Russia Mega Trends: Macro to Micro Implications for 2020 May 2012 1
Introduction to Mega Trends 2
Definition of a Mega Trend What is a Mega Trend? Impact of Mega Trends on Key Organizational Functions Mega Trends are global, sustained and macro economic forces of development that impact business, economy, society, cultures and personal lives thereby defining our future world and its increasing pace of change 3
Mega Trends in Russia 4
Economy: Russia Beyond Moscow The Next Game Changers 5
Moscow Emerging Mega City Fast Forward Moscow City Facts: Did You Know?.. 25-30% of Russia s GDP will be produced in Moscow (2025) 20% of Russian population will live in Moscow agglomeration The city will grow 2.5 times (Big Moscow) 150km of new tracks and 70 stations will be opened in Moscow Metro What Are The Implications? Global economic force on its own Hub and spoke business model Diverse and dynamic socio-economic mix Tech-savvy citizens connected 24/7 Mega-corridors: Moscow St. Petersburg, Moscow Nizhniy Novgorod 6
Russia Beyond Moscow The Next Game Changers 5 to 7 cities will emerge as alternative growth centres by 2020, bridging the welfare gap between Moscow and the regions Saint Petersburg Moscow 1/3 of the population will live in the Eastern part of Russia in 2025 Krasnodar Yekaterinburg South: Sochi, Krasnodar, Rostov Development of tourism and agricultural business Ural: Yekaterinburg, Perm Logistics, finance, machine building Novosibirsk Krasnoyarsk Khabarovsk Siberia: Krasnoyarsk, Novosibirsk, Tomsk Oil and gas, healthcare, energy, innovation Vladivostok Far East: Vladivostok, Nakhodka, Khabarovsk Modern infrastructure and logistics facilities 7
The New Locomotives of Growth Vladivostok San-Francisco in the Far East Open sky status transit between China and US Modernization of Vladivostok Marine Trade Port Educational, scientific, travel and business centre linking Europe, Asia and America Tomsk 3.0 Cognitive City of the Future Post-industrial, innovative economic development Strong scientific and educational complex Comfortable living environment and social infrastructure Yekaterinburg The City of Ural Economic and financial centre Important transportation hub multi-modal logistics, the fastest growing airport Solid industrial base attracting investments 8
Social Trends: Prosperity, Education and Social Mobility 9
The Middle Bulge Middle Class Boom in consumer expenditure, stimulating the overall economy growth The largest consumer markets in Europe Higher demand for intangible products services, leisure and entertainment, etc. Annual Disposable Income* (Russia), USD per capita Wellness and wellbeing Healthy nutrition Healthier lifestyle sport and fitness Social mobility She-economy Small and medium businesses Reverse brain-drain Education RUB 140.5 billion investment From quantity to quality Corporate and federal universities, national research centres 2005 2010 2015 2020 * Current prices, year-on-year exchange rates Source: Frost and Sullivan, Euromonitor International, Rosstat 10
Small and Medium Business Engine for Innovative Growth Positive trends 1.7 m SMEs, 4 m individual entrepreneurs 17 m employed, 22% of working-age population 21% of GDP 2000-2005 growth 7%, 2005-2009 40% Restraints Only 5% have international contacts Only 2% - innovative SME US 40% of GDP, Europe 60% of GDP Barriers tax system, lack of available financing, corruption, red tape What kind of support measures for SMES would be most effective? % of responses Source: Chamber of Commerce of Russia and the Ministry of Economy Monitoring of SME sector (June 2011), Opora. 11
Healthcare as a National Security Doctrine 12
Facing Demographic Crisis Fast Forward Facts: Demographics Life expectancy among the lowest in the developed world Unhealthy lifestyle and inefficient healthcare system Number of population decreased by 7 million in 1991-2009. 2025 forecast: optimistic/pessimistic scenarios ~139/131 million Source: WHO, UN, Rosstat, Frost and Sullivan Nation s healthcare becomes THE most urgent problem in Russia 13
Pharmerging Economy Pharma Today Low per capita consumption of drugs High dependency on imports Tomorrow One of the fastest and most attractive pharmaceutical markets Locally-produced drugs, including innovative and biopharmaceuticals Manufacturing of pharmaceuticals in Russia 2010 2020 CAGR 2011-2016: 11-14% Foreign Pharma 2020 Russian Source: IMS Health, Frost and Sullivan 14
Equipping the Healthcare System Medical Equipment Today Installed base 4 MRI and 9 CT scanners per 1 million population Estimate in order to meet the diagnostic needs 14 and 25 Lack of qualified personnel (e.g. radiologists) Dependency on imports Tomorrow Steady market growth Localization of production and technology transfer CAGR: 7-8% MRI magnetic resonance imaging CT computer tomography Source: Frost and Sullivan 15
Infrastructure Development 16
The most ambitious infrastructure development programme in the world New and improved business opportunities Population mobility Economic development of the Eastern part of Russia 17
