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Overview of Manufacturing

Industry in Russia
External investments enable
expansion into new markets
Deloitte CIS Research Centre
Moscow, 2017
Contents
Introduction

01 Key findings
Introduction 03 Government support
07 Manufacturing sector
to the Russian manufacturing sector 57 02
in figures

01 Key findings 04 State of the manufacturing


03
sector in Russia
Innovative activity of the manufacturing
08 companies in Russia 61 Main issues
04
02 Russian manufacturing sector in figures 18 for the manufacturing sector
Managing companies
05
09 Urgent issues of doing business in Russia 70 in the current market conditions
03 State of the manufacturing sector in Russia 22
06 Sources of capital

10 Our respondents 76 Government support


07
Main issues for the Russian to the manufacturing sector
04 manufacturing sector in 2017 31 Innovative activity
08
11 Appendix 79 of the manufacturing companies
Urgent issues of doing
Managing companies 09
business in Russia
05
in the current market conditions 43 Contacts 92
10 Our respondents

06 Sources of capital 50 11 Appendix

Contacts

02
Introduction Please feel free to contact us if you have
any questions about our research.

Introduction
Main topics:

•• Current state of the manufacturing sector 01 Key findings


and companies in Russia
Manufacturing sector
•• Outlook for the manufacturing sector 02
in figures
and companies in Russia
State of the manufacturing
•• Key problems manufacturing companies 03
sector in Russia
in Russia are facing
Main issues
Srbuhi Hakobyan •• Key incentives and development barriers 04
for the manufacturing sector
Partner, of the manufacturing sector and companies
Deloitte CIS in Russia Managing companies
05
in the current market conditions
•• Priority strategies for manufacturing
Deloitte CIS would like to thank all those
who participated in the survey we conducted
companies in Russia 06 Sources of capital
in April–May 2017 as part of our «Current State •• Currency risk and its impact: how to manage
Government support
and Outlook of Manufacturing Sector 07
•• Changes in working with suppliers to the manufacturing sector
in Russia — 2017“ project. We do appreciate
your time and your interest in our research. •• Government support measures Innovative activity
08
Your expert opinions allowed us to conduct for manufacturing sector in Russia of the manufacturing companies
an integrated analysis of the state
•• Innovation at manufacturing companies Urgent issues of doing
of the manufacturing sector in Russia, as well 09
in Russia business in Russia
as to study the sentiments and expectations
of market participants about their companies’ •• Relevant environmental and tax issues 10 Our respondents
development and the market overall.
We are pleased to present you with the full
version of the analytical report. The key 11 Appendix
findings of our research are to be published
by the leading Russian media outlets.
Contacts

We have been conducting this survey


annually since 2015. It serves as the basis
of our integrated research on the state
of the manufacturing sector in Russia.
We would be grateful if you could
participate in our next survey.

03
01

Introduction

01 Key findings

Manufacturing sector
02
in figures
State of the manufacturing
03
sector in Russia
Main issues
04
for the manufacturing sector
Managing companies
05

Key findings
in the current market conditions

06 Sources of capital

Government support
07
to the manufacturing sector
Innovative activity
08
of the manufacturing companies
Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix

Contacts

04
Overview of Manufacturing Industry in Russia — 2017 |
 Key findings

Current state and outlook


for the manufacturing sector Introduction

01 Key findings
The Russian manufacturing sector saw signs of improvement
Manufacturing sector
and strengthening optimism in 2017. 02
in figures
State of the manufacturing
03
sector in Russia
Main issues
Current state 04
for the manufacturing sector
Managing companies
05
For the first time in three The share of respondents in the current market conditions
years, the perception of the who are optimistic about
current state of the industry the current situation in their 06 Sources of capital
is dominated by positive business retains the leading
estimates (the net balance
grew from 0 to +8 percent).
+8% position (82 percent),
however their outlooks
+65% 07
Government support
to the manufacturing sector
appear to be rather tempered
Innovative activity
compared to the previous year 08
of the manufacturing companies
(the net balance decreased
0% from 76 percent to 65 percent). +76% 09
Urgent issues of doing
business in Russia

Outlook
10 Our respondents

11 Appendix
The share of pessimistic views The optimism
on the outlook for the industry of manufacturers with respect Contacts
decreased by 10 percentage to the prospects for their
points (the net balance grew
from +13 to +26 percent). +26% businesses has an almost
triple increase (the net balance +44%
grew from 16 to 44 percent).

+13% +16%

05
Overview of Manufacturing Industry in Russia — 2017 |
 Key findings

Current state and outlook


for the manufacturing sector Introduction

01 Key findings

Trend Highlights 02
Manufacturing sector
in figures
State of the manufacturing
03
As in 2016 the views of the manufacturing sector in Russia
sector players remain diverse, however the Main issues
last year’s trend is accompanied by a seismic 04
for the manufacturing sector
shift in the sentiments of certain subgroups The last year saw The steel, automotive, aircraft For the second consecutive Over the past year, the share
of companies. a deterioration of the and ship manufacturers are year industrial equipment of optimistically disposed Managing companies
05
sentiment in the chemicals more optimistic about the producers retain the negative foreign companies and large
in the current market conditions
industry (the share of negative overall situation (the share views on the overall situation businesses has doubled
06 Sources of capital
assessments of the of negative assessments of the and in the outlook for (up to 58 and 60 percent,
industry’s current conditions industry’s current conditions the industry. respectively).
Government support
16 percentage points above is 17 percentage points 07
to the manufacturing sector
the average). above the average).
Innovative activity
08
of the manufacturing companies
Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix

Contacts

06
Overview of Manufacturing Industry in Russia — 2017 |
 Key findings

Current state and outlook


for the manufacturing sector Introduction

01 Key findings

Trend Highlights 02
Manufacturing sector
in figures
State of the manufacturing
03
Over the past year, the industry and the Top factors impacting businesses: sector in Russia
businesses were influenced mainly by external Main issues
factors: currency fluctuations, production 04
for the manufacturing sector
capacities of other countries, availability
of external investments, etc. Managing companies
05
Ruble appreciation: The surge in global Ferrous metals production Investment
in the current market conditions
metal prices: slowdown in China: programs shutdown:
•• 31 percent of chemicals 06 Sources of capital
The period from Q1 2016 31 percent of metallurgical Industrial equipment
producers noted
to Q1 2017, saw boosting companies speak of the manufacturers suffer the
negative impact Government support
prices across many of the base competition from the Chinese overall reduction in investment 07
of the Ruble appreciation to the manufacturing sector
metals for the Russian companies and the negative allocated
on their businesses;
economy, in particular (in U.S. impact of the Chinese to the purchase of machinery Innovative activity
08
•• 86 percent of automotive, dollar terms): production development and equipment (over the past of the manufacturing companies
aircraft and ship on their businesses. two years, the share
•• steel: + 65 percent; Urgent issues of doing
manufacturers, as well as of investment has decreased 09
business in Russia
•• aluminum: + 15 percent; by 25 percent*).
•• 83 percent of foreign
companies mentioned •• copper: + 12 percent; 10 Our respondents
positive impact of the
•• zinc: + 35 percent.
Ruble appreciation. 11 Appendix

Interest for public funding:


Contacts
79 percent
of the respondents show
their interest for this source
of capital.

* Adjusted for inflation

07
Overview of Manufacturing Industry in Russia — 2017 |
 Key findings

Drivers of competitiveness
in 2017 Introduction

01 Key findings

Trend Highlights 02
Manufacturing sector
in figures
State of the manufacturing
03
In 2017 the industry and the businesses Top-5 factors stimulating market Top-5 drivers of company sector in Russia
are becoming more independent development in 2017: development in 2017: Main issues
of macroeconomic environment. The analysis 04
for the manufacturing sector
change in the change in the
of the companies’ expectations shows that Lower importance
Reduced importance
the market participants see a greater stimuli administrative production costs Managing companies
+ 14 pp + 8 pp 05
for development directly in enhancing the barriers for the year for the year in the current market conditions
efficiency of internal business processes.
06 Sources of capital
Lower change in the
Increased demand change in the
geopolitical risks importance importance Government support
+ 4 pp in Russia – 11 pp 07
for the year for the year
to the manufacturing sector
Innovative activity
08
Lower of the manufacturing companies
change in the
Extended change in the
currency risks importance production and importance Urgent issues of doing
– 12 pp + 4 pp 09
for the year
technological for the year
business in Russia
capacities
Government 10 Our respondents
support Lower
administrative 11 Appendix
barriers
Transparency and Contacts
stability of regulatory,
tax and economic
policies Product
line extension

08
Overview of Manufacturing Industry in Russia — 2017 |
 Key findings

Most important issues in 2017


Introduction

01 Key findings

Trend Highlights 02
Manufacturing sector
in figures
State of the manufacturing
03
The concern of the manufacturers is shifting Increased importance (top-3 issues): Decreased importance: sector in Russia
towards the efficiency of the government Main issues
regulation and the purchasing power of the 04
for the manufacturing sector
population, which reaffirms the general trend Shortcomings Geopolitical
for market recovery.
– 10 pp Managing companies
of government + 9 pp risks 05
in the current market conditions
regulation

06 Sources of capital
Corruption + 16 pp Currency risks – 21 pp
Government support
07
to the manufacturing sector
Despite the reduced respondents indicated that Innovative activity
Insufficient purchasing 08
+ 18 pp concern over the exchange the weakening of the domestic of the manufacturing companies
power of households
rate volatility, the currency currency increased their Urgent issues of doing
risks continue to influence competitiveness in domestic 09
business in Russia
businesses: 40 percent or foreign markets (mainly
the respondents cited chemical companies and 10 Our respondents
that the Ruble devaluation industrial equipment
triggered an increase in the manufacturers; 31 and
cost of their products, and 33 percent, respectively).
11 Appendix
only 14–15 percent of the
Contacts

09
Overview of Manufacturing Industry in Russia — 2017 |
 Key findings

Other issues
Introduction

01 Key findings

Trend Highlights 02
Manufacturing sector
in figures
State of the manufacturing
03
An increased concern of the manufacturers sector in Russia
in 2017 is with the following aspects Main issues
of their businesses: 04
for the manufacturing sector
Key supplier Key staffing issues: The lowest satisfaction with The key energy
•• supplier relationship Managing companies
relationship issues: talent was reported in the efficiency issues: 05
•• talent
•• lack of staff:
chemical, automotive, aircraft
in the current market conditions
•• established price level –– 17 percent of the •• high energy tariff rates
and ship manufacturing
•• energy efficiency
•• pricing flexibility
replies indicated a lack in Russia (79 percent) 06 Sources of capital
industries. The average age
of production staff.
of production professionals •• The chemical industry
•• delivery terms –– 26 percent of the Government support
in the chemical segment displays certain 07
replies indicated a lack to the manufacturing sector
•• quality of delivered is five years higher than the characteristics: 31 percent
of automation staff.
components and raw industry average. of the respondents Innovative activity
08
materials •• lack of qualified staff: indicated a lack of the of the manufacturing companies
–– 35 percent of the energy infrastructure quality
Urgent issues of doing
respondents are indicated in Russia (lack of production 09
business in Russia
a lack of quality talent capacities).
in optimization and 10 Our respondents
automation staff.

Notably, the identified issue 11 Appendix


hinders the production
intensification and advanced
Contacts
technology implementation.

10
Overview of Manufacturing Industry in Russia — 2017 |
 Key findings

Priority business strategies in 2017


Introduction

01 Key findings

Trend Highlights 02
Manufacturing sector
in figures
State of the manufacturing
03
The priority business strategies in 2017 reaffirm Top-5 priority growth strategies for The effect of import sector in Russia
the general trend for the manufacturing companies in 2017: substitution policies: Main issues
sector recovery: 04
for the manufacturing sector
•• entry onto new markets (81 percent) Managing companies
Entry onto new markets 05
•• bringing new products to the market
in the current market conditions
(77 percent) Since 2016 manufacturers The key reason for
06 Sources of capital
Bringing new products to the are actively implementing a decreased share of imports
However, the so called anti-crisis campaigns market a strategy to reduce the in the procurement structure
Government support
(e.g. on cost reduction in Russia) have imports share (59 percent), stems from the increase 07
to the manufacturing sector
decreased in relevance (by 11 percentage with 41 percent of companies in prices for foreign products
points). having similar plans for the as a result of the weaker Innovative activity
Enhancing the production and 08
next year. Rouble. However, the results of the manufacturing companies
technology potential
of our survey revealed that 20–
Urgent issues of doing
24 percent of the respondents 09
business in Russia
eliminated import products
Business development through from their structures indicating
organic growth 10 Our respondents
higher quality and lower prices
for Russian products.
11 Appendix
Replacement of imported
products in the local market Contacts

11
Overview of Manufacturing Industry in Russia — 2017 |
 Key findings

Other business strategies in 2017


Introduction

01 Key findings

Trend Highlights 02
Manufacturing sector
in figures
State of the manufacturing
03
The manufacturers have noted an increased sector in Russia
interest for the following strategic plans in 2017: Main issues
04
•• Changes in strategies for working for the manufacturing sector
Strategies for working Changes Notably, foreign companies Over the past year, the share
with suppliers Managing companies
with suppliers: in personnel policy: expect to increase both their of companies concerned about 05
•• Changes in personnel policy While in the last year the 56–58 percent of the headcount and average pay the energy efficiency has
in the current market conditions
most common strategy was respondents plan to introduce for all employee categories increased by 9 percentage
•• Energy efficiency strategies 06 Sources of capital
to change suppliers without changes to their personnel mentioned, particularly for points. 77 percent of the
increasing their number, this policies in 2017. It should optimization professionals companies surveyed have
Government support
year the manufacturers have be noted that the absolute (+7 and +7 percentage planned the relevant 07
to the manufacturing sector
announced strategies for their majority of the respondents points, respectively). measures. The highest
suppliers’ networks expansion intend to increase the priority is placed on such Innovative activity
08
(with 41 percent of the pay level, while half of the 74 percent of the respondents measures as the intensification of the manufacturing companies
respondents in the process companies surveyed plan note the need for automating of technological processes,
Urgent issues of doing
of the strategy implementation to reduce headcount. HR management processes, the introduction of advanced 09
business in Russia
and 47 percent planning the however only half of those energy-saving technologies
implementation in 2017). On average, the planned companies have estimated the and the prevention of direct 10 Our respondents
changes in the pay level and respective costs. energy losses.
headcount do not exceed 5%.
11 Appendix

Contacts

12
Overview of Manufacturing Industry in Russia — 2017 |
 Key findings

Sources of capital
Introduction

01 Key findings

Trend Highlights 02
Manufacturing sector
in figures
State of the manufacturing
03
In 2017 the respondents pointed sector in Russia
to the attractiveness of financing through Main issues
government investment. 04
for the manufacturing sector
69 percent of the companies Most respondents 65 percent of companies
In 2016, the business was focused on a single surveyed stated their intention (58 percent) have experience surveyed, have recognized the Managing companies
05
source of capital (own resources). Today, to attract external investment. in raising foreign investment. importance loan refinancing
in the current market conditions
however, the companies are more disposed for their businesses.
06 Sources of capital
to external investments. Such plans quite often include Notably, the majority of them
several sources of capital: (63 percent) indicate positive
Government support
non-financial results from 07
•• Government to the manufacturing sector
such cooperation.
investment (57 percent
Innovative activity
of the respondents) 08
of the manufacturing companies
•• Russian private
Urgent issues of doing
investment (50 percent 09
business in Russia
of the respondents)

•• Foreign private 10 Our respondents


investment (38 percent
of the respondents) 11 Appendix

Contacts
‘‘Despite the fact that attracting government
investments is associated with a whole range
of difficulties, they are often provided on more
favorable conditions than those available on the
market.’’
Srbuhi Hakobyan
Partner, Deloitte CIS

13
Overview of Manufacturing Industry in Russia — 2017 |
 Key findings

Efficiency of the government regulation


Introduction

01 Key findings

Trend Highlights 02
Manufacturing sector
in figures
State of the manufacturing
03
2016 is characterized by a stronger loyalty sector in Russia
of the business to government efforts. Main issues
04
for the manufacturing sector
It is noteworthy that positive impact of the state The integrated assessment Top-3 forms of government Among other government
support of innovation is rated the highest. of the government support support for manufacturing measures, the state support Managing companies
05
for business and development companies in Russia: of innovation receives
in the current market conditions
of the Russian manufacturing the most positive views:
•• Public procurement orders 06 Sources of capital
industry has increased +26 percent.
by 0.2 points from 2016 and •• Tax and other financial
Government support
scored 1.7 at the three-point incentives At the same time, the 07
to the manufacturing sector
scale, indicating an average energy policy, energy
•• Investment in physical
satisfaction of the business tariffs in particular, is seen Innovative activity
infrastructure 08
with government efforts. as negative: –25 percent. of the manufacturing companies
Notably, in 2017 two times Urgent issues of doing
09
as many businesses expressed business in Russia
their interest for public
procurement orders on their 10 Our respondents
products (by 17 percentage
points). 11 Appendix

Contacts
‘‘In the face of unfavorable market
environment, the manufacturers are not willing
to adopt transformative measures to increase
efficiency, but rather rely on the government
support.’’
Srbuhi Hakobyan
Partner, Deloitte CIS

