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Industry 4.0: are manufacturing companies ready?Russian manufacturing sector in 2018Deloitte CIS Research Centre
Moscow 2018
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Contents
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06
07
08
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10
11
Foreword
Key findings
Russian manufacturing sector in figures
Current state of the Russian manufacturing sector
Key development concerns in 2018
Business management in the current market environment
Sources of capital
Government support
Innovation and digitalization
Our respondents
Contact information
02
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Deloitte CIS would like to thank all respondents for their time and interest in our July 2018 survey undertaken as part of the Russian Manufacturing Sector in 2018: Current State and Outlook project. By sharing your expert commentary, you helped us scrutinize the current state of manufacturing in Russia, examine sentiment and expectations and identify the key barriers and development areas for individual companies and the sector as a whole.
We are proud to present you the full version of our analytical report.
The survey has been conducted annually since 2015, forming the basis for our comprehensive review of the Russian manufacturing sector. Your participation in the next survey in the series would be much appreciated.
If you have any questions regarding this research, please email us at [email protected].
Key topics:
• Current state of Russian manufacturing sector and its players
• Expectations regarding outlook for manufacturing businesses/the sector as a whole
• Key business development concerns
• Key business/sector drivers and barriers
• Priority business development strategies
• Currency risk impact and management
• Interaction with suppliers and customers
• Government support
• Innovative activities
Foreword
Srbuhi HakobyanHead of Industrial Products & Services Group, Deloitte CIS
03
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Key findings
01
04
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Key findings
Russian manufacturing sector: current state and outlook In 2018, perception of the sector’s current state improved, though outlook expectations became more moderate.
Current state
Anticipated changes
Perception of the manufacturingsector as a whole shows improvement for thesecond consecutive year (+6 percentage points YoY).
Individual perception of manufacturing companies remains optimistic with positive sentiment exceeding negative ones by 62 percentage point.
Expectations regarding the manufacturing sector’s outlook are generally positive though somewhat subdued when compared to the previous year (-15 percentage points).
The respondents’ optimism regarding their own company decreased by 14 percentage points.
+14% +62%
+11% +30%
+8% +65%
+26% +44%
“Given a certain external stabilisation in the manufacturing sector, there is now a situation we can call ‘cautious optimism’. This means that on a six to 12 month horizon one can expect moderate growth at best, with recession as the worst-case scenario. Having said that, moving ahead with digitalisation and automation is the right decision that will pay dividends in the long term.”
Gennady KamyshnikovPartner, Deloitte CIS
05
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Key findings
Positive perception of the sector’s current situation led to optimistic financial and operational forecasts.
Russian manufacturing sector: current state and outlook
Trend Highlights
Financial performance forecasts Operational performance forecasts
• Fifty-nine percent of the manufacturing companies surveyed anticipate an increase in revenue and 52 percent expect an increase in operating profit.
• Only 12 and 16 percent of the companies, expect revenue and operating profit to drop, respectively
• Thirty-six percent of the companies plan to increase their capital expenditure over the next 12 months by an average of 20 percent.
• Forty-one percent expect an increase in production and 47 percent – an increase in sales.
• No changes are expected for the current levels of leftover stock.
• Ten percent of the companies surveyed anticipate a decrease in their overdue trade receivables.
06
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Key findings
Despite the overall improvement in the perceptions of the sector’s present position, a significant share of the respondents (43 percent) still holds negative views. An improvement in sentiment
was recorded in the chemical industry over the past year, with the share of pessimists falling by 27 percentage points to 35 percent.
Representatives of the metals and metal products industry are more optimistic, with the share of pessimists declining, putting it 10 percentage points below the average.
Starting from 2017, the situation in the automotive industry stabilized, but many respondents doubt that the nascent growth would be sustainable. The high share of pessimistic opinions (64 percent) reflects these expectations.
The most negative sentiment was displayed by companies with a domestic focus and smaller companies with revenue of less than RUB 10 billion and less than 1,000 employees. The share of pessimists in these groups was 61 to 72 percent.
Russian manufacturing sector: current state and outlook
Trend Highlights
“Presently, the government’s focus on the chemical industry comprises environmentally safe and resource efficient production, as well as a transition from the commodity export model of the economy to an innovative investment model. This means that the priorities of chemical and petrochemical companies in the next few years will include a large scale upgrade of the current capacity based on the best available technology, search for and retention of highly qualified personnel, transition to safe production, and the development of new products and markets. The government needs to implement additional state support measures in such fields as R&D, science, training of personnel, cut import duties, electricity and transport tariffs, and develop the logistics infrastructure.”
Yulia OrlovaPartner, Deloitte CIS
07
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Key findings
Stable regulatory and economic policies and lower administrative barriers are generally seen as top growth drivers for the Russian manufacturing sector as a whole. Improved business processes, including professional training for the staff, are a number one driver for manufacturing companies themselves.
This year companies also give more priority to the availability of a qualified talent as a market and business driver (+12 pp and +9 pp, respectively).
Top 5 market drivers in 2018 Top 5 business drivers in 2018
Russian manufacturing sector: current state and outlook
Trend Highlights
Transparent and stable regulatory, tax and economic policies
Lower administrative barriers
Lower geopolitical risks
Government support
Available fundraising options
Higher domestic demand
Lower production costs
Higher production and technology capacities
Extended product line
Professional training
“To make a move to Industry 4.0, one needs highly qualified automation and optimisation staff. There is already deficit of such specialists in the industry and the companies are giving a serious thought to personnel development and making investment into this sphere.”
Srbuhi HakobyanPartner, Deloitte CIS
08
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Key findings
In 2018, our respondents more often cited concerns about the lack of support and funding from the government (+10 percentage points), as well as corruption (+6 pp). This signified a growth in the sector’s expectations regarding government initiatives that could improve the current situation in the market.
Key development concerns in 2018
Trend Highlights
Dependence on imports
• The share of imported materials and supplies averages 30 percent
• The share of imported machinery and equipment averages 44 percent
Key import markets for materials and supplies:
• EU – 9 percent
• EEU – 9 percent
Key import markets machinery and equipment:
• EU – 18 percent
• EEU – 8 percent
Top 5 development concerns in 2018
• Regulatory gaps
• Corruption
• Low purchasing power of the population
• Lack of government support and funding
• Geopolitical risks
Currency risks
Preferences regarding changes in the RUB/USD and RUB/EUR exchange rates*:
• Forty-three percent of the companies are interested in a stronger Russian ruble
• Twenty-three percent would welcome a depreciation
• Thirty-six percent would like to see no change, with 19 percent preferring a steady exchange rate in general rather than specific ruble values.
Automotive companies have the highest
preference for a stronger ruble (+28 percent), while metals and metal product companies and industrial equipment manufacturers are the least interested in it (+4 and +6 percent, respectively).
*against the average level for January-May 2018 (RUB/USD=58.8/1, RUB/EUR=71.1/1)
09
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Key findings
The following strategies have been prioritized by manufacturers for the second year in a row:
• Expansion into new markets (77 percent)
• Launching new products (76 percent)
• Higher production and technology capacities (72 percent)
This shows that the Russian manufacturing sector sustains positive trends that we saw a year ago.
Priority business strategies in 2018
Priority export markets
• EEU (the balance is +40 percent)
• EU (the balance is +30 percent)
Non-priority export markets
• North America (the balance is +6 percent)
Top 5 business strategies for 2018
• Expansion into new markets
• Launching new products
• Higher production and technology capacities
• Organic growth
• Import substitution
Leadership strategies*
• New production facilities and higher production and technology capacities
• Increase of exports
• Talent investment
• Foreign partnerships
• External funding
*Priority strategies for the companies expecting higher revenue and a stronger market position.
Trend Highlights
10
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Key findings
Manufacturing companies use hidden optimization strategies to retain their staff. These strategies include a shorter working week or unpaid leaves and were used by 22 percent of the companies in 2017.
Other development plans for 2018
Trend Highlights
Customer strategies
• In late 2017, B2B and B2G segments accounted for 54 and 24 percent of the manufacturing sector’s customer portfolio, respectively.
• Overall, 1H 2018 saw a revision of customer portfolios and a focus shift towards the B2B segment, (largely due to a decrease in the share of government contracts).
• On average, 5 percent of the companies managed to reduce their share of customers with adverse financial situation.
HR strategies
In 2017, 46 percent of the manufacturing companies in Russia optimized their staff costs:
• Thirty-six percent used staff cuts
• Nineteen percent used salary cuts
• Fourteen percent introduced a shorter working week
• Fourteen percent made use of unpaid leaves
Supplier strategies
• Supplier network expansion and supplier mix adjustment without changing their total number remain the most popular strategies in 2018 (44 and 35 percent, respectively).
Twenty-five percent of the manufacturing companies plan to optimize their staff costs in 2H 2018.
Overall, staff increases are expected only for production staff and will average 3 percent.
Similarly, our respondents do not anticipate significant changes to the average salary. The most significant increase will occur for top managers and production staff (4 and 3 percent on average, respectively).
11
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Key findings
Over the past year, manufacturing companies have adjusted their plans regarding state investment. The share of the companies planning to raise government funds decreased by one third from 57 to 39 percent.
Trend Highlights
Sources of capital
Sixty-nine percent of the respondents plan to raise funds externally.
These plans generally include several sources of capital:
• Private domestic investment – 61 percent
• Foreign investment – 41 percent
• Government investment – 39 percent.
Top-priority sources of capital:
• Internal sources
• Strategic partnerships
• Russian bank loans
• Government funding
Sixty-one percent of the respondents had experience raising foreign investment.
Half of them (52 percent) reported their positive non-financial impact on the company’s business.
Sixty-one percent of the companies surveyed mentioned the importance of loan refinancing for their business.
The net balance for loan refinancing is 2 percentage points down from the previous year.
12
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Key findings
The net balance for regulatory efficiency is 1.6 on a scale of 0 to 3, with a slight decrease over the previous year (-0.1).
This indicates the average level of satisfaction with the government’s efforts.
Trend Highlights
Regulatory efficiency
During the year, the importance of investment in higher education increased significantly (+9 percentage points), which indicates a rise in business concerns about management training.
Top 3 government support options
• Tax and other financial incentives
• Government contracts
• Investment in physical infrastructure
Our respondents most positively assess the government’s support for innovation, occupational health and safety policies and protection of intellectual property (15, 14 and 13 percent, respectively).
The most negative sentiments were recorded for the energy policies (-22 percent) and industry taxes (-15 percent).
“With government regulation strongly affecting the car-making industry, market participants will remain highly uncertain about future growth prospects until new industrial assembly rules are approved.”
Tatiana Kofanova Director, Deloitte CIS
13
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Key findings
The sector’s growing innovation and new technology focus is evidenced by an increase in innovation and technology costs (from 8.5 percent of revenue in 2016 to 10 percent in 2018-2019).
Process automation and digitalization will be priorities for manufacturing businesses in the foreseeable future.
Top 3 innovative activities in 2018-2019
• Purchase of advanced equipment and machinery (60 percent)
• Advanced technology and innovation training for staff (54 percent)
• R&D (47 percent)
Innovation costs accounted for 9.5 percent of revenue on average in 2017 and will increase to 10 percent in 2018-2019.
