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Women’s work Risky business On the rebound Going to town

Senior female How Fortum is dealing Nursing sick companies Enterprising cities
executives in CEE on with post-acquisition back to health with put themselves
their rise to the top integration in Russia corporate turnarounds on the map

Transform Issue
3/Spring 2009

New frontiers
Pulling ahead
with innovation
The solutions to the challenges
facing your business are out there.
You just need to know where to look.*

Sometimes it’s hard to know where to start.

In Central and Eastern Europe,
PricewaterhouseCoopers has
7,600 experienced professionals who
provide industry focused assurance,
advisory and tax services to the region’s
leading companies. We focus on your key
business issues, providing you with
innovative strategic solutions, positioning
your business at the top of the league.

© 2009 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

ecently, I have spent time with clients throughout the region and a
question that seems to often emerge in conversation is about the
key characteristics of the leaders and managers who can win out in
these chaotic times. The answer I give has three parts: the best leaders of
PricewaterhouseCoopers organisations combine resilient operating skills, access to deep levels of
CEO Central and Eastern Europe: financial understanding and an ability to make decisions. These leaders have
Mike Kubena a sense of urgency to manage for the short term within the context of a longer
Managing Partner Advisory in CEE: term strategic plan that stands up to scrutiny, whatever state the economy is in.
Mark Okes-Voysey Internally I have created a shorthand for it: it is a blend of finding opportunity,
Managing Partner Assurance in CEE: minding numbers and grinding performance. I am convinced the next year will
Nick Brasington be one for the finders, minders and grinders to take centre stage.
Managing Partner Tax & Legal Services Good businesses do not automatically go bad when times become tough and
in CEE: great leaders do not cower when the economic temperature is turned down.
Steven Snaith They face up to the challenges of the moment and get smarter. What does that
mean? Fresh time must be spent on product definition, providing customers
PwC Contributing Editor: with what they want today as opposed to repeating what you offered yesterday.
Donall O’Shea Extra time and investment should go into sales and marketing to repair and
energise pipelines and leaders need to summon extra levels of effort from
Published by Bladonmore Media Ltd colleagues and teams to get the attention of existing customers and new ones.
Editor-in-chief: Richard Rivlin Operational and financial data provide leaders and managers with the basic
Editor: Eila Rana information they need to take the key decisions, but there is no substitution for
Managing editor: Sean Kearns sound and timely judgment. History highlights how these moments can become
Sub-editor: Lynne Densham times of great opportunities for those able to take the right calculated risks and
cover image: getty images

Art director: Owen Thomas to manage effectively throughout the downturn. PwC is your business partner
Designer: Ivelina Ivanova for the good and the less good times.
Production manager: Andrew Miller This is the fourth issue of Transform and we are keen to know what you think
Publisher: Siân Mansbridge about the magazine. Please spare a few minutes to fill in our online reader
Managing director: Jonty Summers response survey at www.pwc.com/transform. Your feedback will be immensely
T: +44 (0)20 7631 1155 valuable in helping us to continue to improve Transform so that it remains
E: firstname.surname@bladonmore.com relevant and interesting to you.

Mike Kubena

PricewaterhouseCoopers 3
6 Upfront capturing deal value
Redefining the chief information officer’s role; prospects for East
to West mergers and acquisitions; PwC Russia partner Cherie 26 In from the cold
Ford on the impact of The Last Word on Power by Tracy Goss; Fortum’s expansion into Russia has given the Finnish energy
conversations with Levon Hampartzoumian, CEO of UniCredit company a toehold in a burgeoning market but first it must deal
Bulbank, and Joanna Simonowicz, a PwC director in Poland; with transparency and compliance issues
and corporate tax reductions across CEE

developing talent
technology & it
30 Female intuition
10 Future dreams Leading businesswomen in the CEE region are finding
Strong education systems and entrepreneurial drive combine few barriers to success, and they believe that any lack of
to provide a firm foundation for the CEE region to become a representation at senior levels requires individual rather than
centre of innovation institutionalised solutions

16 26

16 Small is beautiful
Nanotechnology may involve dealing with matter at a micro
level, but its impact on the economy of Russia could be huge,
enabling the country to fulfil its ambition of becoming a global
leader in the field

22 Net gains
E-government services are increasingly seen as a way of
meeting the need to improve public services in CEE, but take-
up is often poor. Consulting citizens first could be the solution

30 36

growth in cee
business recovery 36 A fresh start
SPecial Report Thanks to innovative leaders, Baia Mare in Romania
and Ekaterinburg in Russia are showing other
ambitious cities how to create new reputations in
43 Swimming against the tide? order to attract investors
Distressed companies in CEE are discovering that one of
the consequences of the global credit crisis is an increased
threat of fraudulent behaviour by employees 54 DATA CENTRE
A focus on economic facts and figures from across
the CEE region
44 Back to life
The worsening economic crisis is increasing the need
for corporate turnarounds in CEE. But a shortage of
business recovery experts can cause difficulties

Cesar Bacani was the personal finance editor and senior

50 Flow motion business editor at Asiaweek. The author of The China Investor:
Although effective cash management is a high priority Getting Rich with the Next Superpower, he is also a former
for most companies in a downturn, businesses in CEE contributing editor for CFO Asia and CFO China, two specialist
magazines published by The Economist Group until March
have to face additional challenges in tackling this issue this year, and an experienced speaker on investing in China
and China-related equities. A graduate of the University of the
Philippines, he is an award-winning poet and a former university
53 Divest to avoid distress
The difficult decision to divest could be eased for Don Durfee is the former editor of CFO Asia and CFO China.
companies in CEE by the benefits brought about by He joined in January 2007 as managing editor after several
years with CFO magazine in New York. He was a senior editor
focusing on core business areas with the Economist Intelligence Unit. Before that, he served as
the managing editor of the Alliance Analyst.

Charles Orton-Jones is a freelance business journalist,

specialising in entrepreneurship and small businesses. He is
the former editor of EuroBusiness magazine and deputy editor
of Real Business magazine. He has written for the Guardian,
Financial Management, Real FD, The Marketer and the CBI’s
magazine, Business Voice.

Scott Payton is a regular contributor to numerous publications

including Spectator Business, The Spectator, Financial
Management, Accountancy and Accounting & Business. He
is also the editor of Linklaters Quarterly and former editor of
Business Voice and Real IR.

Ben Schiller is a freelance journalist. Previously, he was a

correspondent in San Francisco and Prague, and the editor of
EBF, a European management review. He writes frequently for
the Financial Times, Business Voice, and other publications.

Elliot Wilson is an associate editor of Spectator Business and

Hong Kong’s Asiamoney magazines. He also writes for The

Spectator and Euromoney.

PricewaterhouseCoopers 5
From the network
CIO of the future
The role of the chief information
CIOs are in an officer (CIO) is changing

ideal position fundamentally. As the one senior

executive who knows how the
to “help define business works from one end to the
and execute other, the CIO has the potential to

forward-looking take on a more strategic role, says

I for Innovation, a recent PwC report.
business CIOs are in an ideal position to “help
strategies” define and execute forward-looking
business strategies” by using IT to
drive the business. There are some
signs of this starting to happen in
CEE, says Grigory Katsman, senior
manager at PwC in Russia. He cites
the example of a Russian energy
company, which has an ambitious
young CIO who, with PwC’s help, is
both building new IT functions and
leading business strategies.

Push and pull

While the CIO’s role is expanding
and becoming more complex,
one aspect is likely to simplify:
technology. Several trends, including
commoditisation, consolidation
and outsourcing, are converging
to enable companies to pass on
the management of technology
infrastructure to consultants or
contractors. However, it is early
days. Katsman says: “In CEE there
is a lot of talk about these trends,
especially commoditisation, but not
so much action.”
Many CIOs feel their role is to
juggle an ever-increasing number of
balls and this is a matter of growing
concern to CEE businesses. “In
more than 50% of our projects, our
clients raise this problem and ask
us to help,” says Katsman.

I for Innovation can be downloaded

at www.pwc.com.

Between The Covers

Trend watch Tracy Goss’s The Last Word on Power [Broadway

Business, 1985] helped Cherie Ford, a partner in
East to West M&A PwC Russia’s M&A practice (pictured), realise
the difference between change and real
The small but previously fast-growing trend transformation. Here, she explains how.
for emerging markets companies to acquire
targets from western economies has slowed What made you read The Last Word on Power?
down as the global downturn continues. I’ve been focused over the past several years
“Activity in CEE has gone much quieter on trying to find balance and peace in my life. I
over the last three to four months,” says Chris have three kids, a big job and I live in a tough place
Hemmings, global head of corporate finance – Moscow. I read Eckhart Tolle’s The Power of Now
at PwC and the author of two reports on the and it had a profound impact on me. He speaks about
East to West M&A trend: Going West… and being present in the now, not in the
Eastern Approaches… past or the future. I started to read
This is a development that is being business books that focused on this
played out in Kazakhstan where, pre-credit same philosophy.
crunch, investment in acquisitions from more
developed economies had grown 10-fold since What are Goss’s key messages?
2004 to $18bn. Change is a function of altering what
Since the downturn, natural resource- you are doing – improving something
rich Kazakhstan’s ability to invest has been that is already possible in your reality.
impacted by the fall in oil prices and demand, Transformation is a function of altering the way you are
and the fall in commodity prices. being – creating something that is currently not possible
“This does not mean long-term prospects in your reality. To be a leader who can transform an
are not good,” says Alper Akdeniz, managing organisation, you need to start with yourself.
partner for Central Asia and the Caucasus
at PwC. “In fact, for a country such as What is the best lesson this book has taught you?
Kazakhstan, with the kind of resources that it Things are as they are. Learning to let go of past
has I would expect investment in its immediate experience as a bias to current challenge has been very
region, as well as in Europe, to pick up again.” empowering. It changes the dynamic of discussions
Hemmings agrees, adding that emerging and gives you the ability to stand in someone else’s
economies will come out of the downturn shoes. Hearing their perspective with an open mind,
faster than the likes of the UK. The question is, being present with the situation at hand is the only way
when? He predicts that CEE will start pulling in numbers to make a truly great transformation.
out of the downturn in Q2 of 2010, one year
later than other emerging economies such
as the BRIC countries and Latin America but
that is simply because CEE was hit by the
$18bn Have you changed anything about the way you work
since reading this book?
I listen more, though no doubt I am still a work in
slowdown before them. progress. I approach a situation with a clean sheet
What should CEE acquirers do in the The figure of paper rather than a preconceived notion of what I
interim? Historically, corporate defaults tend to which the think it should be. I leave the past in the past and don’t
to occur around 12 months after a downturn. value of overseas make judgments. When making decisions, I don’t try to
“CEE companies need to be clear about their acquisitions by predict the future but focus on what is needed now.
five-year business plan so that they can move Kazakh companies
quickly when those defaults come onto the has grown
market,” Hemmings advises. since 2004

PricewaterhouseCoopers 7

where are they now?

Levon Hampartzoumian,
Chairman and CEO, UniCredit Bulbank

As chairman and CEO of Bulgaria’s corruption and my challenge was to

UniCredit Bulbank, Levon change all this,” he says.
Hampartzoumian is well placed to Today, Hampartzoumian’s
steer the bank through the wave of challenge is to support loyal clients
company bankruptcies and surge and keep employees motivated
in credit defaults that he recently as he guides his bank through the
predicted. He says the early part of global economic turmoil. Does he
his career, as director of business find his PwC heritage useful? “PwC
development and management is a company that develops lots
consulting at PwC Bulgaria, gave of leaders – our alumni are now in
him a strong foundation in the many top positions in government or the
qualities needed to be an effective economic field,” he says.
banker. “Being part of the PwC
team gave me the opportunity to
work in a thoroughly international
environment and have access to “Being part of the
know-how,” he says. PwC team gave
His journey from PwC to UniCredit
Bulbank has been a fascinating
me the opportunity
one, taking in a spell as Bulgaria’s to work in a
Deputy Minister of Economy and thoroughly
some time as head of Sofia’s
Privatization Agency. “It was an
agency torn by public scandals, lack environment”
of communication and suspicions of

From the network
Tax update 90 seconds with...
PwC’s worldwide tax summaries
have recently been updated online. Joanna Simonowicz
January 2009 marked the start of
many corporate tax reductions
across CEE. For more details, Joanna Simonowicz, a partner in the
visit www.taxsummaries.pwc.com Transaction Services group in Poland,
started out as an auditor at PwC in
1997. After two years, she switched
Estonia to transactions and due diligence,
“By the end, the
0% becoming one of the first people in
Poland to work in this area, which
helps companies make acquisitions,
client is calling you
every day to get
Complete abolishment of
withholding tax on dividends.
divestments and strategic alliances.
Since 2005, she has worked with
your advice”
private equity clients to build their Joanna Simonowicz
presence in Poland and the CEE partner, pwc
region. She predicts a more complex

12% transactions market ahead.

What aspects of the job do you

operational due diligence as well as
financial due diligence. Also, they
are always looking for deal ideas so
Kazakhstan’s standard VAT rate as especially enjoy? this is another area where you can
of January 2009, down from 13% in 2008. add value.
I really enjoy working with the
russia client from the very beginning What are the forthcoming

when they explain their plans for the challenges for those dealing
transaction – it’s like starting a new in transactions?
adventure. Initially, the client can be
quite distant because they don’t know Lots of changes are occurring
Russia’s corporate profits tax rate, you but by the end they are calling you at the moment, which will make
reduced from 24%, from January 2009. every day to get your advice, and the market increasingly complex.
bringing you into negotiations. There are more and more distressed
Hungary companies – but it’s not enough now

How do the needs of private equity to buy and hope, especially for
and corporate clients differ? private equity clients. They must
ensure they integrate and
Private equity clients are more restructure to add value. Some
The amount of income arising from proactive and relationship-driven major private equity players will not
activities of a foreign PE (permanent than corporate clients. Work is survive – this is a real change in the
establishment) of a Hungarian company constant whether there is a transaction landscape. Another challenge is to
that is exempt from local business or not – with relationship building, for identify new market trends. People
tax, if such a PE is subject to similar example. They are financial investors are looking at public-to-private and
local entrepreneurial tax in the foreign so they know less about the market; distressed M&A, both areas in
country, from February 2009. they need help with commercial and which we have expertise.

