Tobacco industry company Philip Morris International launched operations at a new $30 million production facility in western Ukraine’s Lviv region in May 2024. The construction of the plant represents one of the largest international investments in Ukraine since the onset of Russia’s full-scale invasion in February 2022.

Philip Morris International has been one of Ukraine’s biggest international investors since the 1990s. Its Ukrainian affiliates have been among the largest taxpayers in Ukraine as well. Prior to Russia’s full-scale invasion, the company’s operations in Ukraine had focused on a plant in eastern Ukraine’s Kharkiv region that produced for the domestic market and also for export to countries including Japan.

As the scale of Russia’s invasion became clear in February 2022, it was apparent that production in Kharkiv was not feasible for security reasons as the facility was too close to the front lines. The Philip Morris Ukraine team were soon discussing alternatives, including the possibility of building a new plant elsewhere in Ukraine. “We began considering different options from virtually the very first day of the invasion,” recalls Philip Morris Ukraine Deputy General Director Mykhailo Poliakov.

The company had to address the twin challenges of continuing to supply the domestic market while also maintaining deliveries to numerous export markets that depended on Ukrainian production. This export issue was partially resolved by utilizing spare production capacity at Philip Morris facilities as far afield as Brazil. In Ukraine itself, Philip Morris concluded a manufacturing contract with an industry competitor to meet domestic demand. Meanwhile, discussions continued over the more long-term solution of constructing a new production facility in Ukraine.

As he recalls the journey from initial concept to construction of the new production facility, Mr. Poliakov emphasizes the supportive stance of the national, regional, and local Ukrainian authorities. He also acknowledges the importance of the strong backing he and his team have received from their colleagues at Philip Morris International. Nevertheless, it would take a visit to Ukraine in order to convince management that it made sense to invest $30 million in a country at war.

As many people based in wartime Ukraine have observed from their own interactions with family, friends, and colleagues abroad, outside perceptions of the situation in the country can often be distorted by international coverage of Russia’s invasion. Indeed, it would be easy for anyone exposed to endless media reports of death and destruction to conclude that the whole of Ukraine is a combat zone. Mr. Poliakov felt the best way to address these concerns was by letting colleagues see for themselves. “Taking into account the circumstances, we decided to organize a trip to Lviv for senior executives,” he recalls. “They were able to sample the everyday life of the city and soon realized that people are not all hiding in basements.”

Inevitably, security considerations played an important role in the choice of location for the new plant. At the initial stage of the process, a decision was taken to rule out anything on the left bank of the Dnipro River, with most of the potential sites under consideration situated in the Lviv region. The Philip Morris security team also conducted a detailed assessment, analyzing factors such as proximity to military infrastructure and other potential targets before confirming the current site.

Plans to launch a new production facility in the Lviv region received the green light from Philip Morris International in May 2023, with construction completed almost exactly one year later. The plant was officially launched with a single production line in May 2024 and is expected to be operating at full capacity with five lines by the end of the year.

The new facility is largely staffed by Philip Morris Ukraine employees from Kharkiv, who have been provided with support by the company to help relocate across the country. This has even extended to bringing the in-house canteen chef from the company’s Kharkiv region facility to prepare meals and provide an added touch of familiarity. “Our colleagues from Kharkiv have settled well in Lviv, but many of them remain convinced that their borshch is best,” jokes Mr. Poliakov.

The new Lviv region plant will focus exclusively on production for the domestic Ukrainian market. Once the security situation permits, Philip Morris Ukraine officials envisage the potential reopening of the Kharkiv facility. This could lead to a revival of earlier export operations on an even larger scale. While it is not currently possible to predict how events in Ukraine will unfold, Mr. Poliakov says the company’s future trajectory is clear. “We have a long history in Ukraine and are as committed as ever,” he states. “We have no plans to stop and are only considering expansion.”

By investing $30 million in a new production facility, Philip Morris International has sent out a powerful signal that wartime Ukraine remains an important market and a place to do business. Mr. Poliakov hopes others will take note and follow suit. “We are not waiting for the end of the war. We are investing right now and are already seeing a positive impact on our business,” he says. “The message to the international business community is clear: instead of making statements about investments, now is the time to actually invest in Ukraine.”

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