Barkom, LLC: the success of vertical integration in Ukraine
At crisis many people complain that do and develop business is difficult. They say not now... But if there is a goal it is possible to reach it despite the circumstances. Such sense of purpose is worthwhile learning from executive staff of Barkom, LLC. They managed to turn small kiosks into powerful vertically-integrated enterprise. Oleg Baran, the founder member of the company told about the way through hardships.
- What is the history of business stages of Barkom, LLC?
- The need to start own business appeared when challenging times had come. As to survive we tackled commerce. The business had started with borrowed money — $6 000. We put them up into the lease of kiosk in the market place. Last of all we returned the debt and organized own sausage production using earnings. This money was enough for room and some equipment. It was the start.
- Why did you decide to start with processing? What nudged to start own pork production?
- At first we exclusively sold imported production. Afterward we decided to set own production. The question of raw material rose automatically. So the finding of growing pigs came by itself. We understood that company’s unimpaired operation needs units as well as planted areas. Despite the slow pace we managed to bring our ideas to life.
- What are the advantages of vertical integration? To what extent this step was well-taken?
- In fact, who is successful, that is right. In Ukraine there are many companies that effectively work without vertical integration. It’s a very delicate and sensitive issue where the instance rules on. Our system has proved its value and testified that vertical integration in Ukraine can be successful. The bigger investments, the bigger sizes are. And there appear lots of questions... especially financial.
- You have diverse production — from crop production and animal breeding to own retail and logistics. How did you manage to set this mechanism? Did you need the help of experts from outside?
- Well, every branch needs specialists. In our company we do our best to ‘grow’ them single-handed. We have more and more specialists every year. We motivate staff to self-improvement and self-development; foreign consultants and European companies help us to do it.
- How can you comment the situation in the country in general and its influence on business development? What challenges are the most notable? Is there any sense to develop business in 2016?
- The recent events in the country lead to the poverty of population and cost saving. So, it brings no good to enterprisers. As for me, it’s not quite right that Ukraine develops grain export without processing it into final products. The more processing chains we have inland, so much the better is for Ukrainians. Thanks for this we can get more jobs and much profit. The main thing is export of end products but not grain. So the country has to think over it. The trouble is that it needs time as well as serious investments.
- Is it enough the meat-processing plant capacity to process all grown pigs? Do you collaborate with other contractors?
- The capacities are enough for our raw-material base. But production volumes are determined by needs of our stores. If count up in general per year, the load of our meat-processing capacities reach 80%.
We work with other contractors to buy beef and poultry.
- Some processors prepare to enter the European market where the marginality is much lower than in Ukraine, so they improve their efficiency as high as possible. Is there the same situation in processing?
- We do not ‘hunting’ after the margin, trying to earn money here and now, but we constantly put up the capital into the production improvement. For example, at the present moment, the food safety system HACCP is implemented. In the nearest future we expect to collect a certificate, despite the situation on market and destination of production — local or foreign trade. We have better situation than other processors as we can control the raw material quality.
- Have you ever expect to get such achievement — to enter the top-10 biggest pig producers of Ukraine and sold own production in 11 oblasts of the country?
- At the very beginning we could only dream about such results. But the persistence works miracles. It is impossible to stop in any work, in deed. Not at any price. As the achievement is the result of hard work, often with some problems, but usually with sole ambition to do something important.
- Do they involve money from outside to develop family business?
- How is pork production organized? What are production pyramids and how do they work in Barkom, LLC?
- What genetics is used? What criterion were the most important while choosing it? How do they do sows replacement?
- What are the technological peculiarities of the farm (feeding systems, ventilation, animal housing)?
- What is the range of output production?
- Do the tendencies of consumer shift of priorities in 2015 (they prefer meat to output production) influence the meat-processing unit of the company?
- There is an opinion that the enterprise set up the retail because of market conditions. How reasonable this position is for Barkom?
You can find answers to these and other questions in the full version of the interview in the magazine «Profitable Pig Production», № 1 (31) 2016.