Development of industrial strategies

Development of industrial strategies
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Please, describe the approach to projects on industrial strategies development. How does it differ from other projects in consulting?

Oleg: The structure of projects on the industrial strategy development is the same as for other strategic projects run by the company. As in any strategic project there has to be a particular problem articulated, a detailed project realization planned, an analytical research carried out, a range of alternatives found and criteria for choosing the target development model identified. The project is complete with a final presentation of results to the client and an expert community and a preparation for the final report. The main difference from other strategic projects in consulting is that there are a number of legislative requirements for the document (for the Strategy project), (in accordance with the Federal Law of the Russian Federation on Strategic Planning, which regulates the content of the output document). Moreover, there are requirements by the Ministry of Finance of the Russian Federation that the Strategy project (the target model of industrial development) must have a justification for financing and indication of sources for its implementation. There are additional requirements for the projects on industrial strategy to be discussed and supported by the expert community. Thus, the key difference between projects on the industrial strategies development is the embedded, strictly regulated format of the output document, as well as the need to coordinate the Strategy project with a large number of external stakeholders. When implementing a project, consultants work on two parts of the project. One of them is directly related to working with the customer, where consultants go through all the main stages: setting a goal, marketing analysis of foreign and Russian markets, analysis of the production capacity in Russia, key barriers to industrial development, calculation of financial and economic indicators and creation of industrial development goals tree. The project is accompanied by weekly meetings, discussions of the current results with the customer and conduction of the necessary brainstorming sessions. This way, the process of figuring the alternatives range for the development of the industry is based on a deep examination of what is happening on the market, both from the point of view of consumption and production, as well as on setting goals in a coordinated manner with the customer. The created analytical materials become the base for the formation of a coordinated position on the industrial development in the Ministry at the level of heads of Departments, but are not published. As a result, after all the decisions have been made and discussed with the industry, consultants proceed to the second part of the project — the preparation of the final document in Word format in accordance with the federal law on strategic planning. The Strategy project is concise, it doesn’t contain graphics, includes minimum of analytical information and an appendix — a Roadmap for the industrial development. The amount of detail on the roadmap is determined by the customer, who conducts an internal examination of the possibilities to implement the suggested measures within a certain time frame. In case of a necessity to implement measures in the roadmap, the decisions of which lie within the responsibility of other federal executive authorities, consultants need to prepare additional measures and take part in their discussion with the agencies responsible for them.

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What is the relationship between the industrial strategies and the strategies of companies working in an industry? How should companies consider industrial strategies in their strategies?

Oleg: We should make several things clear. Industrial strategy is a document that primarily determines the position of the government in accordance with the current business landscape. The government’s position is wider than of companies with the main objective being profit. It is rather interested in the growth of the industry and domestic production, by default assuming the need to have an economic effect on the participants as a condition for the appearance of investments in the industry. Thus, any industry strategy is aimed at creating the suitable economic conditions for business development in Russia, taking into account the existing capacity of domestic and foreign markets. Any industrial strategy considers the national interests, which might include advancing the country’s technology, ensuring national security, developing professional competencies, etc. Every industry has it’s own set of upper-level goals. In order to obtain the maximum economic and strategic effect for the government, the target models for the development of an industry are created and evaluated, which consider the economic effect on all the participants, as well as the achievement of the government objectives. Thus, the strategies of an industry’s participants are taken into account when developing an industrial strategy, but their impact on the target model varies significantly. A good example of a significant impact of the company's strategy on the industrial development strategy is the development strategy of PLC “Alrosa” (group of diamond mining companies), which is actually a monopolist in the industry. An opposite example is the medical equipment industry. Domestic production meets the demand by only 20%, most of the suppliers are small and medium-sized businesses. There are practically no large manufacturers in the market, the demand is satisfied by imports from foreign manufacturers. Most companies do not have strategic goals and operate within the operating annual budget. The target model of the industrial development aimed at creating conditions for the emergence of a strong Russian business cannot rely on the strategies of existing suppliers, but takes into account the current business constraints and includes solutions aimed at overcoming them. Based on the above, the impact of the industrial strategy on the strategy of companies varies depending on the current position of the company in the market and the willingness of shareholders of those companies to maximize the opportunities created by the government. As an example of a strong influence of the industrial strategy on the strategies of companies, the development of the pharmaceutical industry can be cited: the government was keen to financially support and develop domestic production, and the companies adjusted their strategic and operational plans (organized full-cycle production, localized certain technologies). These trends show a change in their strategy for the market. According to the mutual influence of the industry strategy and the strategies of companies, taking an active position in the market and using the emerging opportunities, their key conclusion would be to participate in the industrial strategies development. This is necessary in order to understand the vector of development of the industry, the arguments influencing decision-making, and promising medium-term changes in the industry. Based on the information received, companies will be able to consider promising changes in the industry faster and adjust their strategy. Equally, they can influence its adjustment during the industrial strategy development by providing appropriate arguments promptly.

