The World’s Largest Country: How Multinational Companies are Seizing its Opportunities

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    GlobalStrategy

    GlobalChallenges

    Executable

    Solut ions

    Russia 2020: What Russia will Look Like in the FutureThe Worlds Largest Country: How Multinational Companies are Seizing its Opportunities

    France Houdard

    Managing [email protected]

    Marc h 2011

    http://www.exolus.com/
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    1Copyright 2011 Exolus. All rights reserved. .

    Why?

    Preface: What Does Worlds Largest Country Look Like from Space?

    Source: NASA (United States National Aeronautics and Space Administration)

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    2Copyright 2011 Exolus. All rights reserved. .

    INTRODUCTION: Russia Structural Framework and Forward Trends . . .

    http://en.wikipedia.org/wiki/File:Flag_of_Russia.svg
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    3Copyright 2011 Exolus. All rights reserved. .

    80% Population in West East Largely Uninhabitable

    Framework: Structural Determinants of Russias Economic Geography

    People

    17,075,400 km2 1/8thWorlds Land Area 10 time Zones

    Russia Map

    Permafrost& Plains

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    Economy: Growth in Russias Economy

    Economy Doubled in 7 Years (01 08) IMF Forecasts Rapid Growth to 2015

    Source: IMF

    1.0

    1.2

    1.4

    1.6

    1.8

    2.0

    2.2

    2.4

    2.6

    2.8

    3.0

    2000

    2001

    2002

    2003

    2004

    2005

    2006

    2007

    2008

    2009

    2010f

    2011f

    2012f

    2013f

    2014f

    2015f

    Will hostOlympic games

    USD

    trillion

    Russia GDP(USD trillion, PPP-adjusted))

    Global Financial Crisis

    2xActual

    IMFForecast

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    Wealth: Russia to have Highest GDP per Capita among BRIC Countries

    $0

    $2,000

    $4,000

    $6,000

    $8,000

    $10,000

    Russia Brazil China India

    Russia GDP per Capita: USD 6,200 (2009) USD10,000 (2020)

    2020

    2009Russia GDP per Capita

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    Income: Russia leads BRICs in Per Capita Disposable Income

    Per Capita Disposable Income Growing at Average 6% Per Annum

    Source: GS Global ECS Research

    0

    10,000

    20,000

    30,000

    40,000

    50,000

    60,000

    70,000

    80,000

    2000 2005 2010 2015 2020 2025 2030 2035 2040 2045 2050

    Russia

    Brazil

    China

    India

    Disposable Income Per Capita(USD per annum)

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    Resources: Worlds Leading Energy Superpower Oil and Gas

    Worlds Largest (#1) Oil Producer Worlds Largest (#1) Gas Producer

    Source: BP Statistical Review of World Energy 2010

    12.9%

    Russia

    Saudi Arabia

    USA

    Iran

    China

    Canada

    Mexico

    Venezuela

    Iraq

    Kuwait

    UAE

    Norway

    Other

    World Oil Producers

    (12.9% share, 2009)Worlds

    Largest (#1) oil producer

    2nd largest oil exporter

    8th

    largest oil reserves

    OIL

    23.7%

    Russia

    Iran

    Qatar

    Saudi Arabia

    Turkmenistan

    USA

    UAE

    Venezuela

    Nigeria

    Algeria

    Indonesia

    Iraq

    Other

    World Gas Reserves(23.7% share, 2009)

    Worlds

    Largest (#1) gas producer

    Leading (#1) natural gas exporter

    Largest (#1) natural gas reserves

    GAS

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    Resources: Worlds Leading Energy Superpower Mineral Fuels

    Worlds 2ndLargest Coal Reserves 3rd Largest Uranium Reserves

    Source: BP Statistical Review of World Energy 2010, British Geological Survey

    10%

    Australia

    Kazakhstan

    Russia

    South Africa

    Canada

    USA

    Brazil

    Namibia

    Niger

    Ukraine

    Jordan

    Uzbekistan

    Other

    19%

    USA

    Russia

    China

    Australia

    India

    Ukraine

    Kazakhstan

    South AfricaOther

    World Coal Reserves(19% share, 2009)

    Worlds

    5th coal producer

    3rd coal exporter

    2nd largest coal reserves

    Worlds

    4th uranium producer

    3rd largest uranium reserves

    World Uranium Reserves(10% share, 2008)

    COAL

    URANIUM

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    9Copyright 2011 Exolus. All rights reserved. .

