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Managing demanding stakeholders in Russia - EY - Global

Managing demanding stakeholders in Russia

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Questions executives are asking

  • What will the next six months deliver? What growth shouldwe expect?
  • How can we develop a win-win relationship with retailersand distributors?
  • Have we got the right distribution model for our growingbusiness? Do we need to build a unique route to market toovercome market fragmentation?
  • How can we drive better engagement with government togain timely understanding of forthcoming legislation?
  • What can we do to understand how vested interestsmay infuence the direction and focus of legislationin development?
  • Do we have the right talent in place, particularly in moreremote regions?
Russia is a tough but exciting market and, in a world where growth is a scarce resource, it is one of the markets where global consumer products companies are looking to perform.

Although Russia offers growth potential, it cannot be taken for granted. Not only must consumer products companies contend with more demanding consumers, they must also successfully manage their relationships with other stakeholders, particularly government, as well as with their retail customers.

We believe that consumer products companies face an environment of continuous accelerating change and spiraling complexity, which we call the brand new order. To respond effectively to these challenges, companies must plan further ahead, widen their networks and be prepared to take innovative approaches to stakeholders’ relationships.

What you need to know

  • Good growth, but uncertain outlook:

    Most executives reported good performance in the first half of 2012, with the first quarter stronger than the second. Consumer demand is buoyant, particularly from the middle class, with evidence of trading up in some categories. However, there is still uncertainty about the economic outlook in the months ahead. Falling oil prices pose an additional threat.

  • Collaboration is key to success
  • Many believe that a new government may be a source of new opportunities. Strengthening relationships, collaborating and finding solutions with Russian governmental authorities, at all levels, is critical for success, but can be difficult at times. Companies must also deal with an increase in the amount and the complexity of legislation affecting their businesses.

  • Rising regulation and uncompromising stakeholders
  • Some executives are challenged by increased regulation, which they perceive as being unpredictable, sometimes illogical and becoming more onerous. Others commented that companies should be very proactive in regulatory matters, while a number of executives are also concerned about government intervention in the industry.

  • Talent remains a big issue:
  • Finding top talent is still a significant issue in particular in the regions. Senior executives agree that retention programs for talent are key. There is a feeling that local managers are overpaid, so CEOs need to be more involved.

  • Lack of market data:
  • One of the big challenges senior executives are facing is the lack of reliable and complete market data, except for broad trends. Without reliable data, gaining important consumer insights is very tough. This situation is not improving.

  • Challenging relationships with retailers:
  • Executives are still having difficult discussions with retailers, and some feel that the relationships are “win-lose” rather than “win-win,” which is creating operational issues. Some are considering how best to reach consumers in a hybrid market and are considering building unique routes to market.

  • Adapting to meet short- and long-term objectives:
  • Russia is still viewed as a long-term sustainable business opportunity by global HQs, which continue to invest in the country. Russia continues to be seen as the market that will need to deliver the growth and profit that is lacking elsewhere in Europe. As a result, local management teams are feeling pressure from above to deliver strong top- and bottom-line growth and a high return on investment.

Economic snapshot 1

  • First quarter GDP growth was a better-than-expected 4.9% year-on-year, and one of the best quarterly results in the last four years. Growth is also expected to slip back in the second half as government spending is reduced in the wake of the elections.
  • The big driver behind GDP growth is consumer spending, which contributed four percentage points to the first quarter’s 4.9% growth. Retail spending in the first quarter increased by 7%, as nominal wages remained steady, inflation decreased to 3.6% and real wages grew by 10%–13%. Retail spending was also underpinned by booming credit: retail loans expanded by 40% in April.
  • The risks to the outlook are more external than internal. Russian GDP growth is expected to be in the region of 3.5%–4.0% for the next few years.
  • Falling oil prices pose an additional threat. Both the rouble and the stock market are sensitive to falling oil prices.

 Questions executives are asking

1 All facts in this section of the report are sourced from: Russia alert, May 2012; DT Global Business Consulting GmBH; and Thorniley, Daniel, Russia CEO Roundtable, notes, June 2012.


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