A Systems View Across Time and Space
From: Russia’s experience of foresight implementation in global value chain research
Industry/sector Product/service group | Current state of the GVC | Factors affecting changes in the structure of the value chain’s segments, sources and distribution of profits in the chain, and opportunities for Russia taking a more favourable position in the chains | Horizontal and industry-specific political initiatives required to promote Russia’s position in the GVC | Prospective state of the GVC (planning horizon until 2025) | ||
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Value chain segments (top down) and Russia’s current place in them | Current main source of economic rent | Prospective main source of economic rent | Value chain segments (top down) and Russia’s prospective place in them | |||
Agriculture Fresh fruit and vegetables | Seed farming Growing (ubiquitous) Crop processing Export Retail (Russia) | Seed selection and new product development Coordinating GVC efficiency Retail network | Trends Increased international competition in seed farming Development of genetic engineering More active international cooperation in food safety, and dealing with insufficient availability of food in the least developed countries Consumer preferences in developed countries shifting in favour of environmentally safe, organic, farm-grown food (eco, bio, etc.) including fruit and vegetables Challenges and threats Further reduction of exporters’, producers’, and retail networks’ profits Russia’s growing reliance on imported seeds Global climate change Development of genetically modified products industry: profits vs. ethics Producers’ growing reliance on subsidies, growing shortages on the domestic market (e.g. introduction of Russian counter sanctions on the EU agricultural products in 2014) Increased competition of retail networks and major producers for leadership in the GVC Radical change of Russia’sagricultural trading partners Need to replenish the domestic market niches which have appeared after the sanctions, while preventing inflation on the consumer market and preserving high food quality standards Windows of opportunity Companies’ integration into the seed selection and new product segments where economic rent is expected to grow Development of Russian seed farming and seed engineering Role of R&D Mainly connected with developing genetically modified products and fertilisers in line with environmental and food safety requirements | Horizontal measures Investment policy and improving business climate Promoting healthy competition Availability of affordable long-term loans Availability of land for agricultural use Trade policy Among other things, countering illegal re-export of embargoed food products into Russia from neighbouring countries, through application of customs procedures, technological regulation, etc. Public administration Continuous implementation of the Food Security Doctrine approved by the presidential decree in 2010 and the National Programme for Development of Agriculture and Regulation of Agricultural Products, Raw Materials, and Food Markets for 2013–2020 Systemic policy to support the agricultural sector Development of a targeted programme to support small farmers; removal of administrative barriers hindering numerous small farmers’ access to Russian and international markets Human capital development policy Availability of skilled personnel (according to agricultural businessmen, Russia desperately lacks skilled personnel capable of applying advanced technologies and introducing advanced business processes in the sector) Availability of rural infrastructure to provide at least a minimum level of comforts S&T and innovation policy Supporting initiatives in the agricultural sector, assisting with commercialisation of innovations Organisation of S&T events for young researchers and inventors Industry-specific initiatives: Maintaining healthy competition under the import substitution policy: providing broad market access to as many Russian and international agricultural producers as possible, including small and medium ones, to ensure adequate supply of agricultural products on the Russian market, and meet consumer demand and preferences Availability of land for agricultural use, simplifying administrative procedures for buying land for agricultural purposes, reducing land prices Availability of affordable long-term loans. | Seed selection and new product development | Seed selection (Russia) Growing (ubiquitous) Crop processing Export Retail |
Transportation services Air transport | Aircraft construction (weak Russian participation) Airports (Russia) Airlines (Russia) IT services (Russia) Travel integrators (Russia) | Leasing Airport services (capital repairs, current maintenance) | Trends Increasing international competition, growing markets, growing passenger and freight traffic, especially in developing countries More active international cooperation through establishment of passenger and cargo transportation alliances Decrease of real ticket costs Growing share of regional and local traffic Volatile economic rent Challenges and threats Ticket prices’ high dependency on fuel price, susceptibility to risks of sharp price increases and reduced demand Currency-related, political, and other risks Negative return oninvestments Shortage of pilots, high costs of pilots’ training and upgrading Loss of air