The Ukrainian Way of Doing Business

The Ukrainian Way of Doing Business: “Pogylayko” Story

Alexander was unemployed for several months, when a call came from his mother-in-law Oksana, who offered him a place in her company – “Pogylayko.” Alexander knew all about the company: how it got started and was operated. Now, it was up to him to make a tough decision, resolving the dilemma that came from his knowledge.

The history of “Pogylayko” began 5 years ago. Alexander’s parents-in-law used their connections with government and privatized nice building not far from city center for a fraction of its real cost. It was owned by Lviv Railroad, but through bribing all the necessary people agreement was achieved. Than, city authorities were bribed and provided all the necessary legal documents and permissions for new business. The money for all transactions were provided by Alexander’s parents-in-law, who are owners of the company, and three other investors, who still share 30% of company’s incomes.

The newly created company was dealing with distribution of beauty and cleaning products. It had reached several legal agreements with large producers and bought inventory at above market prices, thus generating higher profits.

The owners decided to list the facilities (building and equipment) as their private property. It was also decided that company had to pay rent for the use of the property and equipment. Oksana and her husband, being forward-thinking persons, realized the potential profit of “Pogylayko” and set the level of the rent at above market rates.

At the very beginning, company had some problems with finding trustworthy staff to work for it, so the owners decided to only hire people they knew to be honest, friends and relatives, regardless of their qualifications or the qualifications of other potential employees. The owners maintain the right to raise or lower the salaries and bonuses of all employees, themselves included, depending upon the profitability of the company. As usual, owners receive cash bonuses, while all the other employees are gifted home equipment and other items, company receives for free as little “thank-yous” from its suppliers. In the light of the above said, the call Alexander received was more than predictable, since he is in direct relation to the owners and his wife already works for her parents as accountant.

The building that Oksana and her husband owned was in need of repairs following years of neglect under the Soviet system. It was decided that “Pogylayko” should pay for the repairs. Oksana herself found all the necessary people to do the repairs and formed the brigade that still continues servicing facilities of “Pogylayko.” All the necessary materials for redecoration and general repairs are bought through this brigade, at the prices much above market, generating nice profit not only for the brigade members, but for its organizer as well.

After all the main repairs were completed, owners decided that it is better for the company to own the building rather than pay monthly rent. By that time operations have been generating adequate cash flows. Salaries, including the considerable salary of the owners, have been paid in full. Bills were current. Investors were satisfied. And, taxes have been paid. So, “Pogylayko” buys the newly redecorated building from the director at a markup generating a very nice profit for the direct owners – Oksana and her husband.

The day-to-day operations of business brought many additional costs. Oksana’s husband was required to travel a lot for business meetings, so “Pogylayko” bought him a nice car for official use. It was up to him to decide what “official use” meant. Almost every weekend Oksana used company driver and car to go visit space contactor in one of the nearby villages. Her husband never used public transportation to get to and from work. ”. At the end of the five-year useful life of the car, it was set to be gifted to Okasana’s husband, and a new one would be purchased. Maintenance, insurance and fuel costs are paid by “Pogylayko” as the automobile is owned by the company and is used for official business, while employed by company distributors have to do all the business traveling at their own cost.

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