FLAME SCHOOL OF BUSINESS

BRANDING OF NATION RUSSIA

PROF. NISHIT KUMAR 3/17/2012

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Branding of Nations - Russia

The structure of Russian society and developments In 1991, Russia became an independent nation again after having been subordinate to the Soviet dictatorship for 75 years. Today, Russia has made great strides in the democratic process. The country has held several parliamentary and presidential elections, all of them endorsed by international observers. Russia has fostered more political parties than the countries of Western Europe and has allowed a political culture and a civil society to develop. It is thus justifiable to say that Russia today is a democratic society. But despite the above mentioned accomplishments, it is still not a fully mature democracy. Russias political party environment has been very volatile up through the 1990s and to this day. Parties have sprung up and disappeared again just as fast. At times the population has been under pressure from the government in the matter of freedom of speech and freedom of the press. But these lapses notwithstanding, Russias constitution has been followed throughout all the changes. That is another reason for calling Russia a democratic country. It would, nevertheless, be pertinent to examine a couple of circumstances that illustrate where Russia may be heading politically and democratically. The future of Russian democracy Vladimir Putins term of office has been characterized by a mixture of autocracy and democracy. The autocratic aspects showed up in the way several Russian media and businessmen were harassed by the state in a way we dont see in Western Europe. Putins support for the political party United Russia in particular has been surrounded by a cloud of distrust. The party has a solid majority in the Russian parliament and may possibly retain it for several election periods to come. United Russia is not really a party, but rather a vaguely patriotic movement. It appears to depend entirely on Putins popularity and ability to unite the Russian people. The party is thus an illustration of a still immature political system of party politics in Russia today. On the other hand, it is quite possible that the political scene will change when Vladimir Putin steps down as president. Another aspect of Russias democratic future is that the country needs to come to grips with its totalitarian past, just as other countries have done in the years following 1991. Many observers, analysts, and political actors judge Russias current state in the light of its past, and it is important for Russia to clean the slate so that it may in time create and invest in a new and more modern future. Russias economic progress Russia has instituted a wide range of economic, political, and administrative reforms since it achieved independence in 1991. Production has been drastically restructured, and changes to the mechanisms of production and investment have been made. Privatization and liberalization have given businesses entirely new guidelines and opportunities. The privatization of small and mediumsized businesses has been carried out, but the state still owns and influences a number of big companies. The long-awaited land reform has also been passed. However, privatization of the agricultural sector has not yet been carried out in practice. Russia has an independent national bank and a floating exchange rate. Free market forces work well in large parts of the economy now that the worst cases of ultra-liberalism have been regulated.

FLAME SCHOOL OF BUSINESS 2 BRANDING OF NATION RUSSIA Stabilization of the large-scale economy is beginning to work out; a prerequisite for a permanently thriving Russian economy. Russias trade patterns have changed considerably. Trade with the West has gone up dramatically, and trade with the old trade partners from the days of the Soviet Union has gone down. Simultaneously, the mixture of trade goods has changed both for imports and exports. If Russia is to avoid ending up as a poor industrial country, its export must become less dominated by raw materials. Considering Russias well-trained labour force and relatively high level of research and education, it is likely that Russias exports will in time come to contain a greater degree of processed and manufactured goods, but this restructuring will take a long time. Rising prosperity A continued rise in Russian prosperity is to be expected, although economic growth is very dependent on prices for oil, gas, and other raw materials on the global market. Up towards 2020, prosperity is expected to rise as a result of increased knowledge, new and improved technology, and more efficient organizational structures, and also as a result of the international division of labour. Prosperity in relative terms compared to a number of Asian countries will probably go down as a result of the very high growth rates in those countries. Compared to Western European countries, prosperity will probably grow as Russian growth rates will probably exceed Western European growth rates for a number of years yet. The development and extent of the Russian middle class will become more and more important to Russias future prosperity. The spread of incomes must be expected to broaden over the next 15 years, mostly as a result of rising incomes for the middle and upper classes in the big cities. This may result in demands by the many underprivileged voters for greater economic equalization and the creation of a Russian social welfare state. Through the next 15 years, a large part of Russias middle class will still live in Moscow and St. Petersburg. It is important to realize that a lopsided economic distribution between the metropolitan areas and the outlying regions has created an unequal situation where cities like Moscow and St. Petersburg are prime movers in the economic development while other cities and regions have fallen behind. This situation is unlikely to change in the immediate future. If the lopsided economic development continues, the result will be a more pronounced discord between the centre and the periphery. If the regions do not benefit from the economic growth, some of them may come to question the use of belonging to a united Russian state. It is thus possible that Russia, despite Vladimir Putins attempt to prevent it, may face increasingly assertive regions, which could affect the next 15 years worth of economic and political developments negatively.