PricewaterhouseCoopers 9
technology & IT

he global growth of innovation assets – its academic
Graphisoft illustrates how institutions and cultural emphasis
far a bright idea can take on the value of education.
a CEE company. Founded in “There is a strong culture of
Budapest in 1982, the firm is science in CEE countries,” says
now one of the world’s largest Dr Per Högselius, author of the
architecture, engineering and 2005 book The Dynamics of
construction software providers, Innovation in Eastern Europe:
and eastern Europe’s most Lessons from Estonia and
successful software company. researcher at Stockholm’s Royal
Graphisoft’s global expansion Institute of Technology. “If you
began in 1988 with the launch of travel around the region, you will
an office in Germany – Europe’s find science and technology being
largest computer-aided design frequently discussed in the media.
market. A year later the company It’s part of society. And a very
opened for business in San high percentage of the population
Francisco. A Tokyo office followed – 90% in most CEE countries –
in 1994, with UK and Spanish has a secondary level education.
operations launching in 1997. This is something that most other
Graphisoft’s international success countries with comparable GDP
offers a key lesson for other levels can only dream about, and
CEE technology companies to is very important for innovation
learn from, says Akos Pfemeter, and technology.”
director of global marketing at the This culture of science
company: think globally rather consistently produces people
than locally. “Hungary was a
closed country when Graphisoft
was founded. Most Hungarian
“If you travel around CEE, you
companies looked only as far as will find science and technology
Germany for market opportunities. being frequently discussed in the
We thought that we should look
further, to the global economy,”
media. It’s part of society”
he says. “This has enabled us to dr per högselius, researcher, royal
learn much more, as well as to institute of technology, stockholm
seize more opportunities.”
But how do innovation-focused
companies in CEE measure up to with world-class software
their counterparts elsewhere? And programming and engineering
what challenges must businesses, skills. Additionally, today’s
investors and governments CEE university graduates have
overcome before CEE can unlock grown up in an environment of

its full innovation potential? rapid societal and economic

Businesses undoubtedly development, says Högselius,
benefit from the region’s greatest referring to the changes that have

The development of an entrepreneurial spirit
combined with a well-educated population
could see CEE countries becoming
innovation powerhouses
words: Scott Payton


PricewaterhouseCoopers 11
taken place in the region since ecosystems”, says Christopher
the late 1980s. This means young “Hubs of technological Wasden, the leader of PwC’s
people here are hungry to do new development similar to Silicon innovation practice in New
things, he adds.
Valley are starting to spring up in York. “You need to develop the
The real challenge for CEE incentives that get the academic
is to turn this hunger into real CEE, such as in Dubna” centres to collaborate with both
commercial activity. The October martijn peeters, director, pwc the entrepreneurial community
2008 Economist Intelligence and the business support
Unit (EIU) report, A Time for threats to innovation activity in community – covering business
New Ideas: Innovation in Central the CEE region – the so-called development, marketing and so
Eastern Europe and Turkey, brain drain. “Many talented on. These communities can then
highlights the point. people are migrating to more mutually support one another and
“We found that, with the developed countries, particularly work together.”
exception of Slovenia, the the US. The region has the
investment going into innovation innovation potential, but we Government boost
– what we call the innovation must work hard to keep it,” says Innovation ecosystems such as
inputs – was not delivering the Graphisoft’s Pfemeter. this have formed the bedrock of
expected number of patents, or There are signs that the activity in places such as Boston
innovation outputs, so something link between innovation and and Silicon Valley for decades,
in the process is not working commercial activity is improving. In Wasden adds. While they tend to
effectively,” says author Paul 2008, a number of CEE countries thrive without government support
Lewis, managing editor of the saw a growth in the number of once they reach a critical mass,
EIU’s Executive Briefing. US patents registered, including they rely on such help to get going.
This disconnect between what Poland, the Czech Republic and Martijn Peeters, director of
gets invented in the lab and what Hungary (see table, opposite). transaction services strategy at
gets sold in the marketplace is How can the region build on PwC Russia, says similar hubs
leading to one of the biggest this? By creating “innovation of technological development
are starting to spring up in CEE.
He cites Dubna in Russia, where
the new International Innovation
Centre of Nanotechnology
is being established by the
Kurchatov Institute, the Joint
Institute of Nuclear Research and
the International Association of
Academies of Science. The
new hub in Dubna is part of a
Russian government strategy
to turn the country into a world
leader in nanotechnology (see
article on p.16).
Government assistance is
particularly crucial for stimulating
innovation in CEE countries
because they do not have the
levels of access to private capital
enjoyed by innovators in the US,
Wasden says. Russia is not the
only country in the region taking
getty images

Blast off: Kazakhstan’s first

satellite launches from Russia’s such steps.
Baikonur cosmodrome in “In Poland, there is the Polish
Kazakhstan in 2006
Academy of Science, which

technology & IT

Innovation trends
The number of US patents registered by companies in particular countries is used by academics, including Dr Per Högselius
at Stockholm’s Royal Institute of Technology, as a barometer of innovation activity. Here is a snapshot of how CEE countries
compare according to this metric:

Pre 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 All
1995 years
Russia 41 99 118 112 194 185 185 239 203 203 173 154 176 193 181 2,456
Hungary 1,696 51 43 25 52 39 38 61 48 72 52 48 49 55 72 2,401
Poland 329 8 16 11 19 20 13 16 13 19 19 25 31 39 68 646
Bulgaria 347 1 1 5 4 3 1 5 3 11 4 6 4 7 18 420
Czech Republic 1 1 5 14 17 25 51 30 31 44 32 28 37 41 56 413
Serbia-Montenegro Yu 267 6 6 6 4 3 4 4 4 2 1 4 2 0 0 313
Turkey 39 2 3 5 2 4 6 14 18 32 19 10 25 24 35 238
Estonia 1 2 1 0 0 1 4 2 6 3 2 5 2 10 3 42
Kazakhstan 1 0 0 1 1 1 4 3 2 1 2 2 1 3 1 23
Latvia 0 0 0 0 1 3 1 1 0 4 2 2 2 3 1 20

Source: US Patents and Trademark Office

Armenia 0 1 0 0 0 1 0 1 1 2 1 1 2 1 1 12
Uzbekistan 1 1 1 0 1 1 2 2 1 0 1 0 1 0 0 12
Azerbaijan 0 0 2 0 0 1 1 0 0 1 1 0 1 2 2 11
Serbia 0 0 0 0 0 0 0 0 0 0 0 0 0 7 4 11
Moldova 0 0 0 0 0 3 0 0 1 1 4 1 0 0 0 10
Kyrgyzstan 0 0 1 0 0 0 1 1 0 0 0 0 0 0 1 4
Bosnia/Herzegovina 0 0 0 0 0 0 0 1 1 0 0 0 0 0 1 3
Macedonia 0 0 0 0 0 0 0 0 0 1 0 0 0 0 1 2

provides grant funding and E750m to funding research and more reluctant to engage high
support for young inventors,” development (R&D) cooperation amounts of R&D.”
Wasden says. This initiative is between CEE firms and their While government funding
designed to reverse the brain counterparts across the rest of is welcome, Wasden sounds a
drain. “You don’t have to be Europe. “This important planning word of warning: “You often have
Polish to benefit; you just have to of investment is essential to build reviewers of government grants
be linked to a Polish innovation and strengthen the research who have no commercial sense.
activity. The aim is to bring and innovation capacity of All they focus on is the scientific
talent into the country to create central and eastern Europe,” elements. So you get people who
domestic employment and says a European Commission receive grant money because
commercial opportunities.” spokeswoman. “The big they are brilliant scientists, but
Help is available at EU level challenge is now to implement there is no commercial avenue or
too. “In the last couple of years, this ambitious planning within the channel.” It is important, he adds,
since Hungary has been part of context of the global economic that those who are responsible for
the EU, lots of new funds have crisis, as governments are handing out government grants
become available. It changes have a commercial head on
the whole picture,” says their shoulders.
Graphisoft’s Pfemeter. “Many people are migrating to What more can governments
The EU has earmarked E25bn more developed countries.The do to stimulate and
for supporting research and region has the potential but we commercialise innovative
innovation in new member states technologies? Pfemeter reckons
between 2007 and 2013. On must work hard to keep it” investing in internet connectivity
top of this, the EU is devoting akos pfemeter, director, graphisoft would help: “The world is

PricewaterhouseCoopers 13
Best in class shrinking because of the internet.
It brings the rest of the world into
What types of technology and IT “This company now sells more
the CEE region, which means that
innovation are specific countries products outside Russia than inside
there is no longer a strong reason
particularly proficient at? the country.”
for people to physically leave
Hungary performs strongly in Document conversion, data capture
the vicinity. So improving online
innovation. Hungarians have won and linguistic software outfit ABBYY
information access will improve
10 Nobel prizes – per capita, that is is another Russian IT firm enjoying
the competitive advantage of
high. Moreover, the country boasts global success. Its products are sold
the region.”
the highest number of US-registered in 130 countries and used by more
There is also a need to foster
patents in CEE, apart from Russia. than 30 million people. “Russian
a culture of entrepreneurialism
There are signs that the software exports are now worth
across the region. Indeed, recent
next generation of Hungarian more than $1bn annually,” says Slavo
polls suggest that the majority
technologists will continue to push Radoševic, professor of industry
of young Russians either want
back the boundaries. For example, and innovation studies at University
to work for the government or
a Hungarian student recently won College London’s School of Slavonic
a state-owned enterprise, says
an international award for creating a and East European Studies. “This
Thomas Nastas, president and
3D interface that enables computer is focused on the high-value-added
founder of Innovative Ventures, a
users to control on-screen images end of the software sector. This is a
Michigan and Moscow-based firm
using head movements. very healthy signal.” Software and IT
that designs and builds venture
Poland, meanwhile, boasts services development is also relatively
capital funds.
particularly impressive healthcare strong in Romania and the Czech
innovation and is also strong on small- Republic. Because these countries are
Better environment
scale aviation. smaller than Russia, the importance
According to the EIU report
In Russia, IT is one of the few of looking overseas for customers is
mentioned earlier, most
areas outside the oil and gas sector even more important.
innovation activity across CEE
in which domestic companies are Elsewhere, Estonia has shone in
is spearheaded by foreign
building strong brand recognition and telecoms and IT innovation, though
rather than local firms. “Such
growing market share abroad. “Anti- this has seen high levels of exports.
dependence leaves the region’s
virus software provider Kaspersky “Local firms are not strong enough to
economies vulnerable, and to
Lab is a good example,” says Alexey scale up sufficiently. So activities are
overcome this governments,
Dang, a manager in PwC Russia’s focused on electronic assembly, for
universities and local businesses
transaction services strategy team. example,” says Radoševic.
will have to work together to
improve the environment for
innovation,” it concludes.
Future thinking: Russia Yet Pfemeter is adamant that
has ambitions to become
a nanotech hub homegrown CEE companies are
increasingly holding their own
in innovation. “Foreign money
and companies come in, but
companies such as Graphisoft
are increasingly reaching out.”
What more can technology
companies in the region do
to attract investment? Slavo
Radoševic, professor of industry
science photolibrary

and innovation studies at

University College London’s
School of Slavonic and East
European Studies, has the
following advice: make the most
of the skilled local workforce;
technology & IT

CEE innovation hotspots

Dubna, Russia: Site of the new International
Innovation Centre of Nanotechnology, announced
Poland: In 2005, the Polish government earlier this year by the Kurchatov Institute, the
established the Council for Science, a new Joint Institute of Nuclear Research and the
body designed to finance science and International Association of Academies of Science.
technology-related R&D. Poland has a strong The Russian government has launched a strategy
track record in small-scale aviation innovation, to position the country as a world leader in
with around 55 aeroplane, glider and helicopter nanotech (see article on p.16).
firms employing about 16,000 people.

Budapest: The Hungarian capital is home to

cutting-edge technology companies such as
Graphisoft, a leading architectural software
firms and Nav N Go, a top satellite navigation
firm. Hungarians have registered more US
patents than residents of any other CEE
country apart from Russia (see table on p.13).
Moscow: Headquarters for a growing number of
world-leading software firms including linguistics
specialist ABBYY and anti-virus developer
Kaspersky Lab. In 2008, Russian IT-related
exports reached the $1bn mark for the first
time: a promising sign for the future, says Slavo
Radoševic, professor of industry and innovation
Slovenia: Ranked by the Economist studies at University College London’s School of
Intelligence Unit as the leading CEE country Slavonic and East European Studies.
by innovation performance because of its
strong links between academic research
activity and commercial enterprise.

build a robust list of western “Consumers and businesses in support for innovation across
clients and partners; and focus CEE countries are technically savvy CEE to bear fruit in the near
on specialised products and future, and predicts a rise in
services rather than competing and open to innovation so their patent levels. However, that won’t
head-on with incumbent uptake of technology is strong” happen unless start-ups and
technology giants in the thomas nastas, president, innovative ventures investors play their part too.
developed world. Making greater How important is technology
use of patents would also help and IT innovation to CEE
to bolster CEE technology firms’ are technically savvy and open countries’ broader socioeconomic
investment case, he adds. to innovation, so their uptake future? Lewis says: “There has
If companies in the region of technology is strong. As CEE been a consensus in the past
focus on these goals, technology economies continue to mature, that transition economies should
investors are sure to become we will see a broadening of focus on copying the West. This
more active in the region, technology opportunities.” is not the case. Innovation is vital
says Nastas. “Consumers and The EIU’s Lewis expects the for the GDP growth of transition
businesses in CEE countries recent increase in government economies as well.” n

PricewaterhouseCoopers 15
Technology & IT

anotechnology (or Chinese, Indian and Singaporean
nanotech) is the smallest institutes and corporates have also
next big thing. Although gained prominence.
theoretically this branch of And in 2007 Russia joined the
science has been around for 50 fray, in the form of the Russian
years – it was officially born on 29 Corporation of Nanotechnologies
December 1959, when US quantum (Rusnano). With an initial budget
physicist Richard Feynman made of $5bn, Moscow-based Rusnano
a groundbreaking speech at the aims to act as a “venture investor in
California Institute of Technology nanotechnology-related projects”
(Caltech) – it only truly sprang to life – essentially, injecting capital into
after the turn of the millennium. start-up companies in exchange
Nanotech is science at a for an equity interest. The company
microscopic level, on which the is 100% state-owned. One major

