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RussiaBusinessandEconomicOutlook
Aneasy-to-useoverview
byDrDanielThorniley
29May2016
Introduc:on.What’sthisfor?
• Thissetofslidesisaimedtoprovideyouwithaneasy-to-useoverviewofthekeybusinessandeconomicdriversintheRussianeconomytoday.
• Regularreadersofmyreportswillbeusedtoseveraloftheargumentsandnumbersasthesematerialsstemfromtheregularreportsyoureceiveandifyourequiremorein-depthanalysis,thenpleasedoreverttoexisFngandfuturereports
• However,theseslidespresentaone-stop-shopoverview• Theyarenice-to-haveforexperiencedexecuFvesoperaFnginRussiabutcouldproveeven
veryhelpfulforyourcolleaguesinRussiaandespeciallyforcolleaguesworkingoutsidethemarket
• TheyarealsointendedasaneasybutdetailedintroducFonintothemarketforyourinternaFonalmanagement
• YouwillnotethatIcovertheeconomicoutlookandthenbusinesssectorsandthenreviewsomekeydriversandbestpracFceissues
• Ihopetheywillproveusefulandifyouhaveanyfeedback,justletmeknowDrDanielThorniley,29May2016
Execu:vesummary(1)
• Manycompaniesare“doingok,surviving,doingbeLerthansurviving,makingmoneyorbeaFngexpectaFons”intheRussianmarkettoday
• BusinessinRussiaistoughandchallengingbutitisnotaloneinthis• Mostdevelopedandemergingmarketeconomiesarealsostrugglingsuchas
Brazil,LaFnAmerica,SouthAfrica,Sub-SaharaAfrica,SaudiArabia,manyMEAmarketsandwhileChinaisabigandcriFcalmarket,ittooischangingandnotaseasyasinthepast
• ThepointisthereisnoeasyplacetoruntoifacompanythinksofdownsizinginRussia
• Companiesshouldnotbethinkingofpullingoutbutofre-assessingtheirwholeglobalbusinessfootprintincludingemergingmarketsandinthisstrategyRussiahasaplaceandroletoplay
Execu:vesummary(2)
• Ourmiddlecasescenarioisforoiltoaverage$45-58perbarrelforthenext2-3yearsandthisistheconsensus
• OnthatbasistheRussianeconomywillgrowatabout2%annuallyinthenext3-5years
• Onthisbasisandpresumingamorestableoilpriceatthelevelsquotedabove,thentheroublewillachievesomerelaFvestability
• Inspring2016wehaveseenamorestableandhigheroilpriceandthustheroublehasstabilisedatabout74-77totheEuroand65-68tothedollar
• ThecurrentstabilityhasmadesomeexecuFvesstatethat“springhasarrivedinRussia”becausetheweatherisbeLerandsoistheoilprice,theroubleandbusinesstrends
Execu:vesummary(3)
• Tosummarise:ifthecentralscenariooutlinedhereoccurs,thismeansthatwesterncompanieswillbeabletoachieve1. Moderate/goodroublesalesgrowthof5-14%2. ThiswillbeinamoresteadyroubleandentailthatFXsalesarealsoinrange
of5-10%3. CompaniesaremanagingandwillmanagecostsandsoprofitabilityinRussia
isnotbad4. TheROIinRussiaissFllgood5. RussiaisandwillremainavolumemarketandMARKETSHAREwillremaina
criFcalfactor• These5factorsmakeRussiaapotenFallydecent,reasonableandgoodmarket
locatedinEuropewhenmanyothermarketswillbestrugglingrelaFvely• WeunderlinethatthisisNOTareturntotheglorydaysofbusinessin2001-to
2008and2010-2012whensaleswereboomingandprofitswerefabulousandROIwasexcellent
Execu:vesummary(4)
