FOOD PROCESSING INDUSTRY IN NIZHNI NOVGOROD
OBLAST’:
ENTREPRENEURIAL DATA
A. Groudzinski, E. Balabanova, Y. Kudryashov
University of Nizhni Novgorod
Introduction
This paper presents the results of survey that was carried out in September-
October, 1999 in Nizhni Novgorod Oblast’. The first task of the survey was to present
economic, social and technical background of food processing enterprises
functioning. Second task was to make typology of the enterprises because it is a
matter of fact that there are huge differences in technical state and financial
opportunities of the enterprises inside the Region. Finally, based on our data analysis,
we had to make the conclusions about the development of general technology transfer
model.
Main tasks of the entrepreneurial data collection
Collection of entrepreneurial data was one of the major tasks of FITT Project.
The main idea was to collect data from almost all existing enterprises by means of
very detailed questionnaire and then to store it in database to produce statistics.
Statistical analysis provides us with the following information: a) systemic, structural
and entrepreneurial conditions for business in food processing industry, b) the need of
technological improvements, c) conditions for successful technology transfer and
motivation for transfer.
Sampling and methods of data collection
Sources of information about enterprises.
To create the complete sample of entrepreneurial data, the research team needed
the exhaustive list of all enterprises working in the field. We faced the problem that
there is no complete list of all milk and meat-processing enterprises available.
Regional authorities have information only about the enterprises that they directly co-
operate with. It is about 40 big former Soviet enterprises. Regional Statistical Office
also does not possess the exhaustive information because food processing sectors
often co-exist together with another major activity, according to which the particular
enterprise is registered in statistical records, and when food processing is the auxiliary
function (one of the examples – Nizhni Novgorod Car Factory, that owns rather big
specialised meat and milk processing plants. Though, these plants being in their fields
are officially registered as the subsidiaries of the car factory and do not act
independently, being responsible only to their ultimate parent and having neither
separate statistical record nor own tax record). Tax authorities’ information cannot be
accessed by public and used for the project purposes according to Russian law.
The complete list of the enterprises is based upon the data of Regional Sanitary
Control Office where all enterprises must certify the products they produce. The
enterprises were picked out from sanitary control records for the last two years. This
allowed to create the maximum possible list of currently existing enterprises. With the
high probability it is possible to conclude that the addition of the enterprises that are
set aside the selection will not change the general picture.
Complete sampling
Our list is comprised of about 230 enterprises. We consider that it was
necessary to create complete sample for two reasons. 1). It was impossible to create
selective sample because preliminary statistics was too poor. 2). We needed stable
data for statistical analysis, when adding new units into analysis does not change
general picture. It was especially important for methods of classifying the data.
Personal standardised interviewing
This method of data collection was chosen mainly due to the fact that it allows
to minimise number of refusals from participation in our survey (contrary to phone
interview or mailed questionnaires). Second, the personal contacts with managers
were helpful to disseminate information about FITT Project. Third, our interviewers
brought us additional “qualitative” information, such as their impressions of visits,
that were very informative themselves. Also they marked out managers who were
interested in project and pointed out the motivation of their answers and their refusals.
Finally, 216 enterprises have made up the complete list of the enterprises. There
were about 15 refusals or incorrect information about the enterprises. The selective
control of filled questionnaires was made. Data collected were processed by software
package SPSS for Windows 10.0.
1. Background: general characteristics of food processing industry
General observation of the conditions of competition in milk and meat processing
sector in Nizhni Novgorod Oblast’
There are different business strategies of obtaining the competitive position in
the market in current situation in milk and meat processing. They can be roughly
categorised in two big groups: first group of strategies comprises all means of “long-
lasting” business (that is based upon technical and technological improvements,
implementation of new managerial techniques, etc.). This is the strategy of getting
long-term steady growth and sustainable market position, and it can be viewed as the
only desirable and possible one from any point of view – social, economic, political,
etc. Another definition can be given to this kind of strategy – “accumulation of the
advantages”.