14
Overview of Manufacturing Industry in Russia — 2017 |
 Key findings

Innovations and digitalization of today


Introduction

01 Key findings

Trend Highlights 02
Manufacturing sector
in figures
State of the manufacturing
03
94 percent* of the surveyed CFOs of leading sector in Russia
manufacturing companies in Russia stated Main issues
the need enhancing the economic efficiency 04
for the manufacturing sector
of business functions through automation Over the past year, the average Notably, foreign companies Top-5 technologies that Key reasons for non-use/
of the key business processes. revenues spent on innovation spend on innovation are implemented/ planned limited use of EDF: Managing companies
05
and digital solutions grew almost 1.5 times the share for implementation in the
in the current market conditions
•• Impracticality of paper flow
72 percent* of the surveyed CFOs of leading by 0.5 percent to 9 percent, of innovation spending near future:
dismissal 06 Sources of capital
manufacturing companies in Russia stated which in turn confirms the in Russian companies
•• Electronic document
that they take part in the evaluation of new global trend of growing (12 versus 8 percent). •• Lack of resources (human,
management (EDF) Government support
technology solutions and launch of innovative interest of manufacturers for financial, qualification) 07
(83 percent) to the manufacturing sector
projects in their companies. technological innovation and The top requested innovations:
•• Risks and concerns regarding
new digital solutions. introduction of advanced •• Energy saving technology Innovative activity
the loss of documents 08
production technologies (72 percent) of the manufacturing companies
translated into electronic
(43 percent) and launch
•• Full automation of selected form Urgent issues of doing
of technically new or advanced 09
business processes business in Russia
products (31 percent).
(69 percent)
10 Our respondents
•• Full automation of business
process chain (63 percent)
11 Appendix
•• Advanced ERP systems
(57 percent) Contacts

* Based on the results


of the CFO Survey (first half of 2017)

15
Overview of Manufacturing Industry in Russia — 2017 |
 Key findings

Innovations and digitalization


of tomorrow Introduction

01 Key findings

Trend Highlights 02
Manufacturing sector
in figures
State of the manufacturing
03
Increased manufacturing innovation activity sector in Russia
across a variety of operations Main issues
04
for the manufacturing sector
51 percent of the 44 percent are focused 37 percent indicate the
respondents plan to acquire on R&D activities relevance of marketing Managing companies
05
advanced equipment research
in the current market conditions

06 Sources of capital
A shift in attitude towards
Government support
innovation activities 07
to the manufacturing sector
A growth in demand Innovative activity
08
for marketing research of the manufacturing companies
and digital solutions
Urgent issues of doing
(by 7–9 percentage points) 09
business in Russia

10 Our respondents
A greater automation in the
manufacturing industry by 2018
‘‘Despite the fact that the business 11 Appendix
Almost half of the companies understands and is willing to adopt
Contacts
surveyed plan to introduce innovation and digital technology, the existing
the full automation of some
task distribution framework, including internal
business processes and
business process chains and external management, is deemed
(47 and 44 percent, outdated and ill-prepared for the new market
respectively).
conditions.’’
Srbuhi Hakobyan
Partner, Deloitte CIS

16
Overview of Manufacturing Industry in Russia — 2017 |
 Key findings

Innovations and digitalization


of tomorrow Introduction

01 Key findings

Trend Highlights 02
Manufacturing sector
in figures
State of the manufacturing
03
Potential leadership of the manufacturing sector in Russia
sector in terms of sophistication Main issues
of implemented technologies (compared 04
for the manufacturing sector
to other Russian economy sectors) Manufacturers plan At present, the technology,
to introduce more sophisticated media and telecommunications Managing companies
05
technological solutions in the (TMT) sector is leading
in the current market conditions
near future. in terms of sophistication
06 Sources of capital
of implemented technologies.

Government support
07
to the manufacturing sector
Innovative activity
08
In 2017 the development of innovation and of the manufacturing companies
digitalization in the manufacturing sector will
Urgent issues of doing
be hindered mostly by internal constraints, 09
business in Russia
while external factors will have a greater In 2017 (and roughly 76 percent of the respondents, At the same time, the
boosting effect. in the next two years) the respectively), while only a year key drivers for digital 10 Our respondents
main constraints for the digital ago the manufacturers spoke strategy implementation
strategy implementation about the greater importance in manufacturing companies
in manufacturing companies of the overall economic are the market and the 11 Appendix
will be the organizational situation in Russia and in the competition, which reaffirms
structure and staffing world. the recovery processes in the
Contacts
(as indicated by 82 and economy (both in Russia and
globally) and the natural
demand for innovations and
digital developments.

17
02

Introduction

01 Key findings

Manufacturing sector
02
in figures
State of the manufacturing
03
sector in Russia

Russian manufacturing sector


Main issues
04
for the manufacturing sector
Managing companies
05

in figures
in the current market conditions

06 Sources of capital

Government support
07
to the manufacturing sector
Innovative activity
08
of the manufacturing companies
Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix

Contacts

18
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Russian manufacturing sector in figures


Introduction

01 Key findings
Global industrial production

Manufacturing sector
Global Industrial Production Index (base: 2010) Global industrial production is growing 02
in figures
at a very uneven pace:
170%
State of the manufacturing
•• Chinese economy is showing the best 03
167% sector in Russia
dynamics, but industrial output growth
160% there slowed from 14 percent in 2011 Main issues
04
to 6 percent in 2016. for the manufacturing sector

•• In 2011–2016, Russian industrial Managing companies


05
150%
production was adding 1.74 percent
in the current market conditions
per annum on average, which is roughly
144% 06 Sources of capital
in line with growth in North America.
140%
However, it should be noted that
Government support
industrial sector in the United States 07
to the manufacturing sector
is about 6.5 times bigger.
130%
Innovative activity
08
of the manufacturing companies
126%
Urgent issues of doing
120% 09
business in Russia

110%
10 Our respondents
111%
110%
105% 11 Appendix
100%

2010 2011 2012 2013 2014 2015 2016


Contacts

China Russia
BRICS NAFTA
Eurasian Customs Union EU

Source: The World Bank — Global Economic Monitor

19
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Russian manufacturing sector in figures


Introduction

01 Key findings
Russian industrial production performance by sector

Manufacturing sector
Russia’s Industrial Production Index (base: 2010) The manufacturing production in Russia 02
in figures
differs significantly by segments:
145%
State of the manufacturing
•• Thus, food and chemical industries 03
sector in Russia
140%
showed sustainable growth;
Main issues
•• Production of coke, oil products 04
for the manufacturing sector
135% 136% and transportation means increased
incrementally in 2010–2014 but show Managing companies
05
signs of stagnation currently;
in the current market conditions
130%
•• Metals, machinery and equipment 06 Sources of capital
127% production are back to the 2010 levels.
125%
Government support
07
to the manufacturing sector
120%
An expert’s view Innovative activity
08
118%
The chemical industry is one of only a few of the manufacturing companies
115% 116%
manufacturing industries ensuring sustainable
Urgent issues of doing
growth in 2017, with production of mineral 09
business in Russia
110% fertilizers, rubber, and resin seeing the highest
growth. The development of the chemical 10 Our respondents
industry is owed to significant investments
105%
in the construction of new production facilities,
103% modernized production techniques, more 11 Appendix
100% 101% energy-efficient fixed assets, the implementation
2010 2011 2012 2013 2014 2015 2016 of the best available technology practices
Contacts
contributing to increased environmental
Chemicals Food industry (including tobacco) responsibility, as well as the expansion
Auto, aircraft and ship manufacturing Metals and metal products import substitution programs.
Coke and oil products Machines and equipment
Yulia Orlova
Source: Russian Federal Statistics Service Partner, Deloitte CIS

20
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Russian manufacturing sector in figures


Introduction

01 Key findings
The place of the manufacturing sector in the Russian economy

Manufacturing sector
Structure of Russia’s GDP, RUB billion Structure of Russia’s manufacturing sector, RUB billion 02
in figures
14,637.4 1,968.9
Government, security, taxes 14,291.4 Metals and metal products 2,027.6 State of the manufacturing
03
Real estate
13,313.7
Food industry (including tobacco)
1,648.7 sector in Russia
12,975.4 1,518.7

Trade and maintenance


12,389.9
Coke and oil products
1,504.6 Main issues
12,273.5 1,549.8 04
10,635.8 Auto, aircraft and ship 1,434.2
for the manufacturing sector
Manufacturing 10,294.1 manufacturing 1,334.2
Managing companies
Mineral production
7,296.6
Machines and equipment 1,368.1
05
7,217.5 1,285.1 in the current market conditions
Transportation 6,067.5 1,230.3
and communications 5,798.8
Chemical industry 1,182.0

Construction
4,781.4 Wood processing 468.2 06 Sources of capital
4,780.3 and wood products 420.8
3,674.1 401.4
Agriculture (including fishing) 3,407.7 Mineral products 402.3 Government support
07
Financial services
3,455.2
Other manufacturing 236.3 to the manufacturing sector
2,920.5 232.7

Healthcare
2,921.1
Textiles, apparel and leather items 198.0 Innovative activity
2,788.6 173.4 08
2,415.7 177.0 of the manufacturing companies
Energy 2,222.6
Furniture
167.5
2,011.2 Urgent issues of doing
Education 09
1,936.3 2015 business in Russia
1,333.8 2016
Other services 1,247.5

Hotels and restaurants


648.8 10 Our respondents
638.0
In our survey, we focus on four key
461.4
Household production 440.3 manufacturing industries:
11 Appendix
2015 •• Metals and metal products;
2016
•• Auto, aircraft and ship manufacturing;
Contacts
Source: Russian Federal Statistics Service
•• Machinery;
•• In 2016, the manufacturing sector
accounted for 12.4 percent of Russian GDP. •• Chemicals.

21
03

Introduction

01 Key findings

Manufacturing sector
02
in figures
State of the manufacturing
03
sector in Russia

State of the manufacturing sector


Main issues
04
for the manufacturing sector
Managing companies
05

in Russia
in the current market conditions

06 Sources of capital

Government support
07
to the manufacturing sector
Innovative activity
08
of the manufacturing companies
Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix

Contacts

22
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

State of the manufacturing sector


in Russia Introduction

01 Key findings
Current state of the manufacturing sector in Russia

Manufacturing sector
What is your view of the current state of the Russian manufacturing industry? Trends Highlights 02
in figures
•• For the first time in three years, •• The last year saw a deterioration
State of the manufacturing
Company Revenue, Export the perception of the current state in sentiment in the chemicals industry 03
Industry type 2016 share Employees sector in Russia
of the industry is dominated by positive (the share of negative assessments
Main issues
54%

50%

71%

38%

57%

52%

58%

43%

56%

60%

50%

50%

64%

41%

55%

74%
estimates (the net balance grew of the industry’s current conditions 04
9% from 0 to +8 percent). is 16 pp above the average). However, for the manufacturing sector
20%
the steel, automotive, aircraft and ship Managing companies
45% •• While 46 percent of respondents view 05
manufacturers are more optimistic in the current market conditions
the current market conditions as negative.
62%

about the overall situation.

59%
57%
This indicates that the conditions
06 Sources of capital

50%
30%
50%

50%
48%

for conducting business have noticeably •• Over the past year, the share
46%

45%
44%
43%

42%

40%
diverged in various segments of optimistically disposed foreign companies

36%
Government support
29%

of the manufacturing sector in Russia. and large businesses has doubled 07

26%
to the manufacturing sector
8% (up to 58 and 60 percent, respectively).
Innovative activity
0%
•• A greater level of optimism can be seen 08
of the manufacturing companies
Total
Metal products
Auto, aircraft and ship

Machinery
manufacturing

Russian companies

Foreign companies

Less than RUB 10bn

RUB 10–50bn

Over RUB 50bn

Less than 5%

5–25%

Over 25%

Less than 1,000 employees


Chemical production

1,001–5,000 employees
Over 5,000 employees
among representatives of companies
with export share over 25 percent Urgent issues of doing
09
and companies with more than 5,000 business in Russia
employees — 64 and 74 percent have
a positive view on the state of the industry. 10 Our respondents
37%

43%
9% 11 Appendix
7%

Contacts

2016 2017

An expert’s view
The automotive industry, in particular LCV
Positive Positive
Rather positive Negative and HCV producers, has improved its results.
Rather negative Tatiana Kofanova
Negative Director, Deloitte CIS
Net balance

23
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

State of the manufacturing sector


in Russia Introduction

01 Key findings
Outlook for the manufacturing sector in Russia in 2017

Manufacturing sector
What is your view of development prospects for the Russian manufacturing sector in 2017? Trends Highlights 02
in figures
•• The respondents have a divided view •• For the second consecutive year machinery
State of the manufacturing
Company Revenue, Export on the outlook for manufacturing companies, producers retain the negative views 03
Industry type 2016 share Employees sector in Russia
with 41 percent expecting improvement on the overall situation and in the outlook
Main issues
31%
41%

42%

43%

38%

41%

42%

33%

38%

52%

35%

39%

50%

28%

45%

58%
and 44 percent believing that the situation for the industry, as 24 percent of them expect 04
will remain unchanged. the situation to deteriorate. This results from for the manufacturing sector
upgrade capex cuts by Russian companies. Managing companies
•• Overall, the situation in the industry 05

47%
54%

Over the 2015–2016 years, the share in the current market conditions

43%

50%
is seen as stable, with positive sentiment
38%

44%

40%
of investment has decreased by 25 percent
44%

41%
46%

10%
50%
44%

41%
8% prevailing (the net balance grew from
26% (appendix on the page 91). 06 Sources of capital

45%
44%
30% 31% +13 to +26 percent), albeit negative drivers

42%
continue to affect some segments. •• The representatives of chemical companies
Government support
13%
are much more pessimistic on development 07

25%
24%

to the manufacturing sector


24%

21%
of the manufacturing sector (11 percentage
17%

18%

15%
15%

15%
15%

14%
12%

points below the average). Innovative activity


7%

5%
4%

08
of the manufacturing companies
10% •• Smaller companies with annual revenue
5% 26% 29% 36% 15% 14% 26% 25% 10% 21% 48% 20% 18% 45% 3% 31% 58% below RUB 10 billion and less than Urgent issues of doing
09
23%
1,000 employees tend to negatively view business in Russia
2%
Total
Metal products
Auto, aircraft and ship

Machinery

Foreign companies

Less than RUB 10bn

RUB 10–50bn

Over RUB 50bn

Less than 5%

5–25%

Over 25%

Less than 1,000 employees


manufacturing
Chemical production

Russian companies

1,001–5,000 employees
Over 5,000 employees
the situation (every fourth respondent
expects the situation to worsen in 2017). 10 Our respondents

11 Appendix

Contacts
37% 44%

2016 2017 An expert’s view


Lowering of fixed investment is a significant constraint for new plant upgrades
Situation will definitely improve Situation will improve
Situation will rather improve Situation will not significantly change and maintenance projects, supply of news parts for technology lines, servicing, etc.
Situation will rather deteriorate Situation will deteriorate Many projects were idled or delayed for an indefinite time due to numerous uncertainties
Situation will definitely deteriorate Net balance and inevitable re-assessment of development priorities by manufacturing companies.
Situation will not significantly change
Oleg Kuznetsov
Net balance
OOO FLSmidth

24
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

State of the manufacturing sector


in Russia Introduction

01 Key findings
Rating of competitive factors affecting market development
(incentives for market development)
Manufacturing sector
Trends Highlights 02
in figures
Select the top three drivers (in descending order) to increase the competitive position
•• The survey participants saw •• Russian companies cite the government
of the Russian manufacturing sector on the global market. State of the manufacturing
removal of administrative barriers support as a significant competitiveness 03
sector in Russia
as the most significant driver for increasing driver more often than foreign
2017 2016
Removal of administrative barriers the competitiveness of Russian manufacturing companies (by 16 percentage points). Main issues
30% 16% +14 pp 04
(including trade barriers)
companies. The significance of this driver for the manufacturing sector
•• Representatives of foreign companies
increased almost twofold in the past year. Managing companies
Geopolitical risk reduction 27% 23% are most likely to speak of the need 05
•• While such factors as currency risks to mitigate currency and geopolitical
in the current market conditions
Currency risk reduction and availability of financing partially risks (47 and 38 percent, respectively).
25% 38% –13 pp
lost their relevance (by 13 and 18 Transparency and stability of regulatory,
06 Sources of capital
Government support
(financing, subsidizing, percentage points, respectively). tax and economic policies have
and investing in manufacturing 23% 23% Government support
and innovations) a significantly higher priority for foreign 07
to the manufacturing sector
Transparency companies (38 percent).
and stability of regulatory, 22% 22% Innovative activity
tax and economic policies •• Metals companies are most likely 08
of the manufacturing companies
to mention the need for lower
Availability of financing options 20% 38% –18 pp
administrative barriers and availability Urgent issues of doing
09
of financing among the most significant business in Russia
Cost of raw materials factors (39 and 30 percent, respectively).
19% 11%
(including energy resources)
10 Our respondents
•• Automotive, aircraft and shipbuilding
companies are most sensitive
to currency risks (42 percent). 11 Appendix

•• Representatives of chemical Contacts


companies significantly more often
mention the importance of raw
material costs for domestic market
competitiveness (26 percent).