    Resources: Worlds Leading Mineral Industry Iron and Steel

    Worlds Largest (#1) Iron Reserves 4th Largest Steel Producer

    Source: U.S. Geological Survey

    5.5%

    China

    Japan

    USA

    Russia

    Korea

    Germany

    Ukraine

    Brazil

    Italy

    France

    UK

    Other

    IRON

    Worlds

    3rd pig iron producer

    Largest (#1) iron reserves

    Worlds

    4th raw steel producer

    4th raw steel exporter

    RAW STEEL

    18 %

    Russia

    Australia

    Ukraine

    Brazil

    China

    India

    Kazakhstan

    Venezuela

    Sweden

    USA

    Iran

    Canada

    Other

    World Iron Reserves(18% share, 2009)

    World Raw Steel Production(5.5% share, 2009)

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    10Copyright 2011 Exolus. All rights reserved. .

    Resources: Worlds Leading Mineral Industry Nickel, Copper

    Worlds Largest (#1) Nickel Producer 7th Copper Producers

    5%

    Chile

    Peru

    USA

    Indonesia

    China

    Australia

    Russia

    Zambia

    Canada

    Poland

    Kazakhstan

    Mexico

    Other

    Source: U.S. Geological Survey

    19%

    Russia

    Indonesia

    Australia

    Canada

    Philippines

    New Caledonia

    China

    Colombia

    Cuba

    Brazil

    South Africa

    Botswana

    Venezuela

    Other

    Worlds

    Largest (#1) nickel producer

    Largest (#1) nickel exporter

    3rd nickel reserves

    Worlds

    7th copper producer

    5th copper exporter

    9th largest copper reserves

    World Nickel Production

    (19% share, 2009)

    World Copper Production(4% share, 2009)

    NICKEL

    COPPER

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    11Copyright 2011 Exolus. All rights reserved. .

    The Future: 1 of 5 Countries with Highest Combined - GDP, Population, Resources

    > USD3 trillion GDP 100+ million people > 3 million sq km

    Over3 million sq km

    Over100 million People

    Indonesia

    RussiaBrazil

    USIndiaChina

    OverUS$3 trillion GDP (PPP)

    Pakistan

    Bangladesh

    Nigeria

    MexicoJapan

    Ethiopia

    Philippines

    Germany

    United Kingdom

    France Italy

    Canada

    Australia

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    12Copyright 2011 Exolus. All rights reserved. .

    Corporate Trends: Structural Optimization Markets, Resources, Innovation

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    13Copyright 2011 Exolus. All rights reserved. .

    Corporate Burning Platforms: Markets, Resources, Innovation

    Market Access/Revenue Growth Global Structural Cost Reduction

    Resources

    COST

    R&D Sales

    Service

    Sourcing

    Production/Assembly

    Distribution

    Engineering IT HR

    F&A Procure

    Knowledge Markets

    DRIVINGShareholder Value

    Markets /

    Revenues

    Resources/

    Cost Reduction

    Innovation/

    Knowledge

    Efficiency/

    Shared Services

    Efficiency

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    14Copyright 2011 Exolus. All rights reserved. .

    Top Foreign Investment Destinations in Western Part of Russia

    1. Production/Resources: Where are Leading Direct Investment Nodes?

    Foreign Investment ConcentrationA-Cities Highest Population and FDI

    S-Cities Mid-High Population and FDI

    St. Petersburg

    Moscow

    Rostov

    Krasnodar

    Nizhny Novgorod

    Kazan

    Tolyatti Ufa Yekaterinburg

    Omsk

    Novosibirsk

    Chelyabinsk

    Source: Rosstat

    Population(million)

    CityCumulative FDI(1999 2009)

    10.3 Moscow City USD 45.8 bn

    6.6 Moscow Region USD 11.9 bn

    4.7 St Petersburg USD 5.0 bn

    1.7 Leningrad Region USD 2.8 bn

    1.1 Omsk USD 3.6 bn

    0.6 Krasnodar USD 3.3 bn

    1.1 Chelyabinsk USD 2.6 bn

    1.1 Kazan USD 1.7 bn

    0.7 Tolyatti USD 1.1 bn

    1.3 Yekaterinburg USD 1.1 bn

    1.3 Nizhny Novgorod USD 0.9 bn

    1.1 Rostov-on-Don USD 0.9 bn

    1.4 Novosibirsk USD 0.6 bn

    1.0 Ufa USD 0.5 bn

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    15Copyright 2011 Exolus. All rights reserved. .

