Certainly main processing industries have their own special features with regard to regional priorities for sale (see Table 2). Machine-building enterprises have the largest geography of sales: less than a third of these enterprises regarded the oblast of their location as priority for sale. Still less enterprises sell their goods in the bordering territories. And over two years the priority of the regions (their own and bordering) has not changed very much. For the majority of machine-building enterprises main regions of sales are the remote oblasts (krais, republics). In 2007 three quarters of enterprises are focused on these territories. The growth of this direction significance however was not big (only 8 points). In the light industry, the same as in the machine-building, main sales regions are considered to be remote regions: it is there where the main part of the goods is sold by approximately two thirds of the enterprises of the branch. The importance of this direction however went up only by 4 points over two years (that is changed but negligibly). The biggest success the enterprises of the industry experienced while promoting their products in the bordering regions which is accounted for by the fact that mainly there are customers for this industry in all regions of the country the consequence being that it is possible to spare the transportation costs while developing neighboring regions.
The most intensive territorial expansion was characteristic for foodstuffs production. Due to the specific features of the industry the foodstuffs enterprise sell their goods first of all in the nearby regions. This rule was clearly illustrated in 2005, when 86% of the producers considered the oblast (krai, republic) of their location as a primary sales region. However by 2007 the role of the region of location decreased by 12 points in the industry, the importance of neighboring regions increasing by more than two times (69% after 31%).
Thus, Russian enterprises actively develop new territorial sales markets. However the enterprises face a lot of obstacles in this way. The monitoring of the obstacles for entrance of enterprises into the new markets that IET started in 2000 allows getting the most detailed image of the real obstacles being faced by the enterprises trying to expand geography of their goods sales.
Table Regions of Primary Sale of Their Goods by the Enterprises of Machine-building, Light and Foodstuffs Industries, as percentage Machine-building Light Foodstuffs 2005 2007 2005 2007 2005 Inside the oblast (krai, republic) of enterprise’s loca- 5 31 28 86 tion 1 4 In neighboring regions of the Russian Federation 26 27 31 1 In other oblasts (krais, republics) of the Russian Fed- 6 68 76 34 eration 5 1 In CIS countries 42 42 9 8 In European countries 9 26 In Asia, Africa, America 24 1 19 20 1 2 17 Total 3 6 88 03 3 Source: December (2005) and June (2007) surveys by IET Inclination of Enterprises to Enter New Geographical Sales Markets The surveys demonstrate high inclination of enterprises to enter new territorial sales markets (see Fig. 1).
Minimum willingness to develop new territories was registered by 2002 surveys (enterprises were asked to report on their plans for 2003-2004), when only 78% of enterprises informed that they have plans to enter new territorial sales markets. In other years the abundance of such plans was no lower than 80%, and in it reached the maximum of 87%.
INCLINATION OF RUSSIAN INDUSTRY TO ENTER NEW TERRITORIAL SALES MARKETS, AS PERCENTAGE % 2001-02 2003-04 2005-06 2007-Source: IET surveys The willingness to search for new territories for their products sale differs by industries and sometimes (at some periods of time) quite considerably (see Table 3). On average, over the whole period of monitoring the highest inclination to develop new markets is demonstrated by machine-building enterprises. This industry has nearly always been ready to develop new markets more often than other sectors, the only exclusion being the survey of 2002 about the plans for 2003-2004, which is accounted for by growth rates deceleration followed by absolute decrease in sales. Second place of foodstuffs industry is accounted for by high willingness to expand sales geography in the first half of the current decade. At present, however, this figure for the industry is only 76%, the decrease being 19 points, main loss (12 points) occurring in recent years. The same dynamics and average level of readiness to enter new markets were registered in chemistry and petrochemistry.
Table Inclination of Enterprises to Enter New Territorial Sales Markets, as percentage 2001-02 2003-04 2005-06 2007-Metallurgy 81 81 77 Chemistry and petrochemistry 92 95 89 Machine-building 93 83 94 Wood processing complex 78 78 91 Construction industry 75 81 81 Light 95 94 88 Foodstuffs 87 87 92 Source: IET surveys Obstacles to Entrance New Geographical Sales Markets The results of IET monitoring demonstrate that nearly all the set of the causes hinders Russian industrial enterprises from entrance new geographical sales markets (see Table 4). Average frequency of obstacles citing over four surveys covering 2001-2008 was in the range from 16% (that is the number of enterprises hindered because of competitors’ advantage due to possession of the unique sources of raw materials, energy, technology, patents, licenses) to 43% (that is the number of enterprises that on average cited low prices at new markets, that do not cover enterprise’s expenditures).
Table Obstacles for Entrance New Geographical Sales Markets in Russian Industry in 2001-(as percentage to the number of those that responded) 2001-02 2003-04 2005-06 2007-1. lack of information on situation at new markets 31 33 21 2. low prices at new markets that do not cover costs 41 46 43 3. saturation of new sales markets and apprehension of prices fall 16 30 20 4. fierce counteraction of traditional producers 27 29 25 5. support of traditional producers by local authorities 14 19 17 6. attachment of suppliers and customers to traditional producers 28 35 25 7. high costs necessary to start new products output 29 24 21 8. high transportation costs 37 40 27 9. impossibility to reach scale of output and sale that is profitable soon 16 15 15 10. competitors’ advantages due to possession of unique sources of raw 18 14 15 materials, energy sources, technology, patents and licenses 11. no special obstacles 10 5 14 Source: IET surveys It has always been obstacles of economic nature that were main (most widespread) obstacles to enter new territorial sales markets. Administrative barriers (support of local producers by authorities and competitors’ advantages due to possession of unique raw materials, energy sources, technology, patents, licenses) were as a rule cited less often.