25
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

State of the manufacturing sector


in Russia Introduction

01 Key findings
Export markets of manufacturing companies

Manufacturing sector
Specify the current structure Select your company’s key exporter. Trends Highlights 02
in figures
of your trade relations.
Of the respondents surveyed, 78 percent •• The companies which specified the Customs
State of the manufacturing
indicated that their companies export Union as their main market describe their 03
Export relationships established Core export market sector in Russia
products abroad. current position positively more often
(9 percentage points more than the average). Main issues
Kazakhstan 69% Kazakhstan 23% •• Most survey participants stated that their 04
for the manufacturing sector
Belarus 61% Belarus 15%
companies export products to Kazakhstan •• On the contrary, the companies which
(69 percent) and Belarus (61 percent) export their products mainly to BRICS Managing companies
05
China 39% China 15%
which are core markets for 23 percent tend to be less optimistic about the current
in the current market conditions
Ukraine 37% Ukraine 13% and 15 percent of the companies, respectively. state of their businesses (9 percentage
This data confirms the significance points below the average). This may signal
06 Sources of capital
India 29% India 6%
of economic cooperation between stronger competition in those markets
Government support
Germany 26% US 5% the Eurasian Customs Union countries. with local producers. 07
to the manufacturing sector
Turkey 26% •• The top export markets for Russian
Innovative activity
manufacturing companies include China 08
Brazil 21% of the manufacturing companies
and Ukraine (15 and 13 percent, respectively).
US 21% Urgent issues of doing
09
France 18%
business in Russia

10 Our respondents

11 Appendix

Contacts

26
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

State of the manufacturing sector


in Russia Introduction

01 Key findings
Current state of manufacturing companies in Russia

Manufacturing sector
What is your assessment of your company’s current market position? Trends Highlights 02
in figures
•• Overall, the state of manufacturing companies •• A high share of negative assessments
State of the manufacturing
Company Revenue, Export in Russia may be described as positive: is common for small companies 03
Industry type 2016 share Employees sector in Russia
the total positive response rate is 65 percent, with annual revenue below RUB 10 billion
Main issues
77%
82%

83%

86%

83%

76%

86%
76%

83%

88%
71%

85%

90%

75%

86%

89%
38% which is albeit below the previous year’s level (29 percent) and less than 1,000 employees
24% 04
76% by 11 percentage points. (25 percent), while the representatives for the manufacturing sector
65% of larger companies with annual revenues Managing companies
over RUB 50 billion and more than 5,000 05
58% in the current market conditions
employees tend to be more optimistic
50%
(by 5 and 6 percentage points, respectively). 06 Sources of capital
•• The high share of negative assessments
Government support
29%

of the current condition is common 07

25%
to the manufacturing sector

24%
24%
23%

for machinery producers and chemical


18%

17%

17%

17%

15%

14%
14%

14%
12%

10%

11%
companies (exceeding the average Innovative activity
08
by 6 and 5 percentage points, respectively). of the manufacturing companies
Total
Metal products
Auto, aircraft and ship

Machinery

Less than RUB 10bn


manufacturing
Chemical production

Russian companies

Foreign companies

RUB 10–50bn

Over RUB 50bn

Less than 5%

5–25%

Over 25%

Less than 1,000 employees

1,001–5,000 employees
Over 5,000 employees
12%
18%
Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix

Contacts

2016 2017

Positive Positive
Rather positive Negative
Rather negative
Net balance

27
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

State of the manufacturing sector


in Russia Introduction

01 Key findings
Outlook for manufacturing companies in 2017
Trends Highlights
Manufacturing sector
What is your view of development prospects for your company in 2017? 02
•• The level of optimism significantly •• Specialists from foreign companies in figures
Company Revenue, Export increased in the past year: the positive that localized their production in Russia
Industry type 2016 share Employees State of the manufacturing
assessments exceed the negative ones are most positive about the outlook 03
sector in Russia
50%

54%

43%

46%

43%

45%

75%

47%

44%

60%

40%

48%
42%

73%

37%

74%
by 28 percentage points. for their businesses (75 percent expect
the situation to improve). Main issues
•• Forty four percent of the respondents 04
for the manufacturing sector
expect no significant changes in the situation, •• The share of positive expectations
19%
with the majority of them (80 percent) is significantly higher among experts Managing companies
05

50%
44%

55%
in the current market conditions
47%

47%
47%
57%

viewing the current conditions as positive. from the companies with a high export


39%

47%

43%

48%
44%

42%

10% 31% revenue share (25 percent) and companies


06 Sources of capital

40%
with more than 5,000 employees

27%
(net balance: 73 and 74 percent, respectively).

26%
18%
25%

16%
Government support
07
•• Less optimistic assessments to the manufacturing sector
10%

10%

13%
15%

11%
9%
8%
6%

4%

4%
5% of the business outlook is common
6% Innovative activity
10%
for chemical companies and machinery 08
2% of the manufacturing companies
producers (11–13 percentage points
44% 50% 43% 31% 33% 38% 75% 38% 35% 60% 35% 32% 73% 25% 45% 74% below the average). Urgent issues of doing
09
business in Russia
Less than RUB 10bn
Total
Metal products
Auto, aircraft and ship

Machinery

RUB 10–50bn

Over RUB 50bn

Less than 5%

5–25%

Over 25%

Less than 1,000 employees


manufacturing
Chemical production

Russian companies

Foreign companies

1,001–5,000 employees
Over 5,000 employees 10 Our respondents

11 Appendix

Contacts
60% 44%

2016 2017 An expert’s view


Car manufacturers need to comply with certain localization requirements in order to receive
Situation will definitely improve Situation will improve
Situation will rather improve Situation will not significantly change
government support. Production in Russia may be more profitable due to the devaluation
Situation will rather deteriorate Situation will deteriorate of the ruble. Therefore, we expect an increase in the share of manufacturers localized in Russia.
Situation will definitely deteriorate Net balance Tatiana Kofanova
Situation will not significantly change
Director, Deloitte CIS
Net balance

28
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

State of the manufacturing sector


in Russia Introduction

01 Key findings
The effect of Chinese production on Russian manufacturing companies

Manufacturing sector
Does the development of Chinese manufacturing impact Trends Highlights 02
in figures
your company’s position on the Russian market and globally?
•• Slightly more than a half of the respondents •• The representatives of companies supplying
State of the manufacturing
Company Revenue, Export (55 percent) believe that the Chinese products to Chinese manufacturing 03
Industry type 2016 share Employees sector in Russia
production development will impact companies indicate that the impact
Main issues
35%

31%
29%

36%

32%

35%

36%

67% 14%

33%

54%

21%

32%

50%

26%

43%

37%
their companies. is positive: these respondents consist 04
of companies with a high export revenue for the manufacturing sector
•• The experts were divided on the nature
share (over 25 percent), accounting

74%
of the expected impact: two thirds Managing companies

51%
05
38%

for 27 percent; large companies with revenue


46%

in the current market conditions


58%

41%
40%
45%

of the companies with ties to their Chinese


46%
43%

45%

21%
exceeding RUB 50 billion (42 percent).

53%
manufacturing counterparts expect
06 Sources of capital

27%
35%
the effect to be positive, while the rest •• Companies that compete with Chinese

33%
30%
believe it will be negative. producers report a negative impact:
33%

Government support
14%
metals companies (–4 percent). 07
27%

27%
to the manufacturing sector
23%

23%
23%
21%

20%
20%

19%
18%

42%
•• The domestically oriented Russian companies
13%
10%

5%
Innovative activity

4%
are less affected by this factor (74 percent), 08
of the manufacturing companies
–8% which implies the lack of strong competition
14% –4% 14% 8% 21% 15% 18% –5% 6% 42% 16% 5% 27% 3% 39% –5% with Chinese companies in the reviewed Urgent issues of doing
20% 09
segments on the domestic market. business in Russia
Total
Metal products
Auto, aircraft and ship

Machinery

Russian companies

Foreign companies

Less than RUB 10bn

RUB 10–50bn

Over RUB 50bn

Less than 5%

5–25%

Over 25%

Less than 1,000 employees


manufacturing
Chemical production

1,001–5,000 employees
Over 5,000 employees
•• Also, most machinery producers (58 percent) 10 Our respondents
38%
state that the development of the Chinese
industry does not affect the business
of their companies. 11 Appendix

Contacts
32% 45%

2016 2017

Yes, the impact is positive Yes, the impact is positive


Yes, the impact is negative No, there is no impact (neutral)
No, there is no impact (neutral) Yes, the impact is negative
Net balance Net balance

29
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

State of the manufacturing sector


in Russia Introduction

01 Key findings
Factors needed to increase company competitiveness

Manufacturing sector
Select the top three drivers (in descending order) to increase your company’s competitiveness Trends •• Local demand growth (32 percent) 02
in figures
on the Russian market. The need to increase the domestic demand
In the past year, attention of our respondents State of the manufacturing
as a factor of higher competitiveness is more 03
Reduction of production costs
2017 2016 moved from macroeconomic factors sector in Russia
(including energy costs) 41% 33% +8 pp
often cited by representatives of foreign
to the companies’ business objectives:
companies with localized production Main issues
•• Highlighting the importance of production (44 percent), as well as by the domestically 04
Local demand growth 32% 43% –11 pp for the manufacturing sector
Increase in production
cost cutting (+8 percentage points oriented companies with the export revenue
Managing companies
and technology potential 27% 23% +4 pp over the year), increasing production potential share less than 5 percent (40 percent). 05
(launch of new capacities) in the current market conditions
(+4 percentage points), extending product
Removal of administrative barriers 24% 18% •• Increase in production and technology
(including trade barriers) lines (+7 percentage points);
potential (27 percent) 06 Sources of capital
Product line extension 22% 15% +7 pp •• On the other hand, domestic demand, Specialists from companies with the high
capital raising, and import reduction export revenue share (over 25 percent) Government support
07
Government support 16% 16% were mentioned a lot less frequently tend to mention the need to increase to the manufacturing sector
(–11, –12, and –10 percentage points, the production and technology potential
Innovative activity
Availability of financing sources 12% 24% –12 pp respectively). (by 7 percentage points). 08
of the manufacturing companies
Import restrictions •• Representatives of smaller companies
(including on «grey» imports)
3% 13% –10 pp
Highlights Urgent issues of doing
with revenue of less than RUB 10 billion 09
business in Russia
•• Reduction of production costs (41 percent) tend to cite the importance of the product
Reduction of production costs is most line extension significantly more often 10 Our respondents
pressing for metals companies (46 percent). (by 9 percentage points below the average).
This factor is critical for major companies
with annual revenue of more
•• Representatives of chemical 11 Appendix
companies mention the need to lower
than RUB 50 billion (53 percent).
the administrative barriers (46 percent) Contacts
and government support (28 percent).

30
04

Introduction

01 Key findings

Manufacturing sector
02
in figures

Main issues for the Russian 03


State of the manufacturing
sector in Russia

manufacturing sector in 2017


Main issues
04
for the manufacturing sector
Managing companies
05
in the current market conditions

06 Sources of capital

Government support
07
to the manufacturing sector
Innovative activity
08
of the manufacturing companies
Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix

Contacts

31
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Main issues for the Russian


manufacturing sector in 2017 Introduction

01 Key findings
Most important issues facing manufacturing companies

Manufacturing sector
Select the top three issues (in descending order) that manufacturing companies in Russia face today. Trends 02
in figures
2017 2016 •• Over the year there has been growing concern •• Corruption (34 percent)
Shortcomings of government State of the manufacturing
regulation (administrative, trade, 44% 35% +9 pp among manufacturing representatives about Corruption is a much more important issue 03
economic and other barriers) sector in Russia
such issues as shortcomings of government for large companies with a revenue above
Insufficient purchasing 35% 17% +18 pp regulation (+9 pp), insufficient purchasing RUB 50 billion (+9 pp above the average). Main issues
power of households 04
power of households (+18 pp) and corruption for the manufacturing sector
•• Insufficient support and financing
Corruption 34% 18% +16 pp (+16 pp). At the same time, geopolitical Managing companies
and currency risks have decreased
from the government (25 percent) 05
in the current market conditions
Insufficient support and financing The need for more support and financing
from the government
25% 28% –3 pp in importance (–10 pp and –21 pp, respectively).
from the government is more often named
•• Insufficient support and financing from
06 Sources of capital
Geopolitical risks (EU sanctions, 19% 29% –10 pp
by representatives from automotive
Russia’s embargos, etc.) the government remains one of the top companies, aircraft makers and ship builders
Government support
Currency risks issues for the manufacturing sector. (+12 pp), as well as by representatives 07
(weaker rouble)
18% 39% –21 pp to the manufacturing sector
of metallurgical companies (+11 pp).
Highlights Innovative activity
•• Geopolitical risks (19 percent) 08
of the manufacturing companies
•• Shortcomings of government regulation Geopolitical risks are the most important
(44 percent) concern for foreign companies (36 percent) Urgent issues of doing
09
Shortcomings of government regulation and manufacturers of machinery (28 percent). business in Russia
is the most important issue for large
•• Currency risks (18 percent) 10 Our respondents
companies with a revenue above
As with geopolitical risks, currency risks
RUB 50 billion (54 percent) and a headcount
represent the most important concern
above 5,000 people (58 percent). 11 Appendix
for foreign companies (35 percent).
•• Insufficient purchasing power of households Manufacturers with significant exports
(35 percent)
Contacts
(above 25 percent) also place
Insufficient purchasing power of households a higher importance on currency risk
is of utmost concern for automotive (+6 pp above the average).
and chemical companies (51 percent
and 43 percent, respectively) as they
have a stronger focus on the retail market.

32
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Main issues for the Russian


manufacturing sector in 2017 Introduction

01 Key findings
Currency risks

Manufacturing sector
How did the fluctuating ruble exchange rate affect your company’s operations in 2016? The relatively stable ruble has reduced Trends 02
in figures
the urgency of currency risks among
2017 2016 •• As in 2016, increased production costs
Product cost increase as a result other issues facing manufacturers. State of the manufacturing
of higher prices for products, work 40% 48% –8 pp are seen as the main result of a weaker ruble 03
and services from suppliers abroad However the situation remains complicated. sector in Russia
(40 percent).
The average weighted ruble exchange Main issues
No impact 24% 17% +7 pp
rate was down by 10 percent over 2016. •• Significant decrease of share demonstrate 04
for the manufacturing sector
Increased domestic At the same time, there emerged a stable companies who mention lowering costs
competitiveness amid higher 15% 23% trend for the appreciation of the rouble, (by 11 percentage points over one year), Managing companies
prices for imported products
–8 pp
05
which has continued into 2017. Therefore, as well as growing competitive level abroad in the current market conditions
Product cost reduction 14% 25% –11 pp exchange rate fluctuations continue to affect (decrease by 19 percentage points).
manufacturers in a notable way.
06 Sources of capital
Increased international
•• Of the companies surveyed, 24 percent
competitiveness due to international 14% 33% –19 pp did not note any impact from exchange Government support
sales in a foreign currency 07
rate fluctuations in 2016. to the manufacturing sector
Increased interest of foreign
9% 7% +2 pp
investors in the company •• Only 9 percent of the companies saw Innovative activity
08
a stronger interest from foreign investors. of the manufacturing companies
Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix

Contacts

33
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Main issues for the Russian


manufacturing sector in 2017 Introduction

01 Key findings
Currency risks

Manufacturing sector
How did the fluctuating ruble exchange rate affect your company’s operations in 2016? 02
in figures
Product cost increase as a result
of higher prices for products, work 40% 46% 36% 31% 38% 35% 75% State of the manufacturing
03
and services from suppliers abroad sector in Russia
No impact 24% 21% 43% 15% 24% 26% 8% Main issues
04
for the manufacturing sector
Increased domestic
competitiveness amid higher 15% 17% 0% 8% 33% 17% 8%
Managing companies
prices for imported products 05
in the current market conditions
Product cost reduction 14% 13% 21% 0% 14% 14% 8%
06 Sources of capital
Increased international
competitiveness due to international 14% 13% 0% 31% 10% 17% 0%
sales in a foreign currency Government support
07
Increased interest of foreign
to the manufacturing sector
9% 4% 0% 23% 10% 11% 0%
investors in the company
Innovative activity
08
of the manufacturing companies
Urgent issues of doing
Highlights 09
business in Russia
•• Increased production costs have been •• Machinery manufacturers more often
specified as the most notable problem tended to note (+18 pps) that their products 10 Our respondents
by almost all the categories of manufacturers enjoyed stronger competitive advantage
except for auto, aircraft and ship makers in the domestic market amid more 11 Appendix
who more often tended to indicate expensive imports.
that the depreciated Russian ruble had Contacts
All •• Chemical manufacturers more often
no effect on their operations. This may
Metal products tended to specify increased competitiveness
Automotive, aircraft be due to the fact that the depreciated
of their foreign operations (+17 pps
and ship manufacturers ruble resulted in major growth in prices
Chemicals above the average). Almost every fourth
in the automotive market in 2015.
Machinery respondent (23 percent) noted an increase
Russian companies •• The growth in production costs had in the interest from foreign investors.
Foreign companies
the strongest impact on foreign
companies (75 percent).

34
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Main issues for the Russian


manufacturing sector in 2017 Introduction

01 Key findings
Currency risks

Manufacturing sector
How would potential ruble appreciation in 2017 affect Trends Highlights 02
in figures
your company’s operations?
•• Most respondents (66 percent) noted •• Car and plane makers, as well as ship builders
State of the manufacturing
Industry Company type that a stronger ruble would have a positive are expecting to benefit most from the ruble 03
sector in Russia
4% impact on their companies. rally (net balance of +79 percent).

