Pest Analysis: Business Environment in Russia
Russia, with a wide base of natural resources and one of the BRIC countries is seen as an attractive market to gain a toehold in by global investors including the United Kingdom’s retail industry. This report aims to analyze the business environment in Russia for British retailers using the PEST analysis. The PEST analysis will focus on four different aspects of the business environment which are the political, economic, sociocultural and technological factors.
The political factor will consider the level of corruption in Russia and how it affects the retail industry seeking expansion. According to the corruption perception index 2010, Russia ranks at the 154th spot out of 178 countries and is tied with 9 other countries such as Cambodia and Kenya (Transparency International, 2010). Moreover, the Interior Ministry in Russia also reported that the average bribe paid in 2010 was $1450 and approximately $300 billion of bribes is received every year (Havocscope, 2010). This widespread corruption is starting to repel many foreign investors despite its lucrative market. Retailers have to face endless bureaucratic procedures as these are just a pretext for officials to get bribed (Saltmarsh and Kramer, 2009). For example, the Swedish company, IKEA is facing problems with its stores permits as the company refuses to bribe the safety inspectors (Meyer, 2011). This case is further enforced by the research of EPFR Global of Cambridge, Massachusetts, which discovered that the reason Russia had less investment fund inflows compared to the other BRIC countries was largely due to their corrupted legal system. The political risk and government issues in Russia are discouraging foreign companies to expand there as the Russian market is deemed unstable and insecure (ibid.).
Next is the economic factor which includes economic growth, unemployment rate and statistics regarding the retail sector. Currently, Russia is the 7th largest economy in the world in terms of purchasing power parity (CIA, 2011). The World Bank stated that ‘Russia is likely to grow by 4.2 percent in 2010, followed by 4.5 percent in 2011 and 3.5 percent in 2012’ (The World Bank, 2010, pp. 2). They went on to claim that Russia would increase in world growth by 3.5% in 2010, followed by 3.2 % in 2011 and 3.6 % in 2012 (ibid.). Furthermore, Russia has the 7th largest labour force in the world. The unemployment rate has also improved from 8.4% in 2009 to 7.6% in 2010 (CIA, 2011). These statistics signify that the Russian economy is moving in an upward trend. Based on the Global Retail Development Index (GRDI) carried out by management consulting firm A.T. Kearney (2011), Russia managed to clinch the 2nd spot in 2009 but dropped to the 10th spot in 2010. Although Russia fell to tenth on the GRDI, it still remains as one of the most high priority market for retailers. Besides that, Russia’s Federal State Statistics Service (2011) showed that the retail trade turnover Russia has also increased from 3693,2 billion rubles in 2009 to 4191,0 rubles in 2010 proving that the retail market there is very profitable.
The sociocultural factors on the other hand will consider the perceptions of Russian consumers in addition to their population growth, income distribution and living standards. According to the research carried out by Huddleston et al. (2011, pp.179), Russians ‘do perceive differences in product quality based on country of origin’. They perceived that products from Western marketers would be of higher quality compared to their local products. This is an advantage that the British retailers can capitalize on when introducing their brand into the Russian market. Russia may be the largest country in the world, but it also has a declining population with an amount of 145 million in 2003 reducing to...