Cover Story (#3 March 2018)

Moving Fast

Our country is one of the largest consumer markets in Central and Eastern Europe. It follows global trends where the driving force is ever growing internationalization. This forms a broad agenda of legal issues to address, and certainly cover, perhaps almost all areas of law. This fast moving and highly competitive sector requires an equally fast and smooth legal background on the ground. We discussed what the main challenges of FMCG in Ukraine are, and what is behind the scenes on the path to the customer, with Dmytro Govorun, commercial director of TCM Group Ukraine.

How would you comment specifics of work in the FMCG sector?

Dmytro Govorun: I would start with defining what makes the sector so specific in terms of business. Traditionally, the FMCG sector is a low-margin sector with a relatively fast turnover of goods. FMCG includes various participants that produce, distribute and deliver goods to consumers. It is quite a complex structure, which may function internationally. This structure and the network of relationships require external assistance.

Taking into account permanent internationalization, we can firmly conclude that companies need global counseling in finance, logistics, marketing and, of course, legal issues. They have to follow the law on both global and local levels. Obviously, these companies look for some external advisor even though they may have their internal legal counsel or department.

What are the core demands made of legal counsels?

D. G.: I would not reinvent the wheel by focusing on professional skills and requirements. FMCG companies are highly competent in building businesses. They also perform very well at building legal departments. Moreover, they hire one of the best in-house lawyers on the market.

So, when we talk about outside/external advisor, we keep in mind that he should have exceptional expertise in the subject. We have to know what we are doing and how it should be performed in the best interests of the client. Legal counsels have to cut the edge of new laws and regulations to best serve the needs of companies in the sector.

Good performance is also associated with the way and speed of the delivery of results. It is reached when you study your clients business environments, trends and threats. Taking all the mentioned parts together when proposing a solution to the client provides the best result. This is true for global business as well as for local business.

Of course, we remember about global experience and expertise. Our group, for example, was founded more that 30 years ago just to support international trade and provide global expertise in law and receivables collections. I believe several decades of experience in international global trade is a very good asset to use when it comes to choosing a legal counsel.

As the FMCG sector is extremely internationalized, how does globalization affect legal support?

D. G.: FMCG is about high volumes, low margins, distribution and large marketplace. All these characteristics are also multiplied for internationalization and bring us a list of challenges affecting the legal support. And it does not matter whether we are talking about manufacturers, distributors or consumers.

Can you define several issues which are typical for local companies and companies with multicountry presence?

D. G.: I will outline only several issues that should be mentioned here. We have received these requests from our clients. FMCG is very sensitive for intellectual property and rights, for example. You have to comply with all the necessary recommendations and rules in each country you operate as a producer of goods. In case you represent an international brand, you have to protect your good name in each location. Moreover, you have to control the usage of your trademark in certain region by certain distributors.

Business always deals with finances, as well as with taxation and related issues. Structuring, pricing, taxes, court hearings, disputes with local tax authorities and many other questions are under the scope of the business from the fast moving consumer goods sector.

Receivables and the speed for finances are very close to tax issues. At least you have to receive money for goods produced or sold for financing your business and paying taxes. It is reasonable to say that there should be someone who controls the process and makes it faster. Many companies have credit controllers or similar positions. These people, together with the legal department, usually make it possible to collect money faster.

So, finances, debts and IP issues are the key problems clients refer to you?

D. G.: Contract checks and contract design also number among the requested questions for assistance. In-house lawyers perform contract design very well with regard to local legal requirements. However, we cooperate with them to outline, for example, key aspects which may help to resolve disputes more efficiently if they occur. Collection of receivables and even arbitration go better. If the manufacturer decides to export, there should be an advisor who will help to draft contracts compliant with the law of the country of consumer.

If we talk about the supply chain and contracts for suppliers it may be defined as a separate group of requests. Most cases are related to credit reports on companies and legal opinions on local law.

To sum up, legal advisors also handle the role of business consultants. They may bring substantial help to the client with the help of global network of colleagues.
So, having an outside consultant with international expertise and a network seems like a good idea for those who would like to move as fast and efficient as their goods.

How does it vary geographically? What are the global challenges?

D. G.: We have been working on clients requests worldwide and I have to say that variability is only present in geography. Requests and challenges are almost the same worldwide.

What can be named as a typical Ukrainian issue?

D. G.: Ukraine, of course, has its own specific features. However, several issues that we handle for our clients can be outlined too. The most recent contract violation is payment deadlines. In most cases lawyers help the credit/financial controller to control the deadlines and payments as they were stated in the contract. We help parties to fulfill their obligations. Of course, delays in payments also depend on the outside economic environment. However, a substantial part of fails belongs to intentional avoidance by business partners.

Lawyers help clients to check and normalize the relationships with business partners/vendors. Our international experience is used to maximize the speed of dispute resolution for the players on the market. We have to move fast, you know. We work with companies in a fast moving sector.

The crisis and recent currency depreciation evolved in numerous delays in payments and debts. What is the role of the internal credit controller and what could be outsourced to external counsels?

