Behold the Root

Behold the root of the crisis: it is important to understand not What will happen to the ruble, but… Who will happen to be with it. It is not unsafe to always be withdrawing, depositing and converting money. The guessing and uncertainty gripping the financial markets, its ups and downs, leave people facing sudden bankruptcy. Devaluation has been launched and only those who make this ruble work in pragmatic ways will survive.

In concert, the experts are recording the start a Russian economic era of acquisitions, bankruptcies and investment project rollbacks on the financial, real estate, automobile, furniture, household appliance and tourism markets. They seem to gleam a solution in state spending cutbacks that are accompanied the financing of export technologies. These measures have already been proposed before the crisis hit. The prerequisites were there for their implementation. Our country’s currency coffers were literally bursting with plenty, including abroad. And then, from the finance minister’s tribune, we heard the reading of oligarchal dreams about Old Testament cows, sleek and fat-fleshed, suddenly growing emaciated in real life, and the economy turned to stone, as if the pharaohs’ pyramids. As it turned out, it is just as insane to labor under the delusion of exports as it is to accept the wisdoms of the Bible’s Joseph. But who are we to judge!

Let us use the telltale experience evoked for us by the Old Testament as an occasion for comparing it to the present economic situation. It is worth noting that seven years before the famine started, Joseph undertook reforms of Egypt’s domestic economic order: he completely halted the export of grain – the only source of state financing. The logic was clear – you will never grow full eating gold! Trade was halted and, obviously, the pharaoh did not get any richer. However, the material underpinnings were set for the survival and development of Egypt’s agriculture. Unfortunately, in today’s Russia, the exact opposite was done – the entire potential was buried on others’ fields of dreams. But we shall not despair!

The experience of antiquity is intriguing because it also shows that any crisis – especially as big a one as we have today – not only leads to major risks but also the urgent need to alter the economic strategy. “The global economic crisis, which is only beginning to unfold, has shown the exhaustion of the Russian economic model that we had for all these years”, Minister Nabiullina admitted. “We were holding on thanks to high oil prices, which more than tripled in just five years, and also thanks to cheap, long-term money that became accessible to Russian banks and enterprises abroad, but which left our financial sector underdeveloped.” From there, the Minister of Economic Development explained: “The biggest challenge facing us today is being able to adapt our economy to lower export revenues.” According to other prominent officials in the Russian Federation, producers should not be sitting around in expectation of any more cheap money: the age of low interest rates has passed together with the strong ruble’s era – and, what is especially telling, just like in the times of Joseph, seven years of trials and tribulations were now in store. What mysticism! There is a chance, however, that today’s crisis will set the conditions for Russia’s energetic movement in favor of a reassessment of the country’s proper course of economic growth, and the development of new goals.

The Odes of Solomon also say: “Each home has one slave – the owner himself.” In other words, today’s oarsmen of business are the businessmen themselves. The country’s large, mid-sized and small companies will all have to overcome the crisis by relying on their own strength, intellect and enthusiasm. It is clear that in order to survive, they will have to intensify production – in other words, they will have to undertake internal company reforms. These have already begun, but not always in a well-considered manner. For example, companies are not only cutting back their staff, but also their spending on marketing and advertising. But what is important is not only to lower one’s expenses, but to take the risks into account, too. For example, by rolling back their advertising and marketing campaigns, companies could potentially lose the market share they had before. Those who did this during the 1998 crisis had to spend a long time restoring their positions on the Russian market. Many, running to the other extreme, tended to set their business strategies in absolute terms. But, as we see, the financial crisis has smashed the theories posed by the highly-paid consultants. The ancient wisdom that there are no universal remedies for all the ailments at once is being confirmed again. Economic experiments and theories may be applicable to a specific socioeconomic environment that has a specific organizational and production level of performance. But specific example of successful business practice should not be applied en masse.

It also appears premature to bury imports amid expectations of the quick recovery of the exports-producing sector of the economy. This is especially true for food and consumer goods. First of all – and for many well-known reasons – no one is waiting for our emergence on the world market. Second of all, Russia is not yet able to fully feed and clothe itself. One only has to look at things like our country’s import-to-export ratio for items such as light industrial goods. Official figures alone put that ratio at five to one. The actual state of affairs is much worse. Whether we like it or not, imports will remain essential to our survival until Russia is able to develop its own production. It appears like that we will have to compromise in our economic approach: we will have to support both producers and imports, if only for the sake of developing a competitive domestic environment in the future,– which, unfortunately, does not look to bright for our exported goods. The future belongs to those who, without leaving their trust to the heavens, pluck up their resolve and overcome the crisis through their own means.