65%

50%

54%

61%
Main issues

86%

76%

83%
14% •• Of the companies surveyed, 17 percent •• Producers of manufacturing equipment 04
23% for the manufacturing sector
do not expect any effect from it in 2017. and foreign companies localized
in Russia are also noting the increasingly Managing companies
•• Almost the same number of respondents 05
positive effects the ruble’s appreciation in the current market conditions
(18 percent) expect a negative effect
33% (+14 and +19 pp above average, respectively).
from the stronger ruble. 06 Sources of capital

15%

21%
17%
•• At the same time, the impact
17%

the ruble’s appreciation has on metal product Government support


07

14% 10%
manufacturers is significantly less evident to the manufacturing sector
7% 7%
18%

18%
17%

17%
31% but still positive (net balance of +33 percent).
42% Innovative activity
08
48% 33% 79% 23% 62% 42% 67%
•• According to almost one third of chemical of the manufacturing companies
manufacturers (31 percent), continued ruble
Urgent issues of doing
09
Automotive, aircraft and
All

Metal products

ship manufacturers

Chemicals

Machinery

Russian companies

Foreign companies
appreciation will have a negative impact. business in Russia

10 Our respondents

11 Appendix

Contacts

An expert’s view
When we are talking about an export-oriented chemical industry an increase in the ruble
exchange rate causes a decrease in export profitability. This fact has naturally affected
Positive impact Positive impact
Rather positive impact No impact
the opinion of some manufacturers on the current situation.
No impact Negative impact
Rather negative impact Net balance
Negative impact

35
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Main issues for the Russian


manufacturing sector in 2017 Introduction

01 Key findings
Share of imports in procurements

Manufacturing sector
Select the statement that best describes the current structure of raw materials Trends 02
in figures
and components/machinery and equipment imports in your company? Manufacturers have a much stronger reliance
on imports of machinery and equipment, State of the manufacturing
03
rather than on imports of raw materials: sector in Russia
Raw materials and components Machinery and equipment
•• most manufacturers (58 percent) Main issues
04
10% 4% 10% reported a significant share of imports for the manufacturing sector
8% 15%
in their procurements (at least a half Managing companies
of their total procurements). 05
in the current market conditions
16%
•• for most manufacturers (85 percent),
imported machinery and equipment
06 Sources of capital
account for a significant portion of
32% Government support
their production assets. 07
to the manufacturing sector
Innovative activity
46% 08
of the manufacturing companies
59%
Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix

Contacts

For our production, we use: For our production, we use:


imported raw materials only imported equipment only
imported raw materials to a large extent imported equipment to a large extent
both imported and local raw materials both imported and local equipment
local raw materials to a large extent local equipment to a large extent
local raw materials only

Continued on the page 37

36
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Main issues for the Russian


manufacturing sector in 2017 Introduction

01 Key findings
Share of imports in procurements

Manufacturing sector
Raw materials and components Machinery and equipment Highlights 02
in figures
Industry Company type Industry Company type •• Even though chemicals manufacturers
State of the manufacturing
reported much more active use of local raw 03
sector in Russia
27%

15%

17%

69% 15%

62%

26%

17%

55%
42%

43%

31%

54%

47%

46%

materials (+12 pp), 38 percent predominantly


Main issues

59%
rely on foreign equipment and the remaining

62%
65%
04
respondents operate foreign equipment that for the manufacturing sector

58%
27%
61%

makes about half of their production assets. Managing companies


05
46%

48%

in the current market conditions


51%
32%

•• It is quite different with machinery


46%

46%

45%
manufacturers. More than a half of them

38%
reported a predominant use of imported
06 Sources of capital
26%

components (+9 pp) while having


21%

21%
18%

16% Government support

16%
a predominant reliance on local 07
12%

to the manufacturing sector


9%

8%

3%

equipment (+12 pp).
All

Metal products

Automotive, aircraft and


ship manufacturers

Chemicals

Machinery

Russian companies

Foreign companies

Automotive, aircraft and


All

Metal products

ship manufacturers

Chemicals

Machinery

Russian companies

Foreign companies
Innovative activity
•• Foreign companies prefer imported raw 08
of the manufacturing companies
materials and equipment. The number
of foreign companies with a predominant Urgent issues of doing
09
reliance on imported materials business in Russia
and equipment is +33 pp and +19 pp
above the average, respectively. 10 Our respondents

11 Appendix

Contacts

Predominant reliance on local raw materials Predominant reliance on local equipment


Relatively equal reliance on imported Relatively equal reliance on imported
and local raw materials and local equipment
Predominant reliance on imported raw materials Predominant reliance on imported equipment

37
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Main issues for the Russian


manufacturing sector in 2017 Introduction

01 Key findings
Geography of imported products

Manufacturing sector
Specify the current structure of your trade relations. Select your company’s key importer. Trends 02
in figures
•• The EU and BRICS are main sources
Sources of imports Main sources of imports State of the manufacturing
of imports. 03
sector in Russia
China 49% China 27% •• Almost half of the respondents (49 percent) Main issues
purchase products from China and another 04
Germany 40% Germany 13% for the manufacturing sector
40 percent rely on imports from Germany.
Belarus 35% Kazakhstan 10% China and Germany also act as main Managing companies
05
markets for 27 percent and 13 percent in the current market conditions
Kazakhstan 26% Japan 10%
of the companies surveyed, respectively.
Japan 23% Belarus 8% 06 Sources of capital
•• Germany and Japan are the main
Italy 21%
importers of machinery and equipment. Government support
07
South Korea 19% China acts as an exporter of components to the manufacturing sector
and raw materials, as well as of machinery
France 18% Innovative activity
and equipment. 08
of the manufacturing companies
Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix

Contacts

38
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Main issues for the Russian


manufacturing sector in 2017 Introduction

01 Key findings
Relationships with suppliers

Manufacturing sector
100%
We asked the respondents to rate Highlights 02
in figures
the importance and satisfaction from working
•• Companies that generally rely on imported
with suppliers, based on several criteria. State of the manufacturing
90% components and raw materials reported 03
We ranked the responses on a 100-percent sector in Russia
a notably higher satisfaction with suppliers
scale, with importance on the X-axis Main issues
(+20 to +28 pps above the average) across 04
80% and satisfaction on the Y-axis. Indices were for the manufacturing sector
the most important criteria — product quality,
tested for sensitivity to changes in weights.
delivery timing, reputation and price level. Managing companies
(See dark points on chart). This may be one 05
70% Trends in the current market conditions
Raw material
Reputation*
quality*
of the reasons why manufacturers are
Product quality and delivery timing were still cooperating with foreign companies, 06 Sources of capital
60% noted as the most important supplier criteria with a sharp increase in imports caused
(84 percent and 77 percent, respectively), by ruble’s devaluation in 2014. Government support
07
Delivery timing*
with price level and price flexibility to the manufacturing sector
50% •• Almost half of chemicals producers reported
Price level* coming second in importance (63 percent
Innovative activity
Satisfaction

Reputation the strongest dissatisfaction with the current


and 61 percent, respectively). Product mix 08
Product mix
prices (2 percent). of the manufacturing companies
and additional services (46 percent and
40% Consistent availability of products Raw material
quality 36 percent, respectively) have the least Urgent issues of doing
Availability of additional services Service quality 09
Communication
and follow-up importance for manufacturers, which is typical business in Russia
30% Delivery timing for the B2B sector. Other criteria are more
characteristic for administrative personnel 10 Our respondents
Price flexibility efficiency and have medium importance.
20% Price level
11 Appendix
Based on the criterion where importance
exceeds satisfaction by more than 30 pps, Contacts
10%
manufacturers demonstrate dissatisfaction
with suppliers when it comes to product
0% quality, delivery timing and price flexibility.
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
All of these are part of the Top-5 criteria
for the manufacturing sector.
Importance
Average level of importance and satisfaction from working with suppliers
Level of satisfaction for the companies working mainly with foreign suppliers of raw materials and spare parts
Potentially problematic experience with suppliers

39
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Main issues for the Russian


manufacturing sector in 2017 Introduction

01 Key findings
Talent availability

Manufacturing sector
Using a five point scale rate the current full-time personnel at your company based on two criteria: Trends 02
in figures
employee number and qualification.
•• In general, manufacturers report a fairly
State of the manufacturing
high level of satisfaction with executive 03
Top executives Administrative staff Production staff Optimisation professionals sector in Russia
and administrative staff headcount,
demonstrating a net positive response Main issues
41%
40% 04
17% of 65 and 55 percent, respectively. for the manufacturing sector
25% 16%
11% However, they are significantly less satisfied Managing companies
25% 05
36%
with talent quality, with satisfaction in the current market conditions
31% 40% 12% at just 32 and 26 percent, respectively.
60%
36% 06 Sources of capital
55% 25% •• Of the respondents surveyed,
31% 25% 17 percent of the replies indicated
40% Government support
35% a lack of production staff and 26 percent — 07
34% to the manufacturing sector
32% 36% 26% lack of automation staff.
32%
26% 28% Innovative activity
27%
•• Of the respondents surveyed, 35 percent 08
19%
21% of the manufacturing companies
19% 9% of the respondents are indicated
23%
a lack of quality talent in optimization Urgent issues of doing
09
and automation staff. Notably, the identified business in Russia
4%
4%
5% issue hinders the production intensification
11% 5% 9% 9%
13% and advanced technology implementation. 10 Our respondents
5% 15%
8% 8% 20%
7%
Highlights
13% 11 Appendix
15% •• The lowest satisfaction with talent
was reported in the chemical, automotive, Contacts
Headcount

Talent quality

Headcount

Talent quality

Headcount

Talent quality

Headcount

Talent quality
aircraft and ship manufacturing industries.

Sufficient Rather insufficient


Rather sufficient Insufficient
Satisfactory Net balance

40
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Main issues for the Russian


manufacturing sector in 2017 Introduction

01 Key findings
Talent availability

Manufacturing sector
What is the average age Trends 02
in figures
of the company’s personnel?
•• For top executives, most manufacturers
State of the manufacturing
(52 percent) indicated average age 03
Average age sector in Russia
of 41–50 years. A significant number
of manufacturers (20 percent) reported Main issues
44 04
40 average age above 50 years; only 3 percent for the manufacturing sector
38
34 said that average age was below 30 years. Managing companies
05
•• For other functions, most manufacturers in the current market conditions
3% 8% 1% 5%
17% 39% 1% indicated an average age of 31 to 40 years.
36%
23% 06 Sources of capital
•• We note that with respect to optimisation
52%
and automation professionals, almost Government support
07
56%
one fourth of manufacturers (24 percent) to the manufacturing sector
51% indicated an average age above 40 years
Innovative activity
49%
and another 5 percent did not report any. 08
of the manufacturing companies
Highlights Urgent issues of doing
09
25%
business in Russia
•• The average age of production professionals
in the chemical segment is five years higher 10 Our respondents
15%
9% than the industry average.
7%
3%
11 Appendix
Executives

Administrative staff

Production staff

Optimisation/automation

Contacts

21–30 years
31–40 years
41–50 years
51–60 years
Above 60 years
No such professionals

41
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Main issues for the Russian


manufacturing sector in 2017 Introduction

01 Key findings
Energy efficiency

Manufacturing sector
Which of the below listed issues related to energy resources are the most urgent Trends Highlights 02
in figures
for your company in 2017?
International ratings* reports a fairly low •• High energy costs are most acute
State of the manufacturing
energy efficiency for the Russian economy, for steel makers and metal product 03
Energy resources issues sector in Russia
which is one of the barriers to development. manufacturers (83%).
Main issues
High energy costs in Russia 79%
•• The chemical industry displays 04
Most respondents (79 percent) indicated for the manufacturing sector
certain characteristics: 31 percent
Environmental threats
challenges related to high energy tariffs. Managing companies
16% of the respondents indicated a lack 05
of the energy infrastructure quality
in the current market conditions
Energy infrastructure quality
in Russia (insufficient energy 15% in Russia (lack of production capacities).
capacities for production) 06 Sources of capital
Limited access to energy •• Lack of access to energy resources
resources in Russia (no access 14%
to energy resources) is most important for smaller manufacturers Government support
07
with a revenue below RUB 10 billion to the manufacturing sector
(19 percent).
Innovative activity
08
of the manufacturing companies
Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix

Contacts

* The UN’s Global Innovation Index 2016

42
05

Introduction

01 Key findings

Manufacturing sector
02
in figures
State of the manufacturing
03
sector in Russia

Managing companies
Main issues
04
for the manufacturing sector
Managing companies
05

in the current market conditions


in the current market conditions

06 Sources of capital

Government support
07
to the manufacturing sector
Innovative activity
08
of the manufacturing companies
Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix

Contacts

43
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Managing companies
in the current market conditions Introduction

01 Key findings
Company strategy in 2017

Manufacturing sector
Prioritize the suggested strategies in terms of your business development in 2017. Trends 02
in figures
2017 2016 Expansion into new markets and new •• BRICS and North America were indicated
State of the manufacturing
Expansion into new markets 81% 75% +6 pp product launches are priority development as the most important markets for global 03
sector in Russia
strategies for manufacturers in 2017. It proves expansion of chemical manufacturers
the identified trend for manufacturing (63 percent and 63 percent, respectively). Main issues
New product launches 77% 65% +12 pp 04
industry recovery. for the manufacturing sector
Extension of production •• Larger manufactures more often tend
and technological capacities 72% 69% to consider plans for extending production Managing companies
(bringing in new capacities; In the meantime, the so called “anti- 05
increasing output) and technological capacities, with 87 percent in the current market conditions
crisis plans”, e.g. cost cutting in Russia,
Organic growth 68% 67% of companies with a headcount above
are becoming less urgent (–11 pp).
5,000 employees. These companies also more 06 Sources of capital
Import substitution often make plans for reducing procurement
in the Russian market
66% Highlights Government support
of raw materials and equipment from foreign 07
to the manufacturing sector
•• While foreign companies indicated new producers (61 percent).
Raising external financing 53% 53%
product launches as their top priority strategy Innovative activity
08
(85 percent), Russian companies named Priority international markets: of the manufacturing companies
Cost reduction in Russia 53% 64% –11 pp expansion into new markets (79 percent).
•• More exports to the Customs Union Urgent issues of doing
09
Investments in personnel •• Despite a decrease in the importance (53 percent); business in Russia
53% 64% –11 pp
development of the cost cutting strategy in Russia,
•• More exports to BRICS (45 percent); 10 Our respondents
foreign companies still consider it one
of the most important ones (65 percent). •• More exports to North America (40 percent).

•• Metal product manufacturers more 11 Appendix


often reported plans for import
substitution in the Russian market Contacts
(+15 pps above the average).

44
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Managing companies
in the current market conditions Introduction

01 Key findings
Economic expectations: HR strategies in the manufacturing industry

Manufacturing sector
How do you think your company’s headcount and the average salary Trends Highlights 02
in figures
of each personnel category will change? A significant number of companies
•• In general, auto, aircraft and ship
(35–50 percent) do not consider wage State of the manufacturing
manufacturers are planning a 4-percent 03
Headcount adjustment Pay adjustment or salary adjustments. Given an inflation sector in Russia
reduction for administrative staff on average.
forecast of 4 percent, this indicates a decrease Main issues
4,72%
in real income of employees. However, those •• Foreign companies expect to increase 04
3,47% 3,56% for the manufacturing sector
3,28%
companies who expect to adjust wages both their headcount and average pay
and salaries are planning adjustments that for all employee categories mentioned, Managing companies
0,75% 1,08% 05
0,64%
3% are relatively in line with inflation level. particularly for optimisation professionals
in the current market conditions
16% 1%
7% 1%
11% 3% (+7 pp and +7 pp, respectively).
–0,73%
45% 5%
40% About 50 percent of companies do not plan
06 Sources of capital
39% 39%
3% 1% •• Manufacturers with a share of exports above
3% 4% 4% any headcount adjustments. Companies that
4% 28% 28% 25 percent reported the highest expected Government support
3% are planning adjustments are equally divided 07
21%
17% average pay increase by about 6.3 percent. to the manufacturing sector
on their expectations, with 24 percent expecting
their headcount to increase within a 5-percent Innovative activity
7% 5% 4% 4%
08
16%
1% 1% 1%
range while another 24 percent expect the of the manufacturing companies
23% 1%
opposite within the same range.
1% 29% 28% Urgent issues of doing
1% 4% 09
3%
1% 1% business in Russia

10 Our respondents

11 Appendix
47% 47% 32% 50% 35% 41% 44% 47%
Contacts
Executives

Administrative
staff

Production
staff

Optimisation
professionals

Executives

Administrative
staff

Production
staff

Optimisation
professionals

Increase by 20 pp and more


Increase by 11–20 pp
Increase by 1–10 pp
Decrease by 1–10 pp
Decrease by 11–20 pp
Decrease by 20 pp and more
No changes

45
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Managing companies
in the current market conditions Introduction

01 Key findings
Strategies for working with suppliers

Manufacturing sector
Has your company made any changes in its work with suppliers or does it plan to? 02
in figures
Expansion of supplier network 41% 47%
State of the manufacturing
03
23% 26% sector in Russia
Selection of new suppliers 36% 19%
without increasing their number Main issues
04
Reduction in the number for the manufacturing sector
of suppliers without any changes 14% 5%
2016 2017
to the supplier structure Managing companies
05
Reduction in current suppliers
in the current market conditions
9% 9%
and selection of new ones

Yes, we are planning to change 06 Sources of capital


77% 74% our supplier policy, but the nature 0% 18%
of such changes is still unclear
Government support
07
Other 0% 2% to the manufacturing sector
Innovative activity
Yes, we have made changes in suppliers Yes, we plan changes Yes, we have made changes in suppliers 08
No changes in suppliers No, we do not plan any changes Yes, we plan to make changes in suppliers of the manufacturing companies
Urgent issues of doing
09
business in Russia
Trends Highlights

Only 16 percent note no changes in suppliers In 2016, the most popular supplier strategies •• In 2016, foreign companies were more 10 Our respondents
•• Even though, compared to other companies,
in the last 12 months and no plans to make were the expansion of the supplier network focused on the expansion of the supplier
machinery producers more often make
changes in the near future. (41 percent) and the adjustment of the supplier network (+16 pp above the average). 11 Appendix
plans to change the supplier structure
structure without increasing the total
•• Auto, aircraft and ship manufacturers relied without increasing the total number
number of suppliers (36 percent).
on this strategy less often (–11 pp) and have of suppliers (+10 pp), the expansion
Contacts
less plans to do so in the future (–10 pp). of the supplier network remains
In 2017, expanding the supplier network
their top strategy (41 percent)
is the top strategy (47 percent).