Trend Highlights
Innovation and digitalization
• In particular, 55 and 52 percent of the companies, plan to automate a selected business process/business process chain, respectively,
• Smart production (46 percent)
• Internet of Things (machine-to-machine communication) (45 percent)
“Integration of digital technologies into the manufacturing process contributes to the production of goods that meet up-to-date cost and quality standards. For companies, this is a solid foundation to build upon.”
Srbuhi HakobyanPartner, Deloitte CIS
14
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in figures
02
15
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Russian manufacturing sector in figures
The role of the manufacturing sector in the Russian economy
In our survey, we focus on four key manufacturing industries:
• Metals and metal products;
• Automotive manufacturing;
• Machinery;
• Chemicals.
Source: Russian Federal Statistics Service
In 2017, the manufacturing sector accounted for 11.9 percent of Russian GDP.
Structure of Russia’s GDP, RUB billion
Household production
Hotels and restaurants
Education
Energy
Healthcare
Financial services
Other services
Agriculture (including fishing)
Construction
Transportation and communications
Mineral production
Real estate
Manufacturing
Trade and maintenance
Government, security, taxes
506
699
2,015
2,232
2,827
3,286
3,446
3,603
4,928
7,181
7,366
7,835
10,315
11,299
14,821
517
736
2,143
2,379
3,054
3,507
3,695
3,694
5,286
7,783
8,606
8,184
10,969
11,984
15,510
Structure of Russia’s manufacturing sector, RUB billion
Other manufacturing
Chemical industry
Machines and equipment
Automotive manufacturing
Coke and oil products
Food industry (including tobacco)
Metals and metal products
1,286
1,127
1,386
1,016
1,424
1,627
2,446
1,336
1,170
1,437
1,207
1,700
1,525
2,592 2017
2016
2017
2016
16
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Russian manufacturing sector in figures
Large import volumes show that the capacity of Russian manufacturing and its range of products do not meet domestic demand in the reviewed industries. For that reason, import substitution remains one of the priority development areas.
At the same time, a significant share of domestic production is exported (especially metal and chemical products), which significantly impacts the position of domestic manufacturing companies.
Domestic production, export/importin Russia, 1H 2018, USD million
External ties in the manufacturing sector
Import Production Export
Source: Russian Federal Statistics Service, Federal Customs Service
Metals and metal products
8,37262,13722,640
Chemical industry
16,28033,63512,940
Machines and equipment
24,3026,167
34,665
Automotive manufacturing
10,220
1,20119,242
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Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Russian manufacturing sector in figures
External economic ties across industrial sectors. Export, 1H 2018
Source: Federal Customs Service
Metals and metal products
Auto transport and parts thereof
Chemical products Machinery and equipment
22 640USD million
33%
11%21%
11%
13%
9% 2%
13 282USD million
34%
17%
9%
8%
13%
18%3%
1 201USD million
14%
62%
4%1% 7%
2%10%
6 167USD million
18%
31%23%
4%12%
5%
7%
EU
Eurasian Customs Union
CIS, ex. Customs Union
BRICS
Asia, ex. other groups
North America
Other
Top-7 importers of Russian manufacturing products
• Belarus (8 percent);
• Kazakhstan (7 percent);
• Turkey (7 percent);
• USA (6 percent);
• The Netherlands (5 percent);
• China (5 percent);
• Finland (4 percent).
9%North America
31%EU
14%BRICS
17%EACU
15%Asia, ex. other groups
EU$13,171 mln
North America$3,809 mln
BRICS$5,897 mln
EACU$7,194 mln
Asia, ex. other groups$6,350 mln
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Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Current state of the Russian manufacturing sector
03
19
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Current state of the Russian manufacturing sector
Trend
• Overall, the current state of the manufacturing sector in Russia is seen as positive, the balance being +14 percent, or 6 percentage points up from the previous year.
• However, the share of negative opinions remains rather high (43 percent), indicating significant differences between various segments.
Highlights
• Export-oriented companies and companies with higher revenue and more staff see the sector’s present situation as positive. The difference in perception for these groups as compared to the other ones is close to 50 percent.
• Starting from 2017, the situation in the automotive industry stabilized, but many respondents doubt that the nascent growth would be sustainable. The high share of pessimistic opinions (64 percent) reflects these expectations.
• An upward trend was demonstrated by the chemical industry and the metals and metal products industry (+27 and +17 percentage points YoY, respectively).
What is your view on the current state of the Russian manufacturing sector?
Current perceptions
Positive Rather positive Rather negative Negative
Net balance
Positive Negative
All
indu
stri
es
Chem
ical
s
Ove
r RU
B 50
bill
ion
over
25%
Met
als
and
met
al p
rodu
cts
Less
than
RU
B 10
bill
ion
Indu
stri
al e
quip
men
t
Less
than
5%
Up
to 1
,000
peo
ple
1,00
1 to
5,0
00 p
eopl
e
Ove
r 5,0
00 p
eopl
e
Auto
mot
ive
RUB
10 to
50
billi
on
5 to
25%
43%
33%
21%
47%
29%
64%
67%
26%
72%
61%
35%
41%
33%
25%
57%
67%
79%
53%
71%
36%
33%
74%
28%
39%
65%
59%
67%
75%
IndustryRevenue share
of exportsNumber of staff
Revenue in 2017
7%
2016 2017 2018
20%9%
17%
30%
45%40%
43%
37%34%
9%9%
+8%
+14%
0%
20
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Current state of the Russian manufacturing sector
Trend
• Views on the sector’s outlook became more moderate. Almost half of the respondents (43 percent) do not anticipate significant changes, but the share of the respondents with negative views increased 8 percentage points from 2017. As a result, the overall balance decreased to +11 percent, almost reaching the 2016 level.
Highlights
• Larger companies and export-oriented companies tend to demonstrate more positive views. The balance of respondents in these groups is above 30 percent.
• The most optimistic sentiments towards the 2018 outlook were recorded by the metals and metal products industry and the industrial equipment industry (+20 and +17 percent, respectively).
• The respondents from the automotive and chemical industries reported varying views: the share of positive sentiment approximates the share of negative ones, signifying a high level of uncertainty.
Positive changes No significant changes
What is your view on the outlook for the Russian manufacturing sector and your company in 2018?
Positive changes Rather positive changes Rather negative changes Negative changes No significant changes
Net balance
Sector outlook for 2018
43%
34%
23%
46%
37%
17%
50%
21%
29%
47%
29%
24%
35%
41%
24%
45%
14%
41%
40%
47%
13%
42%
46%
12%
48%
19%
33%
41%
32%
27%
41%
44%
15%
34%
29%
37%
55%
40%
5%
47%
37%
16%
+11% +34% +20% -14% +17% -8% -8% +5% -27% +35% +5% +29% +34% +21%
IndustryRevenue share
of exportsNumber of staffRevenue in 2017
All
indu
stri
es
Chem
ical
s
Ove
r RU
B 50
bill
ion
Ove
r 25%
Met
als
and
met
al p
rodu
cts
Less
than
RU
B 10
bill
ion
Indu
stri
al e
quip
men
t
Less
than
5%
Up
to 1
,000
peo
ple
1,00
1 to
5,0
00 p
eopl
e
Ove
r 5,0
00 p
eopl
e
Auto
mot
ive
RUB
10 to
50
billi
on
5 to
25
perc
ent
Negative changes Net balance
2016 2017 2018
21%
18%5%
13%
43%
+11%
30%
23%2%
8%
37%
+13%
31%
10%5%
10%
44%
+26%
21
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Current state of the Russian manufacturing sector
Select the top three drivers (in descending order) that could improve the competitive position of your industry in the global market.
Trend
• Transparent and stable regulatory, tax and economic policies and lower administrative barriers are seen as the most relevant competitiveness drivers for the Russian manufacturing sector in 2018 (36 and 33 percent, respectively).
• This year companies also give more priority to availability of qualified talent (+12 percentage points).
• Mitigation of currency risks was rated 7 percentage points lower than a year ago. Please note that this survey was conducted in July 2018, when the exchange rate of the Russian ruble was stable.
Highlights
• Lower geopolitical risks is the most important driver for automotive companies (37 percent) and foreign companies with operations in Russia (52 percent).
• Representatives of the metals and metal products industry prioritize access to qualified talent and lower cost of materials and energy resources (37 and 30 percent, respectively).
• Government support (public funding, grants and investment) has higher relevance for industrial equipment manufacturers (13 percentage points above average).
• Chemical companies are more interested in the mitigation of currency risks (32 percent).
2017 Changes year-on-year
2018
Industry competitiveness drivers
Transparent and stable regulatory, tax and economic policies
Lower administrative barriers
Lower geopolitical risks
Government support
Access to qualified talent
Lower cost of materials (including energy)
Lower currency risks
Available fundraising options
36% 22%
23% 11%
33% 30%
21% 19%
26% 27%
18% 25%
25% 23%
24% 20%
–7 pp
+14 pp
+12 pp
22
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Current state of the Russian manufacturing sector
Highlights
• A high share of negative views was recorded for companies with revenue of less than RUB 10 billion (+41 percent, 12 percentage points up from the previous year), companies with a revenue share of exports above 25 percent (29 percent) and companies with less than 1,000 staff (34 percent).
• The automotive industry also reported a high share of negative perceptions (36 percent, +22 percentage points compared to the previous year).
• The chemical industry demonstrated the opposite trend, with the share of pessimists declining by 11 percentage points over the year, and the share of optimists reaching 88 percent.
Trend
• The current position of manufacturing businesses in Russia is generally viewed positively, with the balance of positive and negative estimates at +62 percent.
Current position of manufacturing businesses in Russia
Positive Rather positive Rather negative Negative
Net balance
Positive Negative
All
indu
stri
es
Chem
ical
s
Ove
r RU
B 50
bill
ion
Ove
r 25%
Met
als
and
met
al p
rodu
cts
Less
than
RU
B 10
bill
ion
Indu
stri
al e
quip
men
t
Less
than
5%
Up
to 1
,000
peo
ple
1,00
1 to
5,0
00 p
eopl
e
Ove
r 5,0
00 p
eopl
e
Auto
mot
ive
RUB
10 to
50
billi
on
5 to
25%
19%
17%
3%
24%
9%
36%
29%
5%
41%
34%
12%
27%
13%
5%
81%
83%
97%
76%
91%
64%
71%
95%
59%
66%
88%
73%
87%
95%
IndustryRevenue share
of exportsNumber of staff
Revenue in 2017
2016 2017 2018
38%24% 26%
50%58% 55%
12%18%
14%5%
+65%
+62%+76%
What is your view on your company’s current market position?
23
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Current state of the Russian manufacturing sector
Trend
Over the year, the level of optimism about own company’s outlook dropped by 14 percentage points to the balance of +30 percent. This drop was largely due to a 12 percentage point growth in negative sentiment.
However, almost half of the companies surveyed (48 percent) anticipate an improvement in their situation.
Highlights
• Industrial equipment manufacturers, chemical companies and metals and metal product companies displayed similar views of their future prospects. About half of them expect the situation to improve, one third anticipates no changes and only 10 percent predict negative changes.
• The automotive industry, on the other hand, has three times more respondents giving negative estimates (36 percent).
• Less optimistic sentiments are also voiced by companies with revenues of less than RUB 10 billion and companies with small revenue share of exports (the balance is -7 and -4 percent, respectively)
What is your view on your company’s outlook for 2018?