    Russia Already 5th Largest Consumer of Cars in Europe

    1. Production/Resources: Car Production Proxy for Production Nodes?

    Russia Automotive ProductionA-Cities

    S-Cities

    Yekaterinburg

    Chelyabinsk

    Kazan

    Tolyatti Ufa

    St. Petersburg

    Moscow

    Rostov

    Krasnodar

    Hyundai

    Nissan

    Ford

    GM

    Toyota

    Volvo

    Renault

    ZIL

    VW

    Skoda

    Peugeot

    Citroen

    Mitsubishi

    KIA

    BMW

    FIAT

    Sollers

    Great Wall

    ZMA

    KIA

    Lada

    Tata Motors

    Geely

    IVECO

    Isuzu

    Chevrolet

    GAZ

    GM AVTOVAZ

    LADA

    Paz

    Hyundai

    Tata Motors

    Sources: All Publically Available Information, Company Websites

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    16Copyright 2011 Exolus. All rights reserved. .

    1. Production/Resources: Moscow Region Immense, as Large as Countries

    Moscow Region (45,900 km sq) larger than entire Switzerland (41,285 km sq)

    Sources: Publically Available Information

    Moscow Region(45,900 km sq)

    Switzerland (Country)(41,285 km sq)

    Moscow Region

    Moscow City

    http://upload.wikimedia.org/wikipedia/commons/2/2a/Distrib_citta_svizzera.png
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    17Copyright 2011 Exolus. All rights reserved. .

    1. Production/Resources: Management Sourced in Moscow City, Labor Local

    Management-Labor Skill/Cost Drivers 70 100 km from Moscow City

    Sources: Company Websites, All Publically Available Information

    KlinskiyDmitrovskiy

    Eqorevskiy

    Orekhovo-

    Zuevskiy

    KolomenskiyStupinskiy

    Ramenskiy

    Mitishchinskiy

    Balashikhinskiy

    Ryzskiy

    Istrinskiy

    Odintsovskiy

    Naro-Fominskiy

    Chekhovskiy

    Serpukhovskiy

    Solnechnoaorskiy

    Sergievo-

    Posadskiy

    Lenininskiy

    Moscow

    City

    Moscow Region

    (45,900 km sq)

    http://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svghttp://upload.wikimedia.org/wikipedia/commons/b/b4/Russia_Moscow_oblast_location_map.svg
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    18Copyright 2011 Exolus. All rights reserved. .

    1. Production/Resources: Leningrad Region even Larger, Size of Hungary

    Leningrad Region (84,500 km sq) roughly same size as Hungary (93,030 km)

    Sources: Publically Available Information

    Hungary (Country)(93,030 km sq)

    Leningrad Region(84,500 km sq)

    Leningrad Region

    St Petersburg City

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    19Copyright 2011 Exolus. All rights reserved. .

    1. Production/Resources: Management from St. Petersburg, Labor Local

    Management-Labor Skill/Cost Drivers 30 60 km from St Petersburg City

    Sources: All Publically Available Information, Company Websites

    Vsevolzhsky

    KirovskiLomonosov

    Tosnenski

    Gatchina

    Primorskiy

    Krasnoselskaya

    Pushkinsky

    Koldinskiy

    Viyborgskiy

    Leningrad Region

    (84,500 km sq)

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    20Copyright 2011 Exolus. All rights reserved. .

    Per Capita GDP / A/S-City OverlayPer Capita GDP

    (USD, PPP-Adjusted)

    A-Cities

    S-Cities

    Chukotka

    Sakha

    Magadan

    Kamchatka

    Sakhalin

    KhabarovskAmur

    Primorsky

    Irkutsk

    Krasnoyarsk

    Buryatia

    Tuva

    Tomsk

    Komi

    Arkhangelsk

    Karelia

    Murmansk

    Arkhangelsk

    Perm

    Altai

    Altai

    Omsk

    Tyumen

    Vologda

    Kirov

    Volgograd

    33

    2

    34

    5

    1

    6

    7

    8 10

    9

    11

    1214

    Tver

    1617

    18

    19

    20

    21

    22

    23

    24

    25

    27

    26

    2829

    30

    32

    3437 38

    4041

    42

    43

    44

    45

    Zabaykalsk46

    Yamalia

    Khantia-Mansia

    15

    31

    RostovSverdlovsk36

    39

    Novosibirsk

    35

    Leningrad

    2. Cost/Revenue: Where are Pareto-Optimal Market/Resource Envelopes?

    Intersection of People (West) A/S Cities Natural Resources (East)