• TheRussianmarketandyourbusinesshasgonethrough3-5“NewNormals”:theoilprice,theroublefreefloat,slumpininvestments,lossofconfidence,westerneconomicsancFons,deterioraFngpoliFcalrelaFonswiththeWest,asqueezeoninternaFonalfinances
• WefeelthatourMiddleScenariooutlinedabovehasalargepercentagechancethatthiscantakeplace(70%+)
• However,wedonotgivemuchhopetotheBestCasebecausewedonotthinkthatoilwillreachsustainablyalevelof$65-80becauseIranianflowsandtheconstantbalancingeffectofUSshalesuppliesoughttopreventtheoilpricefromsoaring.Oilwellover$70wouldentailRussianGDPhummingalongat3.0+withstrongerconfidenceandbeLerindustrialandinvestmentnumbers.Wegivethebestcaseonlya10%likelihood
Execu:vesummary(5)
• Theworstcaseisthatoilsuppliesprovestrongerandthattheoilpricestabilisesat$20-35abarrelwhichwouldmeanthatwithonlyslowstructuraleconomicreforms,theRussianeconomywouldbestuckatflatGDPgrowthandinfactinasteadystreamofnegaFvenumbersfluctuaFngat-1.0%to-2.5%.ThiswouldentailmostconsumpFonandindustrialnumbersstuckatsub-par,negaFvelevels.ButwebelievethattherewillbesluggishglobalGDPgrowthandthatoilsupplieswillbemorestrainedthanexpectedandthusthisNegaFveCaseisjusta20%possibility.
• BUTtheoilpriceisakey,criFcaldefiningfactorfortheRussianeconomyunFlthegovernmenteventuallyandslowlystartstoreformtheeconomy.
Theoilpriceistheroublevalue
Russiaasaprioritymarket
Thischarthasalsoremainedthesameforthelast3-5years.DespiteallthepoliFcal,financial,commercial,currencyturmoil,RussiaremainstheNo.1prioritymarketforthehugemajorityofcompaniesacrossthewholeCEEregionandalsotheMEAregion.NoothermarketcombinesthelocalcurrencygrowthandthevolumeofbusinessthatRussiadoes.
Businesssectors(1)
GloballyandinRussiawecandefinebusinesstrendsbysectorsasfollows:1. PharmaceuFcalsisthebestsectoralthoughgovernmentspendingisunderstrain
inmanymarkets.MedicalequipmentsalesareunderpressureinRussiabutsomepartsaredoingrelaFvelyok.Roublesalesgrowthformanycompaniesin2015-16increasedby5-14%butlessforsomemedicalproducts
2. Consumerproductsaregreatlymixedwithsomegoodandbadtrendsglobally:downtrading,ownlabel,e-commerce.InRussiageneralconsumerproductsandFMCGhavesurvivedwellbutnotatglorydaysofthepastandRussianconsumersarealsodemandingvalueformoneybutmanycompaniesarealsogrowingroublesalesat5-15%.Somesub-sectorsoffoodandbeveragesarepreformingabitlesswellthanthis.
Businesssectors(2)
3. BUTitistheB2BsectorwhichgloballyandinRussiaisundermostbusinesspressure:theRussianB2Bmarketfacesglobalchallengesbutalsospecificones:
– Weakinvestment,decliningtradewhichmeanslessinvestmentandlessindustrialoutput,fallingconfidence,highinterestratesinRussia,lessinternaFonalfinance,westernsancFons.
– AllthesecombinedmakeforastressedB2Benvironmentandthissectoralso
includestwooftheweakestlinksinRussianbusiness:theautomoFvesectorandITsalestothefederalgovernment.Boththesesub-sectorsare-25%to-50%inroublesandstrugglingbadly.RecentlyjustoneortwocompanieshavetalkedofaminiimprovementinautomoFveandsomechinksinsomesub-supplies.ButthisisperhapsonlytheveryFnybeginningofaslowrecovery.