Manufacturing businesses’ outlook for 2018
2016 2017 2018
10%2%
6%12%6%
60% 44% 34%
18%
10%31%
19%
35%
13%+44%
+30%+16%
Revenue share of exports
Revenue in 2017
34%
48%
18%
42%
50%
8%
39%
55%
6%
29%
59%
12%
35%
53%
12%
36%
29%
36%
38%
29%
33%
58%
37%
5%
31%
31%
38%
24%
47%
29%
35%
53%
12%
27%
59%
14%
27%
67%
7%
30%
60%
10%
+30% +49% +42% -4% +47% +18% -7% +45% -7% +50% +41% +41% +60% +32%
IndustryNumber of staff
All
indu
stri
es
Chem
ical
s
Ove
r RU
B 50
bill
ion
Ove
r 25%
Met
als
and
met
al p
rodu
cts
Less
than
RU
B 10
bill
ion
Indu
stri
al e
quip
men
t
Less
than
5%
Up
to 1
,000
peo
ple
1,00
1 to
5,0
00 p
eopl
e
Ove
r 5,0
00 p
eopl
e
Auto
mot
ive
RUB
10 to
50
billi
on
5 to
25%
Positive changes Ni significant changes
Positive changes Rather positive changes Rather negative changes Negative changes No significant changes
Net balance Negative changes
Net balance
24
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Current state of the Russian manufacturing sector
Trend
• A generally high estimation of the current state and future prospects of manufacturing businesses resulted in positive financial performance forecasts for the next year.
• The majority of manufacturing companies surveyed (59 percent) anticipate an increase in their revenue by an average of 25 percent. A third of the companies (29 percent) do not expect any changes, and 12 percent predict a decrease by 29 percent on average.
• An increase in revenue is generally accompanied by an increase in operating costs. Forty-one percent of the manufacturing businesses expect their operating costs to grow by an average of 19 percent. Only 6 percent plan to cut their operating costs but this cut will average as much as 57 percent.
• Over a half of the companies surveyed (52 percent) expect an average of 23 percent increase in their operating profit over the next 12 months. Sixteen percent of the respondents anticipate a decline averaging 24 percent.
Highlights
• Revenue growth is most often predicted by metals and metal product companies and industrial equipment manufacturers (70 percent each).
• Chemical companies more often tend to anticipate a decline in operating costs and operating profit (17 and 25 percent, respectively).
What changes do you expect in your company’s key performance metrics in the next 12 months?
Anticipated financial performanceA
ll se
ctor
s*
Man
ufac
turi
ng s
ecto
r
71%
59%
11% 12%
18%
29%
by 25%
by 29%
All
sect
ors*
Man
ufac
turi
ng s
ecto
r
60%
52%
16% 16%
24%
32%
by 23%
by 24%
All
sect
ors*
Man
ufac
turi
ng s
ecto
r
62%
41%
14%
6%
24%
54%
by 19%
by 57%
Increase
Decrease
No changes
Revenue Operating costs Operating profit
* Based on the findings of the 1H 2018 Deloitte CFO Survey of the Leading Companies in Russia
25
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Current state of the Russian manufacturing sector
Trend
• The majority of manufacturing companies surveyed (52 percent) will not be changing the level of their CAPEX in the next 12 months.
• On the other hand, a third of the companies (36 percent) plan to increase their capital expenditures by 20 percent on average.
• As few as 12 percent intend to cut their CAPEX over the next year, although this cut will average 52 percent.
Highlights
• One in two industrial equipment manufacturers (47 percent) anticipates an increase in capital expenditures.
• Automotive companies are least likely to increase CAPEX (15 percentage points below average).
• Plans to cut capital expenses are more often voiced by chemical companies (5 percentage points above average).
What changes do you expect in your company’s key performance metrics in the next 12 months?
Capital expenditure
Increase
No change
Decrease
36%
52%
12%
20%
52%
Capital expenditure
26
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Current state of the Russian manufacturing sector
Trend
• Two in three manufacturing companies (66 percent) feel the impact of developments in the Chinese manufacturing sector.
• One in four manufacturing companies (25 percent) buys products from China, and 13 percent supply their products to Chinese manufacturers.
• At the same time, almost a third of the manufacturing companies operating in Russia (28 percent) faces competition from China.
Highlights
• Chemical companies and industrial equipment manufacturers report competition from China more often than other companies (by 7 pp above average). Negative impact of improvements in the China’s manufacturing sector is most often cited by companies with over 5 thousand of staff (by 19 pp above average).
• However, around a third of chemical companies (35 percent) reported direct procurement from China.
How does the development of China’s manufacturing sector impact your company’s position in the Russian market and globally?
Impact of manufacturing sector’s development
IndustryRevenue share
of exportsNumber of staffRevenue in 2017
All
indu
stri
es28
%25
%13
%34
%
+10%
Ove
r RU
B 50
bill
ion
30%
34%
6%30
%
+10%
Met
als
and
met
al p
rodu
cts
29%
17%
17%
37%
+4%
Less
than
5%
28%
5%5%
62%
-18%
Indu
stri
al e
quip
men
t35
%18
%12
%35
%
-6%
Up
to 1
,000
peo
ple
32%
21%
13%
34%
+3%
Auto
mot
ive
22%
21%
14%
43%
+14%
5 to
25%
27%
36%
14%
23%
+23%
27%
Less
than
RU
B 10
bill
ion
14%
14%
45%
+1%
1,00
1 to
5,0
00 p
eopl
e5%
45%
10%
40%
+50%
Chem
ical
s35
%35
%12
%18
%
+12%
Ove
r 25%
29%
29%
18%
24%
+18%
RUB
10 to
50
billi
on26
%27
%27
%20
%
+27%
Ove
r 5,0
00 p
eopl
e47
%11
%16
%26
%
-21%
Positive impact (we have Chinese suppliers)
Positive impact (we have Chinese customers)
No impact (neutral)
Negative impact (we have Chinese competitors)
Net balance
25%
13%
34%
28%
27
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Current state of the Russian manufacturing sector
Trend
According to our respondents, the top three competitiveness drivers include higher domestic demand, lower production costs and higher production and technology capacities (32, 30 and 22 percent, respectively)
Higher staff qualifications and labor cost reduction were cited more often than last year (+9 and +5 percentage points, respectively).
Highlights
• Higher domestic demand (32 percent) Higher domestic demand is the most important driver for foreign companies, chemical companies and companies with revenue of less than RUB 10 billion (76, 55 and 39 percent, respectively).
• Lower production costs (30 percent) The need to reduce production costs represents a higher concern for industrial
equipment manufacturers and chemical industry (44 and 30 percent, respectively).
• Higher production and technology capacities (22 percent) Enhancement of production and technology capacities is the highest priority for companies with revenue of RUB 10 to 50 billion and chemical companies (33 and 32 percent, respectively).
• Extended product line (20 percent) Product line extension was rated higher by metals and metal product companies and automotive companies (6 and 7 percentage points above average).
• Lower staff costs (19 percent) We also noted that automotive companies rate lower staff costs as an important competitiveness driver (11 percentage points above average).
Select the top three drivers (in descending order) that could improve your company’s competitiveness in the Russian market.
+9 pp
+5 pp
–11 pp
–5 pp
Business competitiveness drivers
Higher domestic demand
Lower production costs (including energy costs)
Higher production and technology capacities (new facilities)
Extended product line
Marketing
Lower staff costs
Government support
Higher staff qualifications
32% 32%
19% 16%
30% 41%
19% 14%
22% 27%
18% 16%
20% 22%
20% 11%
2017 Changes year-on-year
2018
28
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Current state of the Russian manufacturing sector
Trend
Over a half of customers in the Russian manufacturing sector (54 percent) is represented by private companies (B2B).
State-owned companies, institutions and organizations (B2G) account for 24 percent of the customer portfolio.
A significant share of the manufacturers’ portfolio (22 percent) consists of B2C customers (individuals and dealerships), generally representing non-core operations.
Highlights
• Chemical companies and industrial equipment manufacturers have a stronger focus on the B2B-sector, which averages 62 percent of their customer portfolio.
• On the other hand, chemical companies have significantly fewer state orders, while industrial equipment manufacturers sell less products to private customers (8 and 10 percentage points below average, respectively).
• Foreign companies serve fewer state-owned companies and organizations (16 percent below average) but have as much as 38 percent of private customers.
• Companies with revenue of more than RUB 50 billion have a bigger share of public procurement customers as compared to smaller companies with revenue of less than RUB 10 billion (27 and 20 percent, respectively).
What was the structure of your customer portfolio in 2017?
Customer portfolio
Industry Revenue, 2017Company
All
indu
stri
es54
%22
%24
%
Less
than
RU
B 10
bill
ion
57%
23%
20%
Met
als
and
met
al p
rodu
cts
58%
18%
24%
RUB
10 to
50
billi
on47
%27
%25
%
Indu
stri
al e
quip
men
t62
%12
%26
%
Auto
mot
ive
41%
37%
21%
Ove
r RU
B 50
bill
ion
55%
18%
27%
54%
Russ
ian
21%
25%
Chem
ical
s62
%22
%16
%
Fore
ign
55%
38%
8%
Individuals and dealerships (B2C)
State-owned companies, institutions and organizations (B2G)
Private companies (B2B)
29
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Current state of the Russian manufacturing sector
Trend
• Three in four manufacturing companies (72 percent) have controls over supplier compliance with HSSE, human rights or similar requirements.
• A half of the companies surveyed (49 percent) include respective requirements in their standard supply contracts. Fourteen percent require that suppliers read the Supplier Code or similar internal regulations. Nine percent use other controls.
• However, almost a third of manufacturing companies in Russia (28 percent) do not have any controls over supplier compliance with HSSE, human rights or similar requirements.
Highlights
• Overall, metals and metal product companies implement HSSE supplier controls more often than other companies (15 percentage points above average).
• Chemical companies, on the other hand, have much softer supplier requirements. Half of them do not have any such controls at all.
• Larger companies and companies with a higher revenue share of exports tend to control supplier compliance with HSSE, human rights or similar requirements more often.
Do you have controls over supplier compliance with HSSE, human rights or similar requirements?
Sustainability
Standard supplier contract
Supplier Code
Other
No controls
Net balance
Yes
No
Industry Revenue share
of exportsRevenue in 2017A
ll in
dust
ries
+43%
Met
als
and
met
al p
rodu
cts
+58%
Auto
mot
ive
+43%
Chem
ical
s
0%
Indu
stri
al e
quip
men
t
+41%
Less
than
RU
B 10
bill
ion
+24%
RUB
10 to
50
billi
on
+47%
Ove
r RU
B 50
bill
ion
+60%5
to 2
5%+14%
5 to
25%
+43%
Ove
r 25%
+63%
49%
72%
28%
14%
9%
28%
63%
21%
8%8%
47%
29%
6%18
%
57%
29%
14%
49%
28%
9%14
%
22%
50%
7%21
%
45%
38%
14%
3%
53%
27%
13%
7%
50%
20%
3%27
%
38%
43%
14%
5%
48%
29%
14%
10%
56%
19%
3%22
%
30
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Current state of the Russian manufacturing sector
Trend
• Eighty-three percent of the companies that have implemented supplier HSSE and human rights controls perform supplier inspections/audits.