Another type of business strategy incorporates the ways of obtaining the
resources from different tricks, being very often illegal, but widely spread and well-
known in all branches of Russian economy. The examples are tax evasion, delays of
wages and salaries to the employees, making “shadow business”, and so forth. The
common feature of those is that they do not contribute to the improvements of the
efficiency of single enterprise. Very often the enterprise can get the competitive
advantage from the unequal treatment of the economic entities in the market
(depending on the size of enterprise, number of employees, etc). The competitive
advantages that are given by these ways can not contribute to a long-term sustainable
growth of the enterprise, but give the temporary chance to take over the rivals for a
while. This creates the “informational vacuum” in the market, making the whole
system foggy and vague, because the main idea in this case is to hide the real size of
business operations. It hinders the planning and forecasting both in the regional scale
and in the scale of single enterprise.
If the second type of business strategy becomes predominant among the
enterprises in the market, it creates the vicious circle – more and more enterprises take
a use of such a methods of competition instead of the “positive” methods described
above. It leads straightforward to the stagnation in the sector and by no means should
be encouraged in any form or any level, even indirectly.
The single enterprise has the choice between getting the competitive power
from either the first source or from the second. In real life, there is no choice of “clear
strategy” (either one), except for some marginal cases, and overwhelming majority of
the enterprises combine both. The degree of each component of this “strategic
development mix” depends upon general incentives that the enterprise gets from the
market. There will be no positive signs of the recovery in food processing industry
until the economic entities tend to develop using the ways of the second group
described above, not the first one, when the “second component” of the corporate
development strategy predominates in the market in general, inspired by the “negative
feedback” that the enterprise gets from the situation. In this case the enterprise that
has the orientation on long-term development and “fair business” (including paying
all the taxes, wages, social payoffs, etc), has to overcome additional pressure (and
what is more important, temptation (!)) imposed by the market.
The ways of competition predominating among the enterprises define the
efficiency of the market in general: the more incentives the enterprise has for getting
the competitive advantages from improvements of its technical and technological
conditions – the healthier and more efficient the market is, the better product and at
lower price consumer can obtain. As study of meat and milk processing sectors of
Nizhni Novgorod food processing suggests, the market of foodstuffs in Nizhni
Novgorod Oblast’ is far from being efficient.
General characteristics of food processing industry in Nizhni Novgorod Oblast’ (milk
and meat processing sectors).
Picture 1shows that the major part of our respondents are managers of meat
processing enterprises.
Picture 1. Spheres of activity
53%
60%
50%
40%
29%
30%
18%
20%
10%
0%
Meat processing Milk Processing Multy activity
enterprise
There is considerable part of multi-activity enterprises. They are milk or meat
processing factories inside agricultural and trade enterprises, poultry farms and
canneries. Another type of multi-activity enterprises is subsidiary agricultural farm of
industrial enterprise (such as Nizhni Novgorod Car Factory). Also there are
consumers co-operatives that provide processing and selling raw materials from
households.
Picture 2. Forms of property
60%
55%
50%
35%
40%
30%
11%
20%
10%
0%
State Privatised Non-state
originally
Considerable part are post-soviet enterprises (Picture 2) – they are either state-
owned, or privatised. On the other hand, more than half of the enterprises is non-state
originally. It is possible to consider it as the first observable results of market reforms
in Russia. However, it does not mean that overall volume of food production have
risen: young enterprises are mainly small-sized, and the volume of production of big
former soviet enterprises had been declined.
Picture 3. Period of existence
32%
35%
28%
30%
25% 18%
20%
12%
15% 10%
10%
5%
0%
up to 1 year 2-5 years 6-10 years 11-50 years over 51
years
As we can see on Picture 3, half of all enterprises were established over the last
five years. And considerable part of them is less of one year old. It is well known that
small business is very dynamic and unstable in the period of take-up. From the one
hand, this picture suggests that it is relatively easy for the new enterprise to enter the
market. From the other hand, our interviewers mentioned that many enterprises have
closed their operations or changed the sphere of activity soon after they have started.
It indicates the difficulties of making stable and growing business in food processing
industry.
Picture 4. Number of employees
50% 44%
45%
40%
35%
30%
25% 20% 16%
20%
15%
10% 10%
10%
5%
0%
up to 20 20-49 50-99 100-299 over 300
Today, food-processing industry is represented by both small-size enterprises
that make up almost half of all enterprises, and big-size enterprises that produce the
major part of production. There is considerable part of “dwarf” enterprises, mainly,
meat processing – sausage and convenience meat foods. As a rule, their technologies
are rather primitive and they work on hand-to-mouth subsistence level.
