Table 1 Dynamic distribution of GVC economic profits by product/service groups: current state and prognosis

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)