    > 20,000

    15,000 - 20,000

    10,000- 15,000

    5,000 - 10,000

    0 - 5,000

    1. Astrakhan2. Belgorod3. Bryansk4. Vladimir5. Voronezh6. Ivanovo

    7. Kaliningrad8. Kaluga9. Kemerovo10. Kostroma11. Kurgan12. Kursk

    13. Leningrad14. Lipetsk15. Moscow16. Oryol17. Ryazan18 Tambov

    19. Tula20. Yaroslavl21. Novgorod22. Chelyabinsk23. Pskov24. Smolensk

    25. Adygeya26. Ingushetia27. Karachay-Cherkessia28 Kabardino-Balkaria29 North Ossetia-Alania30. Chechnya

    31. Krasnodar32. Stavropol33. Bashkortostan34. Udmurtia35. Samara36. Tatarstan

    37. Penza38. Ulyanovsk39. Nizhny Novgorod40. Mari El41. Chuvashia42. Mordovia

    43. Kalmykia44. Dagestan45. Khakassia46. Jewish AD

    Source: UNDP, National Human Development Report in the Russian Federation 2010

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    21Copyright 2011 Exolus. All rights reserved. .

    2. Market: Car Sales/Production Proxy for Directional Market Sizing?

    Car Penetration Highest in Russia among the 4 BRIC Countries

    Sources: Association of European Business; Autostat; Rosstat, GS Global ECS Research, Other

    0

    100

    200

    300

    400

    500

    600

    700

    2010 2020 2030 2040 2050

    0

    50

    100

    150

    200

    250

    1990

    1995

    2000

    2001

    2002

    2003

    2004

    2005

    2006

    2007

    2008

    2009

    RussiaBrazilChinaIndia

    Car Penetration in BRIC(units per 1,000 people) Car Penetration in Russia(units per 1,000 people)

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    22Copyright 2011 Exolus. All rights reserved. .

    Russia to be USD30 billion Market (2015) 9th Largest in World

    Pharmaceutical Market Size Country Ranking

    (2000 2015f - USD billion)

    Sources: IMS; GSK, Assessment of Opportunity for Pharmaceutical Manufacturers in Emerging Markets JMCP; Monitor Analysis; Exolus

    2. Market: Projected to be Worlds 10th Largest Pharma Market by 2015

    2000

    USA 150

    Japan 58

    Germany 17France 17

    UK 11

    Italy 11

    China 6.8

    Brazil 6.7

    Canada 6.3

    Spain 6.2

    2005

    USA 262

    Japan 65

    Germany 24France 21

    UK 16

    Italy 15

    China 13

    Brazil 10

    Canada 10

    Spain 9.8

    2010

    USA 441

    Japan 75

    Germany 48France 39

    China 34

    UK 32

    Italy 28

    Brazil 24

    Canada 22

    Spain 21

    2015F Top 9

    USA 524

    China 103

    Japan 85Germany 55

    Brazil 47

    France 44

    UK 36

    Italy 31

    Russia 30

    India 28

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    2. Market: High Spending Growth Resumes through Global Financial Crisis

    Sales Growing at 21% CAGR

    USD

    Million

    100

    200

    300

    400

    500

    600

    2003 2004 2005 2006 2007 2008 2009 2010

    Retail Sales Growth

    Source: EIU

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    3. Innovation: Modern Focus on Traditional Strength Science & Technology

    Sources: All Publically Available Information, Company Websites, i-gorod Website

    Cisco

    Boeing

    Siemens

    Microsoft

    Nokia

    Intel

    Tata

    Nokia Siemens

    EADS

    Alstom

    Lukoil

    Rosatom

    Signed Partnerships

    Industry Focus

    Life Sciences

    Renewable Energies

    Aerospace

    Information Technology

    Telecommunications

    Nuclear Technology

    ABBYY

    Novartis

    Honeywell

    DuPont

    Google

    Kodak

    Schlumberger

    Johnson & Johnson

    IM-TECH

    DOW Chemicals

    John Deere

    Under Negotiations

    Skolkovo Innovation Center USD2 billion over Next 3 Years

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    3. Innovation: Strong Science and Engineering Focus in Russian Education

    Sources: OECD Science, Technology and Industry outlook, 2010

    0%

    5%

    10%

    15%

    20%

    25%

    30%

    35%

    40%

    45%

    China Korea Germany Russia Japan UK Italy USA Brazil

    Science & Engineering as % of all Graduates: 25% in Russia 15% in US

    Science and Engineering as Percentage of New DegreesEngineering Degrees

    Science Degrees

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    26Copyright 2011 Exolus. All rights reserved. .

