Biosphere Corporation at a time of war: What we have done in a year would have taken significantly longer if it was business as usual

Following the beginning of the full-scale invasion, Ukrainian businesses have demonstrated outstanding adaptability to challenging conditions whilst continuing to grow. The popular saying that some people see hardships as new opportunities is easily illustrated by Biosphere Corporation's business. After 24 February 2022, the popular household product manufacturer was able to not just continue operating in Ukraine but even acquire a factory in Europe to launch production for foreign markets. In addition to that, Biosphere recently announced its plans to offer its own brand of tea to customers.

Olena Volkova, PwC Ukraine Partner, spoke to Andriy Zdesenko, a Biosphere Corporation co-owner, about ways to effectively overcome today's challenges.

Andriy Zdesenko
Biosphere Corporation
Founder and CEO

Olena Volkova
PwC Ukraine
Partner

Andriy, expansion to new markets for Ukrainian businesses is among the hottest topics we have been discussing with owners and CEOs of major businesses in Ukraine. In the full-scale war conditions, what is your view on whether it is a well-planned strategic step for further growth or a pre-requisite to your business’ viability?

“We continue investing, developing, and safeguarding our assets in Ukraine, whilst taking steps to ensure their integrity and continued operability”

Expanding to new markets is a strategic decision for us. We began implementing it long before the full-scale invasion. Even before we acquired assets in Europe, our business spanned across multiple jurisdictions. These were, firstly, the ex-Soviet states, but also Baltic states, Poland, Romania, and other Balkan markets.

Beyond any doubt, such diversification helps keep our business viable in today's conditions. Yet, I would like to say that this isn't our main focus. We continue investing, developing, and safeguarding our assets in Ukraine, whilst taking steps to ensure their integrity and continued operability, treating the safety of our people as a first priority. Our products continue to be produced and exported.

Lead times for deliveries have increased and the cost of outbound logistics from Ukraine has grown steeply. This obviously takes certain diversification as well, and to this end, our newly acquired factory in Romania will enable us to move the manufacturing of some products to Europe.

You bought Alufix, an Austrian brand, and the Romanian factory during one of the hardest years. Now, almost a year after closing on the deal, can you share some early takeaways and outcomes of this investment and of your debut launch of production in the EU?

“What we have done in a year would have taken significantly longer if it was business as usual”

Yes, we bought Alufix assets against all odds. These assets include the Alufix brand, the factory in Romania, and several distribution branches. Looking back a year after the closure, I can now say it was a successful step. First of all, it was because the Alufix brand opened the door to European retail for us directly, without any intermediaries or distributors.

Second of all, the Romanian factory has resumed manufacturing operations. It now operates at 50% of its capacity. The total sales of our products in Europe demonstrated a threefold growth last year. Looking at the success of this investment, this speaks for itself. In every European market we operate, we have certain anchor customers with whom we have had a long history of successful business, proven by time and our presence on retail shelves, where our products successfully compete with local market leaders.

What we have done in a year's time would have taken significantly longer if it was business as usual.

It is very important that we are not the only Ukrainian business entering European markets, specifically Romanian. We successfully work with Aurora supermarket chain in this market, with many of our products appearing on the shelves of the Romanian Aurora.

Were there any challenges you faced in entering the new market? Can you share any lessons learned from this experience?

“No one will give us something just because”

I should say that all our foreign customers have a strong pro-Ukrainian sentiment and sympathise with our businesses seeking growth in new markets. Whilst we can feel substantial support, one needs to understand that, in such a competitive environment, it is always business first and no preferences will be given.

To this end, we first discuss typical business matters as any supplier and customer would, i.e. logistics, pricing, marketing activities. And only after that, we may sometimes talk about the situation in our country. The business component is always kept very separate from the overall war-related sentiment and moral support. This needs to be understood and accepted. No one will give us something just because.

