What are the major corporates across sectors that have decision-making units based in the region?
The economic crisis and sanctions have not made life easier for international corporations working in Russia. But there’s still a way to reap the rewards of changing economic conditions. One potential strategy is to localize. German sportswear company Adidas revealed plans to close 160 stores across Russia by the end of 2017. The multinational corporation has been scaling back business in the country for the last three years – with many shops already shut down – as consumer demand continues to tail off amid the economic crisis. According to sources close to the company, Adidas has been rethinking its business strategy since 2014 and the closures represent one of the ways to optimize sales by cutting losses.
Other international companies have also been forced into a rethink in Russia. “The ruble depreciation has made localization of business in Russia one of the most attractive options,” Pavel Sigal, vice president of Opora Rossii – a Russian business association of small and medium companies. “Put off by sanctions and the crisis, the majority of corporations did not dare bet on localization, but the gradual adaptation of Russia’s economy to sanctions will eventually lead them to do it. The cost of labor in Russia has become lower than in China and large companies cannot ignore this.”
While localization has not yet become a mainstream trend, there have already been notable cases. Here are five international companies that have made steps to localize in Russia over the last three years.
The German-Japanese manufacturer of cutting machine tools and lathes DMG MORI officially became a Russian producer in September 2016, following the signing of a special investment contract with the Russian Ministry of Industry and Trade. Such contracts were introduced in 2015 and promise a range of benefits and support from the Russian government for potential investors who meet certain criteria (KPMG PDF document).
DMG MORI now has its own factory in the city of Ulyanovsk and is aiming to increase its localization by up to 70 percent. Catering primarily to Russian clients, the company also plans to export up to five percent of products produced in Russia.
Top managers of Mercedes-Benz and senior Russian and German officials attend a ceremony to lay the foundation stone to a new Mercedes-Benz plant in the Yesipovo industrial park.
Back in February Germany’s automotive corporation Daimler also decided to localize the production of one of its brands in Russia. Mercedez-Benz will get a new plant near Moscow following the signing of a special investment deal between Daimler and the Russian government. The German investor will pump more than $279 million in building a new Mercedes factory which will produce over 20,000 vehicles a year and employ about 1,000 people. The investment means the car manufacturer will be an official Russian producer and will give the company access to state orders. We’ll probably be seeing even more plush Maybachs with suited officials inside cruising through Moscow.
Haval (Great Wall Motors)
Another car maker – Chinese Haval of Great Wall Motors – is also building a full cycle plant in Russia’s Tula Region. The factory is set to open in 2018 creating 2,500 jobs and producing up to 150,000 cars a year. The total investment in the project is $500 million and it will be the first Chinese vehicle plant with four production processes in Russia. The project could also benefit Tula’s chemical industry and the region’s metallurgy enterprises will most likely become suppliers to Great Wall.
The acquisition of Biosintez signifies Sun Pharma’s commitment to Russia and the Russian 2020 plan for localization.
India’s largest drug maker Sun Pharma made its mark in Russia in 2016 by buying Biosintez, a Russian pharmaceutical company, for $60 million. The deal gave the Indian company access to local manufacturing including pharmaceuticals for injections, blood substitutes, blood preservatives, ampoules, tablets, ointment, creams, gels, suppositories, and APIs. The acquisition follows a mandatory plan of localization in Russia that requires all pharma companies to have a local base in the country by 2020.
McDonald’s plans to open 50 more restaurants in Russia this year. In 2016 the U.S. fast-food giant McDonald’s announced plans to source all ingredients locally in Russia. Since then, the company has been gradually replacing its imports with homegrown produce in an attempt to smooth the impact of currency swings and food sanctions. Today the level of localization has reached 88 percent and it’s planned that by the end of 2017 it will climb to 90 percent with the launch of potato fries production in Russia.
TOP Russian startups
Among top Russian startups worth mentioning: Telegram, ivi.ru, TradingWiev, Litres.ru, Coub, Ecwid, Lingueleo, Wavesplatform, Ostrovok.ru, Netology, Surfingbird, YouDo, RealtimeBoard, Theory and Practice, Anydayanyday, KakProsto and OneTwoTrip.
What kind of sectors are rising stars to local economy?
Of the four notable emerging economies - Brazil, Russia, India, and China - Russia holds the most potential. It also comes with some of the highest risk. However, businesses that are aware of these risks ahead of time and plan appropriately will have a major advantage over other international competitors, especially if they capitalize on the major industries in Russia.