• However, only one in three companies (30 percent) inspect suppliers both before signing a contract and during the contract period.
• Twenty-three percent of the companies inspect suppliers only before a contract is signed, and 30 percent – only during the contract term.
• Seventeen percent do not control supplier compliance with the said requirements.
Highlights
• Industrial equipment manufacturers monitor supplier compliance with HSSE or similar requirements more closely than other companies (17 percentage points above average).
• A strong focus on supplier HSSE inspections is also demonstrated by larger companies with revenue of more than RUB 50 billion (+83 percent).
Do you perform supplier inspections/audits to verify compliance with HSSE, human rights or similar requirements?
Sustainability
Before contracting and over the contract term
Only before contracting
Only over the contract term
No inspections/audits
Net balance
Yes
No16
%21
%42
%21
%
50%
8%42
%
40%
20%
40%
All
indu
stri
es30
%17
%30
%23
%
+66%
Met
als
and
met
al p
rodu
cts
+58%
Auto
mot
ive
+60%
Chem
ical
s29
%14
%29
%29
%
+71%
Indu
stri
al e
quip
men
t
+83%
22%
Less
than
RU
B 10
bill
ion
28%
22%
28%
+44%
RUB
10 to
50
billi
on36
%18
%45
%
+64%
Ove
r RU
B 50
bill
ion
33%
8%50
%8%
+83%
Less
than
5%
33%
42%
8%17
%
+17%
5 to
25%
53%
7%20
%20
%+87%
Ove
r 25%
15%
12%
46%
27%
+77%
49%
14%
9%
28%
83%
17%
30%
23%
30%
17%
IndustryRevenue share
of exportsRevenue in 2017
An expert’s view"Company performance is directly linked to the stability of the supply chain. Many manufacturing industry players have already implemented supplier monitoring mechanisms to ensure responsible business conduct both prior to and after entering into contractual relations. We expect this practice to be introduced in many manufacturing companies and gradually become a corporate standard."Ivan KukhninDirector, Deloitte CIS
31
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Key development concerns in 2018
04
32
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Key development concerns in 2018
Trend
• The list of manufacturing businesses’ major concerns has not changed significantly from 2017. The key concerns include regulatory gaps, corruption and low purchasing power of the population.
• Notably, all of the top three concerns have been strengthening their positions for the second consecutive year.
• Moreover, lack of government support and financing gained 10 percentage points in the ranking as compared to 2018, which signifies growing expectations of the manufacturing sector.
Highlights
• Regulatory gaps (46 percent) Regulatory gaps are a concern for the majority of manufacturing companies in Russia, particularly foreign companies (92 percent).
• Corruption (40 percent) Corruption is seen as a key concern for companies with revenue of RUB 10 to 50 billion (9 percentage points above average).
Select the top three concerns (in descending order) faced by manufacturing companies in Russia today.
Most important problems faced by manufacturing companies
• Low purchasing power of the population Low purchasing power of the population represents a major concern for automotive companies (46 percent).
• Lack of government support and funding The need for stronger support and funding from the government was most often stated by industrial product manufacturers (41 percent).
• Geopolitical risks (21 percent) Geopolitical risks are seen as a key concern by chemical companies, companies with revenue of more than RUB 50 billion (40 and 35 percent, respectively).
• Low appeal for foreign investors (19 percent)Low appeal of the Russian manufacturing sector for foreign investors represents a higher-than-average concern for automotive companies (11 percentage points above average).
+6 pp
+10 pp
Regulatory gaps facing the industry (administrative, economic and other barriers)
Corruption
Low purchasing power of the population
Lack of government support and financing
Geopolitical risks (US and EU sanctions against Russia, embargoes etc.)
Low appeal for foreign investors
46% 44%
19% 17%
40% 34%
38% 35%
35% 25%
21% 19%
2017 Changes year-on-year
2018
33
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Key development concerns in 2018
Trend
• A third of the respondents (35 percent) pointed to rising production costs. However, this factor was rated 13 percentage points lower than two years ago due to stabilization of the ruble exchange rate during the period.
• Higher competitiveness abroad as a result of foreign currency transactions was selected twice as often as last year (31 percent).
• One fifth of the companies surveyed (22 percent) did not feel any impact of forex fluctuations.
• We noted that manufacturing companies in Russia reported a stronger interest from foreign investors (+6 percentage points as compared to 2016).
What was the key impact of fluctuations in the RUB exchange rate on your company’s operations in 2017?
Currency risks
Higher production costs due to rising costs of imported goods, work and services
Higher competitiveness abroad as a result of foreign currency transactions
No impact
Lower production costs
Higher competitiveness in Russia driven by higher costs of imported products
Stronger interest from foreign investors
35% 40% 48%
13% 9% 7%
31% 14% 33%
22% 24% 17%
18% 14% 25%
18% 15% 23%
-13 pp
-7 pp
-5 pp
+5 pp
+6 pp
2017 Changes over the past 2 years
2018 2016
Continued on the page 35
34
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Key development concerns in 2018
Highlights
• Rising production costs driven by rising prices for goods, work and services primarily affected automotive companies and smaller companies with revenue of less than RUB 10 billion (22 and 6 percentage points above average, respectively).
• Chemical companies felt an improvement of their competitive advantages both in Russia and abroad (11 and 22 percentage points above average, respectively).
• Companies with revenue of more than RUB 50 billion reported an improved completive advantage abroad and a stronger interest from foreign investors (30 and 11 percentage points above average, respectively).
Currency risks
Higher production costs due to rising costs of imported goods, work and services
Higher competitiveness abroad as a result of foreign currency transactions
No impact
Lower production costs
Higher competitiveness in Russia driven by higher costs of imported products
Stronger interest from foreign investors
35%
31%
22%
18%
18%
13%
25%
38%
38%
17%
8%
13%
57%
14%
21%
14%
14%
0%
29%
53%
18%
18%
29%
12%
35%
24%
12%
12%
29%
18%
41%
3%
45%
14%
7%
0%
33%
20%
13%
20%
27%
13%
30%
61%
6%
21%
24%
24%
All industries
Metals and metal products
Automotive
Chemicals
Industrial equipment
Less than RUB 10 billion
RUB 10 to 50 billion
Over RUB 50 billion
What was the key impact of fluctuations in the RUB exchange rate on your company’s operations in 2017?
35
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Key development concerns in 2018
Trend
• Two in five manufacturing companies (41 percent) would welcome strengthening of the Russian ruble against the average January-May 2018 level (RUB/USD = 58.8/1, RUB/EUR=71.1/1. A third of the respondents (29 percent) see a need for a significant appreciation of the Russian national currency (i.e. by more than 10 percent).
• At the same time, 23 percent would rather have a depreciation.
• As few as 17 percent of the respondents believed that the average RUB exchange rate for January-May 2018 was optimal for their business. Conversely, a fifth of the respondents (19 percent) would welcome a steady exchange rate because any fluctuations have a negative impact on their business.
Highlights
• The majority of foreign companies with operations in Russia (60 percent) would be interested in appreciation of the Russian ruble, while the remaining 40 percent would like to see no change.
• Companies with more than 5-percent revenue share of exports cited an interest in a depreciating ruble thrice as often as companies with a domestic focus.
• The same response was given by a third of chemical companies (35 percent), while the other two thirds (53 percent) would like the value of the Russian currency to increase.
• Automotive companies say they would benefit from ruble appreciation or no changes in the exchange rate (43 and 36 percent, respectively).
• Thirty-five percent of industrial equipment manufacturers think the average RUB exchange rate in January-May 2018 was optimal.
What RUB exchange rate change compared to the average level for January-May 2018 (RUB/USD = 58.8/1, RUB/EUR=71.1/1) would have a positive impact on your business?
Currency risks
Significant strengthening (>10%)
Minor strengthening (<10%)
No cnange (current exchange rate is optimal)
No change (we welcome a steady exchange rate, any changes would have a negative impact on our business)
Minor weakening (<10%)
Significant weakening (>10%)
41%
23%
36%
12%
29%
17%
19%
6%
17%
Strengthening
No change
Weakening
Weakening
Steady rate
Current rate
Strengthening
Net balance
IndustryRevenue share
of exportsCompany
29%
25%
21%
25%
29%
24%
12%
35%
43%
14%
36%
7%
All
indu
stri
es41
%23
%19
%17
%
+18%
Met
als
and
met
al p
rodu
cts
+4%
Auto
mot
ive
+29%
Chem
ical
s53
%35
%12
%
+18%
Indu
stri
al e
quip
men
t
+6%
39%
Russ
ian
25%
18%
18%
+14%
Fore
ign
60%
40%
+60%
Less
than
5%
48%
10%
29%
14%
+38%
5 to
25%
36%
32%
18%
14%
+5%
Ove
r 25%
38%
26%
15%
21%
+12%
36
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Key development concerns in 2018
Trend
The share of imported materials and supplies averages 30 percent, and the share of imported machinery and equipment – 44 percent.
This shows that manufacturing companies in Russia (even export-oriented manufacturers) are still heavily dependent on foreign imports and would therefore welcome a stronger Russian ruble.
Describe your company’s procurement mix for materials and supplies/machinery and equipment.
Share of imports in procurement
30%average share
of imports
Materials and supplies
44%average share
of imports
Machinery and equipment
Average share of imported materials and supplies
Average share of imported machinery and equipment
0%
1–25%
26–49%
50%
51–74%
75–99%
100%
0%
1–25%
26–49%
50%
51–74%
75–99%
100%
36%
18%
6%4%
9%
13%
13%
26%
14%6%
6%
22%
10%14%
Continued on the page 38
37
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Key development concerns in 2018
Highlights
• Metals and metal product companies reported a higher share of domestic materials and supplies and machinery and equipment (12 and 17 percentage points above average, respectively).
• Chemical companies, on the other hand, are highly dependent on imported equipment. The average share of imports for this group is 59 percent.
• Foreign companies with operations in Russia tend to purchase materials and supplies, as well as machinery and equipment, abroad. Their share of imports is almost twice as high as that of the companies based in Russia.
• A higher share of imports in procurement was recorded for larger companies with revenue of more than RUB 50 billion (4 and 7 percentage points above average for materials and supplies and machinery and equipment, respectively).
Share of imports in procurement
Machinery and equipmentMaterials and supplies
Describe your company’s mix of domestic and imported materials and supplies/machinery and equipment.
Industry Revenue in 2017Company
82%
18%
67%
33%
64%
36%
All
indu
stri
es70
%30
%
Met
als
and
met
al p
rodu
cts
Auto
mot
ive
Chem
ical
s35
%
Indu
stri
al e
quip
men
t
72%
Russ
ian
28%
Fore
ign
40%
60%
Less
than
RU
B 10
bill
ion
74%
26%
RUB
10 to
50
billi
on28
%
Ove
r RU
B 50
bill
ion
72%
34%
65%
66%
Industry Revenue in 2017Company
73%
27%
60%
40%
52%
48%
All
indu
stri
es56
%44
%
Met
als
and
met
al p
rodu
cts
Auto
mot
ive
Chem
ical
s59
%
Indu
stri
al e
quip
men
t
58%
Russ
ian
42%
Fore
ign
26%
74%
Less
than
RU
B 10
bill
ion
57%
43%
RUB
10 to
50
billi
on31
%
Ove
r RU
B 50
bill
ion
69%
51%
41%
49%
Imported
Domestic
38
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Key development concerns in 2018
Trend
• Materials and supplies are mainly imported from the Eurasian Economic Union (EEU) and the European Union (EU) (9 percent each).