Towards innovation and network organization As digitalization, automation, and robotizing spreads, a mounting number of tasks will join the list of tasks that can be performed without the physical presence of a human being. Hence work will increasingly be about matters of development, innovation, customer relations, and other forms of cooperative interaction. As a result, knowledge and the application of knowledge will become more important. This will affect the qualifications sought by the labour market, the way work is organized, and the physical surroundings. It will also affect how the Russians live, how they act as customers, and how they spend their leisure hours. The Russian population is fairly well educated, and there is a steadily rising attendance of medium and advanced education.

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As globalization and international and regional division of labour grows, network organization will also increase, including internal business networking as well as with other interpersonal relations. This will affect large parts of the business world; the way society is run, and private life. The Russian society and labour market is still very hierarchically organized. It will take a long time before any major changes towards networking become reality in Russia. Rapid introduction of new organizational structures and work procedures have not always turned out equally well in Russia. It is to be expected that new organizational structures and work procedures will gain ground in the future, but it must also be expected that more authoritative and hierarchical structures will exist in parallel. The Russia of the future One possible scenario has the geopolitical events of the next 15 years turning Russia into an even more important strategic partner to the West. Russias integration with the Western world is a possibility, but will require political courage and resolve in both the EU, the US and Russia. If developments proceed along the lines that they are currently following, Russia will most probably be a member of WTO. Towards 2020, Russia can expand its links to NATO, EU and APEC, China, Japan and the countries of ASEAN as well as US. Russia will most likely experience an increasing rate of change within most sectors of society in the next 15 years. Some of the consequences of this are a need for more flexible organizational structures and demands for a greater ability to handle multifarious functions on the part of public bureaucracies and private enterprises. The rate of acceleration for the Russian community and for its economy will depend on what liberal-economic initiatives the State will take and on how the Russian bureaucracy develops. If Russia develops in the direction of autocracy and planned economies, the future will be markedly different. Russia will not derive the full economic, political, and social benefit of globalization. If government interference with private enterprise continues, it will impact negatively on Russias economic development. It may also interfere with the efforts of other former Soviet states to integrate themselves further with the political and economic structures of the World. This may be anything from mild pressure, like blocking imports from and economic aid to neighboring countries, to direct military measures. Russia will not turn to using military means against the EU and the US unless in dire extremity. Since Russia is on its way to becoming an indispensable economic, trade, and business partner in the globalization process for both European and other global actors, Russia is unlikely to wind up in a military confrontation with NATO in the next 15 years. Russia cannot be expected to develop into one single, unambiguous economic or political system during the next 15 years. It is more likely that we will see Russia steer a course between different forms of economic liberalism and protectionism and between democracy and autocracy. In the next section we will cover some of the uncertainties of Russias future and set up scenarios for various possible developments.

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Foreign Direct Investment (FDI) in Russia

FDI into Russia has grown since 2002 by almost 8.3 times, reaching around EUR 23 billion in 2006, or over 3% of GDP, which is more than three times the corresponding figure for 2002, and is comparable to the FDI share in China. Correspondingly, the share of Russia in total FDI in the CIS, which had fallen during most of the 1990s, jumped from below 40% in 2002 to almost 70% in 2006 (which is, however, still below Russias current share of the CIS aggregate GDP, at around 76%). Even more striking is another change observed in 2006 the reversal of a long tradition of capital flight out of Russia2 and a corresponding switch in the direction of net investment flows (see Chart 5 below). Net inflows of FDI rose from EUR 0.1 billion in 2005 to EUR 5.6 billion in 2006. The total inflow of net FDI and portfolio investment in that year exceeded EUR 15 billion. The estimates made by the Central Bank of Russia (CBR) indicate that total FDI reached around EUR 21 billion during the first half of 2007, while net FDI was about EUR 1.5 billion. The surplus of the Balance of Payments' capital and financial account reached EUR 45 billion during the first 9 months of the year. This increase in total inflows is partially explained by the launch of a number of large Initial Public Offers (IPOs) in the first half of 2007 (notably those of the two largest state owned banks, Sberbank and VTB, which each attracted around EUR 6.7 billion) and also by the auction of the remaining assets of Yukos. The size of capital inflows was forecast to abate during the remainder of 2007 even before the market turbulence of August 2007