Picture 5. Average monthly salary
60% 55%
50%
40%
31%
30%
20% 14%
10%
0%
up to 18 USD per month 18 - 35 USD over 35 USD
Picture 5 shows relatively low cost of labour in Russia. Average monthly salary is
close to hand-to-mouth subsistence level. It allows to conclude that with such a low
salary levels labour-saving technologies are not of primary importance for getting the
competitive advantages. However, this fact does not mean that the food processing
enterprises do not need capital-intensive technologies.
Table 1. Markets for selling the production
Market Do not sell but Do not sell and do
today, % wish to enter not wish to enter
the market, % the market, %
(30-31) Nizhni Novgorod 69 16 15
(32-33) Nizhni Novgorod region 68 11 21
(34-35) Other regions (except Moscow) 14 19 66
(36-37) Moscow 12 20 67
(38-39) Outside Russia 1 7 92
As we can see on Table 1, most part of enterprises sell their production on the
internal regional market. About 15 per cent of the enterprises manage to sell to
outside Region and almost nobody sells outside Russia. Taking in account that Nizhni
Novgorod food processing enterprises have narrow products range (it is illustrated
further by the Table 6 of Part 2. The current technical and technological state of food
– processing industry in Nizhni Novgorod region) it is possible to see that there exists
only price competition. Therefore the primary incentive for the enterprise is to reduce
costs of production. Besides, the managers do not seek to expand to the new markets:
they are either not motivated, or have no opportunities to compete outside the Region.
On the other hand, as one manager told us, “I do not worry about my markets; only
volumes of sales are interesting for me”. It reflects the fact that there is a gap between
the real level of competition (that is not high yet, and the managers indicate it
indirectly, as it is illustrated above) and the managers’ estimation of the level of
competition, which they define as very high when answering on direct question about
the competition, but which still enables them to make the remarks as above.
Motivation and attitudes of managers are important factors of enterprises’
development. Picture 6 illustrates “market-oriented”, “technocratic” and “paternalist”
motivation of managers. Only one-third of managers reveal profit-oriented
motivation. The fact that one-forth of managers choose the lowest level of claims (“to
survive” answer) – suggests that situation on many enterprises is disastrous. At the
same time, “paternalistic” orientation is rather spread. These enterprises carry the
heavy burden of the Soviet past. Especially it is typical for the enterprises which are
the only employers in the district. Finally, the ideas of “production for production
itself” (“to increase output” choice) are also widespread: they are linked with the idea
of production security of the Region. Consequently, one can see that food processing
industry is very heterogeneous as in level of enterprise so in structure of managers’
motivation.
Picture 6. The main goal of the enterprises
Other
5%
Survive Profit
24% 32%
Provide people
with work Increase output
17% 22%
Table 2. Bottleneck problems of the enterprises, %
1. Burden of taxes 64
2. Insufficiency of current capital 47
3. High production cost 44
4. Insolvent demand 42
5. Lack of material for processing 37
6. Non-payments 31
7. Out of date equipment 28
8. Severe competition 27
Table 2 illustrates first of all that managers indicate the problems that are
related to price competition (1-4). Problems of high taxes and insolvent demand are
external for enterprises and show unfavourable institutional conditions of their
functioning. The indication of insufficiency of current capital shows that the abilities
of enterprises to keep the business steadily running are very limited. They are
constrained in purchasing the necessary resources so they can not invest in long-term
development projects. Usually it is accompanied by not completely loaded production
capacities, problems with sales and salaries payment delays. That gives the additional
proof that many food processing enterprises function just on the bare subsistence
level.
The problem of high production costs is under sole control of enterprises. But in
the conditions of low solvent demand on the regional market, aggravated by the
limited ability of the majority of the enterprises to utilise the economies of scale and
scope, they can compete only in the segment of low-quality cheap production, saving
on transportation and package costs and on taxes. Another words, the modernisation
activities may create competitive disadvantage situation for enterprise.