Small is beautiful universe itself can be broken down

into quantum packets, allowing
stakeholder, the Moscow-based
Kurchatov Institute, has been
scientists to deconstruct and Russia’s leading atomic research
analyse the make-up of everything centre since the USSR kicked off its
Russia is a relative newcomer to from single molecules to entire nuclear programme in 1943.
the nanotechnology sector but planets. A nanometre is measured Rusnano’s aims are lofty. Its
given enough investment and as a billionth of one metre – or the chairman, Anatoly Chubais (see
distance that a man’s beard hair box on p.19), has reportedly said
regulatory freedom, it is well
grows in the time it takes to lift a Russia’s nanotech industry will
placed to realise its ambition of razor to his face. account for RUB900bn ($29bn)
becoming a global leader Each month billions of dollars in annual sales by 2015. While
are pumped into nanotech a bold claim, the global market
words: Elliot Wilson research at private institutes and for the application of nanotech
leading corporates such as French in manufactured goods alone is
defence group Thales, German tipped to grow at a compound rate
transport-to-aerospace giant of 33% over the next six years,
Daimler and US-based electronics reaching $3.1trn by 2015, according
company Seagate. Each is seeking to technology advisory firm Lux
ways to make smaller things that Research. The overall market is

extend our lives and make our expected to hit $200bn in global
working careers more effective sales by around 2015, from about
and more efficient. In recent years $30bn in 2008, according to Global

PricewaterhouseCoopers 17
Industry Analysts. Rusnano has facility. Set to open in October kilometre-long laser research facility
already started dipping into its pot of 2012, XFEL’s facility will include being built at XFEL is based on
cash, to date investing RUB32.4bn a chamber capable of emitting breakthroughs made in the 1980s at
in 14 projects. It always acts as a 30,000 X-ray flashes each second. It the Novosibirsk Institute of Nuclear
minority co-investor, taking a less will help scientists map the ultra- Physics in central Siberia. Indeed,
than 50% equity stake, and provides fine molecular make-up of many many advances in the nascent
loans at favourable rates. diseases, and chart the composition nanotech field in the 1970s and
Latest investments include a of the nanoworld. The medical world 1980s were made in Soviet research
RUB3.7bn equity contribution is one that hopes to benefit from this labs, where scientists manipulated
towards a new company research, which could lead to cures matter on an atomic scale.
specialising in the production for many ailments.
of solar modules using thin-film Rusnano hopes the XFEL project Track record
technology. The company, due to will be one of many overseas In the 1980s, scientists working
be based in Novocheboksarsk, is a investments. Chubais recently met in the industrial city of Gorkiy
collaboration between Rusnano and with leading investment banks developed a form of technology
Russia’s Renova Group. in a bid to attract investors from known as ‘quantum dots’: tiny
Another Russia-based joint outside Russia. The one condition motes of semiconducting material
venture, this time between placed on applications for that work on a microscopic scale
Rusnano and Danaflex, involves the investment from overseas projects and are now used on electronic
production of high-barrier polymer is that part of the nanotech display screens. In 1980, the USSR
film and flexible packaging materials production be based in Russia. was 15 years ahead of the rest of
for the packaging of food and other Rusnano’s German investment the world in nanotech research;
household materials. High-barrier has a historic resonance. The 3.4 now, the US, China and some
flexible film allows food to be heated European countries have overtaken
in microwaves without the need to it. But if Moscow can to lure back
remove the packaging first. Rusnano “The aim is not just to create a its foremost scientific minds,
has put RUB1.2m into the project. nano-industry but to perceive it there is reason to believe Russia
can redeem its position on the
Further afield will as a locomotive for creating an burgeoning nanotech scene.
Rusnano is also investing overseas. innovation economy in the For that to happen, Rusnano and
In April 2009, it announced that country as a whole” others need more investment and
it would put RUB10.9bn into the lighter state regulation. That means
European X-Ray Free Electron Laser anatoly chubais, easing capital controls, cutting
Project at Hamburg’s XFEL research director general, rusnano taxes and relaxing customs laws.

A short history of nanotech

1867 1959 1965 1980s and 90s 1999
The potential of The first proper mention Gordon Moore, co-founder of Key decades for The Russian Academy
nanotechnology is of nanotechnology Intel, posited that the number of nanotechnology in of Sciences (RAS)
first mooted by Scottish (still minus the actual transistors in a given space could which the building begins publishing the
physicist James Clerk name) is made in a 29 double every year, which he later blocks for today’s respected industry
Maxwell, who imagined a December speech at updated to approximately every breakthroughs are magazine, Journal of
tiny ‘being’ California’s two years, a theory that became laid down. Major Nano and Microsystem
that is Caltech by known as Moore’s Law. This law developments include Technique. The
able to American creates the entire underpinning the invention of the publication quickly gains
control physicist of nanotechnology, which in its scanning tunneling a wide audience both
individual Richard basic form is predicated on the microscope and the at home and in key
molecules. Feynman. ability to get very small things to discovery of fullerenes institutions and colleges
do what you want them to. and carbon nanotubes. in the US and Europe.

Technology & IT

can compete in the global market.”

Russia has long been seen as a Anatoly Chubais: the right man
natural resources supermarket that
powers an economy dependent on At the head of Rusnano sits
heavy industry. For Rusnano and Anatoly Borisovich Chubais, a
other nanotech bodies to succeed, businessman, political figure
that must change. “If we were able and reformer. It is hard to
to create the basis for a market imagine anyone better suited
economy then the next aim is to take to running Rusnano than the
Tiny helpers: MIT’s robotic lab hopes to use it to the next level,” Chubais told the 54-year-old Chubais.
robot ‘gnats’ to perform internal checks and
repair inaccessible machinery FT. “Now we have to go [back] to His background as an
college. Russian business should engineer and financial thinker
learn not just how to make good introduced him to a group of
The intellectual property rights of steel or extract oil but also produce pioneering economists in the early 1980s. Determined
Russian nanotech start-up firms also innovative goods. This is a very to bring free market-based reform to the Soviet Union,
need to be protected. complicated task.” Chubais was the key figure involved in the privatisation of
peter menzel, christian darkin/science photo library, getty images

Chubais has said nanotech is Russian state interests from 1991, on the watch of former
a vital cog in the wider Russian Tapping potential president Boris Yeltsin.
economy. It is a standalone revenue Hungary, widely seen as a CEE He remained an influential figure during Vladimir Putin’s
and tax generator while driving a leader in the nanotech space, presidency, and his high profile in the Russian corporate
variety of other economic sectors, might offer one model solution. It and political world under four Soviet and Russian
including utilities, medical products, has more than 50 research groups presidents has earned him respect in many quarters.
clothing and military applications. and institutes, each focused on During his 10 years as head of UES, Russia’s state-
“The aim is not just to create a developing new, nano-scaled owned electricity company, he delivered unprecedented
nano-industry, but to perceive it as a technology that can be applied reform of the nation’s utilities industry. The former
locomotive for creating an innovation across all manner of industries. vertically integrated system of power assets today
economy in the country as a whole,” Such investments will be repaid operates as two segments: competitive power generation
Chubais said in an interview with because nanotech really is the and monopoly-based distribution. The industry has also
the Financial Times. “We have a next big thing. True, the sector is successfully attracted big and small foreign investors.
market economy, but our market is controversial, with many critics All this makes Chubais a logical choice to head state-
fairly primitive. It produces oil, gas worrying about the potential damage owned Rusnano, which needs to throw off the shackles
and foodstuffs but very few modern to the environment and human of government regulation and cut investment deals in
high-tech goods. At the moment, health caused by meddling with Russia and across the world.
we mostly do not have products that nature at such a quantum level. In

2007 2008 2009

Moscow launches a new institute for development, Andre Geim and Kostya Novoselov, Rusnano announces it will invest RUB31.6bn in
the Russian Corporation of Nanotechnologies researchers at the University of projects in 2009, with 90% invested in industry,
(Rusnano). Based in Moscow, and with an initial Manchester, produce a ground- infrastructure and educational projects, and the rest
budget of $5bn, Rusnano’s stated aim is to act breaking new material, graphane, to be invested in the XFEL project. Rusnano says
as a “venture investor in nanotechnology-related derived from graphene, which it will invest 250m in the European X-Ray Free-
projects”. IBM announces it is close to creating opens up new possibilities in the Electron Laser Project at Hamburg’s XFEL research
magnetic anisotropy in individual atoms and development of electronic devices. facility. Separately, Rusnano announces it will invest
molecules. This would mean the creation of a As well as being both an insulator $36m in a packaging materials joint venture with
fundamental new way to store and stream digital and a semiconductor, graphane a Tatarstan-based firm, Danaflex. In exchange,
information on a quantum scale. In future, it will might also find use as a hydrogen- Rusnano will receive a 49% share, which will
probably be possible to store millions of videos or storage medium and could be used manufacture high-barrier plastic film used in
files on a device roughly the size of an iPod. to create transistors. grocery, pharmaceutical and cosmetics packaging.

PricewaterhouseCoopers 19
can be
can be
in any
in any
No matter what the markets are doing, Advisory Managing Partner – CEE
or how buoyant the economy may or Mark Okes-Voysey +7 495 232 5713
maymatter what
not be, the markets
it’s never areand
all doom doing, Advisory Managing Partner – CEE
or Consulting Leader –+7
gloom. There are always ways for or
how buoyant the economy may Mark Okes-Voysey 495 232 5713
may not be, to
never all doom and Bob Gruman +7 495 232 5725
businesses Consulting Leader – CEE
gloom. There are always ways for Transactions Leader – CEE
All you needtoisgrow.
the right advice from Bob Gruman +7 495 232 5725
businesses Mike Wilder +48 22 523 44 13
the right people at the right time. Transactions Leader – CEE
All you need is the right advice from Mike Wilder +48 22 523 44 13
the right people at the right time.

© 2009 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

© 2009 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
Technology & IT

recent years, for example, European

countries banned the addition of Nanotech in practice
silver nanoparticles to clothing, after
finding that the metal leaks into Clothing: Military
waste water during washing, where Nanoparticles applications:
it destroys bacteria essential to embedded with In future, nanobots
human health and water treatment. silver particles can be used
Still, the potential is vast. Nano- added to clothes to dismantle
wiring in semiconductors massively prevent textiles landmines,
increases the power of every from getting while smaller
electronic component. For the same sweaty. The silver working parts
reason, doctors expect nanotech to particles prevent the build-up of bacteria mean smaller working bombs, allowing
provide the next great leap forward that leads to body odour. On the negative payloads to be carried on smaller aircraft.
in the medical and pharmaceutical side, the silver often washes out, harming Carbon nanotubes in protective clothing,
space. Nanotech will allow doctors waste water and ‘good’ bacteria that we meanwhile, will cause bullets to bounce
to identify cancerous tumours, for need in our bodies and in nature. Prognosis: off. Prognosis: another profitable set of
example, before using nano-scale work in progress. applications, although smaller bombs will
therapy to destroy them, as well as also be more easily hidden by terrorists.
miniaturised tools driven by nano-
powered batteries. Weatherproofs: Medical
The potential at this infinitesimal Nanoparticles procedures:
scale is virtually limitless. Nanotech added to Nanobots and
will eventually allow scientists to weatherproof nanoinstruments
visually deconstruct entire planets, clothing prevent can be used to
allowing us to view them from any water or wind operate on a
the insides – and to see if any getting in. The microscopic scale
extrasolar planets are capable of tight tubing of the on everything from
sustaining life. particles can also shrink clothing to a precise kidney stones to ear infections. Nanotubes
Researchers at Brown University fit and, when allied with bacteria-proof can be inserted into joints to rebuild
in the US believe they are close to particles, means that clothing can be worn cartilage and spur regrowth. Prognosis:
being able to repair damaged joint for months without needing to be washed. nanotech will allow us in time to ‘visualise’
cartilage by inserting microscopic The downside is the expense. Prognosis: the entire body, broken down into healthy
carbon nanotubes, which in turn promising but, like all new technology, needs and damaged molecules. Could bring in
cause stronger cartilage cells to fall in price before being widely accepted. trillions of dollars in revenue.
eye of science, volker steger, science photo library/alamy

to be generated. On the military

front, University of Sydney Green Meteorology:
researchers have created a system technology: Astronomers
of interlocking carbon nanotubes Virtually unlimited will be able to
that create an almost indestructible potential. use complex
protective jacket. Ultracapacitors visual tools to
Few of the most advanced in batteries will give us an idea
products in the nanotech space eventually lead to of where other
have emerged from CEE but with much more durable habitable planets
enough time and money – and a batteries powering any manner of electric lie. Geologists
lighter regulatory touch – there is no vehicle. These ultracapacitors are able to and physicists will use the same process
reason why Russia or the withhold, release and absorb energy at a to understand the make-up and structure
likes of Hungary, the Czech far more prodigious pace and in greater of our own planet. Prognosis: less practical
Republic, Poland and Slovenia, quantities than existing batteries. Prognosis: than other applications, but could help us
cannot become global leaders huge potential; few obvious drawbacks. understand ourselves and the universe.
in nanotechnology. n

PricewaterhouseCoopers 21
CEE governments are stepping up efforts to
offer e-services, but some are finding that
demand remains weak. Consulting citizens
first will guarantee better take-up

technology & IT

imultaneous political, carried out for the Indian
economic and social administration. It is a project that
reform has, without doubt, could prove to be a model for
been the biggest good news many CEE governments.
story across CEE over the past The award-winning e-Sampark
two decades. Less celebrated is project in Chandigarh, northern
the ability of many government India, employs a one-stop-
services to keep up with this shop approach to providing
reform, but this situation cannot government services for local
be sustained for much longer. As residents. The e-Sampark centres,
the region’s market economies available at 11 locations within the
mature, government departments city of Chandigarh and 13 more
will start to feel pressure from in outlying areas, allow residents
several sides: citizens will demand to access multiple services at “In the past, most
better public goods and services; a single point – for example, to government services
the burgeoning private sector will pay taxes and electricity bills,
seek an appropriate investment get birth and death certificates, were designed with
climate, regulatory regime and and apply for passports. Staff the government at
a level playing field; and the input information on computers the centre. Now the
democratically elected parliaments for citizens who need help,
will want the delivery of effective overcoming problems of computer question is how
policies and programmes. illiteracy. The city, which is well easy is it for the
known for its modern approach citizen to get the
Finding a solution to urban planning, says the main
Many officials and observers point of e-Sampark is to avoid service done?”
tout ‘electronic government’ as a the need for visits to multiple neel ratan,
way of meeting these emerging locations, and to improve access executive director, pwc
demands. For e-government for citizens who would normally
enthusiasts, the internet and visit the city centre to carry out
related technologies offer a fast basic tasks such as paying taxes.
track to updating and improving In addition to public services,
moribund public services and, e-Sampark also allows visitors
in the process, altering the to pay private sector bills, and to
relationship between governments access other services online.
and their various stakeholders. The e-Sampark initiative has
Exactly how do they expect been a resounding success.
the relationship to change? Neel Since launching in September
Ratan, an executive director with 2004, the project has been
PwC India and an e-government singled out for praise by Indian
veteran, sums it up: “In the past, Prime Minister Dr Manmohan
most government services were Singh, and has also received a
designed with the government at Golden Peacock Award from the
the centre. Now the question is, Indian Institute of Directors.
how easy is it for the citizen to get e-Sampark’s knack of allowing
the service done?” local citizens’ needs to drive the
getty images

