 Re-inventing Production: Military Giants Discover Consumer Goods By Volodymyr SENCHENKO |
The end of the Cold War and the subsequent dissolution of the Soviet Union could have been the one-two punch that killed Ukraine's military-industrial complex. The events of the last decade dealt a significant blow to the giant factories that built the tanks, optics and electronic systems used by the Soviet military and its allies. Still, many of the companies took stock of their abilities and the marketplace and successfully reinvented themselves as producers of consumer goods. Today, Ukraine's mass media claims that the former military manufacturers have recovered from the crisis.
When the Soviet Union peacefully dissolved in December 1991, 3,000 high-technology companies were operating in Ukraine. The sudden loss of their sole customer - the government - hit producers hard, causing even greater turmoil that they encountered at the end of the Great Patriotic War (World War II).
The end of the war brought a dramatic and immediate reduction in military orders, forcing the military-industrial complex to meticulously reexamine itself, replacing goods that were no longer in demand with new products for which markets existed. These changes were made gradually and carefully. Conversion often caused production to overlap, with a soon-to-be phased-out military product coming off the assembly floor at the same time as the new product that would eventually take its place.
The continuity of government that allowed post-war conversion to take place wasn't present in the early 1990s, and former Soviet military factories literally ceased operations between 1992 and 1994. Factory managers had few ideas and little direction concerning how to convert to civilian production. Even those companies that made products that could be used by both military and civilian consumers faced serious problems. The economic crisis led to a slump in production and a great reduction in demand for products.
Even factories that did not produce goods exclusively for the military did not benefit much from their semi-civilian nature. For example, the Dnipropetrovsk Aggregate Plant, which produced aircraft components, began to produce vacuum cleaners - about 800,000 per year.
The vacuum cleaners were high quality items when first produced in the 1960s. Some still are in use and seem destined to work forever. However, when Ukraine opened its doors to imports, it was flooded with foreign vacuum cleaners. The foreign models were more attractive and had more sophisticated functions. Though the Ukrainian manufacturers eventually developed new, more competitive machines, they had already lost the domestic market. And because vacuum cleaner production was not the primary product, the bulk of the factory's resources went into improving its aerospace products, rather than the vacuum cleaner. Today, Ukrainian manufacturers account for just 15 per cent of the domestic vacuum cleaner market.
The loss of the Soviet command economy left the large military factories adrift and without direction. Of the more than 3,000 Ukrainian plants involved with military production, only 300 are presently state-supported and continue to produce military goods. But that doesn't mean that they have a carefree existence. The demand for their products has decreased greatly because the reduced army no longer needs so many weapons. And although the enterprises receive foreign orders, there are still very few customers. The problem lies in the fact that previously Ukraine did not have free access to markets. Its markets were previously confined to the Soviet bloc.
The nation has developed markets for its military hardware in an extremely competitive arena. Ukraine is among the top ten arms-trading nations, and it got there by offering competitive, high-quality products at reasonable prices.
Selling weapons is a political, as well as economic, activity. One need not look further than Ukraine's alleged sale of a Kolchuga anti-aircraft defense system to Iraq to see that having a superior product at a good price isn't enough if international political sanctions bar the sale.
Hundreds of other large enterprises have already lost hope of regaining military orders and have withdrawn from the market. But many have restructured themselves and are exploring new niches of the domestic and world market.
Such enterprises are now developing and applying new Ukrainian products: electric locomotives, diesel engines, corn and coal combines, household gadgetry, telephone switching stations, helicopters and others. Due to the efforts of such enterprises, there has been a great increase in the annual production of machinery in Ukraine. One can confidently say that the rhythm of business activity will be preserved in the next few years.
However, it is difficult to imagine how painful this process has been. Even relatively successful enterprises have laid off most of their Soviet-era staff, and almost a third of all salaries and benefits have been reduced.
Evgen Morozenko, head of the Dnipropetrovsk Aggregate Plant, talked about the current state of affairs in Business Ukraine, a weekly newspaper. The plant primarily makes complicated aggregates and components for aircraft and helicopters.
The specialized enterprise was forced to reinvent itself to survive in the market economy. Although characteristics like heroism, patriotism and resourcefulness are ethical rather than economic, they are the factors that helped the plant to survive. The workers constructed and produced the first coal combine. Together with the Chinese, they developed 14 models of scooters and motorcycles. Every year, there is a 25 - 30 percent increase in the production of major consumer aviation goods, which amounts to a third of the plant's total output.
Naturally, the workers are paid higher salaries. This enterprise is one of very few to preserve its social benefits: the system of financial aid, the system of work with youth, the system of training the staff, the medical and sports infrastructure.
Nevertheless, like other companies involved with the aviation industry, it incurred losses during the decade of economic reforms. The west, which once lagged behind Ukraine in terms of ideas and quality, has matched us. Although foreigners still believe that Ukrainians are still intellectually advanced, our success is not guaranteed. Successful businesses are not based merely on creativity and intentions, but on sales and markets.
Despite low salaries, Ukrainian engineers have created four new technologically advanced aircraft - more than anywhere else in the world! Yet only one of the planes - the An-140 - is mass-produced. There are no customers for the other models.
This is why Morozenko describes his work as "walking in a swamp knowing that your life depends on your sense of balance and distribution of weight. If you succeed, you will get out of the muddy bog. If not - c'est la vie." However, he is sure that his firm has chosen the right strategy for its economic development, which is a prerequisite to be optimistic about the future. His enthusiasm is shared by other managers and company directors - pragmatic people who are learning to trust their own judgement in an evolving marketplace.
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Read also previous issue' articles:
The Herodotus of Ukrainian History
Ukrainians Want A Country That Respects Them
Ukraine's Brain Drain
Chauvinistic Smoke A Few Words on Russia
A walk on the underside
From Cossack to Sumo
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