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Opportunities 54% of the total FDI in Russia in 2010 was used to create projects in the Russian manufacturing sector. In particular; there was significant growth of FDI in the automotive sector in 2009-10. This can be explained in part by a government policy to facilitate automotive production. Other industrial sectors that attracted significant investment in Russia were the manufacturing of mineral products, and the food industry, the chemicals, logistics and equipment sectors. Russia is a major global energy exporter with a growing industrial sector. Two-thirds of Russias export receipts come from oil and gas, demonstrating the importance of the extractive industries sector in the Russian economy. The Russian banking sector has huge potential for growth, with Credit Suisse estimating that as little as 24 percent of Russians have bank accounts. Memories of the 1998 crash are a barrier for the older generation, but younger people are a strong target audience for a range of services, from online banking to loans to buy houses and cars. However, the economic dominance of the natural resources sector has been changing and in 2010, manufacturing provided 60% of aggregate GDP growth in Russia. Russian manufacturing grew by 13.4% in 2010, while Russian extractive industries (natural resources) grew by 4.8%.9 Although energy has dominated the Russian economy since the fall of the Soviet Union, industrial production has begun to catch up, providing a more stable and skill-intensive basis for economic growth. These factors combine to create a significant opportunity for Russia to develop a world-leading science-and knowledge-based economy. Since 2008, Russia has been the biggest auto market in the European region. Vladimir Bespalov, an analyst with VTB Capital, forecasts a 20-25% rise to some 2.2 million vehicles. The government has also taken measures to attract foreign car makers by cutting import duties on car parts for companies that build car plants with a production capacity of at least 300,000 cars a year. Roadblocks for FDI Currently, domestic demand in Russia is low and, as a result, Russian companies tend to reduce investment in this area. If the Government were to offer fiscal incentives to Russian companies that modernize their processes and invest more in technology and R&D, this would help to increase internal demand and boost Russias service sector. Russia retains the legacy of the vast human capital developed during the Soviet era, especially in its world-class science programs. However, these science programs have not focused on the marketability of their research. Instead, highly skilled students have tended to leave Russia and seek their fortune in world-renowned technology locations such as Silicon Valley in the US. In particular, many computer science graduates leave Russia to pursue economic opportunities elsewhere. Investment in infrastructure will help Russia to create innovative product. Onerous regulations, administrative barriers and lack of transparency limit Russias attractiveness and deter many potential investors from investing in its service sector. Larger companies have been willing to invest in working through the Russian bureaucracy; but many smaller, and often highly innovative, companies do not have the resources to deal with the lengthy process of investing in Russia and will simply look elsewhere.

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The Russian logistics market is characterized by a lack of competition, little transparency and limited logistics know-how. Many companies have high storage and transport costs.

Reforms Russia needs to harmonize its economy, continuing to maintain its pre-eminence in natural resource extraction and its strength in industrial production, at the same time, developing its capacity as a knowledge-based economy with a strong service sector. If the Government were to offer fiscal incentives to Russian companies that modernize their processes and invest more in technology and R&D, this would help to increase internal demand and boost Russias service sector Russia has the capacity to be a world leader in innovation; it can achieve this by encouraging its highly trained scientists to develop the companies of tomorrow. Building on the potential of high tech clusters such as Skolkovo, Russia could expand the model across the country, drawing inspiration from the innovation development pioneered by other countries. Russia could develop its economy via increased internal consumption, the use of high tech clusters to develop innovation, as well as encouragement for businesses to modernize, for instance, by adopting the new technology solutions that would be developed in the clusters. Attracting business knowledge and investment to finance these clusters is one possible means of supporting Russias innovation and service sector development Russia needs to nurture its internal creative capital and support its scientists through the effective marketing of their inventions. Investment in infrastructure will help Russia to create innovative products. Specifically, the establishment of more high tech clusters like Skolkovo will develop the critical mass that is necessary to support innovation and retain scientists. Russia needs to demonstrate that it has a credible innovation policy and that it is capable of developing enough technology centers across the country to boost the sector.

FLAME SCHOOL OF BUSINESS 7 BRANDING OF NATION RUSSIA In the logistics sector, the government should allow more companies to invest and thus create a more competitive environment, as a result of which the logistics cost will come down. Russia needs to continue reforming its economy and simplifying the regulation for new investors who want to enter the market. Greater access to the Russian economy will encourage more companies to benefit from its rich human capital and profit from the emerging consumer marketplace. With regards to this, it can set up an organization on the lines of the invest in France agency, which can aid investors invest in Russia and can act as a one-window interface.