That is a question that lies at the way e-government services are

heart of the work on e-government developed is something CEE
that Ratan and his team have could do with emulating if it is to

e-government readiness: How CEE shapes up e-government is particular to
each country, depending on the
Country Readiness score World rank Key website nature of government structures,
the expectations of citizens
Estonia 0.7600 13 www.riik.ee
and the internal motivations
Czech Rep 0.6696 25 http://portal.gov.cz of administrations in charge.
Slovenia 0.6681 26 http://e-uprava.gov.si/e-uprava Estonia’s development has
been helped by a proximity
Lithuania 0.6617 28 www.evaldzia.lt
to e-government pioneers
Hungary 0.6485 30 www.magyarorszag.hu Finland and Sweden, and the
Poland 0.6117 33 www.poland.gov.pl/ expectations of its people, who
were exposed to IT even during
Latvia 0.5944 36 www.mk.gov.lv
Soviet times. That Estonia has
Slovakia 0.5889 38 www.portal.gov.sk fewer than 1.4 million people
Bulgaria 0.5719 43 www.government.bg means reforms are less complex
than elsewhere.
Romania 0.5383 51 www.gov.ro Arvo Ott, executive director of
Source: United Nations 2008 e-Government Survey the e-Governance Academy in
Tallinn, says political dynamism
be equally successful in this area. Republic and CEE public sector has also been important to
in numbers
At the moment, provision across leader at PwC. “There is a Estonia’s quick progress. “There
the region is patchy. special operational programme Regional was motivation among our top
Some nations are bounding where you can finance many average of leaders to push forward the key
ahead. Estonia and Slovenia have e-government programmes using e-government projects. We launched electronic
been investing in e-services for EU funds. That’s why in the Czech readiness ID cards in 2002, and it gives us
some time, seeing technology Republic it has moved forward good grounds for interoperability.
as a source of national pride and
a badge of modernity. After a
substantially,” he says.
There are other, less direct
0.6490 The same tools can be used on
government sites and on private
slower start, the likes of the Czech drivers. The influence of EUROPE sector sites, for internet banking

Republic, Hungary and Latvia are organisations such as the EU and and so on.”
progressing strongly too, driven the United Nations (UN) – both
by outside influences, as well as of which have e-government The Americas High scoring
internal political pressures. benchmarking exercises – has While Estonia ranks 13th overall

EU influence
created a virtuous circle where
governments continually add
0.4470 in the UN’s 2008 e-Government
Survey, its fellow Baltic countries,
EU accession has played a major more services as they seek to
asia Lithuania and Latvia, are in 28th
role in persuading countries to
pursue e-government initiatives,
maintain their standing among
their peers. 0.4338 and 36th places respectively (see
table, above). Hungary, Poland
says Ljupco Todorovski, a Across CEE, e-government oceania and Slovakia score respectably in
professor specialising in services include registering cars, the UN survey but outside the EU,
e-government at Slovenia’s
University of Ljubljana.
births and marriages; issuing
licences, building permits and
0.2739 CEE countries have moved slower
on e-government.
“Many governments adopted passports; collecting taxes, VAT Russia for example, produced
Source: UN, 2008
e-government during EU and customs fees; and providing an “E-Russia” plan in 2002, but
accession, as part of reforms to information about medical tests the scheme stalled. President
make them seem more modern in and state procurement. Recently, Dmitry Medvedev recently
the eyes of Brussels.” countries such as Estonia have announced an initiative to
The availability of EU structural begun to use technology to revitalise the project. In February,
funds for electronic development deliver services and to involve he admitted that most internal

provides an ongoing incentive as citizens more directly in the government documents still
well, according to Jiri Halouzka, running of government. circulated in paper form, and that
advisory partner in the Czech The development of little had improved for citizens.

technology & it

Miroslav Lyantsevich, a countries adopt e-government.

Moscow-based independent The UN’s e-Government report E-government best practice
analyst, says much of this malaise says governments move through Focus on the customer: Effective services are
in Russia is down to a problem of five stages of evolution in their based on in-depth analysis of customer data.
definition. The task is perceived electronic development. The Explore alternative delivery: Real world service
mostly as a technical one, and first is a web page with basic centres, kiosks, and mobile delivery, rather than a PC-
little attention has been paid to information. The second is an based service, ensure access to the greatest number.
how this new software will change enhanced site with links and Get high-level buy-in: Evidence shows that those
the way citizens and government downloadable documents. The that have moved furthest in e-government are those
interact with each other. These third has some interactivity, with that gained political commitment at an early stage.
changes would require significant access to forms for tax payments. Learn from others: Leaders in e-government tend
legislative amendments. “The The fourth allows citizens to to take ideas from elsewhere, skipping needless
citizen, for example, is still not pay taxes. The final stage has trials and errors of their own.
legally able to use an electronic an integrated ‘back office’ Improve continuously: E-government is a process,
signature when accessing government infrastructure, with not a destination. Leading countries are never
government-issued documents electronic connections between satisfied and are always thinking about ways to
online,” says Lyantsevich. “There departments, to third-party improve their services.
is no body within or outside the stakeholders and citizens through Reform, don’t repurpose: The best administrations
State Duma [Russia’s parliament] a range of services. are moving beyond simply putting offline services
responsible for making the Qian says the majority of on the internet. Instead, they are thinking about
appropriate legislative proposals.” governments are stuck at e-government as an end-to-end process to be more
Not only that, there is an absence stages two or three, believing efficient and customer-focused.
of consistent political will that e-government is merely a
throughout Russia’s three-tier matter of putting services into
governance structure to make an electronic form. This is often was using their government
e-government a reality. because governments fail to put service online.”
Haiyan Qian, director of the their citizens’ needs at the heart But as Ratan’s team
Division for Public Administration of their e-government strategies. demonstrated with its work on
and Development Management Qian says: “A lot of countries have the e-Sampark project in northern
at the UN Department of made the mistake of imagining India, it is possible to overcome
Economic and Social Affairs, what citizens want and delivering this obstacle and when that
who is also responsible for the that without asking them first. happens, citizens are motivated
UN e-Government Survey, says At one point, one of the eastern to actually use e-government
political will is the top factor European countries, for example, services. In April 2009, e-Sampark
in determining how quickly found that only 1% of its citizens collected about 830m INR
(E12.3m) per month in revenue,
up from 300m INR the year
“The citizen, for example, is before. Chandigarh now plans
still not legally able to use an to add more e-Sampark centres
electronic signature soon to expand access further.
Such a ‘customer-centric’
when accessing approach will require a change in
government-issued mindset among many government
documents online” departments, especially among
those in the former Communist
miroslav lyantsevich, Bloc. “The focus on the customer
analyst, russia is something new in this part
of the world,” says PwC’s
Halouzka. “For many years, if you
needed something from a public
institution, you were treated with
caution. Now that is changing.” n

PricewaterhouseCoopers 25
In from the
Finnish energy company Fortum
has expanded into Russia and
is stressing the importance of
transparency and compliance

capturing deal value

little over a year ago, the former Soviet bloc through
Fortum, Finland’s largest its interests in Poland. But
energy utility, took a giant the risks of operating a newly
leap forward in its bid to expand privatised utility in southern
beyond the company’s Baltic Russia represented a quantum
Rim home turf when it acquired leap. “A company that has never
a majority stake in TGC-10 been public – especially one
(Territorial Generating Company that is in an outlying Russian
number 10), which was up for region – is just not used to being
sale as part of the privatisation of as transparent about its own
Russia’s electricity sector. risks and controls, and their
The deal was a major coup impact on the business, as a
for Fortum: buying one of the listed western company,” Moore
14 Russian TGCs gave Fortum says. While TGC-10 employees
a foothold in a huge and fast- may have had some experience
expanding market. TGC-10 had of compliance regimes, they
the added draw of being located simply had never considered a
in the heavily industrial area of the global context and the potential
southern Urals Federal District exposure that a publicly quoted
and part of western Siberia. western company’s brand has.
However, the deal also brings
an unfamiliar degree of risk for On the ground
Fortum, and not just a financial For the risk assessment project,
risk – though that is large Fortum’s man on the ground
enough, with the E2.5bn price is Lars-Hakan Ellenius, vice-
tag for the acquisition of 93.4% president of risk at TGC-10.
of the company. The deal also The initial objective, he says,
represents a huge cultural leap for was to try to implement as
the Finnish utility, bringing it 2,200 much as possible the basic
kilometres south of its Helsinki elements of Fortum’s existing
home base and into a vastly risk management system in
different business culture. TGC-10. However, the company
In February, when PwC was is fully aware of the difficulties
brought in by Fortum to conduct involved, as illustrated by the
a full gap analysis of TGC-10’s following passage from the risk
internal audit, risk management management section of Fortum’s
and control systems, the point 2008 annual report: “Inadequacies
person picked was Michelle in the legal systems and law
Moore, partner in PwC’s Moscow enforcement mechanisms in
Performance Improvement Russia… exposes Fortum to risk
practice (part of Governance, Risk
and Compliance, or GRC).
In recent years, Moore and “We recommend
her colleagues have worked defining the
with some of the largest energy
companies, including TNK-BP business process
and Tatneft, the first Russian owner and
energy company to list on the articulating new
New York Stock Exchange.
getty images

For its part, Fortum has

operated outside its home michelle moore,
country for years, including in Partner, PwC

PricewaterhouseCoopers 27
Risk and reward.
Risk and reward.
Find the right balance.
Find the right balance.

Putting risk at the centre of your business

is important now more than ever.
Putting risk at the centre of your business
At important now more than ever.
PricewaterhouseCoopers we work
with companies helping them to bridge
riskPricewaterhouseCoopers we work
and business strategy. Putting risk
with companies helping them to bridge
at the centre of their business and still
risk and business
achieving success.strategy. Putting risk
To find more
visit pwc.com/financialservicesand still
the centre of their business
achieving success. To find more
visit pwc.com/financialservices

© 2009 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

© 2009 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
capturing deal value

of loss as a result of criminal or

Extensive investment programme in russia
abusive practices by competitors,
Fortum plans to increase generating
suppliers, or contracting parties. capacity across TGC-10’s six
Fortum’s ability to operate in locations from 3,020 MW to 5,290 MW

Russia may also be adversely

affected by difficulties in protecting Tobolsk•

and enforcing its rights in disputes Tyumen•

with its contractual partners or Nyagan• • Kurgan

other parties, and also by future

changes to local laws Argayash •
• Chelyabinsk
and regulations.”

Slush funds •Moscow

This is more than boilerplate risk
copy. There have been plenty
of examples in recent years of
western companies that have done
huge damage – both financially and
to their reputations – because they
have assumed a relativist approach Source: Fortum Annual Report 2008

to governance and operating

practices in emerging markets. But translating their concerns performance is assessed partly in
Perhaps the most high-profile down to the shop floor proved a terms of how the business process
example recently involving painstaking effort, which required owner has assessed the risks and
Russia was Siemens, the German her to spend time working with designed controls to mitigate it.
industrial conglomerate that has Ellenius and key managers in
had to pay massive fines and Chelyabinsk on the details of New culture
has seen some of its most senior the gap analysis and how to turn The real test is in eliminating bad
executives face trials for running Fortum’s system into a workable practices that may have become
slush funds to secure business. In equivalent for south Russia. embedded, such as paying
December 2008, Siemens finally As with the parent company’s kickbacks to suppliers. “The only
resolved all the charges under the risk framework, the audit way to overcome these challenges
US Foreign Corrupt Practices Act, committee is responsible for is to show how it is going to
by agreeing to pay $1.6bn in fines risk oversight at the local level. be good for their jobs and their
and disgorgements of profit. All change: TGC-10, which The main principle of the Fortum pocketbooks, and to show how
produces electricity for the
As Moore says, the risks oil and gas sector, faced system is that risks are managed they can do better without these
are very well known among major changes to bring at source and to maintain a strict practices,” Moore says.
it into line with Fortum’s
senior Russian executives. business culture segregation of duties, risk control For TGC-10, Ellenius says the
functions at the business and company has initially focused on
service unit levels are responsible just a handful of priority areas.
for reporting risks to Corporate Have there been any surprises?
Risk Management at group level. Ellenius treads carefully but
The system advocated by PwC, says that the process revealed
Moore explains, is twofold; a kind some “important angles in the
of carrot-and-stick approach. “We purchasing process” that helped it
recommend defining the business to tighten up its control systems.
process owner… and articulating Caution about internal controls
new KPIs [key performance is something Moore encounters
indicators] for a particular job,” she time and again from Russian
says. The carrot part is that the executives: nobody wants to end
KPI is linked to salary and bonus, up as the Russian Enron. That is
while the stick part is that job the main point of the exercise. n

