark for setting the fees by other companies on the market. And they most often work with Ukraine’s biggest companies, such as System Capital Management and Interpipe. We believe that we are the market leader in mid-sized projects. We have been doing it for a long time.
KP: Do you expect fees to change considerably this year with the economic crisis? How much?
HV: Fees have already decreased. But it’s like with real estate: The prices are down, but nothing is being sold.
