From the editor. This text is addressed to members of the government, who usually have a very abstract idea of all the circles of hell that a business needs to go through in order to start exporting. Fortunately, we do not have people who in this country receive budgetary salaries for promoting exports, unfortunately, these people do not have enough ideas. We share. You don’t even need to add anything.
With domestic markets rapidly falling, activating foreign markets should have looked like the obvious course of action for the government. But why then do we not see these immediate actions in the proposals of the government, focus and general mobilization around sectoral export programs or a single government program in this area?
The simplest explanation is that the government sees the solution to export problems exclusively in terms of logistical solutions, such as unblocking seaports or transport corridors in the EU, but these solutions are military-political, not economic. There is no focus on the problems of small and medium enterprises (SMEs) at all. Their support is limited to non-refundable financial assistance, relocation and grants from international donors for restoration. And by the way, SMEs make up 90% of the total number of enterprises in the country.
The program for economic recovery of the country, proposed in Lugano, contains a number of correct directions for the transformation of the economy, in particular, it has a much greater focus on the processing industry, with increased competitiveness of goods and better integration into global value chains (VACs). However, these measures are aimed at the post-war period, so the question arises: how can SMEs survive now, during the war? During the five months of the war, business did not see an effective program of anti-crisis actions.
In June 2022, the Analytical Center of the Ukrainian cluster alliance (UCA) has developed a program “Export and Internationalization of Industrial SMEs”. This document focuses on finding new markets for domestic industrialists and their deeper integration into international value chains and invites the government to significantly expand export support programs for SMEs in four categories:
- Buy Ukrainian.
This is a program for the export of Ukrainian goods and support for their promotion / certification in the world, already proposed by the State Institution “Office for Entrepreneurship Development and Export Support” (English abbreviation – EEPO). It contains a number of important export support components, such as web services to search for Ukrainian manufacturers and goods, familiarization with current opportunities, catalogs of entrepreneurs and consultants, etc. However, the Buy Ukrainian program lacks the integrity, focus, and better scaling of SME environments. Another drawback is the absence of the main component – support for SMEs in international events, in particular at exhibitions and trade missions, which is the main tool for entering international markets.
UCA proposes to support this government action program to the maximum extent possible by including all clusters and other business associations of industrial SMEs. In addition, to add to the areas of cooperation with EEPO measures to support the trade missions of Ukrainian manufacturers and business associations at international events, conferences, exhibitions. Separately, you should support your own program “Ambassadors of Industry4Ukraine”, whose goal is to develop a network of professionals in foreign markets who can contribute to our integration into the EU markets, as well as the innovation environment of the European Union.
- Integration into European and international value chains.
Now such a holistic and detailed program of integration into the value chain does not exist at the government level, just as there is no developed medium- and long-term strategy from previous years. At the same time, such proposals have already been submitted to the government by several business associations. In particular, the Industry4Ukraine platform offered in 2020 the strategy of “Reasonable integration into global value chains”, most of the provisions of which are still relevant today. The main idea of the strategy is that due to low competitiveness and a weak position in the international arena, most of the high-tech industrial sectors of Ukraine (designers, system integrators, industrial start-ups, machine builders, research institutes, etc.) do not have a chance to compete head-on with the same sectors from developed countries. Therefore, the Buy Ukrainian program will not work here. It is necessary to more flexibly and systematically enter into international value chains with separate services and production outsourcing. The way the Ukrainian auto industry and light industry do it today. But at the same time, set goals for a gradual shift to higher levels of complexity of the final product and export of finished goods.
Unlike the government’s recovery program, UCA is convinced that a number of activities under this strategy need to start now, and not after 2025. In particular, we are talking about the following areas:
— restarting the industrial dialogue at the level of leading European associations;
– a program for rapid integration into European value chains with the priority inclusion of the most mature high-tech industrial sectors, such as the automotive industry, biopharmaceutics, metalworking, engineering, mechanical engineering, industrial automation;
— a complete revision and improvement of cooperation in the areas of Advanced manufacturing, Sustainable industry, Smart-specialization and Cluster policy.
- Integration into the EU innovation environment.
This is a program to support the integration of Ukrainian industrial developers into the innovation programs of the European Union. We are talking about industrial start-ups, design offices, research institutes, universities and other industrial SMEs. The European Union has long offered Ukraine as an associate member a number of innovation financing programs. But there has never been a clear, coherent and consistent program for the integration of these categories at the state level. Accordingly, despite the theoretical access to these European resources, the majority of Ukrainian developers know nothing about them, and in general, Ukraine has poor performance in such integration compared to its Eastern European neighbors. Now the market crisis can lead to further degradation of the innovation environment and the outflow of the best talents abroad, and we already see signs of this in the UCA.