PricewaterhouseCoopers 29
Marina Jigalova-Ozkan,
head of Walt Disney in
Russia, has faced many
challenges during her
climb up the career
ladder – but none has
been because she is a
woman, she says

developing talent

Female intuition
Leading businesswomen in CEE say that, provided they
put their strengths to work, there is no reason why
they should be at a disadvantage compared to men
Words: Eila Rana

arina Jigalova-Ozkan accounts in western Europe and
knows about success. A beyond of the glass ceiling that
graduate of the Moscow women in the corporate world face.
State Institute for International In the UK, for example, Harriet
Relations, she took up her first Harman, the government minister
board position when she was just for equality, has proposed new
25. Today, she runs the Russian legislation that will require firms
operation of US-based global employing at least 250 staff to
entertainment company Walt Disney. publish hourly pay rates for men
Along the way she has served and women by 2013 in a bid to
as first deputy general director expose employers who pay female
of Prof Media Moscow (part of employees less than their male
“It’s part of
Russia’s biggest media company), colleagues. Furthermore, a recent mythology that
worked at the European Bank for PwC survey of City professionals women are unable
Reconstruction and Development concluded that the pipeline of female
and earned an MBA from Harvard. leadership for UK business could
to cope with further
The road to success has not be reversed or irreparably damaged career progression.
been short of challenges. Most have by the current economic downturn, That’s one of the
been about not being afraid to take after almost three-quarters of the
responsibility early on in a role; not mainly female respondents said they
biggest reasons for
being afraid to have a view; and not saw redundancy as an opportunity female turnover at
being afraid to make mistakes – but to exit corporate life. senior levels”
none have been because she is a Companies like PwC have long
Natalia Yakovleva,
woman in a mostly male world. On worked towards mitigating this risk
Portrait: Frank herfort

that front, says Jigalova-Ozkan, “I’ve via initiatives such as its Gender partner, Pwc
never experienced any difficulties.” Advisory Council, an international
That is a common story among group of 14 senior male and
many women working on the front female leaders from across PwC
line of business across CEE. It who actively seek to improve the
is a far cry from the almost daily representation of PwC women in

PricewaterhouseCoopers 31
Fortunate one: Henryka
Bochniarz, president of
the Polish Confederation
of Private Employers –

developing talent

the workplace. This initiative was

recently recognised by Opportunity
Now – a UK-based employers’
group that promotes gender equality
at work – which presented PwC with “You have to start
its Global Award at the Opportunity
Now Awards 2009.
from zero every
Glass ceiling stories coming out time, building your
of CEE are few and far between. own reputation and
Why the difference? It is partly to
do with a new era of economic
credibility, which
opportunity that many women, and is tough”
men, are living through across the Olga Grygier,
region. Tanya Rukavina, country country managing Partner,
managing partner with PwC PwC poland
Croatia, says the face of business
in Croatia is changing. “Younger Canada when she was young. After echelons of business. Most women
people are taking over leadership joining PwC Canada in 1988, she will say that the decision whether
roles in business,” she explains. transferred to Budapest five years or not to pursue career progression
“They are looking for innovation, later and worked her way back to is very much a personal one.
they are looking for their place in Croatia, making partnership in 1999. One of Rukavina’s most valued
the European Union and they are Today, she is the only female partner clients is Lada Tedeschi Fiorio, a
looking to move forward. They can’t among the Big Four in Croatia. shareholder and vice president of
afford to be stuck in the old ways.” There is also a strong desire the supervisory board at Atlantic
Rukavina is typical of that new in CEE not to institutionalise Grupa, a Croatian-based sports
generation of leaders. A Croatian- any inequality in male/female food production company. Tedeschi
born national, she moved to representation in the higher Fiorio joined Atlantic Grupa – a part

When luck runs out

Henryka Bochniarz counts herself as Bochniarz reckons Poland’s working be observed in European companies
one of the fortunate ones. The former women suffer “multi-dimensional” and the more women they employ, the
Fulbright Scholar has enjoyed a long discrimination: not only do they higher their return on capital is.
and varied career during which she have less access to senior executive For this reason, it is crucial for the
founded one of the first consulting positions, they also earn less money government and companies in Poland
companies in Poland, NICOM than their male colleagues (20% less, to implement measures to help women
Consulting, and served as the country’s on average) and tend to be employed in progress in the workplace, Bochniarz
government minister for industry. less prestigious economic sectors. They argues. Employers should allow for more
“I had no major trouble with my also struggle with juggling work and flexible working arrangements and grant
career,” she says. “I think it was family commitments, which can lead to women access to jobs with promotional
because of my knowledge, character discrimination at both recruitment and potential, while the government should
and perseverance. Compared to other promotion stage. provide suitable child care systems. It
women, I had a lot of luck and a chance Female discrimination hurts should also stop introducing laws that
to work with many smart men.” companies too, she adds. According are more of a hindrance than a help. A
In her current role as president to recent research, the best-performing case in point? The recent introduction
Portrait: filip miller

of PKPP Lewiatan – the Polish Fortune 500 companies employ more of protection against redundancy after
Confederation of Private Employers women at medium and high managerial maternity leave is pushing women out of
– she seeks to help women who have positions compared to more poorly the jobs market because employers are
not been so lucky in the workplace. performing firms. A similar trend can more reluctant to take them on.

PricewaterhouseCoopers 33
family-owned business run by her worked for 12 months.” How does buy-in of colleagues to make sure
brother Emil Tedeschi – in 1997. Yakovleva do it? that any arrangements they make –
Her success is not down to family She says it is down to three including flexible work options – are
connections or her gender, she things: getting buy-in to personal understood and accepted.”
explains. “It was very much based flexible working needs from bosses What about the other myths?
on my professional skills and my and colleagues; defending those Women cannot communicate;
willingness and dedication to the boundaries; and ensuring you deliver women cannot think strategically;
job and to the company itself. Some on performance objectives. women do not make good leaders.
women choose not to go into top “I have been quite strong-willed Much of that, says Yakovleva, is
positions – they are tough roles,” in defending my boundaries and just not true. Women’s inclusive
she says. “It doesn’t mean because my male colleagues really respect and consensual communication
they are not at the top they are my approach,” Yakovleva says. “I style is often more effective at
discriminated against.” do believe it’s really important when achieving buy-in compared to male
women are planning their family colleagues’ directness.
Exploding myths lives that they should have the It is also a myth, says Yakovleva,
In the same way that that women are not capable of
businesswomen in CEE are thinking long-term and are not good
reluctant to institutionalise a lack at strategy. “I believed this myself so
of female representation at senior I requested training to understand
levels, they generally believe clients’ strategic agendas when I
solutions to this issue are also very was a first/second year partner,”
personal. In fact, many say it is she says. “I found that women are
time to explode a few myths about actually thinking about longer-term,
why women do not succeed as sustainable approaches rather than
well as men in the workplace. short-term immediate options.
Natalia Yakovleva – a partner Women need to build their own self-
with PwC Russia’s Technology, confidence in this area.”
Communications and Entertainment
team, who works closely with Walt Empathy advantage
Disney’s Jigalova-Ozkan – has a As for management styles, Tedeschi
young daughter. Being a working Fiorio reckons women have more
mother did not preclude her from empathy than men. “They are better
becoming a partner at PwC, at multi-tasking, multi-thinking, they
Yakovleva points out. “It’s part of the are more open-minded and take
mythology that women are unable to more things into consideration,” she
cope with further progression in the adds. “That helps gain trust and
firm,” she says. “That’s one of the loyalty. The worst thing a woman
biggest reasons for female turnover can do in business is pretend to be
at senior levels, I think.” “Younger people are like a man.”
Not only has Yakovleva managed taking over leadership There are some things, however,
to balance a busy work and home that will always be tough to tackle.
life, at times she has exceeded the roles. They are looking Olga Grygier, recently made PwC’s
performance of her colleagues. to move forward. They country managing partner in Poland,
On returning from maternity leave, can’t afford to be stuck says the time when careers become
she found herself in a performance most demanding tends to coincide
appraisal for the seven-and-a-half in the old ways” with the time when women start
months that she had worked that tanya rukavina, country managing their families – in their early to mid-
year. “My boss was shocked,” she partner, PwC croatia 30s. “That’s a structural problem,”
remembers. “He said I had achieved she says. That said, it is not unusual
the same as partners who had to see women at senior levels of

developing talent

business in Poland, she adds. in numbers Tough at the top:

The bigger problem in this part Lada Tedeschi Fiorio,
of CEE is building credibility. “In
shareholder and
vice president of the
the UK, if you’re a partner at PwC, supervisory board at
Atlantic Grupa
a certain level of knowledge,
experience and capability is taken Average
for granted,” says Grygier. “Here, percentage of
you have to start from zero every female partners in
time, building your own reputation PwC globally
and credibility, which is tough.”
That is a legacy from the early
days following the collapse of the
Berlin Wall, when western European
advisers attempted to apply their Percentage of
experience to CEE problems, with female partners in
limited success. That has left many PwC across CEE
in CEE sceptical of what external
advisers can bring to the table.
“You need to prove to the client
that you know what you’re talking
about, you have the right experience Percentage of
and you can apply that knowledge female partners in
to the particular problem. It takes PwC Russia
time, and very often it takes social
interaction. That’s where women find
it tougher because you don’t go out
for a beer maybe as often as your
males colleagues do.” Percentage
Whether women like Grygier of PwC Russia’s
have the time to entertain clients entry-level intake
late into the evenings or not, the that is made up
fact is that companies need a fair of women
representation of women at all levels.
Not only are women leaders more
likely to get the best out of female
employees, they can also better
exploit the potential of relationships
with female stakeholders outside
the organisation, says Yakovleva.
Not only that, “the more diverse your
organisation is, the more sustainable
it’s going to be.” Diversity along any
lines, including gender, tends to buy
an organisation a longer and more
secure future.
Portraits: Dag orsic

The good news? Women in CEE

are not looking for any special
favours. As Rukavina says: “I would
never want to be chosen for a
position because I’m female.” n

PricewaterhouseCoopers 35
Best-laid plans: Baia Mare’s mayor has
plotted the commercial, social
and environmental future of the city

A fresh start
of Baia Mare’s long-term plan to
become that beacon of urban
regeneration and show the rest of
Romania what is possible. He is a
methodical planner, a dedicated
believer in masterplans, having
Outside its famous capitals, cities across CEE are written a document in 2002 that
plotted the commercial, social and
building new reputations to attract investors. Baia Mare environmental future of the city.
and Ekaterinburg are two of many leading the way The 2002 document was
based on a United Nations
Words: Charles Orton-Jones
initiative called Agenda 21,
which was designed to reconcile
emerging nations’ desire for

very city loves to style itself Russia’s Ekaterinburg is to unlock explosive economic growth with
as memorable for someone the huge potential offered by its environmental concerns. Anghel
or something. What is wealth of natural resources. adopted the resolutions of Agenda
Liverpool without the Beatles, Fortunately, both cities have 21 and used them as a basis for
Sydney without the Opera House leaders who are determined to analysing everything that was right
or Kyoto without geishas? create new reputations for their and wrong with Baia Mare. His
Ekaterinburg and Baia Mare, respective homes. Their approach report delved into every aspect
two hugely ambitious cities and the role played by partners of local life, recording the growth
in CEE, are seeking to put such as PwC are being seen as of industrial waste, the chemical
themselves on the map in similar templates for other aspiring cities. composition of waste gases, and
ways. While Baia Mare – a Baia Mare’s mayor Cristian even calibrating roadside noise.
prosperous city on Romania’s Anghel has held the post since His strengths, weaknesses,
northern frontier – wants to 1993, when the city was still opportunities and threats analyses
become a beacon of urban adjusting to life after Nicolae were brutally honest. Threats
regeneration, the challenge for Ceausescu. Anghel is the architect included the potential collapse

growth in cee

of the social security system, and say that we care about our
fact file: BAIA MARE unemployment in the mining and neighbourhood, communities
• Location: Maramures metallurgic industries and ancient and about the natural beauty
County, Romania public transport. Anghel warned that surrounds our city. It’s time
• Population: 137,921 that if Baia Mare didn’t follow the to admit that Baia Mare is our
• Mayor: Cristian Anghel plan, the brightest young talent city, our citadel. Why don’t we
• Founded: First mention, would depart for Cluj, which turn it into an oasis of prosperity,
1347 offered world-class education only cleanliness and safety? It is within
• Economy: Mining, 150km away. Baia Mare has many our power!”
manufacturing, agriculture, natural advantages, despite having
construction, tourism a population of only 137,921. Its The results
proximity to the Hungarian border Now the legacy of Anghel’s plan
means it is a thoroughfare for is plain to see. Wages in the city
freight. It has strong construction
and agriculture sectors, and its
historic character lends the city
tourist potential.
Anghel set Baia Mare to work,
devising radical measures,
including 12 to upgrade the city’s
infrastructure, seven to tackle
environmental problems, 14 to “We used instruments for
rehabilitate deprived areas and
21 to improve civic life. Not a
communication and public
sewer, telephone pole, road or consultation such as polls,
stream was excluded. The mayor themed contests and
exhorted his fellow citizens to
join him in achieving these goals:
public debates”
“It is time to look around us cristian anghel, mayor, baia mare