Proposed changes to the Russian Brand to attract students from emerging economies to continue their higher education in Russia.
Security structures of the country should be improved: There are security structures in place where foreign students are studying. In case of any problems, these structures should respond immediately. Rather, they should make an effort to explain to students at the outset what is done and what isnt in Russia, what is recommended and what isnt. There were constant terrible fires in student dorms several years ago. The students should be explained the possible consequences of a careless attitude toward fire rules, be it an iron that is left on or a cigarette that is not put out. Trainings should be conducted and strict disciplinary action against violators, especially smokers and students who misbehave in public places should be taken. All this concerns Russian and foreign students alike. They are all young, and if they are living in a dorm, they are cut off from their family and not insured against making mistakes. Still they know very well that the strict rules are in place for their own good and safety. Should continue attracting students by subsidizing fees: The study of foreign students at Russian state universities is subsidized by the Russian government by 80-90%. The foreign student pays for his tuition partially - 10-20% of actual cost of education. Average tuition fees per academic year amount to $3,000 $5,000 depending on the specialty, university, language of instruction and city. Average accommodation fees at university hostel amount to $50-150 per month, the cost of life and health insurance is $100-160 per year. Monthly expenses for meals amount to $150-200 on an average. Eventually average annual expenses of a student for tuition, accommodation, insurance and meals in Russia amount to $6,000-7,000. This is precisely why higher education in Russia is affordable for many young people from around the globe. Due to the conditions provided by the Russian government tens of thousands of foreign students have the possibility to get qualified in Russian higher education at affordable prices in more than 500 medical, engineering, technical specialties and the humanities. Invest more money in universities and modernize them: Money should be aimed at modernizing the entire network of higher education institutions in Russia, to make it so that the honorable title of university, academy or institute indeed mean in practice modern quality and ample education, contemporary education. The government should increase the higher education budget expenditure

FLAME SCHOOL OF BUSINESS 8 BRANDING OF NATION RUSSIA Leading Higher Education Institutes should unite together to create higher and innovative standards of education: Alliances of universities can create unique university with ultramodern campus. The new combination campus can house multimedia and interactive classrooms, research laboratories, comfortable dormitories, stadiums, swimming pools. Other facilities can include conference and exhibition halls, an ultramodern medical clinic, research laboratories. It should be made to become the venue of collaboration and mutual attraction for talented youth and scholars of all over the world. Institutes should be converted into an exciting city: Campuses should be perfected in balancing between big-city opportunities and small-town livability. In big cities, you can eat your favorite international cuisine, volunteer for nonprofits, discover new musicians and comedians, explore 30 miles of trails, and unwind at different places of the country. Inside the campus, college should have everything like theater, which hosts everything from film festivals to big-name musicians. It can be a arts and cultural hub and offer amazing cultural atmosphere. The staff, students, and faculty should be able to experience a vibrant, active community that benefits from the metropolitan qualities of a large city and the easy pace of a small town. Should be able to provide a ticket to the world: International experiences are fascinating windows into other people, cultures, and ideas. They also teach you a lot about yourself. These experiences should challenge thousands of students to consider their values, their culture, and their place in the world. Should have high credential standards and evaluation processes: To attract a large no. of foreign students, colleges should take charge of analysis and evaluation of foreign credentials, as well as transfer of the credits earned in other countries. For this the colleges should have specialized Credential Analysts. Every credential analyst should a highly-qualified specialist responsible for certain countries. Applicants should not be made to pay any extra fee for credential evaluation. Scholarships should be offered and sponsored students Students should be offered financial aid to help them and their families pay for college. Financial aid should be typically awarded based on academic merit or financial need. Financial aid can be offered in various forms like: - Grants and scholarships, which do not have to be repaid - Loans, which have to be repaid - Work-study, which provides aid in exchange for work, usually in the form of campus-based employment.

FLAME SCHOOL OF BUSINESS 9 BRANDING OF NATION RUSSIA Housing and Dining facilities should be enhanced: Moving to college is exciting, but it is natural to be a little nervous, hence campuses should become students home away from home, helping them thrive in their studies beyond. Campuses should be able to offer lots of housing options so everyone can find a place to live thats just right for him, and any student will have plenty of people to turn to for guidance. Campuses should be able to manage several on-campus apartment complexes that are designed for sophomores, juniors, seniors, graduate students, and students with families and children. Colleges mess should have extensive dining service which offers something for everyonevegetarians, students observing religious traditions, meat lovers, and carb countersand the flexibility to eat at any dining location on campus, including cafeterias, food courts, cafs, coffee shops, convenience stores, and kiosks. Should provide ways to get involved and place to shine: Universities should give the students chance to discover their talents in art, sports, etc. by organizing contests and competitions for all volunteers and promote these activities region-widely, nation-widely. Universities should provide with things you love and discover new interests. One should never have trouble finding ways to get involved. Students should be offered many options, from interesting electives to student organizations to philanthropic activities anything like.

