In May 2024, tobacco company Philip Morris International began operations at a new $30 million production facility in Lviv region in western Ukraine. The construction of the plant is one of the largest international investments in Ukraine since the beginning of Russia’s full-scale invasion in February 2022.
Philip Morris International has been one of the largest international investors in Ukraine since the 1990s. Its Ukrainian subsidiaries have also been among the largest taxpayers in Ukraine. Prior to Russia’s full-scale invasion, the company’s operations in Ukraine were centered on a factory in the Kharkiv region of eastern Ukraine, which produced products for the domestic market as well as for export to countries including Japan.
When the scale of the Russian invasion became apparent in February 2022, it became clear that production in Kharkiv was not possible for security reasons, as the facility was too close to the front line. Soon the Philip Morris Ukraine team was discussing alternatives, including the possibility of building a new plant in another part of Ukraine. “We started looking at different options almost from the first day of the invasion,” recalls Mykhailo Polyakov, Deputy General Director of Philip Morris Ukraine.
The company had to solve a dual problem: to continue supplying the domestic market and also to maintain supplies to numerous export markets that depended on Ukrainian production. This export problem was partially solved by utilizing spare production capacities at Philip Morris facilities even in Brazil. In Ukraine itself, Philip Morris signed a production contract with an industry competitor to meet domestic demand. Meanwhile, discussions continued on a longer-term solution to build a new production facility in Ukraine.
Recalling the path from the initial concept to the construction of the new production facility, Mr. Polyakov emphasizes the support of the national, regional and local authorities of Ukraine. He also recognizes the importance of the strong support he and his team received from their colleagues at Philip Morris International. Nevertheless, it took a visit to Ukraine to convince the leadership that it made sense to invest $30 million in a country at war.
As many people living in Ukraine during the war have observed when communicating with family, friends, and colleagues abroad, external perceptions of the situation in the country can often be distorted by international coverage of the Russian invasion. Indeed, it would be easy for anyone confronted with endless media reports of death and destruction to conclude that all of Ukraine is a war zone. Mr. Polyakov believed that the best way to address these concerns was to give his colleagues the opportunity to see it for themselves. “Given the circumstances, we decided to organize a trip to Lviv for the top management,” he recalls. “They were able to get a taste of the city’s daily life and soon realized that people are not all hiding in basements.”
Of course, security considerations played an important role in choosing the location for the new plant. At the outset of the process, it was decided to rule out anything on the left bank of the Dnipro River, with most of the potential sites under consideration located in the Lviv region. 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 location.
Plans to launch a new production facility in Lviv region received the green light from Philip Morris International in May 2023, and construction was completed almost exactly one year later. The plant was officially launched with one production line in May 2024, and is expected to operate at full capacity with five lines by the end of the year.
The new facility is staffed primarily by Philip Morris Ukraine employees from Kharkiv, who were supported by the company to relocate across the country. This has even extended to bringing in a company canteen chef from the Kharkiv region to prepare meals and add an extra touch of familiarity. “Our Kharkiv colleagues have settled in well in Lviv, but many of them remain convinced that their borsch is the best,” jokes Mr. Polyakov.
The new Lviv plant will focus exclusively on production for the domestic Ukrainian market. As soon as the security situation permits, Philip Morris Ukraine is planning to reopen the Kharkiv plant. This could lead to the revival of previous export operations on an even larger scale. While it is impossible to predict how events in Ukraine will unfold, Mr. Polyakov says the company’s future trajectory is clear. “We have a long history in Ukraine, and we are still committed to it,” he says. “We have no plans to stop and are only looking at expansion.”
By investing $30 million in a new production facility, Philip Morris International has sent a strong signal that wartime Ukraine remains an important market and place to do business. Mr. Polyakov hopes others will take note and follow suit. “We are not waiting for the war to end. We are investing right now and we 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 investment, now is the time to actually invest in Ukraine.”