More than one-third of managers have indicated the problem of shortages of
raw materials for processing. This is the consequences of decline in agriculture that
occurred over the last decade, and monopoly relationship in the vertical value chain,
where food processing enterprises concentrate more bargaining power than their
suppliers, thus suppressing the backward link in the bargaining process (“cutting the
own root”). Taking into consideration the fact that raw materials constitute the major
part of cost of the final product in food processing, lack of raw materials for
processing gives the strong incentives to the enterprises to use material-saving
technologies and different substitutes.
More than one-forth of managers marked the problems of outdated equipment.
This confirms the importance of FITT Project.
Table 3. Ways to make the enterprise more profitable
1. Tax reduction 56
2. Use of new production equipment 37
3. Development of new products 35
4. Development of new product sales’ channels 34
5. Use of new production technologies 30
6. Reduction of production costs 23
Most part of managers pin their future hopes on tax reduction – the factor that is
out of control of the enterprises. It is noteworthy that the managers picking up the
factors that are within the enterprises’ control are mainly concerned of the production,
not on marketing, management, etc. This confirms the results of general observation
that managers are still carrying the “burden of the Soviet past”, remaining
“technocrats” in their minds and way of acting, and showing the expectations towards
external support.
Picture 7. Attitudes to import
64%
70%
60%
50%
40%
30%
18% 17%
20%
10%
0%
"Import is destructive for "Don't know" "Import gives the positive
domestic producer" stumilatuion"
Managers are rather unanimous in their negative attitudes to import of
production. “Objective” explanation is in their failure in competition with imported
goods, therefore they would like to support “protectionism” towards domestic
producers in state policy. “Subjective” explanation is in their attitudes: they do not
want to compete at all as it was in “good quiet Soviet times”. However, we can see
considerable part of open-minded managers who are ready to compete with foreign
production.
Conclusions on background analysis
1. Modernisation activities can create competitive disadvantage for the
enterprises
The study of the background information has shown that in the current state of
development in food-processing industry in Nizhni Novgorod Oblast’ the
competitive power of the particular enterprise does not completely determined
by its technical and technological level.
In case of Nizhni Novgorod food processing industry there is a strong presence
of the negative incentives (supported by the existence of possibilities) to choose
adverse methods of competition (described in the beginning of the chapter and
referred as the second type of business strategies). It happens partly due to
unfavourable institutional conditions existing so in food processing as in other
branches of industry, partly due to the absence of necessary managerial abilities,
lack of financial means and aiming of the managers to return “back to quiet
Soviet times”, when the world was much more stable. Only the enterprises that
possess ultimate recourses for the development, both managerial and financial,
can to the certain extent withstand the current negative trends, manage to work
up a profit and invest in tomorrow.
2. Unfavourable institutional conditions
Most part of the enterprises is in rather unfavourable conditions due to
institutional infrastructure. It includes existing tax system, macroeconomic
instability, low solvent demand, and non-economic regulation of the majority of
the markets (for example, labour market, market of the raw milk, etc) and
general “rules of the game” (“Soviet heritage”).
Among the main barriers to the improvements in productivity are those that
affect long-term business operations. This is due to the fact that the introduction
of a new technologies is costly and the return on such investments does not
come fast, if any. The business that invests in his future improvement must have
certain guarantees for realisation of its expected benefits. The less guarantees
are – the shorter enterprises’ planning horizons are. This is the common
problem for all Russian industry, and it influences overall performance and
growth of food processing industry heavily.
Another thing is uneven distribution of the bargaining power in the vertical
value chain of food processing. The weakest appears to be the producers of raw
materials, the strongest is the wholesale trade. Food processing is in between,
trying to get more power from the wholesalers.
The absence of necessary market institutions should also be mentioned. Even on
the regional level there is no information about inter-regional import and export
(regional inflows and outflows of the foodstuffs), there is minor monitoring of
the data of current production plans of the existing enterprises, and often the
existing data is not credible.
3. Many small recently established enterprises
When delivering technology transfer model for the Region, we must take into
account the main characteristics of food processing enterprises and people who
manage them. That is, the structure of the industry that had been considerably
changed over the last decade. There are many small enterprises that are rather
agile but they usually have no own recourses for long-time development
projects.
