Macro level analysis

Taking into account our decision to introduce Neutrogena Wave in Russia, we conducted PESTLE analysis in order to investigate determinants of Russian environment.

The analysis revealed that Russian environment is quite risky for running the business, but at the same time it has a big potential for future development.

In the table below(*) words in bold present the most influential factors on the Neutrogena in Russia.

Strengths, opportunities	Weaknesses, threats
Political analysis
International integration WTO entry Strong China-Russia relations (*)	Political instability Bureaucratic pressure Tense Russia-US relationships
Economic analysis
Improvement of business environment Current account surplus WTO membership Long-term economic policy decree	Dependence on oil prices Unemployment Capital outflows
Socio-cultural analysis
Increase in social spending Modernization of the education system Social policy measures	Depopulation Rising poverty
Technological analysis
Development of nanotechnology A large number of skilled workers	Weak science and technology systems Poor performance on patents Piracy and poor infrastructure
Legal analysis
Favorable FDI policies Anti-corruption actions	Weak judicial system Unfair competitive practices Slowness of structural reforms
Environmental analysis
New environmental policy Environmental security system International cooperation	Water quality deterioration Difficulties with environmental monitoring

(*) Source: MarketLine 2011, 2012.
(**) Generally it is considered to be good for Russia, but such a strong cooperation with China might cause a threat for European and US products.

Political analysis

International integration 

During 2001-2009 Russia followed a strategy to become more economically open society. For this reason Russia opened its doors for large foreign investments that flew into the country. Closer integration with international community is explained by long-term strategy to modernize key Russian industries, as well as infrastructure. In 2009-2010 Russia made bilateral agreements with China, Japan, Iran, the US, and several European countries in energy, R&D and environmental issues areas. Moreover, during the European Union summit occurred in Brussels at the end of 2011 European and Russian sides agreed to strengthen cooperation of Russia and the European Union.
WTO entry 

The entry of Russia into the World Trade Union in 2011 would lead to opening of new trading opportunities between Russia and the rest of the world due to removal of existing trade barriers. Moreover, such entry would force Russia to follow certain regulations, which would raise the necessity to resolve big problems connected to corruption, independence of juridical system, and protection of minority shareholders.
Strong Russia-China relations 

Relationships between Russia and China became even stronger after the visit of Mr. Putin to China in June 2012. Economic cooperation of two countries lead to increasing trade between two countries. It is forecasted that by the end of 2015 the trade would reach 100 billion dollars, whereas by the end of 2020 this amount would be equal to 200 billion.
Political instability 

The wave of political protests started in Russia at the end of 2011, when United Russia party was selected the ruling one during the parliamentary elections. More protests occurred in March 2012 after Mr. Putin won a third term as a president. Violations, happened at the election’s day, provoked strong negative reaction from public and opposition. The criticism intensified after severe flooding in Krasnodar region in summer 2012, which carried away the lives of many people. All in all, growing opposition is strengthening the political instability in Russia nowadays.
Bureaucratic pressure 

Lack of transparency and unclear division of responsibilities among governmental institutions not only slow down the communication process between them, but also support prosperity of corruption in Russia, which hampers the development of business for many companies.
Tense Russia - US relations 

The Magnitsky’s Bill passed in June 2012 by the US senate started the conflict between US and Russia. US announced the list of officials and the police who are prohibited from entering the US. Those people were involved in the lawsuit over Sergei Magnitsky, who died in prison in 2009. Russia, in its turn, threatened that its response would be even harder. All of these leads to instability of relationships between two countries and might cause threat to further cooperation.

Economic analysis

Improvement of business environment

Russia focuses on creation of supportive business environment for international companies nowadays in order to enhance economic performance of the country. That is why programs aimed at protection of company rights, opportunities for investors’ privatization, and liquidation of corruption are currently under development.

Current account surplus 

The amount current account surplus fluctuated since 2000 but remained positive, which indicates strong economic performance of the country.
Dependence on oil prices 

According to a 2012 World Bank report, Russian federal budget relies heavily on oil prices. Nowadays 40% of state revenues come from oil and gas sectors. This fact indicates Russia’s dependence on export of raw materials and underdeveloped character of other industries.
Unemployment 

In 2011 Russian unemployment rate was equal to 7%, and it forecasted to be over 6% in 2012-2016, according to MarketLine.
WTO membership 

Russia has opportunities to improve its economy in the long-run in case it will be able to use smartly benefits provided by WTO, while improving investment, business and regulatory environment.
Long-term economic policy decree

In 2012 Mr. Putin signed the decree, which indicates the main areas of Russia’s economic, education, healthcare, social welfare and technology development in the next few decades. For instance, it was planned to increase labor productivity 1,5 times by the year 2018 in comparison to 2011. Moreover, expenditures on R&D were expected to increase 1,77% by 2015 compared to 2011. In case all the decrees would be implemented, it would be possible to talk about economic growth and prosperity of the Russian economy.
Capital outflows

Russia is characterized by high capital outflows due to low investment opportunities and political instability. It is crucial to establish safe economic climate in order to maintain and attract foreign investors.