46
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Managing companies
in the current market conditions Introduction

01 Key findings
Strategies for working with suppliers

Manufacturing sector
Specify whether any changes in the share of imported raw materials and components/ •• In 2016, most companies (59 percent) 02
in figures
machinery and equipment occurred in 2016 or will be introduced in 2017. Why? reduced imports in their raw materials
procurement structure and another State of the manufacturing
03
Components Machinery and equipment 41 percent plan to implement this sector in Russia
and raw materials strategy in 2017. Only 8 percent increased Main issues
imports as part of the procurement 04
for the manufacturing sector
4%
3% 13%
5% of raw materials and 15 percent have plans
12% 11%
to do so. One third (33 percent) of companies Managing companies
4% 05
4%
continue with the same procurement
in the current market conditions
structure and 44 percent do not plan
06 Sources of capital
changes in the future.

•• In 2016, a significant number of companies Government support


25% 07
28% (53 percent) reduced a share of imported to the manufacturing sector
equipment and 41 percent plan to do
36%
Innovative activity
40% 13% 16% so in the future. At the same time, every 08
of the manufacturing companies
sixth company (17 percent) increased
17% a share of imported equipment and has Urgent issues of doing
09
19%
the same plans for the future. business in Russia

10 Our respondents

11 Appendix

33% 44% 30% 43% Contacts


2016 2017 2016 2017

Significant increase Some decrease


in the share of imports in the share of imports
Some increase Significant decrease
in the share of imports in the share of imports
No changes

47
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Managing companies
in the current market conditions Introduction

01 Key findings
Strategies for working with suppliers

Manufacturing sector
Specify whether any changes in the share of imported raw materials and components/machinery and equipment occurred in 2016 •• The key reason for a decreased share of imports 02
in figures
or will be introduced in 2017. in the procurement structure stems from
the increase in prices for foreign products State of the manufacturing
03
Reasons for lower use of imports* Reasons for higher use of imports* as a result the weaker ruble (59–70 percent). sector in Russia
However, it should also be noted that Main issues
Higher prices for imports 59%
Lower prices for imports 25%
Russian suppliers have become more 04
70% 21% for the manufacturing sector
efficient, with 20 percent of the respondents
Lower prices for local products 20%
Higher prices for local products 17%
reporting lower prices for Russian products Managing companies
20% 11%
05
and 20–24 percent indicating higher quality.
in the current market conditions
Lower quality of imports 9% Higher quality of imports 17%
7% 16%
•• As mentioned earlier, the strategy 06 Sources of capital
Higher quality of local products 24% 8%
20% Lower quality of local products 16% for higher use of imports is implemented
by a significantly lower number Government support
Lower quality of related services 4% Higher quality of related services 25% 07
offered by foreign suppliers 9% offered by foreign suppliers 26% of companies participating in the survey. to the manufacturing sector
However, the reasons causing them
Higher quality of related services 11% Lower quality of related services 33% Innovative activity
offered by Russian suppliers 16% offered by Russian suppliers 26% to do so are of particular interest. 08
of the manufacturing companies
9% Higher efficiency 17% For example, respondents cited better quality
Lower efficiency of foreign suppliers 5% of foreign suppliers 37%
of related services and the effectiveness Urgent issues of doing
09
Higher efficiency 15% Lower efficiency 0% of foreign suppliers as the main reason, business in Russia
of Russian suppliers 14% of Russian suppliers 11%
followed by improvements in the quality
Not possible to use imported 15% Exit from the market 0% and price of products. These responses 10 Our respondents
products/there are political risks 9% for Russian products 0%
highlight the existing issues with suppliers,
4% 0% meaning that Russian suppliers have
Other
2%
Other
5% 11 Appendix
quality as a potential area for improvement.
Contacts

Raw materials
Machinery and equipment

* Responses from the companies that have implemented this strategy

48
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Managing companies
in the current market conditions Introduction

01 Key findings
Energy efficiency strategies

Manufacturing sector
Does your company plan to reduce energy costs and costs for purchasing energy resources? Trends Highlights 02
in figures
If yes, please specify the priority methods.
•• Over the past year, the share of companies •• Enhancement of technological processes
State of the manufacturing
concerned about the energy efficiency has and implementation of cutting-edge 03
Measures to Boost Energy Efficiency sector in Russia
increased by 9 percentage points. 77 percent energy-saving technology (35 percent)
Enhancement of technological 2017 2016 of the companies surveyed have planned Chemical producers (+11 pp above the average) Main issues
04
processes and implementation
of cutting-edge energy-saving
35% 58% –23 pp the relevant measures. and foreign manufacturers (+10 pp) more often for the manufacturing sector
technology point to the need for enhancing technological
•• However, the companies have become focused Managing companies
Prevention of direct energy losses processes and implementing cutting-edge 05
through equipment and networks 33% 35% –2 pp
on using one or two approaches that resulted in the current market conditions
energy-saving solutions.
in a decrease in the number of companies
Reduction in the acceptable 20% 15% +5 pp planned to take specific measures. •• Prevention of direct energy losses through
06 Sources of capital
rate of defective products
equipment and networks (33 percent)
Reduction of the standard energy Government support
loss rates in production processes 16% 30% –14 pp Industrial equipment manufacturers see 07
across the enterprise to the manufacturing sector
this strategy as the most appropriate option.
Installation of in-house Innovative activity
8% 18% –10 pp •• Reduction in the acceptable rate 08
power generator of the manufacturing companies
of defective products (20 percent)
No, we have no plans for reducing This strategy was more often named Urgent issues of doing
energy waste and energy costs
23% 32% –9 pp
09
by auto, aircraft and ship producers (+11 pp) business in Russia
and metal product manufacturers (+15 pp).
10 Our respondents

11 Appendix

Contacts

49
06

Introduction

01 Key findings

Manufacturing sector
02
in figures
State of the manufacturing
03
sector in Russia

Sources of capital
Main issues
04
for the manufacturing sector
Managing companies
05
in the current market conditions

06 Sources of capital

Government support
07
to the manufacturing sector
Innovative activity
08
of the manufacturing companies
Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix

Contacts

50
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Sources of capital
Introduction

01 Key findings
The attractiveness of external financing sources for supporting and growing the business

Manufacturing sector
Are you planning to use external sources of financing Do you have experience in attracting foreign investment? 02
in figures
in the near future to support and develop your business? If yes, how would you assess the non-financial effect
of such cooperation? State of the manufacturing
03
sector in Russia
50% 57% 38%
42% 2017 2016
Main issues
63% 78% 04
Yes, with positive effect for the manufacturing sector
Managing companies
Yes, but with ambiguous effect 37% 16% 05
in the current market conditions
62%

Yes, but with negative effect 0% 6%


50% 06 Sources of capital
43%

Government support
58% 07
to the manufacturing sector
Innovative activity
08
Yes, we have Trends Highlights of the manufacturing companies
No, we do not have
•• Of the companies surveyed, 69 percent •• While opting for foreign investment less Urgent issues of doing
09
have plans to raise external investment. frequently (46 percent), chemical producers business in Russia
more often note a positive non-financial
•• Such plans quite often include several 10 Our respondents
impact from the cooperation with foreign
0% 14% –24% sources of capital.
investors (83 percent).
•• More than half of the companies (57 percent) 11 Appendix
•• Foreign companies use foreign investments
Russian private
investment

Russian government
investment

Foreign
investment

indicate the attractiveness of government


more often than Russian companies
investment while only 38 percent state Contacts
(90 percent vs 54 percent, respectively),
the same for foreign investment.
and they also more often see a positive
•• Most respondents (58 percent) have non-financial effect of their use (89 percent
experience in raising foreign investment vs 56 percent, respectively).
and the majority of companies using foreign
investment also report a positive non-financial
Yes
No
impact from the cooperation with investors
Net balance (63 percent).

51
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Sources of capital
Introduction

01 Key findings
The attractiveness of external financing sources for supporting and growing the business

Manufacturing sector
Are you planning to use external sources of financing in the near future to support Highlights 02
in figures
and develop your business?
•• Businesses with larger revenue,
State of the manufacturing
headcount and a higher share of income 03
Industry Company type Revenue, 2016 Share of exports Headcount Strategy sector in Russia
from exports more often tend to make
plans for attracting external financing. Main issues
04

57%
Companies with revenue above RUB 50 billion for the manufacturing sector

42%

45%
44%

53%
demonstrate the highest rate of responses, Managing companies

42%
05
38%

43%

41%
with 70 percent planning to obtain government in the current market conditions
38%

70%

34%
46%
31%

and private finance and 57 percent making

79%
32%
61%
55% 27%

68%
61%

68%
60%

plans for foreign investment. 06 Sources of capital

56% 11%
40%

59%
62%

51%
57%

51%
46%

39%
•• Industrial equipment producers clearly

25%
Government support
10%

more often indicated that they have 07


70%
40%

to the manufacturing sector


61%

38%
57%

55%
54%

55%

plans for attracting external investment

53%

51%
50%
50%

48%
46%

20% 35%

47%
46%
41%

39%
(72 percent). Innovative activity
08
30%

25%
0% of the manufacturing companies
•• Compared to Russian companies (60 percent),
foreign companies obtain government Urgent issues of doing
09
funding less often (40 percent). business in Russia
•• Government investment primarily 10 Our respondents
14% 9% 23% –8% 22% 21% –20% –30% 23% 39% 11% 3% 37% –21% 19% 58% –25% 3% 35% flow to large companies with
0% –18% –8% –8% 22% 8% –40% –60% 10% 39% –22% 14% –5% 0% –4% 5% –50% 3% 10% a headcount of 5,000 people (a net balance
–24% –45% –38% –8% –11% –24% –20% –80% –16% 13% –78% –14% 5% –36% –19% –16% –50% –31% –10%
of +58 percent), a revenue above RUB 11 Appendix
50 billion (a net balance of +39 percent),
All

Metal products

Auto, aircraft
and ship manufacturing

Chemicals

Machinery

Russian companies

Foreign companies

Below RUB 10bn

From RUB 10bn


to RUB 50bn

Over RUB 50bn

Less than 5%

From 5% to 25%

Above 26%

Below 1,000 employees

From 1,001
to 5,000 employees

Over 5,000 employees

1–2 years

3–5 years

Over 5 years
a share of exports above 25 percent Contacts
in revenue (a net balance of +37 percent)
and a long-term strategy with at least a 5-year
horizon (a net balance of +35 percent).

Foreign investment Net balance for foreign investment


Russian government investment Net balance for Russian government investment
Russian private investment Net balance for Russian private investment

52
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Sources of capital
Introduction

01 Key findings
Debt refinancing

Manufacturing sector
How important is loan refinancing to your business now? Trends Highlights 02
in figures
Company Revenue, Share •• Of the respondents surveyed, 65 percent •• Businesses with larger revenue and higher
Industry type 2016 of exports Headcount State of the manufacturing
have recognized the importance loan headcount more often note the need for debt 03
sector in Russia
35%

41%

38%

31%

28%

32%

60%

35%

32%

39%

33%

38%

32%

43%

37%

21%
refinancing for their businesses. However, refinancing. Thus, companies with a headcount
the aggregate level of importance remains above 5,000 people place the highest Main issues
04
unchanged from the previous year importance on debt refinancing (42 percent). for the manufacturing sector

79%
72%
(18 percent). Managing companies
69%

68%
68%

68%
•• Foreign manufacturers report a much lower

67%
05

65%
65%

63%
in the current market conditions

62%
62%

61%
59%

•• This year a decrease is observed need for debt refinancing, with only 40 percent

57%
in the importance of debt refinancing indicating it. At the same time, 68 percent
13% 06 Sources of capital
40%

15% for metal product manufacturers of Russian companies say that this need
27%
(–21 pp) and for car and plane makers, is high on their agenda.
20% Government support
as well as shipbuilders (–29 pp). At the same 07
to the manufacturing sector
0% time, this issue has become more important
for chemical manufacturers (+23 pp). Innovative activity
08
of the manufacturing companies
18% 16% 4% 23% 28% 23% –15% 10% 21% 22% 17% 11% 34% 4% 17% 42%
30%
Urgent issues of doing
09
43% business in Russia
Total

Metal products
Auto, aircraft and ship

Machinery
manufacturing
Chemical production

Russian companies

Foreign companies

Less than RUB 10bn

RUB 10–50bn

Over RUB 50bn

Less than 5%

5–25%

Over 25%

Less than 1,000 employees

1,001–5,000 employees

Over 5,000 employees


30% 10 Our respondents
22%

2016 2017
11 Appendix

Contacts

Not important Not important


Rather unimportant Important
Rather important Integrated assessment
Important of importance

53
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Sources of capital
Introduction

01 Key findings
The attractiveness of various forms of financing

Manufacturing sector
Rate the attractiveness of the given forms of financing for developing your business. Trends 02
in figures
•• Internal funding continues as the most •• An interesting finding is the differing
Internal funding sources 62% State of the manufacturing
attractive source for manufacturers perception of loans from Russian (+19 percent) 03
Government funding 47%
sector in Russia
(a net balance of +62 percent), with and foreign banks (–8 percent).
Strategic partnership an absolute majority (89 percent) indicating so. Main issues
31%
•• Public debt financing in the form of bonds 04
for the manufacturing sector
Russian bank loans 19% •• Government financing falls somewhat and shares (a net balance of –22 percent
behind (a net balance of +47 percent), and –13 percent, respectively), as well Managing companies
Foreign bank loans –8% 05
with 79 percent responding positively. as loans from investment funds (–15 percent) in the current market conditions
Shares –13%
has the lowest appeal.
Loans from investment funds –15% 06 Sources of capital
Bonds –22%
Government support
07
to the manufacturing sector
(The specified numbers indicate a net balance between those
who consider the source attractive and those who do not) Innovative activity
08
of the manufacturing companies
Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix

Contacts

54
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Sources of capital
Introduction

01 Key findings
The attractiveness of various forms of financing

Manufacturing sector
Rate the attractiveness of the given forms of financing for developing your business. Highlights 02
in figures
All •• Auto, aircraft and ship producers are
State of the manufacturing
more inclined to look for funding in the 03
sector in Russia
form of foreign bank loans and securities
(+19 pp and +24 pp above the average, Main issues
47%
04
respectively). for the manufacturing sector

•• With a net balance of –46 percent, chemical Managing companies


19% 05
producers demonstrate the most negative in the current market conditions
view on loans from investment funds.
–8%
At the same time, metal product manufacturers
06 Sources of capital
Metal products –15% Machinery
–17%
62% are generally neutral on this form of funding
39% 26% Government support
(a net balance of 0 percent). 07
9%
0% –15%
6%
to the manufacturing sector
–15% –31% •• Government funding has the highest appeal
Innovative activity
–32%
for machinery manufacturers. 08
–46%
of the manufacturing companies
–19% –33% Urgent issues of doing
09
–25%
business in Russia
2%

10 Our respondents
12%
15% 21%

33%
11 Appendix
50%
Contacts

Auto, aircraft Chemicals


and ship manufacturing

Government funding Strategic partnership and internal resources are not shown on the chart
Russian bank loans since there are no significant characteristics for the areas analysed.
Foreign bank loans
Shares
Loans from investment funds (The specified numbers indicate a net balance)

55
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Sources of capital
Introduction

01 Key findings
The attractiveness of various forms of financing

–15% –22% –13% –8% 62% 19% 47% 31% Manufacturing sector
All 02
in figures
–12% –22% –13% –14% 58% 23% 58% 38%
Russian company State of the manufacturing
03
–22% –11%–11% –6% 83% 6% 22% sector in Russia
Foreign company
–55% –65% –63% –23% –3% 43% 18% Main issues
Less than RUB 10bn 04
for the manufacturing sector
–22% –13% –10% 60% 35% 53% 27% 5%
From RUB 10bn to RUB 50bn Managing companies
05
More than RUB 50bn
–5% 82% 14% 66% 68% 9% 34% 18% in the current market conditions

06 Sources of capital
Internal funding sources
Government funding
Highlights
Government support
Strategic partnership 07
Russian bank loans
•• Larger companies with a revenue above to the manufacturing sector
Foreign bank loans RUB 50 billion are positive on almost
Innovative activity
Shares all of the sources analysed. 08
Bonds
of the manufacturing companies
Loans from investment funds •• Companies with a revenue below
Urgent issues of doing
RUB 10 billion cannot use public debt 09
(The specified numbers indicate a net balance) business in Russia
financing because debt placement costs are
too high for smaller issues. Such companies 10 Our respondents
are also negative on loans from investment
funds and foreign banks (a net balance
of –55 percent and –23 percent, respectively). 11 Appendix
Small businesses can only count on internal
finance sources and government investments. Contacts

56
07

Introduction

01 Key findings

Manufacturing sector
02
in figures
State of the manufacturing
03
sector in Russia

Government support for the Russian


Main issues
04
for the manufacturing sector
Managing companies
05

manufacturing sector
in the current market conditions

06 Sources of capital

Government support
07
to the manufacturing sector
Innovative activity
08
of the manufacturing companies
Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix

Contacts

57
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Government support
to the Russian manufacturing sector Introduction

01 Key findings
Effectiveness of government support for the development of the Russian manufacturing sector

Manufacturing sector
How would you assess the efficiency of the government’s efforts to support Trends Highlights 02
in figures
and develop the manufacturing industry in Russia?
•• The integrated assessment of the government •• Companies with a headcount above
State of the manufacturing
support for business and development 5,000 employees assigned the highest rates 03
sector in Russia
Company Revenue, Share of the Russian manufacturing industry to state support for business (2.1 points
Industry type 2016 of exports Headcount
has increased by 0.2 points from 2016 out of 3). As noted previously, 79 percent Main issues
04
for the manufacturing sector
44% 11%

41% 9%

15%

34% 8%

45% 11%

42% 11%

50% 10%

20% 10%

50% 10%

57% 13%

33% 11%

50% 8%

16%

39%

50% 8%

32%
and scored 1.7 at the three-point scale, of these companies indicated plans
indicating an average satisfaction for attracting government investment. Managing companies
54%

05
42%

of the business with government efforts.