4. Cheap labour force
Considerable share of poor people among the population, growth of
unemployment and salaries delays became usual in Russian economic. To many
enterprises it permits to minimise cost of final product so they can compete even
though the quality of their production is poor. In practical terms it means that
labour-saving technologies are not very interesting for managers.
5. Price competition
Low incomes of population and, consequently, low solvent demand determine
high price sensitivity of the consumers and therefore domination of price
competition. Many enterprises balance just on the bare subsistence level so they
have no resources to development. However, we can see “points of growth”
among the enterprises with high salaries of workers, who have resources for
development and whose managers are open-minded. It leads to necessity of
segmentation enterprises into homogeneous clusters.
Another fact about the competition is that the market in Russia is still
fragmented and separated by the regional borders. There exists the orientation to
inner (regional) market among food processing enterprises. Only big food
producers from Moscow manage to sell the products all around Russia,
competing with local producers. Partly it is explained by the fact that usually the
big enterprise is able to produce the products with longer shelf life than the
small one. This dependence is rather strong among all the products of milk and
meat processing. It is explained by the fact that the big enterprise has more
recourses and normally possesses better technology than the small one.
2. The current technical and technological state of food – processing
industry in Nizhni Novgorod region
2.1. The description of the equipment that is currently used by the Nizhni
Novgorod food-processing enterprises
The equipment that is used on the Russian food processing enterprises can be
grouped into two main groups according to the origin:
Table 4. Origin of the equipment of Russian food-processing enterprises
Origin Number of the Comments
enterprises
Russian & former USSR 274 Out of this number 71 enterprise
specified that the equipment they
possess was produced in Nizhni
Novgorod region
Foreign 89 Distribution of this equipment by
the country of origin:
Germany – 21
Italy – 16
Czech Republic – 12
China – 10
Other – 30
The majority of the enterprises have indicated that they use the equipment that
produced in Russia or in former USSR republics.
Analysing the patterns of the equipment preferences, we should remember, that once
the enterprise have bought the equipment, it becomes to the certain degree dependent
of the supplier. The degree of such a dependence may vary together with the
particular technology, and also with the degree of unification of the given production
unit with the similar units existing on the market: more unified the given unit is – the
less dependent the enterprise of its equipment supplier. That is why it may happen,
that the enterprise still tends to buy the equipment it used to buy though it has the
possibility to buy the new modern equipment and technologies, which doesn’t fit
together with all the rest of the production units. Another problem that may force the
enterprise to stick to the certain brand is the problem of the spare parts and the
possibilities to get the technical support promptly.
The technological modernisation is used to be very slow process due to the fact
that sometimes it requires the complete reconstruction of the production floors,
auxiliary systems etc. As we can see, Russian enterprises are still heavily influenced
by the heritage of the past.
The two-third of Russian enterprises show outdated technologies and equipment
(it is 65,4%, first two groups combined). The last group of the enterprises who
indicate the best technologies and equipment consists of only 4 enterprises, and it
must be taken into account and approached carefully, because such a low number of
the enterprises in this group creates the big statistical error within the group. The
technical conditions of the equipment is an objective characteristics of the enterprise,
so the answers of the managers can be less influenced by their personal feelings about
their enterprise, and it can be viewed as reflecting the reality rather correct.
Picture 8. The state of technologies and equipment on the Russian enterprises
100%
90%
80%
70%
60% 48,1%
50% 32,7%
40%
17,3%
30%
20%
10% 1,9%
0%
Equipment Obsolete equipment Advanced Advanced
physically and with satisfactory equipment with technologies and
technologically technologies traditional equipment
obsolete technologies
In order to see how these data are related to all the rest of the questionnaire, the
conditional distribution analysis was carried out, examining the relationship of the
data above and the answers to other questions, in particular to the questions 2 – 8, 12,
20 – 22, 28, 30 – 39, 40, 48 – 68, 69 – 84, 85 – 86, 96, 128 – 133. It is appeared that
the enterprises who have chosen the second type of answer – obsolete equipment with
satisfactory technologies – have in the majority of cases all the necessary recourses
(sufficient current assets, available production spaces, relations to the local
authorities, etc), but they show the absence of the incentives for further development:
they have strong expectations towards the support from the state, there is a high
orientation on survival rather than development in this group, the managers show
clear “bureaucratic” and “soviet” pattern of the decision – making. This group has
given the smallest number of the positive answers on the questions about their needs
in managerial, marketing, technological and other innovations. The managers of the
enterprises of this group stress the importance of production process, but neglect the
problems of sales and marketing.