Up in the Air Investment 2012-2019: RUB 107 ($ 3.55) billion Today: 63% of the Russia s territory has no alternative to air transport. 80% of airport infrastructure is outdated and requires modernization 70% of runways were built over 20 years ago. Tomorrow: Tourism in the North Caucasus 4 new and modernization of 6 existing airports Vladivostok air hub in the Far East Source: Rosstat, IATA, Frost and Sullivan 18
Fools and Roads Investment 2012-2019 RUB 1.71 trillion ($ 57 billion) Today: 29% of federal roads are overloaded, in Moscow 60% 46,000 settlements (2.7 m citizens) do not have access to hard-surfaced roads 23.5 deaths per 100,000 people caused by road accidents (Europe 9.5) Tomorrow: Construction/modernization of ~20,000 km of roads, including toll highways Trans-Siberian route development and emergence of multi-modal hubs The Silk Road of Modern Age: Europe to China highway via Kazakhstan Automotive Industry Over 4 mln new car sales in Russia by 2020 Logistics Industry To reach over $100 bn by 2020 Source: Ministry of Transportation, Frost and Sullivan 19
Back on Track Investment 2012-2019 RUB 407 ($ 13.5) billion Today: Low railway network density Low cargo delivery reliability 88-90% Tomorrow: 20,000 km of new railway links by 2030, +24% in railway network density The dawn of high-speed railway era 1,500 km with speeds up to 350 km/h (St-Petersburg Moscow Yekaterinburg) Modernization of rolling-stock (passenger and cargo) Siemens Desiro trains to be manufactured in Russia Railway modernization in Russia attracts foreign players Talgo Spanish manufacturer to supply variable gauge trains for Moscow- Berlin and Moscow-Kiev routes Alstom Supplier of Allegro train on St.Petersburg-Helsinki direction, is eyeing further expansion in Russia Source: Ministry of Transportation, Frost and Sullivan 20
e-russia 21
Modern Russia Implications for Government, Business and Society: Accountable and transparent government Transparency for stakeholders in G2G and G2B transactions, bidding process Improved city planning process Cut red tape and save time: on-line G2C services (taxes, utility bills) Reduce operational costs for businesses Efficient delivery of a long range of public services 24/7 education and healthcare New business models 22
E-Government UN e-government index 2012 www.government.ru solid and representative, rich technical features www.gosuslugi.ru portal One Stop Shop for e-services, ~500,000 monthly visitors 27 th spot in the world The leader in Eastern Europe, only behind Japan and US among the largest populated countries +32 positions in global ranking in 2 years (!) RUR 80 ($2.7) billion investment for government informatization 60% of the population to use e- government services in 2020, up from ~11% presently Note: * - with a population over 100 million people Source: United Nations 23
e-society e-learning Legal status of e-learning approved by the new Law on Education (2012) 20-25% growth of e-learning services in the coming years e-healthcare RUR 24 ($ 0.8) billion investment Electronic health records system roll-out in pilot regions Telemedicine and m-healthcare remote patient diagnosis, monitoring and treatment e-commerce ~ 40% annual growth Overcoming general distrust, expansion in the regions and all age-groups Solving logistics and payment issues New business models (private shopping clubs, group purchasing, penny auctions) 24
Made in Russia 25
Made in Russia 2.0 Before After Innovative production in Russia, % of GDP REBRANDING Innovative products in Russian exports, % 26
From Raw Materials Supplier to Innovative Exporter Strong dependence on hydrocarbon exports Before After Export of innovative goods and services Localization of foreign manufacturers R&D funding Technology transfer Localization of manufacturing in Russia will trigger its innovative growth 27
Back to Russia Energy Healthcare ICT Automotive Energy efficient power generation turbines General Electric and Rostekhnologii High performance gas turbines Siemens AG and Silovye Mashiny CT scanners Philips Healthcare and Elektron, GE Healthcare and Rostekhnologii Big Pharma Mobile base stations for LTE networks NSN, Rosnano and Mikran IPTV set-top boxes Cisco Systems (manufactured by Jabil) Localization of automotive plants Railway cars Alstom and Siemens AG Automotive components Valeo, Robert Bosch 28
Technology Leapfrogging 29
Space Jam Automotive & Logistics: Navigation assistance Traffic management Usage-based insurance In-vehicle infotainment Asset tracking Real-time stock management Air-traffic control Automated guidance of machines Other: Tracking (personnel, children, criminals) Remote patient monitoring Improvement in weather prediction Mobile satellite services Increase in broadband speed ERA GLONASS is to become fully operational by 2014-2016 and create multiple innovative applications 30
Wireless World 4G Mobile Technology High rates of data transmission Enabling integration into any wireless platform Russia at the forefront of LTE deployments globally Broadband Internet Access, % of Households RFID / NFC Potential economic benefits to outweigh implementation costs Multiple applications retail, logistics, toll collection, fare payment Security Transportation and critical infrastructure protection CCTV surveillance integrated into the wireless platform 2010 2015 2020 Market growth of IP-based solutions Wireless intelligence IT infrastructure to be around 80% wireless 31