•• Manufacturers with larger headcount
in the current market conditions
70%

42%
•• However, almost half of the respondents and revenue and companies with a higher
58%

61%

06 Sources of capital
(45 percent) rated the efficiency of government share of exports in revenue are inclined
56%
47%

support lower than the average. to rate the efficiency of state support higher.


44%
45%

42%

Government support
42%

42%
50%

40%
40%

Only 11 percent of the respondents This is due to the fact that government 07


to the manufacturing sector
31%

30%

surveyed consider state support to be high. support programmes are mainly focused


26%

on larger manufacturers. Innovative activity


08
of the manufacturing companies
•• Auto, aircraft and ship producers rated
the state support for business higher, Urgent issues of doing
09
1.7 1.6 1.8 1.5 1.7 1.6 1.7 1.4 1.7 1.8 1.6 1.7 1.7 1.4 1.7 2.1 at 1.8 points, while with chemical producers, business in Russia
it was by 0.2 points lower below the average.
10 Our respondents
Total

Metal products
Auto, aircraft and ship

Machinery

Less than RUB 10bn


manufacturing
Chemical production

Russian companies

Foreign companies

RUB 10–50bn

Over RUB 50bn

Less than 5%

5–25%

Over 25%

Less than 1,000 employees

1,001–5,000 employees

Over 5,000 employees

11 Appendix

Contacts

An expert’s view
Government support for 2017 has been approved. Total government
support for the car manufacturing industry is RUB 62 billion.
High efficiency Tatiana Kofanova
Average efficiency Director, Deloitte CIS
Low efficiency
Integrated assessment of efficiency

58
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Government support
to the Russian manufacturing sector Introduction

01 Key findings
Influence of state measures on the manufacturing sector in Russia

Manufacturing sector
What impact do the following government measures of support to the Russian Trends Top-5 state measures positively affecting 02
in figures
manufacturing sector have on your business? the Russian manufacturing sector
•• Among government regulation initiatives,
State of the manufacturing
innovation support is rated the highest •• Innovation support (26 percent) 03
2017 2016
sector in Russia
by manufacturers (+26 percent).
Innovation support 26% 27% •• Labor safety regulations (18 percent) Main issues
•• At the same time, the effect of the energy 04
Labour safety policies 18% 21% •• Public procurement participation terms for the manufacturing sector
policy, in particular the energy tariffs,
Public procurement
17% 20% (17 percent) Managing companies
participation terms is regarded by manufacturers as negative 05
Intellectual property
16% 27% –11 pp (–25%). •• Intellectual property protection regulations
in the current market conditions
protection regulations
Policy of incentives (16 percent)
for direct investment 15% 19%
Highlights
06 Sources of capital
Subsidies 10% 25% –15 pp •• Policy of incentives for direct investment
The Central Bank’s •• Companies with a headcount above (15 percent) Government support
0% –13% +13 pp 07
monetary policy 5,000 employees most often tended to the manufacturing sector
Immigration policy –3% 9% –12 pp to respond positively when asked about labour Top-3 state measures negatively affecting
Innovative activity
safety regulations (+22 pps above the average). the Russian manufacturing sector 08
Taxation of foreign income –8% 6% –14 pp of the manufacturing companies
Industry taxation –21% •• Companies with smaller revenue •• Energy policy (energy tariffs) (–25 percent)
Urgent issues of doing
and headcount are more skeptical 09
Energy policy (energy tariffs) –25% –10% –15 pp •• Industry taxation (–21 percent) business in Russia
about public procurement participation
terms. Specifically, manufacturers •• Taxation of foreign income (–8 percent) 10 Our respondents
(The specified numbers indicate a net balance between
those who consider the effect of government regulation with a revenue below RUB 10 billion
initiatives positive and those who consider it negative) and companies with a headcount below
1,000 employees expressed an integrated 11 Appendix
assessment of –12 and –19 percentage points
below the average. Contacts

•• Companies with a revenue above


RUB 50 billion were more positive
on policy of incentives for direct investment
(+20 pps above the average).

•• Metal product manufacturers note


the highest negative impact from energy
tariffs (–34 percent)

59
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Government support
to the Russian manufacturing sector Introduction

01 Key findings
Priority types of state support for business

Manufacturing sector
What kind of government incentive would be best for your company? Trends Highlights 02
in figures
2017 2016 •• This year a number of companies which •• Companies with a focus on the domestic
State of the manufacturing
Public procurement orders 32% 15% +17 pp regard the placement of orders for their market are most interested in public 03
sector in Russia
products as the most preferable form procurement orders (50 percent).
of government support saw an increase Main issues
Tax and other financial benefits •• Auto, aircraft and ship manufacturers show 04
26% 25%
(+17 pp). for the manufacturing sector
a significantly higher interest in grants
•• At the same time, forms of support and subsidies (+20 pps). Managing companies
Investment in physical 05
infrastructure
12% 20% –8 pp
such as investments in infrastructure
in the current market conditions
•• Industry equipment producers and metal
and innovation development slightly
Investment in vocational
decreased in terms of significance
product manufacturers have the highest 06 Sources of capital
education — training 10% 10%
blue collar workers interest in tax and other financial incentives
(–8 pp and –9 pp, respectively).
(39 percent and 36 percent, respectively). Government support
07
Innovation support 8% 17% –9 pp •• It should be noted that investing in specialized to the manufacturing sector
•• Foreign companies are notably more
secondary education is more important
interested in innovation support Innovative activity
(+9 pp) than in higher education, according 08
Investment in higher education —
1% 5%
(+12 pps above the average). of the manufacturing companies
training managers to industry experts. Once again, this highlights
the identified shortage in the number Urgent issues of doing
Top-3 forms of government support 09
of qualified blue-collar specialists. business in Russia
for manufacturing companies in Russia

•• Public procurement orders (32 percent) 10 Our respondents

•• Tax and other financial benefits (26 percent)


11 Appendix
•• Investment in physical infrastructure
(12 percent) Contacts

60
08

Introduction

01 Key findings

Manufacturing sector
02
in figures
State of the manufacturing
03
sector in Russia

Innovative activity
Main issues
04
for the manufacturing sector
Managing companies
05

of the Russian manufacturing sector
in the current market conditions

06 Sources of capital

Government support
07
to the manufacturing sector
Innovative activity
08
of the manufacturing companies
Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix

Contacts

61
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Innovative activity
of the manufacturing companies in Russia Introduction

01 Key findings
Innovations at manufacturing companies

Manufacturing sector
According to the Russian Federal Statistics Service, 13.3 percent of Russian manufacturing Types of innovations* The biggest innovation expense 02
in figures
companies were engaged in innovative activities, with expenditures on innovations totaling for manufacturing companies is acquisition
•• Technological innovations:
RUB 576.9 billion in 2015. Technological innovations account for the bulk of expenditures. of advanced equipment and machines State of the manufacturing
–– Product innovations — the launch 03
(44 percent), while 24 percent of expenditures sector in Russia
of new or significantly enhanced products
goes to research and development. Main issues
The structure of innovation expenditures and services (including the improvement 04
55.2% of technical specifications, components for the manufacturing sector
In-house research and development
0.5% and materials, built-in software, Managing companies
represents a higher-level innovation process, 05
usability, etc.); in the current market conditions
which provides access to the latest products
–– Process innovations — the launch of new
and technologies , as well as allows the company
or significantly enhanced production
to benefit from them for a longer period
06 Sources of capital
0.9% or product delivery methods (including
of time. From a macroeconomic standpoint,
significant changes in technologies, Government support
this increases the competitiveness of Russian 07
production equipment and/or software); to the manufacturing sector
companies, as well as the research and
Product innovations •• Organizational innovations — the launch technical potential of the manufacturing sector. Innovative activity
Process innovations 08
0.4% of new organizational methods of the manufacturing companies
Marketing innovations
in the corporate business practices,
43.9% Organizational innovations Urgent issues of doing
workplace organization or external ties; 09
business in Russia
Technological innovation expenditures by segment,
•• Marketing innovations — the implementation
RUB million 10 Our respondents
of new marketing methods including
significant changes in the product
Acquisition of advanced equipment and machines 246,685
design or packaging, market placement, 11 Appendix
R&D 132,509
promotion or price setting.
Engineering 83,027
Design 13,600 Contacts
Acquisition of new technologies 9,660
Acquisition of software 5,345
Marketing research 1,840
Personnel training 727
Other 70,096 *Terminology corresponds to the Oslo Manual
(the Guidelines for Collecting and Interpreting
Source: Russian Federal Statistics Service Innovation Data developed by the Organisation
for Economic Cooperation and Development (OECD)
and the Statistical Office of the European Communities).

62
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Innovative activity
of the manufacturing companies in Russia Introduction

01 Key findings
Innovative activity types

Manufacturing sector
Please, specify how your company defines innovation. Trends Highlights 02
in figures
•• The top requested innovations: introduction •• Process innovations are most important
State of the manufacturing
Company Revenue, Export of advanced production technologies for metals companies which in most cases use 03
Industry type 2016 share Strategy sector in Russia
(43 percent) and launch of technically them to cut production costs (64 percent).
Main issues
17%

64% 9%

18%

20%
15%

25%

48% 10% 13%

33%

30%

63% 10% 7%

18%

17%

17%

16%

43%

57% 3% 9%
new or advanced products (32 percent). 04
•• Chemical companies often aim to implement for the manufacturing sector
15%

•• Organizational innovations, i.e., new product innovations at their plants


18% 5%

42%
41% 6%
43% 8%

50% 11%

40% 12%

33% 10%
(33 percent). Managing companies
17%

business methods, organization of working 05


40% 10%

in the current market conditions


39%

56% 11%

places, external ties, are top innovation


•• Russian companies mostly focus on process
59%
25%

29%

priority for 17 percent of the companies,


innovations (48 percent), while foreign 06 Sources of capital
while the remaining eight percent
companies are keen to implement product
42%

37%

focused on marketing innovations


35%
33%

innovations (56 percent). Government support


32%

31%

31%
31%

14%
29%

(drastic changes in design and packaging, 07


27%

to the manufacturing sector


22%
20%

20%

new sales and promotion methods, •• Companies with short-term strategies


14%

new pricing strategies). (1–2 years) attach more importance Innovative activity


08
to organizational innovations (43 percent) of the manufacturing companies
Less than RUB 10bn
Total

Metal products
Auto, aircraft and ship
manufacturing

Machinery

Russian companies

RUB 10–50bn
Chemical production

Foreign companies

Over RUB 50bn

Less than 5%

5–25%

Over 25%

1–2 years

3–5 years

Over 5 years

and marketing innovations (29 percent).


Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix

Contacts

Product innovations *Terminology corresponds to the Oslo Manual


Process innovations (the Guidelines for Collecting and Interpreting Innovation
Marketing innovations Data developed by the Organisation for Economic
Organizational innovations Cooperation and Development (OECD) and the Statistical
Office of the European Communities).

63
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Innovative activity
of the manufacturing companies in Russia Introduction

01 Key findings
Innovative activity expenditures

Manufacturing sector
Please specify, how much of the revenue (in percentage terms) was spent on innovation in 2016 94%* of the surveyed CFOs of leading 72%* of the surveyed CFOs of leading 02
in figures
and is planned to be spent in 2017–2018. manufacturing companies in Russia stated manufacturing companies in Russia stated
the need enhancing the economic efficiency that they take part in the evaluation State of the manufacturing
03
2017–2018 2016 of business functions through automation of new technology solutions and launch sector in Russia
More than 20% 1% 4%
of the key business processes. of innovative projects in their companies.
Main issues
04
16%–20% 14% 6% for the manufacturing sector
11%–15% 19% 21%
Managing companies
05
5%–10% 38% 36% in the current market conditions
Less than 5% 27% 33%
06 Sources of capital

Trends Highlights Government support


07
According to our latest research on the financial to the manufacturing sector
•• Foreign companies spend on innovation
climate in Russia (CFO Survey of the Leading Innovative activity
almost 1.5 times the share of innovation 08
Companies in Russia), a growing trend in interest of the manufacturing companies
spending in Russian companies
by manufacturers for technological innovation
(12 versus 8 percent). Urgent issues of doing
and new digital solutions has been identified. 09
•• Companies with high revenues invest
business in Russia
Over the past year, the average revenues in innovations more than the rest
10 Our respondents
spent on innovation and digital solutions (by 2.5–3 percentage points).
grew by 0.5 percent to 9 percent, which
in turn confirms the mentioned trend. 11 Appendix

Contacts

* According to CFO Survey


(first half of 2017)

64
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Innovative activity
of the manufacturing companies in Russia Introduction

01 Key findings
Overview of innovation in manufacturing companies

Manufacturing sector
Please, specify which activities your company performed in 2016 or plan to implement/ Trends Highlights 02
in figures
continue in 2017–2018
In 2017–2018, manufacturers are planning •• In 2016, foreign companies more often
State of the manufacturing
2017–2018 2016 to invest more than in 2016. In particular, engaged in all above-mentioned types 03
Acquisition of advanced
sector in Russia
equipment and machines
51% 65% every second company (51 percent) of innovative activities compared to Russian
is planning to purchase advanced equipment; companies (up to 37 percentage points) Main issues
04
R&D 44% 39%
44 percent of respondents are planning for the manufacturing sector
•• The respondents expecting improvement
R&D, and 37 percent indicated the urgent Managing companies
Marketing research 37% 28% in the positions of their companies more often 05
need for market research. in the current market conditions
state that their companies acquired advanced
Acquisition of technologies 32% 28%
equipment in 2016 (80 percent), engaged
Remarkably, demand for market research
in R&D (53 percent) and implemented
06 Sources of capital
Digitalization of business processes 32% 25% and digital solutions is notably higher
digitalization of the business processes
compared with the previous year. Government support
(47 percent). 07
Acquisition of patents, licences, etc. 14% 22% to the manufacturing sector
Innovative activity
08
of the manufacturing companies
Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix

Contacts

65
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Innovative activity
of the manufacturing companies in Russia Introduction

01 Key findings
Format of Research & Development

Manufacturing sector
Please, specify the format Trends 02
in figures
of R&D in your company The absolute majority of the companies
(80 percent) perform R&D in dedicated divisions. State of the manufacturing
14% 03
sector in Russia
Interestingly, manufacturers very rarely Main issues
6%
cooperate with technology parks, venture 04
for the manufacturing sector
funds, and accelerators (less than 1 percent*)
when there is a need for innovation. Managing companies
05
in the current market conditions
Highlights
06 Sources of capital
•• Companies with revenue exceeding RUB
80%
50 billion more often than others perform Government support
07
R&D in state-owned higher education to the manufacturing sector
Dedicated division of the company institutions and research centers (25 percent);
Innovative activity
Outsourcing: independent private company as a rule, they are institutions which have ties 08
Government-owned higher education institutions of the manufacturing companies
with the industry since the Soviet times.
and research centers
Urgent issues of doing
•• Manufacturers of machinery and chemical 09
business in Russia
companies use R&D outsourcing more often
than others (by 11 and 7 percentage points 10 Our respondents
above the average).

11 Appendix

Contacts

* According to CFO Survey


(first half of 2017)

66
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Innovative activity
of the manufacturing companies in Russia Introduction

01 Key findings
Launch of innovative technologies

Manufacturing sector
Specify advanced technologies you have launched or plan to launch in 2017. Industry development by sophistication Industry development by sophistication 02
in figures
of technology (both implemented/being of technology planned for implementation
EDF 46% 38% 17% 67% implemented) (on a scale of 0 to 1)*: (on a scale of 0 to 1)*: State of the manufacturing
03
sector in Russia
Energy saving technologies 30% 42% 28% 44% Technology, media
and telecommunications
0,20 Manufacturing Main issues
Advanced ERP systems 04
(CRM, SAP, etc.) 24% 33% 43% 14%
Manufacturing 0,12 Consumer business
0,15 for the manufacturing sector
Full automation of some
22% 47% 31% 39% Financial service
0,12 Managing companies
business processes Consumer business 0,11 05
and insurance in the current market conditions
Full automation 0,11
18% 44% 38% 25% Energy and resources Energy and resources
of business process chains 0,08

Artificial intelligence, 16% 28% 56% –11% Financial service Technology, media
0,09 06 Sources of capital
predictive analysis and insurance 0,06
and telecommunications
IoT (M2M, IoT technologies) 17% 29% 54% –8%
0,03
Government support
07
to the manufacturing sector
Business process automation 14% 33% 53% –6%
•• The key area for launching the advanced •• Interestingly, the priority technology Innovative activity
08
SSC 14% 33% 53% –6%
technology is full automation of some development areas belong to the process of the manufacturing companies
business processes and business process innovation category favored by Russian
Alternative energy sources 13% 22% 65% –31% Urgent issues of doing
chains: almost a half of the companies manufacturing companies and aimed 09
business in Russia
Big data 10% 36% 54% –8% (47 and 44 percent, respectively) plan at cost reduction.
to introduce them in the near future. 10 Our respondents
Enhanced or virtual reality 9% 15% 76% –53% •• The least in-demand technologies
•• Based on our research of the financial include virtual reality (–53 percent
Agile PMO 6% 26% 68% –36%
climate in Russia* (first half of on the balance), agile PMOs (–36 percent), 11 Appendix
Blockchain 4% 33% 63% –25% 2017) and the information provided alternative energy sources (–31 percent)
by the respondents, we have ranked industries and blockchain (–25 percent). Contacts
by their technology level. Thus, the Technology,
Media, and Telecommunications (TMT)
Implemented * According to CFO Survey
Planned (first half of 2017) industry tops the ranking in terms
Neither implemented nor to be implemented of the sophistication of implemented
Net balance between the companies which have technology, while the manufacturing sector
already implemented the technology, are planning
leads in terms of implementation plans.
to implement it, and those which refused.

