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Getting real about Russia - Rethinking the model in Russia - EY - Global

Getting real about Russia

Rethinking the model in Russia

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To capture the growth opportunity, companies will have to try much harder to win in every channel.

In the early years of expansion into Russia, consumer products companies could rely on rapid market growth to deliver performance. Now it’s time to rethink the model.

In 2011, companies have seen commodity costs, media costs and salaries increasing and many executives at our meeting expressed concerns about the rising cost of growth.

Low volumes and high costs are hitting all areas.

Some executives feel that it is hard to maintain margins and growth in this environment. Others believe that they cannot cut costs anymore and will have to reinvent their business model to satisfy consumers, customers and shareholders.

Whatever steps companies take, there was a strong sense at the meeting that in order to capture the growth opportunity, companies will have to try much harder to win in every channel, in every segment and at every price and to create a value proposition to satisfy consumers.

Companies will also have to work smarter in a market where it is no longer possible to rely on pricing to deliver top line growth and where complexity means companies need to build new capabilities.

Russian economic snapshot

  • In December, Russia was the best performing growth economy in Europe and in 2012 looks set to weather the global economic storm better than Turkey, Brazil and India. However, Russia remains vulnerable to the impact on its oil price of a global downturn which could weaken growth to a possible 2% or lower.

  • The rouble has survived 2011 quite well but there is downward pressure in 2012 from weaker oil and more capital outflows. It is expected that the rouble will hold up at about 31.0 – 32.0 roubles to the US dollar in the next 12 months, providing oil fluctuates in a range of US$95 – US$105.

    However, if the dollar rises against the Euro — which looks probable — then the rouble could weaken versus the dollar in 2012. Generally risks to the rouble get more serious when the oil price falls to $93 and below.

  • GDP (gross domestic product) picked up in October and November and finished at 4.3% for 2011 and will be around 3.7% for 2012 — assuming Europe survives but under-performs.

  • Inflation was down to 6.1% at the end of 2011. Predictions for 2012 are that it will be down to 5.8%.

  • Real wages are rising at 4.9%, one of the best levels in the world, helping retail sales reach an annualized growth rate of 8-9%.

  • Retail sales grew 8-9% in the third quarter 2011, with a full year figure of 7.2%. 5.3% is the predicted growth figure for 2012.

  • Unemployment is currently stable at 6.5%.


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Getting real about Russia

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