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2015 - a year of crisis for Russia?20th of March 2015
This year is promising to be a very difficult year for Russia, a year of crisis says correspondent Oleg Popov of cleaning company Cristanval.
In 2014 the Russian economy faced heavy challenges and partially succumbed to the combined impact of sanctions and oil price drop. Starting in February 2014 through to February 2015 the euro exchange rate increased by 1.6 times and Russia’s inflation rate increased to 11.4 per cent. Hence 2015 is promising to be a very difficult year, a year of crisis.
Experts consider this crisis be similar to the crisis of 1998. In 1998 the cleaning industry in Russia existed in the form of 20-30 companies that performed different one-time cleaning jobs. These companies cleaned the offices of western companies and did post-construction clean-up for governmental properties that were erected by the municipality of Moscow.
Their main task, while engaging in contract relationships, was to explain the meaning of the ambiguous word ‘cleaning’ since it was often confused with ‘clearing’. Since the cleaning industry did not exist yet, these cleaning companies did not even notice the 1998 crisis, and successfully developed.
What we see now is:
• Unfavourable credit terms are common practice
• Workers from Mid-Asia are leaving Russia, returning to their home countries because the ruble is no longer appealing. This means staff are in short supply.
• Customers do not pay on time and unpaid accounts pile up
• The government introduces changes into bookkeeping practices and tax reporting
• Badly trained personnel yield low productivity.
Business owners face a key question – what will happen to business in 2015? Well, let’s review three options: a) corporate dissolution, b) survive to break even while showing annual income equal to 2014, and c) fight ahead and expand, increasing market share.
Corporate dissolution. This option could be considered if an alternative business avenue with higher profitability is already lined up. Low investment in cleaning will also help make this decision. It is wiser to lose the cleaning investment now, then to lose twice as much in six months.
Survive. While considering this option the business owner should be aware that while his company just broke even, competitors could manage to get further ahead. This strategy is well suited for business owners if a) there are not enough funds for expansion, b) sales are consistently low, and c) there is no intention to take on risk. In 2004 I chose this strategy myself and regret it to this day. It took two years of enormous spending and effort to catch up.
Fight ahead. This scenario assumes the highest risk and the most business potential. This is a great opportunity to profit from ‘falling’ competitors’ loss of clientele. The pitfall of this option lies in that if there is not enough assets to expansion, the doomed company will crumble like a house of cards and, most importantly, a reputation that took years to build will become tainted.
We should acknowledge that the golden years of the cleaning industry are gone. Over the next several years, companies will survive. Nevertheless, the cleaning market certainly has tremendous potential. The construction projects that ran through 2013-2014 will have to be worked with. The football World Cup is coming, and of course, new municipal properties such as schools, day care centres, utility services infrastructure, hospitals, etc.