Russian Tourism A Synopsis

Problems in Russian tourism Russia has a very thin network of roads and railways due to its geographical and climatic conditions. Major cities are well connected, but the forested and snowy region which has a lot of tourist potential, are not properly connected. In addition to this the road accidents in Russia is also quite high. There is also a high level of crime in Russia, which creates a sense of insecurity in the minds of tourists. It has been noted at times that the police is not very helpful to tourists and have been involved in harassing them. There has been hardly any initiative taken at the governmental level to transform tourism as a lucrative business. The World Economic Forum says tourism is the "122nd most important" issue for the government. Russia ranks 91st in spending on tourism, falling way behind Gambia, Cambodia, Paraguay and Tunisia which are on top of the list. Russia spends about 0.6 euro to attract one tourist, while the world's average stands at six Euros, said Yury Bazrykin, vice president of the Russian Union of Travel Industry. Russia is also very expensive. Moscow remains one of the most expensive cities for accommodation not only in Europe but also in the world. The annual average room rate in Moscow hotels is approximately $237, while in Paris it is about $230, in London $216, in Berlin $189 and in Prague $141, said the Knight Frank real estate company in a study. Foreigners also often have to pay more than Russians for entertainment. The Tretyakov Gallery in Moscow, for instance, charges 180 roubles for an adult ticket from Russians and twice as much from foreigners, despite a law passed in the 1990s banning differential pricing for foreigners.

FLAME SCHOOL OF BUSINESS 10 BRANDING OF NATION RUSSIA Reforms required in the tourism sector The government needs to develop a good network of railways and roads around various high-potential tourist sites. It also needs to start transportation services focussing on tourism. New tourist packages can be developed apart from the usual Golden ring, river cruises in Volga, imperial tour, etc. They can come out with packages like The communism tour (tour showing important places of revolution, native places of various stalwarts, etc.), Siberian tour, wildlife tour (touring through the various forests and natural wonders of Russia). It should also develop more resorts in places like Ladoga lake, Onega lake, Smolensk, etc., apart from usual places like Sophi and St. Petersburg. The tourism department should propagate Russia through various media and run a media campaign on the lines of Incredible India and Malaysia-truly asia. It can also organise various festivals like Good Friday at St. Petersburg and Moscow shopping festival on the lines of Dubai shopping festival and Hong Kong shopping festival. It can sponsor shows on various TV channels, or even movies, which showcase Russia as a beautiful tourist destination. The local tourism authorities should be educated about how to behave with a tourist and how important is this industry. In addition to this there needs to be hotels and restaurants in Moscow and elsewhere catering to tourists of a broader economic class and should provide variety.

The upcoming opportunity Olympic Games 2014

The Olympics have always been a symbol of renewal, peace and collaboration and for many countries and cities, hosting has turned into a means of rediscovering themselves, pumping up their economy and essentially, redefining their brand. As the Interbrand website notes, Sochi.ru 2014 is the first ever Olympic Games emblem that forms a web address. The emphasis on the future is already evident here. They are branding this as a new era in Olympic Games, complete with live streaming, PDAs, mobile browsing and television. They are introducing a new generation of athletes and viewers to the Black Sea bordering city of Sochi and to the forward thinking brand of the Russian nation. The .ru component is Russias web domain address and signifies that Sochi 2014 is an Olympic Winter Games hosted by a whole nation. The next emphasis on the future is through the tagline of the Sochi 2014 games: Gateway to the Future. The Russian nation through these words, promises the most innovative and inspirational Olympic Games ever staged. which is a branding effort that proves their dedication and commitment to this idea. It is the gateway for the world to discover Russias passion, innovation and excellence through hosting the 2014 Olympic Winter Games. It is about doing everything possible to inspire youth worldwide through Olympic sport to enjoy healthier, more active lives, says Dmitry Chernyshenko, President and CEO of Sochi 2014.

FLAME SCHOOL OF BUSINESS 11 BRANDING OF NATION RUSSIA Nation branding in our opinion requires a combination of political and marketing strategies. The Sochi brand certainly doesnt forget that. In their brand site, they write If every Russian embraces change by first looking at how to better themselves, the Olympic Games can become the catalyst for positive change in our cities and the inspiration for our people. We can improve attitudes in Russia towards people living with perceived disabilities; we need healthier children and new, modern infrastructure; and we need the positive change that the Games can bring forward. These words show just how clearly they understand the need for this opportunity.

Group Members:
Ankita Poddar Ankit Khandhar Palak Khandwala Sagar Gandhi Sagar Mehta Saugat Das Vrushank Shah