First place has always been held, leaving others far behind, by the obstacle “existing low prices at new markets, that do not cover enterprise’s costs”. It is to be noted that the frequency of this obstacle citing has been relatively stable throughout the time, and in the last two surveys it was steady at the level of 43%.
Judging by the fact which obstacles hold the next places in the rating high costs of enterprises while promoting their products in other territories are formed by transportation costs (which is normal and characteristic for any economy), overcoming of traditional producers’ counteraction and costs connected with search for customers at new markets. The problem of low price at new markets was normally in the first place (places) in all the branches of industry (see Table 5).
Table Place Held by the Obstacle “Low Prices at New Markets, Not Covering the Costs” in Industries 2001-02 2003-04 2005-06 2007-1 4 5 Metallurgy 1 1 1 Chemistry and petrochemistry 1 1 1 Machine-building 4 4 3 Wood processing complex 4 2 5 Construction industry 1 1 1 Light 1 1 2 Foodstuffs Source: IET surveys On average over the years of monitoring high transportation costs were mentioned by 33% of enterprises and hold second place in generalized (over the years) rating. However in the last survey this obstacle sank to the sixth place. But three of the obstacles exceed the figures of transportation costs by no more than 1.12 per cent, that is they share places from the third to sixth. In fact it is only the obstacle “fierce counteraction of traditional producers” that exceeds transportation costs.
But there are two branches of industry where the obstacle “high transportation costs” has always held the first place. In the construction materials industry transportation costs hinder on average 74% from expansion of sales geography, the second frequent cause (low prices at new markets) was cited nearly two times less often (38%). In wood processing complex price of transportation hindered sales expansion for an average of 53% of enterprises and exceeded figures for low prices obstacle by 11 points. And in 2007-2008 low prices in this industry ranked first. In recent years transport tariffs has started causing more and more anxiety to foodstuffs enterprises. It was in 2004 when transportation costs for the first time topped the chart, 92% of enterprises planning to expand sales geography. Facing such a problem, which is not typical for the industry, foodstuffs enterprises, on one hand, managed to expand sales geography (see Table 2), and on the other hand, had to reconsider their territorial ambitions: willingness to enter new markets in 2007-2008 dropped to the absolute minimum (see Table 3). It is the machine-building enterprises that are least worried about transportation costs. On average this problem holds 7th place in the industry. In the environment of industrial growth only 13-18% of machine-building plants are worried about costs for their products transportation and now (in 2007-2008) this obstacle holds only 8th place.
The obstacle “fierce counteraction of traditional producers” holds on average third place, frequency of citing being 30% as a result of all four surveys. It is to be noted that during 2001-2006 only 25-29% of enterprises faced the counteraction of traditional producers, while in 2007-2008 counteraction was experienced by 40%. Growth by 15 points was the highest increase for the obstacles for all the years of monitoring. It seems that not only have the enterprises started active expansion to other territories but they are also seriously concerned with the protection of their markets from “invaders”. In machine-building industry counteraction of traditional producers became the biggest obstacle for sales geography expansion: its citing has increased up to 48%, whereas earlier this obstacle was mentioned by only 25-29% (6th place in rating by the industry). In metallurgy and construction materials industry the obstacle mentioned ranked second (see Table 6).
Table Place Held by the Obstacle “Fierce Counteraction of Traditional Producers” in Industries 2001-02 2003-04 2005-06 2007-Metallurgy 4 3 4 Chemistry and petrochemistry 3 5 6 Machine-building 6 6 2 Wood processing complex 7 9 5 Construction industry 7 6 2 Light 8 8 8 Foodstuffs 3 2 5 Source: IET surveys The attachment of suppliers and customers to traditional producers is only a bit (on average) below the previous obstacle as to its spread in the Russian industry. Earlier 25-29% of enterprises suffered from this hindrance, excluding 2003-2004 period, when it was the obstacle for 35% of enterprises. Now (in 2007 2008) 29% of producers report the damage from this attachment. Its stable frequency of citing suggests the lack of progress in the sphere of business ethics and reputation that makes the enterprises be cautious with regard to new partners and prefer tried-and-true contractors.
Absence of information on the situation at new markets by the extent to which it is spread in industry is near the two obstacles mentioned before: on average this problem hinders 28% of enterprises from promoting their goods in other territories. It is the enterprises of machine-building, wood and wood processing complex, light industry that suffer from the lack of information most often (characterized by third place in the industry ratings).
According to the estimations of enterprises, administrative barriers for sales geography expansion hold last places in the general list of hindrances. Both the governmental support of the competitors and competitors’ advantages due to possession of unique sources of raw materials, energy, technology, patents, licenses is cited by 16% of enterprises on average, and this figure does not change a lot throughout the time (see Table 4). Thus administrative barriers are the lowest among the obstacles for sales geography of Russian enterprises expansion. The fact that the change in frequency of these obstacles citing is only 2 per cent from to 2006 gives evidence that there is little progress in struggle of federal authorities with administrative barriers for free flow of goods and services in the territory of the country. However the minimum level of these obstacles detriment and its stability can also mean that the main work on eliminating of administrative barriers has been conducted earlier and measures being taken at the moment are not experienced by the enterprises. The consequence of this is that one should either seek for new measures to solve the problem once and for all or to attend to lifting other barriers with which the majority of producers face at the moment.
Investments in the Real Sector of Economy O. Izryadnova Characteristic feature of 2007 was the increase in the share of investments in the fixed assets up to 19.4% of the GDP, which was the maximum value of the index over the whole period of reforms. High growth of investment demand was supported by the increase in importance of domestic market in the formation of the economic dynamics. In 2007 the volume of investments in the fixed assets increased, according to preliminary estimations, by 18.8% against 13.7% in the previous year and 12.1% on average over the period of 2000-2005.
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