Describe your procurement geography for materials and supplies/machinery and equipment.
Procurement geography
Highlights
• Industrial equipment manufacturers reported a much higher share of materials and supplies imported from the EEU.
• Chemical companies generally tend to purchase less materials and supplies from the EEU and more materials and supplies from the EU (7 percentage points below average and 8 percentage points above average, respectively). In addition, chemical companies reported more machinery and equipment purchases from the EU (9 percentage points above average).
• Automotive companies have a higher share of purchases from non-BRICS Asian countries (8 and 6 percentage points above average for materials and supplies and machinery and equipment, respectively).
• Metals and metal product companies tend to make fewer equipment purchases in the EU (8 percentage points below average).
• The EU countries account for a significantly higher share of imported machinery and equipment (18 percent), while the share of EEU and BRICS is only 8 and 6 percent, respectively.
• The North America countries account for only 1 percent.
Russia EEU Other CIS countries EU BRICS Other Asian
countriesNorth
AmericaOther
countries
Materials and supplies
Total 70% 9% 4% 9% 4% 4% 1% 0%
Metals and metal products 82% 6% 4% 4% 3% 0% 0% 0%
Automotive 64% 8% 3% 11% 2% 12% 0% 0%
Chemicals 65% 2% 8% 17% 2% 4% 1% 0%
Industrial equipment 67% 16% 3% 5% 6% 2% 0% 1%
Machinery and equipment
Total 56% 8% 2% 18% 6% 4% 1% 2%
Metals and metal products 73% 8% 2% 10% 2% 3% 0% 1%
Automotive 52% 6% 2% 17% 8% 10% 2% 4%
Chemicals 41% 14% 1% 27% 8% 6% 3% 0%
Industrial equipment 60% 7% 0% 21% 9% 2% 1% 0%
39
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Key development concerns in 2018
Trend
• Our respondents were highly satisfied with the current number of their top managers and administrative staff – positive assessments outweighed negative ones by +56 percent. However, they are significantly less satisfied with their qualifications: positive assessments amounted to +27 и +36 percent, respectively.
• Level of satisfaction with the current number and qualifications of production and optimization staff is much lower, standing at +38 and +19 percent, respectively.
• Overall, respondents tend to be more satisfied with their current staff numbers and to cite concerns about staff qualifications. This is especially true for the automation professionals: 28 percent of the respondents are not satisfied with the current qualifications of their automation staff.
Highlights
• Higher levels of satisfaction with talent qualifications were reported by metals and metal product companies, while automotive companies and industrial equipment manufacturers demonstrated the opposite trend. This particularly applies to the ranking of top managers and optimization staff (20 percentage points below average).
• Industrial equipment manufacturers voiced slightly lower satisfaction with the current number of their staff (9 percentage points below average).
• Automotive companies more often pointed to insufficient numbers and qualifications of their optimization staff (15-20 percentage points above average).
Rate your current talent pool by the number of staff and their qualifications, on a scale of one to five.
Sufficient Rather sufficient Satisfactory
Rather insufficient Insufficient
Net balance
Access to talent
Top managers
Num
ber o
f sta
ff
Qua
lific
atio
ns
+56%
36%
44%
2%
4%
30%
12%
3%
14%
26%
+27%
29%
4 pp 8 pp
Num
ber o
f sta
ff
Qua
lific
atio
ns
Production staff
+38%
35%
42%
4%
10%
9%
23%
29%
12%
10%
26%
+25%
2 pp 9 pp
Num
ber o
f sta
ff
Qua
lific
atio
ns
Optimization staff
+19%
41%
7% 11%
16% 10%
20%16%
19%
22%
+14%
38%
7 pp 5 pp
Administrative staffN
umbe
r of s
taff
Qua
lific
atio
ns
+56%
35% 36%
2%
3%
30%
17%
3%
13%
31%
+36%
30%
1 pp 10 pp Changes year-on-year
40
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Business management in the current market environment
05
41
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Business management in the current market environment
Trend
• Overall, expansion into new markets and launch of new products are the most popular business strategies for the manufacturing businesses surveyed (77 and 76 percent, respectively).
• Cost reduction in Russia, increase of exports and talent investment gained traction as compared to 2017 (+9, +7 and +6 percentage points, respectively).
Highlights
• Chemical companies place higher importance on new product launches (15 percentage points above average).
• Business development through organic growth is a top priority strategy for companies with revenue of more than RUB 50 billion, companies with more than 5,000 staff and metals and metal product companies (10, 20 and 8 percentage points above average, respectively).
• Cost reduction in Russia is generally more popular among chemical companies (20 percentage points above average).
• Higher production and technology capacities is the preferred business strategy for companies with more than 5,000 staff (20 percentage points above average).
Assess the priority of the following business strategies for your company in 2018.
Expansion into new markets
New product launches
Phase out of imported products
Higher production and technology capacities (new facilities, higher output)
Cost reduction in Russia
Increase of exports
Talent investments
Organic growth
77% 81%
76% 77%
62% 66%
62% 53%
72% 72%
60% 53%
59% 53%
68% 68%
+6 pp
+7 pp
+9 pp
Business strategies for 2018
2017 Changes year-on-year
2018
An expert’s view"Despite positive outlook and production growth, the chemical industry faces certain problems including the need for import substitution with respect to the equipment used, a disproportionately high share of low value-added products, strong competition on the part of Chinese producers, low automation of production processes, and limited access to innovations. In order to resolve these problems, chemical companies need to significantly increase the investment activity."Yulia OrlovaPartner, Deloitte CIS
42
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Business management in the current market environment
Business strategy map
• Having performed in-depth data analysis, we prepared a strategy map showing strategic areas of business development based on the market position and financial outlook.
• As you can see on the map, the companies in the unfavorable zone (i.e. companies anticipating a decline in operating profits and market position) place much higher importance on downsizing their production facilities.
• Leadership strategies in the manufacturing sector include: – New production facilities and higher production and technology capacities
– Increase of exports – Talent investment – Strategic partnerships (a joint venture with a foreign partner)
– External funding
Assess the priority of the following business strategies for your company in 2018.
Business strategies for 2018
Operating profit growth
Decline in operating profit
Medium risk zone:
companies anticipate a growth of operating profits and a decline in the market position
Unfavorable zone:
companies anticipate a decline in operating profit and market position
Favorable zone:
companies expect a growth of operating profits
and an improvement of the market position
Medium risk zone:
companies anticipate a decline in operating
profit and an improvement in the market position
Decline in the market position
Improvement of the market
position
Constructing new production
facilities in Russia
Joint ventures
Horizontal integration
Vertical integration
Spin-off and/or sale of non-core assets
Expansion into new markets
Imports phase-out
Higher production and technology
capacities
Downsizing of production
capacities
Currency risk hedges
External funding
Cost reduction in Russia
Reducing the share of imported materials and equipment
Increase of exports
Increasing the cost of finished products
Organic growth
New product launches
Talent investments
Review of procurement
strategies
43
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Business management in the current market environment
As noted above, export expansion is a priority business strategy for manufacturing companies in Russia. We asked the respondents focusing on this strategy to assess the importance of different export markets for their company.
Assess the priority of the following export markets for your company in 2018-2019.
Business strategies for 2018
Highlights
• Automotive companies named non-BRICS Asian countries as their top priority market for expansion (+44 percent), while all other markets were rated significantly below the average for the Russian manufacturing sector.
• Conversely, chemical companies favor basically all of the markets (including the North America countries with the balance of +25 percent).
• Industrial equipment manufacturers are more focused on the EEU (+67 percent) and other CIS countries (+27 percent).
North America Other CIS countries BRICS Other Asian countries EU EEU
Total +6% +18% +19% +22% +30% +40%
Metals and metal products +6% +16% +19% +9% +28% +34%
Automotive -6% -6% 0% +44% +22% 0%
Chemicals +25% +25% +35% +15% +60% +45%
Industrial equipment +3% +27% +13% +17% +13% +67%
Priority market Non-priority market
Net balance* * Balance: [weighted share of respondents finding the market attractive – weighted share of respondents finding the market unattractive]
Trend
• The Customs Union was rated as the most important market for expansion, followed closely by the EU (the balance is +40 and +30 percent, respectively).
• Non-EEU CIS countries, BRICS countries and other Asian countries have a roughly similar balance of +18 to +22 percent.
• As for North America, respondents were divided nearly equally, with 54 percent finding the market attractive, and 46 percent – unattractive.
Nor
th A
mer
ica
54%
46%
63%
37%
67%
33%
69%
31%
70%
30%
78%
22%
CIS
(oth
er th
an E
EU c
ount
ries
)
BRI
CS
Oth
er A
sian
cou
ntri
es EU EEU
+6% +18% +19% +22% +30% +40%
44
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Business management in the current market environment
How do you think your company’s average number of staff and salary level will change in 2018?
Economic expectations: HR strategies
Trend
The majority of companies do not anticipate changes in the number of their staff. A minor increase is expected only for production staff (by an average of 3 percent).
Similarly, the respondents do not anticipate significant changes in the average salary. The most significant salary increase (4 percent on average) will occur for top managers.
Highlights
• The highest salary increases averaging 4.3 percent are planned by companies with revenue of more than RUB 50 billion, primarily for top managers whose salaries will grow by 5.6 percent.
• Industrial equipment manufacturers intend to raise production staff salaries by 4 percent.
• Chemical companies anticipate a 5 percent staff expansion.
• Industrial equipment manufacturers plan to increase the number of optimization staff by an average of 3.1 percent.
Top
man
ager
s
77%
4%3%7%6%1%
2%
62%
Adm
inis
trat
ive
staf
f
4%13%
13%3%3%
2%
Prod
uctio
n st
aff
42%
7%
36%
6%3%2%
4%
Opt
imiz
atio
n st
aff
55%
4%28%
4%2%4%
3%
-0.3%
3.2%
0.9%–0.3%
Staff changes Salary changes
To
p m
anag
ers
46%
15%
25%
1%3%3%
7%
45%
Adm
inis
trat
ive
staf
f
4%42%
2%3%4%
Prod
uctio
n st
aff
45%
10%
32%
3%2%4%
4%
Opt
imiz
atio
n st
aff
59%
10%
25%
6%
4.1%
2.8%
1.3%
1.6%
20 pp+ increase 11-20 pp increase 1-10 pp increase 1-10 pp decrease 11-20 pp decrease 20pp+ decrease No change Integral value
45
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Business management in the current market environment
Has your company implemented or does it plan to implement the following staff cost optimization strategies?
Staff cost optimization
Trend
• Almost a half of the companies surveyed (46 percent) optimized their staff costs in 2017, with 36 percent using staff cuts and 19 percent – salary cuts. Hidden optimization options such as a shorter working week and unpaid leave were reported by 14 percent of the respondents each.
• In 1H 2018, the share of companies optimizing their staff costs declined to 38 percent, and only 25 percent plan such optimization in 2H 2018.