    Russia Economic Outlook

    S i E ti S l t R i T Gl b l I t t D ti ti

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    Senior Executives Select Russia as a Top Global Investment Destination

    Russia Top 5 Investment Destination in World

    0

    10

    20

    30

    40

    50

    60

    China

    UnitedStates

    India

    Brazil

    Russia

    U.K.

    Germany

    Australia

    Indonesia

    Canada

    Vietnam

    Mexico

    Poland

    France

    Source: World Investment Prospects 2009 - 2011

    Top 14 Most Attractive Destinations for Future Investment

    (2009 2011)%

    PercentofRes

    ponses

    R i E i O tl k L F R P iti F d t l

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    28Copyright 2011 Exolus. All rights reserved..

    Russia Economic Outlook: Large Forex Reserves, Positive Fundamentals

    Worlds 3rdLargest Forex Reserves Low External Debt Growing Banking System

    Russia Holds The Worlds 3rd Largest Foreign Exchange Reserves: USD 485 billion

    In 2011 the Central Bank has accumulated over USD 458 billion in foreign reserves, up from USD 12

    billion in 1999.

    The accumulation of large external surpluses means financial system enjoys abundant liquidity.

    Low External Debt/GDP Ratio and Positive Current Account Balance

    Healthy external debt to GDP ratio at 21% of GDP in 2010.

    Current account surplus at 5.1% of GDP in 2010; projected at 4.7% in 2011 and 4.2% in 2012.

    Federal budget deficit at 3.9 % GDP in 2010; projected to decrease to 2% of GDP in 2011.

    Russias Banking System under Rapid Expansion

    Total assets projected to double between 2010 and 2015, from EUR 400 billion (2010) to EUR 800+billion (2015).

    Between 2010 to 2015, total lending to grow at 14.2 % CAGR; corporate loans at 14.3%; retail loans

    at 14.7% and mortgages at 15.5%.

    Source: IMF; World Bank; Sberbank; UniCredit

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    For a Comparative Perspective with the other BRIC Countries

    Please Refer to the Following Research Reports

    Found on Slideshare @

    http://www.slideshare.net/contest/worlds-best-presentation-contest-2010/entries

    http://www.slideshare.net/Exolus/india-2020-what-india-will-look-like-in-the-future

    http://www.slideshare.net/Exolus/brazil-2020-what-will-brazil-look-like-in-the-future

    Download Reports @

    www.exolus.com/en/knowledge/research.html

    China 2020 Brazil 2020India 2020

    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    Global Expansion Strategy &Cross-Border Investment Execution

    (Greenfield, M&A, Joint Ventures, Outsourcing)

    About Exolus: Exolus is a hybrid management consulting and transaction advisory firm. We work withmanagement teams in the development of their global expansion strategies, across the range of investmentformats: Greenfield, M&A, Joint Ventures and Outsourcing. As well, we deploy against global strategies byproviding program management across all phases of cross-border investment projects, from candidate

    searches and evaluation, through investment structuring and negotiations.

    The founders of Exolushave spent the past two decades in the global service space and have directexperience operating in nearly all of the major investment destinations in the world (40+ countries). The teamhas served clients of all sizes, both public and private, on projects that ranged in investment size from USD10million to greater than USD1 billion. We have served clients across all of the following industry segments: LifeSciences, Manufacturing, Automotive, Technology, Retail, Consumer Business, Real Estate, Public Sector.

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    http://www.exolus.com/mailto:[email protected]://www.exolus.com/en/knowledge/research.htmlhttp://www.exolus.com/http://www.exolus.com/en/knowledge/research.htmlmailto:[email protected]://www.exolus.com/
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    In writing we benefit from standing on the shoulders of others and, in the process, we strive to make our owncontributions to the market of ideas. As well, we are always tremendously grateful for the many, oftenselfless, contributions that are availed in the process.

    The opinions represented herein were prepared for information purposes only, at the time of publication.The information represented herein is believed to be reliable, at the time of publication, and was obtained byvarious public sources also believed to be reliable. The opinions were considered to be accurate at thepoint of creation, and further, any views, forecasts, or estimates contained herein may be subject to changeat anytime without notice. The opinions expressed or implied herein may not be the opinions of the author,also Exolus, or any associated affiliates.

    This report and the information contained herein collectively, is not offered as, and should not be regardedas, used or relied upon as advice on any matter. It shall not constitute or be construed as arecommendation or solicitation on behalf of the author, and no legal commitment or obligation shall arise byreason of this document. Thus, the reader shall make an independent assessment of opinions stated

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