NeTour
Business Tourism in Russia
Business tourism in Russia Overview & SWOT analysis 1 Preface This is one of a series of reports produced in the framework of the NETOUR project (Network for Excellence in Tourism through Organizations and Universities in Russia). So far, four reports have been completed: •
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A short introductory report entitled ‘Tourism in Russia’ Cultural Tourism in Russia Nature‐based tourism in Russia This report on Business Tourism in Russia. Over the three‐year course of the NETOUR project, other reports and papers will be produced and published. The four reports provide a contextual background and situational analysis that is essential for the rest of the NETOUR project. The central purpose of NETOUR is curriculum development. With this aim in mind, seven European Union Universities and Business Schools as well as a French network of tourism centres of excellence have been working with eight Russian Universities and Institutions. The goal is to help improve the tourism curricula in Russian universities and schools, to develop student expertise and a more qualified workforce, thereby to increase the effectiveness and efficiency of tourism agencies and businesses and, overall, to develop and sustain the competitiveness of the tourism sector in Russia. The following contributed to the research and drafting of this report: Andrey Apukhtin, Andres Artal‐Tur, Antonio Garcia‐Sanchez, Yuri Ivanov, Olga Klementyeva, Maria del Mar Vazquez‐Mendez, Alla Mazina, Iuliia Nadtochii, Elena Nikonchuk, David Ward‐
Perkins. 2 CONTENTS 1. Introduction .......................................................................................................................... 4 1.1. The characteristics of business tourism .................................................................. 4 1.2. The structure of the report ......................................................................................... 6 2. Overview of the Russian business climate ..................................................................... 7 3. The state of business tourism in Russia today ............................................................ 11 3.1. Promotional campaigns ........................................................................................... 11 3.2. International investment .......................................................................................... 12 3.3. The importance of world-class events ................................................................... 13 3.4. State investment ....................................................................................................... 13 3.5. Outbound business tourism .................................................................................... 14 3.6. Inbound business tourism and origins ................................................................... 14 3.7. The economic impact of business tourism ........................................................... 18 3.8. Employment .............................................................................................................. 20 3.9. MICE tourism ............................................................................................................ 21 3.10. Business tourism in Russia’s major cities ......................................................... 21 3.11. Travel retail ............................................................................................................ 22 3.12. Growth forecasts .................................................................................................. 24 3.13. Domestic business tourism ................................................................................. 25 3.14. The Russian diaspora .......................................................................................... 27 3.15. Outbound business departures .......................................................................... 27 4. SWOT analysis ................................................................................................................. 29 4.1. A working hypothesis ............................................................................................... 29 4.2. Strengths ................................................................................................................... 30 4.3. Mixed strengths and weaknesses .......................................................................... 31 4.4. Weaknesses .............................................................................................................. 34 4.5. Opportunities ............................................................................................................. 37 4.6. Risks ........................................................................................................................... 40 3 1. Introduction 1.1.
The characteristics of business tourism According to the UN World Tourism Organization (hereafter UNWTO), the tourism sector is the cluster of production units in different industries that provide consumption goods and services demanded by visitors. A visitor is a traveller taking a trip to a main destination outside his/her usual environment, for less than a year, for any main purpose (business, leisure or other personal purpose) other than to be employed by a resident entity in the country or place visited. A visitor (domestic, inbound or outbound) is classified as a tourist (or overnight visitor), if his/her trip includes an overnight stay, or as a same‐day visitor (or excursionist) otherwise. A business tourist is an individual whose main purpose for a tourism trip corresponds to the business and professional category (UNWTO Basic glossary). In this report, we will adopt a definition of business tourism that encompasses the following individual segments: conferences and meetings, exhibitions and trade fairs, corporate events, outdoor business events, business (or individual corporate) travels. In the last decade, business tourism has been gaining ground in the global market. UNWTO estimates that business and professional trips represented 15 per cent of the tourism market in 2012, resulting in 145 million of arrivals. This is a dynamic segment of the market, with an annual growth of around 3‐6 per cent in Western Europe in 2000‐2010, and 8‐10 per cent in the case of most dynamic Asian economies (UNWTO, 2013). As an example, The Business Tourism Partnership (2007) estimates a 53 per cent increase in business tourism activities for the UK along the period 1995‐2005, representing 27 per cent of international arrivals, and 28 per cent of international tourism receipts. 4 The behaviour and consumption patterns of business tourists differ from those of their leisure‐and‐holiday counterparts. In general, as the literature has shown that (Swarbroke & Horner, 2001; Davidson & Cope, 2003): -
Their expenditure per person and day is higher than for any other type of tourist. For example, in a recent study Artal, García‐Sánchez & Villena (2011) found that the level of expenditure of business tourists visiting the Spanish Mediterranean coast in 2004‐2009 was three times higher than that of sun and sand visitors. On the other hand, the duration of their stay at destinations is usually shorter than those of leisure tourists, usually between one and three nights. -
Conferences, events, corporate meetings and trade fairs usually take place in major urban centres, whereas incentive travel may also include natural or rural settings. Complementary activities, such as cultural and leisure opportunities offered by the city, are of paramount importance in attracting business tourists. Shopping and food are also relevant to attracting business tourists, and these sectors benefit strongly from visiting business trade. -
In terms of the industry, some hotel chains and international airlines have become specialised in business tourism, serving both budget and luxury segments of the market. Hotels specialised in conferences and conventions, as well as travel agencies and tour operators for incentive packages are good examples of this. -
Business tourism requires a certain level of infrastructure, such as fairs, exhibition centres, auditoriums, convention locations, in particular for larger events. However, as pointed out by previous studies, business tourism also shares infrastructure with other forms of tourism (airports, hotels, restaurants, transport means), becoming a source of income 5 that helps to sustain them. In the early stages of development of a tourism destination, the contribution of business tourism is extremely valuable in justifying the development of the necessary basic infrastructure. -
Finally, business visitors are not usually concentrated in a destination’s high season, and tourists mainly come in the autumn and spring. This pattern may allow destinations to cope with seasonality issues posed by leisure tourism. For all of these reasons, many urban destinations choose to focus on business tourism, as a means of developing a stable, year‐round tourism infrastructure. 1.2.
