Electronic devices have been produced in Ukraine since the early years of its independence in the 1990s. But it’s only rarely that one comes across a Ukrainian-made gadget in a store. Why is that?
Ukraine has the human resources for electronics manufacturing — a highly skilled and inexpensive workforce (120,000 people work in the country’s tech industry). And it borders the European Union — a huge potential market for Ukrainian devices.
But in recent years the country has focused on the software segment of the tech market, writing code and developing apps that have been huge successes worldwide. The production of nuts-and-bolts tech gadgets has, in comparison, largely been ignored.
One rare example of a successful Ukrainian gadget maker is Ajax Systems, which makes alarm and security systems and. According to Valentyn Hrytsenko, the chief marketing officer at Ajax Systems, it’s only a matter of time before more Ukrainian firms turn their talents to making devices.
“I’m sure it will happen eventually,” Hrytsenko said.
Ajax Systems manufactures 90,000 security devices a month in a modest Kyiv office, and then sells them worldwide.
But the company is an exception in Ukraine, as the consumer electronics manufacturing industry has not shown signs of growth over the last five years, and the amount of factories that can do the job has remained flat.
“It’s high time for Ukrainian techies to think of making devices, and not just writing code for others,” Hrytsenko said, contrasting Ukraine’s constantly growing software outsourcing market to its stalled hardware production industry.
Currently, there are only eight significant hardware manufacturers in the country: EKTA, Vsesvit, Tele Tec, Navigator, and Ajax Systems. In comparison, in the U.K. there are hundreds of such companies. And while brands like Samsung, Ring and Petcube maintain research and development centers in Ukraine, their manufacturing arms have been stubbornly absent.
Grow, then leave
It’s not that Ukraine is incapable of producing successful hardware startups: the iBlazr camera flash for iPhones and iPads is sold in Apple stores, Petcube pet cameras, as used by Hollywood celebrities, or PocketBook e-book readers — all stand as proof that Ukraine is capable of designing top-notch gadgets. Most of them, however, order their parts or assemble their products in China.
Ukrainian hardware companies opt to manufacture domestically only while they are still small, as the best Chinese factories don’t take small-scale orders of less than 10,000 gadgets.
Ukrainian tech startup Leantegra is one example of a small gadget manufacturer. It develops location services to track and understand people’s behavior in supermarkets, airports, and hospitals. In Kyiv, it works with French supermarket chain Auchan and Boryspil International Airport.
Leantegra makes sensors, and as it doesn’t need a large amount of them for each project, it uses the services of a factory in Kyiv — Biakom.
Leantegra CEO Oleg Puzanov told the Kyiv Post he is satisfied with Biakom’s quality, as everything is made here “in accordance with the same standards as in the EU.” But if the amount of devices he needs to order grows to hundreds of thousands, he will shift production to China.
“Theoretically, we could stay in Ukraine, but China has always been much cheaper for mass production,” he said.
Ukraine’s labor cost is about half that of China’s, but China has lots of factories producing parts and assembling them in close proximity to each other.
“This makes the whole production chain operate more quickly and cheaply,” Puzanov said.
And Ajax’s Hrytsenko says other factors can force even small startups like Leantegra to move from Ukraine — red tape.
Most of the parts for hardware production still have to be imported, chiefly from China, and at this stage, there may be inconveniences with customs — additional red tape and delays.
“Few people want to deal with it,” Hrytsenko said.
His company, however, is forced to, as the amounts of its orders vary and the company itself can’t order the manufacturing of its devices in China, where factories will only accept orders in large batches.
Having to assemble in Ukraine does have its advantages for Ajax, however.
“We can quickly order parts and assemble devices on our own, producing no more than we need. That gives us flexibility, but at the same time forces to think ahead so that we can scale production (up or down) in a timely way,” he said. Last year Ajax was making 20,000 devices a month, while now it’s making 90,000.
US factories
Getting foreign companies to manufacture in Ukraine is a hard sell as well, but some have shown that it can be done.
U.S. electronics producer Jabil, for example, employs 2,300 Ukrainians in a plant in Zakarpattya Oblast, in which it invested $55 million. Since 2004 Jabil Ukraine has been making electronic components products for the global market. The plant is located 20 kilometers from the Ukrainian-Polish border, and five kilometers from the Ukrainian-Hungarian one, which allows rapid shipping to the EU.
Jabil Ukraine produces devices foreign brands like Nespresso, Ceragon, Sagemcom, SIAE Microelettronica, DUCATI Energia, and SIT.
U.S. electronics producer Flex also has a plant in Zakarpattya Oblast. It employs 2,000 people and works with brands like Wink, Ericsson, and HP.
Roman Harhalis, an expert in electronics manufacturing, thinks there are several reasons why there are only few electronics manufacturers in Ukraine: logistics are expensive and slow — as parts have to be shipped from China; Ukraine is still overly bureaucratic; there’s a lack of skilled labor in electronics manufacturing; and the country doesn’t provide enough security for foreign investment.
“Investors don’t have guarantees that law enforcement agencies won’t appear at the plant and confiscate expensive equipment and stop production (for no reason),” Harhalis said.
Business minds
Ajax’s Hrytsenko still hopes Ukraine will take the same route as China — tempting in foreign factories and developing expertise in the hardware industry, which would allow Ukraine to kick start the development of its own electronics manufacturing base.
But there is one other problem: Ukraine lacks business-minded people who could make high-tech manufacturing in Ukraine really take off, Hrytsenko said.
“We’ve still got those crazy post-Soviet engineers who can create astonishing things. With their knowledge, it requires only business-minded people to sell these thing globally,” he said.
“Apart from the bureaucracy, the government is not really putting any obstacles in the way of growth here. The only thing that does constrain our growth is our own attitudes (to business).”
The Kyiv Post’s technology coverage is sponsored by Ciklum and NIX Solutions. The content is independent of the donors.