The Emerging Russian Economy
Russia’s size alone gives it a leg up on smaller emerging economies. It is the largest country in the world by land area, and its sprawling countryside has supported a number of agricultural, mining, and transportation-based industries. These businesses have grown immensely in the past few decades, making them major industries in Russia.
Machinery manufacturing in all of these sectors has been a boon to Russia’s economy. This includes the production of agricultural machinery, construction equipment, and coal, gas and metals extraction equipment and transportation. The decades-long Cold War with the West also boosted the country’s defense production and spending, which has also played a major role in the economy’s growth. Some of these developments include aircraft and spacecraft, missiles, radar, and other advanced electronics. However, amid all of these burgeoning sectors, the oil and gas industry has continued to be the single most important contributor to the country’s continued growth, and many suspect this will be the case in the years ahead.
What holds sway in your region – traditional or new media types and influencers? How is that changing?
Nowadays there is a trend in Russia that a lot of big and influential editorials close their print versions and online media and other digital channels rule the promotion.
Traditional online media as informational agencies, online business and public media are used mostly for B2B promotion. Lifestyle media and influencer marketing are the most successful tools for promoting B2C brands. Speaking about lifestyle media we should mention special projects that attract attention and involve target audience.
AC Nielsen – a global information, data and measurement company – represent the data that 92% of people trust a personal recommendation even if they don’t know him in person. It is the point for creating an influence program – campaign with influencers/ bloggers. We get used to the fact that companies choose bloggers or celebrities that have lots of followers in social networks to promote their brand. But implementing this tool you have to be careful. For instance, when Maria Sharapova was accused of consuming doping, lots of big companies terminated with her. In the end the ones who did this lost as public totally supported Maria. Those who stayed with her got a very positive effect on their image. Brands are likely to search for true representatives and followers of the values of their target audience that will act the way they say but not just get more likes.
What is the influence ecosystem – the media, analysts, consultants and non-traditional influencers (bloggers etc.). And where to start in this ecosystem?
Influence marketing is the opinion leadership. Most people will say that it is a tired theme but nevertheless if your Head, owner or client has something helpful to say – useful information, researches or valuable experience you can use it in your promotion campaign. Your opinion leader can use his point of view during professional meetings, conferences and seminars as well as in expert comments for influential B2B media. Bloggers are mostly used for B2C promotion. In Russia Instagram bloggers are the most popular especially if the brand or service is new. Before starting to work with blogger one should understand that not every person with 50K+ followers in Instagram will fit. Everything depends on target audience – gender, age, range of interests. After making a list you should plan the budget because most of popular bloggers are ‘spoiled’ so they work only for fee or barter.
Main formats of integration to the content of Instagram blogger:
- Post in newsfeed
- Video in newsfeed
- Post inStoriesformat
- Video message inStories
- Live broadcast
- Contest by blogger
For support and product placement brands also use such tools as popular YouTube channels (video blogs) and Telegram accounts (popular Russian messenger).
What kind of stories tends to dominate influencer/media attention? What type of stories receives little attention?
The first and the main condition to make your story popular when using influencer marketing is profitability – the customer should get something useful. It can be result, discount, gift, emotion but not only rough information. Ideal way is to engage the audience.
What communication tools are the best to use in your market – media relations, social media, employer branding, events, content marketing, etc.
There is not one common formula for communication tools. For each goal and objection we use integrated approach. But all tools used can be presented in one model called PESO.
The author of this model divided PR-channels and tools into 4 directions:
- Paid channels (Paid). They mean articles that were paid, special projects with media, advertising. Their advantage is the possibility to place a certain trumpet-call. And this can be easily measured.
- Earned channels (Earned). They mean traditional press releases, getting the feedback, made presentations. And they also can be measured.
- Social media (Shared). This means the content that your followers have shared in all known resources – Facebook, Vk.com (Russian popular social media), Instagram etc.
- Owned channels (Owned). These are the tools that are intensively used in B2B segment – professional blogs where you can tell about the company, services, the results of the researches, scores. Also, here we can speak about your own channels in the social networks – youtube webinars, expert reviews, etc. that can become good resources for publicity.
What kind of communication software are you using in your daily activities?
Media and social media monitoring
Mass media pitching (and search for comments needed for journalists)
- Deadline Media
- Google analytics