Socio-cultural analysis

Increase in social spending

Regular increases of social security benefits occur in Russia. Labor pensions, child tax exemptions, spending on education, healthcare and housing programs are adjusted periodically. Despite the fact that such improvements still do not solve all the social problems, their further improvement may lead to the increase of the standard of living.
Modernization of the education system 

Following the strategy of creation of skilled labor force in Russia, the government focuses on modernization of educational system by improving accessibility, quality, efficiency of education, attracting foreign specialists to universities, changing educational technologies, content standards and assessment tools.
Social policy measures 

Mr. Putin highlighted series of social policy measures, such as reduction of mortgage loan rates, increase of real wages, provision of new homes to 60% of families to improve their living conditions. In case they would be implemented the level of society development would be improved significantly.

Depopulation

There is demographic crisis in Russia, which is more severe than in Europe. The population of Russia declined by 6 million people since 1992, and it is not the end of the story. According to MarketLine forecasts, it will further decline by 30% by the year 2050. Furthermore, high mortality rate of working age population become a challenge for Russian development. To improve such situation modernization of healthcare services is required in Russia in the nearest future.
Rising poverty 

There is a huge income gap between the richest and poorest citizens of Russia. The first ones earn up to 16 times more than the second ones. Furthermore, according to Rosstat’s data, the minimum wage in Russia is about 155 dollars per months, whereas the minimum cost of living is around 210 dollars. What makes the situation even worse that the percentage of poor people in Russia grows from year to year.

Technological analysis

Development of nanotechnology 

Russia focuses on development of nanotechnology nowadays. The country not only creates projects on this topic inside the country, but also it cooperates with other countries, such as South Korea and Singapore, on developing of nanotechnology. Created partnership with two mentioned countries would help Russia to enhance its technological level and to promote High tech products abroad.

Poor performance on patents 

Russia performed poorly in registration of patents for many years. According to MarketLine 298 patents were registered in Russia in 2011 compared to 108,626 registered in the US in the same year.
Weak science and technology systems 

The science and technology system in Russia is out of line with international standards due to language barriers, the lack of presence in international meetings, political restrictions, corruption and remains of Soviet times.
A large number of skilled workers 

The number of skilled science and technology workers in Russia still surpasses that number in the US, despite the growing migration trend. In case Russia provides its scientists with necessary working conditions and supportive programs, the level of technological development and R&D might increase significantly in the long run.
Piracy and poor infrastructure 

There are problems with copyright protection in Russia that is why the piracy prospers in the country, making it difficult to start any exclusive R&D. The government put lots of attention to social and military development, passing by the development of scientific infrastructure.

Legal analysis

Favorable FDI policies 

The government established policies, which support the inflow of FDI. In order to attract foreign investors Russia organized special economic zones, high technology parks and promising tourist regions.

Anti-corruption actions 

The new anti-corruption bill signed in 2011 raised the level of fines for bribing up to 100 times the amount of the bribe. The maximum fine, however, is equal to 18,3 million dollars. It is hoped that such a bill would help to diminish the bribery level of Russia.
Weak judicial system 

The juridical system of Russia suffers from the high level of corruption, complexity, understaffing, lack of funding, and slowness of decisions’ implementation.
Unfair competitive practices 

Remains of Soviet Union still negatively affect Russian business. Small Russian companies face tougher competition laws due to the fact that large monopolies might influence decisions of authorities. Moreover, local influence groups can manipulate the actions of local authorities, which creates less favorable investment climate for foreign companies, which, for example, are forced to pay additional fees.
Slowness of structural reforms 

The Russian governance system lacks transparency, which hampers business development of foreign investors. Despite the fact that several implemented programs eased the life of foreign companies in Russia, the increase of clarity and consistency is still required.

Environmental analysis

New environmental policy 

The new environmental policy was announced in 2012. According to this document, punishments for environmental crimes would be intensified and liability for environment legislation’s violations would be increased in Russia.
International cooperation 

Since 2008 Russia made agreements with several countries ( China, Japan, Czech Republic, etc.) to develop technologies aimed at improvement of environmental protection and conservation.
Water quality deterioration

There is a growing problem of water quality in Russia, especially in the places close to big cities. According to the government health public data, 20% of drinking water samples are below the chemical quality standards, and 9% did not meet bacteriological standards. This leads to growing number of intestinal infections of the Russian population from year to year.
Difficulties with environmental monitoring 

There is existing problem of communication between two Russian agencies responsible for environmental management – Hydromet and General Department of Natural Resources and Environment Protection (GDNR). These two institutes do not cooperate properly, which lead to inefficiency of environmental monitoring and inaccuracy of data.
Environmental security system 

Russia drew its attention to pollution problem and human-made environmental disasters. That is why the government plans to create an effective security system, which will provide solutions to environmental problems. Clean technologies, disposal of waste, minimization of danger from oil pipelines are now in main focus of the government.