Contrary to this group, the enterprise from the first group, that are in accordance
with the information given above seem to be in more difficult situation with
physically and technologically obsolete equipment, show the clear motivation for
development. They also point out the importance of the production, not the sales.
The third group that comprises the enterprises with the advanced equipment and
traditional technologies basically differs from the two first groups. They are directed
towards the market, their the main concern is the sustainable development. The
enterprises of this group point out the problem “how to sell” prior to the problem
“how to produce”.
The fourth group comprises of only four enterprises. As it was said before, it is
difficult to make the clear conclusions about the fourth group due to the statistical
problems.
One important feature of the enterprises of third and fourth group is that they
point out the problem of the high costs of production and in the conditions of low
solvent demand they experience difficulties in competition with obsolete enterprises
that produce cheap products.
2.2 The needs, goals and expectations for modernisation
The need of modernisation as a major task was indicated by 32% of the
respondents, 50% of the respondents consider the modernisation of equipment as one
of the major tasks.
Comparing the answer on this question with the answers on another questions
(question 107) we can see that this data fit the results of the question 107 analysis.
Russian enterprises have low initial technological level, and that explains why
many enterprises consider as their primary task the modernisation of the equipment. It
is important that 8 out of 10 enterprises realise the needs for the technological
modernisation.
Picture 9. The awareness of need of the technological modernisation and new
management forms
60%
50% 43%
50%
40%
32%
30%
14%
20%
10%
0%
The main task Among the other main
issues
Need for tech modernisation
Need for new management forms
The general awareness of the problems of management is not so high in Russia,
than the needs for technological modernisation. Taking into consideration the answers
on the previous question, we can see that in the mind of Russian managers the
problems of technical innovations, from one hand, and managerial innovations from
other hand are still split apart. The existence of this gap is illustrated by the Picture 9.
Table 5. The most important goals of modernisation of the technology and
equipment
Russia, %
1. Quality improvement 62
2. Range of production broadening 56
3. Cheapening of production 44
4. Output increasing 39
5. Better safe keeping 21
6. Labour saving 20
7. Texture improvements 17
Table 6 gives the hints of the high importance of range of products broadening
for Russian enterprises. This is, of course, very low range of products comparing to
the West. It is not surprising that the labour saving is not in the first free choices,
scoring only 20%. This is explained by the low price on labour force as on recourse in
Russia.
Table 6. Number of the enterprises making the product and products range of
the particular enterprises
The number of The average number of
enterprises making the products manufactured
product
Milk and products of non 60 7
skimmed milk
Condensed milk 5 1
Dry milk 6 2
Butter 59 2
Cheese 39 3
Ice cream 9 8
Sausages 94 16
Semi – manufactured meat 96 6
articles
Canned meat 5 1
The importance of the different goals of managerial improvements is illustrated
by the Table 7. The managers were asked to pick up no more than three goals, by
their opinion the most important.
Table 7. Goals of improvements in management
Russia, %
1. Labour productivity 72
2. Positive image of the enterprise 44
3. Social security of workers 44
4. To employ the best workers 36
5. To discipline workers 18
6. Motivation of workers 12
This data reflects the fact that Russian managers are still motivated on the
achievement of the goals that were inherited from the Soviet time – social goals still
have the big importance for the enterprise. Although the increase of labour
productivity goes first, such an important things as “motivation of workers” and
“employment of the best personnel” are far behind from “having the positive image of
the enterprise” and “social security of workers”.
Table 8 depicts the efforts on modernisation undertaken by the enterprises the
last year.