Biopharmaceuticals and Beyond Biotechnology-2020 RUB 1,163 ($38.6) billion Today 0.1% of the global biotechnology market 80% import dependence Focus on pharmaceutical biotechnology Tomorrow 5% market share in the global biotech market Two-fold reduction of imports Red, White and Green biotech Red Biotech - Pharma White Biotech Industry Green Biotech - Agriculture Fast-growing, attractive for investment Large-scale projects Generium, Bioprocess, Chemrar, Biocad Opportunities import substitution of generics, innovative drugs Virtually non-existent Third wave of biotech Opportunities biofuels (agricultural and forestry waste), chemical industry (biopolymers), food and feed (ingredients, supplements) Legal uncertainty barrier for growth Opportunities increase yields of agricultural crops, reduce their vulnerability to diseases, improve nutritional quality of food (amino acids) 32
Nano-Russia NANOMATERIALS Large scale production of silicate nanocomposites (Bryansk, February 2012) Rosnano Large number of innovative SMEs, e.g. Novosibirsk Nanomaterials metal nanopowders. Global Scanning Probe Microscopes Market, $ million CAGR 15% NANOINSTRUMENTATION Worldwide spending on nanotechnology will lead to sustained growth in demand NT-MDT (Zelenograd) manufacturer of world-class scanning probe microscopes (SPM) since 1989 Advanced Technologies Centre manufacturing of SPMs (Moscow, December 2011) Rosnano. 2009 2012 2015 2018 Source: Frost and Sullivan, NT-MDT, Rosnano 33
Smart is the New Green 34
Smart is the New Green Smart Cities Smart Technology Smart Infrastructure Smart Energy Smart Mobility Smart Buildings Smart Grids Smart Clouds Smart Materials Smart Bandages Smart Phones Smart Meters 35
The Lighting Revolution Today LED 3-5% of the market due to high cost Smart Lighting Tomorrow LED prices are to decrease 30% by 2015 Russia is to phase-out inefficient light bulbs: 2011 100W, 2013 75W LED vs. Incandescent bulbs potential energy saving of 80% Intelligent lighting systems wireless networks to remotely monitor and control street lighting, motion controls, dimming sensors, on/off scheduling. LED Lighting Market Revenue, World CAGR 20% LED-pioneers in Russia Source: Frost & Sullivan Russia is to leapfrog from incandescent light bulbs to intelligent LED lighting systems 36
Saving the Energy Smart Meters and Grids Today 13-15%energy loss during electricity transmission 70% of installed equipment import Tomorrow 40% energy efficiency increase by 2020 (Federal Law #261) Incentives for localization of production to reduce share of imports to 40% Beyond electricity pilot installations of water smart meters (Mosvodokanal) Installed Base, million units European Smart Meters Market Price Projection, $ Smart Grid projects in Tomsk, Sochi, Perm, Belgorod Source: Federal Grid Company, Frost & Sullivan Intelligent grid implementation could result in RUB 50 million annual savings 37
From Concept to Reality SMART CITY Today Citizens demanding a modern living environment Energy efficiency and environmental concerns Rapid growth and penetration of ICT Tomorrow Smart city projects in Belgorod and Skolkovo a model for modernisation of smaller Russian cities E-government E-healthcare Smart governance Smart living Traffic management Public transport Smart mobility Smart environment Belgorod Maiden smart city project in Russia Smart lighting system 59,000 smart meters Smart grid. Entertainment Culture and sport Smart buildings Smart grid Smart City interconnected urban environment where citizens lead a fully digitalized lifestyles 38
Mega Events 39
Mega Events APEC Summit 2012 Sochi 2014 Winter Olympics F1 Grand Prix FIFA World Cup 2018 $ 9 billion investment Modernization of Vladivostok hub in the Far East $ 10 billion investment Development of tourism in the Caucasus $ 200 million investment Recurring annual revenue ~ $ 22 billion investment Infrastructure, tourism, global marketing campaign A string of large-scale events that will open up Russia to the world 40
Macro to Micro Analysis 41
Key Strategic Conclusions 1. Mega Trends are connected and intertwined which suggests synergetic opportunities between them 2. It is important to understand the eco-system of the Mega Trend and the elements of the value chain which have most profitability 3. All these trends have global ramifications thereby offering scalable opportunities 4. These forces are changing rapidly and bringing new competencies into play at half the life-cycle speed of the past decade 5. Organisations need Mega Trend champions and teams within their organisation structure to best exploit the opportunities 6. It is important to build a healthy eco-system around your opportunity related to a mega trend as it can be a source of competitive advantage and raise barriers to entry 42
From Macro to Micro: Taking Mega Trends from Information to Strategy Implementation Mega Trend Selected trends that impact your business and markets Macro Micro Analysis of Opportunities and Unmet Needs Sub Trend A sub-layer of trends that has a wide ranging impact Impact on Future Product/ Technology Impact to Your Industry Visualising the roadmap of these critical forces through scenario-building and macro economic forecasts 43