freight market share Windows of opportunity Development of Russian aircraft construction industry, application of competitive advantages in the air freight services segment Role of R&D Optimising computer systems for booking tickets, introducing a unified cargo registration standard, personalisation of services, upgrading aircrafts | Horizontal measures: Investment policy and improving business climate Introducing investment requirements to lessees, operators, and owners of fuel supply facilities (as members of an infrastructural monopoly). Development of tender procedures for handing airports’ ground infrastructure over to operators and investors, and requirements to operators’ investment programmes as grounds for establishing tariffs Approving methodology for government price (tariff) regulation for storage and wing fuelling services in the scope of implementing investment programmes Russian trade policy Duty-free import of aviation fuel for the next 5 years Public administration Continuous implementation of the national programme “Development of the transport system” and the Russian Transport Strategy until 2030 Human capital development policy Development of roadmap to provide adequate supply of flight crew personnel for civil aviation, based on forecasted volumes of passenger and freight traffic Implementing a programme to subsidise retraining and upgrading of flight crews Developing the system of official statistical monitoring of aviation personnel numbers, to support forecasting their dynamics taking into account changes in the structure and size of the aircraft fleet Updating educational solutions for training flight crews, including length of training, in line with the ICAO recommendations and experience of countries with the lowest accident rates S&T and innovation policy Applying innovations which would help to reduce aviation companies’ and the whole industry’s costs and increase profits (e.g. activities of the Civil Aviation Innovation Centrehttp://www.c-ca.ru/ru/company.html) Approving methodology for assessing the state of airports’ runway surfaces in line with the international ASTM standard Participation in international economic integration More active and logical Russian participation in international transport institutions such as International Transport Forum (ITF) and the OECD/ITF Joint Transport Research Committee, Russia-EU Transport Dialogue, Northern Dimension Partnership in transport and logistics area, the WTO, International Civil Aviation Organisation (ICAO), Inland Transport Committee of the United Nations Economic Commission for Europe, the EEU Industry-specific initiatives: Ratification of the Montreal Convention (MC-99), on changing the terms of carriers’ liability Adoption of international e-Freight and e-Cargo standards for electronic registration and tracking of cargos, to make better use of Russia’s transit potential and support the country’s integration into the global transport system Adopting advanced airfreight registration standards for the entire logistical services market Joining forces to implement unified electronic cargo registration standards for all modes of transport Harmonising paperwork associated with freight services provided by different modes of transport Promoting independent suppliers and low-cost carriers | Leasing Airport services (capital repairs, current maintenance) Advertising | Aircraft construction (Russia) Airports (Russia) Airlines (Russia) IT services (Russia) Travel integrators (Russia) |
Electronics Mobile phones | Product development (almost none) Production Packaging (Russia) Export Retail (Russia) | Development of new technologies (operating systems, etc.) Retail networks | Trends Increased international competition in the production segment due to technological development and arrival of new market players International cooperation in production, relocation of production facilities into South-East Asian countries Growing demand for smartphones Challenges and threats Reduced profits of manufacturers due to increased competition Increased production costs due to growing wages Development of personnel and the R&D basis Competition between retailers and major brand-name manufacturers for market domination Windows of opportunity Companies’ integration into mobile phones production Selling R&D results to leading manufacturers Role of R&D Mainly connected with improving phones’ properties, and the materials they are made of | Horizontal measures: Human capital development policy Promoting engineering professions, encouraging young people to acquire professions in IT, design and engineering Providing government support to higher education organisations which train people in the above professions, including extra free places for students Introducing efficient mechanisms to promote academic mobility of students and researchers while preventing “brain drain”; recruiting recognised foreign experts S&T and innovation policy Promoting Russian companies’ activities to create and protect intellectual property Providing them comprehensive support in the licensing and patenting areas Participation in international economic integration Development of international cooperation in the BRICS and EEU frameworks and with other emerging economies; gradual liberalisation of trade policy, simplification of customs and administrative procedures Industry-specific initiatives: Organisation of international events, fairs, fora, conferences, etc. on relevant subjects, accompanied by appropriate PR activities | Development of new technologies (operating systems, etc.) | Product development (Russia) Production Packaging Export Retail (Russia) |