67
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Innovative activity
of the manufacturing companies in Russia Introduction

01 Key findings
Electronic Document Flow

Manufacturing sector
We asked the respondents whose companies have already implemented the electronic What is the main reason for rejecting the use/limiting the use of the EDM system in your company? 02
in figures
document flow (EDF) to specify how widely they use it; we also asked the representatives
of the companies where EDF is not implemented or is used on a limited scale, to specify Low commercial appeal of EDF and lack of incentives 45% State of the manufacturing
for allocating financing for implementation 03
the reasons for not using it or using it on a limited scale. sector in Russia
Lack of internal project resources 23%
Main issues
04
Lack of knowledge about EDF (professional skills)
for the manufacturing sector
23%
Specify the frequency that the EDM system is used in your company.
Managing companies
05
Financial constraints 23% in the current market conditions
Lack of confidence in EDF, leadership’s conservatism
30% (paper flow appears more reliable) 18%
06 Sources of capital

Government support
07
to the manufacturing sector
Trends Highlights Innovative activity
08
of the manufacturing companies
•• EDF is the most wide-spread technology •• The most widespread reason for non-use/
implemented by slightly less than half limited use of EDF is low commercial appeal: Urgent issues of doing
09
70%
of manufacturing companies (46 percent). 45 percent of the respondents believe it is not business in Russia
More than a half of them (70 percent) practical to stop using paper documents.
The EDM system is used frequently* use EDF on a large scale. 10 Our respondents
•• Those who mention the insufficiency
The EDM system is used from time to time**
•• However, 17 percent of companies of personnel, financial and qualification
refused to use EDF. resources as a constraint for EDF account 11 Appendix
for 23 percent in each category.
Contacts
•• Conservative approach to and lack
* At least three types of documents are in electronic format and certified
by an enhanced encrypted signature, over 70% of all documents
of confidence in EDF stem from the fear
are sent and accepted electronically. of a hypothetical loss of electronic documents
and remains quite widespread, too.
** the documents are accepted and kept in hard copy format while
being scanned for processing purposes. Electronic documents certified
by an enhanced encrypted signature are used rarely.

68
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Innovative activity
of the manufacturing companies in Russia Introduction

01 Key findings
Drivers and barriers for the implementation of the digitalization strategy*

Manufacturing sector
Which of the categories listed below are drivers or barriers in terms of digitalization strategy Trends 02
in figures
implementation in your company?
•• In 2017 (and roughly in the next two
State of the manufacturing
years), the main constraints for the digital 03
–76% 24% sector in Russia
Organizational structure strategy implementation in manufacturing
–12% 88% companies will be the organizational Main issues
Management strategy 04
structure and staffing (82 and 76 percent for the manufacturing sector
–65% 35%
Accessibility of the infrastructure of the companies surveyed as part of the Managing companies
–47% 53% CFO Survey of the Leading Companies 05
Sources of financing in the current market conditions
–35% 65% in Russia, respectively, indicate these
Market and competition factors as ones preventing the development 06 Sources of capital
–82% 18%
HR support
and implementation of digital technology
and processes). Remarkably, this indicator Government support
07
Drivers is significantly higher than in other industries. to the manufacturing sector
Barriers
•• Despite the fact that the business Innovative activity
08
understands and is willing to adopt of the manufacturing companies
innovation and digital technology, the existing
Urgent issues of doing
task distribution framework, including 09
business in Russia
internal and external management,
is deemed outdated and ill-prepared 10 Our respondents
for the new market conditions.

•• At the same time, the key drivers 11 Appendix


for digital strategy implementation
in manufacturing companies are the market Contacts
and the competition, which reaffirms
the recovery processes in the economy (both
in Russia and globally) and the natural demand
for innovations and digital developments.

* According to CFO Survey (first half of 2017)

69
09

Introduction

01 Key findings

Manufacturing sector
02
in figures
State of the manufacturing
03
sector in Russia

Urgent issues
Main issues
04
for the manufacturing sector
Managing companies
05

of doing business in Russia
in the current market conditions

06 Sources of capital

Government support
07
to the manufacturing sector
Innovative activity
08
of the manufacturing companies
Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix

Contacts

70
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Urgent issues
of doing business in Russia Introduction

01 Key findings
Automation of HR management process

Manufacturing sector
How do you assess the need to automatize the HR management processes in your company and does 02
in figures
your company plan to make any investments in technological solutions in this area?
State of the manufacturing
03
sector in Russia
The need for automation in the HR Main issues
26% management process was indicated by 04
for the manufacturing sector
74 percent of manufacturers, yet half of them
38%
have not planned for such expenses for 2017. Managing companies
05
in the current market conditions

06 Sources of capital

Government support
07
to the manufacturing sector
36%
Innovative activity
08
Yes, there is a need; we have budgeted the costs of the manufacturing companies
There is a need but we have not budgeted costs
Urgent issues of doing
No, there is no need 09
business in Russia

10 Our respondents

11 Appendix

Contacts

71
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Urgent issues
of doing business in Russia Introduction

01 Key findings
Allocation of tax functions to Shared Services Centers (SSC)

Manufacturing sector
We asked the respondents whose companies have already launched or plan 02
in figures
to launch Shared Services Centers whether they plan to allocate tax functions to SSC
and to what extent. State of the manufacturing
03
sector in Russia
18%
Trends Main issues
Almost a half of the companies have already 04
for the manufacturing sector
launched or plan to launch SSC. One third
35%
of them (47 percent) have already allocated Managing companies
05
or plan to allocate the operating and strategic
in the current market conditions
tax processes to SSC, 35 percent allocate only
the operating component to SSC and only
06 Sources of capital
18 percent want to keep the tax processes
Government support
at the level of the management company. 07
to the manufacturing sector
47%
Innovative activity
08
Yes, but only the operating component of tax processes* of the manufacturing companies
Yes, both the operating* and strategic** components
Urgent issues of doing
of tax processes 09
No, we do not plan to implement tax processes via SSC business in Russia

10 Our respondents

11 Appendix

Contacts

* the operating component of tax processes


include tax accounting, preparation of tax
reporting for some companies
** the strategic component of tax processes
include tax policy development, overall control
over tax processes at the company level

72
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Urgent issues
of doing business in Russia Introduction

01 Key findings
Transition to Tax Monitoring

Manufacturing sector
In 1 January 2015, a new type of tax control — tax monitoring — was introduced in Russia*. Trends 02
in figures
We asked the survey participants to specify the relevance of transition to tax monitoring
•• The majority of the respondents (62 percent)
for their companies, as well as transition plans, if any. State of the manufacturing
stated that the transition to tax monitoring 03
sector in Russia
would be practical for their companies.
Main issues
•• Meanwhile, 22 percent of the respondents 04
22% for the manufacturing sector
Completed transition 18% were undecided and stated that their
companies do not possess full information Managing companies
05
about tax monitoring in order to make
in the current market conditions
Plan transition in the foreseeable future 36%
(in 2017–2018)
such analysis.
06 Sources of capital
No transition plans in the foreseeable future due
to lack of readiness (no adequate business processes, 35% Below are the respondents who believe
16% 62% no sufficient internal controls) Government support
that tax monitoring transition is relevant 07
to the manufacturing sector
No transition plans in the foreseeable 11% to their company’s operations:
future due to other reasons
Innovative activity
•• The majority of companies thinking that 08
of the manufacturing companies
transition to tax monitoring is relevant
Yes
for them (54 percent) have already Urgent issues of doing
No 09
Difficult to answer completed the transition or plan to complete business in Russia
it in the foreseeable future;
10 Our respondents
•• However, 36 percent of the respondents
stated that their companies do not
have the appropriate internal controls 11 Appendix
and business processes, which prevents
the companies from implementing
Contacts
tax monitoring in the near future;

•• Another 11 percent of the companies


will not be able to implement tax
* “Tax Monitoring is a method of expanded information exchange which allows a company
to grant a tax authority direct online access to its financial and tax accounting data monitoring for other reasons.
and in return becomes entitled, if in doubt, to request a reasoned opinion of a tax authority
to clarify tax consequences of transactions.”
Source: the Federal Tax Service website

73
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Urgent issues
of doing business in Russia Introduction

01 Key findings
Use of green technologies by manufacturing companies

Manufacturing sector
Please select the statement that best describes the status of the green technologies 02
in figures
applied by your company in order protect the environment and prevent pollution.
State of the manufacturing
03
sector in Russia
18% 15%
Trends Main issues
04
•• Most companies (60 percent) apply green for the manufacturing sector
technologies on a large scale. Managing companies
05
•• Eighteen percent of the companies do not
in the current market conditions
use them, while in 22 percent of cases
the application is not very widespread.
06 Sources of capital
22%

Government support
45% 07
to the manufacturing sector
Innovative activity
Use on a large scale* 08
Use on a medium scale**
of the manufacturing companies
Use on a low scale***
Urgent issues of doing
Not used 09
business in Russia

10 Our respondents

11 Appendix

* we make donations to environmental funds, regularly use environmentally friendly transportation


Contacts
and/or products, regularly inform our employees about respective news and scientific publications,
apply waste separation, etc.)
** we support the respective programs at the corporate level, use environmentally friendly transportation
and/or products from time to time, inform our employees about respective news and scientific publications
from time to time, apply waste separation from time to time, etc.)
*** we support the respective programs as individual employee initiatives, rather seldom use environmentally
friendly transportation and/or products, rather seldom inform our employees about respective news
and scientific publications, rather seldom apply waste separation, etc.)

74
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Urgent issues
of doing business in Russia Introduction

01 Key findings
Preparation for changes in the environmental legislation

Manufacturing sector
We asked the respondents about how their companies prepare for the upcoming Trends 02
in figures
changes in the environmental regulation.
•• Most companies of the manufacturing
State of the manufacturing
industry (61–65 percent) are prepared, 03
Ready to implement changes 26% 38% 25% sector in Russia
or getting ready for the coming changes
Getting prepared in the environmental regulation. Main issues
35% 23% 40% 04
to implement changes for the manufacturing sector
No preparation, •• However, a significant number
as changes are distant 9% 13% 9%
of the companies (8–15 percent) have Managing companies
05
No preparation due not started preparations yet due to lack
in the current market conditions
15% 8% 11%
to lack of financing
of financing.
No preparation due
to lack of staff 2% 3% 4% 06 Sources of capital
•• Some respondents (9–13 percent) postponed
No preparation due to lack
of knowledge and skills 4% 5% 5% preparation, believing that the changes will Government support
07
only have consequences in the distant future. to the manufacturing sector
No preparation for other reasons 2% 3% 0%
Innovative activity
No preparation, as the changes 08
will not apply to the company 7% 5% 7% of the manufacturing companies
Urgent issues of doing
Approval of the Federal Law “On chemical safety” 09
business in Russia
Mandatory registration with Federal Supervisory Natural Resources
Management Service (Rosprirodnadzor) for facilities causing
negative environmental impact 10 Our respondents
Launch of the best available environmentally friendly technologies

11 Appendix

Contacts

75
10

Introduction

01 Key findings

Manufacturing sector
02
in figures
State of the manufacturing
03
sector in Russia
Main issues
04
for the manufacturing sector
Managing companies
05

Our respondents
in the current market conditions

06 Sources of capital

Government support
07
to the manufacturing sector
Innovative activity
08
of the manufacturing companies
Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix

Contacts

76
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Our respondents
Introduction

01 Key findings

Manufacturing sector
Companies by type Companies by core business Current development strategy 02
in figures
11% State of the manufacturing
15% 10%
03
25% sector in Russia
30%
2% Main issues
04
for the manufacturing sector
26% Managing companies
05
in the current market conditions

06 Sources of capital
16%
48%
18% Government support
83%
07
16% to the manufacturing sector
Innovative activity
Russian companies Metal products 1–2 years 08
Foreign companies without localised production Auto, aircraft and ship manufacturing 3–5 years
of the manufacturing companies
Foreign companies with localised production Chemical production 6–10 years
Urgent issues of doing
Machinery over 10 years 09
Other
business in Russia

10 Our respondents
Similarly to the previous year, The majority of the respondents represent Almost a half of the companies which
most of the respondents represent key reviewed industries: participated in the Survey (48 percent)
Russian companies (83 percent). have medium-term (3–5 year) strategies. 11 Appendix
•• Metal products (30 percent);

The rest of the participants are foreign •• Auto, aircraft and ship building (26 percent); The planning horizon for 25 percent
Contacts
companies with localized production of companies exceeds ten years
•• Chemical industry (18 percent);
(15 percent), or without localized while only 11 percent of the respondents
production (3 percent). •• Industrial equipment (16 percent). use short-term strategies (1–2 years).

77
Overview of Manufacturing Industry in Russia — 2017 | Results of the research

Our respondents
Introduction

01 Key findings

Manufacturing sector
Revenue Export share in the revenue structure Headcount One in five companies (19 percent) 02
in figures
which took part in the Survey earns
9% 4% 8% over RUB 100 billion in revenue. State of the manufacturing
8% 03
3%
24% Almost one in four respondents sector in Russia
25% 25% 9%
8% represent companies with revenue Main issues
of RUB 10–25 billion or less than RUB 10 billion. 04
15% for the manufacturing sector

Exports account for 5–25 percent Managing companies


13% 05
in the revenue structure of nearly
in the current market conditions
23%
half of the respondents (48 percent).
One in four companies are domestically
06 Sources of capital
26% oriented, while 12 percent of the Survey
16% Government support
36% participants export over half of their output. 07
48%
to the manufacturing sector
The majority of the respondents are specialists Innovative activity
Less than RUB 10bn Less than 5% Less than 100 employees 08
RUB 10bn–RUB 25bn 5%–25% 100–500 employees from major companies with a headcount of the manufacturing companies
RUB 25bn–RUB 50bn 26%–50% 501–1,000 employees exceeding 1,000 employees (60 percent).
Urgent issues of doing
RUB 50bn–RUB 100bn 51%–75% 1,001–5,000 employees The rest represent smaller companies 09
RUB 100bn–RUB 250bn Over 75% More than 5,000 employees
business in Russia
employing less than 100 employees (8 percent)
RUB 250bn–RUB 500bn
More than RUB 500bn and medium-sized companies (31 percent) 10 Our respondents

11 Appendix

Contacts

78
Introduction

01 Key findings

Manufacturing sector
02
in figures
State of the manufacturing
03
sector in Russia
Main issues
04
for the manufacturing sector

Appendix
Managing companies
05
in the current market conditions

06 Sources of capital

Government support
07
to the manufacturing sector
Innovative activity
08
of the manufacturing companies
Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix

Contacts

79
Overview of Manufacturing Industry in Russia — 2017 |
 Appendix

Russian manufacturing sector


in figures Introduction

01 Key findings
External ties in the manufacturing sector

Manufacturing sector
Domestic production, export/import Geography of imported products in 2016 Top-5 suppliers for the Russian Import volume significantly exceeds 02
in figures
in Russia, 2016, USD million manufacturing industry: exports in all reviewed segments, except
for metals and metal products. State of the manufacturing
•• China (21 percent) 03
sector in Russia
77,283

5% •• Germany (11 percent) Therefore, import substitution remains Main issues


one of the priority development areas. 04
13%
•• USA (6 percent) for the manufacturing sector
56,896

39%
52,396

•• Belarus (5 percent) Ruble devaluation and economic stagnation Managing companies


05
46,743

continue to depress domestic demand,


in the current market conditions
7%
•• France (5 percent)
39,356

leading to a drop in imports since 2014:


06 Sources of capital
33,781

1%
USD 182 027 million
3% •• metal products (–41 percent)
28,770

Import in the reviewed industries accounts


Government support
20,776

07
18,558

7% for 66 percent of the total product range •• chemical products (–27 percent)
to the manufacturing sector
supplied from abroad, with the latter
11,381

10,934

•• transportation means (–56 percent)


amounting to USD 182 billion. Innovative activity
5,968

08
25% •• machines and industrial equipment of the manufacturing companies
Large import volumes show that the capacity (–34 percent)
Urgent issues of doing
of Russian manufacturing companies 09
EU business in Russia
Metals and metal
products

Chemical industry

Auto, aircraft
and ship manufacturing

Machines and equipment

BRICS and their product range do not meet At the same time, a significant share
Eurasian Customs Union domestic demand in the reviewed industries. of domestic production is exported, 10 Our respondents
CIS, ex. Customs Union which significantly impacts the position
North Africa
of domestic manufacturing companies.
North America 11 Appendix
Asia, ex. other groups
Other
Contacts

Import
Production
Export

Source: Russian Federal Statistics Service,


Federal Customs Service

80
Overview of Manufacturing Industry in Russia — 2017 |
 Appendix

Russian manufacturing sector


in figures Introduction

01 Key findings
External economic ties across industrial sectors. Export, 2016

Manufacturing sector
Metals and metal products Chemical products 02
in figures
5% 5%
9% State of the manufacturing
03
sector in Russia
22%
35% 9% 31%
Main issues
04
for the manufacturing sector
EU 1%
North Africa $18,983 mln USD 28,770 million USD 20,776 million Managing companies
EACU 05
$5,923 mln (29%)
$10,316 mln in the current market conditions
13%
(9%) (16%)
13% 06 Sources of capital
BRICS 6%
17%
$10,448 mln 3% Government support
(16%) Asia, ex. other groups 5% 11%
15%
07
$8,209 mln to the manufacturing sector
(12%)
Vehicles and ships Machinery and equipment Innovative activity
08
5% 5%
of the manufacturing companies
12%
10% 17%
Urgent issues of doing
09
20% 8% business in Russia
4%
Top-7 importers of manufacturing products 4% 10 Our respondents
•• Kazakhstan (7 percent) USD 5,968 million USD 10,934 million
1%
•• Belarus (7 percent) 17% 12% 21% 11 Appendix

•• USA (7 percent) Contacts


•• The Netherlands (6 percent) 5%
32%
27%
•• Turkey (6 percent)
EU North Africa
•• Ukraine (5 percent)
BRICS North America
•• China (5 percent) Eurasian Customs Union Asia, ex. other groups
CIS, ex. Customs Union Other

Source: Federal Customs Service

81
Overview of Manufacturing Industry in Russia — 2017 |
 Appendix

Russian manufacturing sector


in figures Introduction

01 Key findings
Financing of manufacturing companies

Manufacturing sector
Lending volume, RUB billion Loan book (RUB billion) •• Currency lending volume is significantly 02
in figures
down after 2014, even as demand for loans
924 increased dramatically — lending volumes State of the manufacturing
03
1,222

were up 26 percent in 2015 and stabilized sector in Russia


7,933

at this level in 2016 (up 2 percent).

