Ukraine

Development of entrepreneurship in Ukraine has taken on new formats being integrated in global business and social trends. Nowadays entrepreneurial mind utilizes modern technology and has to rely strongly on creativity and social orientedness – all this becomes indispensable criteria in a today’s many-faceted and high competitive conjuncture. Among modern trends of entrepreneurship development in Ukraine are the rise of social enterprises, business start-ups and emergence of business incubators.

Currently there’s no law regulating the activity of social enterprise in Ukraine. But this does not impede the development of social entrepreneurship. Current legal environment allows to carry out socially entrepreneurial activity being based on such legal forms as:
– Civil society organizations (non-profit organizations): Charitable organizations, civic (non-governmental)
– Associations, other types of non-profit organizations (e.g. religious organizations);
– Private business companies (juridical bodies), enterprises created by associations of people with disabilities, natural persons entrepreneurs;
Within partnerships between entities of different legal forms.

In January 2019 the Ukrainian parliament adopted a bill “On social services”. This is a groundbreaking law for the future development of social entrepreneurship in Ukraine as it officially has given a “Green light” for the local authorities to purchase social services from the providers of different legal forms (starting from civic associations and charity organizations and finishing with enterprises and natural persons entrepreneurs).

In this way social enterprises that specialize in provision of social services have received needed legal basis for building collaboration and offering of own services to bodies of local authorities. This law has determined social service as an action aimed at alleviation or prevention of dire life situations, provision of constant or periodic assistance to people or families in difficult situations and for overcoming of such situations, adaptation to or minimization of their negative consequences.
The increased importance of social entrepreneurship as a new field of business for Ukraine stems from the society’s response to the social, economic and political challenges resulting from Russia’s military aggression against Ukraine and the beginning of a comprehensive reform process in the country. Ensuring the sustainable development of social entrepreneurship, which contributes to the democratization and stabilization of Ukraine, requires consolidated support from the Ukrainian state and international sponsors.

According to the data from Social Enterprises Directory 2016/2017, there were estimated to be about 150 social enterprises of different legal forms (from NGO to LLC) in Ukraine. Some experts estimate the number of Ukrainian social enterprises at up to 1,000. That huge gap could be explained by the fact that not all the social enterprises had all criteria set by Directory (for example, transparent reporting or annual reports publication). Since the assessment was held an increment of up to 20% could have taken place.

A considerable number of social enterprises have been established in the last years in Ukraine dedicated to topics such as inclusion, ecology, combating corruption, and many more. For example, the pizzeria Pizza Veterano and the café Veterano Coffee in Kyiv advocate for the integration into society of former soldiers and combatants formerly involved in military activities since 2014 in East Ukraine. The Good Bread from Good People bakery in Kyiv integrates people with disabilities by offering them employment opportunities. Public restaurants such as the Urban Space 100 in Ivano-Frankivsk (founded in 2015) and Urban Space 500 in Kyiv (foundation phase) have gathered 100 and 500 social investors, each having contributed $ 1,000 to their establishment. In doing so, the investors waived a refund and shares of future income of the restaurants. Instead, 80% of these restaurants’ profits are invested in local social and cultural projects. The charity shop Laska in Kyiv and the Walnut House bakery in Lviv also direct part of their profits to social and community projects.

The existing social enterprises in Ukraine can be divided into forur groups, each with its own criteria:

– A fixed percentage of a company’s profit is allocated to a social purpose, i.e. towards the activities of a public organization, a charitable foundation, a social project, etc.
– A certain percentage of a company’s employees represent disadvantaged groups (people with disabilities, internally displaced persons, veterans, single mothers, ethnic minorities, etc.). An example of such a business in Ukraine is Veterano Group.
– A company product or service creates a measurable social value. This might include anti-corruption services and green products. An example of such a company that deals with corruption is a system for electronic public procurement Another example in the field of environmental product improvement is Zelenew Recycling Lab, which creates unique and useful design objects of plastic waste.
– A professional entity of usually non-profit form in the area of social activity that seeks for the subcontracting from the state authorities. This type of social entrepreneurship will be on the rise in the nearest future after the adoption of the law “On social services” in 2019. The operators start to elaborate services according to state standards, financial model is being calculated, training of staff is undertaken. This direction has a great potential as state capacity is not sufficient to address all challenges in the society.