Businesssectors:consumerproducts(3)
• Remarkably53%ofcompaniesinthissectorforecastdouble-digitroublesalesgrowthin2016,anumberquitesimilartothatfor2015
• Thisshrinksto15%inFXtermswhile21%offirmspredictsingle-digitFXincreasesthisyear• GenerallyfoodandbeveragesareperformingslowerthanFMCGsanddurables• Aswenoteelsewhere:companiesareposiFvelysurprisedbythepersistentresilienceofthe
Russianconsumer• AsoneMDnotes:“Idon’tknowhowtheRussianconsumersmanage;theyaregreat!”• Butmostofthebusinessgrowthcomesfrompriceincreaseswhilevolumesandcategories
arelessstrong:in2015consumerproductcompaniesraisedpricesbyanaverageof15-23%withsomefoodandtobaccocompaniesincreasingpricesby25-35%
• Priceincreasesin2016willdependontheroublefluctuaFonsandthecurrentstabilitysuggestthatpriceincreaseswillbesoperthanlastyear,alsotakingintoaccountlowerinflaFonin2016
• WhiletheconsumerisresilientandwhilebrandscansFllsellwellinRussia,theRussianconsumerhaschanged,likehis/herglobalcounterpart:RussianconsumerswantVALUEandarewillingtodowntradeandpurchasebrandslessfrequently
Businesssectors:consumerproducts(4)
• OneMDreportshowhisdrinkscompanyisintroducingsub-premiumbrandwhichkeepsvolumesupbutofcoursetakesprofitperunitdown
• AnotherMDwasveryastutewhenshesaid:“Oneofthethingswetrytodoisto“stretchtheexisFngbrands”andtoseewhatwecandowithpricingandsizes”
• CPcompaniesareresearchingtheircustomersmuchmoreand“slicinganddicing”consumersegments
• Premiumhasheldupbutwitnesseddowntrading;discountandcheapsegmentshavedonewell;whilethemid-priceandmid-brandprovethemostcomplexandtroublesome
• Westernplayersdoarguethattheirown“mid-brands”cancompetewellandthatsomemid-rangeFMCGproductsareholdingupagainstretailownlabel
• “Good-enough-to-have”compeFFonisarealchallengeandlocalchampionshavenotgoneaway;newcomersareinfiltraFngthemarketandinsomecasesChinesefirms
• Allcompaniesarere-assessingtheirregionalandCISpolicy• ButoneMDstatesthat:“Russiaismoreamarketofchannelsthangeographicregions.We
break-downthecountryintoroutetomarket.”• RussianretailisgerngmoreaggressiveasmoderntakesovermorequicklyfromtradiFonal
outlets
Businesssectors:pharmaceu:cals&health(5)
• PharmaceuFcals(dependingonsub-sectors)isholdingupwhilemedicalequipmentisunderstrongerdownwardpressureasthefederalauthoriFescutbudgetsbyatleast10%andlookmoreto“local”providers
• Acrossthesector30%forecastgooddoubledigitroublesalesgrowthin2016asin2015• Andasolid55%offirmsexpectsingle-digitsalesincreasesthisyear• Butthrough2015,mostcompanieshadtodowngradetheirforecasts• OverallreimbursedpharmaceuFcalsisfacingthemostpressurewhilesellingtomunicipal
authoriFesandhospitalsisharderaswellbutbusinessdoesconFnue• SalestothesmallbutgrowingprivatehealthsectoraregoodbutasoneMDnotedlastweek:
“OursalestotheprivatesectorareverystrongbutnotyetsufficienttocompensateenFrelyforlostbusinesswithcentralandregionalauthoriFes”
• TherelaFvelybestsectorisOTC/retailsalesandheretoocompaniesbenefitfromtheresilienceoftheRussianconsumer
• ExecuFvesinthissectorknowwellthat65-70%+ofpharmaceuFcalandmedicalproceduresarepaid“our-of-pocket”.
Businesssectors:pharmaceu:cals&health(6)
• TheMDofamajoruniversalpharmaceuFcalcompanyhasnoted:“ThefurtherawayIgetfromthegovernment,themoremoneyImake”
• AnothernotesthathefeelsliketheMDofanFMCGcompanybecause“alloureffortsareontheretailsector:markeFng,adverFsing,consumerbehaviour”.
