High Growth Markets Programme

1
High Growth Markets Programme

• New UKTI programme from April 2007
• Learn and disseminate reasons about why
  experienced exporters and established companies
  with the necessary resources are not more active
  in high growth markets
• Develop and deliver tailored support services and
  other policy proposals on the basis of the above
• Generate more activity and interest in high
  growth markets by UK-based companies

2
Focus on 17 High Growth Markets
Taiwan
3
Specific Programme activities

• 13 specialists working with UKTIs regional and
  global networks to raise the profile within the
  high growth markets of UK capabilities and to
  facilitate engagement by mid-corporate companies
  (employing 250 employees)
• Develop and implement a campaign to inform
  UK-based companies of HGM opportunities and how
  these can be accessed
• Provide a more intensive level of support to
  targeted companies that will act as trail
  blazers
• Recommend new UKTI research to underpin wider
  policy development on high growth markets.

4
What will specialists offer?

• Market Entry or Business Development advice for
  instance
• Company diagnostic verification of company
  position, expectations and strategy to engage
  with high growth markets including agreement on
  appropriate markets targeted
• Guidance on HGM business strategy
• Advice on market entry strategies
• Advice on setting up an office
• Navigation of local business practices, culture
  and bureaucracy
• Client management follow-up, aftercare and
  continuing support from UKTIs global network

5
RUSSIA AT A GLANCE 2004 2005 2006 est.

• Population 145.2m
  145.0m 143.8m
• Largest territory in the world
• GDP growth (8th ve year) 7.2 6.4
  7.4
• GDP 590bn 766bn 881bn
• GDP/cap 4117 5347 6149
  
• inflation
  11.7 10.9 9.2
• Trade balance 88bn
  120bn 143bn
• Foreign currency reserves 121bn
  205bn 270bn
• Investments in all sectors 10.7
  13.7 18
• Growth Real Personal incomes 9.7
  9.8 10
• Average salary per month 300 330
  370
• Average labour rate/hr 1.1 1.3 1.5
• Corporate profit tax 24 Basic Tax
  rate 13
• Shadow Economy 25 est.

6
Russian economic recovery
Putin plan (just over 7 growth)
GDP relative to 2000
actual
7
Since 1998

• Reduction of value of Rouble led to reduction in
  imports and a move back Russian products
• Increase in price of oil and metals (driven by
  renewed growth in Asia Pacific) stimulated other
  economic areas
• Industry is starting to retool and industrial
  growth is faster than GDP growth at 10/y
• Corruption is decreasing helped by simplification
  and reduction of taxes
• Debts are now paid off and a stabilisation fund
  (1.5T) being established to cushion oil and gas
  price changes

8
Russias Cities

• Moscow (10.4M) capital and major centre for many
  industries
• St Petersburg (4.7M) centre for marine and ICT
  industries
• Novosibirsk (1.4M) centre for aerospace and RD
  based industries
• Ekaterinburg (1.3M) centre for metallurgical and
  engineering for the oil and gas industry
• Nizhny Novgorod (1.3M) centre for automotive and
  ICT industries
• 8 other cities with a population over 1 million
• Total of 33 cities with a population over 500,000

9
Issues for Modern Russia

• Entry to WTO still not achieved increasing
  transparency (Russia now rates better than China
  and India on business risk)
• Widening national economic base beyond primary
  industry - issue of regeneration of older
  industries or concentrating on knowledge based
  economy
• Expanding development to neglected areas of the
  country notably the South and the related
  problem of ethnic minorities

10
Boston Matrix for Russia Ltd
100
Rising stars
Problem Children
IT (Hardware and Software)
GAS
TELECOMS
RETAIL
AEROSPACE
BIOTECH
BUILDING MATERIALS
HEALTH CARE
Market Growth /y
OIL
PHARMA
FOOD
ENVIRO
CARS
MACHINERY
10
WHITE GOODS
Cash cows
Dogs
CONSUMER ELECTRONICS
CHEMICALS
DEFENCE
FURNITURE
CLOTHING
WOOD
METALS
PAPER
TEXTILES
1
100
10
0
Import Penetration
Adapted from Foreign Direct Investment in
Russia, Paul Fischer, MacMillan 2000. US
Department of Commerce Data
11
Russian market challenge

• Russia has had 8 years of GDP growth over 6
• Certain sectors in Russia have very high growth
  (IT, telecoms, health care, etc)
• Russia is starting to replace imports in many
  areas and an innovative approach is needed to
  continue to engage with the market
• Russian large companies are becoming powerful in
  world markets and could dominate certain sectors
  RusAl, Norilsk Nickel, Gazprom, Rosneft,
  Sistema, Sverstal
• New opportunities are emerging due to
  deregulation and privatisations

12
UK trade with Russia
UK imports
UK exports
13
Russias Imports (2005)
14
Russian trade with UK

• UK main exports to Russia are
• Computers and other office equipment
• Road vehicles and automotive components
• Telecoms equipment and software
• Manufactured goods pottery, textiles, glassware
  etc
• Equipment for oil, gas and mining industries
• Food and drink mainly confectionary and alcohol
• Electrical machines and machine tools
• Instruments , optical equipment, watches
• Turbojet engines and power equipment
• Specialised chemicals and pharmaceuticals

• UK main imports from Russia are
• Petroleum products
• Chemicals
• Semi-finished metal goods
• Metals
• Wood and paper
• Coal and coal products

15
Business Opportunity Creative Industries

• Russians are shopaholics!
• Brands, luxury goods, fashions, cosmetics and
  perfumes
• Watches and electronics goods
• New shopping malls and retail parks
• Furniture, household accessories, DIY and
  building materials
• Food and drink, supermarkets and restaurants
• Cars, boats and conservatories

16
Business Opportunity Financial Services

• Russia moves from the pickle jar to banking and
  mortgages
• Opportunities to service exporters and companies
  engaged in large projects (only Citi and
  Raiffeison are the only foreign banks properly
  established in Russia)
• Retail banking market is opening as people are
  looking for alternatives to the state savings
  bank Sberbank.
• Mortgages and consumer credit is now being
  demanded
• Accountancy business I growing at 50 a year
• Foreign insurance companies are now entering the
  market
• Russian companies choose the LSE main and AIM
  markets for their IPOs.