Currently in Ukraine the sector of social entrepreneurship sees a rise and a widespread acknowledgement from civic, academic and commercial sectors. There’s certainly a fruitful thematic ground in the country composed of numerous challenges whilst the entrepreneurial competence of people is being developed as well. Combination of this makes people search for ways to address both these areas and get profits from solving societal challenges. As well the support from public donors and international institutions is available for Ukrainian social businesses since as early as mid 1990s. The biggest actors who has been supporting the development of Social Entrepreneurship in Ukraine are:

  • United States Agency for International Development (USAID);
  • British Council;
  • Eastern Europe Foundation;
  • German federal Ministry of Economic Development and Cooperation;
  • EU structural funds among which are EU4Business, certain actions of the Erasmus Plus educational programme.

Moreover, the European Committee of the Regions, an EU advisory body, in its draft opinion on ‘The objectives of the Eastern Partnership for 2020: Contributing to local and regional authorities’ from 4th/5th of July 2018, assigned a key role to social entrepreneurship. It also called for ‘a concrete action to develop social entrepreneurship as a form of non-formal education among young people and adults at the local and regional level that solves local problems, generates income, creates jobs and promotes social innovations on the ground’.

Why do startups happen? Analyzing different sources, we can say that the main reason is their mobility and inertia in the rapidly changing world, where it is necessary to adapt to changes in the short term. Large corporations often flood the flow and introduce changes with time lags, which allows them to keep a gap as a big player, but often interesting consumer comes from startups. Speaking of world-famous startup projects we can say about Google, Apple, Paypal, Ryanair, Taskle, and others. Among the Ukrainian startups,  which use the mark «Made in Ukraine» and known in the world: 

– Petcube – it is called pet robot that helps keep track of them and communicate at a distance;
– Lametric – smart clock displaying temperature, news from stock exchanges, etc.;
– Hubbub – a new generation of social media that uses voice messages;
– Kwambio – a well-known 3D store;
– Iblazr – LED flash that can be synchronized freely with Android and iOS software.

It should be noted that according to the ranking of countries by the number of startups included in the international ranking, compiled by Startup Ranking, Ukraine occupies the 34th place in the world (from 151), and with the index of 160 startups has overtaken Japan, Austria, Sweden, South Korea, Lithuania and Estonia.

If we talk about the current state of development of marketing, which ensures the effective promotion and operation of the startup and then to ensure a good result – you need to find funding. The main investors in the Ukrainian market can be the following institutions: business incubators, business accelerators, business angels, venture funds and crowdfinding companies.

The world and domestic experience of creation and activity of business incubators has shown that in the developed world they have become an indispensable characteristic of the market infrastructure, effective implementation of promising innovative business ideas and, consequently, a powerful engine of socio-economic development. Business incubators are an effective tool for creating small businesses and jobs, promoting cooperation of industrial enterprises and educational institutions. Moreover, business incubators encourage commercialization of new technologies and improve the image of the area of their functioning. 

However, in Ukraine business incubation has not developed extensively and efficiently primarily due to ineffective government policies of encouraging business incubation development and scarcity of financial resources, lack of understanding of the role of business incubators as sources of business environment creation by many market actors.  

One may have an impression that in Ukraine there is no real need for services of business incubators. In fact, technology parks, business incubators, innovation centres and similar organizations only deal with issues of infrastructure operation and “arrangement” of various benefits provision. Business incubators do not provide the service they are created for in the whole world, – assistance in creation and development of competitive companies, market leaders. The format of business incubators existence in Ukraine contradicts completely the successful world practice, where the focus is on provision of consulting, administrative and other management services for start-up company development. 

For the process of business incubation to be successful, we suggest the following measures be taken:
 ̶ establishing a system of state policy to support organization and operation of business incubators;
 ̶ developing end-to-end projects for the network of business incubators in the regions of Ukraine;
 ̶ reducing the level of corruption;
̶ reforming the bureaucracy;
 ̶ joining organizational and economic effort for execution of complicated orders;
 ̶ stabilizing the political and economic environment as a core element of business development.

Business incubation creates a firm foundation for development of an integrated system of innovative entrepreneurship and allows building a model of the training process methodology of doing business successfully. 

Everything is subjected to the principle of improvement, i.e., everything around us is constantly being improved and we hope that eventually our country’s experience will be in demand, as sharing experience is an appropriate and productive way to improve potential.

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