• One in four companies (25 percent) cut their staff in 1H 2018 and 13 percent intend to do that in 2H 2018.
• Salary cuts were used by 17 percent of the companies in 1H 2018 and anticipated by 14 percent in 2H 2018.
• This year, hidden optimization methods will still be favored by 9-12 percent of the manufacturing companies.
Highlights
• In 2017, one in two automotive companies (50 percent) cut their staff and almost a third of them (29 percent) cut the average salary. One in five companies (21 percent) introduced a shorter working week or unpaid leaves. Staff cutting will remain the main optimization strategy in 2018, but will be used by a significantly lower share of automotive companies (43 percent in 1H 2018 versus 21 percent in 2H 2018).
• One in three chemical companies (33 percent) resorted to unpaid leave or staff cuts in 2017. In 2018, the use of these strategies decreased twofold (17 percent of companies).
2017 1H 2018 2H 2018
The share of the companies that have optimized/plan to optimize their staff costs
46% 38% 25%
Optimization strategies
Staff cuts 36% 25% 13%
Salary cuts 19% 17% 14%
Shorter working week + proportional salary cuts
14% 9% 9%
Unpaid leave 14% 12% 10%
46
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Business management in the current market environment
Has your company made or does it plan to make any changes to its supplier strategy?
Supplier strategies
Trend
• Every third respondent (35 percent) reported changes in the corporate supplier strategy in 2017. Another 44 percent anticipate such changes in 2018.
• In 2017, the most popular supplier strategies included the expansion of the supplier network (52 percent) and changes to the supplier mix without increasing the number of suppliers (33 percent). These strategies will retain their relevance in the foreseeable future.
We made changes in 2017
We made changes in 2017
65%
35%
56%
44%
We plan changes in 2018
We do not plan any changes in 2018
Highlights
• Expansion of the supplier network was the most favored strategy for chemical industry in 2017 (67 percent), and is most likely to be pursued in 2018 (23 percentage points above average).
• Changes to the supplier mix without changing the total number of suppliers were more often practiced by industrial equipment manufacturers (75 percent).
• In 2017, reduction of the supplier network was particularly popular among automotive companies and companies with less than 5,000 staff (17 and 25 percent, respectively). Moreover, these companies intend to pursue this strategy further.
Expansion of the supplier network
Changes to the supplier mix without increasing the number of suppliers
Reduction of the current number of suppliers + engaging new suppliers
Cutting the number of suppliers without changing the supplier mix
We plan to change our supplier policies but the direction for change has not been set yet
52% 44%
33% 35%
11% 6%
4% 3%
0% 12%
We changed our supplier strategy in 2017
We plan to change our supplier strategy in 2018
47
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Business management in the current market environment
Do you anticipate any changes in the share of imported materials and supplies/ machinery and equipment over the next 12 months?
Supplier strategies
Trend
• Forty-one percent of the companies intend to increase a share of imported materials and supplies.
• A third of the companies (31 percent) plan to import more machinery and equipment.
• However, a large proportion of the companies surveyed will not be increasing a share of imports neither for materials and supplies (33 percent) nor for machinery and equipment (47 percent).
Highlights
• Metals and metal product companies and companies with revenues of more than RUB 50 billion are the most likely to import more materials and supplies. They reported this intent 14 and 13 percentage points more often than the sector on average.
• Higher share of imports for machinery and equipment was primarily cited by metal and metal products companies (7 percentage points above average) and companies with a 5 to 25 percent revenue share of exports and less than 1 thousand of staff (19 percentage points above average).
Materials and supplies Machinery and equipment
We plan a significant increase in imports (more than 10%)
We plan a minor increase in imports (less than 10%)
We do not plan any changes in imports
We plan a minor reduction in imports (less than 10%)
We plan a significant reduction in imports (more than 10%)
+2 ppchange of the import share 23%
20%
6%18%
33%
0 ppchange of the import share
16%4%
18%15%
47%
48
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Business management in the current market environment
How did your company’s customer mix change over the first half of 2018?
Customer portfolio management
Trend
• Overall, 1H 2018 saw revisiting of manufacturing customer portfolios and focus shifting towards the B2B segment (+12 percent*), which was largely due to a decrease in the share of state orders (-9 percent*).
• In addition, the manufacturing sector in Russia generally experienced a slight decrease in the share of customers with adverse financial situation (-5 percent*).
Highlights
• Contrary to the general pattern, automotive companies reported no changes in the share of the B2B segment, accompanied by a minor increase in the share of the B2С segment (+2 percent*) driven by a decline in state orders.
• In contrast, industrial equipment manufacturers reported a slight increase in the share of state orders in the B2B segment (+3 percent*).
• Metals and metal product companies achieved the greatest reduction in the share of customers with adverse financial situation (-5 percent*).
• At the same time, automotive and chemical companies grew the share of customers with low payment capacity by 3 and 1 percent, respectively.
B2B
B2G
B2C
+12%
-9%
-3%
+5%
-5%
Customers with favorable financial
situation
Customers with adverse financial
situation
Changes in customer portfolio*
Customers by segment Customers by payment capacity
B2B B2G B2C Adverse fin. situation Favorable fin. situation
Total +12% -9% -3% -5% +5%
Metals and metal products +7% -3% -4% -5% +5%
Automotive 0% -2% +2% +3% -3%
Chemicals +6% -7% +1% +1% -1%
Industrial equipment -3% +3% 0% -1% +1%
* Balance: [weighted share of companies with increased share of the selected customer category – weighted share of companies with reduced share of the selected customer category]
49
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Business management in the current market environment
What is your view on the changes in your company’s performance as compared to the situation a year ago ( June 2017)?
Production and sales
Trend
• During the year from July 2017 to June 2018, a half of the companies increased their production and sales volumes (the balance is +26 and +28 percent, respectively)
• The average level of leftover stock remained basically the same (the balance is +2 percent).
• At the same time, there was an average increase in past due trade receivables (the balance is +14 percent).
Highlights
• A decrease in production and sales and a reduction in leftover stock was mainly reported by automotive companies (-14, -2 and -26 percent, respectively).
• Chemical companies have managed to significantly increase their production and sales over the past year (+61 and +57 percent, respectively).
• An increase in past due trade receivables was recorded by industrial equipment manufacturers and chemical companies (+27 and +26 percent, respectively).
Changes in production and sales over the last 12 months
Significant increase Increase Decrease Significant decrease No change Net balance*
Prod
uctio
n
30%
3%17%
43%7%
33%
4%13%
43%7%
Sale
s
Left
over
sto
ck
43%
4%23%
26%4%
Past
due
trad
e re
ceiv
able
s
46%
6%13%
29%
7%
+26%
+2%
+14%
+28%
Production Sales Leftover stock Past due trade receivables
Total +26% +28% +2% +14%
Metals and metal products +28% +22% +11% -1%
Automotive -14% -2% -26% +2%
Chemicals +61% +57% +16% +26%
Industrial equipment +28% +33% +9% +27%
* Net balance: [weighted share of companies reporting an increase – weighted share of companies reporting a decrease]
50
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Business management in the current market environment
Trend
• Overall, manufacturing businesses share positive sentiment towards their production and sales over the next 12 months. Respondents generally expect an increase in production and sales accompanied by steady leftover levels, as well as lower past due trade receivables (the balance of respondents is +41, +47, -3 and -10 percent, respectively).
• Given this improvement in sentiment as compared to 2017, we can assume that manufacturing businesses are currently enjoying a rather good production and sales situation.
Highlights
• After a decline in expectations cited last year, automotive companies predict an improvement in both production and sales (the balance of respondents is +29 and 32 percent, respectively).
• Metals and metal product companies expect a higher growth for sales (+50 percent) rather than production (+32 percent) and, accordingly, anticipate a decrease in their leftover stock (-14 percent).
• Chemical companies generally expect an increase in production and sales over the next year (+61 percent each). At the same time, they do not anticipate a decrease in past due trade receivables in the foreseeable future. As a reminder, this group more often reported an increase in past due trade receivables over the preceding year.
What changes in your company’s performance do you anticipate over the next 12 months (through June 2019)?
Production and sales forecasts
Changes in production and sales anticipated over the next 12 months
Significant increase Increase Decrease Significant decrease No change Net balance*
Production Sales Leftover stock Past due trade receivables
Total +41% +47% -3% -10%
Metals and metal products +32% +50% -14% -14%
Automotive +29% +32% -9% -13%
Chemicals +61% +61% +10% +2%
Industrial equipment +41% +36% +11% -12%
* Net balance: [weighted share of companies anticipating an increase – weighted share of companies anticipating a decrease]
Prod
uctio
n
23%
4%10%
54%9%
27%
3%7%
51%11%
Sale
s
Left
over
sto
ck
44%
6%23%
24%3%
Past
due
trad
e re
ceiv
able
s
43%
7%27%
17%6%
+41% -3%
-10%
+47%
51
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Sources of capital
06
52
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Sources of capital
Highlights
• Chemical companies and industrial equipment manufacturers report a foreign investment experience more frequently (75 and 76 percent, respectively). Out of this number, 76 percent of the chemical companies and only 54 percent of the industrial equipment manufacturers noted a positive impact of foreign investments.
Trend
• Of the companies surveyed, 69 percent have plans to raise external investments.
• Over a half of the companies (61 percent) plan to raise private investment in Russia.
• A year ago manufacturing businesses had the highest demand for government funding. In 2018, only 39 percent plan to use this source of capital (down 18 percentage points from 2017).
• Forty-one percent will seek foreign investments.
• Notably, sixty-one percent of the companies already have experience in raising foreign investments, with 52 percent reporting their positive non-financial impact. However, that impact was noted less often than a year ago (-11 percentage points).
Do you plan to raise funds from external sources to support and develop your business?
Do you have experience in raising foreign investment? If yes, how would you assess its non-financial impact?
External sources of finance
Yes
No
61%
39%
2018
52% 63%Positive impact
43% 37%Indefinite impact
5% 0%Negative impact
2017
Yes No Net
balance
Priv
ate
Russ
ian
inve
stm
ents
Fore
ign
inve
stm
ents
Russ
ian
gove
rnm
ent
inve
stm
ents
61%
39%
39%
61%
41%
59%
+22% -22% -19%
0%
Continued on the page 54
53
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Sources of capital
Highlights
• Chemical companies plan to use external sources of capital more often than other companies. They also lead in terms of plans for foreign investments (by 17 percentage points).
• External funding is the most attractive source for larger companies with revenue of more than RUB 50 billion and companies with a revenue share of exports over 25 percent. This is particularly true for foreign investments (21 and 18 percentage points above average, respectively).
• Automotive companies (-19 percentage points above average) and foreign companies are the most reluctant to raise external investments.
Do you plan to raise funds from external sources to support and develop your business?
