One indicator of Ukraine's economic performance is the sale of furniture. Not only do well-paid people like to redecorate their homes, but also, as businesses expand, they hire more staff and ultimately have to buy more desks and cabinets.
"We are like parasites, in that we can only survive off the success of other companies," says Dima Kuzmin, the co-director of Universal Design, a small Kyiv region furniture company.
Another thing that Kuzmin's firm needs in order to survive is chipboard, which has suddenly become both more expensive and in short supply.
Just about all the furniture that Kuzmin's and most other companies produce is made from chipboard, because solid wood costs much more. However, by last December, the price of chipboard in Ukraine had increased by 40 percent due to increased tariffs and duties on imports from Poland and Slovakia, Kuzmin said.
As Ukrainian producers cannot satisfy the domestic demand, these two countries had filled the gap. "Our producers don't even care if you offer them more money. They aren't interested in finding new buyers. They will tell you that you have to buy from one of their middlemen," says Kuzmin.
Ukraine has four major chipboard manufacturers: Swisspan, Interplit, Kronoswiss, and Avers. Swisspan and Interplit sell their products to a company called Prombudservis, which operates under the trademark WBM. These two manufacturers were also the ones who lobbied the Ukrainian government to initiate anti-dumping measures, which included sanctions against Polish and Slovak producers, says Irina Shapoval, of the Ukrainian Association of Furniture Makers.
The Association has been a vocal opponent of the anti-dumping measures, "submitting mountains of documents to the Economics Ministry" and attending numerous hearings to support Ukrainian furniture makers, Shapoval told the Observer.
Swisspan has acknowledged that it "was one of several initiators," because "dumping is a phenomenon directed at the conquest of a market using underhanded methods to destroy competition.
A passive position in relation to the problem of dumping would mean the ruin of domestic production."
Polish and Slovak chipboard producers unsuccessfully lobbied against the sanctions, which were imposed by Ukraine's Intergovernmental Commission on International Trade, part of the Economy Ministry, in October 2004. The sanctions slapped a 25 percent duty on Polish chipboard, and 15 percent on Slovakia's imports.
According to a statement by the Commission, which was sent to the Observer by spokeswoman Tatiana Markina, producers from the two neighboring countries had been importing chipboard at around 75 percent of the cost of the domestic product.
"During the course of an investigation, it was established that such imports had done significant harm to national producers of laminated chipboard," reads the statement. "This served as enough reason to impose temporary antidumping measures."
What about the interests of Ukrainian furniture makers? The Economy Ministry "possesses no such information. The Industrial Policy Ministry or a relevant association of producers can provide an explanation on such matters," the statement says.
Like the Ukrainian Association of Furniture Makers, the commission named Swisspan and Interplit as the initiators of the sanctions.
Kuzmin, 32, has been in business for almost three years. Competition is stiff and he sometimes has to help out in the shop. He started off working for a Dutch firm when he was 25. After making his way up the ladder, he decided to open his own business, and his Dutch boss helped him.
"The most difficult thing was to take the decision to give up a regular salary," Kuzmin recalls. Now, he is struggling to build his company's reputation. Buyers choose a furniture maker on the basis of price and reputation, as all orders require a down payment. Larger furniture companies are up to 30 percent more expensive, but the risk that one of them will leave you high and dry is marginal.
Meeting deadlines and quality also plays a role, which makes furniture producers particularly dependent on chipboard suppliers. Ukrainian chipboard is lower quality and comes in fewer colors, says Kuzmin. "You might, for example, find a nail sticking out of it." But, he adds, it is also less expensive.
Some "Soviet style" Ukrainian furniture makers specialize in low-priced products, says Shapoval, and thus they have no qualms with the sanctions, because they don't import Polish or Slovak chipboard.
Piotr Kashinsky, a Kyiv sales representative for the Polish division of an Austrian company called Kronospan, which imports chipboard to Ukraine, is proud of the variety and quality of the wood products he sells.
Kronospan has 22 plants in 10 mostly central and eastern European countries. It sells laminated floors and wall panels as well as chipboard. Kashinskyy used to get his chipboard almost exclusively from Poland.
"Now our export operations have virtually dried up. Everyone is still waiting to see what happens with the antidumping investigation," he said.
Kronospan denies the Economy Ministry's dumping charges, arguing that although some Ukrainian customers were given discounts, there was no significant difference in prices.
The International Trade Commission "was definitely bought off," says Kashinsky, noting that his firm sent letters to the Industrial Policy Ministry but never got a response.
Interplit and Swisspan, as well as Kronoswiss, are his competitors. According to Kashinsky, between the three of them, they divided up the vast share of Ukraine's demand for domestic corkboard. The rest was satisfied by imports, primarily from Poland and Slovakia.
"According to our marketing investigation, [our] company currently holds no more than 20 percent of the market," Swisspan reported, adding that it is 100 percent owned by Swiss Sorbes AG, which also has shares in an Estonian factory, AS Repo Vabrikud.
Moreover, since the anti-dumping investigation was started, says Swisspan, "National producers of laminated chipboard have increased production volumes and extended the selection of products that they produce. Such measures have positively influenced Ukraine's furniture industry, first and foremost."
According to Kashinsky and the Association of Ukrainian Furniture Makers, Swisspan and Interplit are not only responsible for creating a shortage of chipboard in Ukraine, but, unlike Kronoswiss and Avers, they raised their own prices to capitalize on it shortly after the sanctions were introduced
Swisspan acknowledged raising its prices, which it says was necessitated by a rise in the euro, as the company imports raw material and equipment from Europe.
The net result has been a 7% increase in the cost of Kronospan's products, says Kashinsky. "But the biggest loss is for Ukraine," argues the Polish businessman, as consumers will have to pay more. Russian furniture makers have already started entering the market with more inexpensive products.
Eventually, Kronspan plans to build its own plant in Ukraine to solve supply problems. For now, it's waiting for a reversal of the sanctions.
Dima Kuzmin is also waiting. And as he waits, he can't help but notice that amid the domestic shortage, Ukrainian chipboard producers continue to export. Profits from corkboard production in Ukraine can go as high as from 200 percent to 300 percent, he says. And because start-up costs are high, there is little competition.
One can launch a furniture business like his for as little as $50,000. Wages make up around one third of costs (Kuzmin has around 30 employees). Rent is also somewhat expensive, so many firms set up shop in the regions. As for credit, it is largely available, if expensive. In short, Kuzmin has plenty of competition.
"It's the quality of management that ultimately decides which companies will do well," Kuzmin says, recalling one firm where the manager set up a video camera in the shop to keep an eye on her workers - which apparently didn't do much for morale.
As a small businessman, Kuzmin is as dependent on his workers as they are on him. But without raw materials, they can't keep up with the orders that they do receive.
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