PricewaterhouseCoopers 37
Must see: Baia Mare’s history makes
it attractive to potential visitors

communications channels are we still aren’t good enough. PwC

open. “We used instruments can draft the applications thus
for communication and public maximising the chances that the
consultation such as polls, city will get its fair share.”
themed contests and public The city may now need to
debates. At the same time, we consider more radical plans if it
used the print and electronic is to continue to fund its strategy,
media.” All the plans are available Bumbacea says. “Public-private
for download. partnerships could work. Certainly,
Dinu Bumbacea, a partner at public and EU money is limited.
PwC Romania, says the mayor Partnerships could fund public
deserves wide recognition. “His projects and be win-win. We are
long-term plan was a novelty having discussions about this
for Romania. We were used subject with the government, and
to mayors with short plans, something may happen.”
four years at most. He created Undoubtedly, Baia Mare
an urban plan for the next 20 is ready for the next step.
years. The public consultation Bumbacea says you only have to
was significant too. He insisted walk down the street to see the
everyone be asked for their improvement. “I remember in my
opinion. It’s the same with his new youth everything seemed quite
plan, called the CiViC plan, which dark. There was a cement plant
stands for creativity, initiative, on the way to the mountains, and
integration and communication. it made everything grey. They
He asked residents’ associations, had no filters. The change now
local councils, the business is like night and day. Everything
community – everyone.” is green. We are adopting EU
Naturally, such regeneration standards and the city is quite
takes money, which is where PwC environmentally friendly.”
are 20% higher than the national comes in. Bumbacea explains:
average. Tourism is growing and “We plan to help Baia Mare Russia’s star performer
three new shopping centres are apply for EU money. There are On the other side of the Urals,
under development. The ring road grants if you know how to apply. Ekaterinburg had a head start
has been upgraded as part of Romanians need to improve their on Baia Mare. A romantic city
a national E32bn infrastructure ability to apply for grants – I think boasting Palladian architecture,
programme and a new motorway with a hinterland of heavy
will provide a fast connection to industry, it has always had the
Vaja in Hungary. “To maximise the effectiveness potential to rival St Petersburg
Far from resting on his laurels, of the plans’ implementation, as Russia’s second city. The
last year Anghel launched an Antei 3 skyskraper is the tallest in
update of his original plan. He Ekaterinburg’s authorities are Russia outside Moscow, and the
says the secret to implementing working closely with consultants” presence of consulates from most
such a far-reaching schedule for M.i. maksimov, First Deputy Prime Minister, of the world’s major economies
regeneration is consultation. “All signal the city’s commercial
our projects are based on public Minister of Economic Affairs and Labour, eminence.
consultation campaigns. These Sverdlovsk Region Government The challenge for Ekaterinburg
focus on messages that would has always been to live up to its
lead to informing, as effectively potential. Few other cities enjoy
as possible, partners and final such natural resources; half the
beneficiaries, to ensure the region’s wealth comes from metals
highest level of transparency.” (see pie chart, p.41). For two
Anghel adds that all centuries, it has supplied Russia

growth in cee

with steel and copper. first deputy prime minister, minister

The government of the of economic affairs and labour,
fact file:
Sverdlovsk region, home to Sverdlovsk region government.
Ekaterinburg, has put in place PwC has recognised
a socio-economic development Ekaterinburg’s potential and in • Location: Sverdlovsk
plan that runs to 2020, which February opened its sixth Russian region, Russia
seeks to maintain and build on office there. The firm has built up • Population: 1,401,729
Attracting investors
the region’s role as the economic a strong client base in the region. To promote Ekaterinburg
• Mayor: Arkady Chernetsky
dynamo of Russia. Ekaterinburg It already audits huge companies and the Sverdlovsk • Founded: 1723
region, PwC has written
itself is focused on implementing such as Gazprom Transgaz and a comprehensive guide • Economy: Metallurgy,
to the area for investors
a 2005-2015 strategic plan – VIZ-Stal, and is expanding into tax entitled Guide to engineering and defence,
Investment utilities and mining
extended to 2020 last year – that and consulting. Volume 6 Sverdlovsk
covers all aspects of urban Region. The report can be
ordered from publications.
and economic development. A Starting point uk@uk.pwc.com

separate urban development PwC’s first mission is to promote

plan will see Ekaterinburg more Ekaterinburg on the world stage. Broad appeal: Ekaterinburg’s challenge
than double in size to 114,000 In February, Peter Gerendasi, is to live up to its potential – it is an
attractive city with plentiful natural
hectares by 2025. Thirty industrial managing partner of PwC Russia, resources, an industrial hinterland
sites will be relocated outside and Victor Koksharov, prime
the city to make way for private minister of the Sverdlovsk region,
flats and 870km of new roads signed a co-operation agreement
will be built. in which PwC agreed to provide
“In order to maximise the consulting services to the local
effectiveness of the plans’ authorities, to help develop an
implementation, the region’s industrial strategy and to transmit
authorities are working closely the message of Ekaterinburg and
with consultants from leading Sverdlovsk to the wider world.
international and Russian “This collaboration is aimed
companies and financial at increasing the region’s
institutions,” says M.I. Maksimov, investment appeal and optimising

PricewaterhouseCoopers 39
Which direction
will your
your family
business take?

Will you own it? At PwC our Private Company Services team is
Will you own it? At PwC ourtoPrivate
dedicated workingCompany Services
with family team is
businesses – large
and small –totoworking
future businesses
and achieve– the
and small – to envision thefamily.
future With
and achieve
over 150the
Will your family own it? goals of yourself and your
Will your family own it? goals of yourself
years experience andwe
your family.
pride With over
ourselves 150
on building
long of experience we pride
relationships. ourselvesyou
So supporting on building
as you
Would you have sold it? long termyour
position relationships. So supporting
family business you as
over the next 10 you
Would you have sold it? position your family business over the next
years is a challenge we would like to take up. 10
years is a challenge we would like to take up.
Please call or email Steef Klop,
Will the special culture Please
Private call or email Steef Klop,
Will the special culture Company Services Leader – CEE
you created still exist? Private Company
+ 420 251 151 806 Services Leader – CEE
you created still exist? + 420 251 151 806

Private Company Services

Private Company Services
© 2009 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

© 2009 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
growth in cee

construction workers, scheduled

Sales by industry in Russia’s sverdlovsk to rise to 3,000 by the end of the
Region (% of total), 2008 year. Hyatt has just opened a
Generation and
distribution of energy, $107m, 20-storey hotel. RMJM,
gas and water Metallurgy the Scottish architecture firm that
11.3 % 49.6% designed Moscow’s City Palace
Tower, is designing a 100m curved
glass block labelled the world’s
first ‘vertical park’. The centrepiece
is the 300m Ural Tower, scheduled
to open in 2012.
Ovsyannikov admits that the
Mineral resource mining global economic crisis will delay
5.3% the opening of these buildings.
“Construction work has slowed.
Other Engineering (incl.defence) The economy is very dependent
19.2% 14.6% on the metals trade, and, as you
know, the prices of metals are
Source: Guide to investment: Volume 6 Sverdlovsk Region, PwC down by as much as 70%.” This
isn’t dampening his optimism,
business processes by preparing however. “The region undoubtedly
recommendations and materials has huge potential in industrial
by company professionals and manufacturing. We have the
organising various business events infrastructure, partly as a result
across the region,” says Maksimov. of production being moved to
Victor Ovsyannikov, managing Sverdlovsk during World War Two.
director of infrastructure financing In defence, aircraft manufacturing
at PwC Russia, says investors and oil and gas equipment there are
rarely need much convincing. “We Cities of the future huge opportunities for investors.”
recently did a roadshow in London To share insights and Maxim Matsiborko, partner
to promote the city and region. The experiences of ambitious and head of PwC’s Ekaterinburg
region is undoubtedly attractive, cities around the world, office, says: “We are here for the
even during a downturn. It is PwC has published an long term and that in itself sends a
very well known because of the in-depth report containing signal to foreign investors that the
importance of its industry. So we interviews with 44 mayors business climate is right.”
didn’t have to explain Ekaterinburg called Cities of the Future. Both Ekaterinburg and Baia
much – investors already knew The report has information Mare have learned that if you
about the city and region.” on creating strategies, create the right environment,
Ovsyannikov says banks which include emphasis investors always beat a path to
in France and Germany are on environmental capital, your door. When you are creating
particularly keen to fund technical capital, financial a new reputation for a city nothing
investment in Ekaterinburg. “They capital, and culture – not even a global economic
have the liquidity and they can and leisure capital. It builds downturn – must be allowed to
see the potential. The appetite for on PwC’s creation in 2004 stand in your way. n
projects in Germany, in particular, of the City and Local
is exceptional.” Government Network.
The report can be ordered “We are here for the long term
Clear results from publications.uk@ and that in itself sends a signal to
The consequences of the uk.pwc.com or downloaded
foreign investors that the business

increased publicity and investment at the publications section

are visible. A E1bn development of pwc.com. climate is right”
project employs 1,000 maxim matsiborko, partner, pwc

PricewaterhouseCoopers 41
Business recovery

As good times turn to bad,

Transform explores how businesses
across the region are facing up to
a tough new reality. In this special
report, we examine the critical
and growing role of business
recovery teams (p.44), the art of
effective cash management (p.50),
how businesses can better fight
fraud (p.43), and prepare for the
eventual economic recovery (p.53).

Swimming against the tide?

coming to light. Corporates are l Your best fraud detectors are
discovering that they are, or were, your employees. Are they really
more vulnerable to the threat of able to report suspicions of

John fraud than they thought, often

in their treasury and banking
fraud or corruption without fear
of retribution? Do you seek

Wilkinson operations. There is a greater

temptation for staff to meet targets
their feedback?
l Is your organisation insured
by trading beyond their authority, against the risk of loss arising
In the downturn, and for owners to massage the from fraud?
numbers they provide to banks or
many distressed provide inadequate valuations of Set the tone at the top
businesses in pledged assets. Economic crimes are committed
CEE are fighting We are currently investigating a not by organisations but
case where a borrower has simply by individuals making the
fraud risks moved their encumbered assets wrong decisions. Boards of
offshore and claimed trading directors, audit committees and
losses. In another case, a bank management have a fundamental

n the wake of the credit discovered when trying to attach role to play in fraud prevention
crunch, those charged with on collateral that the security for and detection. In an increasingly
the governance of some of our a loan was not in fact owned by challenging economic
largest private sector companies the borrower. In both cases the environment, the tone coming
have had to focus on short-term options for recovering the loss are from the top of an organisation is
measures to address the risk of limited: after establishing the facts critical. Companies that actively
corporate failure. As the economic and the fraud trail we try to help encourage transparency and all
tide goes out, new threats are the bank and its lawyers to secure stakeholders to make the right
emerging from under the water: value out of the assets or against ethical decisions will be far better
evidence of fraud and wrongdoing the borrower’s other assets. But placed to prevent and detect
in the past, and a greater the lesson here is that prevention fraud and wrongdoing than those
motivation to commit it now. (i.e. adequate anti-fraud measures) that ignore the issue.
The Madoff affair and similar is better than cure. Difficult conversations and
scandals might seem too out of measures requiring corporate
this world for most companies Ask the difficult questions courage may be needed at some
to seriously worry about. But in Boards of directors and or all levels of your organisation.
CEE we are seeing instances of management need to look more Following up when something
fraudulent borrowing or fraudulent carefully at their risk management “doesn’t feel right” is key. n
investment management and control measures. These
are the questions you need to John Wilkinson, partner, is the
ask yourself: leader of PwC’s forensics group
l Do you have a workplace
“Corporates are culture that truly promotes and
in CEE.

discovering that they are, encourages ethical behaviour? For a more detailed look at these
or were, more vulnerable l How confident are you that questions and the strategies adopted
management and employees
to the threat of fraud than are aware of the fraud control
by fraud-savvy organisations, download
our Fraud in a Downturn publication at
they thought” processes in place? www.pwc.ru/change/eng.

PricewaterhouseCoopers 43
Back to life
As CEE’s economic crisis deepens, demand for business recovery experts
is increasing. What services can struggling companies expect to receive?
Words: Cesar Bacani and Don Durfee

pioneer in business process of restructuring, which see some further troubles going
recovery services in was approved 100% by the forward,” he says.
eastern Europe, Petr creditors,” recounts Smutny. In Romania, Emilian Radu, a
Smutny worked to rescue The business was sold for some partner in advisory services at
LG.Philips Displays Czech E10m to a property developer. PwC, estimates “something like
Republic a few years ago. “Basically, we increased recovery 25% of small and medium-sized
The colour TV picture tube about 10 times for secured companies might disappear,
manufacturer had been plagued creditors and we managed to pay mostly because of lack of access
by legal and environmental 30% of the claims of unsecured to financial resources.”
problems. The final blow was creditors,” says Smutny. Demand for business recovery
struck by television’s rapid shift services is booming as a result.
to flat panel displays. “There Trouble ahead But CEE is not proving an easy
were 20 businesses [around the A success story? At that time, environment for turnaround
world] in the group and all went yes. However, earlier this year, specialists. There is a dearth
bankrupt,” recalls Smutny, who that LCD plant was closed, a of professional managers and
is partner in advisory services at victim of the global economic technical experts, making it hard
PwC in the Czech Republic. crisis. It was not the only to staff recovery efforts. Also,
He put together a team in 2006 casualty. In Russia, Jonathan some company owners refuse
to keep the Czech unit afloat. Thornton, a partner in transaction to accept that their businesses
PwC convinced suppliers to services at PwC, has seen may have to close, wrongly
agree to continue deliveries and a surge in defaults on debt believing that governments will
negotiated short-term support repayments since Christmas. not allow wholesale failures.
from the banks. “Then we went “It’s really starting to pick up now Above all, the sheer weight of
to court to go through the legal and the expectation is that we’ll their clients’ problems can prove

overwhelming. From the heady
days after the Soviet Union’s
dissolution in 1991 through the
transition to a market economy,
CEE entrepreneurs often gorged
on easy credit and over-invested
in core and non-core business
areas. Many borrowed in euros,
US dollars, sterling, Swiss francs
and other foreign currencies.
Now, of course, these currencies
have surged against their home
currencies even as demand
for CEE’s export products
has cratered. Fixing many of Republic that Smutny heads.
these companies will take an A textbook turnaround process
extraordinary effort – at least in typically follows five phases,
some countries. It is worth noting starting with analysis and ending
that the crisis has not had a with rebirth (see box, p.47) but
uniform impact across CEE. not all turnaround efforts unfold
so neatly. In Russia, turnaround
Why turnaround? specialists start with an extra
Restructuring is actually part of the stage: education. “I think there’s
normal business cycle. It can help a a belief by many Russian
company manage its growing pains, companies that they’d be bailed
resuscitate an enterprise limping out by the government,” says
under heavy debt and invigorate a Thornton. Moscow has spent
tired and aging organisation. around a third of its foreign
Consultancy firms such as PwC currency reserves to support
have long offered restructuring the rouble, but it is now trying to
as part of their business recovery preserve its holdings. That means
services. In 1988 they helped stepping away from bailouts of
form the Turnaround Management any individual company. But, says

Association (TMA), which now has Thornton, “because the problems

9,000 members in 45 chapters, in Russia were triggered by a
including one in the Czech global crisis, many view it as

PricewaterhouseCoopers 45
actually have sufficient demand
for their products,” says Thornton.
“But they’re suffering from
working capital shortages and
cannot run at full capacity.” The
problem is that they have rouble
earnings and primarily US dollar
debt – a lethal mismatch. On 3
April, the rouble was at 33.65 to
the dollar, down 42% from a year
ago. “Liquidity is the real issue
here,” adds Beattie. “It’s difficult
to get financing or to refinance.
Some of the government banks
are helping to support companies,
but the interest rates are around
20% or more.”
The recovery work is still in
the early stages, in part because
PwC has first to clean up the
clients’ financial reporting. “One
of the problems with Russian
companies is they are less good
something outside their control.” “Liquidity is the real issue here. at producing accurate and reliable
The next few quarters should financial information, particularly
be an eye-opener. “Pre-crisis, It’s difficult to get financing forecast information,” says
people were expecting growth or to refinance. Some of the Thornton. “So there’s a lot of work
of around 6% to 7% this year.” government banks are helping understanding the current and
says Thornton. “The latest figure forecast position of the company.”
from the government is a 2.2% to support companies, but What PwC is trying to help them
contraction.” It could even get the interest rates are around avoid is bankruptcy. “It’s much
worse. “In Q1, the economy 20% or more” better if we can find a solution
already contracted by 7%,” he where the company continues as
Anna Beattie, director, PwC
adds. “In January and February, a going concern,” he says.
manufacturing production was
down about 14% each month. So Avoiding bankruptcy
a 2.2% [contraction] for the full A similar dynamic is at work in
year – that’s pretty optimistic.” Romania. “There were many
bankruptcies in the post-
Difficult times Communist period after the
PwC Russia is working with 1990s, when the economy
several ailing companies. One restructured,” says Radu,
of them is a major industrial who was the first executive
manufacturer. Anna Beattie, production has been around 50% president of the Romanian
director of business recovery of what it was the same time last National Insolvency Practitioners
services, says: “They’re a good year. And the confirmed orders Association in 1999. “But now
example of what we’re seeing for their product have really just this crisis is not at the level of
in terms of financial difficulties. dried up. They have debts with at the company, sector or country.
Their industry has been hit very least 15 foreign and local banks It’s a global crisis. And the

hard and very quickly. Late last and have bonds outstanding.” consequence is that there is
year they reduced their workforce The other clients are in slightly a lack of liquidity in case you
by about 25%-30%, and their better shape. “Two companies want, for example, to sell a

