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Where there is no law, but every man does what is right in his own eyes, there is the least of real liberty
Henry M. Robert

Politics Gives Way to Business 

10 April, 1999 - 00:00

By Iryna KLYMENKO, The Day
Is the conflict at AvtoZAZ-Daewoo not an economic one but, as President
Kuchma stated, rather a "political and personal" one? Anyone with any business
experience would doubt this - and would not be completely right.

As a rule, all misunderstanding and friction between business partners
starts with financial issues and almost always such differences are preceded
by revenues that turn out smaller than expected under the original plan.
Regardless of disbursement ensuing from a given project - and the bigger
the project the greater the sums thus expended - its originators are forced
to carry on while adjusting their ideas to reality. Actually, this phase
makes it clear whether the partners are capable of staying in business
together. In other words, this phase makes it clear whether they can agree
upon goals between themselves, whether they are prepared to make mutual
concessions, and whether they are "cultured" enough to come to an agreement
under the circumstances.

Regrettably, AvtoZAZ-Daewoo's one year in business in Ukraine proved
a case study in a business dispute. Without going into details of the joint
venture's financial fiasco (we have previously covered the dramatic events
in adequate detail), let us look closer at one characteristic making the
whole thing clearly distinct from a regular joint venture partners' collision.
The thing is that from the outset the project was not commercial for the
Ukrainian side. Thus, all business plans, along with cost-and-profit reports
and estimates (about whose inadequacy the Korean side feels so anxious
now) had an altogether different meaning for Ukraine. What was and remains
the Ukrainian partner's biggest concern? First, jobs; second, payments
to the budget; and third, the personal interest of the bureaucrats concerned.
The latter is just an assumption, based on interviews with individual businessmen.
And the Korean partner? Profits. First, second, and third.

And so all efforts of the Korean side to maximize profits and minimize
losses, based on the domestic and foreign market situation, could not but
contradict the Ukrainian partner's strategic interests - and the Ukrainian
side was primarily concerned about carrying out its own political tasks.
In fact, the Koreans wanted to secure their money (after the Asian crisis
they could no longer spend as liberally as they did when the Ukrainian
business plan was being composed), hence their determination to supervise
cash flow. And sales are actually the only source of income for the parent
company and politically heavily engaged Ukrainian management. For the revenues
"tomorrow" could not be compared to the amount invested "today." The reader
can perhaps guess why.

Any government working out an economic growth strategy must not allow
any conflict between economic efficiency and political expediency - any
government except Ukraine's. Until the very last moment the Ukrainian authorities
prevented the AvtoZAZ director's retirement, because he, in his own words,
protected the interests of the national motor industry. And you know what
those interests are all about? Oleksandr Sotnykov (the director) considers
that, first and foremost, the Korean side must honor its investment commitments
assumed when setting up AvtoZAZ-Daewoo a year ago" (see Biznes,
1998, No. 8).

Obviously the lion's share of the Korean disillusionment is explained
by underestimating the Ukrainian authorities' stand, and not by financial
miscalculations as the press maintains.

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