Russia will be our biggest market in Europe in ten years.
Peter Brabeck, CEO of Nestle, speaking in November 2002
We invested a couple of million in Russia a few years ago. It was the best business decision of my life.
Regional manager, American pharmaceuticals company
For the last two years, Russia has posted the best sales growth in the world.
Regional vice-president of one of the world's largest IT companies
China and Russia are our key growth markets in the world for the next five years.
Regional manager of one of the world's largest soft drinks companies
One of the major themes about emerging markets is that many western multinationals are ignorant of opportunities in emerging marketsand how to develop their business in those markets. The Russian market is a prime example of western prejudice and ignorance. The experience of hundreds of western companies operating in this market would indicate that media portryal of Russia as a place where you will get cheated or even killed by the Russian mafia if you attempt to do business there is simplistic and wrong - and becoming more wrong. The level of success in the Russian market is one of the best-kept or misunderstood secrets in the business world, although no one would deny that the market is difficult, painful and problematic.
Where in the world?
Until mid-2002 it was difficult to get the attention and commitment of senior management to start to do something in Russia or to develop an existing business. There was an "endless internal debate on Russia". Today, however, an increasing number of companies are willing at least to look at Russia. More American and European CEOs and board members are visiting Moscow and starting to listen to the arguments.Western CEOs are focusing more and more on top-line growth, and as they see other developed or some emerging markets flat or crumbling, they ask: how do we get sustainable sales growth, where do we get it and where will we get it for the next 5-10 years? For global multinationals such as Ford, among many others, the answer is often China, Russia and India, in that order. Russia is getting more attention, and no wonder, as firms report sales growth of 30-45%. The reason Russia has been ignored in the boardrooms of major multinationals probably has a lot to do with the history and politics ofthe 20th century. Many board members grew up in a culture where,since 1945, Russia and the rest of the Soviet Union were the number one enemy and bogeyman. It still colours their thinking, as is clear from what the manager for Europe of one of the best-branded corporatenames in the world said:
We do some good but below potential business in Russia. But when Ibrought this on to the agenda our CEO screamed at me that "we will not do business with those damned communists".
What's good about doing business in Russia?
Growth in western sales is among the best in the world
Sales figures of 30-40% are strong by any criteria but few businesses anywhere can grow organically at that pace, and many have been trying to gauge what the "sustainability figure" is. The consensus among companies in all sectors is that they are aiming for about 20% annual growth over the next five years. This is not a small target, and 20% is not set in concrete. The point is the relativity. Companies achieved growth of 40-50% in 2001-2002, during the period 2003-2008 they achieved around 20%, about half of what they were achieving in earlier years.
The example of a European food company reflects the reality. It boasted 40% top-line growth in 2000 and 50% in 2001. But recognising increasing competition, domestic brand challenges and a perceived slow-down in liquidity, and factoring in the oil-price risk, the company has adopted two scenarios for its five-year plan. The best case seeks annual top-line growth of 20% and the worst case settles for growth of 10%. Those formulating the plan are confident that they can achieve the best case but see no harm in presenting a worst-case scenario of 10% for budgetary reasons.