The structure of the report The present section of the Business Tourism NETOUR Report is devoted to the analysis of the state of Business Tourism Industry in the Russian Federation. After this introduction, the report is structured as follows: First we present the general context, describing the business environment in Russia and its prospects, as well as the current state of the business tourism sector. From this initial evidence, we will conduct a SWOT analysis: We identify some of the main assets at the disposal of Russia for the development of a flourishing business tourism sector (the ‘strengths’) and at gaps or inadequacies that are likely to hinder the development of business travel and events in Russia (the ‘weaknesses’). In both cases, we are looking to the mid‐ and long‐term (five to twenty years). Written in a time of global economic uncertainty, this section cannot consider more than general trends for growth and modernisation of business tourism. Russia is a country with an apparently massive potential for growth and business tourism, but where the speed of development, due to structural changes and political will can only be guessed. 6 At this initial stage, the Business Tourism Group in the NETOUR project seeks to identify areas where the development and improvement of tourism education can make an impact. Pursuing that objective, a significant part of this section covers ‘opportunities’ – the areas where changes can be made and results most likely obtained, and ‘threats’ – the conditions which would prevent these opportunities from coming to fruition. 2. Overview of the Russian business climate Since the fall of the USSR, Russia has tackled a series of deep structural reforms leading to greater integration into the world economy. In 2009, the country suffered its heaviest economic recession since the fall of the Soviet Union, with GDP falling by 7.9%. The recovery was vigorous in 2010‐2011 (+4.3%), stimulated by rising prices of oil products and a boost in domestic demand (consumption and investment). The unfavourable international context generated by the crisis of the Euro area and political uncertainties in Russia led to a deceleration of growth in 2012 (+3.6%). In 2013 it is estimated to be around 1.5%, due to weaknesses in domestic demand for consumption and investment. Average wages per month in 2012 were of €620, after an annual increase of 20%, but with some part of the population staying at the level of €250‐300 (IMF, 2013; ECOSM, 2012). The country is today the 9th major world exporter and 17th major world importer (2011 WTO ranking). Russia is the first world exporter of gas, the second exporter of oil (first in 2012), and the third of aluminium, with 6% of current account surplus to GDP in 2012. Nevertheless, due to the importance of hydrocarbons, minerals and other commodities, the Russian economy remains highly dependent on shifts in the international economic environment, and particularly on price variations in the oil industry. The labour force represents just half of the country’s population, around 70 million people, with 6 million unemployed. The rate of unemployment, which grew as a consequence of the financial crisis of 2008/2009, has returned to a lower level, around 7 8% in 2012. However, distribution of income per capita is highly unbalanced between larger cities and rural areas, and within the cities as well. An indicative statistic is that 1% of the population owns 71 % of the country’s private assets. GDP per capita in ppp units was around €8,000‐12,000 in 2012 (IMF, 2013; INFO, 2012). Russia has large amounts of natural resources: it is the leading world producer of both natural gas and oil, but also one of the principal producers and exporters of diamonds, nickel and platinum. Industry represents around one third of GDP and total employment. The most developed sectors are those of chemistry, metallurgy, mechanical construction and the defence industry. The service sector employs more than 60% of the labour force and generates slightly less than 60% of the GDP. The sheer size of the country in terms of population and geographical area means that the sectors of transport, communications and trade logistics are particularly important. Tourism is an increasingly important source of income too, representing 6% of GDP and 5% of national employment, around 3 million employees, mainly working in the larger cities (IVEX, 2013). Russia is an economy in transition, where market mechanisms have been introduced relatively recently, and the process of liberalisation is still under way. As a result, certain legacies are still present in the society and define the everyday operations of key institutions. This is likely to affect the attitudes and decisions of the business community and therefore of business tourism. In particular, developing the growth and improving the performance of the new small‐
and‐medium private enterprise sector is to a large extent dependent on legal and institutional frameworks that are still under development. The weight of bureaucracy can be significant for small companies in their start‐up phase. When undertaking market research, statistics can be difficult to obtain, indeed may not be available at all, due to budget restrictions faced by the institutions concerned (Burns, 1998). Another issue is the relatively recent development of a liberalised business market, where domestic Russian tourism companies may lack experience. Business training is 8 still in its infancy and critical notions such as ‘service’ and ‘quality’ are not universally understood, even in the world of tourism. These issues are likely to improve, in particular as modern commercial practices are introduced by international chains (hotels, restaurants, cafes, supermarkets). However, in the short term, foreign competition poses a problem for smaller, home‐
grown businesses that do not have the resources and financial means to compete effectively. Beyond these structural obstacles, the main challenge for businesses seeking development is how to take advantage of the growing purchasing power of key segments of Russian society. The number of billionaires is approaching that of the USA. The rapid development of the middle class has triggered an increasing demand for consumer goods in urban areas. In this context, business opportunities are large enough to attract EU companies interested in contributing to the development of the country and main city centres. Russia presents opportunities at the level of the state and federal budget, with massive needs for new infrastructures and communication networks, and at the level of business and consumer markets, both in terms of supply (entrepreneurial projects) and demand (consumer goods) (ICEX, 2012). In terms of visitors, despite the difficulties, including language and visa restrictions, the number of business trips to Russia is constantly growing, from 2.5 million in 2003 to 4.4 million in 2010. Business tourism receipts are estimated at $5,000‐6,000 million in 2010. This represents an average expenditure of $1,500 per trip of business visitors, versus $500‐$600 for those of leisure trips (UNWTO). The growth of international business generates a demand for international business travel and meetings and, in turn, for the infrastructures to support it (hotels and meeting venues). Whatever the economic issues of the near future, Russia is embarked on a process of structural change. In the short term, it generates social inequalities, but in the longer term it will result in the development of a larger and stronger middle class, leading in turn to an increase in the number of entrepreneurial projects from the supply side of 9 the market, and a corresponding development of consumption on the demand side. This process of social change and development will result in a surge of new business tourism opportunities in the near future. In any case, it remains clear that Russia offers huge opportunities for development of business and therefore business tourism in the mid‐terms, this being the focus we will adopt along this report. In this context, adopting a decisive focus on education and skills is an essential component. This is the objective of the NETOUR project for the tourism sector. 10 3. The state of business tourism in Russia today The development of an international tourism sector in Russia is relatively recent, for the reasons described above. Such a process offers many opportunities, but raises enormous challenges as well. In this section we assess the current relative level of development of business tourism in the Russian Federation, and review the challenges and opportunities ahead. 3.1.
Promotional campaigns The Russian government has become concerned about the low levels of inbound and domestic tourism flows in comparison with growing outbound flows that buoyant economic situation has been allowing. There are 44 million outbound tourism trips (taken by 32 million tourists) annually, and just 22 million inbound trips (and the same number of tourism arrivals), many of them from neighbouring former USSR republics for family visits. In response, the government has launched a federal programme to promote Russia’s domestic and inbound tourism flows. Funded by federal and regional budgets as well as private investment, the programme aims to improve travel and tourism infrastructure, as well as funding promotional campaigns. It is the first time that Russia’s local travel and tourism industries have benefited from significant federal funds for the purposes of tourism. A promotional campaign is planned with the aim of improving the image of Russia and of its different regions, aimed both at domestic and inbound tourists1. The campaign aims to demonstrate that Russia has undergone massive changes since the Soviet era and is now a modern and hospitable country. The municipal authorities in Moscow plan to spend $2 million on advertising the city on Facebook, Twitter and Russia’s largest domestic social network VKontakte. Dedicated Facebook pages have been created, with titles such as ‘Cheap trip to Moscow’ and ‘Business trip to Moscow’. The former indicates places where one can obtain various different travel and tourism services and products such as air tickets, lunches and accommodation in Moscow for 1
Source: Euromonitor International, 2012 11 low prices, showing that it is possible to plan a trip to Moscow on a budget. The latter offers information on how to organise a successful business trip to Moscow. Each page currently has around 15,000 likes on Facebook. The goal of the advertising campaign is to achieve 500,000 likes. Almost all regions of Russia have shown commitment in the promotion of their travel and tourism industries. For the period 2011‐2018, the Russian government plans to invest $3 billion of state funds, while $0.9 billion will be invested from regional and municipal budgets, and a further $85 billion is expected to be attracted from private sources. The bulk of these funds will be invested in the development of tourism infrastructure (Euromonitor International, 2012). 3.2.
