Studies Eastern European Markets
Eastern European Markets
March 2007

Petja Rinne
Northern Dimension Research Centre
Publication 39

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The Russian market holds a lot of business opportunities especially from the point of view of Finnish enterprises due to its proximity, size and economic development. In Russia most people are living in huge and worn out, mass produced blocks that were built during Soviet times. Due to an urgent need for new quarters, 515,000 homes were completed in Russia in 2005, and the residential construction sector has been growing by about 10% a year for the whole 21st century. The growth in the Russian construction market offers extensive business opportunities for Finnish construction enterprises for many years, but in the long run the changing business environment may hold many unexpected challenges and surprises. With the help of scenario planning, alternative future descriptions can be created for the Russian construction market from the point of view of Finnish companies.

In the scenario workshop on August 23, 2006 in Lappeenranta, experts from the field as well as academic experts and researchers designed alternative scenarios and value networks for the Russian construction market. The objective of the scenarios was to recognise trends, business potential and wild cards in the Russian construction market. The scenarios and value network descriptions concerned both the big Finnish construction companies and SMEs. By recognising market trends and opportunities companies can renew their business models. The value network descriptions in turn help companies to estimate and compare different operation models.

As the result of scenario planning, three alternative scenarios were created: Reconstruction of the St. Petersburg region, Single success stories and Success by specialising. In the Single success stories scenario, operational conditions will improve in the Russian construction market, but the majority of Finnish companies will stay away from the market or not be able to penetrate the market. Thus, the Finnish success in the Russian construction market will only be based on single success stories of some Finnish companies that will be able to utilise certain innovative and special business models. Also, in the Reconstruction of the St. Petersburg region scenario, operational conditions will improve and both the big enterprises and SMEs will be able to better utilise the market situation thanks to, among others, the cooperation of Finnish companies, benefiting from Russian construction norms and co-operation with janitorial service companies. In the Success by specialising scenario. operational conditions in the Russian construction market will not improve, but Finnish SMEs will be able to penetrate the market due to new support systems. In this scenario Finnish property developers will also succeed because their co-operation with Russian partners proves functional. Next, the three scenarios are described with a perspective in the year 2015.

In the scenario workshop three alternative value networks were derived from the scenarios. In the value network from the Reconstruction of the St. Petersburg region scenario, Finnish real estate developers are utilising Finnish design that corresponds with Russian SNIPs. Construction projects are funded by Finno-Russian collaborative projects and some Russian construction companies are affiliated with Finnish enterprises. Finnish SMEs have been able to enter the market by co-operating with Finnish real estate developers and house managing service companies.

In the Single success stories scenario, the Finnish success is based on efficient value chains and the co-operation of Finnish SMEs that are constructing and supplying detached houses. Scandinavian style houses with saunas adapted to Russian preferences is the selling point of Finnish SMEs. In the Success by specialising scenario, the main business for Finnish construction companies is real estate development with Russian subsidiaries or partially own Russian enterprises. The benefits for Finnish enterprises in operating together with Russians are that Russians can take care of bureaucracy, which can be difficult for foreign enterprises, and ensure that sites are located in good places. In addition, with the help of collaboration it is easier to contact Russian customers and find new ones. Finnish SMEs are able to enter the market in this scenario if they form efficient collaborative groups that offer combined subcontracting services for constructors.

According to the scenarios and discussions in the scenario workshop, the biggest opportunities for Finnish enterprises in the construction sector are acquisitions of Russian construction companies, increasing of training in the field of construction in Finland, offering house managing services and employment of new construction forms, namely industrial manufacturing of detached houses and row houses, among others. In the future market the threats for Finnish companies are foreign investments for Russian constructors, the lack of resources and courage of Finnish SMEs’ to enter the market and the incapability of Finnish suppliers to market their high quality products to Russian customers.

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Lappeenranta University of Technology
Northern Dimension Research Centre
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Telefax: +358-5-621 2644

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