Automobile production Car parts | Raw materials processing Design Pressing Assembly Export (Car parts user) (Russia) Retail (Russia) | Design Harmonious functioning of the value chain Partially from pressing, partially from assembly Supplier’s trademark | Trends High level of production became common. Production is becoming increasingly global. Rent is shifting to more protected segments of the chain. Gradual oligopolisation of the global market. Concentration of economic rent in intangible assets inside specific segments (design, application of new production technologies, brands, marketing). Challenges and threats Increased competition in the low-technology segments of the chain, negatively affecting market situation. Windows of opportunity Changing consumption structure in the transport sector: reduced role of personal transport and growing importance of public transport Role of R&D The role of S&T and innovation factor will grow due to increasing profit rate in the design segment | Horizontal measures: Macroeconomic policy Further extension of the localisation programme to cover car parts manufacturers; development of cluster initiatives in line with the Russian Federation Automobile Industry Development Strategy Until 2020 (ON APPROVAL OF THE RUSSIAN FEDERATION AUTOMOBILE INDUSTRY DEVELOPMENT STRATEGY UNTIL 2020. Executive order of the RF Ministry of Industry and Trade of 23.04.10 319. Predprinimatelskoye Pravo, n.d. (in Russian)) Investment policy and improving business climate Promoting investments into key segments of the value chain such as R&D and design, by providing tax incentives Promoting joint R&D and design programmes Russian trade policy Stronger export orientation; promoting use of Russian raw materials through adoption of mechanisms limiting their import Human capital development policy Training high-technology professionals, implementing upgrading programmes based on on-the-job training at foreign companies S&T and innovation policy Orientation towards medium- and long-term demand: development of fuel supply technologies for multiphase injection Diesels, minimising toxic emissions, all-wheel-drive vehicles, alternative fuels, unmanned vehicles, etc. Industry-specific initiatives: Development of efficient and competitive public transport systems for cities; application of advanced business models to reduce demand for personal cars | Design Supplier’s trade mark | Raw materials processing Design (Russia) Pressing Assembly Export Retail (Russia) |
Financial services Electronic payment systems | Establishing administrative centre Establishing processing centre Establishing client base (issuing banks, equalising banks) Transaction services | Banks’ rent for using payment systems Rent for conducting transactions | Trends Growing international competition: payment systems previously limited to national markets are becoming international Development of e-commerce Development of non-banking financial services Challenges and threats Russian banking sector’s reliance on foreign payment systems Entry of new foreign payment systems in the Russian market Reduced competitiveness of the Russian financial services sector Growing popularity of unofficial payment systems External shocks such as political sanctions and global volatility Windows of opportunity Creation of the national payment system to make the industry more independent Development of online transactions, generating more profits for companies Development of the financial sector makes Russia more attractive to foreign investors Transforming the NPCS into an international payment system Role of R&D Mainly connected with information technologies, to make transactions safer and improve data protection | Horizontal measures: Macroeconomic policy Deeper integration of the NPCS into the Russian economy. Improving political climate and Russia’s positions in the world Investment policy and improving business climate Promoting investments to develop key segments of this chain Human capital development policy Initiatives to improve financial literacy of the population S&T and innovation policy Further strengthening of the intellectual property system and relevant law enforcement practices in line with the relevant challenges; development of ICT Participation in international economic integration Participation, jointly with strategic partners, in the new international financial initiatives such as the New BRICS Development Bank, Asian Infrastructure Investment Bank, and the envisaged Shanghai Cooperation Organisation’s Development Bank. Industry-specific initiatives: Increasing efficiency of the government supervision and control systems (primarily the Central Bank’s ones) over Russian banks’ activities; further implementation of policies aimed at strengthening the banking sector and improving the relevant legislation, among other things taking into account international standards and practices Promoting development of information technologies | Banks’ rent for using payment systems Rent for conducting transactions | Establishing administrative centre (Russia) Establishing processing centre Establishing client base (issuing banks, equalising banks) Transaction services (Russia) |