Managers Pool Strategies at Marketing Forum

By Yekaterina Dranitsyna

Staff Writer

Published: April 29, 2008 (Issue # 1369)

Alexander Belenky / The St. Petersburg Times Some foreign companies looking to invest into Russia see the weak political opposition as a positive factor for business.

While some marketing professionals readily interpret negative political trends as beneficial for business activities, others find unexpected barriers in the seemingly prosperous regions.

At the 2nd Marketing Forum which opened Friday in St. Petersburg, managers of Russian and foreign companies shared their experience in assortment management and discussed strategies for regional expansion and the cultural aspects of brand building. The forum was organized by WorkLine Group and Organica consultancy.

Expansion strategies were one of the most discussed issues. Prior to entering the Russian market, the German concern Freudenberg thoroughly analyzed the business environment in the country.

“Contrary to popular belief, we saw a one-party political system and strong “power vertical” as evidence of stability, which is good for business. A weak opposition and lack of political dialogue we also considered a positive factor for business,” said Andrei Andreyev, general manager of Freudenberg Simrit.

Andreyev was positive about the adherence of the new president to the same political principles. However he indicated that a likely struggle for power between political groups could cause problems.

Andreyev estimated actual GDP growth in Russia at 10-11 percent last year as opposed to official figures of 8.7 percent. “Over the last three years the purchasing power of Russian consumers has doubled,” Andreyev said.

He admitted that high inflation interferes with business performance. Among other negative factors he listed the increasing dependence of the Russian economy on oil and gas exports. According to his data, during the last eight years the proportion of oil and gas sales in the country’s GDP increased from 13 percent to 32 percent.

Meanwhile, investment into high-tech enterprises is practically non-existent, Andreyev said. “Profits from processing raw materials are decreasing. About 60 percent of the federal budget comes from oil and gas export taxes,” he said.

Among the negative social trends, he listed Russia’s decreasing population. “According to various estimations, the income of 18-20 percent of the population is not enough to ensure minimum standards of living, and the situation does not seem to be improving,” he said.

In view of all these factors, Freudenberg decided to expand into Russia. “We see opportunities for development through investment into regions like the Urals and Volga. The resources of the main administrative centers are exhausted,” Andreyev said.

“Investment into production facilities in Russia would be more efficient than simple product import. So far import growth has exceeded production growth in the country, and through the acquisition of Russian assets we can decrease our expenses on bureaucracy,” he said.

Other marketing specialists indicated low average incomes and old-fashioned consumer behavior as the main barriers to regional expansion. Azbuka Vkusa, which operates 24 premium-class supermarkets in Moscow, investigated the St. Petersburg retail market, but decided against opening supermarkets in the city.

“According to our research, the share of premium class supermarkets in total retail turnover is less in St. Petersburg than in Moscow. The market here would not allow us to open enough supermarkets to justify operating a branch here,” said Alexei Znamensky, head of analysis and the CRM department at Azbuka Vkusa.

Yelena Churina, a member of the committee for industry, economics and property at the St. Petersburg Legislative Assembly, indicated that prior to starting any project in St. Petersburg, investors and their consultants should make sure that local infrastructure and legislature are suitable for the project.

She cited the example of Pavlovsk, a suburb which recently became popular among investors. “A new shopping center opened there and has consumed all the existing energy capacity. No other investor would get any power, because it has been exhausted,” Churina said.