ANALYSIS OF THE RETAIL TRADE AND AUTOMOTIVE INDUSTRY IN THE RUSSIAN FEDERATION

Introduction In view of the growing concentration of Central European markets, many companies (for example, in the Czech Republic) seek to diversify their activities, especially, towards Eastern Europe and Asia. The Russian Federation (RF) offers many possibilities to Central and Eastern European businesses due to its big size (a market of more than 140 million potential customers), cultural closeness to Central Europe (Slavonic origin of the majority of population, common socialist past etc.), knowledge of the Russian language among Central Europeans, positive image of Central and Eastern European goods and services among Russian customers and many other strengths. An important question for many investors, nevertheless, remains the choice of industry. This article aims to help resolve this problem by analyzing the development of two very dynamic Russian industries, retail trade and the automotive sector, by answering the following research question “What are the main specifi cs of Russian industries?” and by testing one hypothesis:


Introduction
In view of the growing concentration of Central European markets, many companies (for example, in the Czech Republic) seek to diversify their activities, especially, towards Eastern Europe and Asia. The Russian Federation (RF) offers many possibilities to Central and Eastern European businesses due to its big size (a market of more than 140 million potential customers), cultural closeness to Central Europe (Slavonic origin of the majority of population, common socialist past etc.), knowledge of the Russian language among Central Europeans, positive image of Central and Eastern European goods and services among Russian customers and many other strengths. An important question for many investors, nevertheless, remains the choice of industry. This article aims to help resolve this problem by analyzing the development of two very dynamic Russian industries, retail trade and the automotive sector, by answering the following research question "What are the main specifi cs of Russian industries?" and by testing one hypothesis: H1: Retail trade and automobile industry sales show a promising perspective in the decade 2010-2020.

Methods
The article is based on a standard model of industry description, used e.g. in (Machek 2012), consisting of stating and analyzing 1) sales development, 2) top market participants, their origin and concentration and 3) specifics and perspectives of the market. Econometric tools for time series analysis, used where possible, include one-dimensional time series ARIMA(p,q,r) model, and multi-dimensional co-integration regression model, based on (Engel and Granger, 1987) methodology. The principle source of data is the Russian statistical offi ce (Rosstat) and studies of the 'Big Four' (KPMG, PwC, EY and Deloitte). Preliminary research on the topic was presented in Bolotov (2013).

Industry Composition of the Russian Federation
To justify the choice of the two industries, it is necessary to examine the industry composition of the Russian economy. From Appendix 1, it is perceivable that according to the OKVED classifi cation, its main sectors were, in 2012, wholesale and retail trade (ca. 20 %), manufacturing industries (ca. 15 %), real estate activities (ca.
The article examines recent developments in the Russian retail trade and automobile industry as two very dynamic sectors of the Russian economy by stating and forecasting sales trends, presenting the main market participants, shares of business forms and deducing perspectives for Central and Eastern European investors. The article uses a standard methodology for description of industries and econometric models for sales forecasts and analysis. The article's main benefi t for Central and Eastern European managers is its concise and up-to-date description of the both sectors of the Russian economy, which is not easily accessible for foreigners due to language barriers and marketing agency fees.
12 %) and mining and quarrying (ca. 11 %). Compared to the pre-1991 (socialist) period, when manufacturing dominated the economy and there was a lack in choice of consumer goods, it is not diffi cult to deduce that B2C retail trade and automotive industry should be nowadays of importance in the RF. Moreover, due to a historical development different from that in Central Europe, both retail trade and the automotive industry in the RF show certain specifi cs.

Retail trade in the Russian Federation
Machek (2012), based on Dries, Reardon and Swinnen (2004), defi nes three stages in the retail trade development in Central and Eastern Europe: pre-transition (communist / socialist, before 1989/1991), transition ('small privatization', fi rst half of the 1990s) and globalization period (second half of the 1990s and nowadays). The retail trade development in the RF does not, however, exactly fi t this scheme.