International investment Concurrently, the operators of many major international hotel chains have been announcing their expansion in the Russian market. Marriott Group, Rezidor SAS, Hilton, plan to expand across the whole span of Russia’s territory. Accor Group announced that it was seeking to open 25 new hotels in Russia by the end of 2016. Accor’s new hotels will be opened under a variety of brands including Ibis, Mercure and Novotel in hotels in Moscow, Samara, Tyumen, Sochi and other cities. At the beginning of 2012, the Russian bank Transstroybank announced that the bank together with Marriott International Inc plans to open 20 new hotels. These plans were announced during the opening of a new Marriott International Inc hotel under the Courtyard brand in Irkutsk. Hilton also is interested in expanding in Russia and plans to increase the number of hotels in its chain by 25 over 2011‐2016. Rezidor SAS Hospitality Group operates seven hotels in Russia under the Radisson brand and further 11 hotels under the Park Inn brand in 10 different Russian cities. The company announced plans to open 50 new hotels in Russia and the former Soviet republics. Kempinski plans to begin operating hotels under its brands in Rostov‐on‐Don, Novosibirsk, Yekaterinburg and Sochi. Luxury hotel brands also are interested in expanding in Russia. For example, the Four Seasons luxury hotel chain is set to open in St Petersburg, at Lion Palace in the historic part of the city. 12 3.3.
The importance of world‐class events A major driver of Russian tourism in the near future is the holding of major international events, including the World University Games in Kazan in 2014, the Winter Olympic Games in Sochi in 2014, and the FIFA World Cup in 2018. The country will require serious preparation in terms of transportation, travel accommodation, tourist safety and security and the quality of the travel and tourism products and services on offer in order to meet the high requirements of the organisers of such events. The implementation of all necessary requirements and the proper management of these events provide an opportunity of creating a solid base for the future development of MICE tourism in Russia, primarily focusing on development of its travel and tourism industry. Improvement of visa bureaucracy is another challenge that Russian economy must face in the development of tourism industry. Plans have already been announced for the lifting of visa restrictions for the FIFA World Cup games, whereby ticker holders would be exempted. 3.4.
State investment The revenues from natural resources (fuels, minerals) have allowed the Russian Government to invest in a number of major transportation projects, undertaking improvements in roads, railways and airports in key regions of Russia. This development of Russia’s transportation infrastructure is crucial for the development of the travel and tourism industry. The increasing availability of modern airports, a safer and more efficient road network and a network of high‐speed trains will provide Russia’s travel and tourism companies with the opportunity to compete with international destinations for the patronage of both foreign and local tourists. An example is the construction of the massive new Marine Facade Passenger Terminal in St Petersburg. A new marine passenger terminal is also planned in Sochi. These passenger terminals will allow Russian ports to serve a higher number of cruise ships 13 and ferries. Other major transportation projects include the high‐speed rail links, already in operation between Moscow and St Petersburg, and under way or planned between Moscow and Vladimir, Nizhniy Novgorod, Kazan and Yekaterinburg by the end of 2017, in advance of the FIFA World Cup. 3.5.
Outbound business tourism Table 1 provides data on outbound business tourism flows, comparing different kinds of tourism. The main destination countries are Germany, Spain, Italy, followed by the Netherlands and the Czech Republic. Market share (business tourism vs. all forms of tourism) varies between 17‐20% (Germany, Belgium, Austria and Slovakia) and 2%‐5% (Romania, Czech Republic, Bulgaria, the Netherlands, Hungary and Latvia). This reflects in part the dominance of certain EU countries as destinations for business tourism, but also that certain countries act as ‘hubs’ for business within the EU. The total figure (10% of outbound trips being business tourism) may actually be understated; the higher cost of obtaining a business visa tends to skew statistics towards leisure tourism. Unsurprisingly, leisure travels dominates; but it is interesting to note the very high proportion of VFR (visiting friends and relatives), which we will also see in inbound tourism statistics. 3.6.
Inbound business tourism and origins Table 2 shows the development of inbound business tourism in Russia. The number of arrivals in the world (to all countries) topped the 1 billion mark in 2012, of which 145 million correspond to business trips, that is to say 14% of total arrivals. The Russian Federation is around the middle of the table, both in absolute number of arrivals, and in terms of the degree of specialisation within the tourism national industry. Some countries such as Kazahastan, Poland, Finland, the UK or China, are particularly successful in attracting business tourists, while other countries are more specialised in leisure travellers. Russia stands in a similar position for business tourism as those of the USA and Japan in relative terms, and closer to China and the USA in absolute number of arrivals. 14 In this context, the future of Russia in attracting an increasing number of business tourists appears promising. Influencing factors include the proximity of Russia to some of the top tourism ‘sending’ countries such as Germany, as well as its close proximity to Eastern European countries, the Baltic Republics, Turkey, the Middle East and China. The case of China is particularly interesting. Apart from the prominent position that China is beginning to occupy in the world economy, the development of a sizeable middle class with disposable income, and its growing openness to business exchange, are resulting in a massive outbound flow of tourists in recent years. Outbound tourism flows from China increased from 26 million of people in 2010 to 57 million in 2012, according to UNWTO statistics. It is expected that, in the short run, the EU countries will constitute the primary source for business tourism growth in Russia. Proximity travel (within the same continent) accounts for 77% of global tourism, and Europe is the continent that travels the most. Four of its countries (Germany, the UK, France, and Italy) are among the eight top spenders in international tourism (UNWTO, 2012). Visits from EU residents have increased in recent years. Around 1.2 million entered Russia from Southern and Western Europe in 2012, out of a total of 23 million, plus another 1.3 million from Northern Europe (1 million from Finland). This barely scratches the surface: outbound EU tourism in 2011 exceeded 510 million trips, accounting for 52% of total world tourism flow. We do not have specific inbound data for Asian tourists entering in Russia, but basing it on global inbound tourism figures from these countries, we can assume that the main sending countries are China, Japan, Korea, Mongolia, and to a lesser extent Australia. 15 Table 1. Number of outbound trips, by main purpose
2012
EU27
Germany
Belgium
Austria
Slovakia
Italy
Lithuania
Estonia
Slovenia
Spain
Latvia
Hungary
Netherlands
Bulgaria
Czech Republic
Romania
Professional,
business
Other
e.g. health,
religion
Visits to
friends
relatives
Holidays,
and leisure,
recreation
37.269.556
47.757.995
2.195.506
3.920.572
1.197.094
10.003.973
631.130
393.980
484.706
12.785.511
440.968
935.566
2.262.696
152.442
1.452.114
413.298
14.607.606
6.472.197
-898.651
913.121
1.800.334
471.638
42.663
103.746
8.118.361
418.176
360.449
192.754
211.425
809.550
266.738
113.513.407
79.093.294
821.637
3.601.624
1.502.857
14.634.056
1.683.513
1.211.527
873.112
42.797.389
2.412.114
8.407.789
12.622.079
1.408.500
11.374.177
10.163.033
Source: Tourism Statistics, Eurostat.