• OneregionalCEOcommentedthat:“5yearsagowepredicatedourbusinessmodelonthe2020healthprogram.WewouldinvestandmakelotsofprofitablesalestotheRussiangovernment.Thatwastheplanbutnottoday’srealitynorthefuture”
• Companiesinthissectorhavetoalsodiversifyandlocaliseiftheycan• Many/mostcompaniesinthissectorhavelocalisedtosomeoralargeextentin2014-2015
butsFllsome20%plantofurtherlocalisein2016• ThisiscriFcalinthissectorbecausethegovernmentispressingforeignfirmstodosoifthey
wantaccesstomarketandtenders• ButexecuFvessFllremainuncertainaboutthedetailsoftenderprocessesandwhatthefinal
definiFonof“localisaFon”willbe.LegislaFon,notforthefirstFme,ismurky• Medicalequipmentreportedgreatsalesandprofitsin2012-13buthavefacedtwosFffer
years.ButconvergencewillhelpasEuropeanpercapitahealthspendingis4-5FmesthatinRussiawhileUSlevelsare10Fmeshigher
Businesssectors:B2B(7)
• Ourtablesbelowforsectors(seeslide17)showthatonly3%ofB2Bcompaniespredictdouble-digitroublesalesin2016whilefully62%forecastsingledigitsand28%willbeflat
• ItshouldbenotedthatthesenumbersarenoFceablybeLerthan2015when29%sawnegaFveroublesaleswhichisnotthefeaturefor2016
• TheB2BsectorhasbeenposiFvelyaffectedbythecurrentposiFvetrends:strongeroil,roublestabilisaFon,beLertrendsinindustryandrealwages(aperinflaFon)haveturnedposiFveagainthankstoinflaFoncomingdown.
• ItisreasonabletoassessfortheB2Bsectorthat2016willbearecovery-modeyearandthat2017oughttoseea3-5yearmorestableandmoderatelyimprovingbusinessenvironment.
• ButtherecoveryinB2BistheslowestandtheweakestbutsFllarecovery.
Businesssectors(8)
• Weopenstatethat60%ofRussia’sbusinessproblemsrelatetooiland40%tosancFons.BUTthisignoresthefactthattheeconomicrecessioninRussiastartedinJanuary2013,fully15monthsbeforetheCrimeacrisis.
• Andthedownturnstartedininvestmentandindustrywhichfor36-38monthsreportednegaFvefigures.WenotethatthereissomethingwrongatthecoreoftheRussianeconomywhichwillrequirerealstructuralreformsinlegislaFon,taxaFonandfighFngcorrupFon.
• WedonotanFcipatemajorposiFveshipsquicklybuttheenvironmentwillremainoneinwhichwesterncompaniescanachievereasonableresultsinacompliantfashion.
