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“We try to support the staff in every way” — Mykhailo Sorokin, Vostok Engineering

Today we present an interview with Mykhailo Sorokin, CEO of the Ukrainian Engineering company VOSTOK

How has your business changed since the beginning of the full-scale invasion?

Mykhailo Sorokin: The war certainly had a negative impact on our company. We were involved in a project to modernize a railcar manufacturing plant in Egypt. Unfortunately, the project was suspended, due to martial law, our staff was not able to go on business trips and support this project. This concerns not only our company, but also other Ukrainian companies that worked with us on this project.
This especially hit the companies that work with physical equipment, for example, because they cannot send specialists for commissioning, payment is frozen. This equipment is already there, but the company cannot receive funds.
Our business also stopped, for some time we used funds from our reserve, helped employees to take their families out of risky regions. This is not the first time for us, we evacuated from Luhansk in 2014, we already had this experience, we were ready organizationally. We had to reduce the staff to a minimum, now the marketing department is actually busy searching for contacts. The first shock has passed and we are building new relationships with foreign partners, working on new applications, new orders. Thanks to APPAU, among other things, we have received new contacts, which we are now developing.

Is your strategy now aimed at retaining staff, entering new markets, relocation or other options?

Mykhailo Sorokin: We try to support our staff in every way possible. Since 2104, we have been working on how to optimize costs, we use cloud technologies for work, since 2016 we have minimized location risks, our specialists are all over the country, some specialists are already abroad, we use a project approach, we pay as a percentage of the project amount, employees receive an amount that corresponds to their contribution to the project.

We already have an ecosystem of specialists who trust us, from which we recruit specialists for a specific project when we receive contracts. Thus, having a remote work system and an ecosystem of specialists, attracting specialists in Ukraine and abroad, we have built a system of existence under martial law.

We are testing new mechanisms, cloud services, we must use the most modern mechanisms to optimize smart business to remain competitive.

If you look at how other countries overcame the crisis, you can see that the state should play a big role. The state is the main customer that can drive not individual businesses, but entire industries. The industry in which we work is the railway transport industry, this market is stagnating, but there are tens of thousands of jobs here, if the state had a desire to develop this direction
We would get an effect that would entail many production chains, This industry can be compared to the production of weapons, other defense technologies.

Have your relations with foreign partners changed?

Mykhailo Sorokin: Since 2014, we have had experience of the negative impact of military operations on our business. We cooperate with foreign partners, military actions have a negative marketing impact, foreign companies are afraid to cooperate with Ukrainian companies, not everyone understands that military actions are not taking place throughout the country, people continue to work.
Therefore, this adds problems in the negotiation process, we are forced to use price incentives to cover the risks associated with the fact that the project may be suspended. We cover these risks at our own expense.
In my opinion, our country has few mechanisms in the banking system and insurance business at the initial level. The insurance system is not developed to the required extent.
We are forced to go to work without prepayment, to provide deferred payments, and this hinders the scaling of business, working capital is not enough for the development of new areas.

The state has many tasks to form a business environment in the conditions of military operations, the state needs new mechanisms, risk insurance, contracts, to develop this toolkit at the expense of foreign companies that have such experience.

Different people are engaged in business and these relationships are also different. There are companies whose management is unwilling to take into account the problems we have and use only economic calculations, but many companies have empathy for Ukrainians, Ukrainian business, and this is a good chance to establish cooperation with companies willing to help Ukrainians. Some companies just offer financial assistance, but we are more focused on the fact that Ukrainians need work, if we have orders, projects, we will be able to find ways to redirect funds to help Ukrainians.
Since the beginning of the hostilities, we have been more actively engaged in marketing activities, many new contacts have appeared, we hope that we will be able to reverse this trend and reach a new level, improve our position in the European market, enter other markets, such as MENA, we will be able to displace Russian competitors from these markets, which had an advantage there due to the support of the state. We will be able to occupy the markets that will be vacated due to the exit of Russian companies.
We very often face competition with Russian companies, it is more about the markets of other countries, where Russian companies, thanks to more powerful financing, took the contracts that we could not get. This is due to the fact that we are moving more in the legal field, European ideology and morality, we do not use the tools of illegal incentives. We are fine with the fact that we were not able to take some projects, we never take illegal steps, we do not compromise our image, even because of the difficult situation. We are members of an environment where certain moral principles are accepted, which should not be violated under any circumstances. We have long-term plans for the development of our brand, our company.

In what areas of activity do you optimize business and reduce costs (are there areas where you have increased investments)?

Mykhailo Sorokin: 

We are optimizing in infrastructure things, in terms of the use of IT technologies, moving towards the use of cloud technologies, “as needed”. 