D. G.: I expect that the best explanation of the role of internal controller should be given by HR department of the company. To my mind, credit controllers are those who move cash flow faster. Just imagine the number of responsibilities covered by them. It is a huge part of the business process. Of course, a financial controller cant follow the whole process, especially when it comes to unusual situations or non-standard solutions. That is the place where external help is required. Choosing an external counsel may be an option.

An outside advisor may boost the processes using previous experience received in other cases. Concentration on one practice helps to find fast, relatively cheap and effective solutions for companies. To have a law firm as the third party in negotiations, for example, is a great chance to resolve business issues.

Please share your recent experience as to how this may work in practice.

D. G.: I would not tell you details as we are under a NDA with the client. However, it is exactly a case from well-known FMCG manufacturers. Due to some financial issues with the distributor in the eastern part of Ukraine this company decided to use an external counsel to handle the case.
The client was advised by the team of lawyers-negotiators who successfully resolved the situation and defended the creditors interests.

The situation is typical for FMCG in Ukraine from the first point of view. Delivered goods were not paid for. The debtor pointed to poor financial performance and asked for a huge discount and played his own game. Having done many rounds of negotiations before for other clients, our lawyers prepared a full portfolio on the debtor company. They investigated all the necessary commercial invoices, established facts of delivery and acceptance of goods. Having all the above-mentioned information, the lawyers prepared a negotiating strategy. One thing should be noted here. It was discovered that the debtor company successfully managed its business and a substantial part of the information provided to the client was not true. It was only tactics to avoid responsibility. Debtors use such tactics to obtain, lets say, an indirect trade credit from the manufacturer. And this happens not only in Ukraine.

At the next step there was contact with the debtors representatives and attempts to establish dialogue between the parties. This was done successfully. However, the debtor didnt have any intention to cooperate and avoided responsibility to pay for goods every time. Only with the help of arguments and the professional skills of lawyers, combined with a designed strategy, was a solution found.

Finally, the debtor agreed to proposed conditions on the debt settlement and the schedule was followed. So, the manufacturer received costs and the debtor received the chance to continue business. Further transactions were made under the external legal counsels control. Meanwhile, the clients controller had enough time to spend it on other issues. Similar stories occurred for other companies from FMCG in our practice. We have to handle negotiations in some cases and have to merely remind a business partner to follow obligations in other cases. The range of tasks may be as wide as the variety of produced consumer goods.

You have mentioned that the entire team worked on the project. What is the role of the team, information and business processes in successful dispute resolution?

D. G.: Successful negotiations and a resolved dispute are the result of smooth teamwork. It is the combination of people, business processes and information. We believe in our team. Our lawyers carry out negotiations. They are well-qualified and open-minded professionals. They are continually improving own skills. I can proudly state that our team is our asset. And we always invest in our asset.

As lawyers we work with huge information flows. We have to search, analyze, accept, make a hypothesis, test it and reach a result. Information plays also a key role in negotiations. I remember a case when deep informational analysis helped us find a debtors associated companies, which were formally independent. It was the core point in negotiations and with the help of the information provided to us from our offices in Greece and Cyprus we were able to press on the debtor in negotiations. And you know, it brought a good result. Our client received all necessary costs for shipped goods. That is how it works with information.

It is also important to have well designed and performed business processes. FMCG works in a highly competitive sector. You cant be ineffective. You will lose your margin and drop out of the market. So, business processes are important, so are permanent improvements. We have to follow our clients and to conduct business processes, which lead to high-level services worldwide.

We know that TCMGroupUkraine has refreshed its corporate style and logo. What was the purpose of this? How does it affect business?

D. G.: Yes, as our business partners and clients may see, we started this year with minor changes in our corporate style. I would not say that the change of logo and style will influence the business. Id rather say that it is a result of permanent transformation. We operate in a very active environment. Our company has to be flexible and respond to challenges on legal market as well as on the markets of our clients. This led us to understand that we will improve our expertise in the core business area and invest our time and efforts in mentoring other projects.

Are these projects related to FMCG?

D. G.: At the moment, we continue to develop several projects titled NOTARIUM and ADVOQ. We believe they should substantially improve the level or transparency and availability notary and legal services in Ukraine. I expect that even companies from FMCG may use the above-mentioned platforms to find an attorney who suits their requirements the most.

Do you expect to develop new projects further?

D. G.: We have several more upcoming projects this year and they will be announced later. You have asked the right question and we will think over the ideas for FMCG that we can develop. If somebody already has suggestions, they are welcome to share them with us and we will be pleased to discuss them. Were growing, and it is obvious that our logo and style should also change. Thats how the concept of the new corporate style appeared. The logo outlines all projects depicted by each color. All these projects are united under the TCM Group Ukraine brand. Im sure we will be very glad to add several new colors to our corporate style in the near future.

TCM Group Ukraine Key facts

  • Year of establishment:
  • 2014

  • Number of lawyers/partners:
  • 17/3

  • Core practice areas
  • Alternate dispute resolution and debt collection; International commercial arbitration and litigation; Recognition and enforcement of judgments and arbitral awards; Commercial bankruptcy proceedings in foreign jurisdictions; Criminal investigation of international frauds and white collar crimes; IT Law and Tax Planning

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