Organicsalesgrowthinroublesbysector2015and2016
Allcompanies Consumerproducts Pharma/health B2B/industrial
2015 2016 2015 2016 2015 2016 2015 201620%+ 13 12 19 28 9 4 0 010%+ 21 27 30 25 21 26 6 35-10% 22 36 19 21 29 48 28 361-5% 17 11 20 7 26 13 11 31Flat/zero 10 10 3 4 6 8 28 28Minus1-10% 8 6 3 0 3 0 12 4Minus10%+ 8 2 6 7 6 0 17 0
FXsalesoutlook2016bysectors
2016
Consumerproducts
Pharma/Health B2B/Industrials
10%+ 15 0 0
5-10% 7 12 11
1-5% 14 25 22
Flat/zero 18 21 33
Minus1-10% 21 24 22
Minus10%+ 7 21 11
Theeconomicoutlook2009to2020
2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020GDP -7,9 4,3 4,3 3,4 1,3 0.6 -3,7 -1,3 1,3 1,8 1,9 2,0Retailsales -5,5 6,3 7,2 5,7 3,9 2,5 -10,0 -0,5 2,0 2,3 2,4 2,4Householdspending -7,6 5,5 6,8 7,9 4,7 1,8 -10,1 -2,6 1,5 2,2 2,5 2,5Realwages -2,8 4,4 4,9 8,2 5,2 1,9 -9,5 -1.7 1,7 2,6 3,0 3,02Disposableincome 1,0 3,7 2,8 3,7 3,3 2,1 -4,0 -1,0 1,7 2,2 2,4 2,5InflaFon(year-end) 8,8 8,7 6,1 6,6 6,5 11,4 12,9 7,5 6,4 6,3 6,1 6,0Unemploymentrateaverage 7,9 7,6 6,5 5,3 5,5 5,3 5,4 5,6 5,5 5,4 5,4 5,3Grossfixedinvestment -17,9 5,6 9,8 6,0 -0,3 -4,8 -7.6 -3,2 2,5 3,3 3,5 4,0Industrialoutput -10,8 8,3 4,7 2,6 0,3 1,1 -3,4 -0,5 1,7 2,3 3,0 3,1FXreserves($bn)year-end 447 485 510 528 509 385 365 385 395 410 415 435Rouble/$(year-end) 30,3 30,4 32,1 30,4 32,9 58,0 73,0 68,0 71,0 74,0 77,0 81,0Rouble/Euro(year-end) 43,4 40,0 41,5 40,1 45,1 72,0 78,0 77,0 78,0 80,0 82,0 85,0Budgetbalance(%ofGDP) -6,3 -3,5 -0,2 0,0 -0,5 -0,5 -2,8 -3,7 -2,7 -1,7 -1,3 -0,7Current-accountbalance(%ofGDP) 3,8 4,9 4,9 3,6 1,6 2,7 4,8 4,3 3,5 2,8 1,5 1,3
Economicscenariosandtheroublefor2016atdifferentoilprices
Averageoilprice2016 GDP Infla:on
average Rouble/US$ Rouble/EURAverage
$80-85 3.2% 5.8% 45-52 52-58$70-80 2.4% 6.0% 52-57 58-64$60-70 2.2% 6.4% 57-60 64-66$55-60 1.8% 6.6% 60-63 66-69$50-55 1.3% 7.0% 61-66 69-72$45-50 0.3% 7.7% 62-68 72-75$35-45 -1.3% 8.2% 63-69 74-78$25-35 -2.5% 11.5% 80-84 86-92
Centralscenario-2016economicoutlook(oilaverages$40-47)
GDP -1,3%InflaFon(year-end) 7.5%InflaFon(average) 8.2%Consumerspending -2.2%Investment -3.2%Industrialoutput -0.5%RoubletoUSdollaraverage 63-69RoubletotheEuroaverage 73-78
Spring:meintheRussianeconomy?
• SeveralfactorsappearbeLerfornow:– Theoilpriceisover$45perbarrel(andwedidpredict$28-35wastoolow).– Theroubleisbobblingat74-76totheEuro(closetolevelsrecordedin
FebruaryandSeptember2015).– InflaFonisdownto7.3%inMarchandApril.– RealwagesthereforehaveimprovedtoslightlyposiFveterritorythisspring.– Thekeyinterestrateat11.0%willprobablybecutattheBank’snextmeeFng
to10.5%andweforecastfurthercutsbringingtherateto9.25%to9.0%bytheendof2016orfirstquarter2017.
• IFtheroublestabilisesatcurrentlevelsandifthebaseeffectsturnoutstrongerthanexpected,theninflaFonin2016willaverage8.0%andfinishinDecember2016atabout7.5%.WethenseeinflaFonaveraging7.0%in2017andendingthatyearat6.4%.
• InterestrateswillfollowinflaFondownwardsandend2016atabout9.25%orat9.0%aroundtheturnoftheyear2016-17.
