News & Updates
Results of JETRO’s 2016 Survey on Business Conditions of Japanese Companies in Russia
Earnings outlook improving Slight increase in plans to expand business
Dec 09, 2016
Between October 7 and November 4, 2016, the Japan External Trade Organization (JETRO) conducted its latest survey on the business operations of Japanese-affiliated firms in Russia. We received 83 valid replies (a 75.5% response rate) out of 110 to whom we sent questionnaires. The question items covered areas including:
- Status of operations
- Business outlook for the next one or two years
- Administrative issues
- Benefits and risks of investment environment
- Status of FTA utilization
- Interest in eight-point cooperation plan
Below is a summary of the results.
- Regarding the forecast for operating profits in 2016, companies expecting a surplus came to 62.7%, a 13.2-point increase from the previous year. This is the first time in the past four annual surveys that more than 60% of respondents have expected a profit. The most common factor cited for the improvement of operating profits was increased sales, while responses related to restructuring, such as cost reduction, declined compared with the previous survey. With the prospect of the Russian economy having bottomed out, business confidence has been recovering. Regarding the forecast for operating profits for 2017, the largest number of companies expected to see the status quo remain (54.2%).
- Regarding business development in the next one or two years, 51.8% of companies expected to expand. It was the first time in two years that more than half of respondents expected their business to expand, a strong indicator of recovery. The main reasons cited for projected expansion are “increased sales” and “high potential for growth.”
- Although most major administrative issues are improving, “sluggishness in major sales markets” (64.6%) on the sales and management front, as well as “fluctuations in the exchange rate between the local currency and the dollar/euro” (69.5%) on the financial, monetary and foreign exchange front, was pointed out.
- Regarding the eight-point cooperation plan that Japanese Prime Minister Shinzo Abe presented to Russian President Vladimir Putin during the Japan-Russian Summit Meeting held in Sochi in May 2016, 62.2% of companies expressed interest in engaging in at least one point of the plan. Among the eight points, companies showed comparatively strong interest in Russia’s industrial diversification, especially in the manufacturing industry, as well as urban environmental improvement and development in the Far East region, mainly in the non-manufacturing industry.
- Operating profits: Companies expecting surplus exceed 60% for first time in last four surveys
- Regarding the forecast for operating profits in 2016, the majority of respondents—in both manufacturing and non-manufacturing industries—expected a surplus (62.7%). This is the first survey marking a value of more than 60% in the past four years. As for the outlook for 2016 in comparison with the results from the previous year, approximately 80% of companies reported an improvement or that they broke even. Respondents indicating a downturn dropped by 15.2 points to 18.1%. The Russian economy is showing signs of recovery after bottoming out.
- Among factors for improved operating profits, the rate of “increased sales in local markets” had surged by 22.4 points to 61.8%, recording a majority for the first time since 2014. Responses indicating a reduction in costs declined by a range from 15 to 20 points from last year. There was also a decrease in the number of companies taking backward-looking measures in performance improvement. Regarding factors for declining profits, the two major responses were “decreased sales in local markets” (66.7%) and “exchange rate fluctuation” (60%), although those answering with “exchange rate fluctuation” decreased by 11 points from last year, reflecting the stability of the exchange rate.
- Regarding operating profits forecast for 2017, the highest percentage, at 54.2%, answered with “breakeven,” while those answering with “downturn” plunged to 6%—roughly a third of the figure marked in the previous survey. Companies are likely sensing that the Russian market is stabilizing, but are skeptical of a rapid recovery. Among reasons for projected improvement, “increased sales in local markets” was overwhelmingly cited. Meanwhile, “decreased sales in local markets” was most commonly cited among reasons given for a downturn, albeit at a 10.6-point decrease from a year earlier.
- Business outlook: Majority anticipate expansion. Potential growth in market highly expected.
- Regarding the business forecast for the next one or two years, companies expecting expansion (51.8%) exceeded those expecting the status quo to remain unchanged (47%). Although the ranking of these answers flipped from last year, it is clear that nearly half of respondents have a cautious outlook for the future.
- Among reasons given for expected business expansion, “increased sales” (81.4%) ranked the highest, followed by “high growth potential” (53.5%). These numbers indicate that many companies have a positive view of the Russian market.
- Major administrative issues being improved
- Among sales and management issues, “sluggishness in major sales markets (consumption downturn)” (64.6%) received the most responses. On the financial, monetary and foreign exchange front, “fluctuations in the exchange rate between the local currency and the dollar/euro” had the largest response, followed by “fluctuations in the exchange rate between the local currency and the yen.” However, reflecting the stability of the ruble, both rates decreased by more than 10 points from the previous year.
- As for issues in the trade system, “complex procedures” remained highly cited. However, the rate of those responding with “time-consuming customs clearance” decreased by 15.8 points from last year. For questions on whether the Russian authorities have improved the customs system, many companies reported that it is unchanged. Meanwhile, a few respondents indicated an improvement in “computerized customs procedures” and a “shortened time for customs clearance.”
- Regarding local production issues, “difficulty in local procurement of raw materials and parts” (38.9%) was most commonly cited, while an improvement in infrastructure can be inferred due to a lower percentage of respondents citing “inadequate logistics infrastructure” and “shortages or outages of power.”
- Regarding the merits in the investment environment, “market size and potential” (75.6%) was most cited by a large margin. Although its rate was slightly lower than that of a year earlier, potential for growth in the market is likely still appealing to Japanese companies. Moreover, “stable political and social conditions” (20.7%) gained 15.3 points from last year. As for the risks, “unstable exchange rate” was most commonly cited, with “unstable political and social conditions” decreasing by 18.4 points from the previous year.
- Eight-point cooperation plan: Interest in Russia’s industrial diversification, improvement of urban environment and industrial development in Far East
Among respondents, 62.2% answered that they may address aspects described by the eight-point cooperation plan, which Japanese Prime Minister Shinzo Abe had presented to Russian President Vladimir Putin at the Japan-Russia Summit Meeting held in Sochi in May 2016. In the manufacturing industries, particularly in automobiles, the largest number of companies reported “promoting industrial diversification and enhancing productivity in Russia.” In the non-manufacturing industries, “developing industry and export bases in the Far East” and “developing comfortable and clean cities that are easy to reside and be active in” were commonly cited.
Europe, Russia and CIS Division
Mr. Umetsu, Mr. Asamoto and Ms. Shibukura
Tel: (03) 3582-1890 E-mail:firstname.lastname@example.org