Art of the turnaround

The turnaround specialist typically cross-default if one convenant is violated. restructuring itself. An important aim is
embarks on a five-phase process. The “You have to ask, if you bust a covenant, establishing a positive operating cash
first is a thorough analysis. A key area does the whole house of cards come flow quickly and raising enough money to
for analysis is the three requirements down?” says Torpey. fund the turnaround strategies. In many
for viability: having one or more viable Once the major problems are ways, this stage can be the most difficult
core businesses, adequate bridge identified, the turnaround specialists of all. Eliminating losses is one thing, but
financing and sufficient organisational develop a strategic plan with specific achieving an acceptable return on the
resources. Specialists also make a goals and detailed functional actions firm’s investment capital is quite another.
detailed assessment of strengths and sell it to the board, management If the core business has been irreparably
and weaknesses in the company’s team and employees. When particularly damaged, bankruptcy may be the only
competitive position, engineering and dire problems are found, the plan may realistic option.
R&D, finances, marketing, operations, be simple but drastic: mass lay-offs and In stage five, the specialists ensure
organisational structure and personnel. elimination of entire departments, an the emphasis on profitability and
It is a good idea to engage attorneys emergency surgery aimed at stopping the return on equity is embedded in the
at this early stage of the process, says bleeding and enabling the company to company’s DNA. “This final step cannot
Neil Torpey, partner with Paul, Hastings, survive in the short term. be successful without a psychological
Janofsky and Walker. In particular, it is At the third stage, the CEO, CFO and shift as well,” says the Turnaround
important for lawyers to carefully review weak board members may be replaced. Management Association. “Rebuilding
the loan documents – what are the Even if incumbent managers are willing to momentum and morale is almost
triggers for default, what remedies are implement changes, they often lack the as important as rebuilding return on
available, and what governing laws are credibility or objectivity to do so because investment. It means a rebirth of the
involved? One major consideration is they are viewed as having caused or corporate culture and transforming
whether there are other financing sources contributed to the problems. negative attitudes to positive, confident
in the capital structure that would The specialists then focus on the ones as the company maps out its future.”

distressed business. So the name of the Insolvency Practitioners in numbers limit themselves to being the
of the game is not bankruptcy. Association. “It was a good

owner, hire good professional
The name of the game is surprise for them to find that the management and just agree on
rescheduling, restructuring and Romanian banking system is strategy, mission and so on.”
reorganisation, because right now quite strong,” he reports. “The This is one of the points in
there’s no powerful demand to only risk they could see was PwC’s action plan for a current
absorb distressed assets.” mother banks in Austria or France The drop in business recovery client. Radu
In Romania, says Radu, or another country requesting value of the rouble and his team are now setting
companies are not claiming that local units to stop financing during the course up a new corporate governance
the government will bail them out. lines or withdrawing part of their of a year from 3 structure, including forming a
Indeed, the state has little room reserves to the home country.” April 2008 through board consisting of professional
to manoeuvre. The economy to 3 April 2009 directors and a new CFO.
is so bad that the International Standing back “We are contemplating that,
Monetary Fund (IMF), European In about half of the cases PwC for an initial period, somebody
Union and World Bank are Romania works on, the owner also from PwC will be transferred
providing Romania with E20bn runs the company. “This is a real to the corporation, although he
in emergency aid. Fortunately, problem because they are unable or she will be under the direct
the financial system remains to turn over management to control of top management and
comparatively healthy. Radu had professional managers when the the owner,” says Radu. “We will
met with the IMF delegation in his company becomes too complex,” be able to spare that person
capacity as honorary president Radu says. “They should just for a few months while we are

PricewaterhouseCoopers 47
loan savers

The global economic slowdown has recruiting somebody, and then

arrived in eastern Europe, and it we’ll just support the new CFO,
is not only the region’s corporates and monitor and jointly assist the
that are feeling the pressure – many company in implementing the
banks are now struggling with restructuring plan,” he continues.
swelling portfolios of bad loans. In the Czech Republic, Smutny
This is prompting many to look to is also looking for CFOs and
restructuring experts for help with other managers – but it is difficult
their ailing loan portfolios. to find them. “This morning I
One of the recent non-performing just had two calls reiterating
loan (NPL) transactions was the need for such people,” he
completed by Poland’s largest says. “Unfortunately, there are
privately owned bank, Bank Polska not many bona fide experts in
Kasa Opieki (Bank Pekao). The bank crisis management, and even
finalised a major project to clear fewer who do not have any side
its balance sheet of NPLs. Many of interests and meet the criteria
those loans dated from an earlier of being entirely honest and
10 professionals who examined the
slowdown in Poland: the 2001-03 straightforward in their position
loan terms, estimated the worth of
downturn that left many borrowers so that all stakeholders can
the underlying collateral, and ran a
unable to repay their debts. fully trust them.” The need is
discounted cash flow analysis.
Managers of the bank decided to for both clients and the PwC
The team then decided that the
bring in PwC experts to support business recovery services
best structure was to securitise the
them in the loan disposal process. unit. “I’m constantly looking for
loans in two different tranches. With
“Rather than work out these loans good people, but when you find
this plan in hand, PwC approached
internally, the bank wanted to find a somebody, he or she gets tied up
potential investors. After signing
more efficient solution,” says Janusz for six to 12 months in the client
non-disclosure agreements, the
Sekowski, director of advisory company and then you need
investors were provided with
services for PwC in Poland. The to continue to search for a new
detailed information about the
answer was to sell the loans to third one,” says Smutny.
portfolio. PwC did this via a secure,
parties. The transaction was the web-based platform that enabled
largest of its kind in Poland’s history: the investors not only to review all of
Rising demand
the loans carried a face value of This lack of talent is only likely
the necessary documents, but also
about E450m. to become a bigger problem as
facilitated the question-and-answer
he expects demand for business
process. “These were international
Step by step recovery services to continue
investors,” says Sekowski. “Although
PwC guided the bank through a rising. “I do not see any sign of an
they had local due diligence teams,
multiple-staged process. First was a upturn in the Czech economy yet,”
they also pulled other people from
portfolio review. The team classified Smutny says. “The businesses
other locations onto the project.”
the loans by various criteria, that are considered healthy, I’m
The investors submitted their
including borrower type, size and afraid you’ll see that they are not
bids and Bank Pekao selected one
type of collateral. Such groupings really healthy. They do not have
for each tranche. The timing was
matter because investors specialise good cost structures and are not
good. By selling the NPLs, the bank
in different sorts of distressed managed well.” Foreign exchange
was able to improve its liquidity and
loans, and may pay a premium for is also a headache, although it is
boost its capital adequacy ratio –
a subportfolio that closely matches more a hedging issue rather than
before Poland felt the full effect of
their investment profile. a mismatch between borrowings
the global slowdown.
The team then estimated the and earnings. Exporters had
“The bank was fortunate,” says
portfolio’s value, selecting a sample hedged at 25 koruna to the euro,
Sekowski. “They managed to
but it has now shot up to 28 – at

of more than 150 loans. This required complete this transaction before the
intensive work by a team of up to a time when revenues have been
major economic crisis broke out.”
halved by the global crisis. “All
these businesses have massive

Tough times needed or they can’t get approval at
the right level,” says Thornton.
GDP across most CEE countries is expected to dip before showing signs of recovery in 2011.
In the Czech Republic, Smutny is
As economic conditions weaken, experts predict more corporate difficulties – and turnarounds.
counting on the newly formed TMA
Country 2008% 2009% estimated 2010% forecasT 2011% forecasT chapter to help deepen the talent
Bulgaria 6.0 -1.9 1.1 3.7 pool. “Because restructuring is an
Croatia 2.2 0.4 1.8 3.6 area where a lot of corruption can
exist and weird transactions may
Czech Rep 3.5 -2.0 1.6 3.8
happen, we decided to build on
Estonia -3.5 -8.0 -1.5 2.8
very strong ethical and professional
Hungary 0.5 -4.5 0.4 2.7 standards,” he explains.
Latvia -4.6 -12.0 -2.0 1.5
Lithuania 3.2 -8.0 -2.5 2.9 Clean-up required
There will be legal hurdles in
Poland 4.8 0.7 2.0 3.2
many places. While countries
Romania 7.7 -1.8 3.1 4.9
like Romania, for example, have
Russia 5.6 -2.0 3.0 4.5 modern insolvency laws, matters
Ukraine 2.1 -10.0 1.0 3.5 are murkier elsewhere. Russia, for
Source: Economist Intelligence Unit example, has a largely untested
insolvency regime for corporations,
according to Logan Wright, a
hedging losses that are killing and limited experience in applying partner with law firm Clifford
them,” he says. sophisticated solutions in getting Chance in Moscow. There is no
Is it too early to tell whether the company going again. debtor-in-possession provision,
the recovery efforts will succeed? “There also seems to be an the auction process for collateral
“The sooner we can get in to help, attitude among certain banks may not be transparent, and
the better, because as time goes that results in an unwillingness in there is a general concern that
by, things get worse and worse principle to consider writing off or foreign creditors do not always
and the company’s options get restructuring any debt. So if you put get a fair hearing in Russian
fewer and fewer,” says Thornton, a feasible commercial solution in courts. “Creditors typically say
in reference to the reluctance of front of the creditors, it may be voted the last thing they want here is an
Russian companies to call in the down by certain banks because they insolvency process,” says Wright.
recovery consultants. But the don’t understand that this is what is In the end, the onus is on
situation is changing, not least the company to follow through
because the banks are insisting with the action plan, assuming
on a credible restructuring plan the creditors sign off on it. A
before they ease loan terms or lot depends, in turn, on its
extend new financing. The high- relationship with the turnaround
profile restructuring of companies consultants. “Initially, some clients
such as Rusal, the aluminium are quite hostile because they had
giant, also underscores the reality to hire us under pressure from the
that bailouts are not forthcoming. banks,” Radu concedes. “But it’s
Still, education efforts need to a step-by-step process of getting
continue. “One thing that hasn’t “Initially, some clients are quite to know one another. There is no
been happening much is gaining hostile because they had to other way but to adjust to a more
consensus between different professional way in approaching
creditors,” notes Thornton. “Some hire us under pressure from the the business plan.” Many such
lenders are suing the company banks. But it’s a step-by-step friendships need to be forged in
for recovery of specific assets, process of getting to know CEE if vulnerable enterprises are
rather than looking for a broader to survive the economic crisis –
solution. This is partly based on a one another” and emerge leaner, stronger and
lack of trust and communication Emilian Radu, partner, PwC more profitable. n

PricewaterhouseCoopers 49
Flow motion
If they haven’t already, executives are pushing cash
management to the top of the corporate agenda

hen it comes to cash is often more important than “A realistic cash flow forecast
management, individual profitability,” says Bystrzynski. will also go a long way when it
companies in CEE face There is no need to remind comes to negotiating with banks
several unique challenges on top Yevgeny Pogorelov of that. The to extend or keep credit lines,”
of those that stem from the global chief financial officer of Samson, a says Vaksman. Until recently,
economic slowdown. Russian office supplies distributor many banks were willing to lend
The tendency to borrow for and retailer, says he is “doing a lot based solely on collateral. Now,
short durations and rely on of things differently” now. When they need to see that a company
regular rolling renewals has many the rouble’s devaluation led to can construct detailed cash
companies feeling the pinch, interest rate hikes by the country’s projections, a practice that is
notes Alan Vaksman, a partner central bank, he had to act fast not always followed in CEE. The
in financial services advisory for to preserve cash, as the burden companies that take liquidity the
PwC in Moscow. Firms need to of debt repayment grew heavier most seriously, Vaksman notes,
map out their ‘lines of defence’ and foreign suppliers demanded are including cash management in
should refinancing become cash on delivery. After opening its their business continuity plans.
unworkable. Additional advice newest branch in June, Pogorelov
about effective cash management will probably halt all new Added complications
needs to be tailored to a investment and focus on paying But even the most sophisticated
company’s circumstances, adds down debt. But he says the most corporate planners in the region
Lukasz Bystrzynski, a partner at crucial thing will be to refine his are finding that foreign exchange
PwC in Warsaw. A crucial factor monthly cash flow forecasts. Even fluctuations complicate matters.
is whether a company or its key with three-quarters of a credit line At the end of 2008, Russian
banking partners are foreign- available, he does not want to companies rated by Moody’s
owned. A foreign-owned firm may take chances with working capital. had $144bn in foreign currency-
have less leeway to manage its denominated debt, with $39bn
cash flows, and a bank less scope coming due this year. Amid the
to lend, when issues facing a turmoil of the first two months of
troubled parent in the West trickle “The companies 2009, the equivalent in roubles
down, Bystrzynski says. that take liquidity soared by more than 20%,
Whatever the circumstances, the most seriously Moody’s estimated. With around
most executives place cash $8bn in debt – less than 20% of
management at the top of their are including cash which is denominated in roubles
agendas. More than 70% of management in – mobile operator VimpelCom
managers in Russia surveyed their business cancelled its dividend in February,
by PwC at the end of last year and a month later announced a
said they planned to finance continuity plans” 30bn rouble bond and an 8bn
Alan vaksman,

future investments with their own rouble loan to refinance its existing
resources. “In a downturn, liquidity partner, PwC foreign currency debts.

