Country Risk Analysis

y">2.3.1. Russian Federation

Russian Federation is very multinational country with more than 100 nationalities. The major  population is Russians - 81,5%, Tatars - 3,8%, Ukrainians 3%, Chuvash 1.2%, Bashkir, 0.9%, Belarusians, Udmurt, Kazakhs, Moldovans, others - 9,6%. Official and most commonly spoken language is Russian, in minority are Ukrainian, Belarusian, Armenian, Tatar, Uzbek, Georgian, etc.more than 100 languages.  There are several religions in Russia: Orthodox, Muslims, Protestants (Lutherans, Baptists, Seventh Day Adventists, Pentecostals, Jehovah's Witnesses, etc.), Buddhists (mostly in Tuva, Buryatia and Kalmykia), Jews and others. About 60% of the population - are atheists. (Worlds.ru 2010) In the last years, the Russian population increased dramatically provided migration gain from ex Soviet Republics – Azerbaijan, Tajikistan, etc., forming the new layer of lower-paid labour force. Thus the labour force in RF is 75.7 million people, occupied in agriculture 10%, industry sector 31,8% and services sector 58.1% with average salary 19485 rubles per month, which are equal to 415 pound.  The level of unemployment is 8,8% on the end of 2010 estimation.(CIA, 2010)

According to classification T.I. Zaslavskaya (Doctor of Economics), based on specific case studies, there are a few main social groups which Russian society is formed of. The most privileged, but the smallest (7%), is a "top layer", which include the ruling political and economic elite ( 0.5%) and 6,5% of large and medium entrepreneurs and directors. "The middle layer” (20%) represent small entrepreneurs, managers of medium and small businesses, mid-level bureaucrats, military officers, the most skilled professionals and workers. The largest layer is the "base layer" ( about 60%), consisted from professionals, assistant officers, employees of technical personnel, workers of mass occupations in trade and services as well as workers. The "lower layer" (8%)  is represented by semi-skilled and unskilled workers, the unemployed, refugees, etc. And finally, the last layer in the ranking of Zaslavskaya is known as "social bottom" (5%) and includes any types of criminals (thieves, gangsters, crooks, kept a brothel, drug dealers and alcoholics, vagrants, tramps, etc.) (The social structure of modern Russian society, 2010)

2.3.2. Republic Bashkortostan

Bashkiria’ population is rather mixed and consists from  Russians – 39%, Bashkir- 22, Tatars – 28%, Chuvash 3%, Maries- 2,7, Ukrainians 3%, Udmurt, Belarusians, Kazakhs, Moldovans, Germans and others - 9,6%.  96,4% the population of Bashkortostan fluent in Russian, Bashkir owns 25.75%, Tatar - 34%  of the population (Krilova A., 2010).  Level of unemployment by the end of 2010 was equal to 2,26% , from whom 73% were people hold bachelor degree or college education. (REGNUM, 2010)   The average monthly salary in the Republic is 15 170 roubles (app. 322 pound).

The government of Republic Bashkortostan highly supports all type of social activities and events. Special programs for young people and their involvement into sport are taking place all over the Republic. Bashkiria is also concentrated on education system, schools renovation, public health services, construction of high quality roads and other important issues such as increase public social protection, for which the Republic uses its internal funds. (450 years with Russia, 2010)

Besides this, the government of Bashkiria set up a program, aiming at support small and medium enterprises within the Republic. The main requirements are: possession of 25% of fund needed for the enterprise; feasible business plan and no debts to the state. The program, started in 2009, has already helped more than 140 entrepreneurs to launch a business. (Shabalovskaya, 2009)

       2.4. Other Risks and Issues

From ‘ease of doing business’ perspective (including such indicators as ‘business regulation that record the time and cost to meet government requirements in starting and operating a business, trading across borders, paying taxes, and closing a business’) Russian Federation estimation rate rose from 97.0 in 2005 to 118.0 in 2009 (GMID, 2010) This means that with government program “support for small/ medium businesses”, including foreign investors and entrepreneurs, the investment climate in Russia becomes more friendly.