Dependence on the Economic Policy of the Government
Retail trade turnover in the RF has been growing at a relatively stable pace for 40 years, with exception of the transition period (1986)(1987)(1988)(1989)(1990)(1991)(1992)(1993)(1994). Socialist times were marked by relatively constant fi gures (similar to Central and Eastern European countries), transition by stagnation and fall, and the 2000s by rapid growth of ca. 22 % per year, which dropped to 4.7 % in the crisis year of 2009 but recovered to 13 % and 15.7 % in 2010 and 2011, attaining ca. 19,082,577.6 million RUB (457,929.8 million EUR) in 2011. Forecasts (with the help of ARIMA(1, 0, 1) model), based on monthly data, 2000-2012, also point to continuous growth and an increase of more than 50 % by 2020 (see Figure 1), which makes the industry lucrative for foreign, among other, Central and Eastern European, investors in the long run. This growth is, however, not primarily caused by intensifying globalization (growing presence of multinational players, which is much lower in Russia, compared with Central and Eastern Europe), but by improvements in the living standard of the population. The degree of the so-called 'Wall-Mart effect' (Igan and Suzuki, 2012), declining prices due to concentration in the retail trade, is also lower, which can be econometrically proven for the Russian retail industry on monthly data, 2000-2012, with the help of the following (co-integration regression) model: where CPI t and TR t are consumer price index and retail turnover, and b 0 , b 1 and e t are the two parameters and errors. According to unit root (Augmented Dickey-Fuller, ADF) tests, there is a long-term relationship between CPI t and TR t at the 10 % significance level (after correction for autocorrelation by the Cochrane-Orcutt method, b 0 = 101.405 (0.155708) and b 1 = −5.74648e-07 (1.51574e-07)) with a quality of the model (R 2 ) of ca. 38.9945 %, which is below 50 %, and with an unclear causality (according to the so-called Granger causality test, there is a both-way dependence between turnover and price level). This questions the signifi cance of the 'Wall-Mart effect' in the RF in the last 12 years.

Market Structure -Forms
The rapid growth of retail trade turnover in the RF in 2000s concerns equally food and non-food products and is marked by a decrease in the share of traditional street vendors and fairs; see

Market Structure -Biggest Companies
A list of the eight (data for TOP10 was not available at the time of elaboration of this article) biggest companies in the Russian retail industry in 2010 is presented in  (Drtina, 2010). The Russian retail market, therefore, remains less saturated and open for foreign companies (however, as often indicated in the daily press, concentration is slowly strengthening over time).

Automotive Industry in the Russian Federation
Offi cial Russian statistics distinguish between four types of vehicles: passenger vehicles (B2C / car), light commercial vehicles, trucks and buses. In this article, the attention is focused on the biggest of the segments, the B2C market, and its development, see Figure. 3.

Volatility, Perspectives and Main Problems
The Russian Ministry of Industry and Trade's (Minpromtorg's) "Strategy for the automobile industry for 2009-2020" (Minpromtorg, 2009), divides the development of the Russian automotive sector into four phases: the growth and stagnation of the 1990s, the lag overcoming and the crisis of the fi rst decade of the 2000s (peaking at 2.8 million sales a year) and the recovery and Ernst and Young's research (Ernst and Young, 2013), however, states that post-crisis recovery in the Russian automotive industry was mainly created by government support and may slow down in coming years. Government support has been reduced following the accession of Russia to the WTO in 2012 (Russia will, however, have a six-year transitional period for the automotive industry). These factors will mostly affect less competitive domestic (traditional) producers whose share in new car sales is decreasing in time and fell down at the level of 25 % in 2008. On the contrary, the share of imports and foreign-investment-based production is rapidly growing (1.4 and 0.6 million new sales in 2008). The Russian car market therefore offers very promising perspectives for foreign companies, especially for Central and Eastern European traditional automotive manufacturers. The automotive industry, however, belongs among the least competitive ones in the Russian economy and inter-nationally (except import turnover), and has recently been surpassed by China, a non-traditional automobile producer, in all important indicators; see Figure 4.

Market Structure -Forms
According to Minpromtorg (2009), the automobile industry in Russia counts ca. 400 companies with 400,000 workers, extending to 4.5 million employees after including all of the industry's suppliers, and with ca. 1 % share in the Russian GDP (a much lower share compared with the retail and wholesale trade). Russian statistics distinguish between four types of companies present in the automotive industry: 1) domestic automobile manufacturing fi rms, 2) fi rms controlled by foreign investors (so-called 'localized producers'), 3) producers of components and 4) importers of foreign production (e.g. in Saint Petersburg and in Vladivostok). The least typical type of company is the component producers, as, according to (Minpromtorg 2009), TNCs specialized in this domain are not yet eager to enter the Russian market on a large scale. The spatial distribution of TNCs is shown in Figure 5. Table 2 and Figure 6 present the biggest Russian automobile producers and the top brands in the Russian car market. It can be seen that in 2011, 49 % of the market was divided among foreign brands (with the Russian  AvtoVAZ / LADA still remaining the absolute leader). This also creates perspectives for the Central and Eastern European business.

Managerial Implications
As can be seen from the fi gures stated above, both retail trade and the automotive industry remain less saturated and concentrated sectors and, therefore, are lucrative for foreign investors. Their main specifi c, in reference to the posed research question, is the high presence of big domestic companies, which creates a specifi c economic structure, compared with the Central European markets. The anticipated development of both sectors (both by the author and by Russian ministries' predictions) also supports hypothesis H1. Gathering detailed information on Russian industries is, nevertheless, not an easy task. There are two main obstacles for doing so: 1) not enough sources in English or in Central European languages (for example, in the Czech Republic, there is only more or less one detailed presentation of the Russian business environment, Semetkovský and Ďuricová, 2013), 2) absence of qualifi ed researchers or business people willing to share their experience with the public. This article, therefore, aids in overcoming these problems.