1

High Growth Markets Programme

New UKTI programme from April 2007

Learn and disseminate reasons about why experienced exporters and established companies with the necessary resources are not more active in high growth markets

Develop and deliver tailored support services and other policy proposals on the basis of the above

Generate more activity and interest in high growth markets by UK-based companies

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Focus on 17 High Growth Markets

Taiwan

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Specific Programme activities

13 specialists working with UKTI’s regional and global networks to raise the profile within the high growth markets of UK capabilities and to facilitate engagement by mid-corporate companies (employing 250+ employees)

Develop and implement a campaign to inform UK-based companies of HGM opportunities and how these can be accessed

Provide a more intensive level of support to targeted companies that will act as “trail blazers”

Recommend new UKTI research to underpin wider policy development on high growth markets.

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What will specialists offer?

Market Entry or Business Development advice; for instance

Company diagnostic – verification of company position, expectations and strategy to engage with high growth markets including agreement on appropriate markets targeted

Guidance on HGM business strategy

Advice on market entry strategies

Advice on setting up an office

Navigation of local business practices, culture and bureaucracy

Client management – follow-up, aftercare and continuing support from UKTI’s global network

RUSSIA AT A GLANCE 2004 2005 2006 est.

•Population 145.2m 145.0m 143.8m•Largest territory in the world•GDP growth (8th +ve year) +7.2% +6.4% +7.4%•GDP $590bn $766bn $881bn•GDP/cap $4117 $5347 $ 6149

•inflation +11.7% +10.9% +9.2%•Trade balance +$88bn +$120bn +$143bn•Foreign currency reserves $121bn $205bn $270bn•Investments in all sectors +10.7% +13.7% +18%•Growth Real Personal incomes +9.7% +9.8% +10%•Average salary per month $300 $330 $370•Average labour rate/hr $1.1 $1.3 $1.5•Corporate profit tax 24% Basic Tax rate 13%•Shadow Economy 25% est.

Russian economic recovery

80

100

120

140

160

180

200

1993 1995 1997 1999 2001 2003 2005 2007 2009

GDP

relative

to 2000

Putin plan

(just over 7% growth)

actual

08/04/23 6

Since 1998

Reduction of value of Rouble led to reduction in imports and a move back Russian products

Increase in price of oil and metals (driven by renewed growth in Asia Pacific) stimulated other economic areas

Industry is starting to retool and industrial growth is faster than GDP growth at ~10%/y

Corruption is decreasing helped by simplification and reduction of taxes

Debts are now paid off and a stabilisation fund (£1.5T) being established to cushion oil and gas price changes

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Russia’s Cities

Moscow (10.4M) capital and major centre for many industries

St Petersburg (4.7M) centre for marine and ICT industries

Novosibirsk (1.4M) centre for aerospace and R&D based industries

Ekaterinburg (1.3M) centre for metallurgical and engineering for the oil and gas industry

Nizhny Novgorod (1.3M) centre for automotive and ICT industries

8 other cities with a population over 1 million

Total of 33 cities with a population over 500,000

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Issues for Modern Russia

Entry to WTO still not achieved – increasing transparency (Russia now rates better than China and India on business risk)

Widening national economic base beyond primary industry - issue of regeneration of older industries or concentrating on knowledge based economy

Expanding development to neglected areas of the country – notably the South and the related problem of ethnic minorities

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Boston Matrix for Russia Ltd

Adapted from “Foreign Direct Investment in Russia”, Paul Fischer, MacMillan 2000.

US Department of Commerce Data

Market

Growth

%/y

Import Penetration 100%

Cash cows

Rising stars Problem Children

Dogs

GAS

WOOD

OIL

TEXTILES

CONSUMER ELECTRONICS

WHITE GOODS

BIOTECH

ENVIROPHARMA

IT (Hardware and Software) TELECOMS

10%0

FOOD

DEFENCE

MACHINERY

METALS

CARS

FURNITURECLOTHING

AEROSPACEBUILDING MATERIALS

CHEMICALS

PAPER

HEALTH CARE

1

10

100

RETAIL

08/04/23 10

UKTI High Growth Markets 11 Juan Matthews

Russian market challenge

Russia has had 8 years of GDP growth over 6%

Certain sectors in Russia have very high growth (IT, telecoms, health care, etc)

Russia is starting to replace imports in many areas and an innovative approach is needed to continue to engage with the market

Russian large companies are becoming powerful in world markets and could dominate certain sectors – RusAl, Norilsk Nickel, Gazprom, Rosneft, Sistema, Sverstal

New opportunities are emerging due to deregulation and privatisations

UKTI High Growth Markets 12 Juan Matthews

UK trade with Russia

0

1

2

3

4

5

6

1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

£ b

illi

on

UK exports

UK imports

Russia’s Imports (2005)

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Russian trade with UK

UK main exports to Russia are: Computers and other office equipment Road vehicles and automotive components Telecoms equipment and software Manufactured goods – pottery, textiles,

glassware etc Equipment for oil, gas and mining

industries Food and drink – mainly confectionary and

alcohol Electrical machines and machine tools Instruments , optical equipment, watches Turbojet engines and power equipment Specialised chemicals and pharmaceuticals

UK main imports from Russia are:Petroleum productsChemicalsSemi-finished metal goodsMetalsWood and paperCoal and coal products

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Business Opportunity – Creative Industries

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Russians are shopaholics!