TheBig-5factorsinfluencingtheRussianeconomy(1)
1. Theoilprice
Wedoconfirmourlong-standingassumpFonthatwithoilatabout$45-55overthenext18monthsandthatanyupsideriskstemsfromlesssupplythanisgenerallyanFcipated.Theconsensusviewforthenext1-2yearsisactuallystrongerthanthisat55-60+andCiFanFcipate$70perbarrelatend-2017.OfcourseanyofthesehighernumberswouldonlybenefittheRussianeconomy(seescenariosbelow).Butmedium-termwefeelthatanewinflowofIranianoilsuppliesandtheabilityofUSshaleproducerstopopbackintothemarketwhenpricesrisewillactasarestrainingfactorontheoilpricemedium-term.Therefore:$45-58possibleoverthenext12-18monthsandeven$55-62overthenext3yearsbutanyhighernumbersustainablydoesnotlookvalid
TheBig-5factorsinfluencingtheRussianeconomy(2)
2. Therouble
Therouble’sfutureisinextricablylinkedtotheoilpriceandthetwonumbersaremovingintandemmorecloselythanatanyFmeinthelast10years.
Theoilpriceistheroublevalue.RussianciFzenssFllhavesomefaithintheroubleand67%claimtopreferholdingroublesavingsratherthanFXones.
TheBig-5factorsinfluencingtheRussianeconomy(3)
3. EasternUkraineTheimportant,cynical,facthereis‘thepercepFon”ofwhatishappening.TheofficialwesternviewisthathosFliFesarecalmerthantheywereandasanFcipated,thishasbecomeafrozenconflict.
4. Westernsanc:onsAnydiminishingofUSsancFonslooksextremelyunlikelyinthenext1-3years.ThenewUSPresident(whoevershemaybeJ*),willnotfighttheUSCongress,whichwillcertainlyberepublican,overreducingsancFonswithRussia.ThereisasmallandslightlygrowingchancethatEuropeansancFonscouldbemodifiedratherthaneliminatedoverthenext18months.GermanandUSinfluencetendtoensurethatEuropeansancFonsarekeptinplace.Butanychangeinthe“moodmusic”onsancFonscouldhavequickposiFveeffectspushingtheroubleup+5%justonrumoursorraisingtheroublevalueby8-15%ifEuropeansancFonswererescinded.
TheBig-5factorsinfluencingtheRussianeconomy(4)
5. ChinaandtheUSA
RussiaisdependentonChinesegrowth:ifChineseGDPdipsdown,thenglobalmarketstumbleandtheoilpricecollapsestakingtheroublewithit.TheUSinfluenceflowsthroughinterestratepolicy:whentheFederalReserveplansseveralinterestratehikes,thenallemergingmarketsandtheroublecomeunderdownwardpressure.SomeoftherelaFvecurrencystabilitytodaystemsfromthefactthattheUSFederalReserveseemstobeinaholdingpaLernonraisingrates:in2016wenowonlyanFcipate1-2increasesinsteadofatotalof3-4.
Thesitua:oninindustryinRussia(1)
• InFebruary-March2016industrialoutputyear-on-yearwasclosetozerowhichisoneofthebestfiguresin2-3years!
• BusinessconfidenceimprovedagaininAprilto-4from-7inJanuary.Thisnumberisveryseasonal(alwaysweakatturnoftheyear)butthenumbersdoindicateastrongposiFveseasonaltrend,whichisbeingmaintainedsofarintospring.
• Industrialoutputishelpedinpartby1. importsubsFtuFon,2. defencespendingand3. tradeandinvestmentwithChinaandAsia.ButwehaveunderscoredthatnoneofthesefactorsoffersanygoldensoluFontoRussianindustryandGDP.
• ThePMIindicatorimprovedto49.8inJanuary(andafigureof50.0suggestsgrowth)butthensankinMarchto48.3andtoalowof48.0inApril.
Thesitua:oninindustryinRussia(2)
• CarregistraFonswereupby125,000inMarchcomparedwith82,000inatradiFonallypoorJanuary.Butthenumbersreflectonlyasluggishseasonalimprovement,whichsuggeststhattheautomoFveindustrysFllhasmanymonthsofstruggleahead.