Table 8. Modernisation activities performed during the last year
Russia, %
1. Certification 77
2. Purchasing auxiliary equipment 68
3. Staff training 59
4. Purchasing the equipment for the main production 51
5. Organisational/structural changes 39
6. Purchasing computers and software 33
7. Patenting and licensing -
The certification that scored 77% is the mandatory procedure for any enterprise
since October 01, 1998 with the issue of the Act of State Committee of Standards, so
it cannot be viewed as the real modernisation. The enterprises are still not active to
undertake the major changes that “shake the foundations”, for example, organisational
and structural changes. They still do not consider intangible assets as the mean for
improving the market position.
The majority - 81% of Russian enterprises indicate that they need technical
modernisation. This fits with the questions 107 and 109.
2.3 The needs and the possibilities for technologies’ modernisation
Table 9 represents the kinds of technologies that Nizhni Novgorod food
processing enterprises need at the moment.
Table 9. The most needed technologies
Kind of technology Russia, %
1. Technologies for the production of the main goods 64
2. Package 57
3. Storage and transportation 38
4. Waste utilisation 34
5. Marketing technologies 27
6. Refineries 20
7. Information technologies 18
In order to understand why the case 2 that scored 57%, it is necessary to
remember that package and packaging technologies is very old problem for all
Russian food – processing enterprises. Moreover, the enterprises in their current state
need another qualitative level of packaging. Package makes the products more
expensive, and many enterprises save on package even causing the reduction of
expiry period of the products.
These choices show again that the problem of technical innovations and
managerial, marketing innovations are viewed different (question 110 shows it also):
the former is considered to be more important than the latter. This attitude is the
heritage of the Soviet past, when everything was directed towards the solution of the
problem “how to produce”, but not “how to sell”. The managers show, that they do
not fully realise the fact, that by the correct application of management techniques
they can increase their sales and profit volume without deep modernisation of their
production capacities, and that even in the case of making the hypothetical
“absolutely the best product” with the newest equipment the sufficient demand does
not appear itself and the product is not sold automatically the best.
Concerning the specific production or auxiliary equipment that food processing
enterprises need at present, there is no possibility to trace the clear pattern of the
enterprises’ lack in equipment. The answers regarding this questions are grouped in
two groups: one part of the answers indicate the need of the enterprises in the
complete set of equipment for the production line, and another part of the answers
indicate the need in only some parts of production line.
The number of the enterprises who need the whole production line is 37, out of
which 20 enterprises need the equipment for meat processing, and the rest 17 need the
equipment for milk processing.
All the rest 209 answers indicate the need of the enterprises in certain parts of
the production line. In case of meat processing it is mostly the mixers, sausage fillers,
smoke houses, preparation tables, etc. For milk processing it is cheese-making
equipment, equipment for pasteurisation, separators, dryers, etc. Several answers are
not counted due to the fact that the equipment specified does not belong to meat or
milk processing. The aggregated figures are given in the Table 10.
Table 10. Specific equipment enterprises need at present
Type of equipment Number of enterprises
Packing line 55
Refrigerating equipment 40
Transport (including refrigerating transport) 4
Cutters 26
Miscellaneous lines and equipment of processing milk 41
Miscellaneous equipment for processing meat 80
As one could expect, the main obstacle for Russian enterprises to obtain the
desired equipment is lack of financial means (88%), 11% are in a process of
obtaining, 11% enterprises lack the production spaces.
It is not surprising that 59% of Russian enterprises think that the possibility of
technological renovation depends on themselves. This reflects the fact that they do not
hope to get the help and support from either banks or foreign investors – they are
considered almost absent. Almost half of Russian enterprises show the strong hope
towards the state policies. Other factors are not considered influential. The general
data are represented in the Table 11.
Table 11. To whom the technological renewal depends of
Russia, %
1. Enterprise itself 59
2. State politics 45
3. Local authorities 11
4. Banks 4,2
5. Foreign investors 0,5
2.4 Partnership with foreign enterprises
The co-operation with the foreign partners is a rare thing among the Russian
enterprises – only 23 enterprises have it to different extent.
Table 12. Business relations with foreign partners
Russia, %
Yes, we have the business relations with foreign 11
partners
No, we do not have the business relations with foreign 89
partners
The 10 enterprises have the business relations with the Germany, 5 enterprises
have the co-operation with Netherlands, 4 enterprises have co-operation with Italy.
The total number of the enterprises which have the co-operation with foreign partners
is 23.
