Sunday, 28 March 2010

Rocket Science in Kharkhiv

The first time I visited Kharkhiv, an industrial city in north-eastern Ukraine, was on 8 March 2000. I was implementing a sales audit of JSC Obolon Brewery, Ukraine’s largest drinks group, and I spent the day visiting customers and the Obolon sales office and distribution centre. It was bitterly cold, snow covered the ground, and the season was definitely not suited for beer.

Coincidentally, it was International Women’s Day, the first of the new millennium. At the hotel we were staying, a grim block in the outskirts of Kharkhiv, the hotel restaurant was packed with young couples dancing and celebrating. For a tired consultant thinking of home, it was just about the last thing to deal with.

What I remember most about this trip occurred in the hotel room. One of the windows was either broken, or hadn’t been insulated properly, and it was cold. Too tired to go back down 12 floors to a reception that was otherwise occupied, I decided to tough it out. Waking up the next morning, after taking a shower and getting dressed, I went to put on my shoes, which I had left at the foot of the bed. As I reached down to take the first one, a little grey blur jumped out and disappeared somewhere under the bed. It was a mouse! A little grey Kharkhiv mouse had apparently taken shelter in my loafers for the night, and was most rudely awakened by their inconsiderate owner who needed to start work in the morning. I still remember that cold day in March 2000: another story from the road.

Since then, I’ve been to Kharkhiv twice more, once for customer interviews in 2004; once for a due diligence study for the Kharkhiv Tile Plant, Ukraine’s largest ceramic tile factory, in 2007. It’s a city I’ve never really had time to explore, so I was really looking forward to my trip this week. My consulting company, Navigator, started a due diligence and business plan for the CIS leader in ball and roller bearings.

The first thing I decided was that, unlike the last trips, I would stay in a good, city centre hotel. After consulting TripAdvisor, I chose the Chichikov Hotel, located on Gogol Street off the central boulevard. The Chichikov is named after the protagonist of Gogol’s ‘Dead Souls’, a story of wealth and self-discovery in 19th Century Russia. Apparently a staple of Soviet education (I had never read the book, but all my Ukrainian colleagues had), this book was the inspiration for the hotel, which was excellent in every respect. Modern, understated and casual, with first-class furnishing and cuisine, and attentive, considerate service by every single staff member encountered, the Chichikov will be our hotel of choice in Kharkhiv in the years to come.

The second thing I decided is that even if the schedule would be hectic, I would take some time to walk through the city’s historical centre. And I was glad I did. Despite its vast industrial heritage, Kharkhiv is a university town, with over 5 major universities and polytechnics in various disciplines of science and engineering. You see groups of people talking in cafes or on the street, discussing in a quiet manner which is totally foreign to Kiev or other major cities. Kharkhiv has one of the highest per capita populations of PhD graduates, well above the Ukrainian and Russian average.

The cafes are glorious: small but elegant, with excellent coffee and food, at a very competitive price—less than half Kiev or Athens prices. It’s rare to find a good cafe in Kiev, where pretention is often confused with quality. In Kharkhiv, you see little jewels strung out along the main street or tucked into quiet alleys.

WiFi is free, and available everywhere. People walk the sidewalks, speaking into mobile phones or sit in cafes, reading their textbooks, or tapping away on laptops. There are also some fantastic jazz bars—I wasn’t able to visit any this trip, but in 2007 I stumbled upon a jazz trio which was simply sublime. Next time!

The city shows the typical development of Ukraine after 2000. Buildings have been renovated; designer stores have opened; the city centre has been improved to the extent the Municipality’s limited budget allows.

There are some problems: the roads are among the worse I’ve seen, particularly in the outskirts of the city. Living standards are still low: prices are low because the average per capita income is lower than Kiev. But there is a lot going on—new factories opening, buildings being renovated, new projects launched.

Another major discovery on this trip wasn’t the city itself, but the company I was working in. This company is part of a larger industrial conglomerate, which recently decided to centralise its research and development function, and invest in this area. They reasoned that only by increasing the ‘intellectual value’ of their products to over 50% of total value could they compete with lower-priced Asian imports.

This is the first Ukrainian company I’ve seen, after working here in over 20 leading CIS manufacturers, which has a serious industrial R&D function. With over 200 of Ukraine’s best and brightest engineers and scientists employed on a full-time or project basis (including former designers of the Soviet Union’s ICBMs), the conglomerate has established clear research priorities, budgets, projects and return-on-investment monitoring.

And their efforts have paid off. One of the first new products out the gate was a new rail bearing specifically designed for the harsh conditions of railroad transport in the former Soviet Union. Working with their major customers, the R&D group developed a duplex bearing unit which increases the rated lifecycle from 350,000 km to 800,000 km, and provides improved properties against friction heating and wear. This product included joint research with Western equipment providers, including some of Europe’s top names in the field. This product has been patented, and now being tested in major customers.

I was really impressed. The last time I had the privilege of working in a company with a strong R&D function was at ABB in Sweden 10 years ago. To see this level of engineering in Ukraine, in the face of challenging financial conditions and a competitive environment marked by declining profits, was inspiring. This is exactly what European manufactures need to be doing more of: investing in basic and applied research, with a clear link between customer needs, corporate strategy and R&D priorities.

So, it was a great trip. Apart from the necessity of transiting through Kiev, Kharkhiv is a great place to do business, and a great place to relax after work (in the remote case this might be possible). And I finally got to meet a genuine, bona fide rocket scientist.

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