 If you keep servers, workstations, software, it all requires money to maintain and when we get into the inter-project period, it is not advisable to maintain this infrastructure.
We take the capacities that we need when we need them, this leads to an adequate look of our economic calculations. Thus, we optimize cost calculations when developing proposals for commercial partners. For the production business it is much more difficult, for our intellectual business it is easier. Our cost optimization is in the field of IT technologies, we use the most modern software that allows us to speed up the work. We succeed in this optimization, there were such examples when we performed tasks with half the number of people than the customer expected.
Thus, we manage to increase the value of the time rate for employees, due to the fact that we have high efficiency, we have advantages for our foreign partners. We need to find a balance between efficiency and the cost of time, thanks to high efficiency we have a profit that allows us to invest in the development of our business.

What is your product policy now – do you have plans to release new products or solutions?

Mykhailo Sorokin: Our business has some specifics, we are an outsourcing engineering company, we work with the orders we receive from partners.
Since 2014, we have been thinking about our own projects that we could bring to the market, but the sphere in which we work is very expensive, it takes tens of millions of dollars to design and build a locomotive, and in the conditions of our country it is almost impossible. In this regard, we depend on the state policy, the state has done almost nothing to develop this market in recent years. If the state comes to its senses, we have the experience, we understand that we need new railway transport, both cars and locomotives, because we need to update the locomotive fleet that we have, because all the components were supplied from Russia. And it is still unclear what the state will do when the economy starts to recover and the need for rail transportation grows.
We provided the leaders of Ukrzaliznytsia and the Ministry of Infrastructure with our experience with foreign partners, who agreed to provide investments for design work and provide equipment for modernization. The modernization project from order to sample, it is almost a year and a half in an intensive mode of work, we received an answer that it is not on time, although it did not require funds from Ukrzaliznytsia or from the state. Therefore, we are moving to foreign markets, many engineers leave or work for foreign companies, but we very much hope that the experience of our specialists will be useful for the restoration of our state in the future.

Intellectual business should work in Ukraine and create profit here, the product should be Ukrainian and give a higher rate of return. We are a competitive country, our specialists are very professional, we have never felt in our foreign projects that our level is lower than that of foreign specialists.

Has the level of cooperation in your community changed? (Has consolidation among Ukrainian companies in your sector increased, in which areas, or vice versa – competition has increased).

Mykhailo Sorokin: The conditions we have found ourselves in are gradually changing the trend, I see signs that trust and support are growing, the issues of competition are moving into the background. The only chance for us is to unite, to stay together, to support with specialists and experience. Only by combining our efforts we will survive. For example, I managed to go to the exhibition, we supported three companies, took out their promotional products, talked about their experience.
As the head of the company, I am always open to cooperation.

What are your forecasts for the development of the situation on your markets in Ukraine? In your opinion, is there a prospect for foreign partners in Ukraine – in what way?

Mykhailo Sorokin: If the state wants to develop this industry, the market will be there, as I said earlier.
For example, in Ukraine we produce wheel sets, metal structures, high-voltage devices, transformers, but the country does not produce converters for the railway sector. There is a company in Kharkiv that produces converters for oil companies that operate at temperatures below 60 and is one of the three world leaders. That is, this is not an unattainable technology, we have already mastered it and there are companies that have experience in the production of such equipment, but there is no demand, the state does not provide requests to Ukrainian business for the development of such equipment.
Regarding the prospects for foreign partners. Let’s start with the global picture, Ukraine is not developed, most foreign partners are interested in entering our market and there is indeed a prospect. But the state should work professionally to ensure that foreign companies invest in big business, which will increase our technological level, receive all the benefits for the state, taxes, development of competencies of specialists in business management, etc. We need to make such conditions that they are at least better than those of our neighbours, I am not talking about the world platforms, it concerns risk insurance, loan rates, etc. Without these changes, global companies will not enter our market.
In our sphere, in the railway sphere, there is a large field for cooperation, we need to restore the infrastructure, develop, establish passenger and freight transportation, in order not to concentrate cargo in one point, we need a lot of railway crossings, we need to work on the construction of freight terminals, develop technologies that would allow our trains to move on European tracks and vice versa, European trains to call at terminals located on Ukrainian territory.

We need to work on new technologies, both in the field of infrastructure management and in the field of asset management.

There is a lot of work to be done. We need to work on new technologies, both in the field of infrastructure management and in the field of asset management. We need new experience in asset management, training of specialists, there are a lot of steps starting from educational institutions to practical cooperation, financing, etc.
Many European companies are interested in this, everyone is looking at the Ukrainian market, where they could work with their experience and technologies.

What are your main proposals for cooperation for foreign partners?

Mykhailo Sorokin: In this market, there are very large companies that have powerful financial instruments to do locomotive projects, but they do not want to get involved in small projects, we can be useful in using their products in small projects, in contracts of limited value, we offer a more financially advantageous offer than European engineers.

We have been working in foreign markets for a long time, for 10 years now, we offer our engineering experience as an integrator company, experience in modernization of railway transport or development of new types of locomotives, this is our main direction. We have experience of projects with Deutsche Bahn, Bombardier.

We may be of interest to companies that produce components for railway equipment. We have experience working with both European and Ukrainian tracks, professional specialists with production experience and experience in European projects, we understand the requirements of foreign partners. We can cooperate in the Ukrainian market and be guides for foreign companies.

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