16 212.825.783
114.200.000
9.322.340
13.501.353
3.553.156
39.591.871
1.436.666
1.259.689
3.077.460
71.947.066
1.922.313
8.790.098
31.416.478
1.803.838
19.222.585
5.980.870
Total
Business´
trip share
378.233.035
247.520.000
12.354.494
21.922.200
7.166.228
66.030.233
4.222.947
2.907.860
4.539.023
135.650.000
5.193.571
18.493.902
46.494.007
3.576.205
32.858.426
16.823.939
10%
19%
18%
18%
17%
15%
15%
14%
11%
9%
8%
5%
5%
4%
4%
2%
Table 2. International tourist arrivals by main purpose (‘000s)
2010
World (2012)
Kazahastan
Poland
Finland
United Kingdom
China
USA
Russian Federation
Japan
France
Spain
Turkey
Ukraine
Professional,
business
VFR, health,
religion, etc
Holidays,
leisure,
recreation
Total2
Business´
trip share
144.900
1.368
3.370
1.481
7.298
6.197
5.773
4.432
1.395
9.759
4.375
1.700
987
351.900
3.288
5.000
1.533
10.838
7.548
6.486
15.715
855
10.520
4.777
4.750
19.358
538.200
56
4.100
3.168
11.668
12.382
14.104
2.134
6.362
56.869
43.525
22.061
1.083
1.035.000
4.712
12.470
6.182
29.804
26.127
26.363
22.281
8.612
77.149
52.677
28.511
21.428
14%
29%
27%
24%
24%
24%
22%
20%
16%
13%
8%
6%
5%
Source: UNWTO database.
2
In
2012, USA recorded 67 million arrivals, Russia 25 million, China 57 million, France 83 million, and Turkey 35 million (UNWTO) . 17 3.7.
The economic impact of business tourism Business travel to the Russian Federation has also increased considerably since 2005, as shown in table 3. Data collected by UNWTO from 1996 to 2010 shows that business tourism represented 28% at the beginning of the period (due to low levels of leisure tourism), then dropped to 15%‐20% of total arrivals – a percentage drop but a considerable increase in volume. In 2010, more than 4.4 million tourists came for this purpose (19.9% of total visitors), significantly more than for holidays and leisure (9.6%). Table 3. International arrivals by main purpose (000 units)
1996
2000
Holidays and leisure
1.837
18%
Holidays and leisure
2.598
11%
VFR
5.554
54%
VFR
15.353
73%
Business
2.889
28%
Business
3.218
16%
Total
10.290
100% Total
21.169
100%
2005
2010
Holidays and leisure
2.385
11%
Holidays and leisure
2.134
10%
VFR
16.590
74%
VFR
15.715
70%
Business
3.226
15%
Business
4.432
20%
Total
22.201
100% Total
22.281
100%
Source: UNWTO database
The most recent data we dispose of, in table 4, shows the number of international business arrivals in Russia increasing by 10% year on year, to 5 million trips in 2011, when business trips accounted for 24.8% of total inbound tourism flows. The highest numbers of business trips were from the Ukraine, with 680,000 arrivals, Finland with 574,000 arrivals and Poland with 473,000. 18 Table 4. International arrivals by Purpose of Visit: 2006-2011
'000 trips
Business
Leisure
Total arrivals
2006
2007
2008
2009
2010
2011
4,398.9
15,749.5
20,148.3
4,191.3
16,397.6
20,588.9
4,804.6
16,737.0
21,541.5
4,580.1
14,833.3
19,413.3
4,858.4
16,803.5
21,661.9
5,393.9
16,988.8
22,382.6
Source: Euromonitor International 2012
In addition, business traveller spend is higher than that of leisure visitors, as shown in Figure 1. In Table 3, we observe that 4.4 million business travellers represent $5,095 million of spend, while the 17.8 million travelling for personal purposes (on holidays and leisure & VFR) only spend $3,800 million. In 2009 and 2010, we see a general reduction in spend due to global economic conditions, although business tourism expenditure remains strong. Figure 1. Total Expenditure by main purpose of the international
trip
US$ Mn
6.000
4.000
2.000
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Business and professional
Leisure & Cultural
Source: UNWTO database.
19 From Figure 2 we can see that expenditure for personal purposes has grown, but not to the extent of business tourism. In 1999, the leisure tourist´s spend on entertainment and VFR was about $150 per trip; in 2008 the figure was $247. Over the same period, business tourism expenditure increased from $369 up to $1,200‐1,500. US$
Figure 2. Total Expenditure
per international tourist by main purpose of the trip
1.800
1.650
1.500
1.350
1.200
1.050
900
750
600
450
300
150
0
1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
Business and professional
Leisure & Culture
Source: UNWTO database.
3.8.
Employment The share of the tourism sector in total employment (70 million people) in Russia is around 5%‐6%, representing 4‐5 million workers (both employees and self‐employed). On the basis of that statistic and the data in table 4 we can linearly allocate around 25% to business tourism activities, which would suggest that between 1 million and 1.2 million people were employed in business tourism activities. However, given that expenditure per person in this subsector of tourism is so much higher than in leisure tourism, we can – as a modest estimate – estimate total employment in business tourism at over double: between 2.5 and 3 million jobs. Family visits have a low impact on employment creation in tourism industries, and we have seen earlier that leisure tourists spend around $300‐400 per trip, whereas business tourists represent have an average expenditure of $1,500 to $1,700 per trip. This indicates that our estimates of employment in business tourism are safe. 20 Given that official statistics do not distinguish between employment from leisure and business tourism, this is as close as we can get. Despite the uncertainty, we can with confidence say that tourism employment in Russia is highly dependent on business tourism. 3.9.
