Industry and Business in Russia

Today nobody can deny the importance of business for the economic growth of the country and nobody can’t but observe that it’s still a challenge for Russia. But with abundant natural resources and a great number of large business companies it has huge potential for developing of this economic sector. Let’s have a close look at the most significant Russian companies and the industries they represent.

As Russia is one of the world’s leading producers of oil and gas, holding 13 per cent of world reserves, it is no surprise that there are approximately 170 companies involved in oil and gas development in Russia. Of these, some 11 large vertically integrated companies (including the state-owned Gazprom) extract over 90 per cent of the total output: Bashneft, Gazprom, LUKoil, Rosneft, RuSSneft, Gazpromneft and others. It is worth mentioning that ordering oil and gas as strategic resources to be put back under state control was not considered good for business by foreigners. The political functioning of Gazprom (for example, in the conflict with Ukraine) has a negative influence on its image as a business structure.

Because of the abundance of both iron and coal, Russian steel companies are some of the world’s most profitable. Magnitogorsk Iron and Steel Works posted 1 billion USD in profit for 2008. The original factory was pronounced a “hero factory” of the Soviet Union for the steel it made for Soviet tanks, but today is completely held by private investors. It recently began a new factory in India worth 10 billion USD, and has purchased a plant in Turkey worth about 2 billion USD total.

Besides its resource-based industries, Russia has developed large manufacturing capacities, notably in machinery. It inherited most of the defense industrial base of the Soviet Union, so armaments are the single-largest manufactured goods export category for the country. The most popular types of export weaponry are Sukhoi and MiG fighters, air defense systems, helicopters, battle tanks, armored personnel carriers and infantry fighting vehicles. The industry’s most successful company is the air defense system producer Almaz-Antey followed by aircraft-maker Sukhoi.

Russia’s automobile industry is recuperating from the crisis. The volume of car manufacturing has started rising again. Every month it is announced that another foreign car manufacturer has announced plans to build a factory in Russia or make a joint venture with a Russian car manufacturer. The Russian government has offered tax breaks to companies that start major assembly lines in Russia. Ford, Renault, Toyota, Volkswagen, KIA, Hyundai, Fiat, and others are already assembled in Russia. Suzuki, Nissan, Peugeot Citroen, Mitsubishi and others are building factories or have announced plans to set up assembly plants in Russia.

A new industry was created in the last 5 years: family shopping. The new Russian consumer is diversified and products for all areas are in great demand. Every Russian city with a population over 500,000 is a target for Russian and international retail chains. But Russian retail is still in a unique position given the limited number of multinational players on the domestic market. Both India and China are faced with intensifying competition from global entrants such as Wal-Mart, Carrefour and Tesco, of which the latter does not have even a formal presence in Russia. However, several international chains have already expanded their presence in the non-food market, including IKEA, Leroy Merlin, Castorama; and in the food market, Auchan, Metro and Rewe. Russian retail giants such as the Eldorado, Magnit, Euroset, M.Video, Dixi are still among the top 10 Russian retail players.

On the whole it should be noted that businesses in Russia are focused on developing and implementing strategies to ensure their long-term survival in the face of tough competition. They have been on the right track over the last years though there are still many problems to be solved, for example, a highly bureaucratised business environment and high dependence on government regulatory agencies.