17
Business Opportunity Education

• English and business education are expanding
• Russia has nearly 100 literacy and around 45
  university education but there is dissatisfaction
  with standards in some areas
• Richer Russians are sending their children and
  university students to the USA and the UK
• Business education capacity 100M of which gt50
  is in Moscow. Market is expected to grow to 750M
  by 2016
• Learning English is a priority for all sectors
  and is used in communication with European and
  Asian countries. British English is the gold
  standard
• Foreign MBA courses are being established
  separately and in association with Russia
  colleges
• Distance learning is a growing market

18
Business Opportunity - Engineering

• Engineering renaissance
• Russian industry is retooling as 70 or equipment
  is now obsolete
• Growth in economy has meant that formerly empty
  factories are now active often with new dynamic
  small companies
• Defence factories are now moving into civil
  markets for oil and gas equipment and
  infrastructure projects
• Aerospace- civil aircraft are now mostly imported
  but defence market strong and some new civil
  projects. Russian companies looking to work with
  foreign machining companies to win orders from
  Boeing and Airbus.
• Oil and Gas equipment and services market
  around 3.5B growing at 20 with 30 imports

19
Business Opportunity - Power

• Insufficient capacity old plant in need of
  replacement
• Existing plant operating at full capacity and
  reliance on district heating makes plant failures
  life threatening in Winter
• Old system being deregulated and privatised
• Before 1998 demand had reduced but growing
  economy is now being limited by lack of capacity
  growth
• Major investment initiatives are now being
  implemented
• 70 of power equipment is imported

20
Business Opportunity Construction

• After a pause following the 1998 crisis
  construction is now growing at gt20/y over whole
  country
• Retail 326,000 m2 in 2006 and 799,000 m2 in 2007
• Shortage of hotel rooms (5,000 in Moscow) 10 new
  hotel in 2006, 65 in 2007
• Shortage of office space large new office
  complexes being built
• Severe shortage of apartments in most large
  cities
• Large market for renovating living accommodation
• Market for individual country homes (kotedzh) and
  dachas
• Infrastructure airports, ports, railways and
  roads. Construction equipment market 12B
  growing at 12 with 50 imports

21
Business Opportunity - Automotive

• Too many cars!
• In 2006 Russians spent 16B on cars
• 9B on imported new cars
• 2.2B on foreign cars made in Russia
• 1.8B on imported second hand cars
• 3B on Russian cars
• Sales of imported new cars are growing a 75/y
  and for forign cars made in Russia at 100/y
• A 2million cars a year Russia is Europes second
  largest automotive market after Germany
• Automotive parts market is around 3.3B growing
  at 20 a year of which about 40 are imported
• Russian has a successful export market in heavy
  good vehicles and other large construction
  vehicles
• Russias large cities have major traffic problems

22
Business Opportunity ICT

• One of the fastest growing markets is telecoms
  and IT
• Russias infrastructure for cable and wireless
  communications is good and Wi-Max will be
  available in 29 cities this year
• Telecom sector 30B growing at 32
• Penetration of mobile telephony gt100 based on 3
  large Russian providers
• IT market now at 10B and growing at 20. Many
  computers now being produced in Russia with
  foreign components
• Internet usage growing at 60, currently around
  20M users, broadband growing at 50 with 6M
  users
• Digital TV about to be introduced, but IPTV and
  cable already established
• Look out! - Russian software and ICT service
  companies are growing fast

23
Business Opportunity Healthcare

• Healthcare is a Cinderella sector that is now
  catching up
• Major health problems from heart disease,
  diabetes, alcohol, smoking and obesity
• Pharmaceutical market around 9B growing at 20
  with 70 imports but Russian manufactured
  generics growing
• Medical equipment market around 2.5B growing at
  20 with 60 imports. UK companies are entering
  the market
• Opportunities to work with Russian companies to
  supply or jointly produce drugs, vaccines,
  diagnostics and equipment for CIS market
• Opportunities are also there for innovative
  service provision

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Other Business Opportunities

• Accessing the CIS market
• Use of Russian companies to tailor or finish
  products fro CIS markets meeting local
  regulations
• Supply of components or alternative spare parts
  through distributors or service centres
• Two way technology trade Russia needs new
  technologies to meet resource and environmental
  problems but is also a source of technologies
  that need to be adapted to the marketplace
• Outsourcing, franchising and the Internet
  marketplace

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Contacts

• Dr Juan Matthews
• UKTI High Growth Markets Business Specialist for
  Russia
• T 01235 206569
• E juan.matthews_at_pera.com
• Yana Pavlovskaya
• British Embassy Moscow
• T7 495 956 7252
• E yana.pavlovskaya_at_fco.gov.uk
• Taissia Zelenkova
• British Consulate General, St Petersburg
• T 7 812 3203221
• E taissia.zelenkova_at_fco.gov.uk
• Galina Movchan
• British Consulate General, Ekaterinburg
• T 7 343 3794931
• E galina.movchan_at_fco.gov.uk