MICE tourism Going into more detail, we can observe that the proportion of business arrivals representing MICE tourism increased from 34% in 2010 to 35% in 2011 as shown in table 5. Some major events were held in Russia during 2010 and 2011, and these events attracted thousands of international business tourists. The majority of major international events held in Russia have traditionally take place in Moscow or St Petersburg. However, in recent years other large Russian cities such as Kazan, Yekaterinburg, Kaliningrad, Sochi and Perm have also hosted conferences and exhibitions for Russian and international businesses. Other activities in business tourism accounted for the remaining 3.5 million arrivals in 2011. Table 5. International Business arrivals: MICE penetration 2006-2011
'000 trips
MICE
Other
Total
2006
2007
2008
2009
2010
2011
1,051.0
3,347.9
4,398.9
1,372.6
2,818.6
4,191.3
1,443.0
3,361.5
4,804.6
1,476.4
3,103.7
4,580.1
1,668.1
3,190.3
4,858.4
1,887.8
3,506.0
5,393.9
Source: Euromonitor International 2012
3.10. Business tourism in Russia’s major cities Moscow has traditionally been the most visited city in Russia among inbound tourists, both for business and leisure and this continued into 2011, when four million trips to Moscow were registered in total as shown in table 6. Moscow is a very large city with a well‐
developed transportation network, the three largest Russian airports, a wide range of luxury hotels and many attractions, including world‐famous theatres (such as the Bolshoi) and numerous art galleries and museums (the Tretyakov Gallery, the Moscow Kremlin). 21 Moscow is the financial centre of Russia and the headquarters of most major companies are located in Moscow. The second most visited Russian city is St Petersburg, often referred to as the cultural capital of Russia. During 2011, the number of international arrivals to St Petersburg reached three million. St Petersburg is a city full of historical sites, museums, art galleries and theatres including the Hermitage Museum, St Isaac’s Cathedral, the Peterhof Museum and the Mariinsky Theatre. The city itself is attractive for international visitors, not least because foreign visitors arriving by ferry or cruise ship can stay in St Petersburg for three days without needing a visa. All other Russian cities fall a long way behind these two in their capacity to attract business tourism visitors, as shown in table 6. Table 6. International arrivals by city 2007-2011
'000 trips
2007
2008
2009
2010
2011
St Petersburg
2,113.0
Moscow
4,050.0
Yekaterinburg
106.0
Yaroslavl
237.0
Kostroma
179.5
Vladimir
94.5
Kaliningrad
108.0
Nizhniy Novgorod
55.0
Kazan
106.0
Novosibirsk
116.0
Source: Euromonitor International 2012
2,270.0
4,112.0
127.0
241.0
210.0
105.1
115.0
98.0
117.0
127.0
2,319.0
3,689.0
129.0
236.0
218.0
107.0
92.0
111.0
125.0
134.0
2,500.0
3,740.0
140.0
240.0
244.0
116.0
129.0
119.0
140.0
150.0
2,900.0
4,170.0
151.0
252.0
269.0
124.0
119.0
126.0
168.0
170.0
3.11. Travel retail Table 7 shows that corporate business travel retail increased by 10% in value during 2011. 2011 was only the second year that steady double‐digit growth was recorded in corporate business travel retail. During the global economic crisis and its immediate aftermath, Russian companies began to select their travel retailers more carefully, with many now issuing tenders for their corporate business travel retail contracts. 22 Transport and accommodation are the two categories that represent the bulk of spend. The most popular local destinations for business travellers in the review period remain Moscow, St Petersburg and Kazan. However, Sochi has recorded a rapid increase in business travel due to the preparations for the 2014 Winter Olympic Games. Russia’s leading travel retailers in the luxury travel segment such as MITS and Sodis mainly concentrate on leisure luxury travellers. However, they also offer products for business travellers, the majority of which are connected with MICE tourism. The most dynamic area in terms of luxury business travel retail in Russia is the incentive tourism niche, which is used by companies to motivate and reward staff. Business travel retail in Russia remains dominated by specialist corporate business‐oriented companies which target mainly business travellers, although companies which specialise in leisure travel retail also maintain a significant presence. Avia Centr, Demlink, Davs, VIP Corporate Travel, UniFest Travel, TMC and Continent Express were the largest purely corporate business travel‐oriented players in travel retail in Russia during 2011. The rapid development of online sales in leisure travel retail has also had its influence on corporate business travel retail in 2011. An increasing number of Russian companies now prefer to book air tickets and hotels over the internet. All business travel retail categories recorded internet transactions value sales growth of between 20% and 50% in 2011. However, the rapid development of new technology has also been a limiting influence on growth in corporate business travel retail. Many companies have used the opportunity to engage in video conferencing and web conferencing to reduce expenditure on business trips, towards the end of the review period. 23 Table 7. Travel Retail Corporate Business Sales: Value 2006-2011
RUB million
Accommodation
Car Rental
Cruise
Flight
Package Holiday
Travel Insurance
Other Transport
Other Travel Retail
Travel Retail Corporate
Business Sales
2006
2007
2008
2009
2010
2011
6,008.5
47.6
43,633.2
3,238.0
758.6
41.3
53,727.2
6,789.6
52.6
50,357.5
3,671.0
1,094.6
43.5
62,008.7
7,104.5
56.2
56,640.7
4,296.5
1,559.7
44.4
69,702.1
7,325.9
58.2
61,824.0
4,693.6
1,936.1
46.6
75,884.4
8,001.3
65.7
67,769.7
5,180.7
2,591.8
48.4
83,657.7
8,663.1
75.0
74,395.7
5,856.2
3,149.0
49.6
92,188.6
Source: Euromonitor International 2012
3.12. Growth forecasts Tables 8 and 9 show forecasts for business tourists with an increase in the period 2011-2016
up to 6.7 million arrivals, the main spend being in flight, accommodation, travel insurances
and other transport categories.
Table 8. Forecast international Arrivals by Purpose of Visit: 2011-2016
'000 trips
Business
Leisure
Total arrivals
2011
2012
2013
2014
2015
2016
5,393.9
16,988.8
22,382.6
5,680.5
18,020.3
23,700.8
5,903.3
18,879.3
24,782.5
6,164.4
19,906.4
26,070.8
6,439.3
20,793.9
27,233.2
6,731.6
21,590.5
28,322.1
Source: Euromonitor International 2012
24 Table 9. Forecast Travel Retail Corporate Business Sales: Value 2011-2016
RUB million
Accommodation
Car Rental
Cruise
Flight
Package Holiday
Travel Insurance
Other Transport
Other Travel Retail
Travel Retail Corporate
Business Sales
2011
2012
8,663.1
75.0
74,395.7
5,856.2
3,149.0
49.6
92,188.6
9,312.8
77.8
75,712.3
6,139.4
3,455.0
50.9
94,748.1
2013
2014
2015
2016
10,973.1 12,144.0 13,893.6 15,567.0
81.2
85.3
89.3
93.2
78,039.2 81,424.6 84,522.8 87,511.0
6,497.6 6,858.7 7,213.0 7,551.1
3,766.7 4,085.0 4,421.9 4,769.9
52.5
54.6
57.2
60.2
99,410.4 104,652.1 110,197.8 115,552.5
Source: Euromonitor International 2012
3.13. Domestic business tourism Domestic business trips accounted for 14% of the total number of tourism trips in Russia during 2011 (Table 10). Moscow is the centre of Russian business and MICE tourism at both international and domestic level. The headquarters of most large local and multinational companies are located in Moscow, which is also the political capital of Russia. Moscow is also the main venue for the vast majority of major professional conferences and expositions, mainly due to its well‐developed conference halls. Almost all of Russia’s leading international hotel chains have hotels in Moscow, including Marriott, Ritz‐Carlton, Radisson and others. Other popular business destinations for domestic tourists in Russia include St Petersburg, the Astrakhan Region, Western Siberia and the various regions which constitute Russia’s Far East. All these regions have their own business specialities, including mineral extraction, energy and mechanical engineering.