Let us analyze where things stands with imports, which enjoyed excessively strong development in our country in recent years. For if the Russian market was once overheated with petrodollars and imports were being made in an almost-chaotic manner, with people buying everything they could lay our hands on, today, one simply cannot get by without analyzing consumer demand and calculating optimal delivery quantities. There is an obvious need to conduct a critical assessment of the types of goods we import and the prices we pay for them – imports whose economic expedience had, until only very recently, seemed all but assured. Import financing is being complicated by the drop in the ruble’s exchange rate against both the dollar and euro, which in turn demands strict professionalism as far the logistics of deliveries are concerned. The import merchants will have to be unprecedentedly selective about choosing a forwarding agent who is best-able to compensate the losses that may result from exchange rate fluctuations. And this can only be done through the strong organization of and support for those involved in foreign economic activity. It is clear that the era of large-volume purchases and shipments, which were backed by cheap and accessible money, has ceded way to short-term money operations, a period in which both purchases and shipments are made in small amounts. Only a few of the hundreds of self-proclaimed specialists in prompt small-piece (package) freight deliveries actually have the technology required to operate in this field. The only way import merchants can survive the crisis is by turning to the timely and prompt shipment of small parties of goods that have real and live-money demand. This, in the very least, is what the experience of companies operating in the post-default 1990s has shown. But in Russia, the predominant majority of shipping and forwarding companies had always focused on servicing large flows of imports such as electronics, furniture and others, where monopoly volumes ensured the desired profit margins. At the same time, these companies never had to worry about actually developing their own shipment technologies, which require a tremendous proficiency in international transport and commercial law, the optimization of air, sea, rail and road transport routes, and a systematic approach to the configuration of group and individual order shipments. The times are changing, and with them, so is the profile of demand for international logistics services. Interestingly enough, it appears that partners who were able to satisfy clients with their range and quality of services in times of prosperity for all, will be unable to instantly switch to these new conditions and requirements. But this is exactly what the current situation is demanding of Russian importers. Forwarding agents who were honing the efficiency of their business processes during the times of crisis should now be able to display their full competitive advantages. Another international logistics market winner is the group of operators who managed to establish an effective communications system that had a focused market segment: who were able to make a name for themselves, establish contacts, and are conducting outreach and explanatory work with their potential clients on issues concerning international transport and commercial law, as well as the Russian legislation regulating foreign economic activity. Please make sure that your partner – whether it is a forwarding agent or a shipping company – really is able to help you not only survive the crisis but even succeed. And if not… You have not time to waste!

And what can be said about companies that sell clothing and other items of so-called national consumption? After flowing down the current of fast-paced market growth and opening stores at every corner without paying much heed about what types of goods they carried, many of us are now forced to try and limit these pre-crisis costs. We have to look for ways to reduce expensive floor-space rents, eliminate loss-making sales premises, optimize our procurement conditions, limit the range of goods on offer to the bestsellers alone… Or maybe not? There is no single recipe, and each of us will have to make their own vital decisions. But one thing is clear: the battle for consumers is more urgent now than ever before. And in these conditions, the Russian traders might get squeezed out by foreign ones. Foreign companies have vast margins of safety. They have a better handle on production technologies and are more adapt at promoting the most fashionable merchandise. And they have experience in surviving times of crisis. Moreover, the trade center managers have a general tendency to sympathize with the foreigners more. But if our domestic companies assume diligent work, they too will be able to optimize and direct their resources toward future growth. Think of your client! Perhaps you need to adapt yourself to your consumers’ changing needs. Or perhaps the things you do well will be useful to someone else, and the clients who left you because of the crisis will be replaced by other, none-less-loyal ones. And after all, we all know the mentality of Russian consumers – most would much prefer to save on their sausage than go without new shoes for the New Year’s party, or some new knock-out lingerie!

Here is wishing us all optimism, patients and, of course, a little bit of luck in these trying but interesting times!

Valentin Faradjev, General director of EuroTransExpeditsiya,

Marina Vakulenko, Commecrial director of EuroTransExpeditsiya.

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