• WesFckfornowwithourannual2016industrialgrowthfigureof-0.5%withsomesmallupside.
• Butbeforewegettoocarriedaway,investmentnumbersaresFllbad.Grossfixedinvestmentwasdownby-7.6%in2015andwerevisedownwardsouresFmateforthisyearto-3.2%.Thisisbasedonanotherweakfigureof-8.4%inbothFebruaryandMarchandclosetotheJanuaryfigure.SancFons,finances,interestrates,foreigninvestmenttrendsandweakconfidenceinthemedium-termareallholdingbacktheinvestmentnumbers.
Keyissuesinbusiness:bestcorporateprac:ce(1)
1. Marketshareiskey:ourwordsofadviceandcommentsonBestPracFcewhichfollowallrelatetoretainingorachievingsustainablemarketshare.
2. Short-termfinancialplanningissFllverytough.OneFMCGmanagingdoctoradvises:“Makeaplan,have2-3scenariosandsFckwithit”.
3. ThelargemajorityofexecuFvesaresuretheywillmaketheirroublebudgetsthisyearandeven75%thinktheywillgetclosetomakingtheirFXbudgetthisyear
4. Wheneverthe2017budgetcyclestarts,makesurenottogetcaughtintheinfamousbudgettrapofsernghightargetsintheautumnonlytoseeexternalfactorsworsenlater.
5. LocalisaFon:westerncompaniesrealisethattogetdeeperintothelocalmarketsandtoaccesslocaltenders,theyneedtobemorelocalisedandthisisanon-goingtrend.AsoneexecuFveputitbluntly:“Localiseordie”.OtherexecuFveshavearguedthatlocalisaFonhasmadeallthedifferencetotheir2015results(seebelow).
Keyissuesinbusiness:bestcorporateprac:ce(2)
6. MorecompaniesareconsideringRussiaasanexportmarket.Inthepasteveryonewantedtogetintothebig,boomingdomesFcmarketbutFmeshavechanged.It’s“nicetohave”abitofexportstoboostoverallbusiness.
7. Sourcing:ascompanieschoosetolocalise,thenmoresourcingcanpotenFallybedoneinRussia.ButmanyexecuFvessFllcomplainaboutthelackoflocally-producedqualityinputs.ButgiventheneedtopurchasecheapterinputsandalsotocreategoodrelaFonswiththeRussianauthoriFes,morecompaniesareswitchingorreducingtheirsourcingfromregularEUorUSsuppliersandbuyingmorefromAsianones(orRussianswherepossible).
8. DiversificaFon:beingadiversifiedconglomerateisprovinggoodforsomefirmsasthisspreadstheriskandwhilesomesalestosomesectorsmayhaveslumped(automoFve,IT),theyarecompensatedbycomparaFvelystrongersaleselsewhere(consumer-related).OneUSconglomeratearguesthat:“Wegrew20%indollarslastyearthankstohavingbusinessspreadacrosstheRussianeconomy.WedosupplytotheautomoFveindustrywhichisagonybutothersectorsaredoingwellforus”.
Keyissuesinbusiness:bestcorporateprac:ce(3)
9. SeveralcompaniesreportprivatelythattheyaremakinglargeinvestmentsinlogisFcsandwarehousing;somecompanieswithlargeexisFngmarketshareswanttoprotectthoseorplantoexpandthismarketshare.
10. Remarkably25-35%ofcompaniesrespondtooursurveythattheywillbemakingnewinvestmentinRussiain2016inmanufacturing,logisFcsorwarehousing.Thisisstrikinglyhigh.
11. GenerallypharmaceuFcalsandhealtharethefavouredsectors,consumerproductsareaverage(good/mixed)andB2BistheweakestbusinesssectorwithrecentlytheITandautomoFveindustrysFckingoutasbadlystrainedsectors.
12. ThegovernmentbudgetfordiscreFonarysectorswascutbyabout10%lastyearandthiswillberepeatedin2016;sellingtotheRussiangovernmentishardwork.
