Competition continues to lessen in Russian markets

16 may 2017

The Analytical Centre has presented its 4th report on competition dynamics in Russia. The current state of the competitive environment is analyzed based on first-hand opinions of the business sector – more than 1,100 took part in a survey conducted by the Analytical Centre in January-February this year.

According to estimates by Russian business companies, the competition in the Russian markets can be described as moderate: 48% of those surveyed believed the competition was strong or very strong. This indicator has been in decline year in year out: in 2016, 51 % of those surveyed believed the competition was vibrant or very vibrant, in 2015 this figure was 53%. The share of those who experience little or no pressure from competition is also on the rise. In 2017, it was 25 % against 24 % in 2016 and 21 % in 2015. 36 % of those surveyed believe competition is good for business development, however, 21 % of survey respondents did not find the impact of competition to be something positive.

The ones to experience the greatest pressure of competition are manufacturers of construction materials, IT technologies, food and textile industries, the transport machine building sector; the least pressure was found in the power and gas generation and distribution sector, as well as in the water distribution sectors. The woodworking and pulp and paper industry has moved from the category of low-competitive industries to the group of industries where a significant impact of competition on business has been reported.

The IT sector has gained significantly more confidence as far as product sales go. The 2016 survey revealed it to be one of the most competitive areas, while in 2017 51 % of the survey respondents noted that a 15% increase in the price of products results in a less than 15 % drop in sales.

23 % of the surveyed business representatives noted a decrease in the number of competitors, which is comparable to the results of the 2016 survey - 24 % (against 15 % in 2015). The reasons behind the drop in the number of competitors are mainly the anticompetitive efforts on the part of the authorities (this was mentioned by 40 % of respondents). 37 % of those surveyed named the changes in the regulatory framework as the reason behind the decreasing number of competitors, 34 % said the reason for the decrease in the number of competitors was the withdrawal of many Russian companies from the market.

The key barriers to doing business include the unavailability of financial resources (including the high cost of credit resources). This barrier was mentioned as having a significant impact by 53 % of those surveyed (56 % in 2016). Obstacles to doing business also result from high taxes (this reason was named by 53 % of the survey respondents) and the instability of the Russian legislation with regard to regulation of enterprises’ activities (41 %). Some 40 % of those surveyed believe that the authorities do nothing but interfere with their business activities. At the same time, representatives of the transport machine building sector, the food industry, the agricultural sector and manufacturers of construction materials said they would welcome state participation. 52 % of the survey respondents noted that their business is constantly or regularly exposed to anticompetitive pressure on the part of a market participant whose dominant market share is at least 50 % (against 45 % of those surveyed declaring this a year earlier). Among the categories that are most exposed to, at least occasional, anticompetitive pressure on the part of a dominant market participant are representatives of the food industry (with 63 %, which is way higher than the 2016 figure of 50 %), and also agricultural companies (60 %) and fuel and energy companies (62 %).

Russian business plans to expand: those who do not plan to enter new markets in the next 3 years account for only 25 % (compared to 27 % in 2016). The most active in expanding their business are manufacturers of construction materials and manufacturers of electronic and optical equipment: 85 % of those surveyed in each of these categories plan to enter new markets. Representatives of the metallurgical industry have somewhat rallied compared to 2016: the share of those who do not plan to expand was 14 % compared with 24 % a year earlier.

The key obstacles to Russian business entering new geographical and food markets continue to be the same as in 2016: the lack of financial resources, high initial costs of starting a business and the saturation of markets.

The positive trends include the fact that at least 97 % of businesses surveyed have resorted to one or more ways to boost the competitiveness of their products, 80 % of those have tried 2 or more ways. And only 3% of those surveyed declared that their company had not done anything to boost the competitiveness of their products (3 % was the 2016 figure and 5 % - the 2015 figure). As for increasing the competitiveness of products, companies engaged in all types of economic activity are working on it. The most popular strategy is cost reduction: this was done by 68 % of the companies surveyed. The second most popular strategy is personnel training — 48 % of the companies admitted having implemented this.

For companies operating in such sectors as IT, services (including financial services), trade, the most popular way to boost the competitiveness of products, aside from cost reduction and personnel training, are new strategies of product promotion. Representatives of the processing industries, the construction and the agricultural sectors proved to be rather active purchasers of machines and technological equipment. The key factors behind the competitiveness of goods, work and services produced, according to representatives of Russian businesses, continue to be low prices (41 %), trust-based relations with customers (20 %) and high quality (19 %).

For more information on this, checkAssessing the State of Competition in Russia report.