Another thing we have faced is the European leisurely pace and inertia in building relationships. Our partners approach building new ties and making decisions with quite a pragmatic, level-headed, and laid-back mindset. Any quick start is more of an exception. On the other hand, any contacts one does manage to build have a great potential for sustainable growth for many years to come. We build our growth strategy on this basis.

This spring, your company announced its next planned strategic step, which is to enter the retail market in Western European jurisdictions. Can you share your plans on further expansion in the EU?

“Any quick start is more of an exception”

We already work with many chains that typically have representative offices in multiple countries across Europe. Therefore, having launched our business in a Central European country and having received positive experiences, we will open doors to new markets. Over the coming years, we expect to move forward by expanding our presence in Western Europe.

Building and developing strong and sustainable relationships in the countries where we are already present is our non-negotiable. This will be a prerequisite to new opportunities for the corporation.

Biosphere has previous experience in the active promotion of its products in the American market, e.g. via Amazon. Do you have any plans to grow your exports to the US from Romania and expanding your product range in this marketplace?

“Of course, we have plans to do business in the American market”

Entering the American market and Amazon are two separate matters as the latter operates in Europe as well. We relied on this sales channel quite a lot last year. We had a very positive and useful experience working with this marketplace, allowing us to look at the growth and expansion of this line of business with optimism.

Of course, we have plans to do business in the American market. It is attractive from the demand perspective, but highly competitive. We are well aware that entering this market takes a large amount of preparation. We plan on entering the North American market after our expansion to Western Europe. Our experience with Amazon will give us the knowledge we need and serve as an opportunity to test the business and market response before entering the retail market.

Some Ukrainian companies that have chosen to expand to European markets have said that they follow our compatriots who shape the demand. Last year, you noted a significant decline in domestic sales, in particular, baby products. How much has the situation changed in the last year and how does it affect your company's plans in Ukraine?

As for our expansion strategy, we made a decision to refrain from following our compatriots. We enter new markets and target local consumers. This is a part of our strategy. This is why we acquired Alufix, which is well-known in Europe. We target the local mainstream retail instead of the so-called ethnic retail. We believe that this approach will work much better over the long term. At the same time, we never forget about our Ukrainian diasporas. Although, over time, they assimilate into their new countries, the nostalgia for the well-known ‘taste-of-home’ brands remains and we do our best to meet this need.

As for our sales performance in 2023, I can say that we have managed to match the pre-war levels despite all odds. Of course, part of it is due to inflation, but in any case, we see stabilisation of consumer demand and expect this trend to stay during 2024.

How would you describe the investment climate in Ukraine? Would you recommend investing now to be the first in line after the victory, or would you rather wait?

“We intend to continue actively investing in Ukraine. It is our priority”

I would describe the investment climate in Ukraine as complicated. And war is not the sole reason for that, although we all share the war-related risks. Unfortunately, the pressure from law enforcement authorities on businesses remains a problem. I have to say that it hasn't been an issue Biosphere has personally faced so far. However, in the business circles, we all talk to each other quite candidly and we can see what is going on. This process has noticeably intensified in the last six months.

The lack of war risk insurance is a big problem. Our international partners require reinsurance to provide additional finance for new equipment to us.

And despite everything, Biosphere continues to grow and improve. We have entered the food market and launched the production of tea. We bought a new production line for this purpose. Over the last 5 years, the investment in our Dnipro HQ exceeded half a billion Ukrainian hryvnias. We intend to continue actively investing in Ukraine. These investments will be in state-of-the-art equipment, new brands, and lines of business. It is our priority.

Andriy, thank you very much for this engaging conversation, and may Biosphere make all its ambitious plans come true.

Biosphere Corporation at a time of war:

^{Paid UAH 500 million in tax for 2023}
^{Invested EUR 1.2 million in the new tea production lines}
^{Met the pre-war sales level in UAH equivalent}

^{Achieved threefold growth of export sales}
^{Retained and increased its Asian market share}

Interviews with Businesses in Ukraine

PwC 26th Annual Global CEO Survey