Net balance for foreign investment Net balance for Russian government investment Net balance for Russian private investment
41%
39%
38%
43%
17%
17%
35%
41%
10%
19%
31%
38%
55%
58%
29%
21%
50%
43%
35%
30%
29%
14%
42%
39%
48%
33%
58%
42%
62%
62%
58%
58%
29%
26%
20%
40%
59%
59%
Industry Share of exports Number of staff StrategyCompany Revenue
Foreign investment Russian government investment Russian private investment
All
indu
stri
es
Chem
ical
s
Ove
r RU
B 50
bill
ion
Ove
r 26%
Fore
ign
com
pani
es
Met
als
and
met
al p
rodu
cts
Less
than
RU
B 10
bill
ion
Indu
stri
al e
quip
men
t
Less
than
5%
Less
than
1,0
00 p
eopl
e
1,00
1 to
5,0
00 p
eopl
e
Ove
r 5,0
00 p
eopl
e
1–2
year
s
3–5
year
s
Ove
r 5 y
ears
Auto
mot
ive
RUB
10 to
50
billi
on
5 to
25%
Russ
ian
com
pani
es
61%
+22%-22%-19%
57%
+14%-14%-24%
45%
-10%-66%-66%
65%
+29%-18%-29%
43%
-14%-62%-81%
69%
+38%-23%-38%
68%
+35%+16%+10%
43%
-14%-57%-43%
79%
+57%-14%0%
57%
+14%-41%-30%
43%
-14%-71%-43%
64%
+28%-22%-16%
62%
+24%-33%-5%
67%
+33%-17%17%
69%
+38%+23%+23%
63%
+26%+16%+16%
58%
+16%-48%-42%
20%
-60%-20%-60%
74%
+48%+19%+19%
External sources of finance
54
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Sources of capital
Trend
Loan refinancing is an important tool for two in three manufacturing companies surveyed (61 percent). Net balance has remained roughly the same over the past three years, amounting to +16 percent in 2018.
Highlights
Loan refinancing has the highest relevance for industrial equipment manufacturers (the net balance is +38 percent).
Overall, higher relevance of refinancing was indicated by companies with revenue of more than RUB 50 billion, companies with a revenue share of exports over 25 percent and companies with 1,000-5,000 staff (+31, +28 and +42 percent, respectively).
How relevant is loan refinancing to your business?
Irrelevant Relevant
Net balance
30%
43%
32%30%
22%29%
27%20%
20%
13%15% 19%
Irrelevant Rather irrelevant Rather relevant Relevant
Net balance
2016
2017
2018
0%
Loan refinancing
+18% +18% +16%
All
indu
stri
es
Chem
ical
s
Ove
r RU
B 50
bill
ion
Ove
r 26%
Fore
ign
Met
als
and
met
al p
rodu
cts
Less
than
RU
B 10
bill
ion
Indu
stri
al e
quip
men
t
Less
than
5%
Up
to 1
,000
peo
ple
1,00
1 to
5,0
00 p
eopl
e
Ove
r 5,0
00 p
eopl
e
Auto
mot
ive
RUB
10 to
50
billi
on
5 to
25%
Russ
ian
61%
39%
62%
38%
43%
57%
50%
50%
63%
37%
40%
60%
52%
48%
57%
43%
73%
27%
52%
48%
57%
43%
70%
30%
51%
49%
84%
16%
54%
46%
+16% +14% +38% 0% +28% +15%-11% +19% +2% +3%+21%-4% -20% +14% +42%+31%
71%
29%
IndustryRevenue share
of exportsNumber of staffCompany Revenue in 2017
55
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Sources of capital
Trend
• As in 2017, manufacturing companies generally prefer to fund their business internally (the balance of respondents is +48 percent).
• Strategic partnerships and borrowing from banks in Russia rank second and third, with +27 and +21 percent, respectively.
• Public funding takes the fourth place (+17 percent), having lost its appeal over the past year (-30 percentage points).
• Manufacturing companies in Russia show low interest in securities issues (-18 and -13 percent for shares and bonds, respectively).
• Borrowing from investment funds is perceived as the least attractive source of capital, with the balance of -25 percent.
Assess the appeal of the following sources of capital for your company.
Internal sources
Strategic partnerships
Borrowing from banks abroad
Borrowing from investment funds
Borrowing from banks in Russia
Issuance of bonds
Public funding
Issuance of shares
+48%
+27%
-2%
-18%
-13%
-25%
+21%
+17%
The appeal of various sources of capital
(The percentage values above represent the balance of respondents: the share of respondents finding the source appealing minus the share of respondents finding the source unappealing)
Continued on the page 57
56
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Sources of capital
Highlights
• Chemical companies demonstrate the highest interest in public funding (+46 percent). At the same time, they gave high rankings to borrowing from banks abroad (+21 percent).
• Government funding is also a much more attractive source of financing for automotive companies than for other industries.
• Borrowing from banks in Russia is viewed as the most appealing funding source for manufacturing companies. The balance for this option is +47 percent – twice above the average.
Assess the appeal of the following sources of capital for your company.
All other sources of capital that we considered are not shown on the chart since there are no significant differences for the areas under review.
All industries
Industrial equipment
Metal products
Automotive Chemicals
Borrowing from banks in Russia Public funding Borrowing from banks abroad Borrowing from investment funds
The appeal of various sources of capital
+21%
-2%
-25%
+17%
+29%
-5%-21%
+10%
-7%
-39%
-54%
+18%
+4%
+21%
-8%
+46%
+47%
+6%
-41%
+9%
Continued on the page 58
57
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Sources of capital
Highlights
Chemical companies demonstrate the highest interest in public funding (+46 percent). At the same time, they gave high rankings to borrowing from banks abroad (+21 percent).
Assess the appeal of the following sources of capital for your company.
The appeal of various sources of capital
Internal sources Public funding Strategic partnerships Borrowing from banks in Russia Borrowing from banks abroad Issuance of shares Issuance of bonds Borrowing from investment funds
Borrowing from banks in Russia is viewed as the most appealing funding source for manufacturing companies. The balance for this option is +47 percent – twice above the average.
All companies
Less than RUB 10 billion
RUB 10-50 billion
Over RUB 50 billion
-25%
-6%
-29%
-3%
-2%
+63%
-18%
-41%
-13%
+2%
-11%
-17%
-18%
+27%
+57%
-21%
+48%
+38%
+75%
-55%
+21%
+23%
+14%
-40%
+17%
+42%
+32%
+29%
+27%
+33%
+19%
58
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Government support for Russian manufacturing
07
59
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Government support for Russian manufacturing
Trend
• Over the past year, the sector’s overall assessment of the government’s efficiency decreased by 0.1 points and totaled 1.6 on a scale of 0 to 3, indicating average satisfaction of the business with the government’s efforts.
• However, almost a half of the respondents (55 percent and +9 percentage points YoY) rated the efficiency of government support below average. Only 10 percent of the respondents rated the government’s efforts as highly efficient.
Highlights
• Chemical companies, companies with revenue of more than RUB 50 billion and companies with a revenue share of exports over 25 percent assigned the highest rates to government support for manufacturing businesses (the integral score is 1.8).
• Notably, the share of respondents recognizing high efficiency of the government’s support increased by 19 percentage points for the chemical industry.
• Companies with higher revenues and number of staff and companies with a higher revenue share of exports are inclined to rate the government’s efficiency higher than other companies.
Assess the overall efficiency of the Russian government in supporting and developing the national manufacturing sector.
High efficiency Average efficiency Low efficiency
Integral value
The state’s efficiency in supporting and developing the sector
50%
27%
All
indu
stri
es
Chem
ical
s
Ove
r RU
B 50
bill
ion
Ove
r 25
%
Fore
ign
Met
als
and
met
al p
rodu
cts
Less
than
RU
B 10
bill
ion
Indu
stri
al e
quip
men
t
Less
than
5%
Up
to 1
,000
peo
ple
1,00
1 to
5,0
00 p
eopl
e
Mor
e th
an 5
,000
peo
ple
Auto
mot
ive
RUB
10 to
50
billi
on
5 to
25%
Russ
ian
55%
35%
10%
43%
48%
9%
64%
29%
7%
46%
27%
54%
35%
11%
60%
40%
76%
17%
7%
50%
36%
14%
32%
56%
12%
71%
24%
5%
65%
25%
10%
33%
15%
62%
27%
42%
53%
11%
33%
5%
1,6 1,7 1,4 1,3 1,8 1,71,4 1,6 1,3 1,51,61,8 1,4 1,5 1,61,8
65%
29%
6%
IndustryRevenue share
of exports Number of staffCompany Revenue, 2017
52%
17%
60
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Government support for Russian manufacturing
+15%
+17%
Trend
• Neutral impact of government support was cited by the respondents and followed by a significant decline in most of the corporate metrics is a key trend for this year.
• Our respondents give the highest rating to government support of innovation, current OHS policies and protection of intellectual property (+15, +14 and +13 percent, respectively).
• There is a significant drop in the perception of the public procurement qualification criteria and direct investment policies (-16 and -14 percent YoY, respectively). Inflation control policies and trade policies were also rerated downwards (-13 and -14 percentage points YoY, respectively).
• The most negative perception was cited for the current energy policies (-22 percent) and industry taxes (-15 percent).
What is the impact of the following government support initiatives on your business?
Innovation support
OHS policies
Subsidy policies
Direct investment policies
Taxation of foreign sourced income
Intellectual property protection
Immigration policies
Public procurement qualification criteria
Antimonopoly policies
Non-financial disclosure policies (public non-financial reports)
Inflation control
2018 2017
+7% +8%
+5% +10%
+4% -3%
+2%
+2% -8%
+1%
+1%
-4% +10%
-6% +1%
-8% 0%
-15% -21%
-22% -25%
-1% +12%
+15% +26%
+14% +18%
+13% +16%
–11 pp
–14 pp
+10 pp
–16 pp
–13 pp
–14 pp
Impact of government support on the Russian manufacturing sector
(The percentage values above represent the balance of respondents: the share of respondents reporting a positive impact minus the share of respondents reporting a negative impact)
Highlights
• Larger companies with revenue of more than RUB 50 billion, revenue share of exports over 25 percent and over 5,000 staff tend to give the highest rating to most of the government’s support initiatives.
• Industrial equipment manufacturers cite positive views about Bank of Russia’s monetary policy (20 percentage points above average).
• Chemical companies are satisfied with the government’s policies for non-financial disclosures (12 percentage points above average).
• Automotive companies appreciate government subsidies (6 percentage points above average).
Trade policies
Environmental policies
CBR’s monetary policies
Industry taxes
Energy policies (cost of energy)
61
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Government support for Russian manufacturing
Trend
• Most manufacturers (28 percent) prefer tax and other financial benefits.
• Public contracts lost some of their appeal as compared to the previous year (-13 percentage points) but still remain among the most popular government support tools.
• During the year, the priority of higher education investments increased significantly (+9 percentage points), which indicates a rise in business concerns management training.
What form of government support would be the best for your company? Highlights
• Chemical companies place more importance on higher education and physical infrastructure investments (8 and 14 percentage points above average, respectively).
• Investments in physical infrastructure have the most appeal for companies with revenue of more than RUB 50 billion, companies with a revenue share of exports over 25 percent and companies with over 5,000 staff (7, 6 and 12 percentage points above average, respectively).
• Companies with revenues of less than RUB 10 billion and companies with a revenue share of exports below 5 percent are primarily interested in public contracts (15 and 10 percentage points above average).
Priority government support tools
–13 pp
+9 pp
Tax and other financial benefits (subsidized interest rates for loans from commercial banks, government guarantees for loans from commercial banks
Public contracts
Physical infrastructure investments
Vocational education investments (training of skilled workers)
Higher education investments (management training)
Grants and subsidies
28% 26%
10% 11%
19% 32%
13% 12%
10% 10%
10% 1%
2018 2017
62
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Innovation and digitalization
08
63
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Innovation and digitalization
Trend
In 2017, innovation costs averaged 9.5 percent of revenue. In 2018-2019, manufacturing businesses plan to increase their innovation spend to 10 percent of revenue.