The exchange rate risk might be considered is moderate, due to the fact that from rapid fall of Russian currency in 1998, rouble did not show considerable fluctuations in respect to other currencies, since Russian’ government policy employs various hedging mechanisms and futures arrangements. (Meldrum, 2010)

Uncertainty regarding political situation in Republic Bashkortostan, from ordinary people’ perspective, is result of the fact that the new President is unfamiliar to them and there is a question of what to expect from the newcomer. Though half-a-year of presidency showed some positive changes in economy, social and environmental spheres, it is yet difficult to say with confidence what decisions will be taken and what will follow.  

        
 
 
 

    3. Competition analysis

Due to the remoteness to the cities and specific segment of targeted customer, the main competitors of the proposed business should be found within direct competitors, situated in the area. There are 6 eating places in total, 3 from which operate in skiing season only, since are located within the ski resort, moreover, required a payment to enter the territory. “Après ski”; “Besta”; “Mars” represent après ski cafes with rich drinks and limited food menu, situated on the top, in the middle and at the bottom of the slops. The other two places (“Non-stop” and “Bashkirian Cuisine”) can be defined as restaurants with a wide range of drinks and dishes, situated on the health and hotels complex “Abzakovo” territory, 1,5 and 3 km away from the ski resort respectively.

The main competitive advantages of the proposed establishment are that this type of restaurant (café) as well as providing fast food service can also be a place where one can take a seat and enjoy the meal. It also can be a good option for families with children. The other advantage is location, which is very convenient; the restaurant is on the way to the health resort, in the mean time there is no need to turn away from the main road. For passers by or new customers, no troubles in finding the place, no following sings and no hiccups with parking.

The main stress as per marketing positioning should be made on healthy, fast and good value food. As every new business, in order to attract customers, advertisement of the location and product is recommended to take place in nearest cities (Belorezk, Magnitogorsk), preferably on entrance to the cities; on special cites promoting “Abzakovo” as a particular holidays’ destination and on the local radio with the higher rating.

In terms of legislation, in Russian Federation and in the Republic Bashkortostan in particular, companies with foreign investments are usually formed on the base of joined venture or Limited Liabilities Company. From practical point of view, it is very important to realize that that particular destination, due to the significant remoteness from the capital, has a specific way of doing business, which is mainly based on relatives/ friends networking. In other words, in order to establish a successful business, there is a need for finding a suitable local partner with a reliable reputation and good social communications, especially within Bashkirian local authorities.

          
 
 
 
 

    

    4. Conclusion and Recommendations.

Hospitality industry in Russian Federation, still rather underdeveloped, carries a great potential for investments. In the mean time, in eyes of Europe and US, this country is still wild in terms of business manners and legal regulation, thus bears certain risk. However, the big players of investment arena consider Russia as an attractive emerging market along with Brazil, India and China.

Prerequisite for successful development of the Travel and Tourism industry in Russia is a long-term planning at the federal level. From the Russian government, the tourism and travel should be given a priority status; entrepreneurs require finding a balance between business interests and the needs of the customers, their culture and environment and, finally, all participants must share the goal of long-term growth and prosperity. (WTTC 2010)

Russian Federation, spread over a few million kilometers with many administrative divisions and wide range of nationalities and religions, has very diversified cultures. Depending on part of the country, inhabitants’ mentalities differ fundamentally, that is way, to get accurate data upon certain part of Russia, a research or any kind of analysis must be conducted not only on Russia, but on particular destination also.

In regards to proposed business, before making a decision on possible adoption of the investment project, the thorough feasibility study and marketing research should be undertake on the local scene. In case of positive results, the further investigation is recommended to be carried out with preparation detailed business plan and marketing strategy, adapted to specific mentality of targeted customers.  These measures are to help future “allocation of resources according to strategic priorities; choice of competitive methods; establishment of human resource, informational technology, operational and marketing management systems and organization culture. Intangible assets (human resource, IP, branding, innovation, know-how management and entrepreneurship) must be also in the main focus of strategic management”. (Olsen, 2008, p.479) 
 
 
 
 
 
 
 
 
 
 
 
 

5. References

 

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www.abzakovo.com