Accordingly, the main directions of anti-crisis actions for 2022–2023 should be:
— Significant expansion and involvement of Ukrainian innovators in existing EU innovation support programs. This requires consolidation and government support;
– a complete revision of the so-called Eastern Partnership programs, which failed to show their effectiveness for the industrial high-tech sectors, and today are generally politically incompatible due to the presence of countries such as Belarus and Armenia in them;
— expanding the network of Ukrainian Digital Innovation Hubs and focusing on supporting industrial SMEs;
– creation of special programs to support scientists and researchers from the EU in industrial sectors and other related areas.
This is a technical support program regulation and accelerated transition of Ukrainian enterprises to international technical standards. In this area, the UCA is still developing its own proposals.
It should be noted that most of the measures proposed above are already partially implemented by the Ukrainian Cluster Alliance with its own forces and resources. In particular, in the areas of integration into the value chain and the innovation environment, from the beginning of the war, the UCA and its members joined a number of structures of the Euro-Atlantic bloc and began to search for areas of cooperation. At the level of pan-European structures, we are talking about the European Cluster Alliance, the Circular Economy Alliance, the European Institute of Innovation and Technology (EIT). At the level of individual sectors – about the American System Integration Association CSIA, the EuraTex Light Industry Association, similar EU associations in the maritime industry and the automotive industry.
Inheriting the IT sector, UCA has developed and offered its European partners a database of free resources in a number of engineering disciplines – there were no such databases in the country before. With individual countries, in particular with the Czech Republic and France, UCA is already starting cooperation in the field of advanced manufacturing (Advanced manufacturing, or Industry 4.0). That is, the above proposals of the program are not based on assumptions or theory, but on the own experience of a number of leading business associations and clusters.
Suggestions for government
At the same time, the forces of individual business associations are too small to overcome the consequences of the crisis; full mobilization of resources is necessary, moreover, together with the government. Separate UCA proposals were included in the program for the restoration of Ukraine, in our export program there are 11 ready-made project applications, but there is no consensus on time periods and priorities, just as there is no funding for these projects.
Therefore, according to the above directions, there are five main proposals for the government of the country:
- Consolidate the offers of the proposed program, as well as others from leading business associations in unified government action program for the export and internationalization of SMEs to be given priority status in 2022. Accordingly, identify one specific executive body responsible for the implementation of the government’s program for the export and internationalization of SMEs.
- Pay special and immediate attention to sectors that are in crisis and are to medium and high-tech sectors of industry. We are talking about thousands of enterprises from the fields of engineering and industrial automation, motor transport, mechanical engineering, shipbuilding, instrumentation, aerospace, biopharmaceutics, innovative materials, alternative energy, etc. Specialists in these industries are also the basis of the domestic defense industry, so the government should pay considerable attention to preventing the degradation of the relevant sectors of the economy to the point where recovery becomes impossible.
- Emphasize on the trend of the outflow of specialists from the sectors of the high-tech industry to the IT industry. This process has already led to large personnel losses in the industrial high-tech sectors in 2016-2021, and in war conditions this phenomenon can cause further degradation of the domestic defense industry and significantly limit the opportunities for post-war economic recovery. Today, the government is introducing measures to increase the influx of specialists in IT industryalthough it would be necessary to simultaneously implement programs to support and develop personnel for the high-tech industry.
- Pay special attention support for cluster-type business associationswhich strengthen domestic value chains by consolidating SMEs at the regional industry level and focusing on turnkey products and solutions. After all, such clusters constantly generate their own tools to neutralize risks in production value chains. Priority support required draft program of cluster development of Ukrainesubmitted for consideration by the Ministry of Economy back in 2020, but has not yet received state support.
- Implement as soon as possible a program for integrating Ukrainian SMEs, start-ups, engineering and service providers into EU programs. The Ukrainian Cluster Alliance, together with other leading business associations, offers the government assistance in developing a unified state program for integration into the value chain and the innovation space of the European Union. Today, the window of opportunity in Europe for Ukrainian business is quite large, but almost never used.
Download the entire program “Export and Internationalization industrial SMEs: UCA proposals for the government” can be found at this link.
More articles by Alexander Yurchak read the link.