2,437
Main issues
04
7,435

1,819
2,087
for the manufacturing sector

1,878
•• The share of currency loans in loan
1,475

books shrank in 2016–2017, partially due Managing companies


05
to the revaluation at a higher ruble rate in the current market conditions
1,272

4,563
5,413

and the companies’ willingness to repay

1,248

4,412
4,221
FX loans, using the opportunity relating 06 Sources of capital

4,031
922
4,567
880

to the stronger ruble.
817

3,520 591

853

3,204
2,956
Government support
3,481
2,801 686

•• The share of overdue loans remained relatively 07


736
3,371
2,641 662

to the manufacturing sector


2,580
744

low (4.8 percent in 1H 2017), albeit above


2,064

the 2014 levels (4.0 percent), which shows Innovative activity


1,754

08
that manufacturing companies generally of the manufacturing companies
meet their debt servicing requirements.
Urgent issues of doing
09
business in Russia
20% 20% 20% 20% 22% 21% 14% 10% 14% 29,8% 26,3% 24,9% 23,8% 28,0% 34,1% 34,8% 30,8% 29,2%
10 Our respondents
5,9% 6,3% 5,4% 5,5% 5,1% 4,0% 4,6% 4,7% 4,8%
2009

2010

2011

2012

2013

2014

2015

2016

1H 2017

2009

2010

2011

2012

2013

2014

2015

2016

1H 2017

11 Appendix

Contacts
RUB
FX
FX loans’ share
Overdue loans’ share

82
Overview of Manufacturing Industry in Russia — 2017 |
 Appendix

Russian manufacturing sector


in figures Introduction

01 Key findings
Exchange rates and loan interest

Manufacturing sector
Currency exchange rates Interest rates on loans to non-FSI companies (over 12M) 02
in figures
State of the manufacturing
100 20% 03
sector in Russia
Main issues
04
80 16% for the manufacturing sector
15.09%
Managing companies
13.67%
05
12.46%
in the current market conditions
60 12%
10.64%
06 Sources of capital
8.80%
40 8% 7.22%
Government support
6.82% 07
7.00%
to the manufacturing sector
6.71% 6.93%
6.56% 4.20%
20 4% Innovative activity
08
Average 2014 Average 2015 Average 2016 Average 1H 2017
of the manufacturing companies
EUR 51.82 EUR 67.81 EUR 74.23 EUR 62.72
Urgent issues of doing
USD 38.42 USD 60.99 USD 67.03 USD 57.98 09
0 0%
business in Russia
Jan–2014 Jan–2015 Jan–2016 Jan–2017 Jan–2014 Jan–2015 Jan–2016 Jan–2017
10 Our respondents
EUR USD RUB USD EUR

11 Appendix
•• Exchange rate trends were mixed: •• Аverage interest rates for non-financial •• Interest rates on FX loans are back
on the one hand, in 2016 the ruble companies gradually fell after May 2015; to their 2014 levels, but the share of foreign
Contacts
average-weighted FX rate was 10 percent currency lending in total loan book dropped
•• Still, in January 2017, the ruble loan
weaker than in 2015; on the other hand, significantly (from 12.35 percent in 2014
rates were 2 percentage points higher
starting from February 2016, the ruble to 9.51 percent in 2016).
than in January 2014;
steadily strengthened.

83
Overview of Manufacturing Industry in Russia — 2017 |
 Appendix

Russian manufacturing sector


in figures Introduction

01 Key findings
Employment in the manufacturing sector

Manufacturing sector
The share in the employment structure Total employed Trends 02
in figures
15.4% •• In 2016, manufacturing companies
State of the manufacturing
employed 14.4 percent of the working 03
sector in Russia
15.2% 15.2% population in Russia, on average.
1,702 Other Main issues
•• In 2016, 6.5 million people worked 04
15.0%
15.0% 15.0% for the manufacturing sector
at manufacturing companies.
580 Chemical products
Managing companies
14.8%
•• Industry wages averaged RUB 36,700 05
14.8%
834 Metal products
in the current market conditions
in 2016, which is 5 percent below
14.6% Auto, aircraft and ship Russian average wage. 06 Sources of capital
930
14.5% manufacturing
•• As at 1 January 2017, the total arrears
Government support
14.4% 14.4% of wages in Russia amounted to RUB 2.7 billion 07
14.3% 1,098 Food industry (including tobacco) to the manufacturing sector
including RUB 1.6 billion (59 percent)
14.2% in manufacturing companies. Innovative activity
08
1,337 Machines and equipment of the manufacturing companies
14.0%
Urgent issues of doing
09
2010 2011 2012 2013 2014 2015 2016 business in Russia

10 Our respondents

11 Appendix

Contacts

84
Overview of Manufacturing Industry in Russia — 2017 |
 Appendix

Russian manufacturing sector


in figures Introduction

01 Key findings
Manufacturing production in Russia by industry. Transportation manufacturing

Manufacturing sector
Production of transportation means in Russia Russian automotive industry, thousands of vehicles 02
in figures
160%
1Q 2014
447,000 State of the manufacturing
571,629
03
2Q 2014
473,000 sector in Russia
590,583
150% 150%
3Q 2014
380,000
Main issues
516,512
04
4Q 2014 400,000
661,197
for the manufacturing sector
140%
1Q 2015 355,000
363,932 Managing companies
05
2Q 2015 324,000
371,277
in the current market conditions
130% 277,000
3Q 2015 381,233
127% 300,000 06 Sources of capital
4Q 2015 377,554
120% 1Q 2016 249,000
299,390 Government support
07
2Q 2016 288,000
324,403 to the manufacturing sector
3Q 2016 270,000
110% 321,626 Innovative activity
108% 293,000 08
4Q 2016 367,943 of the manufacturing companies
1Q 2017 308,000
100% 298,335
Urgent issues of doing
2Q 2017 339,000 09
2010 2011 2012 2013 2014 2015 2016 396,065 business in Russia

Transportation means and equipment Production 10 Our respondents


Vehicles, trailers and semitrailers Sales
Ships, aircraft, spacecraft and other transportation means
Source: AEB, Autostat
11 Appendix
Source: Russian Federal Statistics Service
An expert’s view Contacts
•• The stagnation in the production “Double-digit growth on the Russian car market continues for the third month in a row,
of transportation means was largely unabated by the arrival of the peak holiday season. It appears that, finally, the middle-class buyer
driven by auto production decline has woken up, encouraged by a brighter outlook on the economy and embracing the package
of purchase incentives put together by the government. The recent sales trend is great news
•• The automotive industry showed signs
and feeding the optimism that 2017 will indeed become a turn-around year for the industry”.
of recovery in 4Q 2016 and 1H 2017
Joerg Schreiber, Chairman of the AEB
after a slump which lasted four years
Automobile Manufacturers Committee

85
Overview of Manufacturing Industry in Russia — 2017 |
 Appendix

Russian manufacturing sector


in figures Introduction

01 Key findings
Manufacturing production in Russia by industry. Metals and metal products

Manufacturing sector
Structure of the metals industry, 2015, Structure of the metals production, 2015, Ferrous metals and ferrous metal products 02
in figures
RUB billion RUB billion
State of the manufacturing
125% 03
sector in Russia
51
Main issues
746 1% 04
15% 120% for the manufacturing sector
Managing companies
05
in the current market conditions
115%
1,726
40% 1,831 06 Sources of capital
42%
110%
110% Government support
07
110%
108%
to the manufacturing sector
105% Innovative activity
08
104%
of the manufacturing companies
154
4,359
85%
3% 596
Urgent issues of doing
14% 09
100%
business in Russia
2010 2011 2012 2013 2014 2015 2016
10 Our respondents
Metals production Pig iron, steel and ferroalloys Steel pipe Pig iron
Finished metal products Pig iron and steel pipe Rolled steel Steel 11 Appendix
Other primary pig iron and steel processing
Non-ferrous metals production
Castings Contacts

Source: Russian Federal Statistics Service

Continued on the page 87

86
Overview of Manufacturing Industry in Russia — 2017 |
 Appendix

Russian manufacturing sector


in figures Introduction

01 Key findings
Manufacturing production in Russia by industry. Metals and metal products

Manufacturing sector
Non-ferrous metals •• Manufacturing grew slowly, at 5.6 percent, 02
in figures
in the metals segment (a 1.1 percent CAGR
in five years). In cash terms, the market State of the manufacturing
110% 03
contracted by 37 percent. sector in Russia

•• In 2016, the industry showed signs Main issues


105%
04
of stabilization: production grew slightly for the manufacturing sector
100% in key areas, while metal prices recovered Managing companies
05
99.6% in the current market conditions
95%
06 Sources of capital
90%
Government support
07
85%
to the manufacturing sector
Innovative activity
08
80% of the manufacturing companies
72.8% Urgent issues of doing
09
70% 72.2%
business in Russia
2010 2011 2012 2013 2014 2015 2016
10 Our respondents
Copper Nickel Aluminum

Source: Russian Federal Statistics Service


11 Appendix

Contacts

87
Overview of Manufacturing Industry in Russia — 2017 |
 Appendix

Russian manufacturing sector


in figures Introduction

01 Key findings
Metal prices (USD/t)

Manufacturing sector
Steel Copper The period from Q1 2016 02
in figures
to Q1 2017, saw boosting
800 7,000
prices across many of the base State of the manufacturing
03
700 6,500 6,353 metals for the Russian sector in Russia
6,004 economy, in particular Main issues
600 6,000
595
(in U.S.dollar terms): 04
480 5,628
for the manufacturing sector
500 5,500
5,508
450 433 460 433 5,190 •• Steel +65 percent; Managing companies
400 417 5,000 5,106 5,031 05
350
360 4,910 4,872
•• Aluminum + 15 percent;
in the current market conditions
300 4,500
4,499 •• Copper +12 percent; 06 Sources of capital
200 4,000
•• Zinc +35%.
100 3,500 Government support
07
to the manufacturing sector

15

16

17
16
15

6
5

6
5

7
01

01
01

01

01
16
15

16
15

16
15

16
15

17

20

20
20
20

20
Innovative activity

2
2

2
20

20
20
20

20
20
20

20
20

4/

4/
4/
0/
1/

1/
7/

0/
1/

7/
08
4Q

4Q
3Q

/0

/0

/0
2Q

3Q

/0

/0
2Q

/1

/1
1Q

1Q
1Q

/0

/0
/0
of the manufacturing companies

01

01

01
01
01

01

01
01

01
01
Urgent issues of doing
Aluminum Zinc 09
business in Russia
2,100 3,000
2,853 Metal price growth in 2016 10 Our respondents
2,000 2,750 and outlook for 2017
1,920
2,611 “2016 was a breakthrough
1,900
1,864
1,924 2,500
2,367 2,454 year for the metals market. 11 Appendix
2,243
1,800 1,821
2,250
2,120 Zinc, steel, nickel, and iron
1,737
ore prices led the gains.
Contacts
1,700 2,000 1,913 1,933
1,620
1,672 1,640 Next year, the rally is set
1,600 1,750 1,628
1,689 to continue, analysts say.”
1,515
1,500 1,481 1,500 Source:
Elena Platonova,
1,400 1,250
Gazeta.ru
16

16
15

17

15

17
16

16
15

6
5

15

6
5

6
5

7
01

01

01

01
01

01

01

01
01

01
20

20

20

20
20

20
20

20
20

20
2

2
2

2
2

2
4/

4/

4/

4/
4/

4/
0/
1/

1/

0/
1/

1/
7/

0/
1/

7/

0/
1/
7/

7/
/0

/0

/0

/0

/0

/0
/0

/0

/0

/0
/1

/1
/1

/1
/0

/0

/0

/0
/0

/0
01

01

01

01

01

01
01

01

01

01

01

01
01

01
01

01

01

01
01

01

88
Overview of Manufacturing Industry in Russia — 2017 |
 Appendix

Russian manufacturing sector


in figures Introduction

01 Key findings
Manufacturing production in Russia by industry. Chemical industry

Manufacturing sector
Chemical industry Key product output 02
in figures
State of the manufacturing
150% 150%
156%
03
sector in Russia
Main issues
145% 04
140% 140% for the manufacturing sector
141%
Managing companies
136% 05
135% in the current market conditions
130% 130%

128% 06 Sources of capital


120% 120%
Government support
07
to the manufacturing sector
115%
110% 110%
114%
Innovative activity
08
of the manufacturing companies
Urgent issues of doing
09
100% 100%
business in Russia
2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016
10 Our respondents
Chemical industry Rubber and plastic Primary plastic products Mineral and chemical fertilizers
Production of chemical products Tyres and tubes Sulfuric acid, oleum 11 Appendix
Polymer pipes and plates
Source: Russian Federal Statistics Service
Contacts
•• Chemical production shows sustainable •• Plastic and rubber products account •• The slump in automotive production
growth with a 5.3 percent CAGR. for 13 percent of chemical output, did not affect tire output: international
making this segment the key contributor producers continue to localize production
to its overall performance. in Russia, exporting the surplus.

89
Overview of Manufacturing Industry in Russia — 2017 |
 Appendix

Russian manufacturing sector


in figures Introduction

01 Key findings
Manufacturing production in Russia by industry. Machinery

Manufacturing sector
Machinery Key types of machinery 02
in figures
State of the manufacturing
130% 250% 03
sector in Russia
Main issues
04
120% 200% for the manufacturing sector
Managing companies
05
in the current market conditions
110% 150%
107% 150%
136% 06 Sources of capital
117%
100% 100%
101% Government support
07
92%
to the manufacturing sector
69%
94% 66% Innovative activity
90% 50%
08
of the manufacturing companies
Urgent issues of doing
09
80% 0%
business in Russia
2010 2011 2012 2013 2014 2015 2016 2010 2011 2012 2013 2014 2015 2016
10 Our respondents
Machinery Machines and equipment Harvesters Tractors for agriculture and forestry
Electric equipment Metalworking machinery Gas turbines, MWt 11 Appendix
Woodworking machinery Electric overhead cranes
Source: Russian Federal Statistics Service
Contacts
•• In 2016, production of machinery stabilized,
growing 1 percent year-on-year. The sharpest
fall in the vehicles and equipment category
was seen in the agricultural tractors segment
(–8 percent vs. 2010), gas turbines (–31 percent)
and overhead cranes (–33 percent),

90
Overview of Manufacturing Industry in Russia — 2017 |
 Appendix

Russian manufacturing sector


in figures Introduction

01 Key findings
Investments in fixed assets

Investments in the acquisition Investments in the acquisition of machinery Manufacturing sector


02
of machinery and equipment and equipment in 2015–2016 in comparable in figures
in the Russian Federation (in 2010 prices) prices (22–25 percent) are less in comparison
State of the manufacturing
with 2014. 03
sector in Russia
4 269
Main issues
4 018 04
3 737
3 909 for the manufacturing sector
3 473
Managing companies
05
3 059
2 916 in the current market conditions

06 Sources of capital

Government support
07
to the manufacturing sector
Innovative activity
08
of the manufacturing companies
Urgent issues of doing
09
business in Russia

10 Our respondents

0% 8% 8% 6% –8% –22% –5%


11 Appendix
2010

2011

2012

2013

2014

2015

2016

Contacts

Investments, bln RUB


Growth rate, %

91
Overview of Manufacturing Industry in Russia — 2017 |
 Contacts

Contacts
Introduction

01 Key findings

Manufacturing sector
Egor Metelkin Srbuhi Hakobyan Andrew Sedov Yulia Orlova Tatiana Kofanova 02
in figures
Partner, Audit & Assurance Partner, Audit & Assurance Partner, Audit & Assurance Partner, Tax & Legal Director, Tax & Legal
State of the manufacturing
03
Head of the Consumer Head of Industrial Products & Head of Metal Services Group, Head of Chemical Services Head of Automotive Group, sector in Russia
Industrial Products Group, Services Group, Deloitte CIS Deloitte CIS Group, Deloitte CIS Deloitte CIS Main issues
Deloitte CIS 04
shakobyan@deloitte.ru asedov@deloitte.ru yorlova@deloitte.ru tkofanova@deloitte.ru for the manufacturing sector
emetelkin@deloitte.ru Managing companies
05
in the current market conditions

06 Sources of capital

Government support
07
to the manufacturing sector
Innovative activity
08
of the manufacturing companies
Urgent issues of doing
09
business in Russia

10 Our respondents

11 Appendix
Lora Zemlyanskaya Mikhail Gordeev Artyom Belyaev Irina Yureva
Contacts
Research Centre Leader Senior Research Specialist Designer Coordinator

Business Development Research Centre, Deloitte CIS Brand and Business Consumer Industrial Products
Department, Deloitte CIS Development, Deloitte CIS Group, Deloitte CIS
mgordeev@deloitte.ru
lzemlyanskaya@deloitte.ru abelyaev@deloitte.ru iyureva@deloitte.ru

92
deloitte.ru
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