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What are the methods of choosing a model for an industrial development at “SBS Consulting”?

Oleg: SBS Consulting has an extensive and in-depth experience in developing industrial strategies for civilian industries of production. In order to substantiate decisions on the target model of industrial development, the consultants have come up with a methodology in which they classify possible models and establish decision-making criteria. The created methodology allows the customer to make balanced decisions on the choice of the target model, with the government being ready to financially support an industry with limited resources, also considering conditions such as the presence of strong Russian or foreign companies operating in the Russian market and the strategic importance of the industry for the government. As a result, on the one hand, there is a model of free competition in an industry without any restrictions imposed by the government. On the other hand, there is a model of a national champion, practically a monopolist position of the Russian production, and in between there are five intermediate models. Such methods were used in the developments of all industrial strategies in which the company participated, and proved its effectiveness for customers, as it allowed the government to focus its efforts on the development of the target model in a reasonable manner. A popular opinion suggests it is necessary to support any kind of initiative for any industry to grow, but given the limited financial resources, especially if we compare how much is spent on supporting industries in other countries, achieving results would only be possible by focusing all efforts regardless of market conditions. The application of the methodology made it possible to prepare balanced solutions for the development of the medical industry in the Strategy project, in which there are practically no major Russian players or national champions, with the main Russian suppliers being small- and medium-sized businesses. In this industry 80% of all supplies are importers, many of which are global companies. The domestic production takes only just over 20% of the Russian market. Russian businesses compete with companies with turnovers being comparable to the aggregate size of the Russian market. They invest millions of euros annually in developing new products and improving existing ones. Some of their investments in research and development corresponds to the turnover of all Russian companies together. The association, herewith, considers it important for the government to support all Russian suppliers. However, because of the financial support limits, the priority becomes assisting the growth of the areas where the Russian development level corresponds to or exceeds the foreign level, which is the target model. The niches mainly operated by foreign businesses are rather maintained in conditions of free competition, as proposed in the industry strategy project.

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Are there common requirements for the structure of industrial documents?

Oleg: Yes. The 172nd Federal Law "On Strategic Planning in the Russian Federation” regulates the sections that should be in the document. Furthermore, there are additional documental requirements by federal executive authorities for the final version of the industrial strategy. However, there are no requirements for auxiliary analytical materials when developing an industrial strategy, since these documents are used internally to substantiate and discuss positions with the customer. They are usually presented as slides, displaying the analysis carried out with conclusions and recommendations in a structured form. Based on the prepared data, regular conferences with the customer are held, resulting in the data refinement. The requirements for analytical data are standard, it is not regulated by the government. The documents should have a clear structure, be designed in a uniform style and contain analysis and conclusions. Other requirements for documents are usually internal ones, imposed by companies developing industrial strategies.

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What is the result of the project on industrial strategies development?

Oleg: There are two results a consultant can provide to a customer when developing an industrial strategy project. The first result is the high-quality, deeply balanced proposals to the strategy project. They justify the possibility of achieving target results for the industrial development, given the current and potential suppliers, who determine the competition. The proposals also give grounds to the industrial development models and support measures designed in accordance with the requirements of the federal law on strategic planning. The second result is the deep immersion of the customer into reasoning the analytical data. It takes into account the consolidated positions of industry associations and individual positions of suppliers, as well as the practice of industrial development in different countries abroad. This later becomes the basis for the position of an industry in the country's economy. The customer manages the development of the target state of the industry and support measures. With the given opportunities and limitations set by the customer, the consultants calculate the target effects of supporting the industry and its effect on the production development of the country.

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Why should enterprises unite within the framework of industry associations for constructive interaction with the government?

Oleg: Industrial associations are a very powerful tool for forming a targeted vision for the development of the industry and lobbying the interests of national producers, with whom the Ministry of Industry and Trade of the Russian Federation is ready to openly collaborate. From the point of view of industrial development, such associations can solve a huge range of different tasks, from standardization issues to creation of proposals for support measures and the removal of barriers limiting the development of companies. The ability to develop consolidated positions on the development of the industry is a key distinguishing characteristic of associations and is also the reason why the Ministry is ready to actively collaborate with them. Accordingly, the presence of associations contributes to the promotion of national industrial interests to the federal ministries’ level.