What now for Russian gold rush?

One of the key questions consultancies will be asking themselves at the beginning of 2009 is: where is all the work going to come from? Had you asked this question 12 months ago, one of the first answers would have been: Russia.

At the beginning of last year, the Russian economy, propped up by vast supplies of petroroubles and cheap loans, was booming. The country, which had effectively gone bust in the late 1990s, boasted a $1.3tn (£857bn) economy and foreign currency reserves of nearly $480bn (£316bn).

Now the picture is significantly changed. While the credit crunch has battered Russia’s economy in the same way it has other countries’, the real sucker punch has been the slump in the oil price. In December, Urals crude was trading at around $40 (£26) a barrel, whereas Russia’s national budget had pencilled in a price of $70 (£46), according to The Economist. So, what does this mean for design consultancies working in Russia? Has new business dried up? Is it time to cut and run? Not according to those who know the market.

Bill Wallsgrove, a London-based partner in Russian consultancy TNC, says, ‘I still think there will be more work coming out of Russia than out of the UK next year. Russia’s economy is still expanding and there is still a lot of money sloshing around the system.’

Wallsgrove adds that he sees the development of infrastructures like broadband and telecommunications leading to more work in the regions, away from the traditional economic centres of Moscow and St Petersburg.

Tony Allen, chief executive of Fortune Street, agrees. Allen has been working in Russia since 2001, and says some 40-50 per cent of his consultancy’s work has come from Russia over the past five years.

He says, ‘We will keep working there. We think we will still be getting business from people we already have relationships with. Quarter one will be pretty quiet, though.’

Allen adds that he sees opportunities in some of the former Soviet republics. ‘Places like Kazakhstan are less connected to the economic problems in Russia, as their economies are slightly less developed,’ he says.

‘In places like Almaty [the main commercial centre in Kazakhstan], you will find that there is a similar level of entrepreneurialism as in Moscow, but that it is not quite as hard to break into.’

Jonathan Cummings, marketing director of Start Creative, says his consultancy remains ‘100 per cent committed’ to the Russian market, where it has worked on projects such as stores for phone operator MTS.

However, Cummings says that while Start will continue to service existing clients, it will not focus on business development in Russia.

‘We had a few opportunities there that were put on hold, and now we’re toning down our business development activity. We’ll continue to monitor the situation there, though. It will come back,’ Cummings says.

And Design Business Association chief executive Deborah Dawton, who led a trade mission to Moscow last May, says plans for a follow-up this year are in the balance.

She says, ‘There were plans to run the event for three consecutive years, but unless we were convinced it would be worthwhile, we would delay it until 2010. We’re currently taking advice from UK Trade & Investment on the effects of the economy on potential work, and its advice is that it hasn’t dried up.’

The consensus seems to be that, while there are still opportunities in Russia, they are now harder to get. Allen makes the point that the economic situation has exacerbated the problems that foreigners in Russia already faced, such as the language barrier, currency exchange, and cultural and business differences.

He says, ‘Contracts are often available in pounds or dollars, but they always start off in roubles, and with such a volatile currency foreigners have to be very careful what they’re dealing with.

‘In the UK, it’s so much easier to just jump in a car and go to see someone if there’s a problem,’ Allen adds. ‘In Russia, the bureaucracy can get quite deep.’

Russian national Elena Chuvakhina, Fitch’s head of business development for Russia, has the obvious advantage of being familiar with the market. She heads up a four-strong Russian team based in London.

She says, ‘As Russia is still a new economy, things like branding, marketing and PR can get quite tight in a crisis. We have to put more effort into explaining why managing the brand is still important.’

Chuvakhina highlights one key opportunity for consultancies this year. ‘There will be a lot of Russian companies acquiring each other and merging in 2009,’ she says. ‘Obviously, from a branding point of view, this is good, as there will be new companies setting up.’

‘Branding will continue in Russia this year,’ she concludes. ‘It will just have a different flavour.’

Russia’s economy

• Industrial output fell by 8.7% from November 2007 to November 2008
• The rouble lost around 15% of its value over the last six months of 2008
• The Russian stockmarket fell by around 70% between May and December 2008
• Inflation stood at 13.8% in November 2008

Source: The Economist