Brands, luxury goods, fashions, cosmetics and perfumes

Watches and electronics goods

New shopping malls and retail parks

Furniture, household accessories, DIY and building materials

Food and drink, supermarkets and restaurants

Cars, boats and conservatories

Business Opportunity – Financial Services

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Russia moves from the pickle jar to banking and mortgages

Opportunities to service exporters and companies engaged in large projects (only Citi and Raiffeison are the only foreign banks properly established in Russia)

Retail banking market is opening as people are looking for alternatives to the state savings bank – Sberbank.

Mortgages and consumer credit is now being demanded

Accountancy business I growing at 50% a year

Foreign insurance companies are now entering the market

Russian companies choose the LSE main and AIM markets for their IPOs.

Business Opportunity – Education

17

English and business education are expanding

Russia has nearly 100% literacy and around 45% university education but there is dissatisfaction with standards in some areas

Richer Russians are sending their children and university students to the USA and the UK

Business education capacity ~£100M of which >50% is in Moscow. Market is expected to grow to £750M by 2016

Learning English is a priority for all sectors and is used in communication with European and Asian countries. British English is the gold standard

Foreign MBA courses are being established separately and in association with Russia colleges

Distance learning is a growing market

Business Opportunity - Engineering

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Engineering renaissance

Russian industry is retooling as 70% or equipment is now obsolete

Growth in economy has meant that formerly empty factories are now active often with new dynamic small companies

Defence factories are now moving into civil markets for oil and gas equipment and infrastructure projects

Aerospace- civil aircraft are now mostly imported but defence market strong and some new civil projects. Russian companies looking to work with foreign machining companies to win orders from Boeing and Airbus.

Oil and Gas – equipment and services market around $3.5B growing at 20% with 30% imports

Business Opportunity - Power

19

Insufficient capacity – old plant in need of replacement

Existing plant operating at full capacity and reliance on district heating makes plant failures life threatening in Winter

Old system being deregulated and privatised

Before 1998 demand had reduced but growing economy is now being limited by lack of capacity growth

Major investment initiatives are now being implemented

70% of power equipment is imported

Business Opportunity – Construction

20

After a pause following the 1998 crisis construction is now growing at >20%/y over whole country

Retail 326,000 m2 in 2006 and 799,000 m2 in 2007

Shortage of hotel rooms (~5,000 in Moscow) 10 new hotel in 2006, 65 in 2007

Shortage of office space – large new office complexes being built

Severe shortage of apartments in most large cities

Large market for renovating living accommodation

Market for individual country homes (kotedzh) and “dachas”

Infrastructure – airports, ports, railways and roads. Construction equipment market $12B growing at 12% with 50% imports

Business Opportunity - Automotive

21

Too many cars!

In 2006 Russians spent £16B on cars:– £9B on imported new cars– £2.2B on foreign cars made in Russia– £1.8B on imported second hand cars– £3B on Russian cars

Sales of imported new cars are growing a 75%/y and for forign cars made in Russia at 100%/y

A 2million cars a year Russia is Europe’s second largest automotive market after Germany

Automotive parts market is around £3.3B growing at 20% a year of which about 40% are imported

Russian has a successful export market in heavy good vehicles and other large construction vehicles

Russia’s large cities have major traffic problems

Business Opportunity – ICT

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One of the fastest growing markets is telecoms and IT

Russia’s infrastructure for cable and wireless communications is good and Wi-Max will be available in 29 cities this year

Telecom sector $30B growing at 32%

Penetration of mobile telephony >100% based on 3 large Russian providers

IT market now at $10B and growing at 20%. Many computers now being produced in Russia with foreign components

Internet usage growing at 60%, currently around 20M users, broadband growing at 50% with 6M users

Digital TV about to be introduced, but IPTV and cable already established

Look out! - Russian software and ICT service companies are growing fast

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Healthcare is a Cinderella sector that is now catching up

Major health problems from heart disease, diabetes, alcohol, smoking and obesity

Pharmaceutical market around $9B growing at 20% with 70% imports but Russian manufactured generics growing

Medical equipment market around £2.5B growing at 20% with 60% imports. UK companies are entering the market

Opportunities to work with Russian companies to supply or jointly produce drugs, vaccines, diagnostics and equipment for CIS market

Opportunities are also there for innovative service provision

Business Opportunity – Healthcare

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Accessing the CIS market

Use of Russian companies to tailor or finish products fro CIS markets meeting local regulations

Supply of components or alternative spare parts through distributors or service centres

Two way technology trade – Russia needs new technologies to meet resource and environmental problems but is also a source of technologies that need to be adapted to the marketplace

Outsourcing, franchising and the Internet marketplace

Other Business Opportunities

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Contacts

Dr Juan MatthewsUKTI High Growth Markets Business Specialist for RussiaT: 01235 206569E: juan.matthews@pera.com

Yana Pavlovskaya British Embassy MoscowT:+7 495 956 7252E: yana.pavlovskaya@fco.gov.uk

Taissia Zelenkova British Consulate General, St PetersburgT: +7 812 3203221E: taissia.zelenkova@fco.gov.uk

Galina Movchan British Consulate General, EkaterinburgT: +7 343 3794931E: galina.movchan@fco.gov.uk

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