The Russian regions can be good ammunition for country and regional managers in corporate debates because they can be used as a positive factor in the drive for organic geographical growth as well as a stabilising factor in managing corporate expectations.
The Russian Federation is broken down into 89 administrative unitsor regions. In 2005-09 most western consumer goods and food and beverage companies were doing business in 5-10 such regions. The main ones for business are Moscow city, Moscow region, St Petersburg and the Leningrad region (curiously, when the city changed its name, the surrounding region did not). Only a handful of western companies do businessin more than 20-30 regions, including Dandy Stimorol, Coca- Cola and Pepsico.
As competition tightens in Moscow and St Petersburg and theirsurrounding regions, more western companies are looking at the relatively untouched markets of the outer regions. There are a number of"usual suspects" of second-rank regions, including Yekaterinburg, Nizhnii Novgorod, Samara, Rostov, Novisibirsk and Novgorod. They offer good scope for organic business growth, but they are no panacea for business development as a large number (as many as 40-50) are not really interesting for western companies because their populations are too small and/or too poor or the regions are geographically too remote. However, overall, the regions offer business opportunities that do not exist to the same extent in central Europe. A good comparison is China,where western companies are expanding out of Beijing and the coastal zones into the interior regions.
Managers can use the regions like a concertina in their budgeting process, expanding or contracting at their own discretion the number of regions into which they plan to expand business in order to meet budget targets set by headquarters. A manager in Moscow may consider expanding into five new regions in the next budget year, but if a tough budget is set, the expansion can be ratcheted up to seven or eight new regions. However, if by good fortune a growth target is set which can be met with some ease, the manager may choose to go for only two or three new regions instead of five.
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