Иностранный язык / Топик: Fanchising in Russia

Топик: Fanchising in Russia

The Russian economy has seen an upturn over the past three years (1999-2001). After a decade of political and economical instability, the main trend now emerging in Russia is stabilization. The State is consolidating its control functions, the economy is expanding, and political and macroeconomic risk factors have been significantly reduced. Consumer spending and investment expenditure have grown at dizzying rates which has led to an increase in consumer demand. This has led to growth in economic sectors that are primarily focused on the domestic market.

Substantial progress was achieved in improving legislation governing economic, business and investment activity. The Government is successfully implementing structural reforms, aimed at lifting the tax burden, a more liberal currency regulation system, and a further reduction of administrative barriers such as: simplified procedures for registering legal entities, streamlined inspection procedures, and fewer licensing requirements.

Increasing economic globalization is forcing Russia to make effective use of resources and increase the competitiveness of its domestic market. Russia is making efforts to actively foster global economic links and to create conditions conducive towards generating revenue and increasing in-bound investment.

The top rating agencies agree that Russia has become an increasingly attractive place to invest. Fitch, S&P and Moody's have raised their ratings and upgraded the outlook on Russia from stable to positive, with Fitch citing "exceptional macroeconomic performance and acceleration in structural reform," that makes Russia "well placed to weather even a severe global downturn."

The macroeconomic situation in Russia creates favorable conditions for boosting small- and medium-sized enterprises (SME) and new business development. Moreover, SMEs are likely to receive strong political backing from the Russian Government given the ongoing restructuring in the majority of industry sectors, and their role as a source of political support for market reforms.

A simplified tax structure, streamlined regulation, and increased access to bank financing creates conditions for the development of small enterprises and is likely to stimulate the development of franchising in Russia. One of the latest examples of reform is the simplification of small business taxation. Beginning in January 2003, small businesses (enterprises with fewer than 100 employees and an annual turnover of less than RUR 15 million, which is approximately US$ 470,000) will be given a choice of paying either a unified tax rate of either 6% of turnover or 15% of income.

Franchising is an ideal tool to be utilized in the development of a favorable environment for SMEs. It is widely utilized by existing businesses, as well as by first time businessman and individual entrepreneurs. For the first group franchising represents a very attractive tool for diversification of business activities and leveraging of risks for the latter group it serves as an unfailing means for starting their own private businesses.

The improving business environment (including good governance, intellectual property rights and investors' rights protection)in the mid-term is expected to improve the image of Russia in the eyes of foreign investors. Which may attract more foreign franchisers to the local market.

Russia's efforts to join the WTO in the near future positively affects the business and economic environment for U.S. products and services. The Russian Government is successfully building an efficient market and is making efforts to raise the country's long-term standard of living. WTO accession would foster greater competition among enterprises, increased transparency, attract foreign investment, reduce corruption, and open Russian markets for exporters. Russia is already gradually lowering tariffs and quotas.

Since 2001, the U.S.-Russian relations have become very close, which also very positively affected the trade and investment climate and created conditions for U.S. exports in Russia. The current Administrations of the two countries are capitalizing on this momentum. The U.S. Department of Commerce Secretary, Donald Evans has visited Russia three times since mid-2001 and created excellent working relationships with his Russian counterpart Minister of Economic Development and Trade, German Gref.

The private sector Russian-American Business Dialogue (RABD), a business-driven mechanism aimed at strengthening the trade and investment ties between Russia and the U.S, has further enhanced the level of economic cooperation between our two nations. In May 2002, Russia was formally recognized by the U.S. as a market economy.

With the growth of domestic consumer capacity, demand for various services is growing and practically all services where franchising can be used represent considerable business opportunities in Russia. According to experts, franchising is quite attractive for the businesses that are interested in sales of technically complicated equipment, business support services (business consulting - audit and accounting services, advertising, HR related services, technical consulting), housing construction and repair services, education services (tutoring, foreign language courses), leisure and entertainment, fast food, medical and cosmetic services, retail sale, and other personal services (laundry, footwear and clothing repair, delivery services etc).

Currently, the mainstream of local potential franchisees is seeking agreements with franchisers operating in the following sectors:

– Fast-food

– Printing and copying services, photo-shops, etc.

– Auto repair and maintenance services

– Body/health care services (beauty saloons, gyms, etc.)

– Retail sale (clothing, footwear, furniture, sporting goods, supermarkets, gasoline stations)

In 2002, a marketing agency MAGRAM Market Research conducted an analysis of the fast food industry. The main result of the study was that the market is expansively growing. However, the research did not define a precise size of the market. Experts estimate the annual volume of transactions on the market as US $15 - 40 billion. In Moscow alone, approximately 30-40 restaurants and cafes open each month. And still many experts comment that the demand is significantly undersatisfied, especially in suburban areas where most Moscovites live in multi-flat apartments. According to the Department of Consumer Markets of the Moscow City Government, in March 2002 there were 5,717 catering facilities (2000 restaurants, 130 nightclubs, 40 locations with around the clock service facilities, 45 pubs, 500 fast food facilities, and 2000 cafes and bars).

The concept of fast food remained largely unknown to Russians until the late 1980s and early 1990s when Pizza Hut - then operated by PepsiCo and McDonald's - opened its first stores in downtown Moscow. At that time fast-food restaurants were viewed as exotic Western attractions rather than regular eateries.

The first fast-food restaurants were too expensive for ordinary people and mostly catered to the very limited. Gradually, salaries rose in dollar terms, making imports more affordable, and fast-food restaurants began to serve a wider clientele, which brought about a decline in the quality of services. Insiders say that the quality of service is a common problem for the entire sector and while some firms have made better progress, there is still a long way to go before Russian fast-food restaurants can offer customers proper levels of service. A more significant presence of international food franchising giants in the market could improve the industry's overall quality standards.

With salaries on the rise and more discretionary spending, fast food chains are prospering in Moscow. The market is divided between international fast-food giants and their domestic competitors, and both are looking at expansion. The market is far from saturated however, with unsatisfied demand for high quality fast-food chains.

The Russian automotive sector has been growing rapidly since the beginning of the 1990s and during the last ten years the average growth rate is approximately 7-10% per year. Import of foreign automotive industry products is also growing. Analysts predict that this growth will continue in the near future. According to various industry sources, the annual per car maintenance expenditure in Russia exceeds $ 1,000. In Moscow alone, there are over 2 million private cars, thus the Moscow market exceeds $ 2 billion. In Moscow there is only one network of independent car service outlets – Bosh Service. It has approximately 54 car service shops in Russia (including 11 in Moscow). A Pennsylvania based ChipsAway Inc. is successfully using franchising to increase its presence on the Russian market of car paint restoration services and has already opened six car body maintenance centers in Moscow and one in Vologda.

Literature

1. Oganes Sarkisov, U.S. Commercial Service Moscow, Russia. Franchising in Russia. 09/30/2002