Warc Blog

Brands face hurdles in Russia

7 December 2012
MOSCOW: Foreign brand owners like PepsiCo, Ernst & Young and AstraZeneca are largely upbeat about trading prospects in Russia, but some obstacles do remain to succeeding locally, a study has found.

The Economist Intelligence Unit, the research group, polled 195 overseas executives, focusing on those who had been involved with joint ventures, mergers or operations in the country, or expected to be in the next three years.

Fully 74% of the panel active in ventures or mergers with Russian firms that took place within the country were mostly satisfied, hitting 84% for external tie-ups. A further 72% would do business with Russian enterprises again.

"We've had one joint venture and it was a very good experience," said Alexander Ivlev, managing partner at Ernst & Young. "Foreign companies on the ground are happy."

For 39% of participants, Russia was likely to become Europe's biggest market in volume terms over the coming decade and 27% predicted Russia was due to develop as a "global investment magnet" similar to China.

By contrast, a more substantial 40% believed Russia would lag other key emerging markets, while 44% saw the political risks as being too high to invest significantly, and 46% thought a lack of reform was set to limit growth.

When assessing the challenges to doing business in the country the language barrier was mentioned by 36% of executives, ahead of bureaucratic hurdles on 32%, corruption on 28% and legal complexities on 26%.

"To be honest, Russia has been really good to PepsiCo and we've never had these problems," said Ekaterina Kvasova, director of communications at PepsiCo, the food and beverage conglomerate.

Among the core advantages that respondents said characterised Russian firms were access to energy on 67%, technical abilities on 49% and the availability of capital on 46%,

Nenad Pavletic, president of the Russian arm of AstraZeneca, the pharmaceutical giant, said: "Russia has a knowledgeable talent base with strong intellectual capacity."

Upon rating Russian corporations on a ten-point scale, the sample awarded them an average of 5.7 for their innovativeness, falling to 5.4 for global competitiveness and managerial excellence, and 5.2 for reliability.

Kostas Katsoglou, president of Dow Chemical's local division, said: "Russian companies now have much broader horizons. People have started seeing them as players globally."

Despite this, Russian firms were seen as the worst option for mergers by 22% of the panel. Just 6% took the same view for Chinese enterprises, as did 5% for their Indian peers and 4% for Brazilian operators.

Data sourced from Economist Intelligence Unit; additional content by Warc staff

 
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