Sochi has the potential to become a major tourist destination for Russia’s domestic business tourists. Sochi is already popular as a summer resort, but following the development of Sochi as a ski resort in preparation for the 2014 Winter Olympic Games, the city also has the potential to become an attractive destination for business meetings throughout the year. The development of Sochi includes the creation of a modern transportation system, the 25 construction of new hotels and the transformation of the traditional ‘sanatoriums’ into spa hotels. Business tourists mainly arrive by land and rail domestically. Forecasts for the period 2011‐
2016 show sustainable growth over the period, for all forms of transport (Table 11). Table 10. Domestic Tourism by Purpose of Visit and by Mode of Transport: 2006-2011
'000 trips
Business
- Air
- Land
- Rail
- Sea
Leisure
- Air
- Land
- Rail
- Sea
Domestic Tourism
2006
2007
2008
2009
2010
2011
12,799.2
2,776.2
5,252.5
4,741.2
29.3
63,516.2
11,629.3
26,748.9
25,006.7
131.3
76,315.5
13,926.5
3,359.3
5,548.9
4,976.2
42.1
68,103.3
14,346.3
27,702.0
25,909.2
145.8
82,029.8
14,531.7
3,565.9
5,775.4
5,123.4
67.1
78,620.2
16,115.3
31,671.6
30,647.0
186.3
93,151.9
13,308.7
3,164.3
5,211.8
4,839.5
93.1
79,758.9
16,379.9
32,480.6
30,712.3
186.1
93,067.6
13,481.1
3,263.5
5,219.7
4,894.3
103.5
80,568.5
16,563.1
32,811.1
31,004.4
190.0
94,049.5
13,832.1
3,392.5
5,310.4
5,020.3
108.9
82,545.3
16,979.8
33,607.8
31,756.3
201.4
96,377.4
Source: Euromonitor International 2012
Table 11. Forecast Domestic Tourism by Purpose of Visit and by Mode of Transport:
2011-2016
'000 trips
2011
2012
2013
2014
2015
2016
Business
13,832.1 14,191.5 14,647.5 15,229.5 15,987.3 16,876.6
- Air
3,392.5 3,520.6 3,686.0 3,905.3 4,168.8 4,529.0
- Land
5,310.4 5,385.0 5,482.8 5,589.7 5,773.1 5,959.3
- Rail
5,020.3 5,169.8 5,356.5 5,602.6 5,903.0 6,233.4
- Sea
108.9
116.0
122.2
132.0
142.4
154.9
Leisure
82,545.3 84,980.6 88,026.8 92,058.2 96,989.4 102,308.7
- Air
16,979.8 17,479.1 18,104.6 18,945.9 19,975.4 21,215.0
- Land
33,607.8 34,575.4 35,787.2 37,380.1 39,338.5 41,250.0
- Rail
31,756.3 32,709.9 33,908.2 35,490.8 37,417.9 39,569.5
- Sea
201.4
216.2
226.9
241.4
257.6
274.1
Domestic Tourism
96,377.4 99,172.1 102,674.4 107,287.7 112,976.7 119,185.3
Source: Euromonitor International 2012
26 3.14. The Russian diaspora We should mention in passing, the important influence of the Russian diaspora. 25 million Russians live outside the country, mainly in nearby nations. These diaspora networks promote bilateral business, enhancing trade and investment both at home and in the host countries of the expatriates. This is a highly mobile community: around 15 million international tourists arrived in 2011 to Russia for personal purposes other than leisure – mainly for VFR. 3.15. Outbound business departures Table 12 shows that outbound business departures increased by 19% during 2011 as the category continued to recover from the sharp 37% decline registered during 2009. Business trips to foreign destinations are less popular than outbound leisure trips and accounted for only 4% of total outbound trips in 2011, according to official statistics. However, the actual proportion of outbound departures which were for business purposes in 2011 may have been higher as many Russian business people prefer to travel on personal visas when travelling abroad on business. This is due to the simpler and cheaper application process for personal visas in comparison to business visas. MICE outbound departures accounted for 15% of total outbound business trips in Russia during 2011. The number of business trips taken for MICE purposes increased by 21% during each of 2010 and 2011. The strong recovery of the Russian economy from the recession saw real GDP growth of 5% in 2011. This had a positive influence on the local business environment and encouraged Russian companies to expand their spending on MICE tourism, which is considered to be an important investment for the future development of many companies. Popular MICE tourism destinations such as Germany and France are becoming increasingly interested in hosting business travel visitors from Russia and the travel and tourism stakeholders in these countries are expected to actively engage in promotional campaigns targeting Russian businesses during the forecast period. 27 Table 12. Business Departures: MICE Penetration 2006-2011
'000 trips
2006
2007
2008
2009
2010
2011
MICE
362.3
252.1
Other
1,977.8 1,910.2
Total
2,340.0 2,162.3
Source: Euromonitor International 2012
213.8
1,835.5
2,049.3
156.1
1,135.8
1,292.0
188.4
1,156.0
1,344.4
232.2
1,369.1
1,601.3
Table 13. Forecast Departures by Purpose of Visit: 2011-2016
'000 trips
2011
2012
2013
2014
2015
2016
Business
1,601.3 1,826.8
Leisure
39,246.2 42,957.0
Total departures
40,847.5 44,783.8
Source: Euromonitor International 2012
2,027.3
46,471.1
48,498.4
2,215.1
49,509.9
51,725.0
2,377.5
52,488.0
54,865.4
2,585.2
55,740.9
58,326.1
28 4. SWOT analysis 4.1.
A working hypothesis The SWOT analysis is structured according to the 18 indicators for the successful development of business tourism in a destination identified in the introduction to the report. In this section, we identify those indicators where Russia would appear to have evident strengths (even though there may be considerable room for improvement); those that are ‘mixed’, i.e. where there are clearly both strengths and weaknesses: and those where Russia primarily has weaknesses. We then identify some of the most evident opportunities for the coming decades. We label the final section ‘risks’ rather than ‘threats’, as it mainly covers possible limitations and delays that would prevent the Russian Federation from fulfilling its potential. These hypothesis will be confirmed or modified through further studies. 29 4.2.
Strengths According to the 18 indicators, the following stand out: Integration with global business. Russia is seen by the international business community as becoming increasingly integrated into international business and tourism networks. In particular, membership of international tourism institutions will ensure a progressive improvement of the legal frameworks and regulations regarding tourism. Political will. The importance of tourism as an engine for development is being increasingly recognised by the federal, state, and local governments. The political world has clearly understood the potential benefits of hosting high profile international events. The 2012 APEC meeting, the Sochi 2014 Olympic Games, and the 2018 FIFA Championship are positioning Russia in international media, capturing people´s attention. In addition, all these events fuel the development of infrastructures and public works in the main urban centres of the country (IVEX, 2013; Euromonitor International, 2012). There is evidence that local governments have understood the high potential return on investment in infrastructure for business tourism. This is certainly the case in Moscow and Saint Petersburg; and post‐Olympic plans for Sochi include numerous references to business events. Geographic proximity to major business markets. Although Russia is on the eastern edge of the European economic powerhouse, it occupies a strategic world position. In the short term, the Federation benefits from proximity to the CIS countries, to ex‐Soviet eastern Europe and to Turkey, all zones with high growth potential. In addition, seasonality patterns are similar to other CIS and Northern EU countries, facilitating winter and summer visits, and short business trips. In the longer term, Russia can position itself as a hub connecting China and India with Europe and the Middle East. This could make Russia an attractive option for certain international business meetings, for example. 30 Flight networks. International business activity is highly dependent on the quality of air travel, and Russia’s networks are rapidly improving. In particular, there are good flight connections with most major EU and world cities, although these international links are mostly restricted to Moscow and St. Petersburg. New infrastructures are projected at this respect for FIFA 2018 Championship in main urban centres of the country, and Sochi boasts a brand new, large‐scale airport. Within Russia, the flight networks remain competitive due to the extensive usage of domestic airlines by Russian travellers. The leading national company Aeroflot reported $250 million net profit, 11 million passengers, and 17,500 employees in 2012. State of technology. This is already highly dependent on external providers, although expertise in terms of tourism technology is an advantage of Russian technicians, with a good capacity of learning and transferring knowledge to industry. However, there is no doubt that investments have to be numerous in technological infrastructures for tourism, both at the level of facilities, and at the level of promotion and marketing for consumers. 4.3.