Around the same time, when a stress tests. Firms can then look
devaluation of the Kazakh tenge for natural hedges, and keep a
cut its value against the dollar by close eye on working capital.
almost a quarter, Kazakhstan’s On governance, Bystrzynski
largest bank, BTA, saw non- advises companies to enact
performing loans soar as borrowers stricter controls on decision-
found it difficult to repay foreign making authority. This will
currency-denominated debt. A drive greater management
large government intervention was accountability. As hard as it may
required to prop up the institution, be, given the anger directed at
which ceased principal payments financial institutions for their role
on its debt in April. As recently as in the downturn, companies will
December, the bank described its see long-term cash management
own foreign debt obligations as benefits from forming partner-to-
“entirely manageable”, a potent partner relationships with banks,
reminder of how swift and severe Bystrzynski says. Both sides
the downturn has been. An even have had a tendency of abusing
more dramatic currency collapse their positions, he adds. In the
in Hungary – the forint lost more future, transparency, honesty and
than 40% of its value versus the trust should guide relationships.
dollar between July and March – is No company, of course, would
also punishing companies of all suggest anything less. “It may
types. Even in Poland, where the sound simple, but past experience
economy is performing relatively shows that this is not always the
well compared with most of its case,” he says. n
neighbours, firms are coming under
plenty of pressure. For example,
the ballooning value of foreign-
Taxing times
currency debt at oil group PKN
As companies scramble to
Orlen brought about a covenant
renegotiate debts, they cannot
breach as the company’s net-
ignore potential tax implications,
debt-to-EBITDA ratio more than
notes Ekaterina Lazorina (pictured),
doubled during 2008. In addition
a partner at PwC in Moscow. In
to the interest rate hikes that often
Russia, for example, the limits on
accompany debt renegotiations,
interest deductibility were recently increased – from
companies may also face tax
15% to 22% for foreign-currency loans, and from
issues (see box).
1.1 to 1.5 times the central bank refinancing rate
for rouble-denominated debt. However, this may
Beyond engineering
still not be enough, Lazorina says, as the punitive
Given that financial engineering
rates that beleaguered banks now demand during
alone is unlikely to address
renegotiations may rise even higher than the new
companies’ cash management
limits. A deductibility dilemma also faces the foreign-
challenges, Bystrzynski suggests
owned subsidiaries in CEE that may be close to
some improvements.
breaking thin-capitalisation limits – and thus the
On the operational side, the key
ability to deduct interest from taxes – because of
is tighter cash planning. Improving
the rising burden of foreign-currency intercompany
management information systems
loans. Potential solutions may include changing the
and processes can help to
currency of a loan or rerouting loans from a parent via
compile the detailed information
a sister company, but neither of these options is easy,
about cash positions and
nor is the tax authorities’ potential reaction clear.
forecasts that will allow managers
to run various scenarios and

PricewaterhouseCoopers 51
In times of trouble,
experience is your
biggest asset.*

When things start to look a little uncertain, it helps to

have someone on your side who’s been there before.
Someone committed to your interests, with the most
extensive range of expertise in turnaround, restructuring
and insolvency, at your service. And above all, someone
who can provide innovative solutions to the issues you’re
facing. To find out more visit www.pwc.com/brs

© 2009 PricewaterhouseCoopers. All rights reserved. PricewaterhouseCoopers refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

Divest to avoid distress

While the decision to divest is
never easy, companies should
Lev take the opportunity to refocus on
their primary objectives and save
Holubec their core assets

he current economic particularly for the region’s about the focus of a company’s
downturn has significantly proud entrepreneurs who built ongoing business strategy, making
altered the near-term their businesses from scratch or it easier for them to assess the
growth prospects of the majority privatising and turning around risk of restructuring loans.
of businesses across most state enterprises. Furthermore, When preparing to divest non-
sectors. For some, even long-term sellers now outnumber acquirers. core or underperforming assets,
prospects are now about survival Multiples earned on the sale a business must present a ‘fit for
rather than growth. of business have significantly purpose’ financial and operational
Many CEE companies have decreased and, at times, are near model. To best encourage
yet to feel the full impact of the or even below zero times EBITDA. competition for that asset, the
crisis. Many are relatively young Thus the mathematics of model must be accompanied by
– surfacing only after the fall whether to divest might no a plan that convinces potential
of the Berlin Wall – and are yet longer be based on determining buyers the asset will be viable.
to experience navigating such whether the sum of the parts A seller who can do that will find
harsh and sudden changes in carries greater or lesser value a broader set of buyers who are
the economic cycle. There might than the whole. Instead, a more interested in a quick decision and
not be a more appropriate time appropriate equation might be: willing to pay more.
for CEE companies to refocus on “Will the sale of any of the parts Many CEE companies are
their core businesses as a means preserve or increase the value of realising that a rough road lies
to realise value in the form of cash the remaining operations?” ahead. That road will challenge
flow, from selling underperforming the stability of even the best
or non-core assets. What to divest? businesses and will certainly
The decision to divest a So which operations should bend, and maybe break, the over-
business is seldom easy, remain with the business, and leveraged. Some firms will revisit
which should be separated? core objectives and separate and
Determining what to divest need divest certain assets. Others will
“The decision to divest not be entirely traumatic – there continue their attempts at cost
reduction – and many will ultimately
now depends on are also benefits. Identifying core
and non-core assets will help a meet their fate in the processes
whether the sale of any company see what is bleeding associated with distress. n
of the parts preserves or and what is generating cash. It will
help to crystallise how the ‘group’
increases the value of the benefits each individual business.
Lev Holubec, a PwC partner based
in Ukraine, leads M&A Integration
remaining operations” This can also reassure banks Consulting in CEE.

PricewaterhouseCoopers 53
data centre>
PwC Recent economic performance and forecasts (percentages)

Russia 2006 2007 2008(e) 2009(f) 2010(f) Sources

GDP growth 7.3 8.1 5.5 -2.5 1.1 1, 2, 3, 4

Inflation 9.7 9.0 14.1 10.2 7.0
Consumer spending growth 11.2 12.8 9.7
Investment growth 17.7 20.8 1.6
Exports growth 7.3 6.4 -0.8
Unemployment 6.7 5.6

Poland 2006 2007 2008(e) 2009(f) 2010(f) Sources

GDP growth 6.2 6.6 4.8 -0.2 1.1 1, 4, 5

Inflation 1.3 2.5 4.2 2.5 2.8
Consumer spending growth 5.0 5.0 5.3
Investment growth 14.9 17.6 7.9
Exports growth 14.6 9.1 5.8
Unemployment 13.9 9.6 7.1

Czech Republic 2006 2007 2008(e) 2009(f) 2010(f) Sources

GDP growth 6.8 6.0 4.4 -2.5 0.5 1, 4, 5

Inflation 2.5 2.8 6.3 2.7 2.4
Consumer spending growth 5.4 5.3 3.2
Investment growth 6.5 6.7 4.5
Exports growth 15.8 14.9 11.1
Unemployment 7.2 5.3 4.4

Hungary 2006 2007 2008(e) 2009(f) 2010(f) Sources

GDP growth 4.1 1.1 0.5 -5.0 0.6 1, 4, 5

Inflation 4.0 7.9 6.0 2.1 3.5
Consumer spending growth 1.7 0.6 -0.7
Investment growth -6.2 1.5 -2.6
Exports growth 18.6 15.9 4.6
Unemployment 7.5 7.4 7.8

Kazakhstan 2006 2007 2008(e) 2009(f) 2010(f) Sources

GDP growth 10.7 8.5 2.3 0.1 2.1 1, 3, 4, 6, 7

Inflation 8.6 10.8 16.8 9.2 9.5
Consumer spending growth 13.8 10.0
Investment growth 26.5 10.0
Exports growth 6.9 9.3
Unemployment 7.8 7.3

Romania 2006 2007 2008(e) 2009(f) 2010(f) Sources

GDP growth 7.9 6.2 7.1 -3.8 -0.3 1, 4, 5

Inflation 6.6 4.8 7.9 4.1 3.8
Consumer spending growth 12.7 11.6 9.1
Investment growth 23.5 29.0 19.3
Exports growth 10.4 8.7 19.4
Unemployment 7.3 6.4 5.8

Ukraine 2006 2007 2008(e) 2009(f) 2010(f) Sources

GDP growth 7.3 7.3 2.0 -9.8 -1.8 1, 3, 4, 6, 7

Inflation 9.1 12.8 24.9 17.9 11.0
Consumer spending growth 13.6 5.5 11.6
Investment growth 18.7 12.2 3.4
Exports growth -4.9 6.3
Unemployment 6.8 6.4
Sources: 1. International Monetary Fund 2. Federal State Statistic Service 3. PricewaterhouseCoopers estimate (e). 4. PricewaterhouseCoopers forecasts (f) 5. Eurostat
6. The World Bank Group 7. International Labour Organisation

Spotlight: Exchange rates

Jan 08 JanFeb FebMar
08 08
08Jan 08Feb MarApr
08 08 08 08
08Mar AprMay
08 08
08Jun JulAug
08 08 08 Jul AugSep
0808 SepOct
08Aug 08 08
08Sep OctNov
08Oct NovDec
0808 0808
08Nov DecJan
09 08
09 09
09 09
MarApr 09 09
09Mar Apr 09Apr 09
80 80 80
Jan 08 Feb 08 Mar 08 Apr 08 May 08 Jun 08 Jul 08 Aug 08 Sep 08 Oct 08 Nov 08 Dec 08 Jan 09 Feb 09 Mar 09 Apr 09
value index (inverse Jan 2008 = 100)

100 100 100

120 120 120

140 140 140

Source: SunGard PowerData

160 160 160

180 180 180


Russia Russia Hungary

Russia Hungary
Hungary Ukraine
Depreciating currencies Russia Hungary
in CEE are placing Ukraine
pressure on borrowers in the region, where many loans are denominated in foreign currencies.
A potential debtor crisis could pose a risk for western European banks, as they account for large financial industry market shares in CEE.

PwC Macro Consulting economics.pwc.com PwC CEE Strategy www.pwc.com/strategy

Yael Selfin I +44 (0)20 7804 7630 I yael.selfin@uk.pwc.com Daniel Cappelletti I +420 251 151 333 I daniel.cappelletti@cz.pwc.com

named Lead Russia
named Lead Russia
Financial Advisor
Financial Advisor
for 2009
for 2009

Acquisitions Monthly Magazine, the premier

source for international news, features
Acquisitions Monthly Magazine, the premier
and analysis relating to the M&A and buyouts
source for international news, features
industry, has named PricewaterhouseCoopers
and analysis relating to the M&A and buyouts
Lead Russia Financial Advisor for the year 2009.
industry, has named PricewaterhouseCoopers
Lead Russia Financial Advisor for the year 2009.
Winning the award in the first year of participation
confirms PricewaterhouseCoopers as the leading
Winning the award in the first year of participation
provider of financial advisory services in Russia.
confirms PricewaterhouseCoopers as the leading
provider of financial advisory services in Russia.

© 2009 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

© 2009 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.

PricewaterhouseCoopers Central and Eastern Europe


Mike Kubena Clifford Isaak Chris Butler
mike.kubena@cz.pwc.com +420 251 151 803 clifford.isaak@ge.pwc.com +995 32 50 80 50 chris.butler@lt.pwc.com +370 5 239 2303


Mark Okes-Voysey Emmanuel Koenig Stefan Weiblen
okes-voysey.mark@ru.pwc.com +7 495 232 57 13 emmanuel.koenig@rs.pwc.com +381 11 3302100 stefan.weiblen@yu.pwc.com +381 11 3302112


Nick Brasington Irina Tsvetkova Vasile Iuga
nick.brasington@ru.pwc.com +7 (495) 967-6399 irina.tsvetkova@bg.pwc.com +359 2 91003 vasile.iuga@ro.pwc.com


Steven Snaith Tanya Rukavina George Johnstone
steven.snaith@cz.pwc.com +420 251 151 804 tanya.rukavina@hr.pwc.com +385 (1) 632 8834 george.johnstone@pl.pwc.com +48 (0) 502 18 4243


Stephen Booth Vasile Iuga
FINANCIAL SERVICES: stephen.booth@cz.pwc.com +420 251 152 888 vasile.iuga@ro.pwc.com +40 21 202 8800
Paul Cunningham
paul.cunningham@cz.pwc.com +420 251 152 012 ESTONIA RUSSIA
Ago Vilu Peter Gerendasi
TECHNOLOGY, INFOCOMM & ENTERTAINMENT: Ago.vilu@ee.pwc.com +3726141801 peter.gerendasi@ru.pwc.com +7 (495) 967-6160
Dinu Bumbacea

dinu.bumbacea@ro.pwc.com +40 21 202 8820 GEORGIA SLOVAKIA
Clifford Isaak Todd Bradshaw
CONSUMER & INDUSTRIAL PRODUCTS: clifford.isaak@ge.pwc.com +995 32 50 80 50 todd.bradshaw@sk.pwc.com +421259350600
Mike Hackworth
m.hackworth@cz.pwc.com +420 251 151 801 HUNGARY SLOVENIA
Russell Lambert Francois Mattelaer
ENERGY, UTILITIES & MINING: russell.w.lambert@hu.pwc.com +36 1 461 9223 francois.d.mattelaer@si.pwc.com +386 1 5836 000
David Gray
david.gray@us.pwc.com +1 (713) 356 4856 KAZAKHSTAN UKRAINE
Alper Akdeniz Boris Krasnyansky
COUNTRY MANAGING PARTNERS alper.akdeniz@kz.pwc.com +7 727 298-0448 boris.krasnyansky@ua.pwc.com +380 44 490 67 72


Stefan Weiblen Cameron Greaves Abdulkhamid Muminov
stefan.weiblen@rs.pwc.com +381 11 3302100 cameron.greaves@lv.pwc.com +371 6709 4400 abdulkhamid.muminov@uz.pwc.com +998 71120

Altaf Tapia
altaf.tapia@am.pwc.com +374 10 592170

© 2009 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the network of member
firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity.
This publication has been prepared as general information on matters of interest only, and does not constitute professional advice. You should
Issue 4/Summer 2009

not act upon the information contained in this publication without obtaining specific professional advice. No representation or warranty (express
or implied) is given as to the accuracy or completeness of the information contained in this publication, and, to the extent permitted by law,
neither PricewaterhouseCoopers nor Bladonmore accept or assume any liability, responsibility or duty of care for any consequences of you
or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for any decision based on it.