Global Perspectives
National Economic Profiles from IIC Partners
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RUSSIA
With Slava Volkov
of IIC Partners
Covering an area of 17.1 million square km, Russia is the largest country in the world, extending over much of northern Eurasia. With its enormous size comes a wealth of natural resources including oil, natural gas, coal, aluminum, iron ore, nickel, zinc, titanium and timber.
The Russian Federation is a federal presidential republic, comprising 85 federal jurisdictions, which are grouped into seven federal districts administered by envoys of the President. President Dmitry Medvedev is head of state and commander-in-chief of the military, while former President Vladimir Putin is Prime Minister and head of government.
Russia has a total population of 142 million people and 13 cities with populations of more than a million: Moscow (the capital), St. Petersburg, Novosibirsk, Nizhny Novgorod, Yekaterinburg, Samara, Omsk, Kazan, Chelyabinsk, Rostov-on-Don, Ufa, Volgograd and Perm.
Approximately 55 per cent of the population is female and 45 per cent male. Statistics show that the population of Russia is steadily declining and the government is taking steps to address the problem by reconsidering immigration policies, as well as introducing federal programs to stimulate birth rates and reduce mortality.
In 2007, 4.5 million people in Russia were unemployed, or six per cent of the labour force. The labour force numbered 74.6 million people, or 52 per cent of the total population. The average monthly wage in Russia is about $490 US, based on recent exchange rates.
Living standards in Russia vary between the regions and the main cities. Prices in Moscow and St. Petersburg – the twin hearts of the Russian business sector — are the highest. For foreign business people in particular, Moscow is the world’s most expensive city.
With the collapse of the USSR (Union of Soviet Socialist Republics) in 1991, Russia’s GDP continuously declined until 1998. After the economic crisis in 1998, the Russian economy began to recover, propelled by sharp increases in oil and gas prices, tax and fiscal policy reform and greater social and political stability. According to the Ministry of Finance, real GDP increased by 7.8 per cent in 2007.
Oil and gas production remains the Russian economy’s core sector, accounting for 22 per cent of GDP. It plays a leading role in generating government revenues and secures a positive trade balance. In 2007, Russia was the world’s leading producer of natural gas, while oil production of 10 million barrels per day was second only to Saudi Arabia at 10.5 million.
Today, the Russian economy is one of the fastest growing in the world. In addition to high export commodity prices, recent economic growth is stimulated by an unprecedented boom in consumer-related sectors, especially in construction, retail, communication and information technologies (IT), as well as automotive sectors and services.
The domestic boom, natural resources, political stability and rich human capital are the main attractions for foreign investors. According to the Federal State Statistics Service, total foreign investments exceeded $120 billion US in 2007. The UK, Cyprus, the Netherlands, Luxembourg, France, Switzerland, Ireland, Germany, the US and the Virgin Islands remain the main investors in the Russian economy. The principal investment sectors are mineral resource extraction, manufacturing, retail, finance, real estate, construction, and communications.
“We are living in very interesting times,” says Slava Volkov, Managing Partner of Slava Executive Search & Selection, an executive search company with 17 years of experience in the Russian and CIS markets and the Moscow-based arm of IIC Partners. “It’s a real professional challenge to participate in the expansion of the Russian economy by assisting companies to establish or expand their businesses here and identify talent.
“The market situation is favourable for the executive search business, because all sectors are booming, most Russian and international companies operating in Russia enjoy double-digit profits and the demand for strong managers in all functions is high.
“On the other hand,” he says, “the Russian labour market brings its own challenges. It is extremely overheated, experiencing a management shortage, and has involved companies in a sharp ‘war for talent.’” Volkov says predictable results have followed:
- salary levels have become high in comparison with western markets and continue to grow, especially in Moscow and St. Petersburg, where most head offices are located;
- there are numerous cases in which local managers are paid more than in Europe for the same accountabilities; and,
- many local managers are spoiled by high salaries, becoming short-term oriented and tending to change jobs every two years, on average.
Meanwhile, the market provides increasing opportunities for job-hoppers.
“The business environment is so dynamic that succession planning doesn’t work,” Volkov says. “So, it’s not easy, nowadays, to fill a position in the short term and with the best quality. An international employer brand is no longer a strong retention tool. In this situation, we advise our clients to think about retention management immediately after hiring an executive candidate.”
New entrants into the Russian economy need to prepare for certain realities, says Tatiana Kapranova, Senior Consultant for Slava Executive Search & Selection.
“We see no signs of the job market cooling off in the near future and the candidates’ advantage in the market is expected to continue,” Kapranova says. “Along with large international companies, which have been successfully operating in Russia for a decade or longer, a lot of globally middle- and small-sized international companies are now entering the Russian market. However, newcomers should be prepared for considerable investments in office registration, office space, strong people and aggressive marketing. In this market, it’s not realistic to expect to hire a country representative who will work from a home office and bring profits to an offshore employer.
“One more important trend of the Russian labour market is the strengthening of local employers’ brands,” she says. “Russian companies are competing aggressively with foreign companies for talent. Domestic companies are rapidly expanding, integrating with global markets and launching local brands. As a result, some strong candidates see jobs with local companies as more creative.”
Volkov sees strong economic growth continuing in Russia, driven by the energy sector and generally increasing economic opportunity.
“Purchase power parity will increase and volumes of direct foreign investments will grow, ” Volkov predicts. “However, to maintain or even increase the current rates of growth, Russia has to continue investments in the modernization of equipment and infrastructure, reduce bureaucracy and corruption, as well as reverse population decline. The latter could substantially benefit from the government’s recently launched National Priority Projects in healthcare, education and housing.” |
