Competition and market openness – international chain stores in Poland and Ukraine

Mateusz Bialas, analyst, School of Public Management UCU

The feeling of competition could be the impetus for further development and continuous improvement both in the economy and government. “Threat” of the competitor forces us to look for new and more effective ways of solving old challenges.

Transparent rules, free and equal access to the market for all interested players are the core principles of developed economies. To measure business conditions, we can use international indicators, such as the Index of Economic Freedom or the Ease of Doing Business. Often also the Corruption Perception Index is mention in the line with the aforementioned two.

But these are only indexes, which give us on an overall picture of the situation. International corporations take into account internal situation, domestic stability and predictability of the market and business environment. Whether competition and market openness could be profitable for an average citizen we can study the actual activity of international chain stores in Poland, and its absence in Ukraine.

Indexes and competition

In all the above-mentioned indexes Ukraine is far behind Poland. This is not a secret. However, it should be mentioned that within the past several years Poland has gradually raised in these rankings by increasing the competitiveness of the economy, which encouraged investors to locate more funds in the country. During this time, Ukraine has consolidated its position at the far end of each rating, often being ranked as the last European state. Furthermore, Ukraine has not even reached Polish results from the mid-2000s.

As of the 2016 in the Index of Economic Freedom Poland has risen from 83 to 39 since 2008, while Ukraine has fallen from 133 to 162. In the Ease of Doing Business Index Poland has risen from 54 to 25 during the past ten years. In the same time, Ukraine has risen from 124 to 83, but still has not reached the Polish score from 2006. During the past twelve years, in the Corruption Perception Index, Poland has risen from 64 to 30, while Ukraine dropped from 106 to 133.

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At the first glance, poor scores of Ukraine cannot encourage foreign investors and the country loses not only to Poland but also to Slovakia and to the Czech Republic in competition for FDI. Furthermore, neighbouring countries constantly improve the business environment to attract domestic and foreign investors, while the situation in Ukraine has not significantly improved during the past years.

As a result, the presence of international capital and international brands in Ukraine is really low. Respectively, the market lacks capital for further development, such us the expansion of the network of suppliers of food products to malls, or development of food processing factories, which would be able not only to meet the domestic demand but also to expand to the European and other markets.

Potential of the Ukrainian Market

Investment climate in the country could be reflected by the presence of European and world brands. To compare the investment climate in Poland and Ukraine the one can analyse production or compare the number of free economic zones.

In this piece, I would like to focus on a relatively simple indicator that impacts everyday life of ordinary people – the number of international chains stores with foreign capital, where the one can purchase everyday products.

Well known chain stores entered the Polish market in the first half of 1990s, when the reforms bring the first results. In Ukraine, just a few brands appeared with 10 years’ delay after Polish market. However still the gap is enormous. There are seven times more Auchan stores in Poland than in Ukraine, despite the fact that the chain in Poland has to compete with TESCO, Lidl, Kaufland or Biedronka (Jeronimo Martins). Altogether, there are about five thousand chain stores of various type and size.

In Ukraine dominate national stores’ networks such as ATB or Silpo (Fozzy Group), but the number of markets is significantly lower (around five times lower), which is strange in the country, where citizens spend more than half of their salaries for food products. Furthermore, absence of foreign brands reduces the level of competition in the country as the number of players on the market in each sector is relatively low.

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Table 2 presents stores where the one can buy food and household products. Well known home appliance’s markets such as Finnish IKEA, French Castorama, or German Praktiker do not operate in Ukraine. In Poland, these brands are present in each big and in some average cities. They entered Polish market in mid-1990s and their products are well-known for reasonable prices. Currently, there are around two hundred such stores in the country. In Ukraine dominates locally-owned Epicentre with forty-one stores with really low competition from Leroy Merlin, which has only three stores and only all of them are in Kyiv.

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A similar situation could be observed in the segment of electronics. In Poland, there are several international major networks competing with each other. Ukrainian market is dominated by locally-owned Eldorado and Foxtrot and foreign capital in this segment is not represented. Luckily to Ukrainians, online stores develop quite quickly in the country, which creates additional competition to existing markets.

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A greater number of players secure proper level of competition, and it allows the market to evolve and develop, it secures better client treatment and increases the level of services. However, Ukrainian markets have no competitors on the domestic market neither from domestic chains nor from international.

Foreign investors active on the Polish market since mid-1990s refuse to enter Ukrainian market due to lack of transparent rules, corruption, and instability of the state institutions like law enforcement bodies, fiscal service, or the customs, which are not able to secure property rights or create the transparent business environment.

Respectively, more players should be allowed to enter and operate on the market, predominantly when the population has low purchasing power. Ukraine has to ensure transparent competition not only for used imported cars but also for other goods, such as cheeses or TV, etc. Finally, it is crucially important to attract capital and big investments not only in larger cities such as Kyiv, Lviv or Kharkiv but also in smaller cities around the country.