One in ten companies reported innovation costs totaling more than 20 percent of revenue.
Average R&D and innovation investments in the Russian manufacturing sector (% of revenue)
Highlights
In 2018-2019, average innovation spend for chemical industry will be around 12 percent of revenue, which is 1-3 percentage points higher than for any other industry.
Indicate the level of your innovation costs for 2017 and 2018-2018 (as a percentage of revenue).
Costs
2018–2019
Over 20% 10% 10%
16 to 20% 10% 9%
11 to 15% 19% 16%
Less than 5% 24% 28%
5 to 10% 37% 37%
2017
10.0% 9.5%in 2018-2019 in 2017
64
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Innovation and digitalization
Types and format of innovation activities
Trend
• Purchase of advanced equipment and machinery remains the key innovation activity for ca. 60 percent of the companies both in 2017 and in the foreseeable future.
• This is followed by advanced technology and innovation training for staff (53-54 percent) and R&D (44-47 percent).
• In 2018-2019, manufacturing companies plan to buy patent rights and licenses twice as often as in 2017 (29 percent versus 15 percent).
• R&D, technology purchases and process digitalization have been strong trends since 2016.
Highlights
• In 2017, chemical companies and industrial equipment manufacturers engaged in R&D more frequently than other companies in the manufacturing sector (20 percentage points above average).
• Industrial equipment manufacturers led the way in terms of advanced equipment purchases and advanced technology training for staff (17 and 12 percentage points above average).
• Technology purchases are mostly planned by larger companies with revenues of more than RUB 50 billion and companies with a revenue share of exports above 25 percent (23 and 11 percentage points above average).
• Metals and metal product companies intend to purchase advanced equipment and machinery and undertake marketing research more often than other companies (16 and 8 percentage points above average, respectively).
• Process digitalization is a top priority for automotive companies (9 percentage points above average).
• Industrial equipment manufacturers are most keen on advanced technology and innovation training for staff (17 percentage points above average.
Which of the following activities did your company undertake in 2017 or plans to undertake in 2018-2019?
2018-2019
2017
2016
Purchase of advanced equipment and machinery
Advanced technology and innovation training for staff
R&D
Purchase of technological solutions
Marketing research
Digitalization of business processes
Acquisition of patent rights, licenses etc.
54% 53%
60% 59% 65%
34% 29% 25%
29% 15% 22%
47% 44% 39%
37% 32% 28%
35% 41% 28%
65
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Innovation and digitalization
Trend
Three in four manufacturers (73 percent) see the need for HR automation. The share of the companies budgeting HR automation costs increased 5 percentage points as compared to the previous year. However, a significant share of the companies (30 percent) do not budget such costs as they see no business rationale for HR automation.
Highlights
• Automotive companies reported the lowest need for HR automation (36 percent – two times below average).
• Conversely, industrial equipment manufacturers are most prepared to invest in HR automation (13 percentage points above average).
• A half of the companies with revenue of more than RUB 50 billion and over 5,000 staff plan to invest in HR automation.
How do you assess the need for HR automation in your company and does your company plan to make any investments in HR automation technologies?
HR automation
There is a need and budgeted costs
There is a need but no budgeted costs
There is no need
30%
33%
32%
25%
22%
17%
30%
31%46
%
28%
37%
43%
27%
48%
19%
52%
16%
56%
19%
14%
64%
50%
33%
37%
33%
40%
29%
36%
18%
36%
36%
42%
21%
Industry Number of staffRevenue in 2017
All
indu
stri
es
Chem
ical
s
Ove
r RU
B 50
bill
ion
Met
als
and
met
al p
rodu
cts
Less
than
RU
B 10
bill
ion
Indu
stri
al e
quip
men
t
Up
to 1
,000
peo
ple
1,00
1 to
5,0
00 p
eopl
e
Ove
r 5,0
00 p
eopl
e
Auto
mot
ive
RUB
10 to
50
billi
on
2017 2018
38% 43%
36%30%
26% 27%
An expert’s view“As for the HR function’s automation, it is a visible trend in large manufacturing companies. Many companies have already implemented advanced system solutions, such as SAP HCM for basic HR processes. However, it should be noted that the most “cutting edge” HR practices are moving further by transferring close personnel communication to the cloud via such solutions as SuccessFactors. The reasons for these investments are obvious to anyone: it is competition for talent and a need to improve productivity. Up-to-date systems can analyze HR data, find correlations and ensure a more efficient planning of the company’s existing strategy.”Vera VitalievaDirector, Deloitte CIS
66
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Innovation and digitalization
Specify advanced technologies that your company has implemented or plans to implement in 2018.
Around half of manufacturing companies plan to introduce smart production (46 percent) and IoT technology, e.g. M2M communication (45 percent), which proves the sector’s digitalization focus.
• The least favored technologies are represented by augmented or virtual reality, alternative energy sources and blockchain (61, 58 and 58 percent, respectively).
• The most popular advanced technologies in the manufacturing sector include electronic document flow, advanced accounting systems and shared services centers (56, 42 and 35 percent, respectively).
• One in five manufacturing companies (21 percent) already has a fully automated business process/business process chain.
• Technologies planned for implementation primarily include full automation of selected business processes/business process chain (55 and 52 percent, respectively) and energy saving technologies (52 percent).
Advanced technology implementation
Electronic document management
Advanced accounting systems (CRM, SAP etc. )
Shared services center
Big data and machine learning
Full automation of selected business processes
Full automation of business process chain
Energy saving technologies
Artificial intelligence, predictive analytics
Video analytics and computer vision
Process robotics
Agile PMO
Blockchain
Alternative energy sources
Smart-production
Augmented/virtual reality
Internet of Things (m2m communication, IoT technologies)
56% 32% 12% 76%
21% 55% 24% 52%
15% 35% 50% 0%
42% 42% 15% 70%
21% 52% 27% 45%
14% 30% 56% -12%
35% 24% 41% 18%
18% 36% 46% 9%
14% 29% 57% -15%
21% 32% 47% 6%
18% 35% 47% 6%
12% 46% 42% 16%
21% 52% 27% 45%
15% 36% 49% 3%
11% 29% 61% -21%
11% 45% 44% 12%
Implemented
To be implemented
Neither implemented nor to be implemented
Net balance*
* The difference between the share of the companies that have implemented/plan to implement a certain technology and the share of the companies that do not plan to implement it.
67
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Innovation and digitalization
Similarly, our latest research regarding the financial climate in Russia (the CFO survey of the leading companies in Russia in 1H 2018) shows that Russian manufacturing companies are firmly on the course to digitalisation and transition to Industry 4.0.
We have prepared technological maturity rankings of the Russian economy sectors using the information provided by our respondents. These rankings show that the Technology, Media and Telecommunications sector (TMT) has implemented the most advanced technologies to date, while the manufacturing sector is the leader in terms of planned implementations.
Advanced technology implementation
Technological maturity of the Russian economy sectors (technologies implemented/ implementation in progress)*
Technological maturity of the Russian economy sectors (technologies to be implemented)*
Consumer business
0.23
0.18
0.15
0.10
0.09
0.03
0.23
0.21
0.19
0.16
0.14
0.12
Specify advanced technologies that your company has implemented or plans to implement in 2018.
* Based on the findings of the 1H 2018 Deloitte CFO Survey of the Leading Companies in Russia
Energy and resources
Manufacturing
TMT
Financial services
Life sciences and healthcare
68
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Our respondents
10
69
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Our respondents
Our respondents
The majority of the respondents work in these key industries:
• Metals and metal products (32 percent)
• Automotive (18 percent)
• Chemicals (22 percent)
• Industrial equipment (22 percent)
Almost half of the companies surveyed (47 percent) have a medium-term (3-5 year) development strategy.
A fourth of the companies (25 percent) have a planning horizon of 10 years or more. Nineteen percent have a 6-10 year-strategy and 9 percent – a short-term strategy for 1-2 years.
This year, the absolute majority of our respondents (94 percent) represented Russian companies. The rest of the respondents represented foreign companies with localized production (4 percent), or without localized production (2 percent).
Company Nature of business Current development strategy
Russian
Foreign, no localized production in Russia
Foreign, localized production in Russia
Metals and metal products
Automotive
Chemicals
Industrial equipment
Other
1–2 years
3–5 years
6–10 years
Over 10 years
94%
2% 4%
32%
18%
22%
22%
6% 9%
47%19%
25%
70
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Our respondents
Our respondents
Thirty-eight percent of the companies have revenues of less than RUB 10 billion.
One in five companies (18 percent) has revenues of RUB 50 to RUB 100 billion, and a fourth of the companies – more than RUB 100 billion.
Twenty-seven percent of the companies have a revenue share of exports less than 5 percent. Another 29 percent – a share of exports between 5 and 25 percent.
Finally, the remaining half of the companies (44 percent) have a significant share of exports in their revenue (over 25 percent).
A fourth of the respondents (25 percent) represent companies with over 5,000 staff. Another fourth (26 percent) – companies with 1,000-5,000 staff.
One in five respondents represents a company employing 101 to 500 people.
Revenue Revenue share of exports Number of staff
Less than RUB 10 billion
RUB 10-25 billion
RUB 25-50 billion
RUB 50-100 billion
RUB 100-250 billion
RUB 250-500 billion
Over RUB 500 billion
Less than 5%
5% to 25%
26% to 50%
51% to 75%
Over 75%
Less than 100 people
100 to 500 people
501 to 1 000 people
1 001 to 5 000 people
Over 5 000 people
38%
17%2%
18%
12%
8%5%
27%
29%
22%
17%
5%14%
19%
16%
26%
25%
71
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
11 Contact information
Current state of the Russian manufacturing sector
Russian manufacturing sector in 2018 | Contacts
Mikhail Gordeev
Senior Research Specialist
Research Centre, Deloitte CIS
Contacts
Srbuhi Hakobyan
Partner, Audit & Assurance
Head of Industrial Products & Services Group, Deloitte CIS
Gennady Kamyshnikov
Partner, Tax & Legal
Head of Energy & Resources Group, Deloitte CIS
Yulia Afanasyeva
Analyst
Research Centre, Deloitte CIS
Kamilla Zhalilova
Business Development Manager
Energy & Resources Group, Deloitte CIS
Karina Sultanova
Coordinator
Energy & Resources Group, Deloitte CIS
Yulia Orlova
Partner, Tax & Legal
Head of Chemical Services Group, Deloitte CIS
Lora Nakoryakova
Research Centre Leader
Business Development Department, Deloitte CIS
Tatiana Kofanova
Director, Tax & Legal
Head of Automotive Group, Deloitte CIS
Andrew Sedov
Partner, Audit & Assurance
Head of Metal Services Group, Deloitte CIS
72
Foreword01
Key findings
Russian manufacturing sector in figures
02
Government support
07
03
Innovation and digitalization
08
Key development concerns in 2018
04
09
Business management in the current market environment
05
Our respondents10
Sources of capital
06
1111 Contact information
Current state of the Russian manufacturing sector
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