Mixed strengths and weaknesses The business climate. Whatever the short term developments, Russia is seen as a market with high mid‐term and long‐term potential, including for tourism and business tourism. This international confidence is shown by the significant investment of major hotel chains. On the other hand, for the moment, the investment is primarily in Moscow and St.Petersburg. On the negative side, Russia is not an easy market, either for small domestic companies or for smaller companies wishing to enter the market. A business climate cannot be measured entirely through large corporations. Sector expertise. Cities attract tourism through their sector expertise developed by their businesses and universities: one city may specialise in the business events in the medical 31 field (for example Montpellier in France), another in the fashion and textile business (for example Milan) In Russia, major industries such as gas and oil are undoubtedly drivers of business tourism, and certain cities have a specific industrial or scientific focus. However, few have used this to develop a significant MICE market alongside the individual and private visits. At this point, consequently, we would consider this to be an underlying potential rather than a strength. Consumer and domestic business tourism businesses. A strong domestic market is a good basis for the development of international tourism. Domestic tourism in Russia represents 32 million trips per year. It has traditionally been high‐volume and low‐cost (major resorts and VFR), but this is beginning to change thanks to an increasingly demanding middle class. It is likely that the domestic business tourism sector will become increasingly important over the coming years, with the emergence of mid‐market hotel chains, business centres and trade events. This, in turn, will make the Russian Federation more attractive to foreign SMEs as a place to do business. 44 million trips by Russians overseas are pushing business networks too, with markets of Turkey, Egypt and the EU, as well as USA reciprocally gaining interest in visiting Russia, both for leisure and business purposes. On the other hand, outside of Saint Petersburg and Moscow, consumer tourism is patchy. The assets of most Russian cities and regions have been little developed for tourism, and facilities and service can be rudimentary. Tourist attractivity (cultural assets, tourism services, etc.). Russia potentially offers a wide range of destinations, with different characteristics and climate – most of them still to be developed. There is the potential to combine business tourism with other forms of tourism: cultural tourism in Saint Petersburg; well‐being or sports tourism in Sochi; and so on. There are cultural and natural assets throughout Russia that are as yet unexploited. However, we have considered this as a mixed strength and weakness, as the infrastructures and business tourism services are still not in place in most Russia cities, and this will remain the case for a number of years. 32 Local skills and services. Russia boasts a highly literate and numerate workforce. Technical and scientific excellence is a legacy from the past. However, this is only a moderate strength: business training is a weakness, and business tourism professionals may have difficulty sourcing certain key skills. This is likely to change, as Russia has a strong network of high quality educational institutes, with the capacity to adapt to new business needs. 33 4.4.
Weaknesses This section is based, to a great extent, on publications that summarise the views of foreign businesspeople. (INFO, 2013; ECOSM, 2012), out of which we have taken common negative comments: Road infrastuctures. Although air travel is, by and large, to international standards, road infrastructures are still in serious need of development, including to better connect EU networks with those of Russia. Most EU merchandise is carried by road, and improvements to road networks will be a key factor in consolidating business links with Russia. Better road connections between all major cities, including between Moscow and St Petersburg, are also a key requirement. Weather conditions in parts of Russia can also hamper transport, whether by road or by sea. Internal accessibility. Russian cities, Moscow in particular, have an international reputation for difficulty of access – from the airports and within the city. Whether or not this is deserved, it raises concerns for organisers of events. Public investment includes plans for improving traffic conditions in cities (€163,000 million for Moscow), developing new transport infrastructure (roads, trains), and renew urban infrastructures. Building new cities and continuing to develop the existing ones is another objective of the Russian government (€34,000 million of initial budget), as well as consolidating foreign trade by privatization of ports and supporting vessel construction industry (with investments of around €15,000 million in 2012). Despite these investments, we still classify this as a weakness. Travel within cities outside of Moscow and Saint Petersburg can be extremely slow and frustrating, and represent a serious handicap to business tourism development. Availability and quality of meetings venues. The number and variety of meetings venues is growing in Moscow and Saint Petersburg, but are not yet perceived internationally as offering sufficient range and quality. In other cities, the supply is weak to non‐existent. Sochi is now an exception, following the developments for the 2014 winter games. In any case this is a pivotal issue to be deal with if 34 Russia aspires to positioning in MICE tourism and business tourism market in general. Level of administrative constraints. Customs activities and operations can sometimes be slow, even arbitrary, with delays due technical barriers, certifications and other problems. The efficiency of administrative proceedings has been improved in recent years, and should continue to do so the future. Administrative aspects still dominate the Russian economy, with the extension of product certifications for foreign products (GOST norms), the need of national and local state permissions to enter a market, and a heavy control of economic activities by the authorities. Lack of an efficient court of arbitrage for solving controversies between companies can discourage both domestic and foreign operators. More specifically for business travel and tourism, the obtaining of visas and the administrative controls on entry into the country are important issues. These processes are, for the moment are a significant limitation on business contacts between Russia and the rest of the world. The conditions and speed of obtaining visas has improved with mutual diplomatic recognition of previous restricted countries. In addition, Russia aims to liberalise tourism visa requirements with Asian countries and ease the process with EU partners. Administrative problems are not limited to the public sector. For example, it is not easy to select the appropriate financial institution to receive payments and ensure access to the traditional commercial instruments present in a market economy (letter of credit, confirming, insurances). The development of the financial sector still lags behind its EU counterparts, with just 50% of commercial operations being intermediated by financial institutions, which just take part in 10% of investments of Russian‐based firms. Language and culture. Although close to Europe, the traveller will find much that is unfamiliar, starting with the Cyrillic script that makes it difficult to read even simple signs. Many Russians do not speak English and few business travellers from outside the CIS or eastern Europe understand Russian. Many key documents and websites will be solely in Russian, and it is usual for a business traveller to require an interpreter or translator in the course of a business trip. 35 There are also cultural differences: ways of planning and undertaking business activities. This might be simply in the way the working agenda for the stay in Russia is set up (the number of contacts and interviews per day, duration of every contact, preferred days of the week, hours of the day), necessity of embarking into trade missions/trade fairs, capacity of identifying the correct distribution channel for the product, etc. Local skills. Finding available information on the potential partners and clients in the Russian market is not an easy task. The concentration of some industries in a few hands appears to be another problem, giving rise to local monopolies that may render negotiation difficult. Other industries, on the other hand, are so atomised as to make identification of the right partner a problem. The skill level of local entrepreneurs is improving in recent times, although still underdeveloped in some industries. In general transition to market economy and their business tools is higher than in other former Soviet Union territories, but the model of doing business still shows many traits of the recent country history. Lack of agility and efficiency of local business associations in helping EU companies when establishing in the city. Although the work force is generally highly qualified in technical fields, business skills leave room for improvement, including accounting, business administration and marketing. Some foreign firms organise their own training courses, on the basis of knowledge transfer from other branches of the firm. In the tourism sector, the growing presence of multinational hotel chains is gradually raising the standards of the industry, in terms of good practice, productivity and service. 36 4.5.