Table 13. Foreign partners of the enterprises
Russia, %
1. Producer of the equipment 50,0
2. Representative of the same branch of industry 45,5
3. Other (ingredients supplier, owner, etc) 31,8
The answer “other” includes the co-operation with foreign suppliers of different
ingredients and the trade firms.
Table 14 shows the content of the existing co-operation with the West.
Table 14. The content of co-operation with foreign partners
Percent of the enterprises,
Foreign partner does: who have the co-operation
with foreign enterprises
Supplies the new equipment 34,8
Provides technical support 26,5
Provides personnel training 26,6
Other (floors for lease, raw materials supply, etc) 50,0
It is apparent, that the majority of Russian enterprises almost do not think about
the internalisation of their business (Table 15).
Table 15. What the West can offer to your enterprise
Russia, %
1. Access to new technologies 43
2. Direct investments 19
3. Personnel training 12
4. Partnership with companies 11
5. Internationally supported projects 8
6. Marketing strategy elaboration 7
7. Access to international markets 6
This data show that Russian enterprises almost do not consider some of the
possibilities of obtaining the support, they are too deep in their local problems. The
managers of Russian enterprises do not motivated towards the co-operation with the
West. Although almost every second manager thinks that namely the West can be the
source for the new technologies.
Russian enterprises indicate high activity in the obtaining of the information
from different sources (Table 16).
Table 16. Sources of information for the enterprises
Russia, %
1. Professional publications 69
2. Advertise prospects 66
3. Exhibitions 55
4. Contacts with technologically advanced enterprises 46
5. Advisers 30
6. Contacts with equipment producers 26
7. Contacts with R&D institutions 16
8. Participation in research projects 5
Russian enterprises are relatively passive in use of the sources of information
that are money and time-consuming – participation in the exhibitions, contacts with
equipment producers, contacts with R&D institutions.
2.5 Conclusions
The main conclusions of the current technical and technological state of Nizhni
Novgorod Oblast’ food-processing industry analysis
1. Managers are production-oriented rather than management & marketing-
oriented
Russian managers view the problems of technical and technological
modernisation and the problems of managerial and marketing innovations
separately. They continue to pay much more attention to the production process,
neglecting at the same time the possibilities that are given by the modern
marketing tools, sales control and stimulation techniques, etc. In many respects
they still resemble the best managers of Soviet time – they are “producers” rather
than “sellers”.
2. Strong expectations towards the state support
The majority of Russian managers reveal the strong expectations towards the
support of the state. That is also the heritage of the Soviet past where the state has
provided everything. They do not rely upon the new ways of obtaining support
for their business.
3. Orientation on achievement of social goals
The majority of managers of Russian enterprises also seem not to be rational
purpose-oriented (where the main purpose is the profit of the enterprise). Their
the main concern is the provision of the social security for the workers, good
image of the enterprise, etc. Whey still try to stick to these social or “prestige”
goals even there is the question about the enterprise’s survival.
4. Retention of leading position by accumulating of the advantages
There is an apparent polarisation among all the enterprises. The “positive edge” is
represented by the enterprises who already show positive results of development,
successfully overcoming the troubles of the recent past. They possess ultimate
recourses for development, have necessary managerial skills, take good care of
marketing and have in general open-minded market-oriented attitudes. They are
the leaders in the market.
The opposite “negative edge” is represented by the enterprises on bare
subsistence level, existing due to the possibilities for unfair competition and
unequal treatment of entities in the market. They tend to isolate themselves from
the rest of the world, having no clear marketing and growth strategies. Very often
only weak bankruptcy legislation allows them to continue their operations.
However, the majority of enterprises are somewhere in between.
There exists a clear tendency of further polarisation. The well-off enterprises
show the clear tendency of retention of their leadership, increasingly
accumulating their advantages. It reveals itself in the fact that the better enterprise
is – the more managers are concerned of the new equipment installation, new
management techniques implementation, active search of the new information,
collecting and searching the financial recourses for the renovation, etc. Their
requirements to the equipment are higher than the average, and they are
increasing, and their motivation differs from the managers of Soviet time. At the
same time technically retarded enterprises tend more to function on almost zero
per cent profit margin, fading off slowly.