13. ConsumerproductcompaniesremainhugelyimpressedattheresilienceoftheRussianconsumer.
14. Brandorvalue?ExecuFvesarehavingstrongdebatesaboutwhetherpremiumbrandswillholdupthisyearagainsttheeconomicodds.Mostappreciatethattheywillneedtowidentheirporxoliotoreachmoreconsumersegments.
Keyissuesinbusiness:bestcorporateprac:ce(4)
15. Andofcoursethebigstoryis(andhasbeenforseveralyearsgloballyandinRussia)affordableinnovaFon:adapFngyourproductporxolioandpricepointstoconsumerswhodemandmorevalue.RussiacouldbeagoodfuturemarketasitcanofferbothagoodbrandmarketandopportuniFesforaffordableinnovaFonamongthelower-workingclassandwithconsumersintheregions.Notallmarketsofferthisappealingmix.
16. GreaterconsumersegmentaFonisaglobalbusinesstrendsandonerequiredinRussia:ifacompanyhad10consumersegmentsin2012,itshouldhave25today.Companieshaveto“sliceanddicetheconsumer”muchmoreandunderstandwhatmoFvateshim/her.
17. What’shappeningwithmid-price/mid-brandproductsandservices?GloballyandinRussiathisisthetoughestnuttocrack.Manycompaniessupportthispointandsomefeeltheyhaveignoredthissectorwhilefocusingonbrandordiscount.Morecompaniesareresearchingthemid-levelofbusinesstoseeiftheyaremissingatrick.
Keyissuesinbusiness:bestcorporateprac:ce(5)
18. Relatedtothis,theRussianregionsremainimportantasapartofbusinessstrategyandhavebeensoformanyyearsnowbutcompaniesrealisetheymustdomoretocompensateforaslowingMoscow.UsuallytheregionshaverelaFvelylessdisposableincomepercapitaandsodifferentmarkeFngandpricepointshavetobeestablished.
19. VolumeorPrice?ExecuFvesalsodebateheatedlyaboutwhethertoputtheirbusinessfocusongrowingandprotecFngvolumesorpriceincreases.Generallyvolumesaregoingtobehardertoachieve.
20. Pricerises:muchbusinessgrowthin2015cameasmanycompaniesraisedpricesinarangeof10-35%.For2016companiesbudgetforfewerpricehikesthisyearbutthentheroubleslumpatthestartoftheyearmademanycompaniesre-thinktheirpricestrategywithmorepricehikesplanned.Thenagain,theroublerallyofrecentweeksmeansthatexecuFveswillneedtothinkevenonemoreFme.Companiesseethisasatrickyexercise:theywanttomonitorandmatchcompeFtorsbutalsoseektoavoiddamagingeitherthecategoriesortheirownmarketshare.
Keyissuesinbusiness:bestcorporateprac:ce(6)
21. FinancingwillremainchallengingforB2Bsaleseventhoughthecentralinterestratefellbackto11%lastyearandwillfalltoabout9.0%attheendof2016
22. Manufacturingfirmscomplainaboutrisinginputcosts.23. Somemanagingdirectorsareverywaryofcurngtoodeeply:“Wecannotfullyfix
mostoftheshort-termproblemswithouttakingstepsthatwillcertainlydamagethelong-termhealthofthebusiness”(seesecFonabove).
24. CompaniesareeithergenerallysaFsfiedwiththeircurrentdistribuFonset-up(62%ofcompanies)becausetheyfixeditoverthelast18months.Butofthosewhoarereviewingwhattodo,thereisnoclearpaLern:13%willincreasethenumberofdistributors;10%willreducethatnumberand7%plantotakeonmorethemselves.
25. Generallywesterncompaniesarenotcurngbackonstaff(54%notatallin2016;andafurther42%willconfinethemselvestocutsbelow10%oftotalstaff);companiesarekeepingaFghtreinonsalariesandpayingbelowinflaFon(65%offirmsandanother30%offeringinflaFonorjustabove).
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