What Is Medium-Sized Business In Ukraine?

Caspar David Friedrich: Sunset // Public domain

Medium-sized private enterprises play an important role in the economy and social development. Medium-sized enterprises operating in domestic and foreign markets are a kind of “backbone” of the economy.

Compared to small and large enterprises, medium-sized businesses have higher viability, better access to external financing, and “economies of scale” benefits.  Medium-sized enterprises will be more consumer-oriented and more flexible in responding to changes in demand and the business environment. In the European Union, 0.9% of enterprises are medium-sized enterprises (51-250 employees), which employ 1.6.0% of the total workforce and account for 17.4% of the value added.[1]

Medium-sized businesses, in addition to their important role in the economy, are an important social group that is the basis of both society as a whole and social elites. The representatives of medium-sized enterprises are the bearers of liberal values, the idea of freedom, a free and democratic society and a level playing field for all, and they pass on this experience and tradition to the next generation.

For example, there is such a well-known release as Mittelstand in Germany.  The term Mittelstand is mainly applied to medium-sized companies, and more importantly, Mittelstand companies are characterized by a common set of values and management methods.[2]

In Ukraine, medium-sized businesses remain Terra incognita. We know little about it because this part of the business is hidden among small companies and is in the shadow of large ones.

In 2003, the IER conducted a study of medium-sized businesses. After 20 years, in 2023, the IER did it again to examine the changes that occurred during the country’s turbulent two decades of development. It is important to note that between 2003 and 2023, Ukraine experienced two peaceful revolutions advocating for democratic and European rights. Additionally, Russia has been engaged in a war against Ukraine for nearly 10 years, with full-scale military aggression persisting for the past 22 months. In light of these challenging conditions, the question arises: What impact have these events had on medium-sized businesses in Ukraine?

According to the IER study, the nature of the medium-sized business itself has changed. In 2003, the business consisted mainly of privatized state-owned enterprises, which reduced the number of employees. In 2023, most medium-sized businesses are newly created private enterprises, most of which have grown from small to medium-sized. This thesis allows us to assert that despite the problems and challenges associated with the quality of the business climate in Ukraine and non-economic factors (such as changes in political regimes and the war with Russia, which has been going on since 2014), conditions for the development and growth of private business in Ukraine have been created.

Entrepreneurs and citizens surveyed by the IER during the study also note the leading role of medium-sized businesses in economic and social development. In particular, 58% of respondents believe an entrepreneur is an “active citizen, an engine of the country’s development,” and 38% view them as  “ordinary citizens who want to earn money for a decent standard of living for their families.” Only 5% of those surveyed believe entrepreneurs are primarily motivated by personal enrichment at the expense of fellow citizens.  This represents a noteworthy shift in attitudes towards entrepreneurship and medium-sized businesses compared to the sentiments in 2003.

When characterizing entrepreneurship in Ukraine, respondents used various descriptors such as “confidence” (65% of respondents), “knowledge” (50%), “diligence” (44%), “skills” (43%), “financial resources” (35%), and “innovative ideas” (35%). In contrast, when portraying the typical entrepreneur, business representatives employed a slightly different lexicon, emphasizing attributes like “hard work” (49%), “expertise” (37%), “profitability” (35%), and “financial acumen” (33%).

The role of medium-sized companies in social development is evidenced by the active participation of large and small companies in all of Ukraine’s modern democratic revolutions, and by the tremendous support for the country now that Ukraine is struggling for its existence and movement toward the European Union. Companies are actively involved in the volunteer movement and helping them. 17% of the surveyed citizens of the 235 surveyed entrepreneurs indicated “volunteering” as the word association for the word “entrepreneur.”

The results show that the growth of private business has created a powerful new layer of medium-sized enterprises. In Ukraine they are between small and large, and virtually bear the entire burden of the regulatory climate in Ukraine. Medium-sized enterprises do not have the privileges of small businesses and do not have large resources. Nevertheless, they play a large role in the development of a society based on European values.

You can learn more about the role and portrait of medium-sized businesses in Ukraine from the report “Medium-sized Business in Ukraine”, which will be published in the near future.

[1] https://ec.europa.eu/eurostat/web/products-eurostat-news/-/edn-20220627-1


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Oksana Kuziakiv
IER Kiev