Purchasing from the Ukraine, advise needed.

KingPuck

Hi all,

My company is negotiating with a Ukrainian company about the supply of their product to Ireland. They are a medium sized multinational. I would have expected to pay them in their own currency as we do with other suppliers outside the EU. They however are issuing price lists in Euro. Obviously their currency is not doing well as its closely linked to the Russian Rouble and we would like to capitalise on this. I would appreciate any advise in how to negotiate this deal. We are going over in a few weeks.

jimmii

Can't blame them for wanting to keep funds in euro in fairness I would be worried about not doing it that way to be honest. The currency fluctuations in Russia at the moment must be putting huge pressure on businsses in the area the last thing you want is another big swing and it put the business into the red that might risk whatever business you have with them. I've been to many places where people have prefered to deal in £ or $ due to how uncertain some currencies are.

delahuntv

Most international trade is carried out in dollars or euro.

At the end of the day their costs may not have changed much as raw material would have increased as they probably buy it in dollars or euro too. Hence they will price in Euro.

I'm sure they could price in local currency, but it will reflect the changing value and the price list would probably change daily.

The advice is don't buy anything from the Ukraine unless you want to get screwed. In case you dont know there is an actual war going on there as we speak, and it is one of the most corrupt countries in the world war or no war. Even the banks are owned by the crooks.

Doing any sort of business with the Ukraine would easily fall into the bracket of extreme high risk!

pedronomix

Of course you want to take advantage of their weak currency, they are too smart for that, hence are insisting on Euro. As the vendor they can nominate any currency they wish as acceptable, I suspect you can take it or leave it. Your primary concern should be the risks involved i9n dealing with such a country and unless you have established on the ground trusted partners, you are in grave danger of getting heisted. It is highly unlikely that you will be able insure your risk, which tells it's own story!!

pedroeibar1

There are several issues that need to be addressed in the OP.

Firstly, what is the Poster’s motivator? Is the potential supplier a recognized player in the sector? Is it a simple matter of trying to make a quick killing on a weak currency? What happens to OP’s business if the supplier folds and he is left with a long lead order time for replacement product?

Currency – it is perfectly normal for any company in an emerging market to use either USD or Euro. In Ireland most SMEs will run with a minimum of currencies because they have neither the skills nor time to manage a treasury function. Back in the day of punts many Irish companies exported in USD or STG.

Price – where is the supplier sourcing the raw material for the product? Supplier will probably have to pay his suppliers in $ or € so why should it be expected to take a hit?

The Ukraine is corrupt in parts, business is not very transparent and it is in a somewhat precarious financial position due to the situation with Russia – not just the Corridor conflict, but also as a trading partner – Russia takes about a quarter of its goods exports. Turkey, Egypt and Poland also are important trading partners. However it is not a basket case, for e.g. Ukraine GDP Growth is about the same as Ireland’s, their Budget Balance is about the same as ours and their Public Debt as a % of GDP is 44% - in Ireland it is almost a whopping 3 times that figure! It has a developed steel industry, a low-cost labour force and a strong agri -economy that has considerable potential. Get the political situation sorted and it will be fine as the fundamentals are OK.

Would I buy from there? Yes, if long before I placed an order I had checked out the supplier and was happy that they could meet delivery in terms of time, quality and consistency.
Would I pay in Euro or USD? Yes, it would be the norm.
Would I expect to successfully negotiate a price in hrynvia? Nope, not a hope in hell, dreamland.
Would I expect to be ripped off if they agreed to a deal in hrynvia? Yep, it would stink as a scam.

And as the other Pedro has said the ECAs are off cover on supply to Ukraine, from an export destination risk perspective it is down there with Iran, Iraq, Nigeria, Zimbabwe, etc.

A business relationship is built on trust and allowing a margin for everyone. Screwing someone to a loss for a short term gain is a failure in the long term.

KingPuck

Thanks for the replies. Yes we understand the risk. However this company has traded for 15 years with partners in quite a few countries. We are not in this for short term gain. We are looking for an established supplier with a great product range that doesn't yet have a presence in Ireland or UK. They just happen to be in the Ukraine.

I agree that everyone must make money however naturally we see it as an opportune time to do a deal. We have received a price list in euro and have already negotiated a slight reduction on some of our favoured products. Thing is though the product they sold for €1000 last year is still approx €1000 today even though the currency has tumbled. Yes they may buy some components in Euro or USD but most of their costs will be in Hryvnia. If they are invoicing in Euro they are making the killing. All advise welcome and appreciated.

KingPuck

KingPuck wrote: »

Thanks for the replies. Yes we understand the risk. However this company has traded for 15 years with partners in quite a few countries. We are not in this for short term gain. We are looking for an established supplier with a great product range that doesn't yet have a presence in Ireland or UK. They just happen to be in the Ukraine.

I agree that everyone must make money however naturally we see it as an opportune time to do a deal. We have received a price list in euro and have already negotiated a slight reduction on some of our favoured products. Thing is though the product they sold for €1000 last year is still approx €1000 today even though the currency has tumbled. Yes they may buy some components in Euro or USD but most of their costs will be in Hryvnia. If they are invoicing in Euro they are making the killing. All advise welcome and appreciated.

I would still avoid even if they have a good track record. There is a civil war there right now, find another place to get your product. My experience of dealing with people from that region is that they can't be relied upon and often dispense with the truth. I wouldn't say that if it hadn't happened across different companies many different times and screwed me each time, so much so I will never do business with Russia or the Ukraine again under any circumstances!

antoinolachtnai

You are much better not doing business in kooky currencies if you can avoid it. The spread alone will cost you at least a percentage point, and more if the currency is very volatile. If things go really pear-shaped, there is a real chance that you will be left holding worthless local currency.

On the other hand, if you deal in euros, you might get some priority as a customer over local orders in terms of quality and delivery time.

If you really feel exposure to the local currencies of Eastern Europe is a good thing for your business, the best thing might be to get involved with currency futures. You will likely lose all your money, but at least you will avoid a lot of fairly unpleasant travel.

If you think their prices are too high then you should go and buy the product from some other supplier. Trying to argue down the price based on your perception of the weakness of their currency is going to get you nowhere. You probably know very little about their economic situation. They may have had to pay wage or supplier price increases because of inflation for instance.

braddun

run from ukrane

pedroeibar1

KingPuck wrote: »

Thanks for the replies. Yes we understand the risk.............. We are not in this for short term gain. .............we see it as an opportune time to do a deal. ...........most of their costs will be in Hryvnia. If they are invoicing in Euro they are making the killing.

So, if you understand the risk, how do you intend to structure the deal?