Opportunities Russia is a strategic market for EU and other Western and Eastern companies, given its economic and demographic potential. The 9th major world market in terms of potential consumers, with a population of 143 million that has an increasing purchasing power, it would be surprising if there were not a growing presence of foreign companies in the Russian market. Medium‐sized urban centres, with ½ to 1 million inhabitants, are also expected to grow in the coming years, opening up further opportunities for business travel. Principal cities of the country, those above 1 million residents, will continue growing too. If we can assume, over the next five years, that the administrative barriers for enterprise will continue to be lowered, that the skill level of tourism professionals will continue to rise and that service quality will increasingly become the norm, it is reasonable to assume that the executives of foreign companies of all sizes will also visit the Russian federation in ever greater numbers, and that Russia will increasingly be seen as an attractive venue for the hosting of business events. In this case, alongside Russia’s economic growth and developing business activity, there will be massive opportunities for business tourism professionals at all levels: -
For the destinations to develop an attractive offer: ease of access; quality transport, well‐priced, quality accommodation solutions; and so on. -
For hotel chains of all categories and, as the SME market evolves, also for independent operators (small local hotels, B&Bs, restaurants, etc.) -
For the creation of events and meetings venues for closer and more distant sending countries. -
For business events organisers and for the many professionals that business events employ, in logistics, catering, communication and so on. 37 In the short term, the growth of business tourism will remain concentrated in Moscow and Saint Petersburg. Sochi is an interesting case to follow: can this considerably smaller city with its attractive assets make significant inroads into the business tourism market? Opportunities for the development of business tourism in Russia are multiple, and will be developed in the case studies of Saint Petersburg and Sochi. They will largely fall into one of the following three opportunity areas: Opportunity area 1: integration Russia benefits from joint participation in EU funded programs directed to improve life and economic conditions in the country, leading to the establishment of lasting links between both neighbouring areas in terms of business and cooperation. All these issues ensure an increasing presence of business travellers in Russia, particularly in St. Petersburg and Moscow because of its proximity to main EU centres (no more than a 5‐hour flight). Russia maintains privileged commercial relations with the former USSR regions and satellite countries, now in the CIS group or in the same Eastern EU area. It ensures business visits to the capital and St. Petersburg, as well as to other developing new cities inside the country. Moreover, Russia has recently strengthened the economic integration with the ex‐Soviet republics by promoting a Custom Union with Belarus and Kazakhstan. Becoming member of the World Trade Organization (WTO) in 2012 would enable to Russia the progressive reduction of commercial and investment barriers, facilitating in this way the entrance of foreign products and the establishment of new companies. It is estimated than average trade barriers would be reduced in 10% to 7.8% because of the WTO tariff harmonization framework. Opportunity area 2: niche There is an opportunity to develop business tourism and MICE travels in cooperation with other tourist products (city tourism, ecotourism, cultural tourism, student visits, university exchanges and cooperation with EU counterparts, etc). Special interest tours: White nights in St. Petersburg, health treatments in Black Sea, 38 gastronomy travels, MICE tourism (fairs, events, corporate meetings, thematic conferences, environmental and scientific meetings), students travels, historical tours, etc. Distinguished (high‐level) events could be fostered. St. Petersburg is gaining presence in high‐class events and parties, music festivals, and recreation activities for businessmen, both domestic and overseas. Sochi could become sports and medical destination inside Russia, by taking profit from promotion opportunities arriving from Olympics and FIFA events. Intra‐regional travel with EU neighbours could be increased for leisure, business, study and MICE. Russia shares boundaries with the most important source region of world tourists, the EU, with more than 500 million of outbound flows in 2011. The abundance of natural resources that could foster luxury industry in main Russian cities (diamonds and other precious stones, long tradition in jewellery; natural fur industry, antiquities, artwork markets). This is an important characteristic in fostering business tourism in urban environments. Opportunity area 3: geographic In terms of business tourism, Russia could benefit from its size, therefore its geographic proximity to a wide range of potential partner markets. For example: Saint Petersburg already positions itself as a Baltic city, with high volumes of trade with its Baltic neighbours, a market that has responded positively to the city’s progressive improvements in tourism infrastructure. Cities close to the Black Sea could develop a business tourism offer for the Middle East, the Caucasus and the Eastern Mediterranean. A hindrance today is the lack of regular direct flights. In the longer term, cities and regions could specifically target central Europe, South Asia and the Far East. 39 4.6.
Risks Risks and barriers are identified throughout this report. In summary: -
Accommodation. For a rich and sustainable business tourism market, development of an attractive mid‐price and budget accommodation offer is essential. This is highly dependent on local entrepreneurs (including B&B providers), therefore on business incentives and constraints for SMEs. Risk level: high -
Availability and quality of meetings venues. There is a risk that conference and trade fair venues are developed as political showpieces rather than with a realistic eye to the market. Again, it is likely that the middle of the market (smaller events) is ignored in the big cities, and that second‐tier cities are left behind. Risk level: high -
Cost of business tourism. Russia is seen as one of the most expensive places in the world to do business. There is a risk that investment will continue to focus on the top end of the market, and that too little is done to encourage grass‐roots investment that could broaden the business tourism market in Moscow and Saint Petersburg and begin to develop it in other cities. Risk level: high -
Attractivity of the destinations. This is not an issue in Saint Petersburg, Moscow or Sochi. However, it will be important to develop a quality of visit and service in other cities that are interested in fostering business tourism, otherwise their development as business tourism destinations could be very slow. Risk level: high -
Local skills relevant to business tourism. This is a critical issue that the NETOUR project aims to address. Risk level: high to moderate. 40 -
Level of administrative constraints. Progress has been slow in easing administrative constraints on doing business, in particular for foreign business people, the primary example being visa restrictions, which are a significant discouragement to business travel. Despite gradual improvements, Russia could miss out on business tourism opportunities for this reason, over the next five years. Risk level: moderate -
Political will. Development projects are highly concentrated in Moscow and Saint Petersburg. Other cities with longer‐term potential may have to ‘wait their turn’. In addition, tourism development is mainly focused on high profile events, in particular sporting events, rather than in the development of business tourism infrastructure and services. Risk level: moderate -
Sustained economic growth. High dependence on exports of raw materials and on the conditions of associated international markets for these merchandises puts the Russian economy at some risk, over the longer term. Changes in market conditions could affect national economy, hampering tourism development projects. Risk level: moderate to low 41 References
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