EU and Russia’s Opportunities (EURO)

Team name – EUROSelected EE country – Russia Name – Roman Frayman (individual work)Country – RussiaSchool – MSB University (Switzerland)Mentor – Prof. Y. de Grandbois

Main players in Russia According to RT (2013) the top Russian

companies are (the list of companies is not complete)

Gazprom (gas producer) Gazpromneft (energy producer) Rosneft (oil producer) TNK-BP (oil producer) Lukoil (energy producer) Novatek (gas producer) Surgutneftegas (oil producer) NLMK (steel producer) MMK (steel producer) Evraz (steel producer) Severstal (steel producer) Mechel (steel producer)

Other types of successful companies: Yandex (search engine) Mail.ru (diversified internet services

company) Utkonos (e-commerce company) AnywayAnyday (online airline tickets) Vkontakte (social network) RBK (online media group) In Touch Insurance (insurance company) Kaspersky Lab (IT security vendor) VTB24 (bank) Magnit (retail) X5 Retail Group (retail) Alfa Group Consortium (investment group) TKS (bank)(Starkell, N.,2013)

1%

75%

3% 8%

3% 10%

Russian exports to the EU, 2010

Machinery and transport equipment

Mineral fuels

Crude materials

Other manufac-tured goods

Chemicals

Other goods

Russia’s competitiveness Russia is improving its investment

climate “Russian government pursues a

policy aiming at the improvement of investment climate. In the recent Doing Business rating Russia grew by sixth positions and the goal is to be in the first twenty countries by 2018” Adomanis, M (2013).

There is a low level of competition in many areas, which is a fantastic opportunity for businesses

Strengths and weaknesses of doing business in Russia will be discussed in the next three slides

As it can be seen from the pie chart (Eurostat, 2011), the EU is interested in Russia as a mineral fuels supplier. However, it is believed that the situation will change in the next ten years

Interviews and discussions All information from the next slides summarize interviews and

discussions with citizens of Russia, Poland, Latvia, Lithuania, Estonia, Belarus, Moldova, Romania and Ukraine. Most of these people are entrepreneurs, students and people who work in well-known companies. Their ages are between 20-30 years old.

The focus industries of this presentation are in the area of logistics, agriculture and entrepreneurship (see next slides)

All companies related to the financial, IT, logistics, e-commerce, investment industries, etc. will emerge. The strong get stronger and the weak weaker. The majority of « strong » companies will emerge.

However, it is important for EE citizens to accept that it is difficult to compete with Asia, WE and USA in many industries

The most wanted profession in 2022 will be related to on-line businesses.

Results of interviews and discussions

EXTERNAL ENVIRONMENT Weaknesses:

Corruption Drugs Demographical issues

(immigration) Reputation Poor recycling Poor use of alternative enegry Culture (imitation of WE’s and

USA’s worst consequences of democracy and core values)

Not attractive to tourists (low level of infrastructure and services)

Weaknesses in legislation Climate

Opportunities will be discussed in slide 6

INDUSTRY ENVIRONMENT Opportunities:

Language (almost all students study one or two foreign languages in schools and universities)

Mentality (Russians are happy to cooperate with foreigners)

Demand and supply are not met Low level of competition in many

areas Many businesses are not customer

oriented Low salaries High motivation

Weaknesses: History of relations between EE and

Russia Low level of cooperation between EE

and Russia Some business areas are dependent

on government decisions Strong foreign competitors

Author’s vision for future industries

Importance of Russia for EE

WTO

BRICS

CIS and Customs Union of Belarus, Kazakhstan, and Russia

EU (close location, common borders)

Huge markets, low competition, low taxes

Natural Resources

Government support for import/export activities

Russia is interested in import of consumer goods

Cheap labor cost (e.g. $1000 is a good salary for “office jobs”)

Emerged markets

High education level of many individuals

3 main options for development: Russia can improve the

communication between Asia and Europe (logistics)

Since the population is rising in many countries, Russia can supply food to other countries (agriculture)

Since it is difficult to compete with USA, WE and Asian countries, entrepreneurs should be promoted. Young, ambitious and patriotic entrepreneurs will be able to improve the situation in EE (entrepreneurship)

Future companies will be much smaller than today. Possibly, in future small companies won’t have an office, due to advanced on-line technologies.

First option - Logistics Low level of logistics (there are huge

opportunities for developing the industry; logistics develop other businesses) Domestic and regional logistics

Companies like DHL, UPS, FEDex are not operating as efficiently as in WE

There are problems with payment (Russians prefer cash on delivery, therefore logistics are able to develop online payments, e.g. PayPal)

Online opportunities Undiscovered markets in many regions and

cities International logistics (between Russia and

other countries) Poor efficiency Rail (a new rail system will be built between

China and EE through Russia) Poor packaging and insurance services International trade is rising

Second option - Agriculture

There is a high level of importation e.g. Russian companies purchase

potatoes from Poland and fruit from Israel

Manure storage destroys agriculture In the majority of places not recycled Purchase of foreign fertilizer Polluted ground water, air and soil

Very poor domestic agricultural yields This is a huge opportunity to

implement best agricultural technologies and practices Russia could easily export food in

future

Third option - Entrepreneurship

Entrepreneurs It is assumed that the majority of EE citizens

have realized what happened with their countries. They understand that many businesses

are managed by multinational enterprises (MNE) with the country of origin far away from EE

Entrepreneurs think better/faster than MNE’s

Each MNE was a start up in the past

Entrepreneurs take loans, they are cost efficient, they would rather outsource activities than employ more personnel

Entrepreneurs are often self educated and dynamic people

Entrepreneurs in the future

The size of future companies will be much smaller than today, due to cost efficiency, technology and software, level of education, outsourcing, etc.

It is believed that a company with 30 employees will be considered a huge company.

Higher leverage factor: entrepreneurs in the future will issue more bonds, attract more investors and partners than they do today. Additionally, IPO will be considered as a normal business process.

All companies will use modern communications (Twitter, Facebook, LinkedIn, Skype, Viber, etc.) instead of private meetings

Conclusion References RT (2013). Top Russian companies.

Available: www.rt.com. Last accessed 13 Feb 2013.

Starkell, N. (2013). 30 top Russian Internet companies according to Forbes Russia. Available: http://goaleurope.com/2012/03/08/russia-internet-eastern-europe-30-top-russian-internet-companies-according-to-forbes-russia/. Last accessed 20 Feb 2013.

Adomanis, M. (2013). A Further Clarification on Russian Capital Flight from Alexander Ivlev, Managing Partner for Ernst and Young Russia. Available: http://www.forbes.com/sites/markadomanis/2013/01/03/a-further-clarification-on-russian-capital-flight-from-alexander-ivlev-managing-partner-for-ernst-and-young-russia/ . Last accessed 21 Feb 2013

Eurostat. (2011). Russia-EU - basic statistical indicators. Available: http://epp.eurostat.ec.europa.eu/statistics_explained/index.php/Russia-EU_-_basic_statistical_indicators . Last accessed 22 Feb 2013.

Three ideas of improvement of the situation in all EE countries through cooperation with Russia have been considered. These three options – logistics, agriculture and entrepreneurship will develop all other industries and the society of each EE country.

The current situation in Russia was discussed. These ideas were based on primary research, statistics and other sources of secondary research.