Russia lures big brand owners

MOSCOW: Brand owners such as Kraft and Novartis are attempting to expand their operations in Russia, part of a broader trend among many leading overseas firms, a new report has revealed.

Ernst & Young, the advisory group, polled 840 executives, 19% of which regarded Russia as the "most attractive" country to begin trading in today, an increase of eight percentage points on an annual basis.

Russia thus came in ahead of Brazil, which posted 18% on this metric, but lagged behind India on 21% and China on 44%. Despite its economic troubles, Western Europe also logged 33%.

"The appetite for consumption, the attractiveness of brands, the desire to access high-quality consumer goods – all these trends were already apparent in the early 1990s," said Laurent Kleitman, CEO of JSC Concern Kalina, part of Unilever. "Since then, we have seen the explosion of the consumer goods market."

Breaking out detailed scores for 208 corporations, the analysis revealed that 43% of firms saw natural resources as being Russia's main "world-class" feature, while 19% cited a large domestic market.

Some 58% of this sample agreed Russia would be more attractive in three years' time, and 30% felt no change was likely. Improving the rule of law, cutting bureaucracy and boosting regulatory transparency were the main factors that could aid this process.

When looking at Russia's economic situation, 74% of the panel stated that the nation's relatively large consumer base was its greatest strength, while 61% mentioned low labour costs and 47% R&D capabilities.

"Russia has enormous potential in terms of the scale of its internal market," said Irene Rosenfeld, the CEO of Kraft, the food specialist. "By 2023, Russia is forecast to become the largest consumer market in Europe. That's why Russia is such an attractive market for an investor like Kraft Foods."

Overall, the number of foreign direct investment (FDI) projects in Russia stood at 128 in Russia in 2011. This was down from a peak of 201 in 2010, and marked the end of four successive annual increases.

But the size of the typical scheme has grown. In all, 8,362 jobs were created by FDI projects last year, up from 8,058 in the previous 12 months, even though the amount of initiatives was lower.

Of the 781 foreign direct investment schemes launched from 2007–11, manufacturing was the main purpose for 51%, ahead of sales and marketing on 33%, logistics on just 6% and R&D on 3%.

"We believe that today's Russia will remain a fast-growing country with huge long-term economic potential. Moreover, Russia's Government has announced an ambitious economic modernisation agenda, which encompasses the pharmaceutical industry," said Joseph Jimenez, CEO of Novartis.

Data